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 transactions include for example:
International Sales Contracts
International Distribution Agreements
Intellectual Property Licenses
Letters of Credit
Joint Venture Agreements
Key considerations for international business transaction contracts include:
Choice of Law
The law applied to an international business transaction can largely vary based on legal heritage, culture, language. For example, the application of Texas law to an international business transaction contract would likely lead to a different result than application of Brazilian law. Therefore, parties choosing law acceptable to both of them, can better anticipate how the international business transaction provisions will interpret.
Also, the Uniform Commercial Code (UCC) governs most domestic contracts. Almost every state has adopted the UCC as a harmonized system of commercial laws. 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 clauses excuse default in transactions. For example, a party may be excused from contractual obligations without punishment if certain unexpected events occur. 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.
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). The International Chamber of Commerce, or ICC promulgates the terms.
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.
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. U.S. companies can be liable for violations of 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.
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