Arkansas District Export Council Export U Identifying and Managing Overseas Representatives International Contracts March 1, 2012 Margaret Jones Hopson Jackson Walker L.L.P

What We Will Discuss General Considerations in International Dealings Due Diligence In Addressing Legal and Cultural Concerns Standard Contract Terms and Conditions Questions & Answers

General Considerations in International Dealings What is International Law? International law is a body of laws that governs the relationships between countries (Public International Law) and between persons or entities located in different countries (Private International Law). We will be discussing Private International Law.

General Considerations in International Dealings

In today's global economy, American business owners find themselves more and more interacting internationally. The following description of the many ways to export illustrates how global U.S. business can be (and this is only exporting!). The following basic vehicles are available for exporting of products: (1) direct sales to foreign buyers (2) sales through commercial agents or sales representatives (3) sales through independent distributors (4) a proprietary distribution system (5) franchising (6) licensing of technology, and (7) setting up foreign branches or subsidiaries.

What is the difference between an Independent Distributor, Commercial Agent and Sales Representative? Distributor: * buys products for its own account; is compensated by the markup it receives upon resale to its customers * is authorized to sell products in designated territory and bears all commercial risks associated with the sale Commercial Agent and Sales Representatives: * do not buy or sell goods or services for their own account * are authorized to solicit orders in a designated territory; are compensated by a salary/commission * usually bear no credit risk with respect to the customers

Independent Distributor, Commercial Agent and Sales representative- Contract Concerns The importance of having a written contract when conducting international business transactions with each is important. Due to FCPA concerns, it is even more compelling with commercial agents, sales representatives.

Is there any law that governs the sale of goods between parties located in different countries? The United Nations Convention on Contracts for the International Sale of Goods governs the formation of international sales contracts between parties whose places of business are in different contracting countries (unless the parties specifically "opt out" of the Convention in the contract). This is important to know, because in some instances, you may want to opt out.

Do I need an export license? This is a very complicated area, and cannot be dealt with in today's program. You should know generally that there are strict US export control regimes that apply to most exported items: (1) Bureau of Export Administration in the U.S. Department of Commerce, which controls the export of dual-use items; (2) DDTC in the U.S. State Department, which controls ammunitions and arms; and (3) U.S. Department of Agriculture which controls the export of livestock, dairy and poultry items.

Do I need an export license? Most often, you will be dealing with the BIS/EAR, which: Controls the export and re-export of dual-use commodities, technology and software For reasons of national security, foreign policy, non- proliferation or short supply. In order to determine whether any dual-use item requires an export license, you must classify the item against the Commerce Control List (includes items subject to the export licensing requirements), and the Commerce Country Chart (contains licensing requirements based on destination and reasons for control).

Do I need an export license? Caveats: Even if your item is not listed, there are certain countries you may not export to. Currently, most restricted destinations are: –Cuba –Iran –North Korea –Northern Sudan, and –Syria. You must always check the "bad boy lists" (See BIS Website)

What is the Foreign Corrupt Practices Act? The FCPA prohibits payments to foreign government officials for the purposes of obtaining or retaining business or for directing business to any person. The anti-bribery provisions of the Act apply to U.S. citizens and residents, businesses incorporated in the U.S. or having their principal place of business in the U.S., and directors, officers, stockholders, and employees of these entities. You cannot do through an agent what you cannot do directly. Certain parts of the world are more subject to FCPA violations than others- e.g. Latin America.

Due Diligence in Addressing Legal and Cultural Considerations

Due Diligence (DD) is Key to Addressing Legal & Cultural Considerations No matter which resources you use, whether people or documents, verify credibility. Create an alliance or relationship with a trustworthy foreign based contact or contacts. Do due diligence on those contacts.

Due Diligence Invest at least 1-3 hours of research on each contact. Research name, addresses, legal actions, property ownership, how many other people have that name in that nation, region, province, city, etc., talk to references and ask those references for additional references. If possible, meet contacts in person.

Due Diligence More specifically, if you have a trusted resource that makes recommendations for you, then that could = DD –Use the chambers of commerce, government agency or private company resources, matchmakers, databases, etc.

Legal & Business Climate Must understand the differences in their legal system versus ours Is it a common law nation? Do they have a uniform code of commercial Do they respect property rights/ownership? –Real property –Intellectual property

Legal & Business Climate If you use overseas human resources/human capital then what laws apply to your treatment of them? Does our system of business entity designation mean the same there as is does here? –i.e., is a corporation, partnership, trust, etc., treated the same there as here Does the country, state, region or province honor/uphold/enforce contracts between individuals or businesses? – How are contracts or agreements honored, upheld, enforced or terminated?

Government Structure Must understand the differences in their government structure and bureaucracies – How long does it take to obtain the needed recognition or licensing to legally conduct business? –What agencies/bureaus license? –What licenses, certifications, etc. are required? –What are the fees? When are fees due?

Commonly called: Merger/entire agreement/complete agreement clause Effect: This clause indicates to the reader that the parties have no agreement other than the agreement containing the merger clause. The effect of this clause is that one agreement only governs the parties’ relationship. Example: “This agreement represents the parties’ entire agreement.”

Commonly called: Modification clause Effect: This clause generally requests that two contracting parties memorialize their modification in a writing that both sign. Example: “The parties may modify the contract only by an agreement in writing signed by both parties.”

Commonly called: Employee or independent contractor clause Effect: In a contract for services, this clause identifies whether one of the parties will be considered an employee or independent contractor. The greatest difference is that employers are responsible for certain financial and liability matters for employees, where those who hire independent contractors are not responsible for the same matters. In summary, an employee means more employer control but also more employer liability. Example: “Mr. X will act only as an independent contractor for the ABC corporation. Mr. X is NOT considered an employee of the ABC corporation for the purpose of this contract for services.”

Commonly called: Confidentiality clause Effect: A confidentiality clause or agreement defines what confidential information is, who must keep it private, and what the consequences of disclosure are. Confidentiality clauses may have exceptions relating to publicly known information or where the other contracting party consents to the disclosure of otherwise confidential information. Example: “Mr. X, independent contractor, will not disclose confidential information obtained through Mr. X’s scope of services for ABC corporation.”

Commonly called: Conflict of interest clause Effect: A conflict of interest clause restricts a contracting party from engaging in relationships, transactions, or circumstances external to the contract at issue. The purpose of the clause is to prevent a conflict of interest from arising between the contracting parties. A conflict of interest issue may arise due to a party’s personal situation or position. Example: “Contractor has disclosed any interest that presents or may present a conflict of interest. Contractor will disclose any actual, apparent, or potential conflict of interest that arises throughout the term of the parties’ contractual relationship.”

Commonly called: Choice of law clause Effect: A choice of law clause identifies where the contracting parties prefer to litigate issues arising from the contract. Usually, the party who drafts the contract chooses the applicable law. Other jurisdictional issues may become relevant in the future if litigation arises. Example: “The laws of the State of Delaware will govern this contract.”

Commonly called: Dispute resolution clause (commonly involving arbitration and waiver of jury trial) Effect: These clauses tell the reader whether either party has waived some type of dispute resolution option. A contracting party may want the other party to opt out of certain dispute resolution options in light of likely costs and inconveniences. Example: “ABC corporation agrees to resolve all matters arising from this contract through arbitration.”

Commonly called: Severance clause Effect: This clause refers to the situation where a court determines that part of the contract is illegal or unenforceable. The clause states that in this case, the validity of the remaining portions of the contract is unaffected. Example: “If any of the provisions of this agreement contravene or are invalid under state or federal laws, this finding will not invalidate the whole agreement.”

Commonly called: Indemnification clause Effect: This clause states that one contracting party will indemnify (reimburse) the other for failure to meet a contractual obligation or other illegal or damage-causing action. Example: “ABC corporation shall indemnify, defend, and hold DEF corporation harmless from any and all liabilities, damages, penalties, claims and expenses (including defense and settlement costs) resulting from any breach of this agreement.”

Questions and Answers