Taking your business to the international markets can expose your venture to a host of new opportunities and become a major driver of growth and revenues. However, the legal implications cannot be overlooked, and when each country in which an entrepreneur plans to do business has its own set of rules, the pitfalls are as numerous as those opportunities.
Kandace Watson, a partner for global law firm Baker & McKenzie LLP, specializes in international trade and commerce. According to Watson, entrepreneurs often fail to surround themselves with the legal expertise to help them avoid the often complicated international legal issues. We asked her for tips on how to get started when researching international opportunities, however, the the information here is very general and is not legal advice for any purpose.
Determine if your partner’s country signed the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Also known as the New York Convention, this is a cross-border agreement that requires courts of each country to recognize and enforce arbitration awards made in other contracting states. Click here for a list of nations that have signed the agreement.
Determine how to get your product in and payment out of the foreign country. In addition to export and import laws of the U.S. and the foreign country, you must also consider the foreign country’s laws for payment of taxes and repatriation of funds. Some countries may require you to register the agreement or products with government authorities or establish foreign currency bank accounts before you can move your products and your money in the manner you desire.
Don’t violate the United States Foreign Corrupt Practices Act. “One of the biggest problems with getting products through customs in certain developing regions is violation of the act,” says Watson. The anti-bribery provisions of the FCPA make it illegal for a U.S. person to pay a foreign official in exchange for obtaining or retaining business. “In certain countries like Mexico and Nigeria, it has historically been very challenging to do business without being pressured to make illegal payments or bribing someone, but you will get in trouble for it.”
Be aware of the United Nations Convention on Contracts for the International Sale of Goods. The Convention is a uniform international sales law ratified by 76 countries that offers a set of standard rules on which contracting parties, courts, and arbitrators may rely. This is designed to avoid the conflict of laws when litigating parties hail from different countries. If you can’t determine yourself whether you want to expressly exclude CISG, consult an experienced attorney.
Consider your termination provisions. Some foreign countries have non-waivable public policies that protect dealers and distributors from termination without cause. “This means that despite what your contract states, you may have to repurchase the dealer’s or distributor’s inventory and pay certain investment costs to the dealer or distributor when you terminate the relationship,” explains Watson. She adds that these foreign laws may apply even if neither of the parties is from the country enforcing the policy. When determining the costs vs. benefits of entering a market, this should be researched upfront and the contract should be written to minimize the potential for ex-U.S. termination claims.
Watson encourages anyone thinking about expanding international to do so, but with caution, “You can successfully go global with your business, you just need the right legal and business guidance to avoid legal and cultural hurdles.”
For more tips on doing business globally, see…