TYGlobe

The film and television industry and international trade are two completely distinct sectors. Under certain circumstances, however, the two fields may be intertwined with each other. Despite the common saying that different trades are as separate as mountains and that relatively high barriers exist between different industries, the author is of the view that for practitioners in the film and television industry, acquiring certain knowledge of international trade may sometimes facilitate their practice in the industry.

Then why is there an intersection between film and television works and international trade?

In short, with the continuous expansion of the cultural market, the internationalization of the film and television industry is an inevitable outcome. Films and TV dramas produced in China involve certain foreign-related elements. For example, overseas markets are also taken as a development direction in the distribution of films and TV dramas; in another case, some props and costumes required for shooting are manufactured and procured overseas before being imported into China. Although the aforesaid overseas manufacturing and procurement of props and costumes are different from the generally understood international trade featuring large-scale import of goods or services, such activities indeed involve the import of commodities and shall fall within the scope of international trade as a matter of law. Accordingly, it is only natural that special operations and terminology related to international trade shall be applied in such transactions. If a party has no knowledge of the aforesaid matters, it will only place itself in a disadvantageous position.

Then, what matters shall be preliminarily understood?

I. Forms of the Text of Contracts for the International Sale of Goods

In terms of the form of contracts, a written contract shall always be the top priority. Whether for contract performance or dispute resolution, a written contract is the most reliable basis to rely on. Even orders confirmed by both transacting parties via written communication methods such as emails and QQ are more favorable than transactions with only verbal agreements. Although the laws of China stipulate that a contract may be formed in written, oral or other forms, it is found in practice that when a dispute arises, written documents can often serve as better evidence to ascertain the true intent of both parties at the time of contract conclusion.

In addition, it is recommended that the contract be prepared in bilingual form, with Chinese as one of the languages adopted. The bilingual mode can better assist both parties to the transaction in understanding the specific contents of the contract. Some may doubt that since they have a very good command of the language of the counterparty and will not have difficulties in understanding the contract, it is totally unnecessary to add a Chinese version to the foreign-language contract. However, that is not the case. Another function of preparing a bilingual contract with a Chinese version is to facilitate payment. In similar transactions, not all enterprises or transacting parties in China have accounts with banks in the country where the counterparty is located, which means that the payment operation still needs to rely on banks in China. According to relevant regulations of banks in China, where payments are made to overseas parties for similar transactions, the Chinese version of the transaction contract is required as the basis for payment. Therefore, even if no Chinese version of the contract is signed with the counterparty when the transaction is concluded, a Chinese version of the contract shall be signed subsequently for the purpose of making payment to the counterparty. Communication comes at a cost. Rather than incurring extra communication costs afterwards, why not get everything done properly at the very beginning?

II. Contents of the Contract for the International Sale of Goods

After the form of the contract is determined, the next key point is the content of the contract. For contracts involved in similar transactions, most of their clauses may refer to those of sales contracts, with core contents mainly including the name, quantity and quality of the subject matter, price, time limit for performance, place and method of performance, packaging method, inspection standards and methods, settlement method, etc.

For a sales contract, the core concern of the parties thereto is the price. Such transactions are cross-border in nature, and different countries have their own currencies with different values. Therefore, compared with domestic transactions in China, when stipulating the price for such transactions, the parties shall pay special attention to explicitly agreeing on the currency type corresponding to the agreed price, so as to avoid disputes arising from the failure of both parties to reach a consensus on the currency type during actual performance due to ambiguous agreement. In light of the difference in currency types, it is easy to associate the existence of exchange rates between different currencies. The exchange rate between different currencies is not constant. Similar to stock prices, exchange rates fluctuate not only on a weekly and daily basis, but even every minute. Volatile exchange rates will lead to exchange losses in foreign exchange settlement. For both parties to the transaction, they always expect the exchange loss borne by themselves to be as low as possible, so the applicable exchange rate is also prone to become the focus of disputes. Stipulating relevant content on this matter in the contract can effectively resolve this issue.

Once the contract price is determined, its settlement and payment follow accordingly. There is a special payment method in international trade, namely payment by Letter of Credit (L/C), which is also the mainstream payment method in international trade. Payment by L/C refers to a payment method under which the bank pays the purchase price to the seller on behalf of the buyer on the premise of satisfying the principle of "compliance of documents inter se and compliance of documents with the terms of the credit". Backed by bank credit as guarantee, this method can effectively balance the conflicts between the two parties to the transaction in respect of payment and goods delivery. It shall be noted that when we, as the buyer, apply to the bank for the issuance of an L/C, we must verify whether the contents of the issued L/C are consistent with the contents stipulated in the contract signed by both parties. This is because an L/C constitutes an independent legal instrument once issued. In the subsequent payment process, the seller only needs to submit various documents conforming to the provisions of the L/C as required, such as the Sea Waybill, to obtain acceptance, and the bank will not examine the corresponding sales contract. In other words, in case of any inconsistency between the L/C and the contract, the seller may obtain the bank's acceptance and finally receive the purchase price as long as it submits documents meeting the requirements of the L/C, even if the content (goods) indicated in the documents fails to meet the contract requirements. This will bring great risks to the buyer: after all, there may be a situation where the goods are not conforming to the contract specifications but the seller has already received the corresponding contract price. Even if the buyer can subsequently hold the seller liable for breach of contract and other matters, the buyer will inevitably be placed in a rather disadvantageous position in terms of actual interests. Accordingly, when examining the L/C, it is imperative to ensure its consistency with the contract.

Finally, we will discuss a distinctive feature of international trade, namely International Trade Terms. International Trade Terms are a series of quotation models that cover transaction conditions and price composition, and can also be regarded as the "jargon" in the international trade industry. Once such terms are quoted, the main clauses of the contract are largely set out.

International trade terms include EXW (Ex Works), FCA (Free Carrier), FAS (Free Alongside Ship), FOB (Free On Board), CFR (Cost and Freight), CIF (Cost, Insurance and Freight), etc. Among them, FOB and CIF are relatively the terms most frequently heard by the public.

FOB is the acronym for Free On Board, i.e. delivery on board the vessel at the port of shipment. The transaction mode under this term stipulates that the buyer shall be responsible for designating the cargo vessel to take delivery of goods, and the seller shall transport the goods to the designated port of shipment and deliver them on board the vessel within the time limit specified in the contract. The dividing line for assumption of risks under this term is the point when the goods pass the ship's rail. All risks of damage to or loss of the goods before the goods pass the ship's rail shall be borne by the seller, while the corresponding risks shall be borne by the buyer after the goods pass the ship's rail. Under this term, all expenses incurred before the goods cross the ship's rail shall be borne by the seller, and the corresponding price may be simply interpreted as the cost price.

CIF is the acronym of COST, INSURANCE and FREIGHT, namely cost, insurance and freight. Under this trade term, the transaction mode specifies that the seller shall be responsible for appointing a cargo ship to take delivery of the goods, transport the goods to the designated port of shipment and deliver the goods onto the vessel within the time limit prescribed in the contract, and shall also be responsible for effecting cargo transportation insurance. The demarcation line for assumption of risks under this term is the ship's rail. All risks of damage to or loss of the goods before the goods pass across the ship's rail shall be borne by the seller. The seller shall be liable for all expenses incurred before the goods cross the ship's rail, the insurance premium, as well as the freight from the port of shipment to the port of destination under this term.

It can be seen from the foregoing that the obligations of the seller under the CIF term are far heavier than those under the FOB term, and the choice between the two may be made according to actual transaction demands. Finally, it shall be noted that both FOB and CIF only apply to sea transport or inland waterway transport. Where land transport or air transport is selected, other trade terms shall be adopted.