trade term

Contractual legal risks and prevention of Chinese enterprises in international trade of goods

The significance of international trade in goods to prevent contractual legal risks

In the international trade of goods, because it is a transnational transaction, the economic policies and laws and regulations of the countries where each trading entity is located are different, and if the control of legal risks is neglected, it is easy to cause conflicts and contradictions between buyers and sellers, and once legal disputes arise, it will cause large economic losses. Therefore, in response to these problems, enterprises need to entrust professionals, timely understanding of the possible legal risks in the transaction, and according to the characteristics of the risk to develop a reasonable way to avoid, reduce the legal risks caused by the parties to the contract disputes, to protect the smooth transaction between the two sides.

International trade in goods to prevent the legal risk of the contract mainly exists in three stages: contract negotiation, contract terms and conditions design after the signing of the contract, contract performance. Reasonable prevention and control of international trade in goods contract legal risks, both for the entire foreign trade industry and for the enterprise itself are of great significance. For the foreign trade industry, the active international trade activities to China’s economic development to inject a shot in the arm, prompting the foreign trade industry into the development of the blue ocean, and for China to bring more jobs to ease the pressure of employment. For enterprises, it helps them to improve economic efficiency, increase the output value of enterprises and ensure the normal operation and development of enterprises.

Analysis of the main legal risks of international trade in goods contracts

International trade in the process of signing contracts, with a changing policy environment, long transaction cycle, the contract needs to consider the complexity of factors such as the signing of the contract, and therefore much more complex than the signing of ordinary contracts. However, the legal risks in international trade are also regulated, which are mainly divided into two types of risks, including the risk of signing contracts and contract performance risks, among which, the signing of contracts mainly due to the failure to timely save the information on the transaction negotiation link before the signing of the contract; not fully understand the legal terms applicable to international trade; ignore the legal risks caused by the use of trade terms; and the legal risks of contract performance Risks include inconsistency between letter of credit and contract terms; failure to timely inspect and notify imported goods, etc.

At present, the country’s trade environment is constantly changing, complex trading environment and changes in regulations, the legal risks of international trade contracts are multiplied, which also makes international trade contracts signed with the basic characteristics of international, complex. In addition, the import and export enterprises are often also involved in payment methods, import and export transportation and other issues, which in turn involves monetary policy, customs systems, customs and other issues in various countries, so the international trade contract disputes more nodes, the source of risk is also more complex.

The legal risk control in the contracting of international trade in goods

1, the negotiation process of legal risk control

In the process of international trade, the two sides in the consultation of the views expressed, the information presented should be changed to the final completion of the contract after the signing of the reference, some of the main content should be written into the contract, in other words, the final effect of the contract between the subjects of the transaction, in addition to the parties formally signed the contract, should also contain the sum of all issues agreed upon by the parties to the transaction. Therefore, in international trade, the parties to the transaction should properly retain the information of communication and negotiation between the parties, such as recorded telephone files, letters, e-mails, instant messaging records, online file transfer meeting records, etc. It is more appropriate to keep the information of each transaction in the contract. A more appropriate way is to keep each document in the notes are marked in the date and reason for the correspondence, which will help?p parties to reach agreement on risk issues.

2, the contract terms design of legal risk control

(1) Choose the correct trade terms

At present, Chinese enterprises in the international trade in goods, the two most commonly used trade terms are FOB and CIF, but in some specific circumstances, the improper application of these terms may cause legal risks, so for enterprises, according to the specific transaction situation should choose a more appropriate trade terms.

Both FOB and CIF have clear provisions that the point of transfer of cargo risk is agreed to be the ship’s side, which means that the seller’s risk extends until the goods enter the ship. Therefore, these two methods are more applicable to shipping. And for container transportation: shippers generally deliver the goods in the container yard with the carrier, and only after that the carrier for supervision. However, from the container yard to the ship’s side there will be an interval, in this interval the loss of goods for the seller is in a difficult state of control. And for land or air transport, there is no ship’s side of the risk transfer point, that is, it is impossible to determine when and where the risk should be transferred, this situation for both buyers and sellers, the risk is greater.

For this kind of situation, you can consider choosing FCA and CIP trade terms instead, these two terms have many similarities with FOB and CIF, but these two terms agree that the risk transfer point is the time of delivery to the carrier, there is no ship’s rail this restriction, so these two trade terms are applicable to many modes of transport, and not limited to shipping.

(2) Choose the appropriate payment method

There are three payment methods commonly used in international trade, L/C (Letter of Credit), Telegraphic Transfer (Telegraphic Transfer) and D/P (Document against Payment). At present, the most widely used by Chinese enterprises is L/C, if the transaction process is more complex, different payment stages will be set, and a variety of payment methods can be used for the complete payment process.

Compared to other payment methods, L/C has the advantage of bank credit intervention, which is suitable for trade parties who do not know each other’s situation, but this method is not only cumbersome and expensive, but also prone to disputes. This requires the enterprise to determine the priority of the customer and select the most appropriate payment method according to the rating to avoid risks and reduce costs at the same time.

(3) Selecting qualified trading entities

There are many subjects involved in the international trade process, such as foreign buyers, agents, actual payers, import and export agents, etc. All these subjects may become the counterparties of domestic manufacturers’ export transactions. If the qualifications of these subjects are not identified at the beginning of the transaction and clarified in the form of a contract, there is a possibility of shifting responsibilities to each other when disputes occur. Therefore, in international trade, enterprises must identify and select qualified subjects for transactions in order to minimize the risk. In addition, domestic manufacturers should sign foreign sales contracts or orders before exporting, and specify the identity of the buyer in the contract, such as involving agents or third-party payers, should be specified in the foreign sales contract to avoid unclear and confusing subjects.

(4) Choose a favorable dispute resolution method

There are many variable factors in international trade, and it is common knowledge that disputes arise, so enterprises should focus on selecting a favorable dispute resolution method for themselves, and make clear agreement in the contract. At present, there are two major legally effective dispute resolution methods, namely court litigation and arbitration.

Court litigation is usually a two-trial process, while arbitration is final and cannot be appealed. Arbitration is more reasonable in terms of time cost alone, but court litigation is more strictly controlled in terms of notarization and service of process. In terms of quality of adjudication, arbitration awards are subject to very weak supervision, are susceptible to non-legal factors, and are concluded after only one proceeding, so the quality of adjudication in court litigation is higher. In terms of the fees charged by the adjudication structure, arbitration fees are generally higher than court litigation fees. Therefore, enterprises should consider their own situation and choose a more favorable dispute resolution method.   

(5) Choice of dispute resolution institution

Many enterprises in international trade will choose arbitration to resolve disputes, the selection of the appropriate institution can significantly reduce the difficulty of dispute resolution. At present, the mainstream international arbitration institutions are: China International Economic and Trade Arbitration Commission (CIETAC), International Commodity Agreement Interim Coordinating Committee (ICCICA), Hong Kong International Arbitration Center (HKIAC), Singapore International Arbitration Center (SIAC), etc. In terms of international arbitration as a whole, the mainstream? ^ point that ICCICA is more neutral than other institutions, and larger amounts of trade activities prefer ICCICA, but the institution is also more expensive. Companies should also consider the friendliness and convenience of local laws when choosing an arbitration venue. Hong Kong and Singapore are good choices, and both are more accessible for Chinese companies. In addition, both ICCICA and CIETAC institutions allow the parties to agree on their own arbitration venue.

3、Legal risk control in the process of contract performance

(1) Compare the consistency of L/C and contract terms

Because some importers will add some clauses to the L/C terms that do not exist in the contract, the reasonableness of these clauses needs to be screened by enterprises in time. Some of the terms proposed by buyers are not reasonable, such as the requirement to submit a letter of acceptance signed by the buyer, and the signature of the supporting documents to be consistent with the documents kept on file with the bank. Such terms and conditions actually give the decision of L/C payment to the buyer. Therefore, the exporter must compare carefully after receiving the letter of credit from the importing party, and if there is a case of consistency between the letter of credit and the contract terms or if the additional terms are unreasonable, it must be revised.

(2) Timely inspection and notification

After receiving the goods, the importing party must be timely inspection according to the contract, such as no agreement to test as soon as possible, found that the quality, quantity does not meet the agreement to immediately notify the exporting party. If you fail to timely inspection or notification, you may lose the right to present the goods do not match, unless the goods have a shelf life.

(3) Example analysis: Import production line installation process considerations

In international trade, there are many cases in the industrial field where production lines need to be purchased from abroad. Because the imported line does not only involve the issue of product quality, but also the process of installation, commissioning and acceptance, which not only has a long period but also requires the coordination and cooperation of both parties, in addition, it is often difficult to define the problems that arise in such cases.

Therefore, during the installation of imported production lines, there are more issues that need attention. For example, for the issue of supporting facilities, if the Chinese side wants to provide part of the supporting facilities, it should try to choose those units that are functionally independent and easier to define the scope of the problem after it occurs, and ask the main equipment supplier to provide detailed interface data; regarding workers, the supplier can be required to train its own workers before installation and start working after they are qualified; raw materials can be required to be first The raw materials can be required to be qualified by the other party first; each party should hire interpreters to avoid the other party to put the responsibility on their own side when there is a communication barrier; in the process of installation, each day’s work should be formed into a written record and signed by both parties to confirm.


In summary, international trade transactions have differences in the legal provisions of various countries, and there are many uncertainties, resulting in trade parties face more contractual legal risks, enterprises should pay attention to fully understand the local trading policies, develop appropriate risk resolution measures to ensure the safety of the transaction, and take appropriate precautions against possible legal risks.