McGraw-Hill/IrwinInternational Management © 2005 The McGraw-Hill Companies, Inc., All Rights

Reserved.

International ManagementPhatak, Bhagat, and Kashlak

McGraw-Hill/IrwinInternational Management © 2005 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Chapter 4

The International Legal Environment of Business

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Learning Objectives

Integrate the legal environment into the political and economic frameworks developed in previous chapters.

Identify the three levels of law that comprise the international legal system for business.

Discuss the sources and characteristics of international, regional, and national law, and the implications of each for the multinational firm.

Describe the implications of various international treaties concerning intellectual property rights.

Understand the Foreign Corrupt Practices Act and the implications of it on a firm’s global operations.

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Chapter Topics

Understanding Laws in the International Context

International Law

International Law and the Risk of Intellectual Property Theft

Laws of Regional Trading Blocs

Laws of Nation States

Host Country-Specific Laws

The Foreign Corrupt Practices Act and Antibribery Provisions

The Convention on Combating Bribery

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Regional Laws

EU

MERCUSUR

NAFTANational Laws

International Law

Treatie

s

WTOUnited Natio

ns

Conventions

AFTA

Fig 4-1: The Legal Environment of International Business

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Basic Characteristics of Law

Law is a norm that prescribes what is assumed to be a proper mode of behavior

Law not only prescribes a certain pattern of behavior, but also requires that the prescribed mode be followed

Law includes a process approved by society for applying coercive sanctions against those who do not obey and therefore perform illegal acts

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The Requirements of an Effective Legal System

1) The people in the society must clearly understand and have knowledge of what the society prescribes as legal behavior

2) The members of society, the subjects of the legal system, must have agreed that the laws deserve to be obeyed, that is, they must regard the laws as being fair and unjust

3) An effective system for punishing illegal behavior must be in place

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Functions of Law

1) Law communicates to individuals in a society their rights and duties in their daily interactions with other people in the society

2) Law helps in controlling and preventing behavior that the society considers undesirable

3) Governments use law to promote the social and economic welfare of society

4) Laws of a society reflect the norms, values, aims, and general beliefs of a society

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The International Court of Justice (The World Court)

There are three scenarios under which disputes could arise:

1) Between two countries

2) Between a country and a company

3) Between two companies

The International Court of Justice can adjudicate disputes between two countries only when both governments involved agree to submit to the authority of the International Court of Justice

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Fig 4-2: Sources of International Law

International Law

InternationalTreaties

InternationalCustoms

Judicial Decisions and Teachings

General PrinciplesOf Law

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Essential Elements of International Custom

1) Concordant Practice by a number of States regarding the type of situation falling within the domain of international relations

2) Continuation and Repetition of the practice over a considerable period of time

3) Conception that the practice is consistent with prevailing international law

4) General acquiescence in the practice by other States

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International Treaty

An international treaty is an international agreement concluded between states in written form and governed by international law

Bilateral treaty: only two states are the contracting partiesMultilateral treaty: more than two states are contracting parties

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Commercial Treaties

National Treatment Treatment that is no less favorable than that which is given to

business firms that are its own citizens

Most-Favored-Nation (MFN) Treatment Obligates the country to give to the imports of goods from

the other country with which it has signed a treaty, treatment in terms of tariffs that is no less favorable than that given to imports from third countries

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Table 4-1: The 2002 Madrid Protocol: Implications for U.S. Firms Registering International Trademarks

Advantages to U.S. Firms Disadvantages to U.S. Firms

Less expensive Fewer international rights

Simpler Linked to valid U.S. registration

Less need for foreign counsel Trademark must be used in the U.S.

Quicker Broader foreign definitions

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Losses from Piracy of Intellectual Property

The international company 1) loses sales in the copycat country itself as it is forced to

compete against pirated products2) loses sales in third countries where it has to compete

against exported pirated products3) suffers in its reputation as a producer of quality products

and services because pirated products of inferior quality are often sold under the company’s brand name

4) may be prevented entry in a foreign market because a company in the foreign market may have established a dominant market share using the international company’s pirated technology or trademark

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Categories of Laws within the EU

Agriculture

Competition

Consumer Protection

Education and Training

Environmental Protection

Food Safety

Fraud

Internet Marketing

Public Health

Research and Innovation

Taxation

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Origin of Commercial or Corporate Legal Codes

1. English common law2. Civil law of French, German, or

Scandinavian origin3. Socialist law, based on Communist principles

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Table 4-2: Vacation Policies Around the Globe (selected)

FRANCETwo and one-half days of paid holidays per full month of service during the year

GERMANYEighteen working days per year after six months of service

HONG KONGSeven days annual paid leave on completion of 12 months of continuous service with the same employer

SAUDI ARABIAFifteen days of annual leave on completion of 12 months of continuous service with the same employer

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Table 4-2 (contd.)

ITALYVaries according to length of service but usually between four and six weeks

MALAYSIAVaries according to length of service but usually between eight and 16 days

UNITED STATESVaries according to length of service and job function but usually between five and 15 days

UNITED KINGDOMNo statutory requirement. Most members of salaried staff receive approximately five weeks paid annual leave

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FCPA: Elements of an Offense

WhoThe FCPA applies to any individual firm, officer, director, employee, or agent of the firm and any stockholder acting on behalf of the firm

Corrupt IntentThe person making or authorizing the payment must have a corrupt intent, and the payment must be intended to induce the recipient to misuse his official position in order wrongfully to direct business to the payer

PaymentThe FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value

Recipient The prohibition extends only to corrupt payments to a foreign official, a foreign political party or party official, or any candidate for foreign political office

Business Purpose TestThe FCPA prohibits payment made in order to assist the firm in obtaining, or retaining business for or with, or directing business to, any person

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Table 4-3: Signatories to the OECD Convention

Argentina Australia Austria Belgium Brazil

Bulgaria Canada Chile Czech Republic Denmark

Finland France Germany Greece Hungary

Iceland Ireland Italy Japan Korea

Luxembourg Mexico Netherlands New Zealand Norway

Poland Portugal Slovakia Slovenia Spain

Sweden Switzerland Turkey U.K. U.S.A

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Key Terms and Concepts

International law

International customs

International treaties and conventions

Intellectual property rights

The Madrid Protocol

Common law

Civil law

Islamic law

Foreign Corrupt Practices Act