Risk in the foreign trade - 3 ways to minimize it

Entering into commercial relations with a foreign contractor involves risk. What is the risk in foreign trade and how to increase the security of such transactions?

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The risk and practical difficulties associated with establishing cooperation with a foreign contractor are influenced by many factors. To name just a couple of them:

• differences in the legal systems of the countries where contractors come from;
• doubts about regulations which apply to the transaction;
• lack of knowledge about where a potential dispute between the parties will take place;
• the need to refer to international conventions and regulations;
• international delivery of goods and potential complications related to it;
• warranty obligations performed in another country or even on another continent;
• international payments and related to it exchange differences;
• language, cultural and commercial differences;
• negotiation difficulties.

As a result, very often international transactions are accompanied by a much lower degree of trust than commercial cooperation carried out in domestic trade.

1. Make sure to either put agreements into writing or formalize them in some other way that is relevant to the contract. This will help ensure that you’re able to pursue future claims without any interruptions.

Concluding a contract in writing allows you to avoid a number of doubts and risks associated with entering into a commercial transaction with a foreign contractor. In the contract, we can regulate all potential flashpoints for a given cooperation. If in a particular case a detailed contract with a foreign contractor is not concluded, it is worth remembering that the parties’ mutual obligations should be secured, for example, by exchanging e-mails, in which there will be a clear acceptance of the most important points of a given cooperation.

2. Offer your business partner your own content of the contract – whenever possible.

If it is possible in a given commercial relationship, it is worth presenting your own content of the proposed contract. In this way,  you will have control over what will be included in it, and any comments or points that require negotiation are reported by the contractor. Having your own content of the contract creates also the positive image of a professional in the eyes of a future business partner.

3. If we receive a contract ready to be signed from the contractor – read it and negotiate its terms whenever it is possible.

A practice that should definitely be discouraged in international trade is entering into commercial relations on terms that are not known to the entrepreneur. This will always be the case when we do not read the contracts presented to us or do not decide to negotiate the terms of future cooperation, hoping that it will somehow work out. We can deal with a similar situation when the contract presented by a foreign contractor is drawn up in a language unknown to us and we resign from making the necessary translation that would allow us to understand what we are actually agreeing on. Agreements should be read before signing, and commercial cooperation should be started on terms that the entrepreneur understands and consciously accepts.

The need to negotiate and agree on the terms of cooperation often discourages entrepreneurs from concluding contracts in writing. Entrepreneurs are also afraid that excessive attention to formal issues will discourage the contractor from entering into a commercial relationship that they care about. All these circumstances are undoubtedly worth balancing, and in a particular case, choosing the best possible way to secure the arrangements that are important for the entrepreneur, which will allow them to finalize the transaction. It doesn’t always have to be an extensive written agreement.

Joanna Lubecka
attorney