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 CenterLexington, KY 40507

(859) 244-7548gmitchell@fbtlaw.com

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

Types of International Sales Transactions

Direct Sales Agency Arrangements Distributor Arrangements Franchise Arrangements Joint Ventures

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?

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

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)

Methods of Payment

Open Account Letters of Credit Documentary Collections Consignment Sales

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

Direct Sales: Other Contractual Issues

Hierarchy of Documents Warranties & Waivers Security Interests Currency Selection Clause Governing Language Clause

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

Distributor Arrangements

Price & Sales Terms Exclusivity & Direct Sales Distributor Obligations

Marketing Obligations Inventory Requirements Servicing Obligations Training Obligations

Intellectual Property Rights Buy-out Clause

Alternative Structures:

Franchise Arrangement Joint Venture

Trade & Customs Laws

World Trade Organization & General Agreement on Tariffs and Trade (GATT)

Tariffs & Customs Duties Free Trade Agreements & Preferential Duty

Programs

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

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

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”

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

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

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

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.

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

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.

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.

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

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

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