Purchasing, for the purposes of this Guide, is the acquisition and sale by private companies of goods, supplies and products that are shipped for delivery across countries. It involves all the commercial activities for ordering, buying and selling of goods in an international trade transaction between a buyer and a seller. These constitute the Buy element of the Buy Ship Pay Model.
Relevance to trade facilitation
The purchasing process results in an extensive flow of information between buyers and sellers, and any intermediaries involved in the transaction. Data is exchanged through various channels. Documents are filled, signed, authenticated and exchanged to ensure that the correct goods are shipped, that transport is timely, and that payment can be initiated promptly. Furthermore, the data and documents may originate in different countries, responding to different regulatory settings and languages.
Most stages of the process are open to trade facilitation measures. Simple, transparent and effective purchasing procedures are key in keeping trade flowing as freely and predictably as possible. On the contrary, restrictive, opaque and inefficient procedures lead to fraud, corruption, waste of resources and higher prices for the purchased goods. Buyers and sellers are encouraged to use international standards (including document layouts) and best practices for cross-border purchasing whenever practical, as they contribute to smooth and speedy transactions, with enhanced accuracy in transmission of data. These include:
- Trade documents and data elements that have been aligned to the UN Layout Key for Trade Documents as part of document simplification and data harmonization efforts. Examples are requests for quotes, the offer, purchase order, acknowledgement of order, dispatch advice and the commercial invoice.
- Model purchasing contracts, such as the ICC Model International Sales Contract, which set clear and concise standard contractual conditions, including ICC Incoterms for definining the terms of delivery, and the ICC rules of arbitration for resolutions of disputes.
- Standard descriptions for the purchased products to facilitate product identification, expedite Customs clearance and simplify their inspection and acceptance, such as those based on the Harmonized Commodity Description and Coding System.
- Qualified suppliers and product lists that are to be managed in an open and transparent way and constantly updated.
- Framework agreements for long-term partnerships between the buyer and seller, which set out the conditions for trade and the technical details under which the buyer may place repeated orders.
- IT-supported processes with paperless documents, so called e-purchasing. These include e-tendering for sourcing the market, e-reverse auctioning for receiving and evaluating offers, and e-invoicing systems for requesting payments.
Nowadays, increasing attention is paid to companies' policies and practices for corporate social responsibility. Consumers, governments and media need to know whether goods are manufactured and exchanged according to fundamental labour standards and with respect for the environment. For companies, this has an impact on competitive advantage, and the ability to attract investors, sponsors and clients. They are therefore encouraged to adopt international codes and standards for environmental protection and social responsibility, as well as for integrity and transparency. The ICC Commission on Corporate Responsibility and Anti-corruption develops rules of conduct and best practices in this area. The International Organization for Standardization (ISO) has recently launched a voluntary standard on social responsibility - ISO 26000. Another relevant initiative is the UN Global Compact.
International purchasing and sales are governed by a variety of legal and regulatory frameworks that aim to minimize restrictive practices, such as the principles and measures of the WTO Government Procurement Agreement (WTO GPA). The UN Commission on International Trade Law established UNCITRAL rules for arbitration and dispute resolution relating to international sales contracts.
UNECE Recommendation 18 gives a comprehensive set of recommendations regarding international best practices and standards for the facilitation and harmonization of trade transactions, including commercial measures. UNECE Recommendation 5 provides the abbreviations for INCOTERMS to be included in international sale contracts.