09 Jul 2019

The International Chamber of Commerce (ICC) will release Incoterms® 2020 in early September 2019, with the new rules coming into effect on 1 January 2020. It will be possible to continue to use the 2010 version of Incoterms® in commercial contracts after the new version comes into effect, but only if clearly specified.

Given the enhanced role of Incoterms® in post-Brexit trade, businesses involving import or export should use the time between September 2019 and the Brexit deadline of 31 October 2019 to review and update their standard contract documentation, including terms used for trade between the UK and the EU27. This is both to ensure consistency with the new rules, and to ensure that the selected Incoterms® and other contract provisions appropriately allocate risk and responsibility between the parties.

Incoterms® allocate between seller and buyer specific risks relating to the delivery of goods. Crucially, the Incoterms® are not a complete contract of sale. For example, they do not address questions such as the price or method of payment or the consequences of breach. Consequently, Incoterms® are usually incorporated by reference into the contract, which may itself be made up of several documents. In practice, this could mean that Incoterms® are incorporated by a reference in a Framework Agreement, or in Terms and Conditions, or in ancillary documents such as a quotation or order form. 

Incorporation is usually effected by referring to the three letter code that identifies the relevant Incoterms®. In some cases, it is possible that incorporation could be the result of a course of conduct, perhaps requiring investigation of the parties' correspondence and documentation over a lengthy period. In either case, it can be difficult to spot which Incoterms® have been selected, and therefore to work out how key areas of responsibility have been allocated between the parties.

Brexit significantly increases the commercial risks that might flow from inadvertently basing a supply arrangement on Incoterms® that do not meet the parties' requirements, or of continuing to use Incoterms® that have a significantly different risk profile once Brexit has occurred. This is particularly true of Incoterms® that allocate responsibility for customs and other border clearance issues, such as import or export licences. When Brexit occurs, the UK ceases to be a member of the European Union, its single market and its customs union. The Taxation (Cross Border Trade) Act 2018 provides the legislative basis for a separate UK customs and VAT regime. The UK will also operate separate (though parallel) systems to work alongside EU regulatory regimes such as REACH. Customs and border clearance therefore becomes a live commercial issue for trade between the UK and the EU27.