Chapter 25 The Regulation of International Transactions

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Chapter 25The Regulation of International
Transactions
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Chapter Objectives

• 1. Identify and discuss some basic principles
  and doctrines that frame international business
  transactions.
• 2. Describe some ways in which U.S.
  businesspersons do business internationally.
• 3. Explain how parties to international
  contracts protect against various risks through
  contractual clauses and letters of credit.
• 4. Discuss how specific types of international
  business activities are regulated by governments.
• 5. Give examples of the extraterritorial
  application of certain U.S. laws.

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International Principles and Doctrines

• International law is a body of written and
  unwritten laws that are observed by otherwise
  independent nations and that govern the acts of
  individuals as well as states.
• The three important legal principles and
  doctrines include
• Principle of Comity
• Act of State Doctrine
• Doctrine of Sovereign Immunity

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The Principle of Comity

• Under this principle, nations give effect to the
  laws and judicial decrees of other nations for
  reasons of courtesy and international harmony.

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The Act of State Doctrine

• A doctrine under which American courts avoid
  passing judgment on the validity of public acts
  committed by a recognized foreign government
  within its own territory.

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The Doctrine of Sovereign Immunity

• When certain conditions are satisfied, foreign
  nations are immune from U.S. jurisdiction under
  the Foreign Sovereign Immunities Act of 1976.
• Exceptions are made when the
• foreign state has waived its immunity either
  explicitly or by implication
• action is based upon a commercial activity
  carried on in the United States by the foreign
  state

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Case 25.1 Holden v. Canadian Consulate

• Canada closed its consulate in San Francisco
  which caused Arlene Holden to lose her job after
  thirteen years as a commercial officer. Canada
  then opened a small office with only one
  commercial officer, Mark Ritchie, who was younger
  and less experienced than Holden. Holden filed a
  suit against the consulate alleging
  discrimination. The consulate asked the court to
  dismiss under the FSIA.
• What did the courts rule?
• Does the commercial activities exception to the
  FSIA conflict with the Act of State Doctrine?

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Doing Business Internationally

• Ways in which U.S. domestic firms engage in
  international business transactions include
• exporting, which may involve foreign agents or
  distributors
• manufacturing abroad through licensing
  arrangements, franchising operations, wholly
  owned subsidiaries, or joint ventures

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Exporting

• Exporting can take two forms
• Direct exportingU.S. company signs a sales
  contract with a foreign purchaser that provides
  for the conditions of shipment and payment for
  the goods.
• Indirect exportingcan be undertaken by the
  appointment of a foreign agent or a foreign
  distributor.

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What Is a Commercial Activity?

• According to the U.S. Supreme Court, a state
  engages in a commercial activity where it
  exercises only those powers that can also be
  exercised by private citizens as distinct from
  those powers peculiar to sovereigns.
• In addition to finding that a government-controlle
  d foreign defendant has engaged in a commercial
  activity, what other requirement must be met
  before a U.S. court can exercise jurisdiction
  over the defendant?

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Manufacturing Abroad

• U.S. firms want to establish manufacturing
  plants abroad if they believe that by doing so
  they will reduce costs, particu-larly for labor,
  shipping, and raw materials, and thereby be able
  to compete more effectively in foreign markets.

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Commercial Contracts in an International Setting

• Choice-of-language, forum-selection, and
  choice-of-law clauses are often included in
  international business contracts to reduce the
  uncertainties associated with interpreting the
  language of the agreement and dealing with legal
  differences.
• Force majeure clauses are included in most
  domestic and international contracts.
• They commonly stipulate that certain events, such
  as floods, fire, accidents, labor strikes, and
  shortages, may excuse a party from liability for
  nonperformance of the contract.
• Arbitration clauses are also frequently found in
  international contracts.

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Legal Documents in French

• In 1995, France implemented a law making the use
  of French mandatory in certain legal documents.
• Certain legal terms in documents governed by U.S.
  or English law have no equivalent terms or
  phrases in the French legal system.
• How might language differences affect the meaning
  of certain terms or phrases in an international
  contract?

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Making Payment on International Transaction

• Currency differences between nations and the
  geographical distance between parties to
  international sales contracts add a degree of
  complexity to international sales that does not
  exist within the domestic market.
• Because international contracts involve greater
  financial risks, special care should be taken in
  drafting these contracts to specify both the
  currency in which payment is to be made and the
  method of payment.

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Monetary Systems

• Currency conversion
• Because nations have different monetary systems,
  payment on international contracts requires
  currency conversion at a rate specified in a
  foreign exchange market.
• Correspondent banking
• Correspondent banks facilitate the transfer of
  funds from a buyer in one country to a seller in
  another.

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Arbitration Clauses

• One reason many businesspersons find it
  advantageous to include arbitration clauses in
  their international contracts is because
  arbitration awards are usually easier to enforce
  than court judgments.
• What might be some other advantages of
  arbitration in the context of international
  transactions? Are there any disadvantages?

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Letters of Credit

• Letters of credit facilitate international
  transactions by ensuring payment to sellers and
  ensuring to buyers that payment will not be made
  until the sellers have complied with the terms of
  the letters of credit.
• Typically, compliance occurs when a bill of
  lading is delivered to the issuing bank.

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Case 25.2 Pacific Reliant Industries, Inc. v.
Amerika Samoa Bank

• Pacific Reliant Industries sold building
  materials to a company in American Samoa on the
  strength of a letter-of-credit (LC) issued by
  Amerika Samoa Bank (ASB).
• Later, alleging that ASB had wrongfully
  dishonored the LC, Pacific brought suit in Oregon
  against ASB to recover payment.
• The court dismissed the suit for lack of
  sufficient personal jurisdiction and Pacific
  appealed.
• If a court could exercise jurisdiction over a
  nonresident corporation that did not have minimum
  contacts with the jurisdiction in which the suit
  was brought, what might result?

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Regulation of Specific Business Activities

• In the interests of their economies, foreign
  policies, domestic policies, or other national
  priorities, nations impose laws that restrict or
  facilitate international business.
• Such laws regulate foreign investments exporting
  and importing activities and in the U.S., the
  bribery of foreign officials to obtain favorable
  contracts.
• The General Agreement on Tariffs and Trade
  attempts to minimize trade barriers among
  nations, as do regional trade agreements,
  including the European Union and the North
  American Free Trade Agreement.

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U.S. Laws in Global Context

• Antitrust laws
• U.S. antitrust laws may be applied beyond the
  borders of the United States.
• Any conspiracy that has a substantial effect on
  commerce within the United States may be subject
  to the Sherman Act, even if the violation occurs
  outside the U.S.
• Discrimination laws
• The major U.S. laws prohibiting employment
  discrimination cover U.S. employees working
  abroad for U.S. firmsunless to apply the U.S.
  laws would violate the laws of the host country.

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Case 25.3 United States v. Nippon Paper
Industries Co.

• A criminal indictment was filed against Nippon
  Paper Industries Co. (NPI) and others alleging
  that the meetings to reach the agreement had
  occurred entirely in Japan but that the
  defendants had sold the paper through
  subsidiaries in the United States at above-normal
  prices. These activities had allegedly violated
  Section 1 of the Sherman Act. NPI filed a motion
  to dismiss.
• What did the courts rule?
• Why should the United States apply its antitrust
  laws to business firms owned by citizens or the
  government of another nation?

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Discrimination Laws

• There are laws in the U.S. prohibiting
  discrimination on the basis of race, color,
  national origin, religion, sex, age, and
  disability.
• These laws, as they affect employment
  relationships, generally apply extraterritorially.

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For Review

• 1. What is the principle of comity, and why do
  courts deciding disputes involving a foreign law
  or judicial decree apply this principle?
• 2. What is the Act of State Doctrine? In what
  circumstances is this doctrine applied?
• 3. A foreign nation is not immune from the
  jurisdiction of U.S. courts if the nation waives
  its immunity. Under the Foreign Sovereign
  Immunities Act of 1976, on what other basis might
  a foreign state be considered subject to the
  jurisdiction of U.S. courts?
• 4. In what circumstances will U.S. antitrust
  laws be applied extraterritorially?
• 5. Do U.S. laws prohibiting employment
  discrimination apply in all circumstances to U.S.
  employees working for U.S. employers abroad?