It is no secret that the United States is a major gateway for international trade and commerce. Every kind of product imaginable is imported for sale into the U.S. by foreign companies desiring to reap the benefits of economy just like American companies. However, trouble lurks around the corner when foreign companies fail to do their homework before bringing their goods here.
One might imagine that every company from abroad that desires to sell its goods in the U.S. is diligent in making sure that the company, its goods and -- just as importantly -- its distribution system comply with national and state laws and regulations. This is not always the case.
But why should these companies worry? They are only trying to do business here just like they do in their home country.
Whether it comes from lack of familiarity with our laws, our legal system, or just the pure excitement of transacting commerce in the U.S. as quickly as possible, foreign companies sometimes fail to understand what must be done in order to do business in the U.S. legally and successfully. And sometimes these failures can be very costly.
Let’s start with something very basic -- a contract to sell foreign-made goods in the U.S. through a distribution network. In order to contract successfully, a foreign company must understand or obtain help from someone who does understand basic U.S. contract laws and principles. Without a good working knowledge of how “boiler plate” provisions are construed and how contracts are enforced in the U.S., a foreign company can find itself in serious trouble if a problem pops up down the road. What started out with a great idea can turn into a disaster without a well written and fully understood contract.
And, of course, with a contract, interpretation of the key terms is important. The English language can be troublesome. Many words sound alike but are spelled differently. Words also can have the same spelling but have different meanings depending on their context. Consider the word “rose.” Do I mean a “rose” as in the plant, or “rose” as in a person stood up? And what may mean one thing in a given foreign country may mean something altogether different in the U.S.
To avoid problems, it is critical that foreign companies fully understand what the terms and conditions of their contract mean in the U.S. Like U.S. companies, foreign companies need experts to help them successfully wind through the maze of laws and regulations that affect their business before inking the deal.
Beyond the language barriers that exist, foreign companies also have to dig in and determine if any U.S. laws apply specifically to their activities or their goods. These companies need to determine whether federal, state or local laws apply. Without the right help, this can be a daunting task and can hit foreign companies on many levels.
Take for example a foreign company selling all terrain vehicles in the U.S. through a dealer network. Federal laws such as the Robinson-Patman Act’s prohibition on price discrimination apply to the pricing of the product. At the state level, every state has a motor vehicle code that applies to the sale of motor vehicles. Some of these state laws will clearly apply to all terrain vehicles yet other state motor vehicle codes may not govern the sale of such vehicles. On a local level, county or city ordinances can apply as to licensing or use. The point is that foreign companies have to look in many places to determine what laws they must comply with in order to lawfully do business in the U.S.
What has been discussed so far are legal concerns once a foreign company knows that it can -- or it has already -- put its product into the U.S. Before this though, there are other hurdles that have to be dealt with.
Consider, for instance, U.S. customs’ laws. A foreign company desiring to import goods into the U.S. must understand, at a minimum, the U.S. tariff classifications and tariff laws. Understanding and properly implementing this knowledge can help foreign manufactured goods sail through the U.S. custom’s process. A failure in this area could cause the goods to be detained and expose the company to penalties.
With all of these areas, foreign companies must have a least a basic knowledge of our court system. As compared to many foreign countries, our system is very different and can surprise, if not shock, some foreign companies upon their first introduction to the system. Companies need to be aware that by selling goods in the U.S. they may, and likely are, submitting themselves to the jurisdiction of federal and various state courts in the event something goes wrong with the product or its distribution. They also need to be aware that without the right advice upfront, it can be very expensive and difficult to solve legal problems once they arise.
Before shipping products to the U.S., foreign companies are well advised to do their homework and seek professional assistance where necessary. By doing the hard work upfront, foreign companies can successfully navigate the maze of laws and regulations that apply to them and their products.
David R. Jarrett and Billy M. Donley are partners in the Houston office of Baker Hostetler, where they focus their practice on representing manufacturers, suppliers and distributors in both litigation and transactional matters. For more information, visit http://www.bakerlaw.com.