Chapter 10
THE LEGAL ENVIRONMENT OF INTERNATIONAL TRADE
RESTATEMENT
International business transactions provide businesses with peculiar challenges in determining their rights. Primary
issues in a relationship are which laws will apply and where any disputes between the parties will be resolved. The
parties can choose which law applies and can provide for arbitration as their means of dispute resolution. The U.N.
Convention on Contracts for the International Sale of Goods (CISG) has provided a proposed uniform law for sales of
goods in international trade. Because of currency fluctuations and complex payment issues, international contracts
often have payments arranged through letters of credit.
Business is conducted internationally in a number of different forms. A company may simply export goods to other
countries, or it could establish a foreign distributorship, license foreign agents to sell for it in other countries, create
wholly owned subsidiaries in other countries or enter into a joint venture with a company in another country.
There are a number of treaties, conferences, and organizations that provide parameters for international business
transactions. The WTO administers several treaties impacting world trade, including the GATT, GATS, and TRIPS.
Regional trade agreements such as NAFTA and the EU’s regional trading group have expanded international
opportunities.
There are significant regulatory webs a business must navigate in international transactions. There are export/import
requirements, licensing mandates, and protections for intellectual property. Issues of antitrust apply even in
international transactions. U.S. businesses quickly learn the distinctions between U.S. law and protections and those
in other countries when the act of state doctrine (or protection of the sovereign) holds governments immune from suit
even when their conduct would be unconstitutional here, as when a business’ assets are seized in another country.
Issues in securities law, tariffs, and antidumping laws are also evolving as trade continues to increase. Cultural
practices are often challenging to U.S. businesses required to comply with the Foreign Corrupt Practices Act (FCPA)
and its prohibitions on bribery.
STUDENT LEARNING OUTCOMES
LO.1: List the methods of doing business abroad.
LO.2: Explain which country’s law will govern an international contract should a dispute arise.
LO.3: Explain tariff barriers and nontariff barriers to the free movement of goods across borders.
LO.4: Identify the agreements administered by the World Trade Organization.
LO.5: Explain how to register and protect trademarks abroad.
LO.6: Explain how trade disputes are resolved.
LO.7 Explain how antidumping duties and countervailing duties operate under the WTO agreements.
LO.8 Explain U.S. law regarding payment to foreign government officials
LO.9 Explain how U.S. securities laws might apply to foreign transactions.
INSTRUCTOR’S INSIGHTS
Break the chapter down into three components
1. How do businesses engage in international transactions?
Cover the various ways that businesses might establish a presence in an international market (LO.1)
2. What are the rules of international trade? (LO.3, LO.4, LO.5, and LO.6)
Explain the roles of treaties, trade organizations, and conferences in international business law
Present the basic business treaties and conventions – WTO, GATT, GATS, TRIPS, EU, NAFTA
3. What are the issues confronting multinational companies in international business? (LO.7, LO.8, and LO.9)
Define export regulations and their requirements
Discuss penalties for bribing foreign officials
CHAPTER OUTLINE
I. How Do Businesses Engage in International Transactions?
A. Forms of international business
1. Export sales
2. Foreign agency
3. Foreign distributorship
4. Licensing
5. Wholly owned subsidiaries
a. Subject to foreign regulation and taxation
b. Societe anonyme – Europe
6. Joint ventures – U.S. company and foreign company
B. The international contract
1. Parties need to agree where and how laws apply
2. Can use a choice-of-law clause
3. United Nations Convention on Contracts for International Sale of Goods (CISG)
4. Need also to decide how to resolve disputes – arbitration alternatives
a. Arbitration?
5. Reconcile conflicting ideologies: decide what issues are important
6. Financing international trade
a. Issues of stability of banks and currency
II. What Are the Rules of International Trade?
A. Tariffs and barriers to trade
1. Tariff barriers
a. Import or export duty or tax
2. Nontariff barriers
a. Quotas, complex custom procedures, government subsidies
B. WTO
1. 160 member nations
2. Administers GATT, GATS, and TRIPS
3. Trade without discrimination
C. Agreements administered under WTO
1. GATT
a. Signed in 1947
b. Seeks to liberalize world trade through multilateral negotiations
2. GATS
a. Applies to trade in services
3. TRIPS
a. Trade rules for intellectual property
D. Protecting trademarks worldwide
1. Trademarks
a. Register in each country for protection
b. Use Madrid System for streamlined registration
2. Well-known marks
a. Receive special protection under Paris Convention and TRIPS
b. WTO members must recognize well-known marks even if the mark is unregistered in that country
CASE BRIEF: Empresa Cubana del Tabaco v. General Cigar Co., Inc.
753 F. 3d 1270 (Fed. Cir. 2014), cert denied
FACTS: Both Cubatabaco and General Cigar manufacture and distribute cigars using the trademark
COHIBA. General Cigar, a Delaware corporation, owns two trademark registrations for the
COHIBA mark for use in connection with cigars. Cubatabaco is a Cuban entity that owns the
COHIBA mark in Cuba and supplies cigars bearing the mark throughout the world, but not in
the United States due to import restrictions. Relying on an exception that allows Cuban entities
to register and renew trademarks before the USPTO, Cubatabaco sought to register COHIBA
for cigars and related goods and to cancel General Cigar’s registration.
ISSUE: When a U.S. company is using the same mark as a foreign company, does U.S. law allow a
foreign mark holder to register its well-known mark and cancel the mark of the U.S. company?
REASONING: Cubatabaco has a legitimate interest in the mark as long as it intends to use the mark in
commerce in the United States.
E. Geographical indications
DISCUSSION POINT: Ask students to find examples of products that might seek geographical indications
protection under TRIPS.
1. Berne Convention
G. Patent protection
1. TRIPS requires at least 20 years of protection
DISCUSSION POINT: Thinking Things Through
Access to Medicine versus Patent Protection
Ask students to consider patents that are granted in one country but not in another. This example shows the different
standards that the United States and India have to pharmaceutical patents.
H. Trade secrets
1. May be referred to in other countries as “undisclosed information” or “know how”
CASE BRIEF: TianRui Group Co. Ltd. v. International Trade Commission
661 F. 3d 1322 (Fed. Cir. 2011)
FACTS: Amsted Industries manufactures cast steel railway wheels. It owns two proprietary processes for
manufacturing the wheels. Amsted licensed one process to several firms in China, including
Datong. The defendant TianRui hired nine employees away from Datong who had previously been
notified through a written employee code of conduct that the process was proprietary and
confidential and these individuals disclosed information and documents to TianRui. TianRui began
marketing wheels in the U.S. that were made in China through Amsted’s process. Amsted brought a
case before the International Trade Commission seeking an exclusion order under the Tariff Act.
ISSUE: Does the ITC have authority to exclude from the United States cast steel railway wheels made in a
foreign country with misappropriated trade secrets of a U.S. manufacturer?
REASONING: The ITC has authority under Section 337 of the Tariff Act to investigate and grant relief based in
part on extraterritorial conduct insofar as it is necessary to protect domestic industries from injuries
arising out of unfair competition in the domestic marketplace. The imported TianRui wheels would
directly compete with wheels domestically produced by the trade secret owner. Such competition
constituted an injury to an “industry” within the meaning of section 337(a)(1)(A) of the Tariff Act.
I. The dispute settlement understanding
1. Important improvement to the WTO
2. The Dispute Settlement Body resolves disputes involving WTO agreements
J. The Doha Development Agreement
1. Current, ongoing trade negotiations that began in Doha in 2001
K. Regional trade agreements
1. The European Union
a. Free movement of goods, services, and people between EU countries
2. North American Free Trade Agreement (NAFTA)
a. Agreement between the US, Canada, and Mexico
3. Other regional trade agreements
DISCUSSION POINT: Consider the progress of the Trans-Pacific Partnership Agreement and the Transatlantic
Trade and Investment Partnership
L. Antidumping, subsidies and safeguards
1. Dumping and subsidies may be methods of unfair competition
4. Countervailing duties may be imposed on goods that are subsidized
5. The Trade Act of 1974 provides for relief for U.S. industries and workers harmed by import competition
III. What Are the Issues Confronting Multinational Companies in International Business?
A. Export regulations
1. Export Administration Act – Department of Commerce controls exports and licensing
B. The Foreign Corrupt Practices Act (FCPA)
1. Prohibits bribes or payments to influence government action
2. Companies must retain accurate books, records and accounts to detect FCPA violations
DISCUSSION POINTS: Ethics & the Law
Combating Bribery of Foreign Public Officials in International Business
Transactions
Discuss the role of bribery in hampering economic development. Explain how the OECD polices bribery.
C. Antitrust issues
1. Increase in the number of countries criminalizing cartel-like behavior
3. Jurisdiction
a. The Effects Doctrine – U.S. courts have jurisdiction if the activity has a direct and substantial effect
b. Foreign Trade Antitrust Improvements Act of 1982 requires that defendant’s conduct have a direct,
c. Jurisdictional Rule of Reason
i. Balances vital interests of the United States and the foreign country
d. Defenses
i. Act of State Doctrine – courts in one country will not judge another country’s acts within its own
territory
ii. The Sovereign Compliance Doctrine – allows a defense that the actions were compelled by the
D. Securities fraud regulation in an international environment
1. Jurisdiction in U.S. district courts
a. Securities sold to Americans living in the U.S.
CASE BRIEF: United States v. Georgiou
777 F. 3d 125 (3rd Cir. 2015)
FACTS: Georgiou was convicted of conspiracy, securities fraud, and wire fraud for manipulation of the
markets of four publicly traded stocks. Georgiou and his co-conspirators opened brokerage
accounts in Canada, the Bahamas, and Turks and Caicos. They artificially inflated the stock prices
ISSUE: Does the purchase and sale of securities issued by U.S. companies through U.S. market makers
acting as intermediaries for foreign entities constitute “domestic transactions”?
REASONING: In United States v. Morrison, the United States Supreme Court held that the antifraud provision
(Section 10(b)) of the Securities Exchange Act is limited to two contexts: (1) transactions involving
the purchase or sale of a security listed on an American stock exchange, and (2) transactions
involving the purchase or sale of any other security in the United States. The stocks in question
were not listed on an American stock exchange. But the transactions involved stocks of U.S.
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. Antidumping laws and export subsidies. Subsidized goods of foreign countries are usually sold in the United
2. Counterfeit goods § 5(a). The Tariff Act does not contain an identity of goods or services requirement. Customs
may impose a civil penalty pursuant to the Tariff Act upon an importer of merchandise bearing a counterfeit mark,
3. Criminal sanctions for export administration violations. North Korea is a Country Group 2 and is subject to a
trade embargo by the United States. A helicopter has a military application, and it is in the national security
interest of the United States not to provide arms to North Korea. Delta Avia’s statement as to the end-use and
4. Secrecy laws and SEC enforcement. The SEC could initiate diplomatic or legal steps in attempting to identify the
customer or obtain records. If assets remained in the United States, the SEC might seek a court order freezing
those assets. Furthermore, if the circumstances point to illegal activity, it might elect to file a “John Doe”
Authors’ Comment: This case dramatizes how secrecy and blocking laws jeopardize the success of U.S.
5. CISG. The case involves a classic “battle of the forms” issue between merchants. A forum selection clause is a
material addition to a contract and although Revlon and UOL had a contract, the addition of the forum selection
clause (particularly when not faxed) would not be a part of the contract. The complaint should not be dismissed
6. Protection of trademarks from counterfeiting extraterritorial jurisdiction. This district court properly relied on the
Timberlane Lumber Co. precedent, a case dealing with the extraterritorial reach of U.S. Antitrust laws, to
establish that it had jurisdiction in this case. While the alleged counterfeiting activity took place in Mexico,
7. Relief mechanisms for economic injuries caused by foreign trade. The ITC decided the matter against the Asian
manufacturers. The ITA found that the manufacturers were dumping business phones at LTFV in the U.S.
Students may be asked for the pros and cons of allowing all firms, both domestic and foreign, to sell their
products in the United States at the prices the individual firms choose. Under the Trade Agreement Act of 1979,
8. Jurisdiction of foreign securities fraud case. The complaint was dismissed. It is undisputed that all of the parties
to this action, both plaintiffs and defendants, are foreign. It is also clear that the essential core of the alleged
9. Extent of jurisdiction of U.S. courts in matters involving foreign corporations. Income tax laws are applicable to
foreign corporations, and Congress may punish foreign corporations for violations of those laws. Thus, a federal
10. Section 482 allocations between parent corporation and foreign subsidiary. Judgment was for U.S. Steel. A
taxpayer is “insulated” from a Section 482 allocation whenever the taxpayer can establish that based on
11. International arbitration. One advantage to National would be that the dispute would be resolved quickly, without
the significant expenses associated with pretrial discovery common in judicial proceedings. Also, the decision is
usually final and binding on the parties, eliminating the uncertainty and expenses associated with judicial
appeals. On the other hand, the arbitrator will be Chinese, and the attorneys presenting the case must also be
12. Export controls as instruments of foreign policy. Judgment for C.E.P. Sensor’s reliance on the American
embargo as a defense for not fulfilling its contract is not compatible with international law. While it is the
universally accepted rule of international law that in general, it is not permissible for a state to exercise
jurisdiction over acts performed outside its borders, an exception exists under the so-called “nationality principle.”
management system for classroom use.