German business advises Russian to study German law

26.03.2010 — Analysis

The trade between the Sverdlovsk Oblast and Germany has almost halved in 2009. In 2008 the region's trade with Germany was worth 1,458 million dollars while in 2009 this figure dropped down to 743.6 million dollars. Being concerned with this reduction Germans despatched in the Urals a party of lawyers and bankers, appealing at the conference on Russian-German supply contracts to buy German equipment for the enterprises. The RusBusinessNews Observer found out what kind of pitfalls the Urals entrepreneurs may expect when they are take in by the "real German quality".

"This is beneficial for both parties", reckons Dr Christian von Wistinghausen, the Head of Eastern Europe Desk of the Law Firm Beiten Burkhardt. For Germany this means production growth, for the Urals this brings modernisation of which the President Medvedev talks, and the increase of the labour productivity. 

It has been established that problems may hit the Russian businessmen even at the stage of drafting of the contract. According to Thomas Fischer, a Beiten Burkhardt lawyer, the contract must list all characteristics of the goods being purchased. In the situation when the production equipment is being purchased, it is recommended emphatically that the production capacity should be stipulated in the contract. Otherwise, Mr Fischer points out, even obvious defects will be hard co contest in the pedantic German court.

The issue of law application may become yet another pitfall when one wants to buy German goods. Thus, for instance, court rulings made in Russia are not executed in Germany. Therefore, German court rulings have no force in Russia. This is why the Urals companies have been recommended to choose the German jurisdiction and when the contract is drafted in two languages to stipulate German as the prevailing one. Only in this case, assures Mr Fischer, there is a chance to get justice if you ever encounter an unscrupulous supplier. At the same time the lawyer admitted with sadness that German courts, especially in Berlin are not that quick and the proceedings may last a year or even more.

In the meantime the issue of technical modernization is much more pressing for Russian entrepreneurs. Domestic banks are not in a rush to hand out loans and the interest rates are high here. Foreign banks prefer working with large tried and tested clients. 

However, according to Dr Bernd Schmidt, the Export Financing Director at Landesbank Berlin AG, small and medium sized enterprises must not despair. At the moment, he says, there is a multitude of schemes with which these businessmen can also count on getting loans from abroad. The very Landesbank Berlin does it.

Conditions differ in different banks. One of the main advantages of working with Landesbank Berlin is the delay of repayment. The loan term starts not from the date of the money being issued but from the date of the purchased equipment start up. This means that you start paying back the loan only when your purchase starts giving you revenues. Despite the fact that all loans are issued exclusively with variable interest rates entrepreneurs have the option to transfer to the fixed rate. Of course, the fixed interest is higher, but Dr Schmidt assures that in Russia this service attracts potential clients who strive to insure against inflation and, therefore, growing interest rates. Moreover, for a certain amount of money the bank can offer yet another option of the interest - variable capped. 

The bank is prepared to issue loans, Dr Schmidt admits, amounting only to 85% of the value of the deal. He offered a solution for this problem straight away - the lacking 15% can be borrowed in a Russian bank and then this amount can be re-loaned in Germany.

Whether these tempting German offers would attract the Urals entrepreneurs is hard to say. Despite the fact that the conference has been held within a large scale Eurasian Machine Building Forum there were vacant seats in the small conference hall. Amongst those present about a third were not entrepreneurs but journalists and business analysts. After the coffee break the picture turned even sadder, as many participants decided that German equipment is not that interesting for them.

Aleksey Ostapov