Summary IBL

International Business Law

Chapter 1
International Law = the body of legal rules and norms that regulate activities outside
the boundaries of a single state.
Deals with three kinds of international relationships:
1. Those between states and states (public international law)
2. Those between states and persons
3. Those between persons and persons (private international law)

Comity = the practice or courtesy existing between states of treating each other with
goodwill and civility. However it is not law, but an informal principle. Mostly used in
courts, which will not act in a way that demeans the jurisdiction, laws, etc of another
country.
Case 1-1 Ignacio Sequihua v. Texaco Inc. et al.
Under the doctrine of comity of nations, a court should decline to exercise jurisdiction
under certain circumstances in deference to the laws and interests of another
country. In this case residents of Ecuador, the plaintiffs, sued Texaco Inc. in Texas
state court, concerning the alleged contamination of the air, ground, and water in
Ecuador the challenged conduct is regulated by the Republic of Ecuador and
exercise of jurisdiction by this court would interfere wit Ecuadors sovereign right to
control its own environment and recourses. Case dismissed under the doctrine of
comity of nations.

Jurisdiction in international cases

- Territorial basis for taking jurisdiction: if a business incorporated in one state
operates a facility in another state and violates the law of that state, it will have
the power under customary international law to hear and decide the case
against the foreign defendant.
- Nationality basis for taking jurisdiction: if a U.S. company does a certain
unlawful act in another state, it may still be held accountable in U.S. courts.
- Depends on test of reasonableness

Making of international law

At international level, no formal lawmaking machinery exists, states have to work
together and function in both roles of lobbyists and legislators.
Multilateral treaty = treaty between more than two states
Bilateral treaty = formal binding agreement between two states.

Sources of international law

What courts and other international tribunals rely on to determine the content of
international law. Article 38(1) of the Statute of International Court of Justice lists the
sources that the court is permitted to use:
1. international conventions
2. international custom
3. general principles of law
4. writings by distinguished writers
This list is in a hierarchy on which sources to be relied on first. This is not officially
stated in article 38(1), but in practice it works that way.

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1.
Treaty = legally binding agreement between two or more states.
Convention = legally binding agreement between states sponsored by an
international organization.
Case: Denmark v. Norway (1993)
Treaty means agreement in written form. But in this case oral declaration of ones
state government official to another state government official bound the declarants
state.

2.
Customary law = a long-established tradition or usage that becomes customary law if
it is:
1. Usus = consistent and recurring practice
2. Opinio juris est necessitates = states must recognize the custom as being a
practice that they must obligatorily follow, rather than they following it out of
courtesy to other states. (=of the opinion that it is a necessary law)
Int. customary law however hardly static, it changes often.
Case: The Lotus (1927)
Collision on the high seas between a French steamer and a Turkish collier in which
some Turkish crew members and passengers lost their lives. When the French ship
docked at a Turkish port, Turkey prosecuted against the French officers, who
appealed to the PCIJ saying that only the flag state has jurisdiction over criminal
incidents on the high seas. However the PCIJ ruled that Turkey was allowed to
continue with its prosecution because flag states often had not followed through with
criminal proceedings, since they did not feel obliged to do so.
Persistent objection = active rejection of a customary practice from its first
observance by other states.
Case: Anglo-Norwegian Fisheries case (1951)
There exist general rules about how to claim territorial waters, which the Norwegians
do not follow. However they are excuses from following a generally accepted
customary rule of international law because most countries of the world have never
objected.

3.
General principles = principles of law common to the worlds legal systems.
Two highly influential legal systems for international law: Anglo-American common
law system & Romano-Germanic civil law system.
Jus cogens = higher law. The general principles of law should be recognized by
civilized nations. (whereas customary general practice should be accepted as law).

The scope of international law in actual practice

Municipal law is subservient (=to serve under) to international law. Moreover
international tribunals regard states as having a general obligation to bring their
municipal law into compliance with international norms.

Doctrine of incorporation = customary international law is part of domestic law to the

extent that is its not inconsistent.
Doctrine of transformation = some countries apply this, meaning that customary
international law is applicable domestically only after it is adopted by legislation, court
decision, or local usage.

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Self-executing treaty = treaty containing a term that says that it is directly effective
within the signatory states.
Non-self-executing treaty = treaty that requires state parties to enact enabling
legislation before it becomes effective domestically.
In the United States: constitutional treaty (constitutional) & executive agreement
(presidential)

International persons
State = political entity comprising a territory, a population, a government capable of
entering into international relations, and a government capable of controlling its
territory and peoples.
Independent state = a state that is sovereign; operating independently internationally
Dependent state = surrendered its rights to conduct international affairs to another
state. Vb: Puerto rico
Inchoate state = begun, but not completed
Recognition = for a state to exist in the international community it must be recognized
by other states. Two theories suggested as guidelines to recognision:
Declaratory doctrine = legal existence of a state or government happens
automatically by operation of law.
Constitutive doctrine = legal existence of a state or government is dependent
on recognition by other states.
*Estrada doctrine = doctrine of mexico which means that it will not recognize
foreign governments.

Territorial sovereignty = for a state to exist, it must have the right to exercise the
functions of a state within a territory.
Servitudes = the right to use anothers property (vb: Suez & Panama canals)
Can also be negative; may prevent a state from doing something within its territory
that causes injury.
How to acquire territory? Can be done by occupation of land not claimed by another
sovereign, voluntary transfer, conquest and continued occupation of another
sovereign.

Changes in territorial sovereignty

Dispositive treaty = treaty concerned with rights over territory
Merger rule = when state A and state B merger to form state C, the preexisting
treaties remain in force in the territories where they previously applied. However the
parties of the treaties can agree to terminate the treaty, or expand it to the whole
territory.
Moving boundaries rule = when state A becomes a province of state B, the treaties of
the absorbing state displace the treaties of the receding state.
Clean slate doctrine = when a new state originates out of decolonization, it has no
obligation to succeed to the treaties of its formal colonial power.
Succession of states

International organizations
1.
Public or intergovernmental organizations (IGOs) = permanent organizations set up
by two or more states to carry on activities of common interest. Evolved from the
European practice of conventions at the end of wars to draw new boundaries and

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sign peace treaties. Its aims are set out in a charter (= document outlining principles,
functions, and organization). For example the United Nations Charter. For an IGO to
have legal capacity it needs to be recognized. IGOs have organs, which are agencies
that carry out specific functions within the larger organization.

The United Nations organs (United Nations System): the General Assembly, the
Security Council, the Secretariat, the International Court of Justice, the Trusteeship
Council, and the Economic and Social Council (ECOSOC). maintain international
peace and security, develop friendly relationships, achieve international cooperation,
solving international problems

The European Union (EU), IGO since 1951, with 27 member states, created to
integrate economies and political institutions.
Supranational powers = EU law is superior to the laws of the member states. So the
member states have to bring their internal laws into compliance with EU law and EU
law is directly effective within the member states.
Case: Commission of the European Communities v. Federal Republic of Germany
obligation of member states to bring their laws into accord with the EU treaties,
and the direct effect of those treaties.
The German law dealt with qualitative differences in comparison to the EU law,
German law needed to conform to EU law and to the principle of free movement of
goods.
Case: Costa v. ENEL pg. 50
Case: Dillenkofer

Institutions of the European Union

1. Council of the European Union = representative of the member state
governments and the co-legislative body of the EU
- adopt legislation (with parliament)
- adopt an annual budget
- adopt international agreements
- coordinate the economic policies of member states
Made up of ministers, one from each member state.
2. European Council = consists of the heads of state of the member states, along
with its own president and president of the European Commission. Charged to
define the general political directions and priorities of the union.
3. European Commission = EUs executive branch: drafts legislation for
submission to the Council and the Parliament, and responsible for its
implementation, represents the EU internationally.
4. European Parliament = 786 members elected every five years, grouped by
political affiliation. (1) It is the main supervisory institution of the EU, (2) shares
legislative power with the Council (co-decision), and it (3) determines the EUs
annual budget together with the Council.
5. European Court of Justice = supreme tribunal of the EU. Consisting of judges
and advocates-general who assist the judge in carrying out their decisions.
6. European Economic and Social Committee = consultative body made up of
special-interest groups (institutionalized lobby)
7. European Court of First Instance = EUs trial court with jurisdiction over (1)
disputes brought by private persons against an EU institution and (2)
employment disputes between EU institutes and their employees.

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8. European Central Bank

9. European Court of Auditors = supervises the EUs budget.

Other IGOs: (1) General IGOs that have competence in a wide variety of fields
(2) Specialized IGOs that limit their activities to a particular field.

2.
Private or nongovernmental organizations (NGOs) = international organization made
up of organizations other than states. Includes both nonprofit and profit NGOs.
Nonprofit NGOs serve as coordination agencies for private national groups in
international affairs. Vb: Amnesty International, Greenpeace, the Red Cross
Forprofit NGOs / multinational enterprises (MNEs) = businesses operating branches,
subsidiaries, or joint ventures in two or more states. MNEs both threat as necessity,
international regulations created both to control and promote them (however are only
suggested guidelines). MNEs have the authority to enter into international
agreements with states, and can sue states in international tribunals.

Arbitration = the process by which parties to a dispute submit their differences to the
judgment of an impartial third person or group selected by mutual consent.

Rights of individuals under international law

Traditionally: ignored. Now some rights:
State responsibility = liability of a state for the injuries that it causes to foreign
persons.
Human rights = basic rights intended to protect all people from cruel and inhumane
treatment, threats to their lives, and persecution. Pg. 63 is a comparison.
Case: De Sanchez v. Banco Central de Nicaragua
Mrs. Sanchez, a Nicaraguan national, sued the Central bank of Nicaragua, an
agency of the state, in the United States. She could not cash her check. However as
long as a nation injures only its own nationals, no other states interest is involved;
and the affair is to be resolved within the nation itself. Thus, an individual who is a
national of a foreign state may not sue an agency of that foreign stat in another
states courts for an alleged contractual breach.

Comparison of municipal legal systems

1. Romano-Germanic Civil Law = the body of law dealing with the rights of
private citizens.
Corpus Juris Civilis = complication and codification of all Roman law under one code.
Based on these ancient laws (and canon law), the just commune was created. It was
spread throughout Europe during the Renaissance.
At the same time Europe going through economic development, and laws were
needed to cover commercial environment / rise of nation states / development of a
theory of law systems of national law. Most influence: French Civil Code and
German Civil Code.
2. Anglo-American Common Law = the legal system of England and countries
that were once colonies. It is based primarily on court-made rules of
precedent.
Supremacy of the law = doctrine that all persons, including the sovereign are
subordinate to the rule of law.

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Common law emerged out of equity, admiralty (the law and court with jurisdiction
over maritime affairs in general).
Precedent = An act or instance that may be used as a model for later similar cases.
Limitation of common law practice was its inflexibility.
3. Islamic Law System = Sharia, based on principles found in the Koran and
related writings.

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Chapter 3
Diplomacy = the process of getting parties of a disagreement to an understanding by
use of negotiation, mediation, or inquiry.
Negotiation = process of reaching an agreement through discussion between two
parties to a dispute.
Mediation = bringing about a peaceful settlement or compromise between parties to a
dispute through the benevolent intervention of an impartial third party. When
mediators provide a channel of communications only it is said they provide their good
offices. When they make a formal investigation and present a formal proposal, they
are involved in a conciliation.
Inquiry = the process by which an impartial third party makes an investigation to
determine the facts underlying a dispute without resolving the dispute itself.

Settlements of disputes in international tribunals

International court of justice (ICJ) = the principal judicial organ of the UN (seat in The
Hague NL), has a dual role: to settle in accordance with international law the legal
disputes, and to give advisory opinions on legal questions. 15 judges, who are
independent magistrates.
The ICJ has the jurisdiction to hear two kinds of cases:
1. those between states; based on the courts contentious jurisdiction = the
power of a court to hear a matter that involves a dispute between two or more
parties.
2. those requested by organs or specialized agencies of the UN; based on the
courts advisory jurisdiction.
Optional clause jurisdiction = a unilateral grant of jurisdiction by a state to the ICJ that
allows the court to resolve disputes involving that state.
Self-judging reservation = a reservation that allows a state to exclude from the
jurisdiction of the ICJ any dispute that it determines s a domestic matter, a way out.
Advisory jurisdiction = the power of the ICJ to give opinions about issues of
international law at the request of the UN or one of its agencies.
Judgments = conclusion of a case: parties tell the court they have reached a
settlement, the applicant withdraws its suit, the court delivers a judgment. This
judgment is final and without appeal.

International Criminal Court (ICC) = independent permanent court of last resort that
tries persons accused of the most serious crimes affecting the international
community. Governed by the Rome Satute. Court can exercise jurisdiction over
individuals who are a national of a state that has accepted statute, over crimes which
took place on the territory of state accepting the statute, or the UN Security Council
has referred the situation to the prosecutor.

World Trade Organization = international intergovernmental organization responsible

for implementing and enforcing international rules regulating trade between nations.
Rules are found in wide-ranging- collection of WTO agreements. They have 3 main
objectives: help trade flow as freely as possible, achieve further liberalization trough
negation, and set up an impartial means of settling disputes.
Dispute settlement understanding (DSU) encourages dispute settlement through
consultation with each other. If a member fails to consult within 30 days
1. Dispute Settlement Body (DSB) = establishing panels, adopting reports,
monitoring implementation, authorizing suspension..

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2. Dispute Settlement Panel = making objective assessment of the matter

referred to it and make recommendation and rulings to resolve the dispute.
3. Appellate Body

International Center for Settlements of Investment Disputes (ICSID) = encourage

private investment in underdeveloped countries, the World Bank created a
mechanism to resolve disputes.
Arbitration = the process by which parties o a dispute submit their differences to the
binding judgment of an impartial third person or group selected by mutual consent.
Rules relating to ICSID arbitrations: third party states are not allowed to intervene.
But before ICSID can set up a tribunal to resolve a dispute, the state wherein the
investment is made, and the state of which the investor is a national should be
parties to the Washington Convention, and consent to ICSID jurisdiction. When this is
done, unilateral withdrawal is ineffective. Also giving consent to ICSID arbitration is
deemed to exclude all other remedies.
Keep in mind that the ICSID can only decide matters that are disputes which arise
out of an investment. Not collusive actions (suits in which the parties are not at odds
but instead cooperate to obtain a judgment).
Awards issued by an ICSID tribunal are binding but not final, appeal is allowed to an
ad hoc committee, and the tribunal itself can also review an award.

Personal jurisdiction = the requirement that a tribunal must have power over the
parties before it may hear a dispute.
Natural person = a human being
Juridical person = a legal entity created by national or international law.
Investment = commitment of money or capital in order to earn a financial return
Legal dispute = disagreement as to the existence of a legal right or obligation
Ad hoc = for the specific purpose, case, situation.

Settlement of Disputes in Municipal Courts

Forum state = the nation-state in which the court, or forum, conducts its business.
The competence of a municipal court to exercise the power to try a case is known as
jurisdiction. However the jurisdiction of municipal courts to try an international dispute
is limited. The ability of a defendant to escape the jurisdiction of a court is immunity.

Four nexuses have been invoked by courts to justify their exercise of jurisdiction:
1. Territoriality nexus = the place where an offence is committed determines
jurisdiction
2. Nationality nexus = allows the court to assume criminal jurisdiction when the
defendant is a national of the forum state.
3. Protective nexus = allows a court to assume criminal justice in cases in which
a national interest of the forum state was injured.
4. Universality nexus = allows court to assume criminal jurisdiction if the offense
is one recognized by the international community as being of universal
concern.
* the connection between the forum and the person or activity also must be
reasonable.

In civil suits, municipal courts can extend their jurisdiction over disputes between
parties who appear within the territory of the forum state.

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In personal jurisdiction = the power of a court to decide matters relating to a

natural or juridical person (entities, apart from natural persons, that have sufficient
existence in the eyes of the law to function legally) physically present within the
forum state. Entities created within the state are domestic entities, and may sue or be
sued. Foreign entities are only amenable to jurisdiction of another states municipal
courts if they are recognized in law as juridical persons, nd they give their consent.
In rem jurisdiction = the power of a court to determine the ownership rights of all
persons with respect to particular property located within the territory of the forum
state.

Immunities of States from the jurisdiction of Municipal Courts

Sovereign states are immune from the jurisdiction of foreign courts (1) when they
engage in activities anywhere in the world that are unique to sovereigns (2) when
they act officially within their own territory.

Sovereign or state immunity = doctrine that municipal courts must decline to hear
suits against foreign sovereigns. Until the middle of 20th century, absolute sovereign
immunity (foreign state immune from all types of suits) was accepted worldwide. Not
realistic anymore. The idea that a state should be responsible for at least some of its
conduct led to the adoption of the restrictive sovereign immunity theory. This theory
states that a foreign state is not immune when the cause of action for a suit is
unrelated to the states governmental activities.

Act of sate doctrine = a rule that restrains municipal courts in some countries from
exercising jurisdiction over foreign states. They will decline to hear a dispute when it
is in interference with the forum states foreign policy.

Choosing the Governing Law

Choice of law rules follow a two step procedure:
1. If parties to a dispute have agreed to the application of the law of a particular
country, the court should apply that law
Agreement most common in contract cases: choice of law clause = parties agree in
advance as to what law to apply when dispute arises. However agreement can also
be made in statements to a court.
2. If the parties have not agreed, the court should determine for itself which law
to apply
a. Following statutory dictates
Vested rights doctrine = a court is to apply the law of the state where
the rights of the parties to a suit vested (became legally effective). Also
the subject matter is taken into consideration: delict or tort law of the
place where wrong was committed. Contract law of the place where
contract was to be performed. Real property law of the place where
the property is located.
b. Determining which state has the most significant relationship with the
dispute (doctrine)
c. Determining which state has the greatest interest in the outcome

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Refusal to exercise jurisdiction

Doctrine used by common law courts to refuse jurisdiction: forum non conveniens =
municipal court will decline to hear a dispute when it can be better or more
conveniently heard in a foreign court.

Opposition to the exercise of jurisdiction

(Common law countries) When a litigant brings suit in a foreign court, but the
litigants home country is opposed to his doing so, the foreign court may dismiss on
bases of forum non conveniens or the home country may intervene using anti-suit
injunction. The home country may do so to protect its own jurisdiction or prevent
evasion of its public policies, or if the proceedings are vexatious (causing distress).
(Civil law countries) the problem of multiple courts assuming jurisdiction is dealt with
in treaties and statutory rules.

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Chapter 4
Doing business globally
Exporting goods; brings other issues than domestic sales (transportation,
financing, contracting, export licences)
Branches and subsidiaries; extension of the corporation
Licensing intellectual property and franchising; contractual grant of legally
recognized right.

The business form

Corporations and other companies are juridical entities. This means that the liability
of the owners is limited to their investment in their company; rights and benefits
belong to the company, since owners not involved actively.

Multinational organization
1. Nonmultinational enterprise = domestic firm that operates internationally
through independent foreign agents.
2. National multinational enterprise = organized around a parent firm established
in one state that operates through branches and subsidiaries in other states.
3. International multinational enterprise = made up of two or more parents from
different states that co-own subordinate operating businesses in two or more
states.

Representative office = contact point where interested parties can obtain information
about a company, does not conduct business for the company
Agent = independent person or company with authority to act on behalf of another
Branch = unit or part of a company, not separately incorporated
Subsidiary = company owned by a parent, separately incorporated
Joint venture = association of persons or companies collaborating in a business
venture for more than a transitory time period
Holding company = company owned by a parent to supervise and coordinate the
operations of subsidiary companies

International regulation of MNEs

Rules of ethical behaviour for MNEs promulgated by several int. organizations:
OECD, ILO, and World Bank, but mostly voluntary, more guidelines to live by.
Only Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions.
Although OECD convention proves that int. cooperation can regulate ethical
behaviour, most regulation comes from municipal law. General rule is that home
states regulate parent companies, host states regulate the subordinates.

Home state regulation of MNEs

National regulation:
Regulation of competition
Regulation of injuries caused by defective products
Prohibition of sharp sales practices
Regulation of securities
Regulation of labour and employment
Establishment of accounting standards
Taxation

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Most important activities that take place outside the territorial boundaries of a
particular state are first three. But country must be willing to apply laws
extraterritorially, US good example:

Sherman Antitrust Act - Section 1 = prohibits contracts, agreements, and

conspiracies that restrain interstate or international trade.
Rule of reason = weighing all of the circumstances of a case in deciding whether a
restrictive practice should be prohibited as imposing an unreasonable restraint on
competition.
Per se violations = over the years certain agreements or joint actions involving
interstate (not international) trade have come to be classified as automatically illegal.
Rule of reason is not applied, court moves directly to appropriate remedy.
a) horizontal price fixing = competitors agree on price
b) vertical price fixing = seller at one level sells goods to buyer at different level
on the condition that the latter will not resell below an agreed-upon price
c) horizontal market division = competitors agree not to sell in each other's
territories
d) joint refusals to deal = group boycotts
Section 2 = forbids monopolies and attempts to monopolize interstate and
international trade (firm that has power to control the price)
Clayton Act = expanding Sherman, by enforcement provisions and defining certain
specific acts that constitute unfair business competition (exclusive dealing, tying
clauses, mergers that result in monopolies)
Robinson-Patman Act = forbids price discrimination

Enforcement Provision of US Antitrust laws: US justice department, US federal

trade commission, treble/exemplary damages (individuals).
Extraterritorial application of US Antitrust laws: jurisdiction for activities carried
on outside the US
a) Personal jurisdiction; section 12 Clayton Act & long arm statute
= a law defining the conduct of a foreign person within a state that will
subject that person to the jurisdiction of the state.
Limitation: minimum contact = court has jurisdiction only if the
defendant purposefully did business in the forum, and could have
anticipated that it would have to defend itself there.
b) Subject-matter jurisdiction; two tests are used to determine whether a
court has subject-matter jurisdiction
Effects test = were activities intended to affect US commerce and
was it not minimal
Rule of reason test = (1) was alleged conduct intended to affect
foreign commerce of the US? (2) Was it of such type and
magnitude as to violate the Sherman Act? (3) As a matter of
international comity and fairness, should the court assume
jurisdiction over the matter?

EU regulation of anticompetitive behaviour: Articles 81 & 82.

Forbids competitors to enter into agreements to prevent, restrain, or distort trade.
Forbids dominant businesses from taking advantage of their position to the detriment
of consumers.
Enforcement: European Commission

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Extraterritorial application of EU Unfair Competition laws: the ECJ have

applied the rules to a firms activities which have an effect on trade or
commerce within the EU.

Opposition of the extraterritorial application

Blocking statutes = law enacted in some states to obstruct the extraterritorial
application of US antitrust laws by limiting a plaintiffs (aanklager) right to obtain
evidence or to enforce a judgement, and that allows a defendant to bring suit locally
to recover punitive damages paid in the United States.
Anti-suit injuctions
Case: Airbus Industrie G.I.E. v. Patel (pg 208)

Torts and products liability laws

Intentional tort liability = defendant did not harm someone out of neglect or
carelessness, but with intent to do harm.
Case: Dow Jones & Co. v. Gutnick (pg 213)
A US company was held liable in Australian courts for defamatory story about a
resident of Australia. The Australian court found personal jurisdiction, since the story
foreseeable caused damage to the reputation of a person in Australia.

Products liability = liability of a manufacturer for the injuries caused by its defective
products. Legal ground: contract, negligence, and strict liability.
Japanese civil code, claimant needs to have burden of proof, to show that the seller
was at fault. But seller can avoid liability by showing that the defect was due to
something beyond the sellers control.
Common law negligence theory is essentially the same, but makes it slightly easier
for claimant to meet proof requirements: (1) res ipsa loquitur = the thing speaks for
itself. (2) negligence per se (3) strict liability = liable for acts that are unreasonably
dangerous no matter what intentions may have been.

Extraterritorial application of Products Liability Laws: personal jurisdiction

must be found in long arm statutes and show minimum contacts with forum.
Case World-Wide Volkswagen v. Woodson

Sharp practices = (dishonest) business dealings meant to obtain a benefit for a

person or firm regardless of the means used. Often include misrepresentation and
bribery; OECD convention combats this.
Case: United States v. Blondek et al.

Host state regulation of MNEs

Host states regulate multinational enterprises in much the same way that home
states do, however they focus more on the foreign parents responsibility for its
foreign subsidiary. Three types of investigations: (1) whether the foreign company
has consented to the jurisdiction of the host state (2) whether a local firm is part of a
common enterprise with a foreign firm, making both liable for the activities of the local
firm (3) whether the independent corporate status of a subsidiary can be ignored so
that liability can be imposed on its parent.

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Chapter 5
Foreign Investment Laws And Codes
Regulations governing foreign investments are commonly set out in investment laws.
When a state only allows foreign investment in the form of joint ventures: joint
venture laws. Other states put restrictions on some sectors of the economy.
Moreover other economies have a complex system of laws, often incorporated into
bilateral investment treaties (BITs) = usually define foreign investment and the
conditions under which investors from one state can invest in the other state.
However they also include guarantees of fair and equitable treatment, as well as
dispute settlement procedures (often through ICSID rather than host country court).

Foreign investment regulations purposes: (1) promote local productivity and

technological development (2) encouraging local participation (3) minimizing foreign
competition in economic areas already well served by local businesses.

Most countries require foreign investors to register with the government, and obtain
governmental approval:
Screening agencies
Proposals requiring (special) screening; criteria vary greatly
Information that must be disclosed: nature of product, financial plan,
production scheme, services scheme, corp structure, machinery needed etc.
Evaluation criteria: impact on balance of payment, jobs creation, impact of
technical know-how, impact on local market etc.

Investment application should fit with the guidelines of the investment law, but also
with the investment philosophy of the host country.

Business Forms; most states generally prefer businesses that have local participation
and fully disclose their activities to the public. But not all countries require this, tax
haven countries, try to attract foreign multinational investment.

Limitations to trade
Sectoral Limitations; foreign investment commonly restricted by economic sector.
Closed sectors = sectors of a states economy that are not open to foreign
investors. Often vital industries, industries that are sufficiently developed,
public utility sectors, industries that can be developed by dom. entrepreneurs.
Restricted sectors = sectors of a states economy that are not fully open to
foreign investors. Limit percentage, to limit influence of foreigners in domestic
affairs.
Geographic limitations = limits to geographic areas in which foreign investors may
conduct business or own land.

Free zones = geographical areas wherein goods may be imported and exported free
from customs tariffs and in which a variety of trade-related activities may be carried
on. They can be categorized by:
Size
Free trade areas (FTAs) = geographical areas made up of two or more states
that have agreed to let some or all of each others enterprises carry on their
trades across and within each states borders free from customs tariffs and
other restrictions.

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Free city (free port) = entire port city that has been opened to international
trade.
Free trade zone = free trade zone located often within or near a port city.
Subzone = special-purpose free zone associated with, but physically apart
from, a free trade zone, in which limited-purpose trading activities are carried
on.
Activities
Export processing zones (EPZs) = zones in which manufacturing facilities are
allowed to process foreign goods and materials for export without paying
tariffs or duties either when the goods or materials are imported or when they
are exported. Popular in developing countries; encourage foreign
multinationals to employ local workers.
Free retail zones (duty free zones) = areas in international airports and
harbours where travellers can buy goods free of local sales and excise taxes.
Bonded warehouses = facility at port of entry where shippers can store goods
until they clear customs.

Foreign investment guarantees

By host country, to make investment more attractive. Granted automatically when
investment application is approved, or on ad hoc basis.
Nationalization = acquisition by a state of property previously held by private
persons or companies, usually in exchange for some consideration.
Expropriation = depriving a person or company of private property without
compensation.
Guarantees found in legislation tend to be more detailed and more extensive than
those found in constitutions. Only found in foreign investment laws:
Repatriation guarantee = right of foreign investors to be able to take out of the
host state both their profits and investment capital. Less common, but possible
are repatriations of royalties, licensing fees, fees for managerial and other
services.
Non-discrimination guarantees = assurance that foreign investors will be
treated the same way as local investors.
Stabilization clauses = guarantees by few countries. Promise foreign investors
that the host government will not change its tax, foreign exchange of orther
legal regime for a certain period of time.

Supervision of Foreign Investment

Start-up standards = requirements after application has been approved by host state.
Operational reviews = periodic monitoring
Modification of foreign investment agreements = modifications to investment have to
be approved by the host state. Investment laws usually require host state to act in
good faith on requests for modification.
Case: Arbitration between Wintershall AG et al. and the Government of Qatar (271)

Protection of subsidiaries;
Disclosure of information obligations; protection of the public from fraud and
misrepresentation. Initial or organizational disclosure reports / periodic reports
that require companies to update changes. Usually publicly traded companies
have to provide more information than privately held companies.

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 Summary IBL

Some attempts have been made to harmonize the information collected by

different countries: International Accounting Standards Board (IASB).
Some countries provide some protection for subsidiaries from the
disadvantageous decisions of their parent company try to preserve the
capital basis and financial viability of the subsidiary.
Appraisal rights = right of dissenting shareholder to require the company to
purchase his or her shares at their fair market value.
Protection of a subsidiarys creditors
Protection of a subsidiarys tort victims
Case: The Bophal Case (pg 277)

Penalties for noncompliance = investment laws usually establish variety of penalties

for foreign investors who violate the law or fial to comply with an investment
agreement.

Securities Regulations
Security = share, participation, or other interest in an enterprise or other property, or
a debt obligation. Businesses raise much of operating capital by issuing securities.
Certificated security = negotiable instrument of type dealt in on securities
exchanges.
Registered security = certificated security made out to a named owner and
registered on the books of the issuer.
Bearer security = certificated security made out to bearer, not registered
Stock = share in ownership of a company that entitles its owner to rights in the
company, including a proportionate part of the dividends and, upon liquidation, the
capital assets.
Bond = contractual obligation to repay the holder original investment plus interest at a
specified future date.
Bona fide purchaser = buys security in good faith, pays value, and is unaware that
the transferor is not rightful owner.
Un-certificated security = only recorded in the books of the issuer. Most nations limit
the persons who may trade in securities.
Securities exchange = grouped together brokers and dealers, to form marketplace
where they buy and sell on behalf of investors. (NYSE)

Prospectus = in order for corporation to offer securities to the public, it must prepare
and register a prospectus to accompany the offer printed statement given to
prospective securities investors setting out a full, true, and plain disclosure of all
material facts relating to the securities and the issuer. (History, goals, financial
statement, profits earned, dividends paid..) Must be signed, and registered!

Clearance and settlement procedures = procedure by which a buyer turns over the
purchase price and the seller turns over the securities in a securities transaction.
Depository receipt = to facilitate foreign trading in shares, brokerage firms use these.
It is a negotiable instrument issued by a bank that represents a foreign companys
publicly traded securities and that, in turn, is traded on a local securities exchange.
Convenient because the receipt, but not the shares, have to leave the home state.

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 Summary IBL

Insider trading = when non-public information about company or market is used to

buy or sell securities for personal benefit.
Insider = person who has access to non-public information.
Tipper = person who has access to non-public information and discloses it to..
Tippee = person who acts, for personal benefit, on information received from tipper.
Material US law = when something is of significance to a reasonable person.
Material Britsh law = when the price of something would be significantly affected.

Williams Act = law enacted by the US that authorizes the Securities and Exchange
Commission to issue rules regulating takeover bids.
City Code on Takeovers and Mergers = UK law, requiring extensive disclosure by
officers / sets a minimum duration for officers, requires prorated acceptance

Enforcement of Securities Regulations Internationally

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 Summary IBL

Chapter 7
History of Contemporary International Trade Law
Trends in international law is the movement away from tariffs and quotas; the
promotion of free exchange of goods. Where most countries maintained laws to
promote and protect their own businesses and producers, since 1940s there has
been a continual shift toward multilateral efforts to reduce tariffs and other trade
barriers: GATT, EU, WTO. However we may have reached a point where future trade
liberalization will be more difficult to achieve. Many voices in protest with
globalization, since it is now clear that there are winners and losers, and also recent
financial crisis not helpful to promote free trade. Nevertheless, globalization is here to
stay.

Great Depression of the 1930s was in many ways consequence of protectionism. US

and UK raised tariffs, and world trade fell 25%.

Bretton Woods System = 1944. Negotiators were determined to create a system that
would promote trade liberalization and multilateral economic cooperation. Original
plan: 3 core organizations:
1. International Monetary Fund (IMF) = to ensure monetary stability and facilitate
currency exchange
2. International Bank for Reconstruction and Development/World Bank = assist
war-ravaged and developing countries to reconstruct
3. International Trade Organization = administer comprehensive code governing
the conduct of world trade. But was never established! Replaced by WTO

General Agreement on Tariffs and Trade 1947 = instead of ITO, developed market-
economy countries entered into an accord in 1947. GATT 1947 was a multilateral
treaty that set out the principles under which its contracting states parties were
committed to negotiate reductions in customs tariffs and other impediments to
international trade in goods.
1. Trade discrimination forbidden
Most-favoured-nation status = treat all contracting states equally
National treatment principle = once foreign goods are imported they must be
treated the same way as domestic goods.
2. Only barriers useable to limit importation of goods were customs tariffs
3. Trade regulations of contracting states had to be transparent
4. Customs unions and free trade agreements were tolerated as long as they do
not discriminate against third-party states (that were also GATT members)
5. GATT contracting states were allowed to levy certain charges on imported
goods
a. Import tax equal to internal taxes
b. Anti-dumping duties to offset advantages of doing so
c. Countervailing duties to counteract foreign export subsidies
d. Fees and other proper charges for services rendered.

Multilateral trade negotiations = to keep GATT 1947 up-to-date (also called rounds)
Kennedy Round = 1964 1967; established the practice of setting an agenda
and defining the techniques to be used during GATT negotiations.
Uniform percentage reduction in tariffs among all contracting parties.
Antidumping agreement (code)

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 Summary IBL

Tokyo Round = 1973 1979; participation of non-GATT states. Again

reduction tariffs industrial products, but tariff rate reduction not successful for
other items. But Tokyo round also produced 6 codes to regulate nontariff
matters:
a. Customs valuation
b. Subsidies and countervailing measures
c. Anti-dumping
d. Standards
e. Import licensing
f. Government procurement
Uruguay Round = 1986 1994; major change in institutional structure of the
GATT, replacing the informal GATT institution with the World Trade
Organization. The Final Act was signed in Marrakesh. The Final Act itself
made up of three parts:
1. Final Act = one-page umbrella introducing the other two parts.
2. WTO Agreement = multilateral trade agreements (binding to all
members) and plurilateral trade agreements (only binding to states that
have accepted them)
a. 14 agreements on trade in goods
b. General Agreement Trade in Services (GATS)
c. Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS)
d. Understanding Rules and Procedures Governing the Settlement
of Disputes (DSU)
e. Trade Policy Review Mechanism (TPRM)
3. Ministerial declarations, decisions, and understandings

World Trade Organization

= Intergovernmental organization responsible for:
1. Implementing, administering and carrying out WTO Agreement and its
annexes
2. Forum for negotiations
3. Dispute resolution
4. Reviewing trade policies and practices

WTO Agreement = establishes a legal framework to bring together and administer

the various trade pacts negotiated under GATT 1947. The WTO was created as a
unified administrative organ to oversee all of the Uruguay Round Agreements.
However the WTO is not substantially different in scope or function from the old
GATT. It has no more real power, since its operations are still guided by the
procedures, customary practices, and decisions of the old GATT.

Structure of the WTO (pg 370!)

1. Ministerial Conference
2. General Council, also functions as:
a. Dispute Settlement Body
b. Trade Policy Review Body
3. Council for Trade in Goods
4. Council for Trade in Services
5. Council for Trade-Related Aspects of Intellectual Property Rights

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 Summary IBL

There is also a relatively small Secretariat headed by a Director-General. This D-G is

appointed by the Ministerial Conference, and is responsible for supervising the
administrative functions of the WTO. However since decisions are made by member
states, the D-G has little power over matters of policy.

Ministerial Conference = meets at least every other year to oversee the operation of
the WTO. Five committees deal with (1) trade and development (2) balance-of-
payments restrictions (3) budget, finance, and administration (4) trade and the
environment (5) regional agreements.

General Council = carries on the functions of the Ministerial Conference in the

intervals between the meetings of the Conference. Also functions as above
mentioned DSB, TPRB. Next to that, responsible for making arrangements for
effective cooperation with other intergovernmental organizations.

Decision making within the WTO => consensus = the making of a decision by
general agreement and in the absence of any voiced objection. When consensus
cannot be reached, decision will be made by simple majority vote.

The 1994 GATT

Is now one of the annexes to the WTO Agreement. Replaced the 1947 GATT, but the
differences were mainly in terminology. However the WTO Agreement describes
them as legally distinct instruments. This is significant because the WTO is not the
legal successor to GATT 1947, thus the WTO is not bound to service GATT 1947,
nor is it bound to any obligations made by the previous GATT organization.

Direct effect = the principle whereby a treaty may be invoked by a private person to
challenge the actions of a state that is a party to the treaty. Those provisions that are
directly effective are those that prohibit a state from taking action contrary to the
General Agreement. Those that require a contracting state to take some positive
action may only be challenged by individuals if the state adopts implementing
legislation authorizing such a challenge.

Nondiscrimination = most fundamental principle of GATT

MFN Rule (most-favoured-nation) = requires each member to apply tariff rules
equally to all other members.
Exceptions: member states may take action to counter dumping and
subsidization, they may join together to creat free trade areas, and they may
restrict imports to protect public health, safety, welfare and national security.
o Generalized System of Preferences = GATT scheme that allows a
developing state to obtain tariff concessions from a developed state on
a nonreciprocal basis.
o South-South Preferences = lets developing countries exchange tariff
preferences among themselves without extending the same
preferences to developed states.
National Treatment Rule = requires country to treat products equally with its
own domestic products once they are inside its borders.

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