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chapter ten

Legal Forces

McGraw-Hill/Irwin International Business, 11/e

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

Learning Objectives Discuss the complexity of the legal forces that


confront international business

Recognize the importance of foreign law Explain contract devices and institutions that
assist in interpreting international contracts intellectual properties

Recognize the need and methods to protect your

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Learning Objectives Discuss enforcement of antitrust laws


Explain the risk of product liability legal actions, Discuss U.S. laws that affect international
business operations which can result in imprisonment for employees or fines for them and the company

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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
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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 Nations International Court of Justice creates law when it decides disputes

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Extraterritoriality

A countrys 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

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International Dispute Settlement

Litigation in the United States


litigation

well-developed court systems that facilitate

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
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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

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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

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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

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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


someones intellect
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Intellectual Property

Patents (Protection)
International Convention for the
Protection of Industrial Property

European Patent Organization (EPO) The World Intellectual Property


Organization (WIPO)

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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

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Intellectual Property

Trade Names
Copyrights

Protected in countries that adhere to the


Convention for the Protection of Industrial Property

Protection provided under the Berne Convention of 1886 adhered to by 77 countries Universal Copyright Convention of 1954 adopted by 92 countries
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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

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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
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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
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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)

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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

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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
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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
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Taxation

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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
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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

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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 countrys taxes
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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 Japans Fair Trade Commission
the toothless tiger Japanese companies are incorporating antitrust thinking into strategy
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Tariffs, Quotas, and Other Trade Obstacles

Purposes of
tariffs

Other trade
obstacles include

To raise revenue for


government To protect domestic producers

Health requirements Packaging


requirements Language requirements Weak patent or trademark protection Quarantine periods Voluntary Restraint Agreements
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Quotas limit the


For protection

number or amount of imports

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
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 products design or manufacture

Strict Liability

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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
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2002 Bribe Payers Index

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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

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