More thoughts on Incoterms and International Sales Contracts

Incoterms can be great.  Incoterms do all sorts of things, like allocating risk of loss and responsibilities for paying insurance and freight.  They were recently amended by the International Chamber of Commerce.  But Incoterms are conventions or standards.  Actually, they are suggestions.  They are not law.  They can’t be law because the buyer and seller can massage them to fit their particular contract.  Often parties don’t even use Incoterms as intended or even at all.  Thus, we can say that when a contract between foreign seller/exporter and the importer of record specifies that foreign seller/exporter pays for freight and insurance, and if those charges are set out separately in the invoice and elsewhere to CBP's satifsaction, then the importer of record can deduct those charges and make sure it doesn’t pay duty on them regardless of what the Incoterms say.  

Take HQ 547826 for example, a 2002 ruling issued by CBP.  Here we have an instance where the parties wrote on their contract:  FOB Miami, which CBP complained was nonsensical.  But it isn't nonsensical if the parties knew what they meant.  That’s what a contract is. The meeting of the minds.  Who cares who else understands, right?  Well, it matters if an outside arbiter, like CBP or a court, has to resolve a contractual dispute between the parties.  In this ruling, FOB Miami didn’t make sense because traditionally FOB means that the exporter/seller’s responsibilities end at the foreign port, but it was clear that the exporter/seller paid all the freight and insurance costs all the way to the US port.  Because the importer supplied sufficient, itemized backup to support this, CBP ignored the FOB and allowed the importer to deduct those costs from the transaction value.