A Letter From the Editor
Dear Friend of Snell & Wilmer:
By understanding the perplexities of international trade, a company is well-positioned to take advantage of opportunities that a domestic-only competitor might ignore and therefore suffer economic disadvantage.
During Snell & Wilmer’s annual World Trade Forum III event, we brought together leaders in government agencies responsible for increasing and encouraging international trade for a discussion with over 200 representatives of the business and non-profit community to review 2010 and look forward to potential opportunities in 2011.
It is clear that the U.S. government (and foreign governments) appreciate that maximizing a country’s comparative advantage in relation to international trade is one of cornerstones for domestic economic recovery. Simply, if the flow of a country’s wealth is exported in exchange for imports of foreign services and goods, eventually, the wealth will run out.
In this month’s edition, we discuss the United States National Export Initiative and regulatory reform that might help even the playing field of the global marketplace. We also provide an article on the revisions to the foreign trade zone regulations, which assist companies in maximizing cross-border trade, while avoiding burdensome export and import controls. In addition, we provide further guidance with regard to the implementation, implications and misconceptions related to the INCOTERMS 2010, the contractual terms that assist in avoiding misunderstandings between companies in different countries.
As international trade increases, government enforcement of the applicable laws has also increased. As we have in several previous editions of the Global Connection, we again remind companies about the importance of ethical behavior and the implications of corruption as we present a detailed article concerning the Foreign Corrupt Practices Act (FCPA). Further, we also present articles concerning revised immigration regulations related to certified compliance with applicable U.S. export control laws and visa issues concerning obtaining medical care.
As we begin the New Year, it is important for companies to review their foreign transaction policies and ensure they are up-to-date. By the time a governmental agent requests copies of the policies, it is simply too late and any benefits of having an export control program are lost.
In addition to specific laws impacting international trade, it is important to appreciate the local customs and political environment. Both of these societal concerns can increase the risk of investment and have a significant detrimental impact on a global supply chain. We previously addressed such global crises during the swine flu pandemic. Now, as political turmoil increases in several developing countries—significantly due to corruption, which implicates the FCPA—we provide an article on contingency planning for global operations.
Please feel free to contact me if you have any questions regarding information provided in Global Connection or if you would like to be included in future international events hosted by the firm.
Brett W. Johnson
National Export Initiative? What Does This Initiative Really Mean for Global Business Operations
In his first State of the Union speech in January 2010, President Barack Obama announced a "National Export Initiative." In his speech, President Obama stated that the National Export Initiative ("NEI") would lead to a long-term, sustainable economic growth for the United States, with a goal of doubling exports over the next five years that will support two million American jobs. In following up on his speech, on March 11, 2010, President Obama signed an Executive Order implementing the NEI and requiring the enhancement and coordination of "federal efforts to facilitate the creation of jobs in the United States through the promotion of exports, and to ensure the effective use of federal resources in support of these goals."
The NEI is a lofty and ambitious policy. But, as with many governmental policies, the actual impact on business operations has yet to be determined. The NEI is an acknowledgment of the comparative advantage other countries have against the United States in regard to overbearing export controls. For example, a United States company is competing with a French company to sell (i.e., export) technology to a business operating globally. The United States company must evaluate overbearing, confusing and archaic export control laws, regulations and export licensing requirements just to be able to make the bid (separate from the additional governmental requirements of actually being able to perform on a contract). The French company may not have such rigorous requirements and is not only able to make a timely bid, but also is able to guarantee a shorter time frame for shipment or performance because it has a competitive advantage in regard to only complying with less stringent export controls.
The NEI's recognition of the comparative disadvantage that the United States suffers in relation to other countries is a good initial step. The NEI is meant to provide more funding for export promotion, commercial advocacy, and more coordination between government agencies to reduce the United States' comparative disadvantage in regard to export controls, while maintaining the United States' national security. In addition, the NEI is meant to increase the government's focus on barriers that prevent United States' companies from getting free and fair access to foreign markets.
In President Obama's most recent 2011 State of the Union address, he again reiterated the NEI's policy goals. The 16 governmental agencies responsible for enacting the NEI have unveiled plans to assist United States companies in increasing exports. This includes financing from the Export-Import Bank, trade missions through the U.S. Department of Commerce, and a review of onerous export control laws to increase the United States' comparative advantage against its foreign competitors.
Although a long way from completion, the revisions (or complete elimination) of certain export control laws is one of the most important barrier removal that can help stimulate United States' global trade. For example, the multiple export control "lists" (i.e., the Department of Commerce's Commodity Control List and the Department of State's U.S. Munitions List) would be streamlined to allow companies to fully understand the applicable government restrictions on exporting specific products. Other initiatives may include the move to a single export control and enforcement authority and a single information technology center for license processing. However, a real fear is that the bureaucracy ignores the NEI directives and shifts much of the "control" responsibility from government agencies to the actual exporter that any real change is not only meaningless, but actually causes more confusion and onerous compliance that leads to a decrease in exports.
However, President Obama's most recent Executive Order dated January 18, 2011, separately requiring Federal agencies to design cost-effective and evidence based regulations in an effort to simplify reporting and compliance requirements may support the NEI's policy purposes and hinder more bureaucratic changes to existing export controls.
If the NEI is truly successful, the United States' companies will benefit from more export opportunities. However, until the NEI is fully realized—for good or for bad—it is imperative that United States' companies continue to have effective export control policies in place. By fully understanding the existing export control environment, United States' companies are able to minimize their competitive disadvantages to foreign competitors. Such understanding may reduce unnecessary cost, risk and contract performance timing that is necessary to compete within the global marketplace.
 Executive Order dated March 11, 2010. [Back]
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U.S. Foreign-Trade Zones Board Proposes Major Revisions
The U.S. Foreign-Trade Zones Board (the "Board"), located in Washington, DC, has proposed major changes in the procedural rules for the authorization of its foreign trade zones ("FTZ's") and the activities that take place within the zones. The term "foreign-trade zone" is a bit of a misnomer in that "foreign" trade zones exist right here in the United States near most major Customs ports of entry. However, the zones do enjoy the legal status of existing essentially outside the "Customs territory" of the United States. The zones provide an opportunity for significant duty savings and duty deferral, under the right circumstances, for U.S. companies sourcing materials and components from abroad for further manufacture or assembly in the U.S.
The zones are actual physical areas into which foreign and domestic merchandise may be moved for storage, exhibition, assembly, manufacture or other processing without the usual formal Customs entry and duty payment procedures. Duties are not payable unless and until the goods are removed from the zone and entered into U.S. commerce for domestic consumption. Foreign inputs may escape duty assessment by being incorporated into a downstream product in the zone, when such final product is either duty-free or classifiable at a lower duty rate than its components (the so-called "inverted tariff") when actually imported into the Customs territory of the U.S. The primary public purpose of the zone program is the creation of U.S. jobs through the encouragement of manufacturing operations in the U.S., which for tariff reasons, might otherwise be done abroad. Thus, zone procedures seek to give U.S. manufacturers a break on import tariffs for foreign materials or components that will be used to further manufacture or assemble products of the U.S.
In addition, to manufacture within established Foreign-Trade Zones, the Board may also allow a portion of a U.S. company's own manufacturing facility to be designated as a "sub-zone" of a nearby FTZ, in effect declaring a portion of a company's own premises "outside the Customs territory of the United States." Before the granting of such unusual status, the company must submit an application demonstrating that its proposed manufacturing plans will conform to the Board's goals and requirements.
- One of the major problems preventing full potential utilization of the FTZ program is the lengthy approval process for proposed operations requiring Board approval. The proposed revisions would omit prior Board approval for many zone manufacturing operations except in special circumstances, for example where foreign inputs would obtain duty rate reduction when incorporated in downstream products, or for processes involving the use of foreign inputs subject to U.S. antidumping, countervailing duty or Section 337 orders. In such circumstances requiring Board approval, the proposed revisions delegate approval authority to the Commerce Department on an interim basis pending full Board review. The effect of the revisions is intended to significantly reduce the time period that a company must wait for approval of the use of an FTZ for a new manufacturing operation. The Board has stated that it is attempting to respond to trends such as dramatically shorter timeframes for companies' decisions on production locations (U.S. versus offshore) and the growth in contract manufacturing in which U.S. manufacturers compete with foreign-based alternatives for specific contracts under deadlines that are not compatible with current FTZ approval procedures. Hopefully, the effect of these revisions will be to expedite the approval process for contemplated zone manufacturing operations, including circumstances offering significant duty savings to US companies.
- The statutory framework authorizing the foreign-trade program requires that each zone be operated as a public utility and provide uniform treatment to all zone users and zone applicants. While the current regulations do not provide zone grantees (the operators of the zones are known as zone "grantees") any practical instructions for implementing those requirements, the proposed revisions do establish standards intended to insure uniform treatment. The proposed revisions address both the issue of fees to zone users and avoidance of conflicts of interest by zone operators. There are also penalty provisions as well as a prior disclosure opportunity to encourage compliance by zone grantees.
The Department of Commerce, Foreign-Trade Zones Board, has requested public comments on the proposed revisions, which must be received on or before April 8, 2011. It is expected that the final revisions of the foreign-trade zone regulations will become effective sometime later in 2011. Companies that are currently operating in an FTZ, or sub-zone, and companies that are contemplating such operations are urged to review the proposed revisions and comment, if appropriate.
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From the Southwest to the Far East: Some Practical Guidelines for FCPA Compliance in China
Similar to companies throughout the United States, businesses based in the Southwest have growth strategies predominantly featuring China and are actively seeking opportunities to foster business relationships with their Chinese counterparts. For example, China has skyrocketed from being Arizona's 17th highest export destination in 2001 to its third highest in 2009 (behind only Mexico and Canada). Since China joined the World Trade Organization in 2000, exports from Arizona to China have grown at an astounding annual average of 36.7 percent. In California, exports to China nearly tripled between 2000 and 2006, expanding from $3.5 billion in 2000 to nearly $10 billion in 2006. Despite the slowdown in trade due to the current recession, California remains the top U.S. exporting state to China, with 2009 exports valued at $69.6 billion. Similar narratives apply to the economies of Utah, Colorado and Nevada.
Inherent in the expansion of American business in China is the oft-overlooked risk of violating the Foreign Corrupt Practices Act (FCPA), a post-Watergate law enacted in 1977 that often laid relatively dormant until recently. In the last several years, the Securities and Exchanges Commission (SEC) and Department of Justice (DOJ) have moved to enforce the FCPA with renewed vigor. According to DOJ statistics, there were five FCPA prosecutions in 2005, with $16.4 million in penalties. By last year, there were 34 prosecutions and $435.3 million in penalties. These prosecutions have implicated not only large companies, such as Siemens and Exxon Mobil, but also medium and small-sized businesses, such as Control Components, Inc., a valve manufacturer for the energy industry based in California, and Nature's Sunshine Products, Inc., a manufacturer and seller of nutritional and personal care products based in Utah.
In addition to the trend toward greater FCPA enforcement, a second important theme has emerged: the DOJ's focus on individuals, as opposed to companies, who violate the FCPA. For example, 2009 saw DOJ charges against 22 executives in one undercover investigation into the military and law enforcement products industry. Assistant Attorney General Lanny Breuer further emphasized this point when, in a 2009 speech that all business executives should heed, he labeled prosecution of individuals as a "cornerstone" of the DOJ's FCPA enforcement strategy and warned that "the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member and every sales agent that we will seek to hold you personally accountable for FCPA violations."
These developments indicate that FCPA enforcement will remain a prominent feature of the business landscape for the foreseeable future. Thus, businesses and the individuals involved in them must not only strive to comply with FCPA requirements in general, but must also appreciate and understand the unique FCPA risks associated with doing business in China.
Overview of the FCPA and Issues Unique to China
The FCPA includes both anti-bribery and accounting provisions. The anti-bribery provisions prohibit an entity or individual from offering or providing money or "anything of value" to foreign officials with the intent to obtain or retain business. Moreover, the accounting provisions require companies to have accounting practices in place that, among other things, make such payments difficult to disguise.
Given that these anti-bribery provisions relate to payments made to foreign officials, the single most important challenge facing US companies operating in China may be the prevalence of state-owned enterprises (SOEs) in that country. Indeed, while the Chinese economy is increasingly modernized, vestiges of state control are still present in many industries and enterprises. In addition, the SEC and DOJ have given the term "foreign official" broad scope to include not only foreign officials themselves, but also employees of SOEs. Thus, the widespread and pervasive presence of the Chinese government, either directly or behind the scenes in Chinese businesses, transforms business dealings that are private in other countries into quasi-governmental relationships with potential FCPA risks.
Yet another potential area of concern for companies conducting business in China is the FCPA prohibition of any payment to a third party made by a U.S. company that knew, or should have known, that the payment would directly or indirectly reach a foreign official. This requirement is designed to deter corporations from turning a blind eye toward the actions of third-party intermediaries that they hire to conduct business abroad. As most American executives trying to set up operations in China are aware, going it alone is not often a viable option. For this reason, U.S. businesses operating in China that rely on agents on the ground, joint-venture partners or distributors to navigate through territory unfamiliar to them in Beijing, Shanghai and especially in provincial areas, should be aware that the conduct of their foreign representatives may expose them to FCPA liability.
The FCPA includes two affirmative defenses that may afford U.S. businesses some leeway. Under the first defense, the FCPA excepts from liability payments that are "lawful under the written laws or regulations" of the recipient country. American companies doing business in China must understand, however, that corruption remains a prevalent concern in China and can fog the boundary between legal and illegal business practices. As a result, customary or commonplace Chinese business practices that are tolerated, encouraged or even required by the business community may still violate under-enforced Chinese anti-bribery laws. For example, local American business executives should be wary if a Chinese counterpart encourages them to pay a bribe and assures them that such payments are necessary, widespread or even legal under Chinese law.
Under the second defense, the FCPA also exempts payments that are reasonable and bona fide expenditures, such as travel and lodging expenses, incurred by or on behalf of foreign officials, and are directly related to the promotion of products and services or performance of a contract with a foreign government. The applicability of this defense can conflict with the Chinese concept of guanxi, which, in its simplest form, is the use of personal relationships to get something done. Guanxi may be established by providing another with personal favors, such as fancy gifts, entertainment or even trips to Disneyland. Thus, a significant challenge for a company doing business in China is to ensure that its representatives attempting to establish relationships with their Chinese counterparts do not violate the FCPA by incurring non-business expenses on behalf of foreign officials, thus stripping the company of its affirmative defense in the event of a DOJ investigation.
The second set of rules in the FCPA are the accounting provisions, which mandate that companies keep books, records and accounts that accurately reflect transactions and payments. The provisions, which apply even in the absence of an anti-bribery violation, also require companies to devise and maintain reasonable internal accounting controls to prevent and detect FCPA violations.
The importance of the FCPA accounting provisions when conducting business in China was highlighted in 2007 with the DOJ and SEC investigation of certain payments made by Lucent Technologies for Chinese officials. The government had alleged that various promotional expenses were actually vacation trips for more than 300 Chinese government officials to destinations in the United States, such as Disneyland, Universal Studios and the Grand Canyon. Lucent was unable to use the affirmative defense of promotional payments as described above because it had failed to record the payments accurately in compliance with the FCPA accounting provisions, and thus could not demonstrate that the payments were intended for a legitimate business purpose. As a result, Lucent resolved the FCPA investigations by paying a $2.5 million fine.
Even fledgling and newly formed small companies will not escape the radar screen of the FCPA enforcement agencies. The recent $300,000 settlement between the SEC and San Jose, California-based telecommunications company Veraz Networks, Inc. is a case in point. As Monique Winkler, the SEC attorney who investigated Veraz for its alleged illegal payments to secure a business deal in China, said, "It is particularly important that newly public companies have strong controls in place to ensure that a culture of improper payments to foreign officials does not develop and grow."
Suggestions for Complying with the FCPA
The first and most important step in identifying and mitigating the unique FCPA risks of doing business in China is being aware of FCPA risks, and then making sure that the company's executives take adequate steps to ensure FCPA compliance. One key component is to implement a compliance program designed to create an environment that fosters compliance with the FCPA. An effective compliance program will typically have several elements.
First, the compliance program must have effective, comprehensive and well-communicated FCPA policies and procedures. Typically, they should be in writing and should be widely disseminated throughout the company. These policies may include legal review of all client travel and entertainment expenses and on-site visits or interviews with clients and third parties. In the event of FCPA non-compliance, the SEC and DOJ will consider the absence of FCPA policies and procedures in their determination of appropriate fines and penalties. In the Lucent matter described above, the SEC noted that FCPA violations occurred because Lucent failed "to properly train its officers and employees to understand and appreciate the nature and status of its customers in China in the context of the FCPA."
An effective compliance program should include the designation of a compliance officer responsible for conducting due diligence to ensure that employees and their Chinese counterparts, as well as Chinese agents, joint-venture partners and distributors, have not engaged in conduct that is inconsistent with the compliance program. Moreover, the compliance program should consist of training, education and enforcement programs for employees, directors and the appropriate Chinese representatives. If a company has put in place such a compliance program, it demonstrates the company's commitment to compliance and may substantially benefit the company in the event of an FCPA investigation.
In addition to a compliance program, a U.S. business can also limit FCPA exposure by negotiating contracts in a way that minimizes FCPA risks. For example, a company may wish to consider including standard representations, warranties and covenants in a contract with Chinese agents and distributors so that they affirm that they: (i) have reviewed, understood and agreed to comply with the company's FCPA policy, (ii) agree to certify such compliance on a regular basis, (iii) are not foreign officials or related to a foreign official, (iv) agree to comply with any applicable local laws, and (v) agree to indemnify the company for any breach of the foregoing representation and warranty.
U.S. businesses can also adopt other practical applications, such as translating FCPA guidelines and handbooks into Chinese for Chinese employees, agents and partners who cannot be assumed to read, understand and interpret FCPA rules that are written in English. Also, a U.S. company may want to avoid commission-based contracts for its Chinese agents who are seeking to obtain business for the company in China. Such commissions can be substantial and provide agents with an incentive to make payments to secure business or insider information. Thus, companies may want to develop a fee based on the actual work performed, rather than on the size of the prime contract.
Finally, especially in areas outside of metropolitan centers, cash is often the only means of payment in China. Thus, U.S. companies should avoid issuing large cash advances to Chinese employees, agents and partners, and should encourage the use of credit cards (now widely accepted in much of China) or other more easily traceable payment methods whenever possible.
As companies in the American Southwest increasingly conduct business in China, the risks of violating the FCPA have grown as well. Executives should be aware that these risks are not insurmountable. With the proper internal controls, policies and procedures, companies can take full advantage of business opportunities in China without violating the FCPA.
 Lora Mwaniki-Lyman & Ruth Christopherson, Arizona's 2009 Exports Reflect Recessionary Environment, Arizona's Economy 6-11 (Spring 2010). [Back]
 Id. [Back]
 California Chamber of Commerce, Trade Statistics. [Back]
 Id. [Back]
 U.S. Census Bureau, State Trade by Commodity and Country. [Back]
 Department of Justice, FCPA and Related Enforcement Actions, Chronological List (2010). [Back]
 Mike Koehler, The Foreign Corrupt Practices Act in the Ultimate Year of its Decade of Resurgence, 43 Ind. L. Rev. 389, 396-97 (2010). [Back]
 Id. [Back]
 Lanny Breuer, Assistant Att'y Gen., DOJ, Crim. Div., The 22nd National Forum on the Foreign Corrupt Practices Act (November 17, 2009). [Back]
 15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3. [Back]
 15 U.S.C. § 78dd-1(f)(1). [Back]
 15 U.S.C. § 78dd-1(a). [Back]
 15 U.S.C. §§ 78dd-1(c)(2), 78dd-2(c)(2). [Back]
 15 U.S.C. §§ 78dd-1(c)(2), 78dd-2(c)(2). [Back]
 15 U.S.C. § 78m. [Back]
 15 U.S.C. § 78m(b). [Back]
 Lucent Technologies Inc. Agrees to Pay $1 Million Fine to Resolve FCPA Allegations, Department of Justice Press Release No. 07-1028 (December 21, 2007). [Back]
 Id. [Back]
 Evan George, Telecom Fined Over Alleged Bribes, Daily J. (June 30, 2010). [Back]
 Mike Koehler, The Unique FCPA Compliance Challenges of Doing Business in China, 25 Wis. Int'l L. j. 397, 432 (Fall 2007). [Back]
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Global Business Operations and Preparing for Civil Unrest (Round III)
In 2007 and 2009, we forewarned about the impact of a flu pandemic on a business' global supply chain. Due to the direct impact on communities in the United States, governments at every level (foreign, federal, state and local) and non-governmental organizations (Red Cross) made great efforts to prepare communities for a pandemic. However, the nightmare scenarios envisioned about a flu pandemic did not materialize. Now, with civil unrest in developing regions in the world (Asia, Middle East, Africa, Mexico and South America), similar business "continuity" concerns are again materializing. But, companies who operate a global supply chain and serve a global marketplace continue to fail to appreciate the impact on business operations.
In addition to determining the direct impact on business operations, companies should also consider the legal implications. Many companies rely on a Just-In-Time (JIT) global supply chain in an effort to minimize inventory, ensure quality and avoid out-of-date purchasing systems. However, political and civil unrest can quickly disrupt the efficiency of business operations and cause a significant negative impact on a product's costs. It is important to attempt to minimize such risk, while recognizing that risk cannot be eliminated. A company should ensure that its international contractual and shipping agreements take into account civil and political unrest and identify who bears the risk (i.e., cost) when such unrest materializes.
Another issue is in regard to insurance. Many companies—especially those involved in perishable items—regularly insure products in an attempt to minimize unnecessary risks. However, many policies may exclude the risk associated with civil and political unrest. Therefore, when a perishable product is stopped at an Egyptian port or the Suez Canal, unable to proceed, it is likely that the value of the product will be diminished, if not completely eliminated. If an insurance policy excludes civil unrest and the insurance company is able to correlate the unrest in Egypt to the delay in shipping, then either the exporter or the importer will bear the risk.
Insurance is another issue in regard to the support of overseas employees. As shown in Egypt (and elsewhere), it is very difficult to get employees out of a country during civil unrest. Many companies turn to their respective government's embassies for assistance. This may not always be enough or efficient. Imagine a key employee—CEO, president, engineer, etc.—being unable to leave a country. Imagine the same key employee held for ransom. Many companies ignore these real-world possibilities. A company's investment in an insurance policy to address (and pay) these contingencies may be worthwhile.
In addition to key personnel, a sales force scattered across the world and far from home poses another of many complex challenges. A global supply chain and overseas service outsourcing centers are other potential challenges to consider that could disrupt trade if a nation or region were to tighten border controls.
As referenced in our previous articles, companies should review policies and procedures to ensure that individualized contingencies are established. A few issues to consider include:
- Company Planning. The company's specific role, responsibility and obligation if and when a civil unrest occurs and the impact that local, state and federal laws may have on any corporate response. Companies that dedicate the resources in advance and plan appropriately will be in the best position to address a crisis.
- Company Communication. The set-up of a dedicated planning committee with senior management to address emergency scenarios. A planning committee can address human resources, insurance, communication, security and continuity of operations concerns during a crisis period.
- Company Resources. The resources (manpower and technology) necessary to support the policies and procedures.
A review of existing policies and procedures should also involve an evaluation of the specific and unique legal issues that companies will face to prevent overwhelming the legal department during an emergency, including:
- Quarantine orders directed toward facilities or individuals. This is especially critical with global sales forces. A company must be prepared if a foreign government decides to quarantine the company's U.S. employees who are travelling abroad. Even if the quarantine is not "official," the inability of employees to leave a country is in effect a quarantining. Employees should have contact information for the U.S. embassy or local consulates. If the U.S. does not have a strong presence in the foreign country, the employee should have the contact information for a "friendly" embassy, for example Great Britain or France. In many emergencies abroad, western countries collaborate to help each others' citizens.
- The government's commandeering of corporate assets in a crisis. Companies must also be prepared if a foreign government utilizes their "taking powers" to respond to an emergency or a new administration. This regularly occurs in developing countries when new administrations are put in place and contracts with the old administration are no longer recognized. Companies operating in foreign countries should take this issue seriously to minimize potential losses and disruptions to affected supply chains. No matter where the "taking" occurs, the company must instruct its employees to document specifically (1) which agency is taking the asset, (2) what individual within the agency is responsible for the taking, (3) the legal authorization cited by this individual for the taking, (4) what specific assets the government is taking, and (5) when the asset was taken. By having clear documentation, the company will be in a better position to make a claim against the foreign government for the taking.
- Workers compensation and other insurance-related issues. It is important to review the various insurance policies and workers' compensation obligations to insure that the company takes every necessary action to maintain its coverage.
- Coordination with government officials. It is important for the company to understand how to work with foreign governments to address a wide range of issues that may develop during a true emergency. The company should appoint a point person and contact the foreign government and the U.S. embassy.
Planning can alleviate or at least mitigate potentially devastating financial and legal consequences to a company's foreign operations during civil unrest in a foreign country. It is not too late for companies to review their policies and procedures in an effort to anticipate all types of emergencies and establish a plan that will ensure continuity of operations.
 Johnson, B. and Shuman, S. (2008), New CDC Warnings Prompt Global Businesses to Review Emergency Policies and Procedures. [Back]
 Johnson, B. and Shuman, S. (2009), Global Business Operations and Preparing for the Swine Flu Pandemic (Round II). [Back]
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INCOTERMS 2010 – Does My Business Have to Follow Them?
In our last edition of the Global Connection, we discussed the new INCOTERMS 2010 and the impact the International Chamber of Commerce (ICC) drafted trade terms would have on global business. Unfortunately, many companies and governments are confused as to the implementation, requirements, and "force of law" of the new INCOTERMS 2010.
As way of background, the INCOTERMS are widely used to divide transaction costs, risks and responsibilities between buyer and seller in global trade. The parties simply reference the agreed-upon INCOTERMS abbreviation in the contract and specify the place of delivery. From that, the buyer and seller (and financier) have a clear understanding of where the goods will be delivered, who is responsible for transportation, and who bears the applicable costs (export regulatory compliance, transportation, insurance and damage). By using INCOTERMS, the parties avoid differing term interpretations from country to country.
Many consultants, government regulatory agencies, and business have confused the effect of the INCOTERMS 2010. Several foreign government enforcement agencies—including Argentina, Japan and Turkey—have taken the approach that the INCOTERMS 2010 terms are not voluntary and any export/import shipment documents that references INCOTERMS 2000 or other terms (such as the United Nations Convention on Contracts for the International Sale of Goods (CISG), each State's version of the Uniform Commercial Code (UCC) or the government contracting Federal Acquisition Regulations (FAR)) are not valid. Further, many businesses are taking the opportunity to unilaterally argue that existing contracts and purchase orders that reference any terms other than the INCOTERMS 2010 are invalid and need to be renegotiated—to include the terms of price, delivery requirements, and regulatory compliance regardless of whether such terms are actually impacted by the new INCOTERMS 2010 terms.
The bottom-line is that the INCOTERMS 2010 are not laws or have the effect of laws. Rather, the INCOTERMS 2010 are rules that the commercial parties agree to at the time of entering into the contract. Therefore, the terms in the existing agreements and agreed to by the parties—i.e., INCOTERMS 2000, UCC, etc.— are still in effect unless the parties mutually agree (in writing) otherwise. If your agreements only refer to INCOTERMS and not INCOTERMS 2000 and the agreement was entered into between 2000 and 2010, then INCOTERMS 2000 should be considered the default. Any new agreement after January 1, 2010, will likely default to INCOTERMS 2010 where indicated.
It is important that INCOTERMS (and the actual year—2000 or 2010) actually be referenced if that is what the parties desire. If an INCOTERM term abbreviation (ExWorks, CIF, FOB, etc.) is used without referencing that you want the ICC INCOTERMS rules to apply, then there could still be confusion to either the UCC, UN Convention, or government regulatory contract clauses (i.e., utilization of terms which are different in each of these rules, laws and regulations). Also, the INCOTERMS are only a general rule. The actual other contract terms may change the INCOTERMS rules laid out in the INCOTERM referenced (i.e., regulatory compliance, delivery, etc.), so a company cannot just rely on the INCOTERM referenced—the whole contract clause must be taken into account.
A best practice is to still take this opportunity to update a company's template agreements. However, revisions to existing agreements may be unrealistic for a variety of reasons (i.e., opening up the door to renegotiate price, service, etc.). If a company is concerned about any ambiguities caused by the implementation of the INCOTERMS 2010 and does not want to renegotiate/amend its contracts, it could consider sending a letter or posting on its website any clarification—i.e., agreements referencing INCOTERMS between 2000 and 2010 will default to INCOTERMS 2000 and agreements after January 1, 2011, will default to INCOTERMS 2010. But, again, a company cannot unilaterally defer to INCOTERMS 2010 for contract agreements entered into prior to 2011.
Simply, the INCOTERMS are a contract term agreed upon at the time of contract. Just as a company cannot go back and unilaterally change price on a contract, the company cannot go back and unilaterally change the delivery terms (i.e., INCOTERM reference). It is important for companies to seek assistance in this area when needed—especially when government export and import officials are involved or a vendor/customer wants to unilaterally change existing contractual requirements.
 Johnson, B. (Oct. 2010), New International Delivery Terms: Are You Ready For INCOTERMS 2010? [Back]
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Employers Now Required to Certify Export Compliance in Visa Applications
Effective February 20, 2011, U.S. employers who sign non-immigrant employment visa applications (for filing H-1B, H-1B1, L-1 or 0-1A visas) must certify that the employment of the foreign national beneficiary complies with U.S. export controls. The new U.S. Citizenship and Immigration Services (USCIS) Form I-129 requires that the employer review the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR) in order to determine whether or not the transfer of technology or technical data to the foreign employee will require a "deemed" export license. If such license is required, the employer must certify on the Form I-129 that it will follow applicable license requirements.
Not surprisingly, the field of "export controls" would seem pretty remote to the H.R. managers at a U.S. company. However, U.S. export regulations deem the transfer of technology or technical data to a foreign national wholly within the United States as an actual "export" of such items to that foreign national's home country. Thus, the term "deemed" export.
U.S. companies submitting the new I-129 forms must first assess the technology and/or technical data that the foreign national may be exposed to in the course of his or her employment with the company. A determination must then be made as to whether these items are listed (classifiable) under either the EAR or the ITAR. The EAR contains a long, highly technical descriptive list of finished goods, materials and technology that are "controlled" for export. The ITAR also contains a list of export-controlled items (the U.S. Munitions List), which are more defense industry and arms related.
U.S. employers would be wise to carefully review their export control compliance responsibilities before signing off on the new USCIS Form I-129. Penalties for violation of U.S. export control laws carry monetary penalties of up to $500,000 per violation, the possibility of imprisonment and the possibility of the loss of future export privileges and debarment from U.S. government contracts. Reputational damage from adverse publicity in such cases can also be very costly.
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Navigating the Visitor Visa Process May Pose Complications for Patients, Donors
It's not just insurance issues that can delay an organ transplant. Even as many U.S. patients look abroad, as hopeful 'transplant tourists,' for needed organs due to the domestic shortage, patients seeking transplants here and the medical professionals waiting to perform them may have an even longer wait due to donor visa issues.
Transplant tourists are typically thought of as American patients who travel overseas for a transplant operation, but a recent New York Times article reflects that some U.S. patients have their donors travel to them. And even though there may be a willing family donor or another close match outside the U.S., some transplants are delayed when that person cannot get a tourist visa. There is no medical visa category, so transplant donors generally apply for B-1 (business visitor) or B-2 (pleasure, tourism, medical treatment) visas, processes that have become more difficult and highly scrutinized after the terrorist attacks in 2001.
Further complicating matters, the presumption of U.S. immigration law pertaining to visas is that every visitor is an intended immigrant. Applicants for visitor visas of any kind must overcome that presumption. Key evidence that officials in consulates and embassies look for include a specific, limited period to a visit, funds to cover expenses in the U.S., compelling social and economic ties abroad, a permanent residence abroad, and other binding ties that ensure the visitor will actually leave the U.S. at the end of the visit.
For potential transplant donors, whose reasonable medical and travel expenses may be paid by the recipient, who may have an unpredictable recovery time, and who are planning to leave an organ behind in the U.S., that burden of proof can be difficult to meet. Staying in the U.S. beyond the limited time period applicable to the visa voids the visa, is a violation of federal law, and is grounds for denial of future visa applications. Applications submitted in advance to extend the deadline on an approved visa—called Form I-539—must be approved by U.S. Citizenship and Immigration Services (USCIS). The State Department recommends that applications for extensions be submitted at least 45 days in advance.
Medical professionals told the Times that even letters and phone calls from them on behalf of patients and donors do little to speed up the visa approval process. And the State Department requires preliminary donor testing to be completed before a visa for travel to the U.S. is issued. That requirement eliminates the possibility that a potential donor will travel here only to find out that he or she isn't actually a match for the transplant patient.
Further, people traveling to the U.S. for medical treatment of any kind must present a medical diagnosis from a local physician, explaining the nature of the medical situation, the treatment, and the reason the treatment must take place in the United States. Such applicants must also include a letter from a U.S. physician expressing a willingness to provide care and treatment and detailing the length and cost of treatment. Finally, an individual or organization must affirm that the patient's transportation, medical and living expenses are guaranteed and provide proof of bank statements or tax returns showing ability to pay.
Potential donors' applications for visitor visas are processed by the consulate or embassy with jurisdiction over their place of permanent residence. The State Department encourages all visa applicants to apply "well in advance" of their "travel departure date." Such preparation can be a tall order in the field of organ transplantation, which is generally fraught with urgency and surgical timing windows that can open or close depending on a patient's day-to-day prognosis. Applicants can fill out forms requesting expedited processing of their visas for medical reasons, but health care professionals say the process remains a waiting game.
If a visa is ultimately denied, only the presence of newly submitted evidence will obligate a consular officer to reexamine the case. Where appropriate, and in the event that an organ transplant patient or anyone seeks to navigate the B-1 or B-2 visa process for a potential donor or other business visitor, legal counsel knowledgeable about immigration and health care laws and regulations can assist in evaluating the benefits and pitfalls of the visa approval process.
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