International Law and Global Trade: Study Notes

Globalization and the International Legal Environment

• Commerce has always crossed national borders; technology has accelerated growth in world trade and the emergence of a global business community.
• Exchanges of goods, services, and intellectual property on a global level are routine.
• Students of business law and the legal environment should be familiar with laws pertaining to international business transactions.
• Laws affecting the international legal environment of business include both international law and national law.

International Law vs. National Law: Definitions and Enforcement

• International law: a body of law formed by international customs, treaties, and organizations that governs relations among nations.
  • Can be created when nations agree to comply with standards, e.g., by signing a treaty.
  • Can also arise when industries or nations establish international standards for private cross-border transactions (e.g., a law prohibiting importation of genetically modified organisms).
• National law: the law of a particular nation (e.g., Brazil, Germany, Japan, United States).
• National laws dealing with property rights, border searches, regulations, and taxes can effectively become international law when applied at a nation’s borders.
• An emerging area: space law, governing activities in outer space; has both international and national components.
• Major difference between international and national law: who enforces it. National law is enforceable by government authorities; international law has limited enforcement mechanisms.
• Question of enforcement: Which government enforces international law? Sovereign nations are, in theory, the final authorities over their own affairs; enforcement of international law may rely on coercive actions by other nations or international organizations (e.g., economic sanctions, severance of diplomatic relations, boycotts, or war) when customary standards are violated.
• Example: North Korea has violated international law through nuclear weapon and ballistic missile tests; responses include sanctions by the United States and European Union, including oil embargoes and coal export bans.

Sources and Structures of International Law

• The goal of international law is to reconcile a nation’s sovereignty with the benefits of trade and harmonious relations.
• Sovereign nations can voluntarily agree to be governed in certain respects by international law for mutual benefit.
• Three main sources of international law:
  • International customs
  • Treaties and international agreements
  • International organizations
• International law sources are discussed in sequence here:

International Customs

• An important source of international law consists of long-standing practices among nations.
• Article 38(1) of the Statute of the International Court of Justice (ICJ) recognizes international custom as evidence of a general practice accepted as law.
• Many legal principles and doctrines in international law are rooted in customs and evolving international traditions.

Treaties and International Agreements

• Treaties are explicit agreements between two or more nations, authorized and ratified by the supreme power of each nation.
• US Constitution Article II, Section 2: the president has the power to make treaties with the advice and consent of the Senate, provided two-thirds of the Senators present concur.
• Bilateral agreement: one-on-one agreements between two nations to govern their exchanges or relations.
• Multilateral agreement: agreements among several nations.
• Regional trade agreements and organizations arise from multilateral treaties (e.g., regional groups).
• Examples of regional organizations: Ambien Community (likely a transcription error; commonly known examples include the Andean Community, ASEAN, and the European Union).

International Organizations

• International organizations are bodies composed mainly of officials from member nations, usually established by treaty.
• The United States participates in many organizations (e.g., more than 100 multilateral and bilateral organizations; at least 20 through the United Nations).
• International organizations adopt resolutions, declarations, and nonbinding standards that guide nations, though enforcement often relies on voluntary submission.
• The International Court of Justice has jurisdiction primarily when nations voluntarily submit to it.
• The United Nations Commission on International Trade Law (UNCITRAL) works toward uniformity in international trade law.
• A key uniformity instrument: the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG).
  • CISG aims to settle disputes between parties to sales contracts in the absence of an agreed contract.
  • CISG governs only sales contracts between trading partners and nations that have ratified the CISG.
  • It is analogous to Article 2 of the Uniform Commercial Code (UCC) in its aim to provide a framework for international sale of goods.

The CISG and Comparative Law Context

• CISG creates duties for international buyers and sellers when the contract is silent on governing law.
• When states are signatories, CISG applies automatically to covered contracts unless parties explicitly opt out.
• Common law vs. civil law systems operate in cross-border contexts:
  • Common law: courts develop rules through case law; stare decisis binds courts to follow precedents; US is an example.
  • Civil law: codified statutes are primary; judges interpret codified law and do not create new law through precedents.
• Islamic law (Sharia): influences many Islamic countries; Sharia provides a comprehensive code governing public and private life, including business law and contract law; application varies by country.

International Principles and Doctrines

• Three important international principles (often cited in disputes with foreign elements) are rooted in courtesy and respect and aim to maintain harmonious relations:

Comity (not to be confused with committee)

• Comity refers to legal reciprocity: one nation will defer to another nation’s executive, legislative, and judicial acts as long as they are consistent with the accommodating nation’s law and public policy.
• US example: a US court will typically recognize and enforce a foreign default judgment if procedures in the foreign country are compatible with US procedures.
• Example: Maryland Helicopters Inc. (Arizona) v. Netherlands National Police Services Agency – a Netherlands court judgment was recognized by an Arizona court due to compatibility of legal procedures.

The Act of State Doctrine

• The judicial branch of one country will not examine the validity of public acts committed by a recognized foreign government within that foreign government’s own territory.
• Example: Spectrum Stores Inc. v. Citgo Petroleum Corp. (US) – Citgo, owned by the government of Venezuela, was shielded from a US suit under the act of state doctrine.
• Significance: protects foreign government acts from national court interference, particularly in cases involving sovereign actions and disputes over government actions abroad.

Expropriation and Confiscation (and Due Process Burden)

• Expropriation: a government seizes private property for a public purpose with just compensation.
• Confiscation: taking without just compensation or for an illegal purpose.
• The burden of proof: in suits alleging wrongful government takings, the defendant government bears the burden to prove the proposed action was an expropriation, not a confiscation.
• These doctrines affect private rights in foreign jurisdictions and can impact investors and foreign firms.

Sovereign Immunity and the Foreign Sovereign Immunities Act (FSIA)

• FSIA: codifies the circumstances under which a foreign state enjoys immunity from US courts and sets out exceptions where the foreign state may be sued.
• General rule: foreign states are immune from suit in US courts unless an exception applies.
• Commercial Activity Exception (FSIA): a foreign state shall not be immune in cases in which the action is based upon a commercial activity carried on in the United States by the foreign state.
• Definition of commercial activity (FSIA §1603(d)): a regular course of commercial conduct or a particular commercial transaction or act; the commercial character is determined by the nature of the conduct, not the motive.
• The Supreme Court has explained that when a foreign government acts as a private player in a market, its actions are commercial in the FSIA sense.
• Case: Global Marine Exploration, Inc. v. Republic of France (11th Cir. 2022) – the commercial activity exception applies where France engaged in marine archaeology activities with private and public partners; the district court’s dismissal was reversed and the case remanded.
• Other FSIA exceptions (summary): foreign state not immune when it has waived immunity; engaged in commercial activity with direct US effect; committed a tort in the United States; designated a state sponsor of terrorism for acts of torture or related acts; the applicant must establish non-immunity under the statute.
• Practical impact: FSIA provides jurisdictional bases for suits against foreign states, but immunities and exceptions shape how and when foreign governments can be sued in US courts.

Extraterritorial Application of US Law

• US antitrust law (Sherman Act) can apply extraterritorially if a conspiracy has a substantial effect on US commerce (Section 1).
• Example: Furukawa Electric Co. case – Tokyo-based supplier and its coworkers conspired in international price fixing that affected prices for US consumers; penalties included a $200 million fine for the corporation and up to 18 months’ prison for executives.
• International tort claims (Alien Tort Statute, ATS): allows foreign citizens to bring civil suits in US courts for violations of the law of nations or treaty violations.
• Daimler AG v. Bauman (2014): Supreme Court held that there is no general (all-purpose) jurisdiction over foreign corporations in the United States; “at home” standard limits general jurisdiction to a corporation’s domicile or principal place of business, not where it merely conducts substantial business.
• The doctrine of general jurisdiction: for a corporation, general jurisdiction is where it is considered at home; outside of that, jurisdiction is limited to specific claims linked to the forum.
• Employment discrimination: US laws (e.g., Age Discrimination in Employment Act, Americans with Disabilities Act, Title VII of the Civil Rights Act) generally apply extraterritorially to US nationals and US employers abroad, subject to country law considerations.
• Foreign-law compliance exception: US employers abroad may sometimes comply with host country law if it conflicts with US law.

Space Law: International and US Perspectives

• Space law governs activities in outer space; early exploration was primarily state-driven; recent private sector involvement presents new challenges.
• International space law framework:
  • Outer Space Treaty (OST) – foundational treaty establishing freedom of exploration and use, prohibition on national appropriation, peaceful use, responsibility for activities, jurisdiction and control over space objects, liability for damage, and avoidance of harmful contamination.
  • Related treaties: Rescue and Return Agreement; Liability Convention; Registration Convention.
• Outer Space Treaty (OST) key articles:
  • Article I: Outer space is free for exploration and use by all states; the Moon and other celestial bodies are not subject to national appropriation.
  • Article II: No national appropriation of outer space or celestial bodies.
  • Article IV: Space activities must be conducted for peaceful purposes; prohibitions on weapons of mass destruction in space.
  • Article VI: Each nation is responsible for its activities in outer space, whether conducted by government or private entities.
  • Article VIII: Each state retains jurisdiction and control over its space objects and personnel on them.
  • Article VII: Liability for damage caused by space objects.
  • Article IX: Conduct space exploration so as to avoid harmful contamination.
• Follow-on agreements:
  • Rescue Agreement: expands on assisting astronauts in distress and recovering space objects.
  • Liability Convention: absolute liability of the launching state for damage caused on Earth or aircraft in flight; fault-based liability for space damage; sets claims settlement procedures.
  • Registration Convention: mandatory registration of launched space objects to aid identification.
• US-specific space law: federal and state governance over space activities; the FAA regulates private spaceports and launches under the Commercial Space Launch Act (1986); the 2015 US Commercial Space Launch Competitiveness Act encourages private spaceflight and clarifies ownership of resources extracted from space by US citizens or companies.
• Export controls: space technologies are typically defense articles under the International Traffic in Arms Regulations (ITAR); this restricts transfer of space tech to foreign persons or nations.
• Property rights in space: OST prohibits ownership of space territory, but the US act recognizes private property rights to extracted space resources (asteroid mining), without asserting sovereignty or exclusive jurisdiction over celestial bodies.
• Practical implications: regulatory coordination across federal and state levels, insurance requirements, liability waivers, and considerations for safety and market viability in private space ventures.

International Trade and Economic Integration

• Global trade policy aims to minimize barriers and promote fair competition:
  • World Trade Organization (WTO): most leading trading nations are members; members must grant Normal Trade Relations (NTR) status to other members (most-favored-nation style treatment for imports/exports).
  • European Union (EU): evolved from the 1957 Treaty of Rome; created a common market; now a single integrated trading unit with EU-wide regulation in environmental law, product liability, anti-competitive practices, and corporate law; Directives are binding on member states; Brexit (2016) demonstrated tensions between national sovereignty and integration.
• Regional trade agreements and blocs:
  • USMCA (United States–Mexico–Canada Agreement): replaces NAFTA; aims to reduce tariffs on substantially all goods among the three countries; sets rules such as 75% of automobile components manufactured in one of the three countries to qualify for zero tariffs; 40–45% of auto parts must be made by workers earning at least $16/hour; expands access to Canada’s dairy market; promotes digital trade.
  • CAFTA-DR (Central America-Dominican Republic-United States Free Trade Agreement): Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States; reduces tariffs and improves market access.
  • KORUS FTA (Korea-US Free Trade Agreement): aims to eliminate 95% of tariffs on industrial and consumer exports between the two nations; anticipated boosts for US exporters and manufacturers, with variable outcomes.
  • Other FTAs: Colombia and Panama have trade agreements; tax information exchange provisions and labor rights provisions appear in these agreements.
• Trade barriers and instruments:
  • Export controls: quotas, technology export restrictions, subsidies; Export Administration Act; Export Trading Company Act; Export-Import Bank (supporting credit guarantees for exporters).
  • Import controls: trade prohibitions (e.g., Trading with the Enemy Act), import quotas, tariffs; anti-dumping duties: duties to offset imports sold at less-than-fair value; ITC and ITA play roles in determining injury and fair value respectively.
  • ITC evaluates dumping impact on domestic industry; ITA assesses whether imports were sold below fair value; antidumping duties equal the difference between US price and export-country price, potentially retroactively.
• Notable case: Chengdu Trina Solar Co. Ltd. v. ITC (US Court of Appeals, Federal Circuit, 2018) – ITC found subject imports caused material injury; the court affirmed the ITC decision based on substantial evidence, including market demand, production capacity, government incentives, and price competition.
• International dispute resolution:
  • Arbitration clauses in international contracts; enforcement of arbitration awards under the New York Convention; New York Convention obligations require specific elements for enforcement across signatory jurisdictions.
  • The New York Convention basics:
  • Written or recorded agreement to arbitrate.
  • Arbitration in a signatory nation.
  • Arises out of a commercial legal relationship.
  • One party is not a US citizen (non-US party constraint in some cases).
  • Example: Juridica Investments Ltd. v. SMT Oil Equipment & Machinery Ltd. (Guernsey contract; arbitration in Guernsey; US court compelled arbitration under New York Convention).
  • Forum selection and choice-of-law clauses: determine litigation venue and governing law in international contracts; these clauses influence where disputes are resolved and which law applies.

Extraterritorial Effect of US Law: Antitrust, Tort, and Employment

• Antitrust: Section 1 of the Sherman Act has extraterritorial reach when a conspiracy has a substantial effect on US commerce; both foreign states and firms can be liable.
• Major case: Furukawa Electric Co. – Tokyo-based supplier conspired in an international price-fixing scheme; resulted in a $200 million fine and prison terms for executives.
• Alien Tort Statute (ATS): allows foreign nationals to sue for violations of international law; Supreme Court has curtailed extraterritorial reach; Daimler v. Bauman is a landmark case limiting the scope of general jurisdiction for foreign corporations in US courts.
• Employment discrimination: US anti-discrimination laws can apply extraterritorially to US employers abroad, subject to the foreign law exception (when applying US law would violate the host nation's laws).

Case Spotlight and Notable Examples

• Example 11.1: North Korea sanctions by US/EU for nuclear tests (oil embargo, coal export restrictions).
• Case 11.2: Chengdu Trina Solar Co. Ltd. v. United States International Trade Commission (Federal Circuit, 2018) – ITC found dumping injuries; substantial evidence supported the ITC’s decision; antidumping duties in play.
• Case 11.3: Daimler AG v. Bauman (Supreme Court, 2014) – held no general jurisdiction in California over a German company based on foreign activities; the court emphasized the “at home” standard for general jurisdiction.
• Case 11.5: FSIA and sovereign immunity (pivotal exceptions) – a US court’s jurisdiction over foreign states depends on FSIA exceptions, including the commercial activity exception and waivers of immunity.
• Case 11.8: Juridica Investments Ltd. v. SMT Oil Equipment & Machinery Ltd. – arbitration compelled under the New York Convention; Guernsey arbitration clause and forum considerations.
• Case 11.1 (Global Marine Exploration, Inc. v. Republic of France) – discussed under FSIA commercial activity; France’s activities deemed commercial due to coordination with Florida authorities and private salvage incentives.

Practical Aspects: Doing Business Internationally

• Modes for US firms to operate abroad:
  • Exporting (direct or indirect): direct export, or indirect via foreign agents or distributors; agency relationships or distributorship agreements.
  • Manufacturing abroad: license/franchise arrangements, joint ventures, or wholly owned subsidiaries (e.g., Societe Anonyme in some European countries, Aktiengesellschaft in Germany).
• Licensing and Franchising:
  • Licensing: foreign firm uses a brand, patented technology, or trade secrets for a fee; royalties may be a percentage of profits or per-unit fees; example: Coca-Cola licenses to bottlers worldwide for secret formula protection and global brand.
  • Franchising: franchisor licenses trademark, trade name, or copyright to franchisees; ongoing royalties are often a percentage of sales; provides greater operational control to the franchisor (e.g., Holiday Inn, Hertz).
• Investment protections and risks:
  • Expropriation vs confiscation; many nations provide guarantees of compensation to foreign investors to encourage investment; some provide investment insurance.
  • Regulations can require compliance with foreign laws and host-country regulatory regimes; investment protections are often negotiated in treaties.
• Export controls and import controls:
  • Export controls limit technology transfers and export of strategic items; import controls include prohibitions, quotas, and tariffs; anti-dumping actions to address unfair competition.

Space Law: Key Frameworks and US Policy

• The outer space regime (OST) and subsequent treaties create a framework for peaceful use, non-appropriation, and responsibility for activities in space.
• OST core principles include:
  • Freedom of exploration and use for all states; no national appropriation of space or celestial bodies.
  • Space activities should be conducted for peaceful purposes; weapons of mass destruction prohibited in space.
  • States are responsible for their activities in space, including those carried out by private entities; states must authorize and supervise private activity.
  • Each state retains jurisdiction over its space objects and personnel; a launching state is liable for damages caused by its space objects.
• US policy and regulation:
  • FAA regulates private spaceports and launches under the Commercial Space Launch Act (1986).
  • The 2015 US Commercial Space Launch Competitiveness Act encourages private spaceflight and, controversially, recognizes private ownership of resources extracted from space (resource ownership, not sovereignty).
  • ITAR controls the transfer of space-related technologies and related information as defense articles, influencing global competition.
• Property rights in space:
  • OST prohibits national appropriation; US policy recognizes private ownership of extracted space resources but not sovereignty over space territory.
• Practical considerations: insurance, liability, safety, licensing, and intergovernmental cooperation in space exploration and exploitation.

Chapter Review: Key Terms and Concepts

• Active state doctrine, Comity, Confiscation, Expropriation, Contractual dispute resolution, CISG, Common law, Civil law, Commercial activity exception, Court of International Trade, Duty/tariff, Dumping and antidumping duties, Export controls, Foreign Sovereign Immunities Act (FSIA), New York Convention, International Court of Justice (ICJ), International law, International organizations, International customs, International treaties, Licensing, Franchising, Maximum extraterritorial reach of US law (antitrust, ATS), Space law, Outer Space Treaty, Rescue Agreement, Liability Convention, Registration Convention, USMCA, CAFTA-DR, KOR-US FTA, WTO, Normal Trade Relations (NTR).

Connections to Foundational Principles and Real-World Relevance

• International law provides mechanisms to facilitate trade while respecting sovereignty; nations can voluntarily submit to international rules to reduce conflict and promote economic efficiency.
• The FSIA and its commercial activity exception illustrate how modern states navigate sovereignty with the need for cross-border business activity.
• Arbitration and the New York Convention demonstrate how private disputes can be resolved across borders with enforceable awards, enabling multinational contracts.
• Space law reflects the tension between public interests and private enterprise as new frontiers open to commercial activity.
• Extraterritorial application of US laws highlights the influence of US policy on global business practices, while also presenting jurisdictional and ethical questions about mixed legal systems and human rights.

Ethical, Philosophical, and Practical Implications

• Balancing sovereignty with globalization: states seek to protect national interests while enabling beneficial cross-border trade.
• The limits of enforcement: international law relies on consent and cooperation; coercive measures may be necessary but also raise ethical questions about state sovereignty and the use of force.
• Private rights in space: ownership of space resources raises questions about resource sharing, equity, and the future of property rights beyond Earth.
• Extraterritoriality: while it can promote accountability, it can also create conflicts with host-country laws and raise concerns about extraterritorial jurisdiction and the rights of foreign nationals.
• Uniformity vs. nationalism: efforts to harmonize law (e.g., CISG, EU directives) can clash with domestic legal traditions and nationalist concerns (e.g., Brexit, protectionist sentiment).

Formulas, Numbers, and Notable Statutes (LaTeX)

• CISG framework and similarity to UCC Article 2 (sales of goods):
  -
• FSIA commercial activity exception:
  • 28 ext{ U.S.C. } ext{S} ext{ 1605(a)(2)}
  • The exception states that a foreign state shall not be immune in any case in which the action is based upon a commercial activity carried on in the United States by the foreign state.
• Commercial activity definition (FSIA §1603(d)):
  • A regular course of commercial conduct or a particular commercial transaction or act; the commercial character is determined by the nature of the conduct, not the purpose.
• New York Convention: four conditions for recognizing/arbitrating a foreign arbitral award:
  1. Written or recorded agreement to arbitrate.
  2. Arbitration in a convention signatory nation.
  3. The agreement arises out of a commercial legal relationship.
  4. One party to the agreement is not a US citizen.
• Automobile components rule under USMCA: 75% of automobile components must be manufactured in one of the three countries to qualify for zero tariffs.
• Labor value threshold under USMCA: 40–45% of automobile parts must be made by workers earning at least 16 ext{ USD/hour}.