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© 2003 Prentice Hall© 2003 Prentice Hall Ch. 3-Ch. 3-11
THE LEGAL ENVIRONMENT OF BUSINESS
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-11
THETHE LEGALLEGAL ENVIRONMENTENVIRONMENT OFOF BUSINESSBUSINESS
A Critical Thinking ApproachA Critical Thinking ApproachA Critical Thinking ApproachA Critical Thinking ApproachFourth EditionFourth Edition
Nancy K. KubasekNancy K. Kubasek
Bartley A. BrennanBartley A. Brennan
M. Neil BrowneM. Neil Browne
Nancy K. KubasekNancy K. Kubasek
Bartley A. BrennanBartley A. Brennan
M. Neil BrowneM. Neil Browne
© 2006 Prentice Hall© 2006 Prentice Hall© 2006 Prentice Hall© 2006 Prentice Hall
The International Legal The International Legal Environment of BusinessEnvironment of Business
CHAPTER 9CHAPTER 9
THE LEGAL ENVIRONMENT OF BUSINESS
Ch. 9-Ch. 9-22
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-33
THE LEGAL ENVIRONMENT OF BUSINESS
Chapter 9 OverviewChapter 9 Overview
All business is international businessAll business is international business
Opportunities for U.S. companiesOpportunities for U.S. companies
Competing in a global marketCompeting in a global market
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-44
THE LEGAL ENVIRONMENT OF BUSINESS
Dimensions of the International Dimensions of the International Environment of BusinessEnvironment of Business
PoliticalPolitical EconomicEconomic
CulturalCulturalLegalLegal
EthicalEthical
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-55
THE LEGAL ENVIRONMENT OF BUSINESS
Economic DimensionsEconomic Dimensions
Growth rateGrowth rate
Central planning or market economyCentral planning or market economy
Disposable incomeDisposable income
Transportation infrastructureTransportation infrastructure
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-66
THE LEGAL ENVIRONMENT OF BUSINESS
Political DimensionsPolitical Dimensions
DemocraticDemocratic TotalitarianTotalitarian
DecentralizedDecentralized CentralizedCentralized
Free Market Free Market Planned EconomyPlanned Economy
Civil LibertiesCivil Liberties StabilityStability
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-77
THE LEGAL ENVIRONMENT OF BUSINESS
Cultural DimensionsCultural Dimensions
Definition
“Culture consists of learned norms of a society based on values, beliefs and attitudes”
Definition
“Culture consists of learned norms of a society based on values, beliefs and attitudes”
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-88
THE LEGAL ENVIRONMENT OF BUSINESS
Elements of CultureElements of Culture
LanguageLanguage
ReligionReligion
Group MembershipGroup Membership
AttitudesAttitudes
EducationEducation
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-99
THE LEGAL ENVIRONMENT OF BUSINESS
Legal DimensionsLegal Dimensions
National Legal Systems:National Legal Systems:
Common LawCommon Law
Civil LawCivil Law
Islamic LawIslamic Law
Socialist LawSocialist Law
Hindu LawHindu Law
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1010
THE LEGAL ENVIRONMENT OF BUSINESS
Common LawCommon Law
Origins in England and its coloniesOrigins in England and its colonies
Case LawCase Law
PrecedentPrecedent
RetrospectiveRetrospective
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1111
THE LEGAL ENVIRONMENT OF BUSINESS
Civil LawCivil Law
Origins in Europe Romano-GermanicOrigins in Europe Romano-Germanic
Code or Statutory LawCode or Statutory Law
RegulatoryRegulatory
ProspectiveProspective
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1212
THE LEGAL ENVIRONMENT OF BUSINESS
Islamic LawIslamic Law
Religious-Based:Religious-Based: fundamentally from the Koran fundamentally from the Koran
Set forth in the Shari’aSet forth in the Shari’a
Woven into all aspects of daily life, the family, Woven into all aspects of daily life, the family, and institutions of governmentand institutions of government
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1313
THE LEGAL ENVIRONMENT OF BUSINESS
Socialist LawSocialist LawOrigins in socio-economic theories of MarxOrigins in socio-economic theories of Marx
Law applied to advance the collective Law applied to advance the collective ownership of property and the means of ownership of property and the means of productionproduction
Private rights subordinate to collective Private rights subordinate to collective rights as expressed through the staterights as expressed through the state
Ultimate goal is to evolve beyond the need Ultimate goal is to evolve beyond the need for lawfor law
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1414
THE LEGAL ENVIRONMENT OF BUSINESS
Hindu LawHindu LawReligious origins in the Sastras and the Religious origins in the Sastras and the VedasVedas
Law advances compliance with the caste Law advances compliance with the caste systemsystem
Focus on family and successionFocus on family and succession
Codified into India’s national lawsCodified into India’s national laws
As a former British colony, India also As a former British colony, India also shares some common law traditionsshares some common law traditions
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1515
THE LEGAL ENVIRONMENT OF BUSINESS
International LawInternational Law
Traditional View:Traditional View:
Public sector actions can directly affect Public sector actions can directly affect private international agreementsprivate international agreements
Realistic View:Realistic View:
PublicPublic PrivatePrivate
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1616
THE LEGAL ENVIRONMENT OF BUSINESS
Sources of International LawSources of International Law
CustomsCustoms
TreatiesTreaties
Judicial DecisionsJudicial Decisions
Scholarly WritingsScholarly Writings
International OrganizationsInternational Organizations
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1717
THE LEGAL ENVIRONMENT OF BUSINESS
Examples of International LawExamples of International Law
VisasVisas
Tax treatiesTax treaties
Certain intellectual Certain intellectual property right property right protectionsprotections
FCN treatiesFCN treaties
Multilateral Multilateral trade trade agreements:agreements:
NAFTANAFTA
ASEANASEAN
WTOWTO
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1818
THE LEGAL ENVIRONMENT OF BUSINESS
Methods of Engaging in International Methods of Engaging in International BusinessBusiness
Low RiskLow RiskTrade: Stay Home and ExportTrade: Stay Home and Export
Low/Medium RiskLow/Medium Risk
Medium RiskMedium RiskLicensing, FranchisingLicensing, Franchising
High RiskHigh RiskDirect InvestmentDirect Investment
DistributorsDistributors Sales RepsSales Reps
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-1919
THE LEGAL ENVIRONMENT OF BUSINESS
International TradeInternational Trade
DEFINITION
Export and import of goods and services from one country to/from another
DEFINITION
Export and import of goods and services from one country to/from another
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2020
THE LEGAL ENVIRONMENT OF BUSINESS
Reasons for International TradeReasons for International Trade
Ricardo:Ricardo: The The Economic TheoryEconomic Theory of of Comparative AdvantageComparative Advantage
Relative efficiencyRelative efficiency
Assumptions in the model vs. the Assumptions in the model vs. the real world: There is no ‘free trade’real world: There is no ‘free trade’
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2121
THE LEGAL ENVIRONMENT OF BUSINESS
International Licensing International Licensing Broadly applicable as to subject matter of licenseBroadly applicable as to subject matter of license
Trade Secrets Copyrights
PatentsTrademarks
Technology Know How
Trade Dress
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2222
THE LEGAL ENVIRONMENT OF BUSINESS
Franchising AgreementsFranchising Agreements
Structure of the Franchise Agreement:Structure of the Franchise Agreement:
Licensor permits use of licensed propertyLicensor permits use of licensed property
Licensee pays royalties and fees based on Licensee pays royalties and fees based on salessales
Examples:Examples: McDonald’s, KFC McDonald’s, KFC
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2323
THE LEGAL ENVIRONMENT OF BUSINESS
Foreign Direct InvestmentForeign Direct Investment
Usually via Multinational CorporationsUsually via Multinational Corporations
Joint VentureJoint VentureSubsidiarySubsidiary
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2424
THE LEGAL ENVIRONMENT OF BUSINESS
Motivation for Foreign InvestmentMotivation for Foreign Investment
Expand marketsExpand markets
Get close to customersGet close to customers
Use foreign resourcesUse foreign resources
Cheaper laborCheaper labor
Fewer regulationsFewer regulations
Acquire knowledgeAcquire knowledge
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2525
THE LEGAL ENVIRONMENT OF BUSINESS
Subsidiaries & Limited LiabilitySubsidiaries & Limited Liability
When is the parent corporation liable for acts of subsidiary?
When is the parent corporation liable for acts of subsidiary?
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2626
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-1: Case 9-1: In Re Union Carbide at BhopalIn Re Union Carbide at Bhopal Action against both parent and subsidiary Action against both parent and subsidiary
for wrongful death and injuries resulting for wrongful death and injuries resulting from lethal gas leak at chemical plant in from lethal gas leak at chemical plant in IndiaIndia
Issue: Forum shoppingIssue: Forum shopping
Decision: Case removed to India from U.S. Decision: Case removed to India from U.S. courtcourt
Reason: Reason: Forum non conveniensForum non conveniens
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2727
THE LEGAL ENVIRONMENT OF BUSINESS
Forum Non ConveniensForum Non Conveniens Where act occurredWhere act occurred
Where witnesses and evidence are Where witnesses and evidence are
Where business is incorporatedWhere business is incorporated
Local, not U.S. work force employed at the Local, not U.S. work force employed at the plantplant
Translation of language problemsTranslation of language problems
Local regulations applied to the plantLocal regulations applied to the plant
Costs and effort required for U.S. venueCosts and effort required for U.S. venue
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2828
THE LEGAL ENVIRONMENT OF BUSINESS
Joint VenturesJoint Ventures
Defining characteristic: Usually Defining characteristic: Usually created for a single purpose and a created for a single purpose and a limited timelimited time
Some countries require all foreign Some countries require all foreign investment via joint venturesinvestment via joint ventures
Entities may be private, Entities may be private, government, or bothgovernment, or both
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-2929
THE LEGAL ENVIRONMENT OF BUSINESS
Risks of Engaging in International Risks of Engaging in International BusinessBusiness
ExpropriationExpropriation
Sovereign Immunity Doctrine and Sovereign Immunity Doctrine and FSIAFSIA
Act of State DoctrineAct of State Doctrine
Export and Import ControlsExport and Import Controls
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3030
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-2: Case 9-2: Keller v. Central Bank of NigeriaKeller v. Central Bank of Nigeria
Foreign Sovereign Immunities Act (FSIA)Foreign Sovereign Immunities Act (FSIA)
No jurisdiction by U.S. court unless No jurisdiction by U.S. court unless “commercial activity” is found“commercial activity” is found
Held: Illegal action does not preclude a Held: Illegal action does not preclude a finding of “commercial activity”finding of “commercial activity”
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3131
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-3:Case 9-3: Philippines v. Marcos Philippines v. Marcos FACTSFACTS
Civil RICO action to recover fraudulent Civil RICO action to recover fraudulent transfers of fundstransfers of funds
Injunction also sought to freeze fundsInjunction also sought to freeze funds
Defense: Act of State (by head of state)Defense: Act of State (by head of state)
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3232
THE LEGAL ENVIRONMENT OF BUSINESS
Case 3-3:Case 3-3: Philippines v. Marcos Philippines v. Marcos HOLDINGHOLDING
Act of State Doctrine based in balance of power Act of State Doctrine based in balance of power among three branches of governmentamong three branches of government
Judiciary will not intrude on foreign affairs Judiciary will not intrude on foreign affairs conducted by executive branchconducted by executive branch
The doctrine does not extend to Marcos situationThe doctrine does not extend to Marcos situation
U.S. Court has jurisdiction and affirmed U.S. Court has jurisdiction and affirmed injunctioninjunction
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3333
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-4:Case 9-4: U.S. v. Haggar Apparel U.S. v. Haggar Apparel FACTSFACTS
Haggar ships pants to Mexico for sewing Haggar ships pants to Mexico for sewing and permapressing, then ships finished and permapressing, then ships finished goods back into U.S.goods back into U.S.
General rule: such a procedure is exempt General rule: such a procedure is exempt from customs dutyfrom customs duty
U.S. Customs declared ‘permapress’ to U.S. Customs declared ‘permapress’ to be manufacturing, not assembly; duty be manufacturing, not assembly; duty leviedlevied
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3434
THE LEGAL ENVIRONMENT OF BUSINESS
Case 9-4:Case 9-4: U.S. v. Haggar Apparel U.S. v. Haggar Apparel HOLDINGHOLDING
Lower court ruled in favor of Haggar, Lower court ruled in favor of Haggar, refunding dutyrefunding duty
Court of Appeals reversed and held for Court of Appeals reversed and held for CustomsCustoms
Rule: Customs classifications are made Rule: Customs classifications are made at port of entry, but such decisions must at port of entry, but such decisions must conform to statutory standardsconform to statutory standards
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3535
THE LEGAL ENVIRONMENT OF BUSINESS
Risks Relating to CurrencyRisks Relating to CurrencyCurrency Controls Currency Controls
Currency Value FluctuationCurrency Value Fluctuation
A Partial Solution: HedgingA Partial Solution: Hedging
Forward ContractsForward Contracts
Futures ContractsFutures Contracts
OptionsOptions
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3636
THE LEGAL ENVIRONMENT OF BUSINESS
Legal and Economic IntegrationLegal and Economic Integration
Three Examples:Three Examples:
1.1. WTOWTO
2.2. European UnionEuropean Union
3.3. NAFTANAFTA
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3737
THE LEGAL ENVIRONMENT OF BUSINESS
World Trade OrganizationWorld Trade Organization
Created 1995Created 1995
Based upon GATTBased upon GATT
Goals: Eliminate Barriers to TradeGoals: Eliminate Barriers to Trade
Prohibit Nontariff BarriersProhibit Nontariff Barriers
Reduce Tariffs and SubsidiesReduce Tariffs and Subsidies
Protect Intellectual Property Protect Intellectual Property RightsRights
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3838
THE LEGAL ENVIRONMENT OF BUSINESS
WTO: Structure and FunctionWTO: Structure and Function
RulemakingRulemaking
Ministerial Ministerial ConferenceConference
General General CouncilCouncil
Dispute ResolutionDispute Resolution
Consultation Consultation between Membersbetween Members
Dispute Settlement Dispute Settlement PanelPanel
Appellate BodyAppellate Body
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-3939
THE LEGAL ENVIRONMENT OF BUSINESS
WTO: Concerns and CriticismsWTO: Concerns and Criticisms
Sovereignty v. TradeSovereignty v. Trade
Environmental LawsEnvironmental Laws
Consumer ProtectionConsumer Protection
Labor LawsLabor Laws
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-4040
THE LEGAL ENVIRONMENT OF BUSINESS
European UnionEuropean Union
Origins in the European Origins in the European Economic Community 1957Economic Community 1957
Goals: Free movement of Goals: Free movement of goods, services, capital, and goods, services, capital, and people across member people across member bordersborders
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-4141
THE LEGAL ENVIRONMENT OF BUSINESS
EU: Steps toward RealizationEU: Steps toward RealizationTreaty of Rome 1957 – Customs UnionTreaty of Rome 1957 – Customs Union
Single European Act 1986 – Common Single European Act 1986 – Common MarketMarket
Maastrich Treaty 1991Maastrich Treaty 1991
Monetary Union Monetary Union
Political UnionPolitical Union
Uniform labor and social security lawsUniform labor and social security laws
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-4242
THE LEGAL ENVIRONMENT OF BUSINESS
EU: Structure and MembershipEU: Structure and Membership
Council of Ministers – One per stateCouncil of Ministers – One per state
EU Commission – 20 members, control EU Commission – 20 members, control functional areas called “Directorates”functional areas called “Directorates”
Parliament – Elected by statesParliament – Elected by states
European Court of Justice – European Court of Justice – Jurisdiction over EU v. state disputesJurisdiction over EU v. state disputes
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-4343
THE LEGAL ENVIRONMENT OF BUSINESS
North American Free Trade AgreementNorth American Free Trade Agreement
NAFTA ratified in 1994NAFTA ratified in 1994
Fifteen year phase in periodFifteen year phase in period
Purpose: Eliminate barriers to free Purpose: Eliminate barriers to free flow of goods, services, and flow of goods, services, and investments in Canada, U.S. and investments in Canada, U.S. and MexicoMexico
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-4444
THE LEGAL ENVIRONMENT OF BUSINESS
NAFTA: StructureNAFTA: StructureTrade CommissionTrade Commission
SecretariatSecretariat
Arbitral PanelsArbitral Panels
Dispute resolution via five member Dispute resolution via five member panelspanels
Offers relatively quick and final decisionOffers relatively quick and final decision
Example: UPS Case v. MexicoExample: UPS Case v. Mexico
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-4545
THE LEGAL ENVIRONMENT OF BUSINESS
Global Dispute ResolutionGlobal Dispute Resolution
Arbitration: The most often used method of Arbitration: The most often used method of resolving international business disputesresolving international business disputes
Supported by:Supported by:
UN Convention on the Recognition of UN Convention on the Recognition of Foreign Arbitral AwardsForeign Arbitral Awards
International Center for the Settlement of International Center for the Settlement of Investment DisputesInvestment Disputes
International Chamber of Commerce RulesInternational Chamber of Commerce Rules
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-4646
THE LEGAL ENVIRONMENT OF BUSINESS
Other Forms of Dispute ResolutionOther Forms of Dispute Resolution
MediationMediation
ConciliationConciliation
LitigationLitigation
Contractual ClausesContractual Clauses
Choice of ForumChoice of Forum
Choice of LawChoice of Law
LanguageLanguage
© 2006 Prentice Hall© 2006 Prentice Hall Ch. 9-Ch. 9-4747
THE LEGAL ENVIRONMENT OF BUSINESS
SummarySummaryManagers need to consider all Managers need to consider all aspects of international businessaspects of international business
Important areas include: political, Important areas include: political, economic, cultural, and legaleconomic, cultural, and legal
Increasingly, international Increasingly, international organizations shape the rules of organizations shape the rules of global tradeglobal trade