In today’s increasingly interconnected world, international trade is an essential part of running large corporations and small businesses alike. However, the legal aspects of international trade can be tricky to navigate, especially in the event that something goes wrong. International trade lawyers can help your business successfully negotiate beneficial trade agreements, import-export agreements and international contracts, so you avoid any unforeseen conflicts. A Priori international trade lawyer can discuss any legal questions you may have before agreeing to an international trade deal.
International contracts are in many ways similar to the contracts you would draw up with another local company, but since you take on more risk in large international transactions, they will also include some unique elements.
United Nations Convention on Contracts for the International Sale of Goods
The United Nations Convention on Contracts for the International Sale of Goods (CISG) details the default structure and governing laws for for international contracts selling goods to which any of the 84 signatory members are party, including the United States. Since laws in each country differ, the CISG offers international companies the option of applying the CISG as a neutral and uniform law to govern some common areas of contract disputes.
Key aspects of CISG provisions include:
- Nonconforming Goods. If goods are non-conforming, the buyer has the right to accept or reject not just the entire shipment, but also a portion of the defective goods.
- Price and Contract Formation. A contract is not officially formed if price is not specified in the document.
- Mirror Image Rule. “Accepting” an offer with material changes to the contract is considered making a counter-offer, not an acceptance. If the contract is to be formed, the original person making the offer must accept the new terms.
- Transfer of Risk and Ownership. Typical ICC Incoterms (International Commercial Terms), including FOB (free on board), FCA (free carrier) and CIF (cost insurance and freight) are used to specify when ownership (and thus risk) transfers to the buyer. At this point, the responsibility to insure the goods similarly transfers.
Of course, not all international contracts are required to use CISG conventions, for example if the other party is not a member state (such as the United Kingdom).
Key Terms and Provisions in International Contracts
Some key terms to remember in international contracts include the following:
- Delivery Terms. Since international trade involves lengthy and complex shipping processes, it is vital to know exactly how goods will be shipped and when ownership of those goods transfers. In order to make this clear, most international contracts use Incoterms.
- Description of Goods. The description of goods being traded must be as specific as possible, especially in establishing what elements are considered a breach for non-conforming goods.
- Time of Delivery. The expected date and time of delivery must be set clearly in the document, as well as whether or not late delivery will nullify the contract.
- Payment Conditions. In international contracts, the method of payment and the date it is due aren’t all that matters. The currency of payment should be established, as well as a trustworthy mode of payment for international trade, such as a letter of credit.
- Retention of Title. Most international contracts include a retention of title clause, which states that the seller keeps the title for the goods until payment is made, giving them the right to take them back in the event of non-payment.
- Force Majeure. Sometimes things go wrong in international trade that cannot be controlled. These events of force majeure excuse the parties from performance when their failure is due to unforeseeable impediments beyond their control, such as the outbreak of a war, earthquakes, or hurricanes, etc.
- Dispute Resolution. Since two different legal jurisdictions are involved, the parties must agree on a single governing law to apply to the contract and which court or arbitrator will have jurisdiction.
Foreign Taxes and Tariffs
When you import and export goods, you may need to pay foreign taxes and tariffs on the goods being traded. These can range from customs duties upon the goods’ exit or entry of a country to taxation of the profits once the goods cross borders. Each country has its own tax rates, not to mention unique tariffs on each type and source of good. The average duty applied on goods entering the U.S. is 3%, but this can be as great as the cost of the good on certain items in certain countries. This makes it incredibly important to know all the tax and tariff implications of international trade in a market before entering. In order to to fully assess your company’s international tax responsibilities and pay accordingly, consult with an international tax lawyer to protect your company.
Customs and Inspections
Any time that you bring goods to be sold in a different country than where they originated, the goods will pass through customs. Any goods can be inspected. In addition, all consumables, foods, potentially hazardous items, and other goods controlled for quality or safety in the destination country will be examined. This process can take several days or even several weeks. If the inspection determines that a good does not comply with that country’s standards for any reason, it can be rejected or even confiscated. This makes it extremely important to know the standards beforehand, so your company can prepare the goods to pass.
Free Trade Agreements
Under bilateral and multilateral trade agreements, tariffs are eliminated on certain classes of items traded between countries involved. These preferential tariffs can make importing from and exporting to certain countries more profitable than others. NAFTA and CAFTA make trade within North America relatively tariff-free on most goods, and new trade agreements are negotiated every day. When choosing a partner to trade with, your company can benefit from taking advantage of these trade deals.
If a foreign company or person doesn’t live up to their end of a contract, where can I sue them?
It depends on your contract. Usually the court of arbitration is established in the document. If it is not, you can sue them either domestically or in their own country.