Does the CISG Apply to Parties Based in Taiwan?
March 6, 2024
The complexity of Taiwan’s status under public international law may help to explain why there has been close to no discussion of its status under the Convention on Contracts for the International Sale of Goods (CISG).
This absence of discussion is surprising given Taiwan’s importance in international trade: Taiwan is among the ten leading trade partners of the United States and among the top fifteen of the European Union. In 2022, the value of goods exported from the United States to Taiwan rose to over $44 billion, while the value of imported goods from Taiwan reached $91.7 billion. The CISG could potentially apply to many of the contracts underlying these figures, provided that parties established in Taiwan “have their place of business in a Contracting State,” as required by CISG article 1(1)(a).
Different courts have answered the question of whether Taiwan is a Contracting State for purposes of the CISG differently. The Supreme Court of the Czech Republic held, without further explanation, that parties based in Taiwan have their place of business in a Contracting State, whereas an earlier U.S. decision treated such parties as located in a non-Contracting State. Scholars have taken relatively little interest in the question. Some simply dubbed it a “mystery.”
Pulse Electronics
The district court’s decision in Pulse Electronics seems to be the first detailed analysis of Taiwan’s status. In that case, a corporation based in Delaware brought suit against a Taiwanese manufacturer of communications equipment, alleging patent infringements by the defendant. This led the court to analyze several international sales contracts to determine the place of sale for these transactions. In this context, the court discussed whether the CISG governed the international sales contracts concluded by the Taiwanese company. The court began its analysis by observing that Taiwan is not itself a Contracting State to the Convention because Taiwan is generally not considered a State under public international law. It also noted that Taiwan would be prevented from acceding to the Convention, even if it wished to do so, because accession to the Convention is restricted to States (article 91).
Taiwanese parties could therefore be considered to have their place of business in a Contracting State only if, for the purposes of the CISG, Taiwan could be considered a territory of the People’s Republic of China (PRC), which is a Contracting State. This is the position the court took in Pulse Electronics.
In support of this conclusion, the court advanced two independent lines of arguments. First, it cited the text of CISG article 93(1), pursuant to which Contracting States that have two or more territorial units “may … declare that this Convention is to extend to all its territorial units or only to one or more of them.” Absent such declaration, article 93(4) provides that “the Convention is to extend to all territorial units of that Contracting State.” Based on this provision, the defendant had argued that the Convention is applicable because the PRC did not make a declaration excluding the application of the Convention to Taiwan under article 93(1).
Second, the court also invoked a policy argument in favor of applying the Convention. According to the court, the purpose of the CISG—creating international uniformity in the law applicable to international sales contracts—is better served if the territorial sphere of the Convention is expanded. The court also referenced an arbitral award applying the CISG to a contract between a Chinese buyer and a Taiwanese seller to show that “the application of the CISG is not in direct contravention of either China or Taiwan’s desires.”
A Critique
While the court in Pulse Electronics is to be commended for analyzing the issue of Taiwan’s status under the Convention in detail, its reasoning is not particularly convincing, as I recently explained at length. First, in its analysis of CISG article 93, the court jumped directly to the absence of a declaration by the PRC to the effect that Taiwan is excluded from the application of the Convention. The interesting question, however, is not whether China has in fact issued such a declaration but, rather, whether the PRC’s ratification of the Convention binds Taiwan in the first place such that the PRC could issue a binding declaration under the Convention.
This is a question governed not by CISG article 93 but rather by public international law, and its answer is not straightforward. In the United States, the leading precedent on the effects of a Chinese ratification of or accession to an international treaty in relation to Taiwan seems to be the Ninth Circuit’s decision in Mingtai Fire & Marine Insurance Co. Ltd. v. United Parcel Service (1999). In that case, the Ninth Circuit held that Taiwan is not bound by the 1929 Warsaw Convention on Air Transport, to which the PRC is a party. The court of appeals emphasized that its conclusion did not follow from an independent determination of Taiwan’s status under public international law but rather from wholesale deference to the position of the U.S. government in foreign policy matters.
It is striking that the district court in Pulse Electronics did not even address this precedent from the Ninth Circuit, as it would have led the court onto an entirely different path. From an international point of view, the deferential approach chosen in Mingtai Fire Insurance is problematic as it could lead to a fragmentation of the application of the CISG if governments of Contracting States were to take different positions on Taiwan’s status, thus contravening its internationally uniform application as mandated by article 7(1) of the CISG. However, the general practice in a number of jurisdictions is, apparently, not to extend international treaties on private law matters to Taiwan based on the PRC’s status as a party (for a detailed analysis, see here). This cautious approach, developed for other treaties, could inform future decisions by courts regarding the CISG as it is most likely to produce international consensus.
The starting point should therefore be that the Convention’s territorial sphere does not extend to Taiwan. The policy reasons cited by the district court do not lead to a different result. First, the purpose of the Convention to create a uniform law for international sales contracts can, of course, not justify the extension of the Convention’s reach beyond the territory of the Contracting States. Second, it is difficult to see how the application of the CISG by an arbitral tribunal based on an agreement by private parties can constitute persuasive authority, let alone speak to the “desires” of China or Taiwan.
Conclusion
One can hope that court’s decision in Pulse Electronics brings attention to the long-ignored question of Taiwan’s status under the CISG. However, it is open to question that that court has found a convincing solution or even asked the right questions.