Reasons for disputes in international trade between exporter and importer can be many.
The primary reason for disputes is quality of the goods exported. Under contractual terms in many export contracts, importer gets the opportunity to inspect the quality of goods only when the consignment reaches him. In many cases, by that time, the exporter would have got money. Even if the consignment is sent on collection basis, importer can check the quality only after retiring the documents.
Other reasons for the disputes can be delayed shipment or non-shipment due to change in government regulations or market conditions, restricting exports...
In any business there are two basic methods for dispute settlement - Litigation and arbitration.
Litigation is highly suitable due to the proverbial delayed process, prohibition costs and uncertainty of decision.
But what are the basic Limitations of Litigation?
How fast a litigation can be in export import business?
Is it easy to educate and convince on judgments with proper documentary proof?
How convenient to both exporter and importer under Litigation in international business?
Will it effect both importer and exporter on their business due to bad image among public?
How to effect trade relationship for both seller and buyer under litigation?
Are international laws and procedures simple to handle?
The discuss these area are:
Slow Process: almost all civil process of litigation is slow. Court process proverbially takes huge time consuming and formalistic.
Avoidable Necessity of Export Witness and other Evidence: In international contracts, practices, procedures and customs are different. A judge however well versed may be, in law, can not be expected to know all these intricate matters. So, in courts, to educate the judge about these practices, witnesses who are experts and having knowledge in the field have to be produced to prove the practices, even before the evidence is established.
Inconvenience to the Parties: Court timing and date of hearings may not be convenient to litigants. Most of the time, cases are postponed and in that process months drag on even for completion of one witness. Even after day’s long waiting for hearing, one may know, at the end of the day, that the case is adjourned for two months due to non availability of the other advocate!
Adverse Public Image: Court proceedings are never secret. Media always covers the developments in important cases. Even the superior court judgments are published. Matters, which have been confidential till the case is brought to a court of law, become topics for public discussion that may bring notoriety, loss of goodwill and long-standing reputation.
Bitterness and Disruption of Trade Relationships: When a matter goes to a court of law, it is immaterial which party may win as the age old established relationship, after the case is brought to litigation in a court, comes to an end with only acrimony ad bitterness.
Different Laws and Procedures: International trade laws and procedures are more complicated. Litigation in foreign courts is more expensive and difficult in comparison to the domestic courts.
About Arbitration under Imports and Exports.
How does arbitration helps exporters and importers if dispute arises?
How fast arbitration can take place under a dispute between buyer and seller in export import business?
How expensive compared to litigation under export import dispute between seller and buyer?
How does an arbitration under international business effect Goodwill of both exporter and importer?
What about the confidentiality about the dispute between importer and exporter in an international trade?
Basic advantages of Arbitration in Export Import dispute compared to Litigation:
Quickness: Definitely, arbitration is quicker than litigation. Process of arbitration can be completed as fast as the concerned parties desire. Under Arbitration Act, the arbitrators have to make the award within four months from the date of completion of all proceedings. Usually, arbitration is settled within a period of four months to one year.
Inexpensiveness: Total incidental expenditure in arbitration is always much lower than litigation. Arbitration fees is around 2% of the claim value or less in institutional arbitration.
Promotes Goodwill: As the arbitrator is chosen by both the parties, based on their faith and his competence, arbitration becomes a normal process of goodwill. Arbitration proceedings and its outcome do not disturb the existing friendly relations between the exporter and importer.
Choice of Appropriate Arbitrator: As the arbitrator is chosen by both the parties and name incorporated in contract, who has the knowledge of customs and procedures of international trade, so separate expert witness for educating the judge does not arise.
Privacy: Arbitration proceedings are not open to public. Arbitrator’s award is not published in any newspapers. This preserves privacy of the parties. So, trade secrets as well as disputes arising from the contracts do not become public
Comparing these situations with CAD, it seems clear that CAD alleviates potential problems because everything is resolved before it occurs.
Of course, there are some disadvantages in the use of CAD procedures, but it is also clear that it will be favored who uses it versus those who use traditional processes.