In practical terms, the United Nations Convention on Contracts for the International Sale of Goods (the “Convention” or “CISG”) is a binding agreement or contract between nations. It establishes a set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different countries. By adopting it, a nation undertakes to the other nations that have adopted it that it will treat the Convention’s rules as part of its law.
1. What is the purpose of the CISG?
The purpose of the CISG is to make it easier and more economical to buy and sell raw materials, commodities and manufactured goods in international commerce. Without the Convention, there is greater room for uncertainty and disputes. The sales law of one country often differs from that of another. In international transactions, there is often doubt about which nation’s law controls. Where there is doubt about the rules that apply, the parties cannot be sure of their rights and obligations. Such uncertainty breeds inefficiency and ill will.
The CISG contains rules governing the making and interpretation of international contracts for the sale of goods. It also provides rules governing obligations and remedies of the parties to such transactions.
The CISG does not deprive sellers and buyers of the freedom to mold their contracts to their specifications. Generally, you are free to modify the rules established by the Convention or to agree that the Convention is not to apply at all.
2. When does the CISG come into play?
The kind of contract and where the parties have their relevant places of business determine the applicability of the CISG.
The CISG does not apply to contracts to provide services alone. Generally, it does not apply to sales of goods bought for personal, family or household use. For example, ordinarily, it would not apply to the sale of a camera or clothing to a foreign tourist. It does not apply to sales of ships, vessels, or aircraft or to contracts covering the sale of electricity.
Unless your contract says that the CISG will not apply or the parties otherwise so indicate, the CISG can apply automatically to your transactions with foreign buyers or suppliers of raw materials, commodities and manufactured goods. The CISG governs contracts for the sale of goods that are between sellers and buyers whose relevant places of business are in different countries that have made the CISG part of their law, called “Contracting States.” This is the general rule in the United States. There are circumstances where it may not apply to such transactions. It can also govern other transactions. For example, the U.S. has made an Article 95 declaration. Such a declaration excludes Article 1(1)(b). In Contracting States that have not made an Article 95 declaration, under Article 1(1)(b) the CISG will apply when rules of private international law, that is, choice-of-law rules, lead to the application of the law of a Contracting State.