International Business Transactions
Conducting
business in the modern global economy offers great rewards, but involves
risks, as well. Although companies can take a number of precautions to
limit their risks in international business transactions, the primary
legal tool for such purposes is the international business transaction
agreement or contract. Examples of international business transaction
agreements include: international sales contracts, international
distribution agreements, supply agreements, intellectual property
licenses, franchise agreements, development agreements, investment
agreements, letters of credit, joint venture agreements, and others, as
well as hybrids and combinations of these agreements.
Key considerations in an international business transaction contract include:
Choice of Law
Because
of variations in legal heritage, culture and language, the law which
would be applied to an international business transaction contract is
often decisive. For example, it is likely that the application of Texas
law to an international business transaction contract would lead to a
different result than the application of Brazilian law to that same
international business transaction contract. Therefore, if the parties
to an international business transaction contract choose law that is
acceptable to both of them, they can better anticipate how the
international business transaction contract provisions might be
interpreted.
Also, most domestic business transaction
contracts are governed by the Uniform Commercial Code (UCC), a
harmonized system of commercial laws adopted by almost every state in
the U.S. However, in many international business transaction contracts
for the sale of goods, the U.N. Convention on International business
transaction contracts for the International Sale of Goods (CISG) will
apply by default. The impact of CISG as governing law versus UCC as
governing law can be of critical importance. Moreover, even for other
types of international business transaction agreements, one should not
assume that the UCC would apply ? thus, it is imperative that the
parties specify the governing law of the contract within the
international business transaction agreement, itself.
Jurisdiction and Venue
In
addition to selecting the choice of law for the international business
transaction contract, the parties can select a jurisdiction to decide
any disputes related to the international business transaction contract.
International business transaction contracts make such provisions
crucial because of issues related to jurisdiction over the parties and
the transaction, enforcement of judgments, legal processes, and travel
and litigation expenses.
Force Majeure
"Force majeure"
clauses allow for a party to be excused from its international business
transaction contractual obligations without punishment if certain
unexpected events occur, such as natural disasters. Domestic contracts
in the United States generally do not
address events such as
terrorism, piracy, financial market collapse, war and so on. However, in
international business transactions, these are often very real
concerns.
Shipping Terms
Where the international
business transaction agreement relates to the shipment of goods, the
shipping terms will determine each party?s respective responsibilities
for elements of the shipping process. Instead of spelling out a number
of elements related to the delivery of the goods, parties often use
shipping terms ? a short hand for allocating responsibilities between
the parties with respect to such matters as transfer of risk of loss,
arrangement of carrier, payment of freight charges, cargo insurance and
so on.
Under U.S. law, these shipping terms are defined
under state law in accordance with the UCC. Common domestic shipping
terms include FOB (Free On Board) and CIF (Cost, Insurance &
Freight). However, international business transaction contracts do not
necessarily use the same terms. Instead, many international agreements
incorporate a separate set of shipping terms called Incoterms
(International Commercial Terms), which are promulgated by the
International Chamber of Commerce, or ICC.
Payment
Making
or receiving payment is also a bit more involved in international
transactions. Because of governmental currency controls and fluctuations
in exchange rates, a key consideration is the currency in which payment
is to be made. Additionally, the method of payment merits special
attention in international business transactions. Payment by check is
often not an option; instead, parties to international business
transactions often elect to use wire transfers or letters of credit. If a
letter of credit is used, the parties must comply with strict
documentary requirements if they expect to receive payment.
Translations
When
dealing with international parties whose principal language is not
English, the parties will often prepare and execute a translated version
of the international business transaction contract. Because of subtle
differences in translation, it is important for the parties to elect
which version of the document will control if a dispute arises.
Compliance With U.S. Laws
Finally,
exports and imports ? as well as currency transfers ? are subject to
numerous U.S. laws. In some situations, U.S. companies can be held
liable for violations of these laws by foreign customers, agents or
affiliates. As such, a requirement written into international business
transaction contracts requiring compliance with these laws can serve as a
notice to the foreign party, and makes compliance a material term of
the agreement.
If you are interested in additional
information on international business transaction agreements, please
contact our Dallas international business transaction lawyers. Our
firm also offers an array of services in the areas of intellectual
property including patents, trademarks, copyrights, trade secrets, as
well as intellectual property litigation and enforcement, and technology
transactions.
Conducting business in the modern global economy offers great rewards,
but involves risks, as well. Although companies can take a number of
precautions to limit their risks in international business transactions,
the primary legal tool for such purposes is the international business
transaction agreement or contract.
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