International trade involves the exchange of goods and services across borders, essentially import and export transactions. It is premised on the reality that no country is self-sufficient and countries respectively have comparative advantage on production and supply of different goods and services. Exportation of goods helps a country earn Foreign Exchange (FX) that can be used to finance future transactions and shore up its foreign reserves.
The downturn in oil prices coupled with the reduced crude production (due to incessant militant attacks) in the Niger Delta region has led to lower revenues for the government which has impacted negatively on the economy. Consequently, the case for diversification of the economy from its over dependence on oil cannot be more strident at this time, and increased focus on the export space is now compelling, given historic half- hearted attempts at export promotion. Nigerian Exportation Promotion Council (NEPC), the agency charged with facilitating non–oil exports and providing liaison support to exporters and intending exporters, would seem to have its job cut out for it.
It is very important to understand the key legal and regulatory issues around the export contracting process. Exportation of goods involves elements of procurement or production of the export product, processing (if applicable), the logistics of the export itself and finance- each with their contracts/documentation- which needs to be drafted, reviewed and negotiated. This is in order to canvass the duties and obligations of the parties to the export business. This article highlights the export contracting process, emphasising necessary legal safeguards to prospective exporters.
Export Sale Contracts (ESC): The Essentials
Export transactions have variant legal issues arising from the formation, provisions and enforcement of contracts. In recognition of these realities and of the basic importance of an orderly ESC, it is key to take note of certain safeguard provisions that every ESC should contain. These elements include:
a) Transfer of Interest: Goods in transit are exposed to all kinds of risk such as physical damage or loss, deterioration, acts of God etc. Therefore ascertaining the party who bears the risk and at what time the risk burden passes, is essential. The property in goods are transferred to the buyer at such time as the parties to the contract intend, provided the goods are not unascertained-sections 16 & 17 Sales of Goods Act 1893. In Emaphil Ltd v. Odili  4 NWLR (Pt. 67), 919 the Court while emphasizing the sanctity of contract held that "...property and risk were intended to pass to the respondent on delivery of goods, it follows that until goods are delivered the property and risk rested with the appellants." In order to determine when property in goods are transferred (without second guesses), parties sometimes choose from any of the favourable international trade terms (Incoterms 1990) published by the International Chamber of Commerce (ICC) and commonly used in both international and domestic trade contracts. The most commonly used are Free on Board (FOB), Cost Insurance and Freight (CIF), Cost and Freight (CF) and Ex Works (EXW). These Incoterms are favourable to an exporter (depending on the type of goods and cargo used) because the responsibility of all costs and charges are mutually shared between the parties. This clause is important because the risk bearing responsibilities are clear and understood before shipment.
b) Payment Terms: Most exporters are at risk of buyers failing to pay, because they cannot guarantee the credit worthiness of buyers. Also, the buyers, in most cases, are not willing to part with cash until assured of delivery of the goods. There are various advance mode of payments in protecting an exporter such as Letters of Credit (LOC), advance payments, bankers' acceptance, medium-term capital goods financing, countertrade etc. The most commonly used and secure method is the LOC- it involves a letter of guarantee from the buyers' foreign bank guaranteeing payment to an exporter provided the goods meet the terms, conditions and standards stated in the LOC. In Malas (Hamzeh) & Sons v. British Imex Industries Ltd  2QB 127, Lord Justice Jenkins held that "...an elaborate commercial system had been built up on the footing that a confirmed letter of credit constituted a bargain between the banker and the vendor of the goods, which imposed upon the banker an absolute obligation to pay, irrespective of any dispute there might be between the parties whether or not the goods were up to contract." It therefore becomes evident that LOC's guarantees payment of an exporter and eliminates risk of dealing with an unknown buyer. In addition to the foregoing, it is paramount that all exporters open a domiciliary account with a bank in Nigeria where all proceeds will be paid as directed by the NEPC's Non-Oil Export Guidelines.
c) Pricing and Foreign Exchange Risk: Export invoices are usually made in foreign currency, and as an effect exporters are exposed to exchange rate fluctuations leaving them with a lesser currency value and vice versa. For instance, the frequent fluctuations in the value of the Naira to foreign currencies has left unprotected traders with a lesser amount than expected. Thus, it is advisable that exporters price the goods in FX equivalent of the Naira in order to edge against any currency fluctuation. This is because FX is relatively stable compared to the Naira which can be affected by devaluation.
d) Insurance Cover: Exportation of goods are prone to a lot of unforeseen circumstances, such as damages, delay, loss in transit, currency fluctuations, political or economic instability in the buyer's or seller's country. Insurance therefore seeks to protect these risks all at once. It is therefore crucial that parties agree on the need for insurance, which is covered under a marine insurance. The seller can agree to joint payment or by a party, or be governed by an Incoterm also covering that aspect of insurance. The end result is that the assured becomes entitled to payments upon the occurrence of the event insured against. This clause seeks to ensure that goods are protected and all fears of risk are put to rest.
e) Intellectual Property Right (IPR) Protection: IPR protection is very vital to exporters with protectable assets because these rights are territorial- which means that IPR within a country are independent of any such rights existing in other countries. Thus exporters should ensure that their IPR are registered in the export destination to prevent infringement. Section 19(1) of the Patents and Designs Act 1971 provides that "Registration of an industrial design confers upon the registered owner the right to preclude any other person from reproducing, importing, selling or holding such a product or utilising for commercial purposes." Accordingly IPR prevents third Parties from, reproducing exporting, importing, selling, copying etc. without the permission of the exporter. In addition, in Zeneca Ltd v. Jagal Pharma Ltd  ALL FWLR (Pt. 387), 954, per Galinje J.C.A held that "A trade mark, when registered, will entitle the proprietor to sue or institute an action for any infringement of the trade mark. Registration entitles the proprietor to the exclusive use of the trade mark and also right to sue for passing off the goods of the proprietor." Registration also gives the exporter the advantage in pricing, marketing, accessing new markets (through licensing, franchising etc.) and strengthening its position in the export market.
f) Governing/Applicable Law: The need for an applicable law in an ESC is essential because parties are from different territories/jurisdictions and the contents and effects of each country's laws may apply differently. This means in the event of a dispute, the terms of the contract become important and any battle on the applicable law to the contract is avoided. It is therefore imperative that parties agree on the governing law of their contract. If parties cannot agree on using either country's laws, a neutral law commonly used in both countries can be chosen, English Law is a popular example.
g) Dispute Settlement: Most disputes in the international trade arise due to the quality of the goods, delayed shipment or non-shipment etc. and these disputes are majorly settled through Alternative Dispute Resolution (ADR) (Arbitration, Mediation, Negotiation etc.) or litigation. This clause affords an exporter the opportunity to decide on how best to resolve disputes. In Beluonwu v. O.K. Isokariai & Sons  7 NWLR (Pt 358), 593, the Court in emphasising the importance of an ADR clause in contracts held that "Where there is a provision in a contract for reference of dispute to arbitration the High Court has power to stay proceedings pending reference to arbitration." ADR is e most efficient because they are quick, less time consuming, exposes the real reason rather than the ostensible reason for the disagreement and offers prospects of continuance of the relationship. Exporters are therefore urged to include an ADR clause in ESCs for the most efficient means of settling their dispute.
In dealing with ESCs, standard form contracts can also be used, but it is advisable that a lawyer peruses such contracts, to ensure they are fit for purpose (are bespoke), guarantee fairness and clear expression of the parties' intentions. All contracts must also be precise, comprehensive and executed properly by parties. Overall, an ESC seeks to assure measurable results and maximum protection all at once. Getting this right could serve as a starting point in achieving Nigeria's diversification goal for gaining economic momentum.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.