Japan approves UN Convention on Contracts for International Sale of Goods

Japan's Diet (the federal legislative body) has approved the United Nations Convention on Contracts for the International Sale of Goods (“CISG”). As a result, the CISG will enter into force for Japan on August 1, 2009.

The CISG is important in transnational agreements for the sale of goods. The United States has been a contracting country of the CISG since January 1, 1988. Now, with Japan now also a contracting country, agreements for the sale of goods between private parties in Japan and the United States must now take account of the CISG. Since Japan is the United States' fourth largest trading partner, representing over $170 billion in trade, the adoption of the CISG by Japan could have major implications.

The CISG provides that, unless the parties “opt out” of the application of the CISG, the CISG applies to contracts for the sale of goods between parties whose places of business are in different countries in one of two situations: first, when both countries are contracting countries of the CISG, or second, when the rule of private international law leads to the application of the law of a contracting country of the CISG. (As noted below, the United States, when ratifying the CISG, decided it would not be bound by this second situation.)

For example, upon the effectuation of the CISG for Japan, if a company whose place of business is in Japan makes an agreement for the sale of goods with a company whose place of business is in another foreign country, which is also a contracting country of the CISG (such as the United States), then the CISG applies to the agreement unless the parties opt out of the application of the CISG.

As another example, upon the effectuation of CISG for Japan, if a company whose place of business is in Japan makes an agreement for the sale of goods with another company whose place of business is in another foreign country and the rules of private international law lead to the application of the law of Japan, then the CISG applies to the agreement unless the parties opt out of the application of the CISG. This is the case, even if the other foreign country is not a contracting country of the CISG. (However, in an important distinction, the United States did not agree to the application of the CISG when the rules of international law lead to the application of a CISG contracting country. Before Japan approved the CISG, this was an important distinction, as the United States would not apply the CISG

unless both parties were from countries that were contracting countries. But now, with Japan having approved the CISG, the CISG can now apply to contracts between Japanese parties and U.S. parties.)

With respect to the timeline, for Japan, the CISG could apply to contracts concluded on or after the date when the CISG enters into force which, for Japan, is August 1, 2009.

The provisions of the CISG can be different from the laws of Japan and the Uniform Commercial Code. Many U.S. buyers and sellers, preferring U.S. law, have frequently opted out of the CISG when transacting with parties from contracting countries. Others felt more comfortable with the CISG and agreed to have it apply. But, in either case, it is important for the parties now to consider the CISG and decide its application. Many parties, without considering the CISG or the provisions permitting the parties to opt-out, have found, sometimes to their surprise, that the CISG applies to their transaction.