7 due diligence tips for importers and exporters

When it comes to international trade getting to grips with contracts, tax, and legislation can be daunting. Here are seven tips to help you enter import or export markets with more confidence.

2nd April 2009 at 5:05 pm

Market research
It is amazing how often I come across people who are proposing to invest a lot of money (at least for them) when they really have no idea whether there is a demand in this country for yellow plastic frogs or very expensive Peruvian Vodka.

Market research does not need to be expensive. At the simplest level it might just involve floating the idea past a significant number of friends and contacts to judge their reaction to it.

However, usually, if you are going to be entering into a significant business opportunity something a little more sophisticated is probably a good idea.

Plan Ahead
There are many different ways of importing and exporting, for example, you can simply buy products from abroad and then sell them – hopefully at a profit. Alternatively, you can become a distributor for a foreign company’s products. In this case you may have to buy and sell them or you may sell them on behalf of the overseas company and take a commission for doing so, so removing the need to pay for the goods in the first place.

The same applies to exporting.

Clearly, making the most appropriate choice here could be critical to the success of your business and so it is important to do your research and plan ahead.

Think about the tax
Think about the tax implications of what you’re going to do. In most cases you are going to have to pay tax somewhere but, by the careful choice of structures for the deal, you can often reduce the taxes payable by a very significant amount.

If you’re importing, check out the product carefully
It is important for importers to check the product very carefully to ensure it complies fully with the requirements for sale in the UK market place.

For example, I can remember a client importing thousands of toys from China only to find their sale was completely illegal in the UK.

This research can be more complicated than you might think and the position is often far from obvious.

If you are exporting, it is important to provide potential importers with proof that the product can legally be sold in their country.

What obligations are you going to be taking on when importing or exporting these goods?
If it is a simple purchase for later sale there should be very few obligations, however if you are going into some form of distributors’ agreement there will probably be commitments as to the volume of sales, not dealing with competing products, having suitable demonstration facilities etc.

These commitments require a good, clear, contract and this should be drawn up by your lawyers, indeed, most contracts that we come across which have been prepared by the individual companies’ concerned turn out to be disasters.

Think about any licensing, regulatory or intellectual property issues relating to your plan
It is important to ask questions such as: Do the goods have a trademark? Are you entitled to use it? Are you going to be using any marketing materials prepared by the sellers – promotional videos, brochures etc.? Do you have the right to do so?

If the sale of items need some sort of licence (for example, pharmaceutical products) who is going to be responsible for obtaining the license and at whose cost?

Are you proposing to be the sole importer or (if you are an exporter) to give the person you are dealing with the sole rights to sell your product? If so, be clear about the territories concerned.

What are the arrangements for contracts and payment?
Arrangements for payment need to be very clear and this will ensure you receive money quickly and efficiently without problems. Questions to ask are: Are there going to be any form of guarantees? Who is to pay for shipping and delivery?

In most countries (but not all) parties to commercial contracts have the freedom to agree the legal rules that will apply to their transaction and the way of dealing with any disputes that arise from it. Depending on your choice of law your rights – and obligations – can vary a great deal. Be aware that, in certain cases, whatever your choice there may be rights and obligations that cannot be contracted away. Your lawyers will be able to advice as to the best option for you in the circumstances of your case.

Think about including an agreement that will force both parties to the contract to deal with any dispute, in the first instance, by informal mediation. This can save a huge amount of time and money. If this fails it is worth thinking about a clause that requires the parties to deal with the dispute by way of Alternative Dispute Resolution (ADR) rather than by going to court as this, again, can be much faster and cheaper. These clauses need to be carefully drafted and you need to make the right choice of the people who will deal with the ADR.

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John Howell is a senior partner at The International Law Partnerhip LLP - a law firm that for over 25 years has specialised in giving legal advice to people & businesses in one country about legal issues that will affect them when they're living or working in another. http://www.lawoverseas.com/

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