Commerce between countries is almost as old as civilization itself. From the days of dugout canoes to streamliners to e-commerce, nations have built their wealth by extracting their local resources, fashioning them into goods, and selling them overseas.
But historians largely agree that the Dutch East India Company (VOC), founded in 1602, was the first formal business entity created for the express purpose of engaging in international commerce. (It was also the first company to issue stock to finance its operations and is still, to this day, the most valuable company of all time with an estimated market capitalization of approximately $8 trillion in today’s money—about three times the size of Apple.) The VOC leveraged the Netherlands’ competitive advantage at seafaring to buy and sell spices, tea, coffee, tropical woods, rice, sugar, and other goods around the world—from Bali to Brooklyn.
The VOC, and subsequent modernization of international commerce, paved the way for the world as we know it to exist. It’s arguably the reason you can enjoy a Coca-Cola in Cairo, or order a sweater from New Zealand on your laptop in Switzerland.
What is international commerce?
International commerce is the practice of buying and selling goods and services between nations, plus the activities that facilitate it (such as banking, transportation, warehousing, etc.). The international commercial system exists due to sovereign states leveraging certain competitive advantages of their home countries to buy and sell elsewhere. A competitive advantage could be an extra-long coastline, like Chile has; proximity to certain natural resources, like lumber (Canada) or fish (Portugal); or a highly educated, technically trained workforce (South Korea, Sweden, Israel).
With all of these different countries participating in the international commercial system, each with its own set of sovereign laws, it is important that global regulatory agencies exist to create some legal cohesion. The two main organizations overseeing international commerce are the International Chamber of Commerce (ICC) and World Trade Organization (WTO). The WTO does have a hand in regulating international commerce, despite there being a difference between commerce and trade.
International commerce vs. international trade
There is a technical distinction between international commerce and global trade. Trade refers to the basic economic activity of buying, selling, and/or exchanging goods and services between two or more parties in a marketplace. Commerce encompasses all activities that promote the exchange of goods and services—from the point of manufacture to the moment a customer purchases a product in a store. Activities considered commercial include:
- Advertising and marketing
Complexities surrounding international commerce
Because international commerce is so wide-reaching in its definition, there are a number of variables that any small business owner should be aware of if considering engaging in it.
Laws and regulations
Businesses engaging in international commerce will not only be subject to the laws of the country in which they are based but also likely to the laws in the countries in which they conduct business—whether buying or selling. If you run an American company that sells products in Canada, for example, and your product causes a Canadian citizen some injury, there’s a chance you could be sued in a Canadian court. Likewise, your products will have to adhere to the product safety laws and regulations in place in the countries where you wish to sell.
Finally, your international business will be subject to any treaties governing international commerce in the countries in which you transact. These might include the North American Free Trade Agreement (NAFTA), or various treaties of the eurozone. If a government is on a sanctions list put in place by your own government, you may also be forbidden from buying or selling products there (at least temporarily).
Intellectual property (IP) law is generally contained on a national level. Any international enforcement of IP laws relies on a patchwork of cooperating national laws and bilateral agreements (agreements between two countries at a time). A small business owner will want to consider the IP protections available in any country in which they plan to market and sell a product. Robust laws, such as those in Singapore, Japan, Switzerland, and the United States, will adequately protect your IP. Other countries may not have adequately developed IP laws or enforcement abilities to protect your ideas.
Cultural differences in business practices
Developing intercultural competency is an absolute necessity for any business person looking to engage in international commerce. This goes beyond learning a few polite phrases in the local language—it entails understanding how everything from dress, to body language, to the tone of voice can affect how a business deal transpires.
For example, in China, it is appropriate to hand out business cards to the most senior official or executive present at a meeting first. In Portugal, employees are forbidden by law from engaging in business communications (even email) outside of work hours, and you may wish to adjust your correspondence schedule accordingly.
Supply chains and logistics
Supply chains and logistics are among the most complicated aspects of international commerce. The speed and easiness with which goods flow through various ports will depend entirely on the infrastructure available in the port’s country. Additionally, major international events can have a huge impact on the movement of cargo. The seizure of the Suez Canal by the Egyptian government in 1956, for example, caused a massive disruption to the flow of goods through the Mediterranean and Red Seas, and by extension, significant economic disruption in Europe, Africa, Western Asia, and many other parts of the world. It is crucial for any small business owner engaging in international commerce to stay up to speed on how global economic and political developments may impact their ability to source and deliver materials.
Taxes, duties, and tariffs
The products and services you buy and sell in various countries will likely be subject to certain taxes, duties, and tariffs. For example, products your US-based small business sells in the United Kingdom will be subject to a 20% tax charged on most goods sold in the country. Duties are indirect taxes that are imposed on the consumer of imported goods—so if you are selling a product in a country with high duties, you will want to consider that when pricing the product for that market. If your sale price is too high, the addition of a high duty may make the product unattractive to consumers.
Tariffs are taxes applied by a country on specific goods imported from a specific country. Tariffs are meant to protect domestic production by raising the price of certain goods imported into a country. Even if you don’t export your products into another country yourself, and instead rely on an import-export dealer, those tariffs are likely factored into the fees you pay.
It can be difficult to resolve legal disputes in the context of international commerce, because all countries maintain their own sovereign sets of laws, and have their own court systems for enforcing them. In countries that enjoy significant legal interplay with each other, like the United States and Canada, it is relatively easy to call citizens of one country into court to answer for damages inflicted in the other. When damages are of a criminal nature, there are also extradition treaties in place between some countries that further facilitate this process.
Elsewhere, it can be exceedingly difficult to sue a citizen of another country in your home country of operation. For example, it is quite difficult for US companies to sue Chinese nationals for copyright and trademark infringement. Chinese nationals are not obligated to answer lawsuits in US courts, and it can be difficult to locate and serve them with a complaint in-country.
For this reason, some organizations involved in international commerce offer alternative routes to in-country litigation, including arbitration and alternative dispute resolution (ADR). The ICC offers an international court of arbitration, which results not in formal judgments against participating businesses, but binding agreements enforceable by the laws of the parties’ respective home countries.
International commerce is an area full of promise for small businesses from around the world. But it is also an area full of complexity, varying and sometimes conflicting rules, and a host of unpredictable geopolitical realities. If you are interested in international commerce, it is crucial that you do the necessary research to understand the markets you wish to enter, and perhaps consult an attorney specializing in international commercial and trade law.