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International Commercial Transactions
Temple University School of Law
Zhang, Mo

International Commercial Transactions
Professor Mo Zhang
Fall Semester 2015
 I.            Introduction
A.    Overview
Biggest difference between domestic and int'l transactions: amount, risk, complexity.
Int'l markets more complex: more countries involved; multijurisdictional; different languages/cultures; import/export controls; foreign exchange (currency).
3 flows:
1.      Flow of goods/services (Trade)
2.      Flow of technology (Transfer of tech)
3.      Flow of capital (Investment, FDI)
Issues with Flow of Goods/Services: Strategies (direct sale to buyer; indirect sales, middle man); Transportation (shipping, insurance, customs); Payment (regular, or LoC).
Issues with Flow of Technology: major one is IP protection. How to protect int'l copyright, get paid royalties? What remedies if IP rights infringed?
Issues with Flow of Capital: Strategies (greenfield or existing facilities; JV or wholly owned?); ROI (want to get money back ASAP; would prefer own currency, but might have to convert); Protection of foreign investment (worry about product being taken by foreign country; if so, will you be compensated?; dispute settlement with investors in host country).
Governmental lawyers draft regulations & rules, whereas private & in-house lawyers help int'l businessmen/companies engage in int'l transactions. Challenges?
·         Familiarity with foreign legal systems
·         Language
·         Cultural differences
·         Legal ethics
·         Ability to practice law in foreign court. (Generally can't, have to hire local lawyer.)
Globalization is the new trend in IBTs. Causes some issues:
·         Puts developing countries at disadvantage. They require transfer of tech to catch up; if you won't give it, will either kick you out or take restrictive measures making difficult for you to do biz.
·         Outsourcing. If company can produce product at lower cost elsewhere, will go there. Domestic jobs go away.
·         MNEs starting to dominate the world market.
B.     Major Forms of IBTs
If you have funds, can either bank or invest. Might start with local market, but eventually not enough, want to expand nationally, & eventually look for foreign market. Must do market test, see if your product will be received well overseas.
Direct Sales:
First step, Exporting. Selling product in foreign country. Either direct sale; or, if too many customers or want to test market, indirect sale by hiring distributor or agent.
Next step, Presence or Establishment.
·         Contract Manufacturing – contracting someone else to manufacture your product locally by letting them use your tech, brand, image. One method: franchising; another, licensing.
·         Foreign Direct Investment (FDI) – could be JV or wholly owned.
What issues do you have to worry about with goods? Delivery; payment; terms for the sales; non-conforming goods (not what I want).
What issues do you have to worry about with services? Location of services; standard of services; what would be the desired outcome; payment; presence of person (i.e., sending engineer overseas).
Indirect Sales:
What considerations? Whether you can control your agent; level of demand; market competition.
Differences between distributor (independent contractor, purchases your product, resells) and agent:
·         Market access. Agents know the market, give manufacturer direct market access. With distributor, no connection to customers. Likewise, manufacturer has more market control with agent.
·         Manufacturer has more liability with agent than distributor.
C.    Legal Framework of IBTs
1.      International Law:
·         Treaties – can be codified (put into a uniform code) or non-codified (common usage, but not in code)
·         Difference between treaties & customary rules is that the latter aren't binding. Very important. Will want to incorporate customary rules into Ks to make them binding.
2.      Domestic Law – commercial regulations, import/export rules, foreign exchange regulations, trade law.
International Law:
1.      Public Int'l Law – relationship between nations. Relevant to potentially receiving MFN treatment, etc.
2.      Private Int'l Law – the use of domestic choice of law rules by domestic courts to resolve issues of conflicts of law. Choice of law; enforcement of foreign judgment; and most importantly, jurisdiction.
To be private int'l law, must have a foreign element – parties, subject matter (foreign goods), cause of action.
Okay, so can a domestic court apply int'l law directly? Courts obliged to enforce own laws, but if conflict between int'l and domestic law, int'l law prevails. So have to find a way to make domestic law fit.
A Monist would say when a country signs a treaty, it becomes a part of domestic law, courts have to apply it.
A Dualist would say that int'l law & domestic law are different systems, so legislature must take action, pass a certain law to make that int'l law into domestic law. (Majority of countries have adopted this doctrine.)
U.S. is different, looks at the nature of the treaty.
·         If it's self-executing, no Congressional activity required, courts can simply apply. Like CISG.
·         If non-self-executing, Congress must pass legislation for treaty to be given effect. Like WTO. Courts will stay with domestic law, but when doing that, will interpret application of U.S. law to be consistent with int'l law. Presumption that interpretation of domestic law won't conflict with int'l law unless Congress says so.
·         To tell the difference, look at contacts of treaty. If deal clearly with rights of parties, obligations, that's self-executing. If dealing mor

Bills of Lading can be negotiable (ownership may be transferred before receiving delivery) or nonnegotiable (document must be given directly to the buyer).
3.      Process of the Sale – how it takes place. Several steps in int'l sale of goods:
1.      Formation of K
2.      Arrangement of payment
3.      Arrangement of transportation
4.      Receipt of payment. S will receive payment before the product arrives.
5.      Receipt of goods (payment has already been made).
4.      The Sales Contract
·         Contents will include terms & conditions, rights & obligation, quantity, payment method, transportation, dispute settlement.
·         Governing Principles – important because may affect the validity of a K, and if you want to get out of K, can make argument it's based on a principle.
a. Reasonableness. If K found to be unreasonable, chances are terms might not be enforced in a particular country.
b.Good faith. First looking at whether there was good faith in negotiation. Then, good faith in interpretation of K. Third, good faith in performance of the K. (If you made a good faith effort, your liability might be reduced or eliminated.) Fourth, mitigation.
c. Pact sunt servanda (“agreements must be kept”). Once the K has been signed, you must fulfill your obligation.
·         Formation of Sales Contract
1.Buyer's inquiry (usually through letter of inquiry)
2.Pro forma invoice from S. This is the offer.
3.Purchase order from B
4.Confirmation from S. This is acceptance.
In int'l sales, must be able to determine when is offer, when is acceptance. Once you have acceptance, a K is formed. And if you figure out where offer was accepted, that location is the place of K. (Validity of a K is determined by law of the place it was formed. General int'l law principle.)
5.      Conflict of Law Issues – in int'l sales, needs for 2 things: certainty, and predictability.
Two ways to determine governing law: by the parties; or if no choice by parties (or choice considered invalid), then determined by court, who will look at choice of law rules of country where court is located.
CISG – self-executing treaty that governs int'l sales Ks if both parties located in contracting states. For member states, application is automatic. (Article 95 provides an opt-out option.)