MGMT 200 Chapter 17

subsidy

a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive

ad valorem tariff

a tax as a percentage of the product price

tariff

a tax imposed by a government on imported goods

True or false: Congress imposes restrictions on the imports of goods, especially military goods, and one can commit a felony by selling such goods without permission

true

True or false: The United Nations has encouraged the use of arbitration of disputes among parties to international business disputes

true

true or false: a company with poor books and records may be in violation of the FCPA, even without a bribery allegation

true

true or false: it is a criminal offense to make payments to foreign officials for the purpose of gaining business favor in a foreign country

true

true or false: it is a violation of the act to make an offer or promise, even if you don't go through with the offer or promise

true

true or false: there is no international system of courts generally accepted for resolving international conflicts between businesses

true

true or false: there is no universal international court system for resolving international conflicts of business

true

True or false: A tariff that imposes a percentage tax on imported goods is called an ad valorem tariff

true

Force majeure

-"superior or irresistible force" -protects contracting parties from problems beyond their control -used to protect the parties from the consequences of a natural disaster that interfered with performance -protects the parties against political upheavals

International Court of Justice (ICJ)

-15 judges, representing all of the world's major legal systems -no 2 judges from the same country -only nations may take claims to this court (not individuals) -it is rarely used for commercial disputes -nations may make claims on behalf of persons -UN Security Council must enfore

arbitration

-3rd neutral party decides binding outcome -federal district courts have jurisdiction to hear motions to confirm or challenge an international arbitration award with a US company

mediation

-3rd neutral party suggests nonbinding outcome

wholly owned subsidiary

-A company that is completely owned by another company -Some countries limit % of ownership -The company that owns the subsidiary is called the parent company or holding company -The parent company will hold all of the subsidiary's common stock

You don;t need to make the payment -- a mere offer or promise is good enough

-Lets say the government official asks for a 5% kickback in exchange for awarding your company the contract -You agree, and yet, when the contract is formally awarded sometime later, one of you competitors is given the business -This is still a violation of FCPA because the FCPA makes it a crime to merely offer a payment -Just making the offer is a crime

United States v. Mead Corporation

-Mead imported "day planner" calendars -Under the tariff (HTSUS), there was a heading for "registers, account books, notebooks... and similar articles" -Under a subheading, "diaries, notebooks, and address books were" were subject to a 4.0% tariff -Another subheading was for "other" items not subject to a tariff -The "other" heading was applied to the planners until 1993, when Customs changes the classification to the "diaries" subheading and applied the 4% tariff -Mead protested, but Customs stayed with the new classification -Mead sued in the Court of International Trade (CIT) -It granted summary judgement for Customs -Mead appealed to the Court of Appeals for the Federal Circuit -It reversed, holding that tariff classifications by Customs do not get the high level of deference given to some agency regulations under the Chevron doctrine because Customs can change classifications without a formal notice-and-rule process that occurs for most substantive regulations -The court held that the planners were not "diaries" as those are defined as bound volumes, whereas the planner was in a 3-ring binds, so should be classified as "other" and not subject to a tariff -Customs appealed

United States v. King

-The FBI investigated the dealings of Owl Securities and Investments (OSI), a Kansas City company that raised funds for a large real estate project in Costa Rica -The investigation focused on Kind, one of OSI's largest investors -The FBI obtained the cooperation of OSI executives, including Kingsley, OSI's president, who tape recorded conversations -King was convicted of planning to bribe senior Costa Rican officials to obtain the rights to the land to be developed -He was fined $60,000 and sentenced to 30 months in prison -He appealed but judgement was affirmed

When does FCPA apply

-The FCPA (and, really, all laws and regulations) applies to all US citizens at all times, in any location; even if they are outside of the US -if you are a US citizen working for a foreign company not subject to the FCPA, you are still subject to the Act

licensing agreement

-a contract -one business--the licensor--grants another business--the licensee--access to its patents and other technologies

businesses considering foreign manufacturing have several options, including...

-a wholly owned foreign subsidiary -a joint venture -a licensing agreement -a franchise agreement -contract manufacturing

International Trade Commission (ITC)

-agency responsible for recommending trade restrictions to the president -examines the impact of a subsidized foreign import on domestic industry

industries most affected by NAFTA

-agriculture, automobiles, pharmaceuticals, and textiles

sovereign immunity doctrine

-allows a court to give up rights to jurisdiction over foreign enterprises or countries -based on traditional notions that a sovereign should not be subject to litigation in a foreign court

letter of credit

-an agreement or assurance by the bank of the buyer to pay a specified amount to the seller upon receipt of certain documents that prove that the goods have been shipped and that contractual obligations of the seller have been fulfilled -may be either revocable or irrevocable

who are foreign officials?

-any employee of a foreign government or instrumentality thereof -instrumentality thereof makes this extremely broad and means that many employees not working directly for the government fall under this category -e.g. a doctor at a state-owned hospital counts as a foreign official -state-owned entity doesn't need to be fully owned by the government

United States Trade Representative (USTR)

-appointed by the president to negotiate trade agreements that reduce trade barriers, including the WTO

Four Asian Tigers, Four Little Dragons, or Four Asian Dragons

-are the economies -Hong Kong, Singapore, South Korea, Taiwan

foreign trade zones

-areas where businesses an import goods without paying tariffs -the zone is a secured area where goods may be processed, assembled, or warehoused -tariffs are imposed only on the finished product, generally a much lower amount than what would be imposed on individual parts, and only when the product leaves the zone for sale in the domestic market

foreign exchange controls

-can limit the ability to repatriate money -restrict the ability to change one country's currency into another

origins of international law

-commercial codes date back to Egypt in 1400 B.C. -Early trade centered around law of the sea -Greek/Roman Empires both had codes of international trade -Middle ages: Lex Mercatoria (Merchant Law) - Governed trading customs in Europe -Today's codes still partly derived from early efforts

harmonized tariff schedule

-developed to standardize how goods are classified by customs officials worldwide -process streamlines trade by reducing language and usage differences amount countries, but different countries may impose different tariffs

litigation

-differs within countries -complication of evidence, witnesses, and documents -judicial system may be different from country to country -some courts more influenced by political pressures -not enforceable outside of country -treaties/conventions may assist potential parties -contract clauses assist courts in enforcement of claims -usually need "minimum contacts" for jurisdiction

defenses that do not work

-everyone else does it and we need to do it too to stay in business -we've always done it that way in the past; i assumed someone must have signed off on it (willful blindness or maintaining plausible deniability by refusing to learn of an illegal act doesn't create a shield from liability) -the foreign government approved it -it was extortion, not bribery (duress and extortion almost never work in these cases)

To reduce uncertainties in the event of a dispute, companies usually put a ____________ and a __________ in their contracts

-forum selection clause -choice-of-law clause

franchise agreement

-franchisor grants franchisee the rights to sell products or services (McDonald's, Hertz)

Court of International Trade

-has jurisdiction to review findings of the ITC or ITA and over lawsuits against the US regarding imports, tariffs, duties, or embargoes

The Arms Export Control Act

-imposes many restrictions on the export of weapons and technology that can be used to make weapons -restrictions are implemented though licensing requirements in the Export Administration Act

penalty provisions for violation of commerce's licensing provisions

-includes criminal and civil penalties -can also have administrative sanctions -if an exporter "knowingly: violates the Export Administration Act, there can be fines up to $50,000 per violation -person who "willfully" violates the Act can be fined more and receive up to 20 years in prison, with a possible suspension or revocation of a business's authority to export

Punishments under Foreign Corrupt Practices Act (FCPA)

-individuals: maximum of $100,000 & 5 years in jail -corporation: up to $2,000,000/ violation -exception: Department of Justice "pre-deal interpretation" -watch: "slush funds" or "salaries, commissions, or fees" disproportionate to service provided

The US government imposes restriction on exports when the sale of a good may...

-injure domestic industry (e.g. exporting a raw material in short supply) -jeopardize national security (e.g. selling military hardware to the wrong country) -conflict with national policy (e.g. selling goods to a country that supports terrorist activities)

Commodity Control List

-list of goods subject to restricted licenses

joint venture

-means sharing ownership with foreign partners -ex: one party may supply the facilities, and the other party may supply the technological skills required for the operation -although a joint venture requires less investment by the company than does a wholly owned subsidiary, it can mean loss of managerial control

The rules (GATT) were built around two key principles

-most favored-nation: duty, tariff, etc. applied to one nation similarly granted to all other signatories -national treatment-inside a domestic market, foreign goods given equal treatment with local goods

Most corrupt countries vs. least corrupt

-most: Afghanistan, Russia, Indonesia -leaser: Denmark, New Zealand, Singapore

International Trade Administration (ITA)

-part of the Department of Commerce -promotes trade and U.S. products -provides companies with date, foreign license requirements, and other information

Bureau of Export Administration (BEA)

-part of the Department of Commerce -responsible for maintaining the Commodity Control List and goods subject to export controls

franchising

-popular vehicle for establishing a foreign market presence -a form of licensing

duty-free ports

-ports of entry that do not assess duties or tariffs on products -they encourage the importation and sale of international goods within the country

International Court of Justice

-principal court of the United Nations, located in the Netherlands -only countries--not private parties--have standing to bring cases

FCPA Antibribery Provisions

-prohibit US companies from "corruptly" paying or offering to pay a foreign official to gain assistance in obtaining or retaining business -prohibits payments to a person, such as a foreign agent, when the US company knows that payment will go toward bribing a foreign official

Foreign Corrupt Practices Act (FCPA)

-prohibits US companies and their agents from bribing foreign officials

World Trade Organization (WTO)

-promotes international trade by working to reduce trade barriers and to establish uniform tariff schedules and trade rules -helps to provide worldwide protection for intellectual property -153 members -incorporated GATT agreements -dispute resolution process -intended to provide framework for trade negotiations, but has had limited success -has not produced major advance in trade liberalization -general agreement on tariffs and trades (GATT) came into effect following WWII and sought to reduce trade barriers -overseas trade agreements and works to set up a dispute-resolution system using three-person arbitration panels -provides worldwide protections for intellectual property -can rule on subsidies provided by member nations (may call for countervailing measures like trade sanctions)

world bank

-promotes private foreign investment through loans and guarantees -provides technical and managerial assistance on large capital projects

World Intellectual Property Organization

-promotes protection of intellectual property worldwide and promotes uniformity in laws

Commission on International Trade Law

-promotes uniformity in laws -discourages legal obstacles to trade

Overseas Private Investment Corporation (OPIC)

-provides insurance for US projects that would be rejected by private insurers, largely projects in developing countries -coverage protects against currency exchange problems, expropriation or confiscation, and war

United States Export-Import Bank (Ex-Im Bank)

-provides loans and loan guarantees to foreign purchasers of goods exported from the US -mostly involved in heavy capital equipment projects

North American Free Trade Agreement (NAFTA)

-reduced or eliminated tariffs and trade barriers on most North American trade -provides for greater Mexican protection of US and Canadian intellectual property -ensures that the managers of US companies do not use access to Mexico as a way to avoid US environmental laws

International Monetary Fund (IMF)

-responsible for promoting international trade by working for stability of in government finances and currency exchange rates

choice of language clause

-sets out the official language by which the contract is to be interpreted

payment clause

-states the manner in which payment is to be received and the currency in which it is made

duties on governmental subsidies

-tariff applied to offset subsidies provided by foreign governments to their industries that lower prices of products imported into the US -duty applied is = foreign governmental subsidy (purpose: to assist US products to be competitive in the US market) (countervailing duties)

repatriation

-the ability of a business to return money earned in a foreign country back to its home country

The FCPA applied to all US citizens--anytime, anywhere

-the ability of a nation to regulate its citizens regardless of whether they are physically within its borders is a very old and well-established rule of international law -there are limits to this power (e.g. a nation cannot require its citizens to do something in another country that is illegal in that country) -It really is a crime for a US citizen to buy and smoke a Cuban cigar when he's in Hong Kong, even though they are perfectly legal there -US companies and their employees are bound by many US laws even when they are not in the US

expropriation

-the action of a country in taking foreign property in accordance with international law -must be adequate compensation provided

antidumping duty or tax

-the amount of the duty is determined by comparing the market price in the home market with the price charges in the US -the difference between the 2 prices determines the tariff to be applied to the price of the product

Suppose a firm is exporting wine from its French vineyard to its US wine distributor. If tax rates are higher in France than in the US...

-the firm may transfer the win at a low price, so that the profits accrue in the US, not in France

Doesn't matter if the bribe works: the focus is on the intent of the giver, not the effect on the recipient

-the offer does not need to yield any actual business or other improper benefit or advantage to the company -if the offeror intends to yield business or an improper advantage, that is all that matter -if the offer is made with the requisite corrupt movies, it does not matter in the least if the offer is accepted or if any benefit is actually derived

exchange risk

-the potential loss or profit that occurs between the time currency is acquired and the time it is exchanged for another currency

dumping

-the practice of charging a lower price in the export market than in the home market, after taking into consideration important differences in the sale (such as credit terms and transportation) and the nature of the goods being sold

Anything of value can be considered a bribe if it is given to foreign government officials with the intention of influencing them in connection with obtaining or retaining

-under the FCPA, you cannot give foreign government officials anything of value if you intend to influence them in connection with obtaining or retaining business -if you do, it might be a bribe under the FCPA

nationalization

-when a country takes over, or nationalizes, a foreign investment in a country

transfer pricing

-when a firm must create an artificial price to use in its accounts since the transaction takes place within the firm and there is no market price to use

Letter of credit in an international transaction

1. Buyer and seller negotiate a sales contract 2. Buyer's funds to pay are on deposit at buyer's bank 3. Letter if Credit is issued, authorizing payment when documents are provided 4. Seller ships products 5. Documents are provided to bank 6. Payment is made to the seller 7. Documents 8. Customs broker clears products through customs 9. Buyer needs documents to get products from customers

True or false: If a country expropriates the property of a foreign company, it is a violation of international law

False

True or false: Under the general principles of international law, if the rate of exchange changes during the term of a contract, so as to impose a loss on the buyer, the contract is considered voidable

False

The federal law that makes paying bribes to obtain business in other countries is called the ______

Foreign Corrupt Practices Act

The free trade agreement between Canada, Mexico, and the United States is commonly referred to as....

NAFTA

specific tariff

a fixed tax or duty on each unit of a product

The major international body dedicated to opening exchange of goods and services globally is referred to as the ____________

WTO

The FCPA requires accurate record keeping and strong internal controls

these provisions require companies to make and keep books, records, and accounts, which accurately and fairly reflect the transactions and dispositions of the assets

If a foreign government were to seize property of a US company in that country and not pay for the property, that is called ___________

confiscation

contract manufacturing

contract made for production of products

True or false: If a company is manufacturing goods in another country, and ownership of the manufacturing facility is owned with a local partner, that is generally referred to as contract manufacturing

false

True or false: The policy of the US government is not to subsidize the production of any goods that enter the export market

false

True or false: To make sure a dispute over a contract will be tried in a court that a party to the contract desires, the party should make sure there is a proper force majeure clause

false

true or false: if the bribe is made and it doesn't work, it is no longer a violation

false, so long as it was made with a corrupt motive it is a violation (even if no actual benefit or advantage results from the payment)

true or false: there are international courts to handle business disputes

false; but certain disputes may be taken to the International Court of Justice (ICJ)

In the United States v. King, where King was accused by the US government of bribing officials in Costa Rica, the appeals court held that...

his conviction and prison sentence stood

confiscation

if takeover is unlawful

those arguing against tariffs say

they allow a country to exploit its comparative advantage

those arguing in favor of tariffs say

it protects domestic producers who would be forced out of the market by foreign producers

An assurance by the bank of the buys to pay a specific amount to the seller upon receipt of certain documents that prove the goods have been shipped and a contract fulfilled is called a __________

letter of credit

countervailing measures

measures that can be undertaken whenever an investigation, by the investigating authority of the importing country, has led to the determination that the imported goods are benefiting from subsidies, and that they result in an injury

duty free ports

no duties or tariffs assessed on products (i.e. Hong Kong)

In United States v. Mead Corporation, where Mead contested the classification of a tariff imposed by Customs on the day planners it imported, the Supreme Court held that........

the courts could consider the expertise of Customs when reviewing tariff classifications