SALES OF SERVICES Topics Discussed in Chapter –Introduction –General Agreement on Trade in Services –Hiring Foreign Personnel Employees Sales Representatives

SALES OF SERVICES

• Topics Discussed in Chapter– Introduction– General Agreement on Trade in Services– Hiring Foreign Personnel

• Employees• Sales Representatives• Distribution Agreements• Freight Forwarders and Custom Brokers• Advertisers• Securities• Accountants

SALE OF SERVICES

• Introduction– Organization for Economic Co-Operation and

Development• 60% to 70% of the business sector in OECD countries relates

to sale of services.– Forms of Services Provided

» Consulting» Export and Imports of Goods» Electronic Transfer» Licensing Agreements» Franchising Services» Tourism» Finance

SALE OF SERVICES

• Introduction– Goods vs Services

• Services less tangible than goods• Financing is more difficult• Services involve personal relationship• Services very difficult to standardize

– Global Cooperation• Customs Modernization Act of 1993-requires audits and

record keeping for exporters and importers.• Mutual Recognition Agreements-reducing trade barriers in

specific industries.• Trans-Atlantic Business Dialogue-electronic commerce

GENERAL AGREEMENT ON TRADE IN SERVICES

• Agreement in Uruguay Round to reduce trade barriers among member nations of WTO– Part I

• Application of GATS– Services supplied from the territory of one party to

another– Services provided to Consumers (tourism)– Services from entity to another entity (financing– Services provided by nationals of one party in the territory

of another (construction projects)

GENERAL AGREEMENT OF TRADE IN SERVICES

• Part II-Obligations of Member Nations– Most Favored Nations-obligation that each party shall

accord immediately and unconditionally to service and service providers of any other country, treatment no less favorable that that it accords to like services.

– Transparency-requirements made public and published.

– National Treatment-no discrimination against importer of trade services.

– The agreement does not apply to citizenship, residency, employment and movement of labor.

GENERAL AGREEMENT ON TRADE IN SERVICES

• Objectives in Negotiations of GATS– Efforts to remove restrictions on market access

to certain industries.– Address environmental, energy, health and

education concerns.– Regulatory Areas such as workplace safety– Internet and E-Commerce concerns.

HIRING FOREIGN PERSONNEL

• Employment Relationships– United States “employment at will”

• Employees held to a standard of conduct and can be discharged for any transgression.

– United States has strong policy on “sexual harassment” and “racial harassment”

– Germany treats employment as a property right.• Requires from 4 to 7 months notice of discharge• Must consult with “works council” before termination• Protected classes include pregnancy• Severance Pay could be up to a year


• Employment– French Labor Code

• Employees can sue for unfair discharge and seek conversion contract (retraining rights)

– Russia• Very difficult to discharge• Maternity Leaves up to 3 years

– Italy• Employees hired from government list• Compulsory Hiring from various protect groups-war veterans,

disabled, widows, orphans (15% must come from this list)


• Employment– International Labor Organization

• Declaration on Fundamental Principles and Rights at Work

– Freedom of Association and right to collective bargaining\

– Elimination of Compulsory or Forced Labor

– Abolition of Child Labor

– Elimination of Discrimination


• Independent Contractor-must clearly designate that contracting party is independent contractor so that employment laws of host nations are inapplicable.– Contractual Agreement

• Non-partnership clause

• Work for Hire Clause-all improvements and creation revert back to employer


• Foreign Sales Representative-independent contractor-commercial agency arrangement.– Concludes sales on behalf of contracting party.– Must investigate background of Sales Representative– Termination Provision

• Specify factors that allows for termination of contract• Best Effort Provision-sales representative makes best effort

maximize sales.• Confidentiality Provisions• Evergreen Statutes- limitation on termination , notice and

payment for services after termination of agreement.


• Distribution Agreement– Foreign Competition Laws

• Tying Clauses often unenforceable• Price Fixing unenforceable• Non-Competition Clauses-unenforceable• Territorial Restrictions enforceable

• Freight Forwarders and Customs Broker• Provides for the physical transportation of the goods, prepares

documents for transportation and arranges for the goods to clear customs.

– Bill of Lading– Multimodal Transport Documents


• Advertising– Affected by Culture

– Prohibits unfair, fraudulent and deceptive advertising.• Federal Trade Commission in United States

• Germany authorizes private litigation to control misleading advertising.

• Scandinavian makes use of consumer ombudsman

• Exporters should use local private advertisers who are familiar with local laws on advertising.


– Securities Transaction-global securities transaction system to raise capital to finance business

– United States-Securities and Exchange Commission• Extraterritorial Extension

– Intent Test– Effects Test– International Organization of Securities Commission

• Materiality– US-is omitted information what the investor would have relied

on in making investment decision.– Canada-did omitted information affect market price– Hong Kong-was the investor and informed investor– Japan-numerical assessment of omitted information


• Accounting and Taxation– Internationalization

• Domestic regulation can be modified to take into account the special issues of cross-border transaction

– Transfer Pricing-tax avoidance scheme where contracts between parent and subsidiary take advantage of low tax countries.

» US apply arms length rule to determine if transfer pricing.

• International Standards can be enumerated for professional services.

» Unitary Tax System

• Countries can mutually recognize each other’s professional qualification and national standards.

» International Accounting Standards