INTERNATIONAL BUSINESS TRANSACTIONS
Zheng, Spring 2014 – McCann
IBT: INTRODUCTION
I. What are IBTs?
Broadly speaking, any transactions that involve business: sales, leases, mergers and acquisitions, offerings of securities, foreign direct investment, technology licensing, franchising, loans, etc.
a. These transactions have increasing levels of penetration in international markets in the following order:
i. Initially international sales
ii. Then, International licensing or franchising
iii. Then, FDI (opening a subsidiary in another country)
b. Forms of IBT that have experienced tremendous growth in recent decades:
i. Trade in Goods- exports increased
ii. Trade in Services: not as large as trade in goods, in part because of trade-ability issues and trade barriers
iii. FDI: grew even faster then trade in goods and services.
iv. Technology transfers: often come with FDI; also comes in stand-alone licensing.
c. Special Challenges for IBT lawyers
i. Ethics
1. Corruption and questionable payments are rampant in some developing countries
2. No culture of professional ethics
3. Problem 1-2 (p. 9)
a. The problem is that the local firm will say whatever the client wants to hear in order to get more business.
b. The in-house lawyer should not have explained the sides of the in-house dispute.
ii. Cultural Issues
1. Problem 1-4 (p. 12)
a. Texas Ribs may work well in Asia, but not very well in Europe. Many parts of Asia are fascinated by American culture and lifestyles, but not the case in Europe.
b. Local cultures in the home country may not translate across national borders. Not all foreigners know that Texas is one of the 50 states of the US and is the center of the southwestern culture. Not everyone will find the humor in the slogan “everything comes bigger in Texas.” Tastes may not be the same.
d. International Sales
i. Selling a good from one country to another country (UCC Art. 2 in a domestic context)
1. Seller important issue: If the goods are shipped, will the seller get paid?
2. Buyer important issue: If the goods are paid for, will the seller ship the goods?
3. Banks serve as a middleman to alleviate seller/buyer concerns
a. Under a Letter of Credit, Seller submits shipment documents to Bank, and Bank pays seller
4. “Draft:” a legal document to order someone to make a payment to another party
e. International Distributorship Agreements
i. Where a seller uses a domestic (in the other country) distributor to transfer goods to Buyers
f. International Licensing/Franchising
i. Seller collects royalty payments
g. Foreign Direct Investment
h. International Dispute Resolution
LEGAL FRAMEWORKS FOR IBTs
I. Which law governs a transaction?
a. Choice-of-law rules
b. Substantive-law rules
c. Legal institutions and forums that make the rules
II. Choice-of-Law Rules
a. When there are multiple jurisdictions whose rules may apply, choice-of-law rules determine which set of laws apply
b. Also known as “conflicts-of-law” and “private international law” (e.g., NOT private enterprises engaged in international law)
c. First question to figure out before applying substantive law analysis
EXAMPLES
UCC § 1-301. Territorial Applicability; Parties’ Power to Choose Applicable Law.
(a) Except as otherwise provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.
(b) In the absence of an agreement effective under subsection (a), and except as provided in subsection (c), [the Uniform Commercial Code] applies to transactions bearing an appropriate relation to this state.
RESTATEMENTS ON CONFLICTS OF LAW (1971) § 188; Choice-of-Law Rule
(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in s 6.
(2) In the absence of an effective choice of law by the parties (see s 187), the contacts to be taken into account in applying the principles of s 6 to determine the law applicable to an issue include…
CISG Art. 7/8 (1986)
d. Choice-of-Law Rules are different from Substantive Law Rules
Examples: UCC 1-105 and Restatement §§
he League of Nations’ demise. Has some overlapping goals with UNCITRAL
ii. Principal drafters of UNIDROIT treaties are Western European nations; many developing countries are reluctant to adopt them
iii. Has shifted to non-binding instruments like the Principles of International Commercial Contracts, the world’s restatement of contract law
c. ICC: International Chamber of Commerce
i. A private nonprofit organization; composed of national chambers of commerce, trade and business associations, and companies from about 130 countries
ii. Represents interests of private business and industry
iii. Creates uniform rules and standards for international business by promulgating nonbinding rules that can be adopted by contract
1. Incoterms
2. UCP (Uniform Customs and Practice for Documentary Credits)
iv. Runs a court of arbitration
d. WTO: World Trade Organization
V. UN Convention on Contracts for the International Sale of Goods (1980) (CISG)
a. Harmonization of substantive law rules governing international sale of goods
b. When substantive law rules are agreed to, then choice of law rules are immaterial since the legal conclusion will be the same nonetheless
i. Note: May sometimes contain a choice-of-law analysis (to deal with the issue of when the CISG will apply regarding one member and one non-member)
VI. Convention on the Law Applicable to Contracts for the International Sale of Goods (1986)
a. Harmonization of choice-of-law rules
How to tell if a treaty is self-executing
i. Look at the intent of the parties to the convention and also the language used to see if it will be self-executing.
ii. Congress has not passed a law to implement the CSG because it is self-executing.
iii. There is no clear-cut rule for deciding whether a treaty is self-executing. It is usually decided based on some desired outcome.
