978-1285427041 Chapter 1 Part 1

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CHAPTER 1

INTRODUCTION TO INTERNATIONAL BUSINESS

CASES IN THIS CHAPTER

Tarbert Trading Ltd. V. Cometals, Inc.

Russian Entertainment Wholesale, Inc. v. Close-Up International, Inc.

Dayan v. McDonald’s Corp.

In re Union Carbide Corporation Gas Plant Disaster at Bhopal

Transatlantic Financing Corp. v. United States

Gaskin v. Stumm Handel GMBH

Bernina Distributors v. Bernina Sewing Machine Co.

DIP SpA v. Commune di Bassano del Grappa

TEACHING SUMMARY

The three basic forms of international business—trade, licensing of technology and intellectual

property and foreign direct investment—are methods of entering foreign markets, but they are

not mutually exclusive. They are not mutually exclusive and are often combined. The savvy

manager of an international business will seek to create joint ventures and business

opportunities to invest, or manufacture, trade via export and imports for goods and services and

license its products where appropriate and protectable. However, international business

opportunities are fraught with risk, selecting the appropriate methods of entering a foreign market

or country must be consider the culture, politics, and economics of the host country. Through the

study of international law, one can better identify and manage potential legal risks.

1. Import/export transactions usually require much more documentation than domestic

transactions. These include detailed invoices, packing lists, shipping and insurance

documents, and specialized certificates. Here, a “certificate of origin” was required by the

government of Columbia before the goods could be imported. Does it refer to the country

from which the goods were shipped or where they were grown or made? Why do you

think Columbia required a “CO”? What is its purpose?

2. Suppose that the beans had arrived in Columbia and were then stopped by Columbian

customs authorities because of a fraudulent certificate. What do you think might have

happened to the beans? What would the risk have been to Cometals and Tarbert? What

if the Columbian buyer had already paid for the beans?

3. Evaluate and discuss the conduct of Cometals and Tarbert. Fraudulent documentation is

not uncommon in international trade, especially when parties do not have a history of

business together. What are the lessons to be learned by all parties?

Answer: Their conduct was illegal and unethical. You need to know the party you are

dealing with. If that is difficult or impossible, the risk is greater and may lead to not doing

business with them. Agreements protecting yourself are very important in international

business.

Russian Entertainment Wholesale, Inc. v. Close-Up International, Inc.

1. What are the “limited exclusive” rights granted to the licensees in this case?

2. What is the difference between the rights granted to the plaintiff and those granted to the

defendants?

3. Do you agree or disagree with the court’s interpretation of the license agreements?

4. What does this case tell you about negotiating and drafting a licensing agreement?

1. What social or cultural factors affected McDonald’s marketing in Paris?

2. How could McDonald’s have exercised greater control over its franchisee?

3. What types of products and/or services are most suitable for foreign licensing?

1. India gained independence from Great Britain in 1947. Like many developing countries

with agrarian economies, independent India embarked on a long period of socialist and

protectionist policies. What types of controls do you think developing countries placed on

foreign investors? How do you think this defined the relationship between UCC and the

Indian government prior to 1984?

2. Why do you think UCC might have chosen to produce agricultural pesticides in India

rather than export those products to India from plants in developed countries?

3. Why did India require local management and control? Do you think this is still a problem

for multinational companies today? What are the advantages and disadvantages of local

management, and what problem does it present to the multinational?

4. Had the legal requirements in India concerning the handling of hazardous chemicals

been less than that required in the United States, should Union Carbide have ethically

followed the higher U.S. standard?

5. Do you think that a parent corporation , like UCC in this case, should be financially liable

for torts committed by its foreign subsidiary? Should the parent be protected by the

limited liability of its corporate veil, or should a multinational firm with a “global purpose”

be responsible under some theory of “single-enterprise” liability? How would this affect

the attitude toward investment world-wide?

Transatlantic Financing Corporation v. United States

1. Did the parties agree on what would happen if the Suez Canal had closed? In other

words, did they allocate the risk of closure? Would that have changed the result?

2. What is Transatlantic’s argument? If admiralty law implies that a ship’s journey will be by

the “usual and customary” route, why did the court not hold that the contract had become

impossible to perform? How does the court define “impossible?”

3. Did Transatlantic’s performance become impracticable? How difficult was it for

Transatlantic to take the alternate route around Africa?

4. Suppose it had been bad weather instead of a blocked canal? Would the case outcome

have been different? How about a tsunami? What if a government order had prohibited

the ship from departing Texas?

Gaskin v. Stumm Handel, GMBH

1. Why did Gaskin claim that he was not bound by the forum selection clause included in

the contract to which he agreed?

Chapter 1: Introduction to International Business

2. Is a party to contract negotiations obligated to provide translation services to other

parties?

3. If the parties to a contract execute two copies of a contract, one in each language, which

is the operable and effective document?

Bernina Distributors v. Bernina Sewing Machine Co.

1. What were the importer’s two arguments in this case? How did the court address each?

2. What is the effect of the fact that just prior to executing the contract, the dollar had fallen

by 7 percent against the Swiss franc?

3. In any international business transaction, which party assumes the exchange rate risk?

DIP SpA v. Commune di Bassano del Grappa

1. What was the ostensible purpose of the Italian law?

in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapter 1: Introduction to International Business

2. Do you think the law creates a climate ripe for corruption?

3. Why was the law not found to be discriminatory?

4. Assume that a municipality in a foreign country passes a law limiting the size of retail

stores in the city. How might this affect U.S. firms wanting to open stores there?

ANSWERS TO QUESTIONS AND CASE PROBLEMS

1 Answer : Both cases involve the question of what risky situations make a contract

“commercially impracticable to perform”. Such impracticability is a legal excuse for

2. Answer: Distance and differences in time, language, currency, culture, religion

and political and legal systems increase the risks of doing business internationally.

Trade represents the least involvement, and thus the least political, economic,

3. Answer: Building trust can occur through meeting with people over meals,