International Business by Ball, McCulloch, Frantz, Geringer, and Minor Chapter 11 - Legal Forces International Business by Ball, McCulloch, Frantz, Geringer, and Minor

Chapter Objectives Appreciate the complexity of the legal forces that confront international business Discuss enforcement of antitrust laws Recognize the importance of tariffs, quotas, and other trade obstacles to international business Appreciate the effects of price and wage controls, labor laws, and currency exchange Recognize the importance of being aware of peculiarities of local law Anticipate the need and methods to protect your intellectual properties

Some Specific National Legal Forces Taxation Nonrevenue tax purposes Redistribute income. Discourage consumption of certain products. Encourage the purchase of domestic rather than imported products.

Taxation National 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.

Taxation National Differences of Approach Tax Types Capital gains tax Income tax Value-added tax Unitary tax

Taxation National Differences of Approach Complexity of Tax Laws and Regulations From country to country, the complexity of tax systems differ. Many consider that tax laws and regulations of the U.S. are the most complex.

Taxation Tax Treaties or Conventions Differences 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.

Antitrust Laws U.S. Laws and Attitudes are Different The U.S. antitrust laws are stricter and more vigorously enforced than those of any other country. The U.S. Department of Justice, headed by the attorney general, is charged with the responsibility of enforcing U.S. antitrust laws. In the EU, antitrust laws are sometimes referred to a competition policy.

Antitrust Laws U.S. Laws and Attitudes are Different Antitrust Laws Laws to prevent price-fixing, market sharing, and business monopolies. Competition policy The European phrase for what are called antitrust laws in the United States.

Antitrust Laws U.S. Laws and Attitudes are Different Important differences in antitrust laws between the U.S. other nations, and the EU. The extraterritorial application of U.S. laws. The per se concept of the U.S. law. This means that price-fixing is illegal even through no injury or damage results from them. The Treaty of Rome articles do not contain the per se illegality concept of U.S. antitrust law.

Antitrust Laws Worldwide Application of U.S. Antitrust Laws The U.S. Supreme Court on several occasions has permitted overseas application of U.S. antitrust laws. Extraterritorial application has been extended in a variety of other areas, including taxation and environmental law.

Antitrust Laws EU Extraterritorial Application of Its Competition Policy The EU Commission is charged with enforcement of EU competition policy. Like the U.S. Department of Justice, the EU Commission has increasingly sought enforcement of its competition policy abroad when there is an effect on commerce within the EU.

Antitrust Laws Japan’s “Toothless Tiger” Japan’s Fair Trade Commission (FTC) Supposed to enforce antitrust laws, but is viewed as one of the weakest bodies in government. A major difference between American and Japanese trust-busting is that around 90 percent of U.S. complaints are initiated by private parties. a private antitrust action in Japan can be brought on only if the FTC has investigated the case first.

Tariffs, Quotas, and Other Trade Obstacles The purposes of tariffs To raise revenue for the government. To protect domestic producers. The purpose of quotas For protection. Other forms of protection or obstacles to trade in national laws. Health or packaging requirements. Language translations on packages.

Tariffs, Quotas, and Other Trade Obstacles The U.S. imposes barriers against the importation of a number of products. Tariffs Quotas “Voluntary” restraint agreements Also called “voluntary” export restraints

Tariffs, Quotas, and Other Trade Obstacles Super 301 Popular name given to legislation aimed at preventing unreasonable or discriminatory trading practices by other countries. Gives the U.S. trade representative power to take retaliatory action against trading partners of the U.S. which engage in unfair trading practices.

Tariffs, Quotas, and Other Trade Obstacles Super 301 (cont’d) Congress passed Super 301 in 1988 to give the president additional leverage in trade negotiations. If the negotiations to remove unfair trade barriers fail, Super 301 allows the U.S. trade representative to impose punitive measures against noncooperating countries.

Product Liability— Civil or Criminal Holding a company and its officers and directors liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage.

Product Liability— Civil or Criminal 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.

Product Liability— Civil or Criminal Major differences in legal procedures U.S. compared with Europe and Japan In the U.S., product liability cases are heard by juries that award plaintiffs actual damages plus punitive damages. Outside the U.S., product liability cases are heard by judges, not juries.

Currency 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.

International Legal Forces International law can be divided into two types. Public International Law Includes legal relations between governments, including all matters involving the rights and obligations of sovereign nations. Private International Law Includes laws governing the transaction of individuals and companies crossing international borders.

International Legal Forces Source 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.

International Legal Forces Source of International Law (cont’d) Another source is customary international law. International rules derived from customs and usage over the centuries from what is called customary international law.

International 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.

International Dispute Settlement Litigation in the United States 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. It is common for U.S. businesspeople entering into contracts with businesspeople abroad to agree that any disputes will be resolved by arbitration, not litigation.

Issues Surrounding Performance of Contracts Which country’s law is applicable in international contract disputes? United Nations Solutions Many countries, including the U.S., have ratified the UN Convention on Contracts for International Sales of Goods.

Issues Surrounding Performance of Contracts Which country’s law is applicable? European Union Solutions The law applicable to contracts between EU residents is determined by an amendment to the Rome Convention, which came into effect in 1991.

Issues Surrounding Performance of Contracts Which country’s law is applicable? Private Solutions, Arbitration Many parties either cannot or do not wish to accept UN or EU solutions. Instead of going to court in any country, they opt for arbitration. The International Court of Arbitration of the International Chamber of Commerce in Paris is the best known for arbitration.

Issues Surrounding Performance of Contracts People and businesses prefer arbitration for several reasons. They may be suspicious of foreign courts. Arbitration is always faster than law courts. The procedures are informal. Arbitration can also be confidential. Avoids the perhaps unwelcome publicity accompanying an open court case.

Issues Surrounding Performance of Contracts Enforcement of Foreign Arbitration Awards 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.

Issues Surrounding Performance of Contracts Other organizations working toward a worldwide business law The Incoterms of the International Chamber of Commerce The UN Commission on International Trade Law The International Institute for the Unification of Private Law The Hague-Vishy Rules on Bills of Lading sponsored by the International Law Association

Intellectual Property Intellectual property includes Patents, trademarks, trade names, copyrights, and trade secrets, all of which result from the exercise of someone’s intellect.

Intellectual Property Patents (Protection) International Convention for the Protection of Industrial Property (Paris Union) Some 90 countries, including the major industrial nations, adhere to this convention. European Patent Organization Members are the EU countries and Switzerland. The World Intellectual Property Organization A UN agency that administers 16 international intellectual property treaties.

Intellectual Property Trademarks Protection varies from country to country which may be from 10 to 20 years. Protection is covered by the Madrid Agreement of 1891 for most of the world. There is also the General American Convention for Trademark and Commercial Protection for the Western Hemisphere. Protection may also be provided on a bilateral basis in friendship, commerce, and navigation treaties.

Intellectual Property Trademarks An important step in harmonizing the rules on trademarks was taken in 1988. Regulations for a European Union were drafted. A single European Trademark Office will be responsible for the recognition and protection of proprietary markets in all EU countries. This includes trademarks belonging to companies based in non-EU member-countries.

Intellectual Property Trade Names Trade names are protected in all countries that adhere to the Industrial Property Convention.

Intellectual Property Copyrights Protection is provided under the Berne Convention of 1886. Adhered to by 55 countries. The U.S. did not ratify the Berne Convention until 1988. Encouraged to ratify due the need for greater protection against pirating of computer software. Universal Copyright Convention of 1954 Adopted by some 50 countries.

Intellectual Property Industrial Espionage The effort of one company to steal another company’s trade secrets. Attempting to bribe an employee. Eavesdropping electronically on internal communications. Hacking into the target company’s computer data. American companies are frequent victims.

Intellectual Property Industrial Espionage In a survey, 325 American companies reported 32 cases of theft of intellectual information per month. These losses total some $5.1 billion. Ranked by nationality and frequency of complaints, the top perpetrators were Chinese, Canadians, French, Indians, and Japanese.

Intellectual Property Costly Intellectual Property Rip-Offs Estimates of financial losses caused by counterfeiting. Amount to 5 to 7 percent of world trade, or $250 billion to $350 billion. Turkey is said to be the world’s top producer of counterfeit products. China, Thailand, Italy, and Colombia are also primary producers of counterfeit products.

U.S. Laws That Affect U.S. Firms International Business Taxing Americans Who Work Abroad National Tax Jurisdiction A tax system for expatriate citizens of a country whereby the country taxes them on the basis of nationality even through they live and work abroad. Territorial Tax Jurisdiction Expatriate citizens who neither live nor work in the country are exempt for the country’s taxes.

U.S. Laws That Affect U.S. Firms International Business Taxing Americans Who Work Abroad Observing so-called national tax jurisdiction The U.S. is almost along among countries in taxing its people according to nationality rather than on the basis of where they live and work. As a result, U.S. citizen and permanent residents living or working in another country must pay taxes there and to the U.S.

Federal Employment Laws Title VII of the federal Civil Rights Act of 1964 Largely recognized as the focal point of federal employment discrimination law. Prohibits discrimination in employment based on race, color, religion, sex, and national origin. Other major pieces of federal employment discrimination law include Age Discrimination in Employment Act of 1967. Americans with Disabilities Act of 1990.

Foreign Corrupt Practices Act During the 1970s, Revelations of questionable payments by American companies to foreign officials rocked governments in the Netherlands and Japan. Congress considered corporate bribery “bad business” and “unnecessary.” As a result, the Foreign Corrupt Practices Act was passed and signed.

Foreign Corrupt Practices Act (FCPA) Other Countries’ Reaction to Bribes. No other country had a law similar to the FCPA until 1998. The OECD adopted rules for its member-nations. As of early 2000, 34 countries had signed the OECD Convention to combat bribery, including all the world biggest economies.

Common Law or Civil Law? Common Law Civil Law Courts made common law as they decided individual cases. Judges in a common law jurisdiction have the power to interpret the law. 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 U.S. and England England has a split legal profession with barristers and solicitors. England has no jury for civil court actions. England has 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.