Copyright © 2004 McGraw-Hill Ryerson Limited 1 PART 8 – SPECIAL LEGAL RIGHTS AND RELATIONSHIPS  Chapter 34 – International Business Law Prepared by Douglas H. Peterson, University of Alberta

Copyright © 2004 McGraw-Hill Ryerson Limited 2 INTERNATIONAL BUSINESS LAW Introduction The Importation of Goods into Canada The Export of Goods from Canada International Trade Regulation International Trading Relationships International Contracts of Sale Arbitration of International Trade Disputes Enforcement of Arbitration Awards

Copyright © 2004 McGraw-Hill Ryerson Limited 3 INTRODUCTION Sources of law include: Canadian laws affecting Canadian business Bilateral and multilateral agreements between Canada and other countries Private contract law between Canadian firms and their foreign counterparts

Copyright © 2004 McGraw-Hill Ryerson Limited 4 THE IMPORTATION OF GOODS INTO CANADA Imports and exports subject of several federal statutes Customs Act Administrative act Sets out powers and duties of custom officers Procedures for importation of goods Rules for collection of tariffs Penalties Appeal procedure

Copyright © 2004 McGraw-Hill Ryerson Limited 5 THE IMPORTATION OF GOODS INTO CANADA Customs Tariff Act - sets duty rates for imported goods General and preferential rates Special Import Measures Act Protects from dumping Dumping – the act of selling imported goods at below fair market value or cost Anti-dumping duty imposed on foreign goods that are dumped Protects from subsidies - if sales cause injury to Canadian industry, or retards or impairs industry

Copyright © 2004 McGraw-Hill Ryerson Limited 6 THE IMPORTATION OF GOODS INTO CANADA Export and Import Permits Act Protect competition from less developed countries with low production and labor costs Importation of certain goods subject to control Requires import and export permits Customs brokers Help businesses deal with complexity of importation of goods

Copyright © 2004 McGraw-Hill Ryerson Limited 7 THE EXPORT OF GOODS FROM CANADA No real restrictions on export of goods from Canada Exporters face tariff barriers in foreign countries

Copyright © 2004 McGraw-Hill Ryerson Limited 8 INTERNATIONAL TRADE REGULATION International agreements Purpose is to reduce trade barriers, create transparency and fairness, standardize rules, increase trade World Trade Organization (WTO) General Agreement on Tariffs and Trade (GATT) Part of WTO Non-discrimination rules Most Favored Nation (MFN) National Treatment (NT)

Copyright © 2004 McGraw-Hill Ryerson Limited 9 WORLD TRADE ORGANIZATION (WTO) MFN Applies at border All members must receive most favored nation status on tariffs Lowest rate of duty applies to all NT Takes effect after goods cross border Imported goods must be treated the same as domestic goods (No better, no worse) No special taxes Exceptions exist to MFN and NT

Copyright © 2004 McGraw-Hill Ryerson Limited 10 WORLD TRADE ORGANIZATION (WTO) GATT – precursor to WTO had many weaknesses which were addressed in the WTO Dispute settlement body Administrative bodies oversee implementation of agreements Negotiation forum Added services, Intellectual Property

Copyright © 2004 McGraw-Hill Ryerson Limited 11 NAFTA Multilateral trade agreement Promote trade Expand markets for goods and services Principle: treat other countries goods, services, investments, investors in same manner as own Trilateral trade commission Dispute settlement procedure Retain liberty to deal with third parties

Copyright © 2004 McGraw-Hill Ryerson Limited 12 EUROPEAN UNION Customs union Goes one step further than free trade agreement and creates a common market Free trade has standardized internal borders but retain liberty over external borders Customs union – internal and external are part of the union Integration of monetary policy, economic, political, currency

Copyright © 2004 McGraw-Hill Ryerson Limited 13 EXTRATERRITORIAL APPLICATION Extraterritorial – when a nation tries to apply its laws outside of its territory U.S. is most notorious offender Foreign Extraterritorial Measures Act Response to extraterritoriality Canada not recognize foreign judgments Helms-Burton & Cuba

Copyright © 2004 McGraw-Hill Ryerson Limited 14 GOVERNMENT ASSISTANCE Set up to assist Canadian businesses in international matters Canadian organizations in international business Canadian International Development Agency Program for Export Market Development Export Development Corporation Purpose Provide financial assistance Provide security for exports Provide loan guarantees

Copyright © 2004 McGraw-Hill Ryerson Limited 15 INTERNATIONAL TRADING RELATIONSHIPS Types of Relationships Foreign Distribution Agreements Foreign Branch Plants or Sales Offices International Joint Ventures License Agreements

Copyright © 2004 McGraw-Hill Ryerson Limited 16 FOREIGN DISTRIBUTION AGREEMENTS Foreign firm markets Canadian exporters goods in foreign country Contractual in nature (important terms) Subject matter and territory (exclusive or non-exclusive) Provision of services and supply of goods (quality) Confidentiality Technical advice Advertising materials Licensing of trade names and trademarks Term and termination Force majeure

Copyright © 2004 McGraw-Hill Ryerson Limited 17 FOREIGN BRANCH PLANTS OR SALES OFFICE Set up overseas Costs more but retain more of profits Need greater experience and knowledge Especially of local laws Relevant legal matters Capital and investment Technology Employment

Copyright © 2004 McGraw-Hill Ryerson Limited 18 INTERNATIONAL JOINT VENTURES Reduces or eliminates problems associated with foreign branch plants or Sales Offices Partner adds capital or expertise 2 Types Unincorporated Joint Ventures Contractual Incorporated Joint Ventures New corporation set up

Copyright © 2004 McGraw-Hill Ryerson Limited 19 LICENSE AGREEMENTS License production of product to a foreign firm More common when intellectual property is protected by patents, trademarks, and copyright Contractual in nature Various matters covered in contract Advantages Minimal investment Minimal time investment (sit back and receive royalties Disadvantages Less cut of profit than with foreign operations Breach of license agreement by foreign licensee

Copyright © 2004 McGraw-Hill Ryerson Limited 20 INTERNATIONAL CONTRACTS OF SALE Contract at heart of export sale Core documents Contract of sale Bill of lading Contract of insurance Commercial invoice Other documents Financing Guarantee

Copyright © 2004 McGraw-Hill Ryerson Limited 21 CONTRACT OF SALE Differences from domestic contract Trade terms Governing law When title passes Quantities of goods, shipping, packaging – more detailed than a domestic contract Force majeure Domestic or International Sales of Goods Act

Copyright © 2004 McGraw-Hill Ryerson Limited 22 BILL OF LADING Bill of Lading Contract between bailor and common carrier (bailee) that sets out the terms of the bailment and represents a title document of the goods carried Contract of Carriage Name of seller (shipper) Consignee (buyer or buyer’s agent) Description of goods Vessel’s name Export and permit numbers

Copyright © 2004 McGraw-Hill Ryerson Limited 23 BILL OF LADING Document of Title Carrier is bailee with duty to deliver goods only to consignee named on the bill Shipper sends copy to consignee Consignee presents bill of lading to carrier to receive goods Title passes on delivery of bill of lading Risk of loss follows the bill Buyer may use bill to acquire financing

Copyright © 2004 McGraw-Hill Ryerson Limited 24 BILL OF LADING Sight Draft – negotiable instrument Allows seller to retain title or maintain control of goods until payment is assured Exchange of sight draft for bill of lading (document of title) Done through banks (intermediary) Banks acknowledge documents and do not release bill until sight draft has been paid to seller

Copyright © 2004 McGraw-Hill Ryerson Limited 25 INSURANCE Insures against loss or damage to goods while in transit Costs varies according to risks seller or buyer wish to protect against Cargo insurance Covers specific shipment or blanket insurance (open basis) Contract of sale usually stipulates who has to provide insurance Contingency insurance – non-requiring party obtains insurance (usually seller) in event requiring party (usually buyer) fails to obtain insurance

Copyright © 2004 McGraw-Hill Ryerson Limited 26 COMMERCIAL INVOICE Optional but usually required Represents: Invoice for the goods sold Customs document setting out details of goods Used to help clarify tariffs and category of goods

Copyright © 2004 McGraw-Hill Ryerson Limited 27 CHOICE OF LAW Canada – not as important Reside in same jurisdiction or reciprocal enforcement agreements International – very important Not reside in same jurisdiction Choice of law is a matter of negotiation In contract (explicit) Courts usually respect Not in contract Courts will imply by applying a series of test

Copyright © 2004 McGraw-Hill Ryerson Limited 28 ARBITRATION OF INTERNATIONAL TRADE DISPUTES Provided for by parties Maximum flexibility in choice of law or forum Faster time to decision than moving through courts Arbitration boards comprised of chosen experts, rather than judges UNCITRAL influences

Copyright © 2004 McGraw-Hill Ryerson Limited 29 ENFORCEMENT OF ARBITRATION AWARDS Canada a member of various international agreements UN Commercial Arbitration Code Provides rules for dealing with international arbitration Foreign Arbitral Awards Convention Act, 1986 Canada recognizes foreign awards Maybe filed with Federal Court, or any superior, district or county court of a province Award becomes a judgment of court where award was filed Vienna Sales Convention Rules that automatically apply to international sales contracts unless opted out of

Copyright © 2004 McGraw-Hill Ryerson Limited 30 SUMMARY International business requires knowledge of Canadian, international and foreign law Laws exist for Imports Exports International Agreements Various documents such as contract of sale, bill of lading, insurance, commercial invoice, etc Dispute Resolution Governing law International arbitration