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.”