'Define a CIF contract, and what are its advantage and disadvantage in practice?'
CIF stands for "cost, insurance and freight" by INCOTERMS 2000. It is a contract of sale for international transportation of goods to the agreed destination between seller and the buyer. CIF requires the seller to arrange time and place of delivery, freight charges, and insurance whereas the buyer will be responsible to pay taxes and dues after the loading of the goods.[1] Johnson v Taylor
The advantage of CIF allows the seller higher margin of profit as it allows the seller to obtain reasonable freight and insurance rates depending on the prevailing economy. Furthermore the seller can charge higher price for the service he provides. The seller is generally paid in advance, and seller has the knowledge and expertise in procuring a suitable insurance and transportation. CIF is unique in a sense that it provides insurance so risk is generally not a factor. The only party that is affected is the insurance company.
CIF does has its disadvantage. The buyer takes all the risk for the period of the carriage, and the buyer has no means of controlling or limiting those risks. The upper hand falls on the seller as the seller could control the cost incurred. And upon tendering the documents, buyer must pay the agreed price; even if the goods are lost or damaged at sea, the money has been paid. Also, the buyer has no opportunity to inspect the goods.
In a nutshell, CIF provides a fair protection to both parties. Even if the disadvantage is more on the buyer, insurance will cover the damages and lost. To deal with disputes, a stricter and clearer provision will help in the clarity of the contract.
Tuesday, November 9, 2010
Workshop 5 Summary...
'What are the key international regulations governing the prohibition of child labour, and do you think they are successful?'
Child labour refers to children under a minimum legal age, working full-time and such work harms them physically, mentally, morally, or by blocking access to education. This form of exploitation is considered illegal by international conventions. However, the main causes of such exploitation originates from poverty, unemployment and excess population. In order to counter such acts, various organizations such as United Nations Children's Fund (UNICEF) and the International Labour Organization (ILO) are enacted.
The first international conventions is the U.N Convention on the Rights of the Child 1989 (CRC). This is the most widely ratified multi-national treaty and following it's adoption, the world witnesses significant gains in the area of children's right. However, it is not as good as it seems to be. UNICEF claims that there is still 300,000 children in more than 30 countries are currently in armed conflict. Albeit CRC's afford, it seems that member countries fails to follow through with their promise.
Following CRC, ILO was set up too to protect children from the most extreme forms of exploitation. ILO Convention-182 has been ratified by 169 countries. For example, Brazil after ratifying the Convention-182, granted scholarships to more than a million poor children. This action has been a major success in the prevention of child labour. In 2006, a survey by ILO showed that school enrollment has increased. But then, for the U.S whom is a party to C-182 has not met its obligations under the Convention. A clear evidence of this is that U.S law still allow children to work long hours in hazardous jobs.
Internationally, efforts are made. But the onus falls on the member states to see that their promise and obligations goes through. But it is not easy since child labour has become much of a culture in certain countries and their economy might rely on child labour. The only way to break away from this cycle is education. With education, poverty can be managed and child labour will slowly decrease.
Child labour refers to children under a minimum legal age, working full-time and such work harms them physically, mentally, morally, or by blocking access to education. This form of exploitation is considered illegal by international conventions. However, the main causes of such exploitation originates from poverty, unemployment and excess population. In order to counter such acts, various organizations such as United Nations Children's Fund (UNICEF) and the International Labour Organization (ILO) are enacted.
The first international conventions is the U.N Convention on the Rights of the Child 1989 (CRC). This is the most widely ratified multi-national treaty and following it's adoption, the world witnesses significant gains in the area of children's right. However, it is not as good as it seems to be. UNICEF claims that there is still 300,000 children in more than 30 countries are currently in armed conflict. Albeit CRC's afford, it seems that member countries fails to follow through with their promise.
Following CRC, ILO was set up too to protect children from the most extreme forms of exploitation. ILO Convention-182 has been ratified by 169 countries. For example, Brazil after ratifying the Convention-182, granted scholarships to more than a million poor children. This action has been a major success in the prevention of child labour. In 2006, a survey by ILO showed that school enrollment has increased. But then, for the U.S whom is a party to C-182 has not met its obligations under the Convention. A clear evidence of this is that U.S law still allow children to work long hours in hazardous jobs.
Internationally, efforts are made. But the onus falls on the member states to see that their promise and obligations goes through. But it is not easy since child labour has become much of a culture in certain countries and their economy might rely on child labour. The only way to break away from this cycle is education. With education, poverty can be managed and child labour will slowly decrease.
Monday, November 8, 2010
Federal National Mortgage Association (Fannie Mae)
Fannie May can be considered as a continuation of the previous post on Lehman Brothers bankruptcy as it is one of the reason that the shadow banking system has taken a hit. Fannie May was created after the Great Depression to create a liquid secondary mortgage market and thereby free the loan originators to originate more loans, primarily by buying Federal Housing Administration (FHA) insured mortgages.[1] In other words, a buffer system that provides more loan to lenders.
Sounds simple, but one would wonder, where does the money comes from? They earn their profits from interest rate, so cash flow is necessary for profits just like Lehman Brothers. All is going well until 2008 where a shift in mortgage trend siding to other investment bank. The reason here being Fannie May is a regulated association and has guidelines to follow in mortgaging property. However, during this period of time, the economy downturn causes less people in the low and middle income to obtain a mortgage. Thus, these people choose unregulated conduit to obtain mortgage since it is easier to obtain one through them. This forced Fannie May to lower their standards to get back their profits.[2]
Lower standards resulted in the oversupply of underpriced housing finance that lead to an increasing number of borrowers, often with poor credit that were unable to pay their mortgages causing an increase in home foreclosures. Following this, home prices declined as increasing foreclosures added to the already large inventory of homes and stricter lending standards made it more and more difficult for borrowers to get mortgages. Going downhill is easy, so when the prices drop, there is no hitting the ground unless something is done. With no choice, the U.S government gave Fannie May the bailout costing in billions.[3] With this move, shadow banking system took a big hit as mortgage is one of the highest profit resulting in situation like those of Lehman Brothers.
Sounds simple, but one would wonder, where does the money comes from? They earn their profits from interest rate, so cash flow is necessary for profits just like Lehman Brothers. All is going well until 2008 where a shift in mortgage trend siding to other investment bank. The reason here being Fannie May is a regulated association and has guidelines to follow in mortgaging property. However, during this period of time, the economy downturn causes less people in the low and middle income to obtain a mortgage. Thus, these people choose unregulated conduit to obtain mortgage since it is easier to obtain one through them. This forced Fannie May to lower their standards to get back their profits.[2]
Lower standards resulted in the oversupply of underpriced housing finance that lead to an increasing number of borrowers, often with poor credit that were unable to pay their mortgages causing an increase in home foreclosures. Following this, home prices declined as increasing foreclosures added to the already large inventory of homes and stricter lending standards made it more and more difficult for borrowers to get mortgages. Going downhill is easy, so when the prices drop, there is no hitting the ground unless something is done. With no choice, the U.S government gave Fannie May the bailout costing in billions.[3] With this move, shadow banking system took a big hit as mortgage is one of the highest profit resulting in situation like those of Lehman Brothers.
Sunday, November 7, 2010
Lehman Brothers Chapter 11 Bankruptcy
In 2008, one of the most prominence global financial services firm was declared bankrupt in 2008. Before filling for Chapter 11 bankruptcy, the Lehman Brothers was a primary dealer in the U.S. Treasury securities market. The reason for their bankruptcy is due to dabbling in the shadow banking system. The shadow banking system can be easily characterized by a financial system that consists of non-depository banks and other financial entities. Shadow banking institutions are typically intermediaries between investors and borrowers that channel funds from the investor to the corporation, profiting either from fees or from the difference in interest rates between what it pays the investor and what it receives from the borrower. So they depends on cash flow to finance their operation, without movement of cash, the only way to go is down.[1]
So,going on with Lehman Brothers reason for bankruptcy. At that time, U.S is facing a sub-prime mortgage problems where the falling in U.S. housing prices, a rise in mortgage delinquencies and foreclosures causing disruption in the shadow banking system. With this crisis, Lehman Brothers loose their financial support, resulting in bankruptcy.
Chapter 11 provides additional tools for debtors allowing the trustee to operate the debtor's business. In Chapter 11, unless a separate trustee is appointed for cause, the debtor, as debtor in possession, acts as trustee of the business. In other words, all assets under the bankrupt company retains their value. Also, with bankruptcy, assets are generally frozen. Under Chapter 11, assets are release and given to the supervision of the court, and entrusted to a trustee. So, the victims could still retained the value of the assets, and not all is lost.
So,going on with Lehman Brothers reason for bankruptcy. At that time, U.S is facing a sub-prime mortgage problems where the falling in U.S. housing prices, a rise in mortgage delinquencies and foreclosures causing disruption in the shadow banking system. With this crisis, Lehman Brothers loose their financial support, resulting in bankruptcy.
Chapter 11 provides additional tools for debtors allowing the trustee to operate the debtor's business. In Chapter 11, unless a separate trustee is appointed for cause, the debtor, as debtor in possession, acts as trustee of the business. In other words, all assets under the bankrupt company retains their value. Also, with bankruptcy, assets are generally frozen. Under Chapter 11, assets are release and given to the supervision of the court, and entrusted to a trustee. So, the victims could still retained the value of the assets, and not all is lost.
Saturday, November 6, 2010
The ExxonMobil Case 2001 (Alabama)
I came across this case while surfing around the net, one of the classical examples on how a multinational corporation is taken advantage of due to one small mistake. Much like diabetic patient losing a limb because of a small cut. There are other example cases like McDonalds being a target for their nutritional value causing obesity or even tobacco company targeted for lung cancer causing agent. But these are story for another time. For now, ExxonMobil in the State of Alabama, U.S.
This particular case deals with taxation issue where a contractual relationship is establish between Alabama and ExxonMobil. In the contract, as ExxonMobil claims, has well establish terms relating to how tax should be paid and the amount promised. But then according to Alabama, the terms does not cover the extra 40 million U.S dollars royalties.
ExxonMobil Vice President Public Affairs, Kenneth P. Cohen in a press conference said "ExxonMobil sought judicial review of the lease agreement to resolve the $40 million question and Exxon communicated with the State in a completely transparent, straightforward manner. At the time Exxon started production, the company advised the State how it would calculate royalty payments and fully reported all volumes of natural gas and products produced from its wells to the State. When the State expressed confusion over contract language and requirements or if it needed additional information, Exxon provided it immediately."
As claimed by Exxon, it seems that Alabama wanted a fair share of the royalties or even some share in the result of punitive damages. Due to the nature of the dispute, it is dealt as a fraud case where income was not honestly shown. And by the nature of contracts, courts provide protection to lesser parties, in this case although hard to admit, is the State of Alabama. However, a case like this must always be dealt with carefully and with exclusion in a case to case basis. Or else a floodgate will open and these multinational corporation will face endless slaughter from leeches. That's the reason Exxon wanted a judicial review to overturn the verdict.
This particular case deals with taxation issue where a contractual relationship is establish between Alabama and ExxonMobil. In the contract, as ExxonMobil claims, has well establish terms relating to how tax should be paid and the amount promised. But then according to Alabama, the terms does not cover the extra 40 million U.S dollars royalties.
ExxonMobil Vice President Public Affairs, Kenneth P. Cohen in a press conference said "ExxonMobil sought judicial review of the lease agreement to resolve the $40 million question and Exxon communicated with the State in a completely transparent, straightforward manner. At the time Exxon started production, the company advised the State how it would calculate royalty payments and fully reported all volumes of natural gas and products produced from its wells to the State. When the State expressed confusion over contract language and requirements or if it needed additional information, Exxon provided it immediately."
As claimed by Exxon, it seems that Alabama wanted a fair share of the royalties or even some share in the result of punitive damages. Due to the nature of the dispute, it is dealt as a fraud case where income was not honestly shown. And by the nature of contracts, courts provide protection to lesser parties, in this case although hard to admit, is the State of Alabama. However, a case like this must always be dealt with carefully and with exclusion in a case to case basis. Or else a floodgate will open and these multinational corporation will face endless slaughter from leeches. That's the reason Exxon wanted a judicial review to overturn the verdict.
Tuesday, November 2, 2010
UK Government Putting a Cap on Immigration
Read the news, seems like UK is planning to further cap the amount of immigrants outside the European Economy Zone. Honestly, UK would limit the EEC immigrant if not for their pledge to EU. And the intention of the cap is easily understood, to limit lowly-skilled workers into UK. Problem is, this will create issue for legitimate workers with genuine intend to work and live in the UK.
Under the Asylum and Immigration (Treatment of Claimants, etc.) Act 2004, Section 2(1)A person commits an offence if at a leave or asylum interview he does not have with him an immigration document which— (a)is in force, and (b)satisfactorily establishes his identity and nationality or citizenship. Then in section 2(4)It is a defence for a person charged with an offence under subsection (1)— (e)to prove that he travelled to the United Kingdom without, at any stage since he set out on the journey, having possession of an immigration document.
So, if an immigrant has no form of identity in the UK, they can seek asylum under such law. The government cannot send the said immigrant back because there is no prove of nationality. This generally happens during war where a country is conquer or annexed and does not exist anymore. But then this is also applicable when an immigrant chose to dispose off all identity and claim asylum. During they interview, they either choose not to understand the questions or feign amnesia. So in the end, they are given probation before giving a UK citizenship, even if the wait is a decade. If someone with nothing to lose, this is a very wise move and for others, such an act will meant losing their identity, their previous life. This indirectly provides a loophole for illegal immigrants and 'leechers' to wriggle their way in. And these people are the people that UK wants to prevent from entering the country. In the end, nothings change, the only change is more trouble for genuine contributors.
Under the Asylum and Immigration (Treatment of Claimants, etc.) Act 2004, Section 2(1)A person commits an offence if at a leave or asylum interview he does not have with him an immigration document which— (a)is in force, and (b)satisfactorily establishes his identity and nationality or citizenship. Then in section 2(4)It is a defence for a person charged with an offence under subsection (1)— (e)to prove that he travelled to the United Kingdom without, at any stage since he set out on the journey, having possession of an immigration document.
So, if an immigrant has no form of identity in the UK, they can seek asylum under such law. The government cannot send the said immigrant back because there is no prove of nationality. This generally happens during war where a country is conquer or annexed and does not exist anymore. But then this is also applicable when an immigrant chose to dispose off all identity and claim asylum. During they interview, they either choose not to understand the questions or feign amnesia. So in the end, they are given probation before giving a UK citizenship, even if the wait is a decade. If someone with nothing to lose, this is a very wise move and for others, such an act will meant losing their identity, their previous life. This indirectly provides a loophole for illegal immigrants and 'leechers' to wriggle their way in. And these people are the people that UK wants to prevent from entering the country. In the end, nothings change, the only change is more trouble for genuine contributors.
Monday, November 1, 2010
China Accused of Keeping Yuan Artificially Low
Many Western economists believe China's currency is undervalued by as much as 40 percent, giving it an unfair advantage in world trade by effectively subsidizing its exports while putting a de facto tax on imports. The reason behind this accusation is because western countries, particularly U.S, lost much of it's economy due to outsourcing to other countries with cheaper labour. And China is at the top of outsourcing list due to it's massive and cheap human resource. In the principle of free trade (where minimum regulation allowing free development of trade) which is being preached and upheld by the U.S seems to be somewhat hypocritical. For decades U.S has been leading the world economy but now to gradually loosing to China which will become the next economy powerhouse makes them feel redundant.
In the past few months, U.S has been pushing China to re-value their Yuan but to no avail. China claims that re-valuating their Yuan is a matter of internal matter and they will only do so if they are sure their economy will not be affected. According to Chinese spokeswomen Jiang Yu at a regular press briefing "Using the [yuan] exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-US trade and economic relations, and will have a negative effect on both countries' economies and the world economy." This form of trade-protectionism comes in a bill that has been voted through by the US House of Representatives. However as of now it still require the Senate and presidential approval. This bill if becomes law, will allow the US Commerce Department to impose tariffs on Chinese imports, if it deems the yuan to be "fundamentally undervalued". Sounds like an intimidation which is all too common for the U.S to employ to beat any country into submission. But then China is not to be trifled with as they claim that such a law is against WTO law according to Yao Jian, a spokesman for China's Ministry of Commerce. From the looks of it U.S has clearly make their intention clear and in such case WTO might not agree with them. This move by the U.S has shown an act of 'unfairness'. No matter whether the bill has been passed or not, U.S will still lose since China is currently their fastest growing export market. Cutting off one of their main economic trade is not a wise move, even if is to preserve some form of ego. Western countries affected by the economic slowdown should at least consider taking a step back to reevaluated their policy. Laws should be done for the best of the people (protection and deterrence), not to attack and intimidate. U.K government has been doing a good job in attempting to fix the economy, thought the moves are ugly (like sawing off an infected limb to save a life) but at least they did not point fingers. Kudos.
In the past few months, U.S has been pushing China to re-value their Yuan but to no avail. China claims that re-valuating their Yuan is a matter of internal matter and they will only do so if they are sure their economy will not be affected. According to Chinese spokeswomen Jiang Yu at a regular press briefing "Using the [yuan] exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-US trade and economic relations, and will have a negative effect on both countries' economies and the world economy." This form of trade-protectionism comes in a bill that has been voted through by the US House of Representatives. However as of now it still require the Senate and presidential approval. This bill if becomes law, will allow the US Commerce Department to impose tariffs on Chinese imports, if it deems the yuan to be "fundamentally undervalued". Sounds like an intimidation which is all too common for the U.S to employ to beat any country into submission. But then China is not to be trifled with as they claim that such a law is against WTO law according to Yao Jian, a spokesman for China's Ministry of Commerce. From the looks of it U.S has clearly make their intention clear and in such case WTO might not agree with them. This move by the U.S has shown an act of 'unfairness'. No matter whether the bill has been passed or not, U.S will still lose since China is currently their fastest growing export market. Cutting off one of their main economic trade is not a wise move, even if is to preserve some form of ego. Western countries affected by the economic slowdown should at least consider taking a step back to reevaluated their policy. Laws should be done for the best of the people (protection and deterrence), not to attack and intimidate. U.K government has been doing a good job in attempting to fix the economy, thought the moves are ugly (like sawing off an infected limb to save a life) but at least they did not point fingers. Kudos.
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