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International Business Transactions
Villanova University School of Law
Murphy, John F.

International Business Transactions

Professor Murphy

Spring 2014

I. What are “International Business Transactions”?

a. Broadly speaking, any transactions that involve business: sales, leases, mergers and acquisitions, offerings of securities, foreign direct investment, technology licensing, franchising, loans etc.

b. This course will focus on several of the most important forms of IBT: sales, licensing, franchising, and FDI.

i. These transactions have increasing levels of penetration in international markets in the following order:

1. Initially international sales

2. Then international licensing or franchising

3. Then FDI (opening a subsidiary in another country)

ii. All these forms of IBT experienced tremendous growth in recent decades:

1. Trade in Goods- exports increased

2. Trade in Services: not as large as trade in goods, in part because of trade-ability issues and trade barriers

3. FDI: grew even faster then trade in goods and services.

4. Technology transfers: often come with FDI; also comes in stand-alone licensing.

c. This course will also talk about legal issues that are important to international business: international IP and international dispute settlement.

II. In what aspects are international business transactions different from purely domestic business transactions?

a. Business is more complicated; more risks

b. Law is more complicated.

III. Special Challenges for IBT lawyers

a. Ethics

i. Corruption and questionable payments are rampant in some developing countries

ii. No culture of professional ethics

iii. Problem 1-2 (p. 9)

1. The problem is that the local firm will say whatever the client wants to hear in order to get more business.

2. The in-house lawyer should not have explained the sides of the in-house dispute.

b. Cultural Issues

i. Problem 1-4 (p. 12)

1. 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.

2. 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.

I. Recent developments in global business

a. Globalization

b. The rise of China and other developing nations

c. Debt crisis of developed countries

II. Legal Framework for IBT

a. International Conflicts of law

i. Private international law: The use of domestic choice of law rules to resolve issues of conflicts of laws and recognition and enforcement of foreign judgments. It is a domestic law field referring to a domestic court applying domestic rules to resolve choice of what laws between 2+ nations.

1. Choice of law rules are different from substantive law rules

a. Examples: UCC 1-105 and Restatement Secs. 6 & 188 as choice-of-law rules and UCC 2-207 as substantive law rules.

2. Choice of law rules are different in different countries.

a. In the US, choice-of-law rules are usually specified in statute governing a particular transaction. E.g., UCC 1-105 for sales transactions.

b. If no statutes, then case law or Restatements on Conflicts of Law. The Factors that a domestic court weighs are on p. 24

ii. Harmonization of private international law. To harmonize private international law rules, the Hague Conference on Private International Law was convened by the Netherlands government in 1893. It became a permanent intergovernmental organization in 1955 under a statute adopted by a treaty. Has 72 members.

1. Has conventions on choice of laws for many subject areas. E.g., the Convention on the Law Applicable to International Sale of Goods

b. Substantive rules of law that apply to a particular transaction:

i. National laws as chosen by private international law rules

1. Private international law rules are important only if national laws differ

ii. Supranational laws. Supranational laws could replace national laws, making choice of law rules inconsequential.

1. Public international law- international treaties e.g. CISG.

a. Once public international law is entered into, it is part of the domestic law of a country.

b. In the US, treaties are federal law. International laws will prevail if they conflict with state laws.

2. Regional Supranational law e.g. EU

3. Uniform Code e.g. Incoterms by ICC

a. Promulgated by private and nongovernmental bodies

b. Have no force of law unless incorporated by contract

4. These supranational laws are sometimes called the New Lex Mercatoria (“New Law Merchant”). Before there were nation-states, IBT in Europe was governed by Lex Mercatoria, a special body of common law applicable to business transactions among European merchants. The “New Lex Mercatoria” makes the law governing IBT truly international. (p.25)

c. Legal institutions and forums that create and interpret the law

i. UNCITRAL§—United Nations Commission on International Trade Law

1. Established in 1966; composed of 60 UN member states. Membership represents various geographic regions as well as the principal legal and economic systems.

2. Created multilateral conventions or treaties on international commerce that have the force of law such as the CISG (Convention on Contracts for the International Sales of Goods) and the “Hamburg Rules” (Convention on the Carriage of Goods by Sea) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

3. These Conventions are formally adopted by the UN, and then open for countries to sign and ratify.

4. The UNCITRAL is subject to UN pressure, and sensitive to issues to developing nations.

ii. UNIDROIT– The International Institute for the Unification of Private Law

1. Established in 1926 as an organ of the League of Nations; remained as an independent body after the League of Nations’ demise. Has some overlapping goals with UNCITRAL.

2. Principal drafters of UNIDROIT treaties are Western European nations; many developing countries are reluctant to adopt them.

3. Has shifted to non-binding instruments like the Principles of International Commercial Contracts, the world’s restatement of contract law

iii. ICC—International Chamber of Commerce

1. A private nonprofit organization; composed of national chambers of commerce, trade and business associations, and companies from about 130 countries.

2. Represents interests of private business and industry.

3. Creates uniform rules and standards for international business by promulgating nonbinding rules that can be adopted by contract.

a. Incoterms

b. UCP (Uniform Customs and Practice for Documentary Credits)

4. Runs a court of arbitration

III. Problem 1-6 (p. 31)

a. Public law: law reg

lso meets as the Trade Policy Review Body and the Dispute Settlement Body

iii. At the next level, Goods Council, Services Council, and Intellectual Property Council report to the General Council.

iv. Specialized committees, working groups, and working parties deal with individual agreements and other specialized areas.

III. WTO Agreements

a. Marrakesh Agreement Establishing the World Trade Organization: an umbrella agreement; all other WTO agreements are annexed to this agreement.

b. Annex 1.

i. Annex 1a. Multilateral Agreements on Trade in Goods

1. GATT 1994 (see GATT requirements)

2. Agriculture

3. Sanitrary and Phytosanitary Measures

4. Textiles and Clothes (terminated Jan 2005)

5. Technical Barriers to Trade

6. Trade-Related Investment Measures (TRIMs)

7. Anti-dumping (Article VI of GATT 1994)

8. Pre-shipment Inspection

9. Rules of Origin

10. Import Licensing

11. Subsidiaries and Countervailing Measures

12. Safeguards

ii. Annex 1B. General Agreement on Trade in Services (GATs)

1. Services supplied from the territory of one party to the territory of another

2. Services supplied in the territory of one party to the consumer of any other, such as tourism

3. Services provided through the presence of service providing entities of one party in the territory of any other, such as banking

4. Services Provided like construction

5. Also contains national schedules of commitment regarding trade in services in specific sectors. Countries usually make commitments only for certain modes of services.

iii. Annex 1C. Trade-Related Aspects of IP Rights (TRIPs)

c. Annex 2. Dispute Settlement Understanding- one party can initiate a process by filing a claim.

d. Annex 3. Trade Policy Review Mechanism

e. Annex 4. Plurilateral Trade Agreements (only applies to the nations that sign)

i. Annex 4(a): Agreement on Trade in Civil aircraft

ii. Annex 4(b): Agreement on Government Procurement

iii. Annex 4(c): International Dairy Agreement (terminated in 1997)

iv. Annex 4(d): International Bovine Meat Agreement

IV. Preferential Trade Agreements (p. 40)

a. Customs Unions

i. Liberalize trade internally; also adopt a single external tariff and trade structure

ii. Examples: EU (also a political union), South African Customs Union

b. Free Trade Agreements (FTAs)

i. Eliminate or reduce internal tariffs and other trade barriers between barriers, but don’t have uniform tariff levels for external trade. Each can make own.

ii. Examples:

1. Regional FTAs

a. NAFTA

b. ASEAN (p. 45)

c. The proposed Free Trade Area of Americas

2. Bilateral FTAs

a. US- Korea FTA

b. US- Colombia FTA