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Article from ITRISA

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When it comes to international trade, are legal matters best left to the lawyers?



Should those involved in international trade activities – whether it is exporting or importing products, or rendering services to the export/import community – steer clear of all the legal aspects associated with such activities, rather leaving these to the experts?  Or should they have some rudimentary knowledge of the laws they will face? After all, the law is a complex domain requiring much specialist knowledge and expertise.

Abdicating the legal side of one’s international business affairs to a lawyer, however, would mean that the lawyer’s costs would have to be added to the final cost of each transaction, eroding competitiveness and profits at the end of the day. It would also slow down the transaction time tremendously. But most importantly, it would deprive international trade practitioners and their agents of the knowledge and experience needed to be efficient and responsive in today’s pressurised global environment. 

All business people with any degree of accountability should have an appreciation of the legal ramifications of their actions, otherwise they will be exposing themselves and their companies to a great deal of risk. Unfortunately, it is often only when things go wrong that people start thinking about the legal nature of their commercial activities. But at this late stage, the whole business relationship with a trading partner or service provider could have been compromised. It is far better for business people to be forewarned with appropriate knowledge of the legal impact of their actions – and thus be forearmed.

This is not to say that the legal profession does not have an important role to play in international trade. After all, maritime and intellectual property law specialists are becoming more influential these days as international business dealings grow in number and complexity. Legal experts also assist governments in negotiating bilateral and regional trade agreements, and are often called upon to unravel other countries’ environmental and health regulations on behalf of prospective exporters, importers and investors. But there is much that business people can do on their own without the direct intervention of the legal fraternity. For example, most international sales contracts are concluded upon the acceptance, by the importer, of the exporter’s quotation. This is standard procedure for which the advice of lawyers is rarely sought. Similarly, insurance, payment and multimodal transport contracts are typically concluded between exporters/importers and non-legal, administrative personnel working at insurance companies, banks and freight forwarding concerns. 

As international trade activity is dominated by contractual relationships, it is important to know how contracts come about. For example, the validity of any contract rests on four fundamental criteria: capacity, possibility, legality and consensus (meeting of minds).  Understanding this can go a long way towards ensuring that a company’s business dealings with local and international entities get off to a good start. Furthermore, the execution of an international business transaction is likely to be less problematic if the parties are sensitised at the outset to what would constitute unacceptable performance in a legal sense and the penalties that a breach of contract could attract.

When business is being conducted at an international level, language barriers and different national legal systems can complicate things. In recognition of this, much work has been done over the years by selected international organisations to standardise and/or harmonise the rules associated with contractual undertakings. The intention has been to simplify the contractual process so that international trade practitioners do not have to rely so heavily on the legal profession, and the risk of errors and misunderstandings (and thus disputes) is reduced. For example, the almost universal application of the ICC’s Incoterms in international sales contracts, the use of standard ISO container sizes and currency codes throughout the world, and the frequent adoption of the ICC’s Model Commercial Agency Contract and Model Distributorship Contract all point to the merits of these trade facilitation initiatives.

A lawyer’s services might be required when a company is venturing into specialist terrain – e.g. when it wishes to register a patent or trade mark, or grasp the legal consequences of setting up an off-shore operation. Also, large companies which are very active at an international level tend to need legal advisors more than smaller companies because of the relative complexity of the former’s operations. However, smaller companies often still need expert advice in the area of intellectual property rights protection, and the structuring of licensing or agency agreements. Furthermore, if disputes arise between contractual parties which cannot be resolved in a mature, business-like manner, then legal advice or representation might be a good idea. As a rule of thumb, legal experts should be approached on specialised matters or where a business relationship has broken down and all other options for resolving the impasse in a civilised manner have been exhausted. 

At the end of the day, becoming better acquainted with the law (its scope, principles and jargon) is not only within the grasp of most logically-minded individuals, it is also an empowering experience which could well become a competitive advantage.

Ali Parry, Director
International Trade Institute of Southern Africa (ITRISA)
Now accepting enrolments for the 2010 programme in international trade

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