International Business Contracts: U.S.–Brazil Trade and Arbitration

Introduction

Conflicts arising out of contracts between international trading parties are on the increase with the rise of global commerce. Courts hearing matters related to business conflicts between trading partners look to the express terms of the contract as well as the applicable law under which the contracts were formed and agreed upon. When one party considers the other party's actions to constitute a breach of contract, the legal contract and its contents form the basis on which courts decide in arbitration cases and in cases of business dispute.

Given the context of international trade and the proliferation of bilateral as well as universal international trade and commerce laws and regulations, arbitrators and courts deciding on business conflicts also consider and interpret international contracts and trade laws alongside bilateral trade agreements between the two countries where the companies originate (Boundy).

For any contract, the actual meaning and relevance lies in the fine print — what is written in the contract. It is apt to say that "the devil is in the details" when it comes to contracts, and the devil is in the boilerplate language. Such boilerplate language is standard language used universally, generally found at the end of every contract. Clauses relating to governing language, governing law, forum and dispute resolution, and arbitration limitations are typically presented in this form. However, in the presence of international laws and bilateral trade agreements, using standard boilerplate language can have undesired consequences.

This paper deals with contract formation, arbitration, and conflict resolution for a U.S.-based company entering into a business relationship with a company based in Brazil.

Governing Language

One of the important considerations when forming contracts with a Brazilian company is deciding on the language of the contract. English is the preferred language when contracts are formulated between a Brazilian company and an American company; negotiations are typically conducted in English rather than in Portuguese, which is Brazil's national language. However, in cases where arbitration authority lies with a Brazilian court or arbitrator, it becomes necessary to translate the contract into Portuguese.

The English version will still need to be translated into Portuguese by a sworn translator even if the contract states that the English version will prevail. In cases where Brazilian courts arbitrate matters, the officially translated version of the contract is used to resolve issues (Bahmani-Oskooee, Harvey, and Hegerty).

Governing Law and Forum Selection

It is common practice in international trade for parties to include governing law and forum selection clauses that are more favorable to the party that drafts the contract. Therefore, while drafting the contract, the U.S.-based company would include a clause stating that the governing law will be the law of a particular U.S. state and that the forum for disputes will be a specific city within that state's legal jurisdiction.

While both parties are free to choose the governing law and forum in international contracts, parties tend to choose the forum or governing law most favorable to themselves — a decision each party must weigh independently. Accordingly, the U.S.-based company would select an arbitrator and forum regulations within the United States, and, if favorable, within its home state.

Arbitration Clauses and Boilerplate Language

To create an alternative method of dispute resolution, contracting parties often include specific arbitration clauses in the contract. Arbitrations are generally handled faster and at lower cost than court litigation, particularly in the context of international contracts in the United States. Therefore, the U.S.-based company can opt to select a Brazilian court or arbitral body as the arbitrator in cases of business conflict (Berger).

Several important considerations must be kept in mind when drafting an arbitration clause. These include: how many arbitrators there will be; who will serve as arbitrator(s); who will bear the costs of arbitration; in what language the arbitration will be conducted; whether the arbitration award will be final; and where the arbitration will be held.

While Brazilian and American contract laws share many similarities in the way they are applied, important details in the contract's boilerplate language should not be overlooked simply because of those apparent similarities (Berger).

USA–Brazil Trade: Rules and Bilateral Agreements

Trade laws and regulations are essential to creating a level playing field for all parties in a global marketplace characterized by unequal partners. The primary laws and regulations are formulated by the World Trade Organization (WTO), which defines and determines international trade rules. These rules were negotiated and ratified to promote and expand trade among the organization's member nations, with the aim of enabling every member to achieve economic growth and prosperity.

The first rule governing any contract, arbitration, or litigation between a U.S. and a Brazilian company is the WTO framework, as both countries are members of that international trade body. Both companies would therefore have to agree to and adhere to the General Agreement on Tariffs and Trade (GATT) for goods as formulated by the WTO.

Other rules and conventions governing the contract and any related dispute resolution clauses include the General Agreement on Trade in Services (GATS) and the Trade-Related Aspects of Intellectual Property Rights (TRIPS). As an overall watchdog of international trade disputes, the WTO Secretariat in Geneva, Switzerland, administers and monitors the application of agreed rules, reviews trade policies, and assists in the settlement of disputes between member countries. In this context, the U.S.-based company would be governed by the WTO agreements to which the United States has agreed to adhere. For example, in June 2008, Brazil claimed that U.S. agricultural subsidies on upland cotton were illegal under the WTO Agreement on Agriculture. The WTO intervened and granted Brazil $147.4 million in sanctions for Fiscal Year 2006, and also arbitrated the formula for determining compensation to be paid in subsequent years (Ridley and Devadoss).

The Uniform Commercial Code (UCC) Sales provisions also apply to the U.S.-based company's trade with the Brazilian company. The UCC is a very comprehensive code that departs from regular American statutes. Contract formation, parties' obligations, warranties, methods of payment, title, performance, breach, and remedies are all aspects of international trade governed by this code.

The governments of the United States and Brazil have engaged in a number of bilateral agreements and established joint bodies to facilitate trade and commerce and reduce trade barriers. One such example is the Brazil–United States Commission on Economic and Trade Relations, established through the Agreement on Trade and Economic Cooperation between the two governments. This body is charged with facilitating and liberalizing bilateral trade and investment, enhancing cooperation on shared objectives within the WTO, increasing cooperation in the U.S.–Brazil Consultative Committee on Agriculture, addressing sanitary and phytosanitary matters, and identifying and removing technical barriers to trade. The commission is also entrusted with upholding intellectual property rights, addressing regulatory issues that affect trade and investment, and intervening in trade in services matters as it deems appropriate. For the U.S.-based company, this commission represents a potential forum for resolving conflicts that might arise with the Brazilian company (Devereaux, Lawrence, and Watkins).

Other pertinent bilateral agreements affecting the trade and commercial relations between the two companies include the Statement of Cooperation Regarding Cooperation in the Medical Device Single Audit Program, the Memorandum of Understanding on Cooperation with Respect to Tobacco Products, the Memorandum of Understanding Concerning Labor Cooperation, the Memorandum of Understanding to Improve Institutional Capacity Through Technical Cooperation on Environmental Management, and the Memorandum of Understanding to Support State and Local Cooperation.

Conclusion

There are a number of rules and regulations, international agreements, and bilateral instruments between the U.S. and Brazil that govern and inform the contract between companies from these two countries. The bilateral trade agreements between the two nations and the Brazil–United States Commission on Economic and Trade Relations are examples of frameworks that govern arbitration and the settlement of disputes and business conflicts. The U.S.-based company can designate any location within the United States as its preferred place for arbitration and include this provision in the business contract with the Brazilian company.

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