Introduction
“In an age of globalization, issues relating to international business and law are of great importance to managers and business professionals around the world” (Gupta, 2008, p. 1). The above statement underscores the increasing importance of international business law in today’s business environment. The current business environment is intensely characterized by multinationals and decreased government control due to the “overseas” nature of global businesses. Since globalization is the new business frontier for most companies, international law has increasingly come under sharp focus for companies intending to do business on the international platform. From this understanding, it is correct to say that global companies now define the future of the world’s financial markets, and by extension, they sit at the apex of the global economy.
United States (US), which is home to many global companies, has especially paid more attention to the intrigues of the global business environment because of recent occurrences such as the Enron scandal, which underscores the importance of trust in managing global businesses. The issues of corporate trust and legality when operating in the global business define the foundation of the world’s financial markets and if they increasingly come under threat, the future of the worlds financial markets come into question (Liuzzo, 2010).
New corporate governance policies and laws in the international business have been spurred by growing questions regarding the usefulness of corporate citizenship and the need for more predictability in the global financial markets (Gupta, 2008, p. 1). Since the global market is of high importance to most companies around the globe, it is not enough to understand how in-house counsel is used to understand domestic law but also how such counsel can be used to explain the same events in international business. Though international business is growing in importance, there is a gap in understanding the boundaries between domestic laws and international laws. This conflict is especially intense when domestic laws conflict with international laws. This dilemma is therefore experienced when there is a dispute regarding which law to apply when solving an international conflict (Malanczuk, 1997, p. 63). Say, when an American company does business in the Middle East and a business conflict arises between the American company and a Middle Eastern company, there is bound to be a dispute regarding which law to apply. Essentially, the main question to be asked in this analysis would be if to apply Middle Eastern law (to solve the conflict) or to apply American law.
The US is on record as being home to some of the most actionable laws in extraterritorial understanding of business transactions (Gupta, 2008, p. 1). This observation was made because America has been known to apply antitrust laws and several other domestic legislations to global disputes without carefully analyzing the impact of such actions on the global map. The Sarbanes-Oxley Act is an example of such a legislation, which seeks to curb corporate malpractices bordering on the reporting of false financial information (Gupta, 2008, p. 1). Due to the growing importance of understanding international law, this paper analyzes the conflict between local and international law. This analogy will be done after analyzing the legal issues involved in this topic and the ethical considerations of this argument. Finally, recommendations will be provided to show areas of improvement that can be applied to this area of law.
Legal Issues
In understanding the legal issues surrounding the extraterritorial application of domestic law on international business, the doctrine of non conveniens should be understood because the convenience of both parties (in dispute) is often determined by a court of law before ascertaining which law should be applied (Moore, 2011, p. 1). When applying the doctrine of non conveniens, several legal issues such as “ease of access of proof, availability of witnesses, possibility of view of premises (if applicable), and all other practical problems that will expedite trial of the case” (Moore, 2011, p. 3) are analyzed by the court. Similarly, a court of law is likely to consider different issues of public interest such as “administrative difficulties (such as court congestion), the local interest in the case, the avoidance of problems with conflict of law and applying foreign law” (Moore, 2011, p. 3).
In understanding the issue regarding extraterritorial application of domestics laws on international business, it should be further understood that the extraterritorial reach of domestic laws and comity is also another critical legal component to be considered in this analogy. This observation is true because different countries usually weigh the desire to establish their domestic laws (in an international conflict of law) against the risk of experiencing a conflict of international law with a foreign country (Moore, 2011, p. 1). Since it is important to strike this balance, courts have come up with a critical test to evaluate the competing interests in this dilemma while taking into consideration the legal issues involved. In applying this test, the most important question in this dilemma is determining if the advantages of applying domestic law outweighs the advantages of applying a foreign law. Conversely, it should also be ascertained that the conflict of applying domestic law (at the expense of foreign laws) is smaller than the conflict arising from applying domestic laws alone (Moore, 2011, p. 1).
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Ethical Issues
Considering the fact that global cases involve different proceedings, lawyers who take part in international cases are often required to abide by the legal rules of multiple courts (such as arbitral courts, national courts and international tribunals). Sometimes, such lawyers are required to abide by specific ethical requirements, which may be more restrictive (or less restrictive) in some jurisdictions. In reference to this assertion, American Bar Association (2011) explains that,
“For example, in a case pending in a U.S. court, a lawyer may wish to depose abroad a witness who resides in a country that does not permit private depositions, and instead requires that any deposition be administered by a local judge” (p. 12).
In such a case, a lawyer can decide to comply with US legal procedures, by abiding by the same provisions in the domestic court or by deposing a witness to a foreign court where he is exempted from the ethical requirements. Usually, whenever there is difficulty experienced in the application of ethical requirements (say in a situation where the lawyer cannot abide by the ethical rules of the foreign and domestic court), the ethical requirements relating to the lawyer’s conduct apply (American Bar Association, 2011).
Similarly, in international cases, the conduct of the legal counsel can result in two proceedings where a lawyer is probed for legal misconduct by two courts. The dilemma often arises where there are two ethical provisions that the lawyers have to abide by. Tricky situations are often realized when ethical provisions conflict with one another. For instance, issues of discipline and cooperation are often carefully synchronized in the US justice system but there exists no harmony in the international scene (American Bar Association, 2011). An exception often arises when the ethical conduct of legal parties contravenes international ethical codes of conduct because in such a case, courts may seek the intervention of an international tribunal to establish if discipline should be enforced by the local court of a foreign court.
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In addition, there is often an ethical conflict when a foreign court imposes certain ethical provisions that may contravene the philosophies of public policy in another country. For instance, it would be difficult to establish what actions should be taken on a lawyer who is engaged in gross legal misconduct in a foreign land. Usually, the nature of some of these misconducts infringe on the public policies of a foreign land and so, the real question to be asked (in this scenario) is if public policy should prevail or do the domestic laws apply to the lawyer’s misconduct.
Considering international business involves traversing different cultures, there needs to be a careful analysis of how existing cultures clash with existing laws. Often, different cultural conflicts with existing laws result in ethical dilemmas (American Bar Association, 2011). This is not a new area of conflict because the conflict between culture and ethics has been well documented. In fact, there have been numerous efforts by scholars and legal practitioners to integrate culture into existing laws by creating provisions for cultural influences (especially in legal issues relating to marriage, personal identity among other social factors).
However, in the case of international disputes, certain cultural influences do not resonate well with existing international laws or the domestic laws of certain countries. For instance, it is known that certain cultures do not respect intellectual property or other forms of intangible assets. Intellectual property cases are a classic example of the ethical dilemma that exists between culture and law because most forms of intellectual property tend to transcend international borders (because of their intangible nature). For instance, Hollywood movies are commonly found in most countries around the world but some of these countries do not respect intellectual property, the way some Americans do. As a result, existing American laws are not easily enforceable in such cultures. In fact, there are some countries with strong cultural influences that make it difficult to enforce contradicting legal provisions. The ethical consideration in this case is if to respect cultures or the law (American Bar Association, 2011). This age-old dilemma exists in many countries that are plagued by such situations.
Employment practice standards are also different in many countries around the world and certain multinationals (MNCs) are faced with situations where they have the option of adopting inferior employment practices even though they have the capability of adopting superior employment practices. MNCs, which operate in the third world, are especially faced with such situations. Here, the issue of cost and quality often arise because according to domestic laws, a company would not be operating against the law if they adopt inferior employee practice standards (American Bar Association, 2011). However, the adoption of inferior employee standards at the expense of superior standards poses an ethical issue in international business because such companies can adopt better business practices (but they still fail to do so). Such are the ethical issues existing in the understanding of international law, viz-a-viz domestic law.
Conclusion/Recommendations
Since the dilemma of international law application is always experienced by multinational companies, it is vital to document that the choice of international law application is very controversial and most often than not, its application is on a case-by-case basis. However, this paper recommends a dual-solution criterion (which is hinged on the entity approach and the enterprise approach) for solving this conflict. The entity approach is inclined to favor the application of the domestic law where a country operates (at least on a specific component of a global company’s operating unit) (Moore, 2011, p. 5). For instance, if a multinational company operates different units of the same business in different countries, the entity approach prefers the application of domestic laws on the unit of the company operating under its jurisdiction and not the entire company. The application of domestic laws on a specific unit of a MNC’s operation is therefore considered the default application of law in the entity approach (Moore, 2011, p. 5).
The enterprise approach is based on the premise that a single law should be used to govern the operations of multinational companies without the inclusion of an exemption clause – such as only a specific unit of the company should be subject to this law (like the entity approach stipulates). The enterprise approach is therefore hinged on a common agreement between two parties to apply one law on the entire corporation (Moore, 2011, p. 5). Usually, the enterprise approach has been known to favor the application of domestic law at the expense of foreign laws.
Based on the understanding of the two concepts (enterprise law and entity law) described above, this paper recommends a flexible approach to the international law conflict for MNCs and other organizations operating on a global platform. This paper also acknowledges that applying the enterprise approach may be a long shot for most companies because it is difficult to realize a consensus regarding the right law to be applied in an international conflict (because of the divergent views existing in the world). Due to this fact, this paper recognizes that it is important to apply the entity approach in such cases. However, in situations where a consensus may be reached, this paper proposes the use of the enterprise approach to identify the right international law to use. The enterprise approach may especially be used in countries that share the same beliefs, values, business principles and concepts of trade. For instance, most European countries, Australia and Canada may find it easier to merge their laws with the US’s because they share similar business values. The same situation may however not be realized between the US and some Middle Eastern countries because the business practices between the two regions are very different. The latter situation may therefore call for the application of the enterprise approach. The dual-framework of identifying the right international law introduces some sense of flexibility in the application of international law and similarly, this concept accommodates different contexts of analysis in determining the choice of law to use in global business.
References
American Bar Association. (2011). Choice of Law in Cross-Border Practice. Web.
Gupta, A. (2008). The Quest For Global Dominance: Transforming Global Presence Into Global Competitive Advantage. London: John Wiley & Sons.
Liuzzo, A. L. (2010). Essentials of Business Law. New York, NY: McGraw-Hill Higher Education.
Malanczuk, P. (1997). Akehurst’s Modern Introduction To International Law. London: Routledge.
Moore, C. (2011). Current Issues Regarding Corporate Governance and Multinational Corporations. Web.