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 Recognize the need and methods to protect your intellectual properties 10-3 Learning Objectives Discuss enforcement of antitrust laws Explain the risk of product liability legal actions, which can result in imprisonment for employees or fines for them and the company 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 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 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 ... 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... 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... – 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