-
Chine
China – Contract Negotiations
23 juin 2016
- Commerce international
Recently People’s Republic of China central government has unveiled and adopted a wide range of initiative to reduce the regulatory burden on daily business operations and provide greater autonomy in investment decision-making.
The reforms aim to give both domestic and foreign investors more autonomy and should make investments in the private sector much easier by reducing bureaucracy and increasing transparency. Investors will have more flexibility to determine the form, amount and timing of their business contributions. In addition, a system of publicly-available, electronic information (including annual filings and a corporate blacklist) will replace the old annual inspection system. Thanks to these reforms China’s requirements will become one step closer to international standards.
In this post I will analyze which are the enterprises affected by the reform; the Negative-list – setting out the industries that still need the approval to be established – and the new application process for company establishment.
Foreign invested enterprises
Generally speaking, foreign invested enterprises are the vehicle through which foreign investors may establish a presence to do business in China, choosing among one of the several different statutory forms recognized by the existing regulatory regime (such as: Wholly Foreign Owned Enterprise – WFOE; Equity Joint Venture – EJV; Contractual Joint Venture – CJV; Foreign Invested Company Limited by Shares; Foreign Invested Partnership Enterprise; or Holding companies). These entities are regulated under stricter laws than domestic companies, and are also subject to the same generally-applicable regulations.
The establishment of FIEs in Mainland China up is currently subject to a rather lengthy and bureaucratic examination and approval process by different Authorities. The same stringent requirements and burdensome procedure apply also to any major change related to FIEs structure, such as: increase or decrease of total investment/registered capital; change of business scope; shares or equity transfer; merger, division or dissolution; etc.
Nowadays, the set-up procedure of a WFOE undergoes through the following steps, having an average time frame of at least 3-4 months for the whole process:
Pre-issuance Business License
- Collection of the basic information from Investor’s side (7 working days)
- Company name pre-approval (5-7 working days)
- Lease agreement (it depends on Investor/Landlord)
- Legalized documents prepare by the Investor for the incorporation (few weeks)
- Certificate of Approval issued by MOFCOM (4 weeks)
- Business license issued by AIC (at least 10 working days)
Post-issuance Business License
- Carve company chops (1-2 working days)
- Foreign exchange registration certificate (around 10 working days)
- Open a CNY bank account (depends on the bank)
- Open a Foreign capital account (at least one week)
- Capital injection, in compliance with company Article of Association
- Capital verification report (it depends on accounting firm)
- Foreign trade operator filing before MOFCOM (at least 5 working days)
- Basic Customs Registration Certificate – if any (at least 5 working days)
- Advance Customs Registration (at least 30 working days)
- SAFE Preliminary Foreign Trader filing (2-3 working days)
- VAT general taxpayer application (1-2 working days)
- VAT general taxpayer invoice quota (30-60 working days)
On September 3rd 2016, the China National People Congress (NPC) Standing Committee adopted a resolution introducing several amendments related to the establishment of foreign-invested enterprises (FIEs) in China, which has taken effect starting from October 1st 2016. The resolution is going to produce its effect for some of the FIEs statutory forms only (WFOE, EJV, CJV).
These amendments repeal the current examination and approval regime to set-up legal entities, shifting to a different system where a FIE may be established following a streamline procedure of filing requirements before the competent authority, as long as the industry in which it engages is not subject to any national market access restrictions.
Negative List
Within October 2016 a Negative List will be issued, setting out the industries in which FIE establishment must still be examined and approved under the existing laws and regulations: a complicated and time consuming process, involving verification, approval and registration with several Authorities. The current list includes:
- Agriculture and fishery (crop seed, animal husbandry, etc.)
- Infrastructure (airports, railroads, postal service, telecom and internet, etc.)
- Wholesale and retail (newspaper and magazine, tobacco, lottery, etc.)
- Finance (investment in banks or other financial companies, etc.)
- Professional services (accounting, legal advisors, market research, etc.)
- Education (establishment of schools, management of educational institution, etc.)
- Healthcare (EJV or CJV are required to set-up medical institution, etc.)
The publication of this list is a fundamental step, in order to better understand how the new regime will operate, as it will determine which sectors and matters are covered by the new filing requirements and, on the other hand, which items continue to undergo through a pre-approval process (basically all the sectors indicated in the Negative List).
The Negative List approach towards foreign investment was originally introduced by the Shanghai Free Trade Zone and subsequently extended to other Free Trade Zones in Mainland China (FTZs): according to the Negative List foreign investors were granted “national treatment” and were allowed to invest in several different business activities, with the exception of those listed in the Negative List form.
Essentially established as testing ground for new reforms, the FTZs were also established to drive regional growth by encouraging selected industries to cluster in specific geographical areas and, at the same time, served as a mean to promote experimental economic reforms and facilitate foreign direct investments.
New application process
In order to simplify bureaucracy cutting down time and costs, FTZs introduced a new application process for company establishment, the so called “one stop application procedure”. The applicant (foreign investor) may submit an online application through the relevant FTZs website, and then the business will be checked in order to verify whether it falls into the Negative List or not.
In case the requested business does not fall under the Negative list, all the application materials can be submitted and handled through one Authority (AIC – Administration for Industry and Commerce) within the Zone. All the relevant license and certificates (included but not limited to the business license, enterprise code certificate and tax registration certificate) will be issued altogether by AIC. In this way, the applicant can obtain all the relevant documents for company establishment in one place, contrasting with the outside Zone process where applicants must move between different authorities for the issuance of the different varieties of documents.
Thanks to the adopted amendments under the latest resolution (September 3rd 2016), this pilot scheme will apply also nationwide. The simplified filing requirement process will replaces the burdensome examination and approval procedure for the formation and change of key elements of FIEs, starting from October 1st 2016.
In the next post I will examine the main essential features of the new filing regime and the future perspectives following the reform.
When considering pre-contractual negotiations in China some words need to said about culture differences, skills to use in the negotiation process, and, drafting techniques.
All of those points are relevant in any negotiation with a foreign counterpart, but they are even more valid and important when dealing with China.
First of all, it is fundamental to get acquainted with Chinese culture before starting a negotiation, especially if the counterpart (as is often the case) is not well versed in international trade and has had very few occasions to deal with foreign businessmen and counsels.
Keep in mind that actual down-to-the-table business only comes into the picture once a personal relationship has been established and the fundamental elements of trust and respect have been set.
Those who believe that an important contract can be closed with a 2 day rush visit to China or, even worse, at a distance without a personal introduction, are very far away from the real picture of things.
It generally takes several lunches, dinners and quite a few drinks together to break the ice and prepare the ground for real business talks, and it may take several trips back and forth from China before a contract can be closed: so when applying for the visa, you should consider a multi-entry.
Of course now we are in the era of internet and it very common that agreements are entered into digitally, by means of an exchange of proposal and acceptance on the web: it is not by chance that, more often than not, such long distance contacts lead to fraud and contractual breaches.
Expect long negotiations, and if a contract is eventually signed, don’t relax and don’t overestimate its value.
In western countries we tend to see the signed document as the final phase of contractual negotiations, as the bible of the future relationship.
In China contracts are often considered as nothing but the first milestone, very far from rules carved into stone: the warning is that in most cases the contract will be regarded more like a letter of intent than like a binding agreement.
So expect the Chinese side to use a great deal of flexibility, and be ready to re-negotiate or, better yet, have in place from the start in your contract appropriate rules and mechanisms to adapt to the frequent changes that may happen.
When you finally make it to the meeting room, first of all, be sure that there is a good translator around: quite often your counterpart will not speak English and will rely on a translator and it can seriously harm the flow of discussion if the person appointed for this task is not familiar with the needed terminology.
Secondly, it goes without saying that it is important to be patient and not lose your temper, especially taking into consideration that the way in which negotiations unfold may be very different from your experience.
While we are used to a linear flow of discussion, so that the parties move from one clause to the next and so on and so forth, the Chinese attitude, in most cases, is holistic.
They tend consider the agreement as a whole: it is not uncommon to re-discuss in the morning clauses that had been agreed upon the day before, without any explanation whatsoever.
A yes may mean no, and a no may mean yes: you will never know, and that is something to be always kept in mind.
The bottom line is not very different from what should be expected in all negotiations: the aim is to find a balanced agreement, that all parties find beneficial.
To start negotiating with a draft contract that is clearly unbalanced in favor of your client will not only complicate your negotiations, but may jeopardize them from the start.
A crucial clause in international contracts is the one which deals with litigation.
My advice, since we have seen that negotiation can be pretty long, complicated, and, exhausting, is that such clauses should not be the last to be dealt with, often times late at night when parties are exhausted, but the among the first.
Generally parties argue at length on such clauses, because neither party is willing to give up on its national jurisdiction for different reasons, foremost of all the fear that foreign judges would not be impartial and treat with favor the local part.
This deadlock often leads to bad compromises, like choosing the judge of a third state or combining the jurisdiction of one state with the application of the law of the other, which is definitely not recommended.
There is no one-fits-all solution to offer here: the advice is that such clauses should be tailor made on a case by case basis, and that the choice of a state court or arbitration should be expressed taking into account where the final decision shall be enforced.
If we foresee that our client may seek payment of a price or claim damages for breach of contract, ‘where is the money’ or ‘where are the assets’ should be the driving factor, and the choice of jurisdiction should be made accordingly.
If there is no such concern, and litigation may be foreseen only or mostly in a defensive scenario, then the proximity to the money or assets is no more a priority, and other options can be evaluated: in that case, the choice of a Judge in a far away country can be the best option, as it is a strong deterrent for litigation.
When battling for a clause with domestic jurisdiction, however, one should keep in mind that the process of recognition of a foreign decision is generally a rather complicated and lengthy process, even if (as is the case of Italy and China), there is a bilateral treaty for mutual recognition of judicial decisions (but very few cases have been recognized and enforced in China thereafter); it should also be kept in mind that all documents filed with the application for recognition of the foreign decision need to be translated into mandarin, notarized and legalized, which in complex litigations can represent an unforeseen additional high cost.
In other cases, like in the USA, where there is no bilateral treaty in this field, to litigate abroad often means that the foreign decision will be almost useless, with the necessity to sue again in China to seek enforcement of the decision.
Arbitration can be a valid alternative, as China is a member of the New York Convention of 1958 and enforcement of an arbitral award is in most cases easier and faster than the process of recognition of a foreign court decision.
I am frequently asked by my clients to revise sales contracts prepared by their actual or prospective Chinese counterparts.
I normally advise that it is much easier (and cheaper) to throw away the one they have received, which in most cases is a frankestein copy-pasted from different sources, drafted in poor English and with a Chinese version widely different from the English text, and to replace it with a good, new text, drafted by our law firm.
The first point which is important to know is that contracts can be drafted in a foreign language: they are perfectly valid in China even without a Chinese version, but a bilingual text is often expected and is definitely recommended.
Keeping in mind that the Contract one day can end up in a Chinese Court, where only Chinese is read and spoken, to foresee from the start that the Contract has a Chinese version, corresponding to the English one and using the right legal terminology, is a guarantee against misunderstandings, especially from the Judge himself.
That said, a common piece of advice is to keep the agreements simple and concise: we have seen how negotiations are usually long a can be a painful experience: you don’t want to start to discuss a contract with 15 pages of definitions, unless it is strictly necessary.
The best way to proceed is to prepare your own standard contract, have it translated into Chinese and have it reviewed by a Chinese lawyer, and then to propose it to the Chinese counterparts and work on that text.
The other way around, to work on a document prepared by the Chinese side, unless you are dealing with lawyers who have a good expertise of international trade and contracts, may be a bad idea, as it can usually be a frustrating and time consuming experience.
Last but not least: it is not sufficient to sign the contracts (possibly in every page): keep in mind that in order to be valid the contract needs to be stamped with the chop of the company, which is a uniquely carved piece of wood made by the local authorities.
To be on the safe side, it is better to have the contracts stamped: moreover, it is not a good sign if the person who signs the contract is not in possession of the chop, as this may mean that he is not the legal representative and has no power to bind the company.
CISG: it is applicable and you should not opt out.
The People’s Republic of China has ratified the Vienna Convention on the international sale of goods of 1980 (CISG) in the year 1986, with the result that the uniform law is an integral part of Chinese laws.
It is important to underline that China has made two reservations, under art. 1 (1) b and 11 of the CISG.
Under the first article, China refuses to apply the uniform law in cases where one of the parties is not resident in a contracting state, so indirect application is ruled out.
The second reservation is less substantial: China requires the written form for the validity of a contract of international sale of goods, while this is not required under domestic law (as Chinese Contract law of 1999 provides that contracts ‘may be made in written or in oral or any other form’).
It is never a good idea to enter into on oral agreement of international sale: in the specific case of China, this is even more true as the agreement could be voided.
We all know why it is important to apply the CISG and the reasons why it should not be ruled out, if possible: it is a common regulation of the parties’ obligations, which covers most of the important points of a sale contract and avoids the difficult task of choosing which law should apply to the sale agreement.
Another issue which is important mentioning when talking about international sales with China and CISG, is that, even though CISG is part of Chinese law, courts tend to apply it in a singular way.
Art. 142 of the General Principles of Civil Law of 1986 states that ‘the provisions of international treaties concluded or acceded by the PRC apply when they differ from the provisions of civil laws of the PRC’.
In most cases this leads to the application of Chinese law, because its provisions are often similar to the ones of CISG, or because national judges are not familiar with CISG.
In order to avoid this, parties have to indicate in the contract that they wish to apply ‘exclusively’ the CISG, otherwise the application of the uniform law might not be guaranteed.
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Italie
Écrire à China – WOFE set up process
China Contract – Jurisdiction, Arbitration and applicable law
10 mai 2016
-
Chine
- Conflit de lois
- Contrats
Recently People’s Republic of China central government has unveiled and adopted a wide range of initiative to reduce the regulatory burden on daily business operations and provide greater autonomy in investment decision-making.
The reforms aim to give both domestic and foreign investors more autonomy and should make investments in the private sector much easier by reducing bureaucracy and increasing transparency. Investors will have more flexibility to determine the form, amount and timing of their business contributions. In addition, a system of publicly-available, electronic information (including annual filings and a corporate blacklist) will replace the old annual inspection system. Thanks to these reforms China’s requirements will become one step closer to international standards.
In this post I will analyze which are the enterprises affected by the reform; the Negative-list – setting out the industries that still need the approval to be established – and the new application process for company establishment.
Foreign invested enterprises
Generally speaking, foreign invested enterprises are the vehicle through which foreign investors may establish a presence to do business in China, choosing among one of the several different statutory forms recognized by the existing regulatory regime (such as: Wholly Foreign Owned Enterprise – WFOE; Equity Joint Venture – EJV; Contractual Joint Venture – CJV; Foreign Invested Company Limited by Shares; Foreign Invested Partnership Enterprise; or Holding companies). These entities are regulated under stricter laws than domestic companies, and are also subject to the same generally-applicable regulations.
The establishment of FIEs in Mainland China up is currently subject to a rather lengthy and bureaucratic examination and approval process by different Authorities. The same stringent requirements and burdensome procedure apply also to any major change related to FIEs structure, such as: increase or decrease of total investment/registered capital; change of business scope; shares or equity transfer; merger, division or dissolution; etc.
Nowadays, the set-up procedure of a WFOE undergoes through the following steps, having an average time frame of at least 3-4 months for the whole process:
Pre-issuance Business License
- Collection of the basic information from Investor’s side (7 working days)
- Company name pre-approval (5-7 working days)
- Lease agreement (it depends on Investor/Landlord)
- Legalized documents prepare by the Investor for the incorporation (few weeks)
- Certificate of Approval issued by MOFCOM (4 weeks)
- Business license issued by AIC (at least 10 working days)
Post-issuance Business License
- Carve company chops (1-2 working days)
- Foreign exchange registration certificate (around 10 working days)
- Open a CNY bank account (depends on the bank)
- Open a Foreign capital account (at least one week)
- Capital injection, in compliance with company Article of Association
- Capital verification report (it depends on accounting firm)
- Foreign trade operator filing before MOFCOM (at least 5 working days)
- Basic Customs Registration Certificate – if any (at least 5 working days)
- Advance Customs Registration (at least 30 working days)
- SAFE Preliminary Foreign Trader filing (2-3 working days)
- VAT general taxpayer application (1-2 working days)
- VAT general taxpayer invoice quota (30-60 working days)
On September 3rd 2016, the China National People Congress (NPC) Standing Committee adopted a resolution introducing several amendments related to the establishment of foreign-invested enterprises (FIEs) in China, which has taken effect starting from October 1st 2016. The resolution is going to produce its effect for some of the FIEs statutory forms only (WFOE, EJV, CJV).
These amendments repeal the current examination and approval regime to set-up legal entities, shifting to a different system where a FIE may be established following a streamline procedure of filing requirements before the competent authority, as long as the industry in which it engages is not subject to any national market access restrictions.
Negative List
Within October 2016 a Negative List will be issued, setting out the industries in which FIE establishment must still be examined and approved under the existing laws and regulations: a complicated and time consuming process, involving verification, approval and registration with several Authorities. The current list includes:
- Agriculture and fishery (crop seed, animal husbandry, etc.)
- Infrastructure (airports, railroads, postal service, telecom and internet, etc.)
- Wholesale and retail (newspaper and magazine, tobacco, lottery, etc.)
- Finance (investment in banks or other financial companies, etc.)
- Professional services (accounting, legal advisors, market research, etc.)
- Education (establishment of schools, management of educational institution, etc.)
- Healthcare (EJV or CJV are required to set-up medical institution, etc.)
The publication of this list is a fundamental step, in order to better understand how the new regime will operate, as it will determine which sectors and matters are covered by the new filing requirements and, on the other hand, which items continue to undergo through a pre-approval process (basically all the sectors indicated in the Negative List).
The Negative List approach towards foreign investment was originally introduced by the Shanghai Free Trade Zone and subsequently extended to other Free Trade Zones in Mainland China (FTZs): according to the Negative List foreign investors were granted “national treatment” and were allowed to invest in several different business activities, with the exception of those listed in the Negative List form.
Essentially established as testing ground for new reforms, the FTZs were also established to drive regional growth by encouraging selected industries to cluster in specific geographical areas and, at the same time, served as a mean to promote experimental economic reforms and facilitate foreign direct investments.
New application process
In order to simplify bureaucracy cutting down time and costs, FTZs introduced a new application process for company establishment, the so called “one stop application procedure”. The applicant (foreign investor) may submit an online application through the relevant FTZs website, and then the business will be checked in order to verify whether it falls into the Negative List or not.
In case the requested business does not fall under the Negative list, all the application materials can be submitted and handled through one Authority (AIC – Administration for Industry and Commerce) within the Zone. All the relevant license and certificates (included but not limited to the business license, enterprise code certificate and tax registration certificate) will be issued altogether by AIC. In this way, the applicant can obtain all the relevant documents for company establishment in one place, contrasting with the outside Zone process where applicants must move between different authorities for the issuance of the different varieties of documents.
Thanks to the adopted amendments under the latest resolution (September 3rd 2016), this pilot scheme will apply also nationwide. The simplified filing requirement process will replaces the burdensome examination and approval procedure for the formation and change of key elements of FIEs, starting from October 1st 2016.
In the next post I will examine the main essential features of the new filing regime and the future perspectives following the reform.
When considering pre-contractual negotiations in China some words need to said about culture differences, skills to use in the negotiation process, and, drafting techniques.
All of those points are relevant in any negotiation with a foreign counterpart, but they are even more valid and important when dealing with China.
First of all, it is fundamental to get acquainted with Chinese culture before starting a negotiation, especially if the counterpart (as is often the case) is not well versed in international trade and has had very few occasions to deal with foreign businessmen and counsels.
Keep in mind that actual down-to-the-table business only comes into the picture once a personal relationship has been established and the fundamental elements of trust and respect have been set.
Those who believe that an important contract can be closed with a 2 day rush visit to China or, even worse, at a distance without a personal introduction, are very far away from the real picture of things.
It generally takes several lunches, dinners and quite a few drinks together to break the ice and prepare the ground for real business talks, and it may take several trips back and forth from China before a contract can be closed: so when applying for the visa, you should consider a multi-entry.
Of course now we are in the era of internet and it very common that agreements are entered into digitally, by means of an exchange of proposal and acceptance on the web: it is not by chance that, more often than not, such long distance contacts lead to fraud and contractual breaches.
Expect long negotiations, and if a contract is eventually signed, don’t relax and don’t overestimate its value.
In western countries we tend to see the signed document as the final phase of contractual negotiations, as the bible of the future relationship.
In China contracts are often considered as nothing but the first milestone, very far from rules carved into stone: the warning is that in most cases the contract will be regarded more like a letter of intent than like a binding agreement.
So expect the Chinese side to use a great deal of flexibility, and be ready to re-negotiate or, better yet, have in place from the start in your contract appropriate rules and mechanisms to adapt to the frequent changes that may happen.
When you finally make it to the meeting room, first of all, be sure that there is a good translator around: quite often your counterpart will not speak English and will rely on a translator and it can seriously harm the flow of discussion if the person appointed for this task is not familiar with the needed terminology.
Secondly, it goes without saying that it is important to be patient and not lose your temper, especially taking into consideration that the way in which negotiations unfold may be very different from your experience.
While we are used to a linear flow of discussion, so that the parties move from one clause to the next and so on and so forth, the Chinese attitude, in most cases, is holistic.
They tend consider the agreement as a whole: it is not uncommon to re-discuss in the morning clauses that had been agreed upon the day before, without any explanation whatsoever.
A yes may mean no, and a no may mean yes: you will never know, and that is something to be always kept in mind.
The bottom line is not very different from what should be expected in all negotiations: the aim is to find a balanced agreement, that all parties find beneficial.
To start negotiating with a draft contract that is clearly unbalanced in favor of your client will not only complicate your negotiations, but may jeopardize them from the start.
A crucial clause in international contracts is the one which deals with litigation.
My advice, since we have seen that negotiation can be pretty long, complicated, and, exhausting, is that such clauses should not be the last to be dealt with, often times late at night when parties are exhausted, but the among the first.
Generally parties argue at length on such clauses, because neither party is willing to give up on its national jurisdiction for different reasons, foremost of all the fear that foreign judges would not be impartial and treat with favor the local part.
This deadlock often leads to bad compromises, like choosing the judge of a third state or combining the jurisdiction of one state with the application of the law of the other, which is definitely not recommended.
There is no one-fits-all solution to offer here: the advice is that such clauses should be tailor made on a case by case basis, and that the choice of a state court or arbitration should be expressed taking into account where the final decision shall be enforced.
If we foresee that our client may seek payment of a price or claim damages for breach of contract, ‘where is the money’ or ‘where are the assets’ should be the driving factor, and the choice of jurisdiction should be made accordingly.
If there is no such concern, and litigation may be foreseen only or mostly in a defensive scenario, then the proximity to the money or assets is no more a priority, and other options can be evaluated: in that case, the choice of a Judge in a far away country can be the best option, as it is a strong deterrent for litigation.
When battling for a clause with domestic jurisdiction, however, one should keep in mind that the process of recognition of a foreign decision is generally a rather complicated and lengthy process, even if (as is the case of Italy and China), there is a bilateral treaty for mutual recognition of judicial decisions (but very few cases have been recognized and enforced in China thereafter); it should also be kept in mind that all documents filed with the application for recognition of the foreign decision need to be translated into mandarin, notarized and legalized, which in complex litigations can represent an unforeseen additional high cost.
In other cases, like in the USA, where there is no bilateral treaty in this field, to litigate abroad often means that the foreign decision will be almost useless, with the necessity to sue again in China to seek enforcement of the decision.
Arbitration can be a valid alternative, as China is a member of the New York Convention of 1958 and enforcement of an arbitral award is in most cases easier and faster than the process of recognition of a foreign court decision.
I am frequently asked by my clients to revise sales contracts prepared by their actual or prospective Chinese counterparts.
I normally advise that it is much easier (and cheaper) to throw away the one they have received, which in most cases is a frankestein copy-pasted from different sources, drafted in poor English and with a Chinese version widely different from the English text, and to replace it with a good, new text, drafted by our law firm.
The first point which is important to know is that contracts can be drafted in a foreign language: they are perfectly valid in China even without a Chinese version, but a bilingual text is often expected and is definitely recommended.
Keeping in mind that the Contract one day can end up in a Chinese Court, where only Chinese is read and spoken, to foresee from the start that the Contract has a Chinese version, corresponding to the English one and using the right legal terminology, is a guarantee against misunderstandings, especially from the Judge himself.
That said, a common piece of advice is to keep the agreements simple and concise: we have seen how negotiations are usually long a can be a painful experience: you don’t want to start to discuss a contract with 15 pages of definitions, unless it is strictly necessary.
The best way to proceed is to prepare your own standard contract, have it translated into Chinese and have it reviewed by a Chinese lawyer, and then to propose it to the Chinese counterparts and work on that text.
The other way around, to work on a document prepared by the Chinese side, unless you are dealing with lawyers who have a good expertise of international trade and contracts, may be a bad idea, as it can usually be a frustrating and time consuming experience.
Last but not least: it is not sufficient to sign the contracts (possibly in every page): keep in mind that in order to be valid the contract needs to be stamped with the chop of the company, which is a uniquely carved piece of wood made by the local authorities.
To be on the safe side, it is better to have the contracts stamped: moreover, it is not a good sign if the person who signs the contract is not in possession of the chop, as this may mean that he is not the legal representative and has no power to bind the company.
CISG: it is applicable and you should not opt out.
The People’s Republic of China has ratified the Vienna Convention on the international sale of goods of 1980 (CISG) in the year 1986, with the result that the uniform law is an integral part of Chinese laws.
It is important to underline that China has made two reservations, under art. 1 (1) b and 11 of the CISG.
Under the first article, China refuses to apply the uniform law in cases where one of the parties is not resident in a contracting state, so indirect application is ruled out.
The second reservation is less substantial: China requires the written form for the validity of a contract of international sale of goods, while this is not required under domestic law (as Chinese Contract law of 1999 provides that contracts ‘may be made in written or in oral or any other form’).
It is never a good idea to enter into on oral agreement of international sale: in the specific case of China, this is even more true as the agreement could be voided.
We all know why it is important to apply the CISG and the reasons why it should not be ruled out, if possible: it is a common regulation of the parties’ obligations, which covers most of the important points of a sale contract and avoids the difficult task of choosing which law should apply to the sale agreement.
Another issue which is important mentioning when talking about international sales with China and CISG, is that, even though CISG is part of Chinese law, courts tend to apply it in a singular way.
Art. 142 of the General Principles of Civil Law of 1986 states that ‘the provisions of international treaties concluded or acceded by the PRC apply when they differ from the provisions of civil laws of the PRC’.
In most cases this leads to the application of Chinese law, because its provisions are often similar to the ones of CISG, or because national judges are not familiar with CISG.
In order to avoid this, parties have to indicate in the contract that they wish to apply ‘exclusively’ the CISG, otherwise the application of the uniform law might not be guaranteed.