1、Chapter 9International Business Contract Negotiation This chapter introduces the main factors involved in international contract negotiation.It specifies the required terms and structure in a business contract,cultural issues in contract negotiation,matters affecting drafting,signing and enforcing a
2、 contract,how to make stipulations on transferring,altering,rescinding and terminating a contract and how to resolve contract disputes.In this chapter you will learn:general introduction;drafting,signing and enforcing the contract;transferring,altering,rescinding and terminating the contract;settlem
3、ent of disputes.9.1General introduction 9.1.1The concept of international business contracts A contract,in the broadest sense,is simply an agreement that defines a relationship between one or more parties.A business contract,in simplest terms,is just an agreement made by two or more parties for the
4、purpose of transacting business.A contract may be oral or written,formal or informal.The contract which is generally adopted in import and export business is the formal written contract.Written terms may be recorded in a simple memorandum,certificate,or receipt.Because a contractual relationship is
5、made between two or more parties who have potentially adverse interests,the contract terms are usually supplemented and restricted by laws that serve to protect the parties and to define specific relationships between them in the event that provisions are indefinite,ambiguous,or even missing.When on
6、e party enters into a business contract with an unfamiliar and distant party across a country border,a contract takes on added significance.The creation of an international contract is a more complex process than the formation of a contract between parties from the same country and culture.In a cros
7、sborder transaction,the parties usually do not meet facetoface,they have different social values and practices,and the laws to which they are subject are imposed by different governments with distinct legal systems.These factors can easily lead to misunderstanding,and therefore the contracting parti
8、es should define their mutual understanding in contractual,and preferably written terms.9.1.2Types of international business contracts Based on different functions and contents,contracts can fall into the following kinds:(1)Sales Contract(2)Purchase Contract(3)Joint Venture Contract(4)Contract for C
9、ooperation(5)Contract for Business of Processing(Party Bs)Material Into Finished Products(6)Agreement on Compensation Trade(7)Lease Contract(Agreement)(8)Service Contract(Contract for Foreign Labour Service;Contract for Employment)(9)Contract for Work(10)Contract for Technology Transfer and Importat
10、ion of Equipment and Materials(11)International Loan Agreement(12)International Tender and Bid(13)License Contract(14)Agency Contracts(General Agency Agreement;Agency Agreement;Sole Agency Agreement)9.1.3The required terms of an international business contract A foreign economic contract shall,in ge
11、neral,include the following terms:(1)The corporate or personal names of the contracting parties and their nationalities and principal places of business or domicile;(2)The date and place of the signing of the contract;(3)The type of contract and the kind and scope of the object of the contract;(4)Th
12、e technical condition,quality,standard,specifications and quantity of the object of the contract;(5)The time limit,place and method of performance;(6)The price,amount and method of payment,and various incidental charges;(7)Whether the contract is assignable and if it is,the conditions for its assign
13、ment;(8)Liabilities to pay compensation and other liabilities for breach of contract;(9)The ways for settling contract disputes;(10)The language(s)in which the contract is to be written and its validity.If the contract does not provide the terms that are necessary to complete the transaction,in some
14、 jurisdictions the contract will not be enforceable.In others,the courts will imply terms into the contract,terms that may or may not have been intended.Therefore,always review the contract to see if it includes the required terms.9.1.4The structure of an international business contract A formal wri
15、tten contract(Common Law System)generally consists of the following parts.(1)Title(2)Preamble Date of signing Signing parties Each partys authority Place of signing Recitals or WHEREAS clause (3)Body Definition clause Basic conditions General terms and conditions:a.Duration b.Termination c.Force Maj
16、eure d.Assignment e.Arbitration f.Governing law g.Jurisdiction h.Notice i.“Entire agreement”clause j.Amendment k.Others9.1.5Cultural issues affecting international contracts Success in foreign trade will depend on how flexible one is in recognizing and respecting the culture of other people.Cultural
17、 differences will affect not only the negotiations with foreign traders,but also the acceptance of the goods or services in foreign markets.In a business context,culture is a set of rules that govern the way in which commercial transactions are conducted between people of different nations.These rul
18、es dictate the etiquette,traditions,values,communication,and negotiating styles of a group of people.One must be aware of and sensitive to other cultures,and must adapt the products and services to the preferences of the foreign market.Cultural awareness will be most important in the initial contact
19、 and negotiation,since in subsequent contacts many of the rules will have already been figured out.In making initial contact,you should first establish whether the general protocol in the country tends to be rigidly applied.The next step is to determine what that protocol is,especially for the issue
20、s that will arise at the first stage of contract negotiations.These issues include greetings,courtesies,business ethics,decision making,gender,meeting formalities,and business attire.9.1.6Cultural dos and donts of negotiating contracts(1)When meeting a foreign trader Do use a title to show respect a
21、nd wait for the other party to initiate informality.Reply to inquiries immediately,preferably by telephone.Be enthusiastic but not overbearing.Allow the other trader equal speaking time.Dont be in a hurry.Determine in advance whether it is common business practice in the other partys country to“grow
22、”deals over time.If not,make the deal.If so,plan to establish a professional relationship before signing a contract.If seeking more than a one time sale,one may need months or even a year to reach a longterm arrangement.(2)When confronting gender or race bias Do keep appearance subdued,demeanor prof
23、essional,and the approach formal.Present a business card,speak quietly with knowledge and authority,and take a firm attitude.If possible,bring a business partner or coworker who is of the same race or gender as the foreign trader and who is prompted,in advance,to acknowledge ones authority and aptit
24、ude.Find out whether one can deal with a different representative of the company.Dont try to make a statement about rights.If the deal is important,try not to take personal offense and refrain from lecturing the other party.Do not assume that others from the same company or even the same country sha
25、re the same bias.(3)When at the negotiating table Do show firm authority.Be aware of the hosts level of eye and physical contact and remain within the bounds established.Research common cultural traits and business practices of the foreign trader.Determine in advance the points on which to be flexib
26、le so as to start the negotiation above the bottom line.Insert humor when appropriate,balanced with reserve when the discussion is serious.Dont appear inflexible on all points.Avoid overt conflict or belaboring a point.Dont jump to fill every conversation gap;silence can yield golden results.Refrain
27、 from sudden shifts in tone of voice or change in demeanor.(4)When faced with legal issues Do find out whether negotiations will be merely preliminary or whether the other party intends to make a deal.Ask the host for a list of who will be present at the meeting,and if legal counsel for the host pla
28、ns to attend,consider bringing ones own attorney.Consult an attorney if negotiations are serious and one is uncertain of the risks.Dont agree to any deal or sign any contract unless absolutely certain that one fully understands and agrees to all rights and obligations of both parties to the agreemen
29、t.(5)When socializing Do accept an invitation if the host graciously extends it.Go prepared with several conversational topics that might be of interest to the hosts other than the business at hand.Research the cultural norms of gift exchanging,and consider a gift that is representative of ones own
30、country.Dont offer to socialize if the host sticks to business and places time constraints on the meetings.Avoid criticizing the hosts country,and do not raise sensitive topics such as politics,personal inquiries,or religion.Be careful not to consume too much alcohol.9.2Drafting,signing and enforcin
31、g the contract 9.2.1The basic principles At the beginning,it is important to recognize that one will not be able to cover every gap and fill all the loopholes in the contract provisions.The reason is simple:one does not know them all.While one can try to plug each gap,the one that is missed will be
32、the one that is later disputed and renegotiated.One may not be able to create the perfect contract,but nevertheless draft the contract provisions as clearly as possible.The more definitive the terms,the fewer the disputes.Use very precise language.Look for the weak links.Ask,“If something will go wr
33、ong,where will it go wrong?”And remember,when things do go wrong,correct the contract provisions to avoid the same mistake in the next transaction.One should review ones own contract from the point of view of the other party:what weakness in position might the other party find advantageous?And then,
34、from ones own point of view:are the contract requirements for performance and enforcement feasible,sufficient,and efficient?In drafting international contracts,it is extremely wise to go through each contract provision with each party and expressly ask them to indicate their comprehension,such as:“D
35、o you understand that you are assuming the responsibility for packing these goods according to our shippers instructions?”If one is concerned that misunderstanding over performance is likely,one may want to have each party initial all or some paragraphs,and it is common practice to have each party i
36、nitial every page.Some multinational contracts have every paragraph initialed after the parties have spent weeks negotiating the contract through interpreters.Contracts that involve capital goods,high credit risks,or industrial or intellectual property rights will require special protective clauses.
37、In preparing such contracts,it is essential to obtain legal advice from a professional who is familiar with the laws and practices of both countries.9.2.2The signing requirements Before signing a contract,one may have not even read it all the way through from beginning to end.Maybe one has just peek
38、ed inside at a few provisions,in particular the payment clauses.Does it state the intentions?Does it cover all of the basics?Does it cover all of the extras?And the most important question looms on the horizon:should one sign the contract?It is best to review and understand every term before signing
39、.It is wise to read the contract several times,keeping in mind different concerns each time to be certain that the contract states the entire agreement.First read it to become familiar with organization of the provisions.The next review should include a comparison with the terms that have already be
40、en negotiated and with which there is an oral agreement.On the third review,consider whether the contract defines every aspect of the relationship that is intended in terms of the practices in the industry and in ones own particular business.Finally,always be certain that the legal and business issu
41、es common to all international contracts have been covered.9.2.3Ten tips to tighten the clauses Look for vague standards,such as“reasonable,”“material,”or“substantial.”Try to restate these standards more definitively or eliminate them entirely by designating the time that one considers reasonable;id
42、entifying the clauses,rights,or obligations that one believes are materials;or specifying the amount that one considers substantial.Read the literal meaning of the clause without reading“between the lines”or making any assumptions as to intent.Make sure what it says is what it really means.Simplify
43、complex provisions by breaking up long sentences,eliminating unnecessary chains of words,and reducing strings of nouns and verbs.Write in“plain English.”If one cannot understand ones own contract,try to use less legal jargon and fewer bombastic terms.Watch out for missing time limits.If no time for
44、performance is provided,a reasonable time is usually implied,and“reasonable”is one of those vague standards.Use proper grammar.Be certain the clauses relate correctly,the punctuation defines the meaning,the“i”s are dotted and the“t”s are crossed.Search for ambiguities by creating scenarios.Pretend t
45、o be the worst enemy.How would one avoid the contract?Avoid colloquialisms that will have little or no meaning to a party from another country.Say what is meant in straightforward terms.Do not try to be allinclusive.One will never include it all in a strict listing.Flexible terms will in fact be mor
46、e inclusive than lists of terms that try to be allinclusive but end up being exclusive.Look out for words that have several meanings.Try to restate them,or at least to define them.Does“shipped”mean“left the sellers warehouse on the sellers truck”or“transferred to the carrier at the pier”?9.2.4Implem
47、entation A contract becomes legally binding when both parties have put their signatures to it.The parties must perform the agreed obligations of the contract,and neither party may alter or rescind the contract without the other partys consent.When one party has actual evidence that the other party c
48、annot perform the contract,it may temporarily suspend performance of the contract,but must immediately inform the other party.When the other party provides a full guarantee of performance of the contract,the first party must perform the contract.When one party,without having actual evidence that the
49、 other party cannot perform the contract,suspends performance of the contract,it must bear liability for breach of contract.When one party does not perform the contract or its performance of the contractual obligations does not comply with the agreed conditions,it is in breach of contract,and the ot
50、her party has the right to demand compensation for losses or adoption of other reasonable remedial measures.In the context of enforcement,the balance of power can work against the stronger party in a contract negotiation.Courts and arbitrators often refuse to enforce terms that unreasonably burden o
