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International Business : The Challenge of Global Competition, 8/e
Donald Ball
Wendell H. McCulloch, California State University Long Beach
Paul L. Frantz, California State University Long Beach
Michael Geringer, California Polytechnic State University
Michael S. Minor, University of Texas Pan American
Legal Forces

E Learning Session

  1. Some specific national legal forces PowerPoint (32.0K)
    1. Stability of a country's political and legal systems is important to business
    2. Taxation
      • Purposes Concept Check
        1. Primary purpose may not be to raise revenue
        2. Purpose may be to redistribute income
        3. Purpose may be to discourage or encourage consumption of specific products or services
        4. Purpose may be to achieve equality of tax amounts paid
        5. Purpose may be to grant reciprocity to foreigners
      • National differences of approach
        1. Tax levels
          1. Range from high in Western European countries to zero in tax haven countries
          2. Some countries have capital gains tax and some do not
        2. Tax Types PowerPoint (28.0K)
          1. Income tax
            • Primary revenue source in US
            • Common type in industrialized countries
          2. Value Added Tax (VAT)
            • Primary revenue source in European countries
            • Tax on incremental increases in value through the production chain
            • Proponents say it is easy tax to support
            • Opponents suggest it bears heavily on poorer components of population
            • WTO supports VAT by providing for rebate for exported goods
          3. Unitary tax charged by some US states is very controversial
            • Calculates tax on basis of all of a company's revenue no matter where in the world it is produced
        3. Complexity of tax laws
          1. Tax laws differ from country to country
          2. Internal Revenue Code (IRC) for US is found in the United States Code
          3. Tax codes are constantly changing when modified by government
        4. Who obeys the law?
          1. Compliance with tax laws varies from country to country
          2. In some countries, structure of taxes creates many layers of tax that must be paid resulting in attempts to dodge some
        5. Other differences
          1. Among the tax incentives for foreign investment by US nationals is the Foreign Tax Credit that provides tax relief for those earning revenue in more than one national tax jurisdiction
      • Tax treaties or conventions
        1. The differences among countries has resulted in the need for Tax Treaties or Tax Conventions to define treatment of income, residency, income source, and what constitutes taxable activity between and in countries by foreign nationals
        2. Presence or absence of tax treaties are a major consideration in international business
      • The disappearing taxpayer
        1. Easier movement by nationals across country boundaries has seen the increase in people moving to achieve maximum tax advantage
        2. Not all workers are equally mobile as scientists and engineers, for example, find high-paying work usually in industrialized economies
    3. Antitrust Laws
      • US laws and attitudes are different
      • US Antitrust laws are stricter than almost any other country
      • The European Union courts have attempted to aid European situation by allowing the European Commission to require the break up of government-owned monopolies
      • Article 81 of the Treaty of Rome outlaws any agreement or action to fix market prices
      • EU court also has power to veto business mergers and acquisitions if it believes they are prejudicial to competition
      • The provisions of the Treaty of Rome do not contain the same concept of illegality of antitrust action assumed in US law
      • Worldwide application of US antitrust laws PowerPoint (33.0K)
        1. US attempts to enforce its antitrust laws outside the US
        2. The US Supreme Court has permitted overseas application of US antitrust laws
      • EU Extraterritorial application of its competitive policy
        1. The EU Commission has sought enforcement of competition policy
        2. EU extraterritorial claim is based on the large volume of sales
      • Criminal cases
        1. US antitrust laws contain both criminal and civil penalties
        2. In 1997, US Federal Appeals court ruled that criminal penalties extend to foreign companies
        3. Earlier decisions allowed application of civil penalties
      • Japan's "toothless tiger"
        1. Japan's Fair Trade Commission, responsible for Japan's antitrust enforcement, is a "toothless tiger"
        2. Differences in US and Japanese laws result in a weakened ability of the Japanese FTC to respond to charges of antitrust activity
      • Proposal for global antitrust approval
        1. US has proposed a worldwide organization to harmonize antitrust laws
        2. Necessary because of increasing multi-country nature of mergers and acquisitions
        3. World Bank has suggested a similar organization for bankruptcies
    4. Tariffs, quotas, and other trade obstacles PowerPoint (33.0K)
      • Although previously introduced in chapter 3 these are also legal forces on trade
      • More modern form of quotas are called Voluntary Restraint Agreements (VRA) and Voluntary Export Agreements (VER)
        1. Although called "voluntary" these agreements are imposed by the US government
        2. Since amount of exported goods to the US is reduced, only high-end products enter the country resulting in higher prices in US markets
      • Super 301 is a popular name given to US legislation aimed at unreasonable pricing of imported goods in the US
        1. Gives the US trade representative power to take retaliatory action against trading partners which engage in unfair practices
        2. USTR identifies unfair trade practices, then negotiates with offending country, and, if negotiations fail, imposes punitive measures against goods from non cooperating countries
      • Other countries (mostly industrialized) use VRAs and VERs
    5. Product liability-civil and criminal PowerPoint (34.0K)
      • Very significant in the US
      • Spreading to Europe with EU imposing a system of strict liability
      • Will not likely become as significant as in US because of built in defenses
      • One difference of product liability is that in the US the cases are heard by jury and in other countries they are heard by judges Concept Check
      • Punitive damage effect on medicine
        1. Multimillion dollar punitive awards have led to foreign manufacturers keeping their products out of the US
        2. Medical research in the US has been reduced
        3. EU adopted a directive in 1985 to impose strict liability
        4. Strict liability is contrary to beliefs in some countries and, therefore, not adopted
      • Buyer beware in Japan
        1. Japanese liability law is similar to US law prior to a1963
        2. Legal system makes information difficult to acquire for plaintiffs
        3. A survey of American executives found that 20 percent believe they have lost business to foreign competitors because of the US environment on liability
    6. Currency exchange controls
      • Exchange controls generalities
        1. Every country's laws on currency exchange must be reviewed
        2. Currency laws include definition of how much can be brought into a country and how much can be taken out
    7. Miscellaneous laws
      • Local laws vary widely
      • Include bans on personal activities ranging from drug abuse to possession of pornography
      • Strange laws also occur, examples provided in the book
  2. International legal forces
    1. What is international law
      • Sources of international law
        1. Most important source is bilateral or multilateral treaties
        2. Treaties may also be called conventions, covenants, compacts, or protocols
        3. Customs and usage become international law
          1. Especially common in admiralty or maritime law
          2. UN sponsors conferences that result in agreements on customs and usage becoming international law
        4. International Court of Justice, a unit of the UN, creates international law through decisions in resolution of disputes
    2. International dispute settlement
      • Litigation in the United States
        1. Long history in the US of dispute resolution though litigation
        2. Litigation can be extremely complicated and expensive
        3. US has two major court systems
          1. Federal court system
            • Trial courts
            • Courts of appeals
            • US Supreme Court
          2. State courts
            • Most litigation occurs in state courts
            • Usually have trial courts and appeals courts
        4. International disputes usually are filed in federal court system
        5. Question of jurisdiction is a major issue in international business
        6. Alternative is for international business contracts to define a process of arbitration to resolve conflict
    3. Issues surrounding performance of contracts
      • United Nations solutions
        1. The UN Convention on Contracts for the international Sales of Goods
        2. Provides uniform legal rules for formation of international contracts
        3. Applies automatically when contracts created between parties in ratifying countries, unless alternative is prescribed in contract
      • European Union solutions
        1. Contracts between EU countries are determined by amendment to the Treaty of Rome
        2. It establishes two principles
          1. If contractors agree which country legal system will govern, then agreement is upheld
          2. If no choice is made then the country more closely associated with the contract's execution will prevail
      • Private solutions, arbitration
        1. Arbitration provides an option instead of going to court
        2. More than 30 organizations provide international arbitration services
        3. Centers are in London, New York, and Paris, with Hong Kong growing
      • Enforcement of foreign arbitration awards
        1. Courts world-wide enforce arbitration awards
        2. Problem enforcement sometimes has remedy at the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards
        3. International Center for Settlement of Investment Disputes, sponsored by the World Bank, specializes in investment issues
        4. Several other organizations work to provide support for dispute resolution
      • Despite legal uncertainties, trade grows
        1. Despite differences in legal systems, international business continues to grow in importance to world and country economy
        2. Since international business is likely to continue its growth, business must be aware of the issues and possible answers.
    4. Intellectual property: Patents, trademarks, trade names, copyrights, and trade secrets PowerPoint (30.0K)Concept Check
      • Patent-government grant permitting exclusive right to manufacture, exploit, use, or sell an invention or process Concept Check
      • Trademarks and trade names- designs and names, often officially registered, by which merchants or manufacturers differentiate their products
      • Copyrights- exclusive legal rights of authors, composers, creators of software, playwrights, artists, and publishers to publish and dispose of their work
      • Trade secrets-information that businesses wish to hold confidential
      • Each of these items classifies as Intellectual Property.
      • Government management of intellectual property issues diverges widely
      • Patents
        1. Some degree of standardization is provided by the International Convention for the Protection of Industrial Property
        2. European Patent Organization provides a major step to harmonization of patent laws
        3. World Intellectual Property Organization (WIPO) is sponsored by the UN
          1. Activity increasing
          2. Advises developing countries on managing intellectual property issues
        4. TRIPS was created by GATT and is a part of the WTO
      • Trademarks
        1. Protection varies from country to country
        2. Madrid agreement of 1891 is basis for world agreements on trademarks
        3. An important step in harmonization occurred when EU adopted a European approach to consistent protection
      • Trade names
        1. Trade names are protected in all countries that adhere to the Industrial Property Convention
        2. Goods carrying counterfeit names are subject to confiscation
      • Copyrights
        1. Protected by the Berne Convention of 1886
        2. Also covered by the Universal Copyright Convention of 1954
      • Trade Secrets
        1. Trade secrets are protected in most countries
        2. Employee contracts are used to ensure curb on secrets distribution
      • Industrial espionage
        1. Use of high tech methods to gather information about competitors is growing
        2. Low-tech methods ranging from collecting garbage to having spies employed by the competitor are used to acquire secrets
      • Costly intellectual property rip-offs
        1. Counterfeiting comprises an estimated 5% to 7% of world trade
        2. Critical parts that are counterfeit cause damage to machinery and have even caused deaths
        3. Pharmaceuticals are counterfeited and sold at much lower prices than real products
  3. International standardizing forces
    1. Many efforts to standardize business practices and protections world-wide have already been discussed
    2. Two standardizing organizations working to create standards
      • International Organization for Standardization (ISO) Concept Check
        1. Recommends standards in technology
        2. ISO 9000 and ISO 14000 are ISO process standards
      • International Electrotechincal Commission (IEC)
        1. Promotes standards of measurement, materials, equipment
        2. Some procurement offices require products to meet one of the two standards entities
  4. US Laws that affect the international business of a US firm
    1. Taxation
      • Taxing Americans who work abroad
        1. National tax jurisdiction rather than territorial tax jurisdiction is US policy
        2. US is almost alone among countries that tax earnings in foreign countries
        3. When US taxes are anti-American
          1. US tax codes create disincentification for US multinational companies to invest in US development
          2. Foreign companies have no tax liabilities retarding investment motivation
    2. Federal employment laws
      • US has many laws protecting employee rights
      • Congress intended most of these laws to extend extraterritorially
      • Discrimination in foreign subsidiaries is actionable in US courts
    3. Foreign Corrupt Practices Act
      • Passed in response to 1970s revelations regarding questionable payments to foreign government officials by American companies
      • Uncertainties
        1. The FCPA contains many confusing provisions
        2. The FCPA permits "grease" to be paid to expedite nondiscretionary official action but fails to define differences from bribery
      • Other countries' reactions to bribes
        1. US was singular in application of FCPA until 1989 when OECD adopted similar rules for member nations
        2. Some countries perceive bribes as a natural part of business and even permit them to be deducted as expenses from tax returns
        3. Several counties have refused to enact similar laws because of a belief doing so would be "meddling in the affairs of other countries"
        4. Transparency International, in Berlin, exposes corruption in government and business transactions world-wide
        5. International Monetary Fund issued new guidelines asking staff to raise issues of corruption among countries seeking IMF aid
    4. Antiboycott law
      • US passed laws to prevent any American companies from complying with Arab boycotts or regulation unsanctioned by the US
      • Arab League maintains a list of boycott companies
      • Contrast American and British attitudes
        1. Britain vetoed similar antiboycott rules because of potential economy impact
      • Other attitudes
        1. After the Iraq-Kuwait war in 1990 several countries support the anitboycott policy
      • Changing attitudes
        1. Peace efforts in middle east may lead to abandonment of antiboycott stance
    5. Some laws and agencies aid US exports and investment
      • US Department of Commerce actively encourages export by US companies
      • Financing through Export-Import Bank
      • Overseas Private Insurance Corporation provides political risk insurance
  5. Common law or civil law
    1. Common law and civil law are distinct Concept Check
      • Common law, basically English, with judges interpreting the law
      • Civil law is legislated and local judges have power only to apply the law
    2. European practice
      • People in Europe have greater distrust of government
      • Before an law is legislated, it must be presented to people and accepted
      • European legislation is rarely amended
    3. American practice
      • Americans are much more likely to challenge laws in court
      • Courts are empowered to strike down laws as unconstitutional
    4. Differences between the United States and England
      • Both have roots in common law
      • Five differences
        1. England has a split legal profession with barristers and solicitors
        2. England has no jury for civil court action
        3. Payment to lawyers-US allows layers to take cases on contingency England holds such arrangements are unethical
        4. Award of costs to the winner for civil litigation-
        5. Pretrial discovery-refers to acquisition of pertinent facts or documents as evidence




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