of around $1 billion for the last 2 years, the country ran substantial deficits during the 1973-75 period of importation of complete plants. Some observers calculate that an aggressive plan for industrial modernization and economic development will not be possible without substantial borrowing from abroad. While the Chinese have been educating themselves on the structure of international banking and world financial markets they have not yet begun accepting conventional loans and continue to claim they will not do so. Financing of major foreign exports to China continues to be done by deferred payments or "supplier's credits," usually for terms not exceeding 5 to 7 years and at interest rates of not less than 7 percent. This form of credit is not considered "debt" by the Chinese. With the possible exception of short-term credits for agricultural products most purchases of American commodities have been for cash. The bulk of Chinese exports to the United States continue to be paid for in cash.

APPENDIX 1. CHRONOLOGY OF COMMERCIALLY RELATED EVENTS

December 17, 1950-Department of Commerce embargoed all exports to China under authority of the Export Control Act of 1949. Under the Defense Production Act of 1950, Commerce issued Transportation Orders T-1 and T-2, which prohibited U.S. carriers from calling at the PRC and prohibited all U.S.-Flag air or sea carriers from transporting or loading any cargo ultimately destined for the PRC. Bunkering of vessels calling or having called at Chinese ports was also prohibited. In a complementary action, the Treasury Department under the Trading With the Enemy Act of 1917 issued the Foreign Assets Control Regulations.

December 29, 1950-PRC assumes control over all U.S. property in China. 1951-Seven types of Chinese furskins prohibited entry by the Trade Agreements Extension Act of 1951.

July 21, 1969-American tourists permitted to purchase up to $100 of goods originating in the PRC. Passports automatically validated for travel to China for Members of Congress, journalists, professional teachers, scholars with postgraduate degrees and students in colleges and universities, scientists and medical doctors, and American Red Cross representatives.

December 9, 1969-Foreign affiliates and subsidiaries of American firms permitted to trade in non-strategic goods with China. $100 limit on purchase of Chinese goods for non-commercial use removed and "accompanied baggage" requirement dropped.

March 16, 1970-Validation of U.S. passports for China for any legitimate

reason.

April 1970-Shipment to China authorized for non-strategic, foreign-manufactured goods containing American components.

August 1970-Bunkering of third country ships carrying non-strategic goods to the PRC permitted providing bunkers were of non-U.S. origin.

March 15, 1971-Removal of all restrictions on travel by Americans to China. April 7, 1971-Peking invited the American table tennis team to China. April 14, 1971-President Nixon announced his intention of relaxing the 21year old embargo.

May 7, 1971-Treasury removed controls on the use of dollars in transactions with the PRC. Prohibition against American-controlled foreign flag vessels calling at PRC ports removed. U.S. oil companies abroad authorized to bunker vessels controlled by the PRC except those going to or from North Korea, North Vietnam, or Cuba. Commerce and Transportation modify T-2 to permit U.S. carriers to transport commodities authorized for export to China to non-PRC ports.

June 10, 1971-The first step in removal of the embargo is taken by placing a long list of commodities under a general license.

July 15, 1971-President Nixon announced plan to go to China prior to May 1972.

October 25, 1971-The PRC entered the United Nations.

February 14, 1972-The PRC placed in the same category as the Soviet Union and certain East European countries for export control purposes. Further modifications made in Treasury's Foreign Assets Control Regulations.

February 1972-Nixon visited China.

February 28, 1972-Shanghai Communique issued.

November 22, 1972-Transportation order T-2 further modified to permit U.S. air carriers and ships to visit the PRC.

February 1973 Secretary Kissinger visited Peking and both countries agreed to the establishment of liaison offices in the respective capitals.

May 30, 1973-The National Council created on March 22, 1973 with the encouragement of the Department of State and Commerce.

June 1, 1973-Both the U.S. Liasion Office in Peking and the PRC Liaison Office in Washington opened for business.

July 2, 1973-Short supply controls instituted over exports of iron and steel scrap of U.S. origin.

November 1973-First broadly based, commercially oriented American_delegation to China in more than 20 years consisting of National Council Board members.

November 1974-Principles of the Shanghai Communique reaffirmed during visit to Peking by Secretary Kissinger.

December 31, 1974-U.S. short supply controls over steel scrap terminated. January 3, 1975-Trade Act of 1974 enacted.

January 1975-Chinese Gas Turbine Delegation visited the United States. January 1975-American Arbitration Delegation visited Peking.

February-March 1975-China National Textile Import and Export Corporation Delegation to the United States.

May 1975 Greater San Francisco Chamber of Commerce Delegation visited the PRC.

July-August 1975-First Electronic Industries Association (telecommunications) visit to China.

September 1975-First visit to the United States by the China Council for the Promotion of International Trade.

September-October 1975-Visit by the China National Light Industry Import and Export Corporation.

September-November 1975-China National Native Produce and Animal Byproduct Import and Export Corporation visit.

November 1975-First visit by the National Machine Tool Builders' Association to the PRC.

December 1975-President Ford's visit to China.

January-March 1976-China National Minerals and Metals Import and Export Corporation Delegation visit.

February-April 1976-China National Light Industry Import and Export Corporation (general merchandise) visit.

March-June 1976-Buyer's group from the China National Technical Import Corporation Delegation (machine tools).

April 1976-Visit by the Mid-America Committee to Peking.

April 1976-Los Angeles Chamber of Commerce group visited China.

September-October 1976-Visit of China National Light Industrial Import and Export Corporation (jewelry, handicrafts, and straw goods).

October 1976-Second visit by board members of the National Council for United States-China Trade.

November-December 1976-Visit to China by the U.S. Agricultural Chemicals.

group.

February 1977-President Carter reaffirms U.S. adherence to the Shanghai Communique.

March-April 1977-China National Native Produce and Animal Byproducts. Import and Export delegation (essential oils) visited the United States.

March-May 1977-Visit by second China National Textile Import and Export Corporation.

April 1977-Visit to China by the National Council's Importers Steering Committee.

April 1977-State of Wisconsin Delegation visited the PRC.

May 1977-Visit by the State of Washington_Delegation to China.

June 1977-The U.S. Food Processing and Packaging Delegation visited the PRC.

June-July 1977-Delegation from the China Petroleum and Natural Gas Exploration and Development Corporation visited the United States.

July 1977-Visit by Grain Cooperative Alliance Wheat Delegation to Peking, July 1977-Second visit by a National Machine Tool Builder's Association Group to China.

July-August 1977-U.S. Mining Delegation to China.

August 1977-Second visit by the Electronic Industries Association to the PRC. August 1977-Secretary of State Vance visited Peking.

September 1977-Visit by the second China Council for The Promotion of International Trade delegation.

October-November 1977-China National Packaging Corporation visit to the United States.

November-December 1977-First American Petroleum Equipment Delegation visited China.

December 1977-First Pan American Airways Tourist group to the PRC. December 15, 1977—First market disruption petition filed under Section 406 of the Trade Act of 1974 against the PRC.

January 1978 Visit by the China Petroleum Corporation Delegation. January-March 1978 Second China National Technical Import Corporation

Buying Group (Machine Tools).

March 1978-International Trade Commission denies petition filed against PRC work gloves in December.

April 1978-Visit to China by U.S. Light Industry Group.

May 1978-U.S. Agricultural Machinery Delegation to the PRC.

May 1978-National Security Council chief, Brzezinski visited Peking.

APPENDIX 2. FOREIGN TRADE CORPORATIONS

China National Cereals, Oils and Foodstuffs Import and Export Corporation, 82 Tung An Men Street, Peking, People's Republic of China. Cable: Ceroilfood Peking. Telex: 22081 Cerof Cn Peking.

China National Chemicals Import and Export Corporation, Erh Li Kou, Hsi Chiao, Peking, People's Republic of China. Cable: Sinochem Peking. Telex: 22043 Chemicn Peking.

China National Light Industrial Products Import and Export Corporation, 82 Tung An Men Street, Peking, People's Republic of China. Cable: Industry Peking. Telex: 22082 Light Cn Peking.

China National Machinery Import and Export Corporation, Erh Li Kou, Hsi Chiao, Peking, People's Republic of China. Cable: Machimpex Peking. Telex: 22042 Cmtec Peking.

China National Metals and Minerals Import and Export Corporation, Erh Li Hsi Chiao, Peking, People's Republic of China. Cable: Minmetals Peking. Telex: 22041 Mimet Cn Peking.

China National Native Produce and Animal By-Products Import and Export Corporation, 82 Tung An Men Street, Peking, People's Republic of China. Cable: Chinatu Hsu Peking. Telex: 22083 Tuhsu Cn Peking.

China National Technical Import Corporation, Erh Li Hou, Hsi Chiao, Peking, People's Republic of China. Cable: Techimport Peking. Telex: 22044 Cntic Cn Peking.

China National Textiles Import and Export Corporation, 82 Tung An Men Street, Peking, People's Republic of China. Cable: Chinatex Peking. Telex: 22080 Cntex Cn Peking.

China National Arts and Crafts Import and Export Corporation, 82 Tung An Men Street, Peking, People's Republic of China. Cable: Art China Peking. Telex: 22155 Cnart Cn.

CONTRACTS, PRACTICE AND LAW IN TRADE WITH

CHINA: SOME OBSERVATIONS

BY STANLEY LUBMAN*

CONTENTS

Page

I. Negotiations in Peking.

A. The Road to Peking

B. Negotiations in Peking

C. Patterns__

II. Chinese Contract Clauses and Practice under them
A. Shipment....

766

766

767

768

771

771

B. Payment.

772

1. Standard Terms.

772

782

785

2. Trademarks.......

III. Recent Developments in Chinese Policies Toward Law-
Appendix...

"Erh li gou doesn't mean 'early go' "

American businessman during trade negotiations in Peking, 1978.

Erh li gou ("two mile gully") is the street in Peking on which stands the "large import building", the headquarters of the Chinese state trade corporations which purchase machinery, equipment, chemicals and technology from abroad. The punning reference to the protracted length of negotiations there is relevant to this piece, because the writer spent seven weeks between mid-January and mid-April, 1978 participating in negotiations in Peking; the long stay provided an opportunity to test generalizations and to write with some immediacy. This essay describes the process of negotiating sales of capital goods to the Chinese corporations and the contracts which embody such transactions, as seen by this writer in mid-1978.1

Stanley Lubman, Special Counsel to the San Francisco and Hong Kong law firm of Heller. Ehrman, White & McAuliffe, was trained as a China specialist in the midsixties and then was a professor at the University of California School of Law (Berkeley) from 1967 to 1972, before returning to private practice, specializing in Chinese affairs. He has visited China many times since 1972.

See also Law and Politics in China's Foreign Trade (Victor H. Li ed. 1977), which is particularly helpful in describing the experience of China's European and Japanese trading partners and in setting forth contract forms; Gene Hsiao. The Foreign Trade of China: Policy Law, and Practice (1977), a general overview; Dicks The People's Republic of China in East-West Business Transactions 397 (R. Starr ed. 1974); Reghizzi, Legal Aspects of Trade with China, 9 Harv. Int'l L. J. 85 (1968); Smith, Standard Form Contracts in the international Commercial Transactions of the People's Republic of China: 21 Int'l and Comp. L. Quart. 133 (1972); J. Dingle, Technical Selling in China (1974); and Holtzmann, Resolving Disputes in U.S.-China Trade in Legal Aspects of U.S.-China Trade (H. Holtzmann, ed. 1975). The Far Eastern Economic Review and The Asian Edition of the Wall Street Journal are indispensable for following current developments.

Change in foreign trade policy was very much in the air in Peking while this was being written, and negotiations and contracts alike reflect new policies. This essay also notes some recent developments in a related area that may affect China's foreign trade practice. Some indications appeared in early 1978 that China's domestic legal institutions were being strengthened and developed.

China's formal legal system has in recent years been conspicuously unimportant in influencing the making and application of rules, within China as well as in China's foreign trade. At its very least, the new policy toward law is an interesting expression of an aspect of the Chinese leadership's development strategy, and noteworthy for that alone; beyond that, it may have other implications.

Lack of space prevents detailed discussion here, but some likely subjects of future speculation can be suggested. China now seems to be traveling developmental roads which other societies have discovered. although they began at different starting points. It is worth noting, for instance, that as the idea of "self-reliance" becomes modified not only are China's imports of goods and technology increasing, but China's Minister of Foreign Trade has recently expressed willingness to consider transactions which the Chinese have previously resisted, such as manufacturing exports to buyers' specifications, incorporating components supplied by foreign buyers, and reviving barter. The next stage, already the subject of speculation in the West, may see assembly operations and more complicated transactions such as coproduction and product buyback arrangements. Hong Kong at the moment promises to be the focus of interesting experiments in Sino-Western trade and industrial cooperation.

At the very least, it is probably no coincidence that new interest in a variety of types of international transactions has been articulated contemporaneously with new emphasis on the domestic legal system. Without any specific connection between the two trends it is possible to note that they share an underlying receptiveness to the use of orderly and structured institutions for economic development operating according to increasingly regularized rules. Other policies announced in early 1978 reinforce this impression, particularly the intense emphasis on improving China's scientific and technological base and on improving the quality of education. Common to these policies and to the new emphasis on law is a willingness to entrust more responsibility to decision-makers because of their "expertness" rather than their "redness".

Beyond this confluence of trends lie further possible implications for increased regularization of Chinese society. Perhaps the time has come for the accretion of bureaucratic practice to be expressed in regulations and codes less tentative than much Chinese legislation in the past. Although it remains highly unlikely that the Western legal tradition, which had never taken hold in China before 1949, will exert a discernibly strong influence, pragmatism and the need to develop solutions to the problems of managing an increasingly more complex economy may impel Chinese planners to choose selectively from analogies derived from the experience of other nations, developed as well as developing.

It is too early to be confident that a lasting commitment has been made to fashioning and using institutions for implementing policies that reduce the use of mass mobilization and increase the making