THE LEGAL ENVIRONMENT OF BUSINESS
THE LEGAL ENVIRONMENT
OF BUSINESS
A Critical Thinking Approach
Fourth Edition
Nancy K. Kubasek
Bartley A. Brennan
M. Neil Browne
© 2003
2006 Prentice Hall
Ch. 3-1
9-1
THE LEGAL ENVIRONMENT OF BUSINESS
CHAPTER 9
The International Legal
Environment of Business
© 2006 Prentice Hall
Ch. 9-2
THE LEGAL ENVIRONMENT OF BUSINESS
Chapter 9 Overview
All business is international business
Opportunities for U.S. companies
Competing in a global market
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Ch. 9-3
THE LEGAL ENVIRONMENT OF BUSINESS
Dimensions of the International
Environment of Business
Political
Legal
Economic
Cultural
Ethical
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Ch. 9-4
THE LEGAL ENVIRONMENT OF BUSINESS
Economic Dimensions
Growth rate
Central planning or market economy
Disposable income
Transportation infrastructure
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Ch. 9-5
THE LEGAL ENVIRONMENT OF BUSINESS
Political Dimensions
Democratic
Totalitarian
Decentralized
Centralized
Free Market
Civil Liberties
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Planned Economy
Stability
Ch. 9-6
THE LEGAL ENVIRONMENT OF BUSINESS
Cultural Dimensions
Definition
“Culture consists of learned
norms of a society based on
values, beliefs and attitudes”
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Ch. 9-7
THE LEGAL ENVIRONMENT OF BUSINESS
Elements of Culture
Language
Religion
Group Membership
Attitudes
Education
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Ch. 9-8
THE LEGAL ENVIRONMENT OF BUSINESS
Legal Dimensions
National Legal Systems:
Common Law
Civil Law
Islamic Law
Socialist Law
Hindu Law
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Ch. 9-9
THE LEGAL ENVIRONMENT OF BUSINESS
Common Law
Origins in England and its colonies
Case Law
Precedent
Retrospective
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Ch. 9-10
THE LEGAL ENVIRONMENT OF BUSINESS
Civil Law
Origins in Europe Romano-Germanic
Code or Statutory Law
Regulatory
Prospective
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Ch. 9-11
THE LEGAL ENVIRONMENT OF BUSINESS
Islamic Law
Religious-Based: fundamentally from the Koran
Set forth in the Shari’a
Woven into all aspects of daily life, the family,
and institutions of government
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Ch. 9-12
THE LEGAL ENVIRONMENT OF BUSINESS
Socialist Law
Origins in socio-economic theories of Marx
Law applied to advance the collective
ownership of property and the means of
production
Private rights subordinate to collective
rights as expressed through the state
Ultimate goal is to evolve beyond the need
for law
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Ch. 9-13
THE LEGAL ENVIRONMENT OF BUSINESS
Hindu Law
Religious origins in the Sastras and the
Vedas
Law advances compliance with the caste
system
Focus on family and succession
Codified into India’s national laws
As a former British colony, India also
shares some common law traditions
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Ch. 9-14
THE LEGAL ENVIRONMENT OF BUSINESS
International Law
Traditional View:
Public
Private
Realistic View:
Public sector actions can directly affect
private international agreements
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Ch. 9-15
THE LEGAL ENVIRONMENT OF BUSINESS
Sources of International Law
Customs
Treaties
Judicial Decisions
Scholarly Writings
International Organizations
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Ch. 9-16
THE LEGAL ENVIRONMENT OF BUSINESS
Examples of International Law
Visas
Tax treaties
Certain intellectual
property right
protections
FCN treaties
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Multilateral
trade
agreements:
NAFTA
ASEAN
WTO
Ch. 9-17
THE LEGAL ENVIRONMENT OF BUSINESS
Methods of Engaging in International
Business
Trade: Stay Home and Export
Low Risk
Distributors
Low/Medium Risk
Sales Reps
Licensing, Franchising
Direct Investment
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Medium Risk
High Risk
Ch. 9-18
THE LEGAL ENVIRONMENT OF BUSINESS
International Trade
DEFINITION
Export and import of goods
and services from one
country to/from another
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Ch. 9-19
THE LEGAL ENVIRONMENT OF BUSINESS
Reasons for International Trade
Ricardo: The Economic Theory of
Comparative Advantage
Relative efficiency
Assumptions in the model vs. the
real world: There is no ‘free trade’
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Ch. 9-20
THE LEGAL ENVIRONMENT OF BUSINESS
International Licensing
Broadly applicable as to subject matter
of license
Trade Secrets
Copyrights
Trademarks
Patents
Technology
Know How
Trade Dress
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Ch. 9-21
THE LEGAL ENVIRONMENT OF BUSINESS
Franchising Agreements
Structure of the Franchise Agreement:
Licensor permits use of licensed property
Licensee pays royalties and fees based on
sales
Examples: McDonald’s, KFC
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Ch. 9-22
THE LEGAL ENVIRONMENT OF BUSINESS
Foreign Direct Investment
Usually via Multinational
Corporations
Subsidiary
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Joint Venture
Ch. 9-23
THE LEGAL ENVIRONMENT OF BUSINESS
Motivation for Foreign Investment
Expand markets
Get close to customers
Use foreign resources
Cheaper labor
Fewer regulations
Acquire knowledge
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Ch. 9-24
THE LEGAL ENVIRONMENT OF BUSINESS
Subsidiaries & Limited Liability
When is the parent
corporation liable for acts
of subsidiary?
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Ch. 9-25
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-1: In Re Union Carbide at Bhopal
 Action against both parent and
subsidiary for wrongful death and
injuries resulting from lethal gas leak at
chemical plant in India
 Issue: Forum shopping
 Decision: Case removed to India from
U.S. court
 Reason: Forum non conveniens
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Ch. 9-26
THE LEGAL ENVIRONMENT OF BUSINESS
Forum Non Conveniens
Where act occurred
Where witnesses and evidence are
Where business is incorporated
Local, not U.S. work force employed at the
plant
Translation of language problems
Local regulations applied to the plant
Costs and effort required for U.S. venue
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Ch. 9-27
THE LEGAL ENVIRONMENT OF BUSINESS
Joint Ventures
Defining characteristic: Usually
created for a single purpose and a
limited time
Some countries require all foreign
investment via joint ventures
Entities may be private,
government, or both
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Ch. 9-28
THE LEGAL ENVIRONMENT OF BUSINESS
Risks of Engaging in International
Business
Expropriation
Sovereign Immunity Doctrine and
FSIA
Act of State Doctrine
Export and Import Controls
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Ch. 9-29
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-2: Keller v. Central Bank of Nigeria
 Foreign Sovereign Immunities Act (FSIA)
 No jurisdiction by U.S. court unless
“commercial activity” is found
 Held: Illegal action does not preclude a
finding of “commercial activity”
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Ch. 9-30
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-3: Philippines v. Marcos
FACTS
 Civil RICO action to recover fraudulent
transfers of funds
 Injunction also sought to freeze funds
 Defense: Act of State (by head of state)
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Ch. 9-31
THE LEGAL ENVIRONMENT OF BUSINESS
Case 3-3: Philippines v. Marcos
HOLDING
 Act of State Doctrine based in balance of
power among three branches of government
 Judiciary will not intrude on foreign affairs
conducted by executive branch
 The doctrine does not extend to Marcos
situation
 U.S. Court has jurisdiction and affirmed
injunction
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Ch. 9-32
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-4: U.S. v. Haggar Apparel
FACTS
 Haggar ships pants to Mexico for sewing
and permapressing, then ships finished
goods back into U.S.
 General rule: such a procedure is exempt
from customs duty
 U.S. Customs declared ‘permapress’ to
be manufacturing, not assembly; duty
levied
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Ch. 9-33
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-4: U.S. v. Haggar Apparel
HOLDING
 Lower court ruled in favor of Haggar,
refunding duty
 Court of Appeals reversed and held for
Customs
 Rule: Customs classifications are made
at port of entry, but such decisions must
conform to statutory standards
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Ch. 9-34
THE LEGAL ENVIRONMENT OF BUSINESS
Risks Relating to Currency
Currency Controls
Currency Value Fluctuation
A Partial Solution: Hedging
Forward Contracts
Futures Contracts
Options
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Ch. 9-35
THE LEGAL ENVIRONMENT OF BUSINESS
Legal and Economic Integration
Three Examples:
1. WTO
2. European Union
3. NAFTA
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Ch. 9-36
THE LEGAL ENVIRONMENT OF BUSINESS
World Trade Organization
Created 1995
Based upon GATT
Goals: Eliminate Barriers to Trade
Prohibit Nontariff Barriers
Reduce Tariffs and Subsidies
Protect Intellectual Property
Rights
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Ch. 9-37
THE LEGAL ENVIRONMENT OF BUSINESS
WTO: Structure and Function
Rulemaking
Dispute Resolution
Ministerial
Conference
Consultation
between Members
General
Council
Dispute Settlement
Panel
Appellate Body
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Ch. 9-38
THE LEGAL ENVIRONMENT OF BUSINESS
WTO: Concerns and Criticisms
Sovereignty v. Trade
Environmental Laws
Consumer Protection
Labor Laws
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Ch. 9-39
THE LEGAL ENVIRONMENT OF BUSINESS
European Union
Origins in the European
Economic Community 1957
Goals: Free movement of
goods, services, capital, and
people across member
borders
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Ch. 9-40
THE LEGAL ENVIRONMENT OF BUSINESS
EU: Steps toward Realization
Treaty of Rome 1957 – Customs Union
Single European Act 1986 – Common
Market
Maastrich Treaty 1991
Monetary Union
Political Union
Uniform labor and social security laws
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Ch. 9-41
THE LEGAL ENVIRONMENT OF BUSINESS
EU: Structure and Membership
Council of Ministers – One per state
EU Commission – 20 members, control
functional areas called “Directorates”
Parliament – Elected by states
European Court of Justice –
Jurisdiction over EU v. state disputes
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Ch. 9-42
THE LEGAL ENVIRONMENT OF BUSINESS
North American Free Trade Agreement
NAFTA ratified in 1994
Fifteen year phase in period
Purpose: Eliminate barriers to free
flow of goods, services, and
investments in Canada, U.S. and
Mexico
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Ch. 9-43
THE LEGAL ENVIRONMENT OF BUSINESS
NAFTA: Structure
Trade Commission
Secretariat
Arbitral Panels
Dispute resolution via five member
panels
Offers relatively quick and final
decision
Example: UPS Case v. Mexico
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Ch. 9-44
THE LEGAL ENVIRONMENT OF BUSINESS
Global Dispute Resolution
Arbitration: The most often used method of
resolving international business disputes
Supported by:
UN Convention on the Recognition of
Foreign Arbitral Awards
International Center for the Settlement of
Investment Disputes
International Chamber of Commerce Rules
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Ch. 9-45
THE LEGAL ENVIRONMENT OF BUSINESS
Other Forms of Dispute Resolution
Mediation
Conciliation
Litigation
Contractual Clauses
Choice of Forum
Choice of Law
Language
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Ch. 9-46
THE LEGAL ENVIRONMENT OF BUSINESS
Summary
Managers need to consider all
aspects of international business
Important areas include: political,
economic, cultural, and legal
Increasingly, international
organizations shape the rules of
global trade
© 2006 Prentice Hall
Ch. 9-47