Contract between Turkish and Russian Companies: Legal Guide

March 31, 2023

BRACE Law Firm ©

Interaction with any foreign company begins with a foreign trade contract, which defines the primary obligations, delivery terms, and liability of parties to an international transaction. Cooperation with Turkish entrepreneurs allows for the import of a wide variety of goods into Russia, meeting consumer demand in many areas.

At the same time, the departure of a significant portion of Western businesses from Russia has allowed entrepreneurs to organize work with new suppliers, including Turkish ones. During the period of sanctions restrictions, a transit flow for the parallel import of goods into Russia formed through Turkey. Russia imports fruits, nuts, machinery, vehicles, ceramics, cosmetics, household chemicals, clothing, electronic and electrical goods, and plastic from Turkey. Russia exports mineral fuels, iron, steel, cereals, aluminum, and animal and vegetable fats and oils to Turkey.

Choosing a Turkish Partner Company

To establish mutually beneficial cooperation with a Turkish company, it is necessary not only to decide on the goods but also to choose a supplier. The search for a Turkish supplier begins with platforms where information about manufacturers is posted. However, not all suppliers will interact directly with Russian entrepreneurs; personal connections, knowledge of the Turkish language, and a guaranteed intermediary are important here.

Turkish suppliers post information about their production on online resources such as:

• This platform was created with the support of the Turkish government. Information is available in various languages, not just Turkish, which is a convenient bonus for finding a new Turkish partner.
• Intermediary companies. These assist in finding specific goods and suppliers, although the cost of the goods will increase by the cost of the intermediary's services.
• Export Support Centers. My Business centers for supporting small and medium-sized businesses assist in finding foreign partners and provide consulting on interaction with counterparties from other countries.

In addition to online resources, Turkish companies hold industry exhibitions where various manufacturers present their goods and services. The organization and conduct of such exhibitions facilitate the development of partnerships between Russian and Turkish entrepreneurs.

Furthermore, despite the development of online communication, wholesale markets remain relevant. They offer a large selection of diverse goods, allowing entrepreneurs to meet and establish business partnerships with both manufacturers and wholesale suppliers. When building partnerships with Turkish entrepreneurs, it is necessary to consider the local mentality; informal communication, which often leads to the partnership, is a crucial element of interaction.

Executing a Contract with Turkish Companies

Despite the joint activities of Russian and Turkish entrepreneurs in importing and exporting goods, before concluding a contract with foreign partners, it is necessary to study not only international law governing trade but also the laws of the partner's country.

In Turkey, legislative norms regarding contracts are established in several articles of the Turkish Code of Obligations, which must be studied and followed when interacting with Turkish partners. Given the abundance of information on cooperation with Turkish companies, one can also find templates for foreign trade contracts with Turkish partners online; however, this is not always a prudent choice. The subsequent resolution of a dispute, should one arise, may depend on the legal expert review during the drafting of the contract and the inclusion of all important and additional terms. Therefore, one should not neglect the services of lawyers who can negotiate the terms of a foreign trade contract on mutually beneficial conditions for the parties to the international transaction.

When conducting negotiations with Turkish partners, it is necessary to involve a translator who is also well-versed in legal terminology. Communicating with Turkish partners, even through a translator, can favorably influence the establishment of trade relations.

As a rule, when interacting with foreign partners, the law of the counterparty's country is considered, which may differ significantly from Russian law. Equally important are the lexical nuances of translating an international agreement. Certain words may have double meanings, and translation without legal knowledge can turn into a jumbled text, leading to misunderstandings and potential disagreements between partners.

The content of a foreign trade contract for the supply of goods with Turkish partners includes the following sections:

• Contract Preamble. The preamble reflects the names of the counterparties and specifies their location and the position of the person signing the contract.
• Subject Matter of the Foreign Trade Contract. This section describes the goods being purchased, their quantity, quality, and additional characteristics that allow for the identification of the products. Each imported product must be declared and undergo customs clearance. All goods are classified according to the Commodity Nomenclature of Foreign Economic Activity (TN VED). [1] Customs clearance, duties, and payments depend on the TN VED classification; however, customs authorities often contest the classification of specific goods, leading to litigation. For example, a customs authority failed to prove that a disputed product did not meet the classification criteria specified in the Explanations to the Commodity Position of the TN VED EAEU. [2] Additionally, the supplier must deliver goods of a specific quality as stipulated by the contract. For instance, in one case involving a Russian company against a Turkish one, the buyer believed the delivered goods did not meet the required quality and filed a lawsuit; however, the buyer lost the dispute due to a violation of the procedure for summoning the supplier's authorized representative for the acceptance of the delivered goods.[3] Product acceptance can be detailed in a separate section of the foreign trade contract or reflected in the clause concerning the quality of the delivered goods.
• Cost of Goods, Payment Procedure, and Currency of Payment. In this section, counterparties reflect the price to be paid under the supply contract, the payment procedure (prepayment, payment upon delivery, advance payment), and the currency in which all settlements are made, including the conversion procedure.
• Delivery Time and Delivery Basis. For the delivery of goods from one country to another, partners decide on the logistics chain, choose an Incoterms delivery basis, and stipulate the timeframe within which the goods must be delivered to the buyer. It is important to note that the delivery of goods from Turkey to Russia can be carried out by various modes of transport: sea, air, road, or multimodal. Therefore, any Incoterms delivery basis can be chosen, including those involving multimodal transport. When choosing delivery times, it is necessary to consider the mentality of Turkish partners and include extended execution periods in the contract to meet the delivery "deadline."
• Liability of the Parties. For breach of the terms of the foreign trade contract, the parties provide for the liability of one party to the other. This may be reflected in the form of liquidated damages, penalties, or fines. It is also important to determine the applicable law to regulate liability issues.
• Dispute Resolution Procedure and Court Proceedings. To resolve disputes, the parties provide for a dispute resolution procedure, a claims procedure, and court proceedings if other measures are exhausted. Here, it is important to note that when drafting an international contract, one must determine the law of the country that will apply in the event of disputes. The place of dispute resolution, the judicial body, and the substantive law will depend on this choice.
• Force Majeure. In this section, the parties reflect what they recognize as force majeure circumstances, upon the occurrence of which obligations under the foreign trade contract may be suspended or terminated. It is also important to state how long such force majeure circumstances may continue for the parties to be excused from performing their obligations.
• Details and Signatures of the Parties. An authorized officer of the company or a representative by power of attorney has the right to sign the foreign trade contract, which must be verified before signing. The contract details reflect not only the address of the partner company but also the bank details for settlements between the counterparties.

The parties to a foreign trade contract may include additional terms in the text that they deem material for the conclusion of a specific international agreement.

Additional Terms of a Foreign Trade Contract with Turkish Companies

All terms that the parties consider necessary to include in the foreign trade contract must be reflected to avoid future disputes. Many entrepreneurs believe that choosing an Incoterms delivery basis provides all the necessary conditions for a foreign trade contract, but this is far from the case.

For example, only a few delivery bases provide for mandatory cargo insurance; in most cases, the parties must arrange for cargo insurance independently. It is important to note that cargo can be delivered by different vehicles and may be damaged or lost in transit, including due to improper packaging. To recover losses during transportation, the parties to an international contract must specify which participant will insure the supplied goods. The insurance should cover the maximum possible scenarios to obtain the insurance premium on the most favorable terms for the partners.

Also, when drafting a foreign trade contract, the parties can stipulate the procedure for amending and supplementing the international agreement. Initially agreed-upon terms may not always reflect the partners' needs throughout the duration of the contract; therefore, it is important to provide for the possibility of adjusting the foreign trade contract for more beneficial interaction.

In today's highly competitive world, parties to a foreign trade contract must also comply with confidentiality terms. To do this, the partners must define in the contract what constitutes confidential information and the procedure for disclosing such information or a total ban on its disclosure.

Furthermore, situations arise where it is necessary to assign rights to other legal entities or where the participation of third parties in a specific transaction becomes necessary. A change of persons in an obligation is possible from the perspective of civil legislation; therefore, by reflecting such a possibility in the contract, the parties can replace one legal entity with another. Such a need may arise, for example, during the merger of several companies into one or, conversely, during the division of one organization into several companies.

All of the listed additional terms of a foreign trade contract can be reviewed, supplemented, and changed depending on specific situations. In essence, the drafting of each specific foreign trade contract is carried out under specific terms and requirements of the partners; despite common elements, the texts of contracts are mostly always different.

Interaction with Turkish Partners under Current Sanctions

Political and economic circumstances in the world have allowed Turkey to become a kind of transport and logistics "hub" for the delivery of goods and cargo from Western countries to Russia. Considering that direct interaction with entrepreneurs from European countries was terminated due to sanctions restrictions — while the total cessation of supplies is unprofitable from a business perspective for any country — the business community resolved this issue by delivering goods to Russia through other countries, including Turkey.

However, it should be noted that the delivery of goods in this manner can be suspended at any moment for various reasons; therefore, when concluding a foreign trade contract, this possibility must be reflected in the text to avoid unpleasant consequences for entrepreneurs. Typically, the transit of goods resumes after some time, but partners incur unforeseen losses related to the additional storage time of the goods in the transit country and delays associated with the untimely delivery of the cargo. Supplies of goods from the USA and Canada are being restricted. At the same time, the restoration of the transit of goods through the territory of Turkey occurs in a limited version, especially regarding dual-use goods. No one can guarantee the full restoration of transit or its complete cessation at this time; the situation can change at any moment. The main thing is for the business community to be prepared for such a scenario and react correctly to the changes taking place.

Unstable relations between countries can significantly affect the business community; therefore, when drafting a foreign trade contract, it is important to reflect the possibility of changing the terms of the contract with the minimization of penalties between participants if the non-performance or untimely performance of the contract arose due to such significant changes in external circumstances.

Payments under Contracts with Turkish Partners

To pay for any goods supplied under a foreign trade contract, it is necessary to determine the currency of payment and the terms of payment, which is especially important in modern conditions where many banks of Russian entrepreneurs have been disconnected from the ability to make international payments. In the texts of many contracts, the USD or EUR was used as the currency for settlements.

Settlements in Turkish lira under foreign trade contracts are not used by entrepreneurs for many reasons, including high inflation in Turkey and the volatility of the Turkish lira. Therefore, it is not recommended to fix the Turkish lira in the contract as the currency of debt (the currency in which the monetary obligation is expressed).

At the same time, the introduced sanctions restrictions have significantly affected the banks of entrepreneurs from the RF, which lost access to the international payment system, complicating the settlement processes between Russian and Turkish partners. Turkey and Russia are considering the possibility of making settlements in national currencies, but this issue is still being worked out by the central banks of both countries.

It is important to note that when paying under contracts with Turkish partners, the duration of bank transactions has increased compared to earlier periods. Therefore, such special terms for payment must also be provided for in the text of the foreign trade contract, and sanctions should not be imposed on partners due to lengthy bank transactions.

Changing conditions of interaction between entrepreneurs from different countries lead to the need for even more thorough drafting of foreign trade contracts. Given that the Turkish market allows for the fulfillment of consumer demand across many positions, building partnerships with Turkish companies is a material condition of foreign trade activity for both Russia and Turkey.

Many entrepreneurs find unconventional solutions for beneficial interaction with Turkish partners even in unstable conditions. A key component of such interaction remains a properly drafted foreign trade contract with a Turkish company, which reflects all necessary material and additional terms of interaction between the parties to the international transaction. Among other things, a competently drafted contract allows for maneuvering during external changes in circumstances, which is very important in today's economic realities. As a rule, to prepare the text of a foreign trade contract, experienced entrepreneurs involve qualified and experienced foreign trade lawyers who possess knowledge of international law and can translate the texts of foreign documents into Russian without distorting the meaning.

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References

[1] Decision of the Council of the Eurasian Economic Commission No. 80 dated September 14, 2021, On Approval of the Unified Commodity Nomenclature of Foreign Economic Activity of the Eurasian Economic Union and the Common Customs Tariff of the Eurasian Economic Union, and on Amending and Repealing Certain Decisions of the Council of the Eurasian Economic Commission.

[2] Resolution of the Arbitration Court of the Moscow District No. F05-21654/2020 dated December 28, 2020, in case No. A40-292680/2019.

[3] Resolution of the Arbitration Court of the Volga-Vyatka District No. F01-3085/2021 dated July 29, 2021, in case No. A43-37118/2019.