The Law of Transnational Business Transactions

The Law of Transnational Business Transactions

Edited by Ved P. Nanda

Volume 1 International Business 6 Law Series

DEERFIELD. I L N E W YOKK. N Y ROCHESTER. N Y ( : u r ~ < r ~ i ~ r r SVIVICL.. I .X00-12 1-1 116

(Release # 18, 6/94)

Copyright @ 1981, 1982, 1983, 1984, 1985, 1986, 1987, 1988, 1989, 1990 by Clark Boardman Company, Ltd. All rights reserved.

Copyright 1991, 1992, 1993, 1994 Clark Boardman Callaghan, a division of Thomson Legal Publishing, Inc.

Release # 18, 61 94

Library of Congress Cataloging in Publication Data

Main entry under title:

The Law of transnational business transactions.

(International business & law series; v. 1) Includes index. Contents: U.S. lawyers and international business transactions 1

Donald W. IIoagland-Foreign business organization I Ralph Lake-United Statcs taxation of foreign investors I I-lerrick K. Lidstone and Robert S. Rich-[etc.]

1. Commercial law-Addresses, essays, lectures. 2. International business enterprises-Law and legislation-Addresses, essays, lectures. 3. Foreign trade regulation-Addresses, essays, lectures. 4. Commercial law-United States-Addresses, essays, lectures. I. Nandn, Ved P. 11. Series. K1005.6.L38 346'.07 8 1-2392 ISBN 0-87632-342-5 342.67 AACRB

PUBLISHER'S NOTE

Clark Hoardinan Callaghan's Inlerliational Busitless G Law Series is the responsc to the perceived need for an integrated and coinl,rchcnsivc reference library of writings on international business and law. The Series begins at a time when the world economy is in a period of rapid transition, and when United Statcs doininance in international trade has been seri- ously eroded.

Changing legal implications of international trade and transnational negotiations have obliged lawyers, both in the United States and other jurisdictions, to become aware of such effects in practice. The Clark Boardman Callaghan Interna- tiom1 Business G Law Series is designed to provide accurate and authoritative information to lawyers who must advise clients in international transactions. Often a detailed knowledge of the national laws which may affect the international transaction must be obtained, a complex process involving interpreta- tion of multiple legal disciplines.

I3ecciit and important changcs in internatioixd trade and custo~ns laws of thc United States signalcd this as ail opportune time to commence the Itlternational Business G Law Series. As a rcsult of the passage of the Trade Act of 1974, the Custotns Procedural Reform and Simplification Act of 1978, the Trade Agreements Act of 1979, and the Customs Courts Act of 1980, more changes in customs and international trade law were en- acted than at any time in the past forty years. The cstablish- rnent of the United States Court of International Trade is clearly attributable to the increased importance of international business transactions not only in the United States, but throughout the world as well.

The It~tertralional Business G Law Series, it is anticipated, will in time focus on parallel business and legal developments in the industrialized natioiis of the world. Transnational practi- tioners will have available in looseleaf format, with periodic updating, the significant literature in the field of international law and business. It is hoped that this reference collection will

TRANSNATIONAL BUSINESS

be of considerable service to the bar and to businesspeople throughout the world.

Clark Boardman Callaghan

PREFACE

During the past decade, new centers of international commercial activity have arisen in every country. No longer does the specialized lawyer alone handle transnational transactions, for it is not uncommon for lawyers primarily in domestic practice to advise clients on issues and transactions which are transnational in scope.

It is the purpose of this book to provide assistance to attor- neys and students at different levels of expertise, from international lawyers to those in domestic practice to students generally interested in the field. The authors bring varied backgrounds and rich experience to this project. They are asso- ciated with multinational enterprises, large and small law firms, law schools, and government agencies.

In planning the book, I made two decisions at the outset: first, to treat only selected aspects of the subject, and second, to discuss those aspects both from a theoretical point of view and in terms of their practical consequences.

During the two-year period it took to complete the book, my associates and former students at the University of Denver College of Law have been of significant help both as authors and advisers. Nancy Nones, Administrator of the International Legal Studies Program, and several of my research assistants, especially David Pansius and Christina Neslund, provided substantial aid which I gratefully acknowledge. I would like to thank Tom Costner, Vice-President, Publishing at Clark Boardman Callaghan, to whom I am deeply indebted for his helpful suggestions, and William Cubberley, Administrative Editor, and his associates, for their assistance in the publication process.

Finally, this book is presented to the reader with an invita- tion that any suggestions regarding revision of these materials be forwarded to the editor.

Denver, Colorado Ved P. Nanda

(Release # 18, 6/94) vii

TABLE OF CHAPTERS Volume 1

1 - U.S. Lawyers and Transnational Business Tra~isactions-An Introduction

2 - Foreign Business Organization

2A - Legal Aspects of Franchising Internationally

3 - United States Taxation of Foreign Investors

3A - Foreign Tax Provisions of the 1984 Tax Act

3B - The Foreign Investment Real Property Tax Act

4 - Selected Clauses in Transnational Contracts

5 - International Technology Transfers

6 - International Technology Transfer Agreements

7 - Foreign Natural Resource Investmcnt ?

7A - Energy and Mineral Joint Ventures in China

8 - Forum Selection and Choice of Law Clauses in> Transnational Contracts

9 - Antitrust Aspects of International Business Operations

10 - Jurisdictional Problems in the Application of the Antitrust Laws

Volume 1A

11 - Enforcement of the European Community's Antitrust Laws-The Single Enterprise Theory

12 - Foreign Trade and Ecoiiomic Injury-A Survey of U.S. Relief Mechanisms

13 - International Boycotts

14 - International Capital Markets and Securities Regulation

Volume 1 B

15 - Dismissals in Europe

(Release # 18, 6/94)


Regulation of Multinational Enterprises: International Codes of Conduct

In term tional Economic Institutions

Recognition of Foreign Bankruptcies in a Transnational Setting: An Analysis of the Laws of the United States

International Commercial Arbitration in Europe

Expanded Philanthropy: American Corporations Worldwide

TABLE O F CONTENTS

Volume 1

CHAPTER 1 U.S. Lawyers and Transnational Business Transac-

....... tions-An Introduction Donald W. Hoagland

CHAPTER 2 Foreign Business Organization Ralph B. Lake

Q 2.01 Introduction and General Considerations Q 2.02 Forms Not Involving a Foreign Presence

[ l ] Agency Arrangements ....................... ....... [a] Nature of the Relationship

[b] Foreign Laws Affecting Agen- .......................... cy Relationships

[i] Requirement of Local Representation ...............

[ii] Prohibition of Local .............................. Agents

[iii] Registration and Disclo- sure ...................................

[iv] Limitation of Commis- sions ..................................

[v] Exclusivity ....................... [vi] Restrictions on Termi-

............................... nation [c] Representation Agreement

Form ............................................. [2] Distributorships ...................................

....... [a] Nature of the Relationship [b] Exclusivity ................................... [c] Payments ..................................... [dl Prices ............................................

................................ [el Termination [fl International Distributorship

Agreement Form ....................... Q 2.03 Forms Involving a Foreign Presence ........

..................................... [I] Liaison Offices

(Release # 18, 6/94)


[2] Branches ............................................... [3] Foreign Subsidiaries ...........................

[a] General ........................................ [b] France ..........................................

........... [i] Societe Anonyme [ii] Societe ii Responsibilite

Limitee ............................ [iii] Partnerships ....................

[c] Federal Republic of Germany. [i] Aktiengesel1sch:lft (AG) [ I Gesellschaft mit besch-

riinkter Haftung ............................ (GmbH)

[iii] Partnerships .................... Appendix 2A: Russian Regulations on Stock Associa-

tions: Analysis and Commentary ......... Appendix 2B: RSFSR Regulations on Stock Associa-

tions ..........................................................

CHAPTER 2A Legal Aspects of Fruncliising Internationally Ralph B. Lake

Q 2A.01 Why Franchise Internationally? ................. Q 2A.02 US. and Foreign Laws Affecting Franchis-

ing .................................................................... [I] U.S. Regulation of International

.......................................... Franchising [a] Federal Regulation .................... [b] State Regulation .........................

[2] Foreign Governmental Regulation ...................................... of Franchising

[a] EEC Antitrust Regulation ........ [b] Canadian Registration and Dis-

closure Requirements ................ [c] French Pre-Sale Disclosure Re-

quirements .................................. [3] Other Foreign Laws Affecting

.......................................... Franchising - [a] ,Contract Law .............................. 2A-16

xii

TABLE OF CONTENTS

[b] Legislative Limitations on Con- .................................. tract Terms

[c] Agency and Distributorship ............................................. Laws

........ [dl Foreign Investment Laws ....... [el Technology Transfer Laws

[f] Antitrust Laws ............................ [g] Trademark Laws ........................ [h] Exchange Control Laws ............ [i] Tax Laws ......................................

$ 2A.03 Structuring an International Franchise .......................................................... Network

[l] Direct Franchising .............................. [2] Area Development Agreements ...... [3] Master Franchise Agreements .........

$ 2A.04 International Franchise Agreements ......... [ l ] Dispute Settlement Provisions ......... [2] Antitrust Provisions ............................ [3] Language .............................................. [4] Payments ..............................................

CIIAPTER 3 United States Taxation of Foreign Investors Laurence E . Nemirow and Robert S . Rich

$ 3.01 Federal Income Taxation of Foreign In- .............................................................. vestors

[ l] Basic Concepts .................................... [a] Source of the Foreign Inves-

tor's Gross Income and Deduc- .............................................. tions

[i] Interest ............................ [ii] Dividends ........................ [iii] Personal Services ........... [iv] Rentals and Royalties .... [v] Sale or Exchange of Real

Property .......................... [vi] Sale or Exchange of Per-

sonal Property ................ [vii] Source of Deductions ....

(Release # 18. 6/94) ... X l l l

TRANSNATIONAL IIIJSINESS

[b] Engaged in a Trade or Business .......... Within the United States

[i] Trade or Business Under the Code .............

[ii] Trade or Business Under Treaty- Permanent Establishment .................

[c] Effectively Connected Income [i] Background ..................... [ii] Gain from Disposition of

U.S. Real Property In- ............................... terests

[iii] Other Income of a For- eign Investor Not En- gaged in U.S. Trade or Business ...........................

[iv] Foreign Investor En- gaged in U.S. Trade or

........................... Business [dl Exempt Portfolio Interest .........

[i] Exempt Registered In- struments .......................

[ii] Exempt Bearer Instru- ments ...............................

[iii] Interest Received By 10 Percent Shareholders and Banks ........................

[iv] EstateTax ....................... [v] Prevention of: Tax Eva-

sion ................................... [2] Federal Income Taxation of Individ-

ual Foreign Investors ......................... [a] General Scheme of Taxation .... [b] Nonresident and Resident

Alien Defined ............................. [i] Statutory Test ................. [ii] Taxable Year; Dual Sta-

tus Tax Year .................... [iii] Expatriation ....................

xiv

TABLE OF CONTENTS

[3] Classification of Business Organiza- ........ tions for Federal Tax Purposes

[a] General Rules ............................. [b] Classification of Hybrid Enti-

ties ................................................. [4] Federal Income Taxation of Foreign

Corporations ........................................ [a] General Rules .............................

..................... [b] Branch Profits Tax [i] Dividend Equivalent

Amount ............................ [ii] Coordination with Trea-

.................................... ties [iii] Branch-Level Tax on In-

teres t ................................ [c] Accumulated Earnings Tax and

Personal Holding Company Tax ................................................

[dl Capitalization of Corporations. [5] Federal Income Taxation of Partner-

ships and Partners .............................. [a] General Scheme ......................... [b] Taxable Year of a Partnership.

Q 3.02 Treaties and Their Effect on Federal In- come Taxation of Foreign Investors ..........

.......................................... [I] Background [2] Taxes Covered ..................................... [3] Treaty Benefits ....................................

[a] Permanent Establishment ........ [b] Industrial or Commercial Prof-

its ................................................... [c] Passive Income ........................... [dl Capital Gains ............................... [el United States Source Real

Property Income ........................ [f] United States Source Real

Property Income-Net Elec- tion ................................................

[g] Savings Clause and Tax Credit

(Release # 18, 6/94)

TRANSNATIONAL UUSINESS

[h] Requirement for Nondiscrirni- ........................................... nation

[i] Exchange of Information, Com- petent Authority Procedures and Mutual Assistance Provi-

.............................................. sions [4] Treaty Shopping and Treaty Abuse

......................... [a] Treaty Shopping ............................... [b] Treaty Abuse

Q 3.03 State and Local Taxes ................................... Q 3.04 Federal Gift and Estate Taxes ....................

[ l ] Direct Ownership of U.S. Tangible Property ................................................

[2] Federal Estate and Gift Taxation of Partnership Interests ..........................

[3] Ownership of Shares of Stock of US. Corporations ........................................

[4] Ownership of Shares of Stock of For- eign Corporations ...............................

[5] 13ank Deposits and Other Debt Obli- ................................................... gations

Q 3.05 Conclusion ......................................................

CHAPTER 3A Foreign Tax Provisions of the 1984 Tax Act Robert S. Rich Q 3A.01 Taxation of Certain Transfers of Property

Outside the United States (IRC QQ 367, 1492, 1494, 7477, 7482 and new section 6038B).. ............................................................ [ l ] Present Law .........................................

[a] Taxation of U.S. and Foreign Corporations ................................

[b] Tax-free Transfers and Per- ............................... ceived Abuse

.................. [c] Correction of Abuse ............. [dl IRS Rulings Guidelines

[i] Active Conduct of a .......... Trade or Business

[ii] Tainted AssetslToll Charge .............................

xvi

TABLE OF CONTENTS

[el Tainted Assets ............................. ... [f] Recapture of Foreign Losses

[g] Intangible Assets; Research and Development ..............................

[h] Advance Ruling; Judicial Re- .............................................. view

[i] Advance Ruling ............. [ii] Judicial Review ..............

[2] Reasons for Change ............................ [a] Principal Purpose to Active

....................... Trade or Business ............................. [b] Tainted Assets

[3] L?xplanation of New Law ................... [a] Elilnination of Ruling Require-

............................................. ment [b] Notification Requirement .........

[i] Notification ..................... [ii] Penalty ............................. [iii] Statute of Limitations ...

[c] Active Trade or Business .......... [dl Assets Ineligible for Active

Trade or Business Treatment .. [el Intangibles ...................................

[i] Taxable ............................ [ii] Defined ............................ [iii] Correlative Rules ...........

[f] Stock and Securities ................... [i] Active Business Excep-

tion ................................... [ii] Closing Agreement .......

................................ [g] Other Assets .......................... [i] Goodwill

[ii] Marketing Intangibles ... [iii] Leased Property ............ [iv] Partnerships ....................

[h] Foreign Branch Losses .............. [i] Regulations .................................. Lj] Effective Date ............................

[i] Post 1984 Transfers ....... [ii] Regulations .....................

... . *,: (Release # 18, 6/94) xvii .L.... :,.;. . .

. . ., .,.. , . . . . r s , . .$.,,

.& .. -..,.,. ., *. . 3 ;?% ,./' , .;;a,. :B:.


3A.02 DISC to FSC (Prop. IRC Q Q 921 to 927)-. [I] Present Law-DISC ...........................

[a] Tax Deferral ................................ ............................. [b] DISC Defined

[c] Purposes of DISC Legislation .. [2] Reasons for Change ............................

.......................... [a] GATT Violation [b] U.S. Response .............................. [c] GATT Rules ................................

..... [3] Explanation of Provisions-FSC.. ................................... [a] In General

....................... [b] Foreign Presence [c] Exempt Foreign Trade Income

.............. [dl Foreign Trade Income [el Foreign Management ................ [fJ Foreign Economic Processes ... [g] Transfer Pricing Rules (Prop.

................................... IRC Q 925) [i] Administrative Transfer

Pricing Rule .................... [ii] Adjustments After Year-

End ................................... [iii] No Loss Rule ..................

[h] Taxation of a FSC ...................... [i] Distributions to Shareholders .. b] Dividends from FSC .................. [k] Export Property (Prop. IRC

Q 927(a)) ........................................ [l] Election (Prop. IRC Q 927(f)) ... [m] Small Business (Two Alterna-

tives) ............................................. [i] Interest Charge DISC

(Prop. IRC Q 995(f)) ....... [ii] Small FSC .......................

[n] Taxable Year of DISC and FSC [o] Transition Rules .......................... [p] Transfers from DISC to FSC ... [q] Effective Date ............................

Q 3A.03 Repeal of 30 Percent Withholding on In- terest Paid to Foreign Persons (IRC $$ 864, 871, 881, 1441, 1442 and 2105) ..................

xviii

TABLE OF CONTENTS

......................................... [ l ] Present Law [a] In General ................................... [b] Eurobond Market and Interna.

...... tional Finance Subsidiaries [c] IRS Attack .................................. Reasons for Change ...........................

.................. Explanation of Provision ........ [a] Phase-out of Withholding

Categories of Debt Obligation ..................................... Qualified

...................... Ineligible Persons [il Ten Percent Equity In

terest in Payor .............., [i i] Foreign Banks .............. [iii] CFCs .............................. Estate Tax .................................. Prevention of Tax Evasion .....

........ Obligation of US. Payors .......................... [g] Effective Date

Q 3A.04 Withholding on Disposition by Foreignel of U.S. Real Property Interests (IR( QQ 6039C and new 1444) ........................... [I] Present Law ....................................... [Z] Reasons for Change ..........................

[a] Evasion ...................................... .................................. [b] Reporting

[3] Explanation of Provisions ............... [a] Amount Withheld ...................

.............. [b] Time of Withholding [c] Withholding Agent ................. [dl Transferor's Notice ................. [el Liability of Transferor's Ager [fl Exemptions from Withholdin [g] Partnerships ............................. [h] Effective Date .........................

.................. [i] Repeal of FIRPTA Q 3A.05 Resident Alien Defined (IRC Q 7701(b))

[ l ] Present Law ..................................... [a] Taxation of Aliens ..................

(Release # 18, 6/94)


[b] Definition .................................... [2] Reasons for Change ............................ [3] Explanation of Provision ...................

..................................... [a] Generally [b] General Test of Residence .......

[i] Green Card ..................... [ii] Substantial Presence .....

[c] Less than 183 Days-Closer Connections Test ........................ [i] 183 Day Test .................. [ i Tax Home ....................... [iii] Change of Status ............

[dl Exempt Individual ..................... [i] Foreign Covernment-

Related Individual ......... [ii] Teacher or Trainee ....... [iii] Student ............................

[el Annual Statements ..................... [f] Medical Condition ...................... [g] Fiscal Year ................................... [h] Treaties ........................................ [i] Effective Date ............................

Q 3A.06 Factoring Trade Receivables (IRC QQ 553, 861, 954 and 956) .......................................... [ l ] Present Law .........................................

[a] Factoring Income ....................... [b] Character of Discount Income

[2] Reason for Change ............................. [3] Explanation of Provision ...................

[a] Foreign Personal Holding Company Income ....................... [i] Trade or Services Re-

ceivable ........................... [ii] Ten Percent D e Mini-

mus Rule Inapplicable .. [iii] Exception for Certain

Related Party Transfers [b] Investment in U.S. Property ....

[i] U.S. Property .................. [ii] Indirect Investment ......

TABLE OF CONTENTS

[iii] Exception for Export Property Receivables ....

........... [c] Possessioils Corporations [dl Source of Income .......................

[i] Factoring Income .......... [ii] Distributions ...................

[c] Effective Date ............................ Q 3A.07 Decontrol of Foreign Corporations (IRC

............................................................. Q 1248) [ l ] Prcsent Law .........................................

............................. [2] Reason for Change ................... [3] Explanation of Provision

[4] Effective Date ..................................... ............... Q 3A.08 Stapled Stock (New IRC Q 269B)

[ l ] Present Law ......................................... [2] Reason for Change .............................

................... [3] Explanation of Provision [a] General Rule ............................... [b] Stapled Entities .......................... [c] Election to Treat Stapled For-

eign Entities as Subsidiaries ..... [dl Treaties ........................................

Q 3A.09 Foreign Illvestment Companies (IRC Q Q 535 and 1246) ...........................................

......................................... [I] Present Law [a] U.S. Taxation of Foreign Corpo-

rations ........................................... [b] Taxation of U.S. Shareholders of

Foreign Corporations ................ [c] Accumulated Earnings Tax ......

[2] Reasons for Change ............................ [3] Explanation of Provisions ..................

[a] Foreign Investment Company [b] Effective Date ............................ [c] Accumulated Earnings Tax ......

Q 3A. 10 Miscellaneous Changes to Foreign Person- al Holding Company Provisions (IRC $9

........................ 551, 552, 553, 554 and 951) [ l ] Present Law .........................................

[a] In General ...................................

(Release # 18, 6/94) xxi

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[b] Technical Problems ................... [2] Attribution Rules ................................

[a] Current Rule ............................... [b] Problem .......................................

..................... [c] Family Attribution [dl Partner Attribution ....................

[3] Coordination of Subpart F with For- eign Personal Holding Company

............................................. Provisions [a] Background ................................. [b] New Law .....................................

[4] Same Country Dividend and Inter- ................................................. est Rule

[a] Problem ....................................... [b] Correction ...................................

[5] Income Inclusion Through Foreign Entity .................................................... [a] Problem ....................................... [b] Correction ...................................

Q 3A.ll Foreign Collapsible Corporations (IRC Q 34 1) ..............................................................

......................................... [ l ] Present Law [2] Reasons for Change ............................ [3] Proposed Change ................................

..................................... [4] Effective Date Q 3A.12 Other Changes in Foreign Provisions .......

CHAPTER 38 The Foreign Investment Real Property Tax Act Manuel D. Savage

Q 3B.01 Introduction ................................................... Q 3B.02 Law in Effect Prior to FIRPTA ..................

................................... [ l ] Installment Sale .... [Z] Nonrecognition under IRC Q 337

[3] Sale of Corporate Stock ..................... [4] Like Kind Exchange ..........................

......................................... [5] Tax Treaties .................... Q 3B.03 General Approach of FIRPTA

xxii

! TABLE OF CONTENTS

[I] Effect of Tax Reform Act of 1986 on FIRPTA .................................................

[2] Definition of United States Real Property Interest ................................ [a] Direct Interest in United States

Real Property .............................. [b] Indirect Interests in United

States Real Property .................. Q 3B.04 Sale of Stock in a Domestic Corporation..

[ l ] A Basic Definition of United States .... Real Property I-Iolding Company

[2] Application of USRPHC Test ........... [a] Attribution from Con trolled

Corporations ................................ [b] Attribution from Noncon-

a lons .................. trolled Corpor t' [c] Other Attribution Rules ............

.... Q 3B.05 Sale of Stock in a Foreign Corporation [ l ] Estate Tax Considerations ................. [2] Indirect Taxation of Foreign Real

Property Holding Companies ........... [3] Tax Reform Act of 1986-Effect on

General Utilities Doctrine ................. [4] Tax Planning if the General Utilities

Transnational Rule Applies ............... [a] Section 897(i) Election .............. [b] Form and Timing of IRC Q

............................. 897(i) Election [S] Tax Planning if the General Utilities

Transnational Rule Does Not Apply Q 3B.06 Branch Profits Tax ........................................ Q 3B.07 Nonrecognition Provisions ........................... Q 3U.08 Withholding ....................................................

[ l ] General Withholding Rule ................ [2] Statutory Exceptions ..........................

[a] Non-Foreign Transferors .......... [b] Nonpublicly Traded Domestic

Corporation Which Is Not USRPHC ......................................

[c] Qualifying Statement Transac- tions ..............................................

(Release # 18, 6/94) xxiii


Sale of Residence ....................... Publicly Traded Stock ............... Other Exceptions ....................... Advance Certification ...............

Q 3B.09 Conclusion ......................................................

CHAPTER 4 Selected Clauses in Transnational Contracts Mark S. Caldwell

................................................... Introduction Definitions and Standardized Terms ......... Choice of Language Clause .........................

........................................... Payment Clauses ................................................. [l] General

[2] Open-Price Clauses ............................ [3] Cost-Plus Clauses ................................ [4] Gold Clauses ........................................ [5] Foreign Currency Clauses ................ [6] Stabilization Clauses ........................... [7] Sample Clauses .................................... Force Majeure and Supravening Law

.............................................................. Clause Government Approval, Local Taxation, and Fees .......................................................... Special Problems with Distributorship or

...................................... en ts ........................................

.................................................. cluded? .......... [3] Choice of Arbitration Clauses

[4] Model Clauses ......................................

CHAPTER 5 International Technology Transfers Robert Y. Peters

Q 5.01 Introduction ................................................... 5- 1

xxiv

TABLE OF CONTENTS

...................... Q 5.02 Why a Technology Transfer? Q 5.03 Legal Restraints .............................................

[ l ] Taxes ..................................................... [2] Export License ....................................

............ [3] Protectability of Technology [4] Government Intervention ................. [5] Competitive Effects ........................... 161 Antitrust Laws ..................................... [7] International Accords ......................... [8] Selected Countries ..............................

[a] In General ................................... [b] Japan ............................................. [c] Mexico .......................................... [dl Brazil ............................................ [el Australia ....................................... [fJ Venezuela ....................................

Q 5.04 Conclusion ......................................................

CIIAPTER 6 International Technology Transfer Agreements Michael Bard and Robert Y . Peters

Q 6.01 Aspects of International Technology Transfer Agreements .................................... [ l ] Patent Assignment or License ......... [2] License of Technical and Other In-

formation Useful in Business ............ ............. [3] Computer Software License

............... [4] Joint Development Project 151 Trademark License ............................ [6] Joint Venture ....................................... [7] Sale of Assemblies. Subassemblies.

..................... Components. and Parts [8] Sale of Manufacturing Tools and

............................................... Test Sets [9] Technical and Management Assis-

tance ...................................................... [lo] Training ................................................ [ l l ] Establishment of Manufacturing Fa-

....................................................... cility

(Release # 18. 61 94) xxv


Q 6.02 Model Agreements ........................................ 6-19 ............... [ l] Patent License Agreement 6-19

..... [2] Technology Transfer Agreement 6-20 Appendix 6A: Sample Patent License Agreement .... 6-21 Appendix 6B: Sample Technology Transfer Agree-

ment ......................................................... 6-41

CHAPTER 7 Foreign Natural Resource Investment James E. Horigan

....................... Q 7.01 Introduction and Objectives Q 7.02 Changing Conditions Affecting Foreign

...................................................... ..........

~ n v h t Q 7.03 The Approach to Foreign Ventures

..... Q 7.04 The Foreign Petroleum Joint Venture ...................... Q 7.05 Joint W n u e Considerations

( 0 Q 7.06 Strategies in Applying for Petroleum

\ ..................................................... .......................

................... and Title ............................

................. .................. Financing of Foreign Ventures

.................................... Reference Literature Effect of M o d e e n d s on Foreign Pe-

...................................... troleum Investment Nature of Foreign Concessions and Li- censes. ..............................................................

...................... Q 7.15 Early Petroleum Concessions Q 7.16 Comparisons to Leasing Practices in the -

................................................................... U.S. ......................... Q 7.17 Post-World War I1 Patterns

Q 7.18 Modern Petroleum Licenses and Conces- ................................................................. sions

Q 7.19 Role of State-Owned Petroleum Compa- nies ...................................................................

.......................................... Service Contracts ..................... : Production Sharing Contracts

J Q 7.22 Conclusion ......................................................

xxvi

TABLE OF CONTENTS

CHAPTER 7A Energy and Mineral Joint Ventures in China Jennifer Cook Clark

................................................... Q 7A.01 Introduction 7A-1 Q 7A.02 Development Policy of the People's Re-

.............................................. public of China 7A-3 Q 7A.03 Legal Framework .......................................... 7A-6

[ l ] Joint Venture Laws ............................ 7A-9 [a] Evolution of the Chinese Joint

Venture Laws 7A-9 ............................. [b] Types of Joint Ventures ............ 7A-21

... [i] Equity Joint Ventures 7A-21 [ii] Contractural or Cooper-

...... ative Joint Ventures [2] Existing Joint Ventures ......................

Q 7A.04 The Impact of Energy and Mineral Indus- try on Chinese-Foreign Joint Ventures .....

Q 7A.05 Conclusion ......................................................

CHAPTER 8 Forum Selection and Choice of Law Clauses in Trans- national Contracts Ved P. Nanda

Q 8.01 Introduction ................................................... Q 8.02 Choice of Forum Clauses .............................

[ l ] U.S. Law and Practice ....................... [a] The Supreme Court Decisions

[i] Governing Law .............. [b] Federal Court Decisions ........... [c] Restatement (Second) and the

Model Choice of Forum Act .... [dl Exceptions to the Enforcement

of Forum Selection Clauses ...... [i] Substantial Inconve-

nience or Denial of an Effective Remedy ..........

[ii] Fraud, Overreaching or Unconscionable Con- duct ..................................

(Release # 18, 6/94)

7A-22 7A-25

7A-28 7A-33

8-2 8-5 8-5 8-5

8-16 8-22

8-30

8-30

8-32

8-37

xxvii

[iii]


Violation of Public Poli- cy or Otherwise the Transaction Being Un- fair, Unreasonable or

............................... Unjust [el Changed Circumstances ...........

[2] 0 ther Approaches .............................. [a] Regional and Multilateral Con-

ventions ........................................ [i] The European Commu-

nities Convention .......... [ii] Other Conventions ........

[b] Approaches of Selected Coun- tries ...............................................

Q 8.03 Choice of Law Clauses ................................. [l] General ................................................. [2] U.S. Law and Practice .......................

[a] Restatement (Second) of Con- flict of Laws ................................

[b] Uniform Commercial Code ...... [c] Recent Judicial Decisions .........

[3] 0 ther Approaches .............................. [a] The European Communities

Convention .................................. [b] Approaches of Selected Coun-

tries and Other Conventions ... [4] Arbitration Clauses ............................. 8-80.11

Q 8.04 Conclusion ...................................................... 8-80.13 Appendix 8A: Sample Choice of Law and Choice of

......................................... 8-80.13 ~ e m % : r E Y E n ~ur i sd ic t ion-&l the -7

Enforcement of Judgments .................. 8-81

CHAPTER 9 Antitrust Aspects of International Business Opera- tions Theodore L. Banks, Andrew I. Gavil and Paul T. Denis

Q 9.01 Introduction ................................................... 9-3 Q 9.02 Agreements among Competitors ............... 9-9

xxviii

TABLE OF CONTENTS

[ l ] The Antitrust Laws of the United States ..... . . ...... . .. ... . . ......... . ........ . ............. [a] The Necessity of Collusion ....... [b] Effects on Competition ............. [c] U.S. Enforcement Policies ........

[2] The Regulation of Agreements among Competitors in the EEC ...... [a] The Origins of EC Competition

Regulation .... ............... . . . . . . .......... [b] A Comparison of Article 85 of

the Treaty of Rome and Section 1 of the Sherman Act ................

Q 9.03 Agreements Affecting the Sale and Distri- bution of Goods or Services ........................ [ l] Introduction ......................................... [2] Agreements between Buyers and

Sellers Relating to Resale Price ....... [3] Agreements between Buyers and

Sellers Regarding Nonprice Condi- tions of Sale and Resale .....................

[4] Price Discrimination .......................... [5] Exclusive Dealing ............................... [6] Refusals to Deal .................................. [7] Intellectual Property Licensing ....... [8] U.S. and EEC Enforcement Policies [9] Arbitration ............................................

Q 9.04 Monopolization and Abuse of Dominant Position ...................... ................... ................... [ l] The Antitrust Laws of the United

States ..................................................... [a] Section 2 of the Sherman Act. [b] U.S. Enforcement Policies ........

[2] A Comparison of Article 86 of the Treaty of Rome and Section 2 of the Sherman Act ................................. , .,....

Q 9.05 Mergers, Acquisitions and Joint Ventures [ l] Introduction ......................................... [2] The Scope and Jurisdictional Reach

of Antitrust and Competition Laws Applicable to Business Combina- tions ...... . . . . . . . . . . . .. . . . . . . . . . ... . . . . . . . . . .. . . . . . . . . . .. . . 9-75

xxix (Release # 18, 6/94)


... [a] United States Antitrust Laws ....... [b] Canadian Competition Act

[c] European Community Compe- tition Law ....................................

[3] Enforcement Issues ............................ [a] United States Enforcement Is-

sues ............................................... [b] Canadian Enforcement Issues. [c] European Community En-

forcemen t Issues ......................... [4] Filing Requirements ...........................

[a] United States Premerger Noti- fication .........................................

[b] Canadian Premerger Notifica- tion ................................................

[c] European Community Premer- ger Notification ...........................

[5] Substantive Standards ........................ [a] United States Standards ............ [b] Canadian Standards ................... [c] European Community Stan-

dards ............................................. Q 9.06 Special Issues of Import And Export Com-

merce ............................................................... [ l] U.S. Import Laws ................................ [2] U.S. Export Laws: Webb-Pomerene

and the Export Trading Company Act of 1982 ...........................................

9.07 Conclusion An International Antitrust Law? ................................................................

CHAPTER 10 Jurisdictional Problems in the Application of the Anti- trust Laws David K. Pansius

Q 10.01 Introduction .................................................. 10-2 Q 10.02 Foreign Party's Standing to Sue ................. 10-3 Q 10.03 The Effects Test of Jurisdiction .................. 10-5

..................................... [ l] The Case Law 10-5 ...................... [2] Sherman Act Section 7 10-10

XXX

i TABLE OF CONTENTS .:A. - ,..

." : 'r ............................. [a] U.S. Exporters 10-1 1 ,.+

[b] Consistent Standard of Effect.. 10-13 :$!' .!,

[c] The Restatement ......................... 10- 17 . . ',.ti .,. .

Q 10.04 The Five-Step Method of Jurisdiction ....... 10-18 i .. -,& '

[I] A Proposed Simplified Balancing . ... ,!';.. + . k

. ........................................................ Test 10-18 , . [2] Balancing Test and Conflict of Laws 10-21 . .

$ 10.05 Application of the Five-Step Rule ............. 10-30 / . 5 ,!>.

[ l] The Effect on U.S. Commerce ......... 10-30 :i. I .

[2] Effects with No Conflict of Laws .... 10-32 .;. [3] Weighing a Nation's Insubstantial .... . . ;#'

Interest ................................................. 10-40 . . , . [4] Conflicting Substantial National In-

, terests .................................................... 10-45 . . ,..

[5] General Rule of Antitrust Jurisdic- 5

tion ........................................................ 10-47 ,.. ' i

$ 10.06 Forum Non Conveniens .............................. 10-48 . .. .. I

$ 10.07 Sovereignty Defenses ................................... 10-48 -2. ,,': I '.

[I] Sovereign Immunity ........................... 10-48.1 if 4 ,. ,-.

[a] The Commercial Exception 10-49 ; 4: ..... , *: 3'

[b] The International Law Excep- 7,: ti :"'. tion ................................................ 10-52 .... x' $7

[c] Arbitration, Waiver .................... 10-53 p [dl Suits Involving the United {i; ..:

.;+. States ............................................ 10-54 r,-. 3;.

[2] Act of State Doctrine ......................... 10-54 ..La ..'$ Q 10.08 Remedial Sanctions Imposed Upon For- ..-, ..,:; .

. ; j ,

eign Defendants ............................................ 10-76 :t: ' . '-Y\

Q 10.09 Venue and Personal Jurisdiction 10-79 . :,. ,, y ................ '$.. ..... Q 10.10 Extraterritorial Discovery ............................ 10-83 isb .,. i'. . ,. t.. '. %

(Release # 18, 6/94) xxxi

TABLE OF CONTENTS

Volume 1A

CHAPTER 11

Enforcement of the European Community's Antitrust Laws-The Single Enterprise Theory Lillian Heimke Filegar and Lisa L. Helling

Q 11.01 Introduction ................................................... Q 11.02 The Single Enterprise Theory: An Over-

vlew ................................................................. Q 11.03 Jurisdiction in International and Commu-

nity Law .......................................................... [ l ] The Basis of the Community's Au-

thority ................................................... [2] Legislative Jurisdiction ......................

.... [a] In Public International Law

[b] In the European Community .. .................. [3] Enforcement Jurisdiction

[a] Basis in Public International Law ...............................................

[b] Scope of the Commission's Au- thority ........................................... [i] Power to Investigate ..... [ii] Enforcement and Prohi-

bitions .............................. [iii] Appeal to the Court of

Justice .............................. [iv] Enforcement Against

the Single Enterprise .... Q 11.04 Piercing the Corporate Veil ........................

[ l ] Limited Liability and Remedies ............ Based on Unlawful Activities

[2] Piercing as a Statutory Requirement 4 11.05 The Evolution of the Single Enterprise

Theory ............................................................. [ l ] The Case Law .....................................

[a] The ICI Case ............................... [b] Continental Can .........................

xxxii

TABLE OF CONTENTS

[c] Commercial Solvents ................. 11-29 [dl United Brands and Hoffman-La

Roche ........................................... 11-31 [2] Limitations to the Single Enterprise

Theory ................................................. . 1 1-33 [3] The Ilybrid Nature of the Theory .. 11-35

Q 11.06 Concl~uion ...................................................... 11-38

CIIAPTER 12 Foreign Trade and Ecoilomic Injury-A Survey of U.S. Relief Mechanisms Paul Stephen Dempsey

Introduction ................................................... U.S. International Economic Policy: A His- torical Overview of the Free Trade Ap- proach and its Implementation .................. Antidumping and Countervailing Duties. [I] Antidumping ........................................ [2] Export Subsidies and Countervailing

Duties .................................................... [3] Judicial Review .................................... Relief from Import Injury ........................... [ l ] Import Relief: Duties, Tariff-Rate

Quotas, Quantitative Restrictions, and Orderly Marketing Arrange- ments .....................................................

[2] Adjustment Assistance for Labor ..... [3] Adjustment Assistance for Compa-

nies [4] Adjustment Assistance for Commu-

nities .. . . . ........ . .. . . .... .... ... . . . . .. ........... . . .. . . . . Enforcement of U.S. Rights Under Trade Agreements .................................................... Unfair Methods of Competition in Impor- tations: Section 337 ....................................... [ l ] Section 337: A Procedural Overview [2] The Regulation of Patent Cases ....... [3] Nonpatent Cases ................................. [4] Section 337: A Concluding Analysis Antitrust Relief ..............................................

(Release # 18, 6/94) xxxiii


Q 12.08 Conclusion ...................................................... 12-56 Appendix 12A: Trade Agreements Act of 1979: A

.................. Comparison of Provisions 12-59

CHAPTER 13 International Boycotts Stephen J. Doyle

Q 13.01 Introduction ................................................... Q 13.02 The Arab Boycott ..........................................

[l] The Arab Boycott Laws ..................... [2] Boycott Documentation ..................... [3] Removal from the Blacklist .............. [4] The Arab Boycott and U.S. Policy ...

Q 13.03 Historical Background to the Antiboycott Laws of the United States ...........................

Q 13.04 The Export Administration Act .................. [ l] General Scope of the Antiboycott

Provisions ............................................. [2] Prohibited Activities ...........................

[a] Refusal to Do Business .............. ............................ [b] Discrimination

[c] Furnishing Information ............. [dl Exceptions to the Prohibitions

[il [ii]

[iii]

[ivl [vl [vil

[3] Reporting

Import Requirements ... 13-21 Document Require- ments ............................... 13-22 Unilateral and Specific Selection .......................... 13-23 Export Requirements ... 13-25 Visa Requirements ........ 13-25 Local Law ....................... 13-26 Iequirements ................... 13-27 n

[a] Reportable Requests to Com- ply with a Boycott ..................... 13-28

[b] Boycott-Related Requests which Are Not Reportable ....... 13-29

[4] Penalties ............................................... 13-31 Q 13.05 Tax Code: "International Boycott Deter-

....................................................... minations" 13-32

xxxiv

C TABLE OF CONTENTS

[ l ] Agreements to Comply with the Boycott ..................................................

[2] Penal ties ............................................... ................... [3] Reporting Requirements

............................................. Q 13.06 Letter of Credit [l] Application of the Export Adminis-

tration Act and Tax Code to Letters ............................................... of Credit

[2] Prohibited Clauses and Acceptable A1 ternatives ..........................................

[3] Sanctioned Clauses ............................. Q 13.07 Examples of Antiboycott Law in Overseas

...................................................... Operations Q 13.08 Compliance Program .................................... Appendix 13A: Export Administration Act Report of

Request Form-Single Transaction. Appendix 1313: Export Administration Act Report of

Request Form-Mu1 tiple Transac- tions .......................................................

Appendix 13C: Tax Code Schedule C-Tax Effect of the International Boycott Provisions

CIIAPTER 14 International Capital Markets and Securities Regulation Harold S. Bloomenthal

............ Q 14.01 Capital Flows: Theory and Reality ........................................ [ l ] The Problem

.......................................... [2] EC Solution Q 14.02 The International Market in Debt Securi-

.................................................................... ties ............... [ l ] International Bond Market

[2] Lenders: The Role of Eurocurren- cies .........................................................

......... [3] Borrowers: Public and Private ........................ [4] Equity Related Bonds

[5] Regulation of International Bond Is- sues ........................................................

[6] Regulation of Syndicated Loans ....... Q 14.03 Stock Exchanges of the World ....................

13-39 13-4 1

13-43 13-45

13-47

13-48

13-50

14-9 14-9

14-14

14-16 14-16

14-20 14-23 14-24

14-25 14-29 14-32

xxxv

, .

4 14.04

$ 14.05

$ 14.06 $ 14.07 $ 14.08

xxxvi


World's Securities Business and Securities Firms ................................................................

..... National Character of Capital Markets [l] The United States ............................... [2] Japan ..................................................... [3] The United Kingdom ......................... [4] Germany ............................................... [5] France ................................................... [6] The Netherlands ................................. [7] Italy ....................................................... [8] Hong Kong ........................................... [9] Mexico ................................................... [lo] Australia ................................................ International Market in Equities ................ Internationalization of Portfolios ................ Securities Regulation .................................... [ l] U.S. Disclosure Systems .....................

[a] Registration of Securities .......... [b] Exchange Act Registration and

Continuous Disclosure ............... [2] The United Kingdom .........................

[a] Role of the Stock Exchange ..... [b] Flotation of Securities ............... [c] 1986 FSA Regulation of Pro-

............. spec tus and Particulars [3] European Community Disclosure

Directives ............................................. [a] European Prospectus ................. [b] Continuous Reporting ...............

[4] Harmonizing Accounting Standards and Auditing Procedures ................... [a] A Survey .................................... [b] International Accounting Stan-

dards Committee ....................... [i] Background and Over-

view.. ................................ [ii] History and Structure of

IASC ............................. [iii] International Account-

ing Standards ..............

TARLE OF CONTENTS

[iv] National and Interna- ........... tional Reaction 14-1 19

[c] International Auditing Prac- ..................... tices Committee 14-1 21

................ [i] Introduction 14-121 [ii] Purpose and Structure

........................ of IAPC 14-124 [iii] International Auditing

................... Guidelines 14-1 25 ............................... [5] Insider Trading 14- 128

.................. [a] The United States 14-128 ............ [b] The United Kingdom 14-130

.......................................... [c] France 14-135 ...................................... [dl Germany 14-137

......................................... [el Canada 14-140 ....................................... [fl Australia 14-142

............................................. [g] Japan 14- 144 ......................... [h] Other Countries 14-146

[6] Take-Over Regulation ........................ 14-149 [a] The United States ...................... 14-149

[i] Federal Regulation ........ 14-149 [ii] State Regulation ............. 14-149

................ [b] The United Kingdom 14-150 ....................................... [c] Australia 14-161

[dl Canada ......................................... 14-163 .......................................... [el France 14-164

[fl Other Countries ......................... 14-165 [7] Proxy Regulation ................................. 14-168

[a] The United States ...................... 14-168 [b] Other Countries ......................... 14-168 [c] German Alternative ................... 14-172

Q 14.09 Investment Companies ................................ 14-174 [ l ] Generally .............................................. 14-174 [2] EC Directive ....................................... 14-176

Q 14.10 The Fragile Nature of International Secur- ities Regulation ........................................ 14-184 [ l ] Introduction ......................................... 14-184 [2] International Organizations and

Processes: International Organiza- tion of Securities Commissions ......... 14-193 [a] Background ................................. 14-193

(Release # 18, 6/94) xxxvii


............... [b] Substantive Agenda 14-196 [i] Mu1 tinational Offerings

...................................... 14-196 [ii] Regulation of Secondary

...................... Markets 14-199 [iii] Regulation of Market

Intermediaries ............ 14-1 99 [iv] Enforcement and the

Exchange of Informa- ............................... tion 14-203

[3] International Organizations and Processes: 0 ther Authorities and Processes .......................................... 14-205

4 14.11 Offshore

General Agreement on Trade in Services ............................... Organization for Economic Co- operation and Development ................................................... United Nations Commission on Transnational Corporations .. Group of Thirty (Consultative Group on International Eco- nomic and Monetary Affairs) ................................................... International Federation of Stock Exchanges ..................... International Society of Securi- ties Administrators ................. International Councils of Se- curities Dealers and Self- Regulatory Organizations ..... Federation of European Ac- coun tan ts .................................. Intergovernmental Working Group of Experts on Interna- tional Standards of Accounting

......................... and Reporting .................................. Distributions

[l] Regulation S and Related Initiatives 14-216 [2] Offshore Distributions and Release

....................................... Number 4708 14-224

xxxviii

TABLE OF CONTENTS

[3] Distributions Pursuant to Regulation S-Introduction ................................... 14-228

[4] General Statement (Non-Safe Har- bor) Approach ................................ 14-230

................... [5] Definition of U.S. Person 14-232 ............................. [6] General Conditions 14-234

[a] Offshore Transactions ................ 14-234 [b] Directed Selling Efforts ............ 14-239

[7] The Issuer-Distributors Safe Harbors 14-245 . Category 1: Offerings of For- . $. +. .:.. eign Securities and Overseas '3;. ,: .

.L. ... Directed Offerings ..................... 14-245 . i s . . q p Offering Restrictions ................. 14-252 I : .. ,.. ::,+

Category 2: Reporting Issuers ':+ ..,.

and Debt, Preferred, and Asset- :*, : ;$,

Backed Securities of Non- ! .. 8

. ,Id ..!; reporting Foreign Issuers ......... 14-254 : P, -. .. . Category 3: Non-reporting US. - .;, .. Issuers and Certain Equity Se- : ,.

. - curities of Non-reporting For- . . eign Issuers ................................. 14-257 :.y . Failure to Comply with a Safe ... !-I I.:. t :

Harbor Condition or Restric- . . I . , . . . ,;,..

tion ................................................ 14-259 [8] Rule 904 Safe Harbor for Resales .... 14-260

[a] Securities Distributed Pursuant to Regulation S ........................... 14-260

[b] Resale of Securities Issued in Reliance on an Exemption ....... 14-264

[9] Convertible Securities ........................ 14-265 [lo] Warrants ........................................... 14-270 [ l l ] Regulation S and American Deposi-

tary Receipts ........................................ 14-274 [a] Overview of American Deposi-

tary Receipts ............................... 14-274 [b] Impact of Regulation S ............. 14-277

[i] Sales to U.S. Persons During Restricted Peri- od ...................................... 14-277

(Release # 18, 6/94) xxxix

TRANSNATIONAL IlUSlNESS

[ii] Substantial U.S. Market ............................ Interest 14-280

[12] Resales in the United States or to ....................................... U.S. Persons 14-281

............ [a] Conceptual Framework 14-281 [b] Regulation S and the Releases. 14-286 [c] Testing the Premise-Some

...................... Random Scenarios 14-292 [13] Summing Up the Restrictions on

Sales in the United States and to US. Persons .................................................. 14-295 [a] Distributors ........................ ..... 14-295 [b] Investors ...................................... 14-296

............................. [c] Professionals 14-297 [dl Offers and Sales After the Re-

stricted Period .......................... 14-297 [el The Legend ................................. 14-298

[14] Interrelationship of Regulation S and Tax Provisions .............................. 14-301

[15] Critique of Regulation S .................... 14-306 [16] Applicability to Investment Compa-

nies ........................................................ 14-308 (171 Status of Regulation S Under Inter-

national Law ................................ ..... 14-314 [a] Introduction ................................ 14-3 14 [b] Selected Terms and Concepts

................................. .... ........ 14-316 [c] Prescriptive Jurisdiction ........ 14-317 [dl Bases of Jurisdiction to Pre-

scribe; Limitations .............. 14-319 [el Applicability to Regulation S

................................................. 14-321 [fl Relationship to the Federal

Securities Code ...................... 14-323 $ 14.12 Registration Requirements Applicable to

Foreign Broker-Dealers .............................. 14-324 [l] Background ......................................... 14-324 [2] Sources of Law .................................... 14-326 [3] General Principle of Territoriality .. 14-327

.................... [4] Unsolicited Transactions 14-328

TABLEOFCONTENTS

[S] Provision of Research by Broker- Dealers .............................................. 14-330

[6] Direct Transactions with US. Insti- tutions ......................... .. ................. 14-331

[7] Transactions with Certain Persons.. 14-332 [8] Recognition of Foreign Broker-

Dealer Regulation .............................. 14-334 Rule 144A and the PORTAL Market ........ 14-335

Interrelationship of Rule 144A, PORTAL, Regulation S, and Rule 144 ..................................................... 14-335 Initial Proposed Rule 144A ............... 14-339 Qualified Institutional Buyer ............ 14-341 Eligible Securities ............................... 14-348 Informational Requirements and Other Conditions ................................ 14-351 Resales of Rule 144A Securities ....... 14-354 Private Placements After Rule 144A 14-355 PORTAL, A Closed Market for Rule 144A Securities ... . . . 14-359 The Closed System ............................. 14-362 Closing the Loop-Qualified Exit Transactions ......................................... 14-364 Rule 144A Disclosure and PORTAL 14-369 Primary Placements ........................... 14-370 Secondary Trading ............................. 14-376 Critique ............................................... 14-379

~xtraterrit&al Application of the Anti- Fraud Provisions ......................................... 14-380 Registered Investment Companies ............ 14-397 Offshore Funds .............................................. 14-399 Integrated Disclosure for Foreign Private Issuers ........................................................ 14-401 [l] Introduction ......................................... 14-401 [2] Form 20-F and Regulation S-K Com-

pared ............................... . ................. 14-402 [3] Distinctive Aspects of Form 20-

Including the Financial Statements 14-408 Regulation of Foreign Offerings in the United States ........................... .. ............... 14-410

(Release # 18, 6/94) xli


[ l] By Foreign Private Issuers ................ 14-410 [2] Foreign Governmental Issuers ......... 14-419 [3] Foreign Investment Companies ...... 14-420 [4] Exempt Offerings ... 14-422 IS] Corporate Combinations and Ex-

change Offers Involving Foreign Is- suers ................................................ 14-426

$ 14.19 Registration and Reporting by Foreign Is- suers Under the Exchange Act ................... 14-426 [l] Exemptions ......................................... 14-426 [2] Registration and Reporting on Form

20-F .................................................. 14-431 5 14.20 Foreign Securities Traded on NASDAQ ... 14-435 4 14.21 Extraterritorial Application of the Invest-

ment Advisers Act 14-437 5 14.22 Foreign Corrupt Practices Act ................... 14-444

[I] Books, Records, and Internal Ac- counting Controls ............................... 14-444

[2] Corrupt Payments .............................. 14-449 $ 14.23 Multijurisdictional Disclosure System:

United States 1 4 - 6 4 111 Introduction ......................................... 14-454 [21 An Overview ....................................... 14-461 [3] Some Common Definitions ............... 14-464 [41 Basic MJDS Forms and Cross-Border

Registration Forms and Eligibility Requirements .................................... .. 14-468 [a] MJDS Forms ................................ 14-468 [b] Forms F-11 and F-12 ................ 14-472 [c] Proposed Amendments to

Form F-3 ..................................... 14-476 [51 Common Requirements .................... 14-477

[a] A Three-Year History of Con- tinuous Reporting ...................... 14-477

[b] Substantiality Requirements .... 14-478 [c] Financial Statements ................. 14-480

[i] Under MJDS ................... 14-480 [ii] Forms F-11 and F-12 .... 14-482 [iii] Comment ........................ 14-482

TABLE OF CONTENTS

[6] Special Aspects of Exchange Offers ............... and Business Combinations 14-484

......................... [a] Exchange Offers 14-484 .............. [b] Business Combinations 14-485

[c] Successor Corporation of a ............... Business Combination 14-486

............................. [dl Other Aspects 14-488 .............................. [7] MJDS Prospectus 14-490

.......... [a] Wrap-Around Prospectus 14-490 [i] Under MJDS ................... 14-490

.... [ii] Forms F-11 and F-12 14-493 ............................... [b] The Legends 14-494

[c] Exclusions from the Prospectus 14-496 [8] MJDS Registration and Content of

the Registration Statement ............... 14-497 [a] The Mechanics of Registration 14-497 [b] Exhibits ........................ ... ....... 14-497 [c] Undertakings and Signature

Page ............................................ 14-499 [dl Inapplicability of Regulation C 14-499 [el Filing and Effective Dates ....... 14-500

[9] Form F-X and Consent to Service of Process .................................................. 14-501

[lo] Civil Liability ................................. 14-502 (1 11 Continuous Reporting and Registra-

tion Under the Exchange Act .......... 14-503 [a] Introduction .............................. 14-503 [b] MJDS, Continuous Reporting,

Exchange Act Registra- tion-Herein of Form 40-F ........ 14-506

[c] Summary of MJDS Continuous Reporting and Exchange Act Registration ................................. 14-509

[12] Tender Offers and the MJDS ........... 14-511 [a] Introduction ................................ 14-51 1 [b] Bids Under Canadian Law ....... 14-513 [c] Tender Offers Under MJDS ..... 14-514

[I31 Rules lob-6 and lob-13 ..................... 14-519 [14] Multijurisdictional Disclosure Sys-

tem and Blue Sky Laws .................... 14-520 [a] Coordination of State Registra-

tion with the MJDS ................... 14-520

(Release # 18, 6/94) xliii

2 . : , . L, . 'i ... ;. t .i: :. . . ~ 'I., ., <

TRANSNATIONAL BUSINESS -4 ;i; , , , . [b] Financial Statements and the 'i. ............. ......................... .\?

MJDS .. 14-527 ... .. +.. [c] Rights Offerings and the MJDS 14-528 . ...

,3 : [dl Secondary Trading and the

................. .................... S , MJDS .. 14-528 ?& - . ~. . [el Filing of Documents and Sales :... ................................. Literature 14-529 . . .., .!.

[ f j Form F-X and Consent to Ser- :+ ....................... vice of Process ..... 14-530 i < [g] Merit Requirements and the 5. ............................................ MJDS 14-531 .,. .............. *: [h] Exemption Alternative 14-532 . . . . . . .,> . [15] NASD Corporate Financing Rule .\ .................... .......... 2.. and the MJDS ... 14-533 .. - .+,-. ,,... Q 14.24 Multijurisdictional Disclosure System: 'r.. ........................................................... .t: Canada 14-534 ,.';: ....................................... . ) I [ l ] Introduction 14-534 '"'1: .......................................... .Y. ,.% [2] Overview 14-535 ;!! [3] Financing in Canada Under Current '5% y. Law ............................. .... ............. 14-537 ... g .......................................... . . [4] Definitions 14-541 6 . 5. [5] Common Requirements .................... 14-546

, h.. .i.. [6] Prospectus Offerings .......................... 14-547 ?.' .h

. .r: [7] Business Combinations and Securi- .:1 .. >? ................... ...... ties Exchange Bids .. 14-552 .... .....

2,", I: [8] Prospectus Filing and Other Proce- . - , , ...................................................... :. ,. dures 14-555 ... ".., .i>

[9] Liability and Contin~ious Disclosure .. ,I, .......................................................... 14-556.6 <: , .................................... i: .<: [lo] Tender Offers 14-556.8

>:. ............................................ ... [1 1] Conclusion 14-556.8 ' + . :. :::

5 14.25 Cross-Border Rights, Tender and Ex- ........................ ............. ... change Offers .. 14-556.9 ...

.i: .... '?; [ l ] Cross-Border Rights Offerings 14-556.9

.......................... A:.

[a] Introduction 14-556.9 'I.

A . J., [b] Exemption from Registration . '6. . ............................................... 14-556.15 .,.< ' 4 , ........................... ?.. [c] Registration 14-556.20 ,., :i. [dl Common Eligibility Require- . . ...................................... .. ments 14-556.25 !. .... . . .......... . . [2] Amendments to Form F-3 14-556.29 .? : .,. .:: ,. 1 xliv

TABLE OF CONTENTS

Table 14-1

Table 14-2

Table 14-3 Table 14-4

Table 14-5

Table 14-6

Table 14-7 Table 14-8

................... [3] Policy Considerations 14-556.31 [4] International Tender and Exchange

.............................................. Offers 14-556.34 [a] Exchange Offers and Business

Combinations: Exemption ................. from Registration 14-556.34

[b] Exchange Offers and Business Combinations: Registration ... 14-556.38

[5] International Tender Offers and the ................................... Williams Act 14-556.42

[6] Related Exemptions; U.K. Exemp- ...................................... tive Order 14-556.44

Table

Table Table

Dollar Value of International Bond Of- ................................... ferings: 1965-1988 14-557

Foreign Bond Issues in Selected Capital ...................................................... Markets 14-558

Eurobond Issues by Currency of Issue 14-560 Equity Related International Bond Of-

........................................................ ferings 14-562 Issuance of Equity Related Bonds in In-

.................................. ternational Markets 14-563 Market Capitalization of World's Stock Markets ...................................................... 14-564 Value of International Stock Offerings 14-565 Domestic and Foreign Listed Compa- nies on Major Stock Exchanges ............. 14-566 Overview of Foreign Investment by Private Sector Pension Funds ................ 14-567 Overview of Global Mutual Funds ....... 14-568 Annual Rates of Return of Stock Price Indexes in Ten Maior Countries ........... 14-569

Appendix 14A: Council Prospectus Directive ........... 14-571 Appendix 148: Council Listing Particulars Direc-

tive ......................................................... 14-588 Appendix 14C: Council Amendment to Listing Par-

ticulars Directive ................................ 14-629 Appendix 14D: Council Integration Directive ......... 14-635 Appendix 14E: Council Listing Conditions Direc-

tive ........................................................ 14-638

(Release # 18, 6/94) xlv

I.' . ,

TRANSNATIONAL BUSlNESS

Appendix 14F: Council Half-Yearly Reports Direc- ......................................................... tive 14-658

Appendix 146: Council Banking Directive ............... 14-666 Appendix 14H: Council Undertakings for the Col-

lective Investment in Transferable Securities (UCITS) Directive ............ 14-695

.4ppendix 141: Council Insider Trading Directive. 14-732

xlvi

TABLE OF CONTENTS

Volume 1B

CHAPTER 15 Dismissals in Europe Roe1 Nieuwdorp

Introduction ................................................... General Observations ................................... Belgium ........................................................... [I] Administrative Procedure .................

....... [2] Individual Dismissal Procedure .................... [a] Salaried Employees

......................... [b] Manual Workers [3] Collective Dismissal ............................ Netherlands .......................... ... ................... [I] Administrative Procedures ...............

...... [2] Individual Dismissal Procedures [a] The Notion of "Clearly Unfair . ,, .................................... Dism~ssal

[3] Collective Dismissals ......................... France ............................................................. [l] Administrative Procedures ................

... [a] Duty to Provide Information [b] Prior Authorization ....................

[2] Individual Dismissal Procedure ....... [a] Conditions of Form (Proce-

dure) ............................................ [il Meeting with the Em-

ployee .............................. [ii] Notice of Termination .. [iii] Communication of Rea-

sons For Dismissal .......... [b] Conditions of Substance ............

............................. [c] Severance Pay ..................................... [dl Sanctions

[i] Irregular Dismissal ........ [ii] Abusive Dismissal ..........

[3] Collective Dismissal ............................

(Release # 18, 6/94) xlvii


[a] Collective Dismissal of Less ................ Than Ten Employees

[b] Collective Dismissal of More ................ Than Ten Employees

... [4] Summary Schedule of Procedures § 15.06 United Kingdom ........................................

................ [ l] Administrative Procedures ...... [2] Individual Dismissal Procedures

........................ [a] Length of Notice [b] Redundancy Payments .............. [c] Unfair Dismissal .........................

[i] The Basic Award ........... [ii] The Compensatory

Award ............................ .......................... (31 Collective Dismissals

CHAPTER 16 Regulation of Multinational Enterprises: Internation. a1 Codes of Conduct Paula R. Rhodes

.............................................. Introduction Definition of a Multinational Enterprise.. Reasons Underlying Regulation of Mul- tinational Enterprises ................................ National Regulation of Multinationnl En- terprises ........................................................... The Role of Codes of Conduct in Regulat- ing Multinational Enterprises ..................... Major Codes of Conduct .............................. [ l] ILO Tripartite Declaration ............... [2] U.N. Restrictive Business Practices

Code .................................................... [3] Draft Code on the Transfer of Tech-

nology .................................................. [4] OECD Guidelines for Multinational

Enterprises ........................................... [5] Draft U.N. Code of Conduct on

Transnntional Corporations ............... Codes of Conduct on Doing Business in South Africa .................................................. Conclusion ......................................................

xlviii

TABLE OF CONTENTS

Appendix 16A:

Appendix 16B:

Appendix 16C:

Appendix 16D:

Appendix IFE:

Appendix 16F:

Appendix 16G:

Appendix 16H:

Appendix 161:

Excerpts from ILO Tripartite Decla- ration of Principles Concerning Mul- tilateral Enterprises and Social Poli- cy .......................................................... Excerpts from United Nations Set of Multilaterally Agreed Equitable Principles and Rules for the Control

...... of Restrictive Business Practices Excerpts from Draft International Code on the Transfer of Technology OECD Guidelines and Decisions on Multinational Enterprises ................. Draft United Nations Code of Con- duct on Transnational Corporations Excerpts from 1979 and 1984 Re- views of OECD Guidelines and De- . . C I S I O ~ S .......................... .. .................... Code of Conduct for European Community Companies with Sub- sidiaries, Branches or Representa- tion in South Africa ............................ Sullivan Principles for U.S. Corpora- tions Operating in South Africa ...... WHO International Code of Mar- keting of Breast-milk Substitutes ....

CHAPTER 17 International Economic Institutions David A. Chaikin

$ 17.01 Introduction ................................................... $ 17.02 General Agreemcnt on Tariffs and Trade

......................... (11 Historical Overview ................... [2] Functions and Principles

......................... [3] The Treaty Structure ......................................... [4] Membership

[5] Institutions ............................ .. ........ $ 17.03 United Nations Conference on Trade and

Development ................................................

(nclease # 18, 6194) xlix


Organization for Economic Cooperation ......................................... and Development

............ The Customs Cooperation Council ..................... International Monetary Fund ................... [l] Functions and Principles

........... [2] Membership and Withdrawal [3] Organizational Structure and Voting

....................... [4] Resources of the Fund [5] Drawing Rights and Fund Policies.. [6] Legal Character of Fund Transac-

tions ....................................................... .......................................... The World Bank

[l] Role, Membership, and Governance [2] Capital Structure and Resources ..... [3] Lending and Related Operations .... The International Development Associa- tion ................................................................. The International Finance Corporation .... Conclusion ....................................................

Appendix 17A: Treaty Establishing the African Eco- nomic Community ..............................

Appendix 17B: Brunei Darussalam Framework Agreement on Enhancing ASEAN Economic Cooperation ......................

Appendix 17C: Brunei Darussalam Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for the ASEAN Free Trade Area (AFTA).,.. 17-104

Appendix 17D: Maastricht Treaty on European .......................... Union and Final Act 17-112

CHAPTER 18 Recognition of Foreign Bankruptcies in a Transna- tional Setting: An Analysis of the Laws of the United States Charles D. Booth

$ 18.01 Introduction ................................................... 18-2 $ 18.02 Historical Development of United States

Law Regarding the Recognition of For- eign Bankruptcies and Foreign Represen- tatives ............................................................. 18-4

TABLE OF CONTENTS

Statutory Provisions and Case Law Re- garding the Recognition of Foreign Bank- ruptcies and Foreign Representatives and the Options Available to a Foreign Repre- sentative For Protecting the Assets of a Foreign Debtor in the United States and Seeking a Turnover of Such Assels to a

.................... ......... Foreign Proceeding ... [ l ) The United States Bankruptcy Code [2] Section 304 (Cases Ancillary to For-

................................ eign Proceedings) [a] Commencement of the Sectio~i

304 Case ...................................... [h] Jurisdiction and Venue ............. [c] Form of Relief ............................ [dl Criteria for Granting Relief

Under Section 304 ..................... [el Section 304 Cases .......................

[3] Section 303(b)(4) (Involuntary Cases Commenced By Foreign Represen- tatives) ...................................................

[4] Section 305 (Abstention) .................. [5] Section 508 ........................................... Statutory Provisions Authorizing a United States Trustee to Seek the Assistance of Foreign Courts in Protecting the Foreign Assets of a United States Debtor Involved in a Foreign Bankruptcy Proceeding and in Seeking the Turnover of Such Assets to the United States .........................................

................................................... Conclusion Appendix 18A: Convention on International As-

pects of Bankruptcy ......................... 18-71

CHAPTER 19

International Commercial Arbitration in Europe David K. Schollenberger

5 19.01 Introduction and General Considerations 19-3 ............................................... [l] General 19-3

(Release # 18, 6194) li


lii

[2] Characteristics of Arbitration ........... [a] Agreement to Arbitrate is Nec-

essary ................. .......... . ................ [b] Similarities and Differences Be-

tween Arbitration and Litiga- 5H n ..... ........... -..

,/-' [c] Ad Hoc v. Institutiona Arbrtra 1 tion.. . . . . . . . . . . . . . .- . . . . . . -

9 19.02 National Legislation ...................................... [I] Introduction ... [2] United Kingdom .................................

[a] History and General Charac- . . tenstlcs ......................................... [b] Arbitration Agreement-Form

and Content ................................ [c] Arbitration Proceedings ............ [dl Enforcement of Agreement to

Arbitrate ...................................... [el Enforcement of Arbitral Award [Q Challenges to the Award ..........

[3] France ................................................... [a] History and General Charac- . . ter~stlcs .......................... ............... [b] Arbitration Agreement-Form

and Content ................................ [c] Arbitration Proceedings ............ [dl Enforcement of Agreement to

Arbitrate ...................................... [el Enforcement of Arbitral Award [Q Challenges to the Award ..........

[41 Federal Republic of Germany .......... [a] History and General Charac- . .

terlstlcs .............. ......... .................. [bl Arbitration Agreement-Form

and Content ................................ Icl Arbitration Proceedings ............ [dl Enforcement of Agreement to

Arbitrate .................................. .... [el Enforcement of Arbitral Award [ f j Challenges to the Award ..........

TABLEOFCONTENTS

.................. 5 19.03 International Arbitration Rules [I] International Chamber of Com-

merce .................................................... ............................... [a] Introduction

[b] Jurisdiction .................................. ..... [c] Appointment of Arbitrators

................... [dl Place of Arbitration ........................... [el Governing Law

[fl Pretrial Process ........................... ..................................... [g] Discovery

[h] Language ..................................... [i] Proceedings ................................. b] Award ....................... .. .......... [k] Costs .............................................

[2] United Nations Commission on In- ternational Trade Law Rules ............ (a] Introduction ................................ [b] Jurisdiction .............................. [c] Appointment of Arbitrators ..... [dl Place of Arbitration ................... [el Governing Law ........................... [fl Pretrial Process ............... .. ..... [g] Discovery ..................................... [h] Language ................... .. ........... [i] Proceedings ................................. El Award ........................................... [k] Costs .............................................

[3] London Court of Arbitration Rules . [a] Introduction .............................

.................................. [b] Jurisdiction [c] Appointment of Arbitrators ..... [dl Place of Arbitration ................... [el Language .....................................

........................... [fl Governing Law [g] Pretrial Process ........................... [h] Discovery ..................................... [i] Proceedings ................................. b] Award ................... .. ................... [k] Costs .............................................

$ 19.04 International Conventions ...........................

(Relc;tse # 18. 6/94) u

liii


........................................ [I] Introduction [2] New York Convention of 1958 ........ [3] European Convention of 1961 .........

$ 19.05 Conclusion ...................................................... Appendix 19A: National Arbitration Legislation in

Europe ..................................................

CHAPTER 20 Expanded Philanthropy: American Corporations Worldwide Carole S. George and Richard F. Larkin $ 20.01 Introduction ................................................. 5 20.02 Choices for Corporate Overseas Giving ...

[I] To Make a Gift to a US. Charity That Will Use the Fund Overseas .............

[2] To Make a Cash Gift from a Foreign Branch or Affiliate of the US. Parent to an Overseas Charitable or Gov- ernmental Agency ..............................

[3] To Provide In-kind Goods or Ser- vices to Benefit the Foreign Charity

[4] To Make a Cash Grant from the U.S. Corporate Foundation to a Foreign Charity ................................................

$ 20.03 Overseas Grant Making by US. Corporate Foundations ................................................. [l] General ................................................. [2] Taxable Expenditures ........................ [3] Charitable Purpose ............................. [4] Expenditure Responsibility ...............

$ 20.04 Overseas Grantee Categories ...................... [I] General ................................................. [2] Grants to Governmental Units .........

[a] Charitable Purpose .................... [b] Expenditure Responsibility ......

[3] Grants to 50I(c)(3) Organizations and "501(c)(3) Eauivalents" .............. . . . . A

[a] Charitable Purpose .................... ...... [b] Expenditure Responsibility 20-20

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TABLE OF CONTENTS

[4] Grants to Organizations That Are Not Governmental Units, Not 501(c)(3) Organizations, and Not Equivalents to 501(c)(3) Organiza- tions ....................................................... [a] Charitable Purpose ....................

...... [b] Expenditure Responsibility ............................. $ 20.05 Related Considerations . . . ...................................... [ l] "Earmarkmg

[2] Program Related Investments .......... [3] Public Relations .......... .. ...... .. .......

$ 20.06 Conclusion ................................. .. ................ Appendix 20A: Contributions to Be Used in a For-

eign Country ..................... .. ............. Appendix 20B: IRS Sample Agreement ..................... Appendix 20C: Sample Grant Application ................

Index .......................... .. ..................................................... 1nd.-1

(Release # 18, 6194)

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