INTERNATIONAL LEGAL ENVIRONMENT

MBA 1ST YEAR ONLINE

FACULTY : MR CHANDRU KANAYA
CHAPTER 7 : INTERNATIONAL LAW IN GLOBAL ECONOMY
STUDY NOTES :

International law can be defined as the a body of law formed as a result of international customs,
treaties and organizations that govern relations among and between nations.
National law is the law of a particular nation such as Brazil , Germany, Japan or the US.
The objective of study is to examine how both international law and national law frame business
operations in the global context.
The major difference between international law and national law is that government authorities can
enforce a national law.
What government then can enforce an international law ? A nation is a sovereign entity which means
that there is no higher authority to whom a nation needs to submit itself. If a national violates an
international law and persuasive tactics fail, other countries have no other option but to take coercive
action from severance of diplomatic relations to as a last resort, war.
International law attempts to reconcile the need of each country to be the final authority over its own
affairs and each nation’s individual desire to benefit economically from trade and harmonized relations
with one another.
3 SOURCES OF INTERNATIONAL LAW :
 INTERNATIONAL CUSTOMS
 TREATIES AND INTERNATIONAL AGREEMENTS
 INTERNATIONAL ORGANIZATIONS
A treaty is defined as an agreement or a contract between two or more nations that must be
authorized and ratified by the supreme power of each nation. Under Article II, Section 2 of the US
Constitution, the President has the power by and with the Advise and Consent of the Senate to make a
treaty provided 2/3rd of the Senators present concur.
A bilateral agreement is defined as an agreement formed by two nations to govern their commercial
exchanges or other relations with one another.
A multilateral agreement is formed by several nations. Association of South East Asian Nations,
European Union are the result of multilateral trade agreements.
In international law, an international organization refers to an organization that is mainly composed of
officials of member nations and is usually established by a treaty. These organizations adopt
resolutions, declarations and other types of standards that require nations to behave in a particular
manner . For example the General Assembly of the United Nations has adopted numerous non binding
resolutions and declarations that embody principles of international law. Disputes are brought before
the International Court of Justice. These courts have authority to settle legal disputes only when
nations voluntarily submit to their jurisdiction.
The major achievement of the United Nations Commission has been its success in trade and commerce
by creating the 1980 Convention on Contracts for the International Sale of Goods (CISG) It is designed
to settle disputes between parties to sales contracts if parties have not agreed otherwise in their
contracts. The CISG governs only sales contracts between trading partners in nations that have ratified
the CISG.

INTERNATIONAL PRINCIPLES AND DOCTRINES

PRINCIPLE OF COMITY :
Under the principle of comity, one nation will defer to and give effect to the law and judicial decree of
the other country. , as long as they are consistent with the law and public policy of the accommodating
nation,
US Courts hesitate to impose US laws on foreign courts when such law is an unwarranted intrusion on
the policies governing a foreign nation’s judicial system.

ACT OF STATE DOCTRINE

This act provides that the judicial branch of one country will not examine validity of public acts
committed by recognized foreign government within its own territory. Government controls all
natural reserves like oil within its territory . It can decide whether to explicit the resources or conserve
and preserve them or to establish a balance between exploration and preservation.
Under the act of state doctrine, the courts of one country will not sit in judgment on the acts of the
government of another , done within its own territory. It follows the doctrine that the juridical review
of acts of a state of a foreign power could embarrass the conduct of foreign relations by political
branches of government.
If a judicial branch does not have the authority to rule on matters of foreign policy, which branch of
government does ?
Expropriation and confiscation concept –
Expropriation is when government seizes privately owned business or goods for proper public purpose
and awards a just compensation.
When government seizes private property for illegal purpose without just compensation it is referred
to as confiscation.
Doctrine of sovereign immunity :
When certain conditions are satisfied a sovereign immunity doctrine immunizes foreign nations from
the jurisdiction of US courts. The Foreign Sovereignty Immunities Act (FSIA) in 1976 governs the
circumstances in which an action can be brought in the US against a foreign nation .
Since the law is jurisdictional by nature, the plaintiff has the burden of showing that the defendant is
not entitled to sovereign immunity.
Section 1605 of FSIA states that a foreign state is not immune from jurisdiction of US courts in
following situations :
- When foreign state has waived its immunity explicitly or by implication
- When foreign state has engaged in commercial activity within US or outside US that has direct
effect in the US
- When foreign state has committed a tort in US or has violated certain international laws.
Methods of doing international business :
 Exporting
 Distributorship
 US firm can establish its own foreign production facilities to be closer to foreign market
 License its technology to existing foreign company
 Selling franchise to overseas entities
Methods of regulating business activities
 Investment protection
 Export controls
 Import controls
 Quotas and tariffs
  Antidumping duties

Commercial Contracts in International settings:

 Contract clauses
 Choice of language
 Choice of forum
 Choice of law
 Force majeure clause – this is a French term meaning impossible or irresistible force /acts of God
or embargoes set by governments for non performance

Payment methods for international transactions

 Monetary systems :
-Foreign exchange markets
-Letters of Credit

LETTERS OF CREDIT:
Buyers and sellers engaged in international business transactions are separated by thousands of miles .
To ensure financial performance under the contract , sellers want to avoid selling to buyers without
the danger of delivering goods in absence of receiving payment. Likewise buyers too need an
assurance that sellers will not be paid until there is evidence that seller has shipped the goods. L/C
facilitates carrying out international transactions smoothly and safely.
Parties to a Letter of Credit :
- Issuer (Bank)
- Beneficiary ( Seller)
- Account party (Buyer)
- Advising bank , paying bank / negotiating bank
Value of the letter of credit :
The payment under the L/C against documents presented by the beneficiary as per the terms and
conditions specified therein and not against the facts that the documents purport to reflect.
Chronology of events under Letter of Credit :
- Buyer contacts with issuer bank to issue a L/C which sets forth bank’s obligation to pay on the
letter of credit and buyer’s obligation to pay the bank
- L/C is transmitted to seller intimating that upon compliance with the terms mentioned in the
Letter of Credit, the bank will issue the payment for the value stated therein.
- Seller delivers goods to the carrier and receives a bill of lading
- Seller delivers the bill of lading to the issuing bank along with other relative documents and
claims his payment
- Issuer bank delivers the bill of lading to buyer
- Buyer delivers bill of lading to carrier agent in his country
- Carrier delivers goods to buyer
- Buyer settles amount with the issuing bank