Legal Issues Associated with International Activity

Estimated duration: 2hrs

Introduction

There are many things to be aware of when it comes to the legal aspects of international trade activity. In this course, we will cover the 5 more salient areas.

  1. Trade Restrictions
  2. Overseas Legal Environment
  3. Product Law
  4. Taxes
  5. Intellectual Property

Trade Restrictions

Determine whether you require an export license to do business with your target market. Most products can be exported without an export licence, but you may well need a licence for weapons, products with potential military use, food, animals and plants, medicines and certain chemicals, and antiques. Whether you need a license will depend on the country you are exporting to. From time to time, governments may impose sanctions prohibiting certain exports to a particular country. It is your responsibility to trade within the law of your country and that of the buyer and to familiarise yourself with what is current.

You may need an import license, depending on the country you are selling to and the product you are selling. Some countries ban the import of certain products altogether, and you must be aware of this.

Image-overseas-legal-environment

In order to progress your export activity efficiently you should determine what the commercial practice is in your buyers’ market:

  • Determine the usual credit terms and payment procedures.
  • In the event of a dispute how will you set about enforcing your rights in local courts? Is there evidence that others before you have been successful?
  • Investigate the customer’s reputation and creditworthiness. You may want to visit your buyer to assess and develop a relationship.
  • Have other companies in your own country had any experience of dealing with your target market and/or buyer? Ask your industry representative or Government Agency for information.
  • Check any legal requirements before visiting the country. Are there specific passport/VISA requirements that must be met.
  • What are the prevailing currency controls?
  • Are there restrictions on where you can go and whom you can meet while in the target country?
  • Are there restrictions on forming a business unit in your target market? There may be minimum/maximum amounts of finance that you can invest. Know this ahead of your investment, as afterwards it will be too late!

If you plan to employ locals in the target market, what are the rules pertaining to employment – how easy/difficult is it to hire/fire people? It can be difficult to fire individuals and realise the value of your assets if you later decide to cease trading.

Product Law

This may sound obvious but you need to determine if there are specific regulations attached to products such as yours, in your target market. Standards may well be different – you may find that your product specifications are too high/too low for the target market. You need to know this before you send your product out – in fact, you need to know this before even producing the product for your export order. This will save time and money.

Different countries may have their own standards for particular products. This could mean that even if your product meets, for example, EU or International Standards, this may not be enough. You can only sell if your product is legally acceptable in the target market – no matter how good you believe your product to be.

Your product may need to be certified to state that it meets the appropriate local standards. In some cases, the product must be tested and certified by an approved organisation in that country. This will take time, and this will need to be built into your export strategy, as it can delay significantly your cash-flow expectations. All products are targets here, but especially food and pharmaceuticals.

Check what other product regulations there are, for example, you may be required to label products in the local language, using local weights and measures. You need to do your homework. 

You might face prosecution if you sell products that fail to satisfy local product safety laws.

Your customers may be able to sue you if they suffer any harm or loss from a faulty product you sell.

If you are selling to a distributor, such as a wholesaler, they may want you to indemnify them against any legal claims their customers may bring against them.

Check whether you will be in conflict with any local intellectual property rights.

If another business has registered a local patent covering a similar product or has a trademark similar to yours, you may not be able to export to that country. If you do, you risk legal action against you for infringing on their intellectual property.

Research local laws on marketing and selling.

For example, there might be restrictions on advertising or on selling to minors, or price controls on particular products.

If you are selling to consumers (rather than businesses), you must comply with any local consumer protection laws. Local laws will apply even if you are selling by mail order or through your website.

Taxes

You must ensure that you are within the law at all times and that you are tax compliant. Check things such as the VAT rates that are applied. If you are selling within the EU, you must record the value of these exports in your VAT returns. You may also need to make Intrastat declaration if your exports or imports exceed a specified annual threshold. If you are exporting outside the EU, you must keep numbered invoices and records giving details of all transactions.

What are the import tax requirements in the target market? Import taxes can include customs duty, excise duty (for products like alcohol), and some form of sales or value-added tax. The rate of duty you pay will be set by the destination country. Taxes vary from country to country and depend on the particular product. You may also have to pay VAT on any import duty. Within the EU, goods are usually ‘in free circulation’. There is no customs duty, and VAT can be handled automatically. Your contract with the customer must specify who is responsible for handling customs clearance and paying any import taxes. Experienced traders can apply for Authorised Economic Operator (AEO) status, an internationally recognised quality mark. AEO status offers benefits such as fewer customs inspections, less paperwork and faster customs clearance. If you have a legal presence in the target market you may be liable for tax on your profits.

Intellectual Property

Intellectual Property is a general term for the set of intangible assets owned and legally protectable by a company. It is critical for organisations to recognise IP as a valuable corporate asset and to mitigate potential risks associated with IP infringement in order to ensure business viability. This is particularly true when it comes to your export activity.

IP is traded every day between people, nations and industries to the benefit of the global economy. Every effort must be made to protect owners’ rights while simultaneously advancing shared accessibility. Around the world, everyday products are counterfeited or re-engineered with small changes and then patented as if they were new inventions.  Your company must be aware of the risks associated with another entity in the target market, abusing your IP rights. It is advised that you devise strategies to deal with reduce and/or eliminate this risk. It may be necessary for your company to engage experts to assist you in your efforts, in fact, it is best that you do so.

What can you do to protect your IP?

So, what can you do to protect your IP? There are 4 areas that you need to know about.

  • A.   Registering Copyrights/Trademarks and Applying for Patents
  • B.   Establishing Contractual Security
  • C.   Implementing Security Measures
  • D.  Acquiring Insurance

Registering Copyrights/Trademarks and Applying for Patents

Organisations may need to register any relevant copyrights/trademarks and apply for relevant patents in the target market(s). Every target market will have its own rules and processes. For more information on how to register copyrights/ trademarks and apply for patents in a particular market, organisations should engage a trademark or patent agent or the Intellectual Property Office of the target market. Once a market has been chosen, the timing of these applications can be critical, so the application process should be initiated as soon as possible. Again take legal advice.

Establishing Contractual Security

Organisations may need to register any relevant copyrights/trademarks and apply for relevant patents in the target market(s). Every target market will have its own rules and processes. For more information on how to register copyrights/ trademarks and apply for patents in a particular market, organisations should engage a trademark or patent agent or the Intellectual Property Office of the target market. Once a market has been chosen, the timing of these applications can be critical, so the application process should be initiated as soon as possible. Again take legal advice.

Establishing Contractual Security

You may seek to protect your  IP through carefully constructed legal contracts. Contracts that protect IP include the following features:

  • Non-disclosure agreements (NDAs), ensures that employment agreements, licenses, sales contracts, and technology transfer agreements protect IP from the onset.
  • Clauses covering IP, such as a clear ownership clause.
  • Once the contracts are established, organisations should regularly engage with their business partners to emphasise the importance of those clauses to the ongoing business relationship and to ensure that partners fully understand what those obligations mean for both parties.

Implementing Security Measures

You may want or need to strengthen your security procedures when getting involved in a new international venture. This can help to quickly identify unauthorised or malicious activities by internal and external parties. Security strengthening practices can include the following examples:

  • Conducting background checks on key personnel/partners.
  • Restricting IP access to essential parties, contractors, or supply chain partners – Prohibiting unauthorised copies of IP, e.g. on USB devices, shared network drives.
  • Encrypting all IP that is transmitted digitally and electronically.
  • Physically locking areas where IP is stored.

Acquiring Insurance

You may want to transfer some of your IP risks by acquiring insurance. Intellectual Property Insurance typically protects against the significant legal costs that will need to be paid if you were to pursue an IP claim through the court system in the domestic and/or foreign market. It can cover both enforcing and defending claims:

  • Enforcing claims against infringers who breach your IP. This deals with legal costs relating to IP breaches and includes damages, such as loss of profits or reputation and settlements to any IP right domestically or internationally. 
  • Defending infringement claims made. This includes infringement claims as well as claims made against your buyers, customers, or licensees. Infringement claims often refer to a violation of copyright or some other type of IP theft. The claims are often based on plagiarism, meaning someone steals the creative work of another person.  

Exercise

Take 30 minutes to address the following task.

Thinking now of your own business venture, what aspects of dealing with the legal aspects of foreign activity do you see as impacting most upon you and your company, and why?

Now take another 30 minutes on this task.

Using the material from the section on Intellectual Property what can you do to protect your IP rights when in a foreign market?

Malta Commerce Department – Export License

EU Access2Markets

Product-by-product information on, tariffs and taxes, customs procedures, rules of origin, trade barriers, product requirements, and statistics for all EU countries and for more than 120 export markets around the world.

ITC Market Access Map

Identify customs tariffs, tariff-rate quotas, trade remedies, regulatory requirements and preferential regimes applicable to your product worldwide.