Legal Forces McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. chapter ten

10-3 Learning Objectives  Discuss the complexity of the legal forces that confront international business  Recognize the importance of foreign law  Explain contract devices and institutions that assist in interpreting international contracts  Recognize the need and methods to protect your intellectual properties

10-4 Learning Objectives  Discuss enforcement of antitrust laws  Explain the risk of product liability legal actions, which can result in imprisonment for employees or fines for them and the company  Discuss U.S. laws that affect international business operations

10-5 International Legal Forces Rule of law allows foreign businesses to know interests will be protected Public International Law –Legal relations between governments Private International Law –Laws governing transactions of individuals and companies that cross international borders

10-6 Sources of International Law The most important source is found in bilateral and multilateral treaties between nations –Treaties are agreements between countries, which may be bilateral (between two countries) or multilateral (involving more than two countries); also called conventions, covenants, compacts, or protocols –United Nation’s International Court of Justice creates law when it decides disputes

10-7 Extraterritoriality A country’s attempt to apply its laws to foreigners or nonresidents and to acts and activities that take place outside its borders –Not done through force, but by traditional legal means

10-8 International Dispute Settlement  Litigation in the United States  well-developed court systems that facilitate litigation  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 state court systems

10-9 Performance of Contracts United Nations Solution –Many countries, including the U.S., have ratified the UN Convention on Contracts for International Sales of Goods (CISG) –CISG established uniform legal rules to govern international sales contracts and the rights and obligations of the buyer and seller –CISG is automatically applied to all contracts

10-10 Performance of Contracts Private Solution: Arbitration –Instead of going to court in any country, companies may opt for arbitration A process, agreed to by parties to a dispute in lieu of going to court, by which a neutral person or body makes a binding decision Generally faster More informal Confidential Less expensive

10-11 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 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

10-12 Intellectual Property: Patents, Trademarks, Trade Names, Copyrights, and Trade Secrets  Intellectual property includes  Patents  Trademarks  Trade names  Copyrights  Trade secrets  All result from the exercise of someone’s intellect

10-13 Intellectual Property  Patents (Protection)  International Convention for the Protection of Industrial Property  European Patent Organization (EPO)  The World Intellectual Property Organization (WIPO)

10-14 Intellectual Property  Trademarks  Protection varies by country, 10 to 20 years  Madrid Agreement of 1891  General American Convention for Trademark and Commercial Protection  Bilateral basis in friendship, commerce, and navigation treaties

10-15 Intellectual Property  Trade Names  Protected in countries that adhere to the Convention for the Protection of Industrial Property  Copyrights –Protection provided under the Berne Convention of 1886 adhered to by 77 countries –Universal Copyright Convention of 1954 adopted by 92 countries

10-16 Common Law or Civil Law?  Common Law  Jurisdiction has more power to expand rules to fit particular cases  Civil Law  Jurisdiction is bound by the words in the code  Much more predictable

10-17 Legal System Differences between Europe and United States  Europe  Legislation is rarely amended and regulations are rarely revised  Courts are not as often asked to give their interpretations  If they are, the decisions are rarely appealed  United States  Laws and regulations are constantly being amended or revised by legislatures and the agencies

10-18 Legal System Differences between England and the U.S.  England has a split legal profession with barristers and solicitors  England has no jury for civil court actions  Contingency fees less common in England  Award of costs to the winner in civil litigation standard in England  Pretrial discovery differs

10-19 Standardizing Laws Many attempts have been made to standardize laws among various countries International business flows much better with a uniform set of rules Attempts include –Tax conventions and treaties –Antitrust cooperation –International Center for Settlement of Investment Disputes –UN Convention on International Sale of Goods –International Organization for Standardization (ISO) –International Electrotechnical Commission (IEC)

10-20 Taxation Nonrevenue tax purposes –To redistribute income, discourage consumption of products such as tobacco and alcohol, and encourage purchase of domestic rather than imported products

10-21 National Tax Approach Differences 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 Capital gain is realized when an asset is sold for an amount greater than its cost

10-22 National Differences of Approach Tax Types –Capital gains tax –Income tax Common in industrialized countries –Value-added tax Tax based on the value of goods and services Used in Europe –Unitary tax

10-23 Taxation

10-24 Tax Laws and Regulations Complexity of national tax systems differs –Many consider tax laws and regulations of the U.S. the most complex Compliance with tax laws and their enforcement vary widely –Germany and U.S. strict, Italy and Spain relatively lax Other differences include –Tax incentives, exemptions, costs, depreciation allowances, foreign tax credits, timing, and double corporate taxation

10-25 Taxation  Tax Treaties or Conventions –Treaties between countries that bind the governments to share information about taxpayers and cooperate in tax law enforcement, often called tax conventions –The U.S. has tax treaties with over 50 countries

10-26 Taxation National Tax Jurisdiction –A tax system for expatriate citizens of a country whereby the country taxes them on the basis of nationality even though they live and work abroad Territorial Tax Jurisdiction ¯Expatriates are exempt from their country’s taxes

10-27 Antitrust Laws Antitrust laws –Laws to prevent price fixing, market sharing, and business monopolies Competition policy –The European Union equivalent of antitrust laws The U.S. and the EU have attempted to enforce their antitrust laws extraterritorially Japan’s Fair Trade Commission –the “toothless tiger” –Japanese companies are incorporating antitrust thinking into strategy

10-28 Tariffs, Quotas, and Other Trade Obstacles  Purposes of tariffs  To raise revenue for government  To protect domestic producers  Quotas limit the number or amount of imports  For protection  Other trade obstacles include  Health requirements  Packaging requirements  Language requirements  Weak patent or trademark protection  Quarantine periods  Voluntary Restraint Agreements

10-29 Torts  Product Liability –Standard that holds a company and its officers and directors liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage  Strict Liability –Standard that holds the designer or manufacturer liable for damages caused by a product without the need for a plaintiff to prove negligence in the product’s design or manufacture

10-30 U.S. Laws That Affect U.S. Firms’ International Business Federal Employment Laws –Title VII of the CRA of 1964 –ADEA and ADA Foreign Corrupt Practices Act (FCPA) –U.S. law prohibits making payments to foreign government officials for special treatment –Congress passed FCPA outlawing bribery, but not “grease” payments

Bribe Payers Index

10-32 Accounting Law Sarbanes-Oxley Act (SOX) –Brings major changes to the regulation of corporate governance and financial practice New reporting requirements Officer and director responsibilities Auditor independence –Applies to any company, domestic or foreign, that has securities registered or is required to file reports under the Securities Exchange Act of 1934