Australian goods and service providers have been among the biggest international movers and shakers in 2014, with Australian exports rising at a healthy rate.
If you have an eye on the potential for international trade for your business, especially in China and other expanding economies, your decision should weigh the potential benefit of entering a new market against the added costs of tariffs, customs fees and value added taxes. These can effectively double your costs, which will impact on how you choose to price your product or service.
Apart from fixing price, the most important function of an export agreement is to limit risk.
If you are newly contemplating the potential of exporting, you should entrust the work to a specialised solicitor. They will help navigate the complex legal requirements across international boundaries.
Here is our checklist of seven things to consider when putting in place an export agreement.
- Description of the goods
There are several schools of thought about how goods or services should be described, and commercial practices will vary considerably across industries. The goal, of course, is to reduce the likelihood of rejection by the buyer and ensuing litigation.
- Shipping and trade terms
This negotiation should reference Incoterms 2000, the standard trade definitions most commonly used in international contracts. Many of these terms, although similar to the terms used in domestic sales, can have quite different meanings in the international arena.
- Limiting agreement to the contract
Assume that there will be considerable exchange of inquiries and quotations about the contemplated transaction. In an international sale, the contemplated transaction may become quite specific about price, time of shipment, terms of the sale and payment. The export agreement should be explicit about whether and which of these are included in the final understanding.
Consider the role of cash up front, international letters of credit, and the risk of currency fluctuations.
- Force majeure
Which unforeseen and unavoidable events – war, strike, riot, crime, earthquake, volcano, etc. will free the parties from the legal obligation to perform under the agreement?
- Dispute resolution, including applicable law and jurisdiction
This may be the most difficult area of negotiation. It is not always wise to assume that exporters will have easy access to the courts of a foreign jurisdiction, so it is better to negotiate for a home-court advantage, if possible.
In addition, many international contracts also contain indemnification and insurance requirements to cover a breach. For example, a seller may require that the buyer pay for goods lost in shipping and indemnify the seller for the costs of litigation should the buyer breach that agreement. That indemnity may, in some circumstances, be further secured by an insurance policy.
- Fees and charges
It is vital to understand what fees and charges the exporter is responsible for and what falls to the buyer.
Rolf Howard is managing partner of Owen Hodge Lawyers. He has been in the legal practice since 1986 and a partner of Owen Hodge Lawyers since 1992. Rolf focuses on assisting clients to proactively manage legal responsibilities and opportunities to achieve competitive advantage. Rolf concentrates on business planning and formation, directors’ duties, corporate governance, fund raising and business succession. His major interest is to assist business owners and their financial advisers plan and implement strategies to build and exit from successful businesses. www.owenhodge.com.au