Minnesota Business Monthly Interview
Interview of Attorney Marcia Haffmans by Maura Keller, staff writer for Minnesota Business Monthly
Redacted February 2013
WHAT CAN MINNESOTA COMPANIES EXPECT IN A GLOBAL MARKETPLACE AND WHAT DOES IT MEAN FOR MINNESOTA BUSINESSES TO GO GLOBAL?
1. What are the key issues that businesses need to focus on when thinking about going global - either importing or exporting? What are the first steps they need to take?
“As an international business lawyer, I emphasize to my clients that long-term success in international trade is dependent upon a proactive approach. This includes adopting an effective import/export plan and smart risk mitigation through strategic planning and resultant preventative contracts. When a firm is transacting business there is always a certain level of risk involved, even if the business is only conducted locally. For instance, the seller may not get paid or the buyer may not receive the product or service in exchange for the payment. One can imagine that the concept of exchanges with global partners becomes much more complex in this example. With international trade, it is more difficult for the seller to physically knock on the buyer’s door for payment, and it is more challenging for the buyer to confront the foreign manufacturer of a product that does not meet expectations. International parties are confronted with additional barriers, and have to work with differences in location and time zone, language, culture, customs, currency, laws and regulations. Despite these added risks, the tremendous opportunities beyond a purely domestic market make going global an exciting endeavor. Once firms understand that international risks can be minimized, they may find considerable gratification in a more global approach.
As an advocate of international business transactions, my job is to be proactive and help mitigate international risk exposure by anticipating the unforeseen obstacles. I am regularly asked to give seminars to executives within Europe, who express concerns about venturing into the US market because of their perceptions of the litigious nature of the American society and the large punitive damage awards that make headlines in newspapers worldwide. I have to remind them that there are many companies successfully doing business within the US. My motto to these European executives is “When in Rome do as the Romans do… but do it even better.” That same attitude prevails when a US based company desires to enter into a foreign market. In my opinion, it is imperative that a business acquires at least a basic understanding of the laws and culture of the foreign territory. Through proactive contracts and other planning strategies the inherent risks can then be successfully modified.
When dealing with goods, a Minnesota based company that wants to sell internationally can do so either directly or via outsourcing to an export management firm. Small businesses may choose to utilize a foreign sales representative or distributor, or alternatively, select a franchise relationship. The optimal solution for each situation depends on many variables and will usually be determined on a case-by-case basis. Utilizing a pro-active contract negotiation and drafting process will identify red flags in a timely manner. Such an approach will address potential adversarial issues while there is still a chance to reconcile those differences during the negotiation phase, rather than after the fact - when it is too late.
The successful companies that I have counseled gathered a solid comprehension of their domestic market, before venturing out into the world. Then they implemented an effective import/export plan. There are many ways to investigate international opportunities, such as visiting tradeshows, conducting online research, working through an existing network, or going on a trade mission. Many companies explore the numerous resources that are offered through the U.S. Commercial Service, the Minnesota Trade Office, Chambers of Commerce and also the International Trade Assistance arm of the Small Business Administration. Once those resources are fully explored and an export plan is in its final stages, companies may seek a consultation with ELAN (Export Legal Assistance Network), a network of private international trade attorneys that offer initial legal advise free of charge to small businesses that want to enter the export market.”
2. Between all the resources the State and agencies offer, what tax issues are often missed when importing and exporting?
“Although I am not a tax lawyer, I emphasize to my clients the importance of getting a tax specialist involved at the front end of any business transaction. A foreign independent sales representative can create a so-called permanent establishment, which may carry undesirable tax implications. Unanticipated tariffs or duties as a result of improper classification of the goods, and VAT (value added tax applied in the EU, comparable to our sales tax) calculation errors are other examples that can be avoided through proper planning. In the past decade, the US has entered into a number of free trade agreements with other countries, which do provide a competitive edge for qualifying products, services and intellectual property rights.”
3. What are the top questions ANY business owner should ask before starting to expand into importing and exporting?
“The fundamental question is whether a company wants to invest in the necessary research and resources to achieve international success. It requires time and energy to devise an export or import plan, develop a risk mitigation strategy, adapt products to applicable foreign regulations and certification requirements, and conduct the needed research prior to making final selections. All of this will take personnel away from other work, and business owners should realize that at the onset. I ask my clients whether their business is able to make such a sacrifice at this time. Do they have the resources for international regulatory compliance and proactive contract negotiations that will lead to a comprehensively drafted document that will set forth the rights and obligations of the parties and anticipate issues down the line? In my experience, allocating appropriate resources for proper planning and organization will pay off in the vast majority of international business ventures.”
4. What common mistakes do you see businesses make when expanding globally?
“Unfortunately, there are mistakes that arrive at my desk that could easily have been avoided if I had been involved with planning at an earlier stage. Not uncommonly, I see in my international law practice that too much trust is placed on a single individual, no questions asked. Businesses also don’t conduct sufficient and appropriate due diligence of the foreign firm this person represents prior to entering into the international transaction. The importance of checking references and conducting a variety of background investigations cannot be overestimated and should never be replaced by a warm handshake alone. Additionally, the people in your company worked hard on creating a successful business at home, so it does not make sense to venture out into the international market without finding ways to protect brainpower, intellectual property and other valuable business assets. If a business has registered valuable trademarks or patents within the USA, it is imperative that they are also protected abroad.
Within my practice, I have encountered cross border transactions that had never been formalized by a solid written agreement, thus making it very difficult to reach an effective solution once things had become adversarial. At times mandatory (unfavorable) foreign laws would apply unbeknownst to the parties. I have also seen one-page boilerplate contracts that subjected the international transaction to the laws of a foreign jurisdiction such as China or Belarus. I have recommended that my local clients avoid signing such proposals without understanding the ramifications of the laws applied to the contract. Confusion may also arise when an agreement has been translated into another language without a contract provision that would address what would happen in the event of discrepancies between the translation and the source document.
Other common mistakes relate more specifically to the sale of goods. Businesses selling goods internationally need to determine whether they may be subject to the Convention on the International Sale of Goods (CISG), and, if so, if application of the CISG is desired. A standard provision such as “This Contract shall be governed by the laws of the state of Minnesota” does not exclude the application of the CISG to a future dispute relating to terms of the contract if the parties are located in countries that have adopted the Convention. If application of the CISG is not intended, an express disclaimer to that effect is required as part of the governing law provision in the contract. On top of that, when selling goods globally, some companies may inadvertently continue to refer to their domestic delivery terms (Uniform Commercial Code). I recommend that they select an appropriate rule of the Incoterms® 2010 rules (prepared by the International Chamber of Commerce) in their international sales contract, as it will clearly define the parties’ respective obligations and reduce the risk of legal complications.
Mistakes are made too when country specific mandatory laws enter the equation. For example, several European countries, as well as countries such as Costa Rica and Brazil, have laws which protect sales representatives or distributors in different ways. These mandatory foreign laws make termination of the international relationship more expensive, and add another layer of complexity. Needless to say, a company that uses its standard domestic distribution agreement for global dealings accepts an approach that will likely create havoc in the end.
Some local businesses are not familiar with our export controls and anti-bribery laws (Foreign Corrupt Practices Act), and they may later regret having overlooked the wealth of information that is easily accessible online. Finally, when Minnesota companies first go international they may be unaware that the US is not a party to a treaty or convention for the reciprocal enforcement of foreign country judgments. This could mean that a favorable foreign judgment may not receive subsequent recognition and enforcement in the home country, depending on country specific domestic laws and general principles of international law. Arbitration is therefore often the solution of choice in international business transactions, but the specifics will need to be addressed and agreed upon in the international contract.”
5. Please give a brief synopsis of your firm and any specific verbiage you want me to use in describing your organization and how it helps MN businesses in the global arena?
“Sure, I would be happy to do that. It would be something like this:
Marcia Haffmans is a native of the Netherlands and received her first law degree from a university in the Netherlands. She subsequently worked for a solicitors firm in London, UK prior to returning to The Hague, the Netherlands. Ms. Haffmans has been admitted to the bar of the Supreme Court of the Kingdom of the Netherlands and practiced law at a private firm in The Hague. She immigrated to Minnesota in 1991 and (almost) considers herself a native of our state. Upon obtaining her American law degree she became a licensed attorney in Minnesota in 1993 and has also been admitted to the U.S. Court of International Trade. She has been focusing on international business law for the past two decades and is the founder of HaffmansLaw (www.haffmanslaw.com), a boutique law firm with a strong emphasis on international business law. Ms. Haffmans has a unique insight into two different legal systems from within two cultures. She is fluent in several languages, including English, Dutch, French and German. Ms. Haffmans’ cross-cultural and legal experience facilitates solutions for international related commercial matters. Ms. Haffmans is the Regional Coordinator (representing Minnesota, Wisconsin and the Dakotas) for ELAN (Export Legal Assistance Network), a program provided through a cooperative agreement between the U.S. Small Business Administration, the U.S. Department of Commerce and the Federal Bar Association.”
Disclaimer: The information provided for this interview does not constitute legal advice and it does not take into account the specific circumstances of your situation. You should seek competent advise for legal issues from a licensed attorney who has experience in such matters.
© 2013 Marcia Haffmans, Attorney at Law, HaffmansLaw.