Note: The rules and law may have changed since this article was first published. It is provided for archival purposes but you should consult with your lawyer for the current state of the law
Before signing that agreement to sell hockey sticks in Mexico, every businessperson conducting work abroad should be aware of all the possible risks. Here are five strategies to ensure that the hombres in Guadalajara are hitting the top corner every time.
1. Examine International Treaties
The UN Convention on Contracts for the International Sale of Good of Goods (CISG) aims to be an international uniform sales law, regulating the rights and obligations of buyers and sellers in international transactions for the sale of goods. By conducting business in a signatory CISG country, you are decreasing your risk significantly. Although more than 70 countries have ratified the CISG, not all countries are signatories. The notable countries which have not signed the CISG include India, Brazil and the United Kingdom. Incidentally, Mexico is a signatory to the CISG and it might be worthwhile to specifically incorporate the CISG into your agreements to keep them brief but enforceable.
Successful Saskatchewan companies conducting business abroad will inevitably need to repatriate profits back into Canada. To minimize taxes, examine all applicable double taxation treaties when establishing your business abroad to ensure that the most tax-efficient structure is used for your business. If the country you are doing business in has a double taxation treaty with Canada, you will likely be able to avoid the risk of excessive taxation by avoiding the imposition of two (or possibly more) taxes on the same income. The Canada-Mexico Income Tax Convention was signed on September 12, 2006 so even if the robust sales of your hockey sticks are due to their utility in pounding the piñata, you can rely on this international convention to avoid being taxed twice on this income.
Although international trade agreements, such as NAFTA, MERCOSUR or ASEAN generally operate at the state level and apply to larger companies, certain provisions help small and medium sized businesses avoid risk. For example, if we made the decision to outsource hockey stick production to supply the Canadian market, we could minimize risk considerably by outsourcing to Mexico where access to, and shipping from, Mexico is assured by NAFTA.
2. Plan for Unforeseen Challenges
There are very significant differences in the legal systems of other countries – in fact, most jurisdictions are civil law systems as opposed to common law systems such as in Canada, the United States and the UK. Even within common law systems there can be very significant differences, such as the principle of sovereign immunity in Texas and the precedence of EU law over national law in the UK. To minimize risk, Saskatchewan companies must ensure that the judicial system in the jurisdiction they are doing business in is adequate to enforce their rights. For example, the civil law system in other countries may be more susceptible to corruption and you may want to include additional anti-corruption language in your agreements and vet your business partners more critically.
In any agreement between international parties it is critical to negotiate the “choice of law” clause. Your starting point will be to have Saskatchewan law apply. However, this is often not possible to negotiate. In any case, you will want to ensure that whatever your choice of law, that jurisdiction has a functioning, reputable legal system which will protect your rights. In some cases, a third country which has an established and stable legal system may be used. For example, if signing an agreement to sell hockey sticks in Mexico is dependent on agreeing on a choice of law, you may want to compromise and incorporate US law instead of either Mexican or Canadian law.
A lawyer with experience working abroad can help Saskatchewan companies map out all contingencies and ensure that agreements address every problem you may encounter abroad. When working abroad, it is absolutely essential to keep an open mind and know that in spite of all the meticulous planning you have done, unforeseen challenges, such as a more informal attitude to deadlines and time, will inevitably arise.
3. Protect your Intellectual Property
A critical risk for many Saskatchewan companies, particularly manufacturers, is that their intellectual property may not be protected abroad. The drafting and inclusion of detailed intellectual property provisions in any agreements can provide good protection in jurisdictions in the US and Europe where intellectual property protection is strong. On the other hand, the difficulties in enforcing intellectual property protection in Mexico may mean that your formerly congenial Mexican business partners simply decide to manufacture your innovative hockey stick and blade design in a maquiladora outside Tijuana.
Talk to a lawyer with experience in protecting intellectual property rights abroad who can provide you with preliminary advice on the level of protection in the country you plan to do business in, preferably before shipping a few pallets of complimentary hockey sticks.
4. Put it in Writing
When conducting business abroad it is essential to negotiate and sign a mutually agreeable contract. Keep in my mind this may involve considerable expense when conducting business in a less developed country where English is not widely spoken. This includes Mexico, where Spanish is the lingua franca for business. Interpreters for negotiations and translators for agreements will be required at an additional expense. Ensure that in the sales agreement for your hockey sticks, the English language version, as opposed to the Spanish language version, prevails in the event of a conflict.
Saskatchewan companies doing business abroad would be well-served by retaining legal counsel with international experience. Lawyers who have lived and worked abroad and represented international clients will know when to accept that other countries and lawyers use different methods, forms, length and styles of agreement which will still ensure your rights are protected.
To avoid misunderstanding, encourage your foreign counterpart to seek legal counsel that speaks the local language and English as well. If your lawyer is able to speak directly with the lawyer for your foreign counterpart, it is much easier to negotiate and draft an agreement that concisely captures the intentions, rights and obligations of all parties, therefore minimizing the risks in the unfortunate event that the relationship sours later.
In many jurisdictions outside Europe and North America, Saskatchewan companies will have to simply accept the risk that even an iron-clad contract in writing may not fully protect their interests.
5. Use Government Resources
The following Federal agencies can provide valuable business advice and development services:
• Export Development Canada (EDC) can provide insurance when exporting outside of Canada;
• The Business Development Bank of Canada (BDC) can provide Saskatchewan companies with financing and venture capital; and
• Foreign Affairs and International Trade Canada (DFAIT) can provide advice from Trade Commissioners on specific countries.
The Saskatchewan Trade & Export Partnership (STEP) may be the most valuable government/industry partnership, which can help Saskatchewan companies increase exports to existing markets, and tap into new markets by initiating sales, contracts, and projects for Saskatchewan exporters. STEP may even have the resources to help you get your hockey sticks to Mexico!