Chapter 18 International Law McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. International Trade Factors Treaties/Agreements • The Vienna Convention on the Law of Treaties (1969) is viewed as a summary statement on the interpretation and termination of treaties, and rights and duties of countries thereunder. Each Country Wants To Make Its Goods/Services More Competitive Rule Of Law/Property Rights Apply To • Businesses • Nation-States 18-2 U.S. Trading Partners Region Exports Asia 26.5% West. Europe 24.0 North America 22.5 Latin America 21.8 Middle East 2.7 Africa 1.7 C./E. Europe/ Baltic States/CIS 0.9 Total 100% Source: World Trade Organization, 2001 Imports 36.3% 20.8 18.7 17.3 3.3 2.3 1.3 100% 18-3 U. S. Trade in Goods & Services ($ Billions) 1600 1400 1200 Balance of Payments 1000 (Trade Deficit) 800 600 Exports 400 200 Imports 0 1975 1980 1985 1990 1995 2000 2002 Source: U.S. Department Of Commerce 18-4 Sources Of International Law- Public Statute Of The International Court Of Justice (World Court) Non-Binding Decisions Applies To Disputes • International Conventions • International Custom • General Principles Of Law • Judicial Decisions/Teachings Of Qualified Publicists 18-5 Sources Of International Law- Private Laws Of Nations Multilateral Agreements Conflicting/Differing Laws Create Instability International Commerce Is Complex Determining Proper Forum (Court) Difficult 18-6 United Nations Security Council – 15 Members (5 Permanent) United Nations Commission On International Trade Law (1966) International Monetary Fund World Bank 18-7 Conventions On International Sale Of Goods (CISG) Effective 1988 Applies To Contracts For Commercial Sale Of Goods Supercedes U.S. Commercial Code Freedom In Contract Negotiation- Not In Writing 18-8 European Union Treaty Of Rome (1957) Single European Act (1987)- Remove Barriers To European Trade Maastricht Treaty (1992)- Create Federal Government • Commission Of Entire Union • Coordinate Policies Of Members Nice Summit (2000)- Added (2007) 12 Members To Original 15 18-9 North American Free Trade Agreement (1993) Between US/Mexico/Canada Free Trade Dispute Settlement U.S. Has Trade Deficit With Both Note: CAFTA currently under consideration. 18-10 U.S. NAFTA International Trade US$ Billions 250 200 150 U.S. Trade Deficit 100 U.S. Trade Deficit Mexico Im. Mexico Ex. Canada Im. Canada Ex. 50 0 1997 1998 1999 2000 2001 Source: CIA World Factbook & U.S. Census Bureau, Foreign Trade Division, Data Dissemination Branch 2002 18-11 Transacting International Business Foreign Sales • Irrevocable Letter Of Credit- Commitment of Certain Amount, Strict Compliance in Documents Issuing Bank in Buyer’s Country Bill Of Lading-Confirms Receipt • A bill of lading is a contract between the carrier and the shipper that evidences (a) an agreement between them covering the transportation and shipment of the goods; (b) a receipt for the goods from the carrier; and (c) a document of title to the goods described in it. Confirming Bank License/Franchise Direct Foreign Investment • Foreign Subsidiary (Subjection to Foreign Law) • Joint Venture 18-12 Transacting International Business VOEST-ALPINE TRADING USA v. BANK OF CHINA 288 F.3d 262 (2002) FACTS: JFTC agreed to purchase 1,000 metric tons of styrene monomer from Voest-Alpine. At Voest-Alpine’s insistence, JFTC obtained a letter of credit from the Bank of China for the purchase price. Because of market changes, JFTC sought a price concession before shipment. Voest-Alpine refused the request and shipped the goods. A dispute arose over alleged discrepancies in the letter of credit. ISSUE: Did Bank of China give proper notice of refusal to Voest-Alpine? 18-13 Transacting International Business VOEST-ALPINE TRADING USA v. BANK OF CHINA 288 F.3d 262 (2002) DECISION: No. REASONS: • 1. The bank’s telex of August 11 did not reject the letter of credit. • 2. Viewed in the context of standard international banking practices, the Bank of China’s notice was clearly deficient. • 3. Since the Bank of China failed to provide adequate notice, the court does not need to reach the question of whether the alleged discrepancies warranted refusal. 18-14 Transacting International Business Moog was the beneficiary of an irrevocable letter of credit issues by Bancomer, a Mexican bank, on behalf of its local customer CRG. A dispute arose between Moog and the confirming bank, Boatman’s Bank of St. Louis, and Bancomer over whether Moog had submitted the proper documents needed for honoring the letter of credit. Moog filed suit in the Unites States against both banks, but the court ruled that Moog could not bring a claim against Bancomer due to lack of personal jurisdiction. The court found that Bancomer’s contact in the United States was insufficient to meet the requirements personal jurisdiction. Moog World Trade Corporation v. Bancomer, S.A., 90 F. 3d 1382 (8th Cir. 1996). 18-15 Transacting International Business A dispute arose over whether Banco do Brasil had provided effective notice of non-renewal of a letter of credit in favor of 3COM. Banco contended that it had cancelled the letter of credit and 3COM maintained that the credit was not cancelled. The court ruled that Banco do Brasil had not cancelled the letter of credit. It found that Banco’s notice of non-renewal was neither clear nor unequivocal. Simplicity and certainty are the hallmarks of the letter of credit transaction according to the court. 3COM Corporation v. Banco do Brasil, 171 F. 3d 739 (1999). 18-16 Sources Of Foreign Direct Investment In The U.S. 120 US$ Million 100 80 United Kingdom Netherlands Canada France Japan 60 40 20 0 1999 2000 Source: U.S. Bureau Of Economic Analysis 2001 2002 18-17 International Trade Risks Loss Of Investment • Expropriation- Confiscation • Nationalization- Like Gov’t Power Of Eminent Domain Export Controls Bribes- Foreign Corrupt Practices Act (1977) U.S. Antitrust Conflicts 18-18 Export Controls UNITED STATES V. RANDY REYES 270 F.3d 1158 (7th Cir. 2001) FACTS: The defendant, Randy Reyes, was employed by Siraj International. He made contact with a customer named Texam Holding located in Geneva. Texam was acting as a front for Iran’s procurement of military aircraft parts from the United States. Reyes was charged with violating the AECA and IEEPA by exporting Munitions List aircraft parts from the United States to Iran without obtaining necessary government licenses. ISSUE: Was the evidence sufficient to demonstrate a willful violation of the export control statutes and regulations ? 18-19 Export Controls UNITED STATES V. RANDY REYES 270 F.3d 1158 (7th Cir. 2001) DECISION: Yes. REASONS: • 1. The prosecution presented sufficient evidence to show that Reyes was aware of his legal duty not to export Munitions List articles to Iran or any foreign country without a proper license. • 2.Tape-recorded phone conversations demonstrate that Reyes knew both of the illegality of shipping to Iran without a license and that Texam was shipping the parts it ordered to Iran. • 3. Reyes’ disregard for a known legal duty provided more than sufficient grounds for the jury’s conviction. 18-20 Export Controls Covarrubias was pulled over by a Texas police officer within several miles of the U.S.-Mexico border for a malfunctioning taillight and failure to display a front license plate. The officer requested and was granted permission to search the vehicle after smelling fresh paint and noticing a gas filler hose protruding from near the left rear tire of the truck. The search disclosed that one of the truck’s gas tanks contained weapons. Covarrubias was convicted of attempting to export items on the United States Munitions List without obtaining the required export license. The court found that Covarrubias knew that authorization was required before transporting weapons to another country. United States v. Covarrubias, 94 F.3d 172 (5th Cir. 1996). 18-21 Export Controls Following the deaths in Tiananmen Square, the U.S. State Department suspended all licenses and approvals to export defense articles from the United States to China. The defendant was prosecuted for exporting a military item (cutter blade) without disclosing its intended use (developing proximity fuses for use in exploding artillery shells). The defendant challenged the indictment claiming that U.S. export control laws are unconstitutionally vague. The court rejected the challenge finding that a reasonable person of ordinary intelligence can understand what conduct is prohibited. The court found the obligation is on the businesspeople to resolve perceived ambiguities before exporting goods. United States v. Lee, 183 F.3rd 1029 (9th Cir. 1999) 18-22 Corruption/Bribery Corruption/Bribery Corruption exists in every country and is endemic to some, especially developing countries. • Africa: Corruption is perceived to be rampant in Cameroon, Kenya, Angola, Uganda, Madagascar and Nigeria. In Kenya, bribery costs the average citizen 20% of their income. In 2004, Kenyan President Kibaki launched a “zero corruption” initiative. (Unfortunately, his government was recently forced to resign due to, you guessed it, corruption). No African country was listed among the 25 least corrupt countries in the most recent Transparency International Survey (Botswana, which was rated as Africa’s least corrupt nation, tied for 29th overall). Corruption/Bribery • Asia: Corruption is perceived to be rampant in Bangladesh and Indonesia. In Indonesia, it is estimated that 20% of business costs are bribes to bureaucrats. The Financial Times recently reported that “deep corruption [in China] is corroding the exercise of state power.” Falsified accounts used to cover up this corruption have the effect of rendering China’s official statistics “virtually meaningless.” Corruption/Bribery Latin America: Corruption is perceived to be rampant in Paraguay. In Ecuador, it is estimated the government could pay off its foreign debt in five years if corruption was brought under control. In Argentina, corruption in the customs department defrauded the government out of $3 billion in revenues. Officials estimated that 30% of all imports were being under-billed and approximately $ 2.5 billion of goods were brought into the country labeled “in transit” to another country, thus illegally avoiding import taxes altogether. Corruption/Bribery In Albania, approximately one-third of potential profits are lost to bribe payments that amount to 8% of inventory turnover. German companies are estimated to pay an aggregate of over $ 3 billion a year in bribes to obtain business contracts abroad. In industrial countries 15 % of businesses were found to pay bribes, but in the former Soviet Union this figure jumped to over 60 %. In Kazakhstan typical bribe to win approval of a large construction contract is 15 to 20% of contract price. Political Corruption/Bribery In Mexico, suspicions surround the ability of Raul Salinas, the brother of former President Carlos Salinas, to amass a fortune of over $ 120 million while a public official. Two former presidents of South Korea were convicted of developing a fund of over $900 million while they were in office in the 1980s and 1990s. According to Transparency International, in 6 out of 10 countries, political parties were determined to be their nation’s most corrupt institutions. Corruption/Bribery 1997 estimate by the World Bank placed the total about of bribery involved in international trade at $ 80 billion per year. A recent World Bank survey of 3,600 firms in 69 countries found that 40 % of businesses pay bribes. Corruption/Bribery - Least Corrupt According to a recent Transparency International Report, Finland was rated the world's cleanest business environment, followed by New Zealand, Denmark, Iceland, Singapore, Sweden and Switzerland. (Note Norway is somewhat farther back on the list) Corruption/Bribery - Least Corrupt What national characteristics might explain this? • Racial homogeneity? (But what about Japan & Korea?) • Geographic Isolation? (Iceland, New Zealand, Singapore) • Strict Rule of Law? (Singapore) Corruption/Bribery What sets Norway apart? • Oil Recent Statoil bribery allegations, planned to funnel a $15 million bribe to an Iranian official in exchange for help with contracts Oil is considered a significant factor in Nigerian & Angolan corruption as well. Corruption/Bribery Where do we stand? • In the same study , the U.S. tied for 17th with Belgium and Ireland. • It was perceived as more corrupt than Norway, Australia, the Netherlands, the U.K., Canada, Austria, Luxembourg, Germany and Honk Kong, but less corrupt than nations such as France, Spain, Japan, Israel, Italy, & Mexico. Corruption/Bribery Bribe - a payment of money, or something of value, to a party, with the intent to influence, or in exchange for special consideration, that is incompatible with the party’s duties of office, position or role (“Coarse Bribery” that which affects a significant community interest) Corruption/Bribery Some examples of bribery • Corporate purchasing agents are often given "kickbacks" in order to make their purchases from a specific supplier. • Tour operators may receive special unpublicized commissions or payment in kind or services, in order to include certain airlines, hotels, restaurants, and stores in their itinerary. Corruption/Bribery Civil servants in regulatory agencies, usually badly paid relative to the economic power they possess, may find it hard to refuse payment in exchange for waiving the regulations or to tailor specifications and contracts, to suit special groups or firms. (Note: In India most government officials & their families could probably not survive on their salaries alone.) Corruption/Bribery Motivations: Firms, pressure groups and citizens try to maximize their gains by paying bribes, while public officials try to maximize their illegal earnings and politicians their power and wealth. Corruption/Bribery Facilitating Payment - customary, local, incentive/”grease” payments or “sweeteners” intended to expedite performance. Usually made to low-level public officials to “speed things along”. Typically involves issuing licenses or permits, clearing goods through customs, etc. (In Italy, called bustarella. In Mexico, la mordida, “the bite”. In South Africa, “dash”. In the Middle/Near East, baaksheesh. In Germany, schimengeld. Ukraine adoption example) Corruption/Bribery The CEO of Unilever, the food and hygiene giant, insists Unilever does not pay bribes but it does pay "facilitating payments". "There are customary local things," he said. But they are only used where local custom and practice dictate in the 90+ countries in which Unilever operates. The idea is akin to tipping a waiter to get a better table, he said. He insisted that an overall code of conduct governs these matters, and bans the use of payments for unfair advantage although trusted local managers have leeway to interpret the rules according to local habits. Corruption/Bribery How do you distinguish between a bribe and a mere gift? • Its not always clear • Secrecy is a defining characteristic of bribery/corruption. • Gifts are generally made openly and often declared • Bribes are often made using a middleman • Gifts are usually given directly • Bribes are usually of significant value • Gifts are typically of minimal value Corruption/Bribery How do you distinguish between a bribe and a mere gift? • Consider the social situation and context • Consider perceptions of donor and recipient important • Consider whether or not a quid pro quo is understood to be expected Gift or Bribe? Ashbourn Corp., is soliciting bids for a 5 year contract for the cleaning of their U.S. facilities, worth $22 million per yr. Pete Stevens, the Sales Manager of Perfect Cleaning Co. is, by coincidence, a former employee of Ashbourn Corp.& an old college buddy of John Joyce, Ashbourn Corp.’s Purchasing Director. Pete was confident he could win this contract, after all his company already had a good relationship with Ashbourn Corp. James Parkin, the CEO of Perfect Cleaning Co. & Edgar White, the CEO of Ashbourn Corp. were both Masons and Parkin had sponsored White for membership to an exclusive country club a couple of years earlier. Gift or Bribe? Pete phoned John Joyce to find out more about the bidding process. They also talked about old times and how they used to enjoy skiing holidays together "Isn't it about time we went back to Reno" asked Pete, "How about booking a long weekend? I've got plenty of spare Air Miles that you can use?” John Joyce was cautious about this suggestion. After all, they are in the middle of a bidding process. But he mentions it to his wife who is really keen about the idea of getting back onto the slopes. "We will have a rule, no mention of work" She says. They book to go on holiday with Peter and his wife in February. Gift or Bribe? Christmas is fast approaching. John Joyce, sends Pete Stephens a Christmas card. His company has a policy of not sending gifts. John’s wife receives a package by courier on the 23rd of December from Pete and his wife addressed to the Joyce family. It is an elegant mantel clock. In February, the two couples enjoy a relaxing skiing holiday together. Not a word is spoken about business. Pete even wins $10,000 at the casino after taking some tips from John on winning at Black Jack. Pete buys John a champagne dinner to celebrate. Gift of Bribe? In March the bids are considered, with John Joyce as Chairman of the Selection Committee. The bids are almost identical. None of the companies really stand out on price, quality of service, etc. John tells his CEO that he hesitates to recommend Perfect Cleaning Co. because of his rejuvenated friendship with Pete. However, his CEO tells him, ”Don’t worry about that. I trust you to look after our shareholders' interests - you tell me who you think is best for the job". Perfect Cleaning Co. is awarded the contract. A week later a letter arrives marked "Private & Confidential". John Joyce opens it and a check for $5,000 falls out. A simple note is attached "Thanks for your tip at the Casino you deserve a share of my winnings! Pete.” Corruption/Bribery Bribery commonly occurs in: • Large investment projects • Government Purchasing • Extra-Budgetary Activities (“Special Projects”) Corruption/Bribery Reasons/Excuses for Participation in Bribery • Competitive necessity • Respect for local cultural norms • Extortion • Inability or unwillingness to control rogue employees/delegation of power Problems with Corruption/Bribery • Distorts otherwise sound, reasoned judgment • Creates partiality • Often shifts government spending away from vital functions such as education and public health, and into projects where public officials can more easily extract bribes. (e.g. “White Elephant Projects”, “Pork Barrel Spending”, “The Big Dig”, etc.) • Disincentive to invest (Less security, lower return) • Bribery adds to the cost of goods, fueling inflation. • Inhibits fair and efficient markets, e.g. bribes are sometimes paid in order to keep a competitor out of the market, by preventing it from receiving a license or winning a bid. When companies choose to rely on bribe payments to secure market position, they are less concerned about increasing operating efficiency, or developing new products, services and technologies. Problems with Corruption/Bribery • Can lower the quality of public goods and services and even threaten safety (e.g. Turkish apartments that collapse, African bridges without connecting roads) • Undermines public confidence in democracy - e.g. in places like Argentina, Panama, Honduras, Guatemala, Nicaragua, Venezuela, Bolivia, Ecuador and Haiti. • Opting to pay bribes damages company reputations and makes it difficult to say no later (the reverse of this is also true!) Corruption/Bribery . Governments are starting recognize and respond to the damage caused by bribery/corruption Why? • Lost revenues (taxes, duties, etc.) Corruption/Bribery . Globalization: The “borderless” global marketplace is bringing national economies and corporations throughout the world into increasingly greater interdependence. High profile cases (e.g. Lockheed/Japan, involved major companies as well as political figures and staggering sums of money.) Corruption/Bribery . U.S. Foreign Corrupt Practices Act of 1997 • Prohibits payments to a foreign official for the purpose of • • • • influencing any act or decision or the omission of an act in violation of the law of that country to obtain or retain business Implies intent Only liable for actions of 3rd party agents when have reason to know of Does not prohibit facilitating payments (Note that the Justice Dept. only brings on average 1.5 cases per year- “Special Report: Bribery and Business, Economist, March 2, 2002, p.64) Corruption/Bribery . At first, the rest of the world looked at it as a sad case of an American moralism or moralistic imperialism • If other nations not follow suit does this = a competitive disadvantage for U.S.? Corruption/Bribery . 1996 Interamerican Treaty Against Corruption 1997 OECD treaty committing 34 countries to similar restrictions, in effect beginning in 1999. Corruption/Bribery . Other important anti-bribery initiatives have recently been launched by the World Bank, the International Monetary Fund, the European Union, the Council of Europe, the Organization of American States, the Pacific Basin Economic Council, the Global Coalition for Africa and the United Nations. Corruption/Bribery . Ghana, Mozambique, Zambia & South Africa have also launched anti-corruption drives.. Corruption/Bribery . In addition, recent steps by President Vladimir Putin to introduce tax reforms and new laws fighting money-laundering in Russia But still high levels of bribery by firms from Russia, China, Taiwan and South Korea, Italy, Hong Kong, Malaysia, Japan, USA and France. Corruption/Bribery . Not much being done to address the “demand” side of bribery (i.e. extortion) RICO (Anti-Racketeering) Statutes in U.S. Corruption/Bribery . Reputation Management (Coca-Cola) • Coca-Cola is operational in many developing countries, is doing well, is beating competitors, and is not paying bribes. The company is thoughtful and painstaking about how it enters new markets, how it selects local business partners, and how it conducts itself in foreign countries. Corruption/Bribery . Integrity is key to its approaches. • Coca-Cola makes maximum effort to be transparent in its dealings, to win public support, and to develop the kind of strength -- from its consumers and the public at large -- that make top officials uneasy about seeking bribes from the beverage giant. Corruption/Bribery . The reality is that to maximize opportunities in the growing markets of developing countries, corporations must strive to be seen as honest, long-term, committed guests. Corporations must impress upon host governments, customers, suppliers, and the general public that they seek fair, open, longterm relationships. Corruption/Bribery . Coca-Cola trains its staff to learn about the traditions, politics, and values of the people in all of the countries in which it operates. It gives key responsibilities to nationals of these countries and ensures that its image is never that of a ruthless multinational colonialist corporation. Corruption/Bribery . Coca-Cola plays an active role in most of the countries in which it works, supporting education and the arts and social services in a long-term and genuine way. GE & Texaco also have developed a reputation of refusing to pay bribes. Corruption/Bribery Caux Roundtable Anti-Corruption Principles 1. Disclose publicly and make widely known its endorsement of the Anti-Corruption Measures. 2. Establish a clearly articulated written policy prohibiting any of the firm’s employees from paying or receiving bribes and “kickbacks.” 3. Implement the policy with due care and take appropriate disciplinary action against any employee discovered to have made payments in violation of the policy. 4. Provide training for employees to carry out the policy, and provide continuing support, such as help lines, to assist employees to act in compliance with the firm’s policy. Corruption/Bribery Caux Roundtable Anti-Corruption Principles 5. Record all transactions fully and fairly, in accordance with clearly stated record-keeping procedures and accounting controls, and conduct internal audits to assure that all payments made are proper. 6. Report annually on the firm’s bribery and corruption policy, along with a description of the firm’s experiences implementing and enforcing the policy. 7. Have the annual report in step six above audited either by an independent financial auditor or an independent social auditor, or both. 8. Require all agents of the firm to affirm that they have neither made nor will make any improper payments in any business venture or contract to which the firm is a party. Corruption/Bribery Caux Roundtable Anti-Corruption Principles 9. Require all suppliers of the firm to affirm that they have neither made nor will make any improper payments in any business venture or contract to which the firm is a party. 10. Establish a monitoring and auditing system to detect any improper payments made by the firm’s employees and agents. 11. Report publicly any solicitations for payments whenever such reporting will not lead to harsh reprisals of material consequences to the company or its employees (or report privately to a monitoring organization, such as Transparency International or a social auditor). 12. Establish a system to allow any employee or agent of the firm to report any improper payment without fear of retribution for their disclosures. Resolving International Disputes Suing Foreign Governments - Sovereign Immunity Suing Foreign Firms- Hague Service Convention • “Minimum Contacts” • “Actual and timely notice” International Arbitration 18-67 Resolving International Disputes DOLE FOOD CO. v. DEAD SEA BROMINE CO. & BROMINE COMPOUNDS, LTD. 123 S.Ct. 1655 (2003) FACTS: The plaintiffs, a group of farm workers from Latin America, filed a state-court action against Dole Food Co. and others alleging injury from chemical exposure. Dole Food Co. sued Dead Sea Bromine Co. and Bromine Compounds, Ltd. (collectively, the Dead Sea Companies) claiming that Dead Sea Companies would be liable if Dole lost the case. Dead Sea Companies claimed that they could not be sued because they were acting as an instrumentality of Israel ISSUE: Is Dead Sea Companies immune from suit? 18-68 Resolving International Disputes DOLE FOOD CO. v. DEAD SEA BROMINE CO. & BROMINE COMPOUNDS, LTD. 123 S.Ct. 1655 (2003) DECISION: No. REASONS: • 1. Foreign states may invoke immunity under the Foreign Sovereign Immunities Act (FSIA) if the corporate entity was acting as an “instrumentality” of the state. • 2. In this case, the foreign state does not own a majority of the shares of the corporate entity. Only direct ownership of a majority of shares by the foreign state satisfies the statutory requirement. Foreign sovereign immunity is not meant to avoid chilling foreign states or their instrumentalities in the conduct of their business. • 3. The instrumentality status is determined at the time of the filing of the complaint. Any ties between Dead Sea Companies and Israel had been severed before the suit was commenced. 18-69 Resolving International Disputes An American shipper, Transamerican Steamship, brought suit against the Somali Democratic Republic for losses when the government detained its ship over a dispute involving the emergency shipment of 40,000 tons of corn. The shipment was part of a $20 million famine relief program to ameliorate widespread starvation and malnutrition in Somalia. Issue: Does the district court have jurisdiction over Transamerican's claims against Somalia? Held: Yes. The Foreign Sovereign Immunities Act grants foreign sovereigns immunity from suit in the United States unless one of the specified statutory exceptions applies. One of those exceptions is to hear claims arising from the commercial conduct of foreign sovereigns. A foreign state may not invoke sovereign immunity in any case in which the foreign state has implicitly or explicitly waived its immunity or where the claim arises from commercial activities by the foreign state. Transamerican Steamship v. Somali Democratic Republic, 767 F.2d 998 (D.C. Cir. 1985). 18-70 Resolving International Disputes The plaintiff, a Jewish American, brought suit in the United States for injuries he suffered and the slave labor he performed while a prisoner in Nazi concentration camps. The plaintiff was arrested shortly after the United States declared war on Germany while he was living with his family in Slovakia. Rather than being returned to the United States as part of a civilian prisoner exchange then being conducted by the Red Cross, the SS sent the plaintiff and his family to concentration camps because they were Jews. While the plaintiff's entire family perished, he was rescued by American soldiers while in a freight car full of concentration camp prisoners. The Court found Germany immune from suit under the FSIA. The FSIA provides that "a foreign sovereign and its agencies and instrumentalities shall not be immune from the jurisdiction of the courts of the United States or of the States in any case. . .in which the action is based. . .upon an act outside the territory of the United States in connection with a commercial activity of the foreign sovereign elsewhere and that act causes a direct effect in the United States." Princz v. Federal Republic of Germany, 26 F.3d 1166 (D.C. Cir. 1994). 18-71 Resolving International Disputes Armed terrorists seized a civilian bus in Israel and killed, wounded, and tortured the passengers. The victims were citizens of Israel, the United States, and the Netherlands. An action was brought in the United States against Libya, the Palestine Liberation Organization, and other alleged perpetrators under the American Alien Tort Claims Act. The act permits aliens to bring tort actions committed in violation of the law of nations. Issue: Is terrorism a violation of the law of nations? Held: No. While this nation condemns all terrorist attacks, that sentiment is not universal. Terrorism has evoked strident reactions and sparked strong alliances among individual states. The law of nations is defined as the principles and rules that states feel bound to observe and do commonly observe. Note: International Anti-Terrorist Agreements currently under consideration may change this. 18-72 Resolving International Disputes MORELLI v. CEDEL 141 F.3d 39 (2d Cir. 1999) FACTS: Morelli sued the defendant, a Luxembourg bank, claiming that the defendant engaged in age discrimination in terminating the plaintiff. ISSUE: Whether domestic employees of a foreign corporation are protected under the Age Discrimination and Employment Act (ADEA) and, if so, whether the foreign corporation’s foreign employees are counted in determining whether the business has enough employees to be subject to the law? 18-73 Resolving International Disputes MORELLI v. CEDEL 141 F.3d 39 (2d Cir. 1999) DECISION: Yes to both questions. REASONS: • 1. Equal treatment requires that antidiscrimination rules apply to foreign enterprises operating U.S. branches, since defending personnel decisions is a fact of business life in the United States. • 2. Congress did not intend to exempt domestic workplaces of foreign employers from the ADEA’s prohibition of age discrimination. • 3. A foreign corporation’s employees can be counted in determining whether a business satisfies the ADEA’s 20employee threshold.. 18-74 Resolving International Disputes A German corporation moved to quash service of a complaint served on its American subsidiary related to a wrongful death products liability action for failure to follow the Hague Service Convention. Issue: Was the plaintiff required to serve the German parent under the Hague Service Convention? Held: No. Where service on a domestic agent is valid and complete under both state law and the due process clause, our inquiry ends. Volkswagenwerk Aktiengesellschaft v. Schlunk, 108 S.Ct. 2104 (1988). 18-75 Globalization Definition: a process of international economic integration Globalization Jagdish D. Bhagwati defines globalization as the “integration of national economies into the international economy through trade, direct foreign investment (by corporations and multinationals), shortterm capital flows, international flows of workers and humanity generally, and flows of technology.” Globalization Involves Such Things As: • Expanded Trade • Cross Border Shifts in Production • International Regulatory Bodies Goals: • Economic interdependency, which should, in theory, promote greater peace and cooperation. Why? • Greater economic efficiencies from a corporate and overall, global perspective Globalization World Bank/International Monetary Fund (IMF) United Nations agencies created to assist developing nations, to promote international trade and to enhance the exchange stability of the world currencies, using loans guaranteed by member governments. Globalization IMF Structural Adjustment Program (SAP) • Otherwise known as the “Golden Straightjacket” • These IMF measures are intended to sure up investors' confidence. • However, a 1996 United Nations report found that SAPs imposed by the IMF "have increased poverty, homelessness, and unemployment in more than 50 countries, including some of the poorest of the world." Globalization World Trade Organization (WTO) - an international organization that monitors and enforces rules governing global trade. World Trade Organization Created 1994 (Uruguay) Principles • All Members Equal In Trade • No Favoring Of Domestic Over Imported Goods/Services • Eliminate Trade Barriers 18-82 World Trade Organization Regulates World Trade- 125 Countries Benefits • Promote Peace • Resolves Disputes • Cut Cost Of Living • Stimulate Economic Growth • Encourages Good Government Recent US/European Concerns 18-83 World Trade Organization Some Problems with the WTO (from Mander & Goldsmith [eds], The Case Against the Global Economy, 101). • The binding legal provisions of WTO exclude all considerations on environmental, labor, health, or human rights. • There are no procedural safeguards, accountability, or required disclosures of potential conflicts of interest. • All proceedings and documents are secret. Media, citizens, state and local government representatives are all locked out. All disputes are settled, not by democratically elected officials, but by secret tribunals of foreign trade bureaucrats from a preset roster. Globalization Who Benefits? • The Rising Tide Floats All Boats? • Large Producers (Economic Efficiencies, Access to New Markets, Free Trade favors well-organized, powerful market players and their commercial activities) • Consumers (Lower Prices) • Nations in General? (Greater World Peace?) • Investors (Greater Returns) Globalization Developing Nations? • Accelerated Development (e.g. since the advent of globalization the average annual economic growth rate in many developing countries has been almost double that of industrialized nations. There have been big gains in poverty reduction in China and India.) • Emergence from Agricultural or Natural Resource Based Economies • More Employment? (However, In Senegal, touted by the IMF as a success story because of increased growth rates, unemployment increased from25% in 1991 to 44% in 1996. In Costa Rica, the first Central American country to implement n SAP, saw real wages decline by 16.9% between 1980 and 1991. During the first four years of Hungary's SAP, unemployment rose from 0% to 13% between 1989 and 1996, the value of wages fell by 24%) Globalization Developing Nations? • Enhancements in Infrastructure • Public Health Improvements? (However, in Zimbabwe the SAP led to a 1/3 cut in health spending is linked to a doubling of deaths of women during childbirth. In Costa Rica the SAP led to A 35% cut in health programs led to a dramatic increase in infectious disease rates and infant mortality. • Technology Transfer • Improved Access to Education? (However, in Zimbabwe the SAP forced the reintroduction of school fees, leading to drops in attendance, especially for girls) • Redistribution of Income? (Repatriation of Profits?) Globalization Problems for Developing Countries? • Loss of Economic Sovereignty • Restructures Economies Towards Exports (e.g. Large Single Crops vs. Diverse Crops) • Displacement/Urbanization - (Large-scale, capitalintensive Western development projects, like giant dams, natural gas pipelines, and oil refineries, have been displacing thousands of residents from their homes and land) • Health & Environmental Damage? • Disruption of Political, Economic & Social Order Globalization Problems for Americans? • The Labor Department reports that by early 1999, after 5 years of NAFTA, well over 200,000 Americans had lost their jobs to Mexican and Canadian workers, and that only 35% of dislocated workers had found new jobs that paid as well or better. • Economist Ravi Batra in "The Myth of Free Trade" reports that since 1973, when the United States committed to being a “Free Trade” nation, there has been a steady decline in the “real wages” of American workers. Globalization Problems for Americans? • Outsourcing Total cost to IBM for a computer programmer in the U.S., per hour: $ 56.00 Total cost to IBM for a computer programmer in China, per hour: $ 12.50 Number of U.S. programming jobs that IBM is moving to China in 2004: 3000 Source: The Wall Street Journal Globalization Who opposes? • Organized Labor • Environmental Groups • Human Rights Groups • Indigenous Cultural Groups Why? • “Race to the Bottom” Globalization Globalization threatens to "drag the world back down to a jungle where the first and only law is the survival of the fittest. I hate its imposition, its pretensions, its cultural imperialism, its grinding injustice." It lacks a moral, ethical compass, with potentially dire consequences." - (Canadian Jesuit Scholar, Michael Czerny, the general assistant for the Jesuit Social Justice Secretariat at the Jesuit Curia in Rome) Globalization Why do some people in foreign (e.g. Muslim) countries/cultures hate America? • Perhaps one reason is perceived “Cultural imperialism” The Export of Materialistic, Hedonistic, Anglo-American/JudeoChristian Culture • Alternative: “Culturally Appropriate” Economic Development Globalization Are there globally accepted norms of behavior? Are there moral minimums to which Multinational Corporations ought subscribe? (per DeGeorge) • Do no harm • Do more good than bad for the host • Contribute to the development of the host • Respect the human rights of the host workers • Respect local culture(s) of the host • Pay fair taxes • Cooperate with host government justice system • Be accountable for actions/mistakes • Run facilities in a safe manner • Responsibility transfer technology Globalization The U.N.'s Universal Declaration of Human Rights is an example of the way in which countries have tried collectively to specify absolute minimums of moral conduct. Globalization How should “development” be measured? • GDP? "Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product is over $800 billion a year. But that gross national product--if we should judge the United States of America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts for the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and nuclear warheads, and armored cars for police who fight riots in our streets. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. But the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country, It measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans." - Robert F. Kennedy, 1968. Globalization "If measured by contributions to improving the lives of people or strengthening the institutions of democratic governance, the World Bank and the IMF have been disastrous failures – imposing an enormous burden on the world’s poor and seriously impeding their development. In terms of fulfilling the mandates set for them by their original architects – advancing economic globalization under the domination of the economically powerful – they both have been a resounding success.” - When Corporations Rule the World, D.C. Korten, Earthscan Publications Ltd., London, 1995, p.171. Sweatshops Sweatshops: Huge mass production facilities in which large numbers of people work under barbaric conditions for subsistence wages. Sweatshops Sweatshops often involve such things as: • Dangerous working conditions (e.g. firetraps, • • • • • • • exposure to dangerous chemicals and/or machines without proper safeguards) Denial of bathroom breaks Physical abuse Demands for sexual favors Seven day work weeks Long hours (12 to 16 hours a day) Forced double shifts Dismissal of anyone who tries to organize a union Sweatshops Some Examples (from a recent Fair Labor Association Report): • Adidas - Vietnam: Workers forced to do overtime, arbitrary firings, widespread sexual harassment, toilet visits limited • Liz Claiborne-China: Workers fined for talking, blocked exits, no toilet paper or towels, no sick leave, no pay stubs, excessive overtime.. • Levi Strauss-Thailand: Child labor, dirty toilets, improperly stored chemical tanks, no drinking water in the dining facility, excessive overtime. • Levi’s now monitors producers (“no-sweat” goods) • Negative: Monitoring leads to use of fewer sources = less opportunity Sweatshops Illegal immigrants especially vulnerable. Often involve organized crime. 90% of sweatshop workers are female. Sometimes involve child labor. • Note: According to International Labor Organization (ILO) reports, some 1/5 of all children in the world ages 5-14, or about 250 million children, are engaged in child labor. Major offender: apparel industry. Sweatshops Are Sweatshops Necessarily Evil? Globalization Yes • Violate Int’l Human Rights & Labor Laws • Right to a “living wage”? • Companies can afford to treat better/pay more A men’s dress shirt, made in Mexico, and selling for $32.00 in the United States, costs only $4.74 to produce • Customers will not tolerate sweatshops and are willing to pay more to prevent them. (Is this true?) Ad by “Behind the Label” and organization dedicated to exposing sweatshops shows a young American girl shopping and saying, “I helped push African women into slums, I was just shopping.” Globalization No- Myerson - Merely “Growing Pains” • May be only option in developing countries to accumulate capital First-step towards modern prosperity (e.g. Hong Kong, Singapore, South Korea, Taiwan, Indonesia) Over the past 50 years, countries like India resisted sweatshops, while countries that started at a similar economic level - like Taiwan and South Korea - accepted sweatshops as the price of development. Today, Taiwan and South Korea are modern countries with low rates of infant mortality and high levels of education; in contrast, every year 3.1 million Indian children die before the age of 5, mostly from diseases of poverty like diarrhea. Per capita income in Indonesia has more than tripled in the last 20 years. “The simplest way to help the poorest Asians would be to buy more from sweatshops, not less.” - Nicholas D. Kristof, N.Y. Times, 9/4/2000. Globalization No- Merely “Growing Pains” • When Nike and Gap pulled out of Cambodia after a BBC report on sweatshops there it cost the country $10 million in contracts and hundreds or workers lost their only source of income for themselves and their families. • China, Vietnam and various Eastern European Countries are now Sweatshop “hot spots” • The United States has had its own history of sweatshops, employing African & Asian slaves, various waves of immigrants, etc, Globalization No- “Growing Pains” In the late 1930’s Life Magazine declared that sweatshops no longer existed in America However, there has been a definite resurgence of sweatshops in America, especially since the late 1960’s, mainly employing illegal immigrants • (e.g. A 1995 police raid of a fenced-in compound in El Monte, California found a clandestine garment sweatshop that employed some 72 Thai immigrants as virtual slaves) • The U.S. Labor Dept. estimates that 50% of current U.S. owned/operated garment factories are sweatshops. Globalization No- Developing nations not complaining • Honduran union leaders universally resent the moralizing of U.S. labor activists who, like the National Labor Committee, are funded by organized labor committed to preserving American jobs. According to Honduran labor leaders, maquiladoras are increasingly unionized and offer wages two-to-three times the minimum wage. These are prime jobs in an economy in which almost half of the population can find no work at all. Labor shortages at these jobs have helped bump up wages throughout the economy. (Jon Entine) • “A policy of good jobs in principle, but no jobs in practice, might assuage our consciences but is no favor to its alleged beneficiaries.”