The Legal Environment of Business: A Critical Thinking Approach
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Chapter 8
The International Legal Environment of Business
Introduction
Chapter Eight addresses these questions:
• What are the dimensions of the international environment of business?
• What are the methods through which companies engage in international business?
• What are the risks of engaging in international business?
• How does legal and economic integration serve as a means of encouraging international
business activity?
• How are disputes between companies doing business in the global arena resolved?
Achieving Teaching Excellence
How to Achieve Teaching Excellence When Your Class Size Is Large
Some instructors have probably read this Instructor’s Manual, and said, “Sure. I’d like to
improve my teaching skills and move toward teaching excellence, but that would be very
difficult for me. I’d like to have a student-centered classroom, encourage discussion, ask better
In an article by Margaret Morganroth Gullette, former assistant director of the Derek Bok
The Legal Environment of Business: A Critical Thinking Approach
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Center for Teaching and Learning at Harvard, she explains how to lead discussion in a lecture
course. Gullette explains that a good format for teaching large classes is to use a discussion–
lecture format. She suggests the instructor mix mini-lectures with discussion, always searching
Gullette also presents five maxims for instructors who teach large classes to keep in mind.
Many of these are useful even for teaching in small classes. Her maxims are:
1. No impression without expression. Gullette writes that when instructors speak in class, the
2. No verbal expression without encouragement. She writes that the best discussion leaders
3. No learning without muddle. She explains instructors are bound to have muddle in their
4. No real discussion—and no engagement—without conflict. Gullette points out what most
5. Conflict and focus come through the document. By this, Gullette means that instructors
must provide the context in which questioning is interesting. Skillful teachers focus this
Finally, Gullette reminds instructors why encouraging certain kinds of classroom
discussions is important, even in large classes. She writes, “It is probably true that a class matters
Reference
The Legal Environment of Business: A Critical Thinking Approach
Chapter Overview, Topic Outline, and Discussion Questions
Chapter Overview
At the outset of Chapter 2, it was noted that U.S. managers can no longer afford to view
their firms as doing business on a huge island between the Pacific and the Atlantic Oceans.
Existing and pending multilateral trade agreements open vast opportunities to do business in
Europe and Asia, throughout the Americas, and indeed throughout the world. If present and
Topic Outline
I. Dimensions of the International Environment of Business
A. Political Dimensions
B. Economic Dimensions
C. Cultural Dimensions
D. Corruption and Trade
E. Legal Dimensions
1. National Legal Systems
F. Selected National Legal Systems
1. International Law
II. Methods of Engaging in International Business
A. Trade
B. International Licensing and Franchising
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1. Russian Entertainment Wholesale, Inc. v. Close-Up International, Inc.
C. Foreign Direct Investment
III. Risks of Engaging in International Business
A. Expropriation of Private Property
B. Sovereign Immunity Doctrine
1. Keller v. Central Bank of Nigeria
IV. Act-of-State Doctrine
A. Linde v. Arab Bank, PLC
B. Export and Import Controls
2. Import Controls
V. Legal and Economic Integration as a Means of Encouraging International Business Activity
A. The World Trade Organization
1. Purpose and Terms
3. Impact on Corporate Investment Decision Making
B. The European Union
2. Structure
C. North American Free Trade Agreement
1. Purpose
3. Impact
V. Global Dispute Resolution
A. Arbitration
VI. Summary
Discussion Questions for Chapter Eight
1. Explain why someone might think it’s true that a business manager must do a country
analysis before doing business in another nation state.
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2. Explain relationships between Islamic law and Hindu law.
3. Explain relationships between common law and Romano-Germanic Civil Law.
One major relationship between the two is that common law is based primarily on case law,
4. Evaluate this statement: International law comes exclusively from treaties between nations.
5. Explain relationships between international licensing and foreign direct investment.
International licensing involves a contractual agreement in which a company (licensor)
makes intellectual property available to a foreign individual or company (licensee) in return
6. Which risk of engaging in international business is the most significant?
7. Why does the text include a discussion of China?
The Legal Environment of Business: A Critical Thinking Approach
8. Why did NAFTA generate so much controversy before it was passed?
9. What groups would not be happy about the creation of the WTO?
10. Explain relationships between the WTO and the European Union (EU).
The WTO and EU are similar as both are committed to achieving free movement of goods
Answers to Critical Thinking about the Law, Case Summaries, and Answers
to Review Questions, Review Problems, and Case Problems
Suggested Answers to Critical Thinking about the Law Questions
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1. It is difficult enough for people who speak the same language to communicate. It is not
uncommon within one’s own country and culture for people to supply different meanings to
2. These questions are important because knowing a country’s primary ethical norms helps
people decide what assumptions they can make and what definitions they can supply for
3. Those who value freedom (to act without restriction from rules imposed by others) are likely
Case Summary—United States v. Kay
This case deals with bribes and the FCPA, or Foreign Corrupt Practice Act. David Kay and
Douglas Murphy ran the company ARI (American Rice, Inc.) in the Republic of Haiti. Both are
U.S. citizens. For a four-year period, they and other employees and officers of ARI paid bribes to
Haitian customs officials so shipments would be understated and therefore the company would
Suggested Answers to Critical Thinking about the Law Questions
1. Unlike bribery, an innocuous payment is one that does not give the business an unfair
2. The court obviously wants the system to be fair and to prevent corruption. They do not want
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Case Summary—Crosby v. National Foreign Trade Council
This case deals with state power to enact trade legislation. The state of Massachusetts
enacted a law that prevented trading with Burma. The U.S. Government also passed a law
placing sanctions on the country. The National Foreign Trade Council sued, citing the fact that
Case Summary—Russian Entertainment Wholesale, Inc. v. Close-Up International, Inc.
In this case, two Russian film studios granted rights to produce and distribute DVD versions
of their films to multiple licensees. Each licensee received different limited exclusive rights.
Krupny Plan, which could distribute the films only in the original Russian language, sublicensed
its rights to the films for home use in the United States and Canada to Close-Up, a New York
corporation. Ruscico could distribute multilingual versions of the same films that were dubbed or
Case Summary—In re Union Carbide Corp. Gas Plant Disaster v. Union Carbide Corp.
This case considers a claim by the Government of India (GOI) and several private class
action plaintiffs (Indian citizens) against Union Carbide India Limited (UCIL) and the parent
corporation, Union Carbide Corporation (UCC) for more than $1 billion following a disaster at a
chemical plant operated by UCIL in 1984. A federal district court had granted UCC’s motion to
dismiss on the ground that India (not the United States) was the appropriate forum. The U.S.
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Suggested Answers to the Critical Thinking about the Law Questions
1. Dear Judge Mansfield:
Before you decide whether to uphold the federal district court’s decision to grant UCC’s
motion to dismiss, please review the facts of the case. If you do, you will see that UCC’s
involvement in UCIL was extensive, and that the federal district court was incorrect in
granting UCC’s motion to dismiss.
First, UCC owns more than half the stock in UCIL. This is not “limited” involvement. Also,
2. No. An analogy is judged based on how similar or different one case is to another. The UCC
case involved a plant owned primarily by an American Company, but owned and operated
by Indians in India. The hypothetical involves a plant owned by Americans, operated in
3. It would help if the “American” plant were owned in large part by a German company, if
Case Summary—Keller v. Central Bank of Nigeria
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Suggested Answers to the Critical Thinking Questions
1. The most important facts related to the nature of the Nigerian government’s actions—
2. The case would have had a different ending if the Nigerian government had been acting as a
Case Summary—Linde v. Arab Bank, PLC
This case involved Arab Bank, one of the largest financial institutions in the Middle East.
Victims of terrorist attacks that were committed in Israel between 1995 and 2004 filed suit in
federal district court against Arab Bank, PLC, seeking damages under the Anti-Terrorism Act
Answers to Review Questions
8-1. Although Islamic law and socialist law are both major families of law, they are very
different. Islamic law is derived from the Shari’a, a code of rules designed to govern the
daily lives of all Muslims. In nations that have adopted Islamic law as their dominant
8-2. Foreign direct investment is usually considered the riskiest method of engaging in
international business because of the large capital flow from the multinational company
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8-3. a. Expropriation is the risk companies take when they engage in international business,
in which the host country government takes their private property for political or
economic reasons.
b. Doctrine of sovereign immunity is the risk which allows a government expropriating
8-4. The GATT Pact, which created the WTO, is important because it enforces a trade pact in
8.5. Arbitration is preferred to litigation because it is often cheaper, faster, and arbitrators who
Answers to Review Problems
8-6. Royal Bed should bring suit according to the jurisdiction in Brazil, since contract
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8-9. The United States Court of Appeals for the Second Circuit held that the plaintiffs’ claims
fell within the scope of the ICHEIC process. The court cited United States foreign policy
8-10. A variety of factors can be applied to decide whose law should apply. Ask students to
8-11. The United States will say that as the parent of the subsidiary, the laws of the United
States should apply, and it was OK to order the subsidiary to stop delivery of the
Answers to Case Problems
8-12. The court ruled that the commercial activity exception to sovereign immunity did apply.
In this case, the sovereign defendants stepped into the shoes of a financially troubled
8-13. The United States Court of Appeals for the Eleventh Circuit affirmed the lower court’s
decision dismissing the Lozas’ complaint for lack of subject matter jurisdiction,
Thinking Critically about Relevant Legal Issues
1. One could argue that as long as she was hired in the United States and the United States
regulated the company, she could file a claim in the United States. In this case, it seems as
The Legal Environment of Business: A Critical Thinking Approach