Business Law & Compliance
The legal implications of exporting
6 min read
21 May 2014
George Osborne, the UK’s Chancellor of the Exchequer, recently said: “we are backing our exporters – so that wherever you are around the world you can’t fail to see: Made in Britain.”
However it seems prudent to ask, do UK businesses understand the legal landscape to take advantage of the opportunities presented by exporting goods to burgeoning markets? Following the UK’s trade deficit hitting a 19-month low in January 2014 and with exports falling to their lowest level since June 2012, it does raise a case for clearer visibility on exporting challenges faced by British businesses.
For the Government to realise its ambition for ‘UK exports to reach £1tn, and for 100,000 more UK companies to be exporting by 2020,’ companies must consider the legal implications of doing business abroad. It is therefore critical for businesses to master the methods of exporting to maximise their competitiveness at a time when more companies are seeking to do business overseas to meet their business growth objectives.
Regulations and laws of the target market may impede access to the consumer. Businesses need to ensure that they know of any legal requirements in the target market relating to product standards, or restrictions relating to marketing and labelling of products. Different markets have different laws and so certain products may be illegal or will require an import licence from the relevant authorities in advance. Obtaining an export licence from the UK authorities may be necessary in some instances as Globalaw lawyers have frequently experienced.
Protection against risk of non-payment, product liability claims and cover against damage or loss means that insurance should be carefully considered as some jurisdictions impose strict liability.
Knowing who the customers you are dealing with can not only help your business but also your finances. No business wants to sell goods without receiving payment, so through local research you should be able to identify how your business may optimally interact with different customers. Payment upfront is always preferred but payment by a letter of credit from a reputable bank is also acceptable, although more costly.
The UK Export Finance’s (UKEF) Direct Lending scheme is an opportunity that businesses requiring financial support should consider. It is a finance scheme which supports overseas buyers and UK exports by providing up to £50m of loans to British exporters. The aim is to allow customers to pay in instalments if there are payment difficulties and so provide financial security. Low interest rates on such loans make them an attractive alternative to help finance exporting businesses.
Lawyers from the Globalaw network emphasise how important it is to establish the credit risk of potential customers before doing business with them. This can be achieved by obtaining a letter of credit from their bank and receiving feedback from other exporters regarding their experiences of working with the potential customer.
Understanding the location profile of a customer’s assets is important if a transaction goes wrong so as to identify where enforcement of a judgement will be most productive.
Sales contracts must be clear and enforceable in your target market to avoid translation issues. All valuable intellectual property (IP) should be protected by appropriate registrations in the target country to minimise IP infringement risk.
When negotiating sales contracts or terms of business, ensure that you deal with the following:
- Define the goods to be supplied;
- State the price to be paid;
- Be clear about the method of payment;
- State which party takes responsibility for the goods at each stage of delivery including who will pay for insurance and customs duties;
- Include a retention of title clause to ensure that you retain ownership of the goods until you have been paid in full;
- Delineate carefully the rights of the customer to use your IP including trademarks and patents;
- Agree how disputes are to be handled and define jurisdiction;
- Include a force majeure clause to allow you to terminate the contract in the event it becomes impossible to perform; and
- Clarify the consequences in the event of faulty goods being delivered or non/late delivery.
Finally, it is recommended that you specify the party responsible for paying any import taxes and for dealing with importation formalities in the sales contract.
VAT and other forms of sales taxes can be very tricky areas subject to complex rules. Take careful note of relevant import duties such as customs and excise duty as these vary by country and product type.
Exporting isn’t as daunting as it seems. Using reliable local professionals such as lawyers, accountants and local Chambers of Commerce, these partners with local knowledge can help you avoid many avoidable pitfalls help you to expand into new markets. You should make use of organisations such as UK Trade & Investment (UKTI) and UKEF, which specialise in supporting overseas trade. There has never been a better time for UK entrepreneurs and small businesses to reap the financial benefits of exporting abroad.