Peppe Santoro - Plenary

Doing Business in the East

Common Legal Themes in Doing Business Internationally

Peppe Santoro Monday 22 March 2010

Planning

“Fail to plan, plan to fail”

• Doing business internationally is different

• Doing business in the East is more different

– How will you do business?

– Whose contracts will you use?

– Are contracts understood similarly by both parties?

– What language will they be in?

– Will you have to establish a presence locally?

– Can you contract over the internet?

– Will your IPRs be respected?

– What regulatory regimes will apply?

– What taxes will be payable?

Contracts and Terms of Trade

• English usable for almost all contracts – an advantage

• Mandatory local rules – need local counsel to approve

• UNIDROIT / INCOTERMS – useful shorthand

• ICC Arbitration – expensive but other modes exist

• Credit and finance (guarantees, LCs, escrow on the rise)

• Governing law and jurisdiction – neutral venue

• Modes of execution – initialling, witnessing etc.

• Capacity and authority – take local advice if in doubt

Regulation/Registration

Doing business in most jurisdictions in the East will, for an Irish person, involve new levels of regulation, licensing and ‘red tape’. Examples:

• China: sectoral prohibition/regulation, structural pre-requisites (Foreign Investment Enterprise (FIE) regime), extensive local and other licensing requirements

• India: sectoral prohibition/regulation, licensing regimes, nationality of ownership, Foreign Exchange Management Act (FEMA)

• No substitute for specific local advice in this area

Intellectual Property

IPRs include registered rights (eg patents), unregistered rights (eg copyright) and equivalent rights (eg trade secrets, domain names).

• TRIPS Annex to WTO Agreement has significantly improved the situation in the last 15 years.

• Participation in key international treaties administered by WIPO never to be taken for granted http://www.wipo.int/treaties/en/summary.jsp

• Known difficulties enforcing IPRs in some jurisdictions, although situation has improved significantly.

• Practical difficulties connected with enforcement of IPRs are a material risk

Employment

Usually a second tier issue. Mandatory applicability of local rules and local governing law is a critical issue. Ability to engage people in other ways (eg as consultants or agents) must also be critically examined.

• Do rules apply to foreign and local workers alike? Sometimes yes (eg Egypt) sometimes no (eg China)

• Immigration rules will need to be carefully considered and planned for in advance (visas may be needed simply to enter on business)

• Ability to contract out?

• Trade unions (often prohibited). Other modes of representation (eg Ministry of Labour conciliation in UAE)?

Taxation and Custom Duties

Tax planning likely to be one of the most important issues. Consequences of failing to structure a business correctly can make the difference between success and failure. Consider all of the following:

• Local residency requirements / PE rules

• Types of applicable taxes and rates

• Double Tax Treaty networks (Ireland’s treaty network excellent)

• Withholding tax regimes

• Thin capital and Transfer Pricing rules

• Applicable customs duties and the risks of punitive tariffs

Export/Import Controls

Tangible and/or intangible goods may be subject to export/import controls and/or licensing. Munitions and dual use goods almost certainly will be.

• Entry/exit inspection takes place for many goods, quarantine applicable in many cases, pre-shipment inspection for waste exported to China as raw material

• Russia inherited Soviet-era export control mechanisms and has impressively complex and robust procedures although it has made significant modernisation process since 1992

• Export of strategic and technical commodities is regulated in UAE and the authorities have broad powers to prohibit or regulate imports on a number of grounds including public health, environment, natural resources, national security or for foreign policy reasons.

Currency Restrictions

Similarly, the movement of capital may also be restricted in a number of ways, most typically by exchange control mechanisms (phased out of Ireland in 1992).

• China allows repatriation only of after-tax dividends of FIEs

• In India the RBI imposes exchange controls generally

• Egypt has no exchange control but all foreign currency transactions must be carried out through registered banks or franchised dealers. The Egyptian pound is not transferable or convertible outside Egypt.

• UAE imposes restrictions on transfer of funds only to Israeli-linked persons

• Bahrain, Kuwait and Hong Kong have no exchange controls

Dealing with Troubled Companies

Planning to deal with counterparties in difficulty should begin long before any signs of stress in the relationship or financial position begin to show. These should include:

• Understand applicable bankruptcy/insolvency codes at a high level (Dubai World)

• Security and financial compensation mechanisms (eg LCs)

• Implementing policies of diversification of relevant risk wherever possible

• Response plans devised and routinely updated and tested

• Retain advisors who are equipped to act decisively to execute response plans if and when needed.

Competition/Anti-trust

Passing familiarity with local laws governing restrictive practices and unfair competition is essential if commercial agreements are not to be undermined unwittingly.

• Russian, Egyptian, Indian and Kuwaiti competition laws share some similarities with those of Ireland

• New ordinances are planned in Hong Kong

• In China unfair competition is regulated but anti-competitive agreements are less clearly regulated

• Intra-national anti-dumping competition rules tend also to arise from time to time.

Anti-corruption

Recent developments in the UK have brought that country’s anti-corruption legislation up to speed with and, in some respects, ahead of the US FCPA. What is little known is that in many respects the equivalent Irish legislation has for many years been almost as robust.

• Corruption in some countries is still quite common.

• Expanding companies should have clear, effective and enforced policies against corruption.

• Risk of prosecution is increasing all the time and such a prosecution will damage expansion efforts generally

Connectivity

To succeed in doing business in the East businesses must think strategically from the outset and prepare extensively

• Engage with home-country advisors after you have carried out initial scoping (with a growing list of questions on hand)

• Verify that existing home-country advisors have good connections in the area you will address

• Use home-country advisors to assist in strategic planning and in the selection and management of local advisors (can usually be done at little added cost – the management pays for itself).

Eversheds International footprint in Asia

Eversheds International contacts

Abu DhabiChristopher JobsonAl Bateen Tower (C6), Office B905 9th Floor, Bainunah Street 34PO Box 42182, Abu Dhabi, UAETel +971 2 494 3600

DohaChristopher JobsonQatar Financial Centre, PO Box 24148 Office 1101, QFC Tower, Diplomatic Area, West Bay, Doha, QatarTel +974 496 7396

DublinPeppe SantoroEversheds O'Donnell Sweeney One Earlsfort Centre, Earlsfort TerraceDublin 2, IrelandTel +353 1 6644200

Hong KongNick Seddon21/F, ICBC Tower, Citibank Plaza3 Garden Road, Hong KongTel +852 2273 5376

Eversheds’ India GroupGauri Advani1 Wood StreetLondon EC2V 7WSUnited KingdomTel +44 20 7919 4500

JeddahHani Al QurashiHani Qurashi Law Firm Saudi Business Center, 6th floor Suite 609-610, Madinah RoadP.O Box 51679, Jeddah-21553Kingdom of Saudi Arabia Tel +966 2 6574525

JohannesburgTerry MahonEversheds22 Fredman DriveSandton 2146, JohannesburgSouth AfricaTel +27 11 286 6900

Kuala LumpurShahrir JalilShahrizat Rashid & LeeLevel 12 & 13, Menara Millenium8 Jalan Damanlela, Damansara Heights50490 Kuala Lumpur, MalaysiaTel +60 3 2710 5555

MauritiusTerry MahonEvershedsSuite 330, 3rd floor Barkly WharfLe Caudan Waterfront, Port LouisMauritiusTel + 230 211 0550

RiyadhHani Al QurashiHani Qurashi Law Firm Arceed Center, 1st Floor Suite 12-13 P.O Box 300200, Riyadh - 11372Kingdom of Saudi Arabia Tel +966 1 2011911

ShanghaiPeter CorneUnits 501-502, Platinum, No. 233 Taicang Road, Luwan DistrictShanghai 200020, PRCTel +86 21 6137 1088

SingaporeDesmond OngEversheds LLP1 Finlayson Green, Singapore 049246Tel +65 6572 5555

CONTACT DETAILS FOR EUROPEAN AND UK OFFICES AVAILABLE ON REQUEST

Thank you

Peppe Santoro, Commercial PartnerEversheds O’Donnell Sweeney

One Earlsfort CentreEarlsfort Terrace

Dublin 2+353 1 6644200

[email protected]/in/psantoro

www.eversheds.ie