10 Legal Forces International Business by Ball, McCulloch, Frantz, Geringer, and Minor McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc.

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)

KEY EVENTS IN A MULTILATERAL TREATYKEY EVENTS IN A MULTILATERAL TREATY

10-28

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

International Standards OrganizationInternational Standards Organization

10-30

President Lyndon B. Johnson signs the President Lyndon B. Johnson signs the Civil Rights Act of 1964, July 2, 1964Civil Rights Act of 1964, July 2, 1964

10-31