Key Takeaways

  • International contracts govern business transactions across borders, mitigating legal and financial risks.
  • Common types of international contracts include distribution agreements, franchise agreements, joint ventures, and intellectual property licenses.
  • Selecting a governing law is crucial in international contracts to ensure enforceability and consistency.
  • Dispute resolution mechanisms such as arbitration and mediation are commonly included in international contracts.
  • Understanding regulatory compliance, taxation, and trade restrictions is essential for drafting international contracts.
  • Businesses should work with experienced legal professionals to tailor contracts to specific international legal environments.

International contracts are the primary legal tool put in place for companies to limit their risks when working in the global or international market. When a company plans to expand its products or services into the global market, one or more contracts will most likely be required from several parties, such as freight forwarders and sales tax agents.

Information About International Contracts

When working with an international contract, expect to come across much of the same familiar language that is used worldwide. On the reverse side, there can be differences in the way things are approached legally and in the business environment when working with an international company.

It's important not to get too comfortable with the familiar and not to ignore the differences, so there are no unpleasant surprises.

It is commonplace for international contracts to be written in English, even if the parties involved are not from an English-speaking country. 

The downside to contracts written in English by non-native speakers is problems that may arise after the contract is signed, and one or more parties disputing the contract because they didn't understand what they were signing.

To avoid disputes because of contracts written in English, it is possible to have the parties waive their rights to claiming they did not understand the contract, and thus it being invalid. The other option is having dual-language contracts with English as the governing language. You can always do a combination of both options.

Include a provision in the contract indicating the official language to be used in the dealings among or between the parties. It is advised to have any contract verified and validated with certified translations.

Negotiation of International Contracts

Negotiating international contracts requires that you give as much attention to the international contract as you do for contracting a deal in the United States. There may be additional issues and risks you encounter that aren't present when working with a domestic contract.

It is routine for the parties involved with an overseas contract to negotiate which of the party's courts will govern any dispute(s). In many cases, the parties opt for compromise, making English the governing law.

The provisions for jurisdiction and venue is critical because of:

  • Legal processes
  • Litigation expenses
  • Enforcement of judgments. 

It is advised to have a backup plan should their preferred governing law or jurisdiction not be accepted. Many times, parties from America defer to New York being the governing venue. African, Middle Eastern, and European parties may find English law acceptable, while laws in Australia and Singapore are more acceptable to Asian parties.

The law applied to an international business transaction contract can often be decisive. This is due to the variations in:

  • Language
  • Culture
  • Legal heritage. 

For this reason, it is advisable that both parties choose a governing law acceptable to each. By doing so, both parties can better anticipate how provisions of the contract might be interpreted.

In the United States, domestic contracts are governed by the Uniform Commercial Code (UCC) in most states. For international contracts, the U.N. Convention on Contracts for the International Sale of Goods is the default governing law.  

Key Considerations for Drafting International Contracts

When drafting international contracts, businesses must account for various factors beyond domestic agreements. Key considerations include:

  • Choice of Law & Jurisdiction – Specify which country’s laws govern the contract and where legal disputes will be resolved.
  • Regulatory Compliance – Adhere to trade laws, taxation policies, and industry-specific regulations in both countries.
  • Contract Language & Interpretation – Clearly define contract terms and provide translations where necessary.
  • Dispute Resolution Mechanisms – Establish arbitration, mediation, or litigation procedures to handle conflicts efficiently.
  • Force Majeure Clauses – Address unexpected circumstances (e.g., natural disasters, political upheaval) that could hinder contract fulfillment.
  • Intellectual Property Protection – Ensure that patents, trademarks, and proprietary knowledge are safeguarded in the host country.

Properly addressing these elements in contract negotiations minimizes risks and enhances enforceability in global transactions.

Types of International Contracts

Examples of international contracts include:

  • International distribution agreements
  • Intellectual property licenses
  • Investment agreements
  • International sales contracts
  • Supply agreements
  • Letters of credit
  • Franchise agreements
  • Joint venture agreements
  • Development agreements 

Additional Common Types of International Contracts

Beyond the fundamental types of international contracts, businesses frequently use several other agreements to structure their cross-border transactions:

  1. Agency Agreements – These contracts appoint an agent to act on behalf of a principal in international markets. The agent is responsible for negotiating and concluding agreements but does not assume liability for contract execution.
  2. Brokerage Contracts – A broker connects buyers and sellers, facilitating business deals without direct involvement in the transaction. This is common in trade, real estate, and investment transactions.
  3. Factoring Agreements – This contract involves a financial institution (factor) purchasing accounts receivable at a discount to provide immediate cash flow to businesses engaged in international trade.
  4. Technology Transfer Agreements – These contracts regulate the licensing of technology, patents, and trade secrets between companies in different countries.
  5. Construction and Engineering Contracts – These agreements outline terms for infrastructure development, project funding, and responsibilities in international construction projects.
  6. Service Agreements – Used when one company provides specialized services to another in a different country, such as consulting, IT support, or professional services.

Each of these contracts serves a specific function in global business transactions, helping companies manage risk, regulate payments, and protect intellectual property.

Elements of Negotiating International Contracts

International contracts usually involve multiple parties. Each party needs to be identified and its responsibilities outlined to minimize any risks. 

  • Clearly outline expectations and sales goals. This includes the performance expectations and requirements for satisfactory performance as it relates to volume or defined time periods.
  • The dispute resolution section of an international contract should be clear about the rights and remedies of all parties involved with the agreement.
  • An arbitration clause should be included, as it specifies how a dispute will be resolved.
  • Include steps to be taken to terminate without creating a material breach of contract.
  • Include a force majeure to allow a party to be excused from its obligations of an international business transaction contract because of circumstances beyond its control, such as a natural disaster.
  • Include shipping and payment terms.
  • Include a section covering the requirement to be in compliance with applicable laws.

Key Considerations for Drafting International Contracts

When drafting international contracts, businesses must account for various factors beyond domestic agreements. Key considerations include:

  • Choice of Law & Jurisdiction – Specify which country’s laws govern the contract and where legal disputes will be resolved.
  • Regulatory Compliance – Adhere to trade laws, taxation policies, and industry-specific regulations in both countries.
  • Contract Language & Interpretation – Clearly define contract terms and provide translations where necessary.
  • Dispute Resolution Mechanisms – Establish arbitration, mediation, or litigation procedures to handle conflicts efficiently.
  • Force Majeure Clauses – Address unexpected circumstances (e.g., natural disasters, political upheaval) that could hinder contract fulfillment.
  • Intellectual Property Protection – Ensure that patents, trademarks, and proprietary knowledge are safeguarded in the host country.

Properly addressing these elements in contract negotiations minimizes risks and enhances enforceability in global transactions.

Frequently Asked Questions

1. What is the most commonly used international contract? The international sales contract is the most commonly used contract in global trade, covering the sale and purchase of goods across borders. It defines terms such as delivery, payment, and liability.

2. What is the difference between an agency contract and a distribution agreement? An agency contract allows an agent to represent a company in a foreign market without assuming financial risks. A distribution agreement, on the other hand, involves a distributor purchasing goods and reselling them in a specific region, bearing financial responsibility.

3. How do I resolve disputes in an international contract? Disputes in international contracts are typically resolved through arbitration, mediation, or litigation in a mutually agreed jurisdiction. Many contracts include an arbitration clause specifying a neutral arbitration body like the International Chamber of Commerce (ICC).

4. What role does currency play in international contracts? Currency fluctuations can impact contract values, making it important to include currency adjustment clauses or use hedging strategies to minimize financial risks.

5. Do I need a lawyer for drafting an international contract? Yes, hiring a lawyer with expertise in international business law is crucial to ensure the contract complies with all relevant regulations, avoids legal loopholes, and includes robust dispute resolution mechanisms.

If you need help with international contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.