Intro Fundamentals of Intl Business Transactions

today is an introductory class we're going to look at basic principles of international law these principles are the basis of international business transactions so here are some of our topics for today the definition of international law the concept of sovereignty the sources of international law the doctrine of jurisdiction what state responsibility is how countries are trying to harmonize laws through voluntary codes uniform laws and model laws well first of all what is law well simply put law is a system governing behavior that's backed up by some way to enforce it there's a person in charge or an institution such as a government there must be an obligation a duty to follow law in order for it to be considered as existing in the first place so law is different from a moral or an ethical code so the concept of enforcement is important to the definition of law now there are many systems of law in fact each country has its own unique and individual way of making and enforcing law yet in the world there are general categories of legal systems these categories or groups share some characteristics the two main Western legal ones are the common law system and the civil law system most countries that were part of the British Empire have common law systems and most of Europe for example uses a civil law system sometimes two systems exist side-by-side within a country and there are other systems based on beliefs or custom many countries have these sometimes in unique blends with common law and civil law systems we will be looking at these two main Western legal systems in more detail later as some concepts are essential in international business transactions so now that we have an idea of what law and legal systems are well what is international law how is international law any different well international law is distinctive in many ways first of all countries usually have a central place where law is made such as a legislative body in international law however there's no central place where international law is made or enforced there's no chief Parliament however the United Nations is an important central organization and there is also no one source for international law there's no single place to look for what it is well so what is it then will the term international law actually means a collection of treaties customs and multilateral agreements they govern the dealings of countries and multinational businesses and countries have an obligation to bring their laws into line with international law to understand how international law has evolved we must first look at the international law concept of sovereignty now in all recorded history as you know there have been groups called nation states or countries and each of these nations has sovereignty sovereignty is a foundation principle of international law it means that each country has the right to control its own affairs within its borders it can make laws and rules to control what happens within its territory it can enforce that law in some way such as through the courts sovereignty includes the idea that all nations in the world are legally equal no one has any more power than the other no one nation is the right to tell another what to do sovereignty also includes respect by countries for each other's laws and Court decisions now bear in mind that these are general principles and there's countless exceptions as we'll see the course we know that the issue of sovereignty arises constantly in international affairs for example groups of people seek autonomy that means the right to control their own affairs free of control of another sovereign autonomy can mean many things it can mean independence self-government or self-rule in other words people within an established country can struggle for their own sovereignty for example Aboriginal or indigenous peoples the world over seeks sovereignty over resources in their traditional lands based on their long-established control over the territory these and many more struggles the world over involve the international law concept of sovereignty but from earliest times there's been trade between nations and what do traders want well they want predictability and law and order when they're buying from or selling products to people in another country so a set of early rules developed among countries these grew out of custom and so they became known as customary rules these customary rules are the basis of business law as we know it today now one of these customary rules is that a business must follow the laws of the country in which it's doing business because as we've seen countries have sovereignty over what happens in their territory so we're starting to see the building blocks of international law and international business transactions so to summarize this short preliminary section countries technically have sovereignty and are all-powerful over what takes place inside their borders we're going to see many many limits on this yet unless a country lives in complete isolation it will have to deal with other countries its borders touch other nations there's trade between countries so the earliest rules started based on the need for fairness and predictability in encouraging trade this brings us to the legal concept of jurisdiction this is a crucial concept in international business transactions having jurisdiction means having the power or control over something for example a country has jurisdiction over its citizens and what happens within its borders it is jurisdiction to negotiate treaties with other countries jurisdiction is a flexible idea that changes with the circumstances jurisdiction can be taken on and given up for example countries in Europe had jurisdiction over certain matters when a country joined the European Union the EU it gave up jurisdiction of some of those things it accepted the jurisdiction of the EU over some matters so it's important to realize that jurisdiction can be given away refused or accepted now what a court decides it will hear a case it takes on or assumes jurisdiction over the case that is the court decides that in the circumstances it is the right place for a case to be heard the court takes on the authority to hear the evidence require witnesses to show up and to make a decision let's give an example in order to fully understand the idea of jurisdiction as an illustration let's just say that an American company hires employees in Cambodia to produce clothing the company must follow Cambodian law while doing business in Cambodian territory that's the recognised principle of international law called sovereignty which we just talked about now if the company doesn't let's say the company commits a crime of some kind a Cambodian core it would be within its rights to take control of a case in other words it would assume jurisdiction this makes sense because the companies doing business in Cambodian is actually present there the Cambodian court could make a decision or judgment against the company and expect that courts in other countries would enforce it so this is an example of territorial jurisdiction so a country's courts will assume or accept jurisdiction over a case that involves its territory countries will cooperate with each other under the umbrella of sovereignty and the concept of jurisdiction they will respect and recognize court or tribunal judgments made in another nation they may take on the orders as though they were made in their own courts does any other country of jurisdiction or legal authority over the American company in a case like this well in our example let's say the company's home office is in the United States does the US have jurisdiction over the company if it breaks the laws of a foreign country the answer is yes a country has authority over its Nationals whether they're people or businesses so an American company could be called before a US court for failing to obey the law of another country this is called nationality jurisdiction in other words countries are acting within their sovereign rights when they assume legal authority over people or companies who live there now before we go any further bear in mind that any situation depends on the facts and these are general principles only there are countless variations in facts with many possible differences in the way individual courts may look at a situation as a practical matter enforcing a country's orders in another country is filled with problems whether or not courts outside Cambodia in the case we just talked about as an example would actually do this depends on many things and we're going to talk more about this later courts are generally very careful before they take jurisdiction in the first place they will cautiously decide whether it's reasonable to decide a case while we're going to try to avoid legal Latin terms as much as possible coming up is one you must know as it will come up many times as we talk about international business transactions in deciding issues of jurisdiction the courts look at something called the doctrine of forum conveniens well let's break the term down forum means place and conveniens means convenient so the idea in translation is is this the convenient place to decide the case so when a case is first brought before a court the judges will look at many things all part of the doctrine of forum conveniens let's take the fictional Cambodia garment case for example the court might consider facts like these what are the links to Cambodia is there any country that has stronger ties to whatever the situation may be what is the nationality of the people or the companies involved and where do they actually live and so on as we'll see throughout this course this process of form conveniens is important in international business transactions businesses must know which court or tribunal will resolve problems let's just say that a court accepted jurisdiction over a business dispute if a foreign court later decides it didn't have good reason to accept jurisdiction in the first place the foreign court will not allow the order to be enforced this could mean a huge delay major costs legal expenses loss of profit and on and on so deciding where and how to have disputes resolved that is the doctrine of forum convenience is a fundamental issue in international business transactions so we've seen that countries have sovereignty over what happens in their territory we've also looked at the rules about when courts will take jurisdiction over cases if a country believes that sovereignty is being interfered with it will become protectionist it'd make a plane to international tribunals or courts or retaliate get back at the other country somehow despite this the reality is that countries are cooperative for the most part in the creation and enforcement of international law this often involves compromises in sovereignty this is illustrated by the fact that there are hundreds of treaties and more cases than ever before are being referred to busy international courts so before we go any farther let's look at some examples of effective working of international law here's one the International Court of Justice the ICJ interprets treaties on the laws of the sea and countries follow those decisions also members of the World Trade Organization the WTO honor their commitments they also follow the decision of WTO's group that settles disputes now why is this why do countries surrender some of their sovereignty why do they agree to hand over cases to international courts or tribunals and then usually follow decisions even if they are unhappy with them well there are many reasons for example a country probably entered into a treaty because it was a good idea if the country lives up to its promises other countries are more likely to do the same there's an expectation of mutual benefits also there is international political pressure countries exert power through diplomacy to encourage each other to respect promises this is an effective tool there's also the desire for mutual favors countries want to create goodwill they're like people they value their reputations among each other also countries are concerned about globalization and what foreign businesses do within their territory there are issues of pollution bribery and employment just to name a few some developing countries really want to find a way to protect their people and their resources yet another reason why countries live up to their commitments is a recognized rule of international law called the rule of law this is the next foundation principle of both national law and international law that we're going to look at now the principle of the rule of law says very simply that laws will be respected here are some main parts of the rule every person organization and government and this includes business is subject to the law next only punishments in agreement with legal principles can be handed out and finally everyone has the right to go to court the rule of law applies both inside countries and between countries so if your country passes a law there is an expectation that the law will be respected within the country and in the same way all countries are expected to honor the rule of law in their dealings with each other so the rule of law is an international law principle underlying inter country relationships countries expect that each other will follow international law businesses are also expected to support the rule of law the rule of law is so basic to international law that it's included in the charter of the United Nations as the course goes on we will talk more about the rule of law governments and business let's look at a case to show what we've discussed so far we will call it simply the Ecuador case but first a note about the name of the company involved the name was originally Texaco now later on Chevron bought Texaco so bear in mind that the companies now are legally the same and Chevron is now the name of the company being sued but it was Texaco who created the problem in the first place so a bit about Ecuador it's a sovereign country in South America there are more than a dozen indigenous or native groups there who go back 11,000 years and they make up a quarter of the population Ecuador is a hugely varied nation it spans the equator it touches the ocean on the west side of the continent and it includes the famous Galapagos Islands it also has mountains and tropical rainforest the country has huge oil and gas deposits in the tropical rainforests in the 1960s the US company Texaco had started oil development in Ecuador it began major shipments of oil in 1972 after a pipeline was built across the country people who became plaintiffs and lawsuits as well as worldwide supporters claimed the following the Texaco released billions of gallons of toxic wastes gas and crude oil into the environment that water was polluted and people's health was harmed with increased rates of illness like cancer and birth defects a large section of the rainforest is now one of the world's most contaminated industrial sites in the 1990s sicko left Ecuador after doing some cleanup and the government release dead of any further responsibility Texaco had offices in the United States and it was there that many of the decisions were made so a group of Ecuador ins sued in the United States on the basis of nationality jurisdiction Chevron did not want the case heard in the United States as we have seen in talking about sovereignty courts are careful about accepting jurisdiction over cases involving other countries like national governments they respect sovereignty that is the right and the duty of a country to have a local case decided in its own courts we have just looked at jurisdiction and how courts decide whether they have jurisdiction over a case was this a purely local matter that should be heard in Ecuador well the US Court looked at the circumstances as we talked about earlier it considered the doctrine of forum convenience all evidence in the case was obviously in Ecuador such as the medical reports of the people who lived there and all the injury and the damage occurred there so in 2001 the court made a decision in Chevron's favor and dismissed the lawsuit but that wasn't the end of the matter the lawsuit was started over this time in Ecuador and just recently an Ecuador court gave a judgement against Chevron to the tune of 18 billion the judgment is the largest award ever made by any court anywhere now what's going to happen to this judgment is still up in the air how is it going to be enforced anyway Chevron has no assets in Ecuador Chevonne is using many tactics to fight the registration of the order in those countries where it has assets the case has become a huge global battlefield and is being fought at many public political corporate and legal levels anyone can find plenty of information on the Internet court documents websites devoted to the issue both sides as well as pictures videos and so on so what can we see by looking at this case well for one it shows the principle of sovereignty the Ecuador Court has taken sovereignty over a case involving its natural resources its territory and its citizens and the United States was unwilling to take over a case with close connection to another country second the case demonstrates the process courts go through in deciding whether a case should be heard in their court they consider the doctrine of forum conveniens where is the evidence what country is the closest link to the facts the case also shows how hard it can be to enforce a judgment now this is an important consideration in international business transactions and we're going to talk more about it in a later class let's now though take a quick look at the international law concept of state responsibility and how this is important to business to begin with countries have some very obvious responsibilities in international law called state responsibility countries have certain duties they have to safeguard people against slavery or genocide for example they have to protect the environment against massive pollution so what if a company does something against state responsibility with the approval of a government for example there are allegations that some governments have loaned their armies or helicopters to a company in order to stop people from complaining or demonstrating about something such as building a dam or mining now in cases like that sometimes what a company does can be interpreted as really being the actions of the government so the government can be in violation of its responsibility towards its own citizens while promoting or protecting business and what about the company is it off the hook if the government approved certain activities contrary to international law no the company is not in the free and clear a government support or even active participation in a business project may not be enough to make something legal which is illegal in international law for example let's say that a country and a company are partners in a business joint venture the company carries out human rights abuses during the project the government turns a blind eye or perhaps even backs the company up in some way in a case like this the country could be held to be responsible for the action of the company if it approved or allowed the actions and the company and even its officers could also be held responsible the approval of the government may not be a defense so state responsibility means that countries have certain duties in international law let's now turn our attention to sources of international law where do we look when we want to know what the international law is on some subject well there are four main places to look for international law first international treaties second international custom third the general principles of law that are recognized by nations and fourth court decisions and the teachings of the most highly qualified people of the various nations now the practice is for these to be applied in the order listed so let's look at them in that order the first source is treaties well what is the tree it is simply a voluntary agreement between countries or some special international organizations now a treaty may be bilateral or multilateral an example of a bilateral treaty is one that just deals with trade between two countries an example of a multilateral treaty is the North American Free Trade Agreement or NAFTA signed by Canada the United States and Mexico a treaty could be called by other terms so look for these protocol declaration charter covenant and so on there's many more but they are all essentially the same thing they're an agreement freely entered into by countries the countries are called parties the party countries rely on each other to live up to the terms of the treaty there are a vast number of treaties about countless subjects one of the most significant to international business is the UN Convention on contracts for the International sale of goods the CI SG we will discuss this treaty in detail in a later lecture so how does a treaty become law and affect business well here's how that happens first of all the treaty terms have to be agreed upon representatives of countries may meet for years to iron out the details once a version is agreed upon authorized representatives of the various party countries then sign the treaty but each country has its own laws about the next step which is called ratification that is when the internal government of the country takes the treaty to its government and has it formally approved once this step is taken the laws of the country must be changed or created to conform to the new law so an important thing to know is that there is a difference between signing a treaty and ratifying it also a party country may disagree with a section and enter what is called a reservation meaning it does not intend to comply with that particular part some treaties allow reservations and others don't so not all parts of a treaty may apply to all the party countries later on that country may agree to the previously rejected sections this makes tracking of signing and ratification complex but the United Nations keeps track of this process and the status of all the treaties is available online as well countries or the organizations they set up may continue to work on treaties refining them and producing codes or rules again these may or may not be signed and ratified by all the countries involved treaty law is important for businesses first treaties provides certain and confidence for business by establishing rules that are followed Second Treatise allow governments to help business let's say that a country breaks a treaty section harming Canadian business Canada has a number of options one is to ask the government to take action against the other country in the ICJ the International Court of Justice or the treaty may set out a way to resolve the dispute and the government could support the business and applying for dispute resolution sometimes the government may decide to negotiate a resolution outside the court or the dispute resolution process unfortunately sometimes the government does nothing at all and having a treaty is ineffective this might be what the government decides to do if diplomatic relations between the country are tense or delicate for some reason so sometimes a treaty does not give as much protection for business as it hopes for this is because a country's involvement in a treaty is purely voluntary for example while all members of the UN can use the ICJ to resolve treaty disputes not all countries have accepted this so we can see that treaties are the most important source of international law and may provide confidence in international business transactions but we also see that treaties may have limited impact if they aren't signed ratified or relied upon the second of the four main sources of international law is custom custom is a long-established practice or tradition accepted by nations the world over as being law it then becomes customary international law for example it is an intern national crime against humanity for a country to permit slavery this is a crime under customary international law so even if there were a country somewhere that legalized slavery that law would be against international law it violates customary international law which nations the world over are expected to follow many rules of customary international law make their way into treaties so in the example we have given there are actually treaties dealing with slavery so how do courts decide if something is customary international law many sources are looked at is it an unspoken rule simply assumed by nations is there a pattern of treaties based on tradition or custom are there written political speeches or government policies that are based on the tradition are their court decisions about it so customary international law can develop and change over time the third source of international law is general principles of law recognized by nations as valid throughout the world well what is this what does that mean this is best illustrated by an example most legal systems accept the idea that a wronged person should be compensated for their loss this is what is called a norm a standard or a rule no nation denies this so it is a general principle of law recognized by nations the fourth source of international law is judicial decisions and the teachings of the most highly qualified publicists of the various nations let's have a look at what that means as international law evolves a growing number of legal opinions and judgments is developing for example the ICJ is the main court for the United Nations over the years it has decided a number of cases it is gradually building up case law this means it has previously decided cases that can be referred to in resolving current ones but courts are not the only sources for decisions many treaties have their own dispute resolution bodies for example as we mentioned earlier the WTO has its own way of resolving disputes these decisions over time become part of accepted international law countries accept and follow the decisions so decisions and teachings are the last source looked at for international law but it's becoming more important as more scholars write about international law and international courts and tribunals are making more decisions we're now going to talk about methods being used to simplify and clarify international law you can see the huge differences in legal systems and how this could be confusing for businesses with activities in more than one country there have been many efforts to codify law in other words organizations are trying to agree on rules have them written out in codes and have these codes accepted by countries the world over the more countries that agree to these voluntary codes the more common they become and the more business can rely upon them in addition to international codes there's a strong movement to create uniform laws uniform laws are worked out between representatives from countries as a way to fairly smooth out the differences in their laws they are written in an effort to bring laws into harmony with each other once again these uniform laws are agreed to voluntarily by countries and only apply to countries that agree to them but they are increasingly important as the more countries that adopt these uniform laws the greater confidence among businesses about what the law is and how it will be enforced let's look at an example of a uniform law the United Nations Convention on contracts for the International sale of goods or the CIS G as we've seen the word Convention is another word for treaty so this is a treaty it contains a uniform international sales law it has been ratified by dozens of countries who make up most of the world's trade they're shown in color on this slide it is one of the most successful international uniform laws in addition to coal and uniform laws there's another category that illustrates cooperative efforts among countries to resolve differences and create international law these are model laws model laws are simply examples that countries can follow countries will send representatives to work them out and when completed the laws can then be adopted by any country an example of a model law that has gained wide international acceptance is a law on commercial arbitration which we will discuss in more detail later international organizations are significant to international business many of them just work on issues of international commerce there are two main categories of international organizations there are intergovernmental organizations or agios these are organizations set up by one or perhaps many countries the United Nations itself is an international organization here are some other examples of other international organizations these ones directly concerned with business there's the WTO the World Trade Organization there's NAFTA that regulates regional trade we said there were two kinds of international organizations the second kind is nongovernmental organizations or NGOs examples are the International Air Transport Association the International Committee of the Red Cross Amnesty International will discuss the work of agios and NGOs throughout the course as many are very important to business to illustrate some of the concepts we've been talking about we're now going to look at the trail smelter case it is probably the best known environmental law case the pollution and legal proceedings have been going on for a century and both continue to this day it's impossible in the time we have to completely analyze the case so we're only going to look for illustrations at how international law is made the role of international organizations and the importance of treaties but first let's take a quick look at what happened Trail is the name of a city in British Columbia Canada just 15 kilometres north of the US Canada border the massive Columbia River flows through here into the United States an industrial facility called a smelter was built in Traill which processes the minerals lead and zinc the operations have resulted in widespread contamination the smelters owner is commonly called tek and that is the name we will use today the first issue that came to the notice of the public in the early part of last century was the toxic air emissions from the smokestacks which caused injury in Canada and in the United States American farmers sued the company claiming injury to their animals and crops well because there was an international boundary between the source and the injury the governments of both countries became involved Canada and the US cooperated in referring the case to the International Joint Commission or ijc the ijc is an independent international organization established by the two countries under a treaty called the Boundary Waters Treaty of 1909 the jaesi made a recommendation in 1932 for settlement but the settlement was far less than the Americans expected and was rejected eventually the two countries signed a treaty to set up an arbitration panel to decide the issue we will be looking at arbitration later in the course but for now just know that arbitration is a way to solve disputes through people appointed by the parties and they're called arbitrators the arbitrator's can act like judges hearing evidence and reading documents arbitration is often an economical and fast way to resolve a dispute well in this case the arbitration decision was a milestone in international law first of all it was the first time an international disputes had been settled by arbitration secondly it established the international law principle known as the polluter pays principle in other words countries must not harm other ones through pollution the polluter pays principle has become a cornerstone of environmental law and regulation so international law was created which has become a precedent for courts and tribunals this means it's an example for courts to follow if a similar case arises but the case did not stop there the pollution from water and air emissions continued and is still the subject of lawsuits well what is the significance of this case for business in terms of today's class first of all it shows some efforts a cooperation between countries when trying to resolve disputes that cross their borders and affect their citizens it also illustrates the importance of international organizations that are in place to implement treaties in this case it was the IJ see the International Joint Commission set up under a bilateral treaty between Canada and the United States it shows how international law is made in this case it was the polluter pays principle and how it then becomes a precedent which is later applied throughout the world in fact the principle later became part of an international treaty unfortunately the case illustrates failures in international law which we'll discuss at another time this brings us to the end of today's lecture part of the class we have covered a lot of material in creating a foundation for international business transactions we've looked at what international law is and why it's important to business we've also discussed sovereignty and how trade became the foundation of international commercial law we've talked about the Ecuador case and looked at how issues of jurisdiction are decided by courts we outlined the four sources of international law we have reviewed efforts of the international community to create international organizations as well as codes uniform laws and model laws and finally we talked about some of the points in an actual case the trail smelter case where international law was created in our next class we're going to continue building a foundation for international business transactions we will talk about human rights law which is an exploding legal area of major interest to business here is information about our course today's class contact information thanks for being with me you

Channel: Susan Green

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Keywords: Law (Industry), International Law (Field Of Study), International Business (Field Of Study)

Id: IsxtZt6phK4

Length: 50min 11sec (3011 seconds)

Published: Sun Sep 13 2015