Uncle Sam wants you!
Paul Saydak is a junior attorney in the Detroit office of Miller, Canfield, Paddock & Stone.
More specifically, Uncle Sam wants the country's products. At present, many of our products are eligible for duty-free treatment under the U.S. General System of Preferences, a program designed to encourage the export of Polish goods to the United States. Targeted specifically to domestic manufacturers to promote their success, the U.S. permits our companies to export their products there either duty-free or at preferential rates, unlike products originating in the European Union.
Unfortunately, once the country joins the EU, this preferential tax treatment will come to an end, as Poland will become subject to the existing tariffs in effect between the U.S. and the EU. In order to ensure that this does not adversely affect our exports to the U.S. pending change, manufacturers here will need to pay closer attention to the different tariff classifications that will be applied to their products that enter the U.S. The rate of tax depends on the tariff classification, and each item imported into the U.S. is assigned its own classification. Therefore, in order to ensure that a Polish manufacturer will continue to have access to the American market, it is essential to obtain the most advantageous tariff classification possible. The classification assigned to each product will determine the degree of demand for our goods in the U.S.
The success of the country's products in the U.S. does not merely depend on tariff classifications. Exporters must also take into account both federal and local laws. For instance, the health and safety laws of one state may vary from those of a neighboring state, and goods sold in more than one jurisdiction must comply with different legal standards. Moreover, depending on the product, such as pharmaceuticals for example, federal law will also apply, such as approval by the Food and Drug Administration.
Many products imported into the U.S. are marketed and sold under the terms of a distribution agreement entered into by the Polish manufacturer and an American company with a local or national distribution network. Under the terms of a typical distribution agreement, the U.S. distributor will agree to sell the goods throughout the U.S. for either a flat fee or a percentage of sales. Polish exporters, unfortunately, often enter into distribution agreements without proper knowledge of American law.
Let's take the sale of beer in the state of Illinois as just one example. The sale of Polish beer in that state, home to the largest concentration of Poles outside the country, is subject to a local law, the Beer Industry Fair Dealing Act, otherwise known as the Beer Act. The Beer Act is designed to protect local distributors from the "predatory practices" of foreign brewers. Regardless of what the Polish brewer and local distributor agree to in writing, the Beer Act will govern the terms of the distribution agreement, and in many cases will invalidate any terms contradictory to the Beer Act, such as the inclusion of arbitration clauses. The Beer Act requires the foreign brewer to provide the local distributor with the option to reject arbitration at the time of negotiating the distribution agreement.
Most likely the local distributor will be fully aware of this requirement, while the Polish brewer will not. Two years later when a dispute arises, the Polish brewer will be unable to seek arbitration if it can not prove that it first gave the local distributor the option to reject the arbitration clause in writing at the time of signing the distribution agreement. The Beer Act also imposes severe financial penalties on a foreign brewer in the event of terminating the distribution agreement, despite what the agreement itself may stipulate. In other words, any distribution agreement with an Illinois distributor includes an invisible subtext that will supercede the terms of the agreement.
Trademarks pose another risk for our exporters. American distributors are usually not concerned with the protection of a foreign manufacturer's trademark, and more often than not the distribution agreement will not even address the subject. Recently, a new practice has started to occur. If the distribution agreement is silent with respect to the trademark of the product, the American distributor will often register the trademark in its own name without telling the foreign manufacturer. Later, if the manufacturer decides to switch distributors, the former distributor may hold the trademark "hostage" in an effort keep the contract or to extract an additional payment from the Polish manufacturer. Distribution agreements should clearly state who is entitled to register the trademark in the U.S. Otherwise, a Polish manufacturer may find itself in an American court trying to regain ownership of its own trademark.
Any other pitfalls awaiting Polish exporters? Yes. A distribution agreement can be altered in many instances without ever being amended. An American distributor will most likely issue a purchase order each time it receives a shipment of goods from a foreign manufacturer. The purchase order will often include additional terms and conditions written in very small print. By accepting these purchase orders, a Polish exporter may inadvertently alter the terms of payment or delivery that were agreed to in the distribution agreement. It is important to read the small print before accepting a purchase order. In many cases, a purchase order will be used by the American distributor to try to change the terms of the distribution agreement without the knowledge of the Polish manufacturer.
The moral of the story? An ounce of legal protection is worth a pound of cure.
