How to Avoid Foreign Trade Disputes

Disputes between foreign trade parties are often caused by unclear quality clause provisions in foreign trade contracts. Let us understand relevant legal knowledge through a case. The trade mentioned herein primarily refers to foreign trade, i.e., trade activities between a Chinese company and a foreign company.

One of the issues reflected in foreign trade practice is that disputes between foreign trade parties are mainly caused by unclear quality clause provisions in foreign trade contracts.

Company A and Company B have a dispute

For example, Company A (a company in Shanghai, China) and Company B (a corporation in Tokyo, Japan) engaged in the trade of clothing. After Company A shipped the goods to the port of destination designated by Company B, and Company B received the goods provided by Company A in full, according to the relevant foreign trade contract, Company B should pay by T/T. However, Company B did not pay the relevant amount in time. Company A sent several faxes to Company B requesting payment, and Company B remained silent, neither paying nor providing any reason. Under this premise, Company A sent another fax to Company B, clearly stating that if payment was not made within 10 days, Company A would pursue Company B for compensation liability according to the relevant clauses of the foreign trade contract.

Only then did Company B respond, stating that the reason for non-payment was that the quality of the goods provided by Company A did not meet the requirements. Company B's downstream customer now claimed that the batch of goods had serious quality issues and demanded that Company B assume compensation liability. Company B also stated that if its downstream customer pursued compensation liability through legal means, then that portion of the compensation would be borne by Company A.

We will not judge who is right or wrong between Company A and Company B here, but instead analyze the issue of goods quality in the link where the dispute occurred. Regardless, disputes inevitably affect the vital interests of both transacting parties, with either intentional factors or many cases of unclear expressions of quality clauses in foreign trade contracts. To this end, the relevant quality clause provisions in foreign trade contracts and specific drafting examples are described respectively below for reference by managers and operators of relevant foreign trade enterprises.

Points to Note in Foreign Trade Contracts

It should be said that the quality clause is the most important clause in a foreign trade contract. The quality of the goods determines their specific price and is also the foundation of the foreign trade contract. Therefore, in a foreign trade contract, it is necessary to clearly stipulate the quality of the goods, the time and place for determining the goods' quality, and the main handling methods when quality issues arise.

I. The general ways to indicate product quality are mainly as follows:

1. Quality as per seller's sample.

2. Quality as per buyer's sample.

3. Sales by specification, grade or standard.

4. Fair average quality (F. A. Q.).

5. Good merchantable quality (G. M. Q.).

6. Sales by trademark or brand.

7. Sales by specification.

II. Example reference statements for product quality:

1. Quality certificate by _______ at the port of loading shall be taken as final.

2. Maker's inspection in the factory shall be final.

3. Quality inspected by independent public surveyor at the time of shipment shall be final.

4. Goods sold by sample shall be guaranteed by the seller to be fully equal to the sample upon arrival at destination.

5. Fair average quality at the time and place of loading shall be assessed on the basis of the London Corn Trade Association's official F. A. Q. standard.

6. Quality shall be strictly as per sample submitted by the seller on ____________ (date).

7. The seller shall guarantee all shipments to conform to samples submitted with regard to quality.