What is a foreign trade contract? Considerations for its use

A foreign trade contract is an agreement that records the rights and obligations of the parties in an international commercial transaction. In the import and export of goods, it is the foundation for determining what goods are to be delivered, the price to be paid, the transport conditions, and how breaches are to be handled.

However, simply stating the goods description, price, and FOB or CIF terms is not sufficient to control the entire transaction. In the article below, 3W Logistics explains what a foreign trade contract is, what it must contain, and the key considerations before signing and executing a contract.

1. What Is a Foreign Trade Contract?

A foreign trade contract in import and export operations is generally understood as an international sale of goods contract, under which the seller is obligated to deliver the goods and the documents, and the buyer is obligated to pay and take delivery in accordance with the agreement.

In English, this document is commonly referred to as an International Sales Contract, a Foreign Trade Contract, or simply a Sales Contract, depending on usage.

The international character of a contract should not be determined solely by the nationalities of the signatories. For example, the United Nations Convention on Contracts for the International Sale of Goods (CISG, 1980) looks at the places of business of the parties together with other applicable conditions.

Example: A Vietnamese company purchases machinery from a supplier whose place of business is in Germany. The two parties agree on the machinery specifications, technical standards, price, delivery, and payment in an international sale of goods contract.

Distinguishing a Foreign Trade Contract from Related Documents

Note: Not only a document titled “Contract” can create a binding obligation. The entire content of the transaction, the offer and acceptance process, and any formal requirements must all be considered.

2. The Role of a Foreign Trade Contract in Import and Export

A clear foreign trade contract enables the procurement, sales, finance, and logistics teams to coordinate on a common basis.

• Defining the sale and purchase obligations: clarifies the goods, quality, quantity, price, delivery, and payment.
• Logistics planning: identifies which party is responsible for booking, insurance, procedures, and bearing costs as agreed.
• Document preparation: establishes the agreed list, content, and timing for providing documents to the bank, the buyer, or other relevant parties.
• Managing contingencies: allocates responsibility in cases of late delivery, short delivery, quality non-conformance, or late documentation.
• Dispute resolution: provides the basis for identifying commitments made, breaches committed, and available remedies.

In practice, a foreign trade contract is also a document that helps explain the transaction when requested by a bank or competent authority. However, it should not be assumed that the contract is always a required submission in every customs dossier – the applicable regulations and practice for each case must be checked.

3. Form and Legal Basis of a Foreign Trade Contract

3.1. Form Requirements Under Vietnamese Law

Under Clause 2, Article 27 of the Law on Commerce 2005, international sale of goods must be conducted on the basis of a contract in writing or another form of equivalent legal validity.

Businesses must therefore retain the complete contract, appendices, purchase orders, confirmations, and relevant correspondence. Relying solely on a verbal agreement makes it considerably more difficult to prove what was agreed.

3.2. Can a Foreign Trade Contract Be Concluded Electronically?

A foreign trade contract may be concluded by electronic means if the conditions under applicable law are met. Under the Law on Electronic Transactions 2023, information is not denied legal validity solely on the grounds that it is in the form of a data message.

However, the validity of any given record also depends on the ability to identify the parties, demonstrate consent, ensure integrity, and maintain accessibility. It should not be assumed that every scanned document or email is equivalent to a validly executed contract.

3.3. When Does CISG Need to Be Considered?

The CISG (United Nations Convention on Contracts for the International Sale of Goods) may apply when a transaction meets the Convention’s conditions and the parties have not validly excluded it.

According to UNCITRAL’s introduction, CISG governs contract formation and the rights and obligations of the buyer and seller, but does not address all issues of contract validity or the effect of the contract on the transfer of ownership of the goods.

When drafting a foreign trade contract, the governing law and the treatment of CISG where relevant must be clearly identified. It should not be assumed that choosing the law of a contracting state automatically excludes the Convention.

4. Required Content of a Foreign Trade Contract

There is no single foreign trade contract template that fits every type of goods. The table below lists the groups of provisions that should be reviewed – it is not a list of clauses that must be identical across every transaction.

5. Key Considerations When Using a Foreign Trade Contract

5.1. Verify the Counterparty and Signing Authority

Before signing a foreign trade contract, verify the counterparty’s business registration information, address, and authorized representative through reliable sources. If the contract is signed under a power of attorney, check the scope and validity period of that authority.

In particular, independently verify any request to change the payee’s bank account. Do not transfer funds based solely on an email notifying a new account, even if the email appears consistent with prior correspondence.

5.2. Describe Goods Using Verifiable Criteria

Avoid vague descriptions such as “good quality” or “export standard” without specifying measurable criteria. For machinery, clearly state the model, capacity, new or second-hand condition, accessories, and operating requirements.

If purchasing by sample, record how the reference sample is identified and where it will be retained. If a technical annex is used, specify that the annex forms part of the foreign trade contract and establish an order of priority in the event of conflict.

5.3. State the Incoterms Condition with the Named Place and Version

The delivery condition should be stated in the format: Condition + specific named port/place + Incoterms® 2020. Simply writing “FOB Vietnam” or “CIF China” is generally insufficient to organize performance.

Illustrative example: “FCA [specific warehouse name and address], Incoterms® 2020.” The named place should be selected based on the actual journey and the parties’ responsibilities – not copied mechanically from an older contract.

According to the ICC’s introduction to Incoterms, Incoterms do not govern the full content of the sale, and in particular do not determine when ownership transfers or which payment method applies.

Note: The party paying the freight is not always the party bearing risk up to the freight destination. A foreign trade contract must distinguish between the delivery point, the risk transfer point, the place of destination, and the moment of transfer of title.

5.4. State Payment Terms with Clear Milestones

Payment clauses in a foreign trade contract must specify the amount, the due date, and the trigger event for each payment obligation. Avoid vague language such as “pay the remaining balance after delivery” without specifying which document confirms delivery.

• Telegraphic transfer (T/T): clarify the advance payment amount, the balance, the deadline, and the documents to be provided.
• Letter of Credit (L/C): agree upfront on terms that can be met, the deadline for opening the L/C, the document set, charges, and applicable rules.
• Documentary collection or deferred payment: assess the level of trust, the ability to recover payment, and security measures if needed.

The International Trade Administration’s trade finance guidance distinguishes payment methods by level of risk. No single method is optimal for every transaction.

5.5. Check Import Feasibility Before Placing the Order

Before paying a deposit, review the goods category policy, permits, specialized inspections, labeling, and technical requirements in the destination market. Goods lawfully sold in the exporting country are not automatically permitted to be imported into Vietnam.

If a Certificate of Origin, inspection certificate, or technical documentation is required, confirm the seller’s ability to provide these from the outset. A seller’s inability to supply documentation after the goods have been shipped can generate costs or affect anticipated tariff preferences.

5.6. Agree on Documents That Align with Logistics Realities

The document list in a foreign trade contract must be consistent with the goods type, the transport mode, and the payment method. Do not require a type of bill of lading or certificate that the issuing party cannot provide given the actual routing.

Cross-reference the contract, invoice, packing list, bill of lading, and L/C (if applicable) to avoid conflicting data. Whenever quantities, routing, or the shipment schedule change, assess the concurrent impact on both the documents and the payment.

5.7. Clarify Breach, Force Majeure, and Dispute Resolution

Do not simply write “all disputes shall be resolved in accordance with international practice.” Identify an enforceable dispute resolution mechanism, the applicable law, and the scope of disputes covered.

For arbitration clauses, consider starting from the model clause of the chosen institution – for example, the Vietnam International Arbitration Centre (VIAC)  and then tailoring it to the specific transaction.

For force majeure, define the notification obligation, the evidence required, the duty to mitigate losses, and how the situation is handled if the event is prolonged. Do not assume that every freight rate increase or vessel delay automatically excuses performance.

6. How to Review a Foreign Trade Contract Before Execution

Step 1: Verify Transaction Information

Check the counterparty, the signatories, the goods, import and export conditions, and the payment account details. Resolve any outstanding points before transferring funds.

Step 2: Review Four Groups of Clauses Simultaneously

Cross-reference goods – delivery – payment – documents. These are directly interconnected: a delivery clause that cannot be performed may make it impossible to prepare the documents needed for payment.

Step 3: Coordinate with the Relevant Parties

Have the logistics team review the timeframes, locations, and transport conditions; have the finance team or the bank review the payment terms. For complex legal clauses, engage a qualified specialist to review.

Step 4: Finalize the Version and File the Records

Identify the final version of the foreign trade contract, the accompanying annexes, and who has authority to approve amendments. Maintain a centralized file of the executed contract, notices, confirmations, and evidence of performance.

Step 5: Track Key Obligation Milestones

Prepare a list of deadlines for the deposit, L/C opening, shipment, document submission, payment, and claim notification. Any material changes must be recorded in a form consistent with the contract and applicable law.

Practical perspective: Transport feasibility and the document set should be checked before the foreign trade contract is finalized. A condition that cannot be met is generally far easier to resolve when discovered early than when goods have already been produced or loaded.

7. Reference Foreign Trade Contract Templates

Businesses may refer to foreign trade contract templates from the ICC and the Vietnam International Arbitration Centre (VIAC) below. When selecting a template, note the year of publication or posting versus the date of access; a template currently available does not mean every clause is appropriate for the current transaction.

7.1. International Commercial Sale of Goods Contract Template

HD003 – International Commercial Sale of Goods Contract is a reference framework covering the rights and obligations of the buyer and seller and remedies for breach. Businesses may customize the goods information, price, delivery, payment, and dispute resolution clauses to suit their agreement.

Download the International Sale of Goods Contract template (free)

VIAC International Commercial Sale of Goods Contract Template

HD003 – International Commercial Sale of Goods Contract was posted by VIAC on 20 May 2021 and is available in their model contract library. The document covers the rights and obligations of the buyer and seller and remedies for breach.

Businesses may use this template as a drafting framework for a foreign trade contract, then adjust the goods information, delivery, payment, and dispute resolution clauses to reflect the actual transaction.

Download the HD003 template from the VIAC website

VIAC International Long-Term Supply Contract Template

HD004 – International Long-Term Supply Contract was posted by VIAC on 20 May 2021 and is intended for long-term supply relationships between a supplier and a customer for manufactured goods.

When using this template for multi-shipment transactions, businesses should clearly define the ordering mechanism, demand forecasting, price adjustment, and the handling of each delivery. The order of priority between the framework contract, purchase orders, and annexes should also be established.

Download the HD004 template from the VIAC website

Usage note: Foreign trade contract templates are reference documents — they are not mandatory standard forms for universal use. Before signing, update the Incoterms condition, governing law, goods policy, and clauses to reflect the actual transaction; do not use a template as-is without review.

FAQ – Frequently Asked Questions About Foreign Trade Contracts

Question 1: Does a foreign trade contract have to be in English?

There is no general rule requiring every contract to be in English. The parties should choose a language appropriate to the transaction, verify any applicable requirements, and specify the priority language if the contract is signed in two languages.

Question 2: Must a foreign trade contract bear a company seal?

A conclusion applicable to all cases cannot be based solely on the presence or absence of a seal. The signatory’s authority, the form of execution, the applicable law, and the parties’ agreement all need to be considered. A company seal does not substitute for verifying the signing authority.

Question 3: Can a Proforma Invoice replace a foreign trade contract?

It can in some transactions, provided the content, acceptance, and form satisfy the applicable conditions. However, a PI that contains only a goods description and price typically does not fully address delivery, breach, or dispute resolution.

Question 4: Does stating CIF in a contract cover all costs?

No. The scope of costs under CIF must be read in light of the specific Incoterms condition, the agreement, and the transport contract. CIF does not mean that every charge at the port of destination, import duties, or inland delivery to warehouse are borne by the seller.

Question 5: Can a contract be amended after it has been signed?

The parties may agree to amendments in accordance with the contract terms and applicable law. The amended content, the effective date, and the impact on related annexes, documents, or payments should all be clearly recorded.

Question 6: Is there a single foreign trade contract template suitable for all types of goods?

No. Food products, chemicals, machinery, and contract-manufactured goods each have different requirements. Any available template should only serve as a starting point and must be adapted to the actual transaction.

Preparing a clear foreign trade contract enables businesses to manage the process proactively from ordering through to delivery and payment. To coordinate the transport plan, documentation, and import/export procedures, businesses are welcome to contact 3W Logistics using the details below.

How 3W Logistics Supports Clients in Executing a Foreign Trade Contract

When implementing a foreign trade contract, businesses need close coordination between the delivery plan, transport, and documentation. 3W Logistics supports clients in clarifying logistics requirements so that a solution appropriate to the actual shipment can be developed.

• Transport solution advisory: recommend the transport mode, routing, and shipment arrangement suited to the goods characteristics, delivery timeline, and budget.
• Logistics cost clarification: assist in identifying the freight charges, surcharges, and handling costs to be budgeted for in accordance with the agreed scope of service and delivery terms.
• Document preparation coordination: provide guidance on transport-related information requirements, and cross-check relevant data across the invoice, packing list, and transport documents to minimize discrepancies.
• Import/export procedure support: advise on the required dossier and assist in carrying out procedures in accordance with the goods category, applicable policy, and agreed scope of service.
• Delivery progress monitoring: provide shipment status updates, coordinate with relevant parties, and promptly communicate any changes that may affect the delivery plan.

For tailored advice, clients should provide the goods name, quantity, dimensions, weight, delivery and collection locations, expected timeframe, and the Incoterms condition in the foreign trade contract. On that basis, 3W Logistics will discuss the specific approach and scope of support before proceeding.

Ms. Apple (CCO)

Ms. Apple is the CCO (Chief Commercial Officer) at 3W Logistics, with over 10 years of experience in sales and business operations management.

At 3W Logistics, Ms. Apple is responsible for commercial strategy, corporate customer development, managing a team of more than 50 sales professionals, and improving business performance in the logistics sector.

With practical experience in sales management and market development, Ms. Apple shares professional insights on business logistics solutions, international transportation, freight forwarding, customer management, trade lane development, and growth strategies in the logistics industry.