International Law 746
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International law is often defined as the body of rules and norms that regulate activities carried on outside the legal boundaries of states. More particularly, it is the law that applies to three international relationships: (1) relations among nation-states; (2) relations among individuals (including corporations) and foreign nations; and (3) relations among individuals from different nations.


Much of the law governing relations among nation-states developed from history, customs, and traditions that found their way into legal precedents. In cases where nations disagreed over their rights and duties toward one another, consensus slowly developed. For example, when a citizen attempted to bring a lawsuit in his home country against a foreign sovereign, the court would typically deny relief on the ground that the foreign sovereign had immunity as a generally recognized custom of international law.

Customary international law, however, could not answer all of the questions and needs of nation-states and their citizens. Agreements between nations were needed to improve alliances in times of war, or to promote international trade and commerce in times of peace. Thus, countries often entered into treaties of "friendship, commerce, and navigation" (FCN) with other countries. Such treaties define the reciprocal rights and duties of each nation in furtherance of each nation's self-interest. Most FCN treaties cover issues such as the entry of individuals, goods, ships, and capital into the other nation's territory, acquisition of property, repatriation of funds, and protection of each nation's persons and their property in the treaty-partner's nation.

To further improve alliances, trade, and commerce, countries also enter into conventions—a legally binding agreement between states sponsored by an international organization. Examples of international law conventions include the United Nations sponsored Convention on Contracts for the International Sale of Goods and the Treaty of Rome (which eventually led to the creation of the European Community). Of course, not all conventions are under the auspices of the United Nations (UN), but the UN has sponsored various multilateral agreements among nation-states.

One organization within the United Nations that has fostered the growth of international law is the International Court of Justice (ICJ). The ICJ hears and rules on disputes between nation-states but usually does so only where the respective nations agree that the ICJ has jurisdiction. The ICJ relies on customary international law, treaties, and conventions in making its decisions.

After World War II, when the United Nations was organized, it was envisioned that a World Bank and International Trade Organization (ITO) would also be established. The World Bank came into being as an international lending and development agency to which industrialized nations make contributions for the ostensible purpose of promoting development globally. But in 1948 the U.S. Congress had serious reservations about the wisdom of surrendering any of its sovereignty or discretion over trade matters to an international organization. Under powers delegated to the president in the Reciprocal Trade Agreements Act of 1934, the United States joined in the General Agreement on Tariffs and Trade (GATT), which had been drafted in 1947 in Geneva. The basic purpose of GATT was to move the nations of the world toward lower trade barriers (free trade).

Under GATT, member nations were obligated to give "most-favored nation" treatment to all goods originating in member countries. That is, trade concessions to one member nation would automatically be extended to all others. A series of "negotiating rounds" since 1947 progressively lowered tariff barriers among GATT signatory nations. In the most recently concluded Uruguay Round of GATT, both tariff and nontariff barriers were further reduced. Moreover, the original vision of a global trade organization such as the ITO has been at least partially realized in the agreement to replace GATT with a World Trade Organization (WTO). The WTO incorporates GATT rules, but has considerably more power to set and enforce standards than the previous GATT secretariat in Geneva.

The institutionalization of free trade principles has also been furthered by regional free trade arrangements, such as the European Union and the North American Free Trade Agreement (NAFTA). Nations who belong to either group are also members of the WTO, whose provisions allow that concessions given to other members of a regional trading block do not have to be given to other WTO-member nations. The People's Republic of China, which had not participated in the trade liberalization process of GATT, seems eager to join the WTO, to which 134 nation-states were members as of 1999.

As of 1999, a strong sentiment existed in the U.S. business community to support the admission of China to the WTO in order to open up the Chinese market by lowering or removing tariff and nontariff barriers. China's membership in the WTO would bind it to the dispute resolution process seen in cases such as the U.S.-European Union "banana dispute" or the U.S.-European "beef hormone" dispute.

Under the WTO's dispute resolution procedures, a member-state believing that free trade has been undermined or blocked by another state or group of states can seek to have such barriers (be they tariff or nontariff barriers) declared a violation of WTO principles. If the WTO's Dispute Settlement Body (DSB) agrees with the complaining state, it can authorize retaliatory measures (tariffs, typically) to equal the cost of the trade barriers wrongly imposed.

To illustrate, the United States complained that the European Union (EU) was giving preferential treatment to the importation of bananas from its member-states former colonies in the Caribbean. U.S.-based banana merchants, such as Chiquita and Dole, grew bananas primarily in Central America rather than the Caribbean, and persuaded the executive branch of the U.S. government to ask that the EU abandon its preferential treatment. The DSB ruled that the EU's policies were a violation of its obligations under the treaty, and allowed the United States to impose retaliatory tariffs of up to $191 million. Subsequent to the DSB ruling, Brussels indicated that it would revise its policies, in consultation with Washington and growers in the Caribbean and Latin America, rather than appeal the ruling within the WTO.

The new dispute resolution mechanisms of the WTO have thus met an early test. Nonetheless, in the aftermath of the U.S.-EU trading tensions such as the "banana dispute," there was some concern that the free trade regime is somewhat fragile and cannot withstand frequent and abrasive disputes between major trading partners. Time will tell how well the WTO dispute resolution procedures will settle such turbulent tensions.


One of the traditional principles of international law is that rights granted under international law are given to nations, not individuals. Violations of international law by nations that affect individuals (or corporations) must be raised, if at all, by a nation on behalf of its citizen.

A "citizen" of a country normally includes individuals and corporations. While many corporations doing business globally tend to think of themselves as multinational (having no particular allegiance or duties toward any particular country), the reality is that corporations must often depend on national governments to protect their rights. For example, where patented or trademarked products are counterfeited, the company whose patent or trademark has been misused will have to seek the protection of a certain country's laws. If that protection is not forthcoming, the company will often request that its home government (with whom it has the closest or most powerful connections) advocate its interests in treaty or convention negotiations. Protection of intellectual property, for example, was one of the principal areas of concern for industrialized nations in the Uruguay Round of GATT.

Similarly, where a corporation chooses to engage in foreign direct investment in a foreign country, political uncertainties and legal risk have frequently resulted in a loss of assets through expropriation or nationalization. In such cases, diplomatic efforts of the home country have been enlisted to recover adequate compensation. Or, if a corporation with a large number of employees in the United States experiences a serious competitive threat from products originating in another country, one time-honored strategy has been to seek protective legislation from the home country government.

The free trade movement has at least partially limited the success (or validity) of such efforts, but even GATT allowed exceptions for member nations to impose antidumping duties or countervailing duties where the country of origin has provided unfair subsidies for the product, or the product is being sold at below home country cost to establish a foothold in a new foreign market. The WTO rules preserve these exceptions.

Companies seeking to do business outside their home country have encountered many legal difficulties other than tariffs, antidumping duties, or countervailing duties. Technical and nontariff barriers to trade often exist in the export market, barriers such as government procurement rules (requirements that a certain percentage of business must be given to home countries), byzantine licensing and procedural requirements, and restrictions on the mobility of key personnel. Exports may also be limited by political and strategic considerations: since the 1950s, for example, the United States has had various statutes and executive orders establishing export controls for political reasons.

Some of the export control laws include the Export Administration Act of 1969, the International Emergency Economic Powers Act, the Trading with the Enemy Act, and various executive orders under each. When U.S. Embassy personnel were held hostage in Iran, President Jimmy Carter ordered a cessation of all trade with Iran. A number of U.S. companies with contracts pending in Iran were adversely affected. When the Soviets invaded Afghanistan in 1980, U.S. companies with subsidiaries abroad were ordered by President Carter to cease doing business on the Soviet oil pipeline that was to serve Europe and bring much-needed hard currency to the Soviets. A French subsidiary of the U.S. company, Dresser Industries, had a pending contract with the U.S.S.R. Dresser U.S. was informed by the U.S. government that it must act to prevent its subsidiary from dealing with the Soviets. Dresser, its French subsidiary, and the government of France all resisted the application of U.S. law to a French company, and ultimately their resistance succeeded after the subsidiary was restructured to reduce formal control by Dresser U.S. When President George Bush ordered cessation of all business with Iraq after its invasion of Kuwait, a number of U.S. companies were affected.

These incidents illustrate a principal difficulty of international law: much of it is made by national legislatures and courts, and one nation's laws may reach beyond its own boundaries, or attempt to. When, for example, the U.S. public learned that many U.S. corporations were obtaining and retaining business in foreign countries by means of bribes or kickbacks, the U.S. Congress enacted the Foreign Corrupt Practices Act (FCPA). The FCPA criminalized the act of making payments to foreign government officials for the purpose of obtaining or retaining business. A U.S. company found to have made such payments could be prosecuted in the United States for actions taken outside U.S. territory. Thus, the FCPA is an example of "extraterritorial" application of U.S. law.

Under customary international law, the basic principle of sovereign jurisdiction to prescribe and enforce law is territorial. International law also recognizes the nationality principle—the right of a sovereign to make and enforce law with respect to its own citizens (nationals). Not only the FCPA, but also U.S. antitrust law, securities law, and employment discrimination law may apply to actions of U.S. companies outside U.S. territory. In the case of U.S. antitrust law, the action alleged to be a violation of the Sherman Act or the Clayton Antitrust Act must have a "direct effect" on the United States for extraterritorial application to be upheld. For employment discrimination cases, a U.S. company must adhere to the provisions of Title VII of the Civil Rights Act of 1964 (as amended) with respect to a U.S. citizen employed by that company overseas.

Conflicts between U.S. law and the law of foreign states has led to certain nations blocking the application of U.S. law by statute. Blocking statutes typically limit the extent to which U.S. plaintiffs can obtain evidence through discovery and make it difficult to enforce a U.S. judgment outside of the United States. For example, French blocking statutes make it extremely difficult for the plaintiff in a U.S. court proceeding to obtain the requisite documents to prove his or her case. Even where Congress clearly intends U.S. law to have extraterritorial application, U.S. courts are reluctant to apply it where doing so would raise a clear conflict or implicate foreign policy concerns in any way.

Where U.S. companies and individuals actually have an adversarial relationship with a foreign nation, either sovereign immunity or the Act of State Doctrine may apply. In the case of a claim in U.S. courts against a foreign sovereign, plaintiffs must show that the case falls within one of the exceptions to sovereign immunity listed in the Foreign Sovereign Immunities Act of 1976 (FSIA). Under the FSIA, which adopts the restrictive theory of sovereign immunity (rather than the absolute theory), governmental activities are generally immune, whereas private or commercial kinds of activities are not. Under the FSIA, a foreign sovereign that engages in a commercial activity that has a direct effect on the United States cannot avail itself of the sovereign immunity defense in U.S. courts. The majority of industrialized nations follow the restrictive theory of sovereign immunity, either by statute or judicial precedent.

In certain cases, deciding a lawsuit in U.S. courts may require that the public act of a foreign sovereign (on its own territory) be declared invalid by the court. In such cases, the Act of State Doctrine may be invoked by the court to avoid coming to a decision on the merits in a way that would discredit the public act of the foreign sovereign. The Supreme Court has declared in numerous cases that it is not constitutionally proper for a U.S. court to decide a case in a way that would invalidate the public act of a foreign sovereign; this, it believes, would infringe upon the proper prerogatives of the executive and legislative branches of U.S. government. For the Act of State Doctrine to apply, it is not necessary that the foreign sovereign be a named defendant; it is only necessary that the court be unable to find for a certain party without questioning the lawfulness of a public act of a foreign sovereign on its own territory.


Quite apart from governing relations among nation-states, or between individuals and nation-states, international law began centuries ago to develop rules for dispute resolution between citizens of different states. When Europe entered the Renaissance period, Roman and Germanic legal systems were not adequate to handle the needs of a growing transnational commercial community. As a result, the guilds and merchant associations began forming their own customs and rules for fair dealing, and soon had their own courts. These rules, sometimes known as lex mercatoria (or Merchant Law), became influential and were eventually applied in both church and governmental courts. Many of the lex mercatoria concepts can be found today in the United Nations Convention on Contracts for the International Sale of Goods.

One of the common problems that arise in international commercial transactions is determining where the dispute between citizens of different states should be heard. Without a contractual choice of forum, issues of personal jurisdiction often arise. For example, a Japanese company may find itself sued in a U.S. court for a small valve that was incorporated in a wheel by a Taiwanese manufacturer, then incorporated in a motorcycle by a different Japanese company. If the motorcycle is sold in the United States, and the wheel malfunctions, the tire valve manufacturer may find itself in a U.S. court. The U.S. Supreme Court has declared that, in fairness, a company must deliberately target the U.S. market to be held legally accountable in the United States. Mere predictability that its product may wind up in a certain market is insufficient to give the court valid personal jurisdiction over the nonresident company. Of course, if a company goes to another country to do business (either directly or through agents) and is sued there, courts generally will assume personal jurisdiction over the nonresident company.

For disputes between parties to a contract, the parties may have chosen to avoid any questions of personal jurisdiction by specifying the judicial forum where any disputes arising between them will be settled. Courts have typically upheld these "choice of forum" clauses in commercial contracts, as well as clauses that specify which law (e.g., German law, U.S. law, or Mexican law) will be applied in resolving the dispute.

International companies may entirely avoid judicial settlement of their dispute by choosing arbitration. This can be done prior to any disagreement by including a pre-dispute arbitration clause in the contract, or may be done after a dispute arises. In this way, a more neutral forum is often selected, so that the "home court" advantage does not favor either disputant. Often, the parties will have preselected a set of procedural rules to follow, such as those of the International Chamber of Commerce, or those of United Nations Commission on International Trade Law. The arbitration process is aided by the UN-sponsored United Nations Convention on Recognition and Enforcement of Arbitral Awards (sometimes known as the New York Convention), which has been ratified by most major trading nations. If a Japanese and German firm agree to arbitrate their dispute in Los Angeles, California, for example, either party may proceed under the agreed-upon rules (even without the cooperation of the other party), obtain an arbitral award, and have it enforced in any signatory nation without the need to rehear the facts and issues of the dispute.

SEE ALSO : International Commercial Arbitration

[ Chris A. Carr and

[ Donald O. Mayer ]


August, Ray. International Business Law: Text, Cases, and Readings. Upper Saddle River, NJ: Prentice Hall, 1997.

"The International Practice of Law." In The International Lawyer's Deskbook, edited by Lucinda A. Low, Patrick M. Norton, and Daniel M. Drory. Washington: Section of International Law and Practice, American Bar Association, 1996.

Richards, Eric L. Law for Global Business. Burr Ridge, IL: Irwin, 1994.

Schaffer, Richard, Beverley Earle, and Filiberto Agusti. International Business Law and Its Environment. Cincinnati: West Publishing, 1999.

Also read article about International Law from Wikipedia

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