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10
Legal ForcesLegal Forces
International Businessby Ball, McCulloch, Frantz,
Geringer, and Minor McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
This chapter covers:
•Legal forces that confront international business
•The importance of foreign law
•International contracts
•Protection of intellectual property
•Purposes of taxes
•Enforcement of antitrust laws
•Product liability
Chapter ObjectivesChapter Objectives
Appreciate the complexity of the legal forces that confront international business
Recognize the importance of foreign lawUnderstand contract devices and institutions that
assist in interpreting international contractsAnticipate the need and methods to protect your
intellectual propertiesUnderstand that many taxes have purposes other
than to raise revenueDiscuss enforcement of antitrust lawsAppreciate the risk of product liability legal actionsDiscuss U.S. laws that affect international business
operations10-2
International Legal ForcesInternational Legal Forces
Rule of law allows foreign businesses to know interests will be protected
Public International Law Legal relations
between governments Private International
Law Laws governing
transactions of individuals and companies
10-3
Sources of International LawSources of International Law
The most important source is found in bilateral and multilateral treaties between nations. Treaties are agreements between countries and
also may be called conventions, covenants, compacts, or protocols
United Nation’s International Court of Justice creates law when it decides disputes
U.S. Congress determines whether treaties have precedence over other federal laws and treaties
International rules derived from customs and usage
10-4
ExtraterritorialityExtraterritoriality
The attempt to enforce domestic laws outside of a country’s borders Practiced by
many countries including the U.S. and EU
Not done through force, but by traditional legal means10-5
International Dispute SettlementInternational Dispute Settlement
Litigation in the United States The U.S. has well-developed court systems that
facilitate litigation. These court systems handle both criminal
and civil matters. One reason many people outside the U.S.
dislike litigation in the U.S. is the process of discovery.
Unlike most other countries, the U.S. has two major court systems. The federal court system and the system
of state courts.10-6
Issues Surrounding Issues Surrounding Performance of ContractsPerformance of Contracts
A major problem usually involved in cross-border litigation is The question of which
jurisdiction’s law should apply and in which location the litigation should occur.
Each country has laws to determine this
Final decision rests with the courts
10-7
United Nations Solutions Many countries,
including the U.S., have ratified the UN Convention on Contracts for International Sales of Goods (CISG)
CISG established uniform legal rules to govern international sales contracts
CISG is automatically applied
Issues Surrounding Issues Surrounding Performance of ContractsPerformance of Contracts
Private Solutions, Arbitration Instead of going to
court in any country, companies may opt for arbitration. Quicker Less expensive More private
Many cases handled in Paris, London and NY
10-8
Enforcement of Foreign Arbitration Enforcement of Foreign Arbitration AwardsAwards
The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards The U.S. and most UN member-countries
of industrial importance have ratified this convention
Binds ratifying countries to compel arbitration when the parties have so agreed in their contract and to enforce the resulting awards
10-9
Intellectual PropertyIntellectual Property
Intellectual property includes Patents Trademarks Trade names Copyrights Trade secrets
All result from the exercise of someone’s intellect.
Each country protects in their own fashion
10-10
Intellectual PropertyIntellectual Property
Patents (Protection)
International
Convention for the
Protection of
Industrial Property
European Patent
Organization
The World Intellectual
Property Organization
10-11
Trademarks Protection varies
from country to country which may be from 10 to 20 years. Madrid Agreement
of 1891 General American
Convention for Trademark and Commercial Protection.
European Trademark Office
Intellectual PropertyIntellectual Property
Trade Names Trade names are protected in all
countries that adhere to the Convention for the Protection of Industrial Property
Copyrights Protection is provided under the Berne
Convention of 1886 adhered to by 77 countries
Universal Copyright Convention of 1954 adopted by 92 countries
10-12
Common Law or Civil LawCommon Law or Civil Law
Common Law Courts made
common law as they decided individual cases
Judges in a common law jurisdiction have the power to interpret the law
10-13
Civil Law Civil law was
made by king, princes, or legislatures issuing decrees or passing bills
Judges in a civil law jurisdiction have the power only to apply the law
Differences between the Differences between the U.S. and EnglandU.S. and England
England has a split legal profession with barristers and solicitors
No jury for civil court actions
No contingency fee in court cases
The losing party in England must pay most of the court costs of the winning party
In England, parties generally are entitled to receive a list of witnesses with a brief explanation of the expected testimony.
10-14
Standardizing LawsStandardizing Laws
Many attempts have been made to standardize laws among various nations
International business flows much better with a uniform set of rules
Attempts include Tax conventions and treaties Antitrust cooperation International Center for Settlement of Investment
Disputes UN Convention on International Sale of Goods International Organization for Standardization (ISO) International Electrotechnical Commission (IEC)
10-15
TaxationTaxation
Nonrevenue tax purposes Redistribute income Discourage
consumption of certain products
Encourage the purchase of domestic rather than imported products
To discourage investment abroad
To achieve equality of taxes paid10-16
National Differences of ApproachNational Differences of Approach
Tax Levels Range from relatively
high in some Western European countries to zero in tax havens
Some countries have capital gains taxes, and some do not A capital gain is
realized when an asset is sold for an amount greater than its cost
10-17
Tax Types Capital gains tax Income tax
Common in industrialized countries
Value-added tax Tax based on the
value of goods and services
Used in Europe WTO permits rebate
on VAT Unitary tax
Tax Laws and RegulationsTax Laws and Regulations
From country to country, the complexity of tax systems differ Many consider tax laws and regulations of the
U.S. the most complex Compliance with tax laws and their
enforcement vary widely Germany and U.S. strict, Italy and Spain
relatively lax Other differences include
Tax incentives, exemptions, costs, depreciation allowances, foreign tax credits, timing, and double corporate taxation
10-18
TaxationTaxation
Tax Treaties or ConventionsDifferences between nations’ tax practices
have resulted in many signing tax treaties with each other.The presence or absence of a tax treaty
is often a factor in international business and investment location decisions.
The U.S. has tax treaties with over 50 countries.
10-19
TaxationTaxation Ecommerce and the ease
of shifting operations and residences is making it easier to avoid taxes
U.S. applies National Tax Jurisdiction, taxing citizens regardless of where they live and work
Almost all other countries apply Territorial Tax Jurisdiction which exempts citizens who neither work nor live in the country
10-20
Antitrust LawsAntitrust Laws Antitrust laws are intended to prevent monopolies The U.S. antitrust laws are strict vigorously enforced The EU is becoming more active in the antitrust field Differences between U.S. and other nations’ antitrust
laws include the per se concept and the application of both civil and criminal penalties
The U.S. and the EU have attempted to enforce their antitrust laws extraterritorially
Japan’s Fair Trade Commission has been nicknamed the “toothless tiger”, but the Japanese companies are incorporating antitrust thinking into their strategies
10-21
Tariffs, Quotas, and Other Tariffs, Quotas, and Other Trade ObstaclesTrade Obstacles
Purposes of tariffs To raise revenue for
the government To protect domestic
producersQuotas limit the
number or amount of imports For protection
U.S. can impose retaliatory barriers
10-22
Other protection obstacles include Health requirements Packaging
requirements Language
requirements Weak patent or
trademark protection
Quarantine periods Voluntary Restraint
Agreements
Product LiabilityProduct Liability
Product Liability Holding a company and its officers and
directors liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage
Strict Liability Holds the designer/manufacturer liable for
damages caused by a product without the need for a plaintiff to prove negligence in the product’s design or manufacture
10-23
Product LiabilityProduct Liability Differences in U.S. law
No restrictions on amount of money damages that can be awarded
Rigid enforcement of strict liability, no need to prove negligence
U.S. lawyers take cases on a contingency fee basis
Outside the U.S., when a defendant wins, the plaintiff must pay all court costs
U.S. Product liability cases are heard by juries
Discovery available in U.S.
10-24
Currency Exchange ControlsCurrency Exchange Controls
Exchange Control Generalities In countries where hard foreign currency is
scarce, a government agency allocates it.People entering such a country must declare
how much currency of any kind there are bringing in and also how much they are taking out.
The intent is twofold To discourage travelers from bringing in
the host country’s national currency brought abroad at a better exchange rate
To encourage travelers to bring in hard foreign currency
10-25
U.S. Laws That Affect U.S. Firms U.S. Laws That Affect U.S. Firms International BusinessInternational Business
Federal Employment Laws Title VII of the CRA of 1964 ADEA and ADA
Foreign Corrupt Practices Act (FCPA) Questionable or dubious payments by
American companies to foreign officials revealed in 1970’s
Congress passed FCPA outlawing bribery, but not “grease” payments
Accounting Law – Sarbanes-Oxley Act Established reporting requirements
10-26
Current International Court of JusticeCurrent International Court of Justice
PresidentShi Jiuyong (China)
Vice-PresidentRaymond Ranjeva (Madagascar)
Judges Gilbert Guillaume (France) Abdul G. Koroma (Sierra
Leone) Vladlen S. Vereshchetin
(Russian Federation) Rosalyn Higgins
(United Kingdom)10-27
Gonzalo Parra-Aranguren (Venezuela)
Pieter H. Kooijmans (Netherlands)
Francisco Rezek (Brazil) Awn Shawkat Al-
Khasawneh (Jordan) Thomas Buergenthal
(United States of America)
Nabil Elaraby (Egypt) Hisashi Owada (Japan) Bruno Simma (Germany) Peter Tomka (Slovakia)
Facts and figures on International Court of Facts and figures on International Court of Arbitration in 2003Arbitration in 2003
580 Requests for Arbitration were filed with the ICC Court;
those Requests concerned 1,584 parties from 123 different countries and independent territories;
in 11% of cases at least one of the parties was a state, parastatal or public entity;
the place of arbitration was located in 47 different countries throughout the world;
arbitrators of 69 different nationalities were appointed or confirmed under the ICC Rules;
the amount in dispute exceeded one million US dollars in 55,3% of new cases;
369 awards were rendered
10-29