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Chapter 9 The legal environment

Lecture overview
Introduction The influence of the law on society in general The legal framework of international business
National law Public international law Private international law

Legal issues confronting international marketers International bodies which have helped shape the international legal environment

Learning outcomes
Provide practical examples of ways in which the law influences peoples business and social activities Describe the three main components of the international legal environment and explain how they interact with one another Compare the legal tradition and system of international law of South Africa with other countries Discuss the different ways of resolving international business disputes

Learning outcomes (cont.)


Explain why international marketers need to have an appreciation of the law and its different applications both in a local and international context Compare the respective contributions of the following organisations to the field of international trade law:
UNCITRAL WTO ISO WCO UNIDROIT WIPO ICAO ICC

What is the law?


The institutional framework which defines acceptable behaviour in a particular society and offers solutions when people deviate from such behaviour All human activity is regulated by legal prescriptions and norms.

The legal framework of international business


International law is a composite of several legal disciplines:
- National law - Public international law

- Private international law

National law (or domestic law)


The set of rules devised for and enforceable in a particular country
From the broad perspective most countries systems of national law are similar However, the finer application of these laws differ from one country to the next

Public international law


The set of rules governing the relationship between countries and mainly concerns itself with:
- Territorial rights - Human rights - Handling of conflict situations - Diplomatic matters - Economic/trade agreements

- Internationally accepted commercial rules and practices

Private international law (conflict of laws)


A set of legal principles used in determining the choice of law and choice of forum in an international contractual dispute
Choice of law: the determination of which countrys national law will govern the proceedings and outcome of a lawsuit arising out of an international dispute Choice of forum: the determination of which countrys court will host the legal proceedings associated with a lawsuit arising out of an international dispute

Legal tradition in different parts of the world


Legal tradition A collection of legal characteristics attributed to a group of countries Broadly classified as western and non-western Other classifications include:
Democratic law-making and government Autocratic law-making and government

Sources of law in the international context


Sources of law: The medium through which law comes into effect
Two main sources in western legal tradition:
- Legislation - Judicial authority

In non-western legal tradition, spiritual teachings have an over-riding influence

Western legal tradition:


Legislation
All the laws which have been devised by bodies with law-making authority
Civil law countries: Recognise legislation as their primary source of law Judicial does often play an importannt role in their legal system as well

Western legal tradition:


Judicial authority
All the legal opinions which have gone into interpreting and deciding court cases
Where previous rulings are not available, judges would devise their own law to settle the matter establish precadent Common law countries: Recognise judicial authority as their primary source of law

Non-Western legal tradition:


Legislation and judicial authority are often entrenched as a source of law, but Spiritual teachings have an over-riding influence on how laws are formulated and behaviour judged Based on inspirational views/writings which uphold the view that legal rights and obligations emanate from a higher/holy power Islamic countries: Recognise the teachings of the Quran as their primary or major source of law.

Marketing mix considerations and the law


Product related issues:
Tariffs and quotas Foreign technical specifications Foreign legislation re product marking and labelling Product liability Intellectual property rights protection

Marketing mix considerations and the law


Pricing related issues:
Tariffs and other taxes
Anti-dumping legislation Pre-shipment inspection

Banking and other charges by foreign entities

Marketing mix considerations and the law


Promotional issues:
Relative sophistication of the foreign market / socio-economic groups Language considerations Advertising restrictions Foreign legislation re product labelling

Marketing mix considerations and the law


Market entry and distribution related issues:
Quality of physical infrastructure in the foreign market Possible restrictions on access to foreign distribution channels Foreign legislation re company ownership/acquisition, hiring of local labour Foreign taxation issues

Different approaches to contracts in different parts of the world


Contract
An agreement entered into by two or more parties for the sale of goods or the delivery of a service in exchange for an agreed price or rate of remuneration

Countries differ in their understanding and application of the law and therefore it stands to reason that they will have different views on contracts and the value attached to them

Different approaches to contract formation and execution (cont.)


Typical western approach
Little time is devoted in the early negotiation phase to get to know the other party. The relationship remains at a business level and there is an inherent mistrust of the other party hence the need for a detailed contract document. A contract should precisely spell out the rights and obligations of the parties, and will be the point of reference if things go wrong. Deviation from the original terms of the contract normally attracts penalties.

Typical non-western approach


Much time is devoted in the early negotiation phase to get to know the other party. If the relationship is based on familiarity and trust, the execution of the contract is less likely to be problematic and the prognosis for ongoing business will be good. The contract is seen as the basis for a trusting and lasting relationship, and its terms and conditions can be quite broad. Deviation from the original terms of the contract is not considered irregular as it is accepted that external events often make it necessary for the parties to alter their approach to a transaction or project.

International dispute settlement


Mediation (private, quick and inexpensive): Involves a mediator listening to the viewpoints of the parties and coaxing them to arrive at an acceptable solution between themselves.
Arbitration (private, and relatively quick and inexpensive): Involves an arbitrator listening to the viewpoints of the parties and then making his own independent judgment about the guilty party/ies and a suitable remedy. The arbitrators decision is final. Litigation (public, time-consuming and expensive): Involves the parties to a conflict going to court to resolve their differences. Each party has his own legal counsel and a judge decides on the culpable party and a suitable remedy. The judges decision can sometimes be appealed.

International bodies which have helped shape the international legal environment
UNCITRAL: Has devised a number of international conventions and model laws pertaining to specific disciplines (e.g. transport, sales and e-commerce) aimed at promoting greater harmonisation in international trade practice

UNIDROIT: Active in coordinating and harmonising the private laws of different countries. Has been a resource to UNCITRAL, and published its own uniform rules and legal guides

International bodies which have helped shape the international legal environment
WTO: Promotes less restricted international trade (enshrined in a number of agreements) and provides a multilateral forum for negotiations on international trade matters.

WIPO: Active in creating, promoting and administering international norms and standards pertaining to intellectual property.

International bodies which have helped shape the international legal environment
ISO: Promotes standardised international business activity in order to facilitate the exchange of goods and services. Introduced the metric system, standardised international codes for countries and currencies, and standardised freight pallets and containers. ICAO: Sets technical standards for the global civil aviation industry, and encourages uniformity in ground regulations and operations at international airports.

International bodies which have helped shape the international legal environment
WCO: Promotes standardisation and harmonisation in customs procedures amongst member countries. Developed and implemented the Harmonized Commodity Coding System (HS). ICC: Is the central body for all chambers of commerce around the world and is primarily focused on harmonising global trade practices. Formulated the Incoterms, the UCP and the URC.

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