International law should more appropriately be named transnational law. Transnational law is defined by Philip Jessup as “all law which regulates actions or events that transcend national frontiers.” Transnational law encompasses public international law, private international law, and foreign and comparative law. It includes not only norms that are “international” by their nature, such as treaties or customs, but also domestic rules and principles governing transnational issues, such as Chinese law dealing with foreign litigants or with Spanish business activities abroad. This essay is organized into the three definitional areas: public international law; private international law, including international dispute resolution; and transnational transactions.
Public International Law
Public international law has usually been defined as the law of relationships between “states” (nations or countries). A more expansive definition now in use comes from U.S. law experts: the rules and principles of general application dealing with the conduct of states and of international organizations and with their relations inter se (among themselves) as well as with some of their relations with persons, whether natural or juridical. The sources of public international law include (1) treaties, conventions, protocols, charters of international member-state organizations (e.g., the United Nations), and executive agreements; (2) customary international law; and (3) principles common to major legal systems. Note that no international laws that apply to all nations and citizens of the world are enacted by a super national body, such as the United Nations. When an issue of international law arises, it may be raised in the courts of a particular nation or in an international forum created by the consent of some or all nations (e.g., the World Trade Organization).
A treaty is an agreement between countries, which can be bilateral (two nations), trilateral (three nations), or multilateral (more than three). There are thousands of treaties in effect globally at this time, covering almost every imaginable aspect of global relations from the law of the sea to human rights to war to commerce. International organizations may also be included in treaties. A convention is also an agreement or compact between nations, often negotiated though the United Nations on a regional or global basis. Protocols are agreements that typically address matters less important than treaty language, but frequently relate to treaty matters. Executive agreements are entered by the chief executive officer of a nation.
In the United States, treaties are recognized in the Constitution, binding on federal and state governments. Some treaties are self-executing, that is, once adopted, these treaties are binding. Executory treaties, on the other hand, need a domestic law enacted by the legislature or an act of the president to be effective. In the United States, executive agreements are as binding as treaties. Some of the agreements can be entered by the president alone, and some are based on congressional authority or a treaty, allowing the president to execute the agreement.
Many treaties affect the conduct of global business and foreign investment. There are numerous intellectual property rights treaties, often bilateral, and domestic laws in various countries which implement the treaties. A summary of the previously informal customary international law that governs all treaties is itself found in a treaty signed by 97 countries: the 1980 Vienna Convention on the Law of Treaties.
Businesses are affected by many public international agreements, especially executive agreements. Trade agreements, the anti-bribery convention, environmental treaties, and protection of intellectual property rights treaties all have a profound impact on international business, be it direct foreign investment, licensing, or importing/exporting.
Trade agreements are often executive agreements that address trade goals, such as liberalizing trade through reduced tariffs or non-tariff barriers, or protecting trade through quotas or tariffs. Trade barriers include tariffs, also known as import duties. Tariffs can be assessed ad valorem (as a percentage of value) or as flat tariffs (based on the number of units). Nontariff barriers include embargoes and quotas, and indirect non-tariff barriers. Embargoes can dictate a complete ban on imports and/or exports with a foreign nation or a ban on certain goods. Quotas are limits on the number of imports into a country, based on value or quantity. Indirect non-tariff barriers are laws, regulations, practices, and social values that result in reducing the purchase of foreign goods.
Historically, countries have imposed trade barriers for many reasons: tax collection, protection of domestic industry, foreign policy support, national defense, protection of the environment or natural resources, promotion of cultural or religious values, protection of public health and safety, and reciprocation for the barriers of other countries. As countries came to realize that trade barriers may benefit parochial interests, the countries have also determined that barriers damage the international economy. To fully benefit from globalization, most countries are establishing rules to attempt to reduce barriers, notably through the General Agreement on Tariffs and Trade (GATT).
GATT Principles
Almost every industrial sector of the economies of developed countries is now governed by trade agreements. The most significant agreement is the GATT of 1994, which among other provisions, created the World Trade Organization (WTO). The purpose of the original GATT of 1947, signed by 23 countries, was to promote and expand trade between signatory nations by reducing tariffs and non-tariff barriers. Over 125 countries, called members, have now adopted the 1994 GATT, which includes the 1947 provisions, many multilateral trade agreements, and the Uruguay Round Agreements. The Uruguay Round addresses specialized areas of trade relations. GATT requires the domestic trade rules of members to be based on GATT principles.
The WTO sets policies and rules to implement GATT principles and settles trade disputes between nations. It is not, however, a forum for litigation between private parties. The WTO includes about 150 members—all the members of GATT and other countries if two-thirds of the WTO members approve the nation’s application.
One critical rule of GATT and WTO is that a nation cannot retaliate against another nation that has imposed a trade restriction. The offended member must proceed through the WTO dispute resolution process. The remedy may in fact include permission to impose a retaliatory trade restriction against the offending member.
Marketing laws come into play when companies hire representatives to promote products abroad. In some countries, such as the United States, there are few, if any, restrictions on the relationship between a company and its representatives. In other countries, local representatives are protected by domestic laws, regardless of a contract between the parties. France, Paraguay, and the European Union, for example, have protectionist provisions for representatives.
Recent Developments In Public International Law
An area of public international law that has gained attention since the mid-1970s has been anti-bribery legislation. Almost every country bans bribery of its public officials. A few countries also ban their citizens from paying bribes to officials in foreign countries. In 1977, the U.S. Congress adopted the Foreign Corrupt Practices Act, the only act of its kind among all nations for 20 years. In 1999, several countries, including all major European countries, adopted the Convention on Combating Bribery of Foreign Public Officials in International Business (CCB). Most of the large international companies are headquartered in nations that have adopted the CCB.
Attention to environmental concerns has grown exponentially in the past half-century. Many laws have been passed by nations, and regional environmental treaties have been adopted addressing some environmental issues. The United Nations adopted the Stockholm Declaration on the Human Environment in 1972, leading to over 30 multilateral agreements. Over 100 nations have adopted the treaty governing trans boundary movements of hazardous wastes, the Basel Convention on Trans boundary Movements of Hazardous Wastes and Their Disposal. More than 150 nations signed the Convention on International Trade in Endangered Species of Wild Fauna and Flora that governs the import and export of endangered species. The Montreal Protocol addresses the ozone layer and has been very controversial among developed countries. The 1992
Framework Convention on Climate Change and the 1997 Kyoto Protocol have attempted to limit emissions, with no agreement on enforcement mechanisms to date. Businesses will have to take the then current status of environmental treaties into account when developing locations abroad and at home.
Intellectual property rights (IPRs) include protections for inventions, literary, architectural and artistic works, and words, phrases, symbols, and designs that are eligible for patents, copyrights, and trademarks. Each country grants certain right to the owners of the material. The 2000 GATT Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) requires its member nations to adopt minimum IPR protections and effective enforcement mechanisms. The signatories must abide by the earlier Paris Convention (patents and trademarks) and Berne Convention (copyrights) that result in foreign IPR holders having the same protection as domestic holders of patents, copyrights, and trademarks.
The 1970 Patent Cooperation Treaty centralized the application process for international protection of patents. The UN World Intellectual Property Organization (WIPO) processes the applications and sends them to countries that the applicant specifies, or to the European Union for its member countries. A similar system exists through WIPO for trademarks. Companies must take care about relying on TRIPS, as various nations are seeking mechanisms to delay compliance or interpret its provisions to protect domestic businesses, rather than foreign holders of IPRs.
A growing concern for global business is the issue of human rights. Nongovernmental organizations (NGOs) and corporations are forming alliances to address human rights in the business setting. Under the auspices of the United Nations, over 60 signatories, including some major global companies, signed a “global compact” in 2000 to support human rights, eliminate child labor, allow trade unions, and protect the environment. Lawsuits have been filed under the U.S. Alien Tort Claims Act, passed over 200 years ago, claiming multinational companies can be liable for human rights abuses by foreign governments that helped the companies, when the multinational knew and condoned the violations. In 2005, Unocal agreed to settle such a lawsuit claiming the oil company encouraged and assisted the rape, torture, and murder of Burmese locals by government soldiers so that Unocal could build a gas pipeline.
Private International Law
Private international law deals with the relationships between parties and conflicts of laws when the parties are in a legal dispute. The relationships are largely dictated by private contracts between parties. There are, however, several treaties and conventions that attempt to introduce common ground for transactions. Notably, the Convention on Contracts for the International Sale of Goods (CISG), adopted by some 64 countries, determines the rights of buyers and sellers of most merchant goods in signatory countries, unless the contracting parties opt out of the Convention or have contract provisions that supersede the Convention. Three large categories of sales excluded from the CISG are (1) consumer goods sold for personal, family, or household use, (2) many labor or service contracts, and (3) stocks, securities, negotiable instruments, and money.
As is the case in most countries, contracts may be enforced under CISG if they were entered (1) by mutual consent, (2) with legal consideration (a bargained exchange, whether goods, money, or otherwise), (3) with legal capacity (not legally incompetent, minors, or under the influence of drugs or alcohol), and (4) for a legal purpose. The Convention addresses contract performance and remedies for breach.
International disputes can be resolved in a number of ways. Diplomatic channels are often the first line of approach, whether nations themselves are involved or citizens and businesses of those nations are in dispute with each other or with a foreign government.
The International Court of Justice (World Court) formed under the United Nations Charter hears certain cases, but only when states are in dispute with each other, or states file a claim on behalf of individual citizens or businesses whose rights have been violated and the complaining state alleges that the violation also infringes on the state itself. Both complainant and respondent are free to submit to the jurisdiction of the World Court, but are not required to do so. For the above reasons, few business disagreements are heard at the World Court.
In the world of commerce, business contracts typically specify how disputes will be resolved, through a choice of court and law, or by alternative dispute resolution, such as mediation or arbitration. A sales contract dispute between a European country and China will be heard typically in the courts identified in the contract, and the law of the country the parties specified will be applied by the courts. The cases can be complicated when a court in a given country must apply law from another country, often involving experts to testify as to what the foreign law provides linguistically and legally. In the absence of contract language, elaborate rules are considered by the courts, such as the legal presence of a litigant in the jurisdiction of the court, which body of law to apply, where the disputed transaction occurred, where the contract was made, where it was to be performed, and other matters.
Issues that often arise in both domestic and international cases are proper jurisdiction and proper forum. Even if parties to a contract agree to use a particular court or court system, a threshold question is whether the court is authorized by law to hear the particular type of subject matter in the case in controversy. In addition to subject matter jurisdiction, the court must obtain jurisdiction over the person or an object in controversy. If an object, such as real estate or personal property, is in the geographic jurisdiction of the court, the requirement is satisfied. If a defending person or business or government is being sued, the court obtains jurisdiction if the defendant has the requisite degree of contact in the geographic locale, and if the defendant is properly served the pleadings filed by the suing party.
In addition to proper jurisdiction, the forum or geographical location of the court must be proper. Often, more than one court has proper jurisdiction, and the proper location must be chosen. A case is eligible to be heard in different courts, depending on the country and state, including where defendants reside, where the cause of action arose, where a contract was made, where a contract was to be performed, or where all the plaintiffs reside. The court can transfer a case, even if venue is proper, if it determines another court would be more convenient for parties and witnesses and justice would be better served. This forum non convenient principle can apply in any court case, whether criminal or civil. A noted example involved the chemical leak disaster in Bhopal, India, resulting in Indian citizens filing suit in New York federal court against Union Carbide. The judge dismissed the case, in favor of Indian courts, as most of the evidence, records, and Hindi-speaking witnesses were in India, as well as several other reasons that made India the better forum to administer justice.
Once a judgment is entered against a defendant, a problematic procedure arises in the international context. Enforcement of a judgment in a foreign nation presents special problems. For example, if the defendant did not appear in court, he may argue that the method used to serve him was unfair under his own nation’s laws. He can challenge the judgment in his country, and if the foreign court agrees with him, it will not honor the judgment and allow collection to proceed. Many countries have signed the Hague Convention on Service Abroad of Judicial and ExtraJudicial Documents in Civil and Commercial Matters, which addresses service, albeit not uniform for the signatory countries.
Foreign And Comparative Law
Where no international agreement controls a particular area of activity, companies are subject to domestic laws, regulations, and customs. Businesses face myriad differences in laws in foreign countries. For example, domestic marketing laws come into play when companies hire representatives to promote products abroad. In some countries, such as the United States, there are few, if any, restrictions on the relationship between a company and its representatives. In other countries, local representatives are protected by domestic laws, regardless of a contract between the parties. France, Paraguay, and the European Union, for example, have protectionist provisions for representatives that override negotiated terms in a contract.
When advertising abroad, nations place a varying degree of control over media and message. In some countries, sexual innuendo or explicit messages might be ignored, while in other countries, severe punishment may ensue, including personal punishment for the company’s local representative. The European Union, the United States, and most other countries have bans on false advertising. The interpretation of what constitutes false advertising varies, however. In the United States, for example, false advertising must be a misstatement of fact, not mere opinion or exaggeration. In Japan, exaggeration is also forbidden. Many countries strictly regulate advertising available or aimed at children. The European Union prohibits advertising that directly encourages minors to persuade their parents to purchase the goods or services advertised. Some countries, notably France, ban advertising in any language other than their own languages. Some countries ban advertising of certain products, such as alcohol and tobacco.
The corporation and tax laws of countries can encourage or hamper foreign business. Direct foreign investment in subsidiaries or branch offices is subject to the host country’s tax laws, absent a tax treaty. Even with a treaty, definitions of income, allowable deductions and their limits, depreciation treatment, and e-sales treatment are calculated domestically. A home country for a business may have restrictions on tax avoidance by establishing facilities in low-tax-rate countries. All countries control ownership in some or all industries. Foreign investors may have to partner with host companies or citizens to purchase property, enter leases, and operate facilities. A few countries do not allow foreign majority control of any branch or subsidiary.
The history of nationalization and expropriation of assets shows a marked difference among nations in cultural and political treatment of foreign investment. Communist and socialist governments nationalized all domestic and foreign business. In the second half of the 20th century, nations in Latin America, Africa, and Asia expropriated only foreign business assets. The prevailing, although not exclusive, view now is that government has the right to take private property under the condition that the taking is for a public purpose, often hotly debated. Whether compensation is just and prompt depends on the nation taking the property. Investors can purchase political risk insurance, but the cost is often prohibitive or has a considerable effect on the enterprise.
Companies operating offices and facilities in foreign countries are subject to the host domestic labor laws. Employee benefits, such as paid medical leave, will vary. Employee dismissal for no reason will be allowed in some countries, including the United States, unless a union contract is in force, or anti-discrimination laws apply. In other countries, considerable legal restraints and guaranteed employment may govern. Some nations require employee involvement in management by inclusion on the board of directors, sometimes, or other methods. When a foreign purchaser acquires a domestic business, the investor may step into the seller’s place with respect to employee rights and union contracts. By contrast, in the United States, when a company is sold, all employees may be terminated unless a union collective bargaining agreement provision has restrictions.
A key consideration for foreign investment is the degree to which antitrust regulations will affect business. Most countries have one form or another of antitrust or competition legislation. Some are detailed, such as Germany’s, and some leave much interpretation to the courts, such as the United States and Japan. The basic principle in each law is the prevention or distortion of competition. Vertical arrangements between manufacturers and suppliers, distributors, and customers may all be subject to review in certain countries. Perhaps exclusive distribution agreements are banned; perhaps a company cannot have more than a certain percentage of market share in an industry, perhaps exclusive patent licensing is banned.
Engaging in global business is a complex undertaking, requiring knowledge on many fronts. The legal considerations alone are formidable and demand competent counsel from experienced international advisors.
Bibliography:
- Ray A. August, Don Mayer, and Michael Bixby, International Business Law, 5th ed. (Pearson Prentice Hall, 2008);
- Malcolm Evans and Patrick Capps, International Law (Ashgate, 2009);
- Georgetown Journal of International Law, www.law.georgetown.edu/journals (cited March 2009);
- Andrew Guzmán, How International Law Works: A Rational Choice Theory (Oxford University Press, 2008);
- Oona Hathaway, “Why We Need International Law,” Nation (v.285/16, 2007);
- International Bar Association, ibanet.org (cited March 2009);
- “International: Controlled Explosion,” Economist (v.382/8514, February 3, 2007);
- “International: Escaping the Terror List,” Economist (v.386/8565, February 2, 2008);
- Charlotte Ku and Paul F. Diehl, International Law: Classic and Contemporary Readings (Lynne Rienner, 2009);
- Russell A. Miller and Rebecca M. Bratspies, Progress in International Law (Martinus Nijhoff Publishers, 2008);
- Richard Schaffer, Filiberto Agusti, and Beverley Earle, International Business Law and Its Environment, 7th ed. (Thomson South-Western, 2008).
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