Business without borders: a short guide to the technicalities of competing in the import/export market.

Dramatic technological advances in communications and transportation are encouraging many Detroit-area businesses to expand their customer base by engaging in commerce beyond U.S. borders.

In addition to new sales opportunities, international markets can provide new sources of supply, as well as the ability to augment your workforce by outsourcing production steps. While the Internet seems to permit "business without boundaries," success in the international arena requires good business practices and an appreciation of some unique regulatory schemes.

Regardless of size or aggressiveness, there are some common issues that all companies face in successfully marketing their products or services in the global arena. Here are four important considerations to help avoid unexpected surprises and maximize global marketing opportunities:

I. Customs compliance

If you import products into the United States, there are Customs requirements. The importer is obligated to exercise reasonable care that imported goods are properly classified under the Harmonized Tariff Code (see box on page 25), accurately valued and imported under the proper duty rates. A "reasonable care" checklist published by Customs can be found at www.customs.ustreas.gov under the heading of "importing and exporting."

What is the Harmonized
Tariff Code?

U.S. tariffs imposed on imports
are based on an international
convention which "harmonizes"
tariff codes of member countries.
At twice yearly meetings in
Brussels, representatives of member
countries issue decisions on
the classification of an article for
tariff purposes. The U.S. Customs
Service, the Census Bureau and
the U.S. International Trade
Commission jointly represent the
United States.

If you import, record keeping is crucial to withstand a Customs challenge or audit. Failure to comply with Customs requirements may result in the forfeiture of your property, plus penalties as much as 10 times the value of the goods.

II. Export controls

Filling a foreign purchase order, hosting a potential foreign customer or even e-mailing a specification overseas are examples of global business opportunities that typically subject a company to U.S. export controls. The State Department licenses exports of defense items and related technical data. The Commerce Department regulates items designed for civil use which need to be controlled for national security, foreign policy or short supply reasons.

Three tests determine whether or not an export license is required:

* What is the product or technical information?

* Where is it going?

* How is it going to be used?

Providing a foreign national with controlled data, even if done in your facility in the United States, is nevertheless considered a "deemed export" requiring a license. Even if it is not an exporter, a manufacturer of an item listed on the State Department's "Munitions List" must register with the State Department. Enforcement of export regulations is aggressive, especially in today's heightened security environment. Penalties for violations include imprisonment and stiff fines, sometimes in the millions of dollars.

III. Contract terms and conditions

To be successful, every business needs to develop contract provisions that clearly identify the parties' rights, obligations and remedies. International transactions add new challenges a buyer or seller must consider, sometimes as basic as in what language will the contract be written and if in multiple languages, which one is controlling.

Nowhere is the need for a special provision more evident than in dispute resolution. Arbitration, mediation or some other form of alternative dispute resolution (ADR) often is a preferred alternative to litigation because of the relatively informal and private nature of such proceedings, as well as the ability to maintain control and be more flexible and cost-effective.

Serious consideration should be given to incorporating into an international contract a carefully drafted ADR clause, such as: "All disputes arising out of or in connection with the present contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by [insert the appropriate international organization and procedure, etc.]. At a minimum, the contract should contain provisions on: type of proceeding (e.g., litigation, arbitration, mediation); location where the proceeding will be held; governing law of the contract; number of arbitrators or mediators if ADR is used; and language to be used in the proceeding.

IV: Intellectual Property

In conducting international commerce, businesses must be aware of the territorial nature of intellectual property rights. Patent rights are defined by the national borders of the granting country. Trademark rights are defined primarily by the geographic scope of use by the trademark owner.

Accordingly, businesses should consider applying for patents and/or registering trademarks in each territory in which the business markets its goods and services.

Conversely, when providing goods and services under license from some other patent and/or trademark owner, a business should always ensure that it has sufficient rights from the owner in each territory in which the goods or services are transported and sold.

Going international can provide great opportunities to grow your business. However, it is important to consider some of the unique risks and features of these transactions and plan accordingly. Never was the old adage of "an ounce of prevention is worth a pound of cure" more true.

Are you considering hiring a foreign national?

Then you should also consider:

Cost: Could range from $56 (Canadian TN visa) to $2,500 or more ("H-1B" visa).

Processing time: From an hour (Canadian TN) to 90 days (H-1B filed with the INS Center).

Duration of authorized employment: One year (Canadian TN) to three years (H-1B), with additional extensions possible.

This article was prepared by George W. Ash, William H. Carroll, Margaret A. Costello, William F. Kolakowski III and Derek I. Meier, attorneys with the International Team of Dykema Gossett PLLC, a Silver-level member of the Detroit Regional Chamber.