Managing your import/export risks avoiding pitfalls in international transactions
The world has truly become a global marketplace. Many South African businesses have seen phenomenal import/export successes since South Africa's return to the global arena in the post-1994 era.
For every success, however, there have also been numerous failures. Even some of the most successful importers/exporters will admit that these successes did not happen overnight and that they often had to learn from costly mistakes.
While it has become easier to engage in international trade, the risks involved have essentially remained the same. It is important for the continuing success and existence of their businesses that importers/exporters obtain proper legal advice to ensure that they minimize these risks as far as possible.
Doing business internationally involves various risks and challenges. Different countries might have different languages, cultures, preferences and currencies but more importantly they often have completely different legal systems. While an importer/exporter might not give this much thought when signing an international contract, it is very important to carefully consider the choice of law and jurisdiction that will govern the contract. Ignoring these issues could prove to be very costly in the event of a dispute between the parties to the contract.
Where an international contract is subject to the laws of another country, the importer/exporter would be well advised to obtain a legal opinion from legal counsel in that country on the validity and/or enforceability of the contract. Local firms have established relationships with overseas firms and could provide importers/exporters with referrals to reputable counsel. Importers/exporters should give careful thought to the applicable jurisdiction, as the costs of taking legal action in another country might be prohibitive for most emerging import/export businesses. Parties often agree to international arbitration to overcome these problems, but a badly drafted arbitration clause could see the importer/exporter ending up in a worse position, both from a cost and timing perspective. It is therefore critical to ensure that any international contract contains a well drafted dispute resolution clause.
Regardless of the applicable law, there are certain steps importers/exporters can take to minimize their risks. As with any sale or purchase agreement, an importer/exporter should undertake a legal due diligence process. The due diligence process is especially important where an importer/exporter deals with an overseas party for the first time. Among other things it is important to verify the details of the parties/companies involved, to establish whether they have the necessary authority to transact and/or whether they actually hold title to the goods they intend to sell. When dealing with counterparties in less well-known or inaccessible jurisdictions, importers/exporters can make use of various consulting firms that offer international verification services. The cost of these services varies greatly, depending on the jurisdiction involved and the level of information required. However, obtaining such information can be very important in the assessment of risk.
Ensuring that an international contract contains proper procedures for payment is also very important. To avoid risk it might be necessary to require that certain guarantees are put in place before payment or delivery take place. In this regard international contracts often provide for payment by way of irrevocable letters of credit against the delivery of clean bills of lading. This is one of the ways in which importers/exporters can ensure that delivery only take place once payment has been received and vice versa.
Furthermore, while many importers/exporters make use of freight forwarders and clearing agents for the shipping and clearing of their goods, it remains essential to ensure that the terms of shipment included in an international contract correspond to the parties' rights and obligations in terms of the contract. The applicable Incoterms stated in the contract will determine how costs and risks are shared between the parties. Different Incoterms can have significant cost implications and will determine which party is responsible for the insurance of the goods whilst in transit.
Apart from contractual issues, importers/exporters should also keep abreast of import/export regulations applicable to the products they import and export. They should especially be aware of the possibility of trade remedies such as anti-dumping measures being imposed on their products, whether locally or abroad.
It should be clear to all importers/exporters that in today's complex trading environment they need to do their homework properly before entering into international transactions. While such deals might seem very lucrative, there are many risks involved. Where they have any uncertainties regarding such transactions, importers/exporters should seek expert advice to ensure that they do not make costly mistakes.