Does signing an import agency agreement mean locking in the right to the goods?Last week,three clients engaged in mechanical and electrical imports fell into the same trap—they directly copied the "payment upon delivery" clause from the procurement agreement into the agency contract,only to either face a retroactive tax penalty of 200,000 yuan from the customs or have their goods withheld by suppliers on the grounds of "unpaid invoices." In the trade industry,the boundary between agency and procurement agreements is never as simple as "acting as a purchasing agent." It directly determines the extent of your legal liability,the amount of taxes you must pay,and even whether you can successfully receive the goods.

Agency vs.Procurement | 3 Legal & Business Boundaries You Must Clarify

Many traders misunderstand that "import agency" is just a simple process of "helping clients purchase goods",but in reality,an agency agreement is much more than that.Commission relationshipThe procurement agreement isBuy-and-sell relationship——The differences between these two characteristics will create hidden traps for you in three aspects: cargo rights,taxation,and breach of contract.I’ve compiled 30 dispute cases and identified the three most common legal boundaries that people tend to overlook:

Here’s an example: In an agency agreement,even if you advance the payment for the client,the ownership of the goods still belongs to the client.If the client fails to repay the advance payment,you can sue to recover the money but cannot withhold the goods.However,in a purchase agreement,you acquire ownership of the goods after making the payment.Even if the supplier fails to deliver the goods,you can demand compensation for the value of the goods.

4 Steps to Avoid Falling into Traps When Signing a Contract or Agreement: SOP Guide

Step 1: First,clarify the "nature of the transaction" - use two questions to draw clear boundaries

Output:

Before drafting a contract,first ask yourself two key questions:

• Doyouneedtopaythepurchasepricetothesupplier?Ifso,itmightbeapurchaseagreement;iftheclientpaysyoufirstandthentransfersthepaymenttothesupplier,itwouldbeanagencyagreement.
• **Whoownsthefinalcargorights?**Ifrightsgodirectlytothecustomer(B/Lheaderiscustomer),it’sagency;iftheygotoyoufirstforresale,it’sprocurement.

Last week,a client signed an agency agreement instead of a purchase agreement because he didn’t ask these two questions.As a result,the supplier breached the contract and failed to deliver the goods,and the client demanded that he compensate for the value of the goods.He originally only earned a 1% agency fee,but had to bear 100% of the losses,which nearly drove him into bankruptcy.

Step 2: Identify the three "lifeline" clauses—cargo rights,taxation,and liability

Output:

Whether it’s an agent or a procurement officer,these three clauses must be explicitly stated in the contract:

• NodeofTransferofCargoOwnership:Forexample,"intheagencyagreement,theownershipofthegoodsshallbetransferredtotheclientwithin3daysafterthegoodsarriveattheport";"inthepurchaseagreement,theownershipofthegoodsshallbetransferredtothebuyerafterthepaymentofthepurchasepriceiscompleted".
• TaxResponsibilityParty:Theagencyagreementstatesthat"theimportdutiesandvalue-addedtaxshallbebornebytheclient,andweareonlyresponsibleforpayingontheirbehalf";theprocurementagreementstatesthat"thebuyershallbearallimporttaxesandfees".
• LiabilityCap：Addtheclause"Weshallnotbeartheliabilityforthedamagetothegoodscausedbythesupplier’sbreachofcontract"totheagencyagreement;addtheclause"Ifthesellerfailstodeliverthegoodsontime,thebuyershallpayapenaltyof0.5%ofthevalueofthegoodsperday,withthemaximumamountnotexceeding10%"tothepurchaseagreement.

Step 3: Complete the "exceptional scenarios" — prevent risks by including them in the contract

Output:

Among the disputes I’ve handled,70% were due to the absence of "exception clauses",such as:

• CustomsAppraisalDispute:Theagencyagreementstatesthat"ifthecustomsauthoritydeemsthedeclaredpricetoolowandrequiresadditionaltaxpayment,theclientshallbearthedifference".
• Supplier’sBreachofContract:Theprocurementagreementstipulatesthat"ifthesellerfailstodeliverthegoodswithintheagreedtimeframe,thebuyershallhavetherighttoterminatethecontractanddemandthereturnofdoublethedeposit".
• ForceMajeure:Forexample,"intheeventofcustomsclearancedelaysduetothepandemic,neitherpartyshallbearanyresponsibilityforsuchdelays."

Step 4: Preemptively address "dispute resolution" — avoid the hassle of cross-border litigation

Output:

For import business,be sure to write the "Dispute Resolution Method":

• Preferentiallychoosearbitration(suchastheChinaInternationalEconomicandTradeArbitrationCommission),whichis6-12monthsfasterthanlitigation.
• Definethejurisdiction:Forexample,"AnydisputesarisingfromthisagreementshallbesubjecttothejurisdictionofthecourtlocatedatPartyA’sregisteredaddress"(wherePartyAisyou),toavoidhavingtolitigateabroad.

More important than clauses: the "Hidden Liability Chain" behind the agreement

Many traders overlook one point — the responsibilities under the agreement are not isolated.They extend to every aspect of customs,taxation,and suppliers.For example:

I have handled 12 tax disputes involving import agency services,and eight of them stemmed from the absence of a "declaration responsibility for customs codes" in the contract.The agents randomly selected customs codes to expedite customs clearance,but when the customs authorities investigated the principal,the latter had to pay taxes and fines amounting to 15% of the total value of the goods.In turn,the principal sued the agent,arguing that the contract lacked clear responsibilities.The court ruled that the agent should bear 70% of the losses.

For example,in a procurement agreement,if there’s no clause about the "quality objection period," even if you receive defective products,you won’t be able to claim compensation.Last week,a client imported 100 electric motors,but after receiving them,they found cracks in the rotors.However,because the agreement didn’t include a clause requiring them to raise objections within 10 days,the supplier refused to compensate them,resulting in a loss of 230,000 yuan for the client.

3 things you can do today: Reduce the risk to zero

• Retrievethelatestthreeagency/procurementagreementsandhighlightthespecificprovisionsregarding"transferofownershipofthegoods".Iftherearenocleartimepoints(suchas"within3daysafterthegoodsarriveattheport"),consultalawyertoaddthemtomorrow.I’veencounteredfivedisputesinvolvingunclearownershiptransfertimelines,threeofwhichinvolvedclientswhopaidbutfailedtoreceivethegoods.
• Sendingamessagetothefinancedepartment:"Pleasechecktheagencyimporttransactionsforthepastsixmonths.Isthetaxpaymentreceiptaddressedtotheclientorourcompany?"Ifit’sthelatter,itmeansyou’veassumedtheVATliabilitythatshouldhavebeenpaidbytheclient.Youneedtoimmediatelyamendtheagreement—lastweek,aclientpaidanextra80,000yuanintaxesduetothisissueandwassummonedforataxauthorityinterview.
• Addthe"QualityObjectionPeriod"clausetotheprocurementagreementtemplate,suchas"Thebuyershallraiseanyqualityobjectionswithin10daysafterreceivingthegoods,otherwisethegoodsshallbedeemedasqualified"—thisclausecanhelpyouavoid90%ofqualitydisputes,withthecostbeingjustafewhundredyuanforlegalconsultationfees.