What are the Legal Issues that are involved in International Business?–Explained!

However, in international business, the home country and supranational laws also exist, to be followed. In the process many important legal issues arise, which need the attention of businessmen, law makers and the statesmen. Some of the important issues are identified as under:

The Conflict of Laws:

The laws (known as private international law), their interpretation and resolution of disputes particularly in relation to commercial matters of different countries lead to conflicts, The field of conflict of laws consists of three areas – choice of law, choice of forum, and recognition and enforcement of judgments. Bennetthas brought out the following disparities:

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(a) Laws concerning the circumstances in which an offer may be withdrawn without penalty vary in detail between nations. Normally the law of the nation in which obligations arising from a contract were intended to be performed will apply to this matter, although many disputes arise over the question of where exactly the performance was supposed to take place.

(b) Some countries (especially in Continental Europe) draw important distinctions between ‘commercial and non-commercilawal’ contracts, with a lower burden of proof being necessary to establish the existence of the former and disputes arising from commercial contracts being heard in special commercial courts.

(c) The intervals beyond which cases become statute barred or time barred. In UK for most classes of contracts is six years; in France, it can go up to 30 years; and in Germany it depends on if the case concerns a commercial transaction, and, if so, whether both the parties to the contracts are traders.

(d) Consideration does not necessarily have to be proven prior to suing for breach of contract in certain countries. Under Indian law a contract cannot exist without consideration.

(e) Legality of exemption clauses and penalty clauses included in contracts differ from country to country.

(f) In some countries a suit for payment must be preceded by ‘protest’. A notary public’s help is sought to ask the customer for payment or for reasons for non-payment. The latter are put into a formal deed of protest which is thereafter placed before a court as evidence of refusal to pay.

Apart from the above, the debate between law and ethics is also not resolved. First does everything ethical is legal and unethical is illegal? Second, often laws are based on moral concepts, which are not precisely defined.

Third, is a company at liberty to take decisions differently from its home ground if it finds laws abroad that give it either narrower or greater latitude in making decisions? Fourth, since laws are slow to be enacted and more slow to be repealed, should a company follow the laws having no relevance? Fifth, then there are laws which are inoperative. Sixth, should a company break laws that everyone is doing?

Bribery and Corruption:

The Word corruption is derived from the Latin word rumpere, which means to break. What is broken herein is a moral or social behavior or more often administrative rules. The administrator, in return to breaking the rules, receives a favor for self, family, friends, political party or other social group.

This favor in return must be seen as direct quid pro quo for a special act of breaking a rule. Thus it refers to “all improper and selfish exercise of power and influence attached to public officer or to the special position one occupies in public life.” It can rightly be termed as illegal purchase of influence.

Foreign Corrupt Practices Act (FCPA) 1997 of the US has defined bribery as “the use of interstate commerce to offer, pay, and promise to pay, or authorize giving anything of value to influence an actor decision by a foreign government, politician, or political party to assist in obtaining, retaining, or directing business to any person.” Bribe is described differently in different parts of the world.

In West Africa it is “dash”, in East Africa as “chai”, in Brazil as “jeitinho” (the fix), in Mexico as “mordida” (the bite), in the Middle East as “baksheesh” or “inaam”, In Italy as “omaggi”, in Honduras as “pajada (a price of the action), in Japan as “on”, in China “connections payments”, and elsewhere” pay off, “grease money”, “lubricant”, “little envelop”, “thank you” and many other such terms.

Thai language does not have a word for bribe; it is called commission. Bribery can be of two types, the ‘white mail’ bribe, and the iubricational’ bribe. Lubrication bribe is to facilitate lawful activities; paid to low level bureaucrats; relatively small in value; and transacted upon directly between receiver and the giver.

However, ‘white mail’ is solicited by high-level government officials. It involves relatively large amount and some intermediary might be needed. These payments being illegal, the foreign companies have to go for fraudulent accounting practices to hide these payments. Bribe is the tool of corruption.

The question often asked is: Is corruption a recent phenomenon? The answer is a straight no. Its origin can be traced back from Ancient India to Biblical times. The history of corruption is as old as the history of civilisation wherever it emerged: in Egypt, Rome, or ancient Israel. But it has become an important issue because of close monitoring of business and government practices both by people and media.

A reading of world history reveals that our time is no way unique in the course of civilisation. Polybus, the Greek historian living in the second century B.C., summarised Carthage’s decline in a single sentence: “at Carthage nothing that results in profit is regarded as disgraceful”. Business historian Jacob Van Kalveren wrote that sixteenth and seventeenth century Europe should be characterised not as the age of mercantilism but the age of corruption.

Is there any geographic monopoly on corruption? There is not. It has been prevalent in both developed and developing countries. It has been prevalent in businesses of all nationalities to pay bribes abroad. Businesses have been both victims and culprits of corruption.

Many known MNCs of the US, Germany, France, Italy have been in news for the unethical practice “Corruption has been well documented in every society, from the banks of Congo River to the palace of the Dutch royal family, from Japanese politicians to Brazilian bankers, and from Indonesian government officials to the New York City Police Department. Corruption affects personal and family life, business environment, political life, culture and values of society.

Corruption is like a ball of snow, once its set rolling it must increase”. Corruption is worse than prostitution. “The latter might endanger the morals of an individual; the former invariably endangers the morals of the entire country”.

Alatas has classified corruption in seven categories:

i. Autogenic. It involves the perpetrator, like dealing in insider trading.

ii. Defensive. To pay bribe in self defence.

iii. Extortive. Compensation in exchange for services.

iv. Intensive. To act now but reward in future.

v. Nepotistic to give preferential treatment to friends in violation of guidelines.

vi. Supportive. To support corruption.

vii. Transactive. To the benefit of both the parties.

To the list of seven, three more can be added as identified by Bhure Lai:

i. Collusive. Corruptees are active participants.

ii. Coercive. Undue advantage of their position.

iii. Non-conjunctive. The victim does not know of is victimisation.

In the developing country, corruption may be due to low incomes. But the large scale bribery in developed world seems to be due to domination of small number of firms in non-competitive markets. Kolde has traced the cultural and historical roots of bureaucratic corruption in some developing countries to the clashes of cultures and colonial legacy. High corruption level is also linked to lower investment in education, which pays big dividends.

Why bribery is bad? If bribery would have been the rule that everybody would have followed (recently Ghaziabad Development Authority has introduced it), it would cease to be bribery and it might have been considered a business overhead. But it is not. It is a ‘rent of authority’. The ones who do not hold the ‘position’ are not in a ‘position’ to solicit bribe.

Bribery is opposed because – it is illegal and unethical, leads to inefficient allocation of national resources by distorting market mechanism and creating unfair competitive advantage for some firms, leads to a significant negative impact on a country’s economic growth, reduces returns on business investment, national treasuries are deprived of revenues (when an Income Tax official is asked to assess less tax responsibility), loss of confidence in the system and stifling entrepreneurial initiatives (reduces inflow of FDI), and above all it erodes the moral fiber (once began there appears to be no chance to come back).

Can we have a liberal approach to bribery? Certainly we would say NO. But there are arguments carrying strength:

i. It is difficult to differentiate between a ‘bribe’ and a ‘gift’.

ii. Since reporting of gifts cannot be assured, then why to bother to control the practice.

iii. Firms not practicing bribery may lose money in some countries, which may be detrimental to the host countries as well.

iv. Consultancy and agency fee may be used (even used) for bribery and yet not detected.

v. Bribes be seen as an integral part of the market system. Let bribes find their own ‘market price’.

vi. In the context of pervasive and cumbersome regulations in developing countries, bribe may actually improve efficiency and help growth. In a country where existing political structures

distort or limit the working of the market mechanism, corruption in the form of back marketing, smuggling, and side payments to government bureaucrats to “speed up” approval for business investments may actually enhance welfare.

vii. When a national government like the US government gives aid with the understanding that the host country will in return grant political concessions, then what is wrong with the individual bribing.

viii. When one form of bribe is allowed (see FCPA, 1977 of the US), how can the other one to be termed undesirable.

ix. In some countries corruption is so rampant that it is treated as a ‘perk of office”.

Forms of bribe can be cash, kind, putting influential man’s relative on payroll, granting agency/consultancy rights, paying in a foreign country in foreign currency, cash plus grant of some project, giving special discounts on purchases, taking foreign officials on junkets, scholarships to family members, loosing in sports to foreign officials, political contributions, lobbying, philanthropy, etc.

A question is often asked – Is corruption culture-bound? There are two dimensions to bribery – legal and ethical. What is illegal shall certainly be unethical but what may be unethical need not be illegal. However, what is illegal may not be an evil. Ethics depend on the moral values of a particular culture. In some of the countries, the tipping practice in the Western world is not considered as bribe, but when the same people are asked to pay in other part of the globe, it is termed as bribe.

Then what to do? We have seen bribery being a relative concept and not an abstract. No society is immune to corruption. Difference is only of degree. No law can stop it in totality. The inner values alone can put a check. Unless the inequality between nations and within the nation is overcome, how it can be stopped! In business schools, we teach MBA students to show results rather than truth to go up the ladder.

What role model the governments play. Did the US and the UK not bribe key people in Iraq? Understanding this very nature of human beings, Lord Krishna rightly preached that “everything is fair in love and war”

The Transparency International’s (TI) Corruption Perception Index (CPI) shows that 70 countries out of 102 score less than 5 out of a clean score of 10, which include many rich countries whose firms invest in developing countries.

Corruption is covert. Parties to bribery at both the giving and the receiving end extend themselves to keep these transactions hidden from others. Such practices may be known widely, but the specific acts of corruption are founded on secrecy and vehemently denied when evidence of them is alleged. Second, corruption often involves collusion between the relevant parties.

The practice of corruption benefits all concerned. Third, corrupt practices are committed by widely dispersed actors rather than by large collectivities. Those who seek to expose corruption must focus on particular individuals whose dispersion within a system is never clear or concentrated. Fourth, corruption is a relatively recent entry high on the global agenda. Earlier people didn’t speak, but now people are talking.