Top Ten Issues when Drafting International Agreements – Part II

by Faegre Baker Daniels

Continuing the discussion from our last post, these round-out the top ten issues when drafting international agreements:

  1. Method of Payment.  If you’re the party providing the goods or services under the agreement, you want to be sure you get the consideration you bargained for.  Any fool knows that, but international contracts can make receiving payments complicated.  The first issue is currency – what currency will the payment be made in?  Which party bears the risk of currency fluctuations if payments are spread out over time?  Which party will bear the cost of currency conversion (i.e., banking fees)?  The second issue is taxes.  Does the local jurisdiction impose any taxes on your payment, such as value added taxes?  Does providing the good or service result in any tax withholding obligations?  The third issue is foreign exchange rules.  Most countries’ currencies are freely traded, but countries like China have strict controls on exchanges of their currency.  Getting large sums of money into and out of China requires approval of the Chinese government.  Finally, if you are the payor under the contract, are you comfortable extending credit to your trading partner?  If not, consider requiring payment in advance or using a letter of credit.
  2. Intellectual Property.  The first issue is protecting existing IP .  U.S. companies must identify which IP to bring with them overseas and what protections to put in place before introducing that IP into the market.  If you’re going to be doing business in China, for example, you should expect your IP will at some point be stolen.  We counsel clients not to bring any IP to China that they can’t afford to lose.  If you do want to take your IP abroad, make sure you register it with the local authorities before your products enter the market.  Most countries have a “first to file” system, meaning that someone else can register your IP before you do, making it theirs in that country.  You can limit that risk by registering the IP before it hits the local market.  The second issue relates to new IP.  In the U.S., we have the concept of “work for hire”, meaning that any IP created by an employee on the job is owned by the employer.  Some countries don’t recognize this concept, and even if an employee creates IP in the course of performing his/her job duties, using employer-provided tools or know-how, the employee may still be considered the owner.  Employers generally cannot circumvent this legal requirement, but they can add provisions to employment contracts requiring employees to assign worldwide rights to that IP to the employer.  Compensation for that assignment may or may not be required by local law.
  3. Non-compete Clauses.  Most U.S. states generally allow companies to enforce non-compete covenants between them after an agreement terminates.  By contrast, some foreign countries either do not permit non-compete clauses at all, or they do not allow them to extend beyond a certain period of time (either before or after termination).  In China, enforcing a non-compete clause is extremely difficult – Chinese courts do not award equitable relief like injunctions.  Instead, it is typical to see liquidated damages clauses in Chinese contracts to provide relief for breach of a non-compete covenant.
  4. Delivery Terms.  In contracts where goods will be delivered or received across borders, use of the appropriate international delivery terms is critical.  The International Chamber of Commerce has created a standardized set of internationally-recognized delivery terms known as the Incoterms®.  The eleven Incoterms® rules tell you (i) which mode of transportation can be used for the shipment, (ii) which party arranges for carriage, (iii) which party pays for carriage, (iv) which party arranges for insurance, (v) which party pays for insurance, (vi) which party handles export and/or import clearances, and (vii) where risk of losses passes.  The Incoterms® do not tell you where title to the goods passes, as that is generally a matter of the governing law of the agreement.  Many countries permit the parties to determine where and when title passes, and this should be clearly identified in the contract.  If possible, title and risk of loss should pass at the same time.  Although both the Incoterms® and the Uniform Commercial Code (adopted by most U.S. states) use identically named delivery terms like “FOB” and “Ex Works”, those terms do not have identical meanings.  When goods are being delivered across borders, the delivery term should reference the Incoterms® and the location where risk of loss passes under the applicable rule.
  5. Warranties and Product Liability.  In the U.S., manufacturers and suppliers of goods often limit warranties like warranties of merchantability and fitness for a particular purpose.  When goods are being supplied for use abroad, the buyer’s country may limit which warranties can be disclaimed, regardless of the governing law of the contract.  This is especially true for consumer goods.  U.S. manufacturers and suppliers should be sure to determine the territorial scope of their product liability insurance and whether the amount of coverage is adequate to cover any product liability claims in the buyer’s country.  In addition, addressing product recalls in cross-border contracts is important.  Recall provisions should identify which party will be responsible for the expenses associated with a recall and which party is responsible for communicating with the local government authorities.

International agreements present a host of issues that are “foreign” to domestic contracts.  With the tools outlined in these posts, you should now be armed to spot these issues and ask the right questions.  It’s all about identifying and quantifying risk, and the more legwork you can do on the front end, the less the pain in the rear!


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Faegre Baker Daniels | Attorney Advertising

Written by:

Faegre Baker Daniels

Faegre Baker Daniels on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.