Legal Context of International Business

International Business is managed within the framework of a legal order. But the rules of this order are different from those of a domestic (national) legal system. Understanding these different rules is necessary for success in international business.

International Legal Order

To begin with, the international legal system lacks courts for adjudicating disputes. While occasionally ad hoc tribunals are established by interested governments to resolve isolated economic disputes between their nationals, the common alternative for settling international claims is arbitration pursuant to agreement of the parties. Furthermore, no international agency exists to enforce the arbitrators’ awards; the prevailing party has to rely on the enforcement machinery of the country where the losing side’s assets are located. Finally, often there is no international law for the arbitrators to apply. Instead, they frequently must refer to the domestic laws of the country designated by the parties.

The customs and usages which gradually emerge from commercial transactions generate the international legal norms. However, without a system of international courts to embody these norms in their rulings, they do not receive the force and mandate of precedents. There is another way for establishing binding legal rules: legislation by international conventions. The United Nations and other intergovernmental organizations originate the drafts of these conventions. But these drafts are rarely enacted into multinational legislation. While some noteworthy international conventions have finally been concluded --among them the conventions on contract for the international sale of goods; on several procedural aspects of civil litigation, such as the limitation period, service, discovery; and on enforcement of arbitration awards-- they are few in number and govern only the nationals of the states that adhere to them.

International rule-making is, therefore, left largely to private contracts between parties to international transactions. National governments, however, impose limits to their freedom of contract. Just as these risks are posed by the intrusive role of the nation-states in international trade, sometimes national governments render protection against them. Thus, government (or quasi-government) agencies, such as export-import banks and export development corporations, aim at insuring their nationals against certain risks of international commerce. Similarly, through trade agreements, governments attempt to remove the barriers to foreign markets facing their nationals. The beneficial prospects of such favorable interventions by the national governments must be taken into account in any international business plan. Because of these considerations, international commercial negotiations are inherently complicated. The process becomes even more complex when the parties manifest dissimilar expectations rooted in different cultural values.