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
Differences in Legal Systems
• 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.
Dispute Resolution in International Business
Which country´s law applies?
In which country will the dispute be resolved and how?
1.
In many cases answers to the above questions are specified in
contracts between the companies
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