Exam 4
definition of a product standard
A voluntary guideline for product characteristics established by a recognized private or industry organization or association
Smoot Hawley Tariff
Raised US tariffs on imported goods to protect American businesses and farmers (1930s)
Understand how the US Tax Laws seek to eliminate double taxation
The U.S. offers a dollar for dollar tax credit for foreign income taxes paid on foreign source income * If company paid taxes to the foreign country already, the U.S. would only charge them the difference in tax amounts
requirements for being a holder in due course
a. A holder in due course is a holder in possession of a negotiable instrument (such as a draft or acceptance) that has been taken: i. For Value ii. In good faith iii. Without notice that is overdue or has been dishonored iv. Without notice that the instrument contains an unauthorized signature or has been altered
meaning of the terms account party and beneficiary as they relate to LOC
a. Account Party can be defined as the buyer b. Beneficiary can be defined as the seller c. These terms occurred when a buyer that has committed in the sales contract to obtain a letter of credit begins by applying to its bank for a letter of credit issued "in favor of" or "for the benefit of" the seller.
techniques a US foreign subsidiary can use to maximize the use of its limited US dollars resources
o Tax haven - country where the effective tax rate on a relevant item of income is very low or zero. o Double Irish or Dutch sandwich - tax payer forms two Irish corporations, the first corporation locates its management functions in a tax haven (Cayman Islands). Under Irish tax laws a corporation is resident in the country where its management is located, while under U.S. tax laws, a corporation is resident in the country in which it is organized. Therefore, this first Irish corporation is an Irish person for U.S. - tax purposes and a Cayman Islands person for Irish-tax purposes.
agencies and departments of the US government can and do set product standards
-Department of Ag: reviews meat inspection standards (complies with USDA standards), -Consumer Product Safety Commission: rules apply to all consumer products, regardless of where they are made, FDA, the Federal Communications Commission: promulgates uniform standards for telecommunications equipment that apply to foreign products, , Department of Energy, Department of Transportation
1994 Agreement on Technical Barriers to Trade
-Governs the use of technical regulations, product standards, testing, and certifications by WTO members -Binding on all WTO member countries -Does not contain standards of its own -Makes no attempt to say how a product should perform or be designed or when a product is safe or unsafe - **does prohibit countries from using their regulations or standards to discriminate against the import of foreign goods • Three methods for minimizing barriers to trade: ○ Harmonization: nations attempt o bring their standards and technical regulations into harmony with internationally accepted standards ○ Equivalence: nations agree to accept foreign standards that are functionally equivalent to their own ○ Mutual recognition: recognize the certifications of foreign inspection firm and labs approved in the country where the article is manufactured
Codex Alimentarius
-International standards for the protection of plants, animals and foodstuffs -If a country's national standards are based on Codex Alimentarius, they are deemed to be in compliance with the SPS Agreement (WTO agreement on the Application of Sanitary and Phytosanitary Measures)
conditions in which a foreign government may expropriate an investor's property
Public purpose & nondiscriminatory
meaning of the rule "strict compliance" and how it is applied
a. Strict compliance- is the prevailing standard established by the courts for examining documents. i. According to this view, the terms of the documents presented to the issuing bank must strictly conform to the requirements of the letter of credit and the UCP. ii. Every provision of the bill of lading, invoice, insurance policy, and any other required shipping document must match the letter of credit. Even a small discrepancy can cause the bank to reject the documents. iii. This rule relieves bankers from the duty of interpreting the meaning of discrepancy or its possible impact on their customers, and it relieves them of the liability of interpreting it incorrectly.
meaning of the terms trade acceptance and bankers' acceptance
a. Trade acceptance-Acceptance is done by stamping the date and the word accepted across the face of the draft, together with the name and signature of the drawee, because no party is obligated on a draft unless its signature appears on it. i. Buyers acceptance- indicates the buyer's unconditional obligation to pay the draft on the due date. b. Bankers Acceptance- is a negotiable instrument and short-term financing device in wide use to finance international sales. i. Purpose is to substitute a bank's credit for that of the buyer to finance the sale. ii. Banker's acceptance is a time draft drawn on and accepted by a commercial bank. iii. Banker's acceptances are flexible instruments, with many creative uses. iv. Importing buyers can use a banker's acceptance for short-term, pre-export financing of raw materials and production costs until the goods are sold to the foreign customer and payment is received. v. Short term instruments because they must be for a period of six months or less.
transferable credit and a standby credit
a. Transferable credit-are used when traders buy and sell goods in international trade quickly and with no view to actually using the goods themselves. i. Bear considerable risk ii. Can be split up among many suppliers around the world, each presenting document for payment, with the trader taking its profit out of the balance of the credit. b. Standby Credit-is one in which the issuer is obligate to pay a beneficiary upon the presentation of documents indicating a default by the account party in the payment of a debt or the performance of an obligation. i. Is a backup payment mechanism that the parties hope they will never have to use. ii. Can be used to guarantee performance under a service or construction contract, to guarantee repayment of a loan or as security for almost any other type of contract iii. Subject to the international standby practices which are a set of rules published by the ICC. iv. Flexible and tailored for almost any use v. Used in large transactions vi. In the sales of goods, a standby can be used in lieu of a conventional letter of credit. vii. Can guarantee the seller's performance viii. Can ensure the repayment of a loan ix. Can ensure compliance with almost any obligation.
advantages and disadvantaged of purchasing political risk insurance from a private insurance company
advantage: insurance company will takes risk for a fee -allows investors to recuperate losses suffered when political risks are borne out The greatest risk is that the investors property will be taken by the host government through expropriation (taking of an isolated item of property) or nationalization (taking of an entire industry or a natural resource as part of a plan toresturcutre the nation's economic system)
when and to whom the WTO Agreement on Government Procurement applies
-Gov't procurement: purchase of goods and services by gov't agencies at all levels -WTO rules regarding gov't purchases made and exception to its national treatment provisions that allow gov't to favor domestic suppliers ○ Most nations require their gov't agencies to give a preference to domestically made products--the law often apply to goods purchased by defense-related agencies or by the military...or might require that the purchased product contain a certain proportion of domestically made component parts or raw materials ○ U.S. Buy American Act requires fed agencies to purchase goods of U.S. origin rather than foreign made goods § Restrictions do not apply if US made goods are not available in sufficient quantities or quality, unreasonably more expensive, to purchases under $2500, goods purchased for use outside of US, where purchasing domestic goods would not be in the public's best interest, or where terms of a trade agreement provide for nondiscrimination in procurement ○ Other statues to procurement for mass transit project and to procurement by US Department of Defense that must purchase domestic products unless those producers are more than 50% more expensive than competing foreign goods Most food, textiles, and apparel purchased by Defense Department and Department of Homeland Security must be grown or produced in US of entirely US products
US Trade Representative does and under what circumstances
-Is a cabinet level post reporting directly to the president -Carries out all bilateral and multilateral trade negotiations on behalf of US, principal adviser on trade matters to president, represents US at all WTO meetings, coordinates the trade agreements program, and coordinates all U.S. trade policies
trade in services
-Providing services to a customer or the operation of service companies in a foreign country -Including consulting, engineering, banking, financial, insurance, telecommunications, and professional services includes professional services (e.g., law, accounting, architecture, engineering); travel, recreation and tourism; health care, transportation and distribution; finance, banking and insurance, and others
current status of the prevention of technical barriers to trade, that is, it successes and its failures
-Technical regulation: a law or regulation affecting a product's characteristics --such as performance, design, construction, chemical composition, materials, packaging, or labeling--that must be met before product can be imported or sold in a country -Almost all products are subject to technical regulations or standards set by either gov't regulators or private standard-setting groups -Imposed for protection of public health, safety, or welfare to promote uniform design, engineering, and performance standards or to ensure product quality or purity -Most countries require some type of testing, inspection or certification of regulated products (prior approval: regulated products must undergo testing and inspection by an approved laboratory, receive a certificate of compliance, then receive prior regulatory approval before sale. and prior certification: all the above required, except regulatory approval) -Different countries have different philosophies and thus take different approaches ○ Foreign manufacturers and importers alike must be familiar with the regulatory systems of the countries where their products will be sold -Foreign inspection and testing requirements can prove to be a tremendous barrier to trade ○ (especially product with short shelf life) -Many technical regulations and standards are not transparent (the ability of the public, to have open access to gov't rules or private standards that are published and made readily available to foreign firms) ○ If trade regulation is made only to domestic firms, then it indirectly becomes a technical barrier to foreign firms who are unable to comply -Foreign firms are in most cases not invited to participate in the establishment of new standards Consequently, they often experience delays in adapting their products for sale in foreign markets and loss of market share
types of property are included in intellectual property
-Trade-related aspects of intellectual property rights: refers to gov't rules or regulations on IPRs that have a direct or indirect effect on trade in goods (TRIPS) -TRIPS: sets new, comprehensive standards for the protection of IPRs in all member countries of the WTO. ○ Requires all WTO country to abide by the most important international intellectual property conventions & to grant protection to inventors, authors, and trademark owners -Prohibits countries form imposing requirements on foreign firms in exchange for being granted trademarks, patents or copyrights -All domestic and foreign IPR owners be treated equally
legal status of a treaty made by the US government
-Treating are binding on both the federal and state gov't with the same force as a federal statue of Congress -if these is a conflict between a treaty and a statue, the last in time prevails
inherent presidential powers are and where they are derived from
-are those that are either expressly granted in the U.S. Constitution or have been found to be there by judicial interpretation -(power to conduct foreign affairs, appoint ambassadors, receive foreign ambassadors, and act as commander-in-chief of the armed forces) -in limited situations, president can use inherent power to enter into sole executive agreements
passive investment
-can involve either a passive debt investment - making a loan to a foreign business - or a passive equity investment - purchasing an equity interest in the foreign business as a portfolio investment that does not allow for control of the business. -tend to be the least regulated type of foreign investment because they do not raise the specter of "outsider" influence that often leads foreign govt. to exercise greater governmental regulation. -they can manage their enterprise as they prefer in the country.
legal forms by which a company may enter a joint venture
4 basic forms of joint venture: A foreign corporation A foreign partnership A U.S. corporation with a foreign branch A U.S. partnership with a foreign branch
what conditions an issuing bank is required to pay on documents and when it is not
Bank will pay the seller only on the presentation of documents
Reciprocal Trade agreement
Created a partnership between the executive and congressional branches of gov't in setting tariff and trade policy • Provided president with a mechanism for lowering "the Smoot-Haley tariff rates" • Encouraged other countries to lower their rates on our products (US • Granted president are more flexible powers to adjust tariffs than under any prior legislation ○ President granted authority to negotiate tariff reductions on a product-by-product basis with other countries on the basis of reciprocal trade (US would reduce a tariff on a foreign product if foreign country would reciprocate by lowering its tariffs--known as tariff concession (agreement to reduce a tariff to a specified level)) Unconditional Most Favored Nation status (MFN): any trading advantage applied to an item imported into a country will also be applied to the same or like items coming from any other country that has MFN status with the importing country without any concession being required form those nations in return
two primary organizations that arbitrate investment disputes between investors and a host country
International Centre for the Settlement of Investment Disputes (ICSID): all convention disputes will be resolved by Convention on the Settlement of Investment Disputes Between States and Nationals of Other States: provides a forum and a set of rules for the arbitration of disputes between US citizens and signatory countries
Import Export Clause of the US Constitution says and what it means
Prohibits the federal gov't from taxing exports and prohibits the states from taxing either imports or exports
conditions the US Trade Representative may undertake retaliatory action
Negotiates with violating countries (the Agreement on Government Procurement) to get them to end their unfair practices and give equal access to US firms. If not agreement is reached, the USTR must present the case to the WTO for dispute settlement
etter of warranty credit is and when it is used
Obligation of a bank, usually irrevocable, issued on behalf of one of its customers and promising to pay a sum of money to a beneficiary upon the happening of a certain event or events -effectively substitutes the bank's credit and good name for that of its customer -used in transactions for the sales of goods or service or to guarantee performance of other business obligations
multiple taxation doctrine
Occurs when the same service or property is subjected to the same or a similar tax by the governmental authorities of more than one nation
what the International Trade Administration is and what it does
Performs many of the trade promotions, market access, and import administration functions (housed within the U.S. Department of Commerce)
tax consequences are of a US company creating a foreign subsidiary
The host country will have the primary power to tax income earned by the foreign business
principle of least restrictive trade
WTO member countries, in setting otherwise valid restrictions on trade, a country shall make them no more onerous than necessary to achieve the goals for which they were imposed/intended
federal preemption
When law or regulation of the federal gov't directly conflicts with those of the state (or local) gov't, the federal law will generally prevail when Congress expresses the intention that the federal law shall prevail or when that intention may be inferred form the legislation or from the circumstances
advising bank and issuing bank
a. Advising bank -when the issuing bank sends the letter of credit to the seller via a foreign correspondent bank (a bank with whom the issuing bank has a reciprocal banking relationship) located in the seller's country. i. Advising bank merely informs or advises the seller that the letter of credit is available for pick up. ii. Has no responsibility to honor a draft or purchase the seller's documents. iii. Not liable on the credit iv. Provides the service of forwarding the letter of credit and many refuses it if it wishes b. Issuing bank-is the buyers bank
meaning of the terms drawee, drawer, sight draft, cash against documents
a. Drawee-the bank b. Drawer-person wanting the to take out something c. Sight draft- Is a draft to be paid upon presentation or demand. i. Seller prepares the sight draft and sends it to the buyer along with the shipping documents through banking channels, moving from the seller's bank in the country of export to a foreign correspondent bank in the buyer's country and city. ii. The draft is sent for collection known as a documentary collection. d. Cash against Documents- are when a sales contract between buyer and seller calls for payment upon presentation of a sight draft.
what the US Import Export Bank is and how it promotes US exports
a. Exim bank- is the largest U.S. export financing agency. b. Provides guarantees on loans made by commercial banks and insurance on credit extended by U.S. exporters to their foreign customers c. Makes loans directly from Exim bank funds, which include fixed rate loans to creditworthy foreign buyers of American-made exports. d. Also, allows the foreign buyer to open a letter of credit on behalf of the buyer for the benefit of a U.S. Supplier. e. Guarantees the issuing bank repayment of sums that it pays out under the credit f. Receives its payments under the loan agreement worked out in advance between it and the foreign buyer. g. Cover the risk of nonpayment and political risk h. Industries that receive substantial help are aircraft manufacturing, oil and gas, mining, construction equipment, energy production, and agribusiness. i. AID- is when a country wishing to import us products usually for use in developmental projects, applies to AID for financing. i. Aid then issues its commitment to a US bank that issues it letter of credit for the benefit of the us supplier of eligible goods for use in the project ii. Issuing bank receives reimbursement for payments under its letter of credit from AID
issuing banks responsibility when worthless goods are shipped and what the buyer's responsibility is?
a. In the contract, it talks about how once the bank issues a letter of credit to the seller it is promising to purchase the seller's documents covering a certain quantity and description of goods, with a value up to a certain amount of money, that are insured and shipped on or before a certain date. b. When the bank accepts the contract, it states what the bank must do on the buyer's behalf. If the bank follows the buyer's instructions than it is entitled to purchase the seller's documents and obtain reimbursement from the buyer. If it doesn't or if it violates any terms of its contract, then the buyer need not take the documents or reimburse the bank that took them contrary to the instructions c. Basically, if the bank ****s up its their own problem and they get stuck with goods. d. If it's the buyer's problem, then they are responsible for it. e. Buyer is also responsible to the bank for fees and a percentage of the value of the letter of credit, so the buyer should have already considered these additional costs when agreeing to the original sales.
general rules under the UCP related to document
a. UCP stands for the Uniform Customs and Practice for Documentary Credits. This was established as a set of guidelines based on the customs and commonly accepted practices of merchants and bankers b. They establish the format for letters of credit, sets out rules by which banks process letter of credit transactions, and defines the rights and responsibilities of all parties to the credit. c. UCC defers to the UCP and specifically states that the UCC is not applicable to any letter of credit to the extent that it is in conflict with the UCP. d. Banks protect their rights in any transaction. e. UCP governs a letter of credit only to the extent that it states the letter of credit is to be interpreted according to the UCP.
Know the circumstances in which a US Federal Court has jurisdiction over a foreign government under the Foreign Sovereign Immunities Act
foreign states are generally immune from jurisdiction of US courts, except for when: -The foreign state waves immunity -The state's action constitutes "commercial activity" -Rights in property are taken in violation of international law -Rights in property acquired through in heritance in the U.S. -The suit involves non-commercial torts within the U.S. -The suit involves maritime liens originating in a foreign state's "commercial activity" -The suit involves certain types of counterclaims and the foreign state instituted the lawsuit against a U.S. citizen
US Private Overseas Investment Corporation
the United States government's development finance institution. It mobilizes private capital to help solve critical development challenges and, in doing so, advances the foreign policy of the United States and national security objectives. -provide insurance -promote exports by insuring domestic firms that do business abroad against exporpriation, natilziation, revolution, insurrections, and currency.
under what conditions a presidential executive agreement is valid?
• -sole executive agreement: one negotiated and put into legal effect on the basis of the inherent authority of the president, and does not require congressional approval • -used to execute and carry out existing laws, or to enter into agreements with foreign countries that do not create broad new national policies • -if Congress has passed a statue on a subject, the president's inherent power does not grant "license" to violate that law -president cannot "stretch" his title as commander-in-chief to achieve an objective not normally within the purview (range of experience or thought) of the armed forces
Dole v Carter
• Action brought by a U.S. senator against the president to enjoin him from returning the Hungarian coronation regalia to the People's Republic of Hungary ○ Holy Crown of St. Stephen --> at end of WWII, it was entrusted to US for safekeeping by Hungarian soldiers • 1977, gov't of US and Hungary entered into an agreement returning the crown to Hungary • Many Hungarians in US were opposed to return...plaintiff filed action seeking an injunction against delivery on ground that such action was tantamount to a treaty undertaken by president without prior advice and consent of the Senate • the plaintiff's motion for a preliminary injunction was denied • The President's agreement here involves no substantial ongoing commitment on the part of the US, exposes the US to no appreciable discernible risks, and contemplates American action of an extremely limited duration in time • President's agreement to return regalia is not a commitment requiring advice and consent of Senate under Article II, Section 2, of the Constitution-->it was a valid executive agreement based on president's inherent power
Crosby v. National Foreign Trade Council
• Commonwealth of Massachusetts passed a law prohibiting all commonwealth and municipal gov't agencies form buying goods or service form any person or firm that did business in Burma. • Congress took a different strategy with a federal statue to and all economic aid to the Burmese gov't except for humanitarian assistance, deny U.S. entry visas to Burmese citizens, and authorize the president to prohibit new investment in Burma if Burmese gov't continued its violent suppression of democracy ○ Powers delegated to president were specific and directed him to work with other Asian countries to promote democracy in Burma through diplomatic means • US Supreme Court struck down the Massachusetts law on the basis of federal preemption. • Massachusetts sanctions were immediate and direct in prohibiting business in Burma. • Federal sanctions were more flexible, gradually allowing the president to increase pressure on Burma as needed and to do so through both specific and legal and diplomatic means • Court reasoned: If the Massachusetts law is enforceable the president has less to offer and less economic and diplomatic leverage as a consequence • The state law undermined the intended purpose and natural effect of the federal act • Federal law preempts a state statue
rules regarding government procurement, kickbacks and offsets
• Large-scale procurement by gov't or gov't agencies is exempt form the normal WTO rules for trade in goods and services • Agreement requires fair, open, and nondiscriminatory procurement practices and sets up uniform procurement procedures to protect suppliers from different countries • Applies to purchase of goods or service by national gov't worth more than 130,000 IMF (approx. $200,000) and to construction contracts worth more than 5 million SDRs (appox. $7.7 million) • WTO AGP applies only to those countries that have signed it • A procuring agency must treat foreign suppliers equally with domestic suppliers • Procurement offsets: prohibits a procuring agency form awarding a contract to a foreign firm on basis of certain conditions --offsets can be complex The responsibility for implementing the AGP lies with the president--can waive requirements of Buy American Act for suppliers from any country
Thailand Cigarette Case
• Royal Thai gov't maintains restrictions on imports of cigarettes • Tobacco Act of 1966 prohibited the import of all forms of tobacco expect by license of the Director-General of the Excise Department ○ Licenses have only been granted to the gov't-owned Thai Tobacco Monopoly, which has been imported in the ten years prior to this case • US requested panel to find that the licensing of imported cigarettes by Thailand was inconsistent with GATT Article XI and could not be justified under Article XX(b) since the licensing requirements were more restrictive than necessary to protect human health • Thailand argued that cigarette imports were prohibited to control smoking and because chemicals and other additives contained in American cigarettes might make them more harmful than Thai cigarettes • Panel stated that Thailand acted inconsistently with Article XI:1: "no prohibitions or restrictions...made effective through...import licenses...shall be instituted or maintained by any country on the importation of any product of the territory of any other country.." • Not justified under Article XX(b) (nothing in this agreement shall be construed to prevent the adoption or enforcement by any country of measures...(b) necessary to protect human, animal or plant life or health.) ---only could be considered necessary in terms if there were no alternative measure consistent with the GATT • Panel recommended that Thailand bring its laws into conformity with its obligations under the GATT Panel considered that there were various measures consistent with the GATT agreement which were reasonably available to Thailand to control the quality and quantity of cigarettes smoked and which, taken together, could achieve the health policy goals that the Thai gov't pursues by restricting the importation of cigarettes inconsistently with Article XI:1.
Xerox case
• Xerox manufactured parts for copy machines in US that were shipped to Mexico for assembly ○ Copiers designed for sale exclusively in Latin America--all printing on machines in Spanish or Portuguese ○ Copiers operated on electric current unavailable in US • Copiers transported to Houston, TX where stored pending their sale to Xerox affiliates in Latin America...but previously stored in Panama ○ Under federal law, goods stored in customs bonded warehouse are under supervision of US Customs Service--may be brought to warehouse without the payment of import duties and stored for up to five years § At any time they can be re-exported duty-free or withdrawn for domestic sale upon payment of the duty • Harris county and city of Houston assessed a nondiscriminatory ad valorem personal property tax on the copiers • Xerox claimed that the local tax is preempted by the federal legislation ○ Unconstitutional because they violated the Import-Export Clause and the Commerce Clause of the Constitution • Trial court held that the taxes assessed by Harris violated both the Import-Export and Commerce Clauses, and it granted judgement to Xerox. • Texas Court of Civil Appeals, First District, reversed, holding that the taxes violated neither the Import-Export Clause nor the Commerce Clause therefore reserving the judgement stating that Xerox is charged for penalties and interest for the tax years of 1976 and 1977--then brought to Supreme Court • Instead of going off the constitutional issues that Xerox raised, it instead followed its normal practice of basing a decision on statutory rather than constitutional grounds. Majority ruled that the state taxes were pre-empted by "congress's comprehensive regulation of customs duties"...customs-bonded warehouses have been a link in the chain of foreign commerce since a very early period in our history, and are controlled by detail Federal regulations--thus they have freedom from state taxation **Harris would've only won if products were resold for domestic sales!!**