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THELEGAL ENVIRONMENT OFBUSINESS

2006 Prentice Hall Ch. 9-1

THELEGALENVIRONMENT

OFBUSINESS

A Cri tical Thinking App roach

Fourth Edition

Nancy K. Kubasek

Bartley A. Brennan

M. Neil Browne

http://vig.prenhall.com/catalog/academic/product/0,1144,0131498568,00.html


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2006 Prentice Hall

The International Legal

Environment of Business

CHAPTER 9


Ch. 9-2


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Chapter 9 Overview

All business is international business

Opportunities for U.S. companies

Competing in a global market


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Dimensions of the International

Environment of Business

Political Economic

CulturalLegal

Ethical


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Economic DimensionsGrowth rate

Central planning or market economy

Disposable income

Transportation infrastructure


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Political Dimensions

Democratic Totalitarian

Decentralized Centralized

Free Market Planned Economy

Civil Liberties Stability


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Cultural Dimensions

DefinitionCulture consists of learned

norms of a society based on

values, beliefs and attitudes


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Elements of Culture

Language

Religion

Group Membership

Attitudes

Education


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Legal Dimensions

National Legal Systems:

Common Law

Civil Law

Islamic Law

Socialist Law

Hindu Law


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Common Law

Origins in England and its colonies

Case Law

Precedent

Retrospective


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Civil Law

Origins in Europe Romano-Germanic

Code or Statutory Law

Regulatory

Prospective


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Islamic Law

Religious-Based:fundamentally from the Koran

Set forth in the Sharia

Woven into all aspects of daily life, the family,

and institutions of government


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Socialist LawOrigins in socio-economic theories of Marx

Law applied to advance the collective

ownership of property and the means ofproduction

Private rights subordinate to collective

rights as expressed through the state

Ultimate goal is to evolve beyond the need

for law


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Hindu LawReligious origins in the Sastras and the

Vedas

Law advances compliance with the castesystem

Focus on family and succession

Codified into Indias national laws

As a former British colony, India also

shares some common law traditions


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International LawTraditional View:

Public sector actions can directly affect

private international agreements

Realistic View:

Public Private


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Sources of International Law

Customs

Treaties

Judicial Decisions

Scholarly WritingsInternational Organizations


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Examples of International Law

Visas

Tax treaties

Certain intellectual

property right

protections

FCN treaties

Multilateral

tradeagreements:

NAFTA

ASEAN

WTO


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Methods of Engaging in International

Business

Low RiskTrade: Stay Home and Export

Low/Medium Risk

Medium RiskLicensing, Franchising

High RiskDirect Investment

Distributors Sales Reps


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International Trade

DEFINITIONExport and import of goods

and services from one

country to/from another


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Reasons for International Trade

Ricardo:The Econom ic Theoryof

Comparat ive Advantage

Relative efficiency

Assumptions in the model vs. thereal world: There is no free trade


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International LicensingBroadly applicable as to subject matter

of license

Trade Secrets Copyrights

PatentsTrademarks

Technology Know How

Trade Dress


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Franchising Agreements

Structure of the Franchise Agreement:

Licensor permits use of licensed property

Licensee pays royalties and fees based on

sales

Examples:McDonalds, KFC


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Foreign Direct Investment

Usually via Multinational

Corporations

Joint VentureSubsidiary


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Motivation for Foreign Investment

Expand markets

Get close to customers

Use foreign resources

Cheaper labor

Fewer regulations

Acquire knowledge


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Subsidiaries & Limited Liability

When is the parent

corporation liable for acts

of subsidiary?


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Case 9-1: In Re Union Carbide at Bhopal Action against both parent and

subsidiary for wrongful death and

injuries resulting from lethal gas leak atchemical plant in India

Issue: Forum shopping

Decision: Case removed to India fromU.S. court

Reason: Forum non conveniens

G O S SS


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Forum Non ConveniensWhere act occurred

Where witnesses and evidence are

Where business is incorporated

Local, not U.S. work force employed at the

plant

Translation of language problems

Local regulations applied to the plant

Costs and effort required for U.S. venue

LEGAL ENVIRONMENT BUSINESS


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Joint VenturesDefining characteristic: Usually

created for a single purpose and a

limited time

Some countries require all foreign

investment via joint ventures

Entities may be private,

government, or both



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Risks of Engaging in International

Business

Expropriation

Sovereign Immunity Doctrine and

FSIA

Act of State DoctrineExport and Import Controls



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Case 9-2: Keller v. Central Bank of Nigeria

Foreign Sovereign Immunities Act (FSIA)

No jurisdiction by U.S. court unlesscommercial activity is found

Held: Illegal action does not preclude a

finding of commercial activity



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Case 9-3:Philippines v. MarcosFACTS

Civil RICO action to recover fraudulent

transfers of funds

Injunction also sought to freeze funds

Defense: Act of State (by head of state)

THE LEGAL ENVIRONMENT OF BUSINESS


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Case 3-3:Philippines v. Marcos

HOLDING Act of State Doctrine based in balance of

power among three branches of government

Judiciary will not intrude on foreign affairs

conducted by executive branch

The doctrine does not extend to Marcos

situation

U.S. Court has jurisdiction and affirmed

injunction



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Case 9-4:U.S. v. Haggar Apparel

FACTS

Haggar ships pants to Mexico for sewing

and permapressing, then ships finished

goods back into U.S.

General rule: such a procedure is exempt

from customs duty

U.S. Customs declared permapress to

be manufacturing, not assembly; duty

levied



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Case 9-4:U.S. v. Haggar Apparel

HOLDING

Lower court ruled in favor of Haggar,

refunding duty

Court of Appeals reversed and held for

Customs

Rule: Customs classifications are made

at port of entry, but such decisions must

conform to statutory standards



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Risks Relating to CurrencyCurrency Controls

Currency Value Fluctuation

A Partial Solution: Hedging

Forward Contracts

Futures Contracts

Options



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Legal and Economic Integration

Three Examples:

1. WTO

2. European Union

3. NAFTA



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World Trade Organization

Created 1995

Based upon GATT

Goals: Eliminate Barriers to Trade

Prohibit Nontariff Barriers

Reduce Tariffs and Subsidies

Protect Intellectual Property

Rights



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WTO: Structure and Function

Rulemaking

MinisterialConference

General

Council

Dispute Resolution

Consultationbetween Members

Dispute Settlement

PanelAppellate Body



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WTO: Concerns and Criticisms

Sovereignty v. Trade

Environmental Laws

Consumer Protection

Labor Laws



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European Union

Origins in the European

Economic Community 1957

Goals: Free movement of

goods, services, capital, and

people across memberborders



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EU: Steps toward RealizationTreaty of Rome 1957Customs Union

Single European Act 1986Common

Market

Maastrich Treaty 1991

Monetary UnionPolitical Union

Uniform labor and social security laws



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EU: Structure and Membership

Council of MinistersOne per state

EU Commission20 members, controlfunctional areas called Directorates

ParliamentElected by states

European Court of JusticeJurisdiction over EU v. state disputes



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North American Free Trade Agreement

NAFTA ratified in 1994

Fifteen year phase in period

Purpose: Eliminate barriers to free

flow of goods, services, andinvestments in Canada, U.S. and

Mexico



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NAFTA: StructureTrade Commission

Secretariat

Arbitral Panels

Dispute resolution via five member

panels

Offers relatively quick and final

decision

Example: UPS Case v . Mexico



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Global Dispute ResolutionArbitration: The most often used method of

resolving international business disputes

Supported by:

UN Convention on the Recognition of

Foreign Arbitral Awards

International Center for the Settlement ofInvestment Disputes

International Chamber of Commerce Rules



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Other Forms of Dispute ResolutionMediation

Conciliation

Litigation

Contractual Clauses

Choice of ForumChoice of Law

Language



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SummaryManagers need to consider all

aspects of international business

Important areas include: political,

economic, cultural, and legal

Increasingly, internationalorganizations shape the rules of

global trade

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