Global Policy Volume 10 . Issue 3 .

September 2019
421

Dos and Don’ts in Export Transactions: A

Practitioner’s Guide for SMEs?
Claudia Oberle and Lars Ponterlitschek

Special Section Article

Swiss Export Risk Insurance SERV

Abstract
Being successful in export business transactions constitutes a great challenge for export newcomers. Entering a new foreign
market, export newcomers must take into consideration many additional risks and pitfalls even if they are world-class in their
technology field in their domestic market. Besides the knowledge of common risks and pitfalls, experience in international
project management is a must!Good contracts are to be carefully drafted, especially key project execution issues like
timeschedules, starting point of deadlines, scope of supplies and services and its limits. If this is properly done, contracts may
be used like a checklist for project execution and help the exporter to provide evidence on their contractual performance at
any stage.Besides project execution topics, financial risk management has to be taken into account. Although – very hopefully
- not needed, legal / legal enforcement issues need to be drafted equally cautiously. Small and medium-sized companies are
well advised to organize expertise and support, if needed.

As an open economy, Switzerland exports goods and ser-
vices globally to a wide variety of sector: consumer
goods, services, and capital goods. Even if the products
or services and thus the logistics requirements can be
very different, there are nevertheless common risks and
pitfalls within the worldwide export that are to be
avoided by export newcomers wherever possible. Different
cultural attitudes and perceptions can make negotiations
very difficult. It has become common knowledge
that many Asians communicate more indirectly and it can
be considered rude to say ‘no’. In the Arab Gulf states,
similar behaviour can be observed in some cases. Whereas
in Switzerland or in nearby countries, such as Austria and
Germany, honesty and a direct approach are important, in
many other regions the matter is often approached rather
indirectly and the person comes before the matter. To
avoid surprises, it is highly recommended to become
familiar with the customs of the customer country in
advance.
Drafting, negotiating, and concluding
international contracts
It may be tempting for two new business parties (foreign
buyer and exporter), who get along well and are negotiating
a promising business transaction, to seal a deal with a hand-
shake. However, the expectations of the parties may be very
different (among other things, because of the different cul-
tural background). If problems arise in the handling of the
business transaction, no written proof of the facts of the
agreement is available.
To be on the safe side, it is very recommended to draft
contracts precisely in such a way that the contract
provides a guide on how to complete important project
steps during execution and at any stage evidence is avail-
able to prove adequate contract performance (a require-
ment for good project management). For this purpose,
clearly formulated key project execution issues such as
scope of delivery and services, exclusion of goods and
services, technical requirements, testing and acceptance
procedures, and warranty obligations make transaction
processes much easier and avoid conflicts that may very
quickly become unexpected cost traps and, for small- and
middle-sized companies, might even pose a threat to their
existence.
Project execution issues in export contracts
Clear definitions of deliveries and services are indispensable for
a successful export transaction. Before signing a contract, the
exporter should consider the following questions: What is in-
cluded in the scope of supply and services? What is excluded from
the scope of supply and services? Where are interfaces to the
customer, to other suppliers and/or third parties? Who takes the
responsibility for these interfaces?
Furthermore, it may make a big difference whether the
exporter has to supply an entire system designed to fulfill a
specific purpose (contractual ‘fitness for purpose’ require-
ment) or an individual stand-alone product.
In addition to a clear scope of delivery and services, the
delivery schedule and, in case of delays, the handling and
limitation of legal consequences of delay and warranties
may be essential for a successful transaction: When do the
delivery/performance periods start? Are all export/import
formalities fulfilled? What happens in the event of a delay?
In the case of liquidated damages for delay have to be paid

Global Policy (2019) 10:3 doi: 10.1111/1758-5899.12731 © 2019 University of Durham and John Wiley & Sons, Ltd.
 Claudia Oberle and Lars Ponterlitschek
422
by the exporter, are these limited to a defined percentage
of the contract price and solely payable for the delayed
part?
Other questions include: What does the exporter guaran-
tee? Repair or replacement of the product only, as repairs
may quickly become very expensive in case a defective pro-
duct has to be dismantled, transported to the home country
of the exporter, re-imported, and delivered to the foreign
buyer’s place? How long does the warranty period last?
What if the product is never delivered or put into service for
reasons not in the responsibility of the exporter? Does the
contract contain a latest clause that prevents an ‘evergreen’
warranty? Does the whole warranty period extend with
replacement or only for the replacement of the defective
part (which is preferable)?
In order to avoid later time-consuming and expensive dis-
putes on performance, project execution issues together
with professional project management are crucial for a suc-
cessful project in a foreign country.
Financial risk management in export transactions
State-owned ECAs like SERV (Swiss Export Risk Insurance)
promote and support commercial export transactions of the
export industry of their home country. In exceptional cases,
they are active in development projects in low-income
countries, for example, project Tulila in South Tanzania
insured by SERV which enabled electrification of a region by
means of a river hydro power facility.
The prerequisite for SERV cover is that the exporter sub-
mitting the application is domiciled in Switzerland and that
the export transaction has an appropriate Swiss value-added
component. Insurable risks are essentially political, transfer,
and del credere risks of the foreign buyer. SERV cannot
hedge legal risks and risks in connection with changes in
exchange rates and the transport of goods because the pri-
vate financial and insurance markets provide sufficient and
comprehensive instruments for this purpose (Knittlmayer
and Ponterlitschek, 2018).
The foreign buyer’s main contractual duty is to pay the
exporter adequately and timely as defined in the contract.
To make sure that the cash flow is secured, it is of high
importance to define objective and independent payment
documents independent of approvals and the will of a for-
eign buyer. A collateral like a letter of credit, shipping docu-
ments issued by a freight forwarder like a bill of lading, an
airway bill (in case of airfreight) or an inspection certificate
issued by a reputable international inspection company can
help to avoid payment delays.
Legal and legal enforcement issues in export
transactions
Unforeseen circumstances are always to be expected, there-
fore it is advisable to consider in advance what may happen
in the event of an unplanned suspension, premature termi-
nation, or Force Majeure event: Will the customer compen-
sate the exporter for the work already ordered and
© 2019 University of Durham and John Wiley & Sons, Ltd.
completed? Is it possible for the buyer to terminate the con-
tract by its sole discretion? Who bears the financial conse-
quences of suspension and/or termination? Is the exporter’s
liability clearly limited? Are consequential and indirect dam-
ages clearly excluded, such as loss of production and loss of
profits at the buyer’s plant? What happens if third parties
have an indemnity claim against the exporter? What is
defined as a Force Majeure or Hardship event for reasons
beyond the exporter’s control which prevents timely perfor-
mance? Are unforeseeable sanctions, blockades, strikes, and
the like also justified reasons for delay?
The principle of freedom of contract allows the parties to
choose the applicable law. ‘However, the parties’ freedom of
contract is not absolute. In all legal systems, there are
mandatory rules that limit the parties’ autonomy in order to
prevent the exercise of their contractual freedom from con-
flicting with other interests at stake (Bortolotti, 2013). It is
not easy to find a neutral applicable law. Very understand-
ably, no contracting party wishes to accept the law of the
other party. In most cases, the local law of the party is not
known to the company at all, regardless of language prob-
lems in foreign legal systems.
In many cases, parties seek to solve these problems by
resorting to what they believe is a neutral law, although
they often confuse political neutrality with suitability of the
chosen law for international transactions. This seems to be
particularly true for Swiss law (Schwenzer and Hachem,
2009). Thus, it is advisable to agree on the so-called Vienna
Convention on the International Sale of Goods (CISG: United
Convention on International Contracts for the Sale of Goods)
in the case that the parties are member states of the Con-
vention. The Convention offers harmonised sales law for
international contracts between companies for supply and
works contracts. By now, 89 states are member of the CISG.
All industrial states except the UK are member states.
In addition, selecting an adequate dispute resolution
mechanism is crucial in the event of major conflicts: media-
tion is becoming more common as dispute resolution
method because it has two major advantages. First, it is
inexpensive and second it aims for a win-win situation
enabling the parties in dispute to keep their relationship
after the dispute and keep on doing business together. Arbi-
tration is quite common, because it is suitable in cases
where confidentiality is a major concern. The downside of
arbitration proceedings is their high costs. Ordinary court
proceedings depend highly on their country and the out-
come is not always very predictable. Depending on the pro-
cedural law, legal proceedings may be public and violate
the parties’ reputation in the public.
Transport mode, customs, and tax issues like value added
tax (VAT) can be very tricky as well: when the risk is trans-
ferred, make sure that the import/customs clearance is car-
ried out as far as possible by the customer in order to avoid
problems with delays and keeping deadlines (Incoterms
C-clauses are preferable to D-clauses as per Incoterms 2010).
For countries with a value-added tax system, one should
consider in advance who has to pay the import sales tax
and if a VAT registration is necessary. If materials must be
Global Policy (2019) 10:3
 Export Transactions
stored in a transit country for a longer period of time, VAT
may be become due. If employees from the exporter are to
be working at a foreign buyer’s site, tax situation needs to
be clarified in order to avoid double taxation.
Special contract types
Special care must be taken with EPC contracts (engineering
– procurement – construction), so-called turnkey projects.
Turnkey in the sense of the FIDIC Silver Book (Foreword,
Version 1999) defines in short that the contractor carries out
all the engineering, procurement and construction, provid-
ing a fully – equipped facility, ready for operation.
In EPC contracts, the exporter assumes many risks, which
should be compensated adequately. If one lacks experience
in this complex area, it is highly recommended to seek pro-
fessional assistance (e.g. from specialised lawyers or associa-
tions) in order to avoid lengthy and expensive court
disputes with the prospective customer later on.
The same applies to build-own-operate contracts (short:
BOO). In such contracts, the exporter not only carries the
risk for a fully operable facility, but also the risk of operation
of the facility for a defined period of time. Often, payments
are only affected during operations meaning that the expor-
ter has to carry the financial risk solely with no cash-ins
coming for a long time.
Conclusions
Do’s regarding the export contract are, in particular: formu-
late export contracts clearly, specifically and precisely, use
clear definitions and abbreviations, define clear limitations
of scope of supply and services and liability, check com-
pleteness of contract using checklists, protect your technical
know-how, use the term liquidated damages, avoid the term
‘penalties’ in common law jurisdictions. If unclear, seek assis-
tance from specialists, read the contract thoroughly before
signing and have it checked, and use special care for special
contract types like EPC, BOO, and the like.
Global Policy (2019) 10:3
423
Don’ts regarding the export contract include: do not seal
oral contracts with a handshake, do not allow being urged
to sign a document you do not know and understand com-
pletely, do not start processing the order before the con-
tract is signed and in full force (as a condition all necessary
approvals and collaterals like advance payment, letter of
credit, etc. need to be received before the activities start),
and do not accept changes without them being docu-
mented and financially compensated.
Logically, this text may only offer a small selection of
export pitfalls. The hints and questions are to be understood
as pure recommendations and thought-provoking impulses.
In any case, the current selection here is by no means to be
understood as conclusive.
References
Bortolotti, F. (2013) Drafting and Negotiating International Commercial
Contracts. Paris: ICC, p. 15.
Knittlmayer, H. and Ponterlitschek, L. (2018) ‘Die Schweizerische
Exportrisikoversicherung’, in U. Gerspacher and B. Kiefer (eds.),
Finanzierung von Exporten und Direktinvestitionen – ein Handbuch f€
ur
Schweizer KMU. Z€ urich: vdf, pp. 100–109.
Schwenzer, I. and Hachem, P. (2009) ‘The CISG – Successes and Pitfalls’,
American Journal of Comparative Law., 57 (2), pp. 457–478.
Author Information
Claudia Oberle is Head of Claims & Recovery with the Swiss export
credit agency Swiss Export Risk Insurance (SERV). Before, she worked for
ABB in different functions such as business controlling, contract & com-
mercial risk management, as well as internal control. She holds a Bache-
lor of Business Administration, a Bachelor of Law, and a Master of Law
in transnational legal studies from the University of Basel.
Lars Ponterlitschek is Chief Financial Officer and Member of the Man-
agement Board of the Swiss Export Risk Insurance (SERV). He is respon-
sible for risk and portfolio management as well as for the departments
risk assessment, claims & recovery, legal & compliance, and finance &
controlling. He gained vast underwriting and project finance experience
at the German ECA Euler Hermes and SERV before assuming his current
role. He is also a visiting lecturer at Offenburg University.
© 2019 University of Durham and John Wiley & Sons, Ltd.