Business Passages – GMAT Verbal

Example Question #1 :

Business Passages

The United Nations Convention on Contracts for the International Sale of Goods (CISG) can help countries throughout the world have a more uniform way of navigating the challenging waters of international law surrounding trade. It is not uncommon for two countries to have adopted different laws on international trade that conflict with each other. This becomes a serious problem when trade disputes arise. To help make this concept more tangible, consider the following hypothetical.

Suppose China ships three million dollars’ worth of electronics to Uganda using standard bulk shipping transportation methods via a commonly traveled sea route. However, the packaging isn’t secured in a manner sufficient to withstand unforeseen weather conditions. As a result, the goods become damaged in transit and are no longer fit for resale. Given that two countries are involved in this transaction–China and Uganda–the question arises as to which country’s trade laws will apply to resolve the matter at hand.

In this scenario, it is fortunate that both China and Uganda are parties to the CISG, which provide for a uniform set of laws governing trade. Such laws cover which party would be responsible for the damaged goods in this scenario. As a result, there will be no dispute as to whether China’s or Uganda’s trade laws apply. Given that both countries are parties to the CISG, the laws set forth by the CISG would be applicable.

However, not all countries are parties to the CISG. One example is Rwanda. Even though Rwanda is not a party to the CISG, the fact of the matter is that CISG laws can still apply to it. The CISG applies to trade between countries so long as one of those countries is a party to the CISG (unless the parties expressly specify that the CISG will not apply to their specific trade arrangement). Several of Rwanda’s main trade partners, such as the United States, China, Belgium, and Uganda, are parties to the CISG, so the laws of the treaty will apply in those trade agreements. Meanwhile, there is a different story when it comes to Rwanda’s trade agreements with Kenya, Swaziland, Tanzania, and Thailand, which are not parties to the CISG. Due to these countries’ lack of membership in the CISG, if a problem ever arose in a trade agreement between Rwanda and one those countries, it would be unclear as to which country’s laws would apply.

There has been heated discussion as to whether Rwanda should sign the CISG. The United Nations Development Program takes the stance that it would behoove Rwanda to join. Whether or not Rwanda decides to become a member, the CISG will still apply to a large portion of its trade agreements, as about 100 countries are in fact CISG members, with a strong portion of those members also being trade partners with Rwanda. On the flip side, some Rwandan politicians believe that valuable autonomy would be lost if Rwanda assented to the CISG. However, given the potential benefits that Rwanda stands to gain from the CISG, these fears do not merit forgoing such a valuable opportunity.