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Advising the Client Buying From or Selling to a Party in a Foreign Country

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 40507 (859) 244-7548 gmitchell @fbtlaw.com.

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Advising the Client Buying From or Selling to a Party in a Foreign Country

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  1. Advising the Client Buying From or Selling to a Party in a Foreign Country Greg E. MitchellAttorney at Law Frost Brown Todd LLC250 West Main Street 2800 Lexington Financial Center Lexington, KY 40507 (859) 244-7548gmitchell@fbtlaw.com

  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 • www.iccwbo.org/incoterms

  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 good’s 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 Don’t 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. US Export Controls • 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

  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 official’s 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. MitchellAttorney at Law (859) 244-7548 • Email: gmitchell@fbtlaw.com Frost Brown Todd LLC • 250 West Main Street • 2800 Lexington Financial Center • Lexington, KY 40507

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