International Law for

Business
1. Going Global

Arvind Ashta

Course presented at
American Business School, Paris

Based on: Carolyn Hotchkiss’s book

International Law: A. Ashta 1

Outline

1. Introduction
2. Growth of internatinal business
3. Growth of international Commercial
Law
4. Structure of International Business
5. Multinational Enterprise
6. Law, Business and Economic
Development
7. The Global Manager

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Introduction

1. Countries regulate imports of

1. Goods
2. Technology
3. Capital
4. People/Labour
2. Countries regulate exports
1. Stimulate / Disincentives
2. Capital
3. Treaties simplify trade or investments

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Growth of internatinal
business

1. Ancient Trading Systems

1. Barter or gold
2. Travellers
2. Midieval Trade (7th century)
1. Seasonal and permanent markets/ trade
fairs
2. Tax at markets
3. Tax on routes/ roads or rivers
4. Treaties to end taxes bilaterally

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Growth of internatinal
business….

3. Trade and Colonial Power (1600…)

1. Colonies were source of raw material
2. Colonies were markets for finished goods
3. Merchants given exclusive geographic rights
1. - E. India Trading Company; Hudson Bay Company
4. Multinational enterprises (1875…)
1. Companies operating in many nations
2. MNCs bigger than some countries
3. Potential for conflict between States and
corporations

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Growth of internatinal
business….

5. Globalization (1975…)
1. Markets no longer treated as separate but
one
2. Standardized low-cost large-scale high
quanlity products wipe out differential
segmentation advantages
3. Mobiity of capital forces down labour power
and controls costs

See Theodore Levitt: The golablaization of Markets,

HBR May-June 1983

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Growth of international
Commercial Law

1. Code of Hamurabi
1. Merchants’ rights
1. Penalty for breach of contract 5 times
2. Commercial practices
2. The Law Merchant
3. The New Law Merchant
4. 19th century treaties
5. 20th century: reinternationalization

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The Law Merchant (7th
century)

1. Trade fairs led to customs

2. Trade fairs travelled: customs travelled
3. Commercial law developed uniformly
1.Merchants judged by their own law
1.Otherwise quality of justice varied with the city
2.Even today in France
2.Speed (before ship left)
3.Informality (good faith) based on knowlege of customs
4.Held to promise: unless some fundamental unfairness or
surprise
4. Magna Carta: gives right to safe conduct for
business

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Law Merchant

 Covered contracts
 Validity, Enforcement, Remedies for breach
 Credit and commercial documents
 Checks, Promissory notes, bills of lading
 Agency and fiduciary relationships
 Bankruptcy
 Partnership and Joint Ventures
 Trademarks and Patents

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Growth of International
Law…

3. The New Law Merchant (1600)

• Kingdoms consolidated
• Commercial law codified into local national law
• Diluted the uniformity of international law
from country to country
4. 19th century treaties
1. Ocean Transport
1.Uniform rules for carrying goods
2. Air Transport
1.Above rules were adapted

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20th century:
Reinternationalization

1. International Institutions
2. Sale of Goods
3. Trademarks, Patent and copyrights
(TRIPS)
4. Regulate investment and business
practices of MNCs on intenrational basis
5. Globalization changes name of game:
States compete for MNCs and gloabl
firms

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 Competition among
nations
1. Competitive advantage of nations:
1. Encouraging perpetual innovation
1.Stimulate early demand for advanced products
2.Promote higher standards
2. Specialized training to increase productivity
1. Efficiency, 2. quality
3. Favourable business climate
1. low State Aids, low tax,
2. but control / avoid mergers, increase local competition
4. Export cutltural and political values
5. State support in opening foreign markets and not defending
national ones.
2. All this implies new laws to attract enterprise
(Porter, HBR March-April 1990)

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Structure of International
Business

1. Sales Relationships
2. Licencing Relationships
3. Investment Relationships

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Sales Relationships

1. Direct selling
1.Trade fairs
1. Intermediaries
1.Agents : doesn’t contract in his own
name
2.Distributors

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Licencing Relationships

1. Patent: Sell the right to produce

abroad
2. Trademarks: right to sell using
brand name
3. Copyright: right to copy and sell
4. Franchise: usually trademark,
sometimes patent
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 Investment Relationships
1. Branch
1. Not a separate legal entity
2. Factory, warehouse or office

2. Subsidiary
1. Separate legal entity
2. 100% or 50% or <50%

3. Joint Venture
1. Two or more businesses create a new entity
2. One company buys into existing company
3. Usually, to get local partners
1.Legal requirement
2.Knowledge of markets, customs

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Multinational Enterprise

1. Many countires
2. Using different structures in different
countries
1. Subsidiaries
2. Joint-ventures
3. Branches
4. Franchises
5. Exports
1.Direct
2.Agents

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 Bulova V. Hatorri
H a tto ri (T o k y o )

S C A (N .Y .)

S e ik o T im e N . Y . P u ls o r T im e N . Y . S P D P r e c is io n N . Y . S e ik o T im e B r a z il

C a r r ib e a n S o u t h A m e r ic a E u ro p e H a z e B r a z il

 For parent, Hattori, to be in NYC juridiction,

need additional factors
 Direct and indirect control of distributors
 Treating subsidiary as « incorporated division »
 Treating subsidiary as « agent »

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Bulova V. Hattori

 Hattori:
 No presence in US:
 No offices,

 No bank accounts,

 No personnel,

 No licence

 Arm’s length trading with subsidiaries

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Bulova V. Hattori

 Court: However
• 100% ownership
• Interchange and overlap of directors
• Intercompany loans made to subsidiaries
• Financial accoutns are consilidated
• Marketing brochures printed in Tokyo distributed in US
• Subsidiaries sole activity is promoting Hattori products
• Subsidiaries do not manufacture
• Uniform control ovr markting is intended
 Integrated operation: At present, no
independence
 Can look at Hattori (US has juridiction)

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 Economic
Development

1. Old division
1. Firstworld (US, USSR)
2. Second World (W. Europe, Japan)

3. Third world: LDCs

2. No longer relevant
1. Korea, Singapore, Taiwan, Chile,
Brazil

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Common concerns
 International law reflects interests of developed
nations
• Ignores experience of LDCs
• Which law: nations want their own law to apply
• Which judge: nations want own judges to decide
 MNCs: development or exploitatin?
• Bring technology, training, capital, employment
• But monopoly power, distorsions, corruption
• removes more money than it invests (dividends)
• MNCs keep countires dependant (eco colonialism)
 NIEO (1974):
• equality, decrease gap,
• sovereign right to nationalize

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The Global Manager

 Speed of change
 Technology
 Political transformation
 Transfers (Work abroad)
 Skills required
 Anticipate, lead and implement « change »
 Adapt to new environment
 Accomodate differences in backgrounds
• No « right » or « wrong »: only « different »

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