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C H A P T E R 2 4
INTERNATIONAL LAW AND TRANSACTIONS
International companies need to navigate international laws. In today’s global economy
managers must understand the risks as to take advantage of international opportunities. This
chapter reviews laws of nations, international treaties, customs and relevant court decisions. The
chapter also discusses NAFTA and WTO regulations. It concludes with international business
transactions and questions of litigation.
I. TYPES OF LEGAL SYSTEMS. Legal systems around the world vary dramatically. A U.S.
company must follow the laws of the United States. A U.S. multinational company must
A. Common Law. The U.S., Britain and a few other countries are based on the
English common law, which is based historically on case law and precedents.
However there is a growing reliance on federal and state statutes.
C. Other Families of Law.
1. Islamic law.
CASE 24.1 Awad v. Ziriax, 2012 WL 50636 (10th Cir. Jan. 10, 2012).
Oklahama passed the “Save Our State Amendment” which
provided that Oklahoma courts could not consider
2. Hindu-based law is primarily tied to personal or private family matters
(marriage, divorce, and inheritance)
II. SOURCES OF INTERNATIONAL LAW. Public international law concerns interstate action,
private international law touches upon non-state action.
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A. Treaties. National law usually comports with the dictates of international treaties.
CASE 24.2 Medellin v. Texas, 552 U.S. 491 (2008). Jose Medellin, a Mexican
national, was convicted and sentenced to death for participating in
the gang rape and murder of two teenage girls in Houston.
Medellin raised a post-conviction challenge arguing that the state
had violated his rights under the Vienna Convention, a treaty to
which the United States is a party. Article 36 of the Vienna
Mexican nationals (including Medellin) and that their convictions
must be reconsidered. Medellin argued that the Vienna Convention
granted him an individual right that state courts must respect.
Medellin also cited a memorandum from the President of the
United States that instructed state courts to comply with the ICJ’s
rulings by rehearing the cases. Medellin argued that the
B. Customary International Law. Created by customary practice. Analogous to
“established practice” and “commercial usage.” A state/nation implicitly consents
to customary practice through continuous observation of the practice. The Alien
Tort Statute (ATS) grants U.S. federal district courts jurisdiction over claims by
an alien.
CASE 24.3 Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010),
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C. Decisions of International, National, and Regional Courts.
D. National Laws.
1. National Laws Directed at Foreign Owned Businesses.
(i) Constraints on Foreign Ownership. Some governments limit levels
of foreign ownership and also limit wealth extraction.
(ii) Nationalization, Expropriation, Confiscation, and Privatization.
2. National Laws Directed At International Business Activities.
(i) Sanctions include boycotts, embargoes and trade restrictions to
control or sanction foreign governments.
BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT 7TH ED—INSTRUCTOR’S MANUAL
3. Extraterritorial Application of National Laws.
III. INTERNATIONAL PRIVACY LAWS.
IV. FOREIGN CORRUPT PRACTICES ACT. Exceptions: payments to low-ranking officials
for expedited service, payments to foreign businesses as long as they are not acting as
conduits for money to pass to foreign government.
V. INTERNATIONAL BANKING REGIME. Basel III passed in 2012, addresses firm-specific
VI. U.S. TRADE REGIME is controlled by Congress and various executive agencies.
A. Role of Government Branches and Agencies in Trade Relations.
• Trade Promotion Authority is fast-track negotiating authority.
2. Administrative Agencies.
B. Laws Affecting Exports.
1. Export Administrative Act allows the Secretary of Commerce to deny
certain exports as matters of national security.
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4. Penalties for Violations of Export Regulations can be five times the value
C. Laws Affecting Imports.
1. Tariffs are a tax on imports, usually ad valorem.
• The Harmonized Tariff Schedule applies tariffs based on the
2. Import Relief Laws the President has discretionary authorization to apply
tariffs on specific products.
• Section 201 is designed to aid American producers hurt by
imports.
VII. INTERNATIONAL TRADE REGIMES. Because bilateral agreements can be limited and
inefficient, international capital prefers governments to create larger agreements.
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C. Basic Principles of the WTO: MNF treatment, bound tariffs, and national
treatment.
1. Most Favored Nation Treatment. All nations in the WTO are to be treated
equally.
2. Bound Tariffs. Once tariffs are lowered they are not to be raised.
D. Other GATT and WTO Principles.
1. Nontariff Barriers are not allowed, e.g. requiring that products have labels
noting the use of child-labor or the use of pesticides.
2. Environmental and Health Exceptions and the SPS (Sanitary
Phytosanitary Measures) Agreement. Countries can enforce
CASE 24.4 EC-Measures Affecting the Approval and Marketing of
Biotech Products, World Trade Organization Dispute
Settlement Body, 2006. A special panel ruled that the EC’s
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VIII. REGIONAL ECONOMIC INTEGRATION. Regional alliances and customs unions seek to
harmonize internal trade rules and eliminate barriers to trade. The European Union has
been a long time in formation, and since 2001 has a single currency and a common
customs tariff.
A. The European Union. Currently consists of 27 member European states.
1. Principal EU Institutions there are five institutions responsible for
governing the EU.
• The European Commission is the executive branch, composed of
25 appointed leaders, it is the policy-making arm.
•
2. Emissions Trading Scheme.
3. Challenges include no common European citizenship, no unitary
IX. STRUCTURING INTERNATIONAL OPERATIONS. Representative and liaisons can set up
a branch office in foreign countries, and can provide limited services.
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X. CONTRACTING IN AN INTERNATIONAL ENVIRONMENT.
A. Payment and Letters of Credit. Two sets of rules can apply: (i) Article 5 of the
UCC, and (ii) ICC Uniform Customs and Practice for Documentary Credits.
XI. INVESTMENT ABROAD. Before investing, U.S. firms must assess goals and consider
various factors.
A. Investment Goals and Competitive Position.
1. Local Market Penetration.
B. Host Country Conditions. Perspective investors must consider a number of
economic, legal, and other matters:
1. Economic Conditions.
C. Financial Issues.
1. Currency Considerations.
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4. Noncommercial Issues.
XII. DISPUTE RESOLUTION IN INTERNATIONAL BUSINESS.
A. Dispute Resolution Mechanisms. International law offers several methods to
resolve disputes.
1. The Complexity of Arbitration and Litigation: The Cases Brought Against
Chevron by the Government of Ecuador and the Residents of the Lago
Agrio Region.
CASE 24.5 Chevron Corp. v. Naranjo, 667 F.3d 232 (2d Cir. 2012). A
very complicated, years-long litigation between Chevron
and the Lago Agrio plaintiffs (LAPs). The LAPs filed suit
in U.S. District court in New York, claiming Chevron was
responsible for a variety of environmental, health, and other
B. Limited Discovery.
C. Recovery of Attorney’s Fees.
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D. Choice of Law and Choice of Forum. Parties can agree which set of laws or
which forum will govern a dispute.
F Forum Non Conveniens.
CASE 24.6 Carijano v. Occidental Petroleum Corp., 643 F.3d 1216 (9th Cir.
2011). The Achuar people and Amazon Watch sued Occidental in
Los Angeles county alleging environmental contamination and
release of hazardous waste into the rain forests in Peru where the
Achuar people live. The complaint alleged that Occidental
1. Sovereign Immunity prevents the courts of one country from hearing suits
against other governments.
2. Foreign Sovereign Immunities Act of 1976 (FSIA) grants blanket
immunity to foreign states except for specific circumstances. The
THE RESPONSIBLE MANAGER: TEACHING SUGGESTIONS.
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1. Discuss how the legally astute manager would accomplish the following before entering
new markets:
• Learn customs, substantive, and local laws
2. What are the inherent problems with enforcement of international contractual disputes?