Key terms and conditions in an import contract


In China, importers tend to use standard form contracts in their import transactions. Foreign contracts are seldom accepted for fear of being trapped by contract stipulations with which they are not familiar. Adding special provisions to the contract form is normally acceptable. The key terms and conditions include the following:

Terms of price and shipment

In China's import businesses, many transactions are concluded at FOB prices in consideration for using Chinese shipping companies. C&F and CIF terms are accepted only if the freight is proved to be cost-effective .

Insurance

Commodities imported by China are normally in larger quantities and of a great many varieties. Some goods, due to transport reasons, need to be stored in foreign ports or wait for shipment or transhipment. It would be very complicated and troublesome to arrange insurance on a case by case basis. Therefore, companies that conduct frequent import businesses normally have ' open insurance' for their import cargoes, ie the importing companies submit their notifications of import cargo shipments and other relevant documents, which are acknowledged by the insurance company as insurance orders and against which the insurance premium will be settled with the insured.

Terms of payment

For most imports, payments are made by L/Cs ( letters of credit). The opening of an L/C is based on the contract signed between the Chinese buyer and foreign seller. The L/Cs opened by Chinese banks, particularly reputable national banks, are accepted by foreign banks and there will be no problems of non-payment on the part of the Chinese banks if the requirements of the L/ C are met. It should be noted, however, that the L/C, once effected by the bank, will become a contract independent of the purchase contract in the sense that the bank undertakes the responsibility of making payment provided that the documents submitted to it are in strict compliance with the stipulations of the L/C, regardless of the stipulations of the purchase contract. Conversely, if the documents submitted by the seller for negotiation of payment do not conform with the requirements of the L/C, the bank will reject payment regardless of the contract stipulations.

Therefore, it is always advisable for foreign exporters to check carefully the contents of the L/C against the terms agreed in the contract. If anything that is found in the L/C is not in conformity with the contract stipulations, the exporter should request amendments from the importer. As a matter of principle, Chinese importers and banks will not issue confirmed L/Cs.

Inspection

Certificates of quality and quantity or weight issued by manufacturers or public assessors are normally required as a part of the negotiating documents for payment under the relevant L/C. However, in cases where the quality, quantity or weight of the goods is found not to be in conformity with those stipulated in the contract after re-inspection by Chinese inspection authorities within the agreed period after arrival of the goods at the port of destination, the importer usually either returns the goods to the exporter or lodges claims against the seller for compensation of losses on the strength of inspection at the port of destination.

In the case of equipment imports, Chinese companies will often insert a clause in the contract withholding a portion of the payment, normally 5 “10 per cent of the total contract value, which will be paid only when the equipment is installed and commissioned.

Dispute resolution

In cases of dispute, the formal contract has a provision that a solution must be sought through friendly consultation. If this does not produce a result, arbitration is then adopted to settle the disputes. Litigation is only a last resort.




Doing Business with China
Doing Business with China
ISBN: 1905050089
EAN: 2147483647
Year: 2003
Pages: 648
Authors: Lord Brittan

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