Belt and Road Initiative: Breaches and Countermeasures of

International Trade Contract

Zhuhui Liu

College of Liberal Art, Wenzhou-Kean University, Wenzhou, Zhejiang, China

Keywords: Breach of Contract, Belt and Road Initiative, Convention on Contracts for the Sale of Goods (CISG).

Abstract: Belt and Road Initiative is a significant commercial activity led by China; it ties China’s economy with

Eurasian countries. However, many problems came out with the wider expansion of the range of the Belt and

Road Initiative because of the diverse legal systems and customs, and one of the problems was the breach of

international trade contracts. This study focuses on a specific kind of breach of international trade contract,

which is the contract for international sales of goods due to the non-conformity of goods. Aiming to prevent

and solve disputes in trade, it analyzed the Civil Code of the People’s Republic of China, United Nations

Conventions on Contracts for the Sales of Goods, and UNIDROIT Principles of International Commercial

Contracts with supplemented cases. Furthermore, the study finds effective countermeasures to deal with the

problems and motivates enterprises to engage in the Belt and Road Initiative actively.

1 INTRODUCTION

In the 21st century, China has shown its strong

aspiration in participating and promoting

international trade since it has regained its legitimate

seat in the United Nations and entered into the world

trade system. Belt and Road Initiative (BRI), aiming

at developing commercial partnerships with countries

along the Silks Roads to broaden China’s commercial

market, has attracted a great number of foreign

companies and enterprises seeking cooperation in

China. It is an important commercial initiative that

has 151 countries participating (Kovalova & Vartiak,

2024). However, many troubles come out with the

increased demand for trades, such as breach of

contract. To deal with the potential risks in

international trade, scholars and guild experts have

raised multiple strategies. For example, a plan for

remedy should be written explicitly in the contract if

a certain party is in favor of the compliance of the

contract (Zuo, 2024). Furthermore, the contractor is

supposed to highlight the objective standards for the

quality of goods and ensure that the time limit for

reporting the substandard quality of goods is rational

(Pannebakker, 2024). To mitigate potential risks and

protect companies’ interests, this study employs a

mixed method of textual analysis and case analysis. It

includes interpretation of articles from the Civil Code

of the People’s Republic of China (CCPRC), the

United Nations Convention on Contracts for the Sale

of Goods (CISG), Principles of International

Commercial Contracts (PICC), and analyzing

specific cases of non-conformity of goods. It will

point out the potential risks of breach of contract and

provide applicable countermeasures in the context of

BRI.

2 LITERATURE REVIEW

With the expansion of the range of BRI, companies

have to face the problems and risks led by breach of

contract. To resolve problems and minimize risks,

scholars proposed a method of using contractual

clauses to reflect sustainable development

(Pannebakker, 2024). For example, both parties use

codes of conduct as a reference to regulate the

standard of performance and prevent inconsistent

behavior. Furthermore, Article 1.8 of the PICC

regulates that parties are not supposed to have

inconsistent behavior that is distinctive from their

previous consensuses towards each par-ty. What is

more, the aspiration to attain a certain product

through exchanging a certain price drives the sale of

goods (Latifah et al., 2024). However, problems

related to the non-conformity of goods hinder

Liu, Z.

Belt and Road Initiative: Breaches and Countermeasures of International Trade Contract.

DOI: 10.5220/0014389600004859

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 1st International Conference on Politics, Law, and Social Science (ICPLSS 2025), pages 553-558

ISBN: 978-989-758-785-6

553

international trade. To regulate the international trade

contract, especially the contract of sale of goods, the

United Nations adopted CISG in 1980. This action

secures the international trade of sale of goods and

provides legal ground for disputes. Under Article 35

of CISG, courts can seek the foundation for non-

conformity through suspicion of non-conformity of

goods, which implies that regulating explicit

standards for conformity of goods in the contract is

necessary (Latifah et al., 2024). Otherwise, courts

will find difficulties in identifying non-conformity to

support a breach of contract without the standards.

Furthermore, non-conformity should be evaluated

physically, legally, and conditionally because it is

hard to evaluate the conformity of goods such as meat

solely based on its physical features; moreover,

different states have different standards for this kind

of goods, which is related to the health of domestic

citizens (Latifah et al., 2024). In addition, “good

manufacture practice” (GMP) used to examine

medical goods has been applied in a great number of

countries (Schwenzer, 2012). It makes the

manufacture of medical goods strictly recorded.

Although the physical features of the goods are

qualified, the goods cannot be sold in the market

without the approval of GMP. Furthermore, non-

physical features should be included in the contract

(Schwenzer, 2012). For example, parties should

provide a certificate of origin or standard of quality

like GMP, follow a certain trade usage without using

child labor, and ensure the goods can be used for a

certain purpose. Although the risks in international

trade are various, most of them are predictable, and

practical methods for companies to avoid them are

possible for them.

3 INTERNATIONAL TRADE

CONVENTION

3.1 Application situation of CCPRC,

CISG, and PICC

CCPRC, published in 2020 and enforced in 2021, is

the first law named after a code in the history People’s

Republic of China (PRC), which aims to protect

people’s legal rights and interests, adjust civil

relations, and ensuring the good order of society and

economy. In general, it focuses on dealing with issues

with civil activity within the PRC’s territory.

However, civil activity in the context of BRI involves

foreign civil subjects, but CCPRC does not include

the provision of applicable law to foreign-related civil

relations (Ye, 2024). In a situation where both parties

do not decide the proper law in the Sino-foreign trade

contract, whether CCPRC can be applied or not

becomes a problem. To solve this problem, Article 41

of the Law of the People’s Republic of China on the

Application of Laws to Foreign-related Civil

Relations interprets that the applied law is the law

from the resident of the party who can show the

feature of the contract when it fulfills the obligations,

or the law is most related to the contract. However,

this provision does not gain support in the case of

Export extilcountertrde, Socie-dadanonima (ES) v.

Nantong McKnight Medical Supplies Co., LTD

(McKnight). The plaintiff, ES, was a company in

Spain, the defendant, McKnight, was a company in

mainland China, and ES sued McKnight for non-

conformity of goods. In their contract, they did not

choose the proper law. McKnight advocated using

Chinese laws as the proper law pursuant to the

mentioned Article 41. However, the court did not

support McKnight’s advocacy. The ruling was that

the proper law applied was CISG because, first, the

place of business of the parties located in the CISG’s

contracting states, Spain and China, second, the

contract did not exclude the use of CISG. In addition,

a similar case, Ningbo Laida Auto-mobile

Technology Co., LTD v. MaRaMedical-Technical-

AidGmbH, also had the same ruling for applying

CISG as the proper law, which shows that courts can

find support for using Chinese laws as the proper law

in a situation where parties do not choose the proper

law. However, the use of CISG is still rare in China,

and the cases mentioned above are a minority. Most

of the courts in China prefer choosing Chinese laws

as the proper law according to Article 41 (Liang,

2024). Therefore, there is a problem in choosing the

proper law in disputes about Sino-foreign trade.

CISG is an international treaty published on 11

April 1980. As the most influential convention in the

world, it has 97 contracting states (Jablan, 2024).

Large economic entities such as China, the United

States, and the European Union (EU) all adopt CISG

and recognize its function to promote fair trade and

mitigate international trade barriers with

consideration of the differentiation of society,

economy, and legal system. CISG is usually applied

in contracts where the parties involved are the

contracting states. Although the parties do not

mention in the contract that CISG is the proper law, it

still can be the proper law for the interpretation of the

contract. In addition, parties can avoid CISG through

Article 6 of CISG, so it is not mandatory for an

international trade contract to apply CISG. Sinochem

International (Overseas), PTE LTD (Sinochem) v.

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Thyssenkrupp Metallurgical Products Gmbh

(Thyssenkrupp), a ruling case from the Supreme

People’s Court of China (SPC) in 2013 when the

General Principles of the Civil Law of the PRC was

still effective, Sinochem sued Thyssenkrupp for non-

conformity of goods. Both of the parties located in the

contracting states of CISG, but they decided to

consider New York laws as the proper law without

mentioning the exclusion of CISG in advance.

Although the parties had an early decision on using

New York laws to interpret the contract, SPC ruled

that CISG is the proper law instead of New York

laws, and New York laws could only be used as a

supplement for the issues that CISG does not include.

However, scholars argued that SPC recognized the

effectiveness of New York laws and CISG, but it

prioritized CISG and considered New York laws as

the supplement, which is a logical mistake reversing

the order of using domestic laws and international

treaties (Liang, 2024). It is a conflict in the sequential

application of domestic laws and international

treaties. Logically, domestic laws should be

prioritized in situations where the contracts clearly

state that domestic laws are the proper laws, but

logical mistakes still exist in legal practice.

Compared to CISG, PICC, published in 2016, is

not a formal principle. Furthermore, there is a

functional difference between CISG and PICC, which

is that CISG is limited in lawsuits, but PICC can be

applied in arbitration (Bridge, 2014). PICC regulates

general rules for international commercial contracts,

and parties can use it to interpret the contract in

various situations. First, if PICC has been chosen by

parties to govern the contract, it shall be applied.

Second, if parties reach a consensus on governing the

contract by general principles of law, PICC may be

applied. Third, if parties do not decide on the proper

law in the contract, PICC may be applied. According

to the above, PICC seems to be a supplement to

domestic laws and international treaties in

international commercial contracts, and its

supplemental role promotes the development of

CISG. However, its limitations in legal practice

should not be ignored. For example, PICC cannot be

used in European judicial cases, and it cannot

automatically be the proper law when parties do not

clearly state the use of PICC (Bridge, 2014).

3.2 Articles Related to Non-Conformity

of Goods

Non-conformity of goods, its general meaning is that

the goods delivered do not comply with the

requirements included in the contract. In general

situations, the requirements in the contract contain

quality, quantity, description, packaging, and any

other requirements. Non-conformity of goods, as one

of the reasons for material breach of contract, plays

an important role in the international trade of sale of

goods. However, the specific definitions of non-

conformity of goods are various. In legal practice, the

determination of it mostly depends on the proper law

applied.

CCPRC integrates and perfects the Contract Law

of the PRC as a part of it. The third part, named

Contracts, has two subparts, including General Rules

and Nominate Contracts, and Sales Contracts are

contained in Nominate Contracts. Although CCPRC

has a clear division of different kinds of contracts,

conformity of goods or non-conformity of goods is

not written clearly as a separative part. A related

article in CCPRC is Article 511 (1), which shall be

applied when the contract does not regulate the

requirements of goods clearly. Pursuant to Article

511 (1), if the requirements of goods are vague,

parties should perform the contract complying with

the compulsory national standards; if there are no

compulsory national standards, the recommended

national standards should be complied with; if there

are no recommended national standards, the industry

standards should be complied; if there is no national

standards and industry standards, customary

standards or specific standards indicating the goal of

the contract should be complied. It implies that

compulsory national standards should be prioritized

first, the recommended national standards, industry

standards, and customary standards or specific

standards indicating the goal of the contract are

followed orderly. However, as a Chinese domestic

law, it does not deal with problems related to the

Sino-foreign contract, and it leads to potential trouble.

When Chinese suppliers are involved in an inter-

national sale of goods contract in a situation where

contracts do not include clear requirements of goods

nor the proper law, and the international or foreign

standards of the goods are higher than Chinese

compulsory national standards, there is a dilemma

between choosing the standards because CCPRC

does not contain the logic of which standards should

be prioritized.

In the case Japon Elektronik Teknoloji Ticaret

Limited Sirketi (Japon) v. Qingdao Hisense Import

and Export Co., LTD (Hisense), the court found out

the facts that Hisense asked Bay Area Compliance

Labora-Tories Corp. to test the products, and they

passed the tests. However, the products did not pass

the test in Turkey, so Japon recalled all the sold

products. Although this case happened be-fore

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CCPRC came into effect, it reveals that Chinese

domestic laws have limitations in dealing with these

issues.

Conversely, as a specific treaty aiming at

promoting international trade of sale of goods, CISG

has a clearer interpretation of conformity of goods.

According to Article 35 (1) of CISG, the con-formity

of goods contains several features, including quantity,

quality, specification, and packaging. First, the

quantity should be described in a way of quantitative

values, such as identifying a single good and listing

the exact number. Second, quality is a general

concept, it contains physical quality, chemical

quality, and any other types of quality. Furthermore,

the quality also contains the procedure of producing

goods such as the place of production and the use of

labor (Shabani, 2015). Third, the description defines

the features of goods. For example, the length and

width of bandages. Fourth, the packaging is

considered a part of the conformity of goods. In

international sales of goods, the packaging needs to

ensure that the goods can be protected appropriately.

Buyers can re-quire the sellers to print signals or

identifications on the packages.

In addition, Article 35 (2) provides a definition of

conformity of goods, the goods are suitable for the

purpose of goods, and they have the same

descriptions; the goods are suitable for the pur-pose

of goods when parties conclude the contract; the

quality of goods is the same as the sample provided

by sellers; the goods are packaged as the same kind

of goods or in a manner that the goods can be

protected appropriately.

A case ruled by the Supreme People’s Court of

Zhengjiang determined the non-conformity of goods

pursuant to Article 35 (2) in CISG. Ningbo Laida

Automobile Technology Co., LTD (Laida) v.

MaRaMedical-Technical-AidGmbh (MaRaMedical),

the process went through two trials. MaRa-Medical,

the plaintiff, sued Laida, the defendant, due to a

material breach of contract. The fact is that Laida e-

mailed MaRaMedical a formal invoice indicating that

Laida sells MaRaMedical 10,000,000 disposable face

masks (USD 0.43 per), 500,000 FFP2 masks (USD

1.99 per), a total price of USD 5,295,000, and

mentioned that the delivery period is 12 days after the

confirmation of advance payment and packaging. On

April 7 and 8, 2020, MaRaMedical paid the required

ad-vanced payment, required printing CE number on

the box of the goods, and highlighted the date of

arrival of goods as April 8, 2020. However, the goods

were intercepted by Xiaoshan Customs for failure in

quality inspection, which led to a delay and arriving

2,764,000 disposable face masks, 60500 FFP2 masks.

The court of first instance ruled that Laida return USD

1,271,174.72 and compensate the interests (APR

4.12%) to MaRaMedical. Furthermore, the court of

second instance upheld the original ruling. One of the

controversies in the case is the printing of the CE

number. A product containing a CE number

symbolizes that the product is qualified with EU’s

requirements on safety, health, and environmental

protection. Therefore, the masks involved in the case

should be qualified with the EU’s requirements. The

failure to fulfill Chinese standards for the masks,

which is the same as the European Union’s

requirements, is the evidence indicating non-

conformity of goods according to Article 35 (2)

because the masks cannot fit for the purpose of goods

having the same description.

4 REMEDIES AND

COUNTERMEASURES FOR

BREACH OF CONTRACT DUE

TO THE NON-CONFORMITY

OF GOODS

In the dispute between Japon and Hisense, Japon

recalled the sold products without informing Hisense

in advance. Japon and Hisense did not reach an

agreement on solving the problem, so they had to go

through a judicial procedure. When a breach of

contract happens due to the non-conformity of goods,

sellers should react immediately and appropriately to

mitigate the loss. In a situation where PICC can be

applied, buyers cannot avoid the contract and seek

further compensation if sellers have fixed the problem

of non-conformity of goods according to Article 3.2.4

in PICC. For example, the methods to fix the problem

can be proposing an effective plan for repairing,

substituting, or making the goods fit the contracts as

soon as possible. Conversely, the buyers have the

right to performance, so they can require sellers to

repair, replace, or other cures of non-conformity of

goods pursuant to Article 7.2.3 in PICC. In addition,

Article 3.2.15 of PICC interprets that if parties make

a consensus on avoiding the contract, both parties

need to return whatever they supply. Sellers should

refund the payment, and buyers are liable to return the

products to sellers, although they are defective.

Another issue in the Japon and Hisense case is the

unclear oral contract. An unclear oral contract

containing only prices and dates without specifying

the conformity of goods can bring potential risks to

both parties. From the perspective of buyers, they

may face the problem of receiving goods failing to

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satisfy their expectations. From the perspective of

sellers, they may be disadvantaged when sellers claim

that the goods are not complied with because an

interpretation prejudicing sellers will not be preferred

when sellers provide implicit terms pursuant to

Article 4.6 of PICC.

To solve and avoid problems, first, a written

contract is better for preventing any existence of

unexpected content or missing content. It can ensure

certainty and avoid litigation because it provides

fixed written evidence (Ni Shuilleabhain, 2005).

Second, parties should reach a consensus on the

proper law and choose one when concluding

contracts. An explicit statement showing the proper

law applied in the contract will eliminate

misunderstandings regarding the interpretation of

terms. Third, parties should determine conformity of

goods in advance. Sellers can send buyers samples of

goods before concluding contracts. Furthermore, a

term including quantity, quality, specification,

packaging, description, usage and purpose of goods

should be stated in contracts clearly, which ensures

buyers receive the expected goods and avoids sellers

getting into trouble because of misunderstandings.

Fourth, to examine the conformity of goods fairly, a

term requiring a third party as the agent to examine

goods is supposed to be added in contracts. A

professional third party promotes fairness and

prevents parties from disagreeing on the conformity

of goods. Fifth, in situations with absence of remedies

or solutions for the non-conformity of goods, parties

ought to discuss with each other and seek a strategy

for mitigating and covering the loss instead of

terminating contracts without a consensus. The

suggestions above are beneficial to fair trade in an

international context; they prevent companies from

having potential troubles and encourage companies to

cooperate, so they are meaningful to be taken into

consideration.

5 CONCLUSION

This study research breach of contract caused by

non-conformity of goods in the context of BRI,

analyzing Article 511 in CCPRC and Article 35 in

CISG supplemented with case analysis. It finds out

that the missing predetermination of the proper law

and terms of conformity of goods in contracts leads

to disputes on breach of international contract for

sale of goods. To solve the problem, parties should

use a written contract including terms related to the

conformity of goods, predeter-mine the proper law,

and invite a third party to examine goods. What is

more, a single legal term may have different

definitions due to the differences in legal systems

between countries, which makes international trade

more complicated than domestic trade. Enterprises

should fully understand important terms in

international commercial contracts, such as the

term that has been highlighted above, non-

conformity of goods. Except for the differentiation

of the legal system, the distinction of business

culture and customs is crucial for enterprises

expecting to broaden their market globally. The

reason is that in countries following a precedent

system, such as the United States, the judge rules

the case not solely based on law clauses but in

reference to its precedents, culture, and custom.

Finally, the trend of globalization is unstoppable,

and more international commerce plans like BRI

will come out in the future. In the future, more

studies focusing on guiding enterprises doing

business and solving disputes cross-culturally and

cross-nationally need to be conducted.

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