Chapter 5 - The Political, Legal and Regulatory Environments Flashcards
Describe Sovereignty
Sovereignty: Supreme and independent political authority
- “A sovereign state was considered
free and independent.
It regulated trade,
managed the flow of people into and out of its boundaries,
and exercised undivided jurisdiction over all persons and property within its territory.
It had the right, authority, and ability to conduct its domestic affairs without outside interference and
to use its international power and influence with full discretion.”
Sovereignty & Global Market Integration
Some believe that global market integration is eroding national economic sovereignty
In the EU, individual countries gave up their rights to a national currency, product standards in exchange for better market access
Describe the Political Risk of going global
- Risk of change in political environment or in government policy that would adversely affect a company’s ability to operate effectively and profitably.
- When perceived political risk is high, a country will have a difficult time attracting foreign direct investment.
- Some governments offer political risk insurance.
Give some examples of political risk
– War
– Social unrest, fractionalized by language, ethnic and/or religious groups
– Orderly political transfer
– Politically motivated violence
– International disputes
– Change in government/pro‐business orientation
– Social conditions (population density and wealth distribution)
– Corruption, nepotism
– Crime
– Labor costs
– Tax discrimination
– Exchange controls, tariff barriers
– Dependence on and/or importance to a major hostile power
– Repatriation restrictions
Describe taxes and their effects on economic environment
Government taxation policies
– High taxation can lead to black market growth and cross‐border shopping
* High taxes in China leads to smuggling of oil, cigarettes, PCs, film
* In Great Britain, cars returning from France bring on average 80 bottles of wine
back
Corporate taxation – Companies attempt to limit tax liability by shifting location of income
Describe four types of Seizure of Assets (Beschlagnahme von Vermögenswerten)
Expropriation (Enteignung)
–governmental action to dispossess a foreign company or investor
–Compensation should be provided in a “prompt, effective, and adequate manner”
Confiscation (Beschlagnahme)
-occurs when no compensation is provided
Nationalization
–a government takes control of some or all of the enterprises in an entire industry
– Acceptable according to international law if:
* satisfies public purpose
* includes compensation
Creeping expropriation (schleichende Enteignung)
–limits economic activities of foreign firms
* May include:
– Limits on repatriation of profits, dividends, or royalties
– Technical assistance fees
– Increased local content laws
– Quotas for hiring local nationals
– Price controls
– Discriminatory tariff and nontariff barriers
– Discriminatory laws on patents and trademarks
Describe International Law
- The rules and principles that nation‐states consider binding among themselves
- Pertains to property, trade, immigration and other areas
- Disputes between nations are issues of public international law
– World Court or International Court of Justice (ICJ);
– Judicial arm of the United Nations
Describe the International Court of Justice
- Judicial arm of the United Nations founded in 1947
- Settles disputes between nations
- Offers advice on legal issues submitted by various international agencies
ICJ, The Hague, Netherlands
Common Law vs. Civil Law (Gewohnheitsrecht vs. Zivilrecht)
Describe background and differences
- The Napoleonic Code of 1804 drew on the Roman legal system and is the basis for continental European law today. Code law is also known as civil law.
- U.S. law is rooted in English common law.
Common Law
* Disputes are decided by reliance on the authority of past judicial decisions
* Companies are legally incorporated by state authority
* Code law is used in only a few areas; the U.S. Uniform Commercial Code fully adopted by 49 states, Louisiana still influenced by French civil law
Civil Law
* Legal system reflects the structural concepts and principles of the Roman Empire
* Companies are formed by contract between two or more parties who are fully liable for the actions of the company
Describe islamic law
Legal system in many Middle Eastern countries
Sharia
–a comprehensive code governing Muslim conduct in all areas of life, including business – Koran–Holy Book; like code law
– Hadith–like common law
* Based on life, sayings, and practices of Muhammad
* Identifies forbidden practices “haram”
How to: Sidestepping Legal Issues
Get expert legal help
Prevent conflicts
– Establish jurisdiction
– Protect intellectual property
– Protect licenses and trade secrets
– Avoid bribery (Bestechung)
– Advertising & promotion
Describe Jurisdiction in context of global law environment when going global
- Refers to a court’s authority to rule on particular types of issues arising outside of a nation’s borders or to exercise power over individuals or entities from different countries.
- Employees of foreign companies should understand the extent to which they are subject to the jurisdiction of host‐country courts.
- Courts have jurisdiction if it can be demonstrated that the company is doing business in the state in which the court sits.
How to deal with Intellectual Property?
Intellectual property must be registered in each country where business is conducted.
Patent
–gives an inventor exclusive right to make, use, and sell an invention for a specified period of time
Trademark
–distinctive mark, motto, device, or emblem used to distinguish it from competing products
Copyright
–establishes ownership of a written, recorded, performed, or filmed creative work
Ways of infringement (Verletzung) of intellectual property
- Counterfeiting (Fälschung)
–unauthorized copying and production of a product - Associative Counterfeit/Imitation (assoiative Fälschung / Nachahmung)
–product name differs slightly from a well‐known brand - Piracy (Raubkopie)
–unauthorized publication or reproduction of copyrighted work
Protecting Intellectual Property
- In the U.S., registration is with the Federal Patent Office
- In Europe, applicants use the European Patent Office or register country‐by‐country
- Soon the Community Patent Convention will cover 27 countries
- Madrid Protocol trademark owners are protected in 74 countries with 1 application
World Intellectual Property Organization
International Convention for the Protection of Industrial Property
Patent Cooperation Treaty
European Patent Convention
