The geographic barriers for business worldwide are no longer a factor with the internet and information technology today. Genera Energy Inc. realizes the opportunities that foreign markets can bring to bioenergy and the biomass supply industry. Similar to domestic contracts for the sale of goods or services, international contracts will need to include the essential terms such as the identification of the parties, the descriptions of the goods or services, and the price, however contracting in the international environment has some unique issues that must be considered.
Governing Law: Determining what governing law will control an international contract may be one of the most important provisions to address in the agreement. Using U.S. federal laws and your state laws are preferable, but in many situations the international party may require that the law of the foreign country control the transaction. This can be a very difficult situation to plan for with the different cultures and government regulations around the world. In recent years, the international business community has worked to develop various treaties covering all types of business transactions. One example of this is the United Nations Convention on Contracting for International Sale of Goods, also known as the CISG. The CISG is very similar to the Uniform Commercial Code (“UCC”) used at the state level for the purchase and sale of goods.
Official Language Clause: Language barriers in international transactions can be an issue during the business relationship. Written documents will need to be translated to the English language during negotiations. Translation can cause ambiguity and confusion. It is advisable at the onset to determine what language will control the written provisions of the contract. What may be common legal terms used in the United States can be drastically different from what is intended by the parties. Determine in the agreement what language will cover the agreement as well as what language will be used in any dispute resolution venue.
Dispute Resolution: Arbitration and mediation is also an important element to consider when dealing internationally. Designating rules and guidelines to govern disputes and a neutral location for handling disputes will be important factors to specify in the agreement. There are International dispute resolution rules and guidelines developed by various organizations throughout the world. The American Arbitration Association has rules for international contracts and has developed form arbitration clauses that can be considered when drafting agreements. Likewise, there are organizations that will enforce arbitration awards across borders for those countries under the treaty such as the Convention on Recognition and Enforcement of Foreign Arbitral Awards. This can be a very important tool to use to reduce risks and costs associated with traveling to international countries when disputes arise.
Taxation: Probably the most complex area to consider is the taxation on goods and services provided internationally. Most countries have developed a value added tax on goods and services that are consumed within its borders. Each country will have a set of laws and regulations as well as regional and international treaties that govern certain transactions. The European Union for example has specific provisions that apply to the sale of goods and services within the EU. You must determine if your international business party is under the EU and whether the transaction is covered by the regulations. Likewise, depending on the transaction, there may be U.S. taxation involved. It is always advisable to consult with an international tax professional when selling or purchasing goods abroad.
Genera Energy Inc. recognizes the benefits of international contracting and the planning that is involved in each business relationship. Global business raises issues that do not apply to contracts where the parties are located in a single country. The U.S. federal government regulates vary specialized and complex areas of trade across its borders. The issues discussed herein are only general provisions to consider. Trading in an international arena can be subject to conventions such as the World Trade Organization and regional relationships such as NAFTA and the European Union. Discussion of any international transaction and its specific provisions should be made with your attorney and accountant.
By Julie Anderson, Legal Business Analyst
* This blog is for educational purposes only as well as to give you general information and a general understanding of the legal issues. It is not to provide specific legal advice. The blog should not be used as a substitute for legal advice from a licensed professional attorney in your state.
