INTRODUCTION

• Growth of International Business

• Laws of International Business Transactions

• Forms of International Business Transactions

• Risk Analysis and Risk Aversion

GROWTH OF INTERNATIONAL BUSINESS

• Factors That Contributed to Growth of International Business

• General Agreement on Tariffs and Trade

• Expansion of GATT into services, technology and foreign investments

• North American Free Trade Agreement

• Disintegration of Soviet Union and Warsaw Pact

• Development of Capital Markets

• Advances in Telecommunication and Information

Growth of International Business Transaction

• Trade in Goods• Significant Growth from 1971 to 1975-World

Bank, 1995

• Foreign Direct Investment• 1985 ($98 billion) to 1997 (440 billion)-Department

of Commerce

• Trade in Services

LAWS OF INTERNATIONAL BUSINESS

• Sources of Law-Article 38 of the Statute of the International Court of Justice– International Conventions and Treaties– International Custom or General Practices– General Principles of Law Recognized by

Nations– Judicial Decisions and Scholarly Writings

LAWS OF INTERNATIONAL BUSINESS

• Contracts-primary source of law between contracting parties

• Codification of Contract Law– Lex Mercatoria-law of merchants. Recognized day to day

practices of merchants. Significantly correlated to customary law.

– United Nations Convention for the International Sales of Goods-recognized contract law between merchants incorporating many of the principles of lex mercatoria.

» The convention has been codified in at least a 120 nations

LAWS OF INTERNATIONAL BUSINESS

• Customary Law-standard practices that are recognized among business persons

• International Conventions-ratified by nation state» Hague Rule on liability of carriers

» Agreement on Trade Related Aspects of Intellectual Property

» General Agreement on Trade and Tariffs

» Organization for Economic Cooperation and Development

LAWS OF INTERNATIONAL BUSINESS

• Customary Law-continued– Lex Mercatoria

• Material Produced by International Chamber o Commerce based in Paris

– International Court of Arbitration

– Centre for Maritime Cooperation in London

– Counterfeiting Intelligence Bureau in London

– Uniform Customs and Practices for Documentary Credits

– Incoterms 2000-trade terms

FORMS OF INTERNATIONAL BUSINESS

– Indirect Exporting-exporting goods and services through another person or business such as a buying agent.

– Direct Exporting-selling goods directly to consumer in foreign country

– Foreign Investment-some type of financial presence in another country-direct or indirect

– Transfer of Intellectual Property– Export of Services-entertainment, tourism

RISK AND RISK AVERSION

• Risk Aversion– Indirect Exporting

» Export Management Companies

» Export Trading Companies

» Office of Export Trading Affairs

» Export Import Bank

– Direct Exporting» Foreign Sales Representative

» Foreign Distributor

RISK AND RISK AVERSION

• Risk Aversion-continued• Market Research

– Research sources through government publication in the Department of Commerce, Small Business Administration

• Step by Step– Screen Potential Markets

– Assess Targeted Markets

– Draw Conclusion

Risk Analysis and Risk Aversion

• Forms of Risks– Cultural and Language– Currency– Legal– Political

RISK ANALYSIS AND RISK AVERSION

• Cultural and Linguistic• Compare Nigeria (bribes and possible Foreign

Corrupt Practices Act) and Canada-stable government and currency

• China and France-Intellectual Property.

• Purchasing a business in Russia and Germany-legal requirements to purchase business

• Review case Falcoal, Inc. v. Kurumu 660 F.; Supp. 1536

• Cultural Nuances such as handshake and gifts

RISK ANALYSIS AND RISK AVERSION

• Currency Risks– Types of Risks

– Convertibility Risks-whether one currency is convertible to another currency-difference between hard and soft currency

– Repatriation-when one attempts to remove currency from a host country

– Devaluation of currency-see Bernina Distributors v. Bernina Sewing Mach. 646 F.2d 434

– Aversion– Arbitrage, forward contract, futures contract

RISK ANALYSIS AND RISK AVERSION

• Legal Risk• Ambiguity of Contractual Terms

• Differences in Legal Systems in terms of substantive laws, procedures and remedies

» Nachfrist Notice and request for extension of time

• Differences in enforcement of Laws» Intellectual Property-countries differ in what

constitutes intellectual property

• Discrimination against foreign investors» Local Participation Requirements

RISK ANALYSIS AND RISK AVERSION

• Political Risks– Trade Barriers

– Government Procurement, Export Subsidies, Service Barriers, Investment Barriers and Technical Requirement

– Expropriation and Nationalization– Government Seizure of foreign business and assets

– Risk Aversion for Political Risk– Bilateral Trade Agreements

– International Center for the Settlement of Investment Dispute, Foreign Credit Insurance Association

Risk Analysis and Risk Aversion

• Risk Aversion• Insurance-MIGA

• Intermediaries-freight forwarders, custom brokers

• Countertrade» counter purchase

» barter

» buy back agreements

» performance agreements

» clearing agreements