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Chapter 24
International Law and Space Law
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
Finally, this chapter reviews the principles that comprise the law governing human activities in space.
ENHANCING YOUR LECTURE—
BORDER SEARCHES OF YOUR ELECTRONIC DEVICES
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Every year, tens of millions of travelers arrive at U.S. borders where they are subject to a search. Of
these travelers, about 12 million undergo a secondary screening, and approximately five thousand of these
screenings involve an electronic device. About three hundred devices—computers, BlackBerrys, tablets, and
smartphones—are sent to the Immigration and Customs Enforcement forensics laboratory in Fairfax, Virginia,
for further examination.
The U.S. government has historically had a broad power to search travelers and their property when they
A LEGAL CHALLENGE TO EXTENSIVE SEARCHES OF ELECTRONIC DEVICES
Increasingly, however, instead of being carried in physical form, documents are carried on the hard drives
of laptop computers, in tablets, or in smartphones. Indeed, a person might have thousands and thousands of
photos, e-mails, video clips, and documents on the hard drive of a laptop. Does the government’s power to
conduct border searches give it the right to rummage through all of the data on an electronic device? Several
recent lawsuits have raised this issue.
his computer. They then examined much of its contents. Abidor was released after a few hours, but the
TWO SOLUTIONS
The first one involves never keeping client files on a digital device that also includes personal and other
files and then not taking the client files abroad. The second possibility is to put all client files on a server in
the “cloud.”
CRITICAL THINKING
them in the first place. One way to do this is to have your information reside in the cloud as well as on backup
What are some steps that businesspersons can take to avoid any issues at the border with
respect to the contents of their electronic devices? Obviously, the easiest way to avoid having the
CHAPTER OUTLINE
CHAPTER 24: INTERNATIONAL LAW IN A GLOBAL ECONOMY 3
I. International Law
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A. SOURCES OF INTERNATIONAL LAW
International law is defined in the text as a body of law—formed as a result of international customs,
1. International Customs
Customs evolved over the centuries.
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.
a. Adopt Resolutions
These organizations adopt resolutions, declarations, and other types of standards.
b. Create Uniform Rules
B. COMMON LAW AND CIVIL SYSTEMS
Legal systems are generally divided into common law and civil law systems.
1. Common Law Systems
2. Civil Law Systems
3. Islamic Law Systems
In an Islamic legal system, the law is influenced by sharia, the religious law of Islam. Some
countries have codified sharia and enforce it through separate court systems.
C. INTERNATIONAL PRINCIPLES AND DOCTRINES
Important international legal principles are based primarily on courtesy and respect.
1. The Principle of Comity
One nation defers and gives effect to the laws and judicial decrees of another nation, as long as
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2. The Act of State Doctrine
The judicial branch of one country will not examine the validity of public acts committed by a rec–
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.
b. Doctrine May Immunize a Foreign Government’s Actions
The act of state doctrine and the doctrine of sovereign immunity tend to immunize foreign
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. When a Foreign State Will Not Be Immune
A foreign state is not immune from the jurisdiction of U.S. courts if—
• The state has waived its immunity.
b. Application of the Act
A “foreign state” includes a political subdivision and an instrumentality of the state. A
“commercial activity” is a mercantile activity that has substantial contact with the United
States.
CASE SYNOPSIS—
Case 24.1: Bennett v. Islamic Republic of Iran
Maria Bennett was an American student at Hebrew University in Jerusalem when she was killed in a
terrorist attack sponsored by the Islamic Republic of Iran. Her parents, Michael and Linda Bennett, obtained a
judgment in a federal district court against Iran for nearly $13 million in damages. To collect on the judgment,
the Bennetts filed a suit in a federal district court against Visa Inc. and Franklin Resources, Inc. under FSIA
Section 1610(g) to obtain funds that the defendants owed to Bank Melli for the use of credit cards in Iran.
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or executed on by the Bennetts because those assets were not used for “commercial activity” in the United
States.
……………………….………………………..………………………..…………………………….…..………….……..
Notes and Questions
In adding Section 1610(g) to the FSIA, Congress intended to expand successful plaintiffs’ options
for collecting judgments against state sponsors of terrorism. How does this intent relate to the court’s
reasoning and holding in the Bennett case? It is clear that Congress’s intent in adding Section 1610(g) to
the FSIA was to expand successful plaintiffs’ options for collecting judgments against state sponsors of
Section 1610(g) to property connected to commercial activity in the United States. The only requirement is
What is the impact of the result in the Bennett case on a decision to do business in the global
marketplace? The result in the Bennett case can both simplify and complicate doing business in the global
marketplace. In this case, the parents of a student killed in a terrorist attack sponsored by the Islamic
CHAPTER 24: INTERNATIONAL LAW IN A GLOBAL ECONOMY 7
and its instrumentalities.
ADDITIONAL BACKGROUND—
Foreign Sovereign Immunities Act
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—
state or an agency or instrumentality of a foreign state as defined in subsection (b)
(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.
United States.
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—
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* * * *
(2) in which the action is based upon a commercial activity carried on in the United States by the foreign
(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 United States by the foreign state; or that property or any property exchanged for such
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
There are two ways to export: direct and indirect.
1. Direct versus Indirect
2. Agency Relationships versus Distributorships
A third party, located in a foreign market, who takes title to domestically manufactured goods, is a
distributor.
B. MANUFACTURING ABROAD
There are several ways to manufacture goods abroad, which may cost less in foreign nations and
thereby allow for more effective competition in foreign markets.
1. Licensing
Licensing involves a payment of royalties.
2. Franchising
3. Subsidiaries
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4. Joint Ventures
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
B. EXPORT CONTROLS
Under the Constitution, Congress cannot impose export taxes, but to restrict or encourage exports
Congress can—
• Export quotas—Control exports by setting quotas on the flow of commodities and other products.
• Restrictions on technology exports—Impose restrictions on the flow of technologically advanced
products and technical data under the Export Administration Act of 1979.
C. IMPORT CONTROLS
The production and sale of domestic products may also be stimulated by import restrictions, which
include prohibitions, quotas, and tariffs.
1. Prohibitions
Prohibitions are imposed on—
2. Quotas and Tariffs
Tariffs are imposed on such products as oil.
3. Political Factors
Sometimes, countries impose tariffs on another nation’s goods in retaliation for political acts.
4. Antidumping Duties
Specific laws deal with what the United States regards as unfair international trade practices. The
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• The ITA decides whether import sales were at less than fair market value. The ITA
D. MINIMIZING TRADE BARRIERS
1. The World Trade Organization (WTO)
2. The European Union (EU)
This regional trade association minimizes trade barriers among its member nations.
3. The North American Free Trade Agreement (NAFTA)
NAFTA created a regional trading unit consisting of Mexico, the United States, and Canada. The
4. The Central American-Dominican Republic Free Trade Agreement (CAFTA-DR)
5. The Republic of Korea–United States Free Trade Agreement (KORUS FTA)
6. The Trans-Pacific Partnership (TPP)
7. Other Free Trade Agreements
The United States has also ratified free trade agreements with Columbia and Panama.
IV. International Dispute Resolution
Arbitration clauses are common in contracts governing international sales.
ADDITIONAL BACKGROUND—
International Dispute Resolution
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
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A forum-selection clause should identify the specific court that will have jurisdiction over a dispute. The
choice cannot deny a party an effective remedy, be the product of fraud or unconscionable conduct, cause
substantial inconvenience to a party to the contract, or violate public policy.
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
law is that of the country in which the seller’s business is located.
Arbitration clauses are common in contracts governing international sales. The arbitrator of choice is
sometimes a neutral entity (the International Chamber of Commerce, for instance). The United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards assists in enforcing arbitration
clauses, as do provisions in other treaties. If there is no arbitration clause, of course the parties can litigate
their case.
Force majeure clauses commonly stipulate eventualities in addition to acts of God that may excuse a
party from liability for nonperformance.
A. THE NEW YORK CONVENTION
Like the provisions in other treaties, the United Nations Convention on the Recognition and Enforcement
of Foreign Arbitral Awards (the New York Convention) assists in enforcing arbitration clauses by
compelling parties to arbitrate if—
• There is a written agreement to arbitrate.
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 manuals and warranties for goods and services offered for sale in France. Additionally, all
FOR CRITICAL ANALYSIS
CHAPTER 24: INTERNATIONAL LAW IN A GLOBAL ECONOMY 13
How might language differences affect the meaning of certain terms or phrases in an international
contract?
ENHANCING YOUR LECTURE—
ARBITRATION V. LITIGATION
One of the reasons many businesspersons find it advantageous to include arbitration clauses in their
international contracts is that arbitration awards are usually easier to enforce than court judgments. As
mentioned, the New York Convention provides for the enforcement of arbitration awards in those countries
that have signed the convention. In contrast, the enforcement of court judgments normally depends on the
principle of comity and bilateral agreements providing for such enforcement. How the principle of comity is
applied varies from one nation to another, and many countries have not signed bilateral agreements agreeing
FOR CRITICAL ANALYSIS
B. EFFECT OF CHOICE–OF-LAW AND CHOICE–OF-FORUM CLAUSES
• When a contract contains forum-selection and choice-of-law clauses, a suit arising from a dispute
between the parties will be heard by a court in the specified forum and decided according to that
forum’s law.
CASE SYNOPSIS—
Case 24.2: Carlyle Investment Management LLC v. Moonmouth Company SA
Moonmouth Co. SA (incorporated in the British Virgin Islands) bought stock in Carlyle Capital Corp. Ltd.
(CCC), an investment fund (incorporated in Guernsey, a dependency of the United Kingdom), under a
subscription agreement. Carlyle Investment Management LLC signed the agreement on CCC’s behalf. Plaza