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Violation of International Business Laws

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					       Chapter 25

     The Regulation of
International Transactions
        Chapter Objectives
1. Identify and discuss some basic principles
   and doctrines that frame international
   business transactions.
2. Describe some ways in which U.S.
   businesspersons do business internationally.
3. Explain how parties to international
   contracts protect against various risks
   through contractual clauses and letters of
   credit.
4. Discuss how specific types of international
   business activities are regulated by
   governments.
5. Give examples of the extraterritorial
   application of certain U.S. laws.
                                              2
  International Principles
       and Doctrines
International law is a body of
written and unwritten laws that are
observed by otherwise independent
nations and that govern the acts of
individuals as well as states.
The three important legal principles
and doctrines include:
 Principle of Comity
 Act of State Doctrine
 Doctrine of Sovereign Immunity

                                   3
  The Principle of Comity
Under this principle, nations give
effect to the laws and judicial
decrees of other nations for
reasons of courtesy and
international harmony.




                                     4
 The Act of State Doctrine
A doctrine under which
American courts avoid passing
judgment on the validity of
public acts committed by a
recognized foreign government
within its own territory.



                             5
        The Doctrine of
      Sovereign Immunity
When certain conditions are satisfied,
foreign nations are immune from U.S.
jurisdiction under the Foreign Sovereign
Immunities Act of 1976.
Exceptions are made when the:
  foreign state has “waived its immunity
   either explicitly or by implication”
  action is “based upon a commercial activity
   carried on in the United States by the
   foreign state”

                                                 6
Case 25.1 Holden v. Canadian
              Consulate
Canada closed its consulate in San Francisco
which caused Arlene Holden to lose her job
after thirteen years as a commercial officer.
Canada then opened a small office with only
one commercial officer, Mark Ritchie, who was
younger and less experienced than Holden.
Holden filed a suit against the consulate
alleging discrimination. The consulate asked
the court to dismiss under the FSIA.
What did the courts rule?
Does the “commercial activities” exception to
the FSIA conflict with the Act of State Doctrine?
                                                7
Doing Business Internationally
Ways in which U.S. domestic
firms engage in international
business transactions include:
  exporting, which may involve foreign
   agents or distributors
  manufacturing abroad through
   licensing arrangements, franchising
   operations, wholly owned
   subsidiaries, or joint ventures
                                          8
            Exporting
Exporting can take two forms:
 Direct exporting—U.S. company
  signs a sales contract with a foreign
  purchaser that provides for the
  conditions of shipment and payment
  for the goods.
 Indirect exporting—can be
  undertaken by the appointment of a
  foreign agent or a foreign distributor.
                                            9
 What Is a “Commercial Activity”?
According to the U.S. Supreme Court, a
state engages in a commercial activity
“where it exercises „only those powers
that can also be exercised by private
citizens‟ as distinct from those „powers
peculiar to sovereigns.‟”
In addition to finding that a government-
controlled foreign defendant has engaged
in a commercial activity, what other
requirement must be met before a U.S.
court can exercise jurisdiction over the
defendant?
                                        10
  Manufacturing Abroad
U.S. firms want to establish
manufacturing plants abroad if
they believe that by doing so
they will reduce costs, particu-
larly for labor, shipping, and
raw materials, and thereby
be able to compete more
effectively in foreign markets.


                                   11
 Commercial Contracts in an
   International Setting
Choice-of-language, forum-selection, and
choice-of-law clauses are often included in
international business contracts to reduce the
uncertainties associated with interpreting the
language of the agreement and dealing with
legal differences.
Force majeure clauses are included in most
domestic and international contracts.
  They commonly stipulate that certain events, such
   as floods, fire, accidents, labor strikes, and
   shortages, may excuse a party from liability for
   nonperformance of the contract.
  Arbitration clauses are also frequently found in
   international contracts.
                                                   12
 Legal Documents in French
In 1995, France implemented a law
making the use of French mandatory
in certain legal documents.
Certain legal terms in documents
governed by U.S. or English law have
no equivalent terms or phrases in the
French legal system.
How might language differences affect
the meaning of certain terms or
phrases in an international contract?
                                    13
        Making Payment on
     International Transaction
Currency differences between nations
and the geographical distance between
parties to international sales contracts
add a degree of complexity to
international sales that does not exist
within the domestic market.
Because international contracts involve
greater financial risks, special care
should be taken in drafting these
contracts to specify both the currency in
which payment is to be made and the
method of payment.
                                       14
      Monetary Systems
Currency conversion
 Because nations have different monetary
  systems, payment on international
  contracts requires currency conversion at a
  rate specified in a foreign exchange market.
Correspondent banking
 Correspondent banks facilitate the transfer
  of funds from a buyer in one country to a
  seller in another.


                                                15
      Arbitration Clauses
One reason many businesspersons find it
advantageous to include arbitration
clauses in their international contracts is
because arbitration awards are usually
easier to enforce than court judgments.
What might be some other advantages of
arbitration in the context of international
transactions? Are there any
disadvantages?


                                          16
       Letters of Credit
Letters of credit facilitate
international transactions by
ensuring payment to sellers and
ensuring to buyers that payment
will not be made until the sellers
have complied with the terms of
the letters of credit.
Typically, compliance occurs when
a bill of lading is delivered to the
issuing bank.

                                       17
18
Case 25.2 Pacific Reliant Industries, Inc. v.
            Amerika Samoa Bank
  Pacific Reliant Industries sold building materials
  to a company in American Samoa on the strength
  of a letter-of-credit (LC) issued by Amerika
  Samoa Bank (ASB).
  Later, alleging that ASB had wrongfully
  dishonored the LC, Pacific brought suit in Oregon
  against ASB to recover payment.
  The court dismissed the suit for lack of sufficient
  personal jurisdiction and Pacific appealed.
  If a court could exercise jurisdiction over a
  nonresident corporation that did not have
  minimum contacts with the jurisdiction in which
  the suit was brought, what might result?
                                                  19
    Regulation of Specific
     Business Activities
In the interests of their economies, foreign
policies, domestic policies, or other national
priorities, nations impose laws that restrict or
facilitate international business.
Such laws regulate foreign investments;
exporting and importing activities; and in the
U.S., the bribery of foreign officials to obtain
favorable contracts.
The General Agreement on Tariffs and Trade
attempts to minimize trade barriers among
nations, as do regional trade agreements,
including the European Union and the North
American Free Trade Agreement.

                                              20
 U.S. Laws in Global Context
Antitrust laws
 U.S. antitrust laws may be applied beyond
  the borders of the United States.
 Any conspiracy that has a substantial effect
  on commerce within the United States may
  be subject to the Sherman Act, even if the
  violation occurs outside the U.S.
Discrimination laws
 The major U.S. laws prohibiting employment
  discrimination cover U.S. employees working
  abroad for U.S. firms—unless to apply the
  U.S. laws would violate the laws of the host
  country.
                                            21
Case 25.3 United States v. Nippon Paper
              Industries Co.
 A criminal indictment was filed against
 Nippon Paper Industries Co. (NPI) and others
 alleging that the meetings to reach the
 agreement had occurred entirely in Japan but
 that the defendants had sold the paper
 through subsidiaries in the United States at
 above-normal prices. These activities had
 allegedly violated Section 1 of the Sherman
 Act. NPI filed a motion to dismiss.
 What did the courts rule?
 Why should the United States apply its
 antitrust laws to business firms owned by
 citizens or the government of another nation?
                                             22
    Discrimination Laws
There are laws in the U.S.
prohibiting discrimination on
the basis of race, color,
national origin, religion, sex,
age, and disability.
These laws, as they affect
employment relationships,
generally apply
extraterritorially.
                                  23
                 For Review
1. What is the principle of comity, and why do
   courts deciding disputes involving a foreign law
   or judicial decree apply this principle?
2. What is the Act of State Doctrine? In what
   circumstances is this doctrine applied?
3. A foreign nation is not immune from the
   jurisdiction of U.S. courts if the nation waives its
   immunity. Under the Foreign Sovereign
   Immunities Act of 1976, on what other basis
   might a foreign state be considered subject to the
   jurisdiction of U.S. courts?
4. In what circumstances will U.S. antitrust laws be
   applied extraterritorially?
5. Do U.S. laws prohibiting employment
   discrimination apply in all circumstances to U.S.
   employees working for U.S. employers abroad?
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