Many of our clients have made a great success of their domestic business and often with high-growth companies, the next step is to expand internationally by selling overseas. But if you’re planning to take your business global, what are the rules for trading internationally?
Here we’ll be covering:
- Brief Overview
- Trade Restrictions
- Product standards and regulations
- Intellectual Property and Website Considerations
- Taxes
- Export Contracts
- Choice of Law and Jurisdiction
- Language
- Pre-contract liability and oral agreements
- Uniform terms and conditions
- Exclusion clauses
- Payment
- Final words of advice when negotiating
Brief Overview
If you’ve already established a thriving business in the UK, congratulations! You’ve already got your head around issues like trading licenses and payment of taxes. You’ll also have a process in place to handle queries, returns and refunds and any product or service issues.
If you’ve now set your sights on selling overseas, what do you need to think about? What changes might you need to make to conform to local laws in the countries where your buyers are based? And how do you deal with issues like protecting your intellectual property and handling legal disputes?
Consider the likely scale of your overseas operations before you make your first sale. If your goal is for your foreign business to be a big part of your overall revenue, do some due diligence first. Visit your chosen markets to understand local trade customs and commercial practices. Get to know your potential customers in person and form a picture of their credit-worthiness. Research any laws that may apply to you and take expert local legal advice if you need to.
You can also contact businesses who are already operating in your target market and ask them what restrictions they face, and the practicalities of selling there.
Government departments like Department for International Trade and the British Standards Institution, as well as your own trade body and chambers of commerce, will also be able to provide advice and guidance.
Once you feel ready to move, you’ll need to change your terms and conditions of sale and change your processes and procedures to accommodate these. Your website will need to reflect your new international status. You’ll also need to understand some basic rules around contract formation and cultural nuances around contract negotiation.
If you’d like to know more about preparing your business to be global-ready, or need to draw up a contract for international trade, contact our team of expert commercial lawyers.
Trade Restrictions
You normally don’t need a specific licence to export products. However, some things do need permits, for example weapons, food and animal products, medicines and chemicals, artefacts and antiques. Research local laws in your target countries to understand what rules apply, and keep up to date as restrictions, tariffs and sanctions can change at short notice. Your contracts should specify who will responsible for obtaining any necessary licences. If you chose to incorporate Incoterms® (see Uniform terms and conditions below), a set of standard rules, then this may be you, depending on the category of goods.
Product standards and regulations
You may have been in business for some time and be confident that you are export-ready since your products conform to UK, EU and international rules and regulations. However, this may not be enough to meet local laws, and you should hire local experts to certify your goods as fit for sale in your chosen market, particularly in the case of foods, medicines and chemicals.
Some countries ban the import of certain products altogether, or require you to meet special conditions, or need special packaging, even within Europe. Individual countries often have special laws to protect consumers, particularly minors, and you face the risk of prosecution and fines if your products turn out to be faulty causing loss or harm.
For example, certain products like paints and buildings materials may need additional labelling in the local language so that customers are fully informed about handling, storage and safe use, and require you to label your goods using local weights and measures.
If you’ll be using an agent, wholesaler or reseller in your chosen market, ask them what terms they will impose on you. What protection will they need from you if something goes wrong, or if you fail to meet their needs? Using third parties can be very useful, as you can get them to comply with local laws, prepare export documentation, deal with customs on your behalf, and arrange for insurances, handling, transportation and delivery.
You can’t assume that the terms between you will be implicitly agreed, you’ll need to spell this out in your contract. Make sure this covers what costs are met, by whom, how and at what stage in the transaction. Never agree to pay a bribe or ‘incentive’, as this could lead to fines or even imprisonment.
Intellectual Property and Website Considerations
Although you may be confident that your business name and products are unique in your home country, when selling overseas you need make sure this is true in your new markets. Patents and trademarks registered in the UK or in Europe do not automatically apply overseas, and you should use an international patent attorney to do the necessary searches and file any new registrations.
If you’re selling online, there may be local laws on distance selling. For example, is there a cooling off period within which a contract can be cancelled without penalty when buying goods remotely? Are there any restrictions on selling to individual categories of consumer, or accessibility requirements, or even price controls? What restrictions or requirements are there in your target market on advertising and marketing? Build in some time and costs to bring your website and sales materials up to date, and signpost customers to those parts of your site that apply to overseas sales.
Taxes
VAT
If you are selling internationally, even within Europe, your goods should be zero-rated. Check with HMRC for the latest regulations. Keep records of all transactions so that these can be shown to the authorities if necessary.
Import taxes
The countries to which you are exporting may impose customs and excise duties, plus sales or value added tax. The rules can be complicated, so take specialist advice. Make sure you specify in your contract with your buyer (or your agent) who has to handle customers’ transactions and make payments.
Export Contracts
Where your overseas transactions are not likely to be significant, then you can probably just add additional provisions in your domestic terms and conditions of sale that cover exports.
If your overseas business will be substantial however, you’ll need some standard terms that apply only to export sales. International sales laws and dealing with foreign commercial practices is a complex area, and mistakes can be expensive. You’ll find it difficult to cover all eventualities within just a few special clauses in your normal T&Cs. You’ll need to ensure that you protect your business by creating a tailor-made set of export terms and conditions.
Choice of Law and Jurisdiction
UK sellers normally prefer to use English (or Scottish or Welsh) law to govern their export terms. The rules are familiar, courts are local, and there’s no need to engage translators or foreign legal advisors to draw up documents or review terms. If you want to use English law, specify this in your T&C’s and state that English courts have jurisdiction over any dispute. If you give English law exclusive jurisdiction, only English courts can hear a case relating to your contract. If you chose to allow English or foreign courts to rule over any dispute, you’ll need to take expert advice.
Even if you choose to apply English law to your contract:
- Take some legal advice in your chosen export market to make sure your choice would be enforceable
- A local court may still apply certain provisions of local law
For your overseas purchases, your supplier may insist that their local laws govern the contract terms. In such cases, you need to seek legal advice in their home country. If you are using an experienced UK lawyer, they will do this on your behalf. We have helped many clients overcome these challenges through our network of trusted international legal advisors.
Language
To a large extent, English is used widely in international business so many overseas sellers choose to write their contracts in this language.
However, don’t assume that you fully understand the nuances of the contract terms just because you understand the language. If a contract is in English, but the governing law is that of another state, certain words or phrases may have a specific legal meaning that isn’t clear on the face of it. For example, in European jurisdictions, the expression ‘in good faith’ has a particular legal significance. Take proper, qualified legal advice.
For contracts only in English, it can be possible for the non-native-speaking party to avoid liability if they argue successfully that they didn’t understand what they were signing. To avoid this, consider including a clause where this possibility is ‘waived’.
You can also include a ‘language’ clause in any contract, in which the parties agree that all dealings between them will be in that language. If you’d like to have a dual-language contract, make sure that all translations are certified as accurate and verified by a local expert.
Pre-contract liability and oral agreements
Under UK laws, and other countries that adopt the ‘common law’ approach (laws developed over time using a combination of written laws, further interpreted and developed by judges), a written agreement is considered to be a final statement of legal intent by the parties.
What this means in practice is that neither side can depart from the contract wording except in exceptional circumstances. So, if you’ve been having email correspondence, face-to-face or calls with your customer or supplier in which certain terms are agreed, unless these terms appear in the contract itself, they won’t be enforceable.
In countries using a ‘civil law’ approach (such as France and Italy), most transactions are governed by a set of legal rules or codes. Civil law countries often take a different, more flexible approach, in which pre-contract negotiations can be considered as evidence in the case of a dispute to help the judge or arbitrator discover the true intent of the parties to a deal.
For this reason, and because in the laws of most countries, contracts don’t have to be written down to be enforceable, you must be very careful what you agree to in pre-contract negotiation, whether that be on a call, or in an email.
If your contract is complicated, then you may choose to move forward with a pre-contract agreement or letter of intent that outlines the main terms between you. Make sure that these are expressed to be ‘non-binding’ so that you don’t find yourself agreeing to transaction terms that you’re not fully on-board with, pre-contract.
Uniform terms and conditions
There are some internationally recognised standard terms and conditions for export sales that you can use for foreign transactions:
Incoterms®
These rules are published by the International Chamber of Commerce and are a uniform set of rules for the interpretation of trade terms. You can apply all or a part of these rules into your sales agreements, and they describe the obligations of the parties in respect to certain common aspects of international sales, most particularly issues of insurance, transfer of risk, carriage and loading/unloading of goods.
Uniform laws
The Uniform Law on International Sale of Goods and the Uniform Law on the Formation of Contracts for the International Sale of Goods are uniform codes that you can choose to incorporate into your contract, although these haven’t been widely adopted.
The Vienna Convention
The Vienna Convention on Contracts for the International Sale of Goods is another set of rules that were introduced in an attempt to streamline international sales of goods contracts. The UK has not ratified these terms, although some countries such as the US, China, Australia and the US have, so if you are trading with these countries you may see these terms referred to.
Exclusion clauses
The Unfair Contract Terms Act (UCTA) does not apply to international sales contracts, but local laws may impose similar restrictions on your ability to enforce certain clauses that attempt to limit your liability. Moreover, if you have chosen to apply English law to your contract, there are certain common law rules of English law that may control your ability to exclude liability, for example for negligence on your part.
Payment
With new banks and methods of payment springing up every day, it should be relatively easy to arrange for transfer of funds. You may not find it so easy to receive payment in advance of the receipt of goods, and this does expose you to a certain degree of risk of non-payment.
There are other internationally recognised ways of securing payment, including letters of credit and collection arrangements. Both of these involve the involvement of a bank as a third party and might involve certain costs. Your payment requirements should be specified clearly in your contracts for sale, as well as in which currency you require payment to be made.
Final words of advice when negotiating
- Before you start trading, take time to understand the cultural nuances of the country you’ll be targeting. These can be quite small, such as body language, respecting certain hierarchies within an organisation during negotiations, and allowing for time pre-negotiation to exchange pleasantries. If you offend, it can be hard to pull back from this later
- Respect differences in time zones when negotiating, and don’t neglect the importance of face-to-face meetings. Schedule calls at mutually acceptable times
- Don’t expect foreign traders to appreciate common terms in UK contracts like ‘force majeure’ or limitation of liability. They may be surprised by them, so take time to appreciate their point of view, rather than taking a steam-roller approach
About our expert
