As with all aspects of private international law, there are a number of issues an entrepreneur must consider before entering the e-commerce marketplace. The following are some of the important issues that will improve the chances of a successful online business, if thoroughly considered. 

1. What’s the applicable international framework?

Entrepreneurs must discover which organizations, treaties, conventions and agreements create and harmonize national legislations in an effort to establish a global framework for e-commerce.

As e-commerce gains momentum, lawmakers around the world endeavour to adapt the rules of traditional paper-based documents to the technical environment of e-commerce transactions.

The challenge for private international law makers is to provide a workable legal framework and implementation guidance for domestic lawmakers to adapt legacy laws or to create new legislation for electronic contracts.

A workable international framework will harmonize the rules of individual nations, which in turn will remove the potential for conflicting national rules that would impede international e-commerce trade.

Responding to the challenge, UNCITRAL adopted two model laws to promote global e-commerce through a predictable and transparent legal structure:

• Model Law on Electronic Commerce (1996)
• Model Law on Electronic Signatures (2001)

The Model Law on Electronic Commerce determines how the principles of paper-based documents could be reconciled with their electronic equivalents. It facilitates the development of a unified method to ensure the validity and enforceability of international contracts.

The Model Law on Electronic Signatures establishes common standards of signature authentication and enforceability.

2.  Do you have a handle on all of the new types of e-commerce contracts?

The growing prevalence of e-commerce contracts has opened up an entire new set of issues pertaining to the validity of a commercial contract.

Entrepreneurs and consumers must be aware of the rights and obligations of offers, acceptances, authentications, signatures and payments. In addition, the responsibilities of virtual service providers (web hosting services, internet service provides) in the event of service interruptions and security breaches must be addressed.

3. Which legal jurisdiction applies and what are the laws?

The lack of a tangible physical location of the Internet has added an even more complex element to the rules and dispute resolution of cross-border commerce.

The regulations imposed on online businesses and contracts by nations around the world have become a major point of contention in e-commerce’s evolution. The pace of regulation is not uniform, so accounting for the disparities between technological and regulatory systems of various nations can be quite difficult.

For example, some nations do not regulate the Internet at all in such areas as taxation, making those nations tax havens for offshore investors. Other nations are studying the success of ground-breaking nations such as the U.S. and the EU to determine which model to implement domestically.

Will these national disparities in online regulations create barriers in the free market as entrepreneurs and consumers struggle to determine where it is most advantageous to buy and sell goods and services online?

The issue of self-regulation is at the center of this debate.

Many believe the Internet has been able to enjoy global expansion because governments have not actively been regulating its activity.

As with competition laws, while government regulations are at times necessary, they can also interfere or restrict the free market’s ability to self-regulate.

Despite this, it is safe to say that national legislation will have a major impact on the evolution of thriving international e-commerce.

4. How will you protect your consumers and prevent cyber crime?

Purchasing goods or services online presupposes a great amount of trust on behalf of the buyer who is usually giving out credit card and other personal information without the benefit of face-to-face interaction.

E-commerce merchants must keep up with the evolving technical demands of network security to ensure consumer protection and privacy.

International organizations, national governments and regional authorities must consider how to prosecute cyber criminals to compensate victims of theft, fraud and forgery.

Failure to do so will render an enterprise uncompetitive.

Also, merchants who use e-commerce as a means to conduct illegal operations (such as child pornography) must be dealt with.

5.  Is your intellectual property (IP) safe?

In addition to protecting consumer information, ecommerce enterprises must consider how they can protect their own valuable information from all types of copyright infringement.

6.  How will you facilitate electronic payments and collect taxes?

E-commerce enterprises must decide on an appropriate payment system that is secure and legally authorized to process various payments. Entrepreneurs are struggling to keep up with the complex issues of taxation in the various countries they sell to around the world.

Governments are still trying to determine how to best collect taxes on goods and services sold in a borderless Internet.

Are you thinking of expanding your business into the e-commerce marketplace? For those that have already done so, what are the challenges you face? 

The post You need to have these 6 things figured out before entering the e-commerce marketplace appeared first on Trade Ready.

Taking your business abroad can be a great way to expand your customer base, increase market share and lower production costs.

Although the benefits of an international business venture are plentiful, they are accompanied by a significant amount of risk, which, if not properly mitigated, can far outweigh the rewards.

Due diligence is your best ally in risk mitigation, even more so when it comes to international contracts.

The contract is king

Your contract, whether national or international, is always the first point of reference when a dispute arises between two commercial parties, and will guide an arbitrator or judge in determining your respective rights, obligations and remedies.

If you are conducting business internationally, an airtight contract is by far the best way to ensure predictability and efficiency in your business transactions, and properly protect your interests in the case of a disagreement.

An international contract can take on many forms, but all solid contracts have this one thing in common: they clearly outline the detailed rights and obligations of the parties involved.

Unfortunately, it’s common for entrepreneurs, in a rush to close a deal and get their business up and running, to neglect taking the proper time to review the agreements that will govern their business relationships, much to their detriment.

Although your contract is unique in that it will reflect your company’s specific needs and goals, there are at least two provisions which you should always include in your agreement:

(1) governing law; and

(2) dispute resolution. 

In my experience, these are the clauses that are most often overlooked, and that have the potential to cause the most damage when not properly addressed in your contract.

Clearly identify the jurisdiction of authority in your “Governing Law Clause”

Governing law, otherwise known as “choice of law”, is a fundamental component of an international contract.

What this means is that somewhere in your contract, you should clearly state the mutually agreed upon law of a jurisdiction that will apply to and govern the terms of your contract in the event of a challenge.

An example of what this would look like in your contract is:

1.1 Governing Law – This Agreement shall be governed, construed and enforced in accordance with the laws of the Province of Ontario. Any dispute arising between the parties shall be dealt with exclusively in the courts of that Province.

In international trade, the contracting parties are typically able to choose the law that will govern their contract. Whether it be U.S. law, Ontario law, or Shari’a law, the choice is open to the parties. You are not limited to choosing the domestic law(s) of one of the contracting parties.

For instance, if your business is in Ontario and you are contracting with a Japanese company for the supply of widgets, you can choose to have Ontario law, Japanese law, or the law of any other jurisdiction apply to govern your contract, that might be advantageous to your situation (i.e. U.S. law).

Avoid a geographical headache

If a dispute arises without a clearly defined choice of law clause in your contract, you will face additional time and expense in determining which country, state or province has jurisdiction.

It is therefore imperative that that all parties to the contract properly negotiate and mutually agree on the governing law at the outset, so that there are no surprises down the line and expectations are clear.

Litigation? Arbitration? Choose the best option in your “Dispute Resolution Clause”

A dispute resolution clause is important in any international contract because it clearly defines the methods and procedures for the resolution of disputes between the parties, whether it is through arbitration, litigation, or any number of other available options.

Although you may have an established business relationship with a partner you can trust, disputes, although not intentional, can still sometimes arise.

Simply put, having a dispute resolution clause is somewhat comparable to having an insurance policy on your car. You don’t expect to have an accident, but if you do, you’re protected.

Similarly, in the contract scenario, you don’t anticipate having any issues with your partner, but if you do, you are both aware of what process you will follow and what remedies are available to you.

Including a clear dispute resolution plan in your contract will reduce both the time and the cost of international litigation.

More and more international contracts provide for arbitration as an effective and efficient way to resolve disputes between contracting parties.

An arbitration clause could read something like this:

“All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”

You will also want your clause to address the governing law to be applied to the arbitration, the place and language of the arbitration, and the number of arbitrators to be involved.

Avoid a referee headache

A strong dispute resolution clause that is enforceable and clear is a critical step in the conclusion of commercial conflicts. Always keep in mind that your contract is what governs the relationship between you and your commercial partners.

A contract is not something to be taken lightly and not something that you will have an opportunity to correct retroactively.

Do your due diligence, and engage experts, when necessary, to make sure your contract properly protects you and your interests.

Have you ever missed a step in a contract that ended up costing you? What other items are crucial to a fair and protective contract?

The post Nail down these two international contract clauses to save yourself future legal headaches appeared first on Trade Ready.