1. Case Overview
The client operates multiple consumer-goods brands in Korea and, through its local subsidiary in China, conducted OEM-based contract manufacturing transactions with Chinese manufacturers. Previously, the client had managed each transaction by individually revising and supplementing contracts. However, the absence of a standardized Chinese-language OEM master agreement designed for domestic transactions within China had led to mounting contract-management burdens and accumulating legal risk. In particular, in the course of attempting to bifurcate the transaction structure into a master agreement and purchase orders, the client needed a review of how to manage the product list, the feasibility of unit-price adjustments in response to fluctuations in raw-material prices, and whether the payment deadlines might run afoul of Chinese law and fair-trade regulations. Seeking to build a standardized contractual framework that would be practically usable while minimizing local legal risk in China, the client engaged Law Firm Insight for advisory services.
2. Key Issues and Response
The core issues in this matter were: first, how to design the OEM master agreement and purchase-order structure within the scope permitted under the Chinese Civil Code and commercial practice; second, how to resolve the repeated revision and management burdens and legal uncertainty that could arise if the product list were incorporated into the body of the contract; and third, how a unit-price adjustment clause triggered by objective changes in circumstances, such as a surge in raw-material prices, might be interpreted by Chinese courts.
Your Legal Team, through collaboration with a local Chinese law firm, reviewed the relevant statutes and trends in case law, and then reorganized the contractual framework on the premise that, under Chinese practice, it is unproblematic for the master agreement to govern the framework and principles of the transaction while specific items, quantities, and unit prices are addressed through purchase orders. In addition, rather than fixing the product list in the body of the contract or as an annex, we designed the structure to consolidate it into the purchase-order system, thereby minimizing the risk associated with contract amendments.
Furthermore, with respect to fluctuations in raw-material prices, considering the possibility that the "principle of changed circumstances (rebus sic stantibus)" under the Chinese Civil Code could be applied in the event of a dispute, we expressly provided a clause allowing the parties to adjust the unit price through mutual consultation under certain conditions, thereby preemptively forestalling the possibility of disputes arising from unilateral assertions. These provisions were organized into a contract presented in parallel Korean and Chinese text, completed so that the client could use it as an internal standard contract.
3. Outcome and Significance
As a result, the client secured a Chinese-language OEM standard contract that could be used immediately for domestic transactions within China, and was thereafter able to substantially reduce the time and cost previously spent on contract review and negotiation in recurring contract-manufacturing transactions. In particular, by structurally eliminating the burden of managing the product list and the possibility of disputes related to price fluctuations, the stability of transactions with the local Chinese partner was greatly enhanced. This case demonstrates how, in manufacturing and distribution transactions conducted through an overseas subsidiary, designing a contract structure that reflects local law and practice is far more important than mere translation, and it offers a practical benchmark for companies operating global supply chains.
Through contract advisory that comprehensively accounts for overseas transaction structures and practical risks in this way, Law Firm Insight's "Your Legal Team" provides a stable legal foundation that allows companies to focus on their core business.