Establishment of an OEM Contract Framework and Legal Advisory for Domestic Transactions of a Shanghai Subsidiary in China (2026)

• Client: A domestic company specializing in general merchandise (dolls, fancy goods, household items) that is expanding its business in China
• Project background: Securing legal stability for domestic transactions between a local subsidiary in Shanghai and a Chinese manufacturer, and laying the foundation for an efficient ordering system
• Main tasks: Drafting Chinese-Korean OEM master agreement and purchase-order forms, and advising on key issues (unit-price fluctuations, damages) based on the Civil Code of the People's Republic of China

1. Reflecting local legal characteristics: The need to prevent disputes arising from changes in economic conditions, such as soaring raw-material prices, that may occur in transactions with local Chinese companies.
2. Securing operational efficiency: The need to design a "master agreement + individual purchase order" structure in which legal effect is fully established even with email-based ordering alone, considering the absence of an internal electronic system.
3. Specifying the scope of damages: Providing a mechanism so that, in the event of quality defects, protection extends beyond mere direct losses to indirect losses such as damage to brand reputation and loss of sales opportunities.

1) Designing an Efficient Contract Structure (Master Agreement & PO)

• Through a one-year "OEM master agreement," the common legal relationship was established, and detailed transactions were structured to be handled by "purchase orders (PO)," thereby maximizing operational efficiency.
• Considering the lack of a system, practical convenience was secured by specifying the legal effect of email-based ordering.

2) Responding to Price Fluctuations Based on China's "Civil Code" (Price Escalation Clause)

• By analyzing Chinese court precedents (which have a high rate of recognizing material changes in objective circumstances), reckless termination of the contract due to raw-material price fluctuations was prevented.
• Adjustment-measure agreement: A clause was inserted allowing the unit price to be adjusted by mutual agreement of both parties when prices fluctuate beyond a certain ratio, thereby preempting grounds for dispute.

3) Protecting Rights by Expanding the Scope of Damages (Damages)

• Indirect losses such as "loss of goodwill," which are difficult to have recognized in Chinese practice, were explicitly included in the contract.
• Amendment of Article 9.1: In addition to a 10% penalty of the order amount in the event of substandard quality, the article was stipulated to require compensation for "all indirect losses, including direct losses and loss of goodwill," thereby greatly strengthening legal responsiveness.

• Mitigation of legal risk: Built a system to protect the local subsidiary by securing a customized contract reflecting local Chinese law (the Civil Code) and practical precedents.
• Establishment of standard guidelines: Secured assets—standard contract, purchase order, and product-list forms with both Chinese and Korean translations—that can be immediately utilized in transactions with new companies going forward.
• Protection of brand value: Strengthened defensive rights over intangible assets by establishing grounds for damages for the decline in brand value in the event of quality issues.