The International Legal Environment

The Legal System of a country refers to the rules, or laws, that regulate behavior along with processes by which the laws are enforced and through which redress for grievances is obtained. Charles Hill. The legal system of a country is of immense importance to International businesses. International businesses face a multitude of problems in their efforts to develop successful marketing programs in foreign countries. A countrys laws regulate business practices, define the manner in which business transactions are to be executed, and set down the rights and obligations of those involved in business transactions. The Legal Environment Like the economic system of a country, the legal system is influenced by the prevailing political system. The legal environment adds another dimension of importance since there is no single uniform international commercial law governing business transactions. On account of the sovereignty of the countries, laws vary from country to country, and in case of international disputes, the marketer is faced with the problem of which countrys laws will apply.

Major areas of concern lie in interpretation of laws in the following business transactions: Rules of competition Retail price maintenance laws Cancellation of agreements Product quality laws and controls Packaging and shipping laws Warranty and after-sales exposure Price controls, limitations on mark-ups and mark-downs Property rights Patents, copyrights, trademarks. Basis for Legal Systems Three heritages form the bases for majority of the legal systems: Common Law derived from English law and practiced in U.K., U.S.A. Canada and other countries under English influence. The basis for Common law is tradition, past practices, and legal precedents set by courts of law. Code Law derived from Roman law and found in Germany, Japan, France and other European countries. Code

law is an all-inclusive system of written laws, divided into separate codes, commercial, civil and criminal. Islamic Law derived from the interpretation of the Koran and practiced in Islamic countries. Commercial Legal System prevalent in Marxist-socialistic economies of Russia, East Europe, China and other countries where policies are dictated by the State. Jurisdiction In International Marketing, one of the problems is to determine what legal system will have jurisdiction if disputes arise. NONE EXISTS Jurisdiction will normally be determined by A contractual provision Where the contract was entered into Where major provisions of the contract were performed. Resolution of International Disputes Most disputes that arise in International commercial transactions are settled informally. Conciliation is a non-binding agreement between parties to resolve disputes through mediation of a third party.

Arbitration If conciliation efforts fail, the parties may resort to arbitration by appointing a disinterested party or parties as referee to make a judgment, which is normally accepted by the parties. The popularity of arbitration has led to the establishment of several institutions like: The Inter-American Commercial Arbitration Commission The London Court of Arbitration The American Arbitration Association The International Chamber of Commerce.

Arbitration has been more successful in cases where this mode has been made a contractual provision. Difficulties have arisen for enforcement of arbitral awards. Most countries legally enforce these awards as signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (120 countries have ratified). Litigation If parties cannot settle disputes through negotiation, they can seek legal recourse through litigation. Legal recourse is expensive, time-consuming, leads to loss of image in world markets and enforcement of decrees is almost impossible. Best recourse for settlement of disputes may be through negotiation or through help of third parties like embassies or consular offices.
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Intellectual Property Rights Most uncertainty in International businesses exists with respect to Property Rights which refer to the bundle of legal rights over the use of which a resource is put and over the use made of any income that may be derived from the resource. D. North Countries differ significantly in the extent to which their systems protect property rights. Property rights can be violated in 2 ways through Private action and through Public action. Private Action refers to theft, piracy, and blackmail etc. by private individual or groups. Criminal laws provide limited protection, but most such acts are supported by organized crime. Public Action & Corruption Public Action to violate property rights occurs when public officials extort income or resources from property holders. This can be done by legal or illegal means. Legal means by levying excessive taxation, requiring expensive licences or permits, or taking assets into state ownership. Illegal means by demanding bribes from businesses in return for rights to operate in a country, industry or location. No society is immune from corruption, but the extent varies from country to country.
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Economic evidence suggests that high levels of corruption significantly reduce the level of economic development of a country. Jurisdiction of Foreign Laws Some countries, particularly U.S.A., make it obligatory for companies to adhere to laws not only of the host country, but also to laws applicable to businesses in U.S.A. Antitrust laws and Foreign Corrupt Practices Act of U.S.A. have extraterritorial jurisdiction. Protection of Intellectual Property Intellectual property refers to property that is the product of intellectual activity. E.g. computer software, a chemical formula, a music score. Ownership rights over intellectual property are established through Patents, Copyrights and Trademarks. A Patent grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention. Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit. Trademarks are designs and names, often officially registered, by which companies designate and distinguish their products.

In the high technology knowledge economy of this century, intellectual property has become an increasingly important source of economic value for businesses. The philosophy behind intellectual property laws is to reward the originator of an invention, design or idea for his effort. Protection of IPR Not enough protection exists and practices differ from country to country. After a trademark, patent, or other intellectual property right is registered, most countries require that these rights be worked and properly policed. Several common law countries establish ownership of IPR by prior use vs. registration. However, code law countries recognize ownership through registration. International Conventions Many countries participate in International conventions for mutual recognition of IPR. Three major conventions exist: Paris Convention for Protection of Industrial Property, subscribed to by 101 countries. Inter-American Convention (USA and most Latin American countries). The Madrid Agreement (26 European countries). WTO provides the most comprehensive multilateral agreement under TRIPS. Enforcement of IPR provisions is still poor and leads to piracy.
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