April 2006

By Susan Schmidt

Components of International Trade Law

No single definition exists for “international trade law.” Wikipedia, the online encyclopedia, recognizes “international trade law” as having no concise definition: “International trade law is a misnomer. Since there is no international governing body over trade, there cannot be, in that sense, a Law. What is usually meant by the term is the means of finding out appropriate rules and customs for handling trade between countries or between private companies across borders.”¹

Basically, international trade law encompasses the international agreements, laws, regulations, practices, and policies that affect the movement of goods, services, and even ideas, as well as the people who provide those goods, services, and ideas across geographic borders.² It involves a range of clients, including companies that want to do business internationally, firms that supply or support companies that conduct international business, associations that advocate on international or business interests or policies, and government agencies that define, regulate or otherwise affect international trade and commerce.

International Trade Policy
International trade policy is one aspect of international trade law, and may involve the negotiation and interpretation of international agreements and programs. International trade policy may have direct implications for a business or define the overall business climate and framework.

International trade lawyers help companies understand what particular trade agreements, laws and policies mean for their international trade and business activities. A trade agreement, for example, can reduce barriers to trade or provide new or improved access to foreign markets and resources. Many recent trade agreements, especially those negotiated by the U.S. government, also have included more substantial provisions on transparency, anti-corruption and dispute resolution. Sometimes the mere existence of such procedures provides security and predictability for international trade transactions that make an international trade opportunity more attractive.

International trade policy work also is proactive in shaping U.S. laws, programs and international trade agreements that define international trade and commerce. The international trade attorney shares clients’ views with those who are negotiating trade agreements; creating laws, policies, and programs; or changing agreements, laws, and regulations. For example, the U.S. maintains trade preference programs for certain products of other countries. As these programs are reauthorized, program modifications may affect business activities, international trade flows, or foreign or economic policy. A client’s goal may be to obtain a benefit or to prevent the loss of one. A non-government organization (NGO) may seek to have certain standards reflected in an international agreement. A foreign government may want those involved in developing and implementing U.S. trade law and policy to understand the potential economic, social or other impacts of certain actions on other countries.

Knowledge of the broader U.S. trade policies, objectives, means and programs as well as the international trade perspectives and interests of other sectors and businesses are essential to effectively frame a client’s interests and to identify where those interests might find support or encounter opposition. Knowledgeable international trade attorneys identify and capitalize on the consistencies of a client’s interests with those of the U.S. government to advance the client’s interests. They identify key policy influencers and share with them a client’s views, reinforcing the information provided to negotiators or policy makers.

International Trade and Business Advocacy
Another area of international trade law involves helping clients overcome challenges or problems in international business. The client’s objective is to move goods or services legally and efficiently across geographic borders, and be compensated for those goods or services. International trade, by definition, involves at least two sets of laws, regulations, rules and procedures as well as the underlying interests of two sovereign governments. It may be conducted in two very different languages. A company needs to understand the markets and the rules that apply. Increasingly, the general obligations of other countries’ laws and regulations are more accessible. Depending on the international trade transaction, that information may be sufficient for a U.S. lawyer to assist with a client’s transaction (e.g., sale of a non-sensitive product). In other instances, local legal counsel or other advisors are needed (e.g., establishing a sales presence in a country). In that situation, the U.S. international trade attorney can identify and work with those advisors.

Despite planning, international trade transactions may not go as planned. These situations may arise for a variety of reasons, among them legal requirements, regulatory practices, changing economic conditions or business priorities, or seemingly unrelated events such as domestic politics. Problems can be addressed through formal dispute resolution forums, advocacy efforts, or both. Formal dispute resolution forums include the judicial system and alternative dispute resolution processes. Non-legal advocacy in the U.S. and/or the other country with government officials and private sector interests may provide an alternative means to resolve a dispute, and proceed independent of the legal or judicial processes. Or, the advocacy can be designed to supplement or complement the legal processes. As international “legal” disputes also may have a policy basis or reflect a country’s broader political, economic or social policy dynamics, advocacy may be more common with international trade transactions and for practitioners in Washington, where many of the international policy-makers and policy-influencers work.

Financial Implications of the Practice

A company grows revenues by selling to new international customers, buying competitively priced products in or from foreign markets, or integrating international supply or distribution chains economically and efficiently. An international trade attorney supports the ability to achieve those results in the U.S. or overseas.

After September 11 th, the U.S. government quickly instituted several new measures designed to enhance U.S. national security by tightening its geographic borders. These measures applied broadly, and often did not distinguish legitimate international trade and suspect transactions. Many of these increased delays in international trade. As adverse economic effects became apparent, the U.S. government began incrementally to alleviate unnecessary burdens on legitimate trade and commerce.

As an international trade attorney, identifying opportunities in such programs for clients can mean a competitive edge for products that they export or import. At U.S. ports of entry, a company that qualifies for the C-TPAT (Customs Trade Partnership Against Terrorism) obtains “green lane” access to expedite border crossings. Other shipments may experience more inspections, delays, and expenses at the ports. Shipments via maritime ports that qualify as CSI ports (Container Security Initiative) likewise are promised fewer inspections, making these ports more attractive for some U.S.-bound shipments. For a manufacturer that imports parts from other countries with a just-in-time supply chain, reducing delay and managing predictability of supplies have operational and financial implications (e.g., being able to fulfill customer contracts). Companies that participate in these programs also gain competitive advantages over companies that do not. An international trade lawyer assists companies and other entities that support international trade to become qualified participants.

At the same time, many of these new programs are evolving and reacting to external events. Thus, there may be substantial ambiguity in the requirements and their application, and knowledge of the legal requirements and policy drivers allow an international trade attorney to help a client navigate the process and gain competitiveness.

A U.S. company doing business overseas also may compete with other U.S. companies, national companies or third-country companies. The ability to do so effectively has financial implications. Other companies may engage in practices that would seem to be illegal, improper or unfair and gain a competitive advantage. For example, a competitor company may pay regulatory officials to fast-track its permits, imports or other transactions or to derail those of competitors. An international trade lawyer with an understanding of, for example, the U.S. Foreign Corrupt Practices Act, international agreements that require equality of treatment between national and non-national companies or among companies from different countries, and local practices, is able to identify avenues to challenge such practices. Moreover, an international trade lawyer that understands the political and economic dynamics in that country, or between that country and the United States, is able to use international advocacy to level the playing field.

As a final example of financial implications of international trade law, some countries maintain barriers to entry in certain sectors. The government and domestic interests may believe that these barriers benefit local interests or promote domestic political, economic or social interests by protecting certain economic sectors from foreign “competition.” A high tariff on certain imports, or excessive or highly discretionary permit requirements, may preclude a U.S. company from entering or effectively competing in a foreign market. An international trade lawyer may be able to persuade the appropriate U.S. officials that it is in the U.S. national interest for the U.S. government to convince the foreign government to remove such barriers, thus allowing the U.S. company (and others like it) to do business there.

Business Challenges

Many of the challenges that clients face and the mistakes they make in international trade law are the same ones made with respect to domestic law. Clients may not consult attorneys as long as things are proceeding smoothly, and only contact them if something unexpected or adverse happens. However, unraveling situations usually is difficult, time-consuming, costly and more acrimonious than any precautionary efforts might have been. Even when a client contacts an attorney early in a transaction, the client may want to “proceed on a handshake” or may not want to “insult” the potential customer or partner by suggesting a written agreement or substantial changes to a vague document. However, an attorney involved from the beginning can anticipate and accommodate potential legal issues. Problems might be avoided or more easily resolved.

The international arena adds another dimension to the transaction. As noted, in every international trade transaction, the laws, regulations and policies of at least two sovereign nations are relevant. Cultural differences may carry into respective business cultures. And, two countries may not take the same approach to an opportunity or problem.

Differences can be very basic, such as in which currency a trade transaction will be completed. They also can be more substantial and subtle. Clients often assume that the same or similar laws and procedures exist in their countries also exist in other countries, and that might not true. Twenty countries of the Western Hemisphere have civil law systems; the United States, Canada and twelve others have common law systems. Civil law systems often are more paper intensive and involve more regulatory processes. The World Bank’s “Doing Business” database, for instance, reports objective measures of business regulation and enforcement, and identifies regulatory costs of business and procedural requirements for international trade and commerce activities. ³

A common mistake unique to international trade is to assume that U.S. laws will protect a U.S. company in an international transaction. As the transaction by definition involves two sovereign countries, U.S. law does not necessarily trump a foreign law. Unilaterally, U.S. law may prohibit certain actions within the United States. U.S. law usually will not govern an entire international trade transaction without advance planning, or sometimes even with such planning. Thus, clients need to understand the markets, the rules of the markets, their international objectives and strategy, and their partners from the beginning. A knowledgeable international trade lawyer advises clients on these aspects of international trade and business.

Clients also may underestimate the value of the technologies and infrastructure that support business in the United States, provide predictability and stability for business transactions, and reduce costs. In some countries, those systems or infrastructure may be less developed, or even non-existent. Differences may be particularly acute between developed and developing countries, which also may be where greater potential profit opportunities exist. Failure to understand and accommodate such “structural” limitations may create unrealistic expectations and generate misunderstandings in trade transactions. In some countries, electronic financial transactions may not be routine. Information technology systems may not exist or be secure. Delay may be inherent in the system. A U.S. company that routinely requires certain paperwork in an electronic format to complete a transaction might not be able to impose that requirement in an international transaction. International trade lawyers are able to recommend alternatives that accommodate these challenges of international trade.

Expensive Issues

When international trade occurs between two countries with well-developed and institutionalized legal and business regimes that are administered transparently and impartially, any additional costs due to the “international” aspect of trade can be calculated. Absent those conditions, costs cannot be calculated with certainty and can escalate. However, as is generally true in the law, the most expensive issues often involve dispute settlement. The international arena may further exacerbate dispute resolution costs.

The U.S. legal and judicial systems are criticized for their complexities and inefficiencies, but they often compare favorably with judicial and legal processes in other countries. By contrast with many developing countries, the U.S. judiciary is an independent branch of government not subject to the Congress or Executive, judicial processes are open and transparent, the judiciary is adequately funded, and judges are professional and impartial.⁴ U.S. courts may be slow to resolve some disputes, but rarely does that process take a decade or more as it might in other countries.

Potentially less expensive and more efficient alternative dispute resolution procedures, such as binding commercial arbitration, may not be available in some countries. Through bilateral trade or investment agreements, some countries have agreed to alternative dispute resolution processes to resolve commercial disputes. However, even with that forum legally available, the process in practice may be very different. As an example, a U.S. company enters into binding commercial arbitration in another country to resolve a contractual dispute, which under the contract the parties had agreed would be considered final and binding. Upon receiving an adverse decision, the domestic party claims to accept the substantive result but then challenges the “procedural” aspects of the arbitration process in the local courts, effectively undermining the value of the alternative dispute resolution forum.

Change is Coming

The past decades have witnessed the increasing globalization of business – both in terms of selling to new markets and in integrating operations. Today it is not unusual to purchase the raw materials for a product from one country, assemble it in another country based on design specifications prepared by engineers in a third country, to ship through a regional consolidation and distribution center or electronically, to require electronic payment, and to offer 24/7 technical assistance. Many tariff trade barriers have fallen dramatically, and non-tariff trade barriers are being dismantled. Countries, however, often stubbornly protect select sectors. Those protections are coming under increasingly criticism and will require credible justifications to retain.

The changes that have occurred actually may be the easier ones in the long term. To continue the process of globalization and to continue to allow the expansion of trade and commerce with new markets, more challenging obstacles may need to be addressed in the coming years. Many of these could be characterized as “second tier” reforms, which are reforms necessary to create a predictable, uniform, and stable international trade and business infrastructure in order to fully reap the benefits of international trade. These reforms will encourage and support expanded international trade and commerce. They include reform of judicial and legal systems so that credible dispute resolution can occur through domestic courts⁵ and alternative dispute resolution processes are not a necessary, and sometimes only, option. They include a fiscal regime that imposes and collects taxes from all taxpayers. They include the existence of a professional civil service and administrative bureaucracy with technical expertise to impartially and appropriately discharge its responsibilities. This requires professionals who are adequately paid to decrease incentives for corruption, independent of partisan and political influences to provide continuity and impartiality, trained to understand the goods and services that they regulate, and provided the resources necessary to do their jobs. The reforms include adequate education for the broader population so that a country’s citizens will be able to participate in international trade and commerce (e.g., to provide value-added inputs or after-sale services), or to have the economic resources to take advantage of the benefits of new products and services.⁶

Another change in the coming years may be the growing need to adapt to external and seemingly exogenous events. This need in large part is driven by the increasing amount, value, and importance of international trade and increasing integration of businesses and business operations. September 11 th illustrated the challenge. Connections between national security and international trade were recognized before 9/11. However, the national security reaction to those events dramatically demonstrated the relationships.

An area of potential friction that will need to be addressed is the remaining or sometimes increasing economic disparity within and among countries, the increasing awareness of disparities, and the perceived or actual relationship to international trade. We already have seen the protests that now routinely accompany international economic summits. To be able to take advantage of globalization, a country and its citizens need to be participants in the economy. When governments have not provided basic infrastructure and services such as electricity, potable water, and roads to all citizens, those citizens and countries risk falling farther behind economically. International trade does not cause these problems, but increased international trade and globalization may increase awareness of them. Private businesses are not responsible for providing these services, though in many cases they have stepped in where governments or others have failed (e.g., multinationals may provide basic services to employees, families, and communities such as housing, electricity, health care, and education). However, they may become the target of frustration with the failure to solve them.

As noted above, companies involved in international trade may receive heightened attention for a variety of reasons. They may pose a threat to domestic industries. They may be used by governments to deflect criticism of their domestic political, economic, or social failures. They may become vehicles for those who support broad political or international social, environmental, or other policy initiatives. Their actions in one country, usually those that do not reflect positively, may become quickly known in another country. Any resulting backlash against international trade and trade liberalization may translate into backlash against companies engaged in international trade. Companies today and in the future must be aware of these dynamics and sensitive to these possibilities, and structure and conduct their operations accordingly. They need to act legally and responsibly – for example, by responding to legitimate labor and environmental concerns. They need to develop and implement corporate citizenship efforts that reflect their practices and the benefits they generate for their employees and in the communities. And equally important, they need to ensure that others are appropriately aware of their actions, efforts and positive impacts. Some of those efforts involve international trade law, but the “international” aspect of international trade broadens the subject to more than law.

Endnotes

1. http://en.wikipedia.org/wiki/International_trade_law.

2. Within the legal professional, an “international trade” legal practice can have a specific meaning, which is the legal practice involving antidumping, countervailing duty and subsidy laws, and perhaps related customs issues. The U.S. Department of Commerce and the U.S. International Trade Commission, the two agencies that initially administer the U.S. antidumping and countervailing duty laws, are in Washington, DC. So the law of “international trade,” for some lawyers, implies that more defined type of legal practice.

3. www.worldbank.org. Data include, for example, the number of documents and signatures required to export; time (days) for export; the number of documents and signatures required for import; and time (days) for import.

4. Compare Transparency International, Global Corruption Report (2005), Country Reports for Bangladesh, Nicaragua, Romania, Sri Lanka.



5. For example, in some countries a civil action can be “criminalized.” A disgruntled defendant in a civil action, with a receptive judicial forum, can allege a criminal violation such as fraud against the civil action plaintiff, and obtain the issuance of arrest warrants for that plaintiff – who often may be a foreign business executive. In the most egregious, though by no means unheard of, situations, the plaintiff only will learn of the arrest warrant when the arrest, often with the assistance of local law enforcement officers, is made.

6. It may be convenient to dismiss this challenge as one of developing countries, but they are not unique to them. For example, officials in the state of Virginia recently announced that substantial economic incentives convinced a company to relocate its software development division to the southwestern region of the state, a region that has not participated fully in Northern Virginia’s technology boom. The state boasts that the company will offer well-paying employment and generate other economic opportunities.

"The International Trade Lawyer: Facilitating Business and Commerce," Inside the Minds: The Laws Behind International Trade, a Detailed Look at Enforcement, Regulations, and Political Influences, Aspatore Books, 2006.