Business Law 101 / International Trade

By Albert L. Kelley

In today’s global economy, international trade is required for many businesses. No longer is a small business limited to sales in a local neighborhood. With the growth of the internet, sales to foreign nationals is increasing. With this, of course, comes a whole set of legal issues. For example, whose law will apply to the sale? Whose currency will be used to pay? Where will litigation take place? All these and more must be taken into account when trading in foreign countries.

Much of international trade is governed by treaties. A treaty is an agreement entered into between different countries to spell out agreements between them and their citizens. The United States is a party to numerous treaties and other international agreements. A recent example is the Trans-Pacific Partnership trade agreement between 12 countries on the Pacific Rim.

In order to participate in international trade, a company must decide how it will act in the foreign country; that is, what business style shall they use to sell their products. The simplest way is to make a direct export sale. In other words, a buyer in another country simply orders the item from the United States supplier. The business makes the sale in the United States, even though the recipient is elsewhere. There are some concerns the merchant must be aware of which we will discuss later.

If the U.S. company wants its products to have a presence in the foreign country, they can hire an agent to represent them. This subjects the company to taxation in the foreign country, as well as other potential liabilities as they are actually doing business in that country.

The company can also find a foreign distributor. Here, the distributor purchases the items from the U.S. company and bears any financial risk for them. In a similar manner, the U.S. company can license a foreign company to sell items bearing the U.S. companies trademarks, or using the U.S. company’s technology.

There are numerous governmental regulations that apply to international trade. More than we can list here. Before a company can start exporting goods to another country, they must determine if they need to obtain a license. The license is based on the item being exported, not the company. Generally, no license is required unless the Department of Commerce has issued a specific regulation requiring a license for a particular type of item. Some items may be freely exported, some may be exported only to certain countries, some may be exported only for certain purposes.

Exports are also restricted for foreign policy reasons. The best example we see here in Florida regards trading with Cuba. Due to our policy not to support a communist regime, trading with Cuba was highly regulated and subjected violators to serious federal criminal sanctions. However, this restriction is also being lifted.

Import/Export laws also help us protect our citizens from unfair competition. A company that registers their trademark with the Patent and Trademark Office, may be entitled to prevent any other product bearing that mark from being imported into the Country.

The most frequently used tool to prevent imports and exports are tariffs. These are also known as duties or import taxes. The tariff is enforced by the United States Customs Service at the port of entry. Part of the purpose of the tariff is to increase the price of the imported good to make it commensurate with similar goods produced within the United States.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is also the author of “Basics of Business Law” and “Basics of Florida’s Small Claims Court” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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