Transcript Business Law for the Entrepreneur and Manager

Business Law for the Entrepreneur
and Manager
Chapter 13 – International Business Law
Frank Cavico and Bahaudin G. Mujtaba
© Cavico & Mujtaba, 2008
Chapter Topics
• Sources of International Law
• Export regulation and Licenses
• Harmonized Commodity Description and
Coding System
• Payment in Export Transactions
– Summary
© Cavico & Mujtaba, 2008
Introduction
• With the evolving and expansive economic growth around the world,
many entrepreneurs seek to expand their operations into new and
exciting territories. Today, even a small or medium sized company may
do business in numerous countries. Understanding and obeying
domestic laws are a critical component of each manager and
entrepreneur’s job doing business in these different countries. Since
today’s managers and entrepreneurs often deal with customers,
suppliers, and employees in different parts of the world, understanding
international business laws in regards to each specific country becomes
very important for success.
• This chapter briefly discusses international business law as it applies to
domestic and global firms. It further provides recommendations and
sources where managers and entrepreneurs can gain relevant insights
as they work on successfully expanding their dealings across diverse
countries, cultures, and borders.
© Cavico & Mujtaba, 2008
Sources of International Law
• While starting or developing a business overseas can prove to be a
profitable endeavor, every company is charged with the task of
compliance with the local law of each jurisdiction. An important factor
that the entrepreneur or manager considers when making his or her
decision to enter a new foreign market is the country’s legal scheme,
particularly if the industry is a heavily regulated one. Although it is
impossible for managers and entrepreneurs to keep up with the all the
laws and regulations of the different sovereignties without the
assistance of legal counsel, they should familiarize themselves with the
basic legal principles and different legal systems.
• Although, there is no single international legal system, various legal
systems around the world exhibit patterns and parallels. Each national
legal system varies in philosophy and practice, and each maintains a
court system that is independent of those judicial systems in each and
every nation.
© Cavico & Mujtaba, 2008
• Treaties, the most important source of International Law,
are contracts or agreements between nations, they are
referred to as covenants, compacts, protocols, or
conventions
• Conventional international law derives from
international agreements, and may take any form that the
contracting parties agree upon
• International agreements create law for the parties of the
agreement. They may also lead to the creation of
customary international law when they are intended for
adherence generally, and are in fact widely accepted
• Customary law and law made by international agreement
have equal authority as international law
© Cavico & Mujtaba, 2008
Common Law
• Common law is a tradition oriented legal system. The body of law that
has grown out of legal customs and practices that developed in
England. Common law prevails unless superseded by other law. It
serves as precedent or is applied to situations not covered by statute.
Under the common-law system, when a court decides and reports its
decision concerning a particular case, the case becomes part of the
body of law and can be used in later cases involving similar matters. If
there is no specific precedent or statute controlling, common law
requires a court to make a decision that will create new law. This use
of precedents is known as stare decisis.
• Common law has been administered in the courts of England since the
Middle Ages. In a pure form, it is also found in the United States,
(except Louisiana state courts), Canada, Australia, Nigeria, and in most
of the British Commonwealth. The influence of common law is also
found the laws of India and Pakistan.
© Cavico & Mujtaba, 2008
Civil Law
• Civil law is based on a set of laws that is well-organized
and detailed and written into comprehensive codes. It is a
body of law developed from Roman Law and German
Law, and used in continental Europe and most former
colonies of European nations, including the province of
Quebec and the U.S. state of Louisiana. The basis of law in
civil-law jurisdictions is a code or statute that is intended
to spell out the law in all possible situations. Thus, the law
is all inclusive leading to general principles, but also
supple enough to allow application to many different facts
and circumstances. In civil law, judges apply principles
embodied in statutes, rather than turning to case precedent.
They do not give any consideration to prior court
decisions.
© Cavico & Mujtaba, 2008
International Law
• International law is divided into public international law
and private international law
– Public International Law consists of rules and principles which
govern the relations and dealings of nations with each other
– Private International Law deals with controversies between private
persons, natural or juridical, arising out of situations having
significant relationship to more than one nation
• Many countries often attempt to enforce their laws outside
their borders. This is referred to as “extraterritorial”
application of laws
© Cavico & Mujtaba, 2008
International Organizations
• International organizations play an increasingly
important role in the relationships between
nations. An international organization is one that
created by international agreement or which has
membership consisting primary of nations. There
are many international organizations that will be
of importance to the entrepreneur seeking to reach
global markets, among them the United Nations,
The World Bank, The International Monetary
Fund. However, the organization that has the most
impact on business is the World Trade
Organization (WTO).
© Cavico & Mujtaba, 2008
International Business Operations
• There are more than 200 nation-states in the world.
Entrepreneurs must strive for profits and growth in the
global marketplace that is characterized by enormous
movements of products, technology, capital, and enterprise
across international borders. In today’s economy, no
business is free from foreign competition. Whether or not a
firm goes global, it should plan for growth and even
survival in a global marketplace. Firms are confronted with
several closely related challenges: the decision of which
foreign market to enter, when to enter the market, to what
scale, and ascertaining the choice of entry mode.
© Cavico & Mujtaba, 2008
Export Regulations and Licenses
• In the United States, most export transactions do not
require specific approval in the form of licenses from the
U.S. However, there are several areas that are highly
regulated, and all regulations must be strictly followed.
Specifically, these areas are: the exportation of
sophisticated and high-technology products; short supply
items; technical information and products that have
defense, strategic, weapons development, proliferation or
law enforcement applications can be subject to export
licenses. Major factors in determining whether an export
license is required include the destination and end-use of
the product.
© Cavico & Mujtaba, 2008
Payments in Export Transactions
• Naturally, all entrepreneurs and managers view
being paid for the export transactions a major
concern. There are several methods of payment
when selling to overseas buyers. The most
commonly used methods of payment for an export
transaction are the following: 1) cash in advance;
2) documentary letter of credit; 3) documentary
collection or draft; 4) open account; and 5) other
payment mechanisms, such as consignment.
© Cavico & Mujtaba, 2008
International Taxation
• The basic tenets of tax policy are that income should be taxed once and
only once—as close to the source as possible—and that a tax system
should be neutral to business decision-making
• Western European countries have relatively high tax rates, while “tax
havens” have zero tax
• Taxation has many purposes other than to raise revenue for the
government. Non-revenue tax purposes examples are to redistribute
income from one group to another, to discourage consumption of
products, and to encourage consumption of domestic goods rather than
imported goods
• Generally, the U.S. taxes companies on their income at the rate of 35
percent whether it is earned here or abroad by a subsidiary
© Cavico & Mujtaba, 2008
• There is a limit to the foreign tax credits U.S. firms can
take; and the limit is equal to the U.S. rate
• There are many techniques multinational firms can employ
to minimize their worldwide tax burdens. One method
some studies have identified is the aggressive use of
"transfer pricing" – the price a parent company charges its
overseas affiliate for a product, component, or trademark
• In most years slightly less than half of taxable capital gains
are realized on the sale of corporate stock. The capital gain
is the difference between the money received from selling
the asset and the price paid for it
• The United States relies for most of its revenue on income
tax
© Cavico & Mujtaba, 2008
• In addition to the income tax, many countries raise revenue through the
value-added tax (VAT). The VAT is similar to a sales tax in that it is a
tax based on the value of goods ands services. The VAT is a levy
imposed on business at all levels of the manufacture and production of
a good or service and based on the increase in price, or value, provided
by each level
• The World Trade Organization permits a rebate of VAT when the
product is exported but does not allow a rebate of income tax
• Since there exist innumerable differences between nations’ tax laws,
many countries have executed tax treaties with each other. Tax treaties
define such things as income, source, residency, and what income will
be taxed in each country
© Cavico & Mujtaba, 2008
International Business and Government
Kenya and India-A Comparative Analysis
• In 1963, Kenya gained its independence, and became a
republic within a commonwealth. The new president
established a democratic government, which continues
today. Kenya’s legal system is based on a combination of
the Kenya statutory law and English Common law system
• The legal system is based on a hierarchy, including a High
Court, which oversees the civil, constitutional, and
criminal matters. The members of the High Court include
the president and 11 judges
• Kenya is a free enterprise economy, where foreign direct
investment is highly encouraged
© Cavico & Mujtaba, 2008
• Foreign direct investment is encouraged in areas of
manufacturing, agro-processing, and export-oriented
industries
• International firms and managers seeking to conduct
business in Kenya must obtain a visa before going through
customs
• The change in the legal system in India has allowed for the
achievement of profits through international trade. The
legal system in India is composed a stable political system:
parliamentary democracy, where it is bicameral headed by
the president and two houses: Council of States (Rajya
Sabha) and House of People (Lok Sabha)
© Cavico & Mujtaba, 2008
• International managers desiring to start a business in India
must obtain approval of official documents and receive
heavy regulations through all three sectors (labor welfare,
social security, and price controls)
• Foreign businesses in India are treated as national
businesses, thus providing for an equal environment for all
• Foreign direct investment is highly encouraged in India,
especially now that the country has liberalized its
international trade system
© Cavico & Mujtaba, 2008
Mexico
• Mexico is a democratic state, where the “Political
Constitution of the United Mexican States” is the supreme
law
• Mexico’s government is centered around the Constitution,
thereby disbursing power among four levels, including
federal (central) government, state, municipal, and the
Federal District
• The Mexican political system is endowed with three
political parties, the National Action Party (PAN), PRI and
the Party of the Democratic Revolution (PRD)
• Mexico will grow economically, as long as the political
parties can manage to rule the nation on a legal basis, with
more stability, with less corruption, and lower employment
© Cavico & Mujtaba, 2008
Brazil
• The country of Brazil, with a land mass of 8.5 million
kilometers, has been through five major phases of political
governance that has ruled from centralization to
decentralization
• The federalism first imposed by a military coup d’etat has
allowed the country’s states to grow and restructure
themselves through the freedom bestowed upon them; yet
was for this reason that the states’ lack of knowledge
and/or prudence on governance has led the country to high
debt
• Finance minister Fernando Henrique Cardoso has been
able to bring down Brazil’s inflation and to improve other
economic standards.
© Cavico & Mujtaba, 2008
The Bahamas: Culture, Legal System,
and Business Environment
• The proximity to the United States, the institution of slavery,
and British colonialism were the “fuels” that propelled the
development of the Bahamas
• It is this progression of cultures and world events that have
shaped the political and economic decisions that have placed
the country in an enviable position today
• Industries are tourism, banking, fishing, cement, oil transshipment, salt, rum, aragonite, pharmaceuticals, special welded
steel pipe, and boat repairs
• Over the years, the Bahamas has projected stable government
which is structured very much like Great Britain but with
Bahamian “overtones
© Cavico & Mujtaba, 2008
• The Bahamas offers attractive features to the potential
investor: a stable democratic environment, relief from
personal and corporate income taxes, timely repatriation of
corporate profits, proximity to the United States with
extensive air and telecommunication links, and a good
“pool” of skilled professional workers
• The Bahamas has strong bilateral relationships with the
United States and the United Kingdom, represented by an
ambassador in Washington and High Commissioner in
London
• The U.S. and the Bahamian governments have worked
together on reducing crime and reforming the judiciary
© Cavico & Mujtaba, 2008
Turkey: History, Economy, and
Constitutional Development
• After the Turkish Republic was founded in 1923, due to the lack of
entrepreneurs with sufficient capital, there were not enough investors
who could make enough vital investments to establish the Turkish
economy
• In recent years, the automotive and electronics industries have been
growing; and Turkey has emerged as one of the world’s leading
exporters
• Despite Turkey’s strong economic growth, attributable mainly to
foreign investment, the International Monetary Fund’s financial
support, and internal efforts to institute reforms, the Turkish economy
is still grappling with a high account deficit and debt
• Sources of law. From the inception of the Turkish Republic, in an
attempt to Westernize Turkey’s legal and political system, the Turkish
Republic’s constitutions have been modeled after those of western
countries
© Cavico & Mujtaba, 2008
• Turkey was one of the first non-Western countries that
attempted to establish a constitutional government
• In 1909, the 1876 Constitution was reinstated, and for the
first time in the Turkish Republic’s history, a parliamentary
monarchy resembling those of Western Europe was
established
• Toward the end of 1970s, the Turkish Republic’s
government grew politically unstable, largely due to the
Cold War, and, more specifically, as a result of the power
struggle between Russia, which unsuccessfully struggled
to gain Turkey as an ally, and the United States, which
attempted to maintain Turkey’s allegiance
© Cavico & Mujtaba, 2008
• The Turkish Republic ensures the legal security of persons
and their property
• The Fifth Amendment to the Turkish constitution provides
for the privatization of public economic enterprises, and
also allows for international arbitration when a dispute
involves a foreign party. The amendment providing for the
privatization of public enterprises has served to attract
foreign investment in the energy and telecommunications
industries, as well as numerous other infrastructure
projects
© Cavico & Mujtaba, 2008
The International Trade Administration
(ITA)
•
•
The ITA, which is part of the United States Department
of Commerce, has a mission to create prosperity by
strengthening the competitiveness of U.S. industry,
promoting trade and investment, and ensuring fair trade
and compliance with trade laws and agreements
The three methods or ways in which the ITA functions in
regulating import competition are:
1.
2.
3.
Through the Promotion of Trade and Investment
By Strengthening Industry Competitiveness
By Ensuring Fair Trade
© Cavico & Mujtaba, 2008
•
The ITA also functions in regulating import competition
through its four units:
1.
2.
3.
4.
•
The U.S. Commercial Service
Manufacturing and Services
Market Access and Compliance
Import Administration
ITA uses both internal and external measures to ensure
that import competition is kept in balance with national
competition and firm-specific competitive requirements
to secure domestic economic growth and prosperity
© Cavico & Mujtaba, 2008
The International Trade
Commission (ITC)
•
•
1.
2.
3.
The ITC or United States International Trade Commission (USITC),
as it is often called, is “an independent, quasi-judicial Federal agency
with broad investigative responsibilities on matters of trade. The
agency investigates the effects of dumped and subsidized imports on
domestic industries and conducts global safeguard investigations
The mission of the ITC is to:
Administer U.S. trade remedy laws within its mandate in a fair and
objective manner
Provide the President, USTR, and Congress with independent
analysis, information, and support on matters of tariffs, international
trade, and U.S. competitiveness
Maintain the Harmonized Tariff Schedule of the United States (HTS)
© Cavico & Mujtaba, 2008
• The International Trade Administration (ITA) functions in
regulating import competition adjudication of import
injury cases through three main avenues: trade remedy
investigations; industry and economic analysis; and its
traffic information center
• Both the ITA and ITC have different functions in the
regulation of import competition. However, regulating
import competition is the major goal of each agency, and
as such their work must overlap and they must work
closely under the United States Department of Commerce
to effectively achieve their goals
© Cavico & Mujtaba, 2008
Trade Agreements and Anti-Globalization:
The Experience of the Americas
• Globalization is a worldwide phenomenon of
technological, political, and cultural exchanges, brought
about by modern communications, transportations and
legal infrastructures, as well as the political choice to
consciously open national borders
• Cultural globalization has been emerging since the middle
of the past century, particularly with commercial aviation,
movies and television; and has very rapidly occurred in the
last few decades as a consequence of the development of
world-wide television via satellite and Internet
• Some Iberian-American countries oppose total
liberalization of markets, rationalizing this opposition by
expressing fear of unfair penetration of their economies by
the U.S.
© Cavico & Mujtaba, 2008
• Free trade agreements represent excellent opportunities not
only to achieve economic growth but, more than that,
economic development; in other words, balanced and
effective growth, with minimum dislocations in the local
and national economies
• Radical groups in Iberian-American countries should be
trying to establish or, at least, to facilitate mature capitalist
economies in their countries, and not to oppose them,
because according to Marxian orthodoxy, it is only through
mature capitalism that its objective and subjective
contradictions will inexorably precipitate the proletarian
revolution that will achieve the first stage of communism
© Cavico & Mujtaba, 2008
The European Union and Other International
Organizations
• The European Union (EU), also known as the European Community
(EC), and originally as the European Common Market, is one of the
most significant international intergovernmental organizations
• The Council of Ministers, also known as the Council of the European
Union, is the main legislative body for the EU. The Council enacts
legislation that applies directly to the member states, and, it must be
emphasized, without any need for the member states to also enact the
legislation
• The European Parliament is a government body directly elected by the
citizens of the member states. The Parliament’s main functions are to
consult with the Council and to give opinions and make
recommendations as to legislation
• There are many other organizations that global managers and
entrepreneurs must be aware of such as NAFTA, FTAA, and WTO
© Cavico & Mujtaba, 2008
The Islamic World
• The Islamic nations do not just exist to take care of their
own citizens, but are also tasked to play a socially
responsible role in the affairs of their neighbors and
countries throughout the world to make life more peaceful
for everyone
• The Nation of Islam was perhaps created as a nationalistic
movement in the United States to secure equal rights to
Black slaves who faced so much discrimination
• Muslims make up about one-third of the world’s
population
• Global managers working in Islamic states and cultures
must be careful as to not confuse the Nation of Islam
beliefs with traditional Islam which is practiced in the
world
© Cavico & Mujtaba, 2008
Marriage and Women in Islam
• Muslim men can marry women of other religions that
believe in God (such as Christians and Jews). However,
Muslim women are not allowed to marry people from
other religions.
• One should remember that cultural practices, which are not
necessarily driven by religion, can vary drastically from
one country to the next
• In many Islamic nations, women go to school and work
wearing pants, skirts, and professional work attire, as they
do in modern countries. During a divorce with no
circumstantial evidence, generally women are granted
custody of their boys until age seven and their girls until
the age of nine
© Cavico & Mujtaba, 2008
Understanding Jihad
• The term “jihad,” in the Arab language, means struggling
or striving to accomplish something
• The term “jihad” can apply to Muslims as well as nonMuslims with the same application, meaning efforts
exerted toward accomplishing something. In most areas,
the term “jihad” is generally communicated as “holy war,”
which is not the correct meaning of the term
• One should all keep in mind that Islam did not spread by
the use of force, swords, or guns. Islam has been spreading
through the use of reason, knowledge, self-discovery of
God, and continually educating and informing others about
the ways of righteous behavior.
© Cavico & Mujtaba, 2008
Morality in Islam
• In Islam, the only valid sexual relationship is that
of a legitimately married couple. Islam does not
limit the age at which one can marry
• All alcoholic beverages and drugs which prevent
the mind from functioning normally are prohibited
in Islam
• Since all gambling activities and “games of
chance” are not productive, they are prohibited in
Islam
© Cavico & Mujtaba, 2008
Human Rights and Islam
• Islam does not discriminate based on any physical
differences, such as nationality, race, color, or gender
• Islam does not allow anyone to mistreat women,
children, older people, or people who are sick or
wounded badly in any sense whatsoever
• Islam says that all leaders of the government should
be elected by the people of the society without
coercion
© Cavico & Mujtaba, 2008
Wealth Distribution or Zakat (Zakah)
in Islam
• Zakat (or Zakah) is one form of wealth distribution, from
the rich to the poor, Zakah is an amount collected from the
surplus wealth of both male and females who hold assets
valued at more than the Nisabl of Zakah i.e., the equivalent
value of 85 grams of gold.
• Zakah payments are required by people who have full and
legal ownership of an asset for a full calendar year that
exceeds the minimum value of Nisab
• Zakat is a welfare system that is more than 1,400 years old,
aiming at preventing the unusual disparities in wealth
between the “have” and “have not” sectors of the
population
© Cavico & Mujtaba, 2008
Economic Systems in Islam
•
The Islamic Economic System is based on many
fundamental principles, including the following:
1.
2.
3.
4.
5.
•
Honestly earning and spending
Do what is legal and lawful
Sell fairly and openly
Earn legally
Avoid usury or interest
An Islamic economic system encourages
simplicity, charity, interdependence, modesty in
all activities of life, and complete cooperation
with one’s colleagues, superiors, and neighbors
© Cavico & Mujtaba, 2008
Islamic Law: The Shar’ah
• In Islamic states and cultures, there are two main sources
of authority: first is the saying of God (from the Quran),
and second is the saying of Prophet Mohammad (known as
hadith)
• Islamic laws are also formed and further interpreted by the
actions and practices of respected leaders and scholars
known as Imams
• Some Muslim states have implemented Shari’ah, or
Islamic Law, as the basis for the judicial system and for
regulating human behavior. Some countries have
implemented a hybrid of Shari’ah and civil law. In nonIslamic states, Muslims can express a desire for the
implementation of Shari’ah for themselves
© Cavico & Mujtaba, 2008
International Business and
Corruption
• Corruption is an act that is conducted with the intent to gain an unfair
advantage
• The most common form of corruption is bribery
• Different forms of corruption:
1. Grand corruption: a form of corruption that exists between the heads of
state, ministers and other senior officials.
2. Political corruption: a form of corruption that involves lawmakers
3. Petty corruption: exists when small amounts of money are used in
transactions involving customs clearance or the issuance of building
permits
4. Administrative corruption: includes the usage of favoritism or bribery
between certain individuals and private businesses
5. Systematic corruption: a form of corruption that exists throughout all
levels of society
6. Corporate corruption:
© Cavico & Mujtaba, 2008
Summary
• This chapter has attempted to shed some light on understanding and
obeying domestic and international laws as they are a critical
component of each manager and entrepreneur’s success in today’s
global workplace. Since today’s managers and entrepreneurs often deal
with customers, suppliers, and employees in different parts of the
world, having a functional understanding of international business laws
in regards to the specific country becomes very important to success of
the organization. This chapter discussed international business law as it
applies to domestic and global firms, and provided sources where
managers and entrepreneurs can gain relevant insights as they work on
successfully expanding their dealings across diverse countries,
cultures, and borders.
© Cavico & Mujtaba, 2008
Summary
• The manager and entrepreneur are expected
to be respectful of different cultures as well
as their local mores and customs
© Cavico & Mujtaba, 2008
Reference
1.
2.
Cavico, F. & Mujtaba, B. G., (2008). Business Law for the Entrepreneur
and Manager. ILEAD Academy Publications; Davie, Florida, USA. ISBN:
978-0-9774-2115-2.
Cavico, F. and Mujtaba, B. G. (2008). Legal Challenges for the Global
Manager and Entrepreneur. Kendal Hunt Publishing; United States.
© Cavico & Mujtaba, 2008