LEGAL ENVIRONMENT OF BUSINESS 3.
The relationship between persons or entities from
TRANSACTIONS
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Introduction to international business transaction
 The Global and Regional Marketplace
Important events that paved the way to the growth of
international trade:
1. General Agreement on Tariffs and Trade
(GATT)
2. Expansion of GATT – adoption of the 1994
World Trade Organization (WTO)
3. Deepening of Regional Trading blocks, such as:
EU, NAFTA.
How to measure globalization?
1. Based on International Trade in Goods – it illustrates
the trend in world trade.
2. Foreign Direct Investment (FDI) – represents capital
investments made by foreign companies.
Example:
Between 1981 and 1985, the total world FDI
averaged $98 billion per year. In 1997, FDI had
reached $440 billion.
(TN: international conventions and standards were established
due to the liberalization of trade and export services,
combined with the enhancement of technology -- in order to
adapt the trend of globalization.)
What caused this growth?
1. Advancement of global telecommunication
2. The increased transferability of services and
intellectual property.
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LAWS OF INTERNATIONAL BUSINESS
TRANSACTION
What is international law?
Answer: It generally refers to the historically developed
transnational rules and norms that national courts use to
regulate three (3) primary relationships:
1. The relationship between two (2) nations.
2. The relationship between a nation and an individual;
and
different countries.
Sources of International Law and International Business Law.
In order of superiority they are:
1. International conventions and treaties.
2. International custom or general practice
3. General principles of law recognized by civilized
nations; and
4. Judicial decisions and scholarly writings.
What is the primary source of law in international business?
Answer: Private contract entered into by the business parties.
How is the language of business being codified?
Answer: Lex Mercatoria or Law of Merchants. It provides
the mechanism in which day-to-day uses and practice are
recognized by businesspersons, as well as courts and arbitral
tribunals, as international customary law.
Reason: “no written contract is ever complete”. The realm of
international business transaction is non-legal in nature.
Businesspersons prefer the language of business rather than
legal language.
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INTERNATIONAL CUSTOMARY LAW
This secondary source of international law can be divided into
two general groups, namely:
1. International conventions or regional initiatives
aimed at harmonizing rules about cross-border
transactions.
Example:
Hague rules, TRIPS within GATT.
2. Lex Mercatoria or international customary law – to
bridge language, cultural, and legal differences
between businesspersons.
(TN: The international chamber of commerce [ICC] is a
nongovernmental organization whose current mission is to
promote world trade, harmonize trade practices, and provide
practical services to businessperson. It provided some
international trade customs such as the following: UCP 500
and INCOTERMS 2000 manual)
Another example…
United Nations Convention on Contracts for the International
Sale of Goods (CISG). Accordingly, a writing is not required
and a contract may be proved by any means including witness
testimony. However, the laws of the countries involved should 3. Countertrade – is a form of exporting used to
also be considered. overcome the risks of currency convertibility, local
participation requirements, and restrictions against
__________________________________________________ the repatriation of capital, profits, or hard currency.
SCOPE OF INTERNATIONAL BUSINESS (it can be also used within the framework of joint
TRANSACTION venture)

Transactions are categorized under four general groupings: __________________________________________________

1. Exporting-importing (sale of goods) Introduction to international business transaction

2. Sale of services (consulting, distribution, Ethics of international business

transportation, marketing, sales) Strategies for international business
3. Licensing (technology or intellectual property International dispute resolution
transfer)
1. International litigation
4. Direct foreign investment (foreign corporations)
2. Choice of law

International commercial arbitration

 Indirect and direct exporting

Indirect exporting – it provides a way to penetrate

foreign markets without the complexities and risks of
direct exporting. This can be done by contacting
commission agents or buying agents who find foreign
firms that want to purchase the product.

He or she may also hire an export management

company (EMC). It acts as the export department for
one or several producers of goods or services.
Advantages: immediate access to foreign sales.
Disadvantages: a manufacturer may lose control over
foreign sales.

A manufacturer that wants to minimize its

involvement may sell its goods to an Export Trading
Company (ETC). It takes title to the product and
exports for its own account, and for the manufacturer
the transaction is essentially a domestic sale.

An indirect exporter may also sell his or her goods to

an export agent or remarketer. They purchase products
directly from the manufacturer, packing and marking
the products according to their own specifications.
They then sell overseas through their contacts in their
own names and assume all account risks.

Direct exporting

Vehicles of doing business

1. Franchising – generally involves the contractual

transfer or licensing of a bundle of intellectual
property rights, know-how, trade secrets, and
possibly the sale of goods or services.

2. Joint venture – is most closely associated with direct

foreign investment, but may also involve the transfer
of goods, services, technology, and capital.