IBT202

International Business and Trade#

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LEARNING MODULE INFORMATION
I. Course Code IBT202
II. Course Title International Business and Trade
III. Module Number 02
IV. Module Title The Political and Legal Environment of International Business
V. Overview of the This module will cover the types of risk encountered by the international firm:
Module political and legal risks.

VI. Module Outcomes At the end of this module, you should be able to:
 Discuss the different concepts surrounding political and legal risks.
 Identify the five main causes of political instability in international
markets: government types, political parties, nationalism, targeted
fear/animosity, and trade disputes.
 Explain the meaning of governing law and jurisdiction in international
contracts.
 Differentiate the various methods of dispute resolution.
 Determine the problems related to intellectual property.

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Lesson 1: The Political Environment
Lesson Objectives:
At the end of this lesson, you should be able to:
a. Identify the main political causes of instability in international markets.
b. Determine and explain the political risks of global businesses.
c. Describe political risk assessment and its significance to the international marketer.

Discussion and Application:

What is politics?
Politics - actions or activities concerned with achieving and using power in a country or society (Collins Dictionary)
It is the art or science concerned with winning and holding control over a government (Merriam-Webster)
Sovereignty – the powers exercised by a state in relation to other countries and the supreme powers exercised over its own
members
The Main Causes of Political Instability
The ideal political climate for a multinational firm is a stable, friendly environment. Unfortunately, governments are not
always stable and friendly.
Political risk is defined as the risk to business interests resulting from political instability or political change.
Risk – n. the possibility that something bad or unpleasant (such as an injury or a loss) will happen.
There are five main causes of instability in international markets:
 Inherently unstable forms of government
 Changes in political parties during elections
 Nationalism
 Animosity targeted towards specific countries.
 Trade disputes

Forms of Government
Monarchy
 Political system based upon the rule of a single person
 Ex. United Kingdom. Belgium, Jordan, Monaco

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Oligarchy
 Form of government in which all power resides with a few people or in a dominant class or group within a
society.
 These groups of people may be distinguished by royalty, wealth, education, or military control.
 Ex. Russia, China, Iran, Saudi Arabia

Democracy
 The power belongs to the people.
 System of government in which laws, policies, leadership, and major undertakings of a state or other polity are
directly or indirectly decided by the people.
 Ex. Philippines, United States of America, Norway, Iceland

Authoritarianism
 The power is concentrated in the hands of a leader or a small elite that is not constitutionally responsible to the
body of the people.
 Way of governing that values order and control over personal freedom.

Totalitarianism
 Form of government that theoretically permits no individual freedom and that seeks to subordinate all aspects of
individual life to the authority of the state.
 Totalitarian – adj. controlling the people of a country in an extremely strict way with complete power that cannot
be opposed.

For the international marketer, the type of government is an important factor to look at because it gives indications as to
what nature of supervision/administration the business will potentially undergo.
Example:
Iran is under a theocratic form of government. This means that the constitution denotes that the ruler of the state is best
qualified to interpret Islam and to ensure that the people of the state strictly adhere to its principles.
Facebook, Twitter and Youtube are blocked by the Iranian government, which claims that Western bloggers and
governments are waging a “soft war” against the Islamic republic.
An alternative move: Iran launched Mehr, an alternate version of Youtube. It seeks to promote Islamic culture and artists.

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Changes in Political Parties
It is important for the marketer to know the philosophies of all major political parties within a country, because any one of
them might become dominant and alter prevailing attitudes and the overall business climate.
Example:
In a public vote (known as referendum) on June 23, 2016, more than half of the citizens of the United Kingdom chose to
leave the European Union. This is known in the news as “Brexit”.
There are advantages to being a member of the EU. A UK citizen, for example, can live or work in any EU country. For a
business owner, that means being able to move your goods and services without restrictions. As a result, several Japanese
manufacturers did not push through with plans to expand its operations in the UK.
https://www.nytimes.com/article/brexit-uk-eu-explained.html

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Nationalism
 It is an intense feeling of national pride and unity, an awakening of a nation’s people to pride in their country.
This pride can take an anti-foreign bias.
 The attitude that the members of a nation have when they care about their national identity.
Example:
Rice is part of Japan’s national identity – not a mere commodity but a symbol of pride. Prior to 1993, the country has
protected its rice industry by refusing to open its gates to importation for the longest time.
Animosity
 n. a strong feeling of dislike or hatred
 Animosity in this discussion refers to the to the dislike or hatred only at a particular country.
Example:
The Arab League Boycott of Israel has been in place since 1948. In this boycott, any citizen of the Arab League countries
is not allowed to buy, sell or enter into any business contract with either the Israeli government or an Israeli citizen. In
addition, this boycott is extended to other entities worldwide that does business with Israel.

Trade Dispute
A disagreement between countries about the products they trade with each other.
Example:
US – China Trade dispute

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In a move to secure better deals for the US and protect the industries, Donald Trump started to call out China for its unfair
trade practices, which the latter denied. The spat was further escalated when Trump decided to start placing high tariffs on
washing machines and solar panels. This continued with steel and aluminum imports. China then responded back with
tariffs on US airplanes and soybeans.

The Political Risks of Global Businesses

Confiscation - Seizing of a company’s assets without payment to its owners.
Example:
After the 1959 revolution in Cuba, American companies were seized by the Cuban government.
ExxonMobil (an energy company) was one of the firms confiscated during that time. In the recent news, it filed a
lawsuit against two Cuban companies for the usage of their assets. This happened after US President Donald
Trump allowed lawsuits against foreign companies that have benefited from Cuba’s seizure back then.
Impact to businesses:
 Loss of assets
 Loss of future profits

Expropriation
 The government seizes an investment but makes some reimbursement for the assets (with payment,
compensation).
 Seized assets are to be used for the general public’s good.

Examples:
- Under the regime of former Venezuelan president Hugo Chavez, the government paid $2 billion in 2008
for Argentine-led Ternium SA’s stake in Venezuela’s largest steel mill.
- In the agricultural industry, Chavez ordered to seize 494,000 acres of land (cattle ranch) owned by Vestey
Foods. The vast land was handed over to a thousand farmers. In exchange, the Venezuelan government
was ordered to pay US$100M.
Impact:
 Loss of future profits

Domestication
 This occurs when host countries gradually cause the transfer of foreign investments to national control and
ownership through a series of government decrees that mandate local ownership and involvement in a company’s
management.
 Ultimate goal is to force foreign investors to share more of the ownership, management and profits with nationals.

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 Impact:
 Reduction of profits
 Forced hiring of nationals may affect management of firm in cases of inexperience and poor training.

Economic Risks

Exchange Controls
 When facing shortage of foreign currency, the government sometimes attempts to control the capital in and out of
the country by imposing limitations on the purchase and/or sale of currencies.
 governmental restrictions on private transactions in foreign exchange (foreign money or claims on foreign money)

Exchange controls are also extended to products by applying a system of multiple exchange rates to regulate trade in
specific commodities classified as necessities or luxuries. Necessary products are placed in the most favorable (low)
exchange categories, while luxuries are heavily penalized with high foreign exchange rates. Myanmar, (formerly known
as Burma), for example, has three exchange rates for the kyat (Kt): the official rate Kt6:US$1, the market rate (Kt100-
125:US$1) and an import duty rate (Kt100:US$1). Because the kyat is not convertible, that is, not officially exchangeable
for currencies that can be spent outside the country – investors are severely affected by tax liability, and their ability to
send profits outside the country is diminished. Under such exchange rates, tax liability can be very high. For instance, a
profit of Kt135,000 is worth US$22,500 at the official exchange rate of Kt6:US$1, but at the market rate, the investor has
earned only US$1,000. The exchange rate difference means that the investor has to pay tax on US$21,500 of nonexistent,
unearned income.

Local Content Laws

 Countries may often require a portion of any product sold within the country to have local content, that is, to
contain locally made parts.

Examples:
India has maintained local sourcing requirements as a condition on foreign investment. In the table below, minimum local
content is specified for electrical equipment to be used in the power distribution sector.

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Import Restrictions
Selective restrictions on the import of raw materials, machines and spare parts are fairly common strategies to force
foreign industry to purchase more supplies within the host country and thereby create markets for local industry.

Tax Controls
 Taxes must be classified as a political risk when used as a means of controlling foreign investments. In these
cases, they are raised without a warning and in violation of formal agreements.

Example: Foreign companies that have a Permanent Establishment (PE) or Branch/ Project Office in India are taxable
at the higher basic rate of 40 percent.

Price Controls
 A set price limit, either maximum or minimum, for a given good.
 They are usually implemented as a means of direct economic intervention to manage the affordability of certain
goods.
 Reasons for government price control:
o Make some goods more expensive (e.g. food to increase revenue of farmers or discourage demand for
demerit goods.
o Make some goods cheaper (e.g. to make sure housing is affordable)
o To stabilise prices (e.g. prevent rapid fluctuations in the price of food)

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Labor Problems
 This can arise and may vary depending on the government support of labor unions or may also depend on local
labor laws of a specific country.
 Layoffs may be forbidden, profits may have to be shared, and an extraordinary number of services may have to be
provided.
Example: Lifetime employments in Japan has long been the norm in Japan and large-scale layoffs are considered
taboo, but not illegal.

Political Sanctions

 Sanction - n. an action (as the ending of financial aid) taken by one or more nations to make another nation
comply with a law or rule.
 One or more countries may boycott another nation. Thereby stopping all trade between countries.
Example:
Since 1979, the United States and European Union have prohibited the import or export of goods and services to Iran.

Political and Social Activists and Nongovernmental Organizations

 PSA’s are individuals who participate in efforts to change the practices and behaviors of corporations and
governments, with tactics that can range from peaceful protest to terrorism.
Example: Protests have been held in the early 90’s against Nike’s unfair labor practice and poor working
conditions.

 NGO’s are large advocacy organizations, often multinational, and run by citizens rather than companies and
governments.
Examples:
o Green Peace – environment protection and conservation
o Red Cross – quality life-saving services
o Doctors Without Borders – emergency response and bearing witness to humanitarian issues

Violence, Terrorism and War

 Violence – n. the use of physical force so as to injure, abuse, damage, or destroy.

 Terrorism – n. the unlawful use or threat of violence especially against the state or the public as a politically
motivated means of attack or coercion.
 Violence and terrorism are usually not government initiated.
 The cost of doing business domestically and international is raised due to disturbances brought about by such
situations.

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 Example: Abu Sayyaf Group is an Islamic separatist organization from the Philippines. On May 27, 2001, they
kidnapped tourists at Dos Palmas Resort in Palawan. The US and Philippines conducted massive military operations
in attempt to rescue the hostages.

Cyberterrorism and Cybercrime

 Cyberterrorism – n. the politically motivated use of computers and information technology to cause severe
disruption or widespread fear in society.
 Cybercrime - also called a “computer crime”, the use of a computer as an instrument to further illegal ends, such
as committing fraud, trafficking in child pornography and intellectual property, stealing identities, or violating
privacy. Most cybercrime is an attack on information about individuals, corporations, or governments.
 The following are some assets that may be stolen or damaged in the event of cyberterrorism and/or cybercrime to
a large company:
o Client and employees’ information
o Bank account information
o Company processes
o Information related to research and development

Example:
RBS (Royal Bank of Scotland) Cardholders were placed at risk when a data breach occurred in November 2008. Personal
information of more than 1.5 million cardholders were stolen, including decryption of PIN information. In under 24 hours,
the hackers were able to withdraw almost USD10 million.

The Political Risk Assessment

 An attempt to forecast political instability to help management identify and evaluate political events and their
potential influence on current and future international business decisions.
 Used to estimate the level of risk a company is assuming when making an investment and to help determine the
amount of risk it is prepared to accept.
 An analysis of what can happen in a country’s politics or at the global level that could have an impact on profits.

Some factors to consider when analyzing a country’s political risk:

 Government stability – Will there be a change in leadership soon? Are there calls to reform some laws/policies?
 Information access and transparency – Will government allow access to some information needed for reach?
 Terrorism, violence and crime – What is the crime rate? Are there terrorist organizations operating in the
country?
 Regulatory and policy environment – How friendly policies/laws are towards foreign businesses?

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  Workforce freedom and mobility – Are citizens free to move about? What are the means of transportation?
 Government assistance programs for businesses – Are there some forms of help extended to business in case
problems arise?
 Immigration and employment laws – In case of expat employees, what are the regulations regarding visas and
terms of stay?
 Attitudes toward foreign investment – What kinds of businesses are allowed in the country? Will there be a
threat to local industry?

Summary of the Lesson:

Political risk is defined as the risk to business interests resulting from political instability or political change.
There are five main causes of instability in international markets:
 Inherently unstable forms of government
 Changes in political parties during elections
 Nationalism
 Animosity targeted towards specific countries
 Trade disputes

The different political risks are:

 Confiscation
 Expropriation
 Domestication
 Economic Risks
o Exchange Controls
o Local Content Laws
o Import Restrictions
o Tax Controls
o Price Controls
o Labor Problems
 Political Activists
 Nongovernment Organizations
 Violence, Terrorism and War
 Cybercrime
 Cyberterrorism

Why are all of these considered risks to international businesses? It is because they could directly or indirectly result to
loss or reduction to the assets and profitability of the company.

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Political risk assessment is an analysis of what can happen in a country’s political climate or at the global level that could
have an impact on a company’s profitability.

References:
1. Cateora, P., Graham, B., & Gilly, M. (2020). International Marketing (15th ed.). Mc-Graw Hill.
2. Mariadoss, Babu John. “POLITICAL RISK.” PB Pressbooks, opentext.wsu.edu/mktg360/chapter/4-9-political-risk.
3. “Monarchy.” Https://Www.Britannica.Com/, 9 June 2020, www.britannica.com/topic/monarchy.
4. Joseph , Kostiner. “Monarchy.” Britanicca, June 2020, www.britannica.com/topic/monarchy.
5. Hurst, Melissa. “Forms of Government: Monarchy, Democracy, Oligarchy & More.” Study.Com,
study.com/academy/lesson/forms-of-government-monarchy-democracy-oligarchy-more.html#transcriptHeader.
6. “Authoritarianism.” Www.Britannica.Com, www.britannica.com/topic/authoritarianism.
7. Unitary State.” Www.Britannica.Com, www.britannica.com/topic/unitary-state.
8. Sen Nag, Oishimaya. “7 Countries With A Theocratic Government Today.” Www.Worldatlas.Com, 19 Apr. 2018,
www.worldatlas.com/articles/countries-with-theocratic-governments-today.html.
9. “Iran’s Version of YouTube Hits the Web.” Phys.Org, 9 Dec. 2012, phys.org/news/2012-12-iran-version-youtube-
web.html.
10. “Fast Fact: Brexit.” Newsforkids.Net, newsforkids.net/fastfacts/brexit.
11. Goodman, Peter. “For Many British Businesses, Brexit Has Already Happened.” Www.Nytimes.Com, 1 Apr. 2019,
www.nytimes.com/2019/04/01/business/british-business-brexit.html?searchResultPosition=1.
12. “Nationalism.” Plato.Stanford.Edu/, plato.stanford.edu/archives/sum2018/entries/nationalism.
13. Coleman, Rei. “Where Did Japan’s Imported Rice Go?” Https://Www.Tokyoreview.Net/, 1 July 2017,
www.tokyoreview.net/2017/07/where-did-japans-imported-rice-go.
14. Weiss, Martin. “Arab League Boycott of Israel.” Fas.Org, 25 Aug. 2017, fas.org/sgp/crs/mideast/RL33961.pdf.
15. Hardash, Sophie. “Here’s What You Need to Know about the US-China Trade Dispute.” Www.Weforum.Org, 16
Apr. 2018, www.weforum.org/agenda/2018/04/here-are-5-facts-you-need-to-know-about-the-us-china-trade-dispute.
16. Sun, Mengqi. “Exxon Mobil Sues Cuban Companies Over Seized Property.” Https://Www.Wsj.Com, 3 May 2019,
www.wsj.com/articles/exxon-mobil-sues-cuban-companies-over-seized-property-11556929737.
17. Brunstromm, David. “Factbox: Venezuela’s Nationalizations under Chavez.” Www.Reuters.Com/, 8 Oct. 2012,
www.reuters.com/article/us-venezuela-election-nationalizations/factbox-venezuelas-nationalizations-under-chavez-
idUSBRE89701X20121008.

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18. “Definition of Expropriation.” Legaldictionary.Net/, legaldictionary.net/expropriation. Accessed 10 Dec. 2016.
19. “8 Venezuelan Industries Hugo Chavez Nationalized (Besides Oil).” Https://Fee.Org/, fee.org/articles/8-industries-
hugo-chavez-nationalized-besides-oil-on-venezuelas-road-to-serfdom. Accessed 10 Jan. 2020.
20. Kenton, Will. “Exchange Controls.” Https://Www.Investopedia.Com/, 8 Mar. 2020,
www.investopedia.com/terms/e/exchangecontrol.asp.
21. “Exchange Control.” Https://Www.Britannica.Com/Topic/Exchange-Control, www.britannica.com/topic/exchange-
control.
22. Prasad, Nithin Thomas. “Ministry of Power Revises Local Content Requirements in Power Distribution
Components.” Https://Mercomindia.Com, 30 Mar. 2020, mercomindia.com/ministry-power-revises-local-content-
requirements.
23. KPMG. “India Tax Profile .” Https://Home.Kpmg, June 2015, home.kpmg/content/dam/kpmg/pdf/2015/10/india-
2015.pdf.
24. Gibbs, Martin. “Price Controls in International Trade: Definition & Examples.” Https://Study.Com/,
study.com/academy/lesson/price-controls-in-international-trade-definition-examples.html.
25. “Price Controls.” Https://Www.Investopedia.Com, 10 Feb. 2020, www.investopedia.com/terms/p/price-controls.asp.
26. Tabuchi, Hiroko. “Layoffs Taboo, Japan Workers Are Sent to the Boredom Room.” Https://Www.Nytimes.Com, 16
Aug. 2013, www.nytimes.com/2013/08/17/business/global/layoffs-illegal-japan-workers-are-sent-to-the-boredom-
room.html).
27. Radcliffe, Brent. “How Economic Sanctions Work.” Https://Www.Investopedia.Com/, 25 June 2019,
www.investopedia.com/articles/economics/10/economic-sanctions.asp#citation-5.
28. Nisen, Max. “How Nike Solved Its Sweatshop Problem.” Https://Www.Businessinsider.Com/h, 10 May 2010,
www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5.
29. “Abu Sayyaf Group.” Https://Cisac.Fsi.Stanford.Edu/Mappingmilitants/Profiles/Abu-Sayyaf-
Group#text_block_11914, cisac.fsi.stanford.edu/mappingmilitants/profiles/abu-sayyaf-group#text_block_11914.
Accessed Aug. 2018.
30. “Cyberterrorism.” Google.Com, www.google.com/search?client=firefox-b-d&q=cyberterrorism+definition).
31. Dennis, Michael Aaron. “Cybercrime.” Https://Www.Britannica.Com, www.britannica.com/topic/cybercrime.
32. “Cyberterrorism.” Google.Com, www.google.com/search?client=firefox-b-d&q=cyberterrorism+definition).
33. “Political Risk Analysis: Where International Relations Meet Business.” Https://Www.Miuc.Org/, 18 Apr. 2017,
www.miuc.org/political-risk-analysis-where-international-relations-meet-business.

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Lesson 2: The Legal Environment

Lesson Objectives:
At the end of this lesson, you should be able to:
a. Describe the bases of legal systems.
b. Explain the meaning of governing law and jurisdiction in international contracts.
c. Differentiate the methods of dispute resolution
d. Determine the problems related to intellectual property
e. Explain the other legal aspects pertaining to internet communications, marketing and environmental laws

Getting Started:
Vietnam imposes P12.22-million fine on URC for tainted C2 green tea, Rong Do drinks
By: VG Cabuag (Business Mirror)
Date posted: June 3, 2016
VIETNAMESE authorities fined Universal Robina Corp. (URC), after they found high-lead content in the company’s
popular C2 green tea and Rong Do ready-to-drink products.
Vietnam-based media reported the country’s Ministry of Health fined the Gokongwei-led firm $260,000 (around P12.22
million).
The fine was based on the discovery of high-lead content in a batch of URC’s C2 green tea manufactured in February and
a batch of its energy drink Rong Do, produced last November.
The two batches of drinks tested high in lead content, at a range of 0.053 to 0.085 mg/l, beyond the limit of 0.05 mg/l.
“We are encouraged by the fact that following the strict audit of our factory operations in Hanoi and collection of 30
samples of finished goods and raw materials used therein, the findings were confined and limited to two specific batches
of finished goods. It will be remembered that a total of five batches of goods were initially tagged as having exceeded
standards,” URC said in a statement.
The batch of drinks ordered recalled by inventories, worth VND3.9 billion, had already been sold and could not be
retrieved. There were three other batches of URC products with high lead content ordered recalled, a Vietnamese media
entity reported, though no fine was imposed yet.
The lead contamination is so far one of the biggest food-safety scandals in Vietnam, where URC boasts of operating one
of its larger markets outside of the Philippines.
“Some social-media posts accused the Philippine producer of bribing some quality-control officers to modify test results
and clear their products. There have also been claims some journalists from various media outlets chose to ignore the
company’s serious violations,” Thanhniennews.com wrote.

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The Vietnamese health ministry also identified three other batches of URC products with high lead content. No cash fine
has been imposed on these three batches, possibly because the ministry is still trying to determine the exact number of
tainted bottles
“URC reiterates its commitment to full compliance with product-safety standards wherever it operates, as we look forward
to providing the consumers the same products of the highest quality that they have come to expect from URC throughout
the years.”
Vietnam accounts for 35 percent of international sales and 10 percent of total URC sales, analysts said.
URC said its net income grew by 29 percent to P8.39 billion in its fiscal six months ending April, from P6.5 billion last
year, mainly due to the strong performance of its branded food group.
URC said its earnings were driven by unrealized forex gains and market valuation of financial assets from the gain of
New Zealand’s Griffin’s debt currency forward hedge.
Net sales grew 5 percent for the period to P58.54 billion, from P55.75 billion, mainly driven by its core branded-consumer
foods, Griffin’s and renewables.

Discussion and Application:

Bases of Legal Systems
 Navigating through the legal aspect of establishing a firm internationally can be quite complex. In this regard, this
lesson will provide only the essentials and basics of the legal environment for international business.
 Law – n. a binding custom or practice of a community : a rule of conduct or action prescribed or formally
recognized as binding or enforced by a controlling authority (Merriam Webster)
 Codify (legal definition) – to arrange and label a system of laws 1
 Precedent – n. something done or said that can be used as an example or rule to be followed in the future

Differences Between Common Law and Code/Civil Law

Common Law Code/Civil Law

Legal system characterized by case law, which is law Legal system originating in Europe whose most prevalent
developed by judges through decisions of courts and feature is that its core principles are codified into a
similar tribunals. referable system which serves as the primary source of
law.
Based upon judicial interpretation of rules. That is, the Relies more heavily on statutory laws or codified rules
judicial interpretation of the rules become part of the law themselves, rather than on an individual court’s
itself. interpretation.
The law is honed over time due to collection of Decisions are made based on the codified law, not on

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 experiences from the past. previous decisions. Interpretation will be dependent upon
the situation.
The judge plays a role by providing a greater explanation Judge’s role is passive, because he cannot change a just or
and detail of how the law applies. Their decision guides an unjust law.
future decisions. These becomes precedents.

Islamic Law
 The Shari’ah; the legal system based on an interpretation of the Koran
 It encompasses religious duties and obligations as well as the secular aspect of law regulating human acts
 Among its provisions is a prohibition of the payment of interest

Key Points on Bases for Legal Systems

 International marketers should be concerned with the differences between common law and code law
 Interpretations may vary from country to country and laws may be harsh on one but relaxed on another
 Familiarization with the Islamic law is essential if one is interested in exploring the Middle Eastern territory

Governing Law and Jurisdiction in Contracts

Key terms to remember:
Jurisdiction – n. the limits or territory within which authority may be exercised
Adjudicate – v. to make an official decision about who is right in a dispute
Supranational – adj. involving more than one country
Conciliate – v. to make (someone) more friendly or less angry
Arbitrate – v. to settle an argument between two people or groups after hearing the opinions and ideas of both

Jurisdiction in International Legal Dispute

When a commercial dispute arises, which legal system has jurisdiction?
One wrong assumption is that dispute between citizens of different countries can be settled under some supranational
system of law. Unfortunately, there is none.
The International Court of Justice only has jurisdiction over disputes between sovereign states and not between
corporations or private individuals.
A commercial contract is a legal relationship. This raises the immediate question: a relationship under which law?

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To better understand that question, it also means:
 Which law shall govern the contract?
 Which legal system has jurisdiction?
 Which law shall we interpret in case of disputes?

In this regard, it is important to draft a contract carefully which clearly states two kinds of clauses:
 Governing Law clauses
 Jurisdiction clauses

Governing Law Clause

This determines which country’s law will be applied to the contract.
Example: “This Agreement is governed by and shall be construed in accordance with the laws of [ ].”

Jurisdiction Clause
This specifies which country's courts should hear a dispute.
Example: “The parties submit all their disputes arising out of or in connection with this Agreement to the exclusive
jurisdiction of the Courts of [ ]”
Jurisdiction is generally determined in one of three ways:
 On the basis of jurisdictional clauses included in contracts
 On the basis of where the contract was entered into
 On the basis of where the provisions of the contract were performed

International Dispute Resolution

In case of disputes, the first step is to try to resolve the issue informally. However, if this does not work, the business shall
take the following steps:
 Conciliation/Mediation
 Arbitration
 Litigation

Conciliation/Mediation
 A nonbinding agreement between parties to resolve disputes by asking a third party to mediate differences.
 A method of resolving misunderstandings with a neutral person managing the process.
 A mediator is brought in to manage the discussion, speaking privately with each party or getting the two parties
together for discussion

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  The mediator has no authority to impose a settlement to the parties
 Conciliation/mediation is a facilitation and negotiation process, in which the trained mediator works to bring the
parties to an agreement.
 The goal of conciliation/mediation is to resolve disputes or misunderstandings.
 This is less costly because it is quicker and less formal.
 The likelihood of continuing the business relationship later is much greater because the dispute is resolved with
the consideration of the parties

Arbitration
 The participants in the dispute selects disinterested and informed party or parties as referees to determine the
merits of the case and make a judgment that both parties agree to honor.
 The process of submitting a dispute to an impartial person for final and binding determination.
 The arbitrator may ask for relevant documents, and the arbitrator submits an opinion after reviewing the case.
Both sides have an opportunity to present their case, but there are usually no witnesses or other court processes or
documents.
 It is a hearing process (much like a court proceeding) in which the parties bring their dispute to an arbitrator for a
decision.
 Lawyers may be present, but they have limited roles.
 The rules of evidence do not apply in arbitration, so there are no subpoenas, no interrogatories, no discovery
process.
 The goal of arbitration is to arrive to a decision in a dispute.

Litigation
 The process in which a dispute between parties is contested in a formal judicial setting; commonly initiated by a
lawsuit asserting one party’s version of the facts. 14
 It is process that involves determining issues through a court, with a judge or jury. 15
 A judge is appointed by a court, the parties have little or no say in the selection.
 Lawyers representing both parties take much time gathering evidence, making motions and presenting their cases.
 The opinion of the judge is usually considered binding; that is, two parties must abide by it. The decision made
may be appealed at various levels.

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 Comparison

Intellectual Property
Intellectual property (IP) refers to creations of the mind, such as inventions; literary and artistic works; designs; and
symbols, names and images used in commerce.
Types of Intellectual Property
Copyright
Copyright (or author’s right) is a legal term used to describe the rights that creators have over their literary and artistic
works. Works covered by copyright range from books, music, paintings, sculpture, and films, to computer programs,
databases, advertisements, maps, and technical drawings.

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Trademark
A trademark is a sign capable of distinguishing the goods or services of one enterprise from those of other enterprises.

Patents
A patent is an exclusive right granted for an invention, which is a product or a process that provides, in general, a new
way of doing something, or offers a new technical solution to a problem. To get a patent, technical information about the
invention must be disclosed to the public in a patent application. This lasts for 20 years.
Examples:
 The Telephone - The first telephone was invented and patented by Alexander Graham Bell in 1876. Bell went on
to cofound the American Telephone & Telegraph Company (AT&T). Later, the company expanded to control all
telecommunications and become the world’s most significant in the industry and is an industry behemoth today.
 Bluetooth - Despite the popularity of mobile phones having Wi-Fi connectivity, people still opt for Bluetooth as
an option for data transfer. Invented in 1994 by Jaap Haartsen, Bluetooth technology allows nearby electronic
devices to connect using low-power, ultra-high-frequency waves. Today, Bluetooth is used in almost every
handheld device for multimedia transfer and reception.

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Trade Secrets
Trade secrets are intellectual property (IP) rights on confidential information which may be sold or licensed.

To qualify as a trade secret, the information must be:

 commercially valuable because it is secret,
 be known only to a limited group of persons, and
 be subject to reasonable steps taken by the rightful holder of the information to keep it secret

Examples:
 Kentucky Fried Chicken
The secret ingredients for KFC's original recipe were originally kept in Colonel Sanders' head. He eventually
wrote the recipe down, and the original handwritten copy is in a safe in Kentucky. Only a few select employees
know the recipe, and they are bound by a confidentiality agreement.
For better protection, two separate companies blend a portion of the herb and spice mixture. Then it is
automatically processed to standardize the blending before it is sent to the restaurants.
There are rumors of other requirements about the secret recipe. One says when KFC updates its security systems,
the recipe is temporarily moved to secure location in an armored car escorted by a high-security motorcade.
 Coca-Cola
Coca-Cola made a choice to brand the recipe a trade secret instead of patenting it, which would have led to the
disclosure of the ingredients. Since one of those ingredients may have been cocaine, Coca-Cola decided to keep
the recipe as confidential information.
This trade secret has spawned rumors of its own. One is that the recipe contains bugs or insects. Another is that
two employees each know only half the recipe or that only two people know the combination to the safe where it
is stored.
Intellectual Property Office of the Philippines – This is a government agency mandated to administer and implement State
policies on intellectual property (IP) to strengthen the protection of IP rights in the country. This is where one apply for
patents and copyrights.

Problems Surrounding Intellectual Property:

 Counterfeiting - It involves the manufacturing or distribution of goods under someone else's name, and without
their permission. Counterfeit goods are generally made from lower quality components, in an attempt to sell a
cheap imitation of similar goods produced by brands consumers know and trust.

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  Piracy - Piracy refers to the unauthorized duplication of copyrighted content that is then sold at substantially
lower prices in the 'grey' market.
o The term "piracy" describes the act of reproducing movies, music, books or other copyrighted works
without permission from the copyright owner.
 Inadequate Protection by some countries
 Prior Use vs. Registration
o Prior Use – whoever can establish first use is the rightful owner

o Registration – when ownership is established through registration

o The differences between these two concepts of intellectual property ownership in other countries can
create disagreements or disputes.
 International Conventions
o The World Intellectual Property of the United Nations is responsible for the promotion of the protection
of intellectual property and for the administration of the various multilateral treaties through cooperation
among its member estates.
o However, how intellectual property is viewed across cultures can lead to non-cooperation between
countries.

Cyberlaw and Green Marketing

Cyberlaw
 It is the area of law that deals with the Internet's relationship to technological and electronic elements, including
computers, software, hardware and information systems (IS).
 Cyberlaws prevent or reduce large scale damage from cybercriminal activities by protecting information access,
privacy, communications, intellectual property (IP) and freedom of speech related to the use of the Internet,
websites, email, computers, cell phones, software and hardware, such as data storage devices.

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Cybersquatters
 Cybersquatting is registering, selling or using a domain name with the intent of profiting from the goodwill of
someone else's trademark.
 Also known as domain squatting, is the act of registering, trafficking in or using a domain name in bad faith.
How it happens:
 With the popularity of the internet, internet users would eventually look for websites of businesses they buy from.
 If the business has a good reputation but still no website, the company either pays the owner of the domain name
to transfer the domain or contacts a trademark attorney to start a lawsuit.
 Since initiating a lawsuit would cost much more resources, trying to buy the domain directly from the
cybersquatter is usually the preferred method. This is how cybersquatters profit from selling the domains.

Commercial Laws within Countries

Marketing Laws
 There are some countries who are very particular about the product being sold. This includes the content,
branding and packaging.
 Advertising for children is not allowed in Denmark, Norway, Sweden and Austria (to name a few).
 Pay attention in crafting communications to avoid offensive and culturally insensitive message in advertising.

Green Marketing Laws

 These are laws that are designed to address environmental issues.
 These focus on environmentally friendly products and product packaging and its effect on solid waste
management.

Summary of the Lesson:

The differences of legal systems of countries globally can cause confusion for the international marketer on which laws to
follow. It is a must to explicitly state in the international contract which laws shall govern and the jurisdiction in case of
disputes. The international business may resort to conciliation, arbitration or in extreme cases, litigation.
Another issue to watch out for is intellectual property, which is constantly threatened by counterfeiting and piracy.

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References:
1. Cateora, P., Graham, B., & Gilly, M. (2020). International Marketing (15th ed.). Mc-Graw Hill.

2. Cyber Terrorism and Cyber Crimes.” Https://Www.Fbi.Gov/, FBI, 4 Dec. 2009, www.fbi.gov/audio-
repository/news-podcasts-inside-cyber-terrorism-and-cyber-crimes.mp3/view.

3. “Precedent Meaning.” Https://Learnersdictionary.Com/, learnersdictionary.com/definition/precedent.

4. “Common Law vs Civil Law.” YouTube, uploaded by The Business Professor, 8 Feb. 2015,
www.youtube.com/watch?v=fgM5UPOxmpM.

5. “Civil Law vs. Common Law.” Https://Www.Diffen.Com,

www.diffen.com/difference/Civil_Law_vs_Common_Law.

6. Rehman, Shaqur. “A History of Islamic Law.” Https://Www.Islam21c.Com/, 12 May 2017,

www.islam21c.com/islamic-law/history-islamic-law.

7. Henderson, Alastair, and Surapol Srangsomwong. “‘Governing Law’ and ‘Jurisdiction’ Clauses.”
Https://Www.Lexology.Com, www.lexology.com/library/detail.aspx?g=469b7d6f-4f8c-44cb-9f10-
dcdd1edf20bf.

8. “Jurisdiction and International Contracts.” Www.Rocketlawyer.Com, Rocket Lawyer,

www.rocketlawyer.com/gb/en/quick-guides/jurisdiction-and-international-contracts.

9. Henderson, Alastair, and Surapol Srangsomwong. “‘Governing Law’ and ‘Jurisdiction’ Clauses.”
Https://Www.Lexology.Com, www.lexology.com/library/detail.aspx?g=469b7d6f-4f8c-44cb-9f10-
dcdd1edf20bf

10. Henderson, Alastair, and Surapol Srangsomwong. “‘Governing Law’ and ‘Jurisdiction’ Clauses.”
Https://Www.Lexology.Com, www.lexology.com/library/detail.aspx?g=469b7d6f-4f8c-44cb-9f10-
dcdd1edf20bf

11. Murray, Jean. “How to Resolve Business Disputes with Arbitration or Mediation.”
Https://Www.Thebalancesmb.Com/, 28 Feb. 2020, www.thebalancesmb.com/resolve-business-disputes-with-
arbitration-398748.

12. “Difference between Arbitration and Mediation.” Http://Bcicac.Com, bcicac.com/about/what-is-

mediationarbitration/difference-between-arbitration-and-mediation.

13. “The Difference Between Arbitration and Litigation.” Www.Thebalancesmb.Com, 13 Aug. 2019,
www.thebalancesmb.com/arbitration-vs-litigation-what-is-the-difference-398747.

14. World Intellectual Property Organization. “What Is Intellectual Property?” Https://Www.Wipo.Int,

www.wipo.int/about-ip/en.

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15. World Intellectual Property Organization. “Copyright.” Https://Www.Wipo.Int/, www.wipo.int/copyright/en.

16. “Trademarks.” Www.Wipo.Int, www.wipo.int/trademarks/en.

17. “Patents.” Www.Wipo.Int, www.wipo.int/patents/en.

18. “Trade Secrets.” Https://Www.Wipo.Int, www.wipo.int/tradesecrets/en.

19. International Anti Counterfeiting Coalition. “What Is Counterfeiting?” Https://Www.Iacc.Org/,

www.iacc.org/resources/about/what-is-counterfeiting.

20. “Definition of ‘Piracy.’” Https://Economictimes.Indiatimes.Com/,

economictimes.indiatimes.com/definition/piracy.

21. “Cyberlaw.” Https://Www.Techopedia.Com, www.techopedia.com/definition/25600/cyberlaw.

22. “Cybersquatting: What It Is and What Can Be Done About It.” Https://Www.Nolo.Com/,
www.nolo.com/legal-encyclopedia/cybersquatting-what-what-can-be-29778.html.

23. “Cybersquatting Examples: Everything You Need to Know.” Https://Www.Upcounsel.Com,

www.upcounsel.com/cybersquatting-examples.

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