Exporters and manufacturers in the industrial heartland of the Yangtze River Delta region are being urged to adopt international trade practices to prepare for the new opportunities and challenges made available by the Shanghai Free Trade Zone.

In its latest annual report, Shanghai Maritime Court noted that domestic foreign trade enterprises are vulnerable to commercial fraud and often at a disadvantage when claiming indemnity because of their relatively low market position and abilities to negotiate.

The rights of small and medium-sized enterprises are subject to violation because of their unfamiliarity with the rules of international trade, transportation and settlement, as well as their insensitivity to transaction risks, the court wrote in the conclusion to its 2012 annual report published on Tuesday.

"Legal disputes of maritime commerce are expected to rise in number after the establishment of Shanghai's free trade zone," said Sheng Yongqiang, vice-president of Shanghai High People's Court.

The free trade zone, occupying 28 square kilometers in Pudong New Area, will come into full operation in about 10 years and act as a major hub providing world-class transport and communications facilities.

"It's of great importance for the domestic import and export trade enterprises to show integrity and have a better command of the operating rules of international trade and shipping to avoid falling victim to trade hazards," he said.

Cases involving foreign trade enterprises account for nearly 60 percent of all those related to maritime commerce heard at the court last year. In more than 60 percent of these cases, the enterprises stood as plaintiffs.

"The statistics showed import and export trade enterprises more often lodged claims for rights infringements," said Ying Xinlong, president of Shanghai Maritime Court.

Among the 136 cases that came before the court, more than half of the import and export trade enterprises lost the lawsuits. In addition, enterprises acting as plaintiffs in 540 cases accepted arbitration or withdrew the prosecution, which showed the demands of quite a number of the businesses were not fully satisfied, according to judges.

Jiangsu Guotai International Group lost more than $570,000 because it accepted a counterfeit bill of lading after signing a contract with Condex Trading Co based in Hong Kong to purchase 10,000 tons of nickel minerals from the Philippines.

A man surnamed Yan handed over the bill of lading by illegally using the account of a Singapore freight corporation to the Jiangsu group. He falsely claimed to be an employee from the Hong Kong company.

The Jiangsu group sued the Singapore company at Shanghai Maritime Court but lost the case in November.

Many small and medium-sized enterprises do not pursue legal measures, according to insiders.

"Most of the enterprises don't have enough time and money to deal with lawsuits even if they were cheated," said Zhang Beilei, the general manager of Wenzhou Gaotian Shoe Co Ltd, which exports nearly 50 percent of its products to regular clients in Japan. Many Wenzhou merchants had fallen victims to cross-border commercial crimes, she said.

Zhang added most Wenzhou merchants were reluctant to sue because the amount claimed usually wouldn't cover the legal costs. There is, of course, always the risk of losing the case.

Having four production lines with about 1,000 employees, Zhang's company had never shipped out products before receiving full payment for the order to prevent disputes with overseas clients.

"Buying trade insurance via authorized insurance companies for the shipped products could be an effective method for SMEs to avoid being cheated by unreliable clients who refuse or delay making due payments," said Zhang.

"SMEs are always on the weaker side of disputes and could be more easily cheated as we don't have enough experience and certain professional assistance to deal with them," said Guo Junwei, owner of a clothes factory in Taizhou, Zhejiang province.

Contact the writers at zhouwenting@chinadaily.com.cn and yuran@chinadaily.com.cn

(China Daily 07/24/2013 page15)