Kegler Brown and the Greater Cleveland Partnership presented "Doing Business in the New India: Market Opportunities + Legal Insights" on Wednesday, May 27. Vinita Bahri-Mehra presented "Preparing for Export Success in India - A Legal Perspective" and discussed ways to achieve success while conducting business in India.

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presented by Vinita Bahri-Mehra
May 27, 2015
Preparing for Export Success
in India – A Legal Perspective

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U.S./India Exporting at a Glance
U.S. Exports to India in C-Y 2014: $41.5 billion (a 7.8% increase)
Imports from India in C-Y 2014: $60.52 billion (a 9.5% increase)
Total Bilateral Trade in C-Y 2012: $102 billion (a 9.7% increase)
India has emerged as the 18th largest export market for U.S.
India has emerged as the 15th largest market for Ohio exports
India’s GDP growth for F-Y 2015-2016 7%/7.5%
Indian firms eager to buy American products and services
India’s WTO commitments → resulted in opening of
markets

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Some Success Stories
2nd largest small car market in the world
One of three countries that makes its own supercomputers
2nd largest group of software developers after the US
100 of the Fortune 500 have R&D facilities in India
Indian students represent 15% of all international students
in U.S. higher education

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Top 5 Keys to Successful
Exporting to India
1. Strategic Planning – Finding Partners and Agents
2. Due Diligence
3. Geographic Diversity
4. Consistent Follow Up
5. Patience and Commitment

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Why India?
India is the 4th largest economy in the world as measured by purchasing
power.
India has a consumer base of 1.2 billion people.
The youngest population of the world – hence sustainable, long term
growth is assured.
Modern (organized) retail converging with the consumption boom will
open up many opportunities for small and mid-size consumer companies.
Rapid growth in the number of middle class consumers.
Eager and savvy consumer market with growing buying
potential.

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100% foreign investment permitted in most sectors on automatic
basis except:
Banking (74%)
Telecom services (74%)
Civil Aviation (49%)
Insurance (49%)
Retail trading:
New – Single Brand up to 100%
Multi-Brand – 51%
100% FDI is allowed in cash and carry wholesale
formats, B2B sales.
India’s FDI Regime

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Certain sectors where FDI is prohibited:
Atomic Energy
Lottery business, Gambling and Betting
Agriculture
Railway Transport
Certain sectors where there are minimum capitalization requirements:
Non-banking financial services activity (certain activities –
fee based and fund based).
Real estate construction and development projects.
India’s FDI Regime

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Information Technology
Software and Services - $50 billion
IT-enabled Services - $17 billion
E-Commerce - $8.9 billion
Biotechnology
$4.5 billion by 2012
Retail
$300 billion by 2012
Healthcare
$16 billion potential
Energy
Potential Investment Opportunities

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Markets with Significant Export
Potential
Airport and Ground Handling
Equipment
Computers and Peripherals
Education Services
Electric Power Generation,
Distribution and Transmission
Equipment
Machine Tools
Medical Equipment
Mining and Mineral Process
Equipment
Oil and Gas Field Machinery
Pollution Control Equipment
Safety and Security Equipment
Telecommunications Equipment
Textile Machinery
Water Treatment

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Investing
in India
Strategic Investor
(FDI)
Financial Investor
(FII or FVCI)
Operate as a Foreign
Company
Operate as an Indian
Company
Acquisition of
shares/business assets
of an existing Indian
Company
Invest in a U.S. company with a services
fulfillment subsidiary in India
Invest in a Caymans or Mauritius company
with a services fulfillment sub in India
Direct investment in an India company from
outside India (Mauritius/Singapore subs)
Direct investment in an Indian company from
outside India through a venture capital fund
registered with the SEBI
Liaison Office
Branch Office
Project Office
Joint Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments – FDI

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Other Entry Routes
Direct sales from U.S. (using freight-forwarder).
Technology collaborations and trademark license.
Agency relationship.
Distributor/franchisee relationship.

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Direct Sales from U.S.
(using freight forwarder)
Key Considerations:
Use accurate Incoterms 2010 for international sale or, even
better, spell out in detail who is responsible for what.
Most common terms:
EXW, FOB, CIF, DDU, DDP
Payment Terms
NOT Incoterms!
The Incoterms generally indicate WHAT must be paid by
each party not WHEN it must be paid.
Do not confuse liability with responsibility.

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Direct Sales from U.S.
(using freight forwarder)
Payment Terms
Usually determined in the purchase contract
Major options, based upon increasing risk
Paid in advance (if exceeds 200,000 additional criteria to be fulfilled
and imports to be made in 6 months).
Letter of credit (can be issued up to USD 20 million per transaction
for one year).
Documents against payment.
Open account (remittance against imports should be completed no
later than 6 months, except for payments withheld for guarantee
performance, disputes, etc.)
Interest on import bills allowed if overdue for less than 3
years at rate prescribed for trade credit from time to time.

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Decide on-Who is the “importer of record”?
Exporting directly can suit high value products or
services. However, winning new customers is likely to
require significant investments in building relations
and several visits.
Direct Sales from U.S.
(using freight forwarder)

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Technology Collaborations +
Trademark License
Foreign entities can provide technical know-how and/or license their
trademark to Indian companies against payment of fee and royalty.
Key Considerations:
Protection of Intellectual Property.
Registration of trademarks, copyrights and patents (“first to file” –
jurisdiction).
Trade Secrets: No statutory protection of trade secrets or confidential
information. However, several court precedents enforce confidentiality
agreement through mandatory injunctions.
Indian IP laws do not provide for automatic assignments.
Advantage of lower withholding taxes on royalty income
stream.

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Agency Relationship
Creation:
Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them.
The Indian Contract Act, 1872 (Act) provides the framework of rules and
regulation that govern formation and performance of an agency contract.
NO WRITTEN CONTRACT: One may be implied, provisions of Chapter X of the
Act (i.e. agency law) will provide the framework for governance of performance
of the relationship.
Agency contract should contain limitations, termination events, territory,
products or goods, commission structure and time of payment.
Depending upon conduct of the parties----exclusivity can be
presumed.

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Agency Relationship
Termination:
If Agency is fixed for a term, it can be terminated before the expiring of the term
in accordance with an express reservation in the contract or for sufficient cause.
Reasonable notice must be given of termination without case.
Right to indemnity and/or the right to compensation to the Agent in the event of
termination of the agency contract is subject primarily terms and conditions of
the agency contract.
Unless the contract provides payment or full indemnity, the indemnity payable to
the Agent is generally equitable.
No limitation on amount of indemnity/compensation to which an Agent is
entitled – it is the Court, which determines the amount of
indemnity/compensation that may be paid.
However, Agent needs to prove he has actually incurred a loss
or that loss is eminent.

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Agency Relationship
Right to indemnity under agency law entitles an Agent to the
following:
Commission remuneration and all expenses incurred.
Right to lien over Principal property – received by Agent, until amount due
to Agent for commission, disbursements and services in respect for same
has been paid.
Statute of Limitation:
Agent must bring a suit for claiming compensation and indemnity within a
period of 3 years from the date of cause of action.

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Distributor/Franchisee Relationship
Relationship between Distributor/Franchisee & Principal is contractual in
nature and governed by the terms of the contract.
No specific law in India which governs the payment of
indemnity/compensation to the Distributor/Franchisee and it is open to
parties to determine the conditions and amount of compensation.
Avoidance of Permanent Establishment (“PE”) status is
critical.
Restrictive Covenants (i.e. non-compete and non-solicitation) difficult to
impose post-termination/expiration of
the agreement.

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BIS/EAR 2011 rules and regulations implementing changes to Export
Controls on India (“Final Rule”)
Final rule adds India to country group A:2; the group consisting of countries
adhering to Missile Technology Control Regime.
Results in elimination of license requirements to export or re-export certain
controlled products (i.e., classified as EAR99) to India.
However, no unlicensed exports to prohibited parties or for prohibited end-
users.
Final rule does not impact license requirement for export of
defense articles to India subject to jurisdiction of ITAR and Arms
Export Control Act.
Key Considerations: All U.S. Exports are
Subject to U.S. Export Control Regulations

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Labeling is an important element for products being exported to
India. All packets or even containers should carry pertinent
declarations.
English or Hindi is the favorable language for labeling.
Custom authorities have to ensure that all pre-packaged
commodities (especially those intended for direct retail
sale) have all the legally required information before they
enter the retail market or sold for consumption.
Key Considerations: Labeling + Marking
Requirements

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Key Considerations: Import Tariffs
Peak rates reduced from 350% (June 1991) to an average 10%
currently for some products.
India’s tariffs still very high – range from 12.5% - 150% based
upon classification of goods in accordance with Harmonized
System or HS.
Exports to India are zero-rated for VAT. All import and export
of goods to/from India are exempted from sales tax.
Total duty payable = BCD + ACD + Special CVD + Education
Cess + Custom Handling Fee.

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Taxation in India
For Receiving Payments:
Submission of a Tax Residency Certificate (TRC)
a must, especially if availing tax treaty benefits or
no withholding taxes.
Furnishing of PAN required.
Currently, tax rate of domestic law could be utilized
as it is less/comparable to the DTAA.

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Taxation in India – Important
Aspects
Elaborate Transfer Pricing Regulations
These rules govern minimum profit margin to be maintained by the
Indian companies in transaction associated enterprises.
Valuations prescribed in case of export of goods to a related party.
Avoidance of Permanent Establishment (“PE”) status is
critical.

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Legal Jurisdiction: Drafting choice of law and forum provision
is crucial.
Remember, certain issues may be subject to a law different
from one agreed upon by parties. For example: IP transfer,
registration, protection in vendor territory, real estate, labor
laws, bankruptcy, enforcement of foreign judgment/award.
Litigation vs Arbitration
If the parties want to quickly end disputes arising from the
contract, an arbitration clause is necessary to avoid
lengthy civil procedures.
Contract: Enforcement In India

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Practical Tips:
Negotiations: Contract negotiations can be expected to go more slowly
in India – particularly if dealing with India bureaucracy.
Different Approach to Communication: Indian parties may not
disagree with you directly about contractual issues. Instead, they may
suggest that the matter be discussed at another time or find some way
to avoid an outright negative response.
Flexibility: It is recommended that U.S. companies build considerable
flexibility into their approach so that prices and other contract conditions
can be adjusted.
Believe: Relationships and respect. Building a lasting and trusting
relationship is very important for a successful business venture
in India.
Contract: Enforcement In India

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There are some internal barriers that might provide obstacles
in doing business or establishing business in India. It is
necessary to be cognizant about them in order to be well
prepared. For example:
Corruption (FCPA) (PCA)
Infrastructure mess
High tariffs and protectionist policies
Local content requirement
Powers of states
Slow Reform Process
Practical Advice: Identify the
Obstacles

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Things to Ponder
Have knowledge of Indian business and market – Evaluate Product Strategies and
related Pricing.
Analyze and identify the region/state most appropriate for your business needs.
Do Business in India…the Indian Way: ‘Think Global, Act Local’
The Indianized Chinese
Kellogg's – no to cold cereals?
KFC – Tandoori Chicken preferred to the ‘KFC experience’
McDonalds – ‘McVeggie Burger’ & ‘McAloo Tikki’
Domino’s – ‘Pepper Paneer’ & ‘Chicken Chettinad’
Pizza Hut/Pizza Express – spicing it up
Due Diligence is the Key.

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Legal Advice
This presentation is designed to provide an overview of a
number of legal principles and considerations.
As each legal issue is fact dependent, this presentation should
not be used or viewed as legal advice, and your legal counsel
should be consulted on the application of your particular
factual situation to the current law.
Copyright: 2015 Kegler, Brown, Hill + Ritter LPA

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Thank You!
Vinita Bahri-Mehra, Director
Asia-Pacific Team Leader
Kegler Brown Hill + Ritter
vmehra@keglerbrown.com
keglerbrown.com/bahrimehra
614-255-5508
614-464-2634 (fax)