International Commercial Transactions Outline

INTERNATIONAL COMMERCIAL TRANSACTIONS

HADDADIN

FALL 2012

1. THE STUDY OF INTERNATIONAL COMMERCIAL LAW

One of the major roles of a business attorney is to identify the client’s goals, foresee potential conflicts, and craft a creative business arrangement that will meet the client’s goals while preventing any unforeseen problems from developing in the future.

Attempt to create solutions and compromises when the goals of the parties to a transaction seem to conflict

Hypo

J+G

Russian (75% gov; 25% private)

Investor’s interest

Choice of law

Currency/price

Risk allocation

Title transfer

Customs

Routes

Forum selection of disputes (ct or arbitration)

Rule of law

Language of the documents

Enforcement

Allocation shipping risk

Hedging currency differences

Navigating cultural differences

I INT. TRADE: THE THEORY, THE INSTITUTIONS, AND THE LAW

A. TRADE THEORY

Positive v negative

Adam Smith and David Ricardo – int’l trade can increase the overall wealth of all countries involved in the trading

Critics:

– Harm nations through unemployment and industry decline as a result of cheap imports being brought into a country

– Modern free trade advocates are simply attempting to promote the economies of the developed countries, at the expense of lesser developed nations

Theories:

Models of 2 countries A and B that make 2 products (shirts and shoes)

1. Absolute Advantage

If each of the 2 countries make one of the 2 products more efficiently than the other, then each country should specialize in making the product that it makes more efficiently and trade with the other country to get other product

When one country can produce smth more efficiently than another it is said to have an absolute advantage over the other country with respect to one of the goods.

Trade should ensue bc it will result in both countries enjoying more products than would otherwise be the case.

Pre-trade:

A – 50 shirts or 50 shoes per 100 h

B – 30 shirts or 100 shoes per 100 h

A has an absolute advantage in producing shirts – it is more efficient for A to produce shirts bc 100 units of labor will produce more shirts in A than it will in B

B has an absolute advantage in producing shoes since it can produce more pairs of shoes than A with the same amount of labor

A and B should engage in trade and specialize in the product in which they have an absolute advantage

3. Critics of free trade.

– Absolute and comparative advantage is plagued with too many assumptions that are simply unworkable in the complex modern world

– Increased trade often means factory closings and lay-offs in j/ds where production is shifting as a result of increased trade

– Freer trade potentially means environmental standard being ignored by countries attempting to produce goods more cheaply and gains a comparative advantage

– Health and safety standard of products are similarly overlooked by countries seeking to manufacture products or supply foodstuffs at comparatively cheap prices

B. PROTECTIONIST MEASURES p. 12

– Helps any particular nation or state to protect its industry from the competition that results from free trade

Reasons:

1. Notion that countries do not want to disadvantage or abandon entire industries (and workers and owners of those industries), regardless of whether the country’s comparative advantaged might lie elsewhere. Exp. – agricultural industries of developed economies – despite the fact that lesser developed economies might have comparative advantage in agriculture, protectionism measures such as gov. subsidies still support the agricultural industries of those countries

2. Strategic notion that a country does not want to rely on other nations for basic necessities. Exp. – oil and gas industry- some counties have kept those industries largely regulated or even owned by gov. in an attempt to make sure that the domestic supply of those strategic goods is not threatened

1. Dumping

Counter–act dumping

Dumping occurs when one country decides to sell a particular product to a foreign market at prices that are below the prices paid for that product in its own country, or below production costs. Countries or industries that engage in dumping are attempting to lock in a share of the market for the particular good in the foreign country. In the extreme, those engaging in dumping would like to run the local industry out of business in the foreign country, and then later raise prices to capture greater profits

Anti-dumping efforts are a country’s measurers designed to combat this predatory practice and might include any or a combination of protectionist measures.

In fact, WTO adopted Anti-Dumping Agreement pursuant to which counties are authorized to take anti-dumping measures when there is material injury to the relevant domestic industry.

2. Tariffs, licenses, quotas, subsidies

Tariff – customs duties that are imposed by a country on certain imported goods to make those imported goods less competitive on that country’s domestic market. It is one of the easiest ways to restrict the access of a country’s markets to foreign imports

License is similar to tariffs in that they typically simply make the imported product more expensive. Where an import license is req., anyone importing a foreign product must apply for such a license and pay any related fee. This raises the price of the imported good and makes that good less competitive on the domestic market.

To the extent granting licenses is discretionary and not automatic, countries exert even more control over imported goods. With discretionary licensing, a country might exclude an import altogether by not granting an import license

Quotas – direct restriction on imports. Import quotas restrict the amount of foreign imports of any particular good to a certain quantity. Quotas can be designed to a ply specifically to imports from a particular country or to all imports of particular goods.

Gov. subsidies are less obvious measure and may be more difficult to readily recognize. When a gov. subsidizes domestic production of any particular product or industry, it makes those products cheaper for the domestic market to produce and therefore makes competition form foreign product more difficult.

Subsidies can take many different forms, making them potentially difficult to identify.

Subsidies frequently take the form of direct payments form gov. to the selected industry, or might exist in the form of reduced taxes for the selected industry

3. Prohibition on trade

Proponents of free trade argue that politically motivated embargoes fail to change the behavior of targeted regimes but rather inflict additional suffering on the citizens of those countries

Embargoes (Cuba)

4. Non-tariff barriers

Gov. req. about the quality, labeling, or production standard for certain products.

– Quality of wine bottles in US

– Quality of food items

Best interest of consumers, their health, and environment

Is free trade good or bad thing?

Reasons why countries want to use protectionist measures.

Agriculture in developed countries – even it is cheaper for them to import from developed countries, where they have comparative advantage – choose not to do that

Strategic political decision – don’t want to rely on different country in certain very important industries, like agriculture and oil and gas

Russia – condition of international stockholders

So domestic supply is not threatened – in case of war, etc.

To prevent dumping

C. INT’L ORGANIZATIONS p. 16

Institutions – rules and organizations that govern and constrain behavior

· Formal (very clear set of rules and specifically state what is allowed and what is not)

· Informal (traditions that define appropriate behavior that is used in trade but do not have legal enforcement)

WTO

World Bank

Int’l Monetary Fund (IMF)

Int’l Institute for the Unification of Private Int’l Law (UNIDROIT)

United National Committee on Int’l Trade (UNCITRAL)

1. WTO

· Started with GATT – Gen. agreement on tariffs and trade

· Created in 1947

· 150 members

· Promotes and facilitates trade bw nations

· Function – administer WTO trade agreements, provide a forum for trade negotiations, handle trade disputes, monitor national trade policies, provide technical assistance and training for developing countries, cooperate with other int’l organizations

· Non discrimination policy – no favored state – things that you give to your trading partner, you have to give to all members of WTO

· There has to be national treatment in member state – imports must be given similar treatment as the rest of market

· Reciprocity – substantially equivalent value

· Recognizes that sometimes gov. has right to preserve ec. sovereignty through some protection measures (right of gov. to protect its economy)

· Tries to find balanced position bw free trade and restricted trade – looks at the best interest of consumers or developing countries, or health and env. welfare)

2. World Bank

· Founded at Bretton Woods Conference 1944

· Dedicated to the reduction of global poverty

· 185 members

· Gives money for development

· Provides assistance for reconstruction efforts following natural disasters and conflicts, but has expanded its scope dramatically to include the alleviation of poverty around the world

· Important for arbitration (agency that hears disputes)

· Makes loans to developing countries and their businesses. Makes grants to nations to help promote ec. environment where development can flourish

3. Int’l Monetary Fund – IMF

· Established after WWII

· Helps to promote the growth and development of balanced int’l trade – promotes int’l monetary corporation, exchange and stability of trade, fosters high level of employment

· Attempts to address balance of payment problems that member nations may have, and facilitate economic development generally in order to promote trade

· IMF would give fin. assistance to countries to ease payments – Greece where IMF restructuring the debt telling them what to do in order to ease the balance of payment bc Greece is almost bankrupt

· IMF would always have a condition on the money – it would ask for certain reformations of economies

· IMF is funded by contributions of members-states based on ec. size of each state (the bigger economy, the more contribution, but they get the most power) (US is the biggest contributor)

4. Int’l Institute for the Unification of Private Int’l Law – UNIDROIT

· 61 nations

· Private institution created as part of the League of Nations in 1926.

· Goal – unifying private commercial law around the world

· Responsible for drafting many int’l conventions and model laws relating to private commercial transactions – the most important Int’l Sale of Goods

· UNIDROIT Principles – general principles of K law prevailing int’ly.

· Applies when: the parties choose or the parties agree to be governed by general principles of law or the lex mercatoria, or the pa