8/26
Four kinds of transactions
1. Firm wants to sell goods overseas
2. Firm wants to trade overseas via an agent or distributor
3. Firm wants to license the manufacturer and distribution of its products overseas
4. Firm wants to build a facility overseas to manufacture its goods or provide services
Trade is good
· Rules to generate more trade
· Countries act frequently in their own self interest
o Play games to encourage transactions by their own nationals and discourage business of non-nationals
· As a result, the WTO is created
o A set of rules that nation-states need to obey
o Regulation of international trade
Is globalization good?
· When countries act protectionist, it leads to bad things
o Hoot-Smalley Tariff Act leads to the Great Depression (1930-41)
o Hitlers rise in Nazi Germany
· Thus, the Bretton Woods Accords was conveyed to prevent economic disasters from happening
o Organizations were created, such as…
§ IMF
§ World Bank
§ ITO — GATT — WTO (1994)
Is globalization bad?
· Environmental concerns
o There is no system where those who trade bear the cost that they impose on others when they trade globally
· Labor concerns
o Globalization creates competition and temptation to disregard safety problems and allow the hiring of children
What kind of trade?
· Trade in goods
· Trade in services (financial services, insurance, telecommunications, entertainment, and education)
· Technology transfer (license of patented technology, copyright software, trade secrets/ know how, and trademarks)
· Foreign direct investment (bricks and mortar – sending capital in, not just selling goods) (could involve trade in goods, services or tech transfer): E.g. building a car manufacture plant in another country
Intro to sources of law
· Definitions: “public international law” here (rules governing the behavior of states), and at Oxford and Cambridge (law of the sea; law of diplomacy and ambassadors; UN and human rights)
· “Private international law” here (rules governing international business transactions), and at Oxford and Cambridge (conflict of law rules), Loss of importance of conflicts of laws rules (due to contract clauses; uniformity of rules; and arbitration)
· “Lex Mercatoria…”
o Source of the Uniform Commercial Code
o Law of merchants
§ Typically, deference is given to the common practice of merchants in that area
§ Similar to contracts
Laws that apply to all parties (whether they want it to or not)
1. A formal agreement between states without a uniform law: E.g. Budapest Treaty on the Deposit of Biological Materials
2. A formal agreement between states with a uniform law: E.g. CISG, Warsaw Convention, Convention on the Carriage of Goods at Sea, and other UNCITRAL treaties
3. Bilateral treaties: E.g. bilateral investment treaties (BITS) and free trade agreements (FTA)
4. Community legislation: E.g. European Union
Other sources of law (rules that apply because parties chose them)
1. Model laws: E.g. UNCTAD Model Law on Competition
2. Codification of custom by an NGO: E.g. Uniform Customary Practices for Documentary Letters of Credit or INCOTERMS by the International Chamber of Commerce (ICC)
3. Model contracts: E.g. ICC Model Form for International Agency Contracts
4. Restatement by scholars and other experts: E.g. UNIDROIT Principles
Problem 1-7
· Ohio firm wants to sell its equipment in Argentina and is advised by its law firm to stipulate that Ohio law will govern all disputes. Ohio Uniform Commercial Code has some nice implied warranties. What danger does this advice pose to the firm? To the lawyer?
o Worried about a dispute between the buyer and the seller and if Ohio law applies, there is a great burden on the Ohio firm to meet all the warranties that are implied under Ohio’s UCC. The problem faced by the lawyer is that he/she committed malpractice.
o If both parties are parties to the CISG, the rules of the CISG applies, in which the warranties are not as nice
Problem 1-8
· Illinois lawyer inserts the following clause into a client’s contract to sell goods to a German firm: “This contract is to be governed exclusively by the laws of the State of Illinois.” A warranty dispute erupts. What law governs the dispute? Illinois law? Federal law? German law? International law?
o The CISG, which is federal law, governs the dispute because federal law trumps state law and the CISG was entered into by Congress to be the law of the United States.
· How would you draft a clause to exclude the CISG and make sure that the Illinois UCC applied?
o You just have to make it explicitly clear that the contract states that the parties do not want the CISG to be applied and state which law you want to be applied.
8/27
International trade law/International economic law
· Rules designed to constrain nation states (tariffs, quotas, import bans)
· Based on the need for rules constraining the desire of nation states to distort trade (other organizations: EU & NAFTA)
· Remedies
o Some agreements do not provide private remedies and requires the government to take action against the other government
o There are some agreements that provide for private remedies against foreign governments
§ E.g. the U.S./Argentina Bi-Lateral Investment Treaty
I. WTO
a. 160 members of the WTO; 96% of GDP
b. No private cause of action
c. Overriding purpose is to help trade flow as freely as possible, so long as there are no undesirable side effects because this is important for economic development and well-being.
d. All members are part of the decision making process
i. Everything is decided on consensus, and thus single countries can bottleneck decisions
e. Lean compared to U.N. (WIPO v. TRIPS)
f. Problems with DOHA Round…
i. Decision has stalled because the amount of subsidies developed companies give to agriculture would destroy the developing countries whose primary export is agriculture
1. Was promised that developed countries would lower its subsidies but yet to materialize
II. What are the barriers to trade?
a. Tariffs
b. Non-tariff direct (embargoes, quotas, etc.)
c. Discriminatory taxation
d. Non-tariff indirect (government procurement policies)
e. Indirect technical barriers
i. Performance standards (minimum MPG for cars)
ii. Product specifications (e.g. USB)
iii. Environmental regulations (no Blackberrys in EU)
iv. Product safety (lead paint; hormone-free beef)
f. Investment and ownership rules (e.g. no outside ownership of banks)
g. Import licensing schemes
h. Customs procedures
i. Non-transparency
III. Market access for foreign companies
a. Binding commitments to eliminate or lower tariffs by specific dates
b. Binding commitments for maximum tariff levels
c. One-way ratchet (once you lower tariffs, you can’t raise it again)
d. Agriculture agreement
i. Rules on tariffs and permissible subsidies
1. 2/3 of EU budget is agriculture subsidies
2. U.S. cotton subsidies of $1X billion to create a crop worth $.5X billion
a. More subsidies are given than what the crops are worth! TAXPAYERS GETTING RIPPED OFF!
ii. Thus, it is difficult for market access in agriculture for foreign companies
1. Which is why DOHA screeches to a halt…
IV. Sanitary and phytosanitary measures
a. Rules that prevent nations from playing games with their health and safety rules
b. Presumption that adherence to the codex alimentarius complies with sanitary and phytosanitary measures agree
International v. Domestic Deals
a. More physical distance between buyer and seller
b. More likely language differences
c. Greater differences between the legal systems of the buyer and seller
d. How does the typical documentary transaction help solve these problems?
e. Greater differences in litigation forums (therefore frequent choice of arbitration)
II. Private transactional risks
a. Non-payment by the buyer (financial/credit risk)
b. Damage to goods in transit or non-delivery (carriage risk)
c. Non-performance by the seller (performance risk)
III. Common methods of payment by buyers
a. Initial definition: “Drawer” = the one drawing out money, typically the seller. “Drawee” typically the buyer or the buyer’s bank.
b. “Bill of Exchange” – a “draft” (given in lieu of cash)
i. Sight bill (unconditional promise to pay seller a sum certain immediately or at a future date [time bill]; where drawee owes money to the drawer, we call this a “note”)
1. An agent to the drawer can sign off on the sight bill
ii. Trade acceptance (same, but where the buyer owes the seller for the sale of goods)
1. Typically negotiable; traded and sold from one person to another
iii. Check (same, but bank is the drawee)
IV. Risks for sellers
a. Note for all these methods of payment standing alone the buyer could execute the bill of exchange and then refuse to pay later
b. How can the deal made to be safe for the seller without exposing the buyer to undue risk?
i. Documentary sales! Three contracts associated with international sales of goods
1. Sales contract, buyer – seller… amount, price, type, quality, delivery, risk of loss (via INCOTERMS), financing terms (unspecified terms via CISG)
2. Letter of Credit (LOC) Contract. Buyer – Buyer’s bank with Seller as third-party beneficiary (via UCPDC), Seller usually must provide documents, like bill of lading, etc.
3. Contract of Affreightment (shipping K), Shipper (seller) – Freight Forwarder (of Carrier). Price, storage, loading, risk of loss (via COGSA)
Pages 56-58
· Why does the buyer ask for various alternative on shipping costs? P. 56
o You want to get a more itemized cost invoice so that you can see if you can get a cheaper deal for certain services.
· Why does the seller require an order of acknowledgment? P. 57
o The seller wants to have the last word and doesn’t want the buyer to have that power. This is important because if there is a dispute that arises, it is the last document which controls.
· When is the contract formed through offer and acceptance?
o It seems as if the letter on P. 58 is the offer and the seller has the power of acceptance.
· What happens if the seller does not send an acknowledgment, but ships the goods, which are then accepted by the buyer. A dispute erupts. Which set of terms in which document controls?
o The purchase order on P. 58 will control because it would be the last document with terms.
· Letter of Credit
