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A Better Partnership


Feb 2008
February 29, 2008

Legal Realities of the Global Economy

U.S. companies engaged in international trade, and those thinking about international trade, should be alert to the legal issues unique to the international context. The advantages of "going global," though numerous, do raise legal issues that U.S. companies must take into consideration. Failure to deal with some of these issues can create civil and criminal liability.

Take exporting as an example. Exporting is normally easy and subject to few restrictions. Most exports of ordinary trade goods are not restricted. There are, however, export restrictions you need to be aware of:

  1. Some products (notably products that can have military uses) are subject to export restrictions.

  2. Exports to some countries are restricted. It is possible to violate export restrictions by selling a product to a buyer that you know, or should know, intends to reexport the product to a country to which direct exports from the U.S. are prohibited.

  3. Export sales to some purchasers are restricted. There are myriad "do not sell" lists maintained by the U.S. government that you are obligated to check. Commercial software can help you monitor these "do not sell" lists.

  4. It is possible to make a prohibited "export" of technology without anything actually leaving the U.S. You may be "deemed" to export technology merely by giving individuals from a foreign country access to that technology in your own plant.

Beyond export control regulations, there are more general business and contract considerations you will want to take into account.

  • Payment. Exporters should protect themselves against the risk of nonpayment; it can be difficult to enforce a payment obligation in a foreign country. Letters of credit are frequently used as a payment mechanism. Under a letter of credit, the seller is paid upon furnishing a bank with specific documentation, normally including an invoice and shipping documents. Insurance and other alternatives are also available.

  • Currency. Most U.S. sellers price their products in dollars. If the customer requires pricing in another currency, then the contract should deal with the issue of the risk of currency fluctuations.

  • INCOTERMS. The International Chamber of Commerce (ICC) has developed shorthand trade terms (called INCOTERMS) that operate to (1) assign risk among the parties and (2) identify which party is responsible for the various stages of shipment and delivery and for export/import clearance and insurance. Some typical U.S. commercial terms have differing definitions under the INCOTERMS.

  • Dispute Resolution. Every agreement for the sale or purchase of goods should prescribe how disputes will be handled. Before dismissing such provisions as boilerplate, bear in mind the burden of a trial in a distant country under unfamiliar law before a judge from your customer's home country.

Other potential traps exist in international trade. For example, companies often find it desirable to engage distributors or sale representatives in foreign countries. Many countries have laws that protect distributors and/or sales representatives from termination without specifically defined cause, or from other conduct that the country feels to be overreaching.

The U.S. Foreign Corrupt Practices Act (FCPA) prohibits the payment by U.S. companies and their employees and agents of "anything of value" to foreign governmental or political officials to obtain or preserve business or to secure an improper advantage. In many countries, government ownership of business can mean that business executives are foreign governmental officials.

Certain countries have passed laws aimed at boycotting and isolating Israel. These provisions may be included in the fine print of purchase orders, standard terms of sale or purchase, or other communications. U.S. companies and individuals are subject to penalties if they aid or assist in the implementation of this boycott. If you have received requests to comply with or otherwise aid an unsanctioned boycott, you must file a report with the government.

Finally, a growing number of companies may decide either to establish their own operations overseas or to enter into long-term relationships with one or more foreign firms for the purpose of acquiring greater control over the sourcing or sale of products or services. Overseas investment may take the form of a joint venture, a foreign subsidiary, or licensing arrangements. There are complex tax, legal, and business issues that should be addressed when planning any such activity. Before investing abroad, you should engage professional advisers (in particular, attorneys and accountants) who will give you guidance as you investigate your potential foreign partner and determine the structure of your investment.

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