International Sales of Goods: Applicable Laws

The United Nations Convention on Contracts for the International Sale of Goods (CISG) is a cornerstone of global trade law. China has been a contracting state since 1988. But how exactly do Chinese courts apply the CISG in real disputes? A recent decision by the Zhejiang High Court offers a clear and practical illustration.

A Chinese seller (Ningbo Laida) and a German buyer (MaRa Medical-Technical Aid GmbH) entered into a contract for 10.5 million masks under CIF Hamburg terms. After the Chinese seller failed to deliver all the goods on time, the buyer terminated the contract and demanded a refund of the advance payment. The seller argued that the remaining masks failed to meet both EU standards (CE marking) and Chinese export requirements, and thus it should not bear liability.

The Zhejiang High Court ruled in favor of the German buyer. Applying the CISG, the court found that the seller’s delay and non-delivery constituted a breach, and ordered the seller to refund the advance payment with interest.

From this and many other cases, we can summarize how Chinese courts apply the CISG in four simple steps:

1. Automatic application when both parties are from contracting states
Both China and Germany are CISG members. Neither party had excluded the CISG in their contract. Therefore, the court applied the CISG directly, without requiring a separate choice-of-law clause.

2. Party autonomy prevails – express exclusion allowed
If the parties clearly state that a specific domestic law (e.g., Chinese law or German law) shall apply, or that the CISG is excluded, Chinese courts respect that choice. But in practice, most international sales contracts do not contain such exclusions.

3. Gap-filling role of domestic law
The CISG does not cover every issue (e.g., validity of the contract or product liability). For those gaps, Chinese courts will apply the proper domestic law under China’s conflict-of-law rules.

4. Uniform interpretation
Chinese courts increasingly refer to CISG Advisory Council opinions, foreign case law, and international trade usages to ensure a consistent interpretation of the Convention. In the Zhejiang case, the court followed CISG Advisory Council guidance on interest rates.

If you are trading with Chinese companies, remember: the CISG will likely apply automatically to your contract unless you explicitly opt out. To avoid surprises, you may consider adding a clear governing law clause (e.g., “this contract shall be governed by the laws of [Country] and the CISG shall not apply”). Otherwise, Chinese courts will apply the CISG as a binding international treaty – as the Zhejiang High Court did so skillfully in the mask dispute.This mechanism helps create a predictable and uniform legal environment for cross-border trade, benefiting both Chinese and foreign businesses.