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©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Presentation on theme: "©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part."— Presentation transcript:

1 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. T HE I NTERNATIONAL L EGAL E NVIRONMENT OF B USINESS Chapter 22 Meiners, Ringleb & Edwards The Legal Environment of Business, 12 th Edition

2 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I NTERNATIONAL L AW AND B USINESS International Trade Agreements U.S. Import/Export Policies Business Structures in Foreign Markets Foreign Corrupt Practices Act International Contracts International Dispute Resolution

3 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. T HE I NTERNATIONAL B USINESS E NVIRONMENT Includes all business transactions that involve entities from two or more countries Movement of goods across countries Movement of services across countries Issues regarding capital Issues regarding personnel of multinational enterprises Differences include risks in Financial Political Regulatory

4 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. O RIGINS OF I NTERNATIONAL L AW Commercial codes date back to Egypt in 1400 B.C. Early trade centered around law of the sea Greek/ Roman Empires both had codes of international trade Middle Ages: Lex Mercatoria (Merchant Law) – Governed trading customs in Europe Todays codes still partially derived from early efforts

5 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. S OURCES OF I NTERNATIONAL L AW Individual countries create their own laws Trade agreements between countries Worldwide/regional organizations, i.e. United Nations European Union (EU) No universal international court system for resolving international conflicts of businesses Difficult to enforce decisions and contracts See Exhibit 22.1

6 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I NTERNATIONAL T RADE A GREEMENTS Improve economic relations of countries Cover variety of commercial issues Tax agreements prevent double taxation Examples: North American Free Trade Agreement (NAFTA, 1992) Canada/US/Mexico Regional treaty General Agreement on Tariffs & Trade (GATT) replaced in 1995 by World Trade Organization (WTO) International Treaty WTO has authority to investigate & rule on government subsidies that give unfair advantage to producer in a country Also looks at countervailing measures Helps with worldwide protection of intellectual property

7 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. U.S. I MPORT P OLICY Limits on imports To protect domestic interests Taxes on imports Tariffs (Duties) – Taxes imposed by a government on imported goods Specific tariffs: fixed duties on products Ad valorem tariffs: % of price of product Harmonized Tariff Schedules – Standardized, worldwide classification of goods for customs officials Harmonized Tariff Schedule of the United States (HTSUS) Each country uses same codes Bans on Certain Products – i.e. weapons, illegal products, narcotics, national security concerns, products made from endangered species

8 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE U NITED S TATES V. M EAD C ORPORATION Mead imported day planner calendars. Under the tariff (HTSUS) – general heading for registers, account books, notebooks...and similar articles. Under subheading diaries, notebooks and address books subject to 4.0% tariff. Another subheading was for other items NOT subject to a tariff. Other heading applied to planners until Customs changed classification to diaries and applied 4% tariff. Mead protested, but Customs did not change. Mead sued in Court of International Trade (CIT). Court granted summary judgment for Customs. Mead appealed to Court of Appeals for Federal Circuit. It reversed. Held classification by Customs do not get high level of deference to some regulations because Customs can change classification without formal notice-and-rule process that occurs for most substantive regulations. Also held planners were not diaries, as those defined as bound volumes. Planner was a three-ring binder, so should be classified as other and no tariff. Customs appealed. (Continued)

9 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. U.S. Supreme Court HELD: Judgment vacated and remanded for further proceedings. Court of Appeals for Federal Circuit ought have looked at these issues: Notice-and-comment procedures seen by Customs only when changing in practice to Produce a tariff increase OR In the imposition of a restriction/prohibition, OR When Customs Headquarters determines matter is important to interest of domestic industry. Classification rulings are best treated like interpretations contained in policy statement, agency manuals and enforcement guidelines. Customs can bring the benefit of specialized experience to bear on the subtle question in this case. C ASE C ASE U NITED S TATES V. M EAD C ORPORATION

10 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I MPORT C ONTROLS In U.S. – Dept. of Commerce through International Trade Administration (ITA) & International Trade Commission (ITC). Some imports are prohibited for safety or environmental reasons. Bans on certain products: such as explosives, weapons, illegal products such as narcotics Antidumping Orders: When there is charging a lower price in an export market than in a home market. Duty is determined by comparing market price in home market vs. price charge in U.S. when item is imported, then duty is applied to product. Duties on Governmental Subsidies: Tariff applied to offset subsidies provided by foreign governments to their industries that lower prices of products imported into the U.S. Duty applied is = to foreign governmental subsidy. (Purpose: To assist U.S. products to be competitive in the U.S. market) (counterveiling duties). Foreign Trade Zones: Goods imported without paying tariffs. Goods then processed/assembled. Duties assessed upon leaving zone. Duty Free Ports: No duties or tariffs assessed on products, i.e. Hong Kong.

11 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. E XPORT P ROMOTION AND R ESTRICTIONS E XPORT P ROMOTION AND R ESTRICTIONS Federal/State governments Commerce Department helps promote exports through ITA activities. Commerce Control List will specify controls, if export allowed, and licensing required for exporting an item. Export Restrictions, if goods, for instance: (1) Injure domestic industry (2) Jeopardize national security (3) Conflict with national policy (i.e. goods to support terrorist activities) Arms Export Control Act implemented through Traffic in Arms Regulations imposes restrictions on exports of weapons and technology that can be used as weapons.

12 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. E XPORT P ROMOTION AND R ESTRICTIONS E XPORT P ROMOTION AND R ESTRICTIONS Commodity Control List List of goods subject to restricted licenses If item is not on Export Administration Regulations list, then not subject to special control. Application to Reexported U.S. Goods Commerce licensing requirements apply Goods that U.S. may not want imported from country #1 exported into country #2 (favored country); then reexported from country #2 into country #3, i.e. U.S. (May violate U.S. licensing regulations)

13 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. P ENALTY P ROVISIONS For violation of commerces licensing provisions Include criminal and civil penalties Can also have administrative sanctions If an exporter knowingly violates the Export Administration Act, there can be fines up to $50,000 per violation. Person who willfully violates the Act, can be fined more and receive up to 20 years in prison, with a possible suspension or revocation of a businesss authority to export. Example: ITT fined $100 million for selling sophisticated night-vision goggle technology to firm in Singapore that sold technology to China.

14 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. F OREIGN M ANUFACTURING Wholly Owned Subsidiary Business owns the facilities – some countries limit % of ownership Joint Venture Sharing ownership with foreign partners Licensing Agreement Licensor grants licensee access to patents and technologies Franchise Agreement Franchisor grants franchisee the rights to sell products or services, i.e. McDonalds, Hertz Contract Manufacturing Contract made for production of products Issues to Consider Labor expenses Shipping costs Raw material costs Avoid restrictions/tariffs Pirating of technology

15 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. T HE F OREIGN C ORRUPT P RACTICES A CT (FCPA) Punishment of payer of bribe to foreign officials Corrupt person displays reckless or conscious disregard for consequences of ones actions Accounting provisions require practices to track transactions Payer knows payment will go to public official Any reasonable person would have realized Requirement: Keeping accounts. Internal controls. Need paper trail. Consciously chose not to ask about what he/she had reason to believe would be discovered Simple negligence or mere foolishness exception Routine Governmental Action Exception: facilitating or expediting payment... the purpose of which is to expedite or secure the performance of a routine governmental action. (i.e. visas, providing basic utilities, transportation services, etc. – small amount and very limited usage) In 2006 Congress ratified the UN Convention Against Corruption to bring international cooperation to corruption enforcement practices.

16 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. P ENALTIES Individuals: Maximum of $100,000 & 5 years in jail Corporation: Up to $2,000,000/violation Exception: Department of Justice pre-deal interpretation Watch: Slush funds or salaries, commissions or fees disproportionate to service provided German company Siemens agreed to pay an $800 million fine Paid large bribes to government officials in Argentina in an effort to win contracts. 8 Siemens executives & contractors also charged

17 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE U NITED S TATES V. K ING Owl Securities and Investments (OSI) of Kansas City was raising funds for large land development in Costa Rica. FBI investigated King, large OSIs investors. Kingsley (OSI executive) tape recorded conversations. King convicted of planning a bribe to a senior Costa Rican official for rights to develop land. Fined $60,000 and sentenced 30 months in prison under the FCPA. Appealed to U.S. Court of Appeals. HELD: Affirmed. Ample evidence to support jurys conviction Tape recordings: I think we could pay the top people enough, that the rest of the people wont bother us any. Thats what Im hoping this million and a half dollars does. Im hoping it pays for enough top people. Knowingly participated in, approved of and acted to further conspiracy to offer the bribe. Six witnesses over 5-day period and other exhibits supported jurys conviction.. Guilty of conspiracy and violations of FCPA.

18 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I NTERNATIONAL C ONTRACTS I NTERNATIONAL C ONTRACTS Cultural Aspects Sensitivity to cultural differences in contracting an attitudes toward relationships Language differences create barriers, especially when contract involves multiple languages Financial Aspects Method of payment concerns re: removing profits from countries in which business is conducted Exchange Markets Risk in timing in currency exchanges Financial Instruments May differ from country to country Use of Letters of Credit: Assurance by bank of buyer to pay seller upon receipt of documents that prove goods were shipped and contract was fulfilled – Revocable or Irrevocable

19 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I NTERNATIONAL C ONTRACTS I NTERNATIONAL C ONTRACTS Financial Aspects (continued) Exchange Controls Different countries exchange controls – can affect decision where to locate assets Transfer Pricing Multinational firm sells goods from division located in one county to a division in the U.S. Must determine price, but because it is within the firm, there is no market price to use Firm creates an artificial price Practice called transfer pricing IRS has guidelines as to what it considers reasonable for taxing purposes

20 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. K EY C LAUSES IN I NTERNATIONAL C ONTRACTS Payment Clauses & Exchange Rates Choice of Language Clause Force Majeure Clauses Choice-of-Law Clauses Selection of Which Laws Apply Forum Selection Clause Selection of Court See Exhibit 22.5

21 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. L OSS OF I NVESTMENT Nationalization: Govt nationalizes entire industry, including foreign investment Govt may pay less than value Example: Venezuela nationalized ExxonMobil holdings in country in 2007 – Paid only $255 million of $900 million owed and refused to work with Exxon Expropriation: Taking foreign property in accordance with international law Confiscation: Taking is unlawful Insuring against Risk of Loss All risk insurance policy Provides financial relief in event of nationalization & other problems Short-term private insurers Available for most investments Risks i.e. Blockages, embargoes, arbitrary decisions Major insurers (Lloyds of London) Govt agencies (i.e. Overseas Private Investment Corporation [OPIC]) insures investors who invest in less developed countries

22 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I NTERNATIONAL D ISPUTE R ESOLUTION Litigation Differs within countries Complication of evidence, witnesses and documents Judicial system may be different from country to country Some courts more influenced by political pressures Not enforceable outside of country Treaties/Conventions may assist potential parties Contract clauses assist courts in enforcement of claims Usually need minimum contacts for jurisdiction

23 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I NTERNATIONAL D ISPUTE R ESOLUTION International Court of Justice (ICJ) Only nations have standing - not individuals Nations may make claims on behalf of persons No mandatory compliance requirement UN Security Council must enforce Arbitration: 3rd neutral party decides outcome, which is binding Mediation: 3rd neutral party suggests outcome, which is not binding

24 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I NTERNATIONAL P ERSPECTIVE I NTERNATIONAL P ERSPECTIVE MIGRATING TO AUSTRALIA Allowing foreigners to migrate to a country can be politically charged. Australia seeks immigrants who Can contribute to the economy. Will embrace Australian values. Assessment under a point system to see if they are desirable. Examples: Having skilled occupation (40-60 points). Working 3 out of past 4 yrs. in above occupation (5 more points) Having a spouse who satisfies basic immigration requirements (5 points) Fluency in certain languages (5 points) English language ability (competent = 20 points), (vocational ability = 15 points Usually immigrants need 120 points to be accepted. Must read booklet and sign statements agreeing to respect & uphold Australian law and values

25 ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. D OCTRINE OF S OVEREIGN I MMUNITY Act of State Court gives up right of jurisdiction over foreign country or representative Court will bar compensation because the acts were by a foreign government or representative Sovereign Immunity Bar to compensation by foreign investors Immunity to foreign representative or country One country must respect the independence of other countries and their representatives In U.S.: Foreign Sovereign Immunities Act


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