Saudi Arabia is now a party to the 1980 Convention on International Sales (CISG)
from a 1929 Italian Atlas
Saudi Arabia acceded on Aug 2023 to CISG, the UN International Sales Convention made in Vienna in 1980. This is a major instrument aimed to harmonize cross-border commercial sale rules. It is basically made of three parts:
– Part I sets the general rules concerning int’l commercial sales, the boundaries of the Convention, and setting some basic definitions, and the principles for the CISG interpretation;
– Part II sets the mechanisms for the formation of a sale agreement;
– Part III deals with the core of a sale contract, i.e. the rights and obligations of the parties, and the consequences of possible non-compliance.
The status of CISG “Contracting State” is an important factor in determining the CISG’s applicability to a sale transaction entered by businesses having their operation based in that country. In fact, according to Art. 1(1) CISG: “This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State”.
Saudi’s move was long expected at the international level, since the country’s import ranks around some 232.8 billion USD/y (mostly from China) .
CISG rule on interest on sums in arrears, however, prevented a full adoption of CISG by Saudi Arabia
Disappointingly enough, however, the adoption of CISG by Saudi Arabia (effective Sep 1st, 2024) was only partial. In fact, Saudi Arabia has declared not to be bound by CISG Part III (and this is something art. 92.1 CISG permits, although no other States has profited so far).
The reason for said exclusion is that there are rules in CISG in Part III that grant an unpaid creditor interest on sums in arrears – and this potentially clashes with the Islamic laws prohibiting riba (usury).
What’s next?
What is it likely to happen now? On one hand, the adoption of CISG, although partial, by Saudi Arabia clearly poses a serious problem, given that Part III is by large the essential part of convention; on the other hand, it may smooth the way for other Arab countries to join the CISG.
Hopefully, the ban of Part III can be lifted in the future, namely by construing interest on sums in arreas (generally prohibited under the Sharia, as riba) as damages (allowed, provided it is limited to actual harm). Some scholars have suggested that Saudi Arabia could withdraw their Art. 92 reservation, by declaring that the interest cannot exceed the actual damage or, as an alternative, that the matter will be dealt in Saudi Arabia by special non-Sharia court.
We will see.
CISG and the top-20 economies
To date, the States that are party to CISG are 97 and all the top-20 economies are in the list (with the notable exception of the UK, India and UAE). Saudia Arabia is the only country in the list, having a Sharia-based legal system.
