MBA - CFVG

2023

IBL
(International Business Law)
Law and Risk
in a Globalized Context

Pr. Arnaud Raynouard

 Starters

Introduction of
myself

What I do My background

2
 Starters

Introduce yourself

Foreign countries that you

Type of company you have visited… and reason Foreign countries with
work in of the visits (tourism, which you are working
study, work…)

3
 Starters

• Course

o Syllabus
o Schedule and hours
o Grading
o Interactive…

4
Part 1 Basics of int'l Business Law
•Part 1.1 Conceptual framework
•Part 1.2 Int'l Law and the Avoidance of Risk
•Part 1.3 Culture and its Relevance on Int'l Law

Part 2 Resolution of Int'l Disputes

Part 3 Int'l Contract Law

Part 4 Traditional Areas of Concern

Part 5 Evolving Areas of Concern

 Starters

• Exam and Assignment

o Use of materials
o Own ideas and opinions
o Analysis: structured
o Innovative and imaginative (no “copy & paste” approach)
o Simply said: make it interesting!

6
Part 1 Basics of int'l Business Law

Part 1.1 Conceptual framework

• Legal Order: National/International
• Global institutions
• Regulatory approaches
Part 1.2 Int'l Law and the Avoidance of Risk
• Risk and Int'l Transactions
• Corruption / FCPA and other legislation
• Risks in various areas of Law
Part 1.3 Culture and its Relevance on Int'l Law
• Moral/Ethics vs Legal Behavior

Part 2 Resolution of Int'l Disputes

• Options
• Litigation
• Conflict of Laws and of Jurisidiction
Part 3 Int'l Contract Law
• Definition
• Appropriate Clauses
• CISG
• Remedies
Part 4 Traditional Areas of Concern
• WTO / Finance / Transportation

Part 5 Evolving Areas of Concern

• IP Laws / Digital Economy
 First views
IBL?
(international business law)
 Int’l Law in 3 words

• Why?

“As business people, we have no need to

study international law?”

Answer : Yes or No?

9
 Int’l Law in 3 words

• Why?

1. You have sent your products to Myanmar pursuant to a

signed contract. Internal riots and ethnical fights start and,
as a result, the banks are frozen and closed. You cannot get
paid. What do you do?
2. You are negotiating to sell wood products to Saudi Arabia
and you send your team to Ryadh to finish and finalize the
deal. The chief of your delegation, Nguyen Thao Nhi call
urgently. Why?
3. Your Californian buyer of your product says “Sue Me! I just
DON’T care!”. Where do you sue him?

10
 Introductory Thoughts: 10 True or False Questions

• The popular book ‘Introduction to international Law’ can answer all of your
questions about a contract dispute case in Pennsylvania?
1

• As a French person negotiating a contract with you in Hanoi we can decide

the appropriate law of the contract is that of Spain?
2 • And the appropriate court is that of Mexico?

• In a lawsuit the losing party always pays the legal fees of the winning party?
3

• In a criminal case in a common law country, the truth is the most important
matter?
4

11
 Introductory Thoughts: 10 True or False Questions

• Scotland is a common law country?

5

• In the US, if I am caught by the police driving a stolen car, I can still plead not guilty?
6

• Bribes committed by a VN employee of HSBC in Hanoi can result in a conviction under American
law?
7

• Negotiating a contract with a French person is the same as negotiating with a Belgian person?
• And a German person?
8

• Registering a trademark in the US protects you all over the world.

9

12
 Conundrum

IBL is
A creature with no home,
nowhere to go to,
no one to act as policemen,
no one to confirm compliance,
and which does not motivate

But…
13
 The pragmatic rational

International business law

(IBL)

Since everyone
needs to conduct
business in an
organized and
respectable manner

AS
Over half of all business
transactions take place across
national borders

14
Statistical evidence

Volume of int’l trade in goods and services

15
Statistical evidence

Volume of int’l trade in goods

16
 Statistical evidence

Volume of int’l trade in goods and services by country groups

17
Statistical evidence

Volume of int’l trade in goods between/within

developed and developing countries

18
 Introduction

IBL – General (non technical) Definition

A system of behaviour regulating all aspects of international business transactions to ensure

each particular individual or company, in its dealing with individuals and companies from other
countries, abides by a certain minimum standard of rules and conduct.

o Practice of law in the global business community.

o IBL varies by jurisdiction: it builds on top of basic
business concepts (e.g. domestic) by expanding them
to the int’l arena.

19
Part 1

Basics
 Part 1.1

Conceptual Framework
 Introduction to Law

Why is Int’l Law Important?

You go on a Double Degree

Program to France and, upon
entering the country, the
customs services stops you
and…

22
Introduction to Law

1. Can the French police search your

computer?
2. They find « illegally » downloaded films …
o They then search your cell phone and
find naked photos.
3. Do you have a right to a lawyer?
4. If they prevent you from entering the
country could it hurt your career?

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 Introduction to Law

Law is much broader than just « business »…

international law also !

• All of Law
• Why? o State interaction, criminal, family law…
o Versus “business law”

• Culture
• Intercultural Management skills
• Soft Skills, i.e. Negotiating
• Personal liability
• Virtually: all aspects of a successful transaction

24
 Introduction to Law

How can we explain the importance of International Law

• Answer: because of its scope.
• Contracts
• Import and Export of goods
• Transfer of services
• Global sourcing (supply-chain)
• International franchising and licensing
• Intellectual property
• Corruption and Environment
• E-economy (a digital world)
• Arrest and detention

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1.1.1 What is Law
A) Just behaviour
B) Origins of law
C) Legal sources
 A) Just behaviour organized

Law organizes just behaviour in a society.

Ex.

To avoid (traffic) chaos

• Law defines how one should behave in a
given situation
• True to any aspect of life
• “Society” = State, city, world… group of
people. 27
 A) Just behaviour organized

Law organizes just behaviour by applying two different kinds of rules: rules on
content (substantive law) and rules to maintain this content (formal law).

• Substantive law is composed of legal rules that define the

content of just behaviour.
• Formal law is composed of legal rules that maintain
substantive law.

Substantive law
- Organizing behaviour

Formal law
- Maintaining the intended
behaviour

Ex.: Driving licence and the « points system »

(Morocco, France, Spain, Poland…) 28
 A) Just behaviour organized

Simple question: what is law? ... Difficult answer

law, the discipline and profession concerned with the customs, practices, and rules of
conduct of a community that are recognized as binding by the community. Enforcement of
the body of rules is through a controlling authority.
(Encyclopedia Britannica)

A rule, usually made by a government, that is used to

order the way in which a society behaves.
(Cambridge Dictionary)

1. « Official stamp » of State authority (i.e. a rule created by a

competent and legitimate authority, recognized as having legal force).

2. Applies equally and is binding on all members of society.

3. Results in certain consequences (e.g. a sanction: fine,

imprisonment, annulment, damages, injunction…)
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 A) Just behaviour organized

Substantive law) and formal law regulate two particular set of

relations within societies: government/citizens and between citizens.

• Public law is the law that regulates the relation between a

government and its citizens.
• Private law is the law that regulates the relation between
citizens (natural person or legal entities).

State

Citizen Citizen

30
 A) Just behaviour organized

Branches of Law

International cooperation amongst States: Private international law

Public international law

State

Constitutional Law / Administrative Law

Citizen Citizen
Tort (liability) law

Tax law
Labour law
Company Law

IP
…
Criminal law

Family Law
Contract law

Property and law of goods

31
A) Just behaviour organized

32
 A) Just behaviour organized

Illustration: Adele vs. 50 cent.

Miranda (Sydney, Australia) is a big Adele fan.

As a true ‘Adeler’, she sleeps in front of the closest record shop on the eve of the
release of Adele’s newest record to buy the the real ‘physical’ record.
When the shop opens at 9 AM, she – with a crowd of other Adeliers – risks her life in
fighting the fan mob to get her hands on the CD as soon as possible.

She pays 30 U.S. dollars, the happiest person on earth holding her copy od Adele’s latest release.
The shop employee shouts at Miranda to leave, since there’s still a crazy bunch of fans waiting in an
undisciplined line to to purchase the record. Miranda therefore leaves the place without opening the CD box.
Back home however, her euphoric state of mind receives a cold shower: she discovers that the shop employee
accidentally put another record in the CD box. Miranda now owns an Adele CD box, with a record of the latest
50 cent album.
Extremely upset, she wants the shop to provide her with the correct disk: the one she paid for.
Returning to the shop, it is so busy with screaming Adele fans that she is unable to discuss
the problem properly. As a result, she snaps: her anger unleashed, she punches one of the
shop employees in the face.
The employee needs medical treatment as a result of Miranda’s outburst.
(inspired from Bart Wernaart)

33
 A) Just behaviour organized

Illustration: Adele vs. 50 cent = understanding the case

2 legal issues + 1 :
1. Wrong deliver of product by the shop
2. Injuries caused to the shop employee
3. Open question : involvement of the shop (injury during job performance).

Substantive law rules

- Sales of Good Act or Consumer protection Code or Civil code (contract law) :
Ex. of legal provisions : Where the seller delivers to the buyer the goods contracted to be sold mixed with goods of a different
description not included in the contract, the buyer may accept the goods that are in accordance with the contract and reject the
rest, or may reject the whole.’
‘Where goods are delivered to the buyer that the buyer has not previously examined, the buyer shall be deemed not to have
accepted them until there has been a reasonable opportunity of examining them for the purpose of ascertaining whether they are
in conformity with the contract.’
- Tort law or ”responsibility rules”
- (maybe) Labour law
Formal law rules
- Rules governing the proceedings to seek legal remedies : civil procedure rules.
(inspired from Bart Wernaart)

34
 A) Just behaviour organized

Illustration: Adele vs. 50 cent = understanding the case

2 legal issues + 1 :
1. Wrong deliver of product by the shop
2. Injuries caused to the shop employee
3. Open question : involvement of the shop (injury during job performance).

Substantive law rules

- Sales of Good Act or Consumer protection Code or Civil code (contract law) :
Ex. of legal provisions : Where the seller delivers to the buyer the goods contracted to be sold mixed with goods of a different
description not included in the contract, the buyer may accept the goods that are in accordance with the contract and reject the
rest, or may reject the whole.’
‘Where goods are delivered to the buyer that the buyer has not previously examined, the buyer shall be deemed not to have
accepted them until there has been a reasonable opportunity of examining them for the purpose of ascertaining whether they are
in conformity with the contract.’
- Tort law or ”responsibility rules”
- (maybe) Labour law
Formal law rules
- Rules governing the proceedings to seek legal remedies : civil procedure rules.
(inspired from Bart Wernaart)

35
 A) Just behaviour organized
Just implies a balance between the values ‘justice’, ‘opportuness’, and
‘legal certainty’.

Justice Justice is the moral conviction of a given society expressed in law.

State

Citizen Citizen

Opportuness Legal certainty

Opportuness is the expression of effectiveness by a given society in law.

Legal certainty is the expression of legality in a given society.

36
B) Origin of law

Natural
law

Positivist
Law

37
 B) Origin of law

Natural law approach: it is Positivist law approach: it is

assumed that laws emerge assumed that law comes
from nature. forth from formalization.
• Law does not need to be • law is only law when it
codified (written down) to has been written down
be a law; first
• It already exists regardless
its appearances.

Ex.1: concept of human rights.

Preamble of the ICCPR/ICESCR : “these rights derive from the inherent dignity of the human
person”.
ICCPR: International Covenant on Civil and Political Rights
ICESCR: International Covenant on Economic, Social and Cultural Rights
UDHR: Universal Declaration of Human Rights
= International Bill of Human Rights
38
B) Origin of law

Different balance per different legal system,

and also a shifting balance over time.

39
 B) Origin of law

Exemple : Chinese legal system struggle

A very old legal system that that is a complex merge of two opposing philosophies to
achieve social order
• Confucianism: nature of things, moral precepts, rites, customs and (least preferably)
law.
o People (trough shame) know right from wrong and that leads to a community
in harmony. Ruler leads by example.
• Legalism (positivism): adoption of written codes to achieve order.
o People are not capable of acting in accordance with moral principes, but
instead need strong legislation. Consequences put on misbehaving (i.e. not
abiding by the law).

Is that not true of any given society over time?

40
 B) Origin of law

• Validity of law based on power to impose it

Law as power • Irrespective of social outcome
• Ignores arbitrariness, tyranny , abuses of power.

• Based on the built-in sense of right and wrong

• Moral goodness part of human nature
Natural law • Philosophy of 17th and 18th century in Europe
• Demands consensus on moral issues.

• Law is the will of the sovereign compatible with long-

Historical standing social practices, customs and values
• Promotes stability
jurisprudence • How long, how widely for a practice to be law?
41
 B) Origin of law

Utilitarian • Validity of law based on social usefulness

• Inducing socially desirable behavior
• Legislated system of incentives/disencitives
law • Identifying maximization.

• Self-sufficient system of legal rules (commands)

Analytical issued by the sovereign

• Legitimacy in the dully established procedures
• Promotes stability and security
positivism • Closed system, assumes moral-neutrality of rules
ignoring international law
42
B) Origin of law

Law as power

Natural law

Historical
jurisprudence

Utilitarian law

Analytical
positivism

43
 A focus on…

The “Law and development” perspective

 Law & Development Links

Prevailing view (conventional wisdom)

Law fosters economic activity by protecting

property rights
A legal system that clearly allocates and protect property
rights (rule of law) precedes economic development and is a
precondition to economic success

good law + good enforcement

=
good economic output

view that rests on a number of assumptions

that do not withstand scrutiny
45
 Law & Development

• Historical reality

Good law (whatever that means, exactly) + good

enforcement (whatever ...) ≠ good economic outcome

Remarkable economic growth has been achieved with

legal systems that do not live up to the rule of law ideal
• Economic success stories of the twentieth century : ex.,
Japan, Korea, China ...

Link between legal origins and economic growth

falls viewed through a broad historical perspective

46
 Law & Development

• Historical reality (cont'd)

The « rolling relationship » between law and
markets
– Law is not an endowment
• Akin to fixed capital providing a firm foundation
for growth
– Developement of a capitalist system hinges on
creative destruction in the sphere of governance
as well as the economic sphere
• Governance structures of all type, including law,
must adapt and respond to changes (in the
economy and society)

47
 Law & Development

• Historical reality (cont'd)

Not all legal systems are organized similarly nor
perform identical functions in support of
economic activity
– Different types of institutional arrangements map
onto real-world economic success
• Each system has it's own costs and benefits ...
and vulnerabilities

48
 Law & Development

• Historical reality (cont'd)

A three sided classification of legal systems
– Organization
• From centralized to decentralized law-making
and enforcement processes
– Functions
• Law can perform multiple functions in support of
market-oriented economic activity
– Protective function
– Coordinating function
– Signalling and credibility enhancement
function
» Inducing behavioral changes irrespective of
legal enforcement
49
 Law & Development

• Historical reality (cont'd)

– Political economy
• Legal systems are not politically neutral
endowment
• Political economy determines the contestability of
law
– Extent to which law is subject to a process of
creative destruction via the participation of
private, social, and governmental actors (vs
law being an instrument exclusively of political
actors with unilateral law-making authority)
» State-vetted interest groups and actors favored
/ self-organized groups and individuals
50
 Summary : Law & Development

• Analytical framework (matrix)

Protection Coordination
Protective
+

Ggg
Decentralized

ze
-

51
 Law & Development

• Legal origins and economic growth : the absence of

any correlation

52
1.1.2. Defining a legal order
 Historical background

The concept(s) of Law

Role of law
• Common law:
Sovereignty Dispute
resolution tool
• Debatable
Content … but still !
(Bottom up)
• Civil law:
• Order + Behavioral guide
… of society
• Sanction (Top down)

54
 Legal system – overview (1)

Brief outlook of a legal system

– Norms are rules to be obeyed (incentives / deterrence / compensation)
– Sources : parliament or judge or ...
written law (codified)
case law (jurisprudence)
» Model convergence today : statutatory & case law combined
» Efficiency ?

Adaptability / Certainty

– Enforcement is national
– Contemporary system : soft law
• International conventions
• Guidelines
• Best practices
 Legal system – overview (1-1)

Situation in an era of globalization …

is one of complexity !
– Need of a system of thought to deal with questions that can be asked of
many (if not all) legal system
Versus questions derived from a a single legal system
– System that include the description and analysis of various levels of law
Global (ex., global environmental issues, finance …)
International (relations between nation-states)
Regional (ex., the European Union)
Transnational (ex., for multi-national actors)
Inter-communal (relations between ethnic or religious groups)
Territorial state (law of a sub-national jurisdiction, ex., Quebec)
Sub-state (religious law officially recognized in a plural legal system)
Non-state (laws of subordinated people)
 Legal system – overview (3)

The efficiency gap paradoxe of law

– Defining a rule
neither causal, nor systematic
– Applying a rule

True to all aspects of a legal system (contracts, family law, business law,
bankruptcy ...)
... but critical (collective cost) in the financial sector.

Financial regulation rests on both the national legal system and policy
responses ... and international convergence
1.1.3 Continental Law and
Common Law Traditions
Outdated opposition but still relevant
 Legal system – overview (2)

Legal families/tradition

– Western world :
• Continental law (French, German, Italian, Spanish, central Europe
Roman law ...)
origins • Common law (England and Wales, Australia, New Zealand, US ...)

– Influence : history of colonisation ... XXth century

imperialism ... todays nascent multipolar world
(globalization)
– Distinctive traits
• Rôle of judge Mixed
• Methods of interpretation jurisdiction …
• Objective of the legal system any future ?
– The Legal transplant problem
 Historical background

• Technical differences (historical theory)

Statutes Case-law Accesibility

Civil law Codes Non Strong
regulatory
Common law Limited Regulatory Not
statutes important

•Actual situation:

- Convergence or reciprocal influence

- Development of « regional » law: ex., the EU
- Strong development of « soft law » (versus hard law)
60
61
Historical background

Civil law
Common law
Bijuridicial (mixed)
Fiqh (Sharia law)
62
 Historical background

• Actual situation:

- Convergence or reciprocal influence

- Development of « regional » law: ex., the EU, the

ASEAN

- Strong development of « soft law » (versus hard

law)

63
 Concepts : Objectives of Law

• Rule of law : No person is above the law …

❖ Regulate people:
o relationships with each other
o relationships with government.
❖ Reflects societal aspirations, culture, political and economic beliefs.
❖ Provides mechanisms for resolving disputes / controlling government
officials.
. Common objectives
Continuity, stability & certainty Adaptability
Gradual change / knowing the law / Interpretation / exception to general
confidence rules (judges)
Justice, speed and economy Public policy
Perception, contradictory needs Determining desirable policies

64
Concepts : Branches of law

65
 Concepts : Branches of law

Judicial (private law) Administrative

Supreme court State Council

French Judicial System

Labor Commercial Civil Criminal

Court of Admin.
Appeal
Court of Appeal Assizes
Court
Appeal
Admin.
Tribunal

Commercial Tribunal of 1st Criminal Assizes

Tribunal instance Court Court

Labor Court Civil Court Police

Court

66
 Concepts : Branches of law

American Judicial System

67
A focus on…

Benchmarking Law
 Benchmarking of law

Benchmarking is a management technique aimed at detecting "best

practice" in other organizations and then adopting it in one's own.

Applied to legal systems/mechanisms

Reasons:

Regulatory competition / Development model World Bank: Governance

geoeconomy (Washington Consensus) Matters, Doing Business

69
 Benchmarking of law

Doing Business 2020, a World Bank Group flagship

publication, is the 17th in a series of annual studies
measuring the regulations that enhance business
activity and those that constrain it.

Doing Business presents quantitative indicators on

business regulations and the protection of property
rights that can be compared across 190 economies—
from Afghanistan to Zimbabwe—and over time.

Economy rankings
Economies are ranked on their ease of doing business, from 1–190. A
high ease of doing business ranking means the regulatory environment
is more conducive to the starting and operation of a local firm.

Ease of Doing Business score

The ease of doing business score helps assess the absolute
level of regulatory performance over time. It captures the gap
of each economy from the best regulatory performance
observed on each of the indicators across all economies in
the Doing Business sample since 2005.

70
Benchmarking of law

71
Benchmarking of law

72
Part 1.1.4

Sources of law
 Concepts : Sources of law - national
• Definition of international law (for the purpose of IBL!)

“ A body of rules and norms that regulate

activities carried on outside the legal boundaries of
states…”
(Ray August)

74
 Concepts : Sources of law

International Law vs. Country Law

Country Law International Law
Easy to comprehend Difficult to comprehend
Sources are « obvious » Sources are difficult to locate
Easily enforced Difficult to enforce
Considered as abandoning
Valued as part of the culture
national identity
Helps to create a national
Dilution of national identity
identity

75
 Concepts : Sources of law - national

• Sources : origin of a norm

(enforceability/strength/elaboration)
o National level
o Multilateral intergovernmental level
o Multilateral non governmental institutions (IO’s)
o Private entities (functional/sectorial)
o Bilateral
o Regional: the EU example, the ASEAN example…
Point of attention:
• African Continental Free Trade Area
(AfCFTA), 2018… 47 parties, 54 signatories
76
 Concepts : Sources of law

International Law and Country Law:

different law-makers
Country Law International Law
Government and legislature State practice
Courts Custom
Regulatory Bodies World Bodies
Multilateral treaties and
Adminstrative Agencies
conventions

77
 Concepts : Sources of law - national

• Sources : origin of a norm

o Constitution / Treaties
o Legislative
o Customs
o Executive acts (Decree)
o Case law / Jurisprudence
o Contracts

78
 Concepts : Sources of law - international

• Warning (important): there is NOT one book

of international law
➔You must go to various sources
➔Difficult to understand
▪ Especially in legal systems that are
predominantly formalized (Positivism)
▪ i.e. Continental law countries

79
 Concepts : Sources of law - international

• Sources :
o International Treaties
o International customary law
o General principles of law (recognized by civilized nations)
o Case law and doctrine (scholars’ writing)
…And Soft Law

Focus:
• International court of justice (ICJ)
o Principal judicial body of the UN
o All UN members are party to the ICJ
o Article 38, Statute of the ICJ: specifies
the sources of int’l law
80
 Concepts : Sources of law - international

• International Treaties and Conventions

o Treaty = legally binding agreements between a minimum of
two States
o Convention = legally binding agreement between States
sponsored by an Int’l Organization (IO’s… ex. UN, WTO…)
• International customary law
o “commonly accepted rules of conduct that, through a
consistent and long-standing practice, nations follow”
o It can change over time !
o Importance of culture on custom
o i.e. Pakistan and tribal decisions

81
 Concepts : Sources of law - international

• General principles of Law

o International human rights
o International criminal law
o Extradition
o Sovereign immunity

A « trump » question:
If there are political changes in a particular country, and the new
ruling party or person does not like an international treaty or
convention negotiated by the predecessor, can it be cancelled?

82
 Legal system – overview

Regulatory bodies: illustration with financial regulation

– National common law (contracts, civil procedure, bankruptcy ...)

– Specific financial law (banking regulation, investment services,
insurance law)
– Agency regulation (french AMF, british FSA, US SEC ...)

Agency model
– Independant from the administrative organisation of the State
– « Delegation » of the State's powers
– Stakeholders participation
norms
Functions monitoring

sanction
1.1.5 Int’l and Global Institutions
 Concepts : Sources of law - international

• Bretton Woods, 1944 (Mount Washington Hotel, New Hampshire)

• + 700 delegates from 44 allied nations
• Objective : setting up a system of rules, institutions, and procedures to
regulate the international monetary system
First example of a fully negotiated monetary order intended to govern monetary
relations among independent nation-states
– IMF
– World Bank
– then : GATT (became WTO in 1995)

1930 : Bank for International settlements (BIS)

mission : serve central banks in their pursuit of
monetary and financial stability, to foster
international cooperation in those areas and to act
as a bank for central banks
85
 Concepts : Sources of law - international

• Country groups
… since 1960’s
• G77 (1962) …
• G 10
• G 7 / 8 (1975)
• G 24 (1971)
• G 22 and G33 => G 20

86
 Concepts : Sources of law - international

• G20 : 1999
• high-level discussion of policy
issues pertaining to the promotion
of international financial stability
o over 85 % of world GDP
o over 80 of world trade
o 2/3 of world population
• Joint declaration

Pros : world governance / soft law /

power group Cons : legitimacy (Exclusivity membership /
self appointed group)
Organization
Efficiency (non binding declarations)
87
1.1.6 Regulatory Approaches
(methods)
 Different Regulatory Approaches

• Question: which countries rules should apply to a transaction

• Securities regulation: focus on transaction
• Banking regulation: focus on firms

• Securities regulation context: which rule applies when an issuer in

one country (called home country) sells securities to investors in
another country (called host country)?
•- Securities regulations' dominant objective: protect investors in
public market (trust).
•- Other (secondary and possibly conflicting) objectives:
competitiveness and attractiveness of national capital markets.

•Extraterritorial rules try to inhibit issuer forum shopping

Risk : race to the bottom
89
Concepts : Sources of law - international

1: harmonization
2: choice of law
3: national treatment
4: home-country approach
5: mutual recognition

EU ex.: case law Cassis de Dijon, 1979

Different Regulatory Approaches (2)

1: harmonization
- The same rule applies in all markets
2: choice of law
- Issuers choose which regulatory (law) regime
they prefer
3: national treatment
- Always apply the host country rule
4: home-country approach
- Always apply the home-country rule
Different Regulatory Approaches (3)

5: mutual recognition
- Each country applies the other country's
regulation if there is reciprocity
6: equivalent approach
- Host country's rules applies unless the home
country rules are equivalent
7: explanatory approach
- Application of the home country rules, the issuer
having to explain how they differ from the host
country's rules

EU ex.: case law Cassis de Dijon, 1979

Different Regulatory Approaches (4)

Mutual recognition
(EU)
Principle
- a product lawfully marketed in one MS and not subject to
Union harmonisation should be allowed to be marketed in any
other MS, even when the product does not fully comply with
the technical rules of the MS of destination.
Exception
- restrictions which are justified on the grounds of public
morality, safety, health or environment or other overriding
reasons of public interest
° if proportionate to the aim pursued
 Different Regulatory Approaches (4.1)

Leading Case :
Cassis de Dijon
(European Court of Justice; 1979)
Findings
2. In the absence of common rules, obstacles to movement within the
community resulting from disparities between the national laws
relating to the marketing of a product must be accepted in so far as
those provisions may be recognized as being necessary in order to satisfy
mandatory requirements relating in particular to the effectiveness of fiscal
supervision, the protection of public health , the fairness of commercial
transactions and the defense of the consumer .
3. The concept of “measures having an effect equivalent to quantitative
restrictions on imports”, contained in article 30 of the EEC treaty, is to be
understood to mean that the fixing of a minimum alcohol content for
alcoholic beverages intended for human consumption by the legislation of
a member state also falls within the prohibition laid down in that provision
where the importation of alcoholic beverages lawfully produced and
marketed in another member state is concerned.
 ≠ unification Different Regulatory Approaches (5)
≠ convergence
Harmonization
Principle
- « approximation or co-ordination of different legal provision or systems
by eliminating major differences and creating minimum requirements
or standards ».
• Issuer costs reduced
• Scope: disclosure + primary distribution process (registration
requirements, restraints on communication, enforcement)
Harmonization is extremely difficult to achieve
Condition
- to promulgate and mandate common minimum rules/eliminate major
differences requires that States have ceded authority to an international
authority
° in the EU, it is a reality (to a significant extent)
° not in the « larger » international community
 Different Regulatory Approaches (6)

Some international harmonizing efforts:

- disclosures rules (IOSCO standards)
- accounting standards (IASB and the IFRS)
- trade association standards (ISDA, BMA, ...)
• ex. Group of Thirty (think tank) and the international standards for the
clearance and the settlement of securities: the T + 3 standard (securities
are to be settled non more than 3 days after a trade)
Problems with harmonization
- is « one size fit all » a viable and/or efficient solution
- elimination of competing rules
- differential enforcement (never excluded)

Avoidance strategy (for issuers) : single location issuance

 Different Regulatory Approaches (6)

Choice of law
- Allow issuers of securities to select whatever law they feel appropriate
• Underlying rational: market discipline
- Academic idea ... not used in practice !

National treatment
- Traditional default rule: application of the law of the host country
• High transaction costs
• Piles law on law (double compliance)
- Two sides: better than national treatment (exemptions)
and worse than national treatment (discriminatory issues)
 Different Regulatory Approaches (7)

Home country rule

- Always apply the home country regulation
- Only when there is a reciprocal basis (mutual recognition)
- When the rules (content / functional approach) are equivalent
- Disclosures of differences

Mutual recognition
- Approach pioneered by the EU
- Harmonization of essential standards provide the basis for mutual
recognition by the States of the equivalence and validity of each other's
laws and regulation that have not been harmonized
• Highlights the rôle of soft law
- Corollary: home-country control and cooperation between authorities
(exchange of information)
 Different Regulatory Approaches (8)

Question: which countries’ rules should apply to a banking firm ?

• Banking regulation context: which rule applies when a bank

operates cross-border (branches versus subsidiaries)
- Banking regulations' dominant objective: address the systemic
risk of bank failures.
- Other objectives: competition (with domestic banks)
•Possibilities: harmonization, mutual recognition and conditional
recognition
- Excluded: issuer's choice (save individual transactions) and
national treatment of branches
 Different Regulatory Approaches (8)

Harmonization
- Centerpiece: Basel Capital Accord (Basel I, II and III),
establishing a level playing field

• Mandatory capital requirements (ratio of risk weighted assets)

• Basel II introduces more flexibility on risk assessment
• Three pillar approach: capital, supervisory review process, market
discipline
 Different Regulatory Approaches (9)

Mutual recognition of home country rule

- European passport system

Conditional recognition of home country rule

- Dominant approach: appraisal of the home country rules'
equivalence to the host country rules
• + reciprocity
 Part 1.2

IBL & Avoidance of Risk

 IBL and Avoidance of Risk

Why Int’l Law?

Because of a want to avoid risk

Risk-aversion concept
risk aversion is the tendency of
people to prefer outcomes with
low uncertainty to those outcomes
with high uncertainty, even if the
average outcome of the latter is equal
to or higher in monetary value than
the more certain outcome
(Jan Werner, 2008)

103
 IBL and Avoidance of Risk

It is a GLOBAL
ECONOMY, Risk Group Work
which means
Give 10 areas of potential risk
(worries) that you would have
in an international transaction
that you would not have or
RISK
that would be less
problematic in a domestic
transaction (a transaction
taking place in Vietnam only).
AVOIDANCE
OF RISK

104
 IBL and Avoidance of Risk

Risk Group Work (Answers)

1. The Country itself (i.e. Afghanistan, Iraq, Soudan,

Venezuela…)
2. Corruption
3. Taxation
4. Currency fluctuations and exchange rates
5. Legal system
6. Culture 11. Delivery
7. Political instability 12. Theft
8. Elections 13. Damage to goods
9. Nationalization of an industry 14. Language
10.Payment 15. Special risks in developing countries
16. War
17. Transportation of goods
18. Climate
19. « Trumpism »
105
IBL and Avoidance of Risk

Risk Group Work (Answers)

Special risks in developing countries

1. Arbitrary government action

2. Excessive taxation
3. Ineffective legal and dispute resolution
4. Ineffective tax systems
5. Corruption
6. Protectionism
7. Media and Political Pressure
8. Violence
9. Ineffective accounting systems
10.War or civil breakdown
106
 IBL and Avoidance of Risk

One of the mots important (and usual) risk

= corruption

It is imperative that every business person recognizes the

importance of the
FOREIGN CORRUPT PRACTICES ACT (USA), 1977.

But also the British BRIBERY ACT 2010 and the

French LOI SAPIN (2018).

107
 IBL and Avoidance of Risk: FCPA

A violation of the FCPA is:

Any payment to induce or influence a

foreign official to use their position to
obtain business
FCPA Breakdown

• Any payment: what is a payment?

• To induce or influence: how to prove?
• To a foreign official: what is an official?
• To use their position: proof?
• To obtain business: easy to prove?
108
 IBL and Avoidance of Risk: FCPA

Crucial points

• It does not need to be an American company which is

bribing.
• It does not need to be an American citizen or resident
who is bribing.
• The person bribing can be from any country.
• The bribe does not need to take place in the US.

109
 IBL and Avoidance of Risk: FCPA

FCPA Requirements

o Bribery of foreign government officials

o US company is responsible for an act of a subsidiary in a
foreign country, so it applies to non-US companies
o Consequence: criminally responsabible and civil
responsible (ability to conduct business in the US is
restricted
o Also: possibility for a competitor to sue for loss of contract
(including 3 times the value of the lost contract)

110
 IBL and Avoidance of Risk: FCPA

The Reality-Fact Check of the relevance of the « FCPA Risk »

111
 IBL and Avoidance of Risk: FCPA

The Reality-Fact Check of the relevance of the « FCPA Risk »

112
 IBL and Avoidance of Risk: FCPA

The Reality-Fact Check of the relevance of the « FCPA Risk »

113
 IBL and Avoidance of Risk: FCPA

The Reality-Fact Check of the relevance of the « FCPA Risk »

114
 IBL and Avoidance of Risk: FCPA

The Reality-Fact Check of the relevance of the « FCPA Risk »

115
 IBL and Avoidance of Risk: FCPA

The Reality-Fact Check of the relevance of the « FCPA Risk »

116
 Part 1.3
Culture and its relevance for
Int’l Business Law
 Crucial impact on Int’l law : culture issues

One of the top 5 qualities companies seek in

hiring a new employee is the ability to work
with other cultures in a multi-cultural
environment.

Why?

118
 A cultural dilemma

There are 5 main areas where cultural

differences can have significant influences in
conducting international business transactions.

What are they?

119
 A cultural dilemma

Culture can have a tremendous influence on

business negotiations and transactions in
areas such as:

• Language
• Business styles
• Customs
• Religion
• Commissions, gifts, bribes

120
 A cultural dilemma

Graduation ceremony
Nimruz

Uttar Pradesh

121
 A cultural dilemma

French Negotiation Small Talk:

“How much do you earn?”

122
 A cultural dilemma

American Negotiation Small Talk:

“You look gorgeous in that dress?”

123
 A cultural dilemma

Chinese Interview Small Talk:

“Do you think Taiwan is an innovative
country?”

124
 A cultural dilemma

Socializing after a long day in Lahore:

“Could I have a glass of wine, please?”

125
 A cultural dilemma

You said Russia? you mean Vodka:

“Here’s to a happy future together”

126
 Culture: 4 crucial points

• Betises can kill a negotiation before it starts

• Always know the culture of a country before
you start dealing with them
• Importance of small talk and cultural
particularities
• Be culturally prepared and show interest

127
 Moral Issues vs. Legal Issues

Can an action be morally

wrong but not legally
wrong?

Can an action be legally

wrong but not morally
wrong?

128
 Law and Morals

Windsor Auto Supply Case

• Read the case and in groups answer

the questions

• Legal vs Moral issues vs. both

129
 Law and Morals: Windsor Auto Supply Case

Morally wrong Legally wrong Both

Tony and women Drugs Sexual harassement
(culture)
Union exploiti,g Rose’s Mexico creating a bank Sexual discrimination
sexual harassement account in CH

Moving production Threat to consultant Falsifying

offshore = layoffs (Gino) orders/siphoning
corporate funds (Tony) =
fraud
Tax-free status for move Clean safety certificate
in jurisdiction bought (10 000 USD)

Poor safety record Government ties to drug

dealers
Low wages Safety and health
violations 130
 Law and Morals

Windsor Auto Supply Case: reality check

• Tony convicted of fraud and sentenced to 5

years in jail

• Tony caught with drugs… charges dropped

• Gino convicted of threatening and given 12

month probation

131
 Law and Morals

Windsor Auto Supply Case: reality check

• Company could not survive in Windsor and had to
relocate production to Mexico
• Laid off all non-skilled workers in Windsor; skilled
workers offered jobs in Mexico (10% accepted)
• Negotiated severance packages for laid off
workers
• Rose moved with the company to Mexico as CFO
• Company still exist in Mexico supplying auto
companies… who also relocated!

132
A focus on…

Special case: Islamic Law

 Islamic law

• 24 % of world population
o Some of the world’s richest… and poorest
nations (but a general lack of middle class,
great inequalities within the people).

134
 Islamic law

Religion plays a structuring part in the legal system of Muslim

countries
o Islamic States have adopted Islam as the ideological
foundation of state and constitution

135
 Islamic law
The Egyptian Constitution of 2014
PREAMBLE
In the Name of God, Most Gracious, Most Merciful
This is Our Constitution
(…)
We are drafting a Constitution that affirms that the principles of Islamic
Sharia are the principle source of legislation, and that the reference for
interpretation thereof is the relevant texts in the collected rulings of the
Supreme Constitutional Court.
(…)
Article 2. Islam, Principles of Islamic Sharia
Islam is the religion of the state and Arabic is its official language. The
principles of Islamic Sharia are the principle source of legislation.

136
 Islamic finance (or shari’a compliant finance)
Shari’a principles applied to the validity of banking or financial
activities
➔ Shari’a compliant financial contracts and products
• Mudarabah: profit-sharing and loss-bearing
• Wadiah: safekeeping
• Musharaka: joint venture
• Murabahah: cost-plus (rent-to-own)
• Ijara: leasing
• Sharia prohibits riba, or usury, i.e. interest paid on all loans of
money
• Investment in businesses providing goods or services contrary
to Islamic principles (e.g. pork or alcohol or pornography)
is haram ("sinful and prohibited").

137
 Conclusion on part 1

The effect
culture, history and geopolitics
plays on international law in both
industrialised and emerging
countries is crucial in understanding
international law.

138