Key words: Customs, Seizing or detaining commodities, tariff, chip, smuggling, cargo rights

As someone involved in international trade, you’ve likely heard of trade terms like FOB, CIF, EXW, etc. These terms indicate the composition of the transaction price and the conditions of delivery. They are specialized terms used to determine the division of risk, responsibility, and costs between buyer and seller.

You might wonder, if trade terms are agreed upon, when does the ownership of goods transfer from the seller to the buyer? This seemingly technical question becomes crucial in legal disputes.

The answer to this question is that trade terms do not stipulate the transfer of ownership of goods. In practice, the issue of ownership transfer is complex. For example, contracts may contain special arrangements like retention of title clauses, and applicable laws may have varying positions and interpretations.

If a dispute arises, in the absence of an agreement on the applicable law, litigation in a Chinese court will primarily be governed by Chinese law. According to Article 598 of the Chinese Civil Code, the seller must fulfill the obligation to deliver the goods or the documents necessary for obtaining the goods to the buyer, and transfer the ownership of the goods. Therefore, based on this provision, delivery of the goods or the delivery documents can constitute the method and timing of transferring ownership.

We had a client, Company A from Shenzhen, which purchased chips from an American company. During importation to China, failure to declare the chip prices truthfully to Chinese customs resulted in seizure by the customs. In this case, Company A could argue from the perspective of the transfer of ownership of goods to mitigate criminal and civil liabilities. Company A and the American company agreed that the delivery location was a site specified by Company A. Therefore, as soon as the American company delivered the goods to the specified location, ownership transferred to Company A. Even though the contract between Company A and the American company specified the trade term as CNF, this did not affect the transfer of ownership of the goods. As mentioned at the beginning, the timing of the transfer of ownership of goods is unrelated to the trade term agreed upon.
 
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