Find out the main points and conclusions of the webinar in this news item

As part of business events preceding the International Exhibition of Equipment, Raw Materials and Technologies for Pharmaceutical Production Pharmtech & Ingredients, a webinar "Risk Reduction and Working with China" was held on October 31. The speaker was Anastasia Valova , Managing Partner of Sinoruss Consulting, an expert in strategic consulting with 12 years of experience.

As the expert explained, in May 2023, the concept of "unreliable counterparty" was included in the sanctions package, when specific Chinese enterprises supplying products to the Russian Federation that are prohibited according to the EU were included in the list of sanctioned companies. Before that, only individuals or companies associated with the public sector (helping to regulate relations between the Russian Federation and China) were included in the sanctions lists.

After this, concerns about working with the Russian Federation increased among both Chinese commercial enterprises and Chinese banks, since most of their funds are located not only in China, but also in Europe and the United States. This threatened to freeze banking assets in these countries.

Among the advantages of entering the Chinese market, Anastasia Valova highlighted:

// High purchasing power
// Large market capacity
// Population size

Among the risks identified were :

// High competition
// Language and mental features
// The specifics of regulation of activities in China, a more conservative currency sphere.

Anastasia Valova also highlighted the rules for dealing with Chinese partners:

// Do not call a Chinese person by name, it will be considered disrespectful. In extreme cases - by last name and first name, in that order, but it is best to indicate the position.
// In China, there is a concept called "chabudo" - "almost the same". It means "this will do too". What seems important and obvious to us may be insignificant to the supplier. When ordering products, especially equipment, it is worth discussing the specifics of its operation with engineers who understand the technical features.
// Suppliers are very welcoming of communication in Chinese. Sellers will be glad to see a good level of Chinese language of purchasing specialists and will be more willing to make contact, will be flexible in terms and prices, will respond faster.
// Don't criticize your work or company. Don't try to discuss with a Chinese his boss, salary, or relationships in the team. Colleagues are a real second family for any Chinese.
// China is characterized by a cluster organization of industrial production.
// It is important to make written contracts and agreements. What is said in words often means nothing, but the Chinese have deep respect for a letter and any business paper.
// It is worth registering in Chinese social networks QQ and WeChat to communicate with partners directly. Do not forget about the time difference (+5 hours).
// The Chinese often host business dinners to build trust between industry colleagues, and refusal can be perceived as an insult.
// The appearance during negotiations must correspond to business style.
// It is important to remember that during the Chinese New Year celebrations, factories only have about 10% of their employees.
// It is important to check counterparties on special websites.
// It is important to check that all contracts contain a red round seal.

The specialist went on to say that since mid-2023, even small Chinese banks have stopped servicing Russian companies, and in June 2024, sanctions were imposed against the Moscow Exchange and the National Clearing Center, which led to the collapse of traditional payment schemes.

The agency scheme as a solution to the problem

An agent scheme, whereby payments are made through a third country. Previously, this method was rarely used due to additional costs. The agent, as the webinar participants learned, enters into a contract for payment of goods between Russia and China, taking a commission for this. Now this is one of the few available payment methods, despite the difficulty with currency control.

Another solution to the problem is relevant for Russian LLCs that have opened an account in Chinese banks for the accounts of Chinese companies - these are direct payments.

The third option is settlements through an NRA account in Russia, using China as an example . Methods of documentary registration: 1. A DS on the possibility of payment from a third party, as well as an agency agreement, is concluded with the current sale and purchase contract. Closing documents: a report of the legal entity (Agent), goods declarations. 2. Settlements are made on the basis of direct sales and purchase agreements: Russian Federation company -> agent, agent -> final recipient. Closing documents: goods declarations/acceptance certificates.

The fourth way is through the assignment of claims .

Fifth – settlements through payment agents using the example of Hong Kong, Thailand, Cambodia, Vietnam .

Another topic of the webinar was agency fees. As the expert reported, services can be provided both in the agent's territory and in the counterparty's country or in the territory of the Russian Federation. This is payment for the agent's services, including searching for goods, organizing transportation, paying for contracts and other actions related to a foreign trade transaction.

The main acts regulating the inclusion of agency fees in the customs value, according to the report: decisions of the EEC Board No. 112 and No. 118 of the Customs Code of the EAEU (Article 40).

However, despite the existing regulations, there is no clear answer to the question of including agency fees in the cost. Foreign trade participants often include agency fees, but this practice increases customs clearance costs, which may be disadvantageous for business.

As Anastasia Valova explained, in June 2024, the Federal Customs Service published Protocol No. 10, which recommended considering agent remuneration depending on whose interests the agent is acting in:

If the agent acts in the interests of the seller, the commission is included in the price.
If it is in the interests of the buyer, it is not included.

During the webinar, risks and recommendations for businesses were voiced . Including agency fees in the customs value leads to increased costs. However, if you do not include them, there is a risk of additional charges and penalties from the Federal Customs Service. To minimize risks, it is important to carefully consider interactions with suppliers, agents and banks.

Recommendations for preparing contracts:

When preparing an agency contract, it is necessary to take into account not only the specifics of the transaction, but also the risks of customs refusing to recognize it. It is important to indicate the possibility of payment through a third party.
It is important to ensure that payments to the agent strictly correspond to the invoices for deliveries.
What is important to include in the agency agreement:

In the event that the Agent encounters problems in executing the Order, the Agent undertakes to immediately notify the Principal and work on a solution acceptable to both parties.
In the event that the Agent is unable to fulfill the Order, the Agent undertakes to return to the Principal the amount of the agency fee paid by the Principal within XXX banking days.
In the event of the Agent’s failure to fulfill its obligations under this Agreement, the funds received from the Principal must be returned to the Principal’s current account within XX days from the date of the Principal’s submission of the relevant demand, minus the expenses incurred as a result of currency conversion, as well as other transaction costs associated with the activities of the financial institution of the Agent, the Principal and the Beneficiary (Payee).