One issue that continues to appear in disputed transactions handled by DRC Trading Assistance Staff is if the seller and buyer agreed on a commodity grade standard.
Each country, region, or economic union, has grade standards for commodities grown and traded in these territories. In the United States and Canada, US Grade Standards and Canadian Grade Standards are the grade standards buyers and sellers are most familiar with. However, there are other commodity grade standards such as the FAO’s CODEX Alimentarius and the United Nations Economic Commission for Europe (UNECE) Standards for Fresh Fruit and Vegetables.
While there are some similarities among the grade standards for specific commodities from the above-mentioned jurisdictions, there are significant differences which make each grade standard stand “its own”.
Therefore, for DRC members, it is a good trade practice to, when discussing the terms of a transaction, agree on a specific, defined grade standard if that is the intention. This is particularly important because for DRC members who fail to demonstrate that a specific grade standard was agreed upon, the transaction defaults to No Grade, DRC Good Arrival Guidelines.
DRC Good Arrival Guidelines is a combination of PACA 5 Day FOB Good Delivery Guidelines, CFIA Canadian Destination Tolerances and Suitable Shipping Condition Guidelines which establish the maximum percentage of defects allowed at destination for FOB shipping point transactions. Suitable Shipping Condition is defined as sellers assuring that the product will meet the agreed quality and condition requirements when the product is shipped. The seller also assures that the product will not deteriorate abnormally if proper transit time and temperatures are maintained during shipment. This implies that some degree of deterioration will normally occur over time, even under the best of transit conditions
Section 20, Trade Terms of the DRC Trading Standards states that INCOTERMS such as CPT, CIP, CFR, and CIF are all deemed to be the same as FOB except that the seller assumes the costs associated with the named INCOTERM. However, the risk of transit remains with the buyer.
Unless there is an agreement on a specific and defined grade standard, such as US #1, Canada #1, Codex Class I, or UNECE Class I (also known as CAT I in the Spanish and French versions of the CODEX Standards or UNECE Standards), all transactions between DRC members will default to FOB No Grade Good Arrival.
Finally, another important matter to consider when negotiating the terms of the transaction, when a grade standard is agreed upon, all defects scored in a quality/condition inspection report count towards the total percentage of defects allowed. However, when no grade standard is identified as part of the terms of the transaction or the transaction defaults to DRC Good Arrival Guidelines, only condition defects count towards the maximum percentage of defects allowed. Permanent or quality defects are those that do not change with time such as scars or hollow stems. Condition defects are those that change with time such as decay, bruising, soft to name a few.
