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3 Observations About International Business Transactions

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Observation One

Most countries, outside of the United States, are “civil code”jurisdictions. What does this mean in effect? One point to note is that from a legal perspective, civil code jurisdictions function quite differently in both form and substance from common law countries such as the U.S. and the United Kingdom.

In countries that use civil code, extensive civil and commercial codes (laws) scrutinize a wide variety of business-related transactions. For example, the existence of civil codes limits the ability of private parties to freely contract among themselves in all aspects of commercial transactions. In an Americn context, this would be hard to imagine as parties spent countless amount of time arranging contracts to benefit their bottom line. For instance, sssues such as the termination of a distributor or agency relationship are detailed at length in the appropriate commercial code, thus making for shorter contracts in countries that rely on civil code.

As a standard rule of practice, before signing a contract covering activities which will be carried out in a civil code country, establish which specific civil or commercial codes are applicable.

PRACTICE TIP: Also, the specific country where a contract is executed may be significant if one of the parties is from a civil code jurisdiction.

Observation Two

In many countries outsideof the U.S., government involvement is a significant factor in commercial transactions, even where contracts appear to be solely between private parties. Before executing documents such as agency agreements, establish whether the involvement or approval of a government authority is required. Do not rely on statements by the other party that there is “nothing to worry about”. For example, in some countries royalty rates on a technology license must be approved in advance by the government even if the contracting parties have freely negotiated the rate. Failure to comply can make the contract unenforceable.

Observation Three

Do not make the mistake of assuming the American approach to contracts and business conduct will work in foreign markets. Be sensitive to restrictive local laws favoring nationals and their interests. In the area of dispute resolution, arbitration as opposed to the use of courts is normally preferred. This will often be the case whether the contract specifically provides for arbitration or not.

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