Introduction to International Trade Law Note 4 of 13 Notes

The Multinational Enterprise

Universiti Kebangsaan Malaysia Faculty of Law Pursuing PHD Program in Law P58462
Musbri Mohamed DIL; ADIL ( ITM ) MBL ( UKM ) 1

Transnational corporations (TNCs), also sometimes called multinational corporations (MNCs) also are playing an increased role in the development of international law. TNCs are commercial entities whose interests are profit-driven. Transnational corporations lobby states and international organizations in a manner similar to NGOs, with the hopes of having their interests protected under international law. Many of the same doubts related to NGO accountability and legitimacy can also be raised in the context of TNCs. For these reasons, the UN has sought both to regulate and to work with TNCs. A Draft Code of Conduct on TNCs has been under review and debate by various UN bodies for more than 10 years. TNCs have also been sued in U.S. courts for violating international law in the way they effect the human rights of people in countries where they operate.

Multinational Firms in the World Economy Giorgio Barba Navaretti & Anthony J. Venables With Frank G. Barry, Karolina Ekholm, Anna M. Falzoni, Jan I. Haaland, Karen Helene Midelfart, & Alessandro Turrini Depending on one's point of view, multinational enterprises are either the heroes or the villains of the globalized economy. Governments compete fiercely for foreign direct investment by such companies, but complain when firms go global and move their activities elsewhere. Multinationals are seen by some as threats to national identities and wealth and are accused of riding roughshod over national laws and of exploiting cheap labor. However, the debate on these companies and foreign direct investment is rarely grounded on sound economic arguments.

See why multinational enterprises are the key agents of integration across the international economy and what the effects of globalisation for the organisation and operation of multinational firms are. Get an overview of the development, current position and role of Multinational Enterprises (MNEs) as key agents on the international economic stage. Examine the growth and development of MNEs, the emergence of a global economy, trends in Foreign Direct Investment and more strategic issues such as the foreign market entry decision, cooperative structures and strategies and ethical concerns. Study MNEs as key agents of integration across the international economy. Study the implications of globalisation for the organisation and operation of multinational firms.

Examines the relationship between international business and the world economy. Gives you some insight into the characteristics and organisational resources of multinational enterprises. Analyses the causes of foreign direct investment. Explores the difficulties of managerial decision-making in an international context. Identifies trends in economic internationalisation and regional integration. Critically assesses debates on the role of large multinationals in the world Economy. Discusses a range of strategic choices made by multinationals and their organisational and operational outcome
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A. HOME STATE REGULATION OF MULTINATIONAL ENTERPRISES 1. Introduction a. Some governments apply their business regulations extraterritorially, most notably: 1) Unfair competition regulations. 2) Products liability regulations. 3) Sharp practices regulations. b. Governments most willing to apply their laws extraterritorially: the United States and the European Union.

2. Unfair Competition Laws a. United States Unfair Competition Laws 1) Sherman Antitrust Act of 1890 is the principal US law regulating anticompetitive behavior. a) Section 1 of the Act prohibits contracts, agreements, and conspiracies which restrain interstate or international trade. b) Section 2 of the Act forbids attempts to monopolize commerce or trade either between the states of the US or in international commerce affecting the US. 2) Clayton Act of 1914: defines certain specific acts that constitute unfair business competition. 3) Robinson-Patman Act of 1936: makes price discrimination illegal.

b. Enforcement Provisions of US Antitrust Laws 1) US Justice Department may bring criminal suits for egregious violations. 2) US Federal Trade Commission may bring civil actions (notably for injunctions) to ensure full compliance. 3) Private persons may sue and recover treble damages for injuries they have suffered.

c. Extraterritorial Application of US Antitrust Laws 1) Sherman Act applies to conduct affecting "trade or commerce among the several states, or with foreign nations". 2) Judicially imposed limits on the extraterritorial application of the US antitrust laws. a) Personal Jurisdiction Requirements. 1] Due process forbids a court from assuming personal jurisdiction unless a defendant has "minimum contacts" with the forum state. a] Minimum contacts exist if: (1) the defendant purposefully did business in the forum state; and (2) the defendant reasonably could have anticipated that it would have to defend itself in the forum state.

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b) Subject matter jurisdiction requirement. 1] Two tests have been created by the courts for determining when they have subject matter jurisdiction in an American antitrust case. a] Effects test: Companies carrying on business outside of the US will come within the subject matter jurisdiction of a US court if their business activity is: (1) Intended to affect US commerce, and (2) Not de minimis. Case 4-3. United States v. Aluminum Co. of America b] Balancing Test (or "choice of law" test): A court should balance the interests of the states concerned in determining if subject matter jurisdiction exists. (1) Now the prevalent test in the US.

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d. Regulation of Anti-Competitive Behavior in the European Union 1) The European Union Treaty (Treaty of Rome) contains two provisions regulating business competition. a) Article 85 prohibits normal arm's length competitors from entering into agreements or carrying on concerted practices which either prevent, restrain, or distort trade. b) Article 86 forbids businesses with a dominant position in their marketplace from taking improper advantage of their position to the detriment of consumers. 2) Compliance: EU Commission is solely responsible for enforcing Articles 85 and 86. 3) Extraterritorial application of the EU's business competition rules. a) EU "effects test": Articles 85 and 86 apply to a foreign firm to the extent that the firm's activities have an affect on trade or commerce within the EU. Case 4-4. Ahlstroem Osakeyhtioe v. Commission of the European Union

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e. Opposition to the Extraterritorial Application of Unfair Competition Laws 1) Methods of opposing the extraterritorial application of unfair competition laws (in particular, US antitrust laws). a) Diplomatic protests. b) Blocking statutes hamper a plaintiff's ability to obtain evidence or enforce a judgment abroad. 1] "Clawback" provisions allow defendants to bring suit in their home country to recover punitive damages they paid. c) Judicial injunctions prohibiting one national from initiating a foreign unfair competition suit against another national in a foreign court. Case 4-5. Midland Bank, PLC et al. v. Laker Airways, Ltd. et al.

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3. Product Liability Laws a. Product Liability: Manufacturers are required to assume liability for the injuries their products cause. b. Product Liability Theories. 1) Breach of contract. 2) Negligence. 3) Strict liability. c. Extraterritorial Application of Product Liability Laws 1) The country which has been most willing to apply its product liability laws extraterritorially: the US. 2) Considerations of US courts in determining whether they can exercise jurisdiction in a product liability case: a) Personal jurisdiction. 1] In order to extablish a court's personal jurisdiction: plaintiff must show that the defendant had "minimum contacts" with the forum state. Case 4-6. Asahi Metal Industry Co., Ltd. v. Superior Court of California, Solano County

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b) Forum non conveniens 1] Note: Unlike the US antitrust cases, there is no separate test for subject matter jurisdiction. a] The forum non conveniens inquiry serves the same function. 2] Defined: A court will not assume jurisdiction over a dispute if it could be better decided elsewhere. 3] Criticism: Forum non conveniens allows multinational companies to avoid product liability for injuries that occur outside the US (especially in developing countries were the remedies available to claimants are often limited both legally and practically). a] Note: Some US states have statutorily forbidden their courts from applying forum non conveniens in product liability cases. Case 4-7. Dow Chemical Co. and Shell Oil Co. v. Castro Alfaro et al.

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4. Sharp Practices a. Defined: Dishonest business dealings meant to obtain a benefit for a firm regardless of the means used. b. Extraterritorial application of sharp practices law. 1) Organization for Economic and Cooperation and Developement (OECD) recently sponsored the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. a) It should be in effect sometime in 1999. 2) United States has applied its sharp practices laws extraterritorially since 1977. a) Major advocate of the OECD Convention. 3) US Foreign Corrupt Practices Act (FCPA) of 1977. a) Antibribery provisions. 1] Apply to: a] US companies or companies registered with the US Securities and Exchange Commission. b] Their officers, directors, agents, or employees. 2] Forbid brides to: a] Foreign government officials. b] Foreign political party officials. c] Candidates for foreign political office. Case 4-8. United States v. Blondek, Tull, Castle, and Lowry

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B. HOST STATE REGULATION OF MULTINATIONAL ENTERPRISES 1. Rationale for Regulation a. A host state is entitled to regulate a foreign firm if: 1) The foreign firm consents to the jurisdiction of the host state. 2) The foreign firm is part of a common enterprise with a local firm. 3) The foreign firm owns a local subsidiary and the subsidiary's corporate veil is pierced.

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2. Consent to the Jurisdiction of the Host State a. Companies may give express and implied consent to the jurisdiction of a state. 1) Express consent is given: a) By incorporating in the state. b) By maintaining the firm's head office in the state. c) By obtaining a certificate to do business in the state. 2) Implied consent: based on a foreign firm -a) Carrying on business. b) Directly soliciting business. c) Any "persistent" conduct related to the making of a profit.

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3. Common Enterprise Liability a. Defined: Individuals or companies (including related subsidiary companies of a multinational firm) will be held jointly liable for each other's conduct when they function as part of a common enterprise. 1) Basis of liability: The participants are regarded as joint venturers or partners. 2) Extent of liability: Each participant has joint or joint and several liability for the obligations of the entire enterprise.

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b. Showing the existence of a common enterprise: Look at the intent of the parties. 1) Express intent: A formal agreement creating a partnership or joint venture. 2) Implied intent: a) A sharing of profits or losses. b) Sharing in the management. c) Joint ownership of the affiliates. Case 4-9. Touche Ross and Co. v. Bank Intercontinental, Ltd.

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4. Piercing the Company Veil: a. Defined: Ignoring the corporate structure of a company (i.e., piercing the company veil") and exposing the shareholders (or a "parent" company) to liability. b. Circumstances when a company's veil will be pierced: 1) The Controlled Company: The corporate status of a controlled company will be ignored if both: a) Its financing and management are so closely connected to its parent that it does not have any independent decision-making authority; and b) It is induced to enter into a transaction beneficial to the parent but detrimental to it and to third parties.

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2) The Alter Ego Company: The company veil will be pierced if the company is not treated by its owners as a separate juridical entity (i.e., it is treated as the alter ego of its shareholders). 3) Undercapitalization: A company's veil will be set aside if, at the time it was formed, it was provided with insufficient capital to meet its prospective debts or potential liabilities. 4) Personal Assumption of Liability: Shareholders who have (or a parent company that has) guaranteed the obligations of a company can be made to answer for those obligations. Case 4-10. Garden Contamination Case (No. 2) C. OTHER TOPICS 1. The Business Form 2. The Multinational Organization. 3. International Regulation of Multinational Enterprises. Musbri Mohamed January 2012

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