International Business Transactions: Revere Copper Case

IBT Fall 2006 Professor Brand
INTERNATIONAL BUSINESS TRANSACTIONS

I. Introduction
Timeline of International Commercial Law Maritime laws recorded in tablets in Mediterranean Turn of 12th cent. Kings courts in K claim !urisdiction o"er commercial law late 1600s nsuccessful attem&t at codified &ri"ate intl law in the 'etherlands 1#$% )outh *merican Conference on +ri"ate International Law 1#(2 -irst .ague Conference on +ri"ate International Law 1#(, 'I/01IT established b2 League of 'ations 1(26
1(66 1($5
niform laws on sale of goods and commercial contracts in 1(6%3 1((% 'CIT0*L established b2 ' 4eneral *ssembl2 Created CI)4 in 1(#03 effecti"e 1(## Inter6*merican Conference on +ri"ate International Law 7CI/I+8
Transaction law2er must identif23 eliminate or reduce ris9s that occur due to: o Communication o 0egulation o Trans&ortation o fluctuation T2&es of &rotection from ris9: o Institutional 7national and international laws8 ) has %, -riendshi&3 Commerce ; 'a"igation 7-C'8 Treaties< bilateral in"estment treaties in TOPCO case3 recourse to international law in contract &ro"ided &rotection o +urchased 71+IC or =>&ort6Im&ort ?an9 insurance< Letter of credit8 Revere Copper case o 'egotiated 7e.g. choice of law clause in contract8
II. Export-Import Transaction

*. =>&ort6Im&ort Contract T2&ical stages: 1. )eller deli"ers goods to carrier 2. Carrier gi"es seller bill of lading ,. ) deli"ers bill of lading to ?u2er %. ? &a2s ) 5. ? gi"es Carrier bill of lading 6. C deli"ers goods to ? /ocuments in sales transaction: o )ales contract @ lists goods3 &rice3 estimated freight3 insurance and customs clearance charges o Letter of credit @ lists documents seller must &resent to draw on account o Commercial in"oice @ lists &rice6deli"er2 term3 goods 7descri&tion ; Auantit28 destination3 &rice3 all fees
o ?ill of lading o Insurance +olic2 or certificate o /raft @ &re&ared b2 seller3 chec9 written to seller which draws on letter of credit indicating amount to be &aid to seller Incoterms 2000 Shipment Contracts: 1. ExWorks @ ) &laces goods at ?s dis&osal at the factor2B)s &remises o ?u2er is both e>&orter and im&orter3 res&onsible for freight3 insurance3 etc. 2. Fr A!on"sid S#ip 7-*)8 @ ) deli"ers goods to Aua2< &ro"ides e>&ort license o this does create e>&ort6im&ort contract o 0is9 &asses when goods are &laced alongside "essel o so if war brea9s out and deli"er2 costs rise3 ? assumes e>tra cost ,. Fr on Board 7-1?8 @ ) deli"ers goods on board "essel and obtains e>&ort docs o 0is9 &asses when goods &ass o"er shi&s rail o 1'LC a&&lies to sea6going "essels %. Fr Carri r 7-C*8 @ e>actl2 li9e -1? term3 but for non6sea trans&ort 5. CIF @ ) deli"ers goods on board "essel3 &a2s freight ; insurance o 0is9 &asses when goods &ass o"er shi&s rail< 1'LC sea6going "essels o )o if war brea9s out and deli"er2 costs rise3 ) absorbs e>tra cost 6. Carria" $ Insuranc %aid 7CI+8 @ e>actl2 li9e CI-3 but for non6sea trans&ort o 0is9 &asses when goods are &laced in custod2 of carrier $. Cost $ Fr i"#t 7C-08 @ ) deli"ers goods on board and &a2s freight< ? &a2s insurance o 0is9 &asses when goods &ass o"er shi&s rail #. Carria" %aid To 7C+T8 @ e>actl2 li9e C-03 but for non6sea trans&ort Destination Contracts: (. & !i' r d at Fronti r 7/*-8 @ ) &laces goods at ?s dis&osal at frontier o ) res&onsible for discharging goods from "essel< ? handles im&ort docs o /esigned for rail trans&ort3 but a&&ro&riate for shi&s and other forms 10. & !i' r d Ex S#ip 7/=)8 @ ) deli"ers goods on board and &a2s freight ; insurance o 0is9 &asses when goods are on board shi& when shi& reaches Dusual unloading &ointE o 1nl2 for sea trans&ort 11. & !i' r d Ex (ua) 7/=F8 @ ) deli"ers goods on board3 &a2s freight ; insurance o 0is9 &asses when goods are &laced at ?s dis&osal on Aua2< ? is im&orter 12. & !i' r d &ut) %aid 7//+8 @ ) does e"er2thing< ris9 &asses when goods are &laced at ?s dis&osal B. &ocum ntar) Sa! s Transaction Biddell Brothers v. E. Clemens Horst Co. 7 K 1(118 In a CI- contract3 &a2ment is due on deli"er2 @ deli"er2 of documents rather than goods ?s obligation to &a2 arises when ) has full2 &erformed @ in CI- contract3 ) has full2 &erformed after deli"ering goods to carrier3 &a2ing for freight3 bu2ing insurance3 and sending bill of lading to ? o +ro&ert2 in goods &asses when ? has bill of lading 2
o If goods are non6conforming3 ? can sue for breach of contract Ma!orit2 in lower court cited common law abilit2 to ins&ect goods before &a2ing3 holding ? could &a2 on actual or constructi"e deli"er2 o .ouse of Lords relied on Kenned2 dissent3 which loo9ed to =nglish )ale of 4oods *ct nder CC3 &a2ment is also reAuired on deli"er2 of documents o G 26,20 for CI-< G 26,1( for -1? and -*) nder CI)43 most li9el2 the same outcome 7although K isnt a &art28 o G 5# sa2s if ? isnt bound to &a2 at a set time3 he must &a2 for either goods or docs o )ubsection 7,8 sa2s ? can ins&ect before &a2ing3 'L=)) &rocedures indicate otherwise CI- contract arguabl2 indicates otherwise o *rticle $ 728 allows &rinci&les of &ri"ate international law to fill ga&s o *rticle ( deals with usage of trade .ow could ? &rotect himself against non6conforming goodsH o 0eAuire ,rd &art2 ins&ector to &ro"ide certificate of Aualit2 o Irite other &ro"isions into contract 7&a2ment u&on ins&ection8 o 0eAuire sam&le sent in ad"ance
Importanc o* docum nt o* tit! The Julia 7 K 1(%(8 -acts: )eller loads 13200 tons of r2e onto shi&3 obtains bill of lading3 T.=' ma9es CI- contract for 500 tons. ? &a2s on recei"ing in"oice and deli"er2 order 7bBc bill of lading wasnt a&&ro&riate here8 which had to be signed and &resented to "arious intermediaries before goods would be deli"ered. Iar brea9s out and ) redirects shi& to Lisbon3 sells r2e there for lower &rice. ? sues for breach of contract 7failure of consideration83 ) sa2s contract was frustrated. 0ules: =nglish )ale of 4oods *ct 7contract made on London Corn Trade *ssoc form8 *&&: * document of title doesnt ha"e to be a bill of lading3 but in this case3 ? ne"er recei"ed a real document of title. Ihat the2 recei"ed didnt entitle them to &ossession of goods. If the deli"er2 order could ha"e been &resented directl2 to ca&tain in e>change for goods3 it would ha"e been a "alid document of title. In this case3 it offered neither actual nor s2mbolic deli"er2. Con: ?u2er gets a full refund3 because this was a destination contract rather than a CIcontract3 and there was a total failure of consideration. nder CI)43 *rticles 6$ 728 and 6# a&&l2 CC G 26%01 728 title &asses to ? at time and &lace where ) com&letes &erformance with reference to &h2sical deli"er2 of goods3 e"en though document of title is deli"ered at a different time o 7b8 if contract reAuires deli"er2 at destination3 title &asses on tender there o )o consideration would ha"e failed here3 too
C. Cons +u nc s o* Non-% r*ormanc ,
,. Excus *or Non-% r*ormanc ES-A . /01023 if seller doesnt ma9e reasonable arrangements to deli"er and goods are lost3 bu2er can refuse to &a2 or get damages from seller UCC . 0-4,5: dela2 or non6deli"er2 is not a breach if &erformance has been made im&racticable b2 the occurrence of a contingenc2 which was a basic assum&tion on which contract was made o Comment %: increased cost alone doesnt e>cuse< se"ere shortage of raw materials or su&&lies due to war3 etc. can be an e>cuse UCC . 0-4,43 ?u2er ma2 terminate or modif2 contract if seller notifies him of dela2 CIS- Art. 67: no liabilit2 for 18 im&ediment 28 be2ond &art2s control ,8 that he couldnt reasonabl2 ha"e been e>&ected to ta9e into account when K was made and %8 couldnt ha"e o"ercome or a"oided Tsakiroglou & Co. v. Noblee Thorl 7.oL 1(628 6 breach of contract where occu&ation of )ueJ Canal caused seller to cancel CI- contract instead of shi&&ing through Ca&e of 4ood .o&e3 e"en though it was $3000 miles more 7court uses =)4*8 o /octrine of frustration should be used in limited circumstances @ not in cases li9e this where &erformance was merel2 not &rofitable o 'o reason to conclude that deli"er2 through )ueJ Canal was an im&lied term in the CI- contract Incoterms sa2 sellers must contract Db2 the usual routeE o *s a CI- K3 seller has alread2 allocated for the ris9 b2 bu2ing insurance and &a2ing for freight Czarnikow v. Rolimpex 71($(8 @ acts of go"ernment were a force ma!eure that e>cused &erformance where +olish go"t rescinded sugar sellers e>&ort license and &rohibited e>&ort of sugar B rman strict construction approac#: if &arties want to be &rotected3 the2 must write it into the contract o missing terms shouldnt be read into contract &ursuant to liberaliJed e>cuse &olic2 @ most transactions ha"e alread2 allocated the ris93 e"en if not e>&ressl2 o &arties ma9e contracts with o&en e2es and dont need the &rotection of a liberal e>cuse &olic2 o when &arties are from different legal s2stems3 its better to rel2 on the contract Sc#! " ! !i8 ra! xcus : &arties often use form contracts that dont allocate ris93 and the2 e>&ect !udges to be reasonable in dealing with terms the2 omitted o 'arrow e>cuse &olic2 9ee&s &eo&le out of international business o Most arbitrators &refer this a&&roach
0. &ama" s *or Br ac# Ci"il law loo9s to eAuit2 first3 then to damages @ Vol s!a"en case UCC . 0-69:3 sellers damages @ mar9et &rice at time and &lace for tender UCC . 0-6,/: bu2ers damages 6 mar9et &rice at time bu2er learned of breach3 at D&lace of tenderE @ mar9et in which bu2er would ha"e obtained co"er
ES-A Art. 59: sellers damages @ when goods should ha"e been acce&ted ES-A Art. 5,3 bu2ers damages @ when goods should ha"e been deli"ered CIS- Art. 643 mar9et &rice at time of a"oidance3 at &lace where deli"er2 of goods should ha"e been made Seaver v. #indsa$ #i"ht Co. 7'C 1(228 @ in CI- London contract 7from Chicago83 damages determined b2 &rice of goods in the location where sellers &erformance was due @ here it was Chicago3 where goods should ha"e been gi"en to carrier o ?u2er argued it should ha"e been at the same time but London &rice /. R m d) *or Br ac# Sharpe % Co. v. &osa!a % Co. 71(1$ K?8 @ breach occurred when bill of ladingBdocuments should ha"e arri"ed3 because its on that date that +s would ha"e learned of breach and &urchased substitute goods o This case was under =)4* @ under CI)43 it might ha"e been determined b2 when goods would ha"e arri"ed )eller should ha"e reAuired a letter of credit to determine where and when deli"er2 occurred and &erformance was com&leted Car"ill 710th Cir. 1($$8 @ damages measured at time &erformance is due3 not when ? learns of antici&ator2 re&udiation UNCIS Ihen does it a&&l2H o *rt 1: &arties whose &laces of business are in 2 different states and 7a8 the2 are contracting states3 10 7b8 rules of &ri"ate intl law lead to a&&lication of law of a contracting state *lthough K isnt a &art2 to CI)43 CI)4 might go"ern contract between it and another state ) has made an *rt. (5 declaration not to be bound to *rt. 17b83 &referring CC 4ood choice of law clause: DThis K is go"erned b2 the CI)43 to be su&&lemented b2 the +* CC.E o Art. 43 &arties can e>clude a&&lication b2 e>&licit statement: DThis K is go"erned b2 +* law and not the CI)4.E 1therwise3 the CI)4 is &art of +* law. o *rt 10: if &art2 has more than one &lace of business3 &lace is that which has closest relation to contract or its &erformance o *rt. 2: CI)4 doesnt a&&l2 to: goods for &ersonal use stoc9s3 shares3 securities goods bought b2 auction shi&s3 aircraft good bought on authorit2 of law electricit2 Contract int rpr tation o *rt. # 7,8: +arole ="idence 0ule< reference to negotiations and &ractices which &arties ha"e established &ermissible o *rt. (: &rior dealings and usage of trade rele"ant o *rt. 11: no )tatute of -rauds
*rt. (6: contracting state with )1- can declare that *rt. 11 doesnt a&&l2 where an2 &art2 has his &lace of business in that state o *rt. 1#728: oral offer must be acce&ted immediatel2 7unless circumstances indicate otherwise8 Contract *ormation o *rt. 1%718: +ro&osal is an offer if it indicates intent to be bound3 indicates goods3 and e>&ressl2 or im&licitl2 fi>es or ma9es &ro"ision for determining Auantit2 and &rice. o ;ai! Box Ru! 3 *rt 15 718 @ offer effecti"e when it reaches offeree< *rt. 16 718 offer re"o9ed when re"ocation reaches offeree before offeree mails acce&tance *rt. 1$: offer terminated when re!ection reaches offeror *rt. 1#: acce&tance effecti"e when it reaches offeror Batt! o* t# *orms o *rt. 1( 718: 0e&l2 that &ur&orts to be acce&tance but contains additions3 limitations or modifications is a counter6offer< o *rt. 1(728 if different terms dont materiall2 alter terms of offer3 then its an acce&tance *rt. 1( 7,8: material terms relate to &rice3 &a2ment3 Aualit2 and Auantit2 of goods3 &lace and time of deli"er23 e>tent of other &art2s liabilit2 to the other or settlement of dis&ute. -ap-Fi!!in" o *rt. $ 728: Fuestions not settled b2 'CI)4 are settled b2 the law a&&licable b2 "irtue of rules of &ri"ate international lawB o *rt. (: reference to &rior dealings and usage of trade. o *rt. 55: Ihen "alid contract does not s&ecif2 &rice then &rice generall2 charged at time of contract conclusion is im&lied. R m di s. o *rt. %6: )&ecific +erformance 7limited b2 *rt. 2#8< substitute goods< damages -or damages3 2ou must &ro"e fundamental breach and notice of a"oidance o *rt. %(: a"oidance 7if theres a fundamental breach8 o *rt. 50: reduced &rice Delchi v. Rotorex 72d Cir. 1((58 @ fundamental breach due to deli"er of non6conforming goods !ustified damages of lost &rofits3 e>&ense of tr2ing to fi> &roduct3 cost of e>&editing re&lacement goods from ,rd &art23 cost of storage for re!ected goods CI)4 a&&lied bBc no choice of law clause o *rt. ,5728: goods dont conform if the2 dont match sam&le o *rt. $%: damages are losses suffered from breach *merican court decisions used to fill ga&s
L tt r o* Cr dit Transaction /ocumentar2 /rafts @ e>&orter or re&. &resents in"oice wB shi&&ing documents attached to im&orter reAuesting &a2ment of sum on &resentation of draft 7 si"#t dra*t8 or at &articular time in future 7tim dra*t8. o C! an dra*t @ no shi&&ing documents attached to draft 6
o CC G ,610%: must contain unconditional &romise or order to &a2 sum to be "alid Letter of credit &rotects seller against non&a2ment and !urisdictional hassles o If bu2er refuses to &a23 its ban9 is a suret2 o *fter K is formed3 ? a&&lies to ban9 for credit ?an9 in"estigates sol"enc23 mar9et for goods *s9s sellers ban9 to notif2 seller of o&en credit
)eller 7beneficiar28
?u2er 7a&&licant8
)ellers ban9 7notif2ing ban98 7confirmingBad"ising8
?u2ers ban9 7issuingBo&ening ban98
Confirmed L1C @ sellers ban9 is obligated to &a23 e"en if bu2er breaches re"ocable L1C @ o&ening ban9 can modif2 or cancel credit o under confirmed3 irre"ocable letter of credit3 seller has "irtuall2 no credit ris9 L1C is assignable if it e>&ressl2 states o ) can also get second letter of credit drawing on first3 &rime L1C )tandb2 L1C @ ?u2er gets L1C to ensure )ellers &erformance 7e.g. in a construction contract8< non6&erformance lets ? collect o Idea is that if contract is &erformed &ro&erl23 ? will never draw on it UC% 6 niform Customs ; +ractice for /ocumentar2 Credit 7onl2 a&&lies if &arties choose8 o *rt. ,: se&arate contract rule o *rt. 6: if L1C doesnt indicate whether its re"ocable or irre"ocable3 &resum&tion that it is irre"ocable *rt. #: if L1C is re"o9ed3 issuing ban9 must reimburse another ban9 that has &aid *rt. (7d8: irre"ocable L1C cant be amended or canceled wBo agreement between &arties o *rt. $: ad"ising ban9 Dshall ta9e reasonable care to chec9 the a&&arent authenticit2 of the Credit which it ad"ises.E o *rt. #: if L1C isnt confirmed3 nominating ban9 has no liabilit2 *rt. 1%: if confirmed3 issuing ban9 M )T +*C confirming ban9 that has &aid
o *rt. 1,: )trict com&liance: docs that dont a&&ear on their face to conform dont com&l2 7ban9 has $ da2s to e>amine8 CC is similar3 but it fa"ors bu2ers ; sellers3 where C+ fa"ors ban9s o G 56,01: se&arate contract rule o G 56106: &resum&tion of irre"ocabilit2 L1C e>&ires after 1 2ear or after 5 2ears if &er&etual o G 5610#: issuer must honor &resentation that a&&ears on its face to strictl2 com&l2 with terms of L1C @ strict com&liance rather than substantial ado&ted Issuer shall obser"e standard &ractice of financial institutions 'ot res&onsible for usage of a &articular trade 7see comment 108 Kudge determines whats standard &ractice Can dishonor for fraud or forger2 ?an9 has Dreasonable timeE to e>amine documents 7comm. 28 Issuer not res&onsible for underl2ing contract o G 5610(: -raud ; forger2 @ issuer shall honor &resentation if made b2 a holder in due course Can dishonor acting in good faith Court can en!oin ban9 from honoring it o G 56111: 0emedies S parat contract ru! 'r(uhart #indsa$ v. Eastern Ban ) #td. @ ?u2er told issuing ban9 not to &a2 increase in &rice3 des&ite the fact that K and L1C &ro"ided for such an increase o It was an irre"ocable L1C3 and ban9 didnt ha"e a legal choice to den2 &a2ment *aurice O+*eara v. &ational Par Ban o, &- @ absent &ro"ision in the L1C3 ban9 didnt ha"e the right to ins&ect goods before &a2ing beneficiar2 Exc ption *or *raud 7common law8 S.te/n v. Henr$ Schroeder Ban in" @ Dwhere the sellers fraud has been called to the ban9s attention before the drafts and documents ha"e been &resented for &a2ment3 the &rinci&le of the inde&endence of the ban9s obligation under the L1C should not be e>tended to &rotect the unscru&ulous seller.E o ?u2er sues its own ban9 to en!oin it from &a2ing< court a&&lies common law 'nited Ban v. Cam0rid"e Sportin" 1oods @ where fraud occurs3 confirming ban9 that has alread2 &aid is entitled to &a2ment if it is a #o!d r in du cours 7no notice of fraud8 Roc !ell 2ntl. S$stems v. Citi0an 72d Cir. 1(#,8 @ fraud e>ce&tion a&&lies to standb2 L1Cs if &art2 wanting to collect is holder in due course No xp!icit *raud xc ption in UC% @ 'C has inter&reted one o )ome courts sa2 se&arate contract rule is in"iolate3 wB no fraud e>ce&tions o C* re!ected CC &ro"ision authoriJing a court to en!oin &a2ment on L1C Strict Comp!ianc o J.H. Ra$ner v. Ham0ro+s Ban 7 K 1(%,8 @ ban9 !ustified in refusing to honor sight draft bBc bills of lading described the nuts in a different wa2 than contract did3 e"en though e"er2one in the trade 9new it was the same
?an9 has e"er2 right to demand strict com&liance @ it doesnt 9now whether one term is eAui"alent to another +ut ris9 on &art2 best able to &re"ent it @ one who &re&ares bills of lading o Di3on) 2rmaos % Cia v. Chase &atl Ban 72d Cir 1(%%8 @ ban9 was wrong to refuse to &a2 bBc standard &ractice in financial institutions said discre&ancies were o9a2 )ight draft had almost e>&ired and ) didnt ha"e all bills of lading3 so it substituted with guarantee from another ban9 /idnt &re&a2 freight3 ma9ing it C1/ and subtracting &rice o Banco Espa4ol v. State Street Ban @ issuing ban9 was wrong to refuse to &a2 confirming ban9 on basis of certificates of ins&ection Ins&ectors &ractices were reasonable3 and bu2er shouldnt be able to whimsicall2 destro2 a transaction
III. -o' rnm nt R "u!ation o* Int rnationa! Trad A. Import R "u!ation

Constitution *rticles IL and LI are foundation @ ga"e central go"t &ower to collect ta>es3 set a common e>ternal tariff o Tariff *ct of 1$#( &assed to &rotect infant manufacturing industr2 and raise re"enue for go"ernment o Later 16th *mendment 71(1,8 income ta> ga"e federal go"t &rinci&al source of re"enue o -ordne26McCumber Tariff *ct of 1(22 @ ga"e &resident authorit2 to raise or lower tariffs b2 50M o )moot6.awle2 Tariff *ct of 1(,0 @ set "er2 high tariffs3 other countries res&onded in 9ind o 1(,% 0eci&rocal Trade *greements *ct @ has been u&dated3 still in force< authoriJes &resident to negotiate reci&rocit2 and set tariffs accordingl2 Multilateral )2stem and 4*TT de"elo&ed in 1(%$ o 1((% rugua2 round too9 awa2 the a la carte nature of international trade3 so 2oure a member of all or nothing< created IT1 Structur o* -ATT<WTO3 o *rt. I: Most fa"ored nation treatment *ll countries to be treated the same @ if 2ou negotiate a lower rate or s&ecial agreement with one countr23 all must benefit o *rt. II: schedule of concessions3 focus on reducing trade barriers o *rt. III: non6discrimination in terms of &roducts @ internal ta>es on foreign goods cant be more than ta> on domestic goods o *rt. NI: no Auantitati"e restrictions or Auotas o rugua2 0ound in 1((%: created IT13 4eneral *greement on Trade in )er"ices 74*T)83 *greement on Trade60elated *s&ects of Intellectual +ro&ert2 0ights
7T0I+)83 and new nderstanding on 0ules and +rocedures 4o"erning )ettlement of /is&utes. o D4*TTs aim . . . is to &reser"e the balance of concessions and the balance of ad"antage and obligations between member countries3 and not to resort to sanctions whene"er a countr2 is in breach of the rules.E Ihere =uro&eans "iew 4*TTBIT1 as a forum for dis&ute settlement3 ) "iews it as an ad!udicati"e mechanism with dis&ute settlement as litigation Trad r !i * m c#anisms in US !a=3 7 rugua2 round authoriJed countries to ta9e domestic measures to enforce IT18 o *nti6dum&ing law @ 2ou can &etition go"ernment if 2ou"e been harmed o )ubsidiesB Counter"ailing duties law o )ection ,01 Dunfair trade &racticesE *n2one can file a &etition with the ) Trade 0e&. on behalf of an industr2 Mandator2 retaliation where 4*TT has been breached 7rights are denied or act un!ustifiable8 /iscretionar2 retaliation where act is unreasonable or discriminator2 and burdens or restricts ) commerce o )ection 201 esca&e clause 0elief when article is im&orted into ) at such great Auantities as to cause serious in!ur2 domesticall2 @ .arle2 /a"idson got relief from go"t here o )ection ,,$ I+ &rotection Infringement means ) customs officials restrict entr2 at border Current defining characteristics of ) trade law ; &olic2 o Multilateral framewor9 o Tariffs no longer a &rimar2 source of re"enue for go"t o +resident sets tariffs now3 no longer Congress o Multilateral reduction of tariffs thru 4*TT3 leading to focus on non6tariff barriers to trade o Continuing abilit2 to !ustif2 s2stem through com&arati"e ad"antage theor2 US R "u!ation o* t# Import Transaction3 Incor&orates 4*TT3 *rt. 2 re: Tariffs o /ut2 de&ends on: Classification: /uties assigned to different categories of goods under .T) ) Laluation Countr2 of 1rigin T2&e of =ntr2
B. US R "u!ation o* t# Export Transaction o =>&ort *dministration *ct of 1(%(: authoriJes e>&ort controls for &ur&oses of national securit23 foreign &olic23 short su&&l2 7often e>tended b2 +res through I==+*8 Extrat rritoria! ** ct3 )ections 56$ co"er re6e>&orts of goods of ) origin @ +resident can D&rohibit or curtail the e>&ort of an2 goods or technolog2 sub!ect to the !urisdiction of the nited )tates or e>&orted b2 an2 &erson sub!ect to the !urisdiction of the nited )tates.E 10
?ases of &rescri&ti"e !urisdiction: Territorialit2 &rinci&le: xt nd d t#rou"# ** cts t st 'ationalit2 &rinci&le +rotecti"e &rinci&le @ &rotects es&ionage3 counterfeiting +assi"e &ersonalit2 &rinci&le ni"ersalit2 &rinci&le Sensor Nederland case 71(#,8 @ D&erson sub!ect to the !urisdiction of the ) is 18 an2 citiJen or resident of )< 28 an2 &erson within )< ,8 an2 cor&oration organiJed under laws of )< %8 an2 legal &erson3 where"er organiJed3 that is owned or controlled b2 an2one s&ecified in 16, /utch subsidiar2 of ) com&an2 in"o9ed ) embargo on 0ussia in refusing to sell restricted goods to -rench bu2er who &lanned to resell to 0ussia Court loo9ed to treat2 between ) ; 'etherlands3 &ublic intl law o 'ationalit2 @ under treat23 com&an2 is /utch3 so no o territorialit2 @ sufficient effect on ) territor2H 'o based on territorialit2 &rinci&le3 /utch com&an2 cant refuse sale this was ultimatel2 settled &oliticall23 with ) owner contacting go"t3 who &ulled the =*0 reAuirement o Export !ic nsin" proc ss: 0egulations re"ised in 1((, so that not e"er2 e>&ort needs a license *dministered b2 ?ureau of =>&ort *dministration of /e&t commerce Commerce Control List: is the &roduct controlledH If so3 loo9 to . . . Countr2 Chart: if e>&ort 7or re6e>&ort8 to this countr2 needs a license3 license is reAuired o Ler2 little multilateral coo&eration or agreement on e>&ort control
I>. %ro* ssiona! R sponsi8i!it) in Transnationa! Transactions

ABA Model Rules of Professional Conduct: o Deal only with liti ation! not with transactional lawyers +ro hac "ice is a"ailable in a single case that is litigated3 but nothing similar for transactions o /isci&linar2 authorit2 70ule #.58: law2er admitted to &ractice in this !urisdiction is sub!ect to its disci&linar2 authorit2 regardless of where conduct occurs +aragra&h b gi"es choice of law rules for determining which law go"erns o Rule "#": $awyer %ust &ro'ide co%&etent re&resentation! re(uirin le al )nowled e! s)ill * &re&aration This rule &ro"ides the fundamental test for inter&reting e"er2 other rule @ ultimate goal is &ro&er re&resentation of client3 and ancillar2 goals cant subordinate this Comment 2: D* law2er can &ro"ide adeAuate re&resentation in a wholl2 no"el field through necessar2 stud2. Com&etent re&resentation can also be &ro"ided through the association of a law2er of established com&etence in the field in Auestion.E 11
o o
0ule 1.#7h8 dut2 of com&etence cant be wai"ed b2 client 7e>ce&t in "er2 limited circumstances8 0ule 5.5: a law2er shall not &ractice in a !urisdiction where he is not admitted Test for the &ro&er rules: Ihat is the obligation of the go"ernment and the &rofession to a clientH 5ppell v. Reiner 7'K 1(6%86 )trict adherence to rules &rohibiting the unauthoriJed &ractice of law b2 out6of6state attorne2s would be Dgrossl2 im&ractical and inefficient.E Bir0ro!er v. Supeior Court 7C* 1((#8 6 DOTPhe legal &rofession should discourage regulation that unr asona8!) im&oses territorial limitations u&on the right of a law2er to handle the legal affairs of his client or u&on the o&&ortunit2 of a client to obtain the ser"ices of a law2er of his choice.E DThe &rimar2 inAuir2 is whether the unlicensed law2er engaged in sufficient activities in the state3 or created a continuing relationshi& with the California client that included legal duties and obligations.E /etermining &ro&er ne>us for &ro hac "ice re&resentation: Bir0ro!er 6 'ew Cor9 law2er engaged in unauthoriJed &ractice b2 re&resenting California client in arbitration in California Court focuses on where acti"it2 too9 &lace Estate o, Condon 7C* 1((#8 6 Colorado law2er was o9a2 when re&resenting Colorado client in &robate matter in California Court loo9s at clients location 6ou"ht v. Steel En"ineerin" 7.I 1((#8 6 1regon law2er was o9a2 when &ro"iding assistance for 1regon client in .awaii litigation Client loo9s to dut2 of com&etence ?rands conclusions: -ocus on an2 inAuir2 should be on com&etent re&resentation of client -ocus on a&&licable law should be more im&ortant factor than a formalistic focus on location of client or law2er Law2er who can &ro"e com&etence should be able to &ractice foreign law when re&resenting clients from his state or foreign clients within his state Ihen &arties choose arbitration forum3 location of tribunal shouldnt be rele"ant in !udging conduct of law2er ?ottom line @ no clear rules.
>. &isput R so!ution in Int rnationa! Trad

Ihen a dis&ute occurs3 ma!or Auestions that arise are: o Ihere is there !urisdiction to sueH 7Choice of forum clause &referable8 o Ihich law a&&liesH 7Choice of law clause &referable8 o Iill there be recognition and enforcement of !udgment or arbitration awardH )econdar2 Auestion: foreign currenc2 liabilitiesH o Ihat ha&&ens when fluctuations of currenc2 im&act the bottom lineH
12
A. ?URIS&ICTION -irst3 is there legislati"eB&rescri&ti"e !urisdiction 7can state e>ercise its authorit2 o"er the &arties8H )econd3 is there !udicial !urisdictionH o )ub!ect matter !urisdiction @ b2 statute o +ersonal !urisdiction @ b2 contacts3 long6arm statute 4eneral "s. s&ecific 7Helicopteros8 +* statute reflects ) )u&reme Court !uris&rudence e>actl2 o 4eneral !urisdiction &art 7G5,018 sa2s +* residents can be sued in +* regardless of where the issue in the case too9 &lace o )&ecific !urisdiction &art 7G 5,228 gi"es a list of acti"ities under 7a83 but this basicall2 means nothing3 because 7b8 sa2s !urisdiction e>ists if its constitutional *ll 2ou ha"e to do is constitutional anal2sis ="er2 foreign cor&oration will as9 2ou to ensure that the2re ne"er sub!ect to suit in ) courts @ is this &ossibleH o set u& a local subsidiar23 based in +*3 and T.*T is sub!ect to suit while the &arent cor&oration isnt ,. US ?urisdictiona! ana!)sis 1. Is there &ur&oseful a"ailment of the &ri"ilege of conducting acti"ities within the forum state3 in"o9ing the benefits and &rotections of its lawsH 7 Hanson v. Dec la8 2. /oes the claim arise out of those &ur&oseful acti"itiesH ,. Is !urisdiction o"er the defendant reasonableH 7 7orld!ide Vol s!a"en8 o =>tent to which /s a"ailed themsel"es of &ri"ileges of *merican law o Ias litigation in the ) foreseeable to themH o .ow incon"enient is litigation in the )H o Counter"ailing interests of the ) in hearing the suitH Helicopteros and 5sahi sa2 a foreign com&an2 cant be sued in a state where it has limited acti"it2 unless cause of action is closel2 connected to that acti"it2 1ut6of6state &art2s contract with an in6state &art2 isnt enough to establish reAuired minimum contacts alone 0ule %798728 -ederal long6arm statute @ authoriJes !urisdiction o"er a defendant in a claim arising under federal law if the &erson isnt sub!ect to !urisdiction in an2 state 'nited States v. S!iss Ban #td. 71st Cir 1(((8 @ To sue under %7987283 + must ma9e a &rima facie case of , elements: Claim arises under federal law +ersonal !urisdiction isnt a"ailable thru an2 situation6s&ecific federal statute /s contacts with nation as a whole suffice to satisf2 constitutional reAuirements o If + ma9es &rima facie case3 burden shifts to / to &ro"e: it could be sued in 1Q s&ecific states3 10 its contacts with the ) as a whole are insufficient o If / &ro"es the former3 + has , choices: 1,
Transfer action to state that has !urisdiction o"er / /ro& the suit Contest /s case
0. ?urisdiction in EU 1riginall2 ?russels Con"ention3 re&laced in 2002 b2 ?russels 0egulation ) anal2sis focuses on relationshi& between forum stateBcourt and /3 while ?russels Con"ention anal2sis focuses on relationshi& between court and cause of action o Indir ct @urisdiction a&&roach @ when loo9ing to enforce !udgment that too9 &lace in another state3 onl2 Auestion: was !urisdiction &ro&er according to Con"ention or enforcing states standardsH 'o Auestion of whether !urisdiction was &ro&er according to original courts standards o &ir ct @urisdiction a&&roach< a9a Ddouble treat2E Treat2 of 0ome of =C3 as &art of four freedoms3 said Member )tates would negotiate a treat2 to enforce !udgments across borders 7&resent *rticle 2(,8 o 1(6# ?russels Con"ention was limited to !udgments in ci"il and commercial matters 7no arbitration8 *s a Ddouble con"ention3E it included rules of direct !urisdiction o Treat2 of *msterdam amended Treat2 of 0ome to allow Council to ado&t 0egulations to this end 7*rticle 6,3 658 o ?russels 0egulation of 2002 re&laced ?russels Con"ention 7although Iceland3 'orwa23 )witJerland are still go"erned b2 a similar con"ention8
Bruss !s R "u!ation Cha&ter 2 Kurisdiction *rticle 2 4eneral Kurisdiction: &lace of domicile determines o If ) com&an2 is domiciled in = 3 its sub!ect3 as citiJenshi& isnt the 9e2 )ection 2 D)&ecial KurisdictionE 7s&ecific8 o *rt 5 718 6 Din matters relating to the contract3 in the courts for the p!ac o* p r*ormanc of the obligation in AuestionE =CK sa2s court where action is brought must 18 decide which law go"erns b2 a&&l2ing its own rules of &ri"ate international law and then 28 decide where &lace of &erformance is If multi&le obligations3 Court must choose most im&ortant *rticle 5 7187b8 sa2s &lace of &erformance is where goods are deli"eredBwhere &a2ment occurs In a CI- contract3 both sellers and bu2ers &lace of &erformance is in sellers countr2 7deli"ering goods to shi&8 o *rticle 57,8 @ tort !urisdiction Din matters relating to the tort . . . &lace where the harmful e"ent occurredE Bier v. *ines de Potasse d+5lsace 7=CK 1($68 held that this could be either the &lace where damaging act occurred or where it was felt
1%
o o o
/utch com&an2 sued -rench com&an2 for &olluting the 0hine in -rance3 where the effects were felt downstream in the 'etherlands 1f most im&ortance is the causal connection between the court and the claim @ the fact that either &lace 7where e"ent occurred or was felt8 could establish this causal connection nder this anal2sis3 there would ha"e been !urisdiction in 7orld!ide Vol s!a"en Cases following Bier ha"e sought greater &rotection for the defendant3 with =CK de"elo&ing ,6&art anal2sis: 1. 4eneral rule @ general !urisdiction in /s state of domicile 7*rt 28 2. Certain e>orbitant3 +6friendl2 !urisdictional statutes in Member states are not a&&licable in this treat2 7*rt ,8 ,. *ll s&ecific bases of !urisdiction must be restricti"el2 construed *rticle 2,: choice of forum honored 7need not relate to dis&ute8 *rticle 2%: consent Compar d to US ru! s: -ocus on ne>us between claim and court would "iolate /ue +rocess in ) courts3 bBc /s can be sued where"er court decides their &erformance was due -urther reach on s&ecific !urisdiction 7where ) law has further reach on general !urisdiction8 'o distinction between legal and natural &ersons in ?russels 0egulation @ domicile is 9e2 'o tag !urisdiction ?russels 0eg &rotects , t2&es of &arties in terms of !urisdiction: Consumers 7*rt. 1561$8 Insurers 7*rt. #61%8 =m&lo2ees in indi"idual em&lo2ment contracts 7*rt. 1#6218 =>clusi"e !urisdiction 7*rt. 228 W# n ana!)Ain" a cas under the ?russels 0egulation: Is there e>clusi"e !urisdictionH 7*rt 228 Is /s domicile in = H 7*rt ,8 Is the case an insurance3 consumer contract or em&lo2er contract clauseH Is there a &rorogation clause 7*rt. 2,3 1,3 1$3 218H If none of the abo"e3 at +s o&tion a&&l2: *rt 2 @ suit a /s domicile *rt 5 @ rules of s&ecial !urisdiction *rt 6 @ rules for multi&le /s
UB Lon"-arm statut C @urisdiction =# n3 / is domiciliar2 /s acts ha"e effects within !urisdiction / is a Dnecessar2 or &ro&er &art2E to the case Case based on a contract made within !urisdiction3 made b2 agent tradingBresiding in !urisdiction3 or that is sub!ect to =nglish law
15
In rem @ case deals with land in !urisdiction3 deals with &ro&ert2 in a will in !urisdiction Claim is brought to enforce a !udgment
Da"u Con' ntion on C#oic o* Court A"r m nts /rafted in 20053 ) is considering ratification , basic rules: o *rt. 5: T# court or courts of a Contracting )tate d si"nat d in an xc!usi' c#oic o* court a"r m nt s#a!! #a' @urisdiction to decide a dis&ute to which the agreement a&&lies3 unless the agreement is null and "oid under the law of that )tate o *rt. 6: a court of a Contracting state that wasnt designated should sus&end &roceedings3 unless: *greement is null ; "oid under chosen courts state law +art2 lac9ed ca&acit2 to contract under law of state of court seised In!ustice or bad &ublic &olic2 results *greement cant be &erformed due to force ma!eure Chosen court has decided not to hear case o *rt. #: !udgment b2 designated court of contracting state shall be enforced wBo e>amining merits o 1&tional %th 0ule: *rt 22 @ reci&rocal declarations on non6e>clusi"e choice of court agreements *dditional &ro"isions: o *rt. 1 )co&e: 18 intl cases3 28 e>clusi"e choice of ct agreements3 ,8 ci"il ; commercial matters Case is '1T intl if &arties are from same state and all elements of dis&ute are related to that state o *rt. ,7b8 designated court is deemed e>clusi"e unless otherwise s&ecified o *rt. (: recognition can be refused if: )ame as *rt. 63 &lus 18 / didnt recei"e notice3 28 !udgment obtained b2 fraud3 ,8 !udgment inconsistent with one alread2 gi"en o *rt. 1(: court can refuse !urisdiction if it has no connection with case or &arties 7to &rotect certain countries for being dum&ing grounds for cases8 o *rt. 20: court can refuse to enforce !udgment if case should ha"e been brought there originall2 +art2 autonom2 is the rule unless an e>ce&tion is &resent 7*rts. 53 63 (8 B. C#oic o* La= %art) autonom) ru! @ law chosen b2 the &arties will usuall2 be a&&lied 7with some limitations8 o 'o scheme gi"es &arties com&lete freedom to choose @ e.g. there must be a ne>us between contract and law chosen o 2 &roblems with this: 18 &arties ma2 select a law that in"alidates all or &art of contract3 28 its not trul2 autonomous if theres alwa2s an DunlessE >a!idation ru! @ the law that "alidates will be a&&lied unless . . .
16
T.ort.is v. *onar #ine 7.ouse of Lords 1(6#8 @ if 2ou choose an arbitration forum without choosing a law3 court will im&l2 that 2ou chose the law of the &lace of arbitration
Choice of law clauses in statutes CC G 16105: Dwhen a transaction bears a r asona8! r !ation to this state and also to another state or nation the &arties ma2 agree that the law either of this state or of such other state or nation shall go"ern their rights and dutiesE o 'ew G 16,01 distinguishes between 18 merchant contracts and consumer contracts and between 28 domestic and international contracts o 4ets rid of Dreasonable relationshi&E test for business to business contracts3 using a mandator2 rule as default o )a"es Dreasonable relationshi&E test for consumer contracts @ so the distinction is im&ortant< consumers dont get as much &rotection as merchants 0estatement of Conflict of Laws 7)econd8 G 1#$: &arties choice will be res&ected unless 18 chosen state has no su8stantia! r !ations#ip to the &arties or transaction and theres no reasonable basis for this choice3 or 28 a&&lication of that states law is contrar) to pu8!ic po!ic) of a state with a greater interest =C Con"ention on Law *&&licable to Contractual 1bligations @ *rticle , mandator) ru! s doctrin @ if all elements rele"ant to situation are connected with one countr23 choice of law in another countr2 wont &reclude a&&l2ing the mandator2 rules of the countr2 with the connection 7cant contract out of mandator2 rule8 o *rticle % 6 *&&licable Law in *bsence of Choice: go"erned b2 law of countr2 with which it is most closel2 connected< &resumabl2 where &art2 who is to effect &erformance has &rinci&le &lace of business CI)4: *rticle 1 7187b8 means that if 2 &arties from different states use the law of a contracting state as their go"erning law3 CI)4 a&&lies whether the2"e mentioned it or not o CI)4 doesnt a&&l2 if: 18 nder *rticle 63 &arties s&ecificall2 e>clude or "ar2 its a&&lication. 28 Third noncontracting state ta9es !urisdiction and decides to use own domestic law. ,8 nder (63 declares ina&&licable3 in accordance with *rticle 123 an2 &ro"ision of 'CI)4 that conflicts with its domestic law. %8 4oods in Auestion were bought for immediate consumer use. 58 'ot a&&arent from contract that &arties ha"e their &laces of business in different states. 68 nder *rticle (53 contracting state files reser"ation declaring that onl2 domestic law a&&lies when !urisdiction obtained through rules of &ri"ate international law. Contract 8 t= &ri"ate &arties 2 states &ri"ate &art2 ; state n La= t#at "o' rns national law international law &art2 autonom2 @ the2 can choose intl law 7TOPCO8 ="en if the2 dont choose law3 court can a&&l2 international law 7Revere8
1$
C. C#oic o* Forum Toda2 2ou can alwa2s choose arbitration as an alternati"e to litigation o In deciding between the two3 loo9 at cost of arbitrating "s. litigating Cou often ha"e to &a2 institutional fee3 &a2 arbitrators @ fee often de&ends on amount in contro"ers2 -oreign courts sometimes ha"e "er2 high fees to litigate Considerations in choosing a forum for dis&ute settlement: 1. Con"enience of chosen forum 2. -amiliarit2 with chosen forum ,. +ossible bias with chosen forum %. Influence of choice of forum on substanti"e law CI)4 *rticle $ sa2s a court can fill ga&s b2 loo9ing to its own &ri"ate international law *rticle 2# sa2s court doesnt ha"e to gi"e s&ecific &erformance if its countr2 doesnt li9e that 5. +redictabilit2 in contract &erformance 6. *"ailabilit2 of ad"antageous &rocedural laws In =ngland3 &re6trial &rocedures allow 2ou to freeJe some of /s assets so he cant transfer them and a"oid !udgment ) )u&reme Court sa2s ) federal courts cant do that $. *"ailabilit2 of transnational &rocedural assistance -oreign !udgments are usuall2 enforced in the ) Courts in most ) !urisdictions res&ect &art2 autonom2 and will u&hold reasonable choice of forum clauses o Bremen v. 8apata O,,9Shore Co. 71($28 @ )u&reme Court u&held choice of law clause s&ecif2ing K law3 e"en though *merican com&an2 would &robabl2 be hurt b2 it3 because of the need to facilitate transnational commerce Dforum selection clauses are &rima facie "alid and should be enforced unless enforcement is shown b2 the resisting &art2 to be unreasonable under the circumstancesE o Scher v. 5l0erto9Culver Co. 71($%8 @ )u&reme Court ordered arbitration of a claim arising under )ecurities =>change *ct in the foreign forum that arbitration clause s&ecified3 e"en though outcome might be negati"e for *merican &art2 o =>ce&tions: =nforcement would result in substantial incon"enience or denial of remed2 -raud or unconscionable conduct in the contract =nforcement would result in "iolation of &ublic &olic2 or cause manifest unfairness In Latin *merica3 courts com&etence is considered a matter of &ublic &olic23 and choice of forum or law doesnt necessaril2 remo"e that com&etenc2 1#
o Inter6*merican Con"ention on International Commercial *rbitration came into force in 1((0 for ) ) isnt &art2 to an2 con"ention on enforcement of foreign !udgments
itsubishi otors Corp. v. Soler Chr!sler"#l!mouth 7 ) 1(#58 Claim under )herman *nti6Trust *ct can be settled b2 arbitration in Ka&an if &arties chose that: D?2 agreeing to arbitrate a statutor2 claim3 a &art2 does not forgo the substanti"e rights afforded b2 the statute< it onl2 submits to their resolution in an arbitral3 rather than a !udicial3 forum.E o Ihats most im&ortant is that litigant can &ursue statutor2 cause of act o 'o reason to assume that arbitration wont &ro"ide an effecti"e remed2 ) court can later refuse to enforce damages if !udgment is im&ro&er o If Congress e>&resses intent that a certain statute not be sub!ect to arbitration3 it shouldnt be arbitrated @ but thats not the case here Ihen as9ed to com&el arbitration3 courts must as9 o /id &arties agree to arbitrate this dis&uteH o /o legal constraints outside of contract foreclose arbitration of these claimsH *rbitration clause read: Dan2 and all dis&utes arising out of or related to this KE will be arbitrated in Ka&an @ thats different from Dan2 claim of breach of KE *fter *itsu0ishi3 it seems li9e if theres a "alid arbitration clause3 arbitration will be com&elled unless its "er2 narrowl2 drafted 1ther Choice of -orum cases Shearson:5merican E3press v. *c*ahon 7 ) 1(#$8 @ )ecurities =>change *ct and 0IC1 claims can be arbitrated if theres a "alid agreement3 e"en if a&&ears in a form bro9erage contract that isnt sub!ect to negotiation 5llied Si"nal v. B.6. 1oodrich 7$th Cir 1(((8 @ arbitration clause did not reAuire antitrust claims to be arbitrated o not all &arties to suit had signed on the clause and &arties could full2 com&l2 with other as&ects of the agreement and still cause antitrust in!ur2 to + Carnival Cruise #ines v. Shute 7 ) 1((18 @ rel2ing on Bremen3 )u& Ct u&held choice of forum clause on tic9et e"en though + didnt recei"e tic9et until after &a2ing @ + too9 ad"antage of lower &rices made &ossible b2 such a &ractice Hill v. 1ate!a$ 7$th Cir 1(($8 @ court u&held clause inside com&uter bo> reAuiring claims to be arbitrated b2 ICC and for + to &a2 R29 *d"antages to *rbitration
+arties can select &rocedural and substanti"e law a&&licable to dis&ute Less com&licated< fewer rules of &rocedure 'eutral location Can ta9e &lace without disru&ting contract &erformance 'C Con"ention means awards are more li9el2 to be enforceable in foreign courts
/isad"antages to *rbitration
Lac9 of court record ma9es it less &redictable 1ther &art2 ma2 agree to litigation in 2our home court +reliminar2 relief usuall2 not a"ailable *&&eal from litigation can be fa"orable
1(
IBT Fall 2006 Professor Brand -inalit2 @ usuall2 not sub!ect to a&&eal
*rbitration clause should be clear about: 1. Institution whose rules and assistance will go"ern 7Intl Chamber of Commerce3 *merican *rb *ssoc.3 other83 or ad hoc arbitration 2. 0ules to be a&&lied ,. 'eutral &lace in which to hold hearings 7countr2 whose law fa"ors arb and who is a &art2 to 'C Con"ention8 %. Language to be used 5. whether contract &erformance can continue &ending award 6. number3 Aualification and manner of selecting arbitrators +reliminar2 in!unctions @ % Circuit courts held a court can grant a &reliminar2 in!unction in an arbitrable dis&ute if necessar2 to &reser"e the status Auo N = Eork Con' ntion 6 1(5# ' Con"ention on the 0ecognition ; =nforcement of -oreign *rbitral *wards entered into force in ) in 1($0 7100Q &arties8 *rticle II recogniJes agreements to arbitrate *rticle III calls for recognition and enforcement of arbitral awards *rticle L contains e>ce&tions if &art2 &ro"es: o Inca&acit2 of &arties or in"alidit2 of agreement to arbitrate o Lac9 of &ro&er notice in arbitration &roceedings o /ecisions on matters be2ond sco&e of arbitration agreement o *rbitral &anel "iolates agreement or law o *ward isnt 2et binding or has been sus&ended in countr2 whose laws go"ern o +olic2 reasons: )ub!ect matter cant be settled b2 arbitration in countr2 where recognition is sought 0ecognitionBenforcement would be contrar2 to &ublic &olic2 of countr2 where recognition is sought *rticle LII sa2s Con"ention Dshall not . . . de&ri"e an2 interested &art2 of an2 right he ma2 ha"e to a"ail himself of an arbitral award in the manner and to the e>tent allowed b2 the law or treaties of the countr2 where such award is sought to be relied u&onE o Chromallo$ 5eroservices v. E"$pt 7//C 1((68 @ *rticle L e>ce&tions are &ermissi"e3 while *rticle LII language is mandator2< therefore3 e"en though =g2&t nullified an arbitral award3 it could still be enforced b2 ) o )ome courts sa2 if the law of that state go"erns arbitration and its court sets it aside3 it ma2 be null &. R co"nition o* For i"n ?ud"m nts in US Common law is the basis3 su&&lemented b2 -MK0* +roblems with ) a&&roach: o Law is fractured because of =rie @ $ states ha"e a reci&rocit2 reAuirement3 onl2 ,1 states ha"e signed the *ct
20
o This means that if an *merican wants a !udgment enforced abroad3 he must &ro"e to foreign court that a similar !udgment would be enforced in ) )till3 ) is one of most liberal &laces for enforcement of foreign !udgments 2 most common bases for non6recognition of foreign !udgments are: o Lac9 of !urisdiction 7rules of forum court a&&l23 so in )3 its due &rocess8 o +ublic &olic2 74erman court decision8 $ilton v. %u!ot 7 ) 1#(58 @ last ) case on recognition of foreign !udgments o If there is reci&rocit2 in recogniJing foreign !udgments3 comit2 of nations sa2s the2 should be gi"en effect if 18 full and fair trial3 28 rendered b2 a court ha"ing !urisdiction3 ,8 &ro&er notice gi"en and &rocedural rules followed3 %8 im&artial s2stem of !ustice3 %8 no fraud Kudgments in rem are "alid e"er2where /iffering &rocedural rules differ is no &roblem @ main criteria is fairness Comit2 is Dthe recognition which one nation allows within its territor2 to the legislati"e3 e>ecuti"e or !udicial acts of another nationE which is neither an absolute obligation nor merel2 courtes2 and good will o In this case3 no reci&rocit2 in -rance3 so no recognition of !udgment 7this was general rule in =ngland and rule &redominates in =uro&e and Latin *merica toda28 )u&reme Court a&&lies federal common law 7&re6 Erie83 found in ) and K commentar2 and !uris&rudence3 &ractice of countries o Dinternational law . . . is &art of our law3 and must be ascertained and administered b2 the courts of !ustice as often as such Auestions are &resented in litigationE o Iould the result ha"e been different if &arties had been differentH 7see &. 5(58 Dthe e>traterritorial effect of !udgments in &ersonam3 at law3 or in eAuit2 ma2 differ3 according to the &arties to the cause.E Court indicates that a ) citiJen sued in -rance b2 a -rench + warrants greater e>amination o dicta in this case has sur"i"ed3 rather than the holding @ the comit2 anal2sis3 loo9ing to general &ractices of states Somportex v. #hiladelphia Chewing %um 7,rd Cir 1($18 @ default !udgment against / in K courts after he was gi"en e>tra time to contest !urisdiction and too9 no action was &ro&er o Court a&&lies +* common law as &arties are di"erse3 according to Erie +* law sa2s !udgments of foreign courts are sub!ect to comit2 Comit2 should be withheld onl2 when acce&tance would be contrar2 or &re!udicial to interest of nation Most im&ortant Auestions are whether reasonable notification was used and reasonable o&&ortunit2 was had to be heard 'o "iolation of ) due &rocess occurred o award of law2ers fees and loss of good will enforced bBc it doesnt def2 &ublic &olic2 o Somporte3 engaged in forum sho&&ing3 bringing case in K to get more mone2 o Court sa2s no one follows reci&rocit2 in Hilton v. 1u$ot
21
R stat m nt o* For i"n R !ations La= G %#1 sa2s final !udgment in a foreign court is entitled to recognition in ) court unless e>ce&tion under G %#2 is met o )tate courts ha"ent generall2 followed Hilton &rinci&le @ its unfair to &unish + for his states failure to recogniJe ) !udgments other !udgments can be enforced in )3 too @ famil2 status3 succession to &ro&ert23 etc. /ecisions b2 foreign administrati"e agencies ha"e been enforced if fair o G %#2 lists basicall2 same e>ce&tions @ fraud3 lac9 of !urisdiction originall23 etc. o G %#, sa2s ) courts dont ha"e to recogniJe !udgments for collection of ta>es3 fines or &enalties rendered b2 foreign courts Uni*orm For i"n ;on ) ?ud"m nts R co"nition Act 7,1 states3 $ reAuire reci&rocit28 o G 2: *ct a&&lies if !udgment is 18 final and conclusi"e3 and 28 enforceable where rendered o G , sa2s its enforceable in same manner as !udgment from a sister state @ &ro"ided it doesnt fall under an2 of G % e>ce&tions o G % mandator2 grounds for non6recognition: 18 Tribunal was not im&artial or no due &rocess< 28 -oreign court lac9ed +K o"er /3 ,8 -oreign court lac9ed )MK o G % discretionar2 grounds for non6recognition: Im&ro&er notice to /3 -raud3 Contrar2 to &ublic &olic23 Kudgment conflicts with another !udgment3 +roceeding "iolated agreement to arbitrate or something else3 +K was based on ser"ice and forum was incon"enient o G 5 &ersonal !urisdiction established b2: tag !urisdiction3 consent3 agreement3 domicile3 &lace of business3 o&erating motor "ehicle 1nce theres recognition3 as9 if theres enforcement @ Uni*orm En*orc m nt o* For i"n ?ud"m nts Act 7incor&orated under G ,8 o -MK0* is similar to 0estatement3 e>ce&t that: Lac9 of sub!ect matter !urisdiction is a mandator2 ground for non6recognition under *ct 7discretionar2 under 0estatement8 *ct allows discretionar2 non6recognition if ) court is a Dseriousl2 incon"enient forumE when +K is based on &ersonal ser"ice o Forum-s#oppin": foreign &art2 loo9ing to enforce a !udgment in the ) ma2 forum sho& de&ending on a states acce&tance of the -MK0* the2 could get recognition of the !udgment in )tate * 7which has signed it83 then ta9e !udgment to )tate ? 7which hasnt8 to enforce it under full faith ; credit bBc state common law is fairl2 uniform3 doesnt matter much if a state has signed becomes im&ortant enforcing ) !udgments abroad @ 2ou must &ro"e that courts !udgment would be enforced here Con"entions being considered: Da"u Con' ntion &ro"iding recognition for foreign !udgments in ci"il and commercial matters has been drafted but not widel2 agreed u&on o Ihat t2&e of con"ention will it beH )ingle con"ention @ enforcing court indirectl2 considers !urisdiction of original court 7a&&roach of 0estatement and 0ecognition *ct8
22
/ouble con"ention @ &ro"ides direct !urisdiction rules a&&licable in original court3 so theres no need for indirect consideration of original courts !urisdiction 7?russels 0egulation8 Mi>ed con"ention @ lists of reAuired and &rohibited bases of !urisdiction< former would reAuire enforcement of original courts !udgment UFC;?RA being considered b2 *LI o 2 issues are federalism and reci&rocit2 Currentl23 state common law go"erns @ should it be federalH )ome states ha"e a reci&rocit2 reAuirement3 others dont & cision o* - rman F d. Ct o* ?ustic 7?4.8 1((2 @ 4erman court enforced C* !udgment against a 4erman6*merican se> offender for 7&ast and future8 com&ensator2 and &uniti"e damages o Court first ensures that theres reci&rocit2 with C* o +olices ; &rocedures ma2 be different3 but decisi"e factor is whether a&&lication of foreign law is Dmanifestl2 incom&atible with the essential &rinci&les of 4erman lawE 0efuses to enforce &uniti"e damages3 bBc the2 conflict with &ublic &olic2 o 4erman court a&&lies rules similar to Hilton and Somporte3 courts ; seems to be as liberal as ) in enforcing foreign !udgments
-. For i"n Curr nc) ?ud"m nts Traditional rule -oreign currenc2 &aid in ) RR &aid abroad 0estatement rule -oreign currenc2 a&&reciates -oreign currenc2 de&reciates
?reach date determines rate of con"ersion Kudgment date Kudgment date ?reach date
-MC* rule @ e>change rate determined on &a2ment date 7da2 2ou recei"e the mone28 Ia2s to &rotect client: o ?u2 currenc2 insurance o Irite into K that in case of breach3 rate of con"ersion will be the same as it was when K was signed 1rigins of traditional rule: o Currenc2 *ct of 1$(2 G 20 originall2 said Dthe mone2 account of the nited )tates shall be e>&ressed in dollarsE and Dall accounts in the &ublic offices and all &roceedings in the courts shall be 9e&t and had in conformit2 with this regulationE o Two Kustice Chase decisions in 1#6(< two Kustice .olmes decisions 'either of these considered the Auestion of whether !udgment could be made in foreign currenc2 2,
The2 em&hasiJe gi"ing Dfull effect to the intention of the &artiesE o In federal di"ersit2 cases3 Erie means state law is a&&lied )ome states follow 'C strict breach date rule Teca"#rint v. &macoil achiner! 7'C 1(##8 @ court awarded dollar eAui"alent of )wiss francs at !udgment date3 holding eAuitable result was more im&ortant than strictl2 following breach6date rule )wiss + had contract with 'C / in )wiss francs o 11B,0B#, breach date rate was R0.%5 &er franc o 12B2B#6 !udgment date rate was R0.61 &er franc +roblems: o Interest was awarded based on 'C rates from date of breach =conomists sa2 bBc wea9er currenc2 has higher interest rate and stronger currenc2 has lower3 + ma2 ha"e gotten a double reco"er2 o Court issued decision on a&&ro&riate rate of e>change 1% months after !udgment ilangos v. %eorge 'rank 7 K .ouse of Lords 1($68 @ bro9e with traditional rule3 sa2ing =nglish court could gi"e !udgment in foreign currenc2 if 18 that currenc2 was s&ecified in contract3 and 28 foreign law go"erned contract o )ubseAuent cases dro&&ed these reAuirements .ome currenc2 !udgment rule no longer ser"ed its original &ur&ose< D!ustice demands that the creditor should not suffer from fluctuations in the "alue of sterlingE
R stat m nt 1/rd2 o* For i"n R !ations La= . :0/ 18 ) Courts ordinaril2 gi"e !udgments from foreign states in ) dollars3 but the2 are not &recluded from gi"ing !udgment in the currenc2 in which the obligation is denominated or the loss was incurred. 28 If the court gi"es !udgment in dollars3 rate of con"ersion should ma9e the creditor whole and a"oid rewarding a debtor who has dela2ed in carr2ing out the obligation. Comments: !udgment should onl2 be in a foreign currenc2 18 when reAuested b2 !udgment creditor3 and 28 when it would best accom&lish ob!ecti"es in subsection 728 Ihen !udgment is in RR3 breach date determines con"ersion if foreign currenc2 has de&reciated since breach< !udgment date determines if foreign currenc2 has a&&reciated since breach o Court can de&art from this if !ustice reAuires Uni*orm For i"n-;on ) C!aims Act 720 states3 /C and Lirgin Islands8 G ,6%: &art2 autonom2 res&ected @ &arties can decide which currenc2 to use G 5: if &a2ment is to be made in a different mone23 e>change rate is determined on Dcon"ersion dateE @ da2 before it will be &aid to a claimant o G 5c: If rate of e>change causes ineAuitable result3 court Dshall amend the !udgment or award accordingl2E o '=I &ro&osed G ( sa2s conseAuential damages can be awarded G6: &erson can assert a claim in a s&ecified foreign mone2 o If &arties disagree3 mone2 of claim is a matter of law
2%
G $: !udgment gi"en in Dmone2 of the claim3E which is currenc2 on which &arties ha"e agreed o G $b: can be &aid Din the amount of ) dollars which will &urchase that foreign mone2 on the con"ersion date at a ban96offered s&ot rateE o G $c: assessed costs entered in ) dollars G 10: If action is brought to enforce a !udgment e>&ressed in foreign mone2 and its enforceable3 Dthe enforcing !udgment must be entered as &ro"ided in )ection $3 whether or not OitP confers an o&tion to &a2 in an eAui"alent amount of nited )tates dollars.E Ihats the best ruleH o ?reach date seems best for *merican seller o Conditions can ma9e an2 rule ineAuitable @ for this reason3 0estatement rule is fle>ible o ConseAuential damage awards for fluctuations increase &robabilit2 that !udgment will be eAuitable
>II. &EALS AN& &IS%UTES IN>OL>IN- FOREI-N STATES

2 ma!or defenses a"ailable to foreign so"ereigns in !udicial actions are: o so"ereign immunit2 o *ct of )tate /octrine
A. So' r i"n Immunit) @ a substanti"e right that is often used as a !urisdictional defense A8so!ut t# or) @ so"ereign cant be sub!ect to !urisdiction without his consent< &olitical and di&lomatic means are most a&&ro&riate to sol"e these &roblems o The Schooner E3chan"e v. *c6addon 7 ) 1#128 @ immunit2 for -rench warshi& doc9ed in ) waters3 as it was &ublic &ro&ert2 under the direct command of a foreign so"ereign em&lo2ed for national ob!ects o Beri..i Bros. v. The Pesaro 7 ) 1(268 @ a merchant shi& owned and o&erated b2 a foreign go"ernment has the same immunit2 that a warshi& has3 bBc its an instrument of the foreign so"ereign Repu0lic o, *e3ico v. Ho,,man 7 ) 1(%58 @ courts ha"e traditionall2 deferred to the =>ecuti"e branch in determining whether the2 should e>ercise !urisdiction @ Dcourts should not so act as to embarrass the e>ecuti"e arm in its conduct of foreign affairsE R stricti' t# or) o Tate Letter of 1(52 @ ) e>ecuti"e is ado&ting this theor23 granting immunit2 with regard to a states &ublic acts but not its &ri"ate acts o Cites ?russels Con"ention of 1(26 @ immunit2 for go"ernment6owned merchant "essels wai"ed -oreign )o"ereign Immunities *ct of 1($6 Congress tells courts what international law is3 and at the same time3 ma9es it domestic law b2 ado&ting it G 1,,0 7a8 /istrict courts ha"e original !urisdiction in an2 non!ur2 ci"il action against a foreign state if its not entitled to immunit2 under G 1605 G 1,,07b8 If theres sub!ect matter !urisdiction and ser"ice of &rocess3 theres &ersonal !urisdiction
25
G 16057a8728 'o immunit2 for a foreign state when action is based on: * commercial acti"it2 carried on in ) b2 foreign state o '1T=: commercial acti"it2 alone isnt enough @ it must a** ct ) *n act &erformed in ) in connection with a commercial acti"it2 of foreign state elsewhere *n act outside the ) in connection with a commercial acti"it2 of the foreign state elsewhere that causes a dir ct ** ct in ) G 160,7d8 Commercial character determined b2 anal2Jing nature and course of conduct3 &articular transaction or act3 rather than its &ur&ose G 16107d8 +ro&ert2 of a foreign state used for a commercial acti"it2 in the ) shall not be immune from attachment &rior to !udgment in ) court if: -oreign state has e>&licitl2 wai"ed immunit2 from &re6!udgment attachment3 *'/ +ur&ose of attachment isnt to get !urisdiction3 but to satisf2 a !udgment Texas Trading v. Nigeria 72nd Cir 1(#18 @ no so"ereign immunit2 for 'igeria3 as claim based on commercial acti"it2 and has direct effects within the ) In anal2Jing a G 1605 case under -)I*3 as9: 1. /oes the conduct in Auestion Aualif2 as a Dcommercial acti"it2E under G 160, 7d8H a# If go"t enters contract to bu2 goods and ser"ices3 its commercial acti"it2 +# If a &ri"ate &erson could &erform this acti"it23 its commercial and no immunit2 2. Is that acti"it2 sufficientl2 related to the ) under G 1605 7a8728 to warrant e>ercise of sub!ect matter !urisdiction under G 1,,0 7a8H a. Ihen + is a cor&oration3 direct financial loss satisfies effects test b. Ihen e"aluating whether its felt Din the )3E as9 whether Congress would ha"e intended to &ro"ide access to ) courts in this t2&e of case ,. Is e>ercise of sub!ect matter !urisdiction within the limits of ) Const. *rticle IIIH a. Is it between a ) citiJen and a foreign stateH 'o suits b2 aliens against foreign states %. /o )MK under 1,,0 7a8 and ser"ice of &rocess under 160# e>ist3 ma9ing +K &ro&erH 5. /oes e>ercise of +K com&l2 with due &rocessH Dat this &oint3 there can be little doubt that international law follows the restricti"e theor2 of so"ereign immunit2.E 'igeria o&ened confirmed3 irre"ocable letters of credit on behalf of ) cement sellers 7which turned out not to be confirmed8 and then re"o9ed them3 canceling contracts o bBc L1C wasnt confirmed3 +s had to sue 'igeria ; Central ?an9 instead of Morgan F =ai' rs t#at ' r) contract s#ou!d inc!ud : o G 16057a8718 @ e>&licit wai"er of foreign so"ereign immunit2 G 16057a8768 @ agreement to arbitrate dis&utes in ) wai"es immunit23 too o Iai"ers of immunit2 from attachment of &ro&ert2: G 16107a8718 @ in aid of e>ecution of a !udgment G 16107d8 @ &re6!udgment attachment G 16117b8718 @ of a ban9 or mone2 authorit2 )im&le wai"ers arent good enough @ 2ou can e"en reference the section in the wai"er
26
-irst ste& in an2 international lawsuit is to attach the assets u& front 7or ad"ise / to get rid of assets8 (ibra )ank v. )anco Nacional de Costa Rica 72nd Cir 1(#28 @ Costa 0ican ban9 held to ha"e e>&licitl2 wai"ed immunit2 from &re6!udgment attachment of assets under G 16107d8 b2 a contract clause: o DThe ?orrower hereb2 irre"ocabl2 and unconditionall2 wai"es an2 right or immunit2 from legal &roceedings including suit !udgment and e>ecution on grounds of so"ereignt2 which it or its &ro&ert2 ma2 now or hereafter en!o2.E Court loo9ed to wording of agreement3 wording of G 16107d8 and intent of &arties
B. Act o* Stat doctrin )hould a court with &ro&er !urisdiction rule on the "alidit2 of a so"ereigns acts wBin its own territor2H substanti"e defense which goes to the merits3 based on federal common law o a"ailable in suits of &ri"ate &arties3 but state action outside ) must be at root of claim o called a conflict of laws doctrine and an abstention doctrine In a contro"ers2 between citiJens of states * and ?3 do courts a&&l2 state *s law3 state ?s law or international lawH In Oet/en case3 Me>ican go"t ta9es +s &ro&ert23 + sues in ) and ) in"o9es *ct of )tate doctrine3 &resuming "alidit2 of Me>ican go"ts actions o allows ) courts to abstain from hearing merits of a case when sub!ect matter is more e>ecuti"e3 &er se&aration of &owers *nderhill v. $ernandez 7 ) 1#($8 @ Dthe courts of one countr2 will not sit in !udgment on the acts of the go"ernment of another3 done within its own territor23E and grie"ances should be redressed b2 di&lomatic relations between so"ereigns o Ihen ) citiJen sued LeneJuelan official in ) courts for forcing him to o&erate cit2 waterwor9s after re"olution in LeneJuela3 court in"o9ed doctrine and dismissed bBc .ernandeJ caused in!uries while acting in official ca&acit2 as head of de facto go"ernment3 it wasnt a&&ro&riate for courts to !udge "alidit2 of those acts First Dick n!oop r am ndm nt to the -oreign *ssistance *ct of 1(62 @ &resident will sus&end aid to an2 countr2 that e>&ro&riates assets of ) citiJens without ta9ing Da&&ro&riate ste&s . . . to discharge its obligations under international lawE )anco Nacional de Cuba v. Sabbatino 7 ) 1(6%8 @ )u&reme Court refused to e>amine "alidit2 of Cuban go"ernments seiJure of ) shi& carr2ing sugar to 'C bu2er in retaliation for ) reduction of sugar Auotas o Dthe Kudicial ?ranch will not e>amine the "alidit2 of a ta9ing of &ro&ert2 within its own territor2 b2 a foreign so"ereign go"ernment3 e>tant and recogniJed b2 this countr2 at the time of suit3 in the absence of a treat2 of other unambiguous agreement regarding controlling legal &rinci&les3 even i, the complaint alle"es that the ta in" violates customar$ international la!E o Conflict of laws element
2$
?anco 'acional too9 o"er assets of )6owned com&an2 and demanded &a2ment for sugar3 but )6a&&ointed careta9er of assets also demanded &a2ment @ which law to a&&l2H Cuban3 'C3 internationalH *lthough Erie a&&lies to this di"ersit2 case3 )u& Ct a&&lies federal common law so that Drules of international law should not be left to di"ergent and &erha&s &arochial state inter&retationsE o 0uling could cause conflict between Kudiciar2 and =>ecuti"e and the D"er2 e>&ression of !udicial uncertaint2 might &ro"e embarrassing to the =>ecuti"e ?ranchE o Dconstitutional under&inningsE for *ct of state doctrine due to se&aration of &owers @ not com&elled b2 international law S cond Dick n!oop r Am ndm nt @ ) courts must hear cases about confiscation occurring after 1B1B5( that "iolate international law< the2 cant in"o9e *ct of )tate o 2 e>ce&tions: 18 where ta9ing doesnt "iolate international law< 28 where =>ecuti"e sa2s ) foreign &olic2 reAuires a&&lication of *ct of )tate doctrine o 6irst &at+l Cit$ Ban o, &- v. Banco &acional de Cu0a @ .ic9enloo&er *mendment onl2 relates to claimants s&ecific &ro&ert2 found in ) thats directl2 related to an e>&ro&riation *llowed counterclaim for set6off when ) ban9 too9 o"er Cuban assets in ) as com&ensation for e>&ro&riation of its assets in Cuba ?ernstein e>ce&tion created @ /e&t of )tate urged ad!udication of the matter Later case said &ro&ert2 must be in ) or ha"e been in ) when action was brought
Dunhill v. Cuba 7 ) 1($68 *ct of )tate doctrine doesnt a&&l2 when no so"ereign3 official act is at sta9e /unhill owed R1%#3600 to Cuban cigar com&anies3 then go"t seiJed com&anies3 their owners fled to *merica and Cuba a&&ointed inter"entors to ta9e o"er the business /unhill &aid inter"entors mista9enl23 then original owners sued him for it bBc /unhill owed R(23(%( on &ost6inter"ention sales3 court agreed inter"entors could 9ee& that amount and had to return the difference brief from /e&t of )tate urged court to !udge the claim +luralit2 argues there should be a commercial e>ce&tion to the act of state doctrine3 !ust as with so"ereign immunit2 *annin"ton *ills v. Con"oleum Corp 7,rd Cir 1($(8 Dmere issuance of &atents b2 a foreign &owerE isnt an *ct of )tate3 but court should decide whether to hear the case on grounds of international comit2 *merican com&an2 alleged that foreign com&an2 obtained foreign &atents fraudulentl2 and used them to harm ) business interests in "iolation of )herman *nti6trust *ct Issuing &atents is a minist ria!G 8ur aucratic act rather than a discretionar23 &olitical act of a so"ereign Loo9ing to comit)3 !udges can use balancing tests to decide whether to hear the case @ Tim0erlane test3 later codified in 0estatement
2#
R stat m nt o* For i"n R !ations La= G %02 @ state has !urisdiction to &rescribe law with res&ect to: Conduct and the status of &ersons or things in its territor2 Conduct outside its territor2 that has or is intended to ha"e substantial effect within it 'ationals outside its territor2 Conduct outside territor2 directed against state securit2 or limited class of other state interests G %0, @ state cant e>ercise !urisdiction if its unreasonable3 factors including: If acti"it2 has a substantial3 direct and foreseeable effect on territor2 Connections between state and &erson to be regulated Character of acti"it2 and desirabilit2 of such a regulation Kustified e>&ectations that might be hurt or &rotected b2 regulation Im&ortance of regulation to &olitical3 legal or economic s2stem Consistenc2 of regulation with international s2stem *nother states interest in regulating acti"it2 Li9elihood of conflict with another states regulation Tim0erlane and *annin"ton *ills use these factors to deal with !udicial sub!ect matter @ ma!orit2 of commentators sa2 these should onl2 a&&l2 to legislati"eB&rescri&ti"e !urisdiction 7.S. ;ir patric % Co. v. Environmental Tectonics Corp. 7 ) 1((08 *ct of )tate doctrine didnt a&&l23 bBc allegation that one foreign official too9 a bribe wasnt sufficient to constitute Dofficial action b2 a foreign so"ereignE o nothing in the case reAuires the Court to declare acts of 'igeria in"alid 0es&ondent sued Kir9&atric9 for obtaining a contract with the 'igerian go"ernment through bribes o /e&t of )tate letter said a !udicial inAuir2 into the purpose of a foreign so"ereigns act wouldnt &roduce the embarrassment and &roblems that result from !udging the validit$ of the act D*ct of state issues onl2 arise when a court must decide @ that is3 when the outcome of the case turns u&on @ the effect of official action b2 a foreign so"ereign.E Exc ptions to Act o* Stat &octrin : 2nd .ic9enloo&er *mendment @ no "iolation of international law Bernstein e>ce&tion @ =>ecuti"e branch su&&orts ad!udication 'o real act of state at issue 7Dunhill8 o a Dministerial3 bureaucratic actE that doesnt deal wB so"ereigns discretionar2 functions 7*annin"ton *ills8 o bribe b2 foreign official wasnt Dofficial action b2 a foreign so"ereignE 7 ;ir patric 8 Commercial acti"it2 e>ce&tionH 7Dunhill &luralit28 S#ou!d t# r 8 a comm rcia! acti'it) xc ption H C=) @ /unhill &luralit2
-ear of embarrassing =>ecuti"e ?ranch is less li9el2 in commercial s&here
'1 @ rest of /unhill
/ifference in 2 doctrines means the2 shouldnt ha"e the same e>ce&tions @ while -)I* e>em&ts
2(
IBT Fall 2006 Professor Brand e>ce&tion is consistent with so"ereign immunit2 doctrine consistent with other countries a&&roaches that so"ereign loses claims to immunit2 when acting in a commercial ca&acit2 +otential in!ur2 to businessmen and trade is great if one &art2 has automatic immunit2 in carr2ing on the same acti"ities that &ri"ate &arties do due to status3 *ct of )tate is choice of law rule In the absence of unambiguous agreement on intl law3 acts of a so"ereign committed in its own territor2 are &resumed "alid *ct of state is a fact6dri"en inAuir23 to be decided case6b26case3 !ust li9e &olitical Auestion
=>am&le: a state breaches a contract3 so -)I* allows ad!udication @ *ct of )tateH o Court must e>amine if this is trul2 a &ublic act of state @ it doesnt seem to be3 and in this situation3 ad!udicating the claim &robabl2 wont com&romise =>ecuti"e *ct of )tate is more li9e &olitical Auestion doctrine than -)I* o Court must decide whether to hear claim based on a "ariet2 of factors @ territorialit23 intl comit23 se&aration of &owers3 embarrassment of =>ecuti"e ?ranch Commercial nature can be one of the factors to e"aluate3 but !ust bBc its &resent doesnt mean the claim is !usticiable &er se Di"# court should decide issue a&&l2 *ct of )tate Lo= a&&l2 *ct of )tate court should decide issue
Ihen should court decide the issueH Codification of intl law Im&ortance for ) foreign relations
So' r i"n Immunit) 's. Act o* Stat )o"ereign immunit2 &rocedural status !urisdictional matter source codified in ) Code 7reAuired b2 intl law8 &arties affected states onl2
*ct of )tate choice of law matter federal common law 7not reAuired b2 intl law3 !ust has Dconst. under&inningsE8 &ri"ate &arties
?oth are gate69ee&ing doctrines @ the2 close the door to the courts in some situations o Ihen considering when to use them3 as9 if its a&&ro&riate to close the courthouse door in this situation If 2oure entering a contract with a foreign so"ereign and worried about so"ereign immunit2 and act of state defenses3 how do 2ou deal with it in the contractH o Choose arbitration @ under -)I*3 this constitutes wai"er of immunit2 from !urisdiction to decide case
>III. %RODIBITIONS ON CORRU%T %RACTICES

For i"n Corrupt %ractic s Act o* ,766 ,0
Com&anies must 9ee& good accounting records of their e>&enditures 7no slush funds8 *nti6briber2 &ro"isions a&&l2 to: o G $#dd61: issuers 7com&anies reAuired to register securities @)=C has !urisdiction8 o G $#dd62: domestic concerns 7 ) citiJens3 ) businesses ; em&lo2eesBagents8 o G $#dd6,: &ersons other than issuers or domestic concerns G $#7a87186728: It shall be unlawful to: 18 ma9e use of interstate commerce 28 corru&tl2 ,8 in furtherance of an offer of an2thing of "alue %8 to a foreign official or foreign &olitical &art2 58 for the &ur&ose of influencing an2 act or decision3 inducing an act or omission3 or securing an2 im&ro&er ad"antage 68 in order to obtain or retain business G $#7a87,8 @ same thing3 but 7%8 sa2s Dto an2 &erson3 while kno=in"H it will be gi"en to foreign official G $#7b8 Exc ption: Dfacilitating or e>&editing &a2ment . . . to e>&edite or to secure the &erformance of a routine go"ernmental actionE G $#7c8 A**irmati' & * ns s: 18 +a2ment was lawful under the written laws of the foreign officials countr2 7this is ne"er li9el2 to ha&&en8 28 +a2ment was Da reasonable3 bona fide e>&enditure3 such as tra"el and lodging e>&enses3 incurred . . . and directl2 related toE &romotion3 demonstration or e>&lanation of &roducts or ser"ices or e>ecution or &erformance of a contract /efinitions: D9nowingE: G $#dd617f87283 $#dd627h87,83 $#dd6,7f87,8< Droutine go"ernmental actionE: G $#dd617f87,83 $#dd627h87%83 $#dd6,7f87%8 Knowledge reAuirement for "icarious liabilit2 =m&lo2ees can be &rosecuted indi"iduall2 e"en if com&an2 isnt o 0e&eal of =c9hardt Dsca&egoatE amendment +enalties: u& to R2 million for cor&oration3 R1009 for indi"idual &lus 5 2ears in &rison o +otential bans on further e>&orts of 2our &roduct or on contracts with ) go"ernment 'o &ri"ate right of action @ enforced b2 )=C and /1K ?ribing &ri"ate officials is 1K*C
Ihat is Dcorrupt!)EH 7'S v. #ie0o8 Dthe offer3 &romise to &a23 &a2ment or authoriJation of the &a2ment must be intended to induce the reci&ient to misuse his official &osition or to influence someone else to do soE Dan act is Scorru&tl2 done if done "oluntaril2 and intentionall23 and with a bad &ur&ose of accom&lishing either an unlawful end or result3 or a lawful end or result b2 some unlawful method or meansE International rules 1*) @ Inter6*merican Con"ention on Corru&tion3 1((6 Council of =uro&e @ Criminal Law Con"ention on Corru&tion3 1((( ,1
1=C/ Con"ention on Combating ?riber2 of -oreign +ublic 1fficials in I?T3 1(($ o ,, &arties3 the source of most of the com&etition for business in countries where bribes are an issue o *rt. 1718: each &art2 shall ma9e it a crime for Dan2 &erson intentionall2 to offer3 &romise3 or gi"e an2 undue &ecuniar2 or other ad"antage . . . to a foreign &ublic official . . . in order that the official act or refrain from acting in relation to the &erformance of official duties3 in order to obtain or retain business or other im&ro&er ad"antage . . .E o *rt. 1728 @ com&licit23 cons&irac2 and attem&t should also be criminaliJed
R d F!a"s which reAuire De>tra attentionE: 4eneral 0ed -lags: o Com&an2 has recei"ed an Dim&ro&er &a2mentE audit in the &ast 5 2ears o +a2ment in a countr2 with a histor2 of wides&read corru&tion3 such as some Middle =astern and *sian countries3 former )o"iet nion countries o Iides&read news re&orts of bribes3 etc. o ?ad industr2 re&utation @ oil3 defense3 aircraft3 construction Transaction6)&ecific 0ed -lags: o *gent refuses to &ro"ide confirmation that hell adhere to -C+* o -amil2 or business ties with a go"t official o ?ad re&utation of agent o *gent doesnt want identit2 to be disclosed o -oreign go"t customer recommends the agent 7&ossibl2 &a2off scheme8 o *gent lac9s facilities and staff to &erform the ser"ices o *gent is new to the business o *n2 other Dodd reAuestE b2 agent 7in"oices bac9dated or altered8 +a2ment reAuests: o =>cessi"e commission o Con"oluted &a2ment 7through ?ahamas3 etc8 o 1"er6in"oicing 7chec9 for more than actual e>&enses8 o Chec9 made out to DcashE or DbearerE3 cash &a2ments3 other anon2mous &a2ment o +a2ment made to third countr2 o *gent reAuests large credit line o 0eAuests for unusual bonuses o 0eAuests for unorthodo> or substantial u&6front &a2ment
II. ALTERNATI>E FOR;S OF IN>OL>E;ENT IN INTL TRA&E

*. -orms of increased in"ol"ement: ,. &ir ct Sa! s *rom US 0. Ord rs t#rou"# mp!o) s a8road /. Contractin" t#rou"# For i"n A" nt<&istri8utor %. -oreign ?ranch )ales 1&eration 5. -oreign )ubsidiar2 ,2
6. Koint Lenture $. *cAuisition of Local =ntit2 #. /irect In"estment in -oreign Mar9et Com&an2 usuall2 incurs liabilit2 through: o -oreign office3 foreign agent3 sometimes through distributor suall2 no liabilit2 with: o -oreign subsidiar2 7unless 2ou can &ierce the cor&orate "eil8 o Licensing trade info to a third &art2 o -ranchise arrangements wB ro2alties B ) +u stions: 1. Ihat host countr2 regulations a&&l2H 2. Ihat home countr2 regulations a&&l2H ,. /o an2 treaties a&&l2H 7e.g. bilateral income ta> treat23 -C'3 ?IT3 -T*8 o -C's are old a&&roach to relationshi&s with de"elo&ed countries o ?ITs &rotect ) in"estments in de"elo&ing countries %. .ow should enter&rise be structured to ma>imiJe &rofit and minimiJe liabilit2H
B. Emp!o) sG A" nts $ &istri8utors 7situations 2 ; ,8 .ost countr2 regulation @ get ad"ice on: Termination of em&lo2ees )ocial securit2 benefits +ermanent establishment 7for Labor law &rotection ta>ation3 e.g.8 =>tension of term of agenc2 or +rohibiting wai"er of certain rights distributorshi& agreements 7good cause ma2 need to be shown to end8 0estricting limitations on 0eAuiring registration of a&&ointment of re&resentati"es &ost6relationshi& re&resentati"e 7and e>clusi"it28 conduct 7non6com&ete co"enants3 eg8 Com&ensation Kudicial !urisdiction .ome countr2 regulation @ see how it a&&lies wB regard to: o =>&ort licensing restrictions o *ntitrust laws o *ntibo2cott laws =>&ort *dmin *ct &rohibits com&liance wB foreign countr2s bo2cott against countries friendl2 to )3 wB fines ; im&risonment 750 *&&. .).C. G 2%018 o -oreign Corru&t +ractices *ct o Ta> laws o =m&lo2ment laws Tit! >II o* Ci'i! Ri"#ts Act 7em&l. discrim.8 a&&lies to ) com&anies em&lo2ing ) citiJens abroad
,,
Ci"il 0ights *ct of 1((1: Dwith res&ect to em&lo2ment in a foreign countr23 Othe term em&lo2eeP includes an indi"idual who is a citiJen of the )E 7%2 )C G 2000e7f883 o"erruling 5ramco EEOC v. 5ramco 7 ) 1((18 @ held it didnt bBc 18 'o language re"eals Congressional intent to gi"e it e>traterritorial effect3 and 28 'o mechanism for o"erseas enforcement or what to do when laws conflict 6ole$ Bros. @ canon of statutor2 construction: Dlegislation of Congress3 unless a contrar2 intent a&&ears3 is meant to a&&l2 onl2 wBin territorial !urisdiction of the ).E o 0ehnAuist sa2s &resum&tion against e>traterritorialit2 trum&s Chevron deference o /issent sa2s it comes last3 after other tools that ascertain une>&ressed congressional intent are e>hausted Sumitomo Sho/i 5merica v. 5va"liano <'S =>?@A B Iholl2 owned subsidiar2 of a Ka&anese &arent incor&orated in 'C was an *merican cor&oration to which Title LII a&&lied Ka&anese com&anies ha"e national treatment according to -C' treat23 meaning Dthe2 are entitled to the rights3 and sub!ect to the res&onsibilities of other domestic cor&orationsE Com&an2 tried to rel2 on -C' treat2 &ro"ision sa2ing com&anies could hire who the2 chose Court defers to language of treat2 and its reflection of &arties intent Nat! La8or R !ations Act does '1T3 des&ite broad language referring to foreign commerce @ no s&ecific language reflecting Congressional intent 7*cCulloch8 Lan#am Act 7use of trademar9s8 /1=) a&&l2 abroad3 bBc it had a Dbroad !urisdictional grantE and Dswee&ing reach into all commerce which ma2 lawfull2 be regulated b2 CongressE3 +L ) unlawful conduct had effects within ) 7SteeleA
C. % rman nt %r s nc a8road @ subsidiaries3 branches3 !oint "entures3 acAuisition3 in"estment 4reatest ris9s are e>&ro&riation and host countr2 regulation Licensing a foreign entit2 to use I+ rights necessar2 to &roduction and deli"er2 of &roducts or ser"ices is a low6ris9 o&tion Must in"estigate t2&es of &rotection for intellectual &ro&ert2 Co&2right law 0ights
=>clusi"e rights of re&roduction3 deri"ati"e wor9s3 distribution3 &ublic &erformance or dis&la2
+atent law
Mono&ol2 rights within certain geogra&hic regions +re"ents unauthoriJed ma9ing3 selling3 using or im&orting
Trademar9 law
4ood will built into word3 name3 s2mbol3 de"ice or combo thereof +rotects consumers from confusion3 mista9e3 dece&tion regarding &roduct origin
Trade )ecrets
+rotects against disclosure3 unauthoriJed use of a secret 7li9e Co9e reci&e8
,%
Term
*uthors life Q $0 2ears (5 2ears from first &ublication if wor9 is for hire
=>&ires 20 2ears after filing date3 onl2 a&&lies to )
Indefinite &eriod3 &ro"ided owner com&lies with registration s2stem
Ma2 ha"e indefinite duration @ de&ends on measures ta9en to restrict access to secret
I. RISBS OF INTERNATIONAL TRANSACTIONS

A. Expropriation Chor.o! 6actor$ Case 7+CIK 1(2(8 6 +olish nationaliJation of a &ri"ate 4erman com&an2 on territor2 ceded to it was illegal and warranted lots of com&ensation ?ecause seiJure was unlawful3 amount of com&ensation doesnt ha"e to be lin9ed to "alue of &ro&ert2 o +reference for restitution in 9ind3 or s&ecific &erformance o Dre&aration must3 as far as &ossible3 wi&e out the conseAuences of the illegal act and reestablish the situation which would3 in all &robabilit23 ha"e e>isted if the act had not been committedE In the end3 &arties settled out of court3 so no restitution in 9ind Ihat sources of law do we loo9 to when e>&ro&riation occursH *rticle ,# of ICK @ court loo9s to these sources for international law: 18 treaties3 28 international custom3 ,8 general &rinci&les of law3 %8 !udicial decisions ; teachings of most highl2 Aualified !urists o *rt. 5( @ no stare decisis 7? T in T1+C1 case3 ICK cites earlier cases8 o 1&inions in ICK cases are the Dmethod b2 which the law can find some concrete measure of clarification ; de"elo&mentE ' 4eneral *ssembl2 can ma9e recommendations3 but cant ma9e law Du!! &octrin 71(158 @ Dno go"ernment is entitled to e>&ro&riate &ri"ate &ro&ert23 for whate"er &ur&ose3 without &ro"ision for prompt) ade(uate) and e,,ective pa$ment therefor.E o )imilar to Sa00atino doctrine 4.*. 0es. 626 71(528 @ all member states should ha"e due regard for maintaining the flow of ca&ital in conditions of securit23 mutual confidence and economic coo&eration among nations 7 ) "otes no8 -.A. R s. ,:9/ 71(628 @ 'ationaliJation or e>&ro&riation should be for &ublic utilit2< appropriat comp nsation should be &aid in accordance with national and intl law o Deconomic and financial agreements between the de"elo&ed and the de"elo&ing countries must be based on the &rinci&les of eAualit2 and of the right of &eo&les and nations to self determinationE 7 ) "otes 2es8 o In T1+C13 arbitrator determines this is the best re&resentation of intl consensus 4.*. 0es 215# 71(668 +ermanent )o"ereignt2 1"er 'atural 0esources 710% countries3 ) abstains8 These , resolutions had man2 abstentions from industrialiJed mar9et economies3 so the2 dont re&resent intl consensus @ &erha&s de le"e ,erenda 7law as it should be8 rather than de le"e lata 7law as it is8
,5
o 4.*. 0es. ,1$1 71($,8 +)1' 710# countries3 ) abstains8 @ Deach state is entitled to determine the amount of &ossible com&ensationE and dis&utes can be settled under national law of that state o 4.*. 0es. ,201 71($%8 /eclaration on the =st. of a 'ew Intl =conomic 1rder -ull &ermanent so"ereignt2 o"er natural resources Deach state is entitled to e>ercise effecti"e control o"er them and their e>&loitation with means suitable to its own situation3 including the right to nationaliJation or transfer of ownershi& to its nationalsE &ro"ided com&ensation is &aid 7no ) "ote8 o 4.*. 0es. ,2#1 71($%8 Charter of =conomic 0ights and /uties of )tates 7120 states3 ) "otes no8 @ each state has the right to regulate foreign in"estment and to nationaliJe or e>&ro&riate3 &a2ing a&&ro&riate com&ensation in accordance with its laws T+#C+ v. (ib!a 7*rbitration 1($#8 @ +res of ICK held that Lib2a "iolated intl law b2 nationaliJing all rights and &ro&ert2 in breach of /eeds of Concession wB ) com&anies3 which were binding as contracts /eeds of Concession contained choice of law clause: Dlaws of Lib2a common to &rinci&les of international law and3 in absence of such common &ractices3 then b2 and in accordance with general &rinci&les of law3 including such of &rinci&les as ma2 ha"e been a&&lied b2 international tribunals.E o )er"es as DstabiliJation clauseE to &re"ent contracting countr2 from altering laws circum"enting contract. o +art2 autonom2 res&ected @ so pri'at parti s and "o'ts can c#oos to #a' int rnationa! !a= "o' rn t# ir contract 7e"en though a contract between &ri"ate &arties is normall2 go"erned b2 national law8 o 4eneral &rinci&le that contract obligations must be &erformed in good faith go"erns3 and Lib2a de&ri"ed ) com&anies of the benefit of their bargain o 4* 0es 1#0, sa2s Lib2a breached international law and must com&ensate Lib2an and international law 7international case law3 &ractice3 and scholar writings8 state that restitutio in integrum3 i.e. s&ecific &erformance3 is a&&ro&riate remed2. o Ru! o* comp nsation in int! !a=: s&ecific &erformance is best 7unless im&ossible8 7court notes there isnt 100M consensus on this8 *dditional clauses: o DThe 4o"t of Lib2a will ta9e all ste&s necessar2 to ensure that the com&an2 en!o2s all the rights conferred b2 this concession. The contractual rights e>&ressl2 created b2 this concession shall not be altered e>ce&t b2 mutual consent of the &arties.E o DThis concession shall throughout the &eriod of its "alidit2 be construed in accordance with the +etroleum Law and the 0egulations in force on the date of e>ecution of the agreement of amendment b2 which this &aragra&h was incor&orated into the concession agreement. *n2 amendment to or re&eal of such 0egulations shall not affect the contractual rights of the Com&an2 without its consent.E
,6
?urisdictiona! issu s in TO%CO Ihat if there had been no choice of forum clause in contractH o Could &etition ) go"t to deal with it di&lomaticall2 o Could sue in ICK o Could sue Lib2a in )3 but would face &roblems: -)I*3 *ct of )tate doctrine3 &ersonal !urisdiction3 recognition of !udgment Iell6drafted arbitration clause sa"ed the da23 as it allowed either &art2 to go to ICK &resident to ha"e an arbitrator a&&ointed3 and T1+C1 did this when Lib2a resisted Ihat lessons can be drawn from thisH o Include choice of forum clause3 choice of law 7arbitration &referable to litigation3 as it sideste&s so"ereign immunit2 issues83 wai"er of so"ereign immunit2 and immunit2 from attachments3 stabiliJation clause Cor&orations &la2 an im&ortant role in de"elo&ment of &ublic intl law @ arbitrator focused on language of contract 7drafted b2 com&an2 law2ers8 to determine results B. Insuranc *or %o!itica! Risk O' rs as %ri'at In' stm nt Corporation 71+IC8 @ created to facilitate in"estment of ) ca&ital in o"er 1,0 de"elo&ing countries 722 )C G 21(18 b2 &ro"iding % t2&es of assistance: o G 21(%: Insurance against: =>change Controls =>&ro&riation Iar3 re"olution3 etc. ?usiness interru&tion resulting therefrom o -inancing of businesses o"erseas thru loans and guarantees o -inancing &ri"ate in"estment funds that &ro"ide eAuit2 to businesses o"erseas o *d"ocating *merican business interests o"erseas o 1+IC will '1T &ro"ide insurance unless a treat2 between ) and foreign go"ernment e>ists Revere Copper & )rass and +#,C 71($# *rb8 @ 1+IC had to &a2 ) com&an2 for Kamaican subsidiar2 70K*8 that it insured3 bBc Kamaican go"t breached its agreement not to raise ta>es and made 0K*s o&erations financiall2 infeasible o Kamaica guilt2 of cr pin" xpropriationG de&ri"ing com&an2 of ** cti' contro! o"er its in"estment =>&ro&riation co"ered b2 1+IC: action b2 4o"ernment3 with or without com&ensation3 which &re"ents In"estor from 18 e>ercising fundamental rights wB res&ect to in"estment3 28 dis&osing of the securities or rights therein3 ,8 e>ercising effecti"e control o"er use of dis&osition of a substantial &ortion of its &ro&ert23 'L=)) its reasonabl2 related to constitutionall2 sanctioned go"t ob!ecti"es *'/ doesnt "iolate intl law o 0K* sued Kamaica in Kamaican courts originall2 and lost *rbitrators find no choice of law clause in agreement between 0K* ; Kamaica3 so the2 a&&l2 &ublic intl law @ e>tension of TOPCO International law here is pacta sunt servanda
,$
, contracts: 0K* ; Kamaica3 0e"ere ; 1+IC3 ) ; Kamaica treat2 *rbitration focuses on agreement between 0e"ere ; 1+IC3 but in order to reach a result3 arbitrators must loo9 to all these agreements *fter 0e"ere wins3 it can tr2 to collect from Kamaica based on treat2 between ) and Kamaica @ &rinci&les of international law will go"ern ;u!ti!at ra! In' stm nt -uarant A" nc) 7MI4*8 @ created in 1(## as &art of Iorld ?an9 4rou& 716# members83 insuring against ris9 of: o =>change controls o =>&ro&riation o ?reach of contract b2 host go"ernment o Iar or ci"il disturbance Con' ntion on t# S tt! m nt o* &isput s between )tates ; 'ationals of 1ther )tates 7IC)I/8 71,0 &arties8 o +ro"ides alternati"e to domestic litigation against local or foreign so"ereign or di&lomatic negotiation of &oliticall2 sensiti"e economic matters. o *rt. 1718: =stablishment of International Center for )ettlement of In"estment /is&utes to &ro"ide for arbitration of in"estment dis&utes between contracting states and nationals of other contracting states. o *rt. 25 718: Kurisdiction: o"er dis&utes when &arties consent in writing to submit dis&ute to IC)I/ @ shown in contract3 in treat2 wB home go"t3 in national legislation of host go"ernment 7 ) Model ?IT &ro"ides consent8 Consent can be shown b2 written agreement between contracting state and &ri"ate in"estor3 national legislation3 bilateral or multilateral treat2 o +art2 autonom2 @ law that &arties chose go"erns 7*rt %28 if no law is chosen3 law of contracting state and a&&licable intl law if the2 conflict3 International law rules generall2 go"ern 7but not 100M clear8 o *rticles 5,65% reAuire states to enforce these awards
B. Bi!at ra! In' stm nt Tr ati s 1o"er %0 currentl28 0e&laced now defunct -riendshi&3 Commerce ; 'a"igation Treaties *rticle II: &arties should get national treatment 10 most fa"ored nation treatment3 whiche"er is most fa"orable o Nationa! tr atm nt @ ) nationals will be treated as fa"orabl2 as that countr2s citiJens o ;ost Fa'or d Nation @ ) nationals will be treated no less fa"orabl2 than nationals of another state< com&ensation if &ro&ert2 is nationaliJed o ;inimum standard: Dfair and eAuitable treatment and full &rotection and securit23 and shall in no case accord treatment less fa"orable than that reAuired b2 intl lawE Contained in *rticle 5 of new Model ?IT @ does this mean theres a better standard under intl lawH
,#
=>am&le: Cal"o doctrine in Latin *merica sa2s we wont treat 2ou better than our own nationals< if that standard is lower than international minimum3 *rt. 5 sa2s its not "alid full &rotection and securit2E is hotl2 contested and still in de"elo&ment *rt. ,: =>&ro&riation must be 18 for a &ublic &ur&ose3 28 in a non6discriminator2 manner3 ,8 u&on &a2ment of D&rom&t3 adeAuate and effecti"e com&ensation3E %8 in accordance wB due &rocess of law o +rom&t3 etc. defined as &a2ment without dela23 fair mar9et "alue3 full2 realiJable and freel2 transferable *rt. %: restitution for losses due to war3 re"olution3 etc. *rt. 5: transfers relating to co"ered in"estment must be made freel2 7new ?IT *rt. $8 *rt. 6: +rotection against &erformance reAuirements or Auotas *rt. (: +ro"ides consent to IC)I/3 'ew Cor9 Con"ention *rt. 1%: DThis Treat2 shall not &reclude a +art2 from a&&l2ing measures necessar2 for the fulfillment of its obligations wB res&ect to the maintenance or restoration of intl &eace or securit23 or the &rotection of its own essential securit2 interests.E ?1TT1M LI'=: 'o real international standard for e>&ro&riation
II. ANTITRUST RE-ULATION OF INTL BUSINESS TRANSACTIONS

% Ke2 &ro"isions: S# rman Act o* ,:79 7criminal statute8 G 1: *nti60estraint Clause 6 D="er2 contract3 combination ... 3or cons&irac23 ... in restraint of trade ... is declared illegal.E 0egulates more than one actor< )u&reme Court loo9s at a "ariet2 of circumstances to !udge "iolations +er se "iolations @ horiJontal &rice fi>ing3 mar9et di"ision3 bo2cotting G 2: *nti6Mono&ol2 Clause 6 D="er2 &erson who shall mono&oliJe3 or attem&t to mono&oliJe3 ... an2 &art of trade ... shall be deemed guilt2 of a felon2.E Can in"ol"e more than one actor @ go"t must &ro"e xc ssi' contro! o"er r ! 'ant mark t 7lots of contro"ers2 as to what these terms mean8 G 1#: *cAuisition of stoc9: 'o &erson shall acAuire the whole or an2 &art of stoc9 or assets when the effect is to substantiall2 lessen com&etition or create a mono&ol2 ="ol"ed into rules reAuiring &re6merger notification< o"erla& with = com&etition law G 15BG %: *ctions b2 +ri"ate +arties 7Cla2ton *ct8: 6 D7*8n2 7&ri"ate8 &erson who shall be in!ured in his business or &ro&ert2 b2 reason of an2thing in the antitrust laws ma2 sue ... and shall reco"er t#r *o!d dama" s b2 him sustained3 and the cost of the suit3 including a reasonable attorne2s fee.E Incenti"e for &ri"ate &arties to enforce go"ernment &olic2< also &ro"ides &ri"ate in!uncti"e relief *lso im&ortant: G 6a: Trade with foreign nations: antitrust &ro"isions dont a&&l2 to trade with foreign nations unless it has a Ddirect3 substantial and reasonabl2 foreseeable effectE on im&ort or e>&ort ,(
F d ra! Trad Commission Act o* ,7,F G 5: *ntitrust 4a& -iller Clause 6 D7-ederal Trade Commission em&owered to &rohibit8 unfair methods of com&etition in or affecting commerce3 and unfair or dece&ti"e acts or &ractices in or affecting commerce3 are declared unlawful.E a8 -TC =nforcement of )herman *ct: -ederal Trade Commission is indirectl2 authoriJed to enforce )herman *ct due to broad wording of G 5. W 88-%om r n Act o* ,7,:: +ermits some !oint acti"it2 among *merican e>&orters of goods that might otherwise constitute unlawful cons&irac2 under G 1 and G 2 of )herman *ct or "iolation of G $ of Cla2ton *ct. Cod o* F d ra! R "u!ationsG Tit! 0:G . 59.4: Cor&oration can a&&l2 for certificate of re"iew from /e&artment of Kustices *ntitrust /i"ision which3 if granted3 would immuniJe a&&lication from ci"il or criminal antitrust &roceedings with res&ect to conduct s&ecified in3 and com&l2ing with3 the certificate. Wi!son Tari** Act o* ,:7F 7focuses on im&ort cartels8 ,2 . 6/ - Import Antitrust C!aus : Ma9es unlawful agreements among im&orters which restrain com&etition or increase the mar9et &rice of goods im&orted into this countr2. 02 . 64 - R m di s o* Import Antitrust: *uthoriJes forfeiture or &ro&ert2 Downed under an2 contract or b2 an2 combination3 or &ursuant to an2 cons&irac23 and being sub!ect thereof ... im&orted and being within the ).E For i"n Trad Antitrust Impro' m nts Act o* ,7:0 ,2 . F90 - Export Antitrust C!aus : G 1 and G 2 of )herman *ct do not a&&l2 to e>&ort trade Dunless ... conduct has direct3 substantial3 and foreseeable effectE on trade within the ) or on e>&ort trade of other ) businesses. &merican )anana v. *nited 'ruit 7 ) 1(0(8 .olmes @ ) antitrust law has no !urisdiction to regulate actions done outside the ) 7e"en though these acts definitel2 would ha"e "iolated )herman8 *ttem&t to create a mono&ol2 in Costa 0ica and +anama with go"ernment hel& @ *ct of )tate doctrine ultimatel2 ta9es care of the case )ranch v. 'TC 7$th Cir 1(%%8 @ )ection 5 of -TC* a&&lied in Latin *merica because DThe right of the ) to control the conduct of its own citiJens in foreign countries in res&ect to matters which a so"ereign ordinaril2 go"erns within its own territorial !urisdiction has been recogniJed re&eatedl2.E DThe -TC does not see9 to &rotect the &etitioners customers in Latin *merica . . . . It see9s to &rotect foreign commerce. If that commerce was being defiled b2 a resident citiJen of the nited )tates to the disad"antage of other com&eting citiJens of the )3 the ) has a right to &rotect such commerce from defilement.E *S v. &lcoa 72nd Cir 1(%58 @ where there is int nt to a** ct and actua! ** ct on trade3 laws can a&&l2 outside ) *lcoa 7 )83 Limited 7Canada83 *lliance 7)witJerland8 di"ided mar9ets and fi>ed &rices
%0
Intent to restrain trade was &ro"en @ once intent is &ro"en3 effect on trade is &resumed and burden shifts to accused to show no effect Continental +re v. *nion Carbide 7 ) 1(628 @ )herman *ct a&&lies where Canadian go"ernment tried to eliminate Continental from Canadian mar9et entirel2 b2 a&&ointing Canadian subsidiar2 of ) cor& 7 nion8 as the e>clusi"e wartime agent to &urchase and allocate "anadium for Canadian industr2 *ct of state as set out in 5merican Banana doesnt a&&l2 bBc acts of the Canadian go"ernment arent at issue Cons&irac2 hatched within ) and carried out in ) and abroad to mono&oliJe article of commerce was not insulated b2 fact that cons&irac2 in"ol"ed some acts b2 agent of foreign go"t o nion Carbide was merel2 e>ercising discretionar2 &ower gi"en to it b2 the Canadian go"t to eliminate Continental from the mar9et< Canadian go"t didnt compel discriminator2 &urchasing $art-ord 'ire ,nsurance v. C& 7 ) 1((,8 @ ) antitrust law doesnt a&&l2 if foreign / would ha"e to brea9 his own countr2s law to abide b2 ) laws K reinsurers allegedl2 cons&ired to limit t2&es of insurance co"erage a"ailable to customers in certain ) states in "iolation of G 1 of )herman *ct 7to &rotect their own liabilit283 but this was consistent with K law o Court sa2s theres !urisdiction based on effects test @ Auestion is whether to e>ercise it< comit2 doesnt dictate that claim be dismissed here o Ihen a&&licable foreign and domestic law &ro"ide different rules to go"ern the dis&ute3 a conflict of laws anal2sis is necessar2 o 'o conflict e>ist when a &erson sub!ect to regulation b2 2 states can com&l2 with the laws of both @ if he cant com&l2 with both3 court will decline to e>ercise !urisdiction )calia disagrees @ this is a matter of D&rescri&ti"e comit23E where !udiciar2 shouldnt read legislatures intent to co"er this t2&e of acti"it2 bBc it would be unreasonable o -irst3 does court ha"e !urisdictionH Ces3 under G 1,,1 and )herman *ct o )hould courts a&&l2 )herman *ct e>traterritoriall2H Canons of construction: 18 rebuttable &resum&tion against e>traterritorial a&&lication of ) law unless Congress has clear intent to do so< 28 rebuttable &resum&tion that ) law is consistent with international law 7Charmin" Bets$ doctrine8 o International law controls the outcome of this case3 sa2s )calia *S v. Sisal Sales 7 ) 1(2$8 6 G $,6$% of Iilson Tariff *ct a&&lied to cons&irac2 entered into b2 ) cor&oration to mono&oliJe im&ort of sisal from Me>ico *S v. Socon!".acuum +il 7 ) 1(%08 @ D&rice6fi>ing combinations which lac9 Congressional sanction are illegal &er se< the2 are not e"aluated in terms of their &ur&ose3 aim or effect in the elimination of so6called com&etiti"e e"ilsE o gas com&anies accused of fi>ing &rices sought to &ro"e that their ob!ecti"es were in line with Congresss in the 'ational Industr2 0eco"er2 *ct
%1
+ccidental #etroleum v. )uttes %as & +il 7 ) 1($28 @ court relies on 5merican Banana and holds that *ct of )tate doctrine bars a claim for antitrust in!ur2 flowing from a foreign so"ereigns acts allegedl2 induced and &rocured b2 the defendant + alleges that once the2 obtained e>clusi"e rights to e>&lore for3 e>tract and sell oil in the offshore waters of mm al Fa2wa2n3 /s cons&ired with go"ernments of )har!ah3 Iran and K to get that land b2 ha"ing them sta9e a claim on it Theres definitel2 a "iolation of the )herman *ct at sta9e here o =ffects test is often treated as )MK 7although )calia would disagree in Hart,ord 6ire8 In order to reach )herman "iolations3 ) court would ha"e to inAuire into authenticit2 and moti"ation of foreign go"ernments claims to territor2 o + would ha"e to &ro"e that )har!ah issued fraudulent decrees and that Iran claimed the territor2 at the behest of /s @ this is e>actl2 what *ct of )tate doctrine a"oids o Court sa2s 2nd .ic9enloo&er *mendment doesnt a&&l2 bBc its so narrow and has been rarel2 used &oerr case @ )herman *ct doesnt &rohibit &arties from collecti"el2 tr2ing to &ersuade go"t to &ass a law that would &roduce a mono&ol2 or restraint o bBc -irst *mendment right to &etition the go"t is at sta9e3 this doesnt a&&l2 when foreign go"ernments are the sub!ect .ouse of Lords follows a few 2ears later in Buttes 1as % Oil v. Hammer o 'o real *ct of )tate doctrine or choice of law a&&roach used @ more li9e &olitical Auestion3 an abstention a&&roach o There are Dno !udicial or manageable standards b2 which to !udge these issues.E
,& v. +#/C 7(th Cir. 1(#18 @ *ct of state doctrine reAuires dismissal of suit against so"ereign states who ha"e !oined to regulate the &rices of their natural resources in the interest of economic ad"ancement /istrict court dismissed the case on the basis of -)I* @ terms and conditions of remo"ing a natural resource are a &rime go"ernmental function rather than a commercial acti"it2 Circuit sa2s *ct of state is better bBc DOwPhile the -)I* ignores the underl2ing &ur&ose of a states action3 the act of state doctrine does notE o I* stat acts as a stat in t# pu8!ic int r stG courts must proc d =it# caution o Crucial element in deciding whether or not to e>ercise !urisdiction is &otential for interference with foreign relations *n2 relief under anti6trust laws would amount to ordering a foreign so"ereign to choose a new wa2 to allocate and &rofit from its natural resources o There is a clear "iolation of )herman here3 but theres little international consensus on how states should beha"e regarding natural resources ?rand sa2s a commercial acti"it2 e>ce&tion to *ct of )tate is im&lied o 'ature of &rice6fi>ing is commercial and &ri"ate &arties could do it o Circuit defines the issue so its not as commercial< e"en if theres !urisdiction3 !udicial remed2 would be ina&&ro&riate Antitrust ?urisdiction Summar)
%2
?udicia! ?urisdiction3 5lcoa @ courts ha"e )MK where an intention to restrain trade and an actual effect on trade in ) e>ists o when act of cons&irac2 occurred in the )3 it is no defense that legislation of a foreign go"ernment aided the scheme. & * ns s when an agenc2 of a foreign go"ernment is directl2 im&licated: o )o"ereign immunit2 7if its a state6run cor&oration8 o *ct of state doctrine Occidental Petroleum3 OPEC cases *ction ta9en in &ursuit of clearl2 e>&ressed legislati"e goals 7Communit$ Communications v. Cit$ o, Boulder8 o state com&ulsion 71old,ar0 v. V5 state 0ar8 Te3aco *aracai0o @ / not liable for illegal grou& bo2cott bBc LeneJuela reAuired it o 'o trade to restrain @ foreign go"ernments &rotecti"e tariffs eliminated all e>&orts from )3 so none were left to be restrained b2 cor&orations L "is!ati' @urisdiction3 o *annin"ton *ills @ loo9ing to comit)3 !udges can decline to hear case 0estatement G %0, @ e"en if its a&&ro&riate to e>ercise !urisdiction3 Da state ma2 not e>ercise !urisdiction to &rescribe law with res&ect to a &erson or acti"it2 ha"ing connections with another state when the e>ercise of such !urisdiction is unreasonableE< balancing test follows G %0, 7,8 when it wouldnt be unreasonable for each of 2 states to e>ercise !urisdiction3 but the &rescri&tions b2 the 2 states conflict3 a state should e"aluate rele"ant factors and determine whether its the best &art2 to e>ercise !urisdiction @ '1T =L=0C1'= *40==) T.*T T.I) T=)T *++LI=) o Hart,ord 6ire @ limited comit2 considerations to whether ) law conflicts with a&&licable foreign law If no conflict3 ) law can be a&&lied
For i"n Anti-trust La= 1ther countries ha"e ado&ted e>traterritorial antitrust laws as well: ?ritish 0estricti"e Trade +ractices *ct of 1(#0 1(5$ 4erman Law against restraints on Com&etition =uro&ean Communit2 *rticle #1 a&&lies to antitrust o 7ood Pulp ruling 71(##8 @ Commission has !urisdiction o"er non6=uro&ean firms if the2 im&lement an anti6com&etiti"e agreement outside =C b2 selling their &roducts to bu2ers inside =C under *rt. #1 o Merger 0egulation *ct of 1(#( @ mergers with a Communit2 dimension must gain ad"ance a&&ro"al from the Commission Dcommunit2 dimensionE determined b2 re"enue IT1 should create a multilateral com&etition agreement b2 ha"ing: Members ado&t basic domestic com&etition rules Members identif2 common core of &rinci&les to be ado&ted at international le"el %,
Coo&eration between com&etition authorities /is&ute settlement mechanism 7no &ri"ate &art2 access8
Europ an Communit) La= -ocus on whats Dincom&atible with common mar9etE o Things that dont affect trade between Member states are o9a2 @ Italian ba9eries in +alermo can still fi> &rices *rticle #1 =C: DThe following shall be &rohibited as incom&atible with the common mar9et: all a"r m nts 8 t= n und rtakin"s3 decisions b2 associations of underta9ings and conc rt d practic s =#ic# ma) a** ct trad 8 t= n ; m8 r Stat s and which #a' as t# ir o8@ ct or ** ct the &re"ention3 restriction or distortion of com&etition within the common mar9et . . .E Exc ptions: 7similar to )herman *ct rule of reason8 If it im&ro"es the &roduction or distribution of goods3 10 &romotes technical or economic &rogress3 *'/ allows consumers a fair share of the resulting benefit3 *'/ /1=) '1T: o Im&ose restrictions that arent indisp nsa8! to the achie"ing these ob!ecti"es 7&ro&ortionalit2 test8 o *llow the &ossibilit2 of eliminating com&etition in res&ect of a substantial &art of the &roducts in Auestion This is a 9ind of Defficienc2 defenseE *rticle #2 &rohibits abuse of a dominant &osition within common mar9et or substantial &art EC ; r" r R "u!ation 7Council 0egulation 'o. 1,(B200%8 @ until 200%3 mergers were &rohibited if the2 created or strengthened dominant &ositions< this regulation loosens and clarifies a bit o +rohibits Da concentration which would significantl2 im&ede effecti"e com&etition . . . as a result of the creation or strengthening of a dominant &ositionE Cla2ton *ct sa2s Dlessening com&etitionE @ this was too slo&&2 o Com&anies that can &ro"e to Commission that their merger wont significantl2 im&ede com&etition will be a&&ro"ed Sanctions: contract declared "oid 7conseAuences of this determined b2 local law8< &ri"ate damages 7&er Coura"e decision8< fines of u& to 10M of sales of entire firm during &receding 2ear 7no &rison8< administrati"e sanctions or s&ecific orders to desist Coura"e case 7=CK 20018 @ &ri"ate actions for damages can hel& im&lement =C antitrust law ?ilateral agreements with =C 1((1 *greement @ e>change non6confidential information which ma2 affect im&ortant transatlantic interests< coordinate enforcement 1((# +ositi"e Comit2 *greement @ enforcement will be sus&ended where anti6 com&etiti"e acti"ities 18 dont ha"e a direct3 substantial and reasonabl2 foreseeable im&act on consumers3 or 28 occur inBare directed toward other &art2s territor2
%%
XII. US TAXATION OF EXPORT & OVERSEAS OPERATIONS

Basic IR, Pro'isions o - 6": .ross inco%e is /all inco%e fro% whate'er source deri'ed0 o - 61: Ta2a+le inco%e is ross inco%e %inus allowa+le deductions 134 is hi hest rate o - 10"5c65"6: Di'idends included in ross inco%e - 1"6 Di'idends defined IR, ta2es &eo&le +ased on "6 status of ta2&ayer! and 26 source of inco%e o Status 7 8, citi9ens! resident aliens! do%estic cor&orations are ta2ed on lo+al inco%e 5al%ost :; other country uses citi9enshi& as +asis for ta2ation6 Cook v. Tait (8, "<2=6 7 8, o't has &ower to ta2 inco%e of 8, citi9en who was &er%anently do%iciled in Me2ico when inco%e was fro% &ro&erty located in Me2ico! +>c / o'ern%ent! +y its 'ery nature! +enefits the citi9en and his &ro&erty where'er found! and therefore has the &ower to %a)e the +enefit co%&lete# # # # the +asis of the &ower to ta2 was not and cannot +e %ade de&endent u&on the situs of the &ro&erty in all cases! it +ein in or out of the 8nited ,tates! nor was not and cannot +e %ade de&endent u&on the do%icile of the citi9en! that +ein in or out of the 8nited ,tates! +ut u&on his relation as a citi9en to the 8nited ,tates and the relation of the latter to hi% as a citi9en#0 If Me2ico e2&ro&riates Coo)?s &ro&erty! 8, o't will re&resent hi% in di&lo%atic &roceedin s DeBeers v. Howe 5@$ "<066 7 co%&any re istered in ,outh Africa whose Board of Directors li'e in An land and hold %ost i%&ortant %eetin s in $ondon should +e treated as /any &erson residin in the 8nited Bin do%0 for ta2 &ur&oses Residence rather than citi9enshi& is the test 7 in deter%inin where a co%&any resides! court should treat it li)e an indi'idual /a co%&any resides! for &ur&oses of Inco%e Ta2! where its real +usiness is carried on0C control of all i%&ortant as&ects of +usiness e2ce&t %inin ta)e &lace in An land: ne otiation of contracts! &olicy in dis&osal of dia%onds and assets! a&&lication of &rofits! wor)in and de'elo&%ent of %ines! a&&oint%ent of directors! all (uestions of e2&enditures e2ce&t those at the %ines This is a factD+ased test rather than a lawD+ased test! and less easy to %ani&ulate than 8, &lace of incor&oration test 8nder 8, test! case would ha'e co%e out differently US citizens abroad: G EFF 7 if you relin(uish citi9enshi& for the &ur&ose of ta2 a'oidance! 8, continues to ta2 you for "0 years - <"" 7 citi9en residin a+road for %ost of the year can e2clude forei n inco%e u& to a &oint for ta2 &ur&oses Resident aliens: su+Gect to ta2ation on lo+al inco%eC if their country su+Gects 8, citi9ens to discri%inatory>e2traterritorial ta2ation! they et it fro% us 5-- E<"D<16 - <0" can clai% ta2 credit for ta2es &aid to forei n country Do estic cor!orations: su+Gect to ta2ation on lo+al inco%e
%5
Place of incor&oration test 7 do%estic co%&any is /created or or ani9ed in the 8, or under the law of the 8, or of any state0 5- FF0"a6 Hhen BIT e2ists! &lace of /&er%anent esta+lish%ent0 is the one that ta2es 7 /fi2ed &lace of +usiness throu h which the +usiness of an enter&rise is wholly or &artly carried on!0 includin +ranch! office! %ine! etc#58, Model Inco%e Ta2 Treaty Art# 36 o Source o" inco e Non#resident aliens>forei n cor&orations 7 ta2ed on 8, source inco%e Indi'iduals loo) to - EF"D2 - EE" 7 104 withholdin ta2 on &ay%ents recei'ed fro% 8, inco%e - EE2: forei n cor&oration ta2ed on /ta2a+le inco%e which is effecti'ely connected with the conduct of a trade or +usiness within the 8,0 - E6"D63 rules for deter%inin whether source of inco%e is 8, o - E6"5a6566 inco%e deri'ed fro% &urchases %ade without the 8, and its sale or e2chan e within the 8, is 8, source inco%e o ,ource of inco%e: For ser'ices! it?s &lace of &erfor%anceC for sale of oods! it?s the &lace of title transfer @ow do you esca&e 8, ta2 lia+ilityI Mani&ulate source * status Forei n cor&oration with source of inco%e outside 8, has no status or source ne2us re(uirin &ay%ent of 8, ta2es AP Green Export v. US 5"<606 7 Canadian P sou ht to esca&e 8, ta2 lia+ility 5ta2 credit6 as a Hestern @e%is&here trade cor&oration 5as &er - "0< of IRC6 +ased on source of inco%e outside of 8, Ti e and !lace o" !assa$e o" title deter%ines source of inco%e 5codified in - E6"5a6566 and - E625a65666 o Hhile AP .reen usually used CIF ter%s 5indicatin title &assed at &lace of shi&%ent in 8,6! it inserted a clause sayin it would retain title until their deli'ery at destination o Court %ust i'e effect to &arties? stated intent A'en if they used this clause to a'oid ta2es! that?s /irrele'ant # # # so lon as the consu%%ated a ree%ents were no different than they &ur&orted to +e! and &ro'ided the retention of the title was not a sha% +ut had a co%%ercial &ur&ose a&art fro% the e2&ected ta2 conse(uences#0 o There was a le iti%ate &ur&ose for retainin title until deli'ery here 7 in case of trade e%+ar o! sei9ure! etc#! P could ha'e redirected oods to friendlier &ort and sold the% thereC clause also allowed P to insure oods in 8, and collect in dollars if necessary /P was faced with a choice of two le iti%ate courses of conduct! either of which would +e co%%ercially sound and Gustifia+le# He are not &re&ared to say that in this situation P was +ound to choose that course which would +est &ay the Treasury#0 8, Ta2ation of ;'erseas o&erations Structure % De"inition Or$anization A2&ort none O!eration
Inco%e ta2ed currently at re ular cor&# rates
Re!atriation :one
%6
5sellin a+road6 Branch 5office a+road6 forei n su+sidiary G FF0"5a65=6D536 Incor&orated under forei n law none
- 13" ta2 free incor&oration %ay re(uire acti'e conduct of trade or +usiness under - 16F 5%ay want ta2a+le transfer or sale6
$osses currently deducti+le - <0" forei n ta2 credit %ay a&&ly - <0" forei n ta2 credit - =E2 &ricin rules %ay a&&ly Inco%e not ta2ed +y 8, as recei'ed unless fro% 8, source or effecti'ely connected 5-- E6"D=C EE"D 26 - =E2 issues
none
Di'idends ta2ed at re ular cor&# rate $i(uidation ta2ed at re # cor&# rate as to A*P 5- "2=E6 - <0" et# se(# ,u+&art F rules %ay a&&ly 5controlled forei n cor&6
Possessions su+sidiary 5in Puerto Rico! Jir in Islands6 5- <E66
&asic !lannin$ strate$ies: o Reduction of the rate of ta2ation throu h choice of ta2 Gurisdiction ,et u& a new entity so%ewhere that has lower ta2 rates o Deferral of reco nition of inco%e in order to delay &ay%ent of a ta2 Don?t &ay di'idends +ac) to &arent! as they?ll +e ta2ed 5defer for a while or fore'er 7 if you can &ossi+ly use this inco%e in forei n country! do it6 o Kualification for nonDreco nition treat%ent under ad'anta eous ta2 &ro'isions As) ta2 &eo&le to loo) into +ases for nonDreco nition o Kualification of inco%e as lon Dter% ca&ital ain 5rather than ordinary inco%e6 Ri ht now there?s no &ro'ision to +enefit cor&orations! +ut Con ress discusses it e'ery year o A'oid dou+le ta2ation Forei$n branc' o!erations o Must choose whether to treat forei n inco%e ta2es as a deduction fro% ross inco%e or a credit a ainst ta2es 7 usually credit is %ore ad'anta eous o - "6= Deductions: for forei n real &ro&erty and inco%e ta2es - 2F3: deductions don?t a&&ly if credit is chosen under - <0" o - <0"5+65"6: set u& to a'oid dou+le ta2ation 5&ro'ided you choose it o'er - "6= deductions6 for citi9ens and do%estic cor&s! a%ount of any inco%e! war &rofits! e2cess &rofits ta2es &aid to a forei n country or 8, &ossession is credita+le Is the cor&oration a 8, cor&oration under - FF0"I Kuestion is yes for +ranch and sales a+road Hhat?s ta2a+le inco%e under - 61I Hhich ta2es are credita+leI Biddle test 7 is it the substantial e(ui)alent of a 8, inco%e ta2I o Keasbey & Mattison v. Rothensies 7 if it?s on your ross inco%e! usually noC if it?s on your net inco%e 5after e2&enses6! that?s %ore li)e 8, inco%e ta2 %$
o 8, ta2es you on ta2a+le inco%e after deductions 5&rofits6! :;T ross inco%e 5+>c you can ha'e hu e ross re'enue +ut ha'e losses6 $oo) and see if there?s a Bilateral Inco%e Ta2 treaty with the country Hei h 3 factors re ardin credita+ility: .ross char e on inco%e of a trade or +usiness is :;T an inco%e ta2 ;nly a forei n ta2 that is /'ery hi hly li)ely! or was reasona+ly intended! always to reach so%e net ain in the nor%al circu%stances in which it a&&lies0 is an inco%e ta2 To +e an inco%e ta2! it %ust allow deductions for si nificant e2&enses incurred in &roducin the ta2ed inco%e Credi+ility of forei n ta2 is tested +y 'iewin the entire class of ta2&ayers su+Gect to it 5rather than on a caseD+yDcase +asis6 Forei n ta2 %ust +e i%&osed on reali9ed inco%e :et result is that total a%ount you &ay is e(ui'alent to the hi her of the two ta2 rates If ta2 a+road is hi her than 8,! you?ll &ay a%ount e(ual to forei n ta2C if 8, ta2 is hi her! you?ll &ay a%ount e(ual to 8, ta2 5and you always &ay at least L13) to so%eone6 o * +,- direct credit i'es &riority to source conce&ts o'er status conce&ts .i'es &riority to ta2 i%&osed +y country where +usiness acti'ity is conducted or inco%e is earned .i'es a residual ri ht to country of residence or incor&oration if there?s left o'er A'aila+le to 3 cate ories of ta2&ayers: Citi9ens * do%estic cor&s Residents of 8, or Puerto Rico Alien residents of 8, or Puerto Rico :onresident alien indi'iduals and forei n cor&s Partnershi&s! estates and trusts Forei$n subsidiar. 7 no ta2 on status or source! +ut you et ta2ed on di'idends re&atriated to 8, o * +,/ indirect credit for 8, &arent co%&anies that re&atriate &rofits of forei n su+sidiaries thru di'idends 5forei n ta2 is /dee%ed &aid0 +y &arent6 Forei n su+sidiary &ays the ta2! not 8, &arent! so - <0" doesn?t a&&ly - <02 treats o&erations as e(ui'alent to direct o&erations or those of a +ranch - <025a6 ta2 dee%ed &aid M di'idends 2 forei n inco%e ta2es undistri+uted earnin s - FE &ro'ides that inco%e of the &arent is / rossed u&0 +y a%ount of forei n ta2 &aid 5su+Gect to - <0= li%itation6 so that entire forei n net inco%e is treated as su+Gect to 8, ta2 5not Gust afterDta2 &rofits fro% which di'idend is &aid6 7 see &# "231D3= for e2# For di'idends fro% lower su+sidiaries to a&&ly: o ,hareholder cor&oration %ust own "04 of 'otin stoc) of su+sidiary o 8, &arent cor&oration %ust own 34 of 'otin stoc) of each forei n cor&oration whose inco%e is &assed u& to it o - <01 ta2es in lieu of forei n inco%e ta2es are eli i+le for credit
%#
o - <0= li%its credit to &re'ent ta)in a forei n ta2 credit in e2cess of 8, ta2 on forei n ta2a+le inco%e - <0= li%itation M 8, ta2 lia+ility 2 forei n ta2a+le inco%e 5w> - FE ross u&6 total ta2a+le inco%e This %eans if forei n ta2 is a+o'e 8, 134! co%&any &ays no 8, ta2es at all o &otto line: if forei n country has a less than 134 ta2 rate! +est to o&erate throu h a forei n su+sidiary and defer re&atriation of &rofits Ot'er "orei$n subisidiar. !ro)isions0 o - 112: ta2Dfree li(uidation of +usiness assets o - 13": :onDreco nition 5ta2Dfree inco%e6 if you transfer stoc)! it doesn?t count as inco%e 7 nonDreco nition! and only reco ni9ed inco%e is ta2ed this is one of the ta2D&lannin o+Gecti'es! and you %ust see if you %eet the re ulations o - 16F: if you transfer de&reciated assets to a forei n su+sidiary in e2chan e for stoc)! sell the assets and %a)e a &rofit! you?ll +e ta2ed If those assets are acti'ely used in +usiness o&erations! fa'ora+le rates will a&&ly Hhen in dou+t! transfer cash o - 16E: reor ani9ation
&ilateral Ta1 Treaties ;ACD Model Dou+le Ta2ation Con'ention on Inco%e * Ca&ital US 2odel Inco e Ta1 3on)ention 7 new one ca%e out :o'# "3! +ut +asics are the sa%e Miti ate dou+le ta2ationC 8, has the% w> 30 countries Article F5"6: &rofits are only ta2a+le if +usiness o&erates thru a !er anent establis' ent o Art# 3 5"6: &er%anent est# is /a fi2ed &lace of +usiness throu h which the +usiness of an enter&rise is wholly or &artly carried on!0 includin : A &lace of %ana e%ent! +ranch! office A factory! wor)sho&! %ine or &lace for e2tractin natural resources o &er%anent esta+lish%ent deter%ines status rather than for%alistic &lace of inc# test o Re). Rule 45#6// 5"<F66 7 :o &er%anent est# /unless su+sidiary has and ha+itually e2ercises eneral authority to contract for its &arent! or as an a ent of the &arent re ularly fills orders of oods on +ehalf of the &arent fro% a stoc) of the &arent?s oods located in such country0 Australian &arent which sold &roducts at ar%sDlen th to 8, whollyDowned su+sidiary that distri+uted its &roducts didn?t ha'e a &er%anent esta+lish%ent in 8,C it also sold at ar%sDlen th &rices to other inde&endent distri+utors in 8, ,u+sidiary acted as inde&endent a entC relationshi& was that of &urchaserDseller o If no treaty in this case! Australian &arent would ha'e +een ta2ed on 8, source inco%e Article "0 ele'ates status o'er source Art# "35"6: &ersonal ser'ices inco%e su+Gect to ta2ation +y &lace of residence o If &erfor%ed as an e%&loyee of a &er%anent esta+lish%ent! host country can ta2 O!eratin$ t'rou$' a Forei$n Subsidiar. %(
- <3" su+&art F &ro'ides for i%&utation of inco%e of a forei n su+sidiary to a do%estic &arent e'en when no di'idend is &aid o Co%&anies esta+lished su+sidiaries in ta2 ha'ens 5"04 ta2 rate6 and used the% for nothin +ut di'ertin &rofits o Do%estic Parent %a)es wid ets and sells the% to Forei n su+sidiary for 60T each! title &assin in 8,! then F, sells the% to end user in ta2 ha'en for L"#00 each DP ets ta2ed in 8, 5due to title transfer6! F, ets ta2ed in ta2 ha'en! and it?s %uch less B8T F, has no real +usiness &ur&ose o - <3" a&&lies if F, is a /controlled forei n cor&oration0 5304 of total co%+ined 'otin &ower or stoc) with 8, shareholders6 o @ow can you a'oid this ta2ationI :o 8, shareholders 5defined as &eo&le with "04 or %ore of co%+ined 'otin &ower6 :o su+&art F inco%e 7 ha'e forei n su+sidiary do %anufacturin Nou can set u& sales +ranches in countries where you want to sell 7 +ut you %ust sell <34 of &roducts to those countries :o /controlled forei n cor&oration0 7 i'e 304 or %ore of total 'otin &ower and stoc) to forei ners Ta2 Re s say if you %a)e it loo) li)e 'otin &ower is shifted +ut it really isn?t! it won?t wor) In CCA v. Commissioner! they transferred stoc) to forei n co%&any and that was fine - <36 says if you don?t re&atriate di'idends earned +y forei n su+sidiary and you transfer the% to /8, &ro&erty!0 you et ta2ed o In addition to ,u+&art F 7 so if you esta+lish a forei n %anufacturer! you could still +e ta2ed +ased on - <36 o 8, &ro&erty includes: Tan i+le &ro&erty in 8,! stoc) of do%estic cor&oration! o+li ation of a 8, &erson! or any ri ht to 8, use of IP ri hts Ludwig v. Commissioner 5"<FF6 7 where 8, shareholder P &led ed stoc) in forei n su+sidiary to lendin +an)s and that was o)ayC had it +een %oney! he &ro+a+ly would ha'e +een ta2ed on it - <3<5a6 says if your di'idend has actually +een re&atriated after it?s +een ta2ed! it?s not ta2ed a ain - =E2: if it loo)s li)e you?re distri+utin inco%e +etween 2 owned or controlled entities to a'oid ta2es! ,ecretary can reallocate inco%e to &re'ent this o Ar 7s len$t' test 5instead of &ercenta e ownershi& test of ,u+&art F6: /a controlled transaction %eets the ar%?s len th standard if the results of the transaction are consistent with the results that would ha'e +een reali9ed if uncontrolled ta2&ayers had en a ed in the sa%e transaction under the sa%e circu%stances#0 5Re ulations6 o US Steel 3or!. ). 3o issioner 52d Cir "<E06 7 ar%?s len th &rices are those that /would ha'e +een char ed for the sa%e or si%ilar ser'ices in inde&endent transactions +etween unrelated &arties under si%ilar circu%stances considerin all rele'ant facts#0
50
8, ,teel reallocated inco%e earned in Jene9uela fro% a whollyDowned Delaware %inin su+sidiary 5;rinoco6 to another whollyDowned $i+erian shi&&in su+sidiary 5:a'ios6 :a'ios &aid no di'idends to 8, ,teel and IR, reallocated earnin s under - =E2 +>c 8, ,teel &aid :a'ios the sa%e rate that other! inde&endent co%&anies &aid it for the sa%e ser'ices! it was le it and no e2tra ta2ation under - =E2 the /co%&ara+le uncontrolled &rice %ethod0 is the IR, &reference for Gud in ar%?s len th you can et transferD&ricin %ethodolo y a&&ro'ed +y the IR, o if this is later challen ed and you lose! IR, assu%es you 'oluntarily &aid ta2 to the forei n o'ern%ent and you et dou+le ta2ed without credit o ar%sDlen th &rices are under - =E2! not su+&art F o if IR, has to choose +etween the two! it will choose - =E2
51

International Business Transactions: Revere Copper Case

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

International Business Transactions: Revere Copper Case

Uploaded by

Copyright:

Available Formats

IBT Fall 2006 Professor Brand