International trade is complex and regulated. Even a single mistake in contracts, documentation, or understanding Incoterms can lead to:

• Shipment delays or customs penalties

• Financial losses

• Disputes with buyers or suppliers

• Loss of credibility in international markets

For SMEs, mastering legal compliance, contracts, and Incoterms is essential to secure, scalable, and profitable operations.

Table of Contents

1. Understand Legal Compliance in Import & Export

2. Drafting International Trade Contracts

3. Understanding Incoterms (International Commercial Terms)

4. Compliance with Export-Import Laws

5. Risk Management in Contracts

Understand Legal Compliance in Import & Export

1. Mandatory Registrations

   • IEC (Importer-Exporter Code) – DGFT

   • PAN & GST – for tax compliance

   • RCMC – for export promotion council benefits (if applicable)

2. Product-Specific Compliance

   • Food → FSSAI

   • Electronics → BIS certification

   • Pharmaceuticals → CDSCO approval

3. Export/Import Documentation Compliance

   • Bill of Lading / Airway Bill

   • Commercial Invoice

   • Packing List

   • Certificates of Origin and quality

Actionable Tip: SMEs should maintain a compliance checklist for each shipment and review DGFT and Customs notifications regularly.

Drafting International Trade Contracts

Key Components of a Contract:

1. Parties Involved

   • Include full legal names, registered addresses, and contact details

2. Product Details

   • Description, quantity, quality specifications, HS codes

3. Price & Payment Terms

   • Total cost, currency, method (LC, advance, DA/DP), deadlines

4. Delivery Terms

   • Incoterms, shipping method, insurance responsibilities

5. Force Majeure Clause

   • Covers natural disasters, political disruptions, and unforeseen events

6. Dispute Resolution

   • Arbitration vs litigation

   • Jurisdiction and governing law

7. Penalties & Breach Clauses

   • Late delivery, non-payment, or quality defects

Actionable Exercise: Draft a contract template for your first international transaction using these sections.

Understanding Incoterms (International Commercial Terms)

Incoterms define responsibility, risk, and cost allocation between buyer and seller.

1. EXW (Ex Works)

   • Buyer takes responsibility from seller’s premises

   • Minimal seller involvement; high buyer responsibility

2. FOB (Free On Board)

   • Seller delivers goods onboard the ship at port of shipment

   • Risk transfers to buyer once loaded

3. CIF (Cost, Insurance, Freight)

   • Seller pays cost, insurance, and freight to destination port

   • Risk transfers to buyer at the port of shipment

4. DDP (Delivered Duty Paid)

   • Seller bears all costs and risks until delivery at buyer’s location

   • Suitable for SMEs aiming to simplify buyer experience

Actionable Tip: Choose Incoterms carefully based on risk appetite, cash flow, and operational capability.

Compliance with Export-Import Laws

1. DGFT Notifications & Foreign Trade Policy

   • Update on export incentives, prohibited items, and quotas

2. Customs Act Compliance

   • Correct HS codes, accurate invoicing, and duty payments

3. Country-Specific Import Regulations

   • Check buyer country requirements for standards, certifications, and labeling

4. Anti-Corruption & Ethical Compliance

   • Ensure suppliers and agents comply with legal and ethical standards

Actionable Exercise: Create a country-specific compliance sheet for your target markets.

Risk Management in Contracts

1. Incorporate Payment Guarantees

   • Use LC or escrow arrangements to secure payment

2. Insurance Clauses

   • Include cargo and liability insurance clauses

3. Termination & Penalty Clauses

   • Protect your SME from buyer or supplier defaults

4. Regular Contract Reviews

   • SMEs should update contracts annually based on regulatory or market changes

Practical Example for SMEs

Scenario: SME exporting handmade furniture to the EU

• Contract Key Points:

  • FOB shipping at Mumbai port

  • Payment via LC within 30 days of shipment

  • Quality certificate attached

  • Force Majeure clause included

• Result: Shipment cleared customs smoothly, payment received without delays, no disputes arose

Actionable SME Exercise

1. Draft sample contract using provided components

2. Choose Incoterms suitable for your first shipment

3. Verify compliance with DGFT, Customs, and buyer country regulations

4. Incorporate risk mitigation clauses for payment, insurance, and delivery

5. Keep all legal documents organized for audits and future reference

SMEs with strong contracts and compliance practices are well-positioned for growth and credibility in international markets.

Now that you understand contracts and legal compliance, the next step is leveraging government incentives to maximize profitability and reduce costs.

Read: Government Incentives for Exporters & Importers