REGULATORY ENVIRONMENT OF INTERNATIONAL BUSINESS

Businessmen looking for interests with other countries are supposed to get themselves familiarized with
the regulatory norms in practice in those economies. Different countries have different legal systems
which have been acknowledged and respected. International legal environment is governed on the basis
of following broad principles:

 Principles and practices govern application of international laws to cross-country business

transactions.
 Principle of equal sovereign authority among all sovereign countries is by and large respected
and they are immune to influence by outside authority.
 Enforcement of international law is ultimately a matter of voluntary acceptance of
jurisprudence.
I. Basic Features of Law
 It is means to preserve social order.
 Means to provide basic model of conduct.
 Establishes nature of right on property and other rights in a society and thereby narrowing down
uncertainty. This is a necessary condition for designing and implementation of economic.
Political and social exchange in any society.
 It acts as a compromise by mediating views of different segments of society into a common set
of enforceable rules.
II. Types of Law

There are three major categories of law as practiced in different parts of world:

1. Common Law: The system of common law is the one that is built on tradition or precedence.
Sometimes these laws may be unwritten and left to interpretation by courts. Eg. UK.
2. Civil Laws: Civil laws are more codified form of laws that are typically intended to cover every
possible contingency which can be specified. Job of the court is to apply the law.
3. Religious Law: Religious Law is based on sacred texts or religious tenets covering all aspects of
life from dress code to business contracts.
III. Difference in Application of Laws
 In civil laws [i] Right to civil jury does not exist; [ii] Court room arguments tend to be less
aggressive and instead, helps in interpretation of the set laws; [iii] In certain societies charging
contingency fees are considered unethical while in certain case a proportionate amount is fixed.
For instance, in Japan 8% of the recovery amount is fixed as lawyer’s fee.
 Damages are typically determined by the courts.
 Violation of criminal law leads to penalties while violation of civil law would lead to appropriate
compensation
 Contents of laws are dealt by Substantive laws while implementation of laws dealt with by
Procedural Laws.
  Public and Private Laws: Public laws are enacted by the state while private laws are the ones
agreed by private individuals or groups-eg. Cricket control board in India.
IV. Basic Principles of International Law for Business

International laws are less coherent since its sources embody not only laws of the concerned individual
countries but also, international treaties- multilateral, bilateral or universal. There are also certain
conventions which countries are expected to respect. For instance, Geneva Convention on Human Rights
or Vienna Convention on Diplomatic Security, by and large, followed by countries.

V. Sovereignty and Sovereign Immunity

 During peace time every state has sovereign right for existence with equality in terms of law,
jurisprudence over its territory, ownership of property and diplomatic relations with other
countries.
 It is implied from the above that one country’s court system cannot be used to rectify injustice
or impose penalty on another country.
 For instance, sovereign countries cannot be subjected to decision of US courts for their acts.
VI. International Jurisprudence

International law specifies three types of jurisprudence:

 Nationality Principle holds that every country has jurisdiction over its citizens no matter where
they are located. For instance cases relating to Vijay Mallya or Lalit Modi.
 Territory Principle: A country has a right to take action against someone who violates its laws
within its territory.
 Countries have mutual respect on each other’s laws and function on principle of comity.
VII. Act of State Doctrine
 All acts of respective governments in their own country are considered valid even if such acts
are considered illegal or inappropriate as per some other country’s law.
 The above includes cases in which the foreign government expropriates or nationalizes another
country’s assets located within its territory.
 However, under the Foreign Assistance Act of 1962, the US Congress may request the President
to suspend all assistance to such countries.

VIII. Treatment and Rights of Aliens

 Countries can refuse to admit foreign citizens and can impose special restrictions on their
conducts, their rights to travel, where they can stay, what business they can and cannot
undertake etc.
IX. Areas of Concern to MNEs
 There is wide variance in application of anti-trust laws among different countries.
  There is no clear-cut definition and procedures regarding application of bankruptcy law.
Suppose, MNE’s assets are in home country and liabilities are in host country, who gets paid
under priority and who decides
X. Trade Disputes

There are well developed set of laws and institutions to deal with trade disputes among business the
partners from different countries.

Protection of Intellectual Property Rights

World Intellectual Property Organization [WIPO] deals with disputes surrounding IPRs, trade- marks,
brand equity etc. which are crucial for MNCs’

XI. Guidelines for MNE Managers

 MNE managers are expected to anticipate as many problems as possible and incorporate all the
possibilities and potential avenues.
 Important means to resolve international disputes is through arbitration.
 In the above context the following two organizations are dependable:
[i] International Chamber of Commerce based at Paris.
[ii] International Center for Settlement of Investment Disputes [ICSIDS] which is an affiliate of
World Bank.

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