International Trade Law

Spring 2015
Ceren Canet SAHIN

Purpose
Improve security, loyalty and justice between
economic agents
In fact there is a global lack of sources for ITL,
there is no big organization producing
regulations. If there is a globalization of
exchanges, there is no a globalization of law.

Sources
Regulations at different levels:
National law
EU sources
International sources
Transnational sources
THE CONTRACT!

Strategic Counseling to
International Clients
This part is designed to introduce foreign lawyers to
international legal issues faced by international
organizations wishing to invest in abroad.
This chapter provides a fundamental working knowledge
of the varied aspects of establishing a business plan and
prepares foreign attorneys for advising their clients on
the subject area.

Subjects to consider about

Cultural and political values/differences
Tax treaty, how to avoid double taxation
Promotional material
Limitation of liability and warranties
Safety standards
Real estate, labor and other planning considerations
Intellectual property protection
Product liability insurance
State and local incentives

Cultures effects on business and law

A. Dispute settlement
Friendly consultation: from the Chinese point of view, the relationship is
defined by the contract. We need to be flexible, understand each other,
and talk to each other. For example, if there is a delay from the Chinese
part, it isnt a big problem for them. The US would say that it is a breach
of the contract and it will ask for remedies. Its a cultural perspective of
Chinese. Time is not so important.
Trigger clause: we will engage with friendly consultation for 60 days.
Over that time, either party can take the dispute to mediation. Without
that time limit, friendly consultation will last forever.

 Mediation: In China, 85% of disputes will be solved by mediation. If it

doesnt work, you will need another trigger clause. After 60 days, either
of the party can take the dispute to arbitration.
Arbitration: It is considered as an unfriendly act. The parties are going to
break the relationship; you cannot have any contract with that Chinese
company anymore.
Court: The last think what a foreign company will want to do is to end up
at the Chinese court. Because the Chinese court system is not
independent from the government. The judges would be instructed even
before the audience by the Chinese government.

B. Importance of guanxi
Chinese contract is a relationship. Connection is so important for them,
even more than law.
People are very well connected.
guanxi is a kind of credit, it is the key word of Chinese business
relationship.
For example, there are 2 ways to create a foreign company in China:
- Equity joint-venture: there are advantages in the field of labor law, tax
law or property law because of quanxi. Chinese people want you to do
joint-venture, because they want to learn new technologies, methods, vs.
- WFOE (wholly foreign owned enterprises): you lose all of these
advantages that quanxi provides.

More examples
Japon
India
Spain

Tax Jurisdiction
Can activities be conducted in the US, be
varied out in a manner that does not
constitute a taxable presence?
How to avoid double taxation?

Income tax treaty

If there is a tax treaty between the US and the country of the foreign
corporation, then we look at the concept or permanent establishment
(PE).
A foreign person is taxable in the US only if the foreign corporation is
conducting an activity through a PE.
Then what is permanent establishment ?
According to article 5 of the tax treaty, PE means a fixed place of business
through which the business of an enterprise is wholly or partly carried on.
It is based on a fixed facility and a dependent agent.

Planning of Corporate Structure

and its effects on the liability
Understand clients business plan
- Sales company?
- Distribution company?
- Joint Venture?

Subjects
1. Commercial terms
2. Bills of Lading
3. Payment by Letters of Credit
4. Intl IP Law
5. Breach of Contract and the Remedies
6. International Arbitration

 I. Introduction to ITL
What is Intl trade?
What is Intl Trade Law?
II. The Unification
Free Trade vs. Protectionism
From GATT to WTO
Purpose of the uniformity, UCC and CISG
III. Sources of ITL
National law, EU Sources, International and Transnational Sources, Lex
mercatoria
IV. Actors of ITL

I. Introduction to ITL
A) What is International Trade ?
The exchange of goods and services between
countries
Global events effects
Ex. Political change in labor law
Goods: food, clothes, oil, wine
Services: tourism, banking, transportation

Advantages
A country may import things which it cannot produce
Maximum utilization of resources
Benefit to consumer
Reduces trade fluctations
Utilization of surplus produce
Fosters International trade

Disadvantages
Import of harmful goods
It may exhaust resources
Over Specialization
Danger of Starvation
It may lead to war

B) What is Intl Trade Law ?

Set of regulations applicable to relationships between public
and/or private economic agents that accomplish a transfer of
goods and services through borders involving different states
The nationality of the agents
Private Intl Commercial Law X The Law of Intl Trade
ITL is a complex matter involving several branches of law
commercial law, business law, corporate law,
Historical Background

Lex mercatoria: Law of Merchants

Lex mercatoria has long governed international trade
relations between traders.
It is a set of laws based on custom and usage.
After the First World War, the rapid expansion of
international trade brings up the need for a set of common
standards and rules.
It is from this date that the foundations of the modern
commercial are established, based on free trade.

II. The Unification of Intl Law

relating to Intl Trade
Free trade among nations is largely seen as the
key to economic growth, peace and better
standards of living, leading to a happier state
human existence at a global level.

Free Trade and Protectionism

Protectionism: means by which trade between
countries is restricted in some way normally through
measures to reduce the number of imports coming
into a country
Main means are:
Tariffs
Quotas
Non-Tariff Barriers

Tariff: A tax on a good coming into a country

Increases the price of the good and makes it less competitive
Quota: Physical restriction on the number of goods coming into a
country
Non-Tariff Barriers: Any methods not covered by a tarif, most
usually
Rules and regulations
Voluntary Export Restraints
Legislation
Exacting Standards or Specifications
The main method involved in NTBs is not to prevent trade but to
make the cost of doing so prohibitive to the potential exporter

Reasons
Protect domestic industries
Protect domestic employment
Strategic reasons
Political pressures
Protect culture
Prevent Dumping selling goods in the destination
country below cost to break into that market

 Trade Liberization: aims to free up world trade and break down the
barriers to international trade
Basic philosophy rests on the principle of comparative advantage
GATT (1947)
Uruguay Round 1994 set up the WTO
WTO provides the forum through which trade issues can be
negotiated and works to help implement and police trade
agreements

Potential benefits
Promotes intl specialization and increases world output
Promotes efficient use and allocation of world resources
Allows developing countries access to the heavily protected
markets of the developed world thus helping promote
development
Facilitates the working of the intl market system and the working
of price signals to ensure efficient allocation of resources, intl
competition and the associated benefits to all

Peace in IT, Peace in World

GATT: General Agreement on Tariffs and Trade
The purpose of the GATT : the "substantial reduction of tariffs and
other trade barriers and the elimination of preferences, on a reciprocal
and mutually advantageous basis.
Create this institution at the UN Conference on Trade and Employment in
Cuba in 1947 with the end of the IIWW.
The parties wanted to give a boost to trade and liberalization and to start
to correct the legacy of protectionist measures, coming from the 30s.
The GATT became the only unilateral instrument governing IT until it was
replaced by the creation of the World Trade Organization (WTO) in 1995

Rounds of GATT Negotiations

There are 9:
1. Geneva 1947: Signing of GATT
2. Annecy 1949
3. Torquay 1950: GATT was established as a governing world body
4. Geneva II 1956
5. Dillon 1960: creation of the European Economic Community
6. Kennedy 1964: adoption of an anti-dumping code
7. Tokyo 1973
8. URUGUAY 1986: extention in the areas of agricultural, textile and service industries
protection of intellectual property rights
improved system of settling trade disputes
creation of the WTO
9. Doha 2001

 Between 1947 and the last year of GATT there were 8 rounds of
negotiations between the participating countries.
The first 6 rounds were related to curtailing tariff rates. 7th
round included the non tariff obstacles.
The 8th round was entirely different from the previous rounds
because it included a number of new subjects for consideration.
This 8th round was known as URUGUAY ROUND.
The discussions at this round only gave birth to WORLD TRADE
ORGANISATION (WTO).

From GATT to WTO

GATT was converted from a provisional agreement into a formal international organization called World
Trade Organization (WTO), with effect from January 1, 1995
1. GATT was ad hoc and provisional /
WTO and its agreements are permanent
2. GATT had contracting parties /
WTO has members
3. GATT system allowed existing domestic legislation to continue even if it violated a GATT agreement /
WTO does not permit this
4. GATT system was less powerful, dispute settlement system was slow and less efficient, its ruling could easily
blocked /
WTO is more powerful than GATT, dispute settlement mechanism is faster and more efficient, very difficult to block
the rulings.

WTO
The World Trade Organization (WTO) deals with the
global rules of trade between nations.
Its main function is to ensure that trade flows as
smoothly, predictably and freely as possible.
WTO is an organization for liberalizing trade, a forum
for governments to negotiate trade agreements and a
place for them to settle trade disputes
At the heart of the system known as the
multilateral trading system are the WTOs
agreements, negotiated and signed by a large
majority of the worlds trading nations, and ratified in
their parliaments.

WTO Principles
Non discrimination
Free Trade: Promote free trade between nations through
negotiations.
Stability in the trading system: Member countries are committed
not to raise tariff and non tariffs barriers arbitrarily.
Promotion of Fair Competition: WTO provides for transparent, fair
and undistorted competition.
It discourages unfair competitive practices such as export subsidies
and dumping.
TRIPPS, The agreement requires member countries to provide
patent protection to all products or processes in all fields.
TRIMS, refers to certain conditions or restrictions imposed by a
government in respect of foreign investment in the country.

Evaluation of WTO
The WTO members now account for over 97% of the
international trade indicating the potential of bringing
about an orderly development of international trade.
Benefits of WTO:
GATT / WTO has made significant achievements in
reducing tariff and non tariff barriers to trade.
Developing countries too have been benefiting
significantly.
Liberalization of investments has been fostering
economic growth of a number of countries.
It has a system in place to settle trade disputes
between nations.
It has a mechanism to deal with violation of trade
agreements.

Drawbacks:
Negotiations and decision making in the WTO are
dominated by the developed countries.
Many developing countries do not have the
financial and knowledge resources to effectively
participate in WTO discussions and negotiations.
Due to the dependence of developing countries
on the developed ones, the developed countries
are able to resort to arms twisting tactics.

Purpose of the Uniformity

UCC and CISG
A regulatory framework that promotes free trade is
insufficient to promote growth in trade.
It needs to be backed by adequate infrastructures in sectors
that affect trade such as transportation, banking, marketing
and communication.
Equally, the legal framework, which affects the rights and
obligations of the parties entering into business transactions
at the international level, needs to be clear and certain.

 Lack of legal certainty has the potential to act as an impediment to

trade. After all, the parties would wish to know the nature and
extent of the obligations they undertake and the remedies
available to them should they breach the contractual terms.
Given the plurality of legal systems and the variations in liability
schemes, harmonization through international conventions is
widely seen as the best option of imparting certainty to the legal
questions that arise in the context of international commercial
transactions.

I. Comparing different set of

national rules
The Uniform Commercial Code (UCC)
Sale of Goods Act 1979

UCC

It is a set of suggested laws published in 1952 to

harmonize the law of sales and other commercial
transactions within the USA.
It is a model law. The Code, as the product of
private organizations, is not itself the law, but
only a recommendation of the laws that should
be adopted in the states.

UCC objectives
Structure
Commercial utility
Aid to courts
Commercial practice
Remedies

NOT its objectives

Reflect a theory of natural law
Clarify law for lawyers
Represent an ideal but possibly impractical law
Constrain judges
Make commercial law a branch of general law

UCC: Commercial Utility

Commercial utility: open price contract

2-305(1) "The parties if they so intend can

conclude a contract for sale even though the price
is not settled."

Intl Influence

Article 2 had some influence on the drafting of the United Nations Convention on
Contracts for the International Sale of Goods (CISG), though the end result
departed from the UCC in many respects.

Article 5, governing letters of credit, has been influential in international trade

finance simply because so many major financial institutions operate in New York.

Article 9, which established a unified framework for security interests in personal

property, directly inspired the enactment of Personal Property Security Acts in
every Canadian province and territory but Quebec from 1990 onward, followed by
the New Zealand Personal Property Securities Act 1999 and then the Australia
Personal Property Securities Act 2009.

The SGA 1979 in

International Sales
Choice of law clauses
Trade associations
GAFTA (Grain and Feed Trade Assocation)
FOFSA (Federation of Oils, Seeds and Fats
Associations Ltd)

II. International Uniformity

Why uniformity?
Cost of legal uncertainty
Cost of legal diversity

Why not rely on choice of law?

Why not rely on practice?
standardised contracts?
UNIDROIT Principles of International Commercial Contracts
2004

UNIDROIT Principles
1994 revised 2004 and 2010
Restate intl contract law and practice
Wider than the CISG as not limited to intl
sales transactions, but apply to all types of
intl commercial contracts

 Mostly for application by international arbitration

panels
The rules are not binding
Its principles dont exist in a form of a convention.
The states dont have any power on it. These are
developed by practices and observations.
This is only an option, an alternative to that we have.

Unification and Harmonization of

Laws
The System , Rule and Culture are different in every country.
It also bring the impact for International Trade and its Law to doing
trade.
There are 3 way to solve about the different law in each country :
Every country in the world agreed not to apply domestic law.
Choice of Law
Unification and Harmonization

 What is Unification and Harmonization?

Its a process to mix or find the best solution for different law between two
country
What the different between unification and Harmonization?
Unification : uniformity which includes the removal and replacement of a
system with the new legal system.
Harmonization : the quest for uniformity or the intersection of the principles
that are fundamental of the various existing legal system and will be
harmonized.

Harmonization aims to :
create consistency of laws, regulations, standards and practices, so
that the same rules will apply to businesses that operate in more
than one member State, and so that the businesses of one State do
not obtain an economic advantage over those in another as a result
of different rules.
reduced compliance and regulatory burdens for businesses
operating nationally or trans-nationally.

Institutions Unification and

Harmonization of Law:
World Trade Organization [WTO]
The International Institute for the Unification of
Private Law [UNIDROIT]
The United Nations Commission on International
Trade Law [UNCITRAL]
The International Chamber of Commerce [ICC]

What is WTO?
It is an organization for trade opening.
It is a forum for governments to negotiate trade
agreements.
It is a place for them to settle trade disputes. It operates a
system of trade rules.
Essentially, the WTO is a place where member
governments try to sort out the trade problems they face
with each other.

UNIDROIT

Set up in 1926 as an auxiliary organ of the League of Nations, the Institute was,
following the demise of the League, re-established in 1940 on the basis of a
multilateral agreement, the UNIDROIT Statute.

The International Institute for the Unification of Private Law (UNIDROIT) is an

independent intergovernmental Organisation with its seat in the Villa
Aldobrandini in Rome.

Its purpose is to study needs and methods for modernizing, harmonizing and coordinating private and in particular commercial law and to formulate uniform law
instruments, principles and rules to Achieve those objectives.

UNIDROIT goal is to prepare the harmonization of private law rules or regulations

and unification trade between different countries.

About UNCITRAL
The core legal body of the United Nations
system in the field of international trade law. A
legal body with universal membership
specializing in commercial law reform worldwide
for over 40 years.
UNCITRAL's business is the modernization and
Harmonization of rules on international business.

Trade means faster growth, higher living standards, and new opportunities through
commerce. In order to increase these opportunities worldwide, UNCITRAL is
formulating modern, fair, and harmonized rules on commercial transactions. These
include:

Conventions, model laws and rules which are acceptable worldwide

Legal and legislative guides and recommendations of great practical value

Updated information on case law and enactments of uniform commercial law

Technical assistance in law reform projects

Regional and national seminars on uniform commercial law

About ICC
The International Chamber of Commerce [ICC] was founded in 1919 and is based in Paris.
The purpose: to serve world business by promoting trade, investment, open markets for goods and
services, and promote the flow of capital.
ICC important role:

dispute resolution through arbitration in particular.

a policy-making body of policies or rules that can facilitate international trade.

for disseminating information and policies and legal rules internasiona trade among entrepreneurs
in the world, and

providing training and contract design techniques and other practical skills, such as in the
international trade

CISG

The United Nations Convention on Contracts for the International Sales of Goods of 1980,
and it came into force as a multilateral treaty on 1 January 1988, after being ratified by 11
countries

(is sometimes referred to as the Vienna Convention but is not to be confused with other
treaties signed in Vienna)

Developed by the United Nations Commission on International Trade Law (UNCITRAL)

Uniform international sales law: CISG establishes uniform-rules for drafting international
sales contracts, and sets the legal rights and obligations of the seller and the buyer under
such contracts. CISG rules apply automatically to the sales contracts between the countries
who have ratified the convention.

Ratified by 83 countries

Major absentees
Hong Kong, India, South Africa and the United Kingdom
The absence of the United Kingdom, a leading jurisdiction for the choice of
law in intl commercial contracts, has been attributed variously to:
The government not viewing its ratification as a legislative priority,
a lack of interest from business in supporting ratification,
opposition from a number of large and influential organisations,
a lack of public service resources,
and a danger that London would lose its edge in intl arbitration and
litigation

The CISG allows exporters to avoid choice of law issues,

as the CISG offers "accepted substantive rules on which
contracting parties, courts, and arbitrators may
rely". Unless excluded by the express terms of a
contract,the CISG is deemed to be incorporated into
(and supplant) any otherwise applicable domestic law(s)
with respect to a transaction in goods between parties
from different Contracting States.

Scope of application:
applies only to Contracts of Sale of Goods
Cross-border sales, except consumer
contracts
Rules on: formation of the contract, obligations
of the parties and the consequences of breach

The CISG is divided into four parts

and 101 articles:
Part I: Sphere of Application and General
Provisions (Articles 113)
Part II: Formation of the Contract (Articles 1424)
Part III: Sale of Goods (Articles 2588)
Part IV: Final Provisions (Articles 89101)

Excluded from the Convention

Auction sales
Sale of execution or otherwise by authority of
law
Sales of stocks, shares, investment securities,
negotiable instruments or money
Sale of ships, vessels, hovercrafts or aircrafts

CISG and UCC

Terms of acceptance: acceptance occurs when it
is received by the offeror/at the time the offeree
transmits it to the offeror (mailbox rule)
Battle of the forms: additions, limitations
Writing requirement: writing isnt
required/contracts more than $500 generally not
enforceable unless in writing

 You CAN verbally commit unless the country has a

reservation on this issue.
Custom practice and trade usage:
CISG: limited to those which parties agree to or past dealings or
those usages that the parties ought to have known are observed
in trade or industry/UCC: Allows past practice and industry
practice to fill in the gaps.

Comments on the CISG as a

uniform law
Faith that uniformity of international sales law is
possible
Faith that international sales law is culturally neutral
Faith that uniformity saves legal costs
Faith in the value of international legislation
(conventions, etc)
Declining relevance of the political aspect
Source of legal principle in the CISG?
Is the CISG a code?