An international sales contract needs clauses that bridge two legal systems in a single document, and the key clauses in an international sales contract fall into a predictable set: governing law, dispute resolution, a precise description of the goods and price, delivery terms, payment mechanics, conformity and warranties, force majeure, compliance with export and anti-corruption rules, tax and customs allocation, breach and damages, intellectual property, and execution formalities. The United Nations Convention on Contracts for the International Sale of Goods (CISG) applies automatically when both parties have their places of business in different member countries (currently 97 nations), so every drafting choice either works within that framework or deliberately opts out of it.1United Nations Commission on International Trade Law. United Nations Convention on Contracts for the International Sale of Goods The sections below walk through each clause in the order you should draft them.
Governing Law and Whether to Opt Out of the CISG
The CISG applies by default whenever you and your counterparty have places of business in different ratifying countries. You don’t need to mention it in the contract for it to apply. The convention covers formation of the contract, obligations of buyers and sellers, remedies for breach, and risk of loss. It does not cover product liability, the validity of individual contract terms, or the effect of a contract on ownership of the goods. Those gaps get filled by whatever domestic law you choose.
Article 6 of the CISG lets parties exclude the convention entirely or modify any of its provisions. Many businesses do this when they want a single domestic law to govern, such as the Uniform Commercial Code for a U.S.-based seller or English commercial law for a London-centered deal. If you want to exclude the CISG, say so explicitly. Vague language like “governed by the laws of New York” has been read by some courts as still including the CISG, since the convention is part of U.S. federal law. A clean exclusion reads something like: “The CISG shall not apply to this contract. This agreement is governed by [chosen law].”
Your governing law choice determines how courts interpret ambiguous terms, fill gaps, and calculate damages. Pick a legal system both parties can live with and that has well-developed commercial law. If neither party wants the other’s home jurisdiction, a neutral third-country law (Swiss law is popular for this) can work, though it adds the cost of hiring counsel familiar with that system.
Dispute Resolution: Arbitration or Courts
A choice-of-forum clause tells both parties where disputes will be heard. Without one, you risk spending months arguing about jurisdiction before anyone looks at the merits. The clause should name the specific city, the language of proceedings, and whether you are choosing a national court system or arbitration.
Arbitration is the dominant dispute resolution method in international trade for one practical reason: arbitral awards are far easier to enforce across borders than court judgments. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) obligates courts in over 170 member countries to recognize and enforce awards from other member countries. U.S. federal courts enforce these awards under Chapter 2 of the Federal Arbitration Act.2Office of the Law Revision Counsel. 9 USC Chapter 2 – Convention on the Recognition and Enforcement of Foreign Arbitral Awards Courts may refuse enforcement only on narrow grounds, such as an invalid arbitration agreement, denial of a fair hearing, or violation of local public policy, and those grounds are interpreted strictly in most jurisdictions.
Common institutional choices include the International Chamber of Commerce (ICC), the American Arbitration Association (AAA), and the London Court of International Arbitration (LCIA).3ICC – International Chamber of Commerce. Rules and Procedures Your arbitration clause should specify the institution, the seat of arbitration (which determines the procedural law governing the arbitration itself), the number of arbitrators (one is cheaper, three is more common for high-value contracts), and the language of proceedings.
Describing the Goods, Price, and Packaging
Vague goods descriptions are where international deals fall apart. Your contract should include technical specifications, exact quantities, the unit of measurement (metric or imperial), and any applicable quality certifications. If your buyer requires ISO 9001-certified production processes, spell that out. Under the CISG, the seller must deliver goods that match the contract in quantity, quality, description, and packaging. If the contract is silent on quality, the goods only need to be fit for their ordinary purpose, which is a lower bar than most buyers want.
State the price in a specific currency using its ISO 4217 code (USD, EUR, GBP, JPY). This eliminates any argument about which currency was intended. For contracts with long delivery timelines, consider a price adjustment clause that triggers when the exchange rate shifts beyond a set threshold, commonly three to five percent from the rate at contract signing.4Association of Corporate Counsel. Contractual Limitation of Currency Risks Without this kind of clause, a sudden currency swing can wipe out your margin or inflate your costs overnight.
Packaging standards deserve their own section of the contract. Specify the type of packaging (crates, pallets, moisture-resistant wrapping) based on the transport mode and the destination climate. Require labeling in the language of the destination country, including handling instructions, hazard warnings, and container contents. If packaging fails and goods are damaged in transit, liability often shifts back to the seller regardless of what the shipping terms say about risk transfer.
Delivery Terms Using Incoterms 2020
Incoterms 2020, published by the International Chamber of Commerce, are eleven standardized three-letter codes that allocate shipping costs, risk of loss, and insurance responsibilities between buyer and seller.5International Chamber of Commerce. Incoterms 2020 Always write the Incoterm followed by the named place, for example “CIF Shanghai Port.” Without the named place, the term doesn’t tell either party where responsibilities shift.
Four Incoterms do most of the work in sale-of-goods contracts:
- EXW (Ex Works) is the seller’s lightest obligation. The buyer picks up goods at the seller’s facility and handles every step from there: loading, export clearance, freight, insurance, and import duties. This is practical only when the buyer has strong logistics capabilities in the seller’s country.
- FOB (Free on Board) means the seller delivers the goods on board the vessel at the named port of shipment. Risk transfers to the buyer once the goods are loaded. The seller handles export clearance; the buyer covers ocean freight, insurance, and import duties. FOB is limited to sea and inland waterway transport.
- CIF (Cost, Insurance, and Freight) requires the seller to pay freight to the destination port and arrange minimum insurance under Institute Cargo Clause C, covering at least 110 percent of the contract value. Despite the seller paying for freight and insurance, risk still transfers to the buyer when goods are loaded onto the vessel at origin.
- CIP (Carriage and Insurance Paid To) works like CIF but applies to any transport mode. The key difference is insurance: CIP requires the seller to obtain “all risks” coverage under Institute Cargo Clause A, a significantly higher level of protection than CIF’s minimum coverage.6ICC Academy. Incoterms 2020 CIP or CIF
The gap between CIF and CIP catches people off guard. A seller quoting CIF only has to buy the cheapest available marine insurance. If you’re shipping high-value or fragile goods, CIP’s all-risks requirement gives the buyer far better protection at the seller’s expense.
Payment Mechanics
How you structure payment depends on how much you trust your counterparty. The spectrum runs from cash in advance (safest for sellers) to open account (safest for buyers), with letters of credit and documentary collections in between.
A letter of credit (LC) is a bank’s promise to pay the seller once the seller presents documents proving shipment. These transactions follow the Uniform Customs and Practice for Documentary Credits (UCP 600), published by the ICC.7United States Council for International Business. Uniform Customs and Practice for Documentary Credits Your contract should specify whether the LC is irrevocable (it almost always should be), the issuing bank, the expiry date, the latest shipment date, and whether the LC should be confirmed. A confirmed LC adds a second bank’s guarantee of payment, which matters when the issuing bank sits in a country with financial instability.
Banks examine LC documents with obsessive precision. The commercial invoice, bill of lading, packing list, certificate of origin, and any required inspection certificates must match the LC terms exactly. A misspelled company name, a weight discrepancy of a few kilograms, or a missing document can trigger a refusal of payment.
For established trading relationships, direct wire transfers are simpler and cheaper than LCs. The contract should list the beneficiary’s bank name, account number, and SWIFT code. Payment deadlines commonly fall within 30 to 60 days from the bill of lading date. Build in a late payment interest rate tied to a recognized benchmark so you have leverage if payments drag. Open account terms, where the buyer pays after receiving the goods, work well between long-standing partners but expose the seller to significant nonpayment risk.
Conformity, Inspection, and Warranties
Under the CISG, the seller’s core obligation is delivering goods that conform to the contract: right quantity, right quality, and packaging that protects the goods during normal transport. If the buyer has not specified a particular purpose, the goods still have to be fit for the purpose that similar goods are ordinarily used for.
The CISG also imposes a strict notice timeline on buyers. You must inspect the goods as soon as practicable after delivery and notify the seller of any defects within a reasonable time after you discover (or should have discovered) them. Miss that window and you lose the right to claim the goods don’t conform. The absolute outer limit is two years from delivery, unless your contract sets a different warranty period. Many buyers get burned here: goods arrive, sit in a warehouse for weeks, and by the time a defect surfaces, the notice window has closed.
Your contract should define the inspection period precisely (for example, 14 days from delivery at the destination), identify who bears the cost of inspection, and specify the procedure for rejecting nonconforming goods. For high-value shipments, consider requiring a third-party inspection at the point of origin. Pre-shipment inspection adds cost but catches problems before goods are loaded onto a vessel halfway around the world.
If your contract excludes the CISG in favor of U.S. domestic law, warranty disclaimers follow the Uniform Commercial Code. Excluding the implied warranty of merchantability requires language that specifically uses the word “merchantability” and is conspicuous in the document. Disclaiming the warranty of fitness for a particular purpose must also be in writing and conspicuous. General expressions like “as is” or “with all faults” can exclude all implied warranties.8Legal Information Institute. UCC 2-316 – Exclusion or Modification of Warranties Under the CISG, the rules are more flexible since the convention doesn’t prescribe specific disclaimer language, but any limitation should be unambiguous to survive a challenge.
Force Majeure and Hardship
The CISG provides a narrow exemption from damages when a party’s failure to perform results from an impediment beyond their control that they couldn’t have reasonably anticipated or overcome. This exemption only relieves the party from paying damages; it does not terminate the contract or excuse performance once the impediment passes. It also requires timely notice to the other party. Fail to give notice within a reasonable time after learning of the impediment, and you’re liable for damages caused by the delay in notifying.
Most experienced traders do not rely on the CISG’s built-in exemption because courts interpret it inconsistently. Instead, they include a standalone force majeure clause. The ICC publishes a model clause that lists presumed qualifying events, including armed conflict, epidemics, natural disasters, trade embargoes, government actions, and extended infrastructure failures.9International Chamber of Commerce. ICC Force Majeure and Hardship Clauses The clause relieves the affected party from performance and liability for as long as the impediment lasts. If the impediment continues for more than 120 days, either party can terminate.
A hardship clause covers a different scenario: events that don’t prevent performance but make it dramatically more expensive or less valuable. The UNIDROIT Principles define hardship as a fundamental alteration of the contract’s economic balance caused by events the disadvantaged party couldn’t have anticipated, controlled, or assumed the risk of. When hardship is established, the disadvantaged party can request renegotiation, and if negotiations fail, a court or tribunal can adapt the contract to restore its balance or terminate it on equitable terms. Without a hardship clause, you are generally stuck performing even if your costs have tripled due to circumstances nobody predicted.
Export Controls, Sanctions, and Anti-Corruption
If you are exporting from the United States, every international sales contract needs to address export controls. The Export Administration Regulations (EAR) control the export of commercial and dual-use items. If your goods appear on the Commerce Control List, your commercial invoices must include a destination control statement notifying the buyer that the items cannot be resold, transferred, or diverted to another country or end user without U.S. government approval.10eCFR. 15 CFR 758.6 – Destination Control Statement
Violations are serious. Under the Export Control Reform Act, criminal violations can result in fines up to $1,000,000 and imprisonment of up to 20 years for individuals. Civil penalties can reach $300,000 per violation or twice the transaction value, whichever is greater, and may also include revocation of export privileges.11Office of the Law Revision Counsel. 50 USC 4819 – Penalties
Separately, the Office of Foreign Assets Control (OFAC) administers U.S. sanctions programs that prohibit transactions with certain countries, entities, and individuals. Civil penalties under the International Emergency Economic Powers Act, which underlies most OFAC sanctions, can reach $377,700 per violation as of early 2025.12Federal Register. Inflation Adjustment of Civil Monetary Penalties Your contract should include a representation from your counterparty that they are not on OFAC’s Specially Designated Nationals List and that no beneficial owner of their company is subject to U.S. sanctions. Add a covenant requiring them to notify you promptly if their status changes.
The Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies and their agents from paying or offering anything of value to foreign government officials to win or keep business.13Office of the Law Revision Counsel. 15 USC 78dd-1 – Prohibited Foreign Trade Practices by Issuers Your buyer, distributor, or agent may interact with foreign customs officials, licensing bodies, or procurement officers on your behalf. If they pay a bribe and you knew or should have known, you share the liability. Include an anti-corruption representation requiring the counterparty to confirm that no payment under the agreement will be used to influence foreign officials. Add an audit right and make a violation grounds for immediate termination.
Tax Withholding and Customs Allocation
If you are a U.S. buyer purchasing from a foreign seller, collect IRS Form W-8BEN-E from the seller before making any payments. This form documents the seller’s foreign status and allows you to apply a reduced withholding rate or exemption under an applicable tax treaty. Without it, you may be required to withhold 30 percent of the payment and remit it to the IRS.14Internal Revenue Service. Instructions for Form W-8BEN-E The form is valid for three years from the date of signing, unless the seller’s circumstances change.
On the import side, U.S. Customs and Border Protection requires a customs bond for commercial imports valued over $2,500, or for any commodity subject to other federal agency requirements such as food or firearms.15U.S. Customs and Border Protection. When Is a Customs Bond Required Your contract should specify which party is responsible for obtaining the bond, paying import duties, and handling customs clearance. The Incoterm you choose affects this allocation, but spell it out explicitly so nothing falls through the cracks. Certificates of origin are often needed to qualify for preferential tariff rates under trade agreements; errors in these documents can delay cargo at the port or forfeit the tariff benefit.
Breach, Damages, and Termination
Under the CISG, a buyer can cancel the contract only if the seller commits a “fundamental breach,” meaning the failure to perform substantially deprives the buyer of what they were entitled to expect under the deal. A shipment that arrives a week late usually isn’t fundamental; delivering goods that are completely different from what was ordered almost certainly is. The line between the two is where most disputes land, so your contract should define what counts as a material breach and whether the breaching party gets a cure period before the other side can walk away.
Damages under the CISG equal the actual loss suffered, including lost profits, but they are capped at what the breaching party foresaw or should have foreseen at the time the contract was signed. This foreseeability limitation means you should flag any unusual or disproportionate risks during negotiations. If a delayed shipment would shut down your production line and cost you $2 million in lost output, tell the seller in writing before signing. Otherwise a tribunal might limit your damages to the market price difference on the goods themselves.
Consider a liquidated damages clause that sets a predetermined amount, or a daily rate, payable for specific breaches like late delivery. Liquidated damages remove the burden of proving actual loss and give both parties predictability. The amount must be a reasonable estimate of anticipated harm rather than a penalty. For delivery delays, a common structure is 0.5 to 1 percent of the contract value per week of delay, capped at a total of 5 to 10 percent. Pair this with a termination right that kicks in when the cap is reached.
Intellectual Property
When goods involve proprietary technology, branded components, or custom designs, your contract needs to address who owns the intellectual property and what the buyer can do with it. Include a clause prohibiting the buyer from reverse-engineering, replicating, or sublicensing any proprietary element of the goods without written consent. If the seller is producing custom-manufactured items based on the buyer’s designs, confirm that the buyer retains ownership of those designs and that the seller won’t use them for other customers.
For transactions involving patents, trademarks, or trade secrets, add an IP indemnification clause. The seller warrants that the goods do not infringe any third-party IP rights in the destination country, and agrees to defend and indemnify the buyer against infringement claims. Without this protection, the buyer could end up holding goods they can’t legally sell because a competitor holds a local patent on a key component.
Signing and Authentication
The contract needs signatures from authorized representatives of both parties. Under the Electronic Signatures in Global and National Commerce Act, a contract or signature cannot be denied legal effect solely because it is in electronic form.16Office of the Law Revision Counsel. 15 USC 7001 – General Rule of Validity Digital signing platforms let parties in different countries execute the same document within hours. Both sides should retain a complete executed copy in a secure format.
Some countries require additional authentication before they will recognize foreign documents. The Hague Apostille Convention, which has over 125 member countries, replaces the traditional chain of legalization with a single standardized certificate issued by a designated authority in the country where the document originates.17Hague Conference on Private International Law. Apostille Section Apostille fees vary but typically fall between $10 and $26 depending on the issuing authority. For long-term supply agreements or contracts in heavily regulated industries, check whether the destination country also requires notarization of signatures before the apostille is applied. Completing these formalities before performance begins protects the enforceability of the agreement if you ever need to rely on it in a foreign court.