Suggested Additional Assignments
Interview: An Importer
Students should locate a local businessperson who imports goods or sells imported goods. Why does she
choose to deal in imported goods? What advantages do the goods give her over domestic goods? What
problems has she encountered? What advice would she have for an entrepreneur who plans to sell
imported goods?
Research: School Spirit and Child Labor
As noted in the text, some universities are responding to the tragedy of child exploitation by refusing to
license the school logo to any apparel company that uses child labor. Duke University was one of the
first, and other schools soon followed. Other apparel makers have similarly decided to insist on
adult-made goods. Divide the class into groups of three or four students. Each group should be assigned
to a college, university, or clothing brand name. The group’s responsibility is to contact the assigned
organization and track down who makes its apparel and what, if any, steps it has taken to ensure that
children do not manufacture the goods.
Chapter Overview
Chapter Theme
The world is one economy, with every country linked in countless financial ways to almost every other.
Business today often involves international commerce, a trend that will only increase. Businesspeople
cannot afford to ignore requirements and principles of international law.
Quotes of the Day
“What affects men sharply about a foreign nation is not so much finding or not finding familiar things; it
is rather not finding them in the familiar place.” –G. K. Chesterton (1874 1936), British author. “The
greatest meliorator of the world is selfish, huckstering Trade.” –Ralph Waldo Emerson (1803 1882),
American philosopher and poet.
International Law: Public versus Private
International law consists of rules and principles that apply to the conduct of states,1 international
organizations, businesses, and individuals across borders. The two branches of international law are
public and private.
Public International Law
This is the law governing relations among governments and international organizations. It governs the
law of war, acquisition of territory, disputes among nations, shared resources, and basic human rights for
people.
Private International Law
This applies to private parties (such as businesses and individuals) in international commercial and legal
transactions. It deals with two fundamental issues: Which law applies to a private agreement? How will
people from one country settle their private disputes with parties on foreign soil?
Actors in International Law
Unlike domestic law, international law must balance the interests and roles of many different people,
organizations, and states.
1Throughout the chapter, the authors use “state” to have the same meaning as “country” and “nation.”
The United Nations
In 1945, 50 nations signed the Charter of the United Nations, binding themselves to its terms and
obligations. Today, 193 countries are members of the United Nations. The UN Charter sets out the
organization’s governance, which includes the Secretariat, General Assembly, and Security Council.
Much of the UN’s work is done through its Specialized Agencies and related organizations, including
influential agencies like the International Labor Organization (ILO), the World Health Organization
(WHO), and the UN Educational, Scientific, and Cultural Organization (UNESCO). These agencies also
operate under the UN’s umbrella and have a great impact on world business: The World Bank, the
International Monetary Fund (IMF), the World Intellectual Property Organization (WIPO), and the UN
Commission on International Trade Law (UNCITRAL).
The International Court of Justice
The UN opened the doors of the International Court of Justice (ICJ), also known as the World Court, in
1946. It is comprised of 15 elected judges from 15 countries representing the world’s principal legal
systems. Only states can be a party to litigation before the ICJ. The ICJ only has jurisdiction over states
that have agreed to be bound by its decisions. Additionally, the court has no enforcement power.
International Chamber of Commerce
The International Chamber of Commerce (ICC) is the world’s largest global business organization. Its
purpose is to facilitate international business. To that end, the ICC advocates on matters of international
business policy and develops uniform rules to aid cross-border transactions. In 1936, the organization
first proposed the Incoterms rules, which define a series of three-letter codes commonly used in
international contracts for the sale of goods. Note that the ICC does not make law. Instead it proposes
rules whose adoption is voluntary.
The European Union
The European Union (EU) is one of the world’s most powerful associations, with a population of nearly
half a billion people. Twenty-eight countries are members. The EU has accomplished goals such as
eliminating trade barriers among member nations and permitting movement of EU citizens within its
territory.
Sovereign Nations
Sovereignty means that each government has the absolute authority to rule its people and its territory.
Under this principle, states are prohibited from interfering in each other’s legislative, administrative, or
judicial activities. Sovereign immunity holds that the courts of one nation lack the jurisdiction (power)
to hear suits against foreign governments. A lawsuit, or waiver, is permitted against a foreign country
that waives its immunity, that is, voluntarily gives up this protection. A plaintiff in the United States can
sue a foreign country engaged in commercial, but not political, activity. A plaintiff in this country may
sue a foreign government that has confiscated property in violation of international law, provided that
the property either ends up in the United States or is involved in commercial activity that affects someone
in the United States.
The World’s Legal Systems
The great majority—roughly 84 percent—of the world is governed by legal systems that take a very
different approach from our own.
Common Law
The United States and former British colonies (including Australia, Canada, and India) inherited the
common law system from England. The hallmarks of common law are the use of an adversarial process
of dispute resolution presided over by an impartial judge, the doctrine of stare decisis, and the use of a
jury to determine questions of fact.
Civil Law
More than 70 percent of the world’s population is subject to civil law, including most European countries,
Russia, Central and South America, China, large swaths of Asia, and parts of Africa.2 The main principle
of civil law is that the law is found primarily in the statute books, or codes. Statute-based systems also
have a clear appeal to countries whose political systems demand strong central authority rather than a
focus on individual rights. The main characteristics of the civil code tradition are the use of an
inquisitorial process of dispute resolution, in which the judge acts as interrogator and investigator, how
the courts base their judgments on the code, statutes, and writings of law professors, and not using juries.
Islamic Law
More than one-fifth of the world’s population lives under legal systems influenced by the religion of
Islam. Islamic law, also known as shari’a, is a legal system most commonly found in Africa, Asia, and
the Middle East. 3 Shari’a is based on the Muslim holy book, the Koran and the teachings and actions of
the Prophet Muhammed. Some of its important principles are that the payment and collection of interest
is prohibited and the concept of gharar4 prohibits any contract gain that is not clearly outlines at the time
of contract.
Case: Saudi Basic Industries Corporation v. Mobil Yanbu
Petrochemical Company Inc. and Exxon Chemical Arabia, Inc.5
Facts: Saudi Basic Industries Corporation (SABIC) was a Saudi Arabian corporation owned by
the Saudi government. In the 1970s, it entered into joint ventures with Mobil and Exxon, under
contracts governed by Saudi law. The agreements forbade the participants from charging a
“mark-up” on any products purchased for the joint venture, but SABIC violated this provision
for two decades.
ExxonMobil and SABIC sued each other in federal court in Delaware for breach of contract and
tort.6 Because the Delaware court was required to apply Saudi law, the judge brought in notable
experts in shari’a law for instruction.
The jury found SABIC liable for Saudi tort of usurpation (ghasb) and awarded ExxonMobil $416
million. SABIC appealed to the Delaware Supreme Court for a new trial, arguing that that the
trial court’s application of Saudi law was flawed.
Issue: Did the U.S. court err in its application of shari’a law?
Excerpts from Justice Jacobs’s Decision:
In Saudi Arabia, Islamic law (shari’a), which is a fundamentally religious law based on both the
Q’uran and the model behavior of the Prophet Muhammed, is the law of the land. Although early
Islamic law scholars eventually coalesced into various guilds or schools, only four of those
guilds have survived in modern times: the Hanbali, the Hanafi, the Shafi’i and the Maliki. In
2Note that “civil law,” as referred to in this chapter, is a legal system based on codes (i.e., civil law versus
common law systems). In common law systems such as ours, the same term is also used to describe
contract, tort, and other areas of private law (i.e., civil law versus criminal law).
3Shari’a means “path” in Arabic.
4Gharar is Arabic for “deceptive uncertainty” and is the basis for other prohibitions in Islamic finance,
such as risky deals whose outcome is unknown.
5 A.2d 1 Delaware Supreme Court, 2005
6Exxon and Mobil entered into separate contracts with SABIC, but by the time of this lawsuit had merged
to form one company named ExxonMobil.
Saudi Arabia, the judges are instructed to rule exclusively in accordance with the teachings of the
Hanbali guild.
The Saudi law system differs in critically important respects from the system of legal thought
employed by the common law countries, including the United States. Perhaps most significant is
that Islamic law does not embrace the common-law system of binding precedent and stare
decisis. Indeed, in Saudi Arabia, judicial decisions are not in themselves a source of law, and
with minor exceptions, court decisions in Saudi Arabia are not published or even open to public
inspection. The trial judge was keenly mindful of this distinctive characteristic of Saudi law.
Instead of relying upon statutes or decisional precedent to discern the law applicable to a
particular case, judges in Saudi Arabia must “first and last navigate within the boundaries” of the
Hanbali school’s authoritative works, which are the scholarly treatises. Using these writings as
guides, Saudi judges identify a spectrum of possibilities on any given question, rather than a
single ‘correct’ answer.
Thus, in this highly different legal environment, the predominate factor in determining the Saudi
law on a given issue is the study and analysis, or ijtihad, that a judge brings to bear in each
particular case. To state it in different terms, the critical inquiry is whether the proper analytical
procedures are followed in reaching the results.
The judge made exceptional efforts to ensure that she was fully informed of the Hanbali
teachings. Before trial, the parties presented [her] with seven reports from four Saudi law
experts. [She also] retained an independent expert, who conduct[ed] additional research in Saudi
Arabia. After reviewing a total of nine reports and more than 1,000 pages of testimony, the judge
then held a day-long pretrial hearing, to [hear] live testimony from [the experts]. Only after this
extensive process did the trial court undertake to determine the disputed elements of ghasb.
It is remarkable that SABIC, having [purposefully] selected this forum instead of a Saudi Court,
knowing the United States legal system is dramatically different than the Saudi legal system,
comes forward after a verdict against it to claim that no American judge is qualified to interpret
and apply Saudi law. This is particularly incredible in light of SABIC’s vehement argument that
this case should be tried by a U.S. judge.
For the foregoing reasons, the judgment of the Superior Court awarding damages to ExxonMobil
is affirmed.
Question: What is the predominate factor in determining the Saudi law on a given issue?
followed in reaching the results.
Question: Which four guilds in Saudi Arabia have survived into modern times?
Question: Which of these guilds are judges in Saudi Arabia instructed to rule exclusively in
accordance with?
Sources of Law
This section outlines the three major sources of international law: treaties, custom, and general principles
of law.
Additional Case: Avenues in Leather, Inc. v. U.S.7
Facts: Avenues in Leather (Avenues) imported Calcu-Folios, which are 13 inches tall by 11 inches wide
and 1.5 inches deep. They are made of paperboard covered in plastic with a padded handle. It is zippered
on three sides and contains an interior sleeve, several small pockets, a calculator, and three-ring binder.
The Customs Service (Customs) classified the Clacu-Folio under tariff heading 4202 which covers
“trunks, suitcases, vanity cases, attaché cases, briefcases, school satchels, and similar containers”.
Avenues claims the Calcu-Folios should be classified under tariff heading 4820 which covers “binders,
folders, file covers, memorandum pads, letter pads and similar articles”. Heading 4820 imposes a 3%
tariff and heading 4202 imposes a 20% tariff. Avenues sued and the Court of International Trade found
for Avenues. Customs appealed.
Issue: Was the Calcu-Folio properly classified as a briefcase or a binder?
Holding: Judgment affirmed. Avenues testified that the Calcu-Folio was designed as an organizational
aid for taking notes, thus it is more like a “portfolio” or a flat case designed to hold papers.
Customs argued that Calcu-Folios was more like a “briefcase,” emphasizing the container elements of
the good, and introducing evidence of the marketing of the good for business travel. Customs also argued
that the good can be used to carry non-paper personal and business items.
Heading 4202 contains a list of specific items, and the general phrase “similar articles.” For a good to
be considered a “similar article” that good must share the same essential purpose as those listed under the
heading.
Although the Calcu-Folio may be used to carry small items, the internal carrying space is only 1 inch,
thus making it unsuitable for carrying newspapers, books, and other objects that are normally carried in
the items listed in heading 4202.
The Court agrees with the Court of Internal Trade’s finding that the characteristics of the Calcu-Folio
most closely resemble an article of stationery and fall within heading 4820. While the memo pad is an
item specifically listed under heading 4820, most of the other characteristics of the good pertain to writing
or written documents.
Question: Why did Avenues Leather challenge the Customs Service classification of these
costumes?
Question: I thought the U.S. Customs Service stamped passports and looked in your luggage when
you reenter the U.S. Why is it up to the Customs Service to distinguish between “briefcase” and
“binder?”
Answer: The Customs Service also has the job of classifying merchandise entering the U.S.—that is,
Question: How did the Customs Service decide the nature of the Calcu-Folios in this case?
Question: Why didn’t the court agree with that classification?
Answer: Because the Calu-Folio was too small to carry anything a briefcase would contain, like a
7 423 F.3d 1326, Court of Appeals for the Federal Circuit, 2006.
Treaties
A treaty is an international agreement governed by international law.
General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)
The General Agreement on Tariffs and Trade (GATT) created the World Trade Organization (WTO) “to
stimulate international commerce and resolve trade disputes.” They are both founded on the principles of
free trade, most favored nation, and national treatment. The two cases below—actually the same case at
different levels of the WTO dispute-resolution process—demonstrate the principles the WTO applies to
balance the interests of GATT signatories.
ETHICS: Child Labor
The International Labor Organization estimates that worldwide there are 168 million child laborers under
the age of 15. Some are as young as 7 or 8 years old. Some receive a pittance, working long hours in
hideous conditions, while others are slaves, paid nothing at all. Is it ethical to import merchandise
manufactured by child labor?
If students believe it is ethical to import such merchandise, ask them:
Are there limits on what children can be forced to do?
Should manufacturers be allowed to employ 10-year-olds? 8-year-olds? 6-year-olds?
Should factories be permitted to pay subsistence wages, or no wages at all?
If students believe that there should be some limits to child labor practices, what should the United
States government do about importing products that violate the standards? What should consumers
do?
If students believe it is not ethical to import such merchandise, ask them:
Does the United States have a right to impose its “morality” in a part of the world where poverty is
overwhelming?
Isn’t an impoverished village in a developing nation better off with a few factories, even if they use
child labor, than it would be with no industry at all?
If local officials require factories to hire only adults, won’t the cost of the goods increase so much that
manufacturers will relocate to countries that don’t require adult labor? What does that solve?
NAFTA, and GATS and TRIPs
Regional Trade Agreements reduce trade restriction and promote common trade policies among member
nations. In 1993, the United States, Canada, and Mexico signed the North American Free Trade
Agreement (NAFTA). The principal goal was to eliminate almost all trade barriers between the three
nations.
The General Agreement on Trade in Services (GATS) extends the WTO/GATT principles to transnational
services. The Agreement on Trade Related Aspects of Intellectual Property (TRIPs) covers intellectual
property. The WTO administers both of these treaties.
Case: United States—Measures A$ecting the Cross-Border Supply of
Gambling and Betting Services8
8 WT/DS285/ARB WTO Arbitral Body, 2007
Facts: Antigua is a small Caribbean nation. When it began hosting gambling websites, its economy
thrived, boosted by U.S. gamblers. But when the United States started criminally prosecuting Internet
gambling, Antigua’s profits plummeted. The United States had the right to take this step, but it had to do
so consistently—treating foreign and domestic sites the same. The problem was that it allowed Internet
betting on horseracing within its borders.
Antigua challenged U.S. gambling laws in the WTO, arguing that they discriminated against foreign
betting services. Both the United States and Antigua were members of GATS, under which each agree to
free trade (including nondiscrimination and national treatment) in online services.
A WTO panel ruled that the United States’ inconsistent gambling laws violated GATS and ordered that it
bring them into compliance. Two years passed and the U.S. government did not act.
Frustrated, Antigua requested permission from the WTO to suspend its obligations to the United States
under TRIPs. This suspension would mean that Antigua could freely use, reproduce, and distribute any
U.S.-copyrighted, trademarked, or patented works—a real blow to the U.S. entertainment,
pharmaceutical, and technology industries. The United States objected and submitted the matter to a panel
of WTO experts.
Issue: When one WTO Member refuses to comply with a WTO ruling, can the injured Member retaliate
by suspending its duties under another treaty?
Excerpts from the WTO Arbitrator’s Decision:
Antigua considers it unconscionable for the United States to have done nothing to come into compliance
in the time that it should have, and now requests to be authorized to suspend [its] obligations under the
TRIPS Agreement.
Antigua, a developing country, is by far the smallest WTO Member to have made a request for the
suspension of concessions and realizes the difficulty of providing effective countermeasures against the
world’s dominant economy.
When a complaining party wishes to seek suspension in another agreement than that in which a violation
was found, it must prove that (1) it is not effective for it to suspend the same agreement and (2) that the
circumstances are serious enough to suspend obligations under another agreement.
Antigua considers that suspension of obligations in [GATS] would most likely impair the already limited
options available to Antiguan citizens while having virtually no impact on the United States at all. The
trade disparity [between the countries] is so great that United States service providers would suffer little
harm at all, if any, while Antiguan consumers would be forced to scramble for replacement services at
uncertain cost. The volume of its imports from the United States in services is nowhere near sufficient to
absorb the level of suspension of concessions that it is entitled to.
In order to demonstrate the seriousness of the circumstances, Antigua first presents some basic figures
comparing the population, size, GDP, exports and imports of the United States and Antigua, which
illustrate a considerable disparity in all of these areas.
Antigua also highlights that it has extremely limited natural resources and very limited arable land, such
that it cannot produce sufficient agricultural products to satisfy domestic needs, let alone for export.
Antigua further notes that its economy has become highly dependent on tourism and associated services.
Third, Antigua highlights the need to diversify its economy, and that in order to do this it has tried to
develop trade in services, including trade in remote gambling.
In our view, the various considerations highlighted by Antigua are such as to exacerbate the difficulties in
finding a way to suspend obligations in an effective manner under the GATS.
Accordingly, we find that Antigua may seek to suspend obligations under the TRIPS Agreement.
Question: When a complaining party wishes to seek suspension in another agreement than that in which a
violation was found, what must it prove?
Answer: It must prove that (1) it is not effective for it to suspend the same agreement and (2) that the
Question: What is the smallest WTO member?
Question: What does the acronym WTO stand for?
CISG
The United Nations Convention on Contracts for the International Sale of Goods (CISG) aims to make
sales law more uniform and predictable—and to make international contracting easier. This treaty
governs more than two-third of the world’s trade.