Chapter 47

International Business Law

 

Objectives

1. Trade communities.  EU, NAFTA, GATT

2. Sovereign immunity and act of state doctrine

3. Legal controls on flow of trade, capital, labor

4. International protection of securities, antitrust, intellectual property

5. Forms for international enterprises

 

 

I. International environment

          A. International law deals with relations between nation states and international organizations.

          B. International Court of Justice

                   1. UN’s court for disputes between nations.  Entirely voluntary, and has no way to enforce its decisions

          C. Regional Trade Communities

                   1. Groups of countries get together to agree to liberal trade rules

                             Ex. United States

                   2. European Union, most of the European countries

                             Euro dollar zone

                             Big question: Will it be a political union as well as an economic union?

                   3. NAFTA, Mexico, Canada, U.S.

                   4. CAFTA, U.S., Dominican Republic, Guatemala, Costa Rica, El Salvador, Honduras, Nicaragua

          D. International Treaties

                   1. General Agreement on Tariff and Trade (GATT) (WTO in modern parlance).  Most Favored Nation Status.

 

II. Jurisdiction over Actions of Foreign Governments

          A. Sovereign Immunity

                   1. General principle.  The king can do no wrong, you cannot sue a government.  Must look for waiver of immunity by the sovereign.

                   2. Foreign Sovereign Immunities Act (1976)

                             Draws distinction between acts only a government can do, and commercial activities anyone can do.  Commercial activities are not immune..

          Saudi Arabia v. Nelson, 507 U.S. 349 (1993)

                   Facts: Nelson went to work for a hospital in Saudi Arabia. He was an engineer and safety inspector.  He found numerous problems, and reported them to Saudi authorities. They did nothing, and he persisted. He was eventually arrested, imprisoned and tortured. State Department arranged his release. On return to U.S., he sued Saudi Arabian government in U.S. District Court.

                   Issue: Does sovereign immunity bar the suit?

                   Holding: Yes. Police powers exercised within Saudi territory fall within government action and are therefore immune from suit.

                   Reasoning: Conduct of Saudis was bad, but all happened in their territory.  Fact that Nelson was there as part of commercial deal does not remove police action from what governments do.

 

          B. Act of State Doctrine

                   1. Judicial branch may not question actions by foreign state within its own sovereign borders.

                   2.  Exceptions.  (1) Waiver. (2) Commercial activities.

 

          C. Taking of Foreign Investment Properties

                   1. Expropriation. Government takes property but compensates owner.

                   2. Confiscation. Government takes property without compensation.

                   3. International law generally recognizes expropriation, but forbids confiscation.  However, no remedy generally available.

                   4. World Bank provides guarantees and insurance to deal with these kinds of risks.

         

III. Transacting Business Abroad

          A. Flow of trade

                   1. Tariff.  Tax on imports.

                   2. Nontariff barriers.  Harsh regulations to give local producers an advantage.  Examples: EU barriers to genetically modified foods.  EU health rules in cosmetics.

                   3. Export controls. Example: Missile and computer technology to China.

                   4. Import quotas. Example: Cars in 1980s

          B. Flow of Labor

                   1. Most countries limit who can work within their borders.

          C. Flow of Capital

                   1. International Monetary Fund (makes capital available to developing countries)

                   2. Many countries limit foreign investment

                             Example: Airlines

          D. International Contracts

                   1. What law controls?  Forum and law selection clauses

                   2. UNCITRAL.  Develops model laws that states can adopt (similar in principle to UCC, for example)

                   3. CISG.  Treaty for commercial transactions, trumps UCC when applicable.

                   4. Letters of credit. Allow bank to hold the money until all documents confirming shipment are in place. (Recall from property chapter)

                   5. Antitrust laws. 

          U.S. v. Nippon Paper Industries, Co., Ltd., 109 F.3d 1 (1^st Cir. 1997); cert. denied 522 U.S. 1044 (1998) (ooh, page number doubles volume number)

          Facts: NPI, a Japanese company, entered into agreements that would amount to illegal vertical price fixing under U.S. law.  NPI used trading houses in Japan to sell to distributors in U.S.  NPI never did business in U.S. itself.

          Issue: Do U.S. antitrust laws apply to NPI?

          Holding: Yes, because NPI directed activities having a substantial and intentional impact in the U.S.

          Reasoning: We live in a global trading environment.  Court does not want to create incentives to create international firewalls to shield illegal conduct.  Principles of international comity (respecting Japan’s right to regulate commerce in Japan) does not prevent U.S. from protecting its own consumers from anticompetitive conduct harming them.

 

          E. Securities Regulation

          SEC v. Berger, 322 F.3d 187 (2^nd Cir. 2003)

          Berger founded Manhattan Investment Fund (British Virgin Island company)

          Fund invested in U.S. publicly traded securities.

          280 investors at time of complaint.

          Manhattan Capital Management served as investment advisor, paid 1% of fund plus 20% of gains.  MCM was Delaware Corp with HQ in New York

          Fund had a brokerage account with Financial Asset Management in Columbus.

          FAM cleared its trades through Bear Stearns.

          Fund used all kinds of strategies including short selling.  They got killed in tech rally of late 90s.  They sent statements to Bermuda, which lied about the amounts of the losses.  False statements were made in New York and sent overseas.  False statements were then retransmitted back into U.S.

          SEC charged Berger, and he pleaded guilty.  He admitted at plea hearing that he committed fraud in the district.  He then tried to renege on deal. 

          Issue:  Does U.S. have jurisdiction over these transactions?

          Holding: Yes. U.S. has jurisdiction when extraterritorial conduct has effects in U.S. violating U.S. securities laws.

          Reasoning:  Court seemed very concerned that simply by preparing statements out of U.S., U.S. securities laws could be avoided.  The bad conduct had impact in U.S. on U.S. markets.

 

          E. Protection of Intellectual Property

                   1. Many recent treaties to protect intellectual property

                   2. Standard rules, promises of enforcement

          F. Foreign Corrupt Practices Act (1977)

                   1. Forbids bribing foreign officials, directors, etc.

 

          G. Employment discrimination

                   1. Extends U.S. discrimination laws to U.S. employee citizens working abroad for U.S. companies or U.S. controlled foreign companies

 

IV. Forms of Multinational Enterprises

          A. Direct export sales

          B. Foreign agents

          C. Distributorships

          D. Licensing

          E. Joint ventures

          F. Wholly owned subsidiaries

          Bulova Watch Company, Inc. v. K. Hattori & Co., 508 F.Supp 1322 (E.D.N.Y. 1981)

          Facts: Bulova Watch Co. was a N.Y. corp.

          Hattori was a Japanese corporation.

          Seiko was a N.Y. corp. wholly owned by Hattori.

          Seiko owned three subsidiaries, Seiko, Pulsar, and SPD Precision. (all N.Y.)

          Hattori sold $500m of watches in U.S. It also used wholly owned subsidiaries and distributors in other countries.

          Bulova sued all of the above alleging various unfair competitive practices and disparagement of its products.

          Issue: Does court have jurisdiction over Hattori?

          Holding: Yes. Because Hattori controlled the subsidiaries, and directed their actions, it was doing business in New York.

          Reasoning:  The court examined at length how Hattori controlled the activities of the various entities in the U.S.