Legal Considerations in Operating in Foreign Markets I

Since commencement of some type of business activities—sales, manufacturing, logistics, financing and/or other operational activities—in at least one foreign country has now become a natural milestone for almost all growing businesses in the United States, the managers of those firms and their attorneys must expand their understanding and expertise to include "international law." 

The United States has an extensive set of laws and regulations pertaining to all aspects of international trade and commerce, including exports, imports, immigration, antitrust, inbound foreign investment, anti-corruption, embargoes, and unfair trade practice by foreign countries and firms that injure United States industries.  Companies will soon find that they are subject to regulation by a number of different agencies, sometimes with overlapping jurisdiction, and that the costs associated with compliance can quickly become material and must be factored into the level of investment necessary in order for the company to launch and maintain cross-border operations.

Before investing significant time and resources into launching new business activities in a foreign country, one must consider the impact of the following domestic laws:

  • Export Controls. Under the Export Administration Act of 1979, the Department of Commerce is responsible for implementing and enforcing controls on the transfer of items, technology, and other related services. Exporters must collect and evaluate information regarding foreign customers, comply with all applicable licensing requirements and obtain certifications from customer regarding their intended uses of controlled goods. Other types of export controls are administered by other federal agencies including the Departments of State, Treasury and Energy.
  • Anti-Bribery Laws. Compliance with the Foreign Corrupt Practices Act (“FCPA”) is a matter of concern in any foreign sales representative agreement, particularly in situations where local customs may be different from those in the United States Among other things, the FCPA, which is enforced by the Department of Justice with support from the Securities and Exchange Commission, makes it illegal for a United States exporter to "corruptly" pay or offer to pay a foreign public official for assistance in obtaining or retaining business or from paying a representative if the exporter knows that a portion of the payment will go to a public official for the same reason.
  • Import Laws. United States Customs and Border Protection, which is part of the Department of Homeland Security, is responsible for the laws and regulations concerning the importation of foreign goods. All goods imported into the United States, with the exception of telecommunications transmissions, business records and data, corpses and certain articles returned from space, must be declared to Customs. The United States also requires that every article of foreign origin or manufacture imported into the United States, with certain specified exceptions, “be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article.”
  • Immigration Laws. United States immigration laws will apply whenever the proposed business activities involve the movement of foreign employees to the United States, as might occur when a United States party forms a domestic joint venture with a foreign firm, or foreign personnel are sent to the United States for training in the manufacture of products of the United States party that will be sold overseas. Visas are necessary for entry into the United States. There are two basic types of visa: non-immigrant visas, which permit foreign nationals to enter the United States temporarily, and immigrant visas, which permit foreign nationals to live in the United States permanently.
  • Trade Laws. United States anti-dumping laws address situations where imports are being sold at prices that are below their “normal value” (“dumping”) and where, as a result, material injury is or may be caused to a domestic industry. Another trade law that complements anti-dumping laws is counterveiling duty laws, which accesses whether or not imports are being subsidized by foreign governments and whether or not the effects of the subsidy are causing injury to domestic industries. If serious injury is caused by imports of a particular product, the International Trade Commission will instigate investigations and determine the appropriate measures.
  • Antitrust Laws. The federal antitrust laws prohibit practices that restrict trade and competition between business entities and monopolization. Various federal statutes, notably the Sherman Antitrust Act of 1890 and the Clayton Act of 1914 (the "Clayton Act") prohibit contracts, combinations and conspiracies in restraint of trade; monopolization and attempts to monopolize; specified discriminatory pricing practices that injure competition among purchasers of the products; and “exclusive dealing” requirements. Section 7A of the Clayton Act, often referred to as the Hart-Scott-Rodino Antitrust Improvements Act, forbids certain acquisitions of voting securities or assets unless a prior notification has been filed with the government and the specified waiting period has expired. The Federal Trade Commission Act of 1914 outlaws any "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce." The federal antitrust laws are administered by the Federal Trade Commission and the Department of Justice.
  • Tax Laws. United States tax aspects of international business transactions can be broken down into outbound transactions, which are those involving the application of United States taxes to the foreign operations and activities of United States taxpayers, and inbound transactions, which are those involving foreign persons who may be investing or otherwise engaging in business activities in the United States. In addition, United States taxpayers doing business in a foreign country may be subject to taxation in that country and payments of foreign taxes must be taken into account in computing United States tax liability.

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

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