Pandora's Box for sales to non-EU customers

A recurring and significant issue at present in International Trade and in particular the realm of Customs law and practice is the issue of the "ex-works" problem. What at first glance seems clear-cut and uncomplicated can actually turn out to be quite murky and complex.

What is an "ex works" sale?

In an "ex-works" sale, the seller delivers when the goods are placed at the disposal of the buyer at the seller's premises or another named place (for example at a factory or warehouse). The goods are not cleared for export and are not located on any collecting vehicle (though loading can be negotiated in the contract of sale). This is essentially the minimum obligation for the seller as the buyer has to bear all costs and risks involved in transporting the goods from the seller's premises.

Seemingly, this sort of transaction is ideal for a seller, minimum obligations plus a sale of goods. However, problems may arise if the purchaser is based outside of the EU.

What are the potential issues involved?

An exporter is defined in the Implementing Regulations (Article 788(1)) as:

"The person on whose behalf the export declaration is made and who is the owner of the goods or has a similar right of disposal over them at the time when the declaration is accepted."

At first glance, this appears fairly straightforward and in line with contractual requirements and commercial risks under the Incoterms. However, where the ownership or right of disposal over goods belongs to a party established outside of the EU, Article 788 (2) states that:

"The Exporter shall be considered to be the contracting party established in the EU".

What does this mean?

In a transaction between an EU-based seller and a non-EU based purchaser, although the contractual responsibility for filing the export declaration lies with the purchaser on "ex-works" terms, the customs declaration (and export controls if applicable) will be the seller's responsibility. Therefore, the risk of customs compliance and export licence control will rest with the exporter who does not have access to the paperwork involved. An added twist/complication is that the "EU ex-works seller" is obliged as the "exporter" under the Customs Trader (Accounts & Records) Regulations 1995 to keep the customs records for a period of four years post-export.

The seller in this scenario will want to have an overview of the export process because the export licence will be granted in his name but this goes against the very ethos of an "ex-works sale".

What can sellers do?

There are a number of solutions to this uncomfortable situation:

Firstly, seek out an EU-based subsidiary of the non-EU purchaser.

If the purchaser based outside of the EU has an EU-based subsidiary, the seller can give control over the export process to the EU-based subsidiary of the purchaser. This would need to be made clear in the contract of sale between the purchaser and the seller. Furthermore, if the item in question falls within the "dual-use" regime (products that have both a civilian and a military use, ranging from various nuclear materials to binoculars) the seller should also state in the contract of sale that the item is subject to export control when exported from the EU.

Secondly, include all necessary information on the invoice

If the purchaser does not have an EU-based subsidiary, the seller should include clearly on the invoice to the purchaser, all the necessary export licence information for the goods in question. Furthermore, the invoice should make it clear that the information must be included on the export declaration. The inclusion of all the information is also advisable in the contract of sale with the non-EU party, such as in the form of a warranty given by the purchaser.

Thirdly, switch to alternative Incoterms that do recognise you are the exporter and that you will be responsible for arranging the export declaration and compliance with export controls. This way you will have control of those matters which are deemed to be your responsabily anyway.

For any further information please visit our website at: www.internationaltradesolutions.co.uk or call us on 01905 619229.