International Business Law
This article discusses the sources and content of the international business law. Trading nations have entered into a series of treaties and organizations to promote free trade and end discriminatory or isolationist practices. The WTO is the premier organization that negotiates and regulates agreements among nations. This article will take look at the processes that establish international business law and the general features of the law.
Keywords: Foreign direct investment; International business transactions; International Law; International Trade; Outsourcing; Treaty; World Trade Organization; Comparative advantage
Law: International Business Law
International business is a critical part of the world economy that shapes the fortunes of individuals and entire nations. This article provides an overview of the sources, content and consequences of the "International business law" that regulates business across borders. The goal is to identify major themes, mechanisms and institutions that govern international business. International business law embraces many specific fields of practice that relate to a wide array of business transactions. Each type of international commerce (export and import of goods and services, foreign direct investment, joint ventures, research and development arrangements, franchising, sale and distribution arrangements and licensing of intellectual property) has a distinct body of law.
To introduce the idea of international law it helps to start by contrasting it with domestic law. Domestic laws are law because a legislature has the power, under our political system, to pass legislation binding people within its jurisdiction. Accordingly, a court has the authority to apply the law. The power to do so comes from the sovereignty of the nation. A sovereign has supreme and ultimate authority over affairs and individuals within its borders and does not have to answer to any higher authority. Each nation is sovereign.
On the other hand, international law involves an arrangement between sovereign nations. As a matter of theory, it may seem strange that law could operate on sovereigns, when neither sovereign state has to account to any higher power and can ultimately behave as they wish. Law that does not have to be followed is no law at all, some would argue. However, despite this theoretical problem, nations do, in practice, obey international law.
International law arises from the willingness of each nation to bind itself. A nation will do so because adherence to the law is in its best interest. Generally, nations have a self interest in promoting a systematic rule of law to foster predictability and stability in international affairs over the long term. While other nations and international bodies often lack the authority to compel compliance, if a nation decides to behave contrary to an international law, there still may be consequences. The violating nation's image may be tarnished both at home and abroad, economic sanctions may be imposed; in short, the country could lose the benefit of reciprocal treatment from other nations.
When violations do occur they are rarely flagrant and not usually tolerated silently by others. Protest often breaks out due to perceived violations of international law. Violators themselves concede the authority and importance of the law by usually trying to explain their actions on legal grounds.
International law largely arises from three categories: general principles, customary international law and treaties. General principles are fundamental understandings common to the world's great legal systems. When an advocate can show that almost every nation agrees on a principle, then that principle can be elevated to a binding rule of international law. An example of a general principle would be the rule of good faith in international obligations. Of course, the more abstract a principle is, the easier it would be to find consensus, but the less useful it would be in practice to resolve a specific problem. This paradox limits the practical use of general principles to situations where a party cannot find a more concrete alternative.
Customary international law arises from the persistent conduct of international actors including nations, international institutions and international business organizations. A court may consider a practice international law if the advocate can show that the practice has been followed generally and also has been accepted by those actors as law as opposed to courtesy or convenience. Proving a customary international law is very difficult and requires extensive evidence.
While courts may recognize international law based on the methods noted above, the bulk of international business law comes from written agreements between nations called treaties. As a practical matter, treaties are international business law. As opposed to general principles and customary international law, treaties are specific and negotiated to address particular conduct. There are a huge number of treaties on a huge number of topics and are sometimes called a pacts, protocols, conventions, covenants, or declarations. Treaties are divided into two general categories. Agreements between two countries are called bilateral treaties and agreements among three or more countries are called multilateral treaties. International institutions can also enter into treaties with other organizations or with nations. A treaty once signed and ratified by the government of each host country becomes law in each country and an agreement between the countries. For example, in the United States, the executive branch negotiates and signs and the Senate must then approve it. This is called "advice and consent." Once the treaty is ratified it becomes federal law. In that way, international law is not an entirely distinct body of law that acts upon nations from the outside; it is also part of domestic law that operates within a country. Therefore, the degree of enforcement depends, in part, on the strength of a given country's legal system.
Another factor in the enforcement of international law is treaty interpretation. A leading authority on interpretation and procedure related to treaties is the multilateral treaty called the Vienna Convention on the Law of Treaties (VCLT). The interpretation of treaties determines how a country observes international law. It is very difficult, if not impossible, to draft legal documents that clearly determine the outcome of every set of facts that may occur in the future. Circumstances may arise that the drafter of a relatively simple legal document, e.g., a will or contract, may not have foreseen which cause ambiguity or vagueness as to its application. Treaties are no different and the problem is often compounded because treaties are political compromises that sometimes defer resolution of contentious issues in order to achieve some current agreement (Bederman, 2001).
The interpretation of treaties has a couple of default rules and three general perspectives. The default rules are, first, that treaties are applied prospectively, to future events, unless the parties expressly agree otherwise. Second, treaties are normally assumed to apply to the entire territorial sovereignty of a nation, unless expressly agreed otherwise. Determining how a treaty is to apply to specific set of facts can be done with a textual approach, an intentionalist approach or a teleological approach and can involve all three. The textual approach looks to the plain meaning of the text in a specific section and throughout the document. For example, whether a treaty section that uses the word "airplane" also applies to a "glider" can turn on whether the document uses the more general term "aircraft" in other sections suggesting that "airplane" should be a more inclusive term. Under the VCLT, treaty interpretation begins with the "plain language" a textual approach that is limited by shades of meaning in language particularly when a treaty is translated into different languages (Bederman 2001).
Under the VCLT, the intentionalist approach can be used to fill in the text where the text is ambiguous or leads to an absurd result. The intentionalist approach employs an understanding of the original parties that drafted the treaty in order to determine what the treaty means. To understand the intent of the drafter, the negotiating history or traveaux preparatoires is often consulted. The intentionalist approach is somewhat disfavored, in part, because many nations join a treaty regime after drafting is over and it seems unfair to bind a nation to negotiating history they did not participate in. Further, negotiating parties often have different reasons for their involvement and negotiating history can often be contradictory and difficult to establish for someone claiming its use.
The teleological approach looks to the object and purpose of a treaty as opposed to slavishly following the text or attempting to determine the intent of the drafters. For example, a written agreement can produce results counter-productive to the stated goals of the treaty; the teleological approach allows interpretations of the treaty to depart from the "plain meaning" of the text. The VCLT endorses the teleological approach by requiring that treatises be viewed in light of their object and purpose (Bederman 2001). The important point for the international trader to remember about treaty interpretation is that there are sometimes several ways to read the same words and care should be taken to fully understand the meaning and consequences of the often complex international law.
In addition to bilateral and multilateral treaties, nations join international organizations that produce rules relating to business and trade. For example, the North American Free Trade Agreement (NAFTA) is a trading block composed of the United States, Mexico and Canada whereby the members have made a number of agreements designed to promote trade within their collective borders. Many other areas of the world have likewise engaged in such agreements, for example, Association of South East Asian Nations (ASEAN), MERCOSUR includes many South American cone nations, and the Asia Pacific Economic Cooperation (APEC). The European Union (EU), is probably the most aggressive and integrated agreement between nations to encourage free trade. The EU employs a common currency, the Euro, and super-governmental institutions, like the European Central Bank, the European parliament and the Court of Justice of the European communities.
With 150 member nations, the World Trade Organization (WTO) is the largest and most comprehensive...
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