International trade and commercial transactions in the United States: overview

A Q&A guide to the regulation of international trade and commercial transactions in the United States.

The Q&A covers key matters relating to sale of goods contracts, including rules on formation, price and payment, delivery, passing of title and risk, variation and assignment, enforcement and remedies, exclusion of liability, choice of law and jurisdiction, and arbitration. It also provides an overview of the rules governing storage of goods, imports, trade remedies, exports and international trade restrictions.

To compare answers across multiple jurisdictions, visit the international trade and commercial transactions Country Q&A tool.

This Q&A is part of the International Trade and Commercial Transactions Global Guide. For a full list of jurisdictional Q&As visit www.practicallaw.com/internationaltrade-guide.

Contents

Recent trends

1. What are the recent trends affecting the regulation of international trade in your jurisdiction? Is your jurisdiction a member of the World Trade Organization (WTO)?

Recent Trends

The 2016 US presidential election is likely to usher in a new administration's philosophy and objectives on global trade. Both candidates have demonstrated their opposition to trade liberalisation.

Trade agreements

The US is a signatory to the General Agreements on Tariff and Trade (GATT), a member of the World Trade Organization, and has entered into free trade agreements, trade and investment framework agreements and bilateral investment treaties. The US Trade Representative publishes a list of the agreements that the US is a member of and their full texts (see below, Regulatory authorities). In addition, the US has implemented several unilateral trade programmes that provide preferential tariff benefits to qualifying products from designated countries.

The US has been negotiating the following agreements (which are not currently in effect as of the date of this publication):

  • Trans-Pacific Partnership Agreement.

  • Transatlantic Trade and Investment Partnership.

  • Trade in Services Agreement.

  • Environmental Goods Agreement.

Reform

In 2009, the US commenced comprehensive export reforms, which have resulted in significant changes in the controls placed on exports and re-exports of commodities and software and technology/technical data under the International Traffic in Arms Regulations and the Export Administration Regulations. The overall objective is to enhance US national security by improving the interoperability of US military forces with allied countries, reducing incentives for foreign manufacturers to avoid US origin content and services and allowing US export enforcement agencies to focus on activities that pose the greatest risks. Details on export reform can be found at http://2016.export.gov/ecr/.

US import and export clearance systems are currently transitioning from a paper-driven regime to a ''single window'' electronic system. The automated commercial environment will enable importers and exporters to interface with US Customs and Border Protection and other federal agencies involved in the admissibility of imported merchandise into, and authorisation of exports from, the US.

 

Contracts for the sale of goods

General

2. What is the legal system in your jurisdiction based on (for example, civil law (codified), common law or sharia law)?

The US is made up of 50 states and the District of Columbia. Both the federal government and the states can pass laws, subject to constitutional limitations. Some areas are governed by federal law, some are governed by state law and many are subject to both state and federal laws. Trade, anti-corruption and anti-money laundering matters fall under federal laws. General contract law is governed by state law and is based on the common law tradition (except for Louisiana, which is based on a civil law system). State contract laws are usually based on recommended laws published by the National Conference of Commissioners on Uniform State Laws. However, there are differences in each state's enactment of these ''uniform laws'', which makes understanding which state law governs a contract an important consideration. A survey of each state's contract law is beyond the scope of this publication.

Sale of goods contracts are often subject to IP laws. Patent and copyright laws are exclusively subject to federal law, while trade mark and trade secret laws exist at both the federal and state levels. Federal trade mark registration makes state protection unnecessary. The federal Defend Trade Secrets Act 2016 now also provides a federal claim for misappropriation of trade secrets without pre-empting existing state trade secret laws. It is necessary to ensure that appropriate language is used in contracts to assign or license IP. However, this is beyond the scope of this publication.

 

Formation

3. What domestic legislation and international rules apply to a sale of goods contract in your jurisdiction? Are standard international contractual terms commonly used?

Domestic legislation

Most states have enacted laws that implement the Uniform Commercial Code (UCC), (Article 2 of which governs the sale of goods) and the American Law Institute's Restatement of the Law Second (Contracts). Each state can modify the UCC.

International rules

The US has ratified the:

  • UN Convention on Contracts for the International Sale of Goods (CISG).

  • Customs Convention on the International Transport of Goods under Cover of TIR Carnets.

  • Convention for the Unification of Certain Rules for International Carriage by Air.

Standard contractual terms

Most US contracts explicitly disclaim application of the CISG. In addition, US contracts do not always use the International Chamber of Commerce Incoterms. It is therefore important to include clear contractual terms (such as transfer of risk and title provisions) in international contracts.

 
4. What are the authority/capacity rules for entering contracts, for different commercial entities?

Agency rules vary by state. Generally, the agent of a commercial entity (principal) must have actual or apparent authority to execute a contract in the name of the principal. An agent has actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes that the principal wishes the agent to act. An agent has apparent authority when a third party reasonably believes that the agent has authority to act on behalf of the principal. US companies rarely provide documents to prove that an agent or officer has authority to bind the entity. State contract laws generally allow a third party to reasonably rely on an individual's representations of authority to bind an entity, if the entity does at least one of the following:

  • Allows the individual to use its business cards.

  • Provides an appropriate title.

  • Acts in a manner or provides other evidence that implies it has authority to act.

 
5. What are the essential requirements to create a legally enforceable contract?

Substantive requirements

A legally enforceable contract requires both:

  • An offer by one party to be accepted by another party.

  • An exchange of value or promises to take action in the future.

Formal requirements

A contract does not always need to be in writing to be enforceable. However, certain contracts must be in writing to be binding, including:

  • Most contracts for the sale of real estate.

  • Contracts for the sale of goods at a total of at least US$500 (subject to certain exceptions).

The writing requirement is satisfied by any document (or related set of documents) that contains the parties' agreement and sufficient information to determine missing or unclear terms through other means. For example, terms that are not included in a contract will be implied in accordance with Article 2 of the Uniform Commercial Code. Both the writing and signature can be in electronic form, according to the US federal Electronic Signatures in Global and National Commerce Act and similar state statutes (with certain exceptions).

International contracts are commonly drafted in English, although a contract need not be in English to be enforceable. If a contract is drafted in multiple languages, the official language of the contract should be explicitly stated. Most US companies will argue that the English language version should govern the agreement between the parties, and any translation should be for information only.

Price and payment

6. If price provisions are not agreed by the parties, does local law impose requirements in relation to price (for example, the time, method and place of payment)?

The price can be paid in money or for other value. In the absence of agreement, payment can be made by any means or in any manner current in the ordinary course of business, unless the seller demands payment in legal tender and gives reasonable time to procure it. Payment by cheque is conditional and is defeated if the cheque is dishonoured.

Unless otherwise agreed, the seller's duty to complete delivery is conditional on payment of the price. However, the seller and buyer can negotiate the timing of payment (for example, milestone payments based on deliverables, shipping, and delivery). International contracts should specify the currency and method of payment for clarity.

 

Delivery

7. If delivery provisions are not agreed by the parties, does local law impose requirements in relation to delivery (for example, the time, method and place of delivery)?

In the absence of explicit contract terms, the seller must hold conforming goods and give the buyer reasonable notice to take delivery. Any tender or delivery must take place at a reasonable hour and the buyer must provide facilities that are reasonably suited to the receipt of the goods. Unless otherwise agreed, the buyer may inspect the goods before payment or acceptance, subject to certain exceptions. Parties to international contracts regularly agree to terms that differ from the default conditions in the Uniform Commercial Code. The time, place and method of delivery and timing of inspections, payments and acceptance are usually determined under explicit terms of the contract.

If a seller must ship through a carrier, the seller meets its duty of delivery when it delivers the goods to the carrier, attaches any required documentation and properly notifies the buyer of shipment. Even so, sellers and buyers often agree to different delivery terms by referencing specific Incoterms governing each party's obligations for shipment, insurance, export, import and delivery. Many US companies are not familiar with the Incoterms 2010. Therefore advisable to refer to the Incoterms 2010 and provide a description of each party's obligations.

 

Passing of title and risk

8. If not agreed by the parties, when does title to the goods pass to the buyer?

Unless otherwise agreed, title to the goods passes to the buyer when the seller delivers the goods. If the contract requires the seller to ship the goods to the buyer but does not require the seller to deliver the goods to a destination, the title will pass to the buyer at the time and place of shipment. If the contract requires the seller to deliver the goods to a destination, title passes on delivery to the destination.

 
9. Are retention of title clauses enforceable in your jurisdiction? If so, what are the requirements to create a legally enforceable retention of title clause?

Under the Uniform Commercial Code (UCC), any retention by the seller of title in goods shipped or delivered to the buyer is limited to a reservation of a security interest.

Provisions granting the security interest must be included in the contract and the seller must file a financing statement to give notice to other creditors that it has an interest in the buyer's property (Article 9, UCC). The form financing statement (that is, ''UCC1'') has been published by the International Association of Commercial Administrators for use in all states and must be filed with the Secretary of State's Office for the state in which the buyer is legally incorporated or located.

However, this security interest will not result in a first secured position in the goods if the buyer's lender already has a perfected security interest in its inventory (a ''blanket'' security interest). Article 9 provides a different method for the seller to obtain a first priority security interest in specific goods, known as the purchase money security interest (PSMI). Sellers should consider taking a PMSI in goods in certain situations (such as sale of a large piece of equipment on credit terms, or for a series of sales to a buyer on credit when the goods will be held in buyer's inventory). A PMSI requires both:

  • Explicit language in the sales contract granting a security interest.

  • The filing of a UCC1 financing statement before the goods are delivered to the buyer.

Article 9 also contains other requirements for the seller to obtain and execute a first priority security interest. However, a complete discussion of the UCC-1 financing statement and PMSI procedures is beyond the scope of this publication.

 
10. If not agreed by the parties, when does risk in relation to the goods pass to the buyer?

If the seller is a merchant, the risk of loss passes to the buyer on receipt of the goods by the buyer. If the seller is not a merchant, risk passes to the buyer on delivery. If the seller agrees to ship the goods by carrier, the risk passes to the buyer when the goods are delivered to the carrier (if no specific delivery destination is stated in the contract). If delivery at a particular place is required, the risk passes when the goods are tendered to the buyer at that place.

 

Variation and assignment

11. What are the main ways and formalities to transfer contractual rights?

There are several ways in which rights under a contract can be transferred. If the contract is silent on assignment, the contract and its obligations are generally assignable by the parties. However, a contract may not be assignable where either:

  • Assignment would materially increase certain duties, burdens, risks or performance of the non-assigning party.

  • The non-assigning party has a substantial interest in having the original promisor continuing to perform.

Contracts can limit assignment by one party or both parties or may prohibit assignment without written consent. Assignment of contract rights to another party may not relieve the original party of certain obligations under the contract. In addition to assignment, the parties can modify, limit, or create new additional rights and obligations under a contract, by amending the contract or entering a novation, replacing their obligations under the previous agreement. Obligations can also be subcontracted by a party without the other party's consent.

 
12. What are the main rules relating to waiver of contractual rights?

Parties can waive their contractual rights constructively (inferred from their actions) or actually (in an express document waiving one or more of rights). For a waiver to be effective, it must be clear that parties have both:

  • Knowledge of the rights they are waiving.

  • A clear intent to waive such rights.

Many contracts state that mere conduct cannot constitute a waiver but that waivers must be express and in writing. In addition, some contracts state that waiving one or some rights or obligations does not waive other rights or obligations.

 

Enforcement and remedies

13. What are the seller's obligations in relation to the description and quality of the goods?

Sales of goods contracts can include express warranties promising that goods will meet certain requirements and implied warranties, such as:

  • An implied warranty of merchantability (that is, that the goods reasonably conform to an ordinary buyer's expectations, if the seller is a merchant of the kind of goods being sold).

  • An implied warranty that the goods are fit for a particular purpose, if the seller knows at the time of the purchase the buyer's purpose in acquiring the goods, and that the buyer is relying on the seller's judgment to select and supply buyer suitable goods.

  • Warranties implied due to a course of dealing or usage of trade.

To avoid implied warranties, the contract must specifically exclude them conspicuously (that is, presented in such a way that a reasonable person against which it is to operate ought to have noticed it) and in writing. Contracts should explicitly state that no other express warranties should be inferred from any other documents or communications between the parties.

 
14. What are the different types and legal status of contractual terms in your jurisdiction?

The different types and legal status of contractual terms in the US are:

  • Condition: an event that must occur before performance of the contract by the other party is required.

  • Term: a requirement to perform or not perform an action.

  • Representation: a fact, explicitly stated in the contract or inferred by conduct, made to induce the other party to agree to the contract.

  • Warranty: a term the breach of which gives rise to a claim for damages, but not the repudiation of the whole contract.

  • Guarantee: a promise that, if a good is not of a certain standard or does not fulfil some condition, the original consideration paid for the contract will be returned. Sellers of goods generally provide warranties in their contracts, not guarantees.

  • Covenant: a promise to engage in or refrain from a specified action, such as an agreement not to compete.

 
15. What are the key rules on privity of contract and third party rights?

Only contracting parties are bound by the rights and obligations under a contract. However, a third party has standing to enforce a contract between two parties if it can show that the express or implied intention of the parties was to benefit the third party. To avoid this, contracts will explicitly state that there are no third party beneficiaries.

 
16. What are the rules relating to invalidity, misrepresentation and mistake relating to contracts?

Misrepresentation

Although this differs among states, the general rule to invalidate a contract for misrepresentation, is that both:

  • A false material representation was made.

  • The other party relied on the material representation in deciding to enter into the contract.

The injured party is responsible for proving the other party was at fault. Fraudulent misrepresentation (that is, misrepresentation of an essential fact by one party who knew it was false or made it recklessly, which the other party reasonably relied on) can invalidate a contract. However, an innocent misrepresentation that the other party should have investigated may not have the same result.

Duress and undue influence

A contract is invalid due to duress where one of the parties made a threat that left the other party no reasonable alternative but to enter into the contract. Similarly, undue influence can also invalidate a contract where one party has little or no bargaining power (such as contracts with standard terms for sale of goods or services that customers must agree to if they want to purchase anything, (that is, adhesion contracts)). Adhesion contracts are carefully scrutinised with respect to the bargaining power of each party and the fairness or the unconscionability of enforcement.

Mistake

Mistake is an error of fact and not an error of judgement. If the mistake is mutual and the error causes one or both parties to enter into a contract that they would not otherwise have entered into, the contract can be invalidated. The contract remains valid if the error was not a basic assumption on which the contract was made or did not have a material effect on the bargain. In the case of a unilateral mistake where the mistake by a party has a material adverse effect on that party, the contract is voidable by the mistaken party if either:

  • The mistaken party bears the contractual risk of the mistake and had limited knowledge of the facts to which the mistake related.

  • The party who was not mistaken had reason to know of the mistake, or was at fault for the other party's mistake.

A clerical mistake is never grounds for invalidating a contract.

 
17. What are the main performance and discharge rules relating to contracts?

A contract can be discharged by:

  • Completion of performance by both parties.

  • Agreement by the parties that the contract has been discharged.

  • Breach of contract.

  • Operation of law.

  • Novation.

If obligations are severable from the rest of the contract, the parties must still perform the other terms of the contract in order to discharge the contract. If a condition precedent in a contract is not fulfilled, either party can treat the contract as discharged.

The performance of the contract does not need to be completely fulfilled to be the basis for discharge. Contracts can be discharged in cases of substantial performance, waiver or acceptance of partial performance. Waiver or acceptance of partial performance can be implied, which is why many contracts include specific language requiring that waivers must be in writing.

Discharge related to a contract breach can be due to an actual breach, or based on an anticipatory breach or an anticipatory repudiation. An anticipatory breach occurs when one party repudiates their obligation to perform a future promise. In these circumstances, the other party can terminate the contract breach, even if the date for performance has not yet arrived. One party can also treat the contract as discharged based on anticipatory repudiation, that is, the failure of the other party to provide timely assurances of performance on request.

A contract can be discharged by operation of law based on illegality, merger into another contract, statutory release (such as a discharge in bankruptcy), or impossibility. A contract can also be discharged by operation of law when the contract is materially altered by one party without the consent of the other. Impossibility results from a force majeure event or another event that frustrates the purpose of the contract. The effect must be so burdensome that it makes performance impracticable, or undermines the value of the contract so as to frustrate the contract's underlying purpose. Examples include a change in the law or a natural disaster, but not a change in market conditions.

 
18. What are the main remedies and rules for losses and damages for breach of a sale of goods contract?

Contract law remedies are generally limited to monetary damages and are governed by the Uniform Commercial Code, as implemented by each state. There are also time limitations under the statutes of limitations, after which breach of contract claims are barred. Remedies for contract breaches are usually limited to:

  • Expectation damages, which put the non-breaching party in the position it would have been in had the defendant performed the contract.

  • Reliance damages, which return a party to the position it was in before the contract, by compensating for losses incurred in reasonable reliance on the contract.

  • Restitution damages, which are based on unjust enrichment and restore to the non-breaching party the value of the benefits conferred on the breaching party.

The non-breaching party must take steps to mitigate damages, but the burden is on the breaching party to prove that the non-breaching party did not do so. In cases where actual damages may be difficult to prove, liquidated damages provisions can specify damages owed to the non-breaching party in the event of a breach. However, a liquidated damages clause may be found invalid as a penalty, unless the liquidated damages:

  • Are reasonable in light of the breach.

  • Would otherwise be difficult to prove.

  • Account for the inability to otherwise have an adequate remedy.

Liquidated damages are not often used in US contracts and when they are, they are usually tied to confidentiality or IP breaches.

Courts rarely impose specific performance or injunctions as remedies for breaches of a sale of goods contract, unless monetary damages would not be a sufficient remedy (for example, in contracts for the sale of real estate or sale of unique goods).

 
19. What are the buyer's remedies for breach of a sale of goods contract?

See Question 18. In addition, there are specific remedies available to a buyer for breach of contract. The buyer's remedies for breach of a sale of goods contract are as follows (Part 7, Article 2, Uniform Commercial Code (UCC)):

  • Recovery of as much of the price that has been paid and a security interest in goods in the buyer's possession or control for any payments made and expenses reasonably incurred in inspection, receipt, transportation, care and custody of the goods.

  • The right to resell goods in the buyer's possession or control. A good faith purchaser takes the goods free of any rights of the original seller.

  • The right to deduct damages from any payment still due under the same contract.

  • Purchase of substitute goods, also known as ''cover'': the buyer can recover damages equal to the difference between the amounts paid for substitute goods or the market price at the time when the buyer learned of the breach and the contract price of the goods.

  • Following the buyer's acceptance of goods under the contract, the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted.

  • For undelivered goods specifically identified as the buyer's by the seller, additional remedies allowed under the UCC.

  • Incidental and consequential damages resulting from the seller's breach, less expenses saved as a result of that breach and certain specific performance and replevin remedies (that is, a procedure whereby seized goods can be provisionally restored to their owner pending the outcome of an action to determine the rights of the parties concerned).

Consumer product warranties are also governed by the Magnuson Moss Warranty Federal Trade Commission Improvement Act and state common law. These warranties are beyond the scope of this publication.

 
20. What are the seller's remedies for non-payment or late payment?

There are specific remedies available to the seller for breach of contract, which include:

  • Withholding delivery of the goods to which the breach relates.

  • Cancelling the contract.

  • Recovering the unpaid price for goods accepted by the buyer or for conforming goods identified to the buyer that the seller is not able to resell after reasonable effort.

  • Enforcing a perfected, first priority security interest or purchase money security interest the seller may have in the goods to secure non-payment.

  • Selling or reselling the goods and work in process in a reasonable manner and recovering the difference between the resale price and the contract price. Subject to specific requirements under the Uniform Commercial Code (UCC) regarding re-sales, a good faith purchaser takes the goods free of any rights of the original buyer, even if the original seller fails to comply with the statutory requirements.

  • Recovering damages for non-acceptance or repudiation by the buyer, which are calculated as either:

    • the difference between the market price and the unpaid contract price; or

    • the profit and reasonable overhead seller would have made from full performance by the buyer (if the above does not put the seller in as good a position if the contract had been performed).

  • Recovering incidental damages for expenses incurred in stopping delivery, transportation, care and custody of goods after the buyer's breach, and arising from return or resale of the goods or otherwise resulting from the breach, less expenses saved as a result of that breach.

Part 7, Article 2 of the UCC as implemented in the relevant governing state law should be consulted, as well as the common law contract remedies under the state's case law.

 

Exclusion of liability

21. What are the main rules relating to excluding contractual liability? Are exclusion clauses enforceable in your jurisdiction? If so, what are the requirements to create a legally enforceable exclusion clause?

The parties to a sale of goods contract can modify or limit remedies, subject to certain restrictions (Article 2, section 719, Uniform Commercial Code (UCC)). Rules for limiting contractual liability vary from state to state despite the implementation of the UCC. Generally, incidental and consequential damages can be limited or excluded, unless it is unconscionable to do so (for example, by including specific and conspicuous language that limits or excludes a party's right to obtain consequential and incidental damages). Due to the varying US state cases regarding the scope of incidental and consequential damages, US contracts should also specifically exclude the availability of lost profits and revenues as damages. To avoid unconscionability, some seller contracts include a cap on direct damages of a low but reasonable amount, rather than excluding all damages. This is likely to avoid an argument that the contract ''fails of its essential purpose'' because there is no remedy for breach.

A remedy provided under the contract is optional unless the remedy is expressly agreed to be exclusive. Therefore, if a contract provides for alternative remedies, it must explicitly state that these remedies are exclusive. Parties can also seek to define and limit damages through an exclusive liquidated damages clause.

 

Choice of law

22. Will local courts recognise a choice of foreign law in a sale of goods contract? Are there any mandatory local rules that apply, despite a choice of foreign law?

Local courts generally uphold a choice of foreign law clause in a sale of goods contract, unless the contract is unenforceable or if enforcement of the clause would be unjust.

 
23. If the parties do not make a choice of law, what rules determine the law applicable to a sale of goods contract?

If the parties have not agreed on a governing law in the written contract, the local court where the initiating party files the proceedings will determine the applicable law, based on a review of the location of the parties and the contract. However, the local court cannot determine the applicable law if it does not accept jurisdiction of the dispute.

 

Choice of jurisdiction

24. Will local courts recognise a choice of foreign jurisdiction in a sale of goods contract? Are there any mandatory local rules that apply, despite a choice of foreign jurisdiction?

Local courts will generally recognise a choice of foreign jurisdiction (forum selection clause) and choice of venue (the place where the dispute is to be resolved) in a sale of goods contract. The clause will not be upheld if a party can show that the choice of foreign jurisdiction is unjust or the contract is unenforceable.

 
25. If the parties do not make a choice of jurisdiction, what rules determine the jurisdiction applicable to a sale of goods contract?

If there is no agreement regarding jurisdiction in the written contract, the local court where the initiating party files will apply its local court rules to determine whether it accepts the jurisdiction of the case. The local court rules vary from state to state.

 

Arbitration

26. Are arbitration clauses commonly included in sales of goods contracts in your jurisdiction?

Arbitration clauses are commonly included in sales of goods contracts in the US. This is because of the federal statute, the Federal Arbitration Act, which pre-empts state law and because of strong court precedent favouring enforceability of arbitration clauses and enforcement of awards by arbitrators (unless the award is unconscionable in substance or procedure). In addition, arbitration clauses are prevalent in contracts for sales of goods involving international parties because the US is a signatory of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

 

Storage of goods

27. How is title to goods in storage protected and evidenced? Are warehouse receipts recognised as documents of title in your jurisdiction?

Warehousing contracts are governed by state laws based on Article 7 of the Uniform Commercial Code. Documents of title include warehouse receipts and bills of lading. When the document of title is properly transferred, title to the goods passes to the transferee. Documents of title are either negotiable or non-negotiable. A negotiable document is one that states that the goods must be delivered to bearer or must be delivered to the order of a specified person. Any other document of title that does not contain this language or that contains a conspicuous legend that it is non-negotiable will be considered non-negotiable. A negotiable document is transferable by delivery when it runs to the bearer and no endorsement is required. Endorsement is required to transfer title when the document runs to the order of a specified person.

 
28. What conditions and formalities must warehouse receipts comply with?

A warehouse receipt can be issued by any warehouse and need not be in any particular form but it should specify all of the following:

  • Location where the goods are stored.

  • Date of issue of the receipt.

  • Unique identification code of the receipt.

  • Whether the goods received will be delivered to bearer, to a named person or to a named person or its order.

  • Rate of storage and handling changes.

  • Description of the goods or packages.

  • Signature of the warehouse or its agent.

  • Whether goods are owned by the warehouse, solely, jointly or in common with others.

  • The amount of advances made and of liabilities incurred for which the warehouse claims a lien or security interest.

 
29. Are other interests over goods in storage recognised?

Pledges and charges do not create security interests over the goods in storage.

 

Imports

Customs authority

30. What is the authority responsible for enforcing customs laws and regulations? Are certain goods subject to specific examination procedures?

US Customs and Border Protection (CBP) (a division of the Department of Homeland Security) is the US's primary border enforcement agency that enforces the US Customs Regulations and the laws and regulations of other US federal government agencies. CBP's approach to the administration and enforcement of the US customs laws is based on the Customs Modernization Act (Mod Act), which requires that parties exercise reasonable care when importing merchandise into the US by providing both:

  • Accurate information regarding the admissibility, tariff classification, value, and country of origin of imported goods.

  • Any other required documentation or information.

The Mod Act also requires CBP to provide importers with all information necessary to comply with US customs laws and regulations. CBP has published the Informed Compliance Publications to assist importers in understanding the requirements of reasonable care and the core elements of customs compliance.

CBP can:

  • Detain merchandise if it suspects that a trade violation has or is about to occur.

  • Seize and subject merchandise to forfeiture.

  • Assess liquidated damages against customs bonds.

  • Impose administrative penalties for violations of section 592 of the Tariff Act 1930.

However, it is CBP's policy to reduce proposed penalty amounts by taking mitigating factors into consideration. CBP can also refer cases to the Department of Justice for criminal prosecution.

CBP has the authority to examine and inspect any shipment of merchandise that is imported into the US to ascertain:

  • The value and dutiability of the goods.

  • Whether the goods are properly marked.

  • Whether the shipment contains prohibited articles, illegal narcotics, counterfeit goods or other contraband.

  • Whether the goods are correctly invoiced.

 

Import duties, tariffs and rates

31. What are the main customs import tariffs and duties?

General tariffs and rates

Imported goods are subject to duty or duty-free entry in accordance with their tariff classifications under the Harmonized Tariff Schedule of the United States (HTSUS) and their countries of origin. If imported merchandise is dutiable, ad valorem, specific, or compound rates may be assessed. An ad valorem rate is a percentage of the value of the merchandise. A specific rate is a specified dollar amount assessed per unit of weight or other quantity. A compound rate is a combination of both an ad valorem rate and a specific rate. Most merchandise is dutiable under the normal trade relations rates in the general column under column 1 of the HTSUS. Merchandise from countries to which normal trade relations have not been extended is dutiable at the rates shown in column 2 of the HTSUS.

Preferential tariffs

Importers can make claims for preferential tariff treatment for goods that are eligible under free trade agreements or special trade programmes. Imported goods may also be entitled to preferential tariff treatment if they:

  • Qualify for one of the provisions of HTSUS Chapter 98.

  • Are imported into foreign trade zones or bonded warehouses.

  • Are temporarily imported under bond.

 

Non-tariff barriers to imports

32. Are there non-tariff barriers to imports into your jurisdiction?

The US restricts the importation of certain goods for the protection of the economy, national security, consumer product safety and domestic plant and animal life. Goods are also prohibited, with certain exceptions, from embargoed or sanctioned countries.

With limited exceptions, imported goods must be conspicuously and permanently marked to indicate their countries of origin. Unmarked goods or goods that are entered with incorrect origin markings may be:

  • Subject to additional marking duties.

  • Recalled for re-delivery into the custody of US Customs and Border Protection (CBP).

  • Seized by CBP and subject to forfeiture.

Material misstatements as to origin on entry documentation can result in administrative penalties. US law also provides for criminal sanctions where markings are intentionally removed, altered or covered.

The US does not currently impose absolute quotas or visa requirements on imported merchandise. However, tariff rate quotas (TRQs) are imposed on goods such as:

  • Food products.

  • Animal feed.

  • Brooms.

  • Ethyl alcohol.

  • Tobacco.

  • Infant formula.

  • Cotton.

In addition, importers must obtain a licence from the Commerce Department to import certain worsted wool fabrics and woven cotton fabrics. Some free trade agreements and unilateral special trade programmes also impose TRQs and/or tariff preference levels that restrict quantities of qualifying products that may be imported duty-free or at reduced duty rates.

The US maintains two sets of laws establishing preferences for domestic products in certain government procurement activities:

  • The Buy American Act (BAA).

  • The Trade Agreements Act (TAA).

The BAA applies to US Government supply contracts exceeding US$2,500 but that are below the TAA value threshold. Under the BAA, eligible products must be domestic end products. Non-compliant products can still be purchased by the US Government, but will be subject to a penalty. The TAA applies to US Government purchases of supplies or services over US$191,000. However, lower value thresholds may apply, as required by certain free trade agreements (FTAs). Under the TAA, only US-made or designated TAA country end products can be purchased. TAA-designated countries are one of the following:

  • Signatories to the WTO Government Procurement Agreement.

  • Members of a FTA in which the US participates.

  • Least developed countries.

  • Caribbean Basin countries.

The list of TAA-designated countries can be found in section 25.003 of the Federal Acquisition Regulations. Incorrect assertions of product origin under the BAA and TAA can lead to the termination of the US Government contract and the imposition of administrative penalties under the False Claims Act.

 
33. Can customs decisions and import restrictions be challenged?

Importers can challenge the decisions of US Customs and Border Protection (CBP) as follows:

  • On receipt of a Notice of Proposed Action from CBP, in which CBP proposes to make a change in the way in which goods were entered (for example, an increase in duties or denial of a preferential tariff claim) the importer can submit a written response contesting the proposed action within 20 days. If CBP issues a Notice of Action Taken, the importer must abide by that decision until the entry liquidates, at which point a protest may be filed contesting the action.

  • Importers can protest CBP decisions. Protests must be filed within 180 days after liquidation or re-liquidation of an entry. If the importer disagrees with CBP's decision on a protest, it can file suit in the Court of International Trade, with further appeal possible to the Court of Appeals for the Federal Circuit and the US Supreme Court.

  • CBP can issue a pre-penalty notice to the importer, stating that it is contemplating a penalty for an alleged violation. The importer can submit a written petition in response within 30 days from the date of the notice. If CBP later issues a penalty notice, the importer can also submit a petition within 60 days of the date of the penalty notice.

  • CBP can assess liquidated damages if an importer is alleged to have violated the terms of its customs bond. The importer will be given an opportunity to respond in writing to the claim within 60 days.

 

Trade remedies

Regulatory framework

34. What are the main regulations and authorities responsible for investigating and deciding on trade remedies?

The US agencies involved in the administration and enforcement of the anti-dumping and countervailing duty laws and regulations are the:

  • Commerce Department's International Trade Administration.

  • International Trade Commission.

  • US Customs and Border Protection.

The US trade remedies are based on various statutes and Title 19 Code of Federal Regulations Parts 200 et seq.

 

Investigations and enforcement

35. What are the requirements and procedure to start trade remedies investigations?

A US industry that believes it is being injured by dumping (that is, where imported goods are being sold at less than fair value in the US) or subsidisation (that is, where foreign governments provide subsidies to their manufacturers and producers) can file a petition with the International Trade Administration (ITA) and the International Trade Commission (ITC) requesting that an anti-dumping or countervailing duty (AD/CVD) order be levied on the foreign goods when they are imported into the US. The ITA investigates whether foreign producers and governments are engaging in dumping or subsidisation, as well as calculates the AD/CVD rate that will be imposed. The ITC determines whether the domestic industry is suffering material injury. If both the ITA and the ITC make affirmative findings, the ITA will instruct US Customs and Border Protection to assess additional duties against imports of that product into the US.

 

Appeals

36. Is there a right of appeal against the authority' s decision? What is the applicable procedure?

After an anti-dumping or countervailing duty (AD/CVD) order is implemented, new foreign producers or producers that have modified their prices due to the order can request that the International Trade Administration (ITA) conducts a further review of its decision. In addition, an annual review of the order by the ITA can be requested by pre-existing foreign producers. After five years, an order will be terminated, unless the domestic industry shows that the unfair trade practice will reoccur without the AD/CVD order. Certain ITA decisions are subject to judicial review by the Court of International Trade and Court of Appeals for the Federal Circuit. ITA investigations or reviews involving Canada or Mexico can be challenged before a North American Free Trade Agreement Panel.

 

Exports

Regulatory framework

37. What are the main requirements to export goods from your jurisdiction?

The International Traffic in Arms Regulations (ITAR) applies to defence articles, technical data, and defence services. Items that are subject to the ITAR are on the US munitions list (USML) or are specially designed for a USML item. The items cannot be exported, re-exported or temporarily imported into the US without prior authorisation from the State Department's Directorate of Defense Trade Controls (DDTC), unless an exemption applies. In addition, transfers of ITAR-controlled technical data to foreign persons in the US (including foreign national employees of US companies) are also considered ''exports'', and may require DDTC authorisation.

Purely commercial items, dual-use items, and certain munitions transferred from the ITAR, are subject to the Export Administration Regulations (EAR), which are enforced by the Commerce Department's Bureau of Industry and Security (BIS). Depending on the item's classification on the EAR's commerce control list, the destination country, end-user, and the item's end-use, a licence may be required from the BIS prior to export or re-export from the US. In addition, transfers of controlled source codes and technology to foreign persons in the US (including foreign employees of US companies) are considered ''deemed exports'' and may trigger licensing requirements from the BIS.

The Treasury Department's Office of Foreign Assets Control (OFAC) administers and enforces US embargoes and economic sanctions under the Foreign Asset Control Regulations and also imposes restrictions on a US person dealing with certain individuals, entities and countries.

Certain physical export shipments from the US require electronic export information (EEI) filings in the automated commercial environment in accordance with the Census Bureau's Foreign Trade Regulations. EEIs must be filed pre-departure for:

  • Goods in a single shipment that are classified in the Harmonized Tariff Schedule of the United States or Schedule B Code which are valued over US$2,500.

  • All items subject to the ITAR, regardless of value.

  • Items subject to licences, permits or other authorisations issued by other federal agencies.

  • Items lawfully exported to embargoed or sanctioned countries.

  • Items classified in certain export control classification numbers or exported under the License Exception Strategic Trade Authorization.

  • Rough diamonds.

 
38. Are certain categories of goods subject to specific export quotas, restraints or other controls?

The US does not currently impose quotas on exports. However, prior authorisations can be required before certain items that are subject to the International Traffic in Arms Regulations or the Export Administration Regulations are exported or re-exported. In addition, other US federal government agencies similarly impose export licensing or permit requirements on certain items that fall within their jurisdiction.

 

Penalties

39. What are the consequences of non-compliance with export regulations?

Severe penalties (both civil and criminal) can be assessed against individuals and organisations for export violations. Most violations are settled administratively with payments of civil fines. Civil penalties for violations of the sanctions on Cuba can be imposed up to US$65,000 per violation. Civil penalties for violations of all other sanctions programmes and the Export Administration Regulations (EAR) may be the greater of US$250,000 or twice the value of the underlying transaction. Violations of the International Trade Administration Regulations (ITAR) can lead to the assessment of civil penalties of up to US$500,000 per violation. In addition, US Customs and Border Protection can assess penalties of up to US$10,000 for violations involving electronic export information filings. Civil forfeiture of the articles and any vessel, aircraft, or vehicle involved in the violation can also occur and individuals and companies can be debarred or have their export privileges suspended. Criminal sanctions arising in the context of wilful violations of the EAR or ITAR include penalties of up to US$1 million per violation and/or up to 20 years' imprisonment. Export violations can also lead to:

  • Detentions.

  • Seizures and forfeiture of merchandise.

  • Revocation.

  • Suspension or revision of authorisations.

  • Exclusions from practice.

  • Loss of government orders and ineligibility to bid on government contracts.

  • Negative publicity.

 

International trade restrictions

Trade sanctions

40. Are there specific restrictions on trade with certain jurisdictions?

The Office of Foreign Assets Control (OFAC) administers and enforces the US embargoes and economic sanctions programmes under the Foreign Assets Control Regulations. OFAC's restrictions prohibit certain activities by US persons with specific countries, government regimes, individuals and entities and block the assets and property of sanctions targets. Sanctions restrictions vary from one programme to another. Countries that are currently subject to OFAC sanctions include Cuba, Iran, Sudan, Syria and Crimea. To engage in activities that are subject to OFAC sanctions programmes, US persons must be authorised by the OFAC by way of exemptions, general licences, Trade Sanctions Reform Act authorisations or specific licences.

Defence articles and defence services are prohibited from being exported, re-exported or transferred to prohibited countries (listed under part 126.1, International Traffic in Arms Regulations) without prior authorisation from the Directorate of Defense Trade Controls. Similarly, items that are subject to the Export Administration Regulations are prohibited from being exported or re-exported to Cuba, Iran, North Korea, Sudan, Syria and Crimea, without prior Bureau of Industry and Security authorisation.

 
41. What is the authority responsible for imposing trade restrictions?

The Directorate of Defense Trade Controls, Bureau of Industry and Security, Office of Foreign Assets Control and US Customs and Border Protection can assess civil penalties for violations of the International Traffic in Arms Regulations, Export Administration Regulations, Foreign Assets Control Regulations, Foreign Trade Regulations and the US Customs Regulations, as well as their underlying statutory authorities. They can also refer cases involving wilful or knowing violations for criminal prosecution. Export enforcement investigations are led by the Federal Bureau of Investigation, Office of Export Enforcement and Homeland Security Investigations.

 
42. What are the consequences of non-compliance with trade restrictions?

Civil penalties can be imposed for violations of trade restrictions and cases may be referred for criminal prosecution. The agencies can also:

  • Suspend companies' export privileges.

  • Revoke or revise existing authorisations.

  • Impose additional compliance measures on violators.

  • Seize merchandise, vehicles and vessels.

  • Subject items to forfeiture.

Companies can also experience increased agency scrutiny, including more frequent examinations and inspections.

 
43. Are businesses subject to specific compliance requirements? What practical steps should a business take to ensure compliance with trade restrictions?

Companies involved in international trade should implement formal and internal compliance policies and procedures. Demonstrating the existence of an export compliance programme may be considered a mitigating factor during an enforcement action. The core elements of compliance programmes are:

  • Senior management commitment to compliance.

  • Documented policies and procedures for:

    • classification and valuation;

    • export licensing;

    • screening;

    • quantity verification;

    • use of free trade agreements and special trade programmes;

    • oversight of brokers, forwarders and couriers;

    • government filing and reporting requirements;

    • recordkeeping;

    • training;

    • internal audits; and

    • issue escalation.

Companies should also incorporate trade compliance language into their written agreements with foreign supply chain partners.

 

Foreign trade barriers

44. What is the procedure for local exporters to complain against foreign trade barriers contrary to the WTO or other trade agreements?

The International Trade Administration (ITA) is responsible for monitoring trade agreements, identifying and resolving foreign trade barriers and addressing unfair trade practices. US companies can contact the ITA to report a foreign trade barrier at http://tcc.export.gov/Report_a_Barrier/index.asp. The ITA will analyse the problem, engage the foreign government to remove the barrier, and refer cases to the US Trade Representative for formal dispute settlement action at the WTO level. In addition, US exporters can request US Customs and Border Protection's assistance in resolving disputes with foreign governments involving tariff classification and customs valuation issues, which can lead to the disparate treatment of their goods in foreign markets.

 

Regulatory authorities

US Customs and Border Protection (CBP)

W www.dhs.cbp.gov

Principal responsibilities. This is the primary border security agency of the US.

Bureau of Industry and Security (BIS)

W www.bis.doc.gov

Principal responsibilities. This is the agency of the Commerce Department that enforces the Export Administration Regulations, which applies to exports and re-exports of commercial items, dual-use items and certain munitions.

Directorate of Defense Trade Controls (DDTC)

W www.pmddtc.state.gov

Principal responsibilities. This is the agency of the State Department that enforces the International Traffic in Arms Regulations, which applies to exports, re-exports, temporary imports and the brokering of defence articles and services.

Office of Foreign Assets Control (OFAC)

Wwww.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx

Principal responsibilities. This is the agency of the Treasury Department responsible for enforcing the US embargoes and economic sanctions programmes.

Census Bureau

W www.census.gov/foreign-trade/index.html

Principal responsibilities. This is the agency of the Commerce Department responsible for collecting foreign trade statistics and enforcing the Foreign Trade Regulations.

US Trade Representative (USTR)

W https://ustr.gov

Principal responsibilities. This is the agency responsible for US trade policy and negotiating international agreements.

International Trade Commission (ITC)

W www.usitc.gov

Principal responsibilities. This is the agency responsible for publishing the Harmonized Tariff Schedule of the United States and making injury determinations in unfair trade practices cases.

International Trade Administration (ITA)

W www.trade.gov

Principal responsibilities. This is the agency of the Commerce Department responsible for addressing foreign trade barriers and determining whether dumping or subsidies are occurring.



Online resources

Federal Register

W www.gpo.gov/fdsys/browse/collection.action?collectionCode=FR

Description. This US federal government website publishes the daily issues and final administrative regulations of federal agencies.

Code of Federal Regulations (all titles)

W www.gpo.gov/fdsys/browse/collectionCfr.action?selectedYearFrom=2016&go=Go

Description. This is the codification of the general and permanent rules and regulations (sometimes called administrative law) published in the Federal Register by the executive departments and agencies of the federal government of the US.

US Code (all titles)

W www.gpo.gov/fdsys/browse/collectionUScode.action?selectedYearFrom=2015&go=Go

Description. This is the consolidation and codification by subject matter of the general and permanent laws of the US. It is prepared by the Office of the Law Revision Counsel of the US House of Representatives.



Contributor profiles

Melissa S Ho, Shareholder

Polsinelli PC

T +602 650 2028
F +602 926 2376
E mho@polsinelli.com
W www.polsinelli.com

Professional qualifications. US District Court, District of Arizona, Attorney-at-law; US Court of Appeals, Ninth Circuit, Attorney-at-law; United States Patent and Trademark Office, Attorney-at-Law

Areas of practice. Government investigations; compliance, civil and criminal.

Recent transactions

  • Defence of multimillion-dollar securities and accounting fraud case for a publicly traded company involving parallel Securities and Exchange Commission investigation.
  • Lead attorney for completion of internal investigation for national metal recycling company facing local and federal investigation resulting in non-prosecution agreements.
  • Lead attorney for criminal environmental investigation into RCRA violations.
  • Local litigation counsel for Chinese companies needing to enforce judgments in the US.

Languages. English, Cantonese, Mandarin Chinese

Professional associations/memberships

  • State Bar of Arizona, Board of Governors.
  • American Bar Association: Commercial and Business Litigation Committee, White Collar Subcommittee, Co-Chair.
  • National Association of Criminal Defense Lawyers.

Publications

  • Arizona Trial Practice Manual, 2015.
  • Managing White Collar Legal Issues, 2013.

Melissa Miller Proctor, Shareholder

Polsinelli PC

T +602 650 2002
E mproctor@polsinelli.com
W www.polsinelli.com

Professional qualifications. Illinois, Attorney-at-law, 1996; Arizona, Attorney-at-law, 2001; Court of International Trade, Attorney-at-law; Court of Appeals for the Federal Circuit, Attorney-at-law

Areas of practice. Customs law; export controls and economic sanctions; international trade law; Foreign Corrupt Practices Act compliance; corporate and transactional law.

Non-professional qualifications. LLM, Georgetown University Law Center, 1997; International and Comparative Law, JD, Valparaiso University, 1996; BA, Indiana University, 1993, Spanish and Russian

Recent transactions

  • Design and implementation of trade compliance programmes for aerospace, computer hardware and software, and high technology firms.
  • Qualification of textile apparel, pharmaceutical, food products, and medical devices for preferential tariff treatment.
  • Defending an online retailer and electronic parts supplier in export enforcement cases involving violations of the International Traffic in Arms Regulations (ITAR), Export Administration Regulations (EAR) and the Foreign Assets Control Regulations.
  • Tariff classification and country of origin determinations for textile apparel, automotive parts, and computer hardware and software.
  • Securing EAR and ITAR licences for companies in various industry sectors.
  • Conducting merger and acquisition due diligence of potential import and export liability performed on behalf of online retailers and medical device manufacturers.
  • Obtained the release of merchandise seized by US Customs and Border Protection on behalf of various aerospace, electronics, defence, and textile apparel companies

Languages. English, Spanish

Professional associations/memberships

  • State Bar of Arizona.
  • Illinois Bar Association.
  • American Bar Association.

Michael Patterson, Shareholder

Polsinelli, PC

T +602 650 2038
F +602 297 6624
E mfpatterson@polsinelli.com
W www.polsinelli.com

Professional qualifications. US District Court, District of Arizona, Attorney-at-law; Supreme Court of Arizona, Attorney-at-law; State Bar of Arizona, Attorney-at-law

Areas of practice. Corporate and securities; international; mergers and acquisitions and business transactional law.

Non-professional qualifications. JD, cum laude, Arizona State University-Sandra Day O'Connor College of Law, 1995; Mexican Legal Studies Program presented by the University of Houston Law Center in Mexico City, 1993; BA in History, Arizona State University

Recent transactions

  • Advised multinational telecommunications company in Latin American joint venture.
  • Advised Mexican mine in sale of minerals to US purchasers.
  • Represented large Mexican commercial grower in complex litigation against multinational food products purchaser.
  • Sell side M&A for European software company.
  • Represented US-based medical device manufacturer with distributions in over 60 countries in negotiation of local country distribution agreements in conjunction with local counsel.

Languages. English, Spanish

Professional associations/memberships

  • Chair Elect, Executive Council, Business Law Section, State Bar of Arizona.
  • Executive Council, Securities Section, State Bar of Arizona.
  • Global Chamber of Commerce Advisory Board, Global Ties Executive Board.

Publications

  • Arizona State University Law Journal.
  • Phoenix Business Journal.
  • Arizona State Bar Convention.

Karen R Dickinson, Shareholder

Polsinelli PC

T +602 650 2328
E kdickinson@polsinelli.com
W www.polsinelli.com

Professional qualifications. State of Illinois, Attorney-at-law, 1997; State of Arizona, 1987

Areas of practice. IP; technology contracting and e-commerce law; international business, data privacy; technology law; Foreign Corrupt Practices Act compliance; corporate and transactional law; distribution law.

Non-professional qualifications. JD, Arizona State University, 1987; BA, Duke University, 1982, Psychology

Recent transactions.

  • Leading acquisition for Chinese client of majority control in New York Stock Exchange listed company.
  • Assisting US clients with product sourcing agreements with suppliers in the People's Republic of China.
  • Assisting Chinese clients set up affiliates in the US and US clients set up affiliates in Hong Kong and the People's Republic of China, along with attendant corporate, tax, and IP legal advice, and cross-border transaction assistance.
  • Assisting non-US clients with forming and advising joint ventures and subsidiaries in the US.
  • Assisting US clients with domestic and global product and online services marketing and distribution agreements.
  • Advising US clients on global IP licensing and anti-counterfeiting strategies, and managing international trade mark portfolios.
  • Advising multinational non-profit and for-profit organisations on domestic and global data privacy strategy and legal issues.
  • Negotiating US and cross-border software, IT systems and SaaS agreements, and related SLA, support and source code escrow agreements, and creating Terms of Use, Privacy Policies and online contracts for clients in regulated and unregulated industries.

Languages. English

Professional associations/memberships

  • State Bar of Arizona.
  • Illinois Bar Association.
  • American Bar Association.
  • U.S. Global Leadership Coalition.
  • iTech Law.
  • Greater Phoenix Economic Council International Leadership Committee.
  • Metro Phoenix Export Alliance Advisory Board.
  • Phoenix Committee on Foreign Relations.

Publications

  • Practical Law.
  • Association of Finance Professionals AFP Exchange.
  • International Trademark Association Bulletin.
  • Arizona Technology Council TechConnect.
  • Phoenix Business Journal.
  • Polsinelli on International Blog.

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