Taking Your Small Business International Text Size:

International business transactions can be split into two categories:

• International trade, that is, imports and exports, and
• Foreign investment

Knowing the ground rules and preparing properly for doing business in another culture, with its own rules, politics and traditions, can make for profitable business. Taking your small business international is a complicated process, however, that is governed not only by U.S. laws, but also by the laws of other countries.

If you're considering doing business internationally, be certain to check all of those laws to make sure you do business properly, or get some help from an experienced business law attorney.

Imports and Exports

It's easy to think that importing and exporting are just the opposite sides of the same coin in international trade, but that's really a dangerous oversimplification.

Exporting is when you send your goods or services to another country. An export license is needed for certain types of goods, including some chemicals, software, electronic devices, and computer components. Licenses are issued by various agencies of the U.S. government.

You're responsible for determining whether you'll need an export license. The federal government, however, provides a lot of support in this area, simply because exporting helps create American jobs and lessens the trade imbalance.

The federal government helps exporters in other ways, as well. For example,

• The National Trade Data Bank can provide you leads for business. For example, a Vermont furniture exporter can find leads for furniture buyers in Switzerland, France and Germany
• The Department of Commerce can point an exporter to services such as export finance and political risk insurance, as well as volumes of government publications on other international trade issues, such as shipping, warehousing and insurance
• The Export Legal Assistance Network provides lawyers to answer export questions, and the first call is free

In addition to restrictions imposed by the U.S. government, you need to make sure that the other country will let you send your goods or services into it, as well as whether there are any special rules with respect to your product. For example, there might be no restrictions on computer software, but there might be many restrictions on firearms.

Importing is when you bring goods or services into the U.S. and sell them. For the most part, the U.S. Customs and Border Protection (Customs) division of the Department of Homeland Security enforces the laws on importing. However, permits are often needed from other government agencies. For example, if you import alcohol you have to satisfy the requirements of the U.S. Bureau of Alcohol, Tobacco and Firearms.

Under the policy of "informed compliance," you, as the importer, have the burden to learn the rules for bringing in goods. Customs makes the necessary resources available—to a point—and the law requires that the importer take advantage of them. Ignorance of the law is no excuse.

Informed compliance boosts the risks that the importer faces, from seizure of goods to potential civil penalties, even criminal liability. Civil penalties for underpayment of customs duties range from two to eight times "loss of revenue," depending on whether the underpayment was the result of negligence, fraud or some level of liability in between.

You have to pay taxes or "duties" on just about everything you import. Duties vary, depending on where the imports originate. Most favored nations get reduced rates, while others do not, and imports from some other countries are forbidden altogether for political reasons.

Foreign Investment

While international trade involves goods, foreign investment involves money—risking capital in another country in the hope of reaping profits. The major issue in foreign investment is protecting the investment. The risks are almost innumerable, especially in an emerging free-market economy. Wise foreign investors have a good grasp of both the legal and cultural climates of the country in which they are investing.

International Contracts

Contracts for the international sale of goods are not that different from those for selling goods domestically. In the absence of a treaty, foreign countries respect each other's court decisions, if at all, only as a matter of courtesy. Since contracting parties should anticipate the possibility of disputes, they should include provisions in their contracts controlling things like which country's law should apply.

Manufacturers typically sell goods overseas through agents and distributors. An agent is usually commission-based, and works essentially as a broker. The manufacturer sets prices and terms. A distributor, on the other hand, actually buys the goods from the manufacturer, and can therefore set its own prices and terms.

Whether you sell your goods internationally through an agent or a distributor (or if you're the agent or broker), the rights and responsibilities of the parties should be clearly set out in writing, including things like:

• The identities of the parties.
• The duration of the agreement. Many countries limit the ability of a party to end an agent or distributor agreement.
• The agent or distributor's territory.
• The products or services to be sold, and the prices to be charged for them.

Questions for Your Attorney

• What can happen if I import or export goods without getting the proper authorization?
• Should I hire someone in Mexico to sell the goods that I'm exporting there?
• If someone in Mexico says he or she got hurt by using a product I exported to Mexico, can he or she sue me?

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