Whether you want to sell goods or services overseas, or import some component of your product, it is important to understand the laws surrounding global trade. Below are just two areas; but, numerous other U.S. and foreign laws impact your business. So, it is vital that you work closely with an experienced team in the U.S. and in your foreign market.
Distribution Agreements
Whether you are engaging an overseas company to sell your products or you want to represent a foreign manufacturer in the U.S., many potential problems can be mitigated with minimal “up-front” effort. A careful review of both parties’ objectives and the documentation which will be used allows you to address issues before disputes arise. One basic tool in any distribution relationship is the written contract between the parties.
A well-drafted distribution agreement requires that both the supplier and distributor (and their respective attorneys) understand the basics of the transaction. The agreement should explain the business terms of the deal and lay the ground rules which will apply in the event of a dispute. Even where both parties are honest, rational businesspeople, communication problems can result in misunderstandings – and eventually in litigation or arbitration.
If the dispute cannot be handled through simple negotiation, the distribution agreement may provide for some sort of alternative dispute resolution (for example, arbitration), and state what country’s (and state’s or province’s) laws will be applied to any disputes.
In addition, a number of business issues should be addressed in a typical distribution agreement.
• Revisions and complexity of documents: The negotiation and translation process may encompass several drafts. Do your best to understand the other party’s customs on negotiation, including modification of written contracts.
• Termination: Recognize that many international arrangements fail and have an “exit strategy”. Know the laws of your target country, because it may be difficult and costly to replace your distributor or sales rep.
• Description of the “product” being handled: The parties should be very specific as to whether the distributor’s right to handle a product also includes the right to sell improvements on that product and/or new or related items.
• Exclusivity: Every distributor or sales agent wants exclusive rights in their market. You should build in some options to protect your business if the agent is not performing as expected. Do not get locked in to a long-term exclusive arrangement.
• Competition: Even if a distributor is given “exclusive rights” and agrees not to handle competing products, that promise may not be enforceable in some countries. The non-competition provision should deal with the distributor’s right to handle competing products both during and after the distribution agreement.
• Minimum Sales Requirements: For example, what is the penalty if minimum sales are not met? Does the distributor forfeit its exclusivity? Does the distributor pay a monetary “penalty?” Can the supplier terminate the agreement?
A distribution agreement which is clear and concise (yet complete) is an excellent first step toward getting what you bargained for; and, in case of a good faith disagreement, the agreement will assisting in resolving the dispute.
The Foreign Corrupt Practices Act
Just as virtually every American business person has heard of the Foreign Corrupt Practices Act (the “Act” or “FCPA”), he is familiar with bribery of government officials somewhere in the world. Even if payment of money to gain advantage is a fact of international trade-life, the Act has greatly influenced the manner in which U.S. companies do international business. Violations can result in multi-million dollar penalties, as well as prison. The Obama Administration has made anti-bribery law a priority and is pushing for expanded enforcement of the Act.
In response to the FCPA, U.S. companies should adopt formal policies prohibiting bribery and train their employees on how to respond to situations which might violate the Act. Turning a blind eye to actions of foreign representatives and agents is dangerous, as the Act prohibits such actions if the company was “intentionally blind” to the agent’s bribery of officials. Responsible companies should endeavor to engage only agents with solid reputations. Contracts with foreign representatives should be in writing and have detailed provisions concerning compliance with anti-corruption laws. Payments to agents which are greater than the norm may raise investigators’ suspicions, and they should also cause a U.S. company to question the transaction. (It is an obvious question whether the agent is using some of his commission to make pay-offs.)
International trade is fraught with many potential obstacles. While the FCPA may well be viewed as such an obstacle to dealing with foreign competition, it remains the law. It applies to U.S. citizens and companies wherever they are located in the world. Those who knowingly violate the Act do so at their great peril, and those who ignore the potential for less-than-intentional violations are equally at risk. The best defense is to establish and adhere to an FCPA compliance program, to train employees and agents, and to engage counsel knowledgeable of the Act and its provisions. If both the compliance policy and the attorney are consulted in the early stages of structuring transactions, the risks will be minimized.
Other Resources
In the Lehigh Valley, there are numerous resources available for small exporters. These include the following:
Small Business Development Center/International Trade Development Program
Cora Landis, Program Director
Lehigh University SBDC
125 Goodman Drive
Bethlehem, PA 18015
610-758-4350
www.sbdclexnet.org
initdp@lehigh.edu
U.S. Commercial Service, U.S. Department of Commerce
Philadelphia USEAC
Suite 580 West
601 Walnut Street
Philadelphia, PA 19106
215-597-6101; Ask to speak with an international trade specialist.
http://www.BuyUSA.gov/Philadelphia
World Trade Club of the Lehigh Valley (Providing networking and educational opportunities for local companies and individuals)
Timothy D. Charlesworth, President
c/o Fitzpatrick Lentz & Bubba, P.C.
P.O. Box 219
Center Valley, PA 18034-0219
610-797-9000
With the assistance of experienced counsel and negotiating personnel, the risks inherent in international trade may be minimized. Success in overseas transactions depends in large part on careful planning and the use of quality documentation. With the proper tools, many of the pitfalls inherent in international distribution can be avoided.
