LEGAL AND POLITICAL FORCES

CHAPTER 7: LEGAL AND POLITICAL FORCES LEARNING OBJECTIVES To introduce the topic to the student and explain how country laws and political systems can affect the international marketplace To describe the major types of legal systems To list and briefly explain the ways firms can resolve international business disputes.

Introduction: The International Legal/Political System and its Impact on the MNE No single international commercial legal system exists. Therefore, the MNE is confronted with s many legal environments as there are countries it manufactures, sells, exports and transports. The closest approximation are the treaties and codes among nations. The more important international agreements are referred to as treaties and the less important as conventions, agreements, protocols, or acts. Legal/Political systems heavily determine the profitability of an MNE Prices it can charge Markets to serve Standards of products

Common Law: Based on cumulative wisdom of judges decisions on individual cases through history (precedents). In certain cases, statutory laws are used. Absence of uniformity. Application of law differs UK and its former colonies. Civil Law: Based on a detailed listing or codification, of what is and what is not permissible (rules formed by legislative bodies). Also, rulings on previous cases are used. Most European countries, Asian and African. Religious Law: Based on rules governing the practice of a particular religion. Seen in most Islamic countries where the Koran is the guide. Also called, Theocracy. Bureaucratic Law: Based on whatever the bureaucrats say. Seen in communist countries and dictatorships. Differences in Legal Systems

1. In many cases answers to the above questions are specified in contracts between the companies Dispute Resolution in International Business Which country´s law applies? In which country will the dispute be resolved and how? 2. If answers to the above questions are not seen then Forum Shopping (the right of each party to hear the case in a court of its preference) is followed

3. Dispute parties might also agree to follow the arbitration process. The case is given to a third independent party (arbitrator). Privacy is seen, the costs are not that high and it takes less time than countries´ courts. Should the foreign court´s order be enforced? According to the Principle of Comity the foreign court´s ruling should be enforced by the other country as long as the judgment does not violate domestic statutes, proper notice, is given to the defendant and the countries agreed to honor each other´s court decisions