Question: What should be considered when traveling on business overseas?

Answer: Before traveling overseas, you will want to review business travel in the Country Commercial Guides (CCG) from the U.S. Commercial Service and Travel Warnings and Advisories by the U.S. State Department. This will help you in understanding the culture for successful business relationships and also make you aware of security issues in the country you plan to use it. The CCG is accessible here .

Question: I have done contracts and invoices for buyers in the United States, but never overseas. What should I watch out for?

Answer: When you have found a prospective foreign representative that meets your requirements, the next step is to negotiate a sales contract. In the drafting of the agreement, special attention must be paid to preserving your interests in cases where your representative/distributor proves less than satisfactory. However, the laws of the country, in which the representative/distributor is located, may limit escape clauses and contract provisions that might safeguard your interests. Therefore, you should obtain as much information as possible pertaining to the legal practices and requirements of the representative’s country and obtain qualified counsel in preparing the contract.

There are some legal issues that should be considered, including but not limited to:

• Which country’s (or international convention’s) laws should be considered in a contract dispute? Laws in the representative’s country may forbid the use and the implementation of foreign legal jurisdictions.
• Should the representative be referred to as an agent? In some countries, the word agent implies power of attorney. The contract needs to specify if the representative is or is not a legal agent with power of attorney.
• In what language should the contract be drafted? In most cases, the contract should be in both English and the official language of the foreign country.

In general, it is very important that the contract defines what laws apply to the agreement. Even if the supplier chooses a U.S. law or that of any country, the laws of the representative’s country may define which law applies. Many suppliers define the U.N. Convention on Contracts for International Sale of Goods (CISG) as the source of resolution to contract disputes or defer to a ruling by the International Court of Arbitration of the International Chamber of Commerce.

Whatever you do, get sound legal advice before initiating the transaction.

Question: I received an unsolicited quote or buy offer on my website from a foreign entity. How can I check to make sure this is a reputable partner?

Answer: You should investigate potential representatives or distributors carefully before entering into agreement. You need to know as much information as possible about the foreign firm’s current status and history, trade and bank references, its sales record, marketing policies, customer profile, etc. You should not hesitate to ask potential representatives or distributors detailed and specific questions. You have the right to explore the qualifications of those who propose to represent them overseas.

Moreover, commercial firms and banks are great sources of credit information on overseas representatives. They can provide information directly or from their correspondent banks or branches overseas. Directories of international companies may also provide credit information on foreign firms. Another excellent resource is www.hoovers.com, however coverage is spotty for international companies.

The U.S. Department of Commerce offers the International Company Profile (ICP) that can help you find out who is who worldwide. This service includes a low-cost background report on a prospective international buyer or partner; information on the company’s management, banking, financial history, etc.; expert advice on the ability of a potential partner to meet your needs; and our assessment of your potential buyer/partner.

Question: I have agreed a sales-purchase contract with an overseas buyer, but the foreign entity wants me to ship on open account or consignment basis. As this is a new contract for us, should I ship?

Answer: It depends. In a foreign transaction, an open account can be a convenient method of payment if the buyer is well established, has a long and favorable payment record, or has been thoroughly checked for creditworthiness. However, there are risks to open account sales. The absence of documents and banking channels might make it difficult to pursue the legal enforcement of claims. The exporter might also have to pursue collection abroad, which can be difficult and costly. Another problem is that receivables may be harder to finance, since drafts and other evidence of indebtedness are unavailable. There are several ways to reduce credit risk, through such means as export credit insurance and factoring. In short, if you do not know the importer well and have a solid payment history, do not ship on open account

Consignment sale is a payment method, in which the exporter has the greatest risk and the least control over the goods. Additionally, receiving payment can take some time. Therefore, it is wise to consider risk insurance with international consignment sales. The contract should clarify who is responsible for the property risk insurance that will cover the merchandise until it is sold and payment is received. Consignment should only be used in well established import0export relationship.

Exporters contemplating a sale on open account terms or a consignment sale should thoroughly examine the political, economic, and commercial risks. They should also consult with their bankers if financing will be needed for the transaction before using a pro forma invoice to a buyer. Additionally, it may be necessary to conduct a credit check on the foreign distributor. A U.S. Department of Commerce International Company Profile (ICP) provides useful information for credit checks. For a fee, an ICP may be requested on foreign companies in many countries.

Question: A foreign firm states that they want to be a distributor for our product and sent us a draft agreement. What should I look at for from a legal perspective?

Answer: When selling your product to a foreign distributor, you will not have any direct control over the marketing policies, the size of sales, and the customer base of your product in the distributor’s country. Therefore, you should definitely look at provisions that safeguard your interests and preserve the integrity and the image of your company and your product. The agreement should include terms establishing that the foreign distributor: will not reveal any confidential information in a way that will be injurious, detrimental, or competitive to your company; will not enter into any agreements binding you; and will refer all inquiries to your firm. It is also of great importance to include provisions in the contract which will protect your patent(s) and/or trademark(s). In all cases, you should obtain information on intellectual property rights in the distributor’s country, and make sure that they are protected under its legal jurisdiction. Consult an experienced lawyer before drafting (or signing!) any distribution agreement.

Moreover, some U.S. companies prefer to begin with a relatively short trial period when making agreements with foreign distributors, and then extend the contract if the relationship proves satisfactory to both parties. The contract may also spell out what constitutes just cause for ending the agreement. This is the best strategy.

Question: Are there entities to which I am not allowed to export?

Answer: Exporters should screen all parties involved in an international transaction against the “Prohibited Parties List”. This is a terms used to describe the four lists of entities with which an exporter is prohibited from doing business under most circumstances:

• The Specially Designated National (SDN List which contain individuals and entities located throughout the world that are blocked pursuant to various sanctions programs. SDNs can be front companies, parastatals, or individuals determined to be owned or controlled by, or acting for or on behalf of, targeted countries or groups. They can also be specifically identified individuals such as terrorists or narcotics traffickers. U.S persons are prohibited from engaging in any transactions with SDNs and must block any property under their control in which an SDN has an interest. The list can be viewed at www.treas.gov/ofac.
• The Denied Persons List contains the names of persons who have been issued a denial order by the Commerce Department’s Bureau of Industry and Security (BIS). U.S. exporters, and third parties in general, are prohibited from dealing with denied parties in transactions involved U.S. items. The list can be accessed at www.bis.doc.gov.
• BIS also maintains an Entities List, comprising foreign end-users engaged in proliferation activities. Since these entities pose proliferation concerns, exports to them are usually prohibited without a license. However, since the BIS guidelines are administered under a case-by-case basis, there are some listed entities that can still receive low-level technology without an export license. This list can be viewed at www.bis.doc.gov.
• The Debarred Parties List lists the names of individuals denied export privileges under the International Traffic in Arms Regulations (ITAR). The information can be accessed at www.pmdtc.org.

Question: Do I need to worry about shipping lines, insurers, and banks?

Answer: It is important for exporters to take care in screening the parties involved in servicing the sales of the product. For example, an otherwise legitimate trader transaction may be in violation of sanctions if one of the banks involved in the financing is on Office of Foreign Controls Specially Designated Nationals (SDN) List. Since the SDN List contains the names of banks, insurance companies, shipping lines, and freight forwarders throughout the world, exporters need to evaluate all parties to a trade sanction, not just the buyer or the end user. The SDN List is available at www.treas.gov/ofac.

Question: Are there countries to which I am not allowed to export?

Answer: The United States restricts exports to several countries. Certain exports, however, may be approved with a license. The Office of Foreign Assets Control at the Treasury Department has information about embargoed and sanctioned countries. Its website is www.treas.gov/ofac.