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Five principles for the legal application of foreign trade contract cases in China

1. Principle of autonomy of will
The principle of autonomy of will is the basic principle of legal application in cases of foreign-related economic and trade contracts, which means that the parties to foreign-related contracts can choose the law applicable to handling contract disputes. In practice, China generally requires that the legal choice of the parties to the contract must be explicit, and refuses to recognize the implied choice of law; Allow the parties to the contract to choose the law at the time of contract formation or after disputes arise; The law required for the parties to the contract to choose must be the current substantive law, excluding conflicting norms and procedural law.

2. The principle of the closest connection
When the parties to a foreign economic and trade contract have not chosen the law applicable to the dispute resolution, the law applies to the law of the country with the closest connection to the contract. In judicial practice, China uses “characteristic performance” as the basis for defining the closest connection between contracts, that is, which party’s behavior belongs to the most characteristic performance behavior in the contract, and the law of the country where the party is located is applicable.
Under normal circumstances, an international contract for the sale of goods is governed by the law of the seller’s place of business at the time of contract formation; Bank loans or guarantee contracts shall be governed by the laws of the location of the lending bank or guarantee bank; The insurance contract shall be governed by the law of the place of business of the insurer; The complete equipment supply contract shall be governed by the laws of the place where the equipment is installed and operated; The agency contract shall be governed by the law of the place where the agent’s business is located; In addition, the principle of the “closest connection” is also the basis for China to resolve active conflicts at the junction of personal law. When the parties have more than one business office, the business office with the closest relationship to the contract shall prevail; When the parties do not have a place of business, their domicile or residence shall prevail.

3. Special principles applicable to Chinese law
Article 246 of the Civil Procedure Law of the People’s Republic of China stipulates that in cases of disputes arising from Sino foreign joint venture contracts, Sino foreign cooperative operation contracts, or Sino foreign cooperative exploration and development of natural resources contracts performed within the territory of China, Chinese law must apply.

4. Principle of Priority Application of International Treaties
The main prerequisites for applying the provisions of international treaties are: firstly, the parties involved in foreign affairs choose to apply these treaties; Secondly, these treaties must be international treaties that China has concluded or participated in; Thirdly, the treaty has different provisions from China’s Contract Law and other civil laws; The fourth is the exclusion of clauses that China has declared reservations to. So far, the international conventions related to foreign economic and trade contracts that China has concluded or participated in are mainly the United Nations Convention on Contracts for the International Sale of Goods. According to Article 1, Paragraph 1 of the Convention, if a contract for the sale of goods between contracting companies does not make another legal choice, the relevant provisions of the Convention shall automatically apply to the matters stipulated in the contract. In case of disputes or lawsuits, they may also be handled in accordance with the Convention.

5. Principles of International Practice
The so-called international practice, which is accepted as law as proof of general practice, refers to a customary practice or norm that has been repeatedly used in international practice, has a fixed content, and is not formulated through legislative procedures. If recognized by a country or adopted by the parties, it is binding on them. When Chinese law should be applied as the applicable law, if there are no provisions in Chinese law or international treaties concluded by China, international practices can be applied. According to Article 150 of the General Principles of the Civil Law of the People’s Republic of China, the application of international practices shall not violate China’s social and public interests; These international practices cannot be applied if they violate the public interests of our society. In practice, the law chosen by the parties can be either the domestic law of the relevant country, or international treaties or practices. The relevant international practices commonly used in international trade, such as the International Rules for the Interpretation of Trade Terms (INCOTERMS) and the Uniform Customs and Practice for Documentary Credits (UCP600) formulated by the International Chamber of Commerce. The most universal international practice in the field of international trade contracts is the General Principles of International Commercial Contracts



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