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1. International conventions and treaties – it is
Legal Environment of IBT
 International trade – selling or buying
finished product from one country to
another.
Why do they need to manufacture in
another jurisdiction?
From a legal perspective, they like to
take advantage of the bilateral
treaties or other conventions that
give incentives on trade.
Example: free trade agreement –
lower costs by imposing either from
lower to zero tariffs and tax
incentives -- among ASEAN
countries)
Because of these incentives, the following instances
occur:
Privatization, encourages foreign
companies to invest in another country, increase in
globalization means increase in cross-border sale of
goods and services, proliferation of international
joint venture, starting point of strategic alliances,
international direct investment etc.
Evolution of international business law
1. Domestic laws – first governing source.
2. Lex mercatoria – because of the evolution of
international trade. One example is pacta
sund servanda.
3. Substantive international law – rules and
regulations that are formed by international
organizations. (Ex. Conventions, customs
code and practices etc.) This is because there
is a fear of social sanction.
In case of dispute among international law
medium, this is the hierarchy of law:
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superior because of pacta sund servanda.
Parties are expected to fulfill their
obligations in good faith. Conventions and
treaties are contractual in nature.
2. International customs – adopted because of
general usages.
3. General principles of law recognized by
civilized nations.
4. Judicial decisions – the least because certain
jurisdictions are not bound by these
decisions.
What is the primary source of international
business transaction?
1. Private contract entered into by the parties
who consented to the terms contained in the
contract.
What are the secondary sources?
1. International conventions and treaties –
example: lex loci celebretionis, conflict of
laws, TRIPS agreement etc.
2. Lex mercatoria or general
customs/international practices – example:
incoterms.
What is the scope of IBT?
IBT covers any form of dealings in cross-border
trade or transactions and risks.
Examples:
Sale of goods – importing and exporting
Sale of services – consulting/distribution
Licensing – involves IP rights
FDI – loan acquisition etc.
What are the control measures under SRC
(Securities and Exchange Commission)?
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The moment the investor acquires at least 5% (the
threshold) report to the PSD – indication of the
hidden desire to acquire the company later on.
These are companies that commit hostile takeovers.
TN: An example of a hostile takeover is when the
acquirer purchases 51% of the shares of the
company which will be the foundation for the
takeover of the entire company.
What are the usual risk involved in international
transactions?
1. Asymmetric risks – those that cannot be
avoided but can be mitigated. These are
present in FDI and licensing.
FDI riskier than licensing; licensing riskier
than exporting.
How to mitigate?
Layering your corporate structure – setting
up a friendly company where the company
operates. (FDI) or transfer it to a country
that has friendly relationship with the
country you are transacting.
2. Non-delivery of goods in International
sales -- The seller requires you to pay in
advance.
How to solve?
Enter into letter of credit or standby letter of
credit -- Transaction is done back-to-back.
The seller must comply with the
specifications within the letter of credit.
What is the process?
Seller/supplier wants you to pay in
advance – buyer has insufficient funds and
worried that the thing may not be delivered
- apply a letter of credit with your bank here
in the Philippines – PH bank will coordinate
with its corresponding bank of the
supplier/seller – the seller will tell his bank
his conditions for me to deliver the goods.
For example: money, proof of transfer etc. –
the seller will ship the goods after he
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received the necessary documents – once
the goods are shipped, the seller will have
to tender the documents embodied under
the letter of credit which the same must
strictly comply otherwise the buyer may
refuse to pay – after shipping the goods the
document will be sent to the local bank of
the buyer – the local bank of the buyer will
only release the goods if the documents are
complete – bank will inform the buyer – the
buyer now owes the bank. Most important
document is the Bill of Lading because the
buyer needs it for the vessel to release the
goods – if the buyer will pay the bank, the
bank will release the BOL.
Standby letter of credit – guarantee that one
party will perform his obligation. To give
the buyer the guarantee that the seller will
deliver the goods.
Back-to-back letter of credit – the seller
needs to procure the materials from another
supplier will be required by the ultimate
supplier to issue a standby letter of credit to
issue payment.
3. Non-payment of goods – in case of
exporters.
4. Consider the regulatory climate of the
country -- Consider sanction regulation.
5. Political risk - Political climate. Risk of the
new administration. Sometimes the contract
is disregarded by the new admin.
TN: World Bank
6. Consider the business climate.
7. Cultural risk – risk of offending other party
and different organizational styles.
8. Language risk – simple terms are different
in another jurisdictions.
9. Currency risk – what are the currency used
in transaction. Foreign currency exchange –
fluctuation of currency.
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10. Legal risk – regulatory requirements,
regulatory regime. In cases of dispute, is the
arbitration ruling enforceable in the country
of the opposing party or in another
jurisdiction?
TN: consider the following questions: does
that country enforce foreign judgement
from another jurisdiction? Is that
jurisdiction part of an international
document, contract or convention where
you can easily invoke certain convention?
Does PH automatically recognize a foreign
judgement?
No. You have to file a judicial recognition of
foreign judgements.
For international trade of goods/ international
sales
Risk in Special import laws – international trade
(e.g. licensing).
Example:
(In terms of licensing) There are certain products
that must be procured from another country.
Problem: Importation rules and regulations are too
restrictive – because of high customs duties. This is
a hindrance of free trade.
How to mitigate?
1. Market selection
2. Use of independent contractors that have
special privileges under relevant treaties
The type of risk involved includes the following:
1. Place of performance
2. Type or value of the transaction
3. The people involved in the transaction
Common anti-bribery corruption laws
4. The regulations – sometimes it is easier to
close the transaction but difficult to
implement it.
Round table principles for international business
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1. The responsibilities of business to
stakeholders – companies to be conscious of
their responsibilities not just to shareholders
but to the stakeholders at large. Promotion
of the welfare and interests of stakeholders
is required.
Stakeholders Shareholders
- include not just the - pertain to the owners
shareholders but also of the shares.
the board of directors,
the clients, customers,
the community where
the business is being
conducted.
2. The social and economic impact of business
be directed at advancing innovation, justice
and world trade – for business transacting
outside the country.
3. Creating the spirit of trust in international
business – concerned of the long-term
relation between the parties.
4. Contracts must have a provision that
promotes the conservation, protection and
preservation of the environment.
5. Avoidance of illicit operations. Avoid
corruption related transactions. Prohibiting
bribery and corruption.
6. Environmental and human right ethics.
Common principle: precautionary principle
– in case there is no concrete evidence as to
the scientific measures of the environment,
presumption is you always resort to that
which protects the environment.
-- In case of doubt go for which that does
not violate the environment and human
rights.
1. Revised Penal code
2. RA 9030
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3. United nations conventions against
corruption
4. FCPA
5. Code of conduct of public officials.
6. Conflict of interest policies – special favors
granted to or by the company in order to
obtain a positive action.
TN: Include some anti-bribery clauses/provisions
in the contract. It may be by way of a covenant
(more of a promise or undertaking) or a warrant
representation (existing fact that). Even without
these clauses, it is still prohibited because it forms
part of the custom or general practices. In its
nature, it is innately illicit.
IBT Lawyer – must be able to draft clauses without
referring to an existing template; should define the
terms in the contract; should include all the
necessary elements for the welfare of your client.
You have to be skeptical in a good way.
TN: require the suppliers to sign and acknowledge
these clauses (do not break confidentiality, conflict
of interest, child labor etc.), because corruption
within the relationship between the supplier and
the company is common.
If this happens, “delist” the company.
Red Flag
1. Does not want to enter into a written
agreement.
2. Objects anti-bribery clauses/provisions
3. Charges excessive commission or fee
4. Requests unusual payment
5. Does not have a bank account and has huge
transactions. Prefers to be paid in cash
instead of transfer.
6. Uses intermediaries/third party to enter
into a contract.
7. There is a conflict of interest
Competency
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1. Define the term in a contract
Strategies for international business
1. Sole proprietorship
Does sole proprietorship have juridical
personality?
None.
2. Partnership – can enter into a joint venture.
Joint venture is different from a partnership.
Can a corporation enter into a partnership?
No. because it is judiciary and personal in nature.
However, it may enter into a joint venture.
3. Branch office – extension of the office. It has
no separate personality. The parental
company can be liable.
4. Holding company – parental corporation.
Main function is to be an investment
vehicle, does not engage in any other
transaction.
5. Operating company - main function:
undertake the business of a parent
company.
Why would a parent company establish an
operating company?
In the legal perspective, it reduces or mitigates
exposure towards the parent company. With this,
in cases of disputes, the operating company will
incur the suit and liability and will not affect the
total assets of the group.
6. Past entities – receptacle of the profit before
going to the parent company. Tax savings;
easier repatriation of profits.
7. Sub – company
Factors to be considered when doing international
business transactions
1. Tax treatment incentives
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2. Level of investor friendliness of the laws –

does that country have nationalization
requirement? Is the foreign threshold high?

3. Corporate governance – is it too restrictive?

Does it require many other requirements?

4. Compliance and regulatory costs

5. Strategic location – is it convenient in terms

of transport of materials?

6. Availability and applicability of taxing

pricing rules

7. Maturity of the judicial and legal system

8. Transfer pricing – transfer of materials from

an affiliate to affiliate.

What is the primary control measure in

international pricing?

Transaction must be done in arm’s length

Arbitration
Parties have the right to appoint an expert

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