Chapter 24 The Regulation of International Transactions

International Principles and Doctrines International law is a body of written and unwritten laws that are observed by otherwise independent nations and that govern the acts of individuals as well as states. The three important legal principles and doctrines include: Principle of Comity.  Act of State Doctrine.  Doctrine of Sovereign Immunity. 

The Principle of Comity Under this principle, nations give effect to the laws and judicial decrees of other nations for reasons of courtesy and international harmony.

The Act of State Doctrine A doctrine under which American courts avoid passing judgment on the validity of public acts committed by a recognized foreign government within its own territory.

The Doctrine of Sovereign Immunity When certain conditions are satisfied, foreign nations are immune from U.S. jurisdiction under the Foreign Sovereign Immunities Act of 1976. Exceptions are made when the: foreign state has “waived its immunity either explicitly or by implication”. action is “based upon a commercial activity carried on in the United States by the foreign state”. Case 24.1 Dole Food Co. v. Patrickson (2003).

Doing Business Internationally Ways in which U.S. domestic firms engage in international business transactions include: exporting, which may involve foreign agents or distributors manufacturing abroad through licensing arrangements, franchising operations, wholly owned subsidiaries, or joint ventures

Exporting Exporting can take two forms: Direct exporting—U.S. company signs a sales contract with a foreign purchaser that provides for the conditions of shipment and payment for the goods. Indirect exporting—can be undertaken by the appointment of a foreign agent or a foreign distributor.

Manufacturing Abroad U.S. firms want to establish manufacturing plants abroad if they believe that by doing so they will reduce costs, particularly for labor, shipping, and raw materials. They will be able to compete more effectively in foreign markets.

Commercial Contracts in an International Setting Choice-of-language, forum-selection, and choice-of-law clauses are often included in international business contracts to reduce the uncertainties associated with interpreting the language of the agreement and dealing with legal differences. Case 24.2 Garware Polyester, Ltd. v. Intermax Trading Corp. (2001).

Commercial Contracts in an International Setting Force majeure clauses are included in most domestic and international contracts. They commonly stipulate that certain events, such as floods, fire, accidents, labor strikes, and shortages, may excuse a party from liability for nonperformance of the contract. Arbitration clauses are also frequently found in international contracts.

Making Payment on International Transactions Currency differences between nations and the geographical distance between parties to international sales contracts add a degree of complexity to international sales that does not exist within the domestic market. Because international contracts involve greater financial risks, special care should be taken in drafting these contracts to specify both the currency in which payment is to be made and the method of payment.

Monetary Systems Currency conversion. Correspondent banking. Because nations have different monetary systems, payment on international contracts requires currency conversion at a rate specified in a foreign exchange market. Correspondent banking. Correspondent banks facilitate the transfer of funds from a buyer in one country to a seller in another.

Letters of Credit Letters of credit facilitate international transactions by ensuring payment to sellers and ensuring to buyers that payment will not be made until the sellers have complied with the terms of the letters of credit. Typically, compliance occurs when a bill of lading is delivered to the issuing bank.

Regulation of Specific Business Activities Investing in a Foreign Country. Risk that foreign government may take possession of the investment property. Expropriation. Confiscation. Export Restrictions and Incentives. Congress cannot impose export taxes but uses other devices to control and stimulate exports. Import Restrictions. Quotas and Tariffs. Dumping. WTO and minimizing trade barriers.

U.S. Laws in a Global Context U.S. Antitrust laws. U.S. antitrust laws may be applied beyond the borders of the United States. Any conspiracy that has a substantial effect on commerce within the United States may be subject to the Sherman Act, even if the violation occurs outside the U.S. Case 24.3 United States v. Nippon Paper Industries Co (1997).

Discrimination Laws There are laws in the U.S. prohibiting discrimination on the basis of race, color, national origin, religion, sex, age, and disability. These laws, as they affect employment relationships, generally apply extraterritorially. The major U.S. laws prohibiting employment discrimination cover U.S. employees working abroad for U.S. firms—unless to apply the U.S. laws would violate the laws of the host country.