Business Law Chapter 23 Homework United States Supreme Court Different Case The

553

Chapter 23

International Law in a Global Economy

 See Separate Lecture Outline System

INTRODUCTION

Before students can appreciate the nature of the international business environment, they must be familiar with the

concept of international law, as well as its sources and principles. Firms operating in the international environment must be

aware of the difficulties that may result if they fail to pay attention to the legal differences among nations and the potential

effect of international law. One of the purposes of this chapter is to acquaint students with these concepts.

ADDITIONAL RESOURCES—

 VIDEO SUPPLEMENTS 

The following video supplements relate to topics discussed in this chapter—

554 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

PowerPoint Slides

To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for

Chapter 23.

Business Law Digital Video Library

The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or

individual review. Clips on topics covered in this chapter include the following.

• Ask the Instructor

process. This gives the seller more assurance that she will be paid after she ships the goods, and the buyer more

assurance that he will receive the goods after he pays for them. But the exchange is not simultaneous.

• Legal Conflicts in Business

International Sales and Lease Contracts: Not enough Jalapenos—The advertising firm ordered a quantity of

jalapenos from Mexico. When the shipment arrived, the advertiser found that the full quantity was not delivered.

CHAPTER OUTLINE

I. International Law

A. SOURCES OF INTERNATIONAL LAW

International law is defined in the text as a body of law—formed as a result of international customs, treaties,

and organizations—that governs relations among or between nations. Each of those sources is also defined in

the text.

2. Treaties and International Agreements

Treaties are agreements between or among nations.

3. International Organizations

International organizations are composed mainly of nations and usually established by treaty—for example,

the 1980 United Nations Convention on Contracts for the International Sale of Goods, or CISG.

B. COMMON LAW AND CIVIL SYSTEMS

CHAPTER 23: INTERNATIONAL LAW IN A GLOBAL ECONOMY 555

1. Common Law Systems

2. Civil Law Systems

3. Islamic Law Systems

C. INTERNATIONAL PRINCIPLES AND DOCTRINES

The text discusses three important legal principles based largely on notions of courtesy and respect.

1. The Principle of Comity

2. The Act of State Doctrine

The judicial branch of one country will not examine the validity of public acts committed by a recognized

foreign government within its own territory. This doctrine avoids disturbing diplomatic relations.

a. When a Foreign Government Takes Private Property

The text explains the consequences of this doctrine in expropriation cases (and contrasts

confiscations), noting the burden of proof.

3. The Doctrine of Sovereign Immunity

The Foreign Sovereign Immunities Act (FSIA) of 1976 governs the circumstances in which an action may be

brought in the United States against a foreign nation, including attempts to attach a foreign nation’s

property. A foreign state is not immune from the jurisdiction of U.S. courts if—

• The state has waived its immunity.

CHAPTER 23: INTERNATIONAL LAW IN A GLOBAL ECONOMY 557

ADDITIONAL BACKGROUND—

Foreign Sovereign Immunities Act of 1976 Sections 1603 and 1605

The Foreign Sovereign Immunities Act of 1976 (FSIA) is an authoritative source for some of the principles discussed

in this chapter. Specific sections of the FSIA are noted in the text. The following are the sections that relate to and are

cited in this part of the text—Foreign Sovereign Immunities Act of 1976 Sections 1603 and 1605.

§ 1603. Definitions

For purposes of this chapter—

(a) A “foreign state” except as used in section 1608 of this title, includes a political subdivision of a foreign state or an

agency or instrumentality of a foreign state as defined in subsection (b)

(b) An “agency or instrumentality of a foreign state” means any entity—

(1) which is a separate legal person, corporate or otherwise, and

(2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other

ownership interest is owned by a foreign state or political subdivision thereof, and

(3) which is neither a citizen of a State of the United States as defined in section 1332(c) and (d) of this title, nor created

under the laws of any third country.

(c) The “United States” includes all territory and waters, continental or insular, subject to the jurisdiction of the United

States.

(d) A “commercial activity” means either a regular course of commercial conduct or a particular commercial

transaction or act. The commercial character of an activity shall be determined by reference to the nature of the

course of conduct or particular transaction or act, rather than by reference to its purpose.

(e) A “commercial activity carried on in the United States by a foreign state” means commercial activity carried on by

such state and having substantial contact with the United States.

§ 1605. General Exceptions to the Jurisdictional Immunity of a Foreign State

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or the States in any case—

* * * *

(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon

and that act causes a direct effect in the United States;

(3) in which rights in property taken in violation of international law are in issue and that property or any property

exchanged for such property is present in the United States in connection with a commercial activity carried on in the

558 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

United States by the foreign state; or that property or any property exchanged for such property is owned or operated

by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial

activity in the United States * * * .

II. Doing Business Internationally

International business transactions include selling products (or services) in foreign markets. There are basically two

ways to sell products in foreign markets: export goods manufactured domestically or manufacture goods there.

Manufacturing goods in foreign countries may have the advantages of lower costs, taxes, and trade barriers, as well as

less government regulation.

A. EXPORTING

B. MANUFACTURING ABROAD

There are several ways to manufacture goods abroad.

2. Franchising

3. Investing in a Wholly Owned Subsidiary or a Joint Venture

When a U.S. firm establishes a wholly-owned foreign subsidiary, the parent company often retains complete

ownership of the facilities and complete control over all phases of the operation. In a joint venture, a U.S.

firm shares ownership, control, profits, and liabilities.

III. Regulation of Specific Business Activities

National laws and international agreements impose controls on international business transactions.

A. INVESTMENT PROTECTIONS

The text discusses government regulation of expropriation and confiscation of investment property. Essentially,

expropriation involves compensation for what is taken; confiscation does not. International law principles are

violated when property is confiscated. Some countries provide constitutional or statutory guaranties against it, or

insurance for their citizens’ investments abroad. Few remedies are available, however.

CHAPTER 23: INTERNATIONAL LAW IN A GLOBAL ECONOMY 559

port Administration Act of 1979, restrictions can be imposed on the flow of technologically advanced products

and technical data.

CASE SYNOPSIS—

Case 23.1: Fuji Photo Film Co. v. International Trade Commission

Fuji Photo Film Co. owns patents for, and makes and sells, “lens–fitted film packages” (LFFPs) (disposable cameras).

Jazz Photo Corp. collected used LFFP shells in the United States and shipped then abroad to insert new film and import

them back into the United States for sale. The International Trade Commission (ITC) determined that Jazz’s resale of

shells originally sold outside the United States infringed Fuji’s patents, and issued a cease-and-desist order to stop the

imports. While the order was being disputed, Jazz imported and sold 27 million refurbished LFFPs. Fuji complained. The

ITC fined Jazz more than $13.5 million. Jack Benun, Jazz’s chief operating officer, appealed.

The U.S. Court of Appeals for the Federal Circuit affirmed. The ITC used identifying numbers printed on Fuji’s LFFPs

…………………………………………………………..……………………………………………………………………

Notes and Questions

Does the rule applied in this case with respect to patented goods—that their repair and resale may violate patent

laws if the first sale occurred outside the United States—also apply in the copyright context? No. The court in the Fuji

case quoted the United States Supreme Court in a different case: “the owner of goods lawfully made under the

Copyright Act is entitled to the protection of the first sale doctrine in an action in a United States court even if the first

sale occurred abroad.”

ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 23.1

Suppose that, after this decision, Jazz fully compensated Fuji for the infringing sales of the LFFPs. Would Jazz have

acquired the right to refurbish those LFFPs in the future? Explain. In at least one case, cited by the court in the Fuji

ANSWER TO “THE GLOBAL DIMENSION” QUESTION IN CASE 23.1

560 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

C. IMPORT CONTROLS

The production and sale of domestic products may also be stimulated by import restrictions, which include

prohibitions, quotas, and tariffs. Prohibitions are imposed on illegal drugs, books that urge insurrection against

the U.S. government, agricultural products that pose dangers to domestic crops or animals, goods coming from

enemies of the United States.

1. Quotas and Tariffs

Tariffs are imposed on such products as oil.

CASE SYNOPSIS—

Case 23.2: United States v. Inn Foods, Inc.

Between 1987 and 1990, Inn Foods imported frozen produce from six Mexican growers who agreed to issue

invoices that understated the value of the produce. For each understated invoice, Inn Foods sent an order confirmation

that estimated the produce’s actual market value. Inn Foods later remitted the difference to the growers. Through this

double-invoicing system, Inn Foods undervalued its purchases by approximately $3.5 million and paid lower taxes, or

less duty, as a result. During an investigation by U.S. Customs and Border Protection, Inn Foods’s accounting supervisor

denied the existence of the double invoices. The federal government filed an action in the U.S. Court of International

Trade against Inn Foods. The court held the defendant liable for fraud and assessed the amount of the unpaid duty—

$624,602.55—plus an additional penalty—$7.5 million. Inn Foods appealed, claiming that it had acted negligently, not

fraudulently.

…………………………………………………………..……………………………………………………………………

Notes and Questions

Could Inn Foods convincingly have claimed that it was a novice importer and did not understand the amount of

value declared was material to the amount of the duties paid? No. Inn Foods knew that the false invoices were

material. “Having been founded in the 1970s, Inn Foods cannot plausibly claim that in 1987 it was a still novice

importer that did not understand that the amount of value declared was material to the amount of the duties paid.”

CHAPTER 23: INTERNATIONAL LAW IN A GLOBAL ECONOMY 561

After Inn Foods learned of the investigation, the company included a disclaimer on some shipments that stated the

declared value “is strictly for customs clearance” while the company determines the “true transaction value.” Does this

disclaimer legally or ethically absolve the importer of intent to defraud? No. Adding a disclaimer after Inn Foods

learned of the investigation is itself evidence of an intent to conceal fraud. The statement that the value declared was

“strictly for customs clearance,” combined with the statement that Inn Foods was determining the “true transaction

value,” is itself fraudulent. Inn Foods already knew the true value. The statement suggests that the invoices were

simply inaccurate. But they were not inaccurate—they were deliberately false.

ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 23.2

information but continued to submit invoices that it knew were deliberately false. A failure to “correct” the false

documentation, in the face of an assertion that it would do so, would support the government’s case and the court’s

inference that Inn Foods acted with fraudulent intent.

ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”

QUESTION IN CASE 23.2

ADDITIONAL CASES ADDRESSING THIS ISSUE —

Recent cases in which penalties were imposed for importers’ violations of the law include the following.

• United States v. National Semiconductor Corp., 547 F.3d 1364 (Fed. Cir. 2008) (penalty imposed for importer’s

underpayment of processing fees for false statements in entry documents for integrated circuit assemblies,

microassemblies, and parts in light of several factors, including the importer’s history of violations, the degree of harm

to the public, the importer’s ability to pay, and the effect of the penalty on the importer’s operations).

562 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

• United States v. Lawson, 618 F.Supp.2d 1251 (E.D.Wash. 2009) (Rhesus monkey constitutes “merchandise” under

the Convention on International Trade in Endangered Species of Wild Fauna and Flora, which the United States signed

and which prohibits the importation of certain primates and other such “merchandise”).

2. Antidumping Duties

Specific laws deal with what the United States regards as unfair international trade practices (the text uses

dumping as an example).

ADDITIONAL BACKGROUND—

Antidumping Duties

The procedure for imposing antidumping duties involves two U.S. government agencies: the International Trade

Commission (ITC) and the International Trade Administration (ITA). The ITC is an independent agency that makes

D. TRADE AGREEMENTS THAT MINIMIZE TRADE BARRIERS

To minimize international trade barriers, most of the world’s leading trade nations abide by the World Trade

Organization (WTO), formerly the General Agreement on Tariffs and Trade (GATT). Each member agrees to grant

normal-trade-relations (NTR) status to other member countries.

1. The European Union (EU)

This regional trade association minimizes trade barriers among its member nations.

2. The North American Free Trade Agreement (NAFTA)

3. The Central American-Dominican Republic Free Trade Agreement (CAFTA-DR)

CHAPTER 23: INTERNATIONAL LAW IN A GLOBAL ECONOMY 563

CAFTA-DR aims to reduce tariffs and improve market access among Costa Rica, Dominican Republic, El

Salvador, Guatemala, Honduras, Nicaragua, and the United States.

ADDITIONAL BACKGROUND—

Dispute Resolution in the International Context

Disputes arising from language and legal differences in international contracts may be resolved, or at least

avoided, by including provisions designating the official language of the contract, the legal forum for resolving contract

disputes, the substantive law that will be applied, and what acts or events will excuse the parties from performance

under the contract.

cannot deny a party an effective remedy, be the product of fraud or unconscionable conduct, cause substantial

Generally, as with language and forum, the parties to an international contract can choose, in a choice–of-law

clause, whatever law they wish to govern their contract (at least under international agreements—the UCC restricts the

choice to whatever is “reasonable”). Under the 1986 Hague Convention on the Law Applicable to Contracts for the

International Sale of Goods, if a choice of law is not specified, the governing law is that of the country in which the

seller’s business is located.

ENHANCING YOUR LECTURE—

  LANGUAGE REQUIREMENTS IN FRANCE

 

In 1995, France enacted a law requiring the use of the French language in certain legal documents. Documents

relating to securities offerings, such as prospectuses, for example, must be written in French. So must instruction