With a global economy, it is common for the sale of goods by U.S. companies to reach beyond the borders of the United States. There are some key legal issues that a company should familiarize itself with and take into consideration when extending its sales beyond the borders of the U.S. Whether you are negotiating international contracts for the sale of goods, drafting general terms and conditions for the sale of goods internationally, or determining how to protect your company during an international sales expansion, you may want to consider how your company is addressing or will address the following questions:
Does the United Nations Convention on Contracts for the International Sale of Goods apply?
The United Nations Convention on Contracts for the International Sale of Goods (CISG) may apply to your sale of goods if you are selling non-consumer goods internationally between countries subject to CISG. CISG is similar to Article 2 of the UCC and provides a structure for the establishment of contracts for the purchase and sale of non-consumer goods between countries that have adopted CISG. Unless expressly excluded, CISG automatically is applicable to the sales of non-consumer goods between U.S. companies and any other signatory to CISG. CISG does not apply to the sale of services but may apply to the sale of services and goods, if the majority of the transaction deals with the sale of goods to non-consumers.
The text of CISG is available on the United National Commission on International Trade Law website. The countries that are signatories to CISG, as well as their declarations and reservations, are published by the United Nations. This list, as well as the text of CISG, provide information to determine whether a transaction is subject to CISG.
If you determine that CISG is applicable, you should determine if the provisions of CISG are appropriate and preferred for your transaction. Please note that though Article 2 of the UCC and CISG are similar, there are distinct differences that may affect your transaction. For example, Article 2 of the UCC and CISG potentially have different outcomes under the battle of the forms. Therefore, a thorough understanding of CISG is needed to determine if CISG is beneficial for your transaction.
If CISG applies to your transaction automatically, no specific statement is needed in your contract to have CISG included, but if you prefer to not have all or some of the CISG apply, you must expressly exclude the application of all of CISG or expressly exclude the specific provisions of the CISG that you do not want to apply. Please note that simply inserting a choice of law provision that designates the application of a certain country or state’s law is not sufficient to exclude the application of CISG. CISG must be expressly excluded in your contract.
Should Incoterms® be used?
Use of the International Chamber of Commerce’s (ICC) Incoterms® as trade terms in a contract of sale can avoid confusion and allow consistency of interpretation of the obligations, transfer of risk of loss, and cost allocation between a seller and buyer of goods. Use of Incoterms in the sale of goods internationally is common and allows consistency in shipping terms regardless of the location of the shipment, delivery or destination. Incoterms can also be used for domestic transactions in the United States.
Incoterms are formulaic and consist of a three-letter code + a location + a reference to the applicable version of Incoterms (example: FCA 33 Avenue President Wilson, Paris, France, Incoterms® 2020). Most Incoterms can be used in conjunction with any mode of transportation. However, there are certain Incoterms that should only be used for sea and inland water transport. The three-letter code is key to determining each party’s responsibilities, and the location designated in the Incoterms will either be the location of delivery or destination, depending on the three-letter code used. The location should be as geographically specific as possible to avoid confusion. It is also important to include the version of the Incoterms rules that apply, as there are differences in interpretation of the Incoterms in different versions. The most recent version of the Incoterms rules became effective January 1, 2020, but Incoterms have been in use over 80 years.
Incoterms are not a substitute for a contract of sale, but they are useful as a component of a contract of sale. It is important to note that Incoterms do not address the transfer of title, and therefore your contract of sale should address this issue.
Do you have trademark protection in the countries you are selling into?
Trademark protection in the United States may not provide protection of your trademarks in the foreign markets that you are selling into. The requirements for trademark protection may differ depending on the country that you are selling into. If you are selling or plan to sell into a foreign market and your company or brand name is key to the sale of your goods, you may want to contact trademark counsel to determine if there are any barriers to selling goods under your current company name and brand names in that foreign market. Additionally, your trademark counsel can advise you as to the best way to obtain protection of your trademarks in the countries you are currently doing business or plan to do business.
Are you ensuring compliance with U.S. economic and trade sanctions?
The U.S. Department of the Treasury through its Office of Foreign Assets Control (OFAC) administers sanctions programs that restrict trade and block assets of certain individuals and countries in order to achieve U.S. foreign policy and national security goals. These sanctions programs, as well as individuals subject to sanctions, can change regularly and, therefore, diligence in ensuring compliance is needed. A list of the OFAC sanctions programs is available on the OFAC website and OFAC’s website provides searchable Specially Designated Nationals and Blocked Persons List databases. Review of the OFAC sanctions programs, searching the Specially Designated Nationals and Blocked Persons List, and performing due diligence on your customers will help ensure compliance with U.S. sanctions programs. Additionally, establishment of a sanctions compliance program that vets potential customers to ensure compliance with the sanctions is an important tool to deter potential violations of the sanctions.
It also may be helpful to insert provisions in contracts for the sale of goods that require all customers to comply with U.S. sanctions and blockades, as well as any other sanctions programs that your company is subject to due to its presence in different jurisdictions. Inclusion of such a provision puts the customer on notice that these sanctions and blockades are applicable and makes it clear that compliance with applicable sanctions and blockades is your intent as the seller. Terms and conditions of sale often include a general statement that the buyer and/or seller will abide by all applicable laws, which is good, but the specific reference to compliance with U.S. trade restrictions may be more effective in achieving the ultimate compliance goal.
The Incoterms® Rules are protected by copyright owned by ICC. Further information on the Incoterm® Rules may be obtained from the ICC website. Incoterms® and the Incoterms® 2020 logo are trademarks of ICC. Use of these trademarks does not imply association with, approval of or sponsorship by ICC unless specifically stated above.