Intermediary transactions in foreign trade activity in Ukraine

Many transactions in international trade are carried out by means of intermediaries.

Trading-intermediary operations are understood as the operations connected with purchase and sale of the goods, carried out on the instructions of manufacturers and consumers of the goods and the trading intermediary independent of them on the basis of the agreement entered into between them.

Trading intermediary also includes a considerable scope of services, in particular, on finding foreign counterparts, preparation and fulfillment of transaction, crediting of the parties and granting guarantee of payment of the goods by the buyer, realisation of transport-forwarding operations and insurance of the goods at transportation, to performance of customs clearance of cargo, carrying out of advertising and other actions for promotion of the goods on the foreign markets, to realisation of maintenance service and carrying out other actions.

Attraction of the trading intermediary allows:
• To increase profit at the expense of increase of efficiency of sale of the goods and acceleration of a turn of the capital;
• To increase profit at the expense of goods sale in the foreign market becuase intermediaries, being near to end users, sensitively react to any changes of demand;
• To increase profit at the expense of reduction of periods of storage and preselling service;
• To increase profit at the expense of decrease in distribution costs by a unit of production.

Intermediary operations in Ukraine are regulated by norms of trading and civil law. For example, the Civil code of Ukraine provides such kinds of representation (powers of one person to make legal actions instead of other person):
• The mandate (articles 386 - 394), by the contract of mandate,
• The commission (article 395-412), by the commission contract.

Thus according to the Civil code of Ukraine relations of Ukrainian enterprise with the Ukrainian intermediaries governed by mandate or commission contracts.

At the reference to the foreign intermediary the Ukrainian enterprises are guided by those corresponding norms of the international private law that applicable to export-import transactions of Ukrainian enterprises.

Basically, the intermediaries operating under contracts of mandate, and under commission contracts, named as "agents", and the contracts signed with intermediaries, - "agency agreements".

Wide application in contractual practice have developed by separate firms, and also the international governmental and non-governmental organisations of a proforma agency contracts. For example, the international chamber of commerce has made the Guidelines on the conclusion of agency contracts (International Chamber of Commerce. Commercial agency (Guide for the drawing up of contracts. No 4100, 1990)).

Intermediaries in foreign trade can be classified depending on volume of powers given to it and depending on their place in the market.

Intermediaries with different volume of powers

The rights and duties of intermediaries are defined in contracts with their principals. Thus the basic condition which underlies division of similar contracts into types, consists in the following: whether the intermediary has the right to sign transactions with the third parties, for whose account and from whose name it can do it.

Therefore intermediaries can be divided into four basic groups:
• The intermediaries who do not have the rights to sign the transaction with the third parties (agents-representatives, brokers);
• The intermediaries signing the transactions with the third parties on its own behalf, but at the expense of the principal (commission agents, consignees);
• The intermediaries signing the transactions with the third parties from a name and at the expense of the principal (agents-mandates, trading agents);
• The intermediaries signing the transactions with the third parties on its own behalf and at own expense (merchants, distributors, dealers).

Agents - representatives

The agent-representative only represents interests of the principal in the market under the co-ordinated nomenclature of the goods. He does not get the licence to sign any contracts on the goods on its own behalf, on behalf of the principal. Duties of the agent-representative are:
• To carry out marketing researches and to inform the principal on market tendencies;
• To give to the principal the information on technical requirements to the goods and the prices;
• To inform the principal on inquiries of consumers, about prospective orders;
• To create favorable opinion on the principal and its goods in business circles and to carry out advertising;
• To promote the conclusion and realisation of contracts;
• To organise business contacts of principals to importers of the goods, to governmental and other organisations on which decisions on placing of orders depend.

For a role of agents-representatives solid firms or the physical persons occupying high enough position in business circles are attracted. If by means of such agent it is possible to conclude the contract compensation at a rate of 2-5 % is paid to it, and at the big sums of transactions this sum will be enough, and will exceed much more real expenses of the agent. However the principal in the future can already have transactions with this buyer without participation of the agent-representative.

Brokers

Broker operations are made by professional intermediaries – brokers, which work strictly on the certain goods or operations.

Brokers are persons who operate on sale and acquisition of the goods, but the party of the contract neither as the seller, nor as the buyer. Their problem - find the buyer for the seller and the seller for the buyer and to promote contract signing between them. An example of the brokers is brokers in England on trade in wood. Almost all operations on trade in wood in England is carried out through brokers.

Work of the broker can be described schematically so:
• The exporter addresses the broker with the request to find the buyer in any country on the given goods;
• The broker addresses to the importer with the offer to buy the given goods from the exporter;
• At the consent of the parties the broker meets counterparts;
• Counterparts sign the contract;
• The exporter delivers the goods.
The broker receives small compensation for the intermediary and, as a rule, from that party which to it will address the first. If the reference is single, there is no necessity to sign the agreement. If relations have long-term character they are made out by the contract. Brokers trade usually in large lots and have considerable cost, therefore rates for their services usually not so high. The large broker companies co-operate with banks in crediting of the buyer, sometimes act as creditors, and also can take up a guarantee for the buyer, that, naturally, raises a rate of commission.

Commission agents

Counterparts in commission operations are the consignee and the commission agent. The consignee entrusts the commission agent, but at the expense of the consignee to make operation of purchase and sale with the third counterpart. The commission agent is only for the consignee. For the third counterpart the commission agent will be the party of the contract of purchase and sale, namely - the seller if it is entrusted to commission agent to sell something, or the buyer if the consignee charges to the commission agent something to buy.

With the consignee the commission agent builds the relations on the basis of the commission contract. The commission contract usually has such reservations:
• Max. prices at export and maximum at import;
• Terms of deliveries of the goods;
• Limiting technical and qualitative characteristics of the goods;
• Responsibility of consignees before commission agents and commission agents before consignees;
• The order of payment of commissions.

Commission operations are of two kinds. The first kind are the purely commission operations:
• The commission agent, selling or buying the goods, operates within the commission contract;
• The commission agent, carrying out operation, for one moment does not become the proprietor of the goods, and the goods follow directly from the seller to the buyer;
• The commission agent does not bear any responsibility for performance of obligations by the third party before the consignee;
• Payments between the consignee and the third party is carried out directly.

The size of a commission should compensate expenses of the commission agent on realisation of trading operations and provide to it profit. The usual size of commissions at purely commission operations in world practice - 1,5-3,5 % from the transaction.

The second kind of commission operations can be applied in the event that the consignee charges to the commission agent something to sell. Between the consignee and the commission agent the so-called contract "del credere" in which the commission agent takes up responsibility for solvency of buyers established and compensates to the consignee all expenses if the buyer appears insolvent. The commission agent can receive profit in the form of a difference between the prices of purchase of the goods at the consignee and realisation to the buyer - this sum and will make a commission of the commission agent. The second variant of reception for the commission agent is when the rate of commission is fixed in the contract of the commission in the form of percent from the transaction sum, but compensation in that case will be above, than at simple commission operations as during the conclusion of the contract of the commission the transaction is already guaranteed (the contract on purchase is already concluded).

Agents - consignees

Under the contract of a consignment which represents a version of the contract of the commission, the principal delivers the goods on a warehouse of the agent (consignee) for their subsequent realisation in the market. Consigner is the proprietor of the goods till the moment of its sale. The consignment contract has a number of features:
• It defines the sum simultaneously stored on a consignment warehouse and the goods replenishing in process of realisation;
• It defines consignment term during which this sum should be realised (for example, the goods for the sum of 50 thousand dollars, term of a consignment 2 years);
• It obliges consignee to insure the goods stored in a warehouse in favor of consigner as they before realisation are the property consigner;
• It defines, that payments are made on the calendar periods under the open account with granting consignee a bank guarantee or the acceptance of bills of exchange for the consignment sum as, as a matter of fact, consigner finances consignee for average term of sale of goods;
• It is specified, which way of a consignment is selected by the parties: irrevocable, partially returnable or returnable.
The irrevocable consignment means, that if any part of the goods stipulated by the contract of a consignment, will not be realised consignee undertakes to buy them at consigner.

Partially returnable consignment means, that consignee undertakes to realise the goods on a certain part of the sum, and the goods for the remained sum if it will not be possible to realise, return them to consigner. We will admit, from a consignment total sum in 50 thousand dollars the goods for the sum of 35 thousand will be considered on the terms of an irrevocable consignment, and remained on the sum of 15 thousand on the terms of a returnable consignment.

The returnable consignment means, that all non-realised goods are subject to return to consigner.

The goods which are imported into Ukraine under the above-stated contracts, are cleared in of customs warehouse regime.

The goods which have been imported into Ukraine under the contracts of returnable or partially returnable consignment, in case of non-sale in Ukraine, are taken out for its limits with filling of the cargo customs declaration in a transit mode.

Distributors

Distributors are engaged in sale of the goods on its own behalf and at own expense. They bear all risks connected with damage or loss of the goods, and also with insolvency of buyers.

Distributor agency agreements are interesting to the principal because give the chance to exit new markets and provide advertising of its goods in these markets throughout several years, consist with the firms having own marketing network or means for its creation, are accompanied by purchase and sale contracts on delivery of the goods, guarantee, unlike consignment contracts, reception of payment for the goods right after goods deliveries (if only the goods are not delivered on credit), exclude risks of losses from loss or damage of the goods in territory of another's country as, getting the goods, the distributor becomes its proprietor.

These contracts are interesting to the distributor, in comparison with other intermediaries, distributors have the big commercial independence, independently establishing the prices, get frequently a monopoly on sale of the goods of the principal territory (usually firms aspire to become distributors of production of the companies with good market reputation).

The agency agreement with the distributor is usually for long term (2-5 years) with the subsequent prolongation under the agreement of parties. Such agreements consist basically for sale of technical, raw and consumer goods.

Having entered into the agency agreement in which the general bases of mutual relations of the parties are defined, they conclude purchase and sale contracts on delivery of the goods on which the agent should get the goods of the principal, and then realise to its end user. Sale of goods - last operation in the list of duties of the agent, before it should organise advertising and sale system, warehousing, preselling service and maintenance service during the guarantee period.

At constant volumes of realisation the agent who will be called in this case as the general agent, will organise the marketing network consisting of subagents, working in certain regions, and the dealers serving separate settlements. Compensation of the agent is made by a difference between the price of purchase of the goods at the principal and by its resale.

Customs clearance of the goods which is carried out by distributors, is made in export or import depending on conditions of the contract for purchase and sale.