INTERNATIONAL BUSINESS TRANSACTIONS Prof. Frank Garcia Fall 2009 INTRODUCTION...............................................................................................3 A. International Trade and Business Issues.............................................................

3 Incoterms as Trade Usage..................................................................................3 Commercial Terms..............................................................................................3 A solute!Com"arati#e Ad#antages.....................................................................$ %et&ods of Protectionism...................................................................................$ B. 'egal and (egulator) *)stems............................................................................+ Customar) International 'a,..............................................................................+ Treaties..............................................................................................................+ 'e- %ercatoria....................................................................................................+ C. International .conomic 'a, /rgani0ations..........................................................1 Ta-onom) of Tariff *tructures............................................................................1 General Agreement on Tariffs and Trade 2GATT3 Treat).....................................1 4orld Trade /rgani0ation 24T/3........................................................................5 .uro"ean Union 2.U3..........................................................................................5 6ort& American Free Trade Agreement 26AFTA3................................................7 THE DOCUMENTARY SALE OF GOODS......................................................................9 A. Contract Formation.............................................................................................9 T&e Basic Transaction.........................................................................................9 Concerns in t&e Contract Formation...................................................................9 Pro lem $.8 9 Insulation to German)................................................................80 Pro lem:*ol#ing A""roac& to Contract Issues ) Prof. Frank Garcia.................80 B. C&oice of 'a, 9 United *tates...........................................................................82 (estatement 2d ; 875 9 'a, of t&e *tate C&osen B) t&e Parties......................82 (estatement 2d ; 877 9 'a, Go#erning In A sence of .ffecti#e C&oice B) t&e Parties................................................................................................................83 (estatement 2d ; 1 9 C&oice of 'a, Princi"les.................................................8$ Use of t&e Forum<s 'a, ) =efault...................................................................8$ C. C&oice of 'a, 9 .uro"ean Union ......................................................................8$ Con#ention on t&e 'a, A""lica le to Contractual / ligations 2..C3!.C (egulation +93!2007..........................................................................................8$ =. Con#ention on t&e International *ale of Goods 2CI*G3......................................8+ A""lication of t&e CI*G.....................................................................................8+ T&e CI*G A""lied to Pro lem $.8......................................................................81 Arguing for t&e Court in >ansas to A""l) t&e CI*G...........................................81 *ummar) of Pro lem $.8..................................................................................85 .. Business Planning..............................................................................................87 *tructuring Contracts.......................................................................................87 F. =istri utors&i"s!Agents and t&e Use of Countertrade........................................87 =istri utor or Agent..........................................................................................87 Termination Issues...........................................................................................89 .sta lis&ing a =istri utors&i"!Agenc) in %e-ico...............................................20 Countertrade 9 Back to Bartering.....................................................................20 G. 'etters of Credit................................................................................................28 T&e Basic Commercial 'etter of Credit Transaction..........................................28 T&e 6ature of *trict =ocumentar) Com"liance.................................................22 T&e Basis of *trict =ocumentar) Com"liance...................................................23 ?oest:Al"ine *tandard and UCP 100.................................................................23

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Pro lem +.8 9 Gold 4atc& Pens to France........................................................2$ @. Foreign Corru"t Practices Act............................................................................2+ Pur"ose of t&e FCPA.........................................................................................2+ Amendments to t&e FCPA.................................................................................2+ INTELLECTUAL PROPERTY LICENSING......................................................................27 A. Cross:Border IP Transfers..................................................................................25 /#er#ie,..........................................................................................................25 IP Protection.....................................................................................................27 B. 'icensing Agreements 9 .uro"ean Union..........................................................30 Princi"les of .uro"ean Union 'a,.....................................................................30 .U (egulations.................................................................................................38 Pro lem 9.$ 9 =rill Bit in German)....................................................................3$ C. 'icensing Agreements 9 6AFTA.........................................................................3$ /#er#ie,..........................................................................................................3$ 6AFTA:Plus.......................................................................................................3+ =. 'icensing Into 'atin America.............................................................................31 =oA Antitrust Guidelines....................................................................................31 =oA : .#aluation of 'icensing Arrangements Under t&e (ule of (eason............35 =oA 9 A""lication of General Princi"les..............................................................39 =ecision 6o. 298 9 Andean Common %arket....................................................$0 Pro lem 3.0 9 'icensing to Guatador................................................................$8 FOREIGN INVESTMENT.....................................................................................42 A. =irect In#estment..............................................................................................$2 T&e 'ifec)cle A""roac& to Foreign In#estment.................................................$2 T&e /"erational Code.......................................................................................$3 (estrictions U"on t&e .sta lis&ment of t&e Foreign In#estment.......................$3 B. 'ocation of In#estment......................................................................................$$ B erseering B? #. 6ordic Construction Com"an) Baumanagement Gm @......$$ Pro lem 80.8 9 =GInt. in German)!United >ingdom.........................................$+ C. Codetermination...............................................................................................$+ Codetermination ) 4orkers in German .nter"rises........................................$+ T&e *ocietas .uro"eae 2*.3..............................................................................$1 =. %erger Control..................................................................................................$5 /#er#ie,..........................................................................................................$5 .C %erger (egulation 6o. 839!200$.................................................................$7 .. Pri#ati0ation......................................................................................................+0 Fundamental Issues..........................................................................................+0 F. In#estment 4it&in 6AFTA..................................................................................+8 T(I%s (egulations............................................................................................+8 6AFTA (egulations...........................................................................................+2 %e-ico<s 6e, Foreign In#estment 'a, of 8993................................................+1 G. Issues Confronting t&e .sta lis&ed In#estment................................................+1 Currenc) .-c&ange Controls.............................................................................+1 Transfer Pricing................................................................................................+5 International Bankru"tc)..................................................................................+9 @. ProCect Financing...............................................................................................10 Basic *tructure.................................................................................................10 Ad#antages!=isad#antages of ProCect Finance.................................................18 Financing *ources.............................................................................................18 (isk Identification and %itigation......................................................................12 DISPUTE RESOLUTION.....................................................................................64 A. Fundamental Issues and Patterns.....................................................................1+ (esolution of International Business =is"utes..................................................1+ B. C&oice of Forum and Aurisdiction.......................................................................11

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U* Forum *election A""roac&..........................................................................11 U* A""roac& to Aurisdiction...............................................................................11 .uro"ean Union A""roac& to Aurisdiction..........................................................15 C. .nforcement of Foreign Audgments...................................................................19 Common 'a,....................................................................................................19 Uniform Acts.....................................................................................................50 INTRODUCTION A. I6T.(6ATI/6A' T(A=.
A6=

BU*I6.** I**U.*

Incoterms as Trade Usage *ince t&e ICC is a non:go#ernmental entit)D Incoterms are neit&er legislation nor "art of a treat). T&usD it cannot e Ego#erning la,F of a contract. It is a ,ritten form of custom and usage in t&e tradeD ,&ic& can eD and often isD e-"ressl) incor"orated ) "arties to an international contract for t&e sale of goods. Terms can Gualif) under CI*G Article 9223 as a EusageH,&ic& in international trade is ,idel) kno,n toD and regularl) o ser#ed )DF "arties to international sales contracts. Terms can also Gualif) under UCC ; 8:20+223 as a Eusage of trade.F Commercial Terms T&e E.F term .I4 2e- ,orks3 is ,&ere t&e goods are made a#aila le to t&e u)erD ut use of a carrier is not e-"ressl) reGuired. T&e EFF terms FCA 2free carrier3D FA* 2free along side3D F/B 2free on oard3 reGuire t&e seller onl) to assume t&e risks and costs to deli#er t&e goods to a carrier nominated ) t&e u)er. Free Carr er. 6eed onl) notif) u)er t&at Egoods &a#e een deli#ered into t&e custod) of carrier.F *eller must "ro#ide a commercial in#oice or eGui#alentD an) necessar) e-"ort license and usuall) a trans"ortation document t&at ,ill allo, u)er to take deli#er) of goods. Free !" B!ar#. A""ro"riate onl) to ,ater: orne trans"ortation. 6eed onl) notif) u)er t&at Egoods &a#e een deli#ered on oard.F (isk of loss transfer to u)er ,&en t&e goods &a#e "assed t&e s&i"<s rail. *eller must also clear t&e goods for e-"ort from t&e "lace of deli#er) and t&us must "a) an) costs of customs formalities and e-"ort ta-es. T&e ECF terms CF( 2cost and freig&t3D CIF 2costD insurance and freig&t3D CPT 2carriage "aid to3D CIP 2carriage and insurance "aid to3 reGuire seller to assume t&e risks and costs to deli#er t&e goods to a carrierD arrange and "aid for t&e main trans"ortation 9 and sometimes insurance 9 ut ,it&out assuming additional risks due to "ost:s&i"ment e#ents. C!$%& I"$'ra"(e a"# Fre )*%. A""ro"riate onl) to ,ater: orne trans"ortation. *eller must arrange t&e trans"ortation and "a) t&e freig&t costs to t&e destination "ortD ut &as com"leted its deli#er) o ligations ,&en t&e goods are Eon oard t&e #essel at t&e "ort of

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s&i"ment.F *eller must "a) t&e freig&t and unloading costs of t&e carrier at t&e destination "ort under t&e termD ut t&e u)er must "a) all ot&er costsD including unloading costs not collected ) t&e carrier. T&e E=F terms =AF 2deli#ered at frontier3D =.* 2deli#ered e- s&i"3D =.J 2deli#ered e- Gua)3D ==U 2deli#ered dut) un"aid3D ==P 2deli#ered dut) "aid3 reGuire t&e seller to deli#er t&e goods to a carrierD arrange for t&eir trans"ortationD and assume t&e risks and costs until t&e arri#al of goods at an agreed countr) of destination. A solute!Com"arati#e Ad#antages A solute ad#antage is t&e common reason ,&) t,o countries engage in tradeK i.e.D one countr) "roduces a etter "roduct t&an t&e ot&er. 4estia &as an a solute ad#antage in "roducing garments 28!2 da)!)d #s. + da)s!)d in Tro"ica3. Com"arati#e ad#antage is a out s"eciali0ing in ,&at )ou are least inefficient in "roducing. 4estia s&ould focus on garments 280- more efficient3 and Tro"ica s&ould focus on "roducing ,ine since t&at is t&eir least inefficient "roduction.

%et&ods of Protectionism TariffsK ad #alorem ta-esK calculated as a "ercentage of t&e cost of t&e good. Attracti#e ecause t&e) are a source of re#enueK doesn<t a""ear to e a direct ta- u"on t&e "o"ulation alt&oug& it is since manufacturer ,ill Cust incor"orate t&e tariff into t&e "rice. Tariffs are also in#isi leK citi0enr) isn<t necessaril) a,are. International usiness actuall) "refers tariffs ecause t&e) are more #isi le for negotiation and!or discussion. JuotasK numerical restriction on im"orts. =oesn<t affect t&e "rice in t&e same mannerK &o,e#er t&roug& t&e o"eration of su""l)!demand t&e "rice ,ill e dri#en u". Premium from t&e Guota goes to t&e "roducers< "ocketD not t&e go#ernments. Go#ernments can create auctions to di#ide Guotas. .conomists discuss a alancing "oint ,&ere same le#el of "rotection ac&ie#ed t&roug& tariffs or Guotas. B) and large illegal under international trade la,s. Currenc) #aluationsK de#aluing currenc) to increase e-"ortsD decrease im"orts. =e#aluing currenc) is not "o"ular in t&e international markets. 6on:Tariff Barriers. 'a eling reGuirementsK "roduct safet) standards. *u sidi0ing domestic industriesK artificiall) reduces cost of "roduction. Customs reGuirementsK discrete restrictions t&roug& logistics. Im"ort *u stitution =e#elo"ment "olic) ,&ere t&e countr) focuses resources to industries dominated ) im"ortsK "ro&i it certain categories of im"orts to encourage domestic de#elo"ment and "roduction.

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6ot al,a)s risk freeK com"etition can often dri#e de#elo"ment. 6eed &uman ca"italD tec&nolog)D and a sufficient domestic market. Polic) &as generall) failed in 'atin America. B. '.GA'
A6=

(.GU'AT/(L *L*T.%*

Customar) International 'a, /#er a "eriod of timeD a customar) "ractice ma) e so continuall) "racticed and acce"ted t&at it ecomes a de facto la, 2opinio juris3. 6ot as "rominent as treaties ecause enforcement reGuires a &istorical e-amination of usage. Foreign in#estments are often co#ered ) customar) international la,s. .-"ro"riation and com"ensation 2often co#ered in treaties3. Treaties Treaties ma) e seen as Eself:e-ecutingDF in t&at merel) ecoming a "art) "uts t&e treat) and all of its o ligations into effect. .U treaties are uniGue in t&at t&e) often do a""l) to .uro"ean citi0ens. A EdualistF s)stem understands domestic la, and international la, to e t,o se"arate s)stems and it is a constitutional issue as to &o, and ,&ere international la, ,ill a""l). In contrastD man) .uro"ean la,s &a#e "ro#isions t&at it is illegal to #iolate an international la, t&roug& a domestic regulation. /t&er treaties ma) e non:self:e-ecuting and reGuire Eim"lementing legislationF 9 a c&ange in t&e domestic la, of a state "art) t&at ,ill direct or ena le it to fulfill treat) o ligations. It is t&e c&ange in t&e domestic la, t&at &as effect 9 not t&e treat) itself. An e-am"le of a treat) reGuiring suc& legislation ,ould e one mandating local "rosecution ) a "art) for "articular crimes. If a treat) reGuires im"lementing legislationD a state ma) e in default of its o ligations ) t&e failure of its legislature to "ass t&e necessar) domestic la,s. Assume t&at treaties create rig&ts and o ligations onl) for t&e states to itD not to "ri#ate "arties ,it&in a state. For treaties ,it&out direct effect "ro#isionsD treaties often set t&e frame,ork for domestic regulations 2i.e.D t&e 4T/ does not set fort& customs la,s ut rat&er onl) sets fort& t&ings t&at states can and cannot do3. Treaties often set u" dis"ute resolution mec&anisms ut are usuall) onl) a#aila le to statesD not to "ri#ate "artiesM 'e- %ercatoria %ercantile customK not necessaril) reflected in an) official regulations. Inde"endent "ri#ate legal s)stem. /ften drafted to accommodate and incor"orate t&e customs and usages of t&e trade. Can e codified and!or incor"orated ) reference into legal documents and gi#en effect in legal s)stems. .-am"les include t&e Uniform Customs and Practices 2UCP3 and t&e UCC. %a) come u" in ar itrationD ,&ere t&e ar itrators ma) c&oose to disregard a national la, 2t&e ar itratorD ,&en in &is discretionD finds t&at

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neit&er nations< la, s&ould a""l)D ma) determine to a""l) lex mercatoria as t&e go#erning la, of t&e dis"ute3. C. I6T.(6ATI/6A' .C/6/%IC 'A4 /(GA6INATI/6*

Ta-onom) of Tariff *tructures Free trade agreements 9 FTA Commits to 0ero tariffs. Customs union 9 CU *imilar to free trade agreements ut adds a common e-ternal tariff 2C.T3. Creates a single customs area ,it& t&e same tariff rate. Common market 9 C% Aims to esta lis& an integrated econom) in goodsD ser#icesD la or and ca"ital. .conomic communit) 9 .C Adds in a furt&er le#el of macroeconomic "olic) 2i.e.D agricultural "olicies3. .conomic union 9 .U Adds a common currenc) and common fiscal!monetar) "olicies. To,ards creating a national econom) on a regional scale. T&e dee"er integrationD t&e more so#ereignt) eac& mem er state must gi#e u" to central institutions. General Agreement on Tariffs and Trade 2GATT3 Treat) 6egotiated "ost:44II and ,ent into effect in 89$5. =rafted in res"onse to trade free0e of t&e Great =e"ression 2to "romote trade li erali0ation "oliciesD i.e.D reduction of tariffs3. ?ie,s international la,<s role as facilitating t&e coordination and coo"eration of trade. Ad#antageous to economistsK distorts efficient allocation of resources. Also ske,s a countr)<s com"arati#e ad#antage. GATT ,as su""osed to e "art of t&e International Trade /rgani0ation 2IT/3D ut it ne#er ,ent into effect ecause of c&anging "olitical climate in t&e United *tates. .-ecuti#e ranc& still entered into t&e GATT. GATT ecame a set of core trade rules ,it& no organi0ation to enforce t&em. T&e Core Pro#isions GATT Article I Article I is t&e Emost fa#ored nationF statusK "referential treatment. *"ecific commitment to ot&er countries to gi#e t&em t&e same treatment t&at )ou gi#e to )our most fa#ored nation. Promoted trade li erali0ationD ut creates t&e Efree riderF "ro lem ,&ere e#er)one enefits from one fa#ora le treatment. Article III Article III is t&e Enational treatmentF "ro#isionD ,&ic& reGuires a state to treat foreign goods in t&e same manner t&e state treats

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domestic goods. Plugs t&e ga" for ,il) nations ,&o tr) to circum#ent t&e %F6 reGuirements ) lea#ing t&e tariff alone ut including a ta- on foreign goods. 4orld Trade /rgani0ation 24T/3 Created in 899$ during t&e Urugua) round t&roug& t&e 4T/ Agreement. In order to Coin t&e 4T/D a state must agree to a ,ide treatment of treaties. Cannot sue as a "ri#ate "art) for a #iolation of a 4T/ "ro#ision 9 onl) t, go#ernments. @o,e#erD t&ere is a mec&anism 2; 3083 can force t&e go#ernment to ring an action for t&e alleged trade #iolation. 6o "ri#ate remediesK and s&ould t&e offending state refuse to com"l) ,it& t&e 4T/ "ro#isionD onl) remed) ,ould e a sanction ) )our go#ernment on t&e state<s "roducts. T&e Core Pro#isions of t&e 4T/ Agreement Anne-es I:I? 2IA!B!C set t&e frame,ork for ,&ic& )our client ,ill e o"erating3. Anne- IA is t&e 89$5 GATT Treat) along ,it& se#eral ot&er agreements. Anne- IB is t&e GAT*K general agreement on trade and ser#ices. Anne- IC is t&e T(IP* AgreementK trade related IP rig&ts. Anne- II is t&e =*UK dis"ute settlement understanding. Anne- III is t&e TP(%K trade "olic) re#ie, mec&anism. Anne- I? is t&e Plural:lateral AgreementsK for s"eciali0ed industries. .uro"ean Union 2.U3 /riginall) created a tri"artite s)stem. T&e .uro"ean Communit) &andles t&e common markets 9 su"ranational. /ne ranc& &andles Custice and &ome affairs 9 intergo#ernmental. /ne ranc& &andles common foreign and securit) "olic) 9 intergo#ernmental. =ee" securit) rationale for creating union t&roug& economic integration. =eregulator) "roCect 9 focused on creating strong central institutions. A ilit) to create inding legislation e)ond a state<s #eto "o,er. *u"remac) and direct effect. Communit) institutions can onl) act ,it&in t&e "o,er allocated to t&em. .U Institutions .uro"ean Council /ne countr)D one c&air re"resentation. Presidenc) of council rotates among t&e mem ers. %em ers&i" de"ends on t&e su Cect matter eing discussedD i.e.D a trans"ortation issue ,ould e discussed ) t&e mem ers< trans"ortation ministers. .nacts legislation. .uro"ean Commission

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Initiates legislation. /"erating in t&e est interests of t&e communit)D not indi#idual mem er states. .uro"ean Parliament =irectl) elected re"resentati#esK seats allocated according to "o"ulation. (ole &as een enlarged to re"resent constituentsK co:decision role. Parliament &as no inde"endent legislati#e "o,er. .uro"ean Court of Austice @as a "olicing role ,it&in t&e ranc&es of t&e s)stem itself. Pro#ides court for intra:communit) dis"utes and enforcement. Article 23$ 9 "reliminar) reference "rocessO Communit) la, enforcement and adCudication can e roug&t in t&e courts of an) mem er state. Functions as t&e Esu"reme courtF on matters of communit) la, onl). .uro"ean communit) la, is a#aila le to "ri#ate "arties. .uro"ean Communit) 'a, (egulations *imilar to statutes 9 "rimar) legislati#e out"ut. Binding on mem er states ,it&out need for furt&er im"lementing legislation. =irecti#es %ore o"en:ended 9 onl) inding as to outcome. Commands to mem er states to enact national legislation to accom"lis& outcomes of directi#es. All .U legislation must e ased in a treat) "ro#ision. Gi#es indi#idual mem er states some lee,a) to going a out setting u" s)stem 9 goal is mandatedD not met&od of accom"lis&ment. Treat) Pro#isions Can e la, if t&e) &a#e direct affect. 4ritten in suc& a ,a) t&at t&e) are adeGuate for creating rig&tsD "ri#ilegesD o ligationsD and res"onsi ilities. 6ort& American Free Trade Agreement 26AFTA3 Tec&nicall) a free trade agreement ut it also addresses issues all t&e ,a) do,n t&e list. For e-am"leD it addresses goodsD ser#ices and ca"ital ut does not "romote t&e free mo#ement of la or 9 in fact it is anti:free mo#ement of la or. United *tates &as traditionall) eenD and still isD rat&er reluctant to transfer an) so#ereignt) to an international organi0ation. Facilitates and "rotects foreign in#estments. 6AFTA la, is Cust ackground la, t&at sets t&e frame,ork for CanadianD U* and %e-ican legislation. T&e Core Pro#isions of 6AFTA C&a"ter 88 co#ers foreign in#estment and esta lis&es a inding ar itration "rocedure for dis"utes et,een a "ri#ate "art) and a

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go#ernment. C&a"ter 89 co#ers U*!Canada trade agreement "ro#isions and "ro#ides for i:national re#ie, "anels for im"artial a""ellate "roceedings. THE DOCUMENTARY SALE A.
OF

GOODS

C/6T(ACT F/(%ATI/6

T&e Basic Transaction T&e transaction in fi#e stagesP 2i3 contract formationD 2ii3 letter of creditD 2iii3 s&i"mentD 2i#3 "a)ment and 2#3 deli#er). Transactions "resent t&e risk of non"a)mentD risk of fraudD non: conforming goodsD loss or damage in transitD currenc) fluctuationsD confusion o#er c&oice of la,D customs formalitiesD insol#enc) of one "art)D language misunderstandings. International trading communit) &as soug&t to a#oid large and uncertain risks ) creating de#icesD ,&ic& reak t&em do,n into man) small and measura le risks. Accom"lis&ed t&roug& t&e + , sale contract et,een u)er and sellerK + , letter of credit contract 2confirmed irre#oca le negotia le loc3 et,een u)er<s ank and sellerK and + , ill of lading et,een seller and carrier. Concerns in t&e Contract Formation Parties generall) follo, t&e "ro#isions under Article 8$ of t&e CI*G. Form 2 ,ould e t&e id!offer and Form 3 ,ould e t&e acce"tance. Incoterms in#ol#ed regarding s&i""ing 2FA*D CQFD CIF3 "ro#ide a degree of clarit) as to t&e rig&ts and o ligations of t&e "arties in#ol#ed. Could find enefits in taking "roducts furt&er along t&e deli#er) c&ainD suc& as "adding t&e s&i""ing costs. Also gi#es t&e seller a greater amount of control o#er t&e transaction and uild in "rofit t&roug& eac& link in t&e c&ain. 4&) 880R insurance co#erageS Transaction "resu""oses t&at t&e goods are to e sold and t&us uilds in a "rofit com"onent for t&e u)er. 4&en reGuesting a 'C transactionD t&e s&i"ment terms must e CIF. Bu)er<s ank ,ould &a#e to see t&at t&e *eller &as "aid for all t&e reGuired fees!costs. Terms on t&e letter of credit must strictl) com"l) ,it& t&e terms of t&e credit. Pa)ment is made Eagainst t&e documents.F

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Pro lem $.8 9 Insulation to German) Uni#ersal gi#es .uro<s agent a standard "rice list for its "roducts t&at s"ecifies ET200 "er 800l sD .I4 PlantD >ansas Cit).F /ne mont& laterD .uro sends Uni#ersal a E"urc&ase orderF for E+D000l s of insulation for T80D000 .I4 >ansas Cit) for immediate deli#er) to =armstadtD German). .uro.F *ame da)D Uni#ersal res"onds ) fa-ing a Eorder ackno,ledgment formF to .uro<s office statingD E4e acce"t )our order to u) +D000l s of insulation for T80D000 .I4 >ansas Cit). Goods sold as is and ,it& all faults 2UCC 2:3813. Contract is go#erned ) t&e la,s of >ansas.F Initial Issues 4as a contract e#er formedS 2UCC 2:205 #. German)<s Emirror imageF rule3. 4as Uni#ersal<s "rice s&eet an offer or an in#itation to idS 4&at contract la, s&ould ,e a""l) to t&e "ro lemS If .uro<s first transmission of t&e "urc&ase order ,as an offer and Uni#ersal<s ackno,ledgment ,as an acce"tanceD ,&at effect does Uni#ersal<s additional terms &a#eS All e#ents a o#e occur and ,it&in a ,eek Uni#ersal s&i"s t&e goods and ills .uro. .uro acce"ts t&e goods and "a)s for t&em. T&e "i"e insulation reacts negati#el) ,it& t&e .uro "i"es and causes it to corrode. *econdar) Issues If not "re#iousl)D &as a contract een formed no,S Under t&e UCC "erformance can com"lete a contract. Under mirror image ruleD t&e last offer on t&e ta le controls 2Elast s&ot ruleF3. Part) acce"ting t&e goods acce"ted t&e last offer on t&e ta le. Pro lem:*ol#ing A""roac& to Contract Issues ) Prof. Frank Garcia

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8. IDENTIFY POSITION IN THE DISPUTE. =efendant facing "otential lia ilit). 2. IDENTIFY MEANS AND GOAL. Goal is to a#oid "otential lia ilit). 4&at means are a#aila le to a#oid lia ilit)S Plan A T&ere is a disclaimer in t&e contract and t&at t&e disclaimer is effecti#e in t&e a""lica le Curisdiction. Plan B =amages are not a#aila le for t&is t)"e of claim. Plan C 6o reac& of ,arrant). T,o asic t)"es of ,arrantiesK ,arrant) of merc&anta ilit) 2"roduct is good and relia le e-am"le of its t)"e of "roduct and ,ill "erform associated t)"es of functions3 and ,arrant) of fitness for a "articular "ur"ose 2if t&e merc&ant &as reason to kno, ,&at )ou are using t&e "roduct forD t&en t&e "roduct must do ,&at it ,as "romised it ,ould do3. i.e.D t&is t)"e of insulation is "erfectl) situated for t&e a""lication it ,as designed for and t&e "ro lem ,as t&e metal com"osition of t&e .uro"ean "i"es. 4&et&er t&ere is a disclaimer is a matter of contract formation la, ,&ereas ,&et&er t&e disclaimer is effecti#e is a matter of ,arrant) la,. 3. DETERMINE -HICH LA- -OULD BEST ACHIEVE YOUR GOAL. Cannot o Cecti#el) searc& t&roug& c&oice of la, anal)sisK must do so "ur"osefull) to ac&ie#e t&e desired goal 9 i.e.D enforce disclaimer and!or a#oid lia ilit). >ansas 'a, . 2/206. O11er a"# A((e2%a"(e " F!r3a% !" !1 C!"%ra(%.
283 Unless ot&er,ise unam iguousl) indicated ) t&e language or circumstances 2a3 an offer to make a contract s&all e construed as in#iting acce"tance in an) manner and ) an) medium reasona le in t&e circumstancesP 2 3 an order or ot&er offer to u) goods for "rom"t or current s&i"ment s&all e construed as in#iting acce"tance eit&er ) a "rom"t "romise to s&i" or ) t&e "rom"t or current s&i"ment of conforming or nonconforming goodsD ut t&e s&i"ment of nonconforming goods is not an acce"tance if t&e seller seasona l) notifies t&e u)er t&at t&e s&i"ment is offered onl) as an accommodation to t&e u)er. 223 If t&e eginning of a reGuested "erformance is a reasona le mode of acce"tanceD an offeror t&at is not notified of acce"tance ,it&in a reasona le time ma) treat t&e offer as &a#ing la"sed efore acce"tance. +3, A definite and seasona le e-"ression of acce"tance in a record o"erates as an acce"tance e#en if it contains terms additional to or different from t&e offer. . 2/207. Ter3$ !1 C!"%ra(%4 E11e(% !1 C!"1 r3a% !". *u Cect to *ection 2:202D if 2i3 conduct ) ot& "arties recogni0es t&e e-istence of a contract alt&oug& t&eir records do not ot&er,ise esta lis& a contractD 2ii3 a contract is formed ) an offer and acce"tanceD or 2iii3 a contract formed in an) manner is confirmed ) a record t&at contains terms additional to or different from t&ose in t&e contract eing confirmedD t&e terms of t&e contract areP 2a3 terms t&at a""ear in t&e records of ot& "artiesK 2 3 termsD ,&et&er in a record or notD to ,&ic& ot& "arties agreeK and 2c3 terms su""lied or incor"orated under an) "ro#ision of t&is Act.

/ffer ,as "urc&ase orderK acce"tance ackno,ledgment. =e#iant acce"tance is still an acce"tance.

,as

order

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Comment $ and + to UCC sectionsK disclaimers of lia ilit) c&ange a material term of t&e contract. If construed as an additional termD t&en t&e disclaimer falls out ,&ic& is ad for our "art) 9 court fills in a""ro"riate language. Could argue t&at e#er) contract "resumes a ,arrant) of merc&anta ilit) and t&en t&e disclaimer is a different term. If different termD t&e) cancel eac& ot&er out and court fills in la,D ,&ic& includes an im"lied ,arrant) of merc&anta ilit).

4&at a out "ro#ision t&at statesD EContract is go#erned ) t&e la, of >ansas.F Is t&at a materiall) altering additional termS *ur"rising to ot&er "art)S Les. It ,ould materiall) c&ange t&e effect of t&e disclaimerK it falls out. Also defeats our goal since t&e disclaimer ,ould fall out as ,ell. German 'a, %irror image rule U last s&ot doctrine t&e disclaimer is in. Performance as a met&od of acce"tance. T&us ,e ,ant German la, to a""l) to t&is claim. Under UCC ; 2:205D t&e courts can find "arties &ad a contract t&roug& "erformance. Block uster acce"tance. *ee comments to ; 2:205D 8 t&roug& 3. $. IDENTIFY
THE ARGUMENTS UNDER THE RELEVANT CHOICE OF LA- RULES FOR PROVIDING THE BEST CHANCE OF SUCCEEDING IN GETTING THE LA- IDENTIFIED IN STEP THREE.

If "art) is a defendant 2as &ere3D it must antici"ate ,&at forums mig&t e sued in 9 &ere it ,ould e >ansas or German). For c&oice of la, rules for >ansas 9 (.2d of 'a,s ; 1 and ; 877 9 ,ould also need to kno, ,&et&er t&e su"reme court of >ansas!legislature &as ado"ted t&e restatement language. ; 875 asicall) states t&e "rinci"le of "art) autonom) 9 allo,s t&e "arties to make t&eir o,n c&oice. But it doesn<t tell )ou ,&at to do if unsure if ot& "arties &a#e not agreed to c&oice of la,. .U created a treat) et,een t&e mem er states for a single set of c&oice of la, rules. /nl) a#aila le no, as a regulation to a""l) to domestic la,s. B. C@/IC.
/F

'A4 9 U6IT.= *TAT.*

(estatement 2d ; 875 9 'a, of t&e *tate C&osen B) t&e Parties 283 T&e la, of t&e state c&osen ) t&e "arties to go#ern t&eir contractual rig&ts and duties ,ill e a""lied if t&e "articular issue is one ,&ic& t&e "arties could &a#e resol#ed ) an e-"licit "ro#ision in t&eir agreement directed to t&at issue. 223 T&e la, of t&e state c&osen ) t&e "arties to go#ern t&eir contractual rig&ts and duties ,ill e a""liedD e#en if t&e "articular issue is one ,&ic& t&e "arties could not &a#e resol#ed ) an e-"licit "ro#ision in t&eir

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agreement directed to t&at issueD unless eit&er 2a3 t&e c&osen state &as no su stantial relations&i" to t&e "arties or t&e transaction and t&ere is no ot&er reasona le asis for t&e "artiesV c&oiceD or 2 3 a""lication of t&e la, of t&e c&osen state ,ould e contrar) to a fundamental "olic) of a state ,&ic& &as a materiall) greater interest t&an t&e c&osen state in t&e determination of t&e "articular issue and ,&ic&D under t&e rule of ; 877D ,ould e t&e state of t&e a""lica le la, in t&e a sence of an effecti#e c&oice of la, ) t&e "arties. 233 In t&e a sence of a contrar) indication of intentionD t&e reference is to t&e local la, of t&e state of t&e c&osen la,. .ns&rines "rinci"al of "art) autonom) ut also gi#es courts latitude to searc& t&roug& t&e e#idence to determine if t&e "arties &ad a c&oice of la, in mind. Comment a. (ule is ina""lica le unless it can e esta lis&ed t&at t&e "arties &a#e c&osen t&e state of t&e a""lica le la,. If ;875 is outD )ou ,ould &a#e to c&oose t&e od) of la, to determine ,&et&er or not t&e c&oice of >ansas la, is effecti#e. Could inter"ret t&at ; 875 cannot a""l) 2no c&oice made3 9 "er se ineffecti#e c&oice. T&en ,e mo#e on to limited ; 877 anal)sis.

(estatement 2d ; 877 9 'a, Go#erning In A sence of .ffecti#e C&oice B) t&e Parties 283 T&e rig&ts and duties of t&e "arties ,it& res"ect to an issue in contract are determined ) t&e local la, of t&e state ,&ic&D ,it& res"ect to t&at issueD &as t&e most significant relations&i" to t&e transaction and t&e "arties under t&e "rinci"les stated in ; 1. 223 In t&e a sence of an effecti#e c&oice of la, ) t&e "arties 2see ; 8753D t&e contacts to e taken into account in a""l)ing t&e "rinci"les of ; 1 to determine t&e la, a""lica le to an issue includeP 2a3 t&e "lace of contractingD Wreference to forum<s contract la,XK 2 3 t&e "lace of negotiation of t&e contractK 2c3 t&e "lace of "erformanceK 2d3 t&e location of t&e su Cect matter of t&e contractK and 2e3 t&e domicileD residenceD nationalit)D "lace of incor"oration and "lace of usiness of t&e "arties. WT&ese contacts are to e e#aluated according to t&eir relati#e im"ortance ,it& res"ect to t&e "articular issue.X 233 If t&e "lace of negotiating t&e contract and t&e "lace of "erformance are in t&e same stateD t&e local la, of t&is state ,ill usuall) e a""liedD e-ce"t as ot&er,ise "ro#ided in ;; 879:899 and 203. Can use la, determined under ; 877 to fill in t&e ga"s for issues remaining under ; 875 c&oice of la, anal)sis. Using ; 877 to select a od) of contract la, in order to ,ork on t&e c&oice of la, anal)sis. /nl) to determine ,&ic& Curisdiction &as t&e most significant contacts ,it& res"ect to t&is issue alone 2i.e.D ,&at contract la, ,ill I use to determine ,&et&er c&oice of la, language is #alid and included in t&e contract3.

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In our e-am"leD ,e ,ould ,ant ; 877 to result in >ansas la, eing used to knock out t&e c&oice of la, clause. ; 877 allo,s us room to argue. A""lication of t&e Princi"les. Under 2a3D >ansas follo,s t&e mail o- rule and t&e "lace of contracting is t&e "lace from ,&ic& t&e last communication 2acce"tance in t&is case3 is sent. T&us it is >ansas. *a)s 2 3 doesn<t reall) a""l) since it ,as Cust an e-c&ange of documents from a distance. Under 2c3D ,&ere did Uni#ersal "erformS Under t&e .I4 termD t&e "lace of "erformance of t&e seller is >ansas. 4&at a out .uro<s "erformanceS (ule in >ansas is t&at "a)ment occurs in t&e "lace ,&ere t&e seller<s account is credited. 4e<ll assume it is a ank in >ansas. Under 2d3D ,&at ,as t&e location of t&e su Cect matter of t&e contractS Usuall) a""lies ,&en dealing ,it& t&ings like fi-tures. If it did a""l)D ,e ,ould assume it ,ould e German) since t&at is ,&ere t&e goods are going to e installed. Finall)D under 2e3D it ,ould e a ,as& since ,e &a#e a "art) in >ansas and German). (estatement 2d ; 1 9 C&oice of 'a, Princi"les 283 A courtD su Cect to constitutional restrictionsD ,ill follo, a statutor) directi#e of its o,n state on c&oice of la,. 223 4&en t&ere is no suc& directi#eD t&e factors rele#ant to t&e c&oice of t&e a""lica le rule of la, includeP 2a3 t&e needs of t&e interstate and international s)stemsK 2 3 t&e rele#ant "olicies of t&e forumK 2c3 t&e rele#ant "olicies of ot&er interested states and t&e relati#e interests of t&ose states in t&e determination of t&e "articular issueK 2d3 t&e "rotection of Custified e-"ectationsK 2e3 t&e asic "olicies underl)ing t&e "articular field of la,K 2f3 certaint)D "redicta ilit) and uniformit) of resultK and 2g3 ease in t&e determination and a""lication of t&e la, to e a""lied. 4e ,ould &a#e to argue ,&) t&e a o#e factors ,eig& in fa#or of a""l)ing German la,. Use of t&e Forum<s 'a, ) =efault T&is ,as t&e rule under t&e first restatement. Use t&e la, of t&e "lace of contracting 9 forum<s contract la, to determine ,&ere t&e contract ,as formed 9 *ee Comment e to ; 877. Could s&a"e litigation ) c&oosing a "articular forum. In our e-am"leD t&e result ,ould e to use >ansas la, ,&ic& ,ould knock out t&e c&oice of la, clause ,&ic& is good. C. C@/IC.
/F

'A4 9 .U(/P.A6 U6I/6

Con#ention on t&e 'a, A""lica le to Contractual / ligations 2..C3!.C (egulation +93!2007 Article 3. A contract s&all e go#erned ) t&e la, c&osen ) t&e "arties. T&e c&oice must e-"ressed or demonstrated ,it& reasona le certaint) ) t&e terms of t&e contract or t&e circumstances of t&e case. T&e e-istence and #alidit) of t&e consent of t&e "arties as to t&e

8$

8+
c&oice of t&e a""lica le la, s&all e determined in accordance ,it& t&e "ro#isions of Articles 7D 9D and 88. Article $. To t&e e-tent t&at t&e la, a""lica le to t&e contract &as not een c&osen in accordance ,it& Article 3D t&e contract s&all e go#erned ) t&e la, of t&e countr) ,it& ,&ic& it is most closel) connected. It s&all e "resumed t&at t&e contract is most closel) connected ,it& t&e countr) ,&ere t&e "art) ,&o is to effect t&e "erformance ,&ic& is c&aracteristic of t&e contract &asD at t&e time of conclusion of t&e contractD &is &a itual residenceD orD in t&e case of a od) cor"orate or unincor"oratedD its central administration. Article 7. T&e e-istence and #alidit) of a contractD or of an) term of a contractD s&all e determined ) t&e la, ,&ic& ,ould go#ern it under Wt&is con#entionX if t&e contract or term ,ere #alid. 6e#ert&elessD a "art) ma) rel) u"on t&e la, of t&e countr) in ,&ic& &e &as &is &a itual residence to esta lis& t&at &e did not consent if it a""ears from t&e circumstances t&at it ,ould not e reasona le to determine t&e effect of &is conduct in accordance ,it& t&e la, s"ecified in t&e "receding "aragra"&. A""lication to Pro lem. If contract or term of contract ,ere #alid under >ansas la,D under Article 3 it ,ould e t&e la, of >ansas to determine if t&e c&oice is #alid. Lou ,ould use t&e la, t&e) tried to c&oose to determine if t&eir c&oice of la, ,as #alid 9 gi#e "art) t&e enefit of t&e dou t in t&e c&oice t&e) tried to make. *ection 3 of Article $ allo,s one to argue t&at t&e contract is Emanifestl) more closel) connectedF ,it& German) t&an >ansas. If case is tried in German)D >ansas la, ,ould a""l) gi#en t&e Articles a o#e and t&us Uni#ersal ,ould lose t&e disclaimer as ,ell. =. C/6?.6TI/6
/6 T@. I6T.(6ATI/6A'

*A'.

/F

G//=* 2CI*G3

A""lication of t&e CI*G In t&e United *tatesD t&e CI*G is considered a self:e-ecuting treat)D so no domesticD federal legislation ,as enactedD or is necessar). It t&us &as t&e effect of federal la,D "reem"ting all state uniform commercial codes unless t&e "arties to t&e contract &a#e agreed ot&er,ise 2i.e.D "arties Eo"ted outF3. Parties need to s"ecificall) state t&at contract is not go#erned ) t&e CI*G ut t&at it is go#erned ) t&e UCC as ado"ted ) >ansas. Article 8. T&is con#ention a""lies to contracts of sale of goods et,een "arties ,&ose "laces of usiness are in different statesP +a, ,&en t&e states are contract statesK or +5, ,&en t&e rules of "ri#ate international la, lead to t&e a""lication of t&e la, of a contracting state. T&e United *tates declared a reser#ation under Article 9+ and t&erefore is not ound ) Article 82832 3 9 i.e.D if action is filed in U*D and t&e c&oice of la, "oints to t&e U*D t&en t&e U* la, a""liesD not t&e CI*G3. German) made a statement t&at "arties 2i.e.D t&e U*3 ,&o

8+

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made a declaration s&all not e considered a contracting "art) to t&e CI*G. T&e onl) Article 82832 3 situations arise ,it& one non:contracting "art) to 3:,a) transaction. If "arties are t&e U* and German)D t&en )ou in#ol#e t&e reser#ation. If case is filed in U* and c&oice of la, "oints to German)D t&en German la, a""lies ecause t&e U* made t&e reser#ation. Ca$e F 6e# I" United *tates German) Ianadu C*! (e !1 La7 U" %e# S%a%e$ U* Wno 8283 2 3X U* =omestic W !c declarationX U* C*! (e !1 La7 Ger3a"8 German) CI*G German) C*! (e !1 La7 9a"a#' Ianadu Ianadu Ianadu

T&e CI*G A""lied to Pro lem $.8 %ust first ask ,&et&er ,e ,ant t&e "arties to &a#e o"ted out of t&e CI*G or not. 4&at does t&e CI*G do to t&e disclaimerS Article 89. 283 A re"l) to an offer ,&ic& "ur"orts to e an acce"tance ut contains additionsD limitationsD or ot&er modifications is a reCection of t&e offer and constitutes a counteroffer. 223 @o,e#erD a re"l) to an offer ,&ic& "ur"orts to e an acce"tance ut contains additional or different terms ,&ic& do not materiall) alter t&e terms of t&e offer constitutes an acce"tanceD unless t&e offerorD ,it&out undue dela)D o Cects orall) to t&e discre"anc) or dis"atc&es a notice to t&at effect. 233 Additional or different terms relatingD inter aliaD to t&e "riceD "a)mentD Gualit) or Guantit) of t&e goodsD "lace and time of deli#er)D e-tent of one "art)<s lia ilit) to t&e ot&er or t&e settlement of dis"utes are considered to alter t&e terms of t&e offer materiall). =isclaimer as a materiall) altering termS If soD it ecame a counterofferD ,&ic& ,as acce"ted t&roug& .uro<s "erformanceM Article 89 of t&e CI*G is essentiall) an ado"tion of t&e mirror image rule. Conflicting Terms .-istence of conflicting terms creates a ga" t&at t&e court can fill ) recourse to Article 5283<s "rinci"le of good fait& 2Eknock out ruleF3D it can acce"t t&at t&e terms "ro#ided in t&e acce"tance control 2t&e Esecond s&ot ruleF3D or it can incor"orate t&e terms of t&e last communication 2t&e Elast s&ot ruleF3. Arguing for t&e Court in >ansas to A""l) t&e CI*G %ust first go t&roug& Article 82832a3 anal)sis and determine ,&et&er t&e language ,as effecti#e for an Article 1 o"t out.

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Juestion of ,&et&er or not >ansas la, a""lies is re"laced ) ,&et&er or not t&e "arties &a#e o"ted out. T,o A""roac&es. Use t&e CI*G<s o,n formation rules to determine ,&et&er t&e "arties &a#e o"ted out of t&e CI*G 2i.e.D argue t&at c&oice of la, clause is a materiall) altering term 9 turns it into a counteroffer ,&ic& .uro acce"ted ) "erformance3. Article 5 states t&at t&e con#ention is to "romote uniformit) and good fait&. Conformit) ,it& t&e la, a""lica le ) #irtue of t&e rules of "ri#ate international la,. C&oice of la, Guestion 9 an issue under ; 875 9 &a#e t&e "arties o"ted out is t&e same as &a#e t&e "arties made an effecti#e c&oice of la,. Under t&is a""roac& t&e o"t out fails and t&at is good for t&e defendant. If Case is Filed in German)S CI*G a""roac& 9 same anal)sis and t&at is ad. C&oice of la, a""roac& 9 CI*G Article 3!7 9 using >ansas la, to determine ,&et&er >ansas la, ,as c&osen is good ecause t&e o"t out fails and t&e CI*G a""lies. *ummar) of Pro lem $.8 3. DETERMINE -HICH LA- -OULD BEST ACHIEVE YOUR GOAL CI*G Article 8 Curisdictional anal)sis. %odified mirror image rule. =e#iant acce"tance is an effecti#e acce"tance unless it materiall) alters t&e offerK terms don<t fall out ut t&e entire acce"tance ecomes a counteroffer. /rder ackno,ledgement is a counteroffer 9 .uro acce"ted ) "erformance disclaimer is in and t&at is good. >ansas =e#iant acce"tance rule 9 altering term falls out and t&at is ad. German) %irror image rule 9 counter offer 9 acce"tance t&roug& "erformanceK disclaimer is in and t&at is good. $. DETERMINE HO- TO ARGUE FOR APPLICATION ON THE LA- -E -ANT. 4e kno, t&e CI*G a""lies 9 Article 82832a3. /ne of t&e t,o documents &as languageD ,&ic& "ur"orts to e a c&oice of la, language 9 ut is it sufficient to o"t out of CI*GS 'anguage alread) in t&e ook &as alread) een determined to e ineffecti#e for o"ting out 9 la, of >ansas is t&e CI*GD etc.. 4e no, assume t&at t&e language statedD Et&is contract is go#erned ) t&e UCC of >ansas and is not su Cect to t&e CI*G.F Case is Filed in >ansas Use t&e CI*G a""roac& c&oice of la, clause is in so t&e "arties &a#e o"ted out of t&e CI*G 9 t&usD >ansas la, a""lies. Lou<re under t&e CI*G until )ou determine t&at )ou<re not. Under >ansas la, t&e disclaimer is out ,&ic& is ad.

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Using contract la, to determine ,&et&er t&e C/' clause is in 9 if it is t&en >ansas la, a""lies ecause t&e) o"ted out of t&e CI*G. (eferencing t&e CI*G language and t&e general "rinci"les on ,&ic& it is ased to determine ,&et&er o"t:out succeeds or not. *traig&t for,ard c&oice of la, a""roac& Article 5 of t&e CI*G. @o, ,ould t&e court anal)0e it under its o,n C/' rules 2i.e.D ; 8753S Could e "er se ineffecti#e 9 no c&oice of la, and if soD t&en t&e CI*G a""lies WGarcia t&inks ad a""roac&X. Use ; 877 in limited sense to determine most significant relations&i" for anal)0ing t&e c&oice of la, clause Forum<s contract la, 2>ansas3 9 t&e C/' is out and t&e CI*G a""lies. Case is Filed in German) CI*G a""roac& C/' clause is in and >ansas la, a""lies ,&ic& is ad. C/' a""roac& Because it is a German courtD t&e ..C articles a""l). Article 3 &a#e t&e "arties made an effecti#e c&oiceS Article 7!80 9 4&en t&e e-istence of a term is in GuestionD )ou use t&e la, ,&ic& ,ould a""l) under t&e regulation to determine ,&et&er t&e term e-ists or not 2i.e.D )ou use t&e la, t&at ,ould a""l) if t&e term e-ists to determine if t&e term e-ists3. Use >ansas la, to determine ,&et&er >ansas la, ,ould allo, t&e c&oice of la, clause 9 C/' is out and t&e CI*G a""lies ,&ic& is good.

..

BU*I6.** P'A66I6G

*tructuring Contracts @a#e im"ortant terms!"ro#isions s"ecificall) negotiated and argained for. Could e "ro lematic for seller<s sales teamK time consumingK a""earance of not standing e&ind "roduct. Block uster offer!acce"tance 2e-"ressl) conditioned on certain termsD ; 2:2053. If ot& "arties &a#e it and "erformD no contract is formed on documents. Can &a#e order "rocessing "eo"le flag "ro lematic acce"tances. An) commercial met&od for risk s"readingD limitation of lia ilit) rat&er t&an disclaimer. F.=I*T(IBUT/(*@IP*!AG.6T*
A6= T@.

U*.

/F

C/U6T.(T(A=.

=istri utor or Agent T&e Inde"endent Foreign Agent. A "erson ,&o does not take title to t&e goods and ,&o is usuall) "aid in some com ination of salar) and commissions. (isk of non"a)ment remains ,it& t&e U* su""lier.

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=oes not &a#e "o,er to ind U* su""lied unless considered to &a#e een im"lied. 'a,s of t&e agent<s nation ma) regulate t&e nature of t&e agenc) relations&i" su stantiall) more t&an is t&e "ractice in t&e United *tates. T&e Inde"endent Foreign =istri utor. Bu)s t&e U* su""lier<s "roducts and resells t&em t&roug& &is o,n distri ution net,ork. (isk of non"a)ment is transferred to t&e distri utor. 'anguage of distri ution agreement s&ould e clear as "ossi le in noting t&e nature of t&e "rinci"al:"rinci"al as a su stitute for t&e "rinci"al:agent relations&i". Foreign la,s a""lica le to distri ution agreements are usuall) designed toP 2i3 enefit local agents!distri utorsD es"eciall) in t&e area of terminationK 2ii3 restrict or "ro&i it t&e use of agents!distri utorsD essentiall) to "rotect t&e "u lic from unfair agents!distri utorsK and 2iii3 a""l) domestic la or la, to t&e distri ution agreement in addition to an) s"ecial la,s a""lica le to t&e distri ution agreement. Anti:trust la,s in countries mig&t e enforced against distri utors ut not agents. Use of a distri utor mig&t also result in decreased controlD suc& as determining "riceD marketingD sales areasD etcH Termination Issues It is #itall) im"ortant to kno, t&e termination la,s in nation ,&ere distri utors&i" "ro"osed. (ig&t to Terminate. If restrictions on termination are im"osedD t&e) usuall) ne#ert&eless allo, termination for Cust cause. *ome nations do not allo, termination at ,ill and ma) not e#en a""ro#e a fi-ed term. Ina""ro"riate notice ma) e treated as termination ,it&out Cust cause. Parties s&ould consider actions t&at immediatel) terminate t&e agreement. Termination for unsatisfactor) "erformance usuall) reGuires some notice and ma) reGuire an o""ortunit) to &a#e a second c&ance after renegotiation. 6otice of Termination. @ost nation ma) &a#e la,s reGuiring notice not onl) to t&e agent!distri utor ut also to a go#ernment officeD along ,it& s"ecifics for deli#ering notice. (ig&ts U"on Termination. 4&ere termination is ,it&out Cust causeD rig&ts ma) e e-tensi#e. Usuall) includes some of monetar) settlement. Agent!=istri utor ma) &a#e to e "aid an) goods in "ossessionD for an) good,ill esta lis&ed ) t&e agent!distri utorD for an) "romotional e-"enses assumedD and for an) ot&er e-"enses or in#estments made during t&e time of t&e agreement. 4ai#er of Termination (ig&ts. T&e la,s or "u lic "olic) of t&e countr) ma) reCect an) ,ai#er of rig&ts ecause t&e agent!distri utor is "resumed to &a#e little argaining le#erage. =enial of Im"ort Pri#ileges. If t&e "rocess to determine t&e com"ensation of a terminated agent!distri utor is continuingD t&e "rinci"al ma) e

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denied an) furt&er rig&ts to im"ort into t&e countr) and ma) not sim"l) s&ift t&e distri utors&i" to anot&er "art). =enial of .-"ort Pri#ileges. T&e U* "art) s&ould include a "ro#ision t&at allo,s sus"ensionD or "ossi l) terminationD of an) o ligations to "ro#ide "roducts to fulfill ordersD ,&en t&e U* go#ernment im"oses restrictions on e-"orts for an) reason. Particularl) im"ortant for agenc) agreements ,&en orders are "laced directl) to t&e U* su""lier rat&er t&an ,it& sales from t&e su""l) of t&e foreign distri utor. .sta lis&ing a =istri utors&i"!Agenc) in %e-ico T&e Use of a Broker or Intermediar) 2Corredor/Mediador3. T&e roker<s "ur"ose is to "ut a "otential u)er in touc& ,it& t&e seller for ,&ic& &e ,ill recei#e a fee for &is ser#ice. Broker does not act as a legal re"resentati#e or em"lo)ee and do not &a#e an) "o,er to ind t&e u)er or seller 9 t&e) merel) act as a ridge et,een t&e t,o. T&e Use of an Agent 2Comisionistas3. Agents are su Cect to t&e rules of attorne)s:in:fact 2mandatarios3. T&e contrato de comisin is regulated under an old commercial code. Treated as a non:"ermanent relations&i" 9 can e re#oked. Can e o"en or secret. %e-ico generall) &as no "rotection for agents or distri utors. T&e CI*GD if a "art) to itD sets out rules go#erning aut&orit) of a""ointment of contracts. =istri ution agreements are not recogni0ed under t&e la,s of %e-ico. U* su""lier ma) &a#e trou le dictating ,&ere and for &o, muc& "roduct ma) e sold. %e-ico created a federal commission on com"etition 2*.C/FI3D attem"ting to "rotect com"etition and "re#ent mono"oliesD mono"olistic "ractices and ot&er restricti#e acts affecting t&e free trade of goods and ser#ices. Countertrade 9 Back to Bartering Countertrade "resents man) urdens u"on t&e outside com"an)D including Gualit) and marketing concerns for t&e e-c&anged "roducts. Because it ma) e difficult to determine ,&at "rice countertraded "roducts are o tained forD it ma) e difficult to conclude ,&et&er "roducts are eing Edum"edF ,&en sold. %an) argue t&at countertrade is "ro lematic 9 E,&en )ou countertrade )ou get an inefficient allocation of resources. .#er) time a com"an) takes ack goods t&at a "urc&asing countr) cannot sell in international marketsD )ou &a#e introduced coercion into t&e s)stem.F Counter"urc&ase Arrangement In suc& an arrangementD a "ri#ate firm agrees to sell "roducts to a so#ereign nation and to "urc&ase from t&e nation goods t&at are unrelated to t&e items t&at it is selling. .ac& "art) is "aid in currenc) u"on t&e deli#er) of its "roducts to t&e ot&er "art). Pri#ate firms ,ill often resell t&e countertraded goods at a discountD seeking to offset t&is loss ) larger "rofits generated )

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t&e sale of its o,n "roduct to t&e nation. Com"ensation Arrangement T&e most common arrangement and referred to as com"ensation or E u): ackDF ,&ere a "ri#ate firm ,ill sell eGui"mentD tec&nolog) or e#en a turn:ke) "lant to a so#ereign nation and agree to "urc&ase a "ortion of t&e out"ut "roduced from t&e use of t&e eGui"ment or tec&nolog). T&e "roducts acGuired are freGuentl) of marketa le Gualit) and in demand in t&e international marketD allo,ing t&e firms to earn a "rofit reselling said "roducts. *,itc& Trading A de#ice used to alance a ilateral clearing agreement. In a ilateral clearing arrangement et,een I and LD I ma) &a#e taken more "roducts from L t&an L &as taken from I. In t&is instanceD L ,ill &a#e a EcreditF in its clearing account. In t&e s,itc& tradeD L ,ill located a t&ird "art) interested in "urc&asing goods from I and su stitutes t&e t&ird "art)<s "urc&ase of I<s goods in satisfaction of its o,n "urc&ase o ligation. G. '.TT.(*
/F

C(.=IT

T&e Basic Commercial 'etter of Credit Transaction Generall) in#ol#es t&ree se"arate transactionsP 2i3 t&e underl)ing contract et,een t&e u)er and seller for t&e "urc&ase of goodsK 2ii3 t&e agreement et,een t&e issuer and its customerD and 2iii3 t&e ank<s o ligation to "a) t&e seller under t&e letter of credit itself. Fundamental Princi"les T&e "rinci"le of inde"endence esta lis&es t&at eac& contract is com"letel) inde"endent of t&e ne-t. T&ereforeD a letter of credit is inde"endent of t&e underl)ing sales contract and ot& t&e anks and t&e "arties must construe and "erform t&e letter of credit in accordance ,it& t&eir o,n termsD ,it&out reference to an) ot&er agreement or transaction. T&e "rinci"le of com"liance dictates t&at documents "resented to t&e ank must com"l) ,it& t&e letter of credit reGuirements. Go#erning 'a,s UCC Article +. T&e U* is t&e onl) countr) ,it& an e-tensi#e s"ecific regulation for letters of credit. International "racticeD as reflected in t&e UCPD &ea#il) influenced t&e UCC re#isions in 899+. Article + go#erns onl) a limited "art of t&e letter of credit transaction. Can e a source of illumination "articularl) on matters in#ol#ing fraud or forger). Uniform Customs and Practice for =ocumentar) Credits. T&e UCP is a set of rules ased on internationall) acce"ted anking "ractices regulating t&e issuance and use of letters of creditD drafted ) t&e International C&am er of Commerce. U* courts and ar itration tri unals recogni0e and enforce t&e UCP ,&ere it is s"ecificall) incor"orated into t&e letter of credit. 4&en

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incor"oratedD t&e UCP is inding u"on all "arties unless e-"ressl) modified or e-cluded ) t&e letter of credit. ?irtuall) e#er) letter of credit incor"orates t&e UCP in toda)<s transactions. T&e 6ature of *trict =ocumentar) Com"liance If a ank determines t&at documentar) discre"ancies e-istD t&e ank ma) elect to dis&onor t&e letter of credit or ask t&e a""licant for a ,ai#er of t&e documentar) reGuirements. *ince t&e ank is funding against t&e documents "resentedD it must "rotect itself from dis ursing funds for recei"t of documents to t&e ,rong goods 9 mirror image. EIt is Guite im"ossi le to suggest t&at a anker W,ould &a#eX t&e kno,ledge of t&e customs and customar) terms of e#er)one of t&e t&ousands of trades for ,&ose dealings &e ma) issues letters of credit.F A@ (a)ner Q Co.D 'td. #. @am ros Bank 'td. Com"liance Under UCP +00 Article 832a3 of t&e old UCP +00 "ro#ides t&at anks must e-amine all "resentation documents to determine ,&et&er t&e) conformD ex facieD to t&e reGuirements of t&e credit. T&e criterion for determining conformit) is t&e Einternational standard anking "ractice as reflected in t&e UCP "ro#isions.F T&e UCP implicitly "rescri es t&e standard of a reasona l) kno,ledgea le and diligent ank documents c&ecker. Consistent ,it& t&is standard is t&e e-ercise of commercial common senseD on a case: ):case asisD suc& t&at minor de#iation of a clericalD t)"ogra"&ical natureD ,illD generall)D not Custif) dis&onor. UCP +00 a""lied a strict com"liance standardM Com"liance Under UCC ; +:8072a3 .-ce"t as ot&er,ise "ro#ided in *ection +: 809D an issuer s&all &onor a "resentation t&atD as determined ) t&e standard "ractice referred to in su section 2e3D appears on its face strictly to comply ,it& t&e terms and conditions of t&e letter of credit. .-ce"t as ot&er,ise "ro#ided in ; +: 883 and unless ot&er,ise agreed ,it& t&e a""licantD an issuer s&all dis&onor a "resentation t&at does not a""ear so to com"l). 4&ere Character of =iscre"anc) %a) 6ot %atter /ne instance is ,&ere t&e information reGuired in t&e letter of credit is omitted in t&e "resentation documents. 4&ere it can e s&o,n t&at a su""osed discre"anc) results from a "atent error or o #ious t)"ogra"&ical mistakeD it is unrealistic to treat t&e tender as in#alid ) reason onl) of a tec&nical sli" or mistake. Beneficiar) &as no control o#er t&e t&ird "arties ,&o generall) draft t&e documents. T&e second instance is ,&ere tendered documents are discordant ,it& t&e terms of t&e letter of credit on t&e ground t&at t&e reGuisite designation of a "art)D name of a "erson or "laceD or num er &as een mis:transcri ed in t&e "resentation documents and t&e mis: transcri"tion is suc& as ,ould in#ite a reasona le ank document c&ecker to make inGuir) e)ond t&e tendered documentationD mislead t&e ankD necessitate t&e solicitation of legal ad#iceD or raise

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t&e likeli&ood of non"erformance or fraud ) t&e eneficiar). T&e Basis of *trict =ocumentar) Com"liance From t&e stand"oint of t&e account "art) 2 u)er!im"orter3D t&e doctrine functions as a safeguard against t&e "ossi ilit) of dis&onest of t&e eneficiar) 2seller!e-"orter3 and some t&ird "art) ,&ose ser#ices t&e seller mig&t enlist in t&e course of "erforming &is o ligations under t&e underl)ing contract 2i.e.D carrier3. From t&e stand"oint of t&e eneficiar)D u"on notification of t&e o"ening of a letter of creditD t&e eneficiar) &as am"le o""ortunit) to re#ie, t&e terms and conditions under ,&ic& &e ,ould e entitled to make a dra,. T&e emerging solution seems to e t&at once t&e credit &as een ad#ised and a "resentation madeD a sent am iguit) in t&e creditD t&e eneficiar) must li#e ,it& t&e terms of t&e credit as notified. From t&e stand"oint of t&e issuing ankD t&e underl)ing "rinci"le of t&e letter of credit transaction is t&e inde"endence of t&e t&ree contracts. T&e issuing ank does not #erif) t&at all t&e terms of t&e underl)ing contract &a#e een fulfilled and must "a) on a draft "ro"erl) "resented ) a eneficiar)D ,it&out reference to t&e rig&ts or o ligations of t&e "arties to t&e contract. T&e issuing ank need onl) make a facial e-amination of t&e "resenting documents to determine ,&et&er t&e eneficiar) &as com"lied ,it& t&e terms of t&e letter of creditD &o,e#erD the bank bears the risk of any misinterpretation of t&e eneficiar)Vs demand for "a)ment. ?oest:Al"ine *tandard and UCP 100
?oest:Al"ine Trading U*A Cor". #. Bank of C&ina Fa(%$P Plaintiff ?oest:Al"ine contracted ,it& AFTC for t&e su""l) of certain materials. Plaintiff financed t&e transaction t&roug& defendant ank. A letter of credit ,as issued and #arious miss"ellings and tec&nical errors ,ere "resent on t&e instrument. After t&e "rice of materials c&anged su stantiall)D "laintiff failed to reduce t&e "rice and a dis"ute arose ,&ic& in#ol#ed t&e entities and t&e financial instruments e&ind t&e transaction. PlaintiffVs ank reGuested t&at t&e defendant ank &onor t&e letter of credit and "a) "laintiff accordingl). H!6# ")P T&e court indicated t&at Uniform Customs and Practices for =ocumentar) Credits ,as on "oint and t&at defendant ,as su""osed to file a timel) notice of reCection ,it& t&e reasons set fort& t&erein. T&e court noted t&at t&is ,as not done. T&e court also &eld t&at t&e s"irit of t&e agreement ,as of im"ortance rat&er t&an an) tec&nical miss"ellings or slig&t errors in t&e letter of credit. T&ereforeD t&e court &eld in fa#or of t&e "laintiff. Rea$!" ")P Banks must e-amine all documents sti"ulated in t&e Credit ,it& reasona le careD to ascertain ,&et&er or not t&e) a""earD on t&eir faceD to e in com"liance ,it& t&e terms and conditions of t&e Credit. Com"liance of t&e sti"ulated documents on t&eir face ,it& t&e terms and conditions of t&e Credit s&all e determined ) international standard anking "ractice as reflected in t&ese Articles. =ocuments ,&ic& a""ear on t&eir face to e inconsistent with one another ,ill e considered as not a""earing on t&eir face to e in com"liance ,it& t&e terms and conditions of t&e Credit.

T&e ?oest:Al"ine *tandard (eCecting t&e notion t&at all of t&e documents s&ould e exactly consistent in t&eir ,ordingD t&e court relied on an ICC o"inion statingD consistenc) as used in Article 832a3 to mean t&at Et&e ,&ole of t&e documents must obviously relate to t&e same transactionD t&at is to sa)D t&at eac& s&ould ear a relation 2link3 ,it& t&e ot&ers on its face.F

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T&e UCP 100 *tandard (eCects t&e strict com"liance test and su""orts com"liance under t&e rational link test. Pro lem +.8 9 Gold 4atc& Pens to France Galleries is a""licant 2 u)er3 and *&ad) is eneficiar) 2seller3. *e"t $ B6P o"ened a letter of credit for u)er. B6P t&en reGuested %etro ank in 6e, Lork to ad#ise seller and confirm t&e credit. *e"t 2+ B6P recei#es tele- from %etro t&at seller "resented documentsD %etro confirmed t&e documentsD and B6P<s account ,as c&arged. /ct 3 B6P recei#ed t&e documents and sent a tele- to %etro noting t&e discre"anc) in E'C=F #. EIC=F on t&e documents. /ct 1 B6P sent anot&er tele- to %etro citing additional discre"anciesK t&at no original in#oices ,ere "resented and t&at all in#oices "resented ,ere marked E"ro forma.F /ct 5 %etro sent a tele- to B6P stating t&at B6P<s original telereferred to t&e goods as EIC=F not E'C=DF t&at t&e in#oice ,as an acce"tance form ecause t&e letter of credit did not "ro&i it t&e use of "ro forma in#oicesD and furt&er t&at B6P is "recluded from raising additional discre"ancies. E'C=F #. EIC=F turned out to e a tec&nical error in t&e tele- s)stem. Go#erning 'a, T&e letter of credit s"ecificall) incor"orated t&e UCP. Comment 3 to ; +:881 also directs us to ignore UCC Article +. Com"liance Under t&e UCC and UCP ;; +:8072a3 and 2e3 "ro#ide for a strict com"liance standard. Article 8$ of UCP 100 "ro#ides for a rational link standard. A""lication of UCC ; +:807 B6P Pursuant to ; +:8812 3D t&e lia ilit) of t&e issuer for Eaction or omission is go#erned ) t&e la, of t&e Curisdiction in ,&ic& t&e "erson is located. *ince B6P is located in FranceD t&e la, of France ,ill a""l). %etro 'C= #. IC=. .-amining t&e "resentation Eon its faceF for strict com"liance under ; +:8072a3D IC= is different from 'C= ecause IC= could e a different "roduct. 6o originals in#oices. B6P reGuires t&at t&e in#oice e original. B6P asserts t&at t&e in#oice ,as not original in ,&ic& case it ,ould e noncom"liant under ; +:8072a3. %arked "ro forma. B6P reGuired Esigned commercial in#oicesF ut recei#ed in#oices t&at ,ere marked "ro forma. A""lication of Article 8$ of UCP 100 'C= #. IC=. Banks must e-amine documents Eon t&eir faceF to constitute com"liance under Article 8$2a3. T&e risk to t&e issuer is t&at IC= could e a different "roduct from 'C= and t&e documents could mislead t&e ank into "a)ing to its detriment.

2$

2+
6o original in#oices. Article 852 3 states t&at a E ank s&all treat as an original an) document earing an a""arentl) original signatureD markD stam" or la elHunless t&e document itself indicates t&at it is not an original.F %arked "ro forma. Under Article 8$2f3D t&e reGuirement of a commercial in#oice in a credit ,ill e &eld to a &ig&er standard of com"liance. Because B6P reGuired Esigned commercial in#oicesDF t&ere is a strong case for noncom"liance.

(isk of Transmission .rror Article 3+ 9 =isclaimer on Transmission and Translation. Article 35 9 =isclaimer for Acts of an Instructed Part). Bu)er is lia le for t&e transmission error. T&ere is no reason for t&e confirming ank to "a) t&e issuing ank. @o,e#erD t&ere ma) still e an issue et,een B6P and t&e u)er. AdeGuac)!Timeliness of 6otice Under Articles 812c3 and 2f3D t&e first notice of discre"anc) 2'C= #. IC=3 is effect ut t&e second notice 2no originals and "ro forma3 is "recluded. Article 812f3 states t&at a notice of discre"anc) must e "ro#ided Eno later t&an t&e close of t&e fift& anking da) follo,ing t&e da) of "resentation.F Under UCC ; +:807 t&e "reclusion issue is less clear. T&e "&rase Etimel) noticeF raises Guestions of ,&et&er a second timel) notice recei#ed ,it&in t&e se#en da)s sti"ulated in su section 2 3 ,ould e acce"ta le or "recluded. @. F/(.IG6 C/((UPT P(ACTIC.* ACT

Pur"ose of t&e FCPA To "ro&i it "a)ments to foreign officials "ro&i ited ) t&e act and to reGuire issuers registered maintain accurate financial records t&at ,ould tend to disclose t&e e-istence of suc& "a)ments. T&e FCPA does not "ro&i it ri es Gua ri es. T,o im"ortant Guestions are + , for ,&at "ur"ose ,as t&e "a)ment made and + , ,&at is t&e magnitude of t&e affect on t&e foreign nation caused ) t&e "a)ments to one of t&e nation<s officialsS ?iolations of t&e FCPA can e used as t&e asis for ringing a (IC/ #iolation. Amendments to t&e FCPA T&e 8977 amendments remo#ed t&e Ereason to kno,F language from t&e "ro#ision go#erning "a)ments to t&ird "ersonsD ,&ic& mig&t e "assed on to go#ernment officialsD re"lacing it ,it& a definition of Ekno,ing.F T&e 8997 amendments coincided ,it& t&e U.*. ado"tion of t&e /.C= con#ention and added as "ro&i ited "a)ments made to secure Ean) im"ro"er ad#antageDF and e-"anded t&e sco"e of t&e Act e)ond issuers or domestic concerns to co#er "ro&i ited acts ) Ean) "erson.F Foreign "ersons are no, included if t&eir acts occur in t&e United *tates. Aurisdiction is e-tended to assure co#erage of acts t&at take "lace ,&oll)

2+

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outside t&e United *tatesD and t&e officials of international organi0ations are roug&t ,it&in t&e definition of foreign officials. T&e E.ck&ardt AmendmentF contained in t&e original FCPA effecti#el) "re#ented t&e "rosecution of em"lo)ees or agents for #iolating t&e FCPA unless t&e domestic concerns or issuers ,ere found to &a#e #iolated t&e Act. @o,e#erD t&e amendment ,as deleted under t&e Trade Act. :; U.S.C.A. . 7<##/:+a, = Pr!* 5 %e# F!re )" Tra#e Pra(% (e$ 58 I$$'er$ It s&all e unla,ful for an) issuer ,&ic& &as a class of securities registered "ursuant to section 57l of t&is title or ,&ic& is reGuired to file re"orts under section 57o2d3 of t&is titleD or for an) officerD directorD em"lo)eeD or agent of suc& issuer or an) stock&older t&ereof acting on e&alf of suc& issuerD to make use of t&e mails or an) means or instrumentalit) of interstate commerce corru"tl) in furt&erance of an offerD "a)mentD "romise to "a)D or aut&ori0ation of t&e "a)ment of an) mone)D or offerD giftD "romise to gi#eD or aut&ori0ation of t&e gi#ing of an)t&ing of #alue toP 283 an) foreign official for "ur"oses ofP 2A32i3 influencing an) act or decision of suc& foreign official in &is official ca"acit)D 2ii3 inducing suc& foreign official to do or omit to do an) act in #iolation of t&e la,ful dut) of suc& officialD or 2iii3 securing an) im"ro"er ad#antageK or 2B3 inducing suc& foreign official to use &is influence ,it& a foreign go#ernment or instrumentalit) t&ereof to affect or influence an) act or decision of suc& go#ernment or instrumentalit)D in order to assist suc& issuer in o taining or retaining usiness for or ,it&D or directing usiness toD an) "ersonK 233 an) "ersonD ,&ile kno,ing t&at all or a "ortion of suc& mone) or t&ing of #alue ,ill e offeredD gi#enD or "romisedD directl) or indirectl)D to an) foreign officialD to an) foreign "olitical "art) or official t&ereofD or to an) candidate for foreign "olitical officeD for "ur"oses of 2A32i3 influencing an) act or decision of suc& foreign officialD "olitical "art)D "art) officialD or candidate in &is or its official ca"acit)D 2ii3 inducing suc& foreign officialD "olitical "art)D "art) officialD or candidate to do or omit to do an) act in #iolation of t&e la,ful dut) of suc& foreign officialD "olitical "art)D "art) officialD or candidateD or 2iii3 securing an) im"ro"er ad#antageK or 2B3 inducing suc& foreign officialD "olitical "art)D "art) officialD or candidate to use &is or its influence ,it& a foreign go#ernment or instrumentalit) t&ereof to affect or influence an) act or decision of suc& go#ernment or instrumentalit)D in order to assist suc& issuer in o taining or retaining usiness for or ,it&D or directing usiness toD an) "erson. :; U.S.C.A. . 7<##/:+5, = E>(e2% !"$ 1!r R!'% "e G!?er"3e"%a6 A(% !" *u sections 2a3 and 2g3 of t&is section s&all not a""l) to an) facilitating or e-"editing "a)ment to a foreign officialD "olitical "art)D or "art) official t&e "ur"ose of ,&ic& is to e-"edite or to secure t&e "erformance of a routine go#ernmental action ) a foreign officialD "olitical "art)D or "art) official.

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:; U.S.C.A. . 7<##/:+(, = A11 r3a% ?e De1e"$e$ It s&all e an affirmati#e defense to actions under su section 2a3 or 2g3 of t&is section t&atP 283 t&e "a)mentD giftD offerD or "romise of an)t&ing of #alue t&at ,as madeD ,as la,ful under t&e ,ritten la,s and regulations of t&e foreign officialVsD "olitical "art)VsD "art) officialVsD or candidateVs countr)K or 223 t&e "a)mentD giftD offerD or "romise of an)t&ing of #alue t&at ,as madeD ,as a reasona le and ona fide e-"enditureD suc& as tra#el and lodging e-"ensesD incurred ) or on e&alf of a foreign officialD "art)D "art) officialD or candidate and ,as directl) related toP 2A3 t&e "romotionD demonstrationD or e-"lanation of "roducts or ser#icesK or 2B3 t&e e-ecution or "erformance of a contract ,it& a foreign go#ernment or agenc) t&ereof. :; U.S.C.A. . 7<##/:+1, = De1 " % !"$ 2832A3 T&e term Eforeign officialF means an) officer or em"lo)ee of a foreign go#ernment or an) de"artmentD agenc)D or instrumentalit) t&ereofD or of a "u lic international organi0ationD or an) "erson acting in an official ca"acit) for or on e&alf of an) suc& go#ernment or de"artmentD agenc)D or instrumentalit)D or for or on e&alf of an) suc& "u lic international organi0ation. 2332A3 T&e term Eroutine go#ernmental actionF means onl) an action ,&ic& is ordinaril) and commonl) "erformed ) a foreign official inP 2i3 o taining "ermitsD licensesD or ot&er official documents to Gualif) a "erson to do usiness in a foreign countr)K 2ii3 "rocessing go#ernmental "a"ersD suc& as #isas and ,ork ordersK 2iii3 "ro#iding "olice "rotectionD mail "ick:u" and deli#er)D or sc&eduling ins"ections associated ,it& contract "erformance or ins"ections related to transit of goods across countr)K 2i#3 "ro#iding "&one ser#iceD "o,er and ,ater su""l)D loading and unloading cargoD or "rotecting "eris&a le "roducts or commodities from deteriorationK or 2#3 actions of a similar nature.

INTELLECTUAL PROPERTY LICENSING A. C(/**:B/(=.( IP T(A6*F.(*

/#er#ie, =e#elo"ing nations ,ant "roduction "rocesses ,&ic& ma-imi0e use of a undantD ine-"ensi#e la or ut ,&ic& result in "roducts t&at are com"etiti#e in t&e international marketK ca"ital intensi#e "roduction "rocesses 2e.g.D ro otic assem l) lines for automo iles3 of less interest. T&e "redominant #e&icle for controlling tec&nolog) transfers across national orders is t&e license or franc&ise agreement. Concerns for t&e 'icensor!Franc&isor Trade secret la, is Curisdiction ) CurisdictionK need to kno, ,&at

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affirmati#e acts to take to "rotect trade secrets. @o, to "rotect "atent in foreign Curisdictions 2"arties could tr) to re#erse engineer3. Jualit) control. @o, to incor"orate im"ro#ements and ,&o controls said im"ro#ements. .-"ort controls 2i.e.D tec&nolog) )ou cannot e-"ort to certain countries3. (o)alties 9 &o, com"utedD &o, oftenD etcH %onitoring t&e licensee<s usiness o"erations. %onitoring trade dress 2i.e.D ensuring t&at trademarks are "ro"erl) a""lied3. %arketing and ad#ertising as ,ell. 'ia ilit) for "roducts licensed ut manufactured ) licensee. Territor) and e-clusi#it). Control of its intellectual "ro"ert) "ost:termination. Concerns for t&e 'icensee!Franc&isee IP infringement. >ee"ing ro)alties lo,. 'ia ilit). Term and termination rig&ts under licensing agreement. *ome sa) o#er monitoring o"erations. IP Protection Patent Protection. For t&e most "artD "atents re"resent territorial grants of e-clusi#e rig&ts and are granted to in#entors according to national la,. In t&e U*D a "atent issued ,ill grant t&e rig&t for 20 )ears from t&e date of a""lication 285 )ears from t&e date of issuance "rior to T(IP*3 to e-clude an)one from makingD using or selling t&e "atented in#ention ,it&out t&e "ermission of t&e "atentee. T&e U* &as a first to in#ent "riorit) 9 not first to file. T&e U* also &as an e-amination s)stemD inGuiring into "atenta ilit) of t&e in#ention. International (ecognition of Patents Article 2 of t&e Paris Con#entionD granting t&e rig&t of national treatment "ro&i its discrimination against foreign &olders of local "atents and trademarks. It o #iates t&e need to file simultaneousl) in e#er) countr) ,&ere intellectual "ro"ert) "rotection is soug&t 9 &o,e#er 9 it does not eliminate t&e need to file in t&e different Curisdictions if "rotection is soug&t. T&e Patent Coo"eration Treat) ,as designed to ac&ie#e greater uniformit) and less cost in t&e international "atent filing "rocess. Filings are made under t&e PCT is select countries. T&e a""licationD toget&er ,it& an international searc& re"ortD is communicated to eac& national "atent office ,&ere "rotection is soug&t.

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>no,&o,. >no,&o, is commerciall) #alua le kno,ledge. Unlike "atentsD co")rig&ts and trademarksD )ou cannot ) registration o tain e-clusi#e rig&ts to kno,&o, 9 once released to t&e communit)D it cannot e retrie#ed. Protecting kno,&o, is mostl) a function of contractD tort and trade secrets la,. T&e .conomic .s"ionage Act of 8991 creates criminal "enalties for misa""ro"riation of trade secrets for t&e enefit of foreign governments or anyone. A trade secret is defined as EfinancialD usinessD scientificD tec&nicalD economic or engineering informationF t&at t&e o,ner &as taken reasona le measures to kee" secret and ,&ose Einde"endent economic #alue deri#es from eing closel) &eld.F Trademarks. / taining international trademark "rotection reGuires se"arate registration under t&e la, of eac& nation ,&ere it is soug&t. T&e sco"e of trademark "rotection ma) differ su stantiall) from countr) to countr). Alt&oug& national trademark sc&emes differD it can e said t&at generall) a #alid trademark ,ill e "rotected against infringing use. Unlike "atents and co")rig&tsD trademarks ma) e rene,ed continuousl). T&e "rinci"al U* trademark la,D t&e 'an&am Act of 89$1D &as een construed to a""l) e-traterritoriall) to foreign licensees engaging in dece"ti#e "ractices. Foreigners ,&o seek a registration ma) e reGuired to "ro#e a "rior and #alid E&ome registrationF and a ne, registration in anot&er countr) ma) not &a#e an e-istence inde"endent of t&e &ome countr) registration<s continuing #alidit). International (ecognition of Trademarks Article 2 of T&e Paris Con#entionD granting t&e rig&t of national treatment "ro&i its discrimination against foreign &olders of local trademarks. Con#ention also mitigates t&e freGuent national reGuirement t&at foreigners seeking trademark registration "ro#e a "re:e-istingD #alid and continuing &ome registration. Article 1 is gi#es o,ners of E,ell kno,nF trademarks t&e rig&t to lock or cancel t&e unaut&ori0ed registration of t&eir marks. T&e 6ice Agreement ado"tsD for t&e "ur"oses of t&e registration of marksD a single classification s)stem for goods and ser#ices. Co")rig&ts. 6earl) one &undred nations recogni0e some form of co")rig&t "rotection for aut&ors< ,orks 9 #ar)ing from countr) to countr). In t&e U*D it is not necessar) to "u lis& a ,ork to o tain a co")rig&tK it is sufficient t&at t&e ,ork is original and fi-ed in a tangi le medium of e-"ression. U* co")rig&t "rotection no, e-tends for 50 )ears after t&e deat& of t&e aut&or and also controls all deri#ati#e ,orks. (egistration ,it& t&e co")rig&t office is not reGuired to o tain

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co")rig&t rig&ts ut it is essential to federal co")rig&t infringement remedies. In t&e U*D t&e Co")rig&t Felon) Act of 8992 criminali0ed all co")rig&t infringements. T&e =igital %illennium Co")rig&t Act of 8997 roug&t t&e U* into com"liance ,it& 4IP/ treaties and created t,o ne, co")rig&t offensesP 2i3 for circum#enting tec&nological measures used ) co")rig&t o,ners to "rotect t&eir ,orks 2E&ackingF3K and 2ii3 for tam"ering ,it& co")rig&t management information 2Edecr)"tionF3. International (ecognition of Trademarks A sent an a""ro"riate con#entionD co")rig&t registrations must e acGuired in eac& countr) recogni0ed suc& rig&ts. T&e Uni#ersal Co")rig&t Con#ention of 89+2 "ro#ides for national treatmentD translation rig&t and ot&er enefits. .-cuses foreigners from registration reGuirements "ro#ided notice of a claim of co")rig&t is adeGuatel) gi#en. T&e GATT!4T/ and Intellectual Pro"ert) 2T(IPs3 T&e Urugua) (ound accords in 899$ included an agreement on trade:related intellectual "ro"ert) rig&ts creating a general reGuirement of national and most:fa#ored:nation treatment among t&e "arties. T&e T(IPs code co#ers t&e gamut of intellectual "ro"ert). /n "atentsD t&e Paris Con#ention "re#ails 9 "roduct and "rocess "atents are to e a#aila le for "&armaceuticals and agricultural c&emicalsD limits are "laced on com"ulsor) licensingD and a general 20:)ear "atent term is created. Infringement and anti:counterfeiting remedies are included in T(IPsD for ot& domestic and international trade "rotection. B. 'IC.6*I6G AG(..%.6T* 9 .U(/P.A6 U6I/6

Princi"les of .uro"ean Union 'a, Transfers of Tec&nolog) Concerned a out "ossi le anti:com"etiti#e "racticesK t&e .U &as a deregulator) agenda ut a licensing transaction ,it& e-clusi#it) and!or territor) "ro#isions seems like a segregation of t&e .U 9 e-actl) ,&at t&e)<re tr)ing to deconstruct. Pro&i its certain t)"es of agreements t&at are incom"ati le ,it& t&e common market ,&en t&e) affect trade et,een t&e mem er states and &a#e t&e o Cect or effect of restricting com"etition. T&e Maize Seed Audgment. I6(AD a Frenc& reeder of seed #arietiesD assigned to .isele E"lant reeder<s rig&tsF for mai0e seed in German). Pro#isions in t&e agreement ga#e .isele t&e e-clusi#e rig&ts to Eorgani0eF sales of si- #arietiesD ena ling &im to e-ercise control o#er distri ution outletsK reGuired .isele to "lace no restrictions on t&e su""l) of seedK o ligated .isele to im"ort from France for sale in German) at least t,o:t&irds of German)<s reGuirementsD restricting .isele<s o,n "roduction and sale to onl) 8!3 of t&e German marketK granted .isele t&e "o,er to "rotect I6(A<s intellectual "ro"ert)K and contained a "romise ) I6(A t&at no e-"orts to German) ,ould take "lace ot&er,ise t&an t&roug&

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.iseleD meaning t&at I6(A ,ould ensure t&at its Frenc& marketing organi0ation ,ould "re#ent t&e rele#ant #arieties from eing e-"orted to German) t&roug& "arallel im"orters. B) 8952 it ecame a""arent t&at dealers in France ,ere selling t&e #arieties directl) to German traders ,&o ,ere marketing t&e "roducts in reac& of t&e reeder<s rig&ts claimed ) .isele. .isele roug&t suit and t&e Frenc& traders agreed to seek "ermission. After a second suitD t&e Frenc& trader filed a com"laint ,it& t&e Commission. T&e Commission found t&at ot& t&e agreement and t&e settlement #iolated Article 78283 ecause t&e) granted an e-clusi#e license and "ro#ided a solute territorial "rotection. T&e .CA re#ersed t&e Commission ,it& res"ect to e-clusi#it) ut u"&eld t&e Commission<s finding ,it& res"ect to a solute territorial "rotection. T&e .CA dre, a distinction et,een Eo"enF licensesD ,&ic& do not necessaril) fall under Article 78283D and EclosedF licenses t&at do so. E/"enF #. EClosedF 'icenses /"en licenses are t&ose t&at do not in#ol#e t&ird "arties. In Maize SeedD t&e o ligation u"on I6(A or t&ose deri#ing rig&ts t&roug& I6(A to refrain from "roducing or selling t&e rele#ant seeds in German) ,as treated as an o"en license term. T&e .CA &eld suc& clauses necessar) to t&e dissemination of ne, tec&nolog) inasmuc& as "otential licensees mig&t ot&er,ise e deterred from acce"ting t&e risk of culti#ating and marketing ne, "roducts. Closed licenses are t&ose t&at do in#ol#ed t&ird "arties. T&e o ligation u"on I6(A or t&ose deri#ing rig&ts t&roug& I6(A to "re#ent t&ird "arties from e-"orting seeds into German) ,it&out aut&ori0ationD .isele<s concurrent use of &is e-clusi#e contractual rig&tsD and &is reeder<s rig&tsD to "re#ent all im"orts into German) or e-"orts to ot&er mem er states ,ere in#alid under Article 78283. .U (egulations Ar% (6e <: !1 %*e Trea%8 !1 R!3e 283 T&e follo,ing s&all e "ro&i ited as incom"ati le ,it& t&e common marketP all agreements et,een undertakingsD decisions ) associations of undertakings and concerted "ractices ,&ic& ma) affect trade et,een %em er *tates and ,&ic& &a#e as t&eir o Cect or effect t&e "re#entionD restriction or distortion of com"etition ,it&in t&e common marketD and in "articular t&ose ,&ic&P 2a3 directl) or indirectl) fi- "urc&ase or selling "rices or an) ot&er trading conditionsK 2 3 limit or control "roductionD marketsD tec&nical de#elo"mentD or in#estmentK 2c3 s&are markets or sources of su""l)K 2d3 a""l) dissimilar conditions to eGui#alent transactions ,it& ot&er trading "artiesD t&ere ) "lacing t&em at a com"etiti#e disad#antageK 2e3 make t&e conclusion of contracts su Cect to acce"tance ) t&e

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ot&er "arties of su""lementar) o ligations ,&ic&D ) t&eir nature or according to commercial usageD &a#e no connection ,it& t&e su Cect of suc& contracts. 223 An) agreements or decisions "ro&i ited "ursuant to t&is article s&all e automaticall) #oid. 233 T&e "ro#isions of "aragra"& 8 ma)D &o,e#erD e declared ina""lica le in t&e case ofP an) agreement or categor) of agreements et,een undertakingsD an) decision or categor) of decisions ) associations of undertakingsD an) concerted "ractice or categor) of concerted "racticesD ,&ic& contri utes to improving the production or distribution of goods or to promoting technical or economic progress ,&ile allo,ing consumers a fair s&are of t&e resulting enefitD and ,&ic& does notP 2a3 im"ose on t&e undertakings concerned restrictions ,&ic& are not indis"ensa le to t&e attainment of t&ese o Cecti#esK 2 3 afford suc& undertakings t&e "ossi ilit) of eliminating com"etition in res"ect of a su stantial "art of t&e "roducts in Guestion. Tra"$1er !1 Te(*"!6!)8 Re)'6a% !" 772@2004 Pro#ides guidance on &o, to fall under t&e e-em"tion "ro#isions of Article 78233. =istinguis&es agreements et,een t&ose of Ecom"etingF and Enoncom"etingF "artiesD t&e latter eing treated less strictl) t&an t&e former. Parties are deemed com"eting if t&e) com"ete 2,!o infringing eac& ot&er<s IP rig&ts3 in eit&er t&e rele#ant tec&nolog) or "roduct marketD determined in eac& instance ) ,&at u)ers regard as su stitutes. If t&e com"eting "arties &a#e a combined market s&are of 20R or lessD t&eir licensing agreements are co#ered ) t&e grou" e-em"tion under (egulation 552!200$. 6oncom"eting "arties enefit from t&e e-em"tion so long as t&eir individual market s&ares do not e-ceed 30R. If o#er market s&are ca"sD must &a#e individual review ) t&e Commission. Agreements initiall) co#ered (egulation 552!200$ ut t&at su seGuentl) e-ceed t&e Esafe &ar orF t&res&olds lose t&eir e-em"tion su Cect to a t,o:)ear grace "eriod. /ut t&e e-em"tionsD a Erule of reasonF a""roac& a""lies. Inclusion of certain E&ardcore restraintsF can cause licensing agreements to lose t&eir grou" e-em"tion. For com"eting "artiesD suc& restraints include "rice fi-ingD out"ut limitations on ot& "artiesD limits on t&e licensee<s a ilit) to e-"loit its o,n tec&nolog)D and allocation of markets or com"etitors 2su Cect to e-ce"tions3. *"ecificall)D restraints on acti#e or "assi#e selling ) t&e licensee in a territor) reser#ed for t&e licensor are allo,edD as are acti#e 2 ut not "assi#e3 selling restraints ) licensees in territories of ot&er licensees. For noncom"eting "artiesD licensing agreements ma) not contain t&e &ardcore restraint of "rice fi-ing.

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Acti#e selling restrictions on licensees can e utili0edD along ,it& "assi#e selling restraints in territories reser#ed to t&e licensor or for two years anot&er licensee. Inclusion of ot&er license terms can also cause a loss of e-em"tion. *uc& clauses include mandator) grant: anks or assignments of se#era le im"ro#ements ) licenseesD e-ce"ting none-clusi#e license: acksK no:c&allenges ) t&e licensee of t&e licensor<s intellectual "ro"ert) rig&tsD su Cect to t&e licensor<s rig&t to terminate u"on c&allengeK and for noncom"eting "artiesD restraints on t&e licensee<s a ilit) to e-"loit its o,n tec&nolog) or eit&er "art)<s a ilit) to carr) out researc& and de#elo"ment 2unless indis"ensa le to "re#ent disclosure of t&e licensed kno,: &o,3. (egulation 552!200$ *ummar) Bet,een T)"es of Firms Competing !irms .-clusi#it) is ok. Parties can close t&eir territories off to one anot&er 2a solute territorial "rotection3. /kD if and onl) ifD non:reci"rocal. If com"eting firms and reci"rocal licenseD t&en t&e) cannot close territories. 'icensor can restrict t&e acti#e sales of one licensee into anot&er licensee<s territor). Bet,een licenseesD )ou must al,a)s allo, "assi#e sales. Allo,s for a minimum amount of com"etition. Competing !irms " #eciprocal $icenses .-clusi#it) ok. All ot&er "ro#isions are conditioned u"on it eing a non:reci"rocal agreement. 6o a solute territorial "rotection 2i.e.D must allo, acti#e!"assi#e sales3. Competing !irms " %on&reciprocal $icenses .-clusi#it) is ok. A solute territorial "rotection et,een licensor and licensee is ok. Acti#e sales restriction et,een licensee one and licensee t,o is ok as long as licensee t,o ,as not a com"eting firm "re#iousl). %on&competing !irms *ince t&e)<re not com"etingD a cross:license 2reci"rocal3 is not a ig deal. 6o language in ; 2 regarding reci"rocal!non:reci"rocal. .-clusi#it) is ok 2no,&ere "ro&i ited3. 'icensor and licensee can lock acti#e and "assi#e sales in eac& ot&er<s territor). 'icensee one and licensee t,o can lock acti#e sales. Can lock "assi#e sales et,een licensees during first two years t&at t&e licensee is selling "roducts in t&at territor). Basic Assum"tions 'icenses et,een firms ,it& greater market s&ares "ose a greater risk to com"etition t&an licenses et,een firms ,it& smaller market s&aresK reason ,&) t&ere are market s&are ca"s.

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'icenses et,een com"etitors "ose a great risk to com"etition t&an licenses et,een non:com"etitors. Cross licensing!reci"rocal license "oses a greater risk. If )ou &a#e "ro#isions listed in Article + of (egulation 552!200$D t&ose "ro#isions ,ill not e co#ered ) t&e safe &ar or but t&e entire agreement ma) ot&er,ise e sufficient. Pro lem 9.$ 9 =rill Bit in German) =rill Bit %anufacturing Co. ,ants to enter into a license agreement ,it& 6ord%etall. 'aragraph ( " )rant of $icense =B grants 6% e-clusi#e rig&ts in German) /k under .U regulations. =B grants 6% t&e tentati#e rig&ts to sell outside of German) e-ce"t t&at it ma) not sell in France or t&e U>. =B grants t&at no ot&er distri utors ,ill e allo,ed to acti#el) sell in German). As et,een =B and 6%D t&e license sa)s t&at 6% &as German) and t&e rest of .uro"e is t&e territor) of =B t&is is ok. If distri utors&i"s in France and U> are licenseesD t&en )ou cannot lock "assi#e sales unless t&e) are in t&e first t,o )ears of t&eir sales. If t&e distri utors are not licenseesD t&en t&e) can lock acti#e sales 9 if t&e distri utors are licenseesD t&e) can lock acti#e sales as et,een t,o licensees. Agreement language regarding E"rices to e esta lis&ed ) =BF ,ould &a#e to e c&anged to ring it in line ,it& t&e regulation 2onl) allo,ed to set a ma- "rice or recommend a "rice3. 'aragraph * " %o Competition +rrangements 6ot going to create an) ot&er licensees ut =B is reser#ing t&e rig&t for itself to sell into German). 'aragraph , " )rant -ack 'ooks like a te-t ook #iolation of Article + 9 cannot get e-clusi#e license. 6o incenti#e to 6% to do an) researc& on t&e licensed "roduct. Could "us& for a non:e-clusi#e license for im"ro#ements. If t&e im"ro#ement doesn<t ,ork ,it&out t&e "atentD t&en its non:se#era le and of little #alue to 6% 9 if it is se#era le t&en 6% ,ould "ro a l) ,ant to retain control. C. 'IC.6*I6G AG(..%.6T* 9 6AFTA

/#er#ie, C&a"ter 85 of t&e 6AFTA agreement contains a com"re&ensi#e set of rules for 6ort& American intellectual "ro"ert) rig&ts. 6AFTA doesn<t regulate licensing agreements ut does set some minimum standards for t&e "rotection of intellectual "ro"ert) and a""lica le remedies. 'icensor can at least e assured under 6AFTA of some minimal "rotection for IP Treat) does not "ro#ide remedies for "ri#ate "arties. Bot& 6AFTA and T(IP* sti"ulate t&at ,&ic&e#er agreement affords t&e

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roadest "rotection of intellectual "ro"ert) ,ill "re#ail. General / ligations T&ere is a general dut) to "rotect intellectual "ro"ert) adeGuatel) and effecti#el)D as long as arriers to legitimate trade are not created. At a minimum t&is necessitates ad&erence to C&a"ter 85 of t&e 6AFTA agreement. Also reGuires ad&erence to su stanti#e "ro#isions of t&eP Gene#a Con#ention of P&onogramsK Berne Con#ention for t&e Protection of 'iterar) and Artistic 4orksK Paris Con#ention for t&e Protection of Industrial Pro"ert)K and International Con#ention for t&e Protection of 6e, ?arieties of Plants. Process of enforcement is also addressedD reGuiring fairD eGuita le and not undul) com"licatedD costl) or time:consuming enforcement "rocedures. Patents Article 8509 of 6AFTA assures t&e a#aila ilit) of "atents in all fields of tec&nolog). All "atent rig&ts must e granted ,it&out discrimination as to field of tec&nolog)D countr) of originD and im"ortation or local "roduction of t&e rele#ant "roducts. *ince t&e U* a,ards "atents on a first:to:in#ent asisD acti#ities in Canada and %e-ico no, count for "ur"oses of esta lis&ing t&e date of an in#ention. 6AFTA s"ecificall) reser#es t&e rig&t to den) "atents for diagnosticD t&era"eutic and surgical met&odsD transgenic "lants and animalsD and for essentiall) iologic "rocesses t&at "roduce "lants or animals. If commercial e-"loitation mig&t endanger "u lic moralit) or state securit)D no "atents need e granted. 6o mention is made of t&e rig&t to lock infringing or unaut&ori0ed im"orts. T&oug& not aut&ori0ed under U* la,D go#ernments ma) allo, limited none-clusi#e usage ,it&out t&e o,ner<s aut&ori0ation 2com"ulsor) licensing3 for emergencies or "u lic "olic). Trade *ecrets At a minimumD eac& nation must ensure legal means to "re#ent trade secrets from eing disclosedD acGuired or used ,it&out consent Ein a manner contrar) to &onest commercial "ractices.F 6AFTA does not mentionD &o,e#erD t&e "ractice of re#erse engineering. 6o go#ernment ma) discourage or im"ede t&e #oluntar) licensing of trade secrets. Im"osing e-cessi#e or discriminator) conditions on kno,:&o, licenses is "ro&i ited. 6AFTA:Plus U* free trade agreements since 6AFTA &a#e e#ol#ed su stantiall) under a "olic) kno,n as com"etiti#e li erali0ation. Co#erage of la or and en#ironmental la, enforcement is folded into t&e trade agreement and all remedies are intergo#ernmental. Post:6AFTA free trade agreements insert t&e ,ord Ecustomar)F efore

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international la, in defining t&e minimum standard of treatment to ,&ic& foreign in#estors are entitled. EFair and eGuita le treatmentF and Efull "rotection and securit)F are also no, defined. 6AFTA:Plus &as also mo#ed into t&e Internet age 9 "rotection of domain names and ad&erence to t&e 4IP/ Internet treaties are sti"ulated. P&armaceutical "atent o,ners o tain e-tensions of t&eir "atents to com"ensate for dela)s in t&e a""ro#al "rocess and greater control o#er t&eir test dataD making it &arder for generic com"etition to emerge. T&e) also gain ElinkageF ,&ic& means t&at local drug regulators must make sure generics are not "atent:infringing efore t&eir release. Anti:dum"ing and counter#ailing dut) la,s remain a""lica le ut a""eals from administrati#e determinations are taken in national courtsD not i:national "anels. T&e U* &as generall) used its le#erage ,it& small trade "artners in t&e Americas to o tain more "referential treatment and e-"anded "rotection for its goodsD ser#icesD tec&nolog) and in#estors. It &as gi#en u" relati#el) little in returnD for e-am"le a modest increase in agricultural market o"enings. 'IC.6*I6G I6T/ 'ATI6 A%.(ICA

=.

=oA Antitrust Guidelines General Princi"les. Antitrust concerns ma) arise ,&en a licensing arrangement &arms com"etition among entities t&at ,ould &a#e een actual or likel) "otential com"etitors in a rele#ant market in t&e a sence of t&e license 2entities in a E&ori0ontal relations&i"F3. A restraint in a licensing arrangement ma) &arm suc& com"etition if it facilitates market di#ision or "rice:fi-ing. 'icense restrictions ,it& res"ect to one market ma) &arm suc& com"etition in anot&er market ) anti:com"etiti#el) foreclosing access toD or significantl) raising t&e "rice ofD an im"ortant in"utD or ) facilitating coordination to increase "rice or reduce out"ut. %arkets Affected ) 'icensing Arrangements 'icensing arrangements raise concerns under t&e antitrust la,s if t&e) are likel) to affect ad#ersel) t&e "ricesD GuantitiesD GualitiesD or #arieties of goods and ser#ices eit&er currentl) or "otentiall) a#aila le. T&e Agencies ,ill anal)0e t&e licensing agreementD t&e rele#ant market indicatorsD and all surrounding facts to determine if t&e "ro#isions create an anticom"etiti#e result in an) of t&e follo,ing marketsP Goods %arkets. =oes it decrease t&e num er of firms selling t&e "roductS Tec&nolog) %arkets. =oes it reduce com"etition ) decreasing t&e num er of firms ,it& t&e tec&nolog) ca"a le of manufacturing t&e "roductS Inno#ation %arkets. =oes it decrease t&e researc& and de#elo"ment conducted to etter manufacture t&e "roductS @ori0ontal and ?ertical (elations&i"s T&e Agencies ordinaril) ,ill treat a relations&i"

et,een a licensor

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and its licenseesD or et,een licenseesD as horizontal ,&en t&e) ,ould &a#e een actual or likel) "otential com"etitors in a rele#ant market in t&e a sence of t&e license. T&e e-istence of a &ori0ontal relations&i" et,een a licensor and its licensees does notD in itselfD indicate t&at t&e arrangement is anticom"etiti#e. A licensing arrangement &as a vertical component ,&en it affects acti#ities t&at are in a com"lementar) relations&i"D as is t)"icall) t&e case in a licensing arrangement. For e-am"leD t&e licensorVs "rimar) line of usiness ma) e in researc& and de#elo"mentD and t&e licenseesD as manufacturersD ma) e u)ing t&e rig&ts to use tec&nolog) de#elo"ed ) t&e licensor. Frame,ork for .#aluating 'icensing (estraints In t&e #ast maCorit) of casesD restraints in intellectual "ro"ert) licensing arrangements are evaluated under the rule of reason. T&e AgenciesV general a""roac& in anal)0ing a licensing restraint under t&e rule of reason is to inGuire ,&et&er t&e restraint is likel) to &a#e anticom"etiti#e effects andD if soD ,&et&er t&e restraint is reasona l) necessar) to ac&ie#e "ro:com"etiti#e enefits t&at out,eig& t&ose anticom"etiti#e effects. A""lication of t&e rule of reason generall) reGuires a com"re&ensi#e inGuir) into market conditions. If t&e Agencies conclude t&at a restraint &as no likel) anticom"etiti#e effectsD t&e) ,ill treat it as reasona leD ,it&out an ela orate anal)sis of market "o,er or t&e Custifications for t&e restraint. If a restraint faciall) a""ears to e of a kind t&at ,ould al,a)s or almost al,a)s tend to reduce out"ut or increase "ricesD and t&e restraint is not reasona l) related to efficienciesD t&e Agencies ,ill likel) c&allenge t&e restraint ,it&out an ela orate anal)sis of "articular industr) circumstances. In some casesD &o,e#erD t&e courts conclude t&at a restraintVs Enature and necessar) effect are so "lainl) anticom"etiti#eF t&at it s&ould e treated as unlawful per seD ,it&out an ela orate inGuir) into t&e restraintVs likel) com"etiti#e effect. Among t&e restraints t&at &a#e een &eld "er se unla,ful are 2i3 naked "rice:fi-ingD 2ii3 out"ut restraintsD 2iii3 market di#ision among &ori0ontal com"etitorsD 2i#3 certain grou" o)cotts and 2#3 resale "rice maintenance. To determine ,&et&er a "articular restraint in a licensing arrangement is gi#en "er se or rule of reason treatmentD t&e Agencies ,ill assess ,&et&er t&e restraint in Guestion can e e-"ected to contri ute to an efficiency&enhancing integration of economic activity. A restraint in a licensing arrangement ma) furt&er suc& integration )D for e-am"leD aligning t&e incenti#es of t&e licensor and t&e licensees to "romote t&e de#elo"ment and marketing of t&e licensed tec&nolog)D or ) su stantiall) reducing transactions costs. =oA : .#aluation of 'icensing Arrangements Under t&e (ule of (eason %arket *tructureD CoordinationD and Foreclosure

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4&en a licensing arrangement affects "arties in a &ori0ontal relations&i"D a restraint in t&at arrangement ma) increase t&e risk of coordinated "ricingD out"ut restrictionsD or t&e acGuisition or maintenance of market "o,er. @arm to com"etition also ma) occur if t&e arrangement "oses a significant risk of retarding or restricting t&e de#elo"ment of ne, or im"ro#ed goods or "rocesses. Potential for com"etiti#e &arm de"ends in "art on t&e degree of concentration inD t&e difficult) of entr) intoD and t&e res"onsi#eness of su""l) and demand to c&anges in "rice in t&e rele#ant markets. 4&en t&e licensor and licensees are in a #ertical relations&i"D t&e Agencies ,ill anal)0e ,&et&er t&e licensing arrangement ma) &arm com"etition among entities in a &ori0ontal relations&i" at eit&er t&e le#el of t&e licensor or t&e licenseesD or "ossi l) in anot&er rele#ant market. @arm to com"etition from a restraint ma) occur if it anti: com"etiti#el) forecloses access toD or increases com"etitorsV costs of o tainingD im"ortant in"utsD or facilitates coordination to raise "rice or restrict out"ut. T&e risk of anti:com"etiti#el) foreclosing access or increasing com"etitorsV costs is related to t&e "ro"ortion of t&e markets affected ) t&e licensing restraintK ot&er c&aracteristics of t&e rele#ant marketsD suc& as concentrationD difficult) of entr)D and t&e res"onsi#eness of su""l) and demand to c&anges in "rice in t&e rele#ant marketsK and t&e duration of t&e restraint. @arm to com"etition from a restraint in a #ertical licensing arrangement also ma) occur if a licensing restraint facilitates coordination among entities in a &ori0ontal relations&i" to raise "rices or reduce out"ut in a rele#ant market. 'icensing Arrangements In#ol#ing .-clusi#it) A licensing arrangement ma) in#ol#e e-clusi#it) in t,o distinct res"ects. T&e licensor ma) grant one or more exclusive licensesD ,&ic& restrict t&e rig&t of t&e licensor to license ot&ers and "ossi l) also to use t&e tec&nolog) itself. Generall)D an e-clusi#e license ma) raise antitrust concerns onl) if t&e licensees t&emsel#esD or t&e licensor and its licenseesD are in a &ori0ontal relations&i". A second form of e-clusi#it)D exclusive dealingD arises ,&en a license "re#ents or restrains t&e licensee from licensingD sellingD distri utingD or using com"eting tec&nologies. T&e Agencies ,ill focus on t&e actual "ractice and its effectsD not on t&e formal terms of t&e arrangement. .fficiencies and Austifications If t&e Agencies conclude t&at t&e restraint &asD or is likel) to &a#eD an anticom"etiti#e effectD t&e) ,ill consider ,&et&er t&e restraint is reasona l) necessar) to ac&ie#e "ro:com"etiti#e efficiencies. If t&e restraint is reasona l) necessar)D t&e Agencies ,ill alance t&e "ro: com"etiti#e efficiencies and t&e anticom"etiti#e effects to determine the probable net effect on competition in eac& rele#ant market. T&e e-istence of "ractical and significantl) less restricti#e alternati#es is rele#ant to a determination of ,&et&er a restraint

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is reasona l) necessar). T&e duration of t&e restraint can e an im"ortant factor in determining ,&et&er it is reasona l) necessar) to ac&ie#e t&e "utati#e "ro:com"etiti#e efficienc). A restraint t&at ma) e Custified ) t&e needs of a ne, entrantD for e-am"leD ma) not &a#e a "ro:com"etiti#e efficienc) Custification in different market circumstances. Antitrust E*afet) NoneF A sent e-traordinar) circumstancesD t&e Agencies ,ill not c&allenge a restraint in an intellectual "ro"ert) licensing arrangement if 2i3 t&e restraint is not faciall) anticom"etiti#e and 2ii3 t&e licensor and its licensees collecti#el) account for no more t&an 20R of eac& rele#ant market significantl) affected ) t&e restraint. 4&et&er a restraint falls ,it&in t&e safet) 0one ,ill e determined ) reference onl) to goods markets unless t&e anal)sis of goods markets alone ,ould inadeGuatel) address t&e effects of t&e licensing arrangement on com"etition among tec&nologies or in researc& and de#elo"ment. A sent e-traordinar) circumstancesD t&e Agencies ,ill not c&allenge a restraint in an intellectual "ro"ert) licensing arrangement t&at may affect competition in a technology market if 2i3 t&e restraint is not faciall) anticom"etiti#e and 2ii3 t&ere are four or more inde"endentl) controlled tec&nologies in addition to t&e tec&nologies controlled ) t&e "arties to t&e licensing arrangement t&at ma) e su stituta le for t&e licensed tec&nolog) at a com"ara le cost to t&e user. A sent e-traordinar) circumstancesD t&e Agencies ,ill not c&allenge a restraint in an intellectual "ro"ert) licensing arrangement t&at may affect competition in an innovation market if 2i3 t&e restraint is not faciall) anticom"etiti#e and 2ii3 four or more inde"endentl) controlled entities in addition to t&e "arties to t&e licensing arrangement "ossess t&e reGuired s"eciali0ed assets or c&aracteristics and t&e incenti#e to engage in researc& and de#elo"ment t&at is a close su stitute of t&e researc& and de#elo"ment acti#ities of t&e "arties to t&e licensing agreement =oA 9 A""lication of General Princi"les @ori0ontal (elations&i"s. T&e e-istence of a restraint in a licensing arrangement t&at affects "arties in a &ori0ontal relations&i" 2a E&ori0ontal restraintF3 does not necessaril) cause t&e arrangement to e anticom"etiti#e as t&e arrangement ma) result in integrati#e efficienciesD arising fromD for e-am"leD from t&e reali0ation of economies of scale and t&e integration of com"lementar) researc& and de#elo"mentD "roductionD and marketing ca"a ilities. .-clusi#e =ealing. In determining ,&et&er an e-clusi#e dealing arrangement is likel) to reduce com"etition in a rele#ant marketD t&e Agencies ,ill take into account t&e e-tent to ,&ic& t&e arrangement 2i3 "romotes t&e e-"loitation and de#elo"ment of t&e licensorVs tec&nolog) and 2ii3 anti:com"etiti#el) forecloses t&e e-"loitation and de#elo"ment ofD or ot&er,ise constrains com"etition amongD com"eting tec&nologies. T&e likeli&ood t&at e-clusi#e dealing ma) &a#e anticom"etiti#e effects is relatedD inter aliaD to t&e degree of foreclosure in t&e

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rele#ant marketD t&e duration of t&e e-clusi#e dealing arrangementD and ot&er c&aracteristics of t&e in"ut and out"ut marketsD suc& as concentrationD difficult) of entr)D and t&e res"onsi#eness of su""l) and demand to c&anges in "rice in t&e rele#ant markets. Grant:Back Pro#isions. Agencies ,ill e#aluate a grant: ack "ro#ision under t&e rule of reasonD considering its likel) effects in lig&t of t&e o#erall structure of t&e licensing arrangement and conditions in t&e rele#ant markets. If t&e Agencies determine t&at a "articular grant: ack "ro#ision is likel) to reduce significantl) licenseesV incenti#es to in#est in im"ro#ing t&e licensed tec&nolog)D t&e Agencies ,ill consider t&e e-tent to ,&ic& t&e grant: ack "ro#ision &as offsetting "ro: com"etiti#e effectsD suc& as 2i3 "romoting dissemination of licenseesV im"ro#ements to t&e licensed tec&nolog)D 2ii3 increasing t&e licensorsV incenti#es to disseminate t&e licensed tec&nolog)D or 2iii3 ot&er,ise increasing com"etition and out"ut in a rele#ant tec&nolog) or inno#ation market. =ecision 6o. 298 9 Andean Common %arket. .-"ressed to encourage t&e gro,ing alignment of t&e economic "olicies of t&e Andean Countries in an effort to attain more efficient and com"etiti#e economies t&roug& li erali0ation and t&e o"ening to trade and international in#estmentD along t&e lines of eac& countries< interestD and t&e institution of economic rationalit) grounded in "ri#ate initiati#eD fiscal disci"line and a rescaled and effecti#e state. Article 83. Contracts for t&e im"ortation of tec&nolog) must contain clauses a out at least t&e follo,ing mattersP 2a3 identification of t&e "arties and e-"ress indication of t&eir nationalit) and residenceK 2 3 identification of t&e met&ods used to transfer t&e im"orted tec&nolog)K 2c3 contract "rices of eac& of t&e elements in#ol#ed in t&e transfer of tec&nolog)K and 2d3 determination of t&e effecti#e "eriod of t&e contracts. Article 8$. In order to register transfer of tec&nolog)D trademark or "atent contractsD %em er Countries 3a8 5ear " 3 "# t&at t&ose contracts not contain t&e follo,ingP a3 Clauses ) #irtue of ,&ic& t&e su""l) of tec&nolog) or t&e use of a trademark ears ,it& it t&e o ligation of t&e reci"ient countr) or enter"rise to acGuireD from a gi#en sourceD ca"ital eGui"mentD intermediate "roductsD ra, materials or ot&er tec&nologiesD or to use on a "ermanent asis "ersonnel indicated ) t&e enter"rise su""l)ing t&e tec&nolog)K 3 Clauses ) #irtue of ,&ic& t&e enter"rise selling t&e tec&nolog) or enter"rise granting use of a trademark reser#es t&e rig&t to set sale or resale "rices for t&e "roducts t&at are manufactured using t&at tec&nolog)K c3 Clauses t&at contain restrictions on t&e #olume and structure of "roductionK d3 Clauses t&at "ro&i it use of com"eting tec&nologiesK e3 Clauses t&at esta lis& a total or "artial "urc&ase o"tion in fa#or

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of t&e tec&nolog) su""lierK f3 Clauses t&at com"el t&e tec&nolog) u)er to transfer to t&e su""lier all suc& in#entions or im"ro#ements as ma) e o tained t&oug& use of t&at tec&nolog)K g3 Clauses t&at reGuire t&e "a)ment of ro)alties to t&e &olders of "atents or trademarks for "atents or trademarks t&at are not used or &a#e e-"iredK and &3 /t&er Clauses &a#ing an eGui#alent effect. .-ce"t in s"ecial cases t&at &a#e een dul) Cudged ) t&e com"etent national agenc) of t&e reci"ient countr)D clauses "ro&i iting or limiting in an) ,a) t&e e-"ort of t&e "roducts manufactured using t&e res"ecti#e tec&nolog) s&all not e acce"ted. Article 8+. In t&e degree to ,&ic& intangi le tec&nological contri utions do not constitute ca"ital in#estmentsD t&e) s&all grant t&e rig&t to recei#e ro)altiesD in kee"ing ,it& %em er Countries legislation. T&e accrued ro)alties ma) e ca"itali0edD "ursuant to t&e terms of t&is (egimeD after "a)ment of t&e ta-es due. 4&en t&ese contri utions are su""lied to a foreign enter"rise ) its "arent cor"oration or ) anot&er ranc& of t&e same "arent cor"orationD t&e "a)ment of ro)alties ma) e aut&ori0ed in cases Cudged efore&and ) t&e com"etent national agenc) of t&e reci"ient countr). A""lication of Article 8$ of =ecision 6o. 298 In order to determine ,&et&er Article 8$ a""lies to an agreementD )ou ,ould need to kno, ,&et&erP 2i3 t&e &ost nation is a "art) to t&e Andean communit) and 2ii3 &as t&e &ost nation &as enacted a domestic la, t&at takes suc& "ro#ision into account. Pro lem 3.0 9 'icensing to Guatador 6ort& American firm &as de#elo"ed a "rocess for making small electronic com"onents and ,ants to enter into a licensing agreement ,it& a 'atin American firm engaged in similar ,ork. An e-clusi#e license ) t&e licensor. /k under =ecision 6o. 298 ecause t&e licensee ma) onl) sellD manufacture and use t&e license in Guatador. 'imitation on e-"orts. *"ecificall) "ro&i ited under Article 8$. %a) also e "ro&i ited under =oA guidelines< rule of reason a""roac&. Grant: ack "ro#isions. Pro&i ited under =ecision 6o. 298 ecause it does not allo, t&e licensee to use its o,n im"ro#ements. (o)alties. %a) #iolate Article 8$2g3 and Article 8+. Tec&nical assistance. In accordance ,it& res"ecti#e national legislationD t&e agreement must e registered ,it& t&e com"etent national agenc) of t&e res"ecti#e %em er Countr).

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6on:com"etition "ro#isions. Pro&i ited under Article 8$2d3 ut ,ould also need to e-amine national la,s. Termination. Agreement must include #alid termination "ro#isions. FOREIGN INVESTMENT A. =I(.CT I6?.*T%.6T

T&e 'ifec)cle A""roac& to Foreign In#estment T&e natural "rogression from sales of goods licensing foreign direct in#estment. .ntr) /"erations Termination!4it&dra,al. .ntr) *tage 4&ere to in#estS Ta- and regulator) issues. *ocial sta ilit) 2i.e.D lo, ,ages can mean &ig& social unrest3. Aurisdiction &as &istor) of nationali0ing assets or industriesS Trade la, 2i.e.D &o, "roduct is treated ased on ,&ere it ,as manufactured3. (ules of /rigin 9 "roducts need to e transformedD not Cust assem led. Jualit) of life issues for officers!em"lo)ee of t&e cor"oration. /"erational Code 9 t&e la, as its ,ritten #. &o, it actuall) o"erates. 4&at t)"e of entit) to esta lis&S Generall) et,een large "u licall) traded 2AGD *A and P'C3 #. small "ri#atel) &eld com"an) 2Gm @D *A('D P'C3. Also &a#e &) rids 2like *:cor"s in t&e U* or t&e *A* in France3. /"erating as a su sidiar) or as a ranc&. >ee"ing costs se"arated in t&e su sidiar) #. s"reading t&e losses. If "ro lem on e-am &as not indicated ,&ic& t)"e t&e client &as c&osenD it is ,ort& discussing "ros!cons of eac& o"tion. /"erating as a Coint #enture. /"erating in#estment as an acGuisition or a EgreenfieldSF =ifferent foreign in#estment la,s for acGuisitions #. creating ne, o""ortunities. AcGuisition ma) trigger an anti:com"etition re#ie,. /"erational *tage %inimi0ing lia ilit). Ta-ation 2i.e.D ,orld,ide ta-ationD dou le ta-ation3. Currenc) e-c&anges and a#aila ilit). Transfer "ricing %ani"ulating "rices et,een su !"arent to o tain artificial ad#antages. Transferring income to o tain etter ta- treatment Termination!4it&dra,al *tage (egulations can e urdensome ,&en tr)ing to ,it&dra, cor"orate

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assets. Foreign treatment if in#estment enters into ankru"tc). Parent making secured loans to su rat&er t&an Cust infusing ca"ital. T&e /"erational Code T&e o"erational code consists of t&e un,ritten regulations and decisions and formal ,ritten regulations and decisions ut not "u licall) a#aila le or disco#era le. N.B. T&e o"erational code is al,a)s at #ariance ,it& t&e ,ritten la,sD ut it must not de#iate from t&e ,ritten la,s so e-tensi#el) t&at it generates so muc& uncertaint) as to reduce foreign in#estor confidence in t&e regulator) structure.

/"eration and .ffect of t&e Code An indirect #ariance e-ists ,&en "ositi#e statements of t&e ,ritten foreign in#estment la, are conditioned ) e-ce"tion "ro#isions ut t&e go#ernment routinel) grants suc& e-ce"tions t&at t&e "ositi#e la, ecomes a nullit). It reflects t&e &ost nation<s need to e fle-i le so as to o tain in#estment ,&ile "rotecting its o,n econom) from o#erreac&ing ) foreign in#estors. T&e o"erational code allo,s t&e go#ernment to treat foreign in#estors uneGuall)D &idden from "u lic criticism. (estrictions U"on t&e .sta lis&ment of t&e Foreign In#estment (estrictions on entr) tend to assume t,o formsP 2i3 restricting t&e ma-imum eGuit) allo,ed to foreign o,ners&i" 2including limiting foreign management or control to minorit) interest3K and 2ii3 limiting in#estment to contractual Coint #entures 2foreign "art) recei#es R of "rofits and limited management rig&ts3. 6ations &a#e also read t&e 4T/ agreements to include a cultural e-ce"tion. /ne area is t&e need for foreign in#estors to understand t&e culture of t&e foreign nation 9 including &o, to conduct usiness and market "roducts. T&e ot&er is ,&ere t&e &ost nation is fearful t&at t&e in#estment ,ill &arm t&e culture. Protection of nation<s culture is more often merel) "rotection of t&e nation<s Ecultural industries.F /nce esta lis&edD t&e o"eration of t&e foreign in#estment ma) e su Cect to #arious restrictions t&at di#ert time and resources a,a) from t&e main "ur"ose of t&e in#estment. Go#ernment o#ersig&t ma) e e-tensi#e 9 reGuiring EgreaseF "a)ments. Possi le issues ,it& "erformance reGuirements t&at mandate minimum local contentD s"ecif) use of local la or or mandate le#els of tec&nolog) used in "roduction. 4it&dra,al or termination is also likel) su Cect to restrictions. %a) affect t&e a ilit) to re"atriate ca"italD t&e lia ilit) of t&e "arent for de ts of t&e ,it&dra,ing entit) and t&e remo#al of "&)sical assets from t&e countr).

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B. '/CATI/6
/F I6?.*T%.6T

B erseering B? #. 6ordic Construction Com"an) Baumanagement Gm @ B erseeringD a com"an) incor"orated in t&e 6et&erlandsD "urc&ased a "iece of land in =usseldorf for usiness!in#estment "ur"oses. It contracted ,it& 6CC to refur is& a "arking garage and &otel on t&e site. 6CC "erformed t&e ,ork ut B erseering claimed t&at t&ere ,ere some "ro lems ,it& t&e Gualit) of t&e ,ork. In t&e interimD t,o German citi0ens "urc&ased all of t&e s&ares of B erseering. B erseering roug&t suit against 6CC ut t&e German court &eld t&at t&e) did not &a#e legal ca"acit) in German) andD conseGuentl)D could not ring legal "roceedings t&ere. T&e German &ig& court e#entuall) affirmed t&e decision to dismiss B erseering<s action. B erseering a""ealed to t&e .uro"ean Court of Austice for inter"retation of Articles $3 and $7. Findings of t&e Court 4&et&er Treat) Pro#isions A""l). T&e .CA &eld t&at Articles $3 and $7 a""l)D "ro#iding t&e rig&t for .U nationals to set u" and management undertakings under t&e same conditions as are laid do,n ) t&e la, of a %em er *tate for its o,n nationalsD and "ro#iding t&at com"anies or firms formed in accordance ,it& t&e la,s of a %em er *tate and &a#ing t&eir registered office ,it&in t&e .U s&all e treated in t&e same ,a) as natural "ersons ,&o are nationals of %em er *tatesD res"ecti#el). 4&et&er t&ere is a (estriction on t&e Freedom of .sta lis&ment. T&e .CA &eld t&at t&e reGuirement of reincor"oration of t&e com"an) in German) ,as tantamount to outrig&t negation of freedom of esta lis&ment. T&e court ga#e little credence to German)<s argument t&at allo,ing foreign com"anies to o"erate in German) ,ould in#ol#e a risk of circum#ention of t&e German) "ro#isions "rotecting Coint management. /here a company formed in accordance with the law of a Member State 01+12 in which it has its registered office is deemed under the law of another Member State 01-12 to have moved its actual centre of administration to Member State - +rticles 34 5C and 36 5C preclude Member State - from denying the company legal capacity and conse7uently the capacity to bring legal proceedings before its national courts for the purpose of enforcing rights under a contract with a company established in Member State -. /here a company formed in accordance with the law of a Member State 01+12 in which it has its registered office exercises its freedom of establishment in another Member State 01-12 +rticles 34 5C and 36 5C re7uire Member State - to recognize the legal capacity and conse7uently the capacity to be a party to legal proceedings which the company enjoys under the law of its State of incorporation 01+12. Cor"orate Forum *&o""ing 4&ile 8berseering allo,s a cor"oration incor"orated in one %em er *tate to &a#e its legal "ersonalit) recogni0ed in anot&er %em er *tateD ,&ic& ,ould allo, t&e cor"oration to esta lis& its management sea in a location in t&e .U ot&er t&en ,&ere it is incor"oratedD and

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retain t&e "lace of incor"oration<s rules as t&e a""lica le rules to go#ern t&e entit)<s internal affairsD 9amer von 9oophandel en !abrieken voor +msterdam v. :nspire +rt $td. goes one ste" furt&er and "ro&i its t&e .U %em er *tate to ,&ic& t&e com"an) management seat &as mo#ed from im"osing numerous legal reGuirements on t&e com"an)D suc& as t&e certain com"anies &a#ing to commence ,it& a legal ca"ital eGual to t&e minimum reGuired in t&e nation ,&ere t&e management seat is located. T&e .CA &eld t&at su Cection to t&ese rules ,ould constitute a restriction on t&e freedom of esta lis&ment and also &eld t&at t&ere ,as insufficient justification for im"osing suc& restrictions. Pro lem 80.8 9 =GInt. in German)!United >ingdom =G International ,is&es to locate a "lant and &a#e t&e management seat of its com"an) in German) ut ,ould greatl) "refer t&e entit) to e go#erned ) U> com"an) la,. T&e &oldings of t&e .CA lea#e unans,ered t&e e-tent to ,&ic& a cor"oration incor"orated outside a %em er *tate ma) e su Cect to cor"orate la,s of t&e %em er *tate ,it&out #iolating t&e .U freedom of esta lis&ment rules. Under t&e current German conflicts rulesD ,orker codetermination regulations are not a""lica le to foreign cor"orations ut t&ere is rene,ed "ressure to amend t&at #ie, and include cor"orations incor"orated in anot&er %em er *tate. Incor"orate in =ela,areS T&e U* is a "art) to a Friends&i"D Commerce and 6a#igation Treat) ,it& German) ,&ic& seems to gi#e an) U* cor"oration legal status in German). In 2003 and 200$D t&e German Bundesgeric&ts&of decided t&at a Florida and a =ela,are cor"orationD res"ecti#el)D ,ere entitled to &a#e t&eir Cudicial status recogni0ed in German). 4&ile t&e decisions do not ans,er ,&et&er t&ere must e some greater link ,it& t&e state of incor"oration t&an mere incor"orationD it seems clear t&at an) reGuired greater link does not e-tend to &a#e its "rinci"al "lace of usiness in t&at state. C. C/=.T.(%I6ATI/6

Codetermination ) 4orkers in German .nter"rises T&e Codetermination Act of 8951. %andates t&e formation of a su"er#isor) oard com"osed of +0R s&are&olders< and +0R em"lo)ees< re"resentati#es for all usiness organi0ations regularl) em"lo)ing more t&an 2D000 em"lo)ees. At least one enter"rise ,orkerD one salaried em"lo)ee and one e-ecuti#e em"lo)ee must e electedD and t&e num er of re"resentati#es from eac& grou" must reflect t&e actual "ro"ortion of eac& grou" to t&e total ,ork force. =e"ending on t&e si0e of t&e su"er#isor) oardD t,o or t&ree seats are reser#ed for t&e unions re"resented in t&e enter"rise. T&e codetermination rules are not e-tended to management ut t&e unions do e-"ect t&at t&e elected la or relations director ,ill enCo) t&e confidence of t&e em"lo)ee re"resentati#es. T&e 4orks Constitution Act of 89+2. %andates t&at t&e su"er#isor) oard of e#er) stock cor"oration: and

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of closed cor"orations ,it& more t&an +00 em"lo)ees e di#idedP one t&ird must e a""ointed ) t&e em"lo)eesD none of t&em ) t&e unionD and t,o t&irds are elected ) s&are&olders. 1 +mendments in (;;3 made codetermination applicable for the +) only if there are more than <== employees making the rule the same for the +) and )mb>. T&e 4orks Constitution Act of 8952. %andates t&at E,orks councilsF e elected in all esta lis&ments or "lants of usiness organi0ations ,it& fi#e or more "ermanent em"lo)ees Gualified to #ote. 4orks council is elected ) all em"lo)ees 9 "artnersD s&are&oldersD directors and e-ecuti#es are not regarded as em"lo)ees under t&e Act. T&e ,orks council &as a mandator) codetermination rig&t in a num er of instancesP Social Matters. T&e ,orks council &as a #oice in t&e formal conditions of ,orkD e.g. commencement and termination of t&e dail) ,orking &oursD timeD "lace and form of "a)mentK measures for t&e "re#ention of unem"lo)mentD accidentsD occu"ational diseasesD etcH To t&e e-tent a matter is not com"letel) settled ) a collecti#e argaining agreementD t&e ,orks council &as additional influence regarding remuneration. 'ersonal Matters. T&e ,orks council must e notified efore eac& la)off or dismissalD ,&et&er #oluntar) or e-ce"tionalD and is entitled to reGuest a &earing. If t&e ,orks council &as not een notified in ad#anceD t&e la)off or dismissal is #oid and consent cannot e secured after,ards. -usiness Modifications. In enter"rises ,it& more t&an t,ent) em"lo)eesD t&e em"lo)er must inform t&e ,orks council of an) "ro"osed modificationsD ,&ic& ma) entail su stantial "reCudice to t&e em"lo)eesD or a large "ortion t&ereof. Among t&e modifications enumerated are reductions of o"erations or closure of ,&ole de"artments of t&e "lantD transfer of de"artments of t&e esta lis&mentD and im"ortant c&anges in t&e organi0ationD "ur"ose or "lant of t&e enter"rise. T&e .U E4orks Council =irecti#eF 6o. 9$!$+. Its rules are mandator) in all mem er states. (eGuires council in com"anies ,it& more t&an 8D000 em"lo)ees o"erating ,it& 8+0 em"lo)ees in at least t,o mem er states. .m"lo)ees must e gi#en information on and an o""ortunit) to res"ond to a road range of to"ics including t&e firm<s economic and financial situationD em"lo)mentD ,ork met&ods and mergers and la)offs. But t&e information can e ,it&&eld ,&en disclosure mig&t Eseriousl) &armF t&e function of t&e com"an) or e E"reCudicialF to it. T&e *ocietas .uro"eae 2*.3 A long &eld goal of most .U mem er states &as een to &armoni0e cor"orate la,. %an) Britis&D &o,e#erD &a#e #ie,ed t&e ,a) t&e "rocess &as de#elo"ed as a means of forcing continental conce"ts of ,orkers<

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"artici"ation in management on U> com"anies. T&e 8979 draft regulation included t,o main "ro"osalsP 2i3 t&e creation of a .uro"ean com"an) to e called a societas euro"eae and 2ii3 a "ro"osed com"lementing directi#e ,&ic& co#ered ,orkers< "artici"ation. T&oug& se"aratedD t&e Commission stated t&at t&e directi#e ,as an indissocia le com"lement to t&e regulation and t&at t&e t,o &ad to e a""lied concomitantl). T&e 8997 "ro"osal in#ol#ed a dual s)stem. 4&ere em"lo)ee in#ol#ement in management ,as not "resent ,&en a *. ,as formedD suc& "artici"ation ,ould not e reGuired. But ,&ere suc& "artici"ation did e-ist efore a *. ,as esta lis&edD t&ere ,ould &a#e to e "artici"ation consistent ,it& national "ractices. In 2008 t&e .C issued t&e .uro"ean Com"an) *tatute and related =irecti#e 9 effecti#e 200$. An *. is a le to o"erate on a .uro"ean:,ide asis and is go#erned ) Communit) la, a""lica le in all %em er *tates. *. com"anies are still registered in eac& %em er *tates as ,it& com"anies esta lis&ed under national la,D &o,e#erD t&e registration of eac& *. is also "u lis&ed in t&e .C<s official Cournal. Formation of a .uro"ean Com"an) B) merger of t,o or more e-isting "u lic limited com"anies from at least t,o different .U %em er *tates. B) t&e formation of a &olding com"an) "romoted ) "u lic or "ri#ate limited com"anies from at least t,o different %em er *tates. B) t&e formation of a su sidiar) of com"anies from at least t,o different %em er *tates. B) t&e transformation of a "u lic limited com"an) ,&ic& &asD for at least t,o )earsD &ad a su sidiar) in anot&er %em er *tate. =. %.(G.( C/6T(/'

/#er#ie, T&e .C is tr)ing to determine ,&ic& mergers "ose a t&reat to its econom). It can sometimes e to a com"an)<s enefit to fall under t&e com"etition la, regulations since t&ere ,ill e only one regulatory authority to appease. Princi"le is not to an suc& mergers ut onl) to trigger a re#ie, "rocess. 6o focus on t&e nationalit) of t&e cor"oration 9 onl) focused on effects. .C grants an e-traterritorial reac& of t&e com"etition "ro#isions. Pro#isions also take a road definition of ,&at constitutes a Emerger.F Cas& *tock 9 ta-a le Cas& Assets 9 ta-a le *tock *tock 9 ta-:free *tock Assets 9 ta-:free %erger control "ro#isions a""l) to Eall concentrations ,it& a communit) dimension.F Under t&e E=utc& ClauseDF e#en if a merger does not meet t&e financial t&res&oldsD a mem er state can still "etition t&e Commission to in#estigate on "u lic "olic) grounds. Under t&e EGerman ClauseDF if a mem er state con#inces t&e Commission t&at a merger dis"ro"ortionatel) affects a distinct marketD t&e Commission can defer to t&e local aut&orities.

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Concentrations ,&ic&D ) reason of t&e limited market s&are of t&e undertakings concernedD are not lia le to im"ede effecti#e com"etition ma) e "resumed to e com"ati le ,it& t&e common market. 4it&out "reCudice to Articles 78 and 72 of t&e Treat)D an indication to t&is effect e-istsD in "articularD ,&ere t&e market s&are of t&e undertakings concerned does not e-ceed 2+ R eit&er in t&e common market or in a su stantial "art of it. .C %erger (egulation 6o. 839!200$ (egulation #ests in t&e Commission t&e e-clusi#e "o,er to o""ose large: scale communit) dimension mergers and acGuisitions of com"etiti#e conseGuence to t&e common market. T&e Commission e#aluates mergers in terms of t&eir com"ati ilit) ,it& t&e common market. .ffecti#e %a) 8D 200$D t&e Commission focuses on "ro&i iting mergers t&at Esignificantl) im"ede effecti#e com"etitionF ) creating or strengt&ening dominant "ositions. A dominant "osition is defined ) .CA case la, to mean t&at )ou can effecti#el) e&a#e inde"endentl) ,it&out res"ect to an) com"etition. Commission does &a#e some Eteet&F &o,e#er. If )ou ignore reGuested c&angesD commission can fine )ou 80R of ,orld,ide sales for eac& entit) in#ol#ed. If )ou don<t "a)D t&e) can lock im"orts or sei0e assets in t&e communit).

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Article 8223 9 Targeted To,ard 'arge %ergers ,it& a 'arge %arket Presence A concentration &as a Communit) dimension ,&ereP 2a3 t&e com ined aggregate ,orld,ide turno#er of all t&e firms concerned is more t&an Y +D000 millionK and 2 3 t&e aggregate Communit):,ide turno#er of eac& of at least t,o of t&e firms concerned is more t&an Y 2+0 million U"6e$$ eac& of t&e firms concerned ac&ie#es more t&an t,o: t&irds of its aggregate Communit):,ide turno#er ,it&in one and t&e same %em er *tate. Article 8233 9 Targeted To,ard *maller %ergers A concentration t&at does not meet t&e t&res&olds laid do,n in "aragra"& 2 &as a Communit) dimension ,&ereP

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2a3 t&e com ined aggregate ,orld,ide turno#er of all t&e firms concerned is more t&an Y 2D+00 millionK 2 3 in eac& of at least t&ree %em er *tatesD t&e com ined aggregate turno#er of all t&e firms concerned is more t&an Y 800 millionK 2c3 in eac& of at least t&ree %em er *tates included for t&e "ur"ose of "oint 2 3D t&e aggregate turno#er of eac& of at least t,o of t&e firms concerned is more t&an Y 2+ millionK and 2d3 t&e aggregate Communit):,ide turno#er of eac& of at least t,o of t&e firms concerned is more t&an Y 800 million U"6e$$ eac& of t&e firms concerned ac&ie#es more t&an t,o: t&irds of its aggregate Communit):,ide turno#er ,it&in one and t&e same %em er *tate. In 2a3D CA4T is greater t&an Y 2D+00 million. In 2d3D eac& of at least t,o &as greater turno#er t&an Y 800 million. In 2 3D in eac& of at least t&ree mem er statesD t&e com ined aggregate turno#er is more t&an Y 800 million 9 mem er state ) mem er state le#el. In 2c3D for same t&ree mem er statesD t&e aggregate turno#er for at least t,o t&e firms sell more t&an Y 2+ million. .. P(I?ATINATI/6

Fundamental Issues A sence of an adeGuate legal infrastructure. %an) former nonmarket economies &a#e functioned ,it&out necessar) legal frame,ork. 6e, la,s must address formation and o"eration of usiness enter"risesD transfer of "ro"ert)D ankru"tc)D anking and securities regulation. 6e, institutions must also e esta lis&ed to regulate suc& la,s. Go#ernment a""ro#al "rocess. %an) go#ernments &a#e created a s"ecial agenc) to deal ,it& "ri#ati0ation 9 usuall) leads to additional la)ers of ureaucrac) and t&e "otential for corru"tion. Agenc) ma) de#elo" a list of a""ro#ed com"anies for "ri#ati0ation. 'ikel) t&at suc& transactions ,ill not e formulaic 9 it ,ill reGuire detailed negotiation ,it& t&e &ost go#ernment to resol#e issues on an ad &oc asis. 4orker "artici"ation in a""ro#al "rocess. 'ikel) concern of t&e ,orkers is loss of em"lo)ment. If ,orks are gi#en a""ro#alD "ri#ati0ation ma) "ro#e im"ossi le. /ne reason "ri#ati0ation is ado"ted is to re#erse t&e o#er: em"lo)ment conseGuence of state o,ners&i" ,it& no accounta ilit) for costs of "roduction. (ig&ts of nationals to "references. Go#ernments ma) sometimes set aside a "ercentage of t&e com"an) to e "ri#ati0ed for local o,ners&i" on e&alf of t&e em"lo)ees. .m"lo)ees ma) e gi#en t&e first o""ortunit) to "urc&ase s&ares of t&eir com"an). *ince not&ing is "aid for suc& s&aresD a foreign in#estor is likel) to

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calculate t&e "er s&are #alue considering t&e dilution effect ) t&e "ercentage of s&ares acGuired ) nationals. Treatment of foreign in#estment. Pri#ati0ation frame,ork ma) include s"ecific limitations on foreign "artici"ation. %a) "ro&i it in#estment in certain industriesK onl) allo, Coint #enturesK or gi#e foreign interests last "riorit) in usiness o""ortunities. %et&ods of #aluation. Book #alue "ossesses all t&e "ro lems as occurs in t&e U* "lus e#en greater distortions due to accounting "ractices t&at usuall) do not ad&ere to market "ractices. Book #alue ma) e used to set a lo, #alue for "urc&ase ) ,orkers ,it& anot&er met&od used to set a &ig& #alue for foreign in#estors. /ne "re#alent form is t&roug& an auction. 4&en t&e #alue is set too lo,D t&e market Guickl) raises t&e "rice to a market le#el and t&e go#ernment is Guickl) a,are of ,&at t&e) &a#e lost ) under#aluation. 4&en t&e #alue is set too &ig&D t&ere ma) e no u)ers and t&e "rocess &as to e re"eated. %iscellaneous. Pri#ati0ation &as een most successful ,it& small to medium si0ed enter"rises. %ore com"le- to esta lis& a #aluation for large factoriesD and it is more difficult to locate ,illing u)ers es"eciall) if t&e o"eration is inefficientD uses outdated tec&nolog)D or reGuires en#ironmental re"air. Incenti#es Parties In#ol#ed @ost 6ation. *to"s drain on nation<s treasur) and "u lic udget. *ignificant source of one:time re#enue to "a) off de ts. Increases flo, of foreign currenc) 2if t&e com"an) successfull) e-"orts goods3. Gains access to ne, tec&nolog) and inno#ationD fostering com"etition. (eGuirement for Coining a glo al organi0ation 2i.e.D I%F uses as a condition for loans3. .ncourage an internal transformationK social relations&i" to t&e marketK good economic "olic) c&oices. Foreign In#estor. AcGuire assets elo, market #alue. Can e seen as a "oliticall) "ositi#e ,a) to enter t&e market. 6ot starting from scratc& 9 in&eriting added #alue. Tr) to acGuire assets onl) to a#oid lia ilities associated ,it& t&e former cor"oration. F.I6?.*T%.6T 4IT@I6 6AFTA T(I%s (egulations A "roduct of t&e GATT Urugua) (oundD t&e GATT!4T/ in#estment rules are included in t&e EAgreement on Trade:(elated In#estment %easures.F

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=rafted to esta lis& t&e "rinci"le of national treatment for in#estments. Trade:related in#estment measures t&at are considered inconsistent ,it& GATT!4T/ o ligations include suc& "erformance reGuirements as minimum domestic contentD im"orts limited or linked to e-"ortsD restrictions on access to foreign e-c&ange to limit im"orts for use in t&e in#estmentD etcH @o,e#erD de#elo"ing countries are allo,ed to Ede#iate tem"oraril)F from t&e national treatment conce"tD t&us diminis&ing t&e effecti#eness of t&e "ro#isions. (egulations set out in Article 2 ,! Anne-. 6o mem er s&all a""l) an) T(I% t&at is inconsistent ,it& Art. 3 or Art. 88 of GAAT Art. 3 9 6ational treatmentD Art. 88 9 Juantitati#e restrictions. (ecourse a#aila le. 'o ) )our o,n go#ernment to take u" t&e issueK onl) after negotiations. *ection 308 9 "etition U.*. trade re"resentati#e on e&alf of an industr). 6AFTA (egulations Pream le to agreement states t&e signing "arties< resolution to Eensure a "redicta le commercial frame,ork for usiness "lanning and in#estment.F In#estment Pro#isions. T&e "rinci"al assurances of access and "rotection are found in C&. 88:A. 88.02 9 6ational Treatment. 88.03 9 %F6. 88.0$ 9 *tandard of Treatment. %ust gi#e %F6 status or national treatment. (eGuires "arit). 88.0+ 9 %inimum *tandard %ust gi#e a asic le#el of "rotection consistent ,it& international la,. 88.01 9 Performance (eGuirements. T&ings not allo,ed t&at restrict trade. 88.07 9 (eser#ations. Allo,s reser#ations or e-ce"tions. 88.80 9 .-"ro"riation!Com"ensation. .nforcement of regulations is found is C&. 88:B. Binding ar itration. *u"ranational. Indi#idual direct claim against a go#ernment. Pri#ate "art) rig&ts and o ligations. C&. 88 Panel. =is"utes. 87 9 against Canada. 8+ 9 against %e-ico. 85 9 against U.*. 6AFTA C&a"ter 88 6AFTA C&a"ter 88 &as t&ree o Cecti#esP firstD Vto esta lis& a secure

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in#estment en#ironment t&roug& t&e ela oration of clear rules of fair treatment of foreign in#estments and in#estorsVK secondD Vto remo#e arriers to in#estment ) eliminating or li erali0ing e-isting restrictionsVK and t&irdD Vto "ro#ide an effecti#e means for t&e resolution of dis"utes et,een an in#estor and t&e &ost go#ernment.V Part A of C&a"ter 88 "ro#ides t&e su stanti#e o ligations of t&e Parties concerning t&e treatment of in#estmentsD ,&ile Part B esta lis&es t&e mec&anism ) ,&ic& in#estors can resol#e claims against t&e &ost go#ernment for reac&ing t&e su stanti#e o ligations. T*e S'5$%a"% ?e O56 )a% !"$ +Par% A,. T&e readt& of t&e in#estment c&a"ter is addressed in t&e *co"e and Co#erage "ro#isions 2Article 88083D ,&ic& &as een inter"reted Guite roadl). C&a"ter 88 a""lies to all measures ado"ted or maintained ) a Part) relating toP 2a3 in#estors of anot&er "art) and 2 3 in#estments of in#estors of anot&er Part) in t&e territor) of t&e Part). T&e first su stanti#e o ligations of C&a"ter 88 are national treatment 2Article 88023D and %ost:Fa#ored:6ation 2V%F6V3 treatment 2Article 88033D ,&ic& essentiall) reGuire t&at eac& Part) treat ot&er 6AFTA in#estors and t&eir in#estments no less fa#ora l) t&an it treats its o,n in#estors and t&eir in#estments 2national treatment3 or in#estors or in#estments of t&ird "arties 2%F6 treatment3. A Part) must confer t&e etter of national or %F6 treatment. 6AFTA also sets u" minimum standards of treatment 2Article 880+3D reGuiring a 6AFTA Part) to treat in#estments of in#estors of anot&er Part) in accordance ,it& customar) international la, "rinci"lesD including Vfair and eGuita le treatmentV and Vfull "rotection and securit).< *ignificantl)D e#en if a measure is not discriminator) on its faceD it ma) still #iolate Article 880+D ecause VWtX&e minimum standard descri ed in Article 880+ does not refer to measures t&emsel#es 2suc& as la,sD regulations and decisions3 ut to t&e administration of measures.V Performance reGuirements are "ro&i ited ) Article 8801. T&is "ro&i ition is designed to eliminate trade distortions arising from suc& reGuirementsD and to ensure entre"reneurial autonom) in in#estment decisions. 4&ile t&e im"osition of certain "erformance reGuirements as a condition for recei#ing incenti#es are s"ecificall) "ro&i itedD reGuirements ot&er t&an t&ose s"ecificall) listed in Article 8801 are "ermitted. Because t&e a ilit) to transfer or re"atriate "rofits and ca"ital is #ital to foreign in#estorsD Article 8809 2Transfers3 reGuires t&e Parties to freel) allo, all transfers t&at relate to in#estments of in#estors of anot&er Part). Article 8880 generall) "ro&i its direct or indirect nationali0ation or e-"ro"riationD or measures VtantamountV to e-"ro"riation of 6AFTA in#estments. Article 8880 statesP 283 6o Part) ma) directl) or indirectl) nationali0e or e-"ro"riate an in#estment of an in#estor of anot&er Part) in its territor) or take a measure tantamount to nationali0ation or e-"ro"riation of suc& an in#estment 2Ze-"ro"riationZ3D e-ce"tP 2a3 for a "u lic "ur"oseK 2 3 on a non:discriminator)

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asisK 2c3 in accordance ,it& due "rocess of la, and Article 880+283K and 2d3 on "a)ment of com"ensation in accordance ,it& "aragra"&s 2 t&roug& 1. 223 Com"ensation s&all e eGui#alent to t&e fair market #alue of t&e e-"ro"riated in#estment immediatel) efore t&e e-"ro"riation took "lace 2Zdate of e-"ro"riationZ3D and s&all not reflect an) c&ange in #alue occurring ecause t&e intended e-"ro"riation &ad ecome kno,n earlier. ?aluation criteria s&all include going concern #alueD asset #alue including declared ta- #alue of tangi le "ro"ert)D and ot&er criteriaD as a""ro"riateD to determine fair market #alue. 233 Com"ensation s&all e "aid ,it&out dela) and e full) reali0a le. @o,e#erD certain go#ernmental acts are s"ecificall) not e-"ro"riator)D suc& as com"ulsor) licensing of intellectual "ro"ert). Furt&ermoreD C&a"ter 88 e-"licitl) e-cludes se#eral listed go#ernment "rograms 2including "u lic educationD social ,elfare and &ealt&3 from its "ro#isions. It s&ould e noted t&at C&a"ter 88 also takes ste"s to "rotect legitimate go#ernment regulations regarding t&e en#ironment and "u lic &ealt&. Article 888$ "ro#idesP 283 6ot&ing in t&is C&a"ter s&all e construed to "re#ent a Part) from ado"tingD maintaining or enforcing an) measure ot&er,ise consistent ,it& t&is C&a"ter t&at it considers a""ro"riate to ensure t&at in#estment acti#it) in its territor) is undertaken in a manner sensiti#e to en#ironmental concerns. 223 T&e Parties recogni0e t&at it is ina""ro"riate to encourage in#estment ) rela-ing domestic &ealt&D safet) or en#ironmental measures. T*e I"?e$%!r/S%a%e D $2'%e Me(*a" $3 +Par% B,. T&e second &alf of C&a"ter 88D Part BD is de#oted to t&e in#estor:state dis"ute settlement mec&anism. T&e 6AFTA Parties &a#e consented in ad#ance to t&e Curisdiction of C&a"ter 88 ar itration "anels ) ado"ting and im"lementing t&e 6AFTA Agreement. T&ere are se#eral conditions attac&ed to t&e use of t&e in#estor:state dis"ute mec&anism in Part B. FirstD t&e claimant in#estor of one Part)D or &is in#estmentD must &a#e suffered loss as a result of anot&er Part) reac&ing a su stanti#e "ro#ision of Part A of C&a"ter 88. Claims must e roug&t ,it&in t&ree )ears of ,&en t&e in#estor first acGuiredD or s&ould &a#e acGuiredD kno,ledge of t&e reac& and kno,ledge of t&e loss or damageD ut ma) not e roug&t ,it&in si- mont&s of t&e e#ent gi#ing rise to t&e reac&. T&is latter "ro#ision is intended to encourage negotiations and consultations. In additionD t&e in#estor must notif) t&e &ost Part) at least ninet) da)s efore su mitting t&e claim to ar itration. T&e a""lica le ar itration rules are "ro#ided in Article 8820 2*u mission of a Claim to Ar itration3 and allo, an in#estor to su mit a claim under 2i3 t&e International Centre for t&e

+$

++
*ettlement of In#estment =is"utes 2VIC*I= V3 Con#entionD if ot& t&e &ost countr) and t&e in#estorVs &ome countr) are "arties to t&e Con#entionD 2ii3 t&e Additional Facilit) (ules of t&e IC*I= Con#entionD if eit&er t&e &ost countr) or t&e in#estorVs countr) are a "art) to t&e Con#entionD or 2iii3 t&e United 6ations Commission on International Trade 'a, 2VU6CIT(A'V3 Ar itration (ules. T&e first set of rules currentl) cannot a""l) ecause t&e United *tates is t&e onl) 6AFTA Part) t&at is currentl) a "art) to t&e IC*I= Con#entionD and t&e second set of rules onl) a""lies ,&ere one "art) is t&e United *tates or a U.*. in#estor. /f t&e t&ree "rocedural o"tionsD U6CIT(A' rules are t&e ,idest and most fle-i le. U6CIT(A' ar itration is a#aila le to an) United 6ations mem er stateD and t&us all t&ree 6AFTA Parties ma) use t&em. T&e a""lica le su stanti#e la, is t&e 6AFTA agreement itself and t&e a""lica le rules of international la,. T&ere are also se#eral "rocedural conditions "recedent to su mission of a claim to ar itration em odied in C&a"ter 88 itselfD inde"endent of t&e "rocedural ar itration rules selected. T&e in#estor mustD in ,riting deli#ered to t&e &ost Part)D consent to ar itration in accordance ,it& t&e "rocedures set out in t&e 6AFTA AgreementD and must V,ai#e t&e rig&t to initiate or continue efore an) administrati#e tri unal or court under t&e la, of an) 6AFTA Part)D or ot&er dis"ute settlement "rocedures . . . e-ce"t for "roceedings for inCuncti#eD declarator)D or ot&er e-traordinar) relief not in#ol#ing t&e "a)ment of damages.V Because C&a"ter 88 ar itration "anels are onl) a le to a,ard monetar) damages 2"lus interest3 or restitution of "ro"ert)D in#estors are not reGuired to ,ai#e t&eir rig&t to seek s"ecific relief or ot&er relief in domestic courts. 4it& res"ect to %e-icoD t&e C&a"ter 88 te-t "ro&i its an in#estor from simultaneousl) su mitting a claim in ar itration against %e-ico and ringing a similar action in a %e-ican court. T&e ar itration "anel is com"osed of t&ree ar itratorsD one a""ointed ) eac& of t&e dis"uting "arties and t&e t&irdD t&e "residing ar itratorD c&osen ) agreement of t&e dis"uting "artiesD or a""ointed ) t&e *ecretar) General of IC*I= after ninet) da)s. 6on:dis"uting 6AFTA Parties ma) also make su missions to C&a"ter 88 "anelsD u"on ,ritten notice to t&e dis"uting PartiesD regarding t&e inter"retation of 6AFTA. As mentionedD a,ards made ) a C&a"ter 88 "anel V&a#e no inding force e-ce"t et,een t&e dis"uting "arties and in res"ect of t&e "articular case.V T&e 6AFTA Parties areD ) agreementD e-"ected to &onor and enforce t&e a,ards of t&e "anels ,it&in t&eir o,n CurisdictionD ut s&ould enforcement in domestic courts ecome necessar)D all t&e 6AFTA Parties are also signatories to t&e 89+7 United 6ations Con#ention on t&e (ecognition and

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+1
.nforcement of Foreign Ar itral A,ards 2t&e V6e, Lork Con#ention V3. %e-ico<s 6e, Foreign In#estment 'a, of 8993 Under t&e 8953 In#estment 'a,D foreign in#estment ,as strictl) "ro&i ited e-ce"t in certain circumstancesD suc& as in#oluntar) Coint #entures. Under t&e ne, "ro#isionsD foreign in#estment is defined sim"l) as "artici"ation of foreign in#estment in %e-ican cor"orationsD directl) or indirectl)D or in acti#ities or acts co#ered ) la,. A foreign in#estor is defined as an)one ot&er t&an a %e-ican. / Cecti#e is to Ec&annelF foreign in#estment into %e-ico and see t&at it Econtri utes to national de#elo"ment.F (eGuires c&arter documents of a %e-ican com"an) to contain eit&er a ECal#o ClauseF or an Ee-clusion:of:foreignersF clause. Article I? allo,s foreign in#estment in an) "ro"ortion in t&e ca"ital of %e-ican com"aniesD acGuisition of assetsD entrance in ne, fields of economic acti#it) or t&e manufacturing of ne, "roduct linesD o"eration of esta lis&mentsD etcH Article ? limits se#eral strategic areas to t&e *tateD suc& as "etroleum and "etroc&emicalsD electricit)D telegra"&D mailD railroadsD issue of currenc)D control of air"ortsD etcH Article ?I reser#es se#eral strategic areas to %e-ican nationalsD suc& as radio roadcastingD ankingD certain "rofessional and tec&nical ser#icesD trans"ortation ser#icesD and "etrol. Article ?II limits t&e "ercentage of foreign o,ners&i" in certain acti#ities. .-ceeding t&e "ercentage ca"s reGuires a""ro#al from t&e Foreign In#est. Comm. .-amination ) t&e Foreign In#estment Committee %ust e-amine im"act on Co s and training of t&e a""licationD t&e tec&nological contri ution im"liedD t&e fulfillment of t&e en#ironmental regulationsD and t&e general contri ution to t&e com"etiti#e "osition of t&e %e-ican "roducti#e "lant. Committee<s aut&orit) is discretionar) and admission of foreign in#estment is common. G. I**U.* C/6F(/6TI6G
T@.

.*TAB'I*@.= I6?.*T%.6T

Currenc) .-c&ange Controls .#er) in#estment in a foreign nation creates some "ossi ilit) of loss 2or gain3 due to t&e c&anging #alues of t&e currenc) of t&e in#estor<s &ome nation and t&at of t&e nation ,&ere t&e in#estment is made. 4&en t&e currenc) floatsD it is "ossi le to kee" track of t&e c&anging relations&i" of t&e t,o currencies. 4&ere t&e currenc) is "egged to anot&er it is less easil) doneK t&ere is al,a)s t&e "ossi ilit) t&at t&e go#ernment ,ill c&ange t&e rateD "ossi l) Guite su stantiall) and ,it&out ,arning. (estrictions of Foreigners< Access to =omestic Borro,ings Bot& domestic and foreign currenc) &oldings ma) e reser#ed e-clusi#el) for nationals. Allo,ing foreigners to com"ete for limited local &oldings ma)

+1

+5
increase interest rates to t&e detriment of local traders and in#estors. *uc& restrictions ,ill encourage foreign in#estors to ring into t&e countr) onl) ,&at &ard currenc) is a solutel) necessar) and remo#e currenc) as soon and as often as "ossi le. (estrictions on An) Access to 'ocal Borro,ing of Foreign @ard Currenc) @oldings of foreign &ard currenc) ma) e e-clusi#el) reser#ed for go#ernment use suc& as maintaining foreign em assiesD sending go#ernment delegations to foreign conferencesD "urc&ases ) state: o,ned com"aniesD etcH T&ese controls indicate a se#ere s&ortage of foreign &ard currenc). (estrictions on Access to and Transfer of 'ocal Foreign @ard Currenc) (estricting a ilit) to transfer &ard currenc) a road. /ften address t&e re"atriation of ca"ital or "rofitsD t&e "a)ment of interest on de tD or t&e "a)ment for goods or tec&nolog). /ften controlled ) nation<s central ank su Cect onl) to international agreements suc& as "artici"ation in t&e I%F. %andated Transfers from A road to / tain In#estment A""ro#al Foreign in#estor ma) e reGuired to in#est so muc& foreign currenc) in t&e nation. %a) e minimum "ercentage of total in#estment or an additional sum to e a#aila le for local go#ernment or "ri#ate domestic in#estor demands. (eGuiring Percentage of Foreign Currenc) to e =e"osited 'ocall) (eGuires nationals to con#ert to local soft currenc) a "ercentage of its foreign orro,ings. 4ill "ro a l) encourage orro,ers to "urc&ase a road or ring in onl) ,&at is needed for soft currenc) "urc&ases. (eGuiring Proceeds A road (eturned to and =e"osited in 'ocal Institutions /ften leads to dou le:in#oicing ,it& "art of t&e "roceeds left in undisclosed accounts a roadD onl) furt&er &urting t&e nation im"osing t&e controls in collecting ta-es. (eGuiring t&at a Foreign In#estor<s =emands for @ard Currenc) e %et ) @ard Currenc) .arnings from .-"orts T&is "arit) reGuirement remo#es a urden from t&e &ost nation to dra, u"on its scarce foreign currencies in allo,ing foreign in#estment to enter t&e countr). Transfer Pricing A multinational cor"oration ma) mani"ulate its intra:com"an) 2"arent su sidiar)3 "ricing. T)"ical market mec&anisms t&at esta lis& "rices for suc& transactions et,een t&ird "arties ,ill not a""l). T&e c&oice of t&e transfer "rice ,ill affect t&e allocation of t&e total "rofit among t&e "arts of t&e com"an). %6C ma) im"ort finis&ed goods or com"onents into t&e countr) of ultimate sale at lo, "ricesD allo,ing t&e su sidiar) to c&arge a lo,

+5

+7
selling "rice and still earn a "rofit. T&e lo, "urc&ase "rice is essentiall) a means of financing t&e ne, su sidiar). %6C can attem"t to minimi0e its ta- e-"osureD ) for instanceD a selling su sidiar) in a &ig& ta- countr) c&arges a lo, in#oice "rice to a u)ing su sidiar) in a lo, ta- countr). %6C ma) ,is& to a#oid re"orting &ig& su sidiar) "rofits t&at ,ould e #ie,ed as e-"loitati#e to t&e nationals. Customs and ta- aut&orities do not coordinate t&eir acti#itiesD and it is not unusual for customs officials to seek a &ig& #aluation and taaut&orities to seek a lo, #aluation. Artificiall) (educing *u sidiar) Profits Artificiall) reducing a su sidiar)<s "rofits t&roug& transfer "ricingD resulting in a diminis&ed le#el of income a#aila le for rein#estment in t&e entit) or for distri utionD can constitute fraud on minorit) s&are&olders under t&e la,s of most de#elo"ed countries. /ften &a""ens ,&en su sidiar) is Coint #enture ,it& local "artners or s&are&olders. T&e distinct interest of t&e minorit) s&are&olders can e "rotected onl) t&roug& arm<s lengt& "ricing or it<s eGui#alent. /nl) t&e U* &as ado"ted e-tensi#e!detailed regulations to e a""lied in indi#idual cases. 21 U.*.C. ; $72 Allocation of Income and =eductions Among Ta-"a)ers In an) case of t,o or more organi0ationsD tradesD or usinesses 2,&et&er or not incor"oratedD ,&et&er or not organi0ed in t&e United *tatesD and ,&et&er or not affiliated3 o,ned or controlled directl) or indirectl) ) t&e same interestsD t&e *ecretar) ma) distri uteD a""ortionD or allocate gross incomeD deductionsD creditsD or allo,ances et,een or among suc& organi0ationsD tradesD or usinessesD if &e determines t&at suc& distri utionD a""ortionmentD or allocation is necessar) in order to "re#ent e#asion of ta-es or clearl) to reflect t&e income of an) of suc& organi0ationsD tradesD or usinesses. In t&e case of an) transfer 2or license3 of intangi le "ro"ert) 2,it&in t&e meaning of ; 9312&32332B33D t&e income ,it& res"ect to suc& transfer or license s&all e commensurate ,it& t&e income attri uta le to t&e intangi le. (eGuires cor"orations to conduct intra:com"an) transactions at arm<s lengt&. N.B. A""lies to ot& in ound and out ound transactionsM Issues in A""l)ing 21 U.*.C. ; $72 In man) industriesD t&ere is ne#er an unrelated t&ird "art). Cor"orations ma) ne#er sell t&eir "roducts to an)one ut t&eir o,n su sidiariesD so t&ere are no actual transactions to reference ,&en tr)ing to determine t&e "rice. T&e lack of com"ara le transactions &as resulted in t&e use of a seemingl) limitless num er of factors t&at go into calculating t&e EcorrectF "rice in a transaction. (esearc& and de#elo"ment costsD "roduction!manufacturing costsD marketingD ad#ertisementD salesD da):to:da) e-"enses of t&e su sidiar)D allocation of risk.

+7

+9
Certainl) a res"onsi le cor"oration ,ill sell "roducts at a "rice t&at co#ers its (Q= e-"enses ,&ile still lea#ing room for a "rofitD ut &o, muc& "rofit s&ould a com"an) e-"ect to makeS 4&at is t&e a""ro"riate "eriod for recou"ing (Q= e-"enses o#er t&e life c)cle of a "roductS International Bankru"tc) Increasing num ers of transnational insol#enc) "roceedings &a#e "laced a urden on courts in #arious countries to engage in creati#e and inno#ati#e res"onses to s"ecific c&allenges. (eform efforts are "roceeding ) treat)D ) &armoni0ation and ) coordination. %oratorium A general sta) is found in most insol#enc) s)stems ,orld,ide and is essential to orderl) liGuidation and successful reorgani0ation!re&a ilitation. .nsures court control in eac& countr) and ) "re#enting indi#idual action it "romotes consultation and "ossi le agreement among creditors 9 incenti#es to find solution. /""ortunit) for creditor consultation and agreement is of critical im"ortance in cross: order cases ,&ere t&ere are fe, legal rules and "recedents. *tanding!Title for 'iGuidator In some Curisdiction t&e trustee merel) &as controlD ,it& title remaining ,it& t&e de tor. .#en t&e most cautious a""roac&es to insol#enc) coo"eration in#ol#e some recognition of t&e foreign liGuidator<s rig&ts. Information *&aring @ig&l) desira le to &a#e met&ods of Cudicial communications not de"endent on "arties. %ost countries reGuire e-tensi#e disclosure ) t&e de tor and t&is information s&ould e a#aila le to t&e courts and "arties in eac& interested Curisdiction. Creditor In#ol#ement %ost countries gi#e national treatment to foreign creditor claimsD ut t&ere are #er) fe, "ro#isions relating to fair re"resentation of foreign interests and communication. *u sidiar)<s creditors mig&t tr) to force an in#oluntar) ankru"tc) on t&e cor"oration efore t&e "arent &as an o""ortunit) to tr) and consolidate one "roceedingD allo,ing t&em to &a#e t&e "rocess take "lace in t&eir &ome Curisdiction. Coordinated Claims Procedures @ig&l) desira le to ado"t uniform "rocedures for cross:filing and mars&alling. Cross:filing "ermits t&e trustee in eac& "roceeding to file in e#er) ot&er "roceeding on e&alf of all creditors in t&e "roceeding in ,&ic& t&e trustee ,as a""ointed. %ars&alling rules limit reco#er) ) a creditor in a gi#en

+9

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"roceeding ,it& reference to amounts t&e creditor &as reco#ered in "roceedings in ot&er CurisdictionsD so t&at t&e creditor cannot recei#e more t&an ot&er creditors of t&e same class. A de facto ,orld,ide s)stem of distri ution. Priorit)!Preferences T&e Istan ul Treat) "ro#ides t&at creditors entitled to "riorit) in distri ution under local la, s&ould e "aid from local assetsD and ,&at remains s&ould e returned to t&e main "roceedingD ,&ere t&e "riorities of t&e main Curisdiction<s la, ,ill go#ern. =isc&arge ?er) fe, cases regarding t&e transnational effect of a disc&arge. For e-am"leD a creditor free to enforce its "re:e-istingD "re: reorgani0ation rig&ts against a cor"orate de tor in Curisdiction BD des"ite a disc&arge in t&e reorgani0ation a""ro#ed in Curisdiction AD ,ould effecti#el) ar t&e de tor from o"erating in Curisdiction B and t&e "ros"ect mig&t make t&e reorgani0ation im"ossi le. T,o %ain A""roac&es Territorialist. T&e court of eac& countr) administers t&e assets ,it&in t&at countr) according to t&eir o,n la,sD often ,it&out regard to t&e "roceedings in anot&er countr) in#ol#ing t&e same de tor. Uni#ersalist. T&e court in t&e E&omeF countr) administersD or at least attem"ts to administerD all of t&e de tor<s assetsD ,&ere#er t&e) ma) e foundD and distri utes t&em according to t&e su stanti#e la, of t&e de tor<s &ome countr). T&e U* notoriousl) su scri es to t&e uni#ersalist a""roac&. C&a"ter 8+ of t&e U* Bankru"tc) Code 6ot Cust "roceduralK it also creates ne, su stanti#e statutor) rig&ts forD as ,ell as constraints onD foreign and domestic de tors and creditors in cross: order "roceedings. Courts inter"reting C&. 8+ are directed to Econsider its international origin and t&e need to "romote an a""lication of WC&. 8+X t&at is consistent ,it& t&e a""lication of similar statutes ado"ted ) foreign Curisdictions.F A""lies not onl) ,&ere a foreign re"resentati#e commences an ancillar) caseD ut also ,&ere a foreign re"resentati#e or creditor seeks to commence a "lenar) ankru"tc) case in t&e U*D assistance is soug&t in a foreign countr) in connection ,it& a U* ankru"tc) caseD and a foreign "roceeding and a ankru"tc) case in t&e U* are "ending concurrentl). U6CIT(A'<s %odel 'a, on Cross:Border Insol#enc) Greatl) influenced t&e drafting of C&a"ter 8+. @. P(/A.CT FI6A6CI6G

Basic *tructure ProCect finance is nonrecourse financing "redicated on t&e merits of a "roCect rat&er t&an t&e credit of t&e "roCect s"onsor.

10

18
T&e credit a""raisal is ased on t&e underl)ing cas& flo, "roCections. ProCect s"onsor &as no direct legal o ligation to re"a) t&e "roCect de t or make interest "a)ments if t&e cas& flo,s "ro#e inadeGuate to ser#ice t&e de t. T&e contracts in#ol#ed in t&e "roCect constitute the framework for "roCect #ia ilit) and risk. Based on "redicta le regulator)D "olitical en#ironments and sta le markets.

Ad#antages!=isad#antages of ProCect Finance 6onrecourse nature of financing "ro#ides financial inde"endence to eac& "roCect o,ned and "rotection of t&e s"onsor<s general assets from difficulties in an) "roCect. /ff: alance s&eet de t treatment can e eneficial for "arent com"an)<s financial statements. A ilit) of s"onsor to finance "roCect using &ig&l) le#eraged de t ,it&out a dilution of e-isting eGuit) 2e.g.D le#erage "ercentage often et,een 5+ to 70 "ercent3. A#oidance of restricti#e co#enants in ot&er transactions. Fa#ora le financing terms mig&t e a#aila le to t&e "roCect ut not t&e s"onsor indi#iduall). =ue to com"le- nature and &ig& riskD lender fees and interest rates are often &ig&er. Greater degree of su"er#ision im"osed on t&e management and o"eration of t&e "roCect. Financing *ources *ources of funds include eGuit)D senior!Cunior loansD and t&e ca"ital markets. .Guit) often includes in#estment fundsD multilateral institutions like t&e IFCD regional de#elo"ment anks and international and local eGuit) markets.

18

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=e t often includes s)ndicated loansD institutional in#estorsD t&e I(CD in#estment de"artments of regional de#elo"ment anksD international and local ond marketsD and su""lier<s credit. International Finance Cor"oration .sta lis&ed in 89+1D it is t&e 4orld Bank<s "ri#ate enter"rise de#elo"ment arm. T&e IFC ,ill lend directl) to "ri#ate com"anies and cannot acce"t re"a)ment guarantees from &ost countr) go#ernments. IFC s)ndication gi#es commercial ank t&e comfort t&e) reGuire to e-tend commercial loans in de#elo"ing countries. As t&e lender of recordD t&e IFC &as s"ecial "ri#ileges as a multinational institution t&at ,ill e-tend to t&e commercial anks 9 e-em"t from "a)ment of local ta-esD insulated against "olitical risk and "ossi le greater access to local leaders&i". Ca"ital %arkets *.C (ule 8$$A "ermits certain Gualified institutional in#estors to "urc&ase securities not registered ,it& t&e *.C. Foreign com"anies issue eGuit) in t&e U* ) means of American =e"ositor) (ecei"ts issued ) a U* Bank. Pu licall) offered onds must e registered ,it& t&e *.C and t&e orro,er must e rated ) a credit rating agenc). %a) create "otential issues not "resent in commercial lendingD i.e.D negati#e carries. .uro onds can e issued in an) con#erti le currenc) and sold to institutional in#estors. (isk Identification and %itigation T&ree causes for "roCect failure e-ist during t&e design engineering and construction "&ases of t&e "roCectP 2i3 a dela) in t&e "roCected com"letion of t&e "roCect and t&e resultant dela) in t&e commencement of cas& flo,D 2ii3 an increase in ca"ital needed to com"lete constructionD and 2iii3 t&e insol#enc) or lack of e-"erience of t&e contractor or a maCor su""lier. *i- asic risks t&at generall) e-ist in t&e start:u" and o"erating stages of t&e "roCectP 2i3 tec&nolog) failure or o solescenceD 2ii3 c&anges in la,D 2iii3 uninsured lossesD 2i#3 s&ifts in t&e a#aila ilit) or "rice of ra, materialsD 2#3 s&ifts in demand or "rice of out"utD and 2#i3 negligence in "roCect o"eration. (isk %itigation 'imited guarantees can e used to "ro#ide t&e minimum en&ancement necessar) to finance a "roCect 2i.e.D cost o#errun guarantees3. 'etters of credit can e used to guarant) t&e credit,ort&iness of a "art). *uret) o ligations "ro#ided ) t&e contractor can ensure t&at t&e "roCect ,ill o"erate at a certain le#el 9 t&e risk "assed off to a suret) t&at issues "erformance and "a)ment onds. Political (isk Insurance 'imited guarantees

can

used

to

"ro#ide

t&e

minimum

12

13
en&ancement necessar) to finance a "roCect 2i.e.D cost o#errun guarantees3. %ultilateral In#estment Guarantee Agenc) 2%IGA3 "ro#ides incon#erti ilit)!transfer risk co#erage for lenders co#ering 9+R of t&e risk. %IGA ,ould traditionall) insure "roCect lenders onl) if a "roCect s"onsor also insured its eGuit) in#estment. *ome lenders "refer to insure ,it& /PIC ,&ic& can reinsure ,it& %IGA. %IGA<s co#erage does not co#er de#aluation risk. A lender is eligi le for %IGA co#erage if it is incor"orated and &as its "rinci"al "lace of usiness in a mem er countr) 2currentl) 8+8 mem er countries3 or if it is maCorit):o,ned ) nationals of mem er countries. %ultilateral EB 'oansF are made ) a multilateral agenc) suc& as t&e I(C or I=B ,&ic& is 800 R "artici"ated out to a commercial ank or a s)ndicate of anks. Because t&e loan is made under t&e multilateral<s um rellaD it is "ercei#ed to &a#e t&e same "referred creditor status asserted ) multilateral agencies generall). Force %aCeure .-traordinar) e#ents inde"endent of t&e "arties< ,ill t&at cannot e foreseen or a#erted ) t&em e#en ,it& due diligenceD eing e)ond t&eir control and "re#enting t&e Contracting Parties or Part) from fulfilling t&e o ligations undertaken in t&e contract. .-am"lesP *tormsD eart&GuakesD tornadoesD &urricanesD ,arD ci#il unrest. A standard force maCeure clause in a > reGuiresP T&e circumstances or e#ent e e-ternalK It must render "erformance radicall) different from t&at originall) contem"latedK It must &a#e een unforeseen 2su Cecti#e3 or unforeseea le 2o Cecti#e3K and Its occurrence e)ond t&e control of t&e "art) concerned. UCC standardP Commerciall) im"ractica le standard. Increase in cost is not im"ractica le unless t&e rise in costs is due to some unforeseen contingenc) t&at alters t&e essential nature of t&e "erformance. i.e. not a rise or colla"se in t&e marketD ut a se#ere s&ortage of ra, materials due to a ,arD em argoD cro" failureD s&utdo,n of maCor sources of su""l). Frenc& 'a,P Im"ossi le standard. Irresisti ilit). A force t&at is su"erior to t&at of manD making t&e e-ecution of a contract totall) im"ossi le. T&is encom"asses ot& natural "&enomenaD as ,ell as man: made occurrences. T&e essence of t&is conce"t lies in t&e contracting "art)<s ina ilit) to do an)t&ing a out t&e turn of e#ents. T&e Cudge a""lies t&e standard of ,&et&er an) "erson "laced in t&e same situationD as t&e contracting "art) ,ould &a#e een similarl) una le to o#ercome t&e o stacles "resented.

13

1$
=ifficult "erformance is not an e-cuse 9 it must e insurmounta le. Unforseea ilit). T&e e#ent must &a#e een a solutel) fortuitous. If it could &a#e een foreseenD or e#en sus"ectedD and t&e "art) could &a#e ado"ted measures to a#oid or "re#ent t&e "ro lemD t&en t&is as"ect ,ould not e met. (easona le "erson standard is a""lied. .-ternalit). It must &a#e come a out t&roug& no action 9 direct or indirect 9 of t&e contracting "arties. It must not onl) e outside t&e circumstances of t&e "articular contract ut also outside t&e "arties< s"&ere of acti#it). T&ereforeD defects in "roducts cannot amount to force maCeureD nor can actions of em"lo)eesD "oor construction of uildingsD or ankru"tc). Procedure. If a "art) is e-cused from "erformance ) force maCeureD t&e de tor is released from claims of t&e creditor. 6o damages are reco#era le for non"erformance of t&e >. If onl) "art of t&e > is rendered im"ossi leD t&en t&e rest of t&e > must e carried out. If t&e conditions t&at render t&e contract im"ossi le are onl) tem"orar)D t&en t&e > is sus"ected until t&e condition is remo#e. U6I=(/IT 9 @ards&i" 4&ere "erformance of a > ecomes more onerous for one of t&e "artiesD t&at "art) is ne#ert&eless ound to "erform its o ligations. .-cused "erformance ,&en E@ards&i".F 4&en t&e occurrence of e#ents fundamentall) alters t&e eGuili rium of t&e > eit&er ecause of t&e cost of a "art)<s "erformance &as increased or ecause t&e #alue of t&e "erformance a "art) recei#es &as diminis&edD A6= t&e e#ents occur or ecome kno,n to t&e disad#antaged "art) after t&e conclusion of t&e >. *ummar)P 2i3 t&e e#ents could not &a#e een reasona l) kno,nD 2ii3 are e)ond t&e control of t&e disad#antaged "art)D 2iii3 and t&e risk of t&e e#ents ,as not assumed ) t&e disad#antaged. Procedure. T&e disad#antaged "art) ma) reGuest renegotiation of t&e >D ut is not entitled to ,it&&old "erformance. If a court finds &ards&i"D it ma) terminate t&e > or ada"t t&e > ,it& a #ie, to restoring its eGuili rium. 6/T.P same as UCC and common la,. 6on"erformance is e-cused if due to an im"ediment e)ond t&e "art)<s control t&at could not reasona l) e e-"ected to &a#e taken into account at t&e conclusion of t&e contract. DISPUTE RESOLUTION

1$

1+
A. FU6=A%.6TA' I**U.*
A6=

PATT.(6*

(esolution of International Business =is"utes *er#ice of Process Plaintiff in international litigation must t&ink of com"l)ing ,it& t&e ser#ice of "rocess la,s of at least t,o nationsD ,&ere "laintiff &as filed suit and ,&ere defendant is located. @ague Con#ention on *er#ice A road. *igned ) nearl) +0 nations. .ac& signator) designates a "ri#ate com"an) as t&e Central Aut&orit) to recei#e reGuests from ot&er "artici"ating states to carr) out ser#ice in t&eir state. *e#eral nations &a#e made declarations or reser#ations "ro&i iting ser#ice ) mail in t&eir Curisdiction. T&is &as significant effect on t&e use of su stituted or constructi#e ser#ice ) U* "laintiffsD ,&ere documents ma) &a#e to e transmitted a road to com"lete t&e ser#ice "rocess. Forum 6on Con#eniens Conce"t is foreign to most ci#il la, Curisdictions. .U finds its use to e inconsistent ,it& o ligations under .U Curisdiction regulations. %an) 'atin American countries are locking its use ) im"lementing legislation t&at remo#es local Curisdiction if a national first filed suit in t&e United *tates 9 t&e t&eor) eing t&at t&e filing in t&e U* terminates ,&at ,ould ot&er,ise e #alid Curisdiction in t&e &ome nation and t&erefore t&e U* court could not dismiss t&e case ecause t&ere ,as an a#aila le foreign forum. Pri#ate considerations include ,&ere e#idence is located and getting it to t&e forumD mo#ement and incon#enience of ring "artiesD ,itnesses and e-"erts to t&e forumK t&e need to translate documents and testimon)K t&e a ilit) to im"lead t&ird "art) defendantsK and im"lications from fragmenting t&e suit if it ,ere dismissed in fa#or of different nations of different "laintiffs and non:U* defendants. Pu lic considerations include eac& nation<s interest in eing t&e location of t&e litigationD t&e urden on t&e court s)stem and t&e interest!com"etence of Curors ser#ing and sometimes deterring U* com"anies from "roducing defecti#e "roducts for e-"ort. Gat&ering .#idence A road 6ations &a#e often used letters rogator) to gain e#idenceD essentiall) constituting a reGuest to t&e foreign nation<s court to assist in o taining t&e e#idence. .-tensi#e reGuests from t&e U* &a#e led man) nations to enact E lockingF la,s t&at "ro&i it nationals from com"l)ing ,it& suc& reGuestsD or e#en making it a crime to ask for documents to e used in foreign "roceedings. @ague Con#ention on Taking .#idence A road. Ado"ted ) a out $0 nations. Con#ention tries to meet t&e needs of t&e forum court to o tain e#idence t&at t&e court considers admissi le ,&ile not im"osing u"on t&e foreign "arties or sources of e#idence demands t&at are

1+

11
o#erl) e-cessi#e under t&e rules of t&eir nation. U* *u"reme Court &as &eld t&at use of t&e con#ention is o"tional and t&at t&ere is no need to use t&e con#ention first efore using U* rules. B. C@/IC.
/F

F/(U%

A6= AU(I*=ICTI/6

U* Forum *election A""roac& %!* Bremen #. Na"ata /ff:*&ore Fa(%$P Na"ata 2P3D U.*. cor"oration contracted ,it& %!* Bremen 2=3 and a German cor". 2=3 to &a#e drilling rig mo#ed from 'ouisiana to Ital)K ,&en ,eat&er caused damagesD Na"ata 2P3 sued for damages in U.*. and did not &onor forum:selection clause in contract. H!6# ")P A freel) negotiated "ri#ate international agreementD unaffected ) fraudD undue influenceD or o#er,eening argaining "o,erD s&ould e gi#en full effect. A contractual c&oice:of:forum clause s&ould e unenforcea le if enforcement ,ould contra#ene a strong "u lic "olic). Na"ata did not clearl) s&o, t&at enforcement ,ould e unreasona le and unCustD or t&at t&e clause ,as in#alid for suc& reasons as fraud or o#erreac&ing. 4e must gi#e ,a) to an a""roac& more in kee"ing ,it& t&e increasing in#ol#ement of American usiness and industr) o#erseas. Carni#al Cruise 'ines #. *&ute Fa(%$P *&ute 2P3 "urc&ased ticket from Carni#al Cruise 2=3 tra#el agent in 4as&ington. *&ute ,as inCured on oard s&i" in international ,aters and attem"ted to sue Carni#al in 4as&ington. H!6# ")P Court u"&eld forum clause in contract stating t&at all dis"utes arising under t&e contract ,ere to e litigated in Florida. Clause ,as Ereasona le.F Clause created certaint) for t&e "arties in#ol#edD conser#ed Cudicial resourcesD and sa#ed mone). Plaintiffs did not satisf) &ea#) urden of "roof reGuired to set aside clause on grounds of incon#enience. Florida ,as not a remote alien forum. Bonn) #. *ociet) of 'lo)d<s Fa(%$P Bonn) 2P3 and ot&er U.*. in#estors filed suit in U.*. =istrict Court against 'lo)d<s 2=3 for alleged securities la, #iolationsD des"ite a forum and la, selection clause in agreements naming .ngland as site of Curisdiction. H!6# ")P A forum selection clause in a securities:related contract ,ill e enforced if t&e c&osen forum affords in#estors redress for t&eir claims. T&e fact t&at an international transaction ma) e su Cect to la,s and remedies different or less fa#ora le to t&ose of t&e U.*. is not alone a #alid asis to den) enforcement U* A""roac& to Aurisdiction International *&oe and It<s Progen)

11

15
Int<l *&oe minimum contacts standard. 4orld:4ide ?olks,agen "ur"oseful a#ailment standard for "ersonal CurisdictionK defendants cannot e &aled into court in a Curisdiction ,it& ,&ic& t&eir onl) connection is t&e Eunilateral acti#it)F of t&e "laintiffs. >eeton!Burger >ing assertion of Curisdiction is constitutional ,&ere t&e defendants created t&e relations&i" ,it& forum state. Perkins!@elico"teros ,eig&ed Guestion of assertions of general Curisdiction o#er aliens. Asa&i first time since t&e Court<s ado"tion of t&e "ur"oseful a#ailment standardD t&e Court denied Curisdiction o#er a defendant t&at &ad "ur"osefull) a#ailed itself of t&e enefits and urdens of doing usiness in t&e forum. %inimum contacts ,ere &eld to e a necessar) ut not sufficient condition for t&e constitutional assertion of Curisdictional aut&orit). Fairness and su stanti#e Custice ,ere also tests t&at must e "assed. .uro"ean Union A""roac& to Aurisdiction Brussels (egulation Article 2 2General Aurisdiction3. A""lies to "ersons domiciled ,it&in a mem er state ,it&out regard to nationalit). Articles + and 1 2*"ecial Aurisdiction3. Allo, a "erson domiciled in one mem er state to e sued in anot&er mem er state. Article +. Contract mattersP grants Curisdiction to t&e courts for t&e "lace of "erformance of t&e o ligation in Guestion 2Article +.8.a3. Place of "erformance inP *ale of GoodsP ,&ere t&e goods ,ere deli#ered or s&ould &a#e een. Pro#ision of ser#icesP ,&ere t&e ser#ices ,ere "ro#ided or s&ould &a#e een 2Article +.8. 3. Article 1. 283 /ne of a num er of defendants ,it& closel) connected claims 223 t&ird "art) 233 on a counter:claim arising from t&e same contract 2$3 In matters relating to t&e contractD if t&e action can e com ined ,it& an action against t&e same defendant in matters relating to rig&t in rem in immo#a le "ro"ert)D in t&e court of t&e mem er state in ,&ic& t&e "ro"ert) is located Court!=efendant #. Court!Claim 6e-us T&e foundation of t&e Es"ecialF Curisdiction rules is t&e Court!Claim ne-us as o""osed to t&e Court!defendant ne-usD ,&ic& is t&e asis of general Curisdiction. T&e .uro"ean Court &eld in an action in ot& Tort 2Article +2333 and Contract 2Article + 2833 t&at t&e Curisdiction o#er t&e tort claim deri#ed from 2Article +2333 did not e-tend to t&e contract claim 9 9alfelis v. Schroder. (easoningP t&e asis of t&e Article +233 tort rule of Curisdiction is t&e

15

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close connection et,een t&e dis"ute and t&e court 2court!claim ne-us3 9 Shevill. T&ree (ules of Inter"retationP Brussels Con#ention Article 2 Curisdiction is more EgeneralF t&an t&e s"ecial Curisdiction rules 2e-. Articles + and 13 9 Court!=efendant 6e-us. T&e s"ecial Curisdiction rules 2Articles +:813 s&ould e narro,l) inter"reted. T&e rules of s"ecial Curisdiction are ased on a Eclose connecting factor et,een t&e dis"ute and t&e courts.F 9 Court!Claim 6e-us. Pro lem ,it& Court!Claim 6e-us. Inter"retation of Article +233 rule "ro#iding Curisdiction in t&e E"lace ,&ere t&e &armful e#ent occurred.F Inter"retation of Article +283 rule esta lis&ing Curisdiction in t&e courts of t&e E"lace of "erformance of t&e o ligation in Guestion.F Bias to,ards t&e courts of t&e "laintiff<s domicile in granting Curisdiction. ?umez. Aurisdiction and ?enue in .uro"ean Ci#il 'a, *)stems Ci#il "rocedure is a matter of federal la, e#er),&ere ut *,it0erland. International com"etence is rarel) distinct from territorial com"etence. .-ce"tionP In Austria t&ere is an additional reGuirement t&at t&e case e related to t&e state of t&e court addressed. 6o association et,een Aurisdiction and *er#ice of "rocess. T&e a ilit) to ser#ice a defendant &as no connection ,it& Curisdiction. If defendant fails to a""ear t&e court must #erif) ,&et&er or not it &as Curisdiction. Plaintiff must "ro#ide sufficient e#idence for t&e facts on ,&ic& &e ,ants to ase t&e Curisdiction of t&e court. A court ma) still e-ercise Curisdiction in t&e a sence of ser#ice of "rocess if it turns out to e im"ossi le . German)P 'ast resort to ser#ice of "rocess is "u lication in a ne,s"a"er and "osting it on t&e courts official oard. FranceP *er#ice ma) e made ,it& an official ,&ose normal function is "u lic "rosecution. Ci#il 'a, countries lack 'ong:Arm *tatutes ecause t&ere is no conce"t of Curisdiction distinct from #enue. .uro"ean Courts esta lis& Curisdiction o#er categories of la,suits and categories of "eo"le as defined ) t&e res"ecti#e "ro#isions in t&e state<s code of ci#il "rocedure. General #. *"ecific Aurisdiction in .uro"e General AurisdictionP ased on t&e defendants< "ermanent residence. *"ecific AurisdictionP determined ) t&e codes of ci#il "rocedure of t&e #arious ci#il:la, countries. TortP 4&ere a tort occurs is recogni0ed as a good location for la,suits in #irtuall) all ci#il la, countries. ContractP =oing usiness in a "articular Curisdiction is not sufficient to esta lis& Curisdiction. T&ere must e an actual ranc& or ot&er esta lis&ment of t&e foreign de tor in t&e res"ecti#e countr).

17

19
6o doctrine of forum non con#eniens. A court &a#ing Curisdiction is committed to e-ercising it. .uro"e &as no rule against ousting t&e Curisdiction of a court. In FranceD e#er) Frenc& citi0en ma) sue &is o""onent in France if t&e underl)ing legal relations&i" is contractual. In German) and Austria an) "erson ,it& assets located in a "articular Curisdiction ma) e sued t&ere. Auenger<s ?ie, of U* Aurisdictional Auris"rudence 4&ile sc&olars 9 unlike "ractitioners 9 re#el in uncertaint)D e#en in academic circles t&e a""lause and admiration for t&e Court<s fora)s into t&e field of Curisdiction &a#e long ago gi#en ,a) to a distinct disenc&antment.F If t&e *u"reme Court<s rulings on t&is issue are fla,edD t&e) s&ould not e used as our model for international coo"eration. T&e *u"reme Court generall) ignores t&e com"le- differences et,een transnational and interstate Curisdictional issues. T&e *u"reme Court is o#erl) concerned ,it& t&e assumed interrelations&i" et,een due "rocess and state so#ereignt) and o li#ious to t&e realities of international affairs. T&e U* *u"reme Court is ignoring t&e "ossi ilit) of a glo al a""roac& to Curisdiction and Cudgments recognition. T&e .U &as made great strides in t&is area ,it& t&e Con#ention on Aurisdiction and t&e (ecognition of Audgments in Ci#il and Commercial %atters. Bars "o,erful enter"rises from im"osing forum:selection clauses on consumers. Allo,s for multi:"art) litigation in a single forum. Case la, in general is clearer in t&e .CA t&an t&e ne ulous and some,&at un"redicta le standards identified ) t&e U* *u"reme Court. *u"reme Court case la, creates a arrier to international &armoni0ation and "re#ents us from effecti#el) dealing ,it& ot&er nations. Brussels (egulation 9 Article 23 /ne of t&e "artiesD one of ,&ic& is domiciled in a %em er *tate &as agreed t&at a court of a mem er state is to &a#e Curisdiction. *uc& Aurisdiction ,ill e e-clusi#e unless ot&er,ise agreed. @o, to esta lis& CurisdictionP 2a3 In ,riting or e#idenced in ,ritingK 2 3 in a form ,&ic& accords ,it& "ractices ,&ic& t&e "arties &a#e esta lis&ed et,een t&emsel#esK or 2c3 in international trade or commerceD in a form ,&ic& accords ,it& a usage of ,&ic& t&e "arties are ought to have been aware and ,&ic& in suc& trade or commerce is widely known to and regularly observed by parties to contracts of the type in#ol#ed in t&e "articular trade or commerce concerned. C. .6F/(C.%.6T
/F

F/(.IG6 AU=G%.6T*

Common 'a, At .nglis& common la,D a mone) Cudgment rendered in a foreign countr) ,as su Cect to im"eac&ment ) t&e .nglis& court. @ilton #. Gu)ot 2879+3. =i#erged from .nglis& common la,.

19

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4&ere t&ere is no "reCudiceD fraud or lack of due "rocessD t&e merits of t&e case s&ould not e tried again in t&e U*. @o,e#erD t&e Cudgment ,as denied enforcement ecause Emutualit) and reci"rocit)F ,ere not a#aila le for U* Cudgments in France. *tate 'a, Because actions roug&t in federal court are de"endent on state la, 2.rie #. Tom"kins3 and @ilton ,as not Constitutional doctrineD state courts &a#e felt free to "ursue ot&er anal)ses and doctrines. Uniform Acts Uniform Foreign %one):Audgments (ecognition Act Inconsistent and s"arse state la, ultimatel) led to t&e Uniform Foreign %one):Audgments (ecognition Act 2UF%A(A3 in 8912. $5 states e#entuall) ado"ted it. Pur"ose ,as to ring uniformit) to t&e results of cases and to furnis& states ,it& a co&erent and consistent set of rules. Uniform Foreign:Countr) %one) Audgments (ecognition Act of 200+ Im"ortant differencesP 2i3 "art) seeking recognition &as t&e urden of "ro#ing t&e Cudgment is su Cect to t&e ne, ActK 2ii3 "art) o Cecting to recognition and raising s"ecific grounds &as t&e urden of "ro#ing t&ose groundsK 2iii3 "ro&i ition of t&e action if t&e Cudgment ma) no longer e enforced in t&e countr) of t&e Cudgment. + states &a#e re"laced t&e UF%A(A ,it& t&e UFC%A(A. (ecognition #. .nforcement Courts ma) gi#e one of t,o effects to a foreign CudgmentP (ecogni0e t&e Cudgment. If Cudgment is limited to recognitionD t&e court &as decided t&at t&e issue or issues do not need to e re:litigated. .nforce t&e Cudgment. If Cudgment is enforcedD t&e successful "art) is granted some or all of t&e Cudgment decreed ) t&e foreign court A""lication of UFC%A(A *ociet) of 'lo)d<s #. Turner 220023 EA foreign countr) Cudgment is not conclusi#e ifHt&e Cudgment ,as rendered under a s)stem t&at does not "ro#ide im"artial tri unals or "rocedures com"ati le ,it& t&e reGuirements of due "rocess of la,.F Foreign "roceedings need not com"l) ,it& t&e traditional rigors of American due "rocess 9 must e fundamentall) fair and not offend against asic fairness. A court is "ro#ided ,it& discretion not to enforce a foreign countr) mone) Cudgment if Et&e cause of action on ,&ic& t&e Cudgment is ased is re"ugnant to t&e "u lic "olic) of t&e state.F *tandard for non:recognition is ,&et&er t&e cause of action is re"ugnant to state "olic)D not ,&et&er t&e standards for e#aluating t&e cause of action are t&e same or similar in t&e foreign countr).

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Bank of 6o#a *cotia #. Tsc&a old Pac. 4est mo#ed for non:recognition of a Canadian Cudgment "ursuant to t&e UF%A(A. ArgumentsP Fraud ;$2 3223K Contrar) to Agreement ) Parties to (esol#e %atter /utside of Court ;$2 32+3K *eriousl) Incon#enient Forum ;$2 3213K (e"ugnant to Pu lic Polic) ;$2 3233K and ?iolation of =ue Process ;$2a3283. Fraud ;$2 3223. A foreign Cudgment need not e recogni0edH if t&e Cudgment ,as o tained ) fraud. (esolutionP Court distinguis&es et,een e-trinsic and intrinsic fraud 2cmt 5 of UFC%A(A3. /nl) e-trinsic fraud is asis for den)ing recognition of a foreign Cudgment. 6o e#idence t&at a false statement ,as deli eratel) made to t&e court 2e-trinsic fraud3. Intrinsic fraud assertion in#ol#ing t&e merits of a case s&ould &a#e een dealt ,it& in t&e Canadian court. Contrar) to Agreement ) Parties to (esol#e %atter /utside of Court ;$2 32+3. Pac 4est argues t&at Tsc&a old stated it ,ould Etake care ofF t&e Canadian case. (esolutionP ;$2 32+3 allo,s a court to refuse recognition ,&en t&e foreign "roceeding ,as contrar) to an agreement et,een t&e "arties to settle t&e dis"ute outside of t&at court. In t&is caseD t&e defendant entered into an agreement ,it& a codefendant and t&e court &eld t&at t&is "ro#ision onl) a""lies to ad#erse "arties. *eriousl) Incon#enient Forum ;$2 3213. Pac 4est argues t&at since it ,as roug&t into t&e Canadian action ) "ersonal ser#iceD t&is section of t&e Act is an alternati#e asis for non: recognition of t&e Canadian Cudgment. (esolutionP T&is "ro#ision a""lies ,&en a court<s Curisdiction is ased onl) on "ersonal ser#ice. Court &eld t&at Pac 4est confused "ersonal Curisdiction ,it& "ersonal ser#ice. (e"ugnant to Pu lic Polic) ;2$32 3233 and =ue Process ;2$32a3 283. Pac 4est argues t&at due "rocess "rinci"les and t&e "u lic "olic) of 4A state reGuire a defendant to e informed of t&e claim against &im and ecause Pac 4est ,as not informed of t&e claim t&e motion for non:recognition s&ould e granted. (esolutionP Court &eld t&at Pac 4est &ad an o""ortunit) to litigate issues in t&e foreign forum and is t&erefore "recluded from collaterall) attacking t&e resulting Cudgment in t&e recognition state. Princi"les Canada Comit) "rinci"les similar to t&ose used ) t&e United *tates. Canadian court a""lies an EinternationalF standard ,&ic& limits recogni0ed Curisdiction to fi#e ases France A sent an international agreement to t&e contrar)D a foreign Cudgment in order to &a#e res Cudicata effect needs an e-eGuator

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(eGuireme nts for (ecognitio n International *tandardP 83 *u Cect of t&e countr) in ,&ic& t&e Cudgment is renderedK 23 (esident of countr) ,&en action eganK 33 =efendant selected forum in ,&ic& &e ,as suedK $3 ?oluntar) a""earanceK +3 4&ere &e contracted to su mit &imself to Cudgment of t&e foreign court .-eGuatorP 83 Audgment must e rendered ) a court &a#ing Curisdiction under Frenc& rulesK 23 %ust com"l) ,it& minimum standards of "rocedural fairnessK 33 %ust a""l) t&e EcorrectF la, t&at ,ould &a#e een a""lied ) Frenc& courtK $3 %ust not #iolate "u lic "olic)K +3 %ust e ca"a le of immediate enforcement in t&e "lace of its origin

C&oice of Currenc) (estatement 2T&ird3 of t&e Foreign (elations 'a, of t&e United *tates 2897533 Traditionall)D United *tates &as rendered mone) Cudgments "a)a le in United *tates dollars onl) 2;723 cmt .3. ; 723283P Courts are allo,ed to render Cudgment in t&e currenc) in ,&ic& t&e o ligation is denominated or t&e loss ,as incurred. ; 723 223P T&e con#ersion from foreign currenc) to dollars s&ould e made at suc& rate as to make t&e creditor ,&ole and to a#oid re,arding a de tor ,&o &as dela)ed in carr)ing out t&e o ligation. 4&en to Con#ert Foreign:%one) Audgment Breac& =a) (ule. Fa#ora le to "laintiff 2claimant3 if foreign currenc) is de"reciating against t&e U* dollar since t&e reac& t&e earlier t&e con#ersionD t&e &ig&er #alue it ,ill &a#e in terms of U* dollars (estatement tentati#el) ado"ts reac& da) rule if t&e foreign currenc) de"reciates since t&e reac& 2if it &as a""reciatedD t&en it ado"ts t&e e-c&ange rate on t&e date of Cudgment or date or "a)ment3 a#oid re,arding a de tor ,&o &as dela)ed in carr)ing out t&e o ligation. Audgment =a) (ule. Con#erting foreign o ligation on t&e e-c&ange rate on t&e date t&e foreign court entered Cudgment. (e#ised 6L statute. Federal courts in suits ased on o ligations e-isting under foreign la, ,&ere t&e de t is "a)a le in foreign currenc). Pa)ment =a) (ule. A""l) t&e e-c&ange rate on t&e date t&at t&e defendant actuall) makes t&e "a)ment. Fa#ora le to t&e de tor if t&e foreign currenc) is de"reciating against t&e U*= since t&e reac& t&e later t&e con#ersionD t&e

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de tor<s o ligation in terms of U*= decreases. T&e least discre"anc) et,een actual loss and t&e amount reco#ered 2make t&e claimant E,&oleF3. %A 'a,D Uniform Foreign:%one) Claims Act. Uniform Foreign:%one) Claims Act Ado"ted in t&e =istrict of Colum iaD t&e U.*. ?irgin IslandsD and in 28 states 2as of 20073. 6L and %A &a#e not ado"ted t&e Act. /nl) a""lies to foreign:mone) claims 2;23 Pro lem 88.$P .#en t&oug& t&e loss ,as incurred in U*=D t&e court entered Cudgment ased on CA=. (ationale for Introducing t&e Act. Increase in international trade and cross: order transaction. %ore fluctuation in #alues of foreign mone)s as com"ared to t&e United *tates dollar. U* Curisdictions treat reco#eries on foreign:mone) claims differentl) t&an most of its maCor trading "artners. U* CurisdictionsP reac& da) rule or Cudgment da) rule. /t&er countriesP "a)ment da) rule. Pre#ent forum s&o""ing and creates uniformit) and certaint) in t&e la,. ; 8 =efinitions. ECon#ersion dateF means t&e anking da) ne-t "receding t&e date on ,&ic& mone) isH"aid to a claimant. EForeign mone)F means mone) ot&er t&an mone) of t&e United *tates of America. EForeign:mone) claimF means a claim u"on an o ligation to "a)D or a claim for reco#er) of a lossD e-"ressed in or measured ) a foreign mone). ; 80 .nforcement of Foreign Audgments. If Wt&e foreign:mone)X Cudgment is recogni0ed in t&is state as enforcea leD t&e enforcing Cudgment must e entered as "ro#ided in *ection5H connects t&e issue of recognition and enforcement of a foreign Cudgment. ; 5 Audgments and A,ards on Foreign:%one) ClaimsK Times of %one) Con#ersionK Form of Audgment. A Cudgment or a,ard on a foreign:mone) claim is "a)a le in t&at foreign mone)D or at t&e o"tion of t&e de torD in t&e amount of United *tates dollars ,&ic& ,ill "urc&ase t&at foreign mone) on t&e con#ersion date at a ank:offered s"ot rate. ; 1 Asserting and =efending Foreign:%one) Claim. An o""osing "art) ma) allege and "ro#e t&at a claimHis in a different currenc) t&an t&at asserted ) t&e claimant.

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