McGraw-Hill/Irwin International Business, 11/e

chapter ten

Legal Forces

Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives



Appreciate the complexity of the legal forces that confront international business



Recognize the importance of foreign law



Understand contract devices and institutions that assist in interpreting international contracts



Anticipate the need and methods to protect your intellectual properties

10-3

Learning Objectives



Understand that many taxes have purposes other than to raise revenue



Discuss enforcement of antitrust laws



Appreciate the risk of product liability legal actions



Discuss U.S. laws that affect international business operations

10-4

International Legal Forces

• • •

Rule of law allows foreign businesses to know interests will be protected Public International Law

–

Legal relations between governments Private International Law

–

Laws governing transactions of individuals and companies that cross international borders

10-5

Sources of International Law

•

The most important source is found in bilateral and multilateral treaties between nations

–

Treaties are agreements between countries, which may be bilateral (between two countries) or multilateral (involving more than two countries); also called conventions, covenants, compacts, or protocols

–

United Nation’s International Court of Justice creates law when it decides disputes

10-6

Extraterritoriality

•

A country’s attempt to apply its laws to foreigners or nonresidents and to acts and activities that take place outside its borders

–

Not done through force, but by traditional legal means

10-7

International Dispute Settlement



Litigation in the United States



well-developed court systems that facilitate litigation



One reason many people outside the U.S. dislike litigation in the U.S. is the process of discovery



Unlike most other countries, the U.S. has two major court systems



The federal court system and the state court systems

10-8

Performance of Contracts

•

United Nations Solution

–

Many countries, including the U.S., have ratified the UN Convention on Contracts for International Sales of Goods (CISG)

–

CISG established uniform legal rules to govern international sales contracts and the rights and obligations of the buyer and seller

–

CISG is automatically applied to all contracts

10-9

Performance of Contracts

•

Private Solution: Arbitration

–

Instead of going to court in any country, companies may opt for arbitration

•

A process, agreed to by parties to a dispute in lieu of going to court, by which a neutral person or body makes a binding decision

• •

Generally faster More informal

• •

Confidential Less expensive

10-10

Enforcement of Foreign Arbitration Awards

•

The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards

–

The U.S. and most UN member-countries of have ratified this convention

–

Binds ratifying countries to compel arbitration when the parties have so agreed in their contract and to enforce the resulting awards

10-11

Intellectual Property: Patents, Trademarks, Trade Names, Copyrights, and Trade Secrets



Intellectual property includes



Patents



Trademarks



Trade names



Copyrights



Trade secrets



All result from the exercise of someone’s intellect

10-12

Intellectual Property



Patents (Protection)



International Convention for the Protection of Industrial Property



European Patent Organization (EPO)



The World Intellectual Property Organization (WIPO)

10-13

Intellectual Property



Trademarks



Protection varies by country, 10 to 20 years



Madrid Agreement of 1891



General American Convention for Trademark and Commercial Protection



Bilateral basis in friendship, commerce, and navigation treaties

10-14

Intellectual Property



Trade Names



Protected in countries that adhere to the Convention for the Protection of Industrial Property



Copyrights

–

Protection provided under the Berne Convention of 1886 adhered to by 77 countries

–

Universal Copyright Convention of 1954 adopted by 92 countries

10-15

Common Law or Civil Law?



Common Law



Jurisdiction has more power to expand rules to fit particular cases



Civil Law



Jurisdiction is bound by the words in the code



Much more predictable

10-16

Legal System Differences between Europe and United States

 

Europe



Legislation is rarely amended and regulations are rarely revised



Courts are not as often asked to give their interpretations



If they are, the decisions are rarely appealed United States



Laws and regulations are constantly being amended or revised by legislatures and the agencies

10-17

Legal System Differences between England and the U.S.



England has a split legal profession with barristers and solicitors



England has no jury for civil court actions



Contingency fees less common in England



Award of costs to the winner in civil litigation standard in England



Pretrial discovery differs

10-18

Standardizing Laws

• • •

Many attempts have been made to standardize laws among various countries International business flows much better with a uniform set of rules Attempts include

–

Tax conventions and treaties

– –

Antitrust cooperation International Center for Settlement of Investment Disputes

– –

UN Convention on International Sale of Goods International Organization for Standardization (ISO)

–

International Electrotechnical Commission (IEC)

10-19

Taxation

•

Nonrevenue tax purposes

– To redistribute income, discourage consumption of products such as tobacco and alcohol, and encourage purchase of domestic rather than imported products 10-20

National Tax Approach Differences

•

Tax Levels

–

Range from relatively high in some Western European countries to zero in tax havens

–

Some countries have capital gains taxes, and some do not

•

Capital gain is realized when an asset is sold for an amount greater than its cost

10-21

National Differences of Approach

•

Tax Types

–

Capital gains tax

–

Income tax

•

Common in industrialized countries

–

Value-added tax

•

Tax based on the value of goods and services

•

Used in Europe

–

Unitary tax

10-22

Taxation

10-23

Tax Laws and Regulations

• • •

Complexity of national tax systems differs

–

Many consider tax laws and regulations of the U.S. the most complex Compliance with tax laws and their enforcement vary widely

–

Germany and U.S. strict, Italy and Spain relatively lax Other differences include

–

Tax incentives, exemptions, costs, depreciation allowances, foreign tax credits, timing, and double corporate taxation

10-24

Taxation



Tax Treaties or Conventions

– Treaties between countries that bind the governments to share information about taxpayers and cooperate in tax law enforcement, often called

tax conventions

– The U.S. has tax treaties with over 50 countries 10-25

Taxation

•

National Tax Jurisdiction

– A tax system for expatriate citizens of a country whereby the country taxes them on the basis of nationality even though they live and work abroad •

Territorial Tax Jurisdiction

¯ Expatriates are exempt from their country’s taxes 10-26

Antitrust Laws

• • • •

Antitrust laws

–

Laws to prevent price fixing, market sharing, and business monopolies Competition policy

–

The European Union equivalent of antitrust laws The U.S. and the EU have attempted to enforce their antitrust laws extraterritorially Japan’s Fair Trade Commission

–

the “toothless tiger”

–

Japanese companies are incorporating antitrust thinking into strategy

10-27

Tariffs, Quotas, and Other Trade Obstacles



Purposes of tariffs



To raise revenue for government



To protect domestic producers



Quotas limit the number or amount of imports



For protection



Other trade obstacles include



Health requirements



Packaging requirements



Language requirements



Weak patent or trademark protection



Quarantine periods



Voluntary Restraint Agreements

10-28

Torts



Product Liability

– Standard that holds a company and its officers and directors liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage 

Strict Liability

– Standard that holds the designer or manufacturer liable for damages caused by a product without the need for a plaintiff to prove negligence in the product’s design or manufacture 10-29

U.S. Laws That Affect U.S. Firms’ International Business

• •

Federal Employment Laws

– – Title VII of the CRA of 1964 ADEA and ADA

Foreign Corrupt Practices Act (FCPA)

– U.S. law prohibits making payments to foreign government officials for special treatment – Congress passed FCPA outlawing bribery, but not “grease” payments 10-30

2002 Bribe Payers Index

10-31

Accounting Law

•

Sarbanes-Oxley Act (SOX)

–

Brings major changes to the regulation of corporate governance and financial practice

• • •

New reporting requirements Officer and director responsibilities Auditor independence

–

Applies to any company, domestic or foreign, that has securities registered or is required to file reports under the Securities Exchange Act of 1934

10-32