Q173: I’ve been told to avoid using EXW: why is this a problem term?

A173: The current version of Incoterms carries this notice in the Explanatory Notes to EXW –

“…With delivery happening … within the seller’s jurisdiction or within the same Customs Union, there is no obligation on the seller to organise export clearance or clearance within third countries through which the goods pass in transit. Indeed, EXW may be suitable for domestic trades, where there is no intention at all to export the goods…” (© ICC publication E723E)

With this caution, the private definition of EXW given in the 2020 version of the Incoterms rules is not recommended for international or cross-border trade.

Broadly, the contract term requires the seller to produce the contract goods and make these available to the buyer ‘on the ground’ and ‘not cleared’ for export customs. If export customs clearance is required, this is the buyer’s responsibility and risk.

As Incoterms is a seller-driven system (European law, which is the basis for Incoterms rules, being seller-driven), each rule considers a transaction from the seller’s perspective. As the seller is not responsible for export clearance, so EXW is considered inappropriate for international sales from the seller’s point of view. This does not mean that the buyer may not export the goods subsequent to taking delivery, but only that if they do it does not concern the seller.

The complication of loading the supply on the collecting vehicle also arises – in EXW the seller is excused this risk, cost, and responsibility, added to which the documentary ‘evidence’ of delivery is fraught with difficulties, given that it is generated by the buyer and not the seller (leaving the seller with the commercial risk of lacking sufficient proof of delivery should the buyer default).

However, the complication with the term EXW in a broader context is that it is frequently confused with a similar-sounding but wholly unrelated Customs valuation expression, ex-works. By avoiding the use of EXW in international trade the possibility of confusing it with ex-works is wholly removed.

In the process of valuation for Customs purposes, the value of a transaction at the point of supply is termed ‘ex-works’. The SA Revenue Services Customs website defines this point in the supply chain in the following manner –

“…Generally, the ex-works price is referred to as that price which the buyer will pay for a product if delivery thereof is taken outside the factory gate, i.e. the full export price of the product…” (sars.gov.za)

If you are familiar with Incoterms rules, the description of the ex-works price for Customs purposes may remind you of an FCA contract, one where the point of handover to the buyer’s carrier is the seller’s premises. Make particular note that the ex-works price is ‘outside’ the factory gate – as EXW excludes the loading of the buyer’s vehicle, delivery under that term must by default end ‘inside’ the factory gate(s).

Further, note the implication that the ‘full export price’ would include the export formalities such as Customs clearance. The goods are ‘outside’ the factory gates – the international journey has begun.

An FCA contract (correctly written) requires the seller to export clear and to load the collecting vehicle. This results in a Customs ex-works value. Again, note how the expression of the Customs valuation symbol ‘ex-works’ is written in lower case letters, using a hyphen (dash).

In Incoterms rules, when expressed long-hand, the ‘domestic’ symbol EXW is written (in English) Ex Works. Note the capital E and W and the absence of a hyphen.

Incoterms: Ex Works

Customs valuation: ex-works

These are two unrelated expressions. One is mandated by law (the Customs valuation symbol), the other is the private invention of a group of businesspeople.

Under EXW, as there is no intention on the seller’s part for the goods to be exported, so there is no Customs equivalent expression of price. As mentioned above, FCA at the seller’s premises gives rise to a Customs ex-works value, just as FCA handed over to the buyer’s carrier at an airport (for example) could give rise to a customs free onboard (often expressed f.o.b.) price.

It makes sense that the Incoterms rule EXW has no customs equivalent value as it is not intended to be used for international trade.

A final note of caution. Just because the expression EXW may be used ‘domestically’ does not mean to say that it would necessarily be prudent to do so. There is perhaps some obscure advantage within the European Union where merchants, who previously traded with each other across borders prior to Unification, may yet need a ‘domestic’ term for their borderless dealings.

Within the context of a single jurisdiction such as South Africa, and to paraphrase Baron (Justice) Devlin, “…Only the most enthusiastic lawyer could watch with satisfaction…” a South African company doing business with another South African company where both abandon their proven Standard Terms and Conditions in favour of a rather unstable, fragmented and badly drafted private Eurocentric idea of contract.

As the late Jim Merrington often remarked: “Some people learn in the classroom; some people learn in the courtroom.”

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