CHAPTER Microsoft ® PowerPoint ® Presentation Prepared By Gail McKay, LLB, Thompson Rivers University © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved. © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved. 16 International Business Law

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-1 OBJECTIVES 1.To survey international trade regulation 2.To outline the various forms of contracts and international trade relationships 3.To examine the arbitration of international trade disputes and the processes for enforcement of them

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-2 INTRODUCTION Laws that apply to Canadian international traders are legislation, various rules which have been negotiated among trading nations, and the law of contract; firms specializing in international trade law are known as customs brokers Presently, the United States is Canada’s biggest trading partner: in 2006, the US imported $362 billion worth of Canadian goods, or 70 percent of our exports; and Canada imported $265 billion worth of American goods, or 54 percent of our imports

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-3 THE IMPORT OF GOODS INTO CANADA Four statutes govern importing: 1.The Customs Act administers the powers of customs officers and the collection of border taxes 2.The Customs Tariff Act governs rates of duty on goods brought into Canada 3.The Special Import Measures Act protects Canada from the “dumping” of goods at a price lower than in their country of origin 4.The Export and Import Permits Act limits the import of very inexpensively produced goods when Canadian companies cannot competitively match the production price

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-4 THE EXPORT OF GOODS FROM CANADA Exporting is not regulated to the same degree by Canadian law Exporting creates jobs in Canada; therefore exemptions from some legislation exist to give more latitude to exporters – such as exemption from the Competition Act prohibition against conspiracy to fix prices Although traders should expect to encounter trade barriers, governments are working to establish common frameworks for trade control

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-5 INTERNATIONAL TRADE REGULATION In 1948, Canada was one of 23 founding members of the General Agreement on Tariffs and Trade (GATT), among who principles are: 1.Encouraging trade through common and fair rules in a system of non discrimination 2.Using most favoured nation status – giving equally low rates of duty to all member countries on all similar imports 3.Using national treatment - once goods are inside the country, ensuring they are treated as favourably as domestic goods

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-6 INTERNATIONAL TRADE REGULATION The World Trade Organization (WTO) offers a dispute resolution and enforcement system, and extends beyond the trade of goods into services, intellectual property and investment The WTO accepts the terms of GATT, and together the two systems provide an organization for the reduction of trade barriers Bilateral trade agreements regulate the flow of specific goods between two nations, and often have the benefit of licences or permits from their respective governments

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-7 FREE TRADE AGREEMENTS Free trade agreements cover all sectors of trade among participating nations The North American Free Trade Agreement (NAFTA) covers the US, Mexico and Canada and encourages equal treatment of goods, services, business travel and investment, as well as covering issues of dumping, issues of industries adversely affected by the agreement and dispute resolution Customs unions impose the same tariffs on non members’ imports, providing a common market with mobility of labour and capital

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-8 SOCIAL AND MONETARY UNIONS The European Union’s 25 member countries have retained discrete national powers over their own defence, tax and local affairs, but have taken a collective approach to currency, transportation, education and pensions The Organization of Petroleum Exporting Companies (OPEC), an oil trading cartel, attempts to maintain effective price and production agreements among its members Under the Foreign Extraterritorial Measures Act (FEMA), foreign judgments or legislation may not be recognized by Canadian courts.

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-9 GOVERNMENT ASSISTANCE The Export Development Corporation is a Crown corporation which provides insurance to Canadian companies involved in international business Types of insured losses include those from a war or revolution being declared, seizure of a Canadian company’s foreign assets by a foreign government or, similarly, prevention of the transfer of money or assets out of the country in question

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.16-10

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved INTERNATIONAL TRADING RELATIONSHIP EXAMPLES of long term international business relationships include: 1.Occasional direct exports of goods 2.Foreign distribution or exporting of goods 3.Licences to produce goods abroad 4.Joint ventures abroad 5.Foreign branch or sales subsidiary 6.Service such as management or advising

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved FOREIGN DISTRIBUTION AGREEMENTS Distribution agreements involve a Canadian exporter contracting with a foreign buyer who has the exclusive right to sell in a specific territory, and who is obligated to provide sales staff, marketing, and service of equipment In return, the Canadian exporter is obligated to allow use of the trade name and advertising materials, supply the goods and replacement parts, and provide advice of a technical nature Force majeure and arbitration clauses are often included to cover unexpected events

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved LICENCE AGREEMENTS A licence agreement is a right of a foreign company to manufacture a protected product in the foreign jurisdiction – usually a product with a registered trademark, patent, industrial design or copyright In return for this right, the Canadian company receives a royalty, but has little direct control over the efficiency of either the foreign production plant itself or its sales personnel

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved INTERNATIONAL JOINT VENTURES Joint ventures may be unincorporated contractual arrangements, or incorporated in the foreign jurisdiction – in which case each of the parties is a shareholder in the corporation Some foreign governments may require that the share of the foreign jurisdiction be a controlling interest; nevertheless, control may be maintained to some extent by keeping the accomplishment of one or more critical manufacturing steps in Canada

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved BRANCH PLANTS OR SUSIDIARIES A foreign branch plant or subsidiary has the advantage of offering the Canadian company more control over efficiency, profitability, and marketing It has the disadvantages of requiring the commitment of capital to set up and requiring a higher level of knowledge about the law in order to carry on business in the foreign jurisdiction

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved INTERNATIONAL CONTRACTS OF SALE A contract of sale for export consists of four core documents as well as other supporting documentation: 1.The contract of sale 2.The bill of lading 3.The insurance contract 4.The commercial invoice A guarantee with the Export Development Corporation and a financing agreement are usually part of the package as well

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved CONTRACT OF SALE Trade terms in contracts of sale must have the same meaning to both parties and may make reference to the International Chamber of Commerce trade terms for definitions The laws which will govern the contract should be specified – especially those associated with the offer, when it may be revoked, or when it may expire; further, the time when title to the goods will pass should be very clearly specified The United Nations Vienna Convention on Contracts for International Sale of Goods (CISG) can be used to imply missing terms

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved BILL OF LADING The contract between the seller and carrier is the bill of lading – in which the bailee has the obligation to delivery the goods to the buyer consignee when the consignee presents a copy of the bill of lading The bill of lading therefore represents a title document A bill of lading may have a sight draft attached to it to ensure payment of the seller before delivery to the buyer

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved INSURANCE & COMMERCIAL INVOICE A contract for cargo insurance should be in place during the shipment of goods because of the inherent risks of loss or damage, and in some countries political risk insurance is also advisable A commercial invoice will be required by the customs official in the purchaser’s jurisdiction in order to calculate how much duty is owed on the shipment

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved INTERNATIONAL LAW: JURISDICTION To create jurisdiction so that a court will hear a lawsuit, a connection to the business, person or property must be established such as the physical presence of a person or his or her habitual residency “Long arm statutes” also achieve jurisdiction if: 1. Resident, but presently outside the country 2. An absent person committed a tort while inside the country 3. Parties to contracts that were to have been performed inside the country by persons now absent

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved INTERNATIONAL LAW: JURISDICTION A judicial analysis undertaken to determine what court should hear a lawsuit involves considerations of forum non conveniens which try to balance the interest of the public and the interest of each of the parties in a particular jurisdiction At the time of contract formation, parties to an international agreement should specify their choice of applicable law in the event of a future trade dispute, and their choice will usually be respected by the courts

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved RECOGNITION & ENFORCEMENT Recognition of a foreign judgment means a legal decision from another jurisdiction is affirmed in the second jurisdiction Enforcement means a recognized judgment will have access to the same resources of the host state to help the plaintiff realize on the judgment as he or she would have if the judgment came from the host state’s court Defences include no proper jurisdiction, proceedings that are against public policy, and no recognition of judgment’s penal component

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved ARBITRATION OF A TRADE DISPUTE Commercial arbitration is regularly incorporated into international contracts to avoid having to litigate in court, and the panel of arbitrators often has expertise in the type of trade or business involved – leading to quick, effective and private dispute resolution If the parties have not specified a location for arbitration or the governing law, the United Nations Commission on International Trade Law (UNCITRAL) rules for arbitration may be applied

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved ENFORCEMENT OF ARBITRATION AWARDS Most countries enforce arbitrations according to their national laws, but model codes can be referenced or adopted such as the following codes and conventions, all adopted by Canada: United Nations Commercial Arbitration Code; United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and the Vienna Sales Convention

Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved SUMMARY Importing goods is governed by four major statutes; more latitude is allowed for exporting International trade agreements such as GATT and the WTO encourage fair trade practices and offer dispute resolving mechanisms Distribution agreements, operation of branch plants, joint ventures, and licensing agreements are examples of the various forms of international trade relationships Commercial arbitration of trade disputes avoids jurisdiction and other problems with courts