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Advising the Client Buying From or Selling to a Party in a Foreign Country Greg E. Mitchell Attorney at Law Frost Brown Todd LLC 250 West Main Street 2800.

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Presentation on theme: "Advising the Client Buying From or Selling to a Party in a Foreign Country Greg E. Mitchell Attorney at Law Frost Brown Todd LLC 250 West Main Street 2800."— Presentation transcript:

1 Advising the Client Buying From or Selling to a Party in a Foreign Country Greg E. Mitchell Attorney at Law Frost Brown Todd LLC 250 West Main Street 2800 Lexington Financial Center Lexington, KY (859)

2 Preliminary Practical Concerns in International Transactions Assembling the Team Doing Your Homework Protecting Intellectual Property Rights Knowing Your Partner Long-term Relationship Appreciate Cultural Differences Implementation of Export Compliance Program

3 Types of International Sales Transactions Direct Sales Agency Arrangements Distributor Arrangements Franchise Arrangements Joint Ventures

4 Direct Sales What Contractual Terms Control? Are Standard Terms & Conditions Adequate? When Does Risk of Loss Pass? How & When Do You Get Paid? What Law Governs the Transaction? What Language Governs the Contract? How are Disputes Resolved & Judgments Enforced? Who is the Ultimate Purchaser? Is an Export License Required? Is an Import License Required & Who must Obtain It?

5 International Commercial Terms: INCOTERMS 2000 Standard trade definitions published by International Chamber of Commerce Establishes rights & obligations of parties to contract of sale for delivery of tangible goods 13 different terms that address different sales conditions

6 INCOTERMS 2000 Ex Works (EXW) Free Carrier (FCA) Free On Board (FOB) Cost and Freight (CFR) Carriage and Insurance Paid (CIP) Delivered Duty Paid (DDP)

7 Methods of Payment Open Account Letters of Credit Documentary Collections Consignment Sales

8 Dispute Resolution Choice of Law Forum Selection Clause Judicial Forum vs. Arbitration Forum International Chamber of Commerce London Court of International Arbitration American Arbitration Association UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards Mediation Clause

9 Direct Sales: Other Contractual Issues Hierarchy of Documents Warranties & Waivers Security Interests Currency Selection Clause Governing Language Clause

10 Agency Arrangements Description of Products Description of Territory Exclusivity & Competing Products Marketing Obligations Payment for Services Intellectual Property Rights Licensing & Registration Requirements Compliance with Foreign Corrupt Practices Act Term & Termination Rights

11 Distributor Arrangements Price & Sales Terms Exclusivity & Direct Sales Distributor Obligations Marketing Obligations Inventory Requirements Servicing Obligations Training Obligations Intellectual Property Rights Buy-out Clause

12 Alternative Structures: Franchise Arrangement Joint Venture

13 Trade & Customs Laws World Trade Organization & General Agreement on Tariffs and Trade (GATT) Tariffs & Customs Duties Free Trade Agreements & Preferential Duty Programs

14 Tariffs & Customs Duties Tax imposed at the border on imported goods Types of Tariffs & Duties: Ad valorem tariff - % of imported goods value Specific tariff – flat per unit charge Mixed tariff – blend of ad valorem & specific tariff Tariff quotas – variable tax based on amount of imported goods Determination of Tariff: What is the classification of the imported good under Harmonized Tariff Schedule - Harmonized Commodity Description and Code System administered by World Customs Organization What is the value of the imported good – WTO Valuation Code What is the country of origin of the imported good Country of Origin Markings

15 Free Trade Agreements & Preferential Duty Programs Free Trade Agreements Agreements between member countries to reduce or eliminate duties on goods Customs laws & rules of origin vary by Free Trade Area NAFTA Preferential Duty Programs Import of specifically designated goods from designated countries with duty-free treatment Caribbean Basin Initiative Andean Trade Preference Act African Growth and Opportunity Act

16 Headlines You Dont Want to Read about Your Client Export Privileges Denied to Virginia Entities for Violations of Export Administration Regulations Telecom Company Fined $2.5 Million for FCPA Violations Individual Sentenced to 60 Months in Jail for Export Control Violations Subsidiary of US Company fined for Antiboycott Violations Major Defense Contractor Fined $100 Million for Illegal Export of Defense Articles

17 Department of Commerce, Bureau of Industry & Security Department of State, Directorate of Defense Trade Controls Department of Treasury, Office of Foreign Asset Control Food & Drug Administration Drug Enforcement Administration Environmental Protection Agency Patent & Trademark Office Nuclear Regulatory Commission US Export Controls

18 OFAC Export Controls Department of Treasury, Office of Foreign Asset Control Scope: Comprehensive trade sanction programs: Cuba, Iran, Syria, Sudan & Myanmar Non-comprehensive trade sanction programs: Belarus, Democratic Republic of Congo, Iraq, Lebanon, Liberia, North Korea, Sierra Leone & Zimbabwe Trade & investment embargos against entities and individuals designated for terrorism & narcotics trafficking Separate set of regulations for each sanctioned country Export Licenses: General license – particular export transaction for class of persons without a license Specific license – authorization by OFAC to particular person for a particular export transaction

19 BIS Export Controls Department of Commerce, Bureau of Industry & Security Export Administration Regulations – regulate export, transfer & re-export of most commercial items Regulates products with both commercial and military applications as well as commercial products with no obvious military applications Three Categories under Export Administration Regs. No License Required License Exceptions License Required

20 ITAR Export Controls Department of State, Directorate of Defense Trade Controls Regulates export of US-origin defense articles, information and services covered by International Traffic in Arms Regulations Register any export of components or technical data described on US Munitions List (22 CFR 121) Export License required if no exception under 22 CFR 123.

21 Foreign Corrupt Practices Act Federal criminal offense for any US person or entity or foreign person while in the US to make a corrupt payment to any foreign government official to obtain or retain business Anti-bribery Provisions Accounting Provisions

22 Elements of FCPA Anti-Bribery Violation An issuer, domestic concern or any foreign person in the United States who Corruptly Pays or offers to pay anything of value To a foreign official, or to any person while knowing that all or part of such payment will be offered or paid to a foreign official For the purpose of influencing the official or to secure any improper advantage In order to obtain or retain business.

23 Scope of Anti-bribery Provisions Issuer – any company that list shares on a U.S. Exchange Domestic Concern – any business that has its principal place of business in the U.S. or is organized under the laws of the U.S, its states, territories or possessions and any individuals who are citizens, nationals or residents of the U.S. Officers, directors, employees, agents and stockholders of Issuers & Domestic Concerns Foreign Persons – including officers, employees, agents and stockholders of foreign persons if they violated FCPA while in the U.S.

24 Affirmative Defenses under Foreign Corrupt Practices Act Payment or gift was lawful under written laws and regulations of foreign officials country Bona Fide Expenditures – reasonable and bona fide expenditures (travel & lodging expenses) incurred by foreign official that are directly related to: Promotion, demonstration or explanation of products or services Execution or performance of a contract with a foreign government or agency Burden of proof is on Defendant

25 Penalties under Foreign Corrupt Practices Act Entities subject to fines of up to $2,000,000 Officer, directors, employees, agents and stockholders subject to fines of up to $100,000 and imprisonment of up to five years

26 Questions? Greg E. Mitchell Attorney at Law (859) Frost Brown Todd LLC 250 West Main Street 2800 Lexington Financial Center Lexington, KY 40507


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