International Business Law and the Legal Environment
A Transactional Approach
Larry A. DiMatteo
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International Business Law and the Legal Environment
A Transactional Approach
Larry A. DiMatteo
Table of contents
About This Book
The fourth edition of International Business Law and the Legal Environment: A Transactional Approach gives business and law students a clear understanding of the legal principles that govern international business. This book goes beyond compliance by emphasizing how to use the law to create value and competitive advantage.
DiMatteo's transactional approach walks students through key business transactions—from import and export, contracts, and finance to countertrade, dispute resolution, licensing, and more—giving them both context and providing real-world applications. More concise than previous editions, this new edition also features:
• Added coverage of new technologies, such as smart contracts, digital platforms, and blockchain technology
• Discussion of businesses and sustainability, climate change, and creating a circular economy
• Greater focus on UNIDROIT Principles and a review of INCOTERMS 2020
• Expansion of common carrier coverage to include CMI trucking and CMR railway conventions
• International perspective and use of a variety of national and international law materials
• Great coverage of EU substantive law
Upper-level undergraduate and postgraduate students of business law and international business will appreciate DiMatteo's lucid writing style, and professionals will find this book to be a comprehensive resource. Online resources include an instructor's manual, PowerPoint slides, test bank, and other tools to provide additional support for students and instructors.
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The purpose of this chapter is to briefly review some of the major topics and issues involved in international business transactions. The remaining chapters of the book will expand on the topics outlined in this chapter. The first part of Chapter 1 will note the tremendous growth in international business transactions. One factor that has aided the expansion of international trade is the development of a supranational trade law and the recognition of customary international law.
We will examine the ways that international business is transacted. The concepts of direct and indirect exporting, licensing, and foreign direct investment (FDI) will be introduced. This discussion will provide a basic understanding of the perceived advantages and disadvantages of each method of transacting international business. These methods will be explored further in Chapter 3, along with hybrid ways of transacting business, such as franchising and joint venturing.
The second half of Chapter 1 will focus on the risks involved in international business transactions. Some risks are the same as those in purely domestic transactions; others are more unique to the international business environment. First, we will analyze how companies evaluate such risks. Second, a review of the generic risks associated with international business transactions will be undertaken. These include risks associated with cultural and language differences, currency risks, legal risks, and political risks. Finally, we will briefly explore the tools that have been developed to minimize and manage such risks. The chapter concludes by discussing strategies for managing international business risks, including the development of an export plan, the use of intermediaries, and a form of international business known as countertrade.
Ultimately, the goal of teaching international business law is to sensitize future entrepreneurs and lawyers to ways to manage such risks. A savvy entrepreneur is adept at analyzing risk and knowledgeable about the techniques to minimize risk. Chapter 1 will serve as an introduction, while the rest of the textbook will explore more fully how risks are minimized in the areas of exporting, foreign direct investment, and intellectual property transfer.
The post-World War II (WWII) era has seen the rapid expansion of international trade. The expansion of cross-border transactions has occurred in all areas of business—exporting–importing, sale of services, licensing of technology, and FDI. Exporting enables small and medium-sized enterprises (SMEs) to diversify their portfolios and insulates them against periods of slower growth in their domestic markets. In a similar way, companies wanting to remain competitive need to extend their supply chains into foreign channels and by outsourcing some of their functions.
A number of factors have decreased the obstacles to international trade. The most important factor is the success of the World Trade Organization (WTO), and its predecessor the General Agreement on Tariffs and Trade (GATT), in lowering tariffs and nontariff barriers to trade; the almost complete removal of the threat of expropriation as countries have moved to privatize their industries; and the proliferation of free trade agreements (FTAs) that have further opened foreign markets. Other factors resulting in the growth of international trade include the disintegration of the Soviet Union, the advent of “emerging economies,” dramatic advances in telecommunications and information technology, and the development of vibrant international capital markets. The result of these developments has been the creation of global supply chains, as well as an economically and financially interdependent world.
International trade has resulted in the fragmentation of the manufacturing process that includes the selling and transporting of finished products, as well as transborder movements of raw materials and the assembly of products crossing national borders. The fragmentation of the manufacturing process is known as the global supply chain, which includes numerous intermediary steps in the production of goods in different countries. For example, the manufacture of consumer electronics includes the importation of a majority of inputs (raw material, such as precious metals and component parts) from Brazil and China.1 Specialization achieved by the export-import of materials and services is efficient and leads to economic growth, but also makes the countries economically vulnerable to international economic downturns.
The WWII free trade era has resulted in significant increases in cross-border trade in manufacturing goods and services, international joint ventures, mergers, acquisitions, strategic alliances and affiliations, infrastructure projects, privatization, and international direct investment. The liberalization of trade and investment rules has created a “world of opportunities” for the international entrepreneur.2 The mobility of goods and services has allowed domestic companies to search the world for new markets to sell their products or to procure component parts used in the manufacture of products. The producer of goods and services, or the innovator of technology, can maximize profits with a global business strategy including, developing foreign markets for a company's products and outsourcing materials, labor, and component parts. Even a company that takes a more isolated domestic sales strategy is likely to be affected by international developments.
One measure of globalization has been the tremendous growth in the international trade in goods. This growth has been accelerated by reductions in trade barriers, including the evolution of free trade unions, such as the European Union's common market and the United States–Mexico–Canada Agreement (USMCA).3 A negative development in free trade areas and customs unions was the withdrawing of the United Kingdom (UK) from the European Union (EU) known as Brexit. The ramifications are likely to be years of uncertainty as the UK will need to negotiate a trade agreement with the EU and seek out other agreements with countries like the United States (U.S.).
Another measure of globalization is the foreign direct investment (FDI). FDI represents the capital investments made by companies in other countries. This includes the purchase of real estate, manufacturing plants, service and distribution centers, or foreign businesses. In 2014, net FDI inflows (investment capital brought into a country minus investment outflows) were $348 billion for China and $295 billion for the U.S. alone. See Chapter 16's coverage of FDI. The dramatic increase in world FDI has, much like trade, occurred mostly in the three major regional trade areas of Europe, the Americas, and East Asia.
Political and economic stability is a key factor in attracting FDI. An example of how decisions of a country can have disastrous consequences for its economy, even in times of growth, is seen in the collapse of the economy of the Russian Federation, beginning in 2014 with its invasion of Ukraine. FDI inflows dropped by 50 percent in 2014 and weak capital investments continue to the present, while capital outflows have increased as Russians seek safer countries to invest and save their money. The Russian economy's gross domestic product (GDP) decreased by about one-third due to the uncertainty caused by the Russian invasion of Crimea, followed by Western financial sanctions against Russia, the decline of oil prices (Russia's top export), and the subsequent collapse of the Russian currency (ruble). By the end of 2014, Russia was suffering net investment outflows with net FDI in Russia recorded at −$608 million in the third quarter of 2014 and −$3.4 billion in the fourth quarter of 2014. This demonstrates that national economies are highly interconnected and that national decisions can have dramatic consequences on FDI and a country's economic stability.
Despite the rise of nationalism and the Trump trade wars, globalization is likely to continue to expand, both at the regional level and at the global level. The causes of this expected growth include the advance of global telecommunications and the increased transferability of services and intellectual property. The service and knowledge industries, such as entertainment, education, and health care, have benefited from the reduction of trade barriers in nonsale of goods areas. The greatest concern is that unilateralism as represented by recent trade wars (raising of tariff rates) between China and the U.S. and the EU and the U.S. has weakened the role of the WTO as the enforcer of economic free trade rules.
While tariff rates remain at historical lows, an International Chamber of Commerce Report shows that the number of trade restrictions, known as nontariff measures (NTMs), has increased since the 2008 financial crisis, and most of them have come from the developed economies (G-20). Many of these restrictions relate to anti-dumping measures to prevent the importation of goods being sold below their cost of production or the sale of lower-priced goods due to illegal government subsidies.
A positive response was the outcome of the WTO's 2013 Ninth Ministerial Conference in Bali. The Bali Conference focused on improving market access for least-developed countries (LDCs) and new rules for the exporting of agricultural goods. The end result was a Trade Facilitation Agreement (TFA) that aims to reduce mostly bureaucratic barriers to the flow of products through global supply chains. The TFA aims at streamlining customs and border procedures and infrastructure communications. Many of these changes will have to be done by the LDCs since it is much more difficult to import goods into these countries than into developed countries. However, the ultimate goal is greater access (“duty free and quota free”) to foreign markets for LDCs' exports.
International law generally refers to the historically developed transnational rules and norms that national courts use to regulate three primary relationships: (1) the relationship between two nations; (2) the relationship between a nation and an individual; and (3) the relationship between private persons or entities from different countries. This book is primarily concerned with the person-to-person relationship between parties transacting business across national borders. The first two types of relationships will be reviewed, at times, because of their effect upon private business relationships. Thus, the regulations promulgated by the WTO will be studied in Chapter 5 because of their direct impact on the export and import of goods, services, and intellectual property rights.
There are numerous sources of international business law. Article 38 of the Statute of t...
Table of contents
Citation styles for International Business Law and the Legal Environment
APA 6 Citation
DiMatteo, L. (2021). International Business Law and the Legal Environment (4th ed.). Taylor and Francis. Retrieved from https://www.perlego.com/book/2194224/international-business-law-and-the-legal-environment-a-transactional-approach-pdf (Original work published 2021)
DiMatteo, Larry. (2021) 2021. International Business Law and the Legal Environment. 4th ed. Taylor and Francis. https://www.perlego.com/book/2194224/international-business-law-and-the-legal-environment-a-transactional-approach-pdf.
DiMatteo, L. (2021) International Business Law and the Legal Environment. 4th edn. Taylor and Francis. Available at: https://www.perlego.com/book/2194224/international-business-law-and-the-legal-environment-a-transactional-approach-pdf (Accessed: 15 October 2022).
MLA 7 Citation
DiMatteo, Larry. International Business Law and the Legal Environment. 4th ed. Taylor and Francis, 2021. Web. 15 Oct. 2022.