International Trade and Dispute Resolution

A.   International Trade Terms

Which year it was when the latest version of “International Rules for the Interpretation of Trade Terms” (Incoterms) was released?

The International Chamber of Commerce (ICC) published the “International Rules for the Interpretation of Trade Terms 2020” (Incoterms®2020) on September 10, 2019, which was implemented globally on January 1, 2020. ICC issued the first version of Incoterms in 1936; after that, in order to keep up with the continuous development of international trade practice, Incoterms were respectively revised in 1953, 1967, 1976, 1980, 1990, 2000, 2010. The latest version is the eighth revision of the original version.

It should be noted that the publication of Incoterms®2020 does not mean that the original Incoterms®2010 can no longer be applied. The parties shall specify in the contract the trade terms they agree to use + a clear location/port + the specific version of Incoterms (for example Incoterms®2020). If the foreign trade personnel cannot get familiar with the 2020 General Regulations in a short period of time, they can simply indicate the specific version of Incoterms in the contract, so that there will be no transaction inconvenience due to the effectiveness of INCOTERMS®2020. In addition, to adopt a particular trade term does not mean that the rights and obligations of both parties shall thus be in full accordance with the agreed trade term. The buyer and the seller may modify the standard trade term to fit special demands of either party or specific transaction in the contract, or may exclude specific provisions on certain rights and obligations.

What are “international trade terms”?

“International trade terms” refer to the international business practice formed in international trade for a long time, usually expressed in abbreviations, describing specifically the value composition of commodities, risks bearing, and the burdens of various costs upon buyers and sellers and their respective responsibilities in transactions. It is not a legislative document and does not have general legal binding force, until both parties choose to apply in international trade transactions. To determine the rights and obligations of both parties in this way is mainly for the purpose of simplifying transaction process, shortening negotiation time, and saving transaction costs.

What are the contents of “international trade terms”?

Trade terms mainly stipulate the following contents:

(1) Place of delivery;

(2) The time of risk transfer (namely the risk of damage or loss of the subject matter);

(3) The obligatory party that signs the transport contract, pays the freight, and pays the premium of insurance (only part of the trade terms involved);

(4) The obligatory party responsible for the export and import customs clearance and expenses;

(5) The mode of transportation to which this trade term applies (INCOTERMS®2020 specifies 11 trade terms, in which 7 terms are applicable to any mode of transportation, only 4 trade terms are applicable to water transportation).

The rights and obligations agreed in the transport contract and insurance should match the trade terms chosen by the parties. International trade terms do not refer to the contract value, remedies for breach, dispute resolution, and applicable laws.

What does FOB mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Free on Board (... named port of shipment)". It means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. after they have passed the ship’s rail . When the goods are on board the vessel,the buyer shall bear all costs, risks, loss or damage to the goods. The seller shall clear the goods for export. This term applies to sea or inland water transportation.

What does CFR mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Cost and Freight (named port of destination)". It means that the seller must pay for the expenses and freight to transport the goods to the named port of destination. However, when the goods are on board the vessel, the risk of loss or damage to the goods, and the additional expenses incurred in any accident,, are borne by the buyer. In addition, the seller is required to clear the goods for export. This term applies to sea or inland water transportation.

What does CIF mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Cost, Insurance and Freight (...named port of destination)". It means that in addition to the seller's obligations of CFR, the seller also needs to contract and pay for marine insurance. This term applies to sea or inland water transportation.

What does EXW mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Ex Works (... named place)". It means that the seller delivers when it places the prepared goods at the disposal of the buyer at the seller another named location, namely works, factories, warehouses, etc., but it is usually not responsible for loading the goods on the collecting vehicle or clearing the goods for export. The buyer bears all costs and risks involved in transporting the goods from the seller’s location to the intended destination.

What does FCA mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Free Carrier (... named place)". It means that the seller shall be responsible to deliver the goods to the carrier or another person nominated by the buyer at the named place, after clearing the goods for export, According to business practice, the seller may sign a contract with the carrier when required to cooperate, if the buyer bears all risks and costs. This term applies to any mode of transportation.

In Incoterms® 2020, on the issues about bills of lading, the FCA terminologies section introduced a new additional mechanism, i.e., an additional option has been added in A6/B6, according to which the buyer and the seller can make an agreement that the seller is obliged to submit the bill of lading to the buyer (usually through the bank) the only after the buyer instructs its carrier to issue a on board bill of lading to the seller after the shipment of goods.

What does FAS mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Free Alongside ship (... named port of shipment)". It means that the seller delivers when the goods are placed alongside of the vessel(on a quay or barge) at the named port of shipment. From then on, the buyer must bear all the costs and risks of loss or damage to the goods, and clear the goods for export. This term applies to sea or inland water transportation.

What does CPT mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Carriage Paid to (... named place of destination)". It means the seller shall pay the costs of carriage to transport the goods to the named place of destination. The risk of loss or damage to the goods and any additional costs incurred shall be borne by the buyer after the goods have been delivered to the carrier. In addition, the seller must clear the goods for the export. This term applies to all modes of transportation, including multimodal transportation.

In order to meet the need for CIF (cost plus insurance plus freight) to be more widely applied for maritime bulk commodity trade and CIP (freight and insurance paid to) to be applied more widely for manufactured goods as a multimodal transport term, In Incoterms® 2020, the different insurance coverage for CIF and CIP has been adjusted, i.e., according to the adjusted CIP insurance clause, CIP coverage shall comply with the one stipulated in clause (A) (i.e., "all risk insurance", excluding exclusions) of the Association Cargo Insurance Provisions, while the insurance obligation for CIF terms still remains as it was, i.e., the default clause (C).

What does CIP mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Carriage and Insurance Paid to (... named place of destination)". It means that seller needs to contract and pays for insurance cover against the risk of loss or damage to the goods that the buyer should bear during the transportation, in addition to the seller's same obligations as the term CPT. This term applies to any mode of transportation.

In order to meet the need for CIF (cost plus insurance plus freight) to be used more for maritime bulk commodity trade and CIP (freight and insurance paid to) to be used more for manufactured goods as a multimodal term, Incoterms® 2020 adjusts the different insurance coverage for CIF and CIP, i.e., the CIP insurance clause is adjusted to the coverage that must comply with clause (A) (i.e., "all risks", excluding exclusions) of the Association Cargo Insurance Provisions, while the insurance obligation for CIF term remains as it is, i.e., the default clause (C).

What does DAF mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Delivered at Frontier (...named place)". It means that the seller undertakes the obligations to transport the prepared goods to a named place on the border, clear the goods for export, and deliver the goods before the customs border of the neighboring country. This term mainly applies to goods transported by rail or road, or other modes of transportation.

What does DES mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Delivered Ex Ship (... named port of destination)". It means that the seller fulfills the obligations to deliver the prepared goods to the buyer on the ship’s deck at the named port of destination without clearing the goods for import. The seller shall bear all costs and risks, including the transportation of the goods to the named port of destination. This term only applies to sea or inland water transportation.

What does DEQ mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Delivered Ex Quay (Duty Paid) (...named port of destination)". This term means that the seller fulfills the obligations to deliver the goods to the buyer at the named port of destination after clearing the import goods, and bear all risks and expenses, including tariffs, taxes and other costs incurred in delivery. This term applies to sea or inland water transportation.

What does DDU mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Delivered Duty Unpaid (... named place of destination)". It means that the seller shall deliver the prepared goods to the buyer at the place named in the importing country, and bear all the costs and risks of the goods thus incurred(excluding tariffs, taxes and other official importing expenses). Costs and risks of going through customs procedures. The buyer shall bear the additional costs and risks caused by the failure to complete the customs clearance of the goods in time. This term applies to all modes of transportation.

What does DDP mean? What are the respective rights and obligations of each party when adopting this term?

This term means "Delivered Duty Paid (... named place of destination)". It means that the seller delivers goods at the named place in the importing country, and bears all the costs and risks of transporting the goods to the named place, and has the obligation to clear the goods for both export and import. This term can be applied to various modes of transportation.

B.   International Trade Clearance

May an enterprise declare at the customs by itself?

According to Article 9 of the Customs Law of People’s Republic of China, “Unless otherwise provided for, the declaration of import or export goods and the payment of duties and taxes may be completed by the consignees or consignors on their own, and such formalities may also be completed by their entrusted customs declaration enterprise registered with the customs.” Therefore, unless otherwise specified, an enterprise may, on its own, complete the declaration on goods and payment of duties and taxes thereon. Of course, an enterprise may also entrust a customs declaration enterprise to complete such customs formalities. Where an enterprise entrusts a customs declaration enterprise to make customs declaration and tax formalities on behalf of itself, it shall fill in the national standardized “Power of Attorney for Customs Declaration” to clarify the legal statuses of both parties and their respective responsibilities. “Power of Attorney for Customs Declaration” can be provided by the China Customs Brokers Association to enterprises or be printed by enterprises in standard form on blank A4 paper for their own use.

What is a supplementary declaration?

The term “supplementary declaration” means that the consignee or consignor of import/export goods or the entrusted customs declaration enterprise thereof, in accordance with the requirements of the relevant administrative rules and regulations, submits electronic and paper supplementary declaration forms in addition to the Customs of P.R.C Declaration Form for the Import/Export of Goods to declare further to customs to assess the dutiable value, commodity classification and place of origin of goods. The supplementary declaration provided in the Provisions of the Customs of the People's Republic of China on the Administration of Preferential Origins of Import and Export Goods (Order No.181 of General Administration of Customs) does not fall within the scope of the “supplementary declaration” described herein and shall be handled in accordance with the said order.

If the consignor, consignee or the customs declaration enterprise thereof deems it necessary to make an active supplementary declaration to the customs before the completion of customs formalities of import or export goods, the customs may accept its supplementary declaration, handle it in the way of declaration modification procedure and request the declarer to provide a written explanation; after the declaration of import or export goods and before the completion of document receiving and checking, the customs may require the consignor, consignee or the customs declaration enterprise thereof to supplement the declaration in the form of electronic data at the professional document examination stage and on-site document receiving stage.

How could a consignee, consignor or a customs declaration enterprise thereof make a supplementary declaration?

A consignee, consignor or a customs declaration enterprise thereof could input the electronic data of the supplementary declaration form via the Supplementary Declaration Management System (hereinafter referred to as “System”) to make a supplementary declaration to the customs along with the electronic data of the declaration form, if it deems necessary to do so. At the same time, the consignee, consignor or the customs declaration enterprise thereof shall get relevant supporting documents ready (stamped with the official seal of the consignee, consignor or the entrusted customs declaration enterprise) and fill in the column of “Marks, Notes and Remarks” of the declaration form. The contents of the supplementary declaration are an effective supplement to the declaration contents and shall not conflict with the contents of the declaration forms.

If the customs house deems it necessary to make a supplementary declaration, the consignee, consignor or the customs declaration enterprise thereof will be required to go through the supplementary declaration procedure within 5 working days from the date of receipt of the Customs Notice, unless otherwise provided by the customs administrative rules and regulations. Where the consignee, consignor or the customs declaration enterprise thereof fails to make the supplementary declaration as required within the prescribed time limit, the customs may, based on the available information, assess the dutiable value, commodity code and place of origin of import or export goods in accordance with relevant provisions.

What is a centralized declaration?

According to the Administrative Measures of the Customs of the People's Republic of China on the Centralized Declaration of Import and Export Goods, the term “centralized declaration” means such a special customs clearance method by which a consignee or consignor of import or export goods who intends to import or export goods within the specified scope (including goods such as books, newspapers, periodicals and other publications that have a limitation of time; dangerous goods or fresh goods, perishable goods, goods that are easy to lose efficacy and other goods that are not suitable for long-term storage; and bonded goods exited or entered via road ports) in several batches at one port upon archival filing at the customs house, may declare the import or export of goods upon the strength of the List of the Customs of the People's Republic of China on the Centralized Declaration of Import Goods or the List of the Customs of the People's Republic of China on the Centralized Declaration of Export Goods, and then go through customs formalities in a centralized manner upon the strength of customs declaration forms.

In addition, goods entering and leaving areas under special customs supervision and supervised bonded places in other parts of China may be handled in accordance with the above-mentioned provisions, unless otherwise provided by the customs.

Therefore, “centralized declaration” can only be used as a special declaration method to deal with special circumstances and shall not be expanded at will。

How to handle the archival filing formality of a centralized declaration?

A consignee or consignor shall handle the archival filing formality of centralized declaration at the customs house where the goods are placed, and an enterprise of processing trade shall handle the archival filing formality of centralized declaration at the competent customs.

If a consignee or consignor applies for the archival filing formality of centralized declaration, he shall submit the Archival Filing Form on the Application of the Method of Centralized Declaration for Customs Clearance, and simultaneously provide the security consistent with the requirements of the customs house, and the validity term of security shall not be less than three months. If a consignee and consignor, who is suspected of smuggling or wrongdoing and is being put on files by the customs house for investigation, is subject to administrative penalties due to the import and export of goods infringing on intellectual property rights, the method of centralized declaration for customs clearance shall not be applied.

Within the validity term of archival filing, a consignee or consignor may apply the method of centralized declaration for customs clearance. The validity term of archival filing shall be verified according to the validity term of security provided by the consignee or consignor. In case of any changes in the goods for which the method of centralized declaration for customs clearance is applied or the change in the security, etc., the consignee or consignor shall file a written application for alteration with the original archival filing customs house. If the validity term expires, and the consignee or consignor needs to continuously adopt the method of centralized declaration for customs clearance, he shall, ten days before expiration of the validity term of archival filing, file a written application for extension with the original archival filing customs house.

What is inspection of import and export goods?

The “inspection of import/export goods” means the law enforcement act in which the customs house carries out actual verification of import and export goods so as to determine whether the contents declared by the consignee or consigner of import or export goods conform to the actual situation of imported and exported goods or to determine the classification, price and place of origin of commodities.

The purpose of inspection is to check whether the actual import and export goods are consistent with the contents reported in the declaration forms, whether there are any misdeclarations, omissions, incomplete declarations or false declarations, etc., whether the import and export of goods are legal, and to determine the physical and chemical properties of goods. All import and export goods shall be subject to customs examination except those exempted from inspection by the General Administration of Customs.

When carrying out the inspection, the customs house may conduct either thorough inspection or selective inspection. The inspection may, in light of operational methods, be divided into manual inspection and machine inspection, and the former includes the exterior inspection and the inspection by package opening. The customs house may, in light of the situation of goods and the actual requirements for law enforcement, determine the specific inspection methods.

What are the requirements for the places of inspection by the customs?

The inspection shall be conducted within the customs supervisory areas, such as port, railway or highway station, airport, border pass or international postal matter exchange station and other places approved by customs.

Where the inspection is unfit to be conducted within the customs supervisory area because the goods can be easily affected by the temperature, static electricity, dust or any other natural factor, or the inspection needs to be conducted outside the customs supervisory area due to any other special factor, the customs house may assign officials to carry out inspection outside the customs supervisory area upon written application of the consignor or consignee of import or export goods or the agent thereof.

As to import or export of bulk goods, dangerous goods, fresh goods, goods of barge transport, the customs may also inspect and release the goods at the site upon application of the consignee or consignor of import or export goods.

As to those goods that are dangerous, fresh and live, decayable, perishable, or likely to lose efficacy or deteriorate and are not suitable for long-time storage and goods for which an urgent inspection and clearance is required due to any other special circumstances, the customs may arrange inspection with priority upon application of the consignee or consigner of import or export goods or the agent thereof.

Is there any fee for inspection?

Customs shall not charge any inspection fee when it carries out the inspection within the customs control area. Where customs affixes customs seals to containers, container trucks or other goods, it may collect the sealing cost for the production of the seals in accordance with relevant provisions.

The fees incurred from moving, opening or resealing of packages of import or export goods due to the inspection shall be borne by the consignee or consigner of import or export goods.

Where goods are inspected outside the customs control area, the consignee or consigner of import and export goods or the agent thereof shall pay fees to customs in accordance with the relevant provisions.

How to define the obligatory customs duty payers? How to apply if there are both most-favored-nation tariff rate and temporary tariff rate?

The consignees of import goods, the consignors of export goods and the owners of entry articles are obligatory customs duty payers.

Where a temporary tariff rate is set up for the import goods, to which the most-favored-nation tariff rate applies, the temporary tariff rate shall prevail.

Where a temporary tariff rate is set up for the import goods, to which the conventional tariff rate or the preferential tariff rate applies, the lower one shall prevail.

Where the most-favored-nation tariff rate and the conventional tariff rate are applied, if there is any stipulation in the convention, the convention shall apply; if there is no stipulation in the convention, the lower one shall prevail.

With regard to the import goods to which the general tariff rate applies, the temporary tariff rate shall not apply. Where a temporary tariff rate is set up for the export goods, to which the export tariff rate applies, the temporary tariff rate shall prevail.

How to assess the tax rate and exchange rate for customs declaration of import goods transited between customs offices?

With respect to the import goods which are to be transited between customs offices, the tax shall be levied on the basis of the tax rate and exchange rate on the day when the goods arrive at the customs at the place of destination. Where the party concerned has declared at the customs in advance, the applicable tax rate and exchange rate shall be those on the day when the customs at the place of destination receives the information on transition and release transmitted by the customs at the place where the goods enter the territory. In case of major adjustment with the tax rate or exchange rate during the transportation of the goods, the tax shall be calculated on the basis of the tax rate and exchange rate on the day when the goods transited between customs offices arrive at the customs at the place of destination.

What is dutiable value?

Dutiable value means the taxable value used by the customs in levying duties. The dutiable value of import goods shall be assessed by the customs on the basis of the transaction value of those goods, and shall include the freight, relevant expenses and insurance premiums of the goods before they are transported to and unloaded at the import place within the People's Republic of China.

The following taxes and expenses listed in the price of import goods may not be included in the dutiable value of such goods:

(a) expenses for construction, installment, assemblage, maintenance and technical services for the workshops, machines and equipment, etc. after they are imported;

(b) freight and relevant expenses and insurance premiums for the import goods after they are transported to and unloaded at the import place within China;

(c) import duties and other domestic taxes.

The dutiable value of export goods shall be assessed by the customs on the basis of the transaction value of those goods and the freight, relevant expenses and insurance premiums of those goods before they are transported to and loaded at the export place within the People's Republic of China. The transaction value of export goods means the total amount of value to be received directly and indirectly by the seller for the export of the goods to the buyer at the time of export. Export duties shall not be included into the dutiable value.

How to deal with the price doubt brought forward by the customs about undervalue of commodities declared by importers?

Importers shall, within the prescribed time limit, submit documents to prove the authenticity and accuracy of the value upon request of the customs, and shall conduct value consultations with the customs according to law if there is any objection to the value doubt raised by the customs.     

The customs is entitled to examine the price. Where the customs has doubts about the truth or accuracy of the declared value, or considers the special relationship between the buyer and the seller did influence the transaction value, the customs shall issue Notice to Query Declared Value by Customs of the People’s Republic of China and notify the duty payer or his agent of the grounds for doubts in written form. The duty payer or his agent shall, within 5 working days as of the date of receipt of the notice, provide related documents or other evidence in written form demonstrating the truth or accuracy of the declared value or the declared value not being influenced by the special relationship between the buyer and seller.

If having due cause for not being able to provide the above-mentioned information within the time limit, the duty payer or his agent may, in written form, apply to the customs for extension prior to the expiration of the time limit. Except under special circumstances, the extension shall not exceed 10 working days.

What is value consultation? Do the enterprises have to accept the price assessed by the customs?

Value consultation means that when applying the valuation methods other than the transaction value method, on the basis of keeping commercial secret confidential, customs offers to exchange information and data with the obligatory duty payer for the purpose of assessment of the dutiable value.

The purpose of value consultation is not to reach a price acceptable to both the customs and tax payers, but rather a process of fully exchanging information of the trade statuses, transaction conditions and goods details of import goods with the tax payer in order to obtain an applicable price basis.

The enterprises shall actively furnish the customs within the time limit with evidence demonstrating the authenticity, integrity and accuracy of the transaction and declared value upon receipt of the Notice to Query Declared Value, and communicate with the customs to assist in examining and verifying the dutiable value of import goods. In this process, enterprises can and should safeguard their legitimate rights and interests in accordance with the law, if necessary, with the assistance of professional third parties, to fully express their views. Therefore, enterprises don’t have to “accept the price assessed by the customs”.

Under what circumstances the consignee or consignor is required to submit certificate of origin to the customs?

In the preferential rules of origin, the certificate of origin submitted by the consignee or consignor is the basic requirement for declaration, that is to say, certificate of origin issued by designated agencies must be submitted for import/export goods and the applicable preferential tax rate under the corresponding convention must be declared, otherwise the corresponding tax preference will not be available; however, in the non-preferential rules of origin, the consignee or consignor only needs to submit the certificate of origin as required by the customs, and no submission is required in other cases. Under the current management measures, the case where the certificate of origin is needed in the non-preferential rules of origin refers mainly to the implementation of anti-dumping and countervailing measures and safeguard measures of import/export goods.

A certificate of origin can only correspond to one customs declaration form and cannot be reused and deducted gradually. As to the special case where multiple certificates of origin that have been networked electronically correspond with a batch of goods, the declaration shall be made separately..

C.   International Trade Transportation and Settlement

What are the common methods of settlement for international trades?

In international trades, the selection of a right settlement method is key to ensuring a smooth transaction. Common settlement methods mainly include:

(1)Wire transfer (T/T)

Wire transfer means the direct transfer of payment for goods from the buyer to the seller's account through a bank, which is usually finished through a global interbank wire transfer network (e.g. SWIFT). With its simplicity and speed, wire transfer is suitable for trading partners with a high degree of trust, but for the seller, there is a risk of delayed or refused payment from the buyer.

(2)Letter of credit (L/C)

A letter of credit is a contractual commitment to the payment of goods made by an importer's bank after the exporter has shipped the goods and submitted the required documents to the exporter's bank as proof. This trade financing instrument aims at protecting the interests of exporters and importers, which can effectively reduce the transaction risks for both the buyer and the seller, and is particularly suitable for transactions under insufficient trust or a politically and economically unstable environment. However, the formalities for letters of credit are rather complicated and relatively costly, which may affect the efficiency of the transaction. When using a letter of credit, the seller should meticulously review the terms of the letter of credit to ensure that all documents and terms are strictly matched in case the bank refuses to pay.

(3)Collection

Collection is a settlement business for the exporter to collect the payment from the importer through a foreign collecting bank in import and export trades after the goods are loaded for shipment and the exporter issues documents and commissions a bank with its export commercial documents and financial instruments for submission. Collections have two forms, which means documents against payment (D / P) and documents against acceptance (D / A). The advantage of collection lies in its simple procedures and low costs, but there is a rather large risk to the seller. If the buyer refuses to pay or accept, the seller may not be able to recover the payment for the goods.

Different settlement methods have their own specialties that suit different business situations, and the specific choice often depends on the background of the two parties to the transaction, the level of trust, the nature of the goods, market conditions and the foreign exchange policies of the countries involved. To minimize risk, increase transaction flexibility and meet the needs of both parties, there may be a flexible combination of multiple settlement methods in the same transaction in practice.

What are the factors for consideration when micro, small and medium-sized enterprises(MSMEs) choose settlement methods for international trades?

Credit risk: Credit risk is a risk that cannot be ignored in international trades, and MSMEs should, in particular, carefully assess the creditworthiness of their counterparties and gain an in-depth understanding of their past transaction records, financial status and reputation in the commercial field. When facing a counterparty with high credit risk, in order to minimize the risk, an enterprise may prefer to choose settlement methods with greater security, such as letters of credit.

Transaction costs: The costs involved vary with the settlement methods, such as the issuance costs of letters of credit, formality fees in the collection process, etc. The funds of MSMEs are usually limited, so they need to carefully weigh the costs and risks and adopt a settlement method that is more suitable for them.

Needs for working capital: If the funds of MSMEs are relatively tight, and there is an urgent need to recover funds as soon as possible, then they may prefer methods like prepayment, or on-demand payment in the documentary collection.

Stability of trading partnerships: When dealing with long-term stable and well-established partners, enterprises may feel more comfortable choosing relatively flexible settlement methods, such as credit sales.

The market situation of goods: if the goods in the market are very popular and undersupplied, enterprises often have more initiative in the choice of settlement; but if the market performance of goods is poor, enterprises may need to be more cautious when they select the settlement method, in which case, the letter of credit or prepayment is a more secure way of settlement.

National policies, laws and regulations: To avoid potential legal risks,   enterprises should fully understand the trade policies, foreign exchange control regulations and other laws and regulations of the relevant countries to ensure that the settlement method they select is legal and compliant.

What are the modes of transportation commonly used in international trades of goods, their scope of application, and their advantages and disadvantages?

The main modes of transportation mainly include sea, air, land, pipeline and inland waterway transportation.

Sea transportation is suitable for bulk cargo, large volume and heavy weight commodities. The advantages are strong carrying capacity, suitability for long-distance transportation and low unit cost. The disadvantages are long transportation time and great influence from weather and sea conditions.

Air transportation is suitable for high-value, time-sensitive goods. The advantages are fast transportation speed, suitability for urgent cargo transportation, and high security. The disadvantages are high transportation costs, limited capacity, and greater restrictions on the weight and volume of goods.

Ground transportation is suitable for the transportation of goods overland in close proximity or across borders. The advantages are high flexibility, suitability for short-distance and regional transportation, and convenience for door-to-door service. The disadvantages are that it can be easily affected by geographical conditions and traffic conditions, and the cost of long-distance transportation is relatively high.

Pipeline transportation is suitable for long-distance transportation of liquids or gases. The advantages are stable transportation, less influence from weather, and suitability for large-scale continuous transportation. The disadvantages are high construction costs, poor flexibility and limited types of cargo.

Using inland rivers and waterways for cargo transportation, inland waterway transportation is suitable for the transition between sea and land transportation. The advantage is that it is suitable for the transportation of goods in inland areas, with lower transportation costs and also conforms to environmental protection rules. The disadvantages are that it is greatly influenced by the water level and seasonal changes, and the transportation speed is relatively slow.

How to solve the risks during the transportation of goods in international trades?

A series of comprehensive measures are required to deal with the risks during the transportation of goods in international trades, including but not limited to:

(1)Risk assessment and contingency plan: identify and assess the risks that may be faced during the transportation of goods, including political and economic risks, natural disasters, transportation accidents or the like, and formulate a contingency plan to deal with emergencies, such as damage to the goods, loss of the goods, or delays in their transportation;

(2)Insurance: by purchasing proper insurances like cargo transportation insurance and trade credit insurance, mitigate losses due to damage, loss or delay of goods;

(3)Contractual terms: the responsibility for the transportation of goods, the timing of risk transfer, and insurance liability shall be clearly specified in the contract, e.g., specify the responsibility of each party by using Incoterms;

(4)Supply Chain Management: establish and maintain a robust supply chain, including the selection of reliable logistics service providers and partners;

(5)Cargo tracking: monitor the status of cargo transportation in real time and find and solve problems in time by using technical means, such as GPS tracking;

(6)Packaging and marking: ensure that the goods are properly packaged to reduce the risk of damage during transportation, and are properly marked to avoid confusion and errors;

(7)Compliance check: ensure that the goods and their transportation comply with all relevant laws and regulations and international standards.

How to deal with the damages or loss of goods in international trades?

The following steps can be taken to deal with the damages or loss of goods in international trades:

(1)Timely communication: as soon as damage or loss of goods is discovered, communicate with transportation companies, insurance companies, and trading partners immediately to understand the situation and seek solutions;

(2)Insurance check: if any insurance is purchased, please contact the insurance company to make a claim;

(3)Evidence collection: keep all relevant evidence such as photos, videos, shipping documents, etc;

(4)Liability determination: determination of the responsible party, which may involve the seller, the buyer, the transportation company or the insurance company;

(5)Legal approaches: if the negotiation fails, consider resolving the dispute through legal approaches;

(6)Preventive measures: to avoid future risks, preventive measures should be taken, such as using the right packaging materials, ensuring that the goods are properly loaded, and choosing a reputable logistics company;

(7)Understanding compensation policies: different logistics companies may have different compensation policies and standards;

(8)Customs and tax issues: If the damage or loss of goods is related to customs clearance or taxation issues, they shall be resolved in a timely manner to avoid further losses;

(9)Records and filing: For lost or damaged goods, the problem should be filed locally as soon as it is discovered and all relevant filing information and evidence should be retained.

D.   International Dispute Resolution

What is CISG? What kinds of international trade apply to the CISG?

The United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as “CISG”) is developed by the United Nations Commission on International Trade Law, with a purpose to provide a uniform regime for contracts for the international sale of goods. China acceded to the CISG in 1986.

The CISG applies to contracts of sale of goods between parties whose places of business are in different states. CISG didn’t give a clear definition of “goods”. However, it is generally considered to refer to tangibles, movables (including documents representing goods such as bills of lading), but exclude services, technologies and intellectual properties. CISG is more concerned with the places of business of the parties than with the nationalities. The parties shall have their places of business in different states at the conclusion of the contract. The standard of a permanent and fixed place to do business shall be applied in the judgement of place of business; if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance.

What transactions (sales) do not apply to the CISG?

According to Article 2 of the CISG, this Convention does not apply to sales: (a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity. In short, the act of buying or selling for personal use (judged from whether the seller knew or ought to have known about such purpose at the conclusion of the contract) or special transaction method or special type of goods (considering that different laws in different countries differ in provisions on these issues) is excluded from CISG.

How to prevent telecom frauds in international trade?

Both the buyer and seller shall make credit investigations and provide documents such as business license, Legal Representative Authorization Letter, telephone number, fax number and designated e-mail to each other, and shall contact via designated e-mail, IM software and fax number, etc. Moreover, one party shall inform the other party that the company account will not change and relevant authorizers will confirm with the other party in a couple of ways in case of change.

As to fraud that has occurred, the enterprise shall report to the police timely and resort to the police or court for a judicial freezing of the remaining funds; track the goods, exercise control over the goods to suspend transport or return load. (depending on the records of the bills of lading and the laws of the port of destination)

How could the exporters deal with the risk of non-taking delivery of goods?

(a) Make a credit investigation of the buyer to see whether there is a bad record, if the credit is not good, try to receive payments before delivery.

(b) Understand the laws of the port of destination, if the laws of the port of destination rule that goods can be auctioned without taking delivery in 30 days or a short period of time, it is recommended to collect payments before the arrival of goods at the port of destination.

(c) Issue a correct order bill of lading, try not to issue an order bill of lading if it is not a mandatory provision of the laws of the port of destination, as it may get the shipping company confused on the identity of the consignee at the port of destination, and thus unable to contact the consignee for disposal of the goods. As a result, it can only claim the port of destination storage fees and other costs from the exporter’s carrier.

(d) Track the goods timely, limit the time of payment of the buyer and ask the client to clear off all payments before the arrival of goods at the port of destination.

(e) Make full use of the export credit insurance to spread the risk around.

What is the risk of cash on delivery in international trade and how to prevent the risk?

Cash on delivery is a type of transaction where the exporter delivers the goods first and the importer pays to the exporter upon receipt of the goods. Cash on delivery can also be divided into consignment and sold up. There are subtle differences between the two at the time of payment, but they are both unilateral financing channels provided by the exporter to the importer and the exporter has to bear the risk of the importer's refusal to pay.

Ways to prevent risks:

(a) In the practice of international trade, the way of sold up is frequently used, that is, the buyer and seller sign a contract specifying that the importer shall make a full payment to the exporter via wire transfer immediately upon receipt of goods.

(b) The way of remittance against documents is recommended. The importer remits the payment to the paying bank and instructs the paying bank to pay the exporter based on certain specified documents and shipping documents provided by the exporter. Therefore, remittance against documents is safer to the importer compared to the general ways of remittance, and the exporter can also collect the full payment as long as he delivers the goods and documents on time.

What are the differences between arbitration and litigation in international trade disputes?

Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to an arbitration institution to make an award before or after a dispute. Arbitration is widely selected due to the features of confidentiality, procedural flexibility, single and final award, convenience and efficiency. The commencement of arbitration proceedings is conditional on the establishment of valid arbitration clauses by the trading parties involved. However, arbitration might have drawbacks. Although a single and final award is timesaving and efficient, it will lose access to upward relief. Parties involved have to carry some risks. Also, the property preservation procedure in arbitration is burdensome and the cost of arbitration is higher than litigation.

Litigation is one of the most important ways of dispute resolution for the parties of international trade. In international trade, if the trading parties fail to reach a negotiation and mediation and there’s no arbitration clause, the party claiming any right or interest may bring a lawsuit to the court of competent jurisdiction. The features of litigation are low cost, universal jurisdiction, and an access to upward relief ensured by the trial grade system. Compared to arbitration, litigation is more rigid and burdensome, the trial time limit is long and the confidentiality is low.

How to determine the jurisdiction if the parties fail to choose a court in a international trade litigation?

If the parties of an international trade do not agree on a clear jurisdictional court, the jurisdiction shall be determined in accordance with the applicable law of contract and relevant laws and regulations.

If the applicable law of contract refers to the laws and regulations of the People's Republic of China, where an action is instituted against a defendant without a domicile within the territory of the People's Republic of China concerning a dispute over a contract or rights and interests in property, if the contract was executed or performed within the territory of the People's Republic of China, or the subject matter of the action is located within the territory of the People's Republic of China, or the defendant has seized property within the territory of the People's Republic of China, or the defendant maintains a representative office within the territory of the People's Republic of China, the action may come under the jurisdiction of the people's court of the place where the contract was executed, the place where the contract was performed, the place where the subject matter of action is located, the place where the seized property is located, the place where the tort was committed or the place where the representative office is domiciled.

In addition, the civil procedure laws in different countries generally stipulate that the court at the place of domicile of the defendant has jurisdiction.

What are the limitation periods specified in Chinese laws for the arbitration and litigation in international trade disputes?

Any provisions of law regulating the limitation period for arbitration shall be followed; in the absence of such provisions, the provisions on limitation period for litigation provided herein shall be applied mutatis mutandis.

According to the provisions of the Civil Code of China, an action instituted in a people's court for protection of civil rights is prescribed by three years, except as otherwise prescribed by any law. The limitation period shall be calculated from the day when the obligee knows or should have known that his or her right has been infringed upon and who the obligor is. As a special case, the limitation period for filing a lawsuit or applying for arbitration on a dispute arising from a contract for international sale of goods and a contract for the import and export of technology is four years. In addition, according to the Civil Procedure Law of China, the limitation period may be interrupted or suspended under special circumstances.

Of special note is the people's court shall not offer protection if 20 years have elapsed since the infringement; but under special circumstances, the people's court may decide to extend the limitation period upon application of the obligee.

When the limitation period expires, the obligor may use the expiration of litigation as a case for defense. However, a people's court shall not apply the provisions on expiration of litigation of its own motion.

Which parties to cross-border litigations may enjoy the online case docketing services of the people’s courts?

Parties to cross-border litigations include foreigners, residents of the Hong Kong Special Administrative Region and the Macao Special Administrative Region (hereinafter referred to as “Hong Kong and Macao SARs”), residents of Taiwan Region, citizens of the Chinese mainland who habitually reside abroad or in Hong Kong, Macao and Taiwan, and enterprises and organizations registered abroad or in Hong Kong, Macao and Taiwan. The people's courts shall provide online case docketing services for parties to cross-border litigations through the China Mobile Micro Court.    The scope of online case filing services for parties to cross-border litigations includes the civil and commercial prosecution of the first instance.Where parties to cross-border litigations apply for online case docketing for the first time, the courts with which lawsuits are filed shall conduct identity verification first. Identity verification shall be conducted mainly in the manner of online verification based on the exit-entry certificate identification platform of the National Immigration Administration, among others. Where online verification is impossible, the courts with which lawsuits are filed shall conduct online manual verification of the parties' identity documents as well as identification documents notarized, authenticated, forwarded and sent for verification, among others. Identity verification results shall be notified online to parties to cross-border litigations within three working days.

To complete identity verification for online case filing, what materials shall be submitted if the parties to cross-border litigations are foreigners, foreign enterprises and organizations (which are not residents, incorporated enterprises or organizations in HK, Macao and Taiwan Regions)

(a) Foreigners shall submit passports and other documents proving their identity; and enterprises and organizations shall submit identification documents and certification documents proving that the persons participating in litigation on behalf of the enterprises and organizations have the right to participate in litigation as representatives. Certification documents shall be legalized by notary offices in countries where they are domiciled or located, and be authenticated by the Chinese embassies or consulates stationed in those countries. If the country where a foreigner or a foreign enterprise or organization is domiciled or located has not established a diplomatic relationship with the People's Republic of China, the certification document may be legalized by a notary office in that country, be authenticated by an embassy or consulate of a third country which has a diplomatic relationship with the People's Republic of China stationed in that country, and then be authenticated by the Chinese embassy or consulate stationed in the third country. If the certification formalities have been specifically provided for by any international treaty or convention concluded or acceded to by the People's Republic of China and the country where a foreigner or a foreign enterprise or organization is domiciled or located, such provisions shall prevail, with the exception of the clauses on which the People's Republic of China has declared reservations.

(b) Residents of the Chinese mainland who habitually reside abroad or in Hong Kong, Macao or Taiwan shall submit the resident identity cards made and issued by public security organs in China, household registration booklets or ordinary passports and other certificates proving their identity, and provide work visas and permanent residence permits and other documents proving that they have resided in foreign countries or Hong Kong, Macao or Taiwan for more than one year legally and continuously.

What is an ad hoc arbitration? Are there relevant rules as a basis for this and are there applicable cases in China and Shanghai?

Ad hoc arbitration is a form of arbitration. It is an arbitration activity through an arbitral tribunal formed by the parties themselves without recourse to an arbitration institution. An ad hoc arbitration mainly focuses on the rapid resolution of foreign-related maritime affairs and maritime commerce disputes.

Ad hoc arbitration has a longer history than institutional arbitration. Despite the rapid development of institutional arbitration after its emergence in the mid-19th century, ad hoc arbitration still shows a strong sign of thriving. In addition to its professionalism, efficiency, and confidentiality, ad hoc arbitrations are more competitive in the fields of maritime affairs and maritime commerce because of its lower price and higher level of satisfaction.

On March 18, 2022, the China Maritime Law Association (CMLA) and the China Maritime Arbitration Commission (CMAC) jointly issued the CMLA Ad Hoc Arbitration Rules. In December 2023, the Standing Committee of the Shanghai Municipal People's Congress considered and passed the "Regulations on Advancing the Construction of International Commercial Arbitration Center in Shanghai", which was the first in China to introduce the arbitration systems and rules that are in line with the prevailing international rules about arbitration places and ad hoc arbitrations. On June 13, 2024, the Shanghai Municipal Bureau of Justice issued the "Measures for Advancing Foreign-related Commercial and Maritime Ad Hoc Arbitration in Shanghai (for Trial Implementation)". On June 24, 2024, the Higher People's Court in Shanghai issued the Rules on Centralized Jurisdiction of Judicial Arbitration Cases Involving Ad Hoc Arbitrations on "Three Specific Occasions" and "Overseas Arbitration Business Institutions". On August 1, 2024, the Shanghai Arbitration Association issued the Provisional Arbitration Rules of the Shanghai Arbitration Association, with five chapters and 58 articles.

In early August 2024, the award for the first foreign-related maritime ad hoc arbitration case in China was made in Shanghai, where two enterprises registered in Shanghai agreed to choose Shanghai as the place of arbitration and Hongkou North Bund as the venue of the hearing. They independently agreed on the specific arbitration procedures and jointly chose an international shipping expert to be the arbitrator. on August 15, 2024, a well-known British industry association and a shipping company in Pudong signed an ad hoc arbitration agreement, and the arbitration proceedings of the case formally started; the parties had originally agreed that the arbitration would be held in London, but they finally chose an ad hoc arbitration in Pudong; this was the first case in which a foreign party applied for an ad hoc arbitration being conducted in China.

"Ad hoc arbitration" has gained more and more popularity in China and Shanghai, and the relevant rules, systems, and judicial practices are developing rapidly.

What are the main advantages of ad hoc arbitration over institutional arbitration?

Compared with an institutional arbitration, an ad hoc arbitration has unique advantages such as cost-effectiveness, convenience, and efficiency.

An ad hoc arbitration can save arbitral institution fees, which are based on the workload and the hourly rate of the arbitrator. Some arbitration institutions charge fees based on the amount in dispute, so ad hoc arbitration may be a better option in cases where the subject of the disputes is of a high value and the disputes are simple, or where there is a possibility of settlement between the parties during the arbitration process.

The arbitral tribunal is the master of the arbitral process, and an experienced arbitrator shall be able to handle the administration of arbitration easily without assistance from an arbitral institution. Moreover, due to the flexible nature of the arbitral process, the guidance based on the rules of an institution may have limited applicability in certain circumstances, while an ad hoc arbitration allows for more flexibility in matters to be processed.

Ad hoc arbitration is not only the original form of arbitration but also the mainstream type for arbitrations in western countries such as the United States, the United Kingdom and Sweden. When drafting arbitration provisions, the name of the institution shall be clearly mentioned if an arbitration institution is selected, otherwise, they may be interpreted as provisions for ad hoc arbitrations.

What are the materials needed on the entrustment of agents as litigation representatives by parties to cross-border litigations who are foreigners, foreign enterprises and organizations(which are not residents, incorporated enterprises or organizations in HK, Macao and Taiwan Regions)？

(a) The powers of attorney signed by foreigners and the representatives of foreign enterprises and organizations outside China shall be legalized by the notary offices of the countries where they are domiciled or located, and be authenticated by the Chinese embassies or consulates stationed in those countries; if the countries where they are domiciled or located have not established a diplomatic relationship with the People's Republic of China, the powers of attorney may be legalized by notary offices in those countries, be authenticated by the Chinese embassies or consulates of third countries which have a diplomatic relationship with the People's Republic of China stationed in those countries, and then be authenticated by the Chinese embassies or consulates stationed in the third countries; the signing of powers of attorney signed inside China shall be witnessed by judges, or the powers of attorney shall be legalized by notary offices in the mainland; and where the certification formalities have been specifically provided for by any international treaties or conventions concluded or acceded to by the People's Republic of China and countries where foreigners or foreign enterprises or organizations are domiciled or located, such provisions shall prevail, with the exception of the clauses on which the People's Republic of China has declared reservations;

(b) Where a citizen of the Chinese mainland whose place of habitual residence is located abroad posts a power of attorney or delivers through another person a power of attorney to China, the power of attorney shall be certified by the Chinese embassy or consulate stationed in that country. If there is no such an embassy or consulate in that country, the power of attorney shall be first certified by an embassy or consulate of a third country which has a diplomatic relationship with the People's Republic of China stationed in that country and then be certified by the Chinese embassy or consulate stationed in the third country or be certified by the local patriotic overseas Chinese organization.

What are the features of the newly established Shanghai International Commercial Court?

With the approval of the Supreme People’s Court and the Shanghai Municipal Committee, the Shanghai International Commercial Court was established on December 30, 2024. As a key innovation in China's judicial system, the Shanghai International Commercial Court possesses the following characteristics.

(1) Centralized jurisdiction and professional trial

The Shanghai International Commercial Court has centralized jurisdiction over the former foreign-related commercial cases, arbitration judicial review cases and foreign-related mediation agreement confirmation cases of the Shanghai First Intermediate People’s Court and Shanghai No. 2 Intermediate People’s Court to develop a professional trial system.

(2) Digitalization and intelligence construction

The Shanghai International Commercial Court has established the intelligent trial management system to promote the digitalization of foreign-related trials, and released documents such as the Regulations of the Shanghai International Commercial Court (Trial) to improve the efficiency and transparency of trials. In addition, the “Shanghai Court International Commercial One-Stop Dispute Resolution Platform” has integrated 27 dispute resolution institutions to create a “one-stop” system for international commercial disputes, offering online diversion to litigation, arbitration, and mediation, alongside services like translation and notarization.

(3) International mechanism innovation ‌

The Shanghai International Commercial Court (SICCO) officially began operations on January 1, 2025 and conducted China’s first use of the United Nations Convention on Contracts for the International Sale of Goods (CISG) as a reference for advisory opinions in a commercial case and the legal acknowledgement and enforcement of judgments from Singaporean courts, showcasing its international judicial standards. These actions highlight Shanghai’s commitment to promoting its role as a preferred location for cross-border dispute resolution.

What are the ways of service provided by Chinese laws to serve procedural documents on a party without a domicile within the territory of the People's Republic of China in international trade disputes?

(a) service in the way specified in an international treaty concluded between or acceded to by the state of the person to be served and the People's Republic of China;

(b) service through diplomatic channels;

(c) where the person to be served is a national of the People's Republic of China, entrustment of the embassy or a consulate of the People's Republic of China in the state where such person is located with service on its behalf;

(d) service on the agent ad litem appointed by the person to be served and authorized to accept service on his or her behalf;

(e) service on the representative office, or the branch or business agent authorized to accept service, established within the territory of the People's Republic of China by the person to be served;

(f) service shall be made by post if it is permitted by the law of the State of the person to be serviced. If the acknowledgment of service is not returned within three months after the date of posting, and various circumstances justify the assumption that the document has been served, the document shall be deemed to have been served on the date of expiry of the time limit;

(g) service by facsimile, e-mail and any other means through which the receipt of the document may be acknowledged; or

(h) where a document cannot be served by any of the above means, it shall be served by public announcement. The documents shall be deemed to have been served after three months from the date of the public announcement.