The influence of Chinese business culture on the negotiation of international trade contracts of Vietnamese enterprises

The seller found that all the quality standards in the contract were vague and general. Immediately, the seller of electricity to the Chinese buyer asked them to send staff to inspect and assess the quality of the goods. But when the Chinese side received the electricity, they not only refused to come but also objected as follows: If the seller cannot deliver the goods according to the quality specifications in the contract, it is considered that the seller unilaterally breached the contract. At this time, the Malaysian seller realized that the Chinese buyer had actually used the vaguely stipulated quality specifications clause to appropriate 10% of the contract deposit. Without enough valid arguments to sue the buyer in court, the Malaysian seller had to swallow the bitter pill and accept the loss of that amount and many other economic losses that followed.

The above example is a lesson for Vietnamese businesses to be vigilant against resourceful Chinese traders; to have a thorough understanding of the type of goods being traded; and to always be careful in every clause of the contract. Vietnam often exports unprocessed agricultural, forestry and fishery products or raw materials, so the quality is often low and the preservation conditions are not high. Chinese businesses often attack this weakness of Vietnamese businesses to force Vietnamese businesses to make some concessions.

Currently, China is using commodity quality codes [18]. Chinese consumers can check the quality of goods with quality codes that have been in effect since June 2008. The types of goods include food, foodstuffs, household appliances, electric cables, agricultural tools, gas stoves, labor safety equipment, electric panels and cosmetics. Consumers can request product information such as manufacturer name, expiry date by calling the toll-free number on the back of the scratch-off film. When poor quality products are discovered, the information will be transferred to the investigation network and notified.

notify other distributors and stop circulation. This regulation has a great impact on the negotiation of product quality terms between Vietnamese enterprises and Chinese enterprises. The Chinese partner, as an importer, will be very demanding in requiring product quality because product quality will affect their reputation for a long time, until the Chinese people do not have any complaints or suggestions about product quality.

1.4 Delivery terms

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Below is a case of a dispute over delivery time between a Vietnamese company and a Chinese company.

Parties:

Plaintiff: A Vietnamese company Defendant: A Chinese company Summary of the case:

On May 14, 1995, the Plaintiff (Vietnamese Company) and the Defendant (Chinese Company) signed a sales contract No. 09/95, under which the Plaintiff sold to the Defendant 1,500MT of cashew nuts of Vietnamese origin, delivered at the end of May and June 1995, at a price of 940 USD/1MT, delivered to the bonded warehouse of Saigon port, payment by irrevocable L/C, payment of 85% upon presentation of delivery documents to the bonded warehouse, 15% upon presentation of the sea waybill, payment documents including:

3/3 Bill of lading or receipt of goods into bonded warehouse, Commercial invoice

Packing list

Certificate of quantity, weight and quality signed by SGS or Vinacontrol

Certificate of origin

To perform the contract, the Defendant opened an L/C for the benefit of the Plaintiff. Section 36 of the L/C stipulates payment documents, including the certificate of origin issued by the Vietnam Chamber of Commerce and Industry. Section 37 of the L/C specifically stipulates: to receive 85% of the L/C value (i.e. the contract value), along with other documents, one original and two copies of the certificate of origin issued by the Vietnam Chamber of Commerce and Industry must be presented; to receive 15% of the L/C value, in addition to other documents, one photocopy of the certificate of origin issued by the Vietnam Chamber of Commerce and Industry must be presented.

After receiving the L/C, the Plaintiff delivered 1,428.23MT of cashew nuts to the bonded warehouse at Saigon port on June 22, 1995.

SGS issued certificate of quantity, weight and quality No. 2504/95 dated June 23, 1995, which stated the quality criteria in accordance with the contract but did not mention the origin of the goods.

On October 25, 1995, the Defendant loaded the shipment from the Saigon Port bonded warehouse onto the ship.

On October 26, 1995, the Defendant sent a letter to the Plaintiff stating that the Plaintiff delivered cashew nuts of Cambodian origin, not Vietnamese origin, so the Defendant suffered a loss of 442,752 USD, the Plaintiff must be responsible and must immediately compensate the Defendant.

On October 27, 1995, the Plaintiff prepared a set of documents to collect 15% of the L/C value, including only a photocopy of the certificate of origin issued by the Plaintiff. The Bank opened the L/C and the Defendant refused to pay. At the same time, the Defendant filed a lawsuit in the Chinese Court requesting the Court to issue a decision to stop paying 15% of the L/C value and the Chinese Court issued that decision. The Bank then sent a Report to the Chinese Court, stating that the set of documents presented by the Plaintiff did not comply with the L/C, the Bank refused to pay and informed the Plaintiff of this. However, in practice,

The Defendant resold this batch of cashew nuts to an Indian customer and received full payment from the Indian customer. The L/C issuing bank requested the Chinese court to issue a decision for the L/C issuing bank to pay 15% of the L/C value to the Plaintiff. After this incident, the Plaintiff received 15% of the L/C value from the L/C issuing bank on December 20, 1995.

Due to late receipt of payment, the Plaintiff sued the Defendant in arbitration, requiring the Defendant to pay the following amounts:

Penalty for breach of contract performance period from July 11, 1995 to October 26, 1995 is 107,402 USD,

The fine for violating the obligation to receive goods from July 11, 1995 to October 26, 1995 is 161,104 USD.

Penalty for breach of payment obligation (15% of L/C value) from November 11, 1995 (the date the L/C opening bank received the set of documents) to December 20, 1995 is 3,268 USD.

In its defense and counterclaim, the Defendant states as follows:

On September 27, 1995, the Defendant was informed by Company A (a shipping agent authorized by the Defendant to keep the shipment in the bonded warehouse) that the cashew nuts of Cambodian origin, imported by the Plaintiff from Cambodia, had temporarily paid an import tax of 4%, and would be refunded when re-exported. Therefore, the Plaintiff could not obtain a certificate of origin issued by the Vietnam Chamber of Commerce and Industry. From there, the Defendant asserted that the Plaintiff delivered goods of incorrect quality, demanding that the Plaintiff reduce the selling price by 15%, which was 201,380.57 USD, because it had to sell this shipment at a cheap price because if it was left in the bonded warehouse for a long time, it would be confiscated because it was temporarily imported for re-export, demanding compensation of 30,000 USD for damage prevention costs (the cost of filing a lawsuit in the Chinese Court to prevent the L/C-opening Bank from paying 15% of the goods to the Plaintiff).

Arbitrator's decision:

Regarding the violation of the contract performance deadline and the violation of the obligation to receive goods from July 11 to October 26, 1995:

The contract stipulated the delivery time to the bonded warehouse at Saigon port at the end of May and June 1995. In fact, the Plaintiff delivered the goods and the Defendant received the goods at that warehouse on June 22, 1995. Thus, the Defendant received the goods within the time stipulated in the contract. The contract did not stipulate a time limit for the Defendant to take the goods out of the warehouse to load onto the ship, and since the goods entered the warehouse, the parties did not sign an additional document stipulating this time limit, so the right to take the goods out of the warehouse at any time is the Defendant's. Therefore, there is no basis and no evidence to conclude that the Defendant violated the time limit for performing the obligation to receive the goods, so the penalty claimed by the Plaintiff is rejected.

Comments and notes:

It is clear that the Plaintiff accuses the Defendant of violating the contract performance deadline in a general, non-specific and unfounded manner. The Plaintiff accuses the Defendant of violating the contract performance deadline, but cannot specify whether it is the deadline for dispatching a ship to pick up the goods, the deadline for receiving the goods, the deadline for payment, etc., because the contract does not stipulate these types of deadlines. The Plaintiff says the Defendant violated the obligation to receive the goods, but cannot prove that the Defendant did not receive the goods or received the goods late. The first oversight here is that the Plaintiff did not specify in the contract a deadline for the Defendant to take the goods out of the bonded warehouse at Saigon port, so there is no basis for accusation.

From the above case, it can be seen that clearly defining the delivery time is extremely important when a dispute occurs.

Regarding the delivery period clause, the 1999 Contract Law of China has a very noteworthy provision as follows: "If the parties do not have a clear agreement on the delivery period, they can make a supplementary agreement. If no supplementary agreement is reached, it will be determined according to the relevant provisions."

"customs or transaction practices of the contract". The question for businesses is what are the transaction practices of the contract. Through the practice of using international commercial contracts, it can be seen that the transaction practices of the contract include the transaction practices established between the two parties and the transaction practices of the locality. For example, a Vietnamese company and a Chinese company have repeatedly signed a contract to supply exhaust fans, according to which the Chinese seller will have to supply goods at the end of each month so that the buyer can plan to consume in the Vietnamese market in the following month. In subsequent transactions, if the two parties do not specify the delivery time, that time will still be determined as the end of each month. This is a relatively easy point to determine between businesses with long-term relationships. However, the problem of applying local transaction practices to Vietnamese businesses is not simple. Therefore, the safest measure for businesses is to accurately and specifically regulate this clause.

2. Terms of transport

China has a coastline of 18,000km, with about 20 large and medium-sized coastal cities spread across 10 provinces and autonomous regions. China has invested heavily in expanding and modernizing its maritime fleet because the maritime transport system plays a major role in the international transport of goods. The following Chinese ports are allowed to directly load and unload import and export goods: Basuo, Beihai, Dalian, Fangcheng, Fuzhou, Guangzhou, Haikou, Huangpu, Lianyungang, Longkou, Nantun, Ningbo, Qingdao, Qinghuangdao, Shanghai, Shantou, Tianjin, Wuhan, Wenzhou, Xiamen, Yantai, Yingkou, Zhangjia and Changjiang. That is also the reason why maritime transport is widely used in the terms of international trade contracts signed between Vietnamese and Chinese enterprises. Normally, Chinese enterprises export under CIF terms and import under FOB terms, which means that

Transportation is usually undertaken by the Chinese side. Currently, the transportation is usually undertaken by the China Foreign Trade Transportation Company. Goods imported into China must be inspected by the commodity inspection organization. If the imported goods are lost, damaged or missing, the importer can claim compensation with the certification of the commodity inspection organization. After the above procedures are completed, the import-export enterprise allows the foreign trade transportation company to unload and transport the goods back to the enterprise.

Due to the terrain, goods traded between Vietnam and China are also transported by road and rail. Goods are often delivered along the border. However, there is a characteristic that goods must be transported deep into the interior of China. At the road border gates, cars can go back and forth on both sides. Each side has a parking lot. Normally, when selling goods, Vietnamese traders must bring the goods to China and deliver them to the Chinese parking lot.

3. Price terms

Chinese businessmen love to bargain. Usually, when the Vietnamese side offers a price, they often cite different reasons to ask for a discount. Therefore, price is the most time-consuming issue in negotiations with Chinese businesses. Inexperienced negotiators are often forced to pay too much, often having to accept a small loss if they offer a price that is too close. Chinese businesses are very good at price regulation. For example, when there is an urgent need and a large quantity of goods are needed, they raise prices to stimulate partners to source goods and boost exports; when import demand is low, they hold down and lower prices, sometimes suddenly stopping imports to create a psychology and public opinion of being "full" of goods in an artificial way, causing a backlog of goods for partners to force partners to reduce prices; "luring" partners to bring goods into the country for delivery, then forcing prices down to force partners to accept because they cannot bring the goods back home.

4. Payment terms

Due to the diversity of participants and types of imported and exported goods between Vietnam and China, the methods of exchange and payment are also very diverse and rich. The main forms of payment include: money transfer (USD, Chinese Yuan or Vietnamese Dong) (TTR); letter of credit (L/C) are all applied. In order to expand and further promote economic and trade relations between the two countries, and at the same time help businesses of the two countries reduce costs and prevent risks in payment, on May 26, 1993, the State Bank of Vietnam and the People's Bank of China signed a Payment and Cooperation Agreement. According to this Agreement, all payments must go through the Bank (including cases of barter, there must be a report). Particularly for the form of barter, the difference due to unbalanced delivery allows the use of the currency that both parties agree to pay (Vietnamese Dong or Chinese Yuan). Regarding currency exchange at the border, the two sides have not reached an agreement in principle allowing the Bank to set up currency exchange counters, but only stated that it depends on the needs of each side. Although the banks of the two countries have made many efforts, due to many different reasons, the payment for Vietnam-China import and export through banks still accounts for a very small proportion compared to the total import and export turnover of the two countries. Because most transactions with Chinese partners are not paid through banks, Vietnamese enterprises have encountered many difficulties in receiving money for exported goods. Normally, the Chinese side, because they clearly understand the export situation in Vietnam, will "smartly" force prices down, temporarily stop buying, or downgrade goods to buy cheaply, buy goods first and pay later, and appropriate capital. Meanwhile, the Vietnamese side has not thoroughly researched its partners, hastily traded based on "trust", so it is easy to fall into a situation of "double loss", with long-term debt. To overcome the above situation, in recent years, a number of bank branches with transparent procedures and mechanisms have been established at border gates. In particular, Lao Cai has also established a banking relationship between the State Bank - Lao Cai Rural Development and the Industrial and Commercial Bank of Yunnan Province. Therefore, there are now more and more