INTERNATIONAL BUSINESSLEGAL SYSTEMS

Learning Plan 4: Competency: Explain how different legal systems can affect business transactions.

Why this skill is Important: This section will acquaint the learner with basic legal issues and international law as it relates to business.

Linked Core Abilities: Learner will:____ 1. Work cooperatively____ 2. Learn effectively____ 3. Demonstrate effective critical and creative thinking____ 4. Communicate clearly and effectively____ 5. Assure quality____ 6. Act with integrity

Performance Criteria: Performance will be satisfactory when:____ 1. Learner completes in-class activities____ 2. Learner successfully completes quiz

Performance Conditions: Conditions for assessment:____ 1. Using text and background information

Learning Objectives: Learner will:____ 1. Acquaint self with different legal systems____ 2. Discuss jurisdiction issues for international business deals____ 3. Define a jurisdictional clause____ 4. Review intellectual property issues in an international setting

Learning Activities: Learner will:____ 1. Participate in class discussion____ 2. Read Chapters 3 & 4 ____ 3. Contrast world legal systems____ 4. Research current international legal disputes (World Court

issues)

Performance Assessment Statements:____ 1. Completion of topic quiz and section exam with 80%

accuracy

International ContractsDescribe some of the most important issues in drafting international contracts.

As we indicated at the beginning of this chapter, international law refers to the “written and unwritten laws observed by independent nations.” These laws are important to businesses because they regulate trade and commercial activities of all types between nations. The last portion of this chapter will focus on a few key concepts that are important to businesses when they are drafting contracts that involve parties from more than one nation.

Choice-of-language clause specifies the official language for an international contract.

Choice of Language. Most international contracts involve parties who represent countries with different languages. It is always difficult to translate complex legal terminology from one language to another. As a result, to prevent later problems arising from language, the contract should have a choice-of-language clause that specifies the official language for the contract. This problem is not as important when citizens of countries that speak the same language are negotiating a contract. However, even in these cases, a word may mean one thing in the United States but have a very different meaning in Canada, Australia, or England. Therefore, the use of language is very important in all international transactions.

Choice-of-forum clause specifies which nation’s courts will be asked to enforce on international contract.

Choice of ForumWhen two or more parties are preparing to sign an international contract, the contract should include a choice-of-forum clause that specifies which nation’s courts will be asked to enforce the contract. If this clause does not exist, a great deal of time and money will be wasted deciding which nation’s courts will try the case, should a problem arise.

Force majeure clause specifies under what conditions one or both parties to an international contract will be able to escape their defined responsibilities.

Force Majeure ClauseEvery international contract should have a force majeure clause, which is also called an act of God clause. This permits one or both parties to escape their responsibilities under the contract if certain events occur that are truly beyond their control. Fire, wind, and flood are examples of events covered by most force majeure clauses in domestic contracts. While these are important in the international setting, it is also important to include declared and undeclared war, government directives, and expropriation of assets by foreign governments.

World Court a division of the United Nations whose objective is to resolve legal conflicts between two or more nations.

Refers to figure 4-1 – don’t have it though

The World CourtThe World Court is a part of the United Nations, and its objective is to resolve legal conflicts between two or more nations. While it has the most impressive name of any court, it is not shown in figure 4-1 because it has no authority over either the United States Supreme Court or state supreme courts. The court’s 15 judges are selected by the United Nations General Assembly and the Security Council.The World Court’s authority is quite limited. Only nations can appear before the World Court. A French business that claims it has been treated unfairly by a Spanish firm, or even the Spanish government, has no access to the World Court.What’s more, the court tries only cases in which both nations agree to appear before it. In addition, the World Court has no authority or power to enforce its decisions. It must rely totally on the good will of the nations that agree to appear before it as well as on the weight of the opinion of the world community.

Is increasing, multinational firms could see world markets decreasing n a relative basis since the monied world is losing numbers and poor nations are gaining numbers. Population size is important in marketing, but people must have a means to buy to be an effective market. (This does not seem to fit here)

World Trade RoutesMajor world trade routes have developed among the most industrialized countries of the world—Europe, North America, and Japan. It might be said that trade routes bind the world together, minimizing distance, natural barriers, lack of resources, and fundamental differences between peoples and economies. Early trade routes were, of course, overland; later came sea routes and, finally, air routes to connect countries. Trade routes represent the attempts of countries to overcome economic and social imbalances created in part by the influence of geography.

A careful comparison among world population figures in Exhibit 3-2, Triad trade figures in Exhibit 3-3 and world trade figures in Exhibit 3-4 illustrates how small a percentage of the world’s land mass and population account for the majority of trade. It is no surprise that the major sea lanes and the most developed highway and rail systems link these major trade areas. The more economically developed a country, the better developed the surface transportation infrastructure is to support trade.

Although air freight is not extremely important as a percentage of total freight transportation, an interesting comparison between surface routes and air routes is air service to the world’s less industrialized countries. Although air routes are the heaviest between points in the major industrial centers, they are also heavy to points in less developed countries. The obvious reason is that for areas not located on navigable waters or where the investment in railroads and effective highways is not yet feasible, air service is often the best answer. Air communications have made otherwise isolated parts of the world reasonably accessible.

Historical Perspective in Global Business

Exhibit 3-4 Leading World Trading Countries, 1992 ($ millions)

Country Exports Imports Total

U.S.A. $447.4 $552.6 $1,000.0Germany 429.3 407.9 837.2Japan 340.0 232.0 572.9United Kingdom 190.1 220.9 411.0Italy 180.0 190.7 370.7Netherlands 138.9 130.3 269.2Canada 133.4 126.8 260.2Belgium/Luxembourg 122.9 124.9 247.8Hong Kong 119.5 123.4 242.9China 86.2 81.7 167.9Spain 64.5 98.6 163.1South Korea 74.8 81.4 156.2Taiwan 81.4 72.3 153.7Switzerland 65.5 65.7 131.2Singapore 49.6 76.1 125.7

To understand, explain, and appreciate a people’s image of itself and the fundamental attitudes and unconscious fears that are often reflected in its view of foreign cultures, it is necessary to study the culture as it is now as well as to understand the culture as it was, that is, a country’s history. An awareness of the history of a country is particularly effective for understanding attitudes about the role of government and business, the relations between managers and the managed, the sources of management authority, and attitudes toward foreign multinational corporations (MNCs). History helps define a nation’s “mission,” how it perceives its neighbors, and how it sees its place in the world.

History and Contemporary Behavior

Unless you have a historical sense of the many changes that have buffeted Japan, the isolation before the coming of Admiral Perry in 1853, the threat of domination by colonial powers, the rise of new social classes, Western influences, the humiliation of World War II, and involvement in the international community, it is difficult to fully understand its contemporary behavior. Why do the Japanese have such strong loyalty toward their companies? Why is the loyalty found among participants in the Japanese distributions systems so difficult for an outsider to develop? Why are decision made by consensus? Answers to such questions can be explained in part by some sense of Japanese history.

Loyalty to family, to country, to company, and to social groups and the strong drive to cooperate, to work together for a common cause, permeate many facets of Japanese behavior and have historical roots that date back for hundreds of years. Loyalty and service, a sense of responsibility, and respect for discipline, training, and artistry have been stresses since ancient times as necessary for stability and order. Confucian philosophy, taught throughout Japan’s history, emphasized the basic value of loyalty “of friend to friend, of wife to husband, of child to parent, of brother to brother, but, above all, of subject of lord,” i.e., to country. A fundamental premise of Japanese ideology reflects the importance of cooperation for the collective good. Japanese achieve consensus by agreeing that all will unite against outside pressures which threaten the collective good. A historical perspective gives the foreigner in Japan a basis on which to begin developing cultural sensitivity and a better understanding of contemporary behavior.

History is Subjective

History is important in understanding why a country behaves as it does, but history from whose viewpoint? Historical events are always viewed from one’s own biases, and thus what is recorded by one historian may not be what another records, especially if the historians are from different cultures. Historians are traditionally objective, but few can help filtering events through their own cultural biases. Not only is history sometimes subjective, but there are other subtle influences to our perspective. Maps of the world sold in the United States generally show the United States as the center, as maps in Britain show Britain in the center, and so on.

A crucial element in understanding any nation’s business and political culture is the subjective perception of its history. Why do Mexicans have a love/hate relationship toward the United States? Why were Mexicans required to have majority ownership in most foreign investments until recently? Why did dictator General Porfiario Diaz lament, “Poor Mexico, so far from God, so near the United States”? Because Mexicans see the United States as a threat to their political, economic, and cultural independence. Most citizens of the United States find such feelings a mystery. After all, the United States has always been Mexico’s good neighbor. Most would agree with President John F. Kennedy’s proclamation during a visit to Mexico, “Geography has made us neighbors, tradition has made us friends.” North Americans may be surprised to learn that most Mexicans “felt it more accurate to say ‘Geography has made us closer, tradition has made us far apart.’”

North Americans feel they have been good neighbors. They see the Monroe Doctrine as protection for Latin America from European colonization and the intervention of Europe in the governments of the Western Hemisphere. Latin Americans tend to see the Monroe Doctrine as an offensive expression of U.S. influence in

Latin America. Or to put it another way, “Europe keep your hands off, Latin America is only for the United States.

United States Marines sing with pride of their exploits “from the halls of Monetzuma to the shores of Tripoli.” To the Mexican, the “halls of Montezuma” is remembered as U.S. troops marching all the way to the center of Mexico City and extracting as tribute 89,000 square miles that included Texas, New Mexico, Arizona, and California. Los Ninos Heroes (the boy heroes), who resisted U.S. troops, wrapped themselves in Mexican flags, and jumped to their deaths rather than surrender, are remembered by a prominent monument at the entrance of Chapultepec Park, but every Mexican can recount the heroism of Los Ninos Heroes and the loss of Mexican territory to the United States.

The Mexican Revolution, which overthrew dictator Diaz and launched the modern Mexican state, is particularly remembered for the expulsion of foreigners, especially North American businessmen who were the most visible of the wealthy and influential entrepreneurs in Mexico.

Manifest Destiny and the Monroe Doctrine were accepted as the basis for U.S. foreign policy during much of the 19th and 20th centuries. Manifest Destiny, in its broadest interpretation, meant that Americans were a chosen peopled ordained by God to create a model society. More specifically, it referred to the desires of American expansionists in the 1840s to extend the U.S. boundaries from the Atlantic to the Pacific. The idea of Manifest Destiny was used to justify U.S. annexation of Texas, Oregon, New Mexico, and California and later, U.S. involvement in Cuba, Alaska, Hawaii, and the Philippines.

The Monroe Doctrine, a corner stone of U.S. foreign policy, was enunciated by President James Monroe in a public statement proclaiming three basic dicta: no further European colonization in the New World, abstention of the United States from European political affairs, and nonintervention of European governments in the governments of the Western Hemisphere.

After 1870, interpretation of the Monroe Doctrine became increasingly broad. In 1881, its principles were evoked in discussing the development of an interoceanic canal across the Isthmus of Panama. The Monroe Doctrine was further applied by Theodore Roosevelt with what became known as the Roosevelt Corollary to the Monroe Doctrine. The corollary stated that not only would the United States prohibit non-American intervention in Latin American affairs but it would also police the area and guarantee that Latin American nations met their international obligations. The corollary sanctioning American intervention was applied in 1905 when Roosevelt forced the Dominican Republic to accept the appointment of an American economic adviser who quickly became the financial director of the small state; it was used in the acquisition of the Panama Canal Zone from Colombia in 1903, and the formation of a provisional government in Cuba in 1906.

Exhibit 3-5 Birth of a Nation – Panama in 67 hoursThe stage is setJune 1902 U.S. offers to buy Panama Canal Zone from Colombia for $10 million.

August 1903 The Colombian Senate refuses the offer.

Theodore Roosevelt, angry on hearing of the refusal, is alleged to have referred to the Colombian Senate as “those contemptible little creatures in Bogota.” Roosevelt agrees to a plot, led by Dr. Manuel Amador, a secessionist, to assist a group to secede from Colombia.

October 17 Panamanian dissidents travel to Washington and agree to stage a U.S. backed revolution. Date of revolution set for 6 p.m. November 3.

October 18 Flag, constitution, and declaration of independence created over the weekend.

Panama’s first flag was designed and sewn by hand in Highland Falls, New York, using fabric bought at Macy’s.

Bunau-Varilla, a French engineer associated with the bankrupt French-Panama canal construction company and who had no permanent residence in Panama, was named Panama’s ambassador to the United States.

A Country is BornTuesday, Precisely at 6 p.m., bribes are paid to the Colombian garrison to lay down their November 3 arms. The revolution begins, the U.S.S. Nashville steams into Colon harbor, and the

junta proclaims Panama’s independence.

Friday, By 1:00 p.m., the United States recognizes the sovereign state of Panama.November 6

Saturday, The new government sends an official delegation from Panama to the United States November 7 to instruct the Panamanian ambassador to the United States on provisions of the

Panama Canal Treaty.

Wednesday, 6:40 p.m., the Panamanian ambassador signs the Panama Canal TreatyNovember 18

Wednesday, At 11:30 p.m., official Panamanian delegation arrives at Washington, D.C. railroad November 18 station and is met by their ambassador who informs them that the treaty was signed

just hours earlier.

1977-- United States agrees to relinquish control of Panama Canal Zone in 2000.

2000-- Panama Canal Zone reverts to Panama????

The manner in which the United States acquired the land for the Panama Canal Zone typifies the Roosevelt Corollary—whatever is good for the United States is justifiable. As Exhibit 3-5 illustrates, the creation of the country of Panama was a total fabrication of the United States. Today, such adventures would hardly be condoned by the United States or its allies but, then, it is true, the United States did send troops to Panama in 1990 to bring Panama’s President Noriega to justice and, in 1994, the United States sent more than 20,000 troops to occupy Haiti and return “democracy” there.

According to U.S. history, these Latin American adventures were a justifiable part of our foreign policy; to Latin Americans, they were unwelcome intrusions in Latin American affairs. The way historical events are recorded and interpreted in one culture can differ substantially from the way those same events are recorded and interpreted in another. A comparison of histories goes a long way in explaining the differences in outlooks and behavior of people on both sides of the border. Many Mexicans believe that their “good neighbor” to the north is not reluctant to throw its weight around when it wants something. There are suspicions that self-interest is the primary motivation in good relations with Mexico, whether it be fear of Fidel Castro or eagerness for Mexican oil today.

By seeing history from a Latin American’s perspective, it is understandable how a national leader, under adverse economic conditions, can point a finger at the United States or a U.S. multinational corporation and evoke a special emotional, popular reaction that would divert attention away from the government in power. The leader might be cheered for expropriation or confiscation of a foreign investment, even though the investment was making an important contribution to the economy. To understand a country’s attitudes,

prejudices, and fears, it is necessary to look beyond the surface of current events to the inner subtleties of the country’s entire past for clues.

Summary

One British authority admonishes foreign marketers to study the world until “the mere mention of a town, country, or river enables it to be picked out immediately on the map.” Although it may not be necessary for the student of foreign marketing to memorize the world map to that extend, a prospective international marketer should be reasonable familiar with the world, its climate, and topographic differences. Otherwise, the important marketing characteristics of geography could be completely overlooked when marketing in another country. The need for geographical and historical knowledge goes deeper than being able to locate continents and their countries. For someone who has never been in a tropical rain forest with an annual rainfall of at least 60 inches and sometimes more than 200 inches, it is difficult to anticipate the need for protection against high humidity, or to anticipate the difficult problems caused by dehydration in constant 100-degree-plus heat in the Sahara region. Without a historical understanding of a culture, the attitudes within the marketplace may not be understood.

Aside from the simpler and more obvious ramifications of climate and topography, there are complex geographic and historical influences on the development of the general economy and society of a country. In this case, the need for studying geography and history is to provide the marketer with an understanding of why a country developed as it has rather than as a guide for adapting marketing plans. Geography and history are two of the environments of foreign marketing that should be understood and that must be included in foreign marketing plans to a degree commensurate with their influence on marketing effort.

Exporting Ice to India

A mainstay of New England’s 19th-century commerce was the ice trade between New England and the world. In 1806, before the invention of mechanical ice making, a demand for ice in the tropics led a New England resident, Frederic Tudor, to pioneer the transportation of ice to the tropics. His first shipment to Martinique, 130 tons, was harvested from a family pond in New England. The venture was not at first a financial success. Tudor had to solve problems with inefficiency in harvesting, keeping the ice from melting, and developing a market. He demonstrated how ice could be used to make ice cream; he promoted the use of iceboxes for keeping food fresh; he fostered the medical application of ice in reducing fever, and he sold his ice cheaply to encourage customers to build his market. The ice was stored in insulated ice houses where preservation was improved by the simple innovation of packing sawdust between the ice blocks.

By 1833 his ice exporting business was a financial success. It was at this time that he began exporting ice to Calcutta. His ice exporting was such a success in India that three ice houses were built to store the ice once it arrived by ship. An ice house at Madras still stands today. And so went one of the first global marketing ventures.

Source: Reprinted by Permission of American Heritage Magazine, a division of Forbes, Inc c 1991 Forbes, Inc.