Comprehensive Volume, 18th Edition
Chapter 7: The Legal Environment
of International Trade
Principles of International Law
Parties may choose the parameters of their
agreement.
Which country’s laws will govern the transaction?
Where and how will disputes be resolved?
What currency or monetary system will be used for
the transaction?
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A large number of international trade
organizations exist to help facilitate
multinational transactions in goods, services
and investments.
Major Treaties
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The General Agreement on Tariffs and Trade
(GATT), subscribed to by the United States
and most of the industrialized countries of the
world, is based on the principle of trade
without discrimination.
The United Nations Convention on Contracts
for the International Sale of Goods (CISG)
provides uniform rules for international sales
contracts between parties in contracting
nations.
Goals of International Trade
Organizations and Treaties
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General Agreement on
Tariffs and Trade (GATT)
promote world trade
United Nations Convention on
Contracts for the International
Sale of Goods (CISG)
establish uniform rules
for international sales
contracts
United Nations Conference
on Trade and Development
(UNCTAD)
redistribute income internationally through trade
European Economic
Community (EEC)
remove trade barriers and
unify economic policies
Goals of International Trade
Organizations and Treaties
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United States - Canada
Free Trade Agreement (FTA)
increase trade between
these countries
North American Free
Trade Agreement (NAFTA)
eliminate tariffs between
Mexico, Canada, and U.S.
International Monetary
Fund (IMF)
facilitate expansion and
balanced growth of
international trade
Organization of
Petroleum Exporting
Countries (OPEC)
control oil production
and exploration
Forms of Business Structure for
International Trade
Direct sales from business to international customer – no “middleman.”
Export Sales
Domestic business works with foreign business to sell or produce product.
Agency
Foreign Distributorship
Licensing and Franchising
Domestic business sets up a business in a foreign country & maintains control.
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Wholly Owned Subsidiary
Joint Venture
Antitrust Considerations
In choosing the form for doing business
abroad, U.S. firms must be careful not to
violate the antitrust laws of host
countries.
Anticompetitive foreign transactions
may have an adverse impact on
competition in U.S. domestic markets.
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Doing Business Internationally
Export Sale
Direct sale; payment by letter of credit
U.S. firm not present in foreign country
Export subject to tariff, but U.S. firm not subject
to taxation by importing country
Agency
Foreign agent--representative
Commonly subjects U.S. firm to local tax
Foreign Distributorship
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Distributor takes title, risks
U.S. firm avoids managing foreign operation
Doing Business Internationally
Licensing
Transfer of technology rights for royalties
Includes Franchising – which also grants the right
to use of trademarks and copyrights under
controlled conditions
Wholly Owned Subsidiary
Domestic company establishes company in foreign
country; Maintains control
Joint Venture
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Arrangement between a U.S. manufacturer and a
foreign entity; governed by contract between them.
Regulation in International Trade
Export Regulations
Licensing
• Applies to materials and products which may be controlled for security reasons,
limited by sanctions, or in short supply.
• Some businesses use licensed foreign freight forwarders who are experts in all
aspects of exporting goods.
• Criminal sanctions apply if false information regarding the intended use of the
material is given in the licensing application.
Intellectual Property Issues
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Counterfeit Goods – various treaties and laws protect against the importation of
goods which violate U.S. copyright or trademark laws.
Gray Market Goods – a foreign business that owns the right to use a trademark
only outside of the United States is not allowed to import those goods to the U.S.
Regulation in International Trade
Antitrust
United States courts assume jurisdiction in antitrust cases if there is a direct effect on
U.S. commerce. They apply a “jurisdictional rule of reason,” weighing the interests
of the United States against the interests of the foreign country involved in making a
decision on whether to hear an antitrust case.
Defenses against U.S. antitrust laws applied outside the U.S. include:
• Act of State Doctrine (obligation to respect the judgment of another country for
actions taken within its own territory)
• Sovereign Compliance Doctrine (when a defendant’s actions were compelled by
the foreign government)
• Sovereign Immunity Doctrine (protects a sovereign government from being
sued in most cases)
Securities
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United States courts have jurisdiction in international securities fraud cases if there is
a loss to Americans living in the United States. In some cases, U.S. courts have
jurisdiction if a loss is to Americans living abroad.
Regulation in International Trade
Barriers to trade
Tarriffs – monetary tax or duty applied to imported goods; raises price of imports.
Non-tarriff barriers – non-monetary restrictions such as quantity limits, quality
standards, inspection requirements and production requirements.
Export controls – policies to deny certain countries the rights to buy materials of
military importance or to refuse to sell any goods to certain countries as a means of
punishment for that country’s activities or human rights policies.
Antidumping Laws – Dumping (selling at less than fair market value) of foreign
goods is illegal in the United States.
Other considerations for multinational companies
Expropriation – the taking over of a U.S. owned business in a foreign country by that
foreign government is a risk that business owners often face. Treaties and the foreign
government’s desire to maintain friendly trade relations help mitigate this risk. Some
Chapter businesses purchase insurance against this risk.
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Foreign Corrupt Practices Act – bribing of foreign officials is illegal for U.S. firms
doing business abroad – even if bribing is an accepted practice in that country.