1999, Volume 2, Paper 26
ISSN: 2209-6612

Legal aspects of exporting: risks and how to reduce them

S.C. Williams – Graduate School of Management, University of Queensland

Introduction

Australian producers, manufacturers, processors, and service providers have been exporting successfully for more than two hundred years. They are part of a system of international trading activity and business conduct that has evolved over the centuries from the independent business dealings of many (mainly small) entrepreneurs . This has generated a set of agreed principles that have resulted in not only the creation and maintenance of an informal “international businessman’s code” that governs the way business is done, but also forms the basis for much of the international law , public and private, that governs trade and stands ready to enforce compliance with the rules. Such principles include the keeping of promises, fair dealing, good faith, courtesy and communication. One might expect that exporters would be sure they had some understanding of the legal systems and environments they are dealing with, but research done by the author and others suggests otherwise.

The typical scenario for a small Australian producer exporting for the first time is the producer receiving a telephone call or fax from an overseas firm or agent asking if the producer is able to supply quantity x of product y to an overseas destination z for a price p (e.g. Cost, Insurance, Freight, or C.I.F.). The producer, often flattered by this unexpected overseas interest, contacts his/her bank and relevant exporting authorities for advice. The bank usually suggests a letter of credit transaction to guarantee payment on delivery, and the exporting authorities describe the required process and documentation needed for export. Various telephone and fax transactions take place between the exporter and importer, including exchanges of various documents (e.g. invoices, order forms, bills of sale). The required exports, transport, and insurance documentation is prepared, and the shipment takes place. If all goes well, subsequent orders may be received and much of the initial formality and dealing at arms’ length may be dropped. Letters of credit may be dispensed with. The principals may meet and form a good personal relationship, or they may never meet, and the relationship remains company to company. Such relationships may continue uneventfully for many years.

In most cases, legal aspects are never considered. In a study of Queensland seafood exporters in 1997, the author ( Williams , 1997) found that:

(a) most firms had no knowledge of the legal environments that applied to their international transactions;

(b) most firms were not concerned whether or not they had sound (low risk) contracts, or even whether or not the contracts were legally enforceable;

(c) most firms had no contact with lawyers in setting up their international trading activities or transactions; and

(d) most firms had not considered the possibilities of any adverse legal consequences arising from their trading activities, domestically or internationally.

These findings mirrored those of earlier studies (in the USA and the UK respectively ) by Macaulay (1963) and Beale and Dugdale (1975). The 1997 study suggested that a number of factors may be operating to explain such behaviour, such as a general lack of knowledge of legal issues and risks, a general reliance on the ‘international businessman’s code’, the use of letters of credit to secure payment (failure of payment was seen as the primary commercial risk, with other risks being seen as far less important), and the use of “the grapevine” determine whether or not the prospective trading partner was considered stable and trustworthy. Most reported that they had learned from hard experience that they were rewarded for overall results, and a dispute that ended in arbitration or the courts would most likely result in high costs and delays, and a significant loss of face. When the lawyers are called in, it is often too late to salvage the business relationship between the parties. Both firms have to suffer the embarrassment of having the details of their private dealings aired in public ( Mueller , 1967) and both firms have to go through the perhaps now difficult exercise of finding new partners. There is therefore a great reluctance to admit the law to the process.

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