Business Law Today Standard Text and Summarized Cases 10th Edition Miller Solutions Manual

Business Law Today Standard Text and
Summarized Cases 10th Edition Miller

Solutions Manual
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Chapter 8
International Law in a Global Economy

 See Separate Lecture Outline System
INTRODUCTION
Before students can appreciate the nature of the international business environment, they must be familiar with the
concept of international law, as well as its sources and principles. The act of state doctrine and the doctrine of sovereign
immunity, for example, have greatly influenced the development of international law by defining the parameters in which
sovereign states can claim immunity from suit in foreign courts. Moreover, international business relations have been affected
by state import and export regulations, as well as the expropriation by national governments of foreign assets located within
their respective territories. Finally, the international business environment has also been shaped by the extraterritorial effects
of domestic legislation (such as antitrust, patent, and discrimination laws).
Firms operating in the international environment must be aware of the difficulties that may result if they fail to include
such things as choice-of-forum, choice-of-language, or choice-of-law provisions in their contracts. Yet these firms must also be
able to utilize foreign exchange markets, correspondent banks, and letters of credit to ensure timely completion of their
contractual obligations. These firms must also realize that international contract disputes arise and that litigation and
arbitration are two means (each having their own advantages and disadvantages) by which such problems can be resolved.
ADDITIONAL RESOURCES—
 VIDEO SUPPLEMENTS 

The following video supplements relate to topics discussed in this chapter—
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
Chapter 8.
Business Law Digital Video Library

199
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part.
200 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this chapter include the following.
• Ask the Instructor

International Law: Letter of Credit—A letter of credit is a financing device that enables foreign buyers and sellers to
exchange payment and the goods at the same time. But the exchange isn't really simultaneous, is it?— The
documentary letter of credit, or commercial credit, simply allows the parties to insert two banks in the collection
process. This gives the seller more assurance that she will be paid after she ships the goods, and the buyer more
assurance that he will receive the goods after he pays for them. But the exchange is not simultaneous.
• Legal Conflicts in Business

International Sales and Lease Contracts: Not enough Jalapenos—The advertising firm ordered a quantity of
jalapenos from Mexico. When the shipment arrived, the advertiser found that the full quantity was not delivered.
 VIDEO QUESTIONS & ANSWERS 

International Law: Letter of Credit
1. Do banks always require the same documents to be presented in letter-of-credit transactions? If not,
who dictates what documents will be required? No. Letter-of-credit transactions can require a variety of different
documents, including bills of lading, insurance policies, export licenses, and inspection certificates. The bill of lading is
almost always required because the shipping company will not release the goods to anyone who does not have the
original bill of lading. The buyer dictates which documents will be required when he or she applies for the credit with a
bank (the issuing bank). The buyer tells the bank which documents he or she feels will provide adequate proof that the
goods have actually been shipped. If the bank agrees, it issues the letter-of-credit to the seller.
2. At what point does the seller receive payment in a letter-of-credit transaction? When the seller has
complied with the terms of the letter of credit by shipping the goods and producing the required documents for the
issuing bank, the seller receives payment.
3. What assurances does a letter of credit provide to the buyer and to the seller involved in the transaction?
The buyer is assured that payment will not be made to the seller unless the seller has complied with the terms and
produced the documents proving that the goods were shipped. The buyer also is assured because he or she obtains
legal title to the goods—and can even sell them to another party—before they arrive at the port.
CHAPTER OUTLINE
I. International Law—Sources and Principles
or in part.
CHAPTER 8: INTERNATIONAL LAW IN A GLOBAL ECONOMY 201
A. SOURCES OF INTERNATIONAL LAW

International law is defined in the text as a body of law—formed as a result of international customs, treaties,
and organizations—that governs relations among or between nations. Each of those sources is also defined in
the text.
1. International Customs
Customs evolved over the centuries.
2. Treaties and International Agreements

Treaties are agreements between or among nations.
3. International Organizations
International organizations are composed mainly of nations and usually established by treaty—for example,
the 1980 Convention on Contracts for the International Sale of Goods, or CISG.
B. INTERNATIONAL PRINCIPLES AND DOCTRINES

The text discusses three important legal principles based largely on notions of courtesy and respect.
1. The Principle of Comity

One nation will defer and give effect to the laws and judicial decrees of another nation, as long as those
laws and decrees are consistent with the law and public policy of the accommodating nation. The text
includes an example that involves an international contract.
ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 1

What is the principle of comity, and why do courts deciding disputes involving a foreign law or judicial decree apply
this principle? Under the principle of comity, one nation defers and gives effect to the laws and judicial decrees of
another country, as long as those laws and decrees are consistent with the law and public policy of the accommodating
nation. The application of this principle is based primarily on courtesy and respect.
2. The Act of State Doctrine

The judicial branch of one country will not examine the validity of public acts committed by a recognized
foreign government within its own territory. This doctrine avoids disturbing diplomatic relations.
CASE SYNOPSIS—
Case 8.1: Spectrum Stores, Inc. v. Citgo Petroleum Corp.
Spectrum Stores, Inc., and other U.S. gas retailers filed a suit against Citgo Petroleum Corp. and other oil
production companies in a federal district court. The defendants included companies owned by Venezuela and Saudi
Arabia. The plaintiffs alleged that the defendants conspired with members of the Organization of Petroleum Exporting
Countries to fix the prices of crude oil and refined petroleum products in the United States, primarily by limiting crude-
or in part.
oil production. The plaintiffs sought damages, an injunction, and other relief. The court dismissed the suit. The plaintiffs
appealed.
The U.S. Court of Appeals for the Fifth Circuit affirmed. The act of state doctrine bars consideration of the
plaintiffs’ claims. The exploitation of natural resources is the sovereign function of any nation. Granting relief to the
plaintiffs would effectively order foreign governments to dismantle their chosen means of exploiting the resources
within their own territories. It would also “embarrass” the diplomacy of the executive and legislative branches of the
government.
..................................................................................................................................................
Notes and Questions
When the act of state doctrine applies, does a party have to forgo a decision on the merits of their claim? Yes.
Sometimes a party may have to forgo a decision on the merits of their claim because the involvement of the courts in
such a decision could, as the court explained in this case, frustrate the conduct of U.S. foreign policy
Suppose that a U.S. court declared that a foreign nation’s act was legal. Would such a declaration interfere with
foreign policy matters falling under the authority of other branches of government? Why or why not? Yes. A judgment
by a U.S. court that a foreign nation’s act was illegal would clearly interfere with foreign policy concerns, which fall
under the authority of the other branches of our government. But a pronouncement either way on the legality of a
foreign nation’s act would impinge on foreign policy matters by reflecting a value judgment that is properly a
diplomatic determination for the other branches to make.
ANSWER TO CRITICAL THINKING QUESTION IN CASE 8.1

If the judicial branch does not have the authority to rule on matters of foreign policy, which branch of government
does? Explain. The judicial branch does not have the authority to rule on matters of foreign policy in the U.S. system of
government under the separation-of-powers doctrine. Matters of foreign policy are concerns of the legislative and
executive branches of government as prescribed in the U.S. Constitution.

(Note that your students can find the answers to the even-numbered For Review questions in
Appendix F at the end of the text.
We repeat these answers here as a convenience to you.)
What is the act of state doctrine? In what circumstances is this doctrine applied? The act of state doctrine is a
judicially created doctrine that provides the judicial branch of one country will not examine the validity of public acts
committed by a recognized foreign government within its own territory. This doctrine is often employed in cases
or in part.
involving expropriation or confiscation.
a. When a Foreign Government Takes Private Property

The text explains the consequences of this doctrine in expropriation cases (and contrasts
confiscations), noting the burden of proof.
b. Doctrine May Immunize a Foreign Government’s Actions

The act of state doctrine and the doctrine of sovereign immunity tend to immunize foreign nations
from the jurisdiction of U.S. courts so that, in general, U.S. firms or individuals who own property
overseas have little U.S. legal protection against government actions in the countries in which they
operate.
3. The Doctrine of Sovereign Immunity

The Foreign Sovereign Immunities Act (FSIA) of 1976 governs the circumstances in which an action may be
brought in the United States against a foreign nation, including attempts to attach a foreign nation’s
property. A foreign state is not immune from the jurisdiction of U.S. courts if—
• The state has waived its immunity.

• The action is based on a commercial activity carried on in the United States by the foreign state. A
“foreign state” includes a political subdivision and an instrumentality of the state. A “commercial
activity” is a mercantile activity that has substantial contact with the United States.
• The state has committed a tort in the United States or violated certain international laws.

Under the Foreign Sovereign Immunities Act, in what situation is a foreign state subject to the jurisdiction of U.S.
courts? Under the Foreign Sovereign Immunities Act, a foreign state may be subject to the jurisdiction of U.S. courts
when the state has “waived its immunity either explicitly or by implication” or when the action is “based upon a com-
mercial activity carried on in the United States by the foreign state.”
ADDITIONAL BACKGROUND—
Foreign Sovereign Immunities Act of 1976 Sections 1603 and 1605

The Foreign Sovereign Immunities Act of 1976 (FSIA) is an authoritative source for some of the principles discussed
in this chapter. Specific sections of the FSIA are noted in the text. The following are the sections that relate to and are
cited in this part of the text—Foreign Sovereign Immunities Act of 1976 Sections 1603 and 1605.
§ 1603. Definitions
For purposes of this chapter—
or in part.
(a) A “foreign state” except as used in section 1608 of this title, includes a
political subdivision of a foreign state or an agency or instrumentality of a
foreign state as defined in subsection (b)
(b) An “agency or instrumentality of a foreign state” means any entity—
(1) which is a separate legal person, corporate or otherwise, and
(2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other
ownership interest is owned by a foreign state or political subdivision thereof, and
(3) which is neither a citizen of a State of the United States as defined in section 1332(c) and (d) of this title, nor created
under the laws of any third country.
(c) The “United States” includes all territory and waters, continental or insular, subject to the jurisdiction of the United
States.
(d) A “commercial activity” means either a regular course of commercial conduct or a particular commercial
transaction or act. The commercial character of an activity shall be determined by reference to the nature of the
course of conduct or particular transaction or act, rather than by reference to its purpose.
(e) A “commercial activity carried on in the United States by a foreign state” means commercial activity carried on by
such state and having substantial contact with the United States.
§ 1605. General Exceptions to the Jurisdictional Immunity of a Foreign State
(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or the States in any case—
* * * *
(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon
an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon
an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere
and that act causes a direct effect in the United States;
(3) in which rights in property taken in violation of international law are in issue and that property or any property
exchanged for such property is present in the United States in connection with a commercial activity carried on in the
United States by the foreign state; or that property or any property exchanged for such property is owned or operated
by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial
activity in the United States;
* * * *
II. Doing Business Internationally

International business transactions include selling products (or services) in foreign markets. There are basically two
ways to sell products in foreign markets: export goods manufactured domestically or manufacture goods there.
or in part.
Manufacturing goods in foreign countries may have the advantages of lower costs, taxes, and trade barriers, as well as
less government regulation.
A. EXPORTING
There are two ways to export: direct and indirect. Direct exporting does not involve third parties. Indirect
exporting involves the use of a third party to sell a product in a foreign market for a domestic manufacturer.
When that party is in a foreign market, it is an agent.
1. Distributorships
A third party, located in a foreign market, who takes title to domestically-manufactured goods, is a
distributor.
2. The National Export Initiative

The federal National Export Initiative (NEI) is intended to double U.S. exports by 2015. The NEI may also
reduce outsourcing.
a. Export Promotion
The Export Promotion Cabinet—officials from sixteen government agencies and departments—will
promote exports to high-growth markets in Brazil, China, and India and identify opportunities in fast-
growth sectors such as renewable energy.
b. Increased Export Financing

The U.S. Export-Import Bank is increasing the financing available to small- and medium-sized
businesses by 50 percent.
B. MANUFACTURING ABROAD
There are several ways to manufacture goods abroad.
1. Licensing
Licensing involves payment of royalties.
2. Franchising
Franchising is covered in detail in Chapter 26. The text lists some examples of famous international
franchises
3. Subsidiaries
When a U.S. firm establishes a wholly-owned foreign subsidiary, the parent company often retains complete
ownership of the facilities and complete control over all phases of the operation. In a joint venture, a U.S.
firm shares ownership, control, profits, and liabilities.
III. Regulation of Specific Business Activities

Controls on international business transactions are imposed by national laws and international agreements.
A. INVESTMENT PROTECTIONS
or in part.
The text discusses government regulation of expropriation and confiscation of investment property. Essentially,
expropriation involves compensation for what is taken; confiscation does not. International law principles are
violated when property is confiscated. Some countries provide constitutional or statutory guaranties against it, or
insurance for their citizens’ investments abroad. Few remedies are available, however.
B. EXPORT CONTROLS
Under the Constitution, Congress cannot impose export taxes, but Congress controls exports by setting quotas or
other restrictions on the flow of commodities, products, and data. Congress stimulates exports through tax
incentives (exempting income) and encouraging investment in and loans to U.S. export companies.
C. IMPORT CONTROLS
The production and sale of domestic products may also be stimulated by import restrictions, which include
prohibitions, quotas, and tariffs. Prohibitions are imposed on illegal drugs, books that urge insurrection against
the U.S. government, agricultural products that pose dangers to domestic crops or animals, goods coming from
enemies of the United States.
1. Quotas and Tariffs
Tariffs are imposed on such products as oil.
2. Political Factors
Tariffs are sometimes imposed for political acts.
3. Antidumping Duties
Specific laws deal with what the United States regards as unfair international trade practices (the text uses
dumping as an example).
Antidumping Duties
The procedure for imposing antidumping duties involves two U.S. government agencies: the International Trade
Commission (ITC) and the International Trade Administration (ITA). The ITC is an independent agency that makes
recommendations to the president concerning temporary import restrictions. The ITC assesses the effects of dumping
on domestic businesses. The ITA is part of the Department of Commerce and decides whether import sales were at
less than fair market value. The ITA determination establishes the amount of antidumping duties, which are set to
equal the difference between the price charged in the United States and the price charged in the exporting country. A
duty may be retroactive to cover past dumping incidents.
D. MINIMIZING TRADE BARRIERS

To minimize international trade barriers, most of the world’s leading trade nations abide by the World Trade
Organization (WTO). Each member country agrees to treat other members at least as well as it treats the country
that receives its most favorable treatment (normal trade relations (NTR) status).
1. The European Union (EU)
or in part.
This regional trade association minimizes trade barriers among its member nations.
2. The North American Free Trade Agreement (NAFTA)

NAFTA created a regional trading unit consisting of Mexico, the United States, and Canada. The goal is to
eliminate tariffs in the region on substantially all goods over a period of fifteen to twenty years, while re-
taining tariffs on goods imported from other countries.
3. The Central American-Dominican Republic Free Trade Agreement (CAFTA-DR)

CAFTA-DR aims to reduce tariffs and improve market access among Costa Rica, Dominican Republic, El
Salvador, Guatemala, Honduras, Nicaragua, and the United States.
4. The Republic of Korea–United States Free Trade Agreement (KORUS FTA)

KORUS eliminated most of the tariffs on each nation’s industrial and consumer exports. The United States
has also ratified free trade agreements with Columbia and Panama.
E. BRIBING FOREIGN OFFICIALS

Congress attempts to reduce the amount of bribes given to foreign government officials by representatives of
U.S. corporations through the Foreign Corrupt Practices Act of 1977 (Chapter 7).
IV. Commercial Contracts in an International Setting

Problems arising from language and legal differences may be avoided by including provisions designating the official
language of the contract, the legal forum for resolving contract disputes, the substantive law that will be applied,
whether disputes will be arbitrated or litigated, and what acts or events will excuse the parties from performance
under the contract.
A. CONTRACT CLAUSES
1. Choice-of-Language Clause
Besides designating the official language by which the contract will be interpreted, this clause may allow for
a translation that can be authoritative if it is ratified by all parties.
2. Forum-Selection Clause
This clause should identify the specific court that will have jurisdiction over a dispute. The choice cannot
deny a party an effective remedy, be the product of fraud or unconscionable conduct, cause substantial
inconvenience to a party to the contract, or violate public policy.
3. Choice-of-Law Clause
As with language and forum, the parties to an international contract can choose whatever law they wish to
govern their contract (at least under international agreements—the UCC restricts the choice to whatever is
“reasonable”). Under the 1986 Hague Convention on the Law Applicable to Contracts for the International
Sale of Goods, if a choice-of-law is not specified, the governing law is that of the country in which the
seller’s business is located.
4. Force Majeure Clause

Force majeure clauses commonly stipulate eventualities in addition to acts of God that may excuse a party
from liability for nonperformance.
or in part.

(Note that your students can find the answers to the even-numbered For Review questions in
Appendix F at the end of the text.
We repeat these answers here as a convenience to you.)
What are three clauses commonly included in international business contracts? Choice-of-language, forum-
selection, and choice-of-law clauses are commonly used in international business contracts.
ENHANCING YOUR LECTURE—
  LANGUAGE REQUIREMENTS IN FRANCE

 
In 1995, France enacted a law requiring the use of the French language in certain legal documents. Documents
relating to securities offerings, such as prospectuses, for example, must be written in French. So must instruction
manuals and warranties for goods and services offered for sale in France. Additionally, all agreements entered into
with French state or local authorities, with entities controlled by state or local authorities, and with private entities
carrying out a public service (such as providing electricity or other utilities) must be written in French. The law has
posed problems for some businesspersons because certain legal terms or phrases in documents governed by, say, U.S.
or English law have no equivalents in the French legal system.
or in part.
FOR CRITICAL ANALYSIS

How might language differences affect the meaning of certain terms or phrases in an international contract?
B. CIVIL DISPUTE RESOLUTION

Arbitration clauses are common in contracts governing international sales. The arbitrator of choice is sometimes
a neutral entity (the International Chamber of Commerce, for instance). The United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards assists in enforcing arbitration clauses, as do provisions
in other treaties.
ANSWER TO CRITICAL ANALYSIS QUESTION IN THE FEATURE—

BEYOND OUR BORDERS
What might be some other advantages of arbitrating disputes involving international transactions? Are there any
disadvantages? Any of the advantages of arbitration over litigation would answer the first question. These include the
less formal standards, the lesser expense, the lack of a public record, and so on. Similarly, any of the disadvantages that
arbitration has, as compared to court proceedings, would answer the second question. These include the less predict-
able format and procedures, the less formal standards, the less certain application of the controlling principles, and the
lack of a public record.
CASE SYNOPSIS—
Case 8.2: S&T Oil Equipment & Machinery, Ltd. v. Juridica Investments, Ltd.
Juridica Investments, Ltd. (JIL), entered into a contract with S&T Oil Equipment & Machinery, Ltd., in Guernsey,
which is one of a group of British islands in the English Channel. The contract stated that it was executed in Guernsey, it
would be fully performed there, and any dispute between the parties was subject to arbitration there. As part of the
deal, JIL wired funds to S&T from Guernsey. Later, when a dispute arose, S&T filed a suit in a U.S. court. JIL asked the
court to enforce the arbitration provision. The court compelled arbitration under the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (the New York Convention). S & T appealed.
The U.S. Court of Appeals for the Fifth Circuit affirmed. The court explained that a provision for arbitration in a
foreign jurisdiction is enforceable under the New York Convention if the parties expect their contract to be performed
or enforced abroad. In this case, JIL and S&T executed their contract in Guernsey and agreed to its performance there.
In fact, JIL had already performed part of the contract in Guernsey.
..................................................................................................................................................
Notes and Questions
Foreign arbitration awards are usually easier to enforce than foreign court judgments. The enforcement of court
or in part.
judgments normally depends on the principle of comity and bilateral agreements providing for such enforcement. The
international Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York
Convention) provides for the enforcement of foreign arbitration provisions and awards.
Could S&T have convincingly claimed that it did not understand the arbitration provision at the time of the
contract with JIL or that JIL had “forced” the provision on S&T? No, to both claims. S&T and JIL were both business
firms with relatively equal bargaining power. There is nothing to indicate that JIL forced any part of their agreement on
S&T.

What would happen if Congress did not require a reasonable relationship with a foreign state for arbitration
agreements between U.S. citizens? Would there be more or fewer agreements to arbitrate disputes abroad? There
would be more agreements to arbitrate disputes abroad. Under the Convention’s implementing legislation, the parties
must have some connection to a foreign country to arbitrate disputes outside the United States. Without such a
requirement, more parties would choose to arbitrate disputes in countries with which they have no real relationships,
meaning that more disputes would be arbitrated abroad.
V. Payment Methods for International Transactions
A. MONETARY SYSTEMS
Firms engaged in international transactions rely on the convertibility of currencies. What convertibility is and
where currencies are converted (foreign exchange markets) are explained in the text. Exchange rates are set by
the forces of supply and demand. Correspondent banking makes it possible to transfer funds internationally.
Most interbank transfers are handled electronically.
B. LETTERS OF CREDIT
Letters of credit facilitate international transactions.
1. Parties to a Letter of Credit

In a simple letter of credit transaction, the issuer (a bank) agrees to pay the beneficiary (seller) when the
beneficiary has complied with the terms of the letter (which typically requires delivery of a bill of lading to
prove that a shipment has been made). In return, the account party (buyer) promises to reimburse the
issuer for the amount paid to the beneficiary.
2. The Value of a Letter of Credit

The issuer does not police the underlying contract: a letter of credit is independent of the underlying
contract between the buyer and the seller.
VI. U.S. Laws in a Global Context
A. U.S. ANTITRUST LAWS
or in part.
The text explains that persons in foreign nations are subject to U.S. antitrust laws, as well as protected by those
laws from illegal anticompetitive acts committed by U.S. citizens. Any conspiracy that has a substantial effect on
U.S. commerce is within the reach of the Sherman Act, whether the violation occurs outside the United States
and whether a foreign government or person commits it.
B. INTERNATIONAL TORT CLAIMS

All nations have laws governing torts, but there are significant variations in the application and effect of the laws.
The Alien Tort Claims Act of 1789 allows foreign citizens to bring suits in U.S. courts for injuries allegedly caused
by violations of international tort law. Some cases have involved violations of human rights. Some have alleged
environmental crimes.

What federal law allows U.S. citizens, as well as citizens of foreign nations, to file civil actions in U.S. courts for torts
that were committed overseas? The Alien Tort Claims Act of 1789 allows foreign citizens to bring suits in U.S. courts for
injuries allegedly caused by violations of international tort law.
CASE SYNOPSIS—
Case 8.3: Khulumani v. Barclay National Bank, Ltd.
Khulumani and many other plaintiffs filed multiple claims in U.S. federal district courts on behalf of victims of
South African apartheid under the Alien Tort Claims Act (ATCA) against hundreds of defendants, including Barclay
National Bank, Ltd. The actions were transferred to a single district court, which granted many of the defendants’
motions to dismiss on the ground that the plaintiffs did not establish subject matter jurisdiction under the ATCA. The
plaintiffs appealed.
The U.S. Court of Appeals for the Second Circuit vacated the dismissal and remanded the case. Grounds for the
plaintiffs’ claims were offered in two concurring opinions. One posited that liability on the facts was “well established
in international law,” citing such examples as the Rome Statute of the International Criminal Court. Another stated that
grounds existed in such resources of U.S. law as Section 876(b) of the Restatement (Second) of Torts, under which
liability could be assessed in part for “facilitating the commission of human rights violations by providing the principal
tortfeasor with the tools, instrumentalities, or services to commit those violations.” On remand, the lower court was
instructed to review the “prudential concerns”—the “practical consequences” of this litigation in U.S. federal courts,
any limits on relief in U.S. federal courts for violations of international law, “judicial deference to the Executive Branch
on questions of foreign policy,” and the principle of comity.
..................................................................................................................................................
Notes and Questions
How did the corporate defendants allegedly benefit from “aiding and abetting” South Africa’s apartheid system?
or in part.
Under apartheid, the white minority government in South Africa maintained a system of cheap labor, among other
things, which increased the profitability of those companies, including the defendants, who took advantage of it. Some
of these firms continued to do business with the repressive regime even after the United Nations imposed sanctions on
the South African government to reduce or eliminate the “advantages” of apartheid.
Does international law support the recognition of criminal liability under a theory of aiding and abetting under the
ATCA? Yes, according to a concurring opinion in the Khulumani case. That concurrence averred that liability for criminal
aiding and abetting is “well established in international law.” For example, the London Charter that formed the basis
for the Nuremberg war crimes trials after World War II recognized such liability. Treaties that recognize the cause
include the Rome Statute of the International Criminal Court and those that created the tribunals for trying crimes in
Rwanda and the former Yugoslavia.
A dissenting judge agreed that international law was the proper basis for finding liability but opined that the court
should defer to the government of South Africa—exercising jurisdiction in this particular case would undermine
important U.S. interests.
Does U.S. law provide a source for assessing civil liability on a theory of aiding and abetting under the ATCA? Yes,
according to a concurring opinion in the Khulumani case. This opinion cited Section 876(b) of the Restatement (Second)
of Torts as applicable to the plaintiffs’ ATCA claims “in one of three ways: (1) by knowingly and substantially assisting a
principal tortfeasor, such as a foreign government or its proxy, to commit an act that violates a clearly established
international law norm; (2) by encouraging, advising, contracting with, or otherwise soliciting a principal tortfeasor to
commit an act while having actual or constructive knowledge that the principal tortfeasor will violate a clearly
established customary international law norm in the process of completing that act; or (3) by facilitating the
commission of human rights violations by providing the principal tortfeasor with the tools, instrumentalities, or
services to commit those violations with actual or constructive knowledge that those tools, instrumentalities, or
services will be (or only could be) used in connection with that purpose.”
How might such “prudential concerns” as the principle of comity affect the eventual outcome? The U.S. Court of
Appeals for the Second Circuit acknowledged that “the views of foreign nations are an important consideration under
the doctrine of international comity, [but] we have not held them to be dispositive. At this stage in the litigation, we
express no view as to what level of deference to their views is appropriate in this particular case. Instead, we remand
to the district court so that it may carefully consider whether any of these doctrines require dismissal” of the plaintiffs’
claims.
What are the ramifications for the defendants of the ruling in this case? Because the U.S. Court of Appeals for the
Second Circuit vacated the lower court’s dismissal of the plaintiffs’ claims, the case will return to the lower court “for
further proceedings consistent with this opinion.” Many or most, if not all, of the corporate defendants—and others—
could face huge claims for aiding and abetting the South African government in maintaining its apartheid system.

Should the companies cited as defendants in this case have refused all business dealings with South Africa during
the era of apartheid when that country’s white government severely limited the rights of the majority black African
or in part.
population? Why or why not? For ethical reasons, many corporations, both large and small, did in fact refuse to do
business with South Africa during the period of apartheid. To the extent that you might have believed at the time that
apartheid was immoral and unacceptable, then you would have had a strong argument for condemning U.S.
corporations for engaging in business dealings with South Africa.
C. ANTIDISCRIMINATION LAWS
Under the Civil Rights Act of 1991, Title VII of the Civil Rights Act of 1964 covers U.S. citizens working abroad for
U.S. employers, unless compliance with Title VII would violate the laws of the country in which they work.
Cultural Differences
To conduct business successfully in a foreign nation can require knowledge of that nation’s laws and some
familiarity with its cultural system, economy, and business climate. Cultural differences can cause problems—language
and communication (gestures can be misinterpreted, for example), colors and numbers (which can have different
meanings in different countries), perceptions of time, and management styles (confrontational v. nonconfrontational,
for instance).
Among other differences are cultural attitudes about relationships, which influences contract negotiations. For
example, in Japan, China, and Latin America, and in some Western European nations, there is a cultural expectation
that a relationship between contracting parties will be long term. Contracting parties in these cultures often expect
that disputes can be worked as they arise, because the parties are committed to maintaining the relationship. For this
reason, the negotiation process can be long, while contracts are often short, in contrast to negotiations and contracts in
the United States, where the opposite may be true.
TEACHING SUGGESTIONS
1. International business transactions require students to visualize situations in which several different contractual
parties are involved. It may be helpful to have students engage in “role playing” exercises in which they play the parts
of parties involved in negotiations over the purchase of a certain product.
2. Many foreign governments have claimed that arguably commercial activities carried out by foreign governmental
agencies are functions of the state and should therefore be protected from suit in U.S. courts. Ask students to discuss
how a useful test for distinguishing among governmental and commercial activities might be developed. What sorts of
information would someone have to have to decide whether a particular activity was commercial or governmental in
nature? Should the designation focus on the type of ownership (private v. government) of the enterprise or the nature
of the activity itself?
3. The expropriation of property by foreign states is permitted under international law but the act of state doctrine
or in part.
may prevent a U.S. company from obtaining an enforceable judgment in a U.S. court. Ask students to discuss how a
U.S. firm might attempt to collect compensation for a taking by a foreign government and the form in which payment
might be made.
4. Explain that historically, Americans have not been as active in international trade as have citizens and businesses
of other nations. Over the last fifteen years, however, the federal and state governments in the United States have
been encouraging domestic firms to compete in international markets. Ask students to discuss why Americans did not
widely participate in international trade. What effect has this had on American attitudes towards other nationals?
What effect has this had on other nationals’ attitudes towards Americans? Why is the situation changing?
or in part.
5. Discuss some of the effects that the increasingly smaller size of the global community is having on the cultural,
legal, and other differences among nations. Points may be well illustrated by anecdotes—some students may have
traveled to other countries and heard rock music playing from a cassette deck in a remote location or seen video tapes
of American movies available in unlikely places—as well as by the sweep of larger events. What effects are likely to
result from the increasing use of English as the international language of business? Already, English is being taught by
non-English speakers to other non-English speakers in non-English speaking countries solely for the use of English
within the borders of those countries. Will English become the truly international language? What effects might this
have on law and its interpretation and application?
6. Bring to class various examples of international contracts and discuss the differences among the provisions. To
govern such a contract, why would one country’s law be chosen over another’s? Why might the parties choose the law
of a country of which neither is a citizen?
Cyberlaw Link
What effect might the Internet have on the uniformity of law among nations? Might the effect be different on
international laws?
DISCUSSION QUESTIONS
1. Discuss the principle of comity. Under what is known as the principle of comity, one nation will defer and give respect
to the laws and judicial decrees of another country as long as those laws and judicial decrees are consistent with the laws and
public policy of the accommodating nation. This recognition has no clear legal origin but is based primarily on notions of
courtesy and respect.
2. Discuss the act of state doctrine. The act of state doctrine is a judicially created principle that provides that the judicial
branch of one country will not examine the validity of public acts committed by a recognized foreign government within its own
territory. This doctrine is premised on the theory that the U.S. judicial branch should not question the validity of acts by foreign
governments within their own borders when to do so would adversely affect relations with those foreign governments. The act
of state doctrine has important consequences for those parties doing business or investing in foreign countries because
individuals or businesses whose assets are expropriated may be forced to litigate their claims in the expropriating state’s courts
due to the reluctance of the U.S. courts to entertain such claims.
3. What is an international business transaction? An international business transaction is any binding agreement
between two or more parties not having the same nationality involving the purchase or sale of a good or service.
4. What are choice-of-language, choice-of-forum and choice-of-law clauses? Choice-of-Language Clause. A choice-of-
language clause is often included by parties to an international contact because many phrases in one language are not readily
translatable into another language. The choice-of-language clause designates the official language by which the contract will be
interpreted to resolve any disputes. Choice-of-Forum Clause. A choice-of-forum clause is used in international contracts to
designate the forum in which a dispute will be litigated by the parties. The choice-of-forum clause should indicate that the
court will have jurisdiction as well as the state in which that court has exclusive jurisdiction so as to preclude other courts from
or in part.
entering the case. A choice-of-forum clause may be invalidated if the clause, for example, denies one party an effective rem-
edy, causes substantial inconvenience to one of the parties, violates public policy or is the product of fraudulent or
unconscionable conduct. Choice-of-Law Clause. A choice-of-law clause permits the parties to an international contract to
designate the law that will govern their contractual relationship so long as the law chosen is the law of a jurisdiction that has a
substantial relationship to the parties and to the transaction itself. Although the UCC requires that the choice-of-law be
reasonable, the CISG allows unlimited autonomy in the choice-of-law. In the absence of a specification of what law is to apply,
however, the CISG indicates that the governing law will be that country in which the seller’s place of business is located.
5. Describe some of the events that are typically covered by a force majeure clause. A force majeure clause will excuse
the nonperformance of a party to an agreement if any one of several events occurs including war, flood, fire, embargo,
governmental orders, regulations, restrictions, governmental expropriation, accident, interruptions of transportation facilities,
labor strikes and disputes, shortages of material, or any other causes beyond the control of the parties.
6. How does a simple letter of credit work? A letter of credit is designed to ensure the performance of international
contracts by enabling the seller to avoid delivering goods for which it might not be paid and by giving the buyer the assurance
that the seller will not be paid until the goods have been shipped. In a simple letter of credit transaction, the issuing bank
agrees to issue a letter of credit and to ascertain the occurrence of certain acts by the seller. In return, the buyer promises to
reimburse the issuer for the amount paid to the seller. Under a letter of credit, the issuing bank is bound to pay the seller when
the seller has complied with the terms and conditions of the letter of credit. Consequently, the seller will look to the issuing
bank--not the buyer—when it presents the documents (such as a bill of lading) required by the letter of credit. A letter-of-credit
assures the seller of payment while at the same time assuring the buyer that payment will not be made until the seller has
complied with the terms and conditions of the credit.
7. What are the primary methods for resolving international contractual disputes? Litigation. If the contract does not
have an arbitration clause, then the parties may choose to litigate their dispute in court. Any litigation will be simplified
somewhat if the contract contains forum-selection and choice-of-law clauses. The absence of such provisions, however, will
probably result in excessive litigation since the contract does not restrict the parties to a particular forum or require that a
certain country’s laws be used to resolve any disputes arising under the agreement. Even if one party prevails against another
in a legal action, however, it may still be difficult for the winning party to satisfy the judgment against the losing party.
Arbitration. Many international contracts include an arbitration clause which is designed to avoid costly litigation by specifying
that the parties agree in advance to be bound by the decision of a designated third party in the event that any disputes arise.
The enforcement of arbitration decisions can be assisted by existing multilateral and bilateral treaties.
8. What is the difference between expropriation and confiscation? Expropriation occurs when property is taken and the
owner is paid just compensation for what is taken. Expropriation does not violate generally observed principles of international
law. Confiscation occurs, by contrast, when property is taken and no (or inadequate) compensation is paid. International law
principles are violated when property is confiscated.
9. How does the Sherman Act affect international business? Section 1 of the Sherman Act declares that its provisions are
applicable both in the U.S and abroad; it purports to reach any conspiracy (foreign or domestic) that has a substantial effect on
U.S. commerce. Foreign governments as well as natural persons can be sued for violating the Sherman Act regardless of
whether the alleged violations occurred inside or outside the U.S. Before a U.S. court will exercise its jurisdiction over an
alleged antitrust violation, however, the party bringing the claim must demonstrate that the alleged violations have the
requisite effect on U.S. commerce. The jurisdiction of the court will be automatically invoked, however, if a per se violation has
or in part.
been committed as would be the case if a U.S. firm had joined a foreign cartel and conspired successfully to control the produc-
tion, price, or distribution of a good that substantially affected U.S. commerce.
10. Do U.S. discrimination laws apply in foreign countries? Title VII of the 1964 Civil Rights Act regulates employment
practices of businesses and covers employees who are employed in any industry affecting commerce. Under the Civil Rights Act
of 1991, this law has extraterritorial effect—it applies to U.S. citizens employed in foreign countries.
ACTIVITY AND RESEARCH ASSIGNMENTS

1. Obtain and fill out copies of detailed form international licensing and franchise agreements and distribute these copies
to the students. Divide the class into two groups and ask the students to advise the licensor (franchisor) or the licensee
(franchisee) as to what modifications should be made in the agreements to protect better the interests of their respective
clients. The students might also be asked to focus in on those clauses in the agreements that appear to be excessive or
unnecessary.
2. How does a custom or practice become part of international law? Much of what we know as international law is based
on customs that evolved from commercial practices. The principle that the high seas should be open to the commerce of all
nations developed because certain seafaring powers that maintained overseas trading empires did not wish to have important
sea lanes claimed by hostile powers and because it was physically impossible for any single state to prevent other nations from
sailing the seas. Ask the students to research the origins of this principle and to examine what factors have led to its acceptance
as a fundamental principle of international law.
3. Have students research other nations to determine which currently represent good investments for U.S. businesses.
Ask them to note what makes such research difficult (the unreliability of statistics, particularly in developing countries). Have
them outline the major changes in the last forty years that make some places more amenable than others (the end of World
War II, the fall of communism, etc.). Why have some areas remained unchanged? What are the factors that cause or allow a
nation to grow and prosper economically (growth in agricultural production, in exports, and in investment relative to
production; the sense of being a nation; governmental administrative competence; and the political leadership: its continuity,
its policies, and its orientation—economic progress v. political power)?
4. Ask students to research the investments of domestic firms in other countries to discover the common pattern (in
neighboring countries, in former colonies, and in places with valuable resources, large domestic markets, and educated
workforce). The United States is the leading host nation for foreign investment. Besides fulfilling all of the criteria of the
common foreign investment pattern, what other factors influence other nationals to invest here (fewer trade barriers, the
world’s most stable and sound economy)?
EXPLANATION OF A SELECTED FOOTNOTE IN THE TEXT

Footnote 8: Garware Polyester, Ltd., based in India, makes plastics and polyester film. Intermax Trading Corp., in
New York, was Garware’s North American sales agent. The parties executed four written agreements (the “Agency
Agreements”) that gave courts in India jurisdiction over any dispute. When Intermax fell behind in its payments for Garware’s
goods, Garware filed a suit in a federal district court to collect on the unpaid invoices. Garware argued that the forum-selection
clause did not apply, because the sales that made up all of the invoices in dispute were not part of the Agency Agreements. In
or in part.
Garware Polyester, Ltd. v. Intermax Trading Corp., the court dismissed the case for improper venue. “[T]he ‘gist’ of Garware’s
claim is a breach of the Agency Agreements. The . . . sales in question were made by Intermax for the purpose of selling
Garware products in the contractually defined territory. The Agency Agreements specifically relate to Intermax’s role as
Garware’s ‘selling agent. . . . Further, the parties’ course of dealing supports the conclusion that the parties themselves
believed the Agency Agreements included [these] sales: as required by the Agreements, Garware paid commissions to Intermax
on these sales.”
Could the parties in this case have expressly waived the application of the forum-selection clause? The short answer is
yes. A contract may be modified by conduct or a subsequent writing on the mutual assent of the parties.
Why didn’t the court rule that the parties in this case impliedly waived the application of the forum-selection clause
when they filed a complaint and responded in a different jurisdiction? A defense to the application of a forum-selection clause
may be waived by implication when a party takes actions that are inconsistent with it. Thus, here, it could be argued that
Garware waived the clause by filing its suit in the United States rather than in India. Generally, however, it is not held that a
party waives such a clause merely by participating in pre-trial motions, or when the opposing party is not prejudiced by a
dismissal. This means that Intermax could not be said to have waived the clause simply be responding to Garware’s complaint,
and because Garware is based in India, it could not be said that it would be prejudiced by a dismissal of its suit in the United
States.
REVIEWING—
 INTERNATIONAL LAW IN A GLOBAL ECONOMY 

Robco, Inc., was a Florida arms dealer. The armed forces of Honduras contracted to purchase weapons from
Robco over a six-year period. After the government was replaced and a democracy installed, the Honduran
government sought to reduce the size of its military, and its relationship with Robco deteriorated. Honduras refused to
honor the contract by purchasing the inventory of arms, which Robco could sell only at a much lower price. Robco filed
a suit in a federal district court in the United States to recover damages for this breach of contract by the government
of Honduras. Ask your students to answer the following questions, using the information presented in the chapter.
1. Should the Foreign Sovereign Immunities Act (FSIA) preclude this lawsuit? Why or why not? Because the armed
forces of Honduras contracted to purchase weapons from a U.S. company (Robco), this would fall under the
commercial activity exception to the FSIA. The sales contract was an action taken in connection with a commercial
activity carried on in the United States, and the sale has a direct effect in the United States. Therefore, the FSIA would
not bar this lawsuit.
2. Does the act of state doctrine bar Robco from seeking to enforce the contract? Explain. The act of state doctrine
provides that the judicial branch of one country will not examine the validity of public acts committed by a recognized
foreign government within its own territory. Here, the newly democratic government of Honduras is seeking to reduce
the size of its military. The U.S. government likely recognized the new democratic regime since the U.S. supports
democratization globally. The U.S. is also likely to be supportive of its efforts to reduce the size of its military and its
inventory of weapons. Because the Honduran government’s policy decision is public act within its own territory, the
U.S. judicial branch will most likely be unwilling to intervene and force the government to fulfill its contract to purchase
arms. There is more at stake than a simple contract because enforcing an arms deal may harm international relations
or in part.
between the U.S. and the new government of Honduras.

3. Suppose that prior to this lawsuit, the new government of Honduras had enacted a law making it illegal to
purchase weapons from foreign arms dealers. What doctrine might lead a U.S. court to dismiss Robco’s case in that
situation? The principle of comity might apply here. This principle is a doctrine of deference. Under this principle, one
nation will defer and give effect to the laws and judicial decrees of another country, as long as those laws are
consistent with the law and public policy of the accommodating nation. The principle of comity is based on respect and
is a customary courtesy extended to other nations. If a U.S. court extends comity to the new Honduran government’s
law pertaining to arms dealing, then it would dismiss Robco’s case.
4. Now suppose that the U.S. court hears the case and awards damages to Robco, but the government of Honduras
has no assets in the United States that can be used to satisfy the judgment. Under which doctrine might Robco be able
to collect the damages by asking another nation’s court to enforce the U.S. judgment? Under the principle of comity,
one nation will defer and give effect to the laws and judicial decrees of another country, as long as those laws are
consistent with the law and public policy of the accommodating nation. This would be very useful to Robco in its
attempt to collect damages under the award. Robco could take the judgment issued by a U.S. court to any nation in
which the government of Honduras does have assets and ask that nation’s court to enforce the judgment under the
principle of comity.
 DEBATE THIS: 

The U.S. federal courts are accepting too many lawsuits initiated by foreigners that concern matters not relevant
to this country. Our federal courts are already overwhelmed by normal lawsuits that concern purported wrongs
committed on U.S. soil that involve residents of this country. Why should we become the preferred jurisdiction for
lawsuits that involve human rights issues in other countries? Why should we become the preferred jurisdiction for
purported employment discrimination that might have taken place outside of the U.S.? We are not the world’s
conscience.
The U.S. has one of the best-run and most fair federal judiciaries in the world. We still support freedom and
democracy. Therefore, it is appropriate that when, for example, human rights are violated by companies that operate
in other countries, the aggrieved can avail themselves of our federal courts. Also, if a U.S. company that operates
abroad violates our employment discrimination or antitrust laws, then that company should be sued in the
U.S. Obviously, other countries do not have the same high standards that we have in these matters.

EXAMPREP—
 ISSUE SPOTTERS 

1. Café Rojo, Ltd., an Ecuadoran firm, agrees to sell coffee beans to Dark Roast Coffee Company, a U.S. firm. Dark
or in part.
Roast accepts the beans but refuses to pay. Café Rojo sues Dark Roast in an Ecuadoran court and is awarded dam ages,
but Dark Roast’s as sets are in the United States. Under what circumstances would a U.S. court enforce the judgment of
the Ecuadoran court? Under the principle of comity, a U.S court would defer and give effect to foreign laws and judicial
decrees that are consistent with U.S. law and public policy.
2. Gems International, Ltd., is a foreign firm that has a 12 percent share of the U.S. market for diamonds. To capture
a larger share, Gems offers its products at a below-cost discount to U.S. buyers (and inflates the prices in its own
country to make up the difference). How can this attempt to undersell U.S. businesses be defeated? The practice
described in this problem is known as dumping, which is regarded as an unfair international trade practice. Dumping is
the sale of imported goods at “less than fair value.” Based on the price of those goods in the exporting country, an
extra tariff—known as an antidumping duty—can be imposed on the imports.

or in part.

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Business Law Today Standard Text and

Summarized Cases 10th Edition Miller

International Law in a Global Economy

 VIDEO SUPPLEMENTS 

Business Law Digital Video Library

• Ask the Instructor

• Legal Conflicts in Business

 VIDEO QUESTIONS & ANSWERS 

A. SOURCES OF INTERNATIONAL LAW

2. Treaties and International Agreements

B. INTERNATIONAL PRINCIPLES AND DOCTRINES

1. The Principle of Comity

ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 1

2. The Act of State Doctrine

Case 8.1: Spectrum Stores, Inc. v. Citgo Petroleum Corp.

Notes and Questions

ANSWER TO CRITICAL THINKING QUESTION IN CASE 8.1

ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 2

involving expropriation or confiscation.

a. When a Foreign Government Takes Private Property

b. Doctrine May Immunize a Foreign Government’s Actions

3. The Doctrine of Sovereign Immunity

• The state has waived its immunity.

ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 3

Foreign Sovereign Immunities Act of 1976 Sections 1603 and 1605

For purposes of this chapter—

(b) An “agency or instrumentality of a foreign state” means any entity—

(1) which is a separate legal person, corporate or otherwise, and

§ 1605. General Exceptions to the Jurisdictional Immunity of a Foreign State

II. Doing Business Internationally

2. The National Export Initiative

b. Increased Export Financing

III. Regulation of Specific Business Activities

D. MINIMIZING TRADE BARRIERS

1. The European Union (EU)

2. The North American Free Trade Agreement (NAFTA)

3. The Central American-Dominican Republic Free Trade Agreement (CAFTA-DR)

4. The Republic of Korea–United States Free Trade Agreement (KORUS FTA)

E. BRIBING FOREIGN OFFICIALS

IV. Commercial Contracts in an International Setting

4. Force Majeure Clause

ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 4

ENHANCING YOUR LECTURE—

  LANGUAGE REQUIREMENTS IN FRANCE

FOR CRITICAL ANALYSIS

B. CIVIL DISPUTE RESOLUTION

ANSWER TO CRITICAL ANALYSIS QUESTION IN THE FEATURE—

Notes and Questions

ANSWER TO CRITICAL THINKING QUESTION IN CASE 8.2

V. Payment Methods for International Transactions

1. Parties to a Letter of Credit

2. The Value of a Letter of Credit

VI. U.S. Laws in a Global Context

A. U.S. ANTITRUST LAWS

B. INTERNATIONAL TORT CLAIMS

ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 5

Case 8.3: Khulumani v. Barclay National Bank, Ltd.

Notes and Questions

ANSWER TO CRITICAL THINKING QUESTION IN CASE 8.3

ACTIVITY AND RESEARCH ASSIGNMENTS

EXPLANATION OF A SELECTED FOOTNOTE IN THE TEXT

 INTERNATIONAL LAW IN A GLOBAL ECONOMY 

between the U.S. and the new government of Honduras.