1. THE POLITICAL and LEGAL ENVIRONMENT
I. The political environment
There are several factors to consider when talking about the political environment that
could affect international business:
1. NATION-STATES AND SOVEREIGNTY
Every sovereign state is bound to respect the independence of every other sovereign
state, and the courts in one country will not sit in jurisdiction on the acts of government
of another done within its territory.
A sovereign state is considered free and independent. It regulates trade, manages the
flow of people into and out of its boundaries, and exercise undivided jurisdiction over all
persons and property within its territory. It has the right, authority, and ability to
conduct its domestic affairs without outside interference and to use its international
power and influence with full discretion.
Government actions taken in the name of sovereignty occur in the context of two
important criteria: a country's stage of development and the political and economic
system in place in the country.

2. 2. POLITICAL RISK
Political risk -- the risk of a change in government policy that would adversely impact a
company's ability to operate effectively and profitably--can deter a company from
investing abroad.
When the perceived level of political risk is lower, a country is more likely to attract
investment. The level of political risk is inversely proportional to a country's stage of
economic development: All other things being equal, the less developed a country, the
greater the political risk.
The political risk of emerging countries, for example, is quite limited as compared to a
country in an earlier stage of development in Africa, Latin America, or Asia.
Isolated situations like elections, demonstrations, human rights violations, etc can
increase the perceived political risk of a country or region

3. Venezuela's Hugo Chavez tightens state control of
food amid rocketing inflation and food shortages
President Hugo Chavez is tightening state control over Venezuela's food
supply, setting quotas for food staples which are to be sold at government-
imposed prices.
By Jeremy McDermott, Latin America Correspondent
6:33PM GMT 04 Mar 2009
Venezuela's public finances are unravelling, with oil prices at $40 a barrel, while the
national budget is calculated at $60 a barrel. Inflation is running at over 30 per cent,
yet with the new measures Mr Chavez is seeking to ensure that his core support, the
poor, can still fill their shopping baskets with food.
"If any industry wants to ride roughshod over the consumers, with a view to getting
better dividends, we are going to act," said Carlos Osorio, the national
superintendent of silos and storage. "For the government, access to food is a matter
of national security."
Production quotas and prices have now been set for cooking oil, white rice, sugar,
coffee, flour, margarine, pasta, cheeses and tomato sauce…..
From The Telegraph UK

4. 3. TAXES
It is not uncommon for a company to be incorporated in one place, do business in
another, and maintain its corporate headquarters in a third. This type of diverse
geographical activity requires special attention to tax laws.
Many companies make efforts to minimize their tax liability by shifting the location of
income. For example, it has been estimated that tax avoidance by foreign companies
doing business in the United States cost the U.S. government several billion dollars each
year in lost revenue.
There are no universal international laws governing the control of taxes on companies
that do business across national boundaries. To provide fair treatment, many
governments have negotiated bilateral tax treaties to provide tax credits for taxes paid
abroad.
For example: The United States has dozens of such agreements in place. In 1977, the
Organization for Economic Cooperation and Development (OECD) passed the Model
Double Taxation Convention on Income and Capital to help guide countries in bilateral
negotiations.

5. 4. DILUTION OF EQUITY CONTROL
Political pressure for national control of foreign-owned companies is a part of the
environment of global business in lower-income countries. The foremost goal of national
governance is to protect the right of national sovereignty, especially in all aspects of
domestic business activity.
Host-nation governments sometimes attempt to control ownership of foreign-owned
companies operating within their borders. In underdeveloped countries, political
pressures frequently cause companies to take in local partners.
India passed in 1973 the Foreign Exchange Regulation Act (FERA), which restricted
foreign equity participation in local projects to 40 percent. Many companies decided to
leave India before giving the control of their business to local goverments

6. 5. EXPROPRIATION
The ultimate threat a government can pose toward a company is expropriation.
Expropriation refers to governmental action to dispossess a company or investor.
Compensation is generally provided to foreign investors, although not often in the
"prompt, effective and adequate" manner provided for by international standards.
Nationalization occurs if ownership of the property of assets in question is transferred
to the host government. If no compensation is provided the action is referred to as
confiscation.
Short of outright expropriation or nationalization, the phrase creeping expropriation
has been applied to severe limitations on economic activities of foreign firms in
certain developing countries.
These have included limitations on repatriation of profits, dividends, royalties, or
technical assistance fees from local investments or technology arrangements.
Other issues are increased local content requirements, quotas for hiring local
nationals, price controls, and other restrictions affecting return on investment.

7. Venezuela's Chavez threatens to expropriate bank
By FABIOLA SANCHEZ
Associated Press
President Hugo Chavez threatened to expropriate a Spanish-owned bank on Wednesday,
arguing that its managers have refused to grant loans to cash-strapped Venezuelans
seeking to purchase homes amid a nationwide housing deficit.
During a televised speech, Chavez accused the president of Banco Provincial, Pedro
Rodriguez Serrano, of refusing to offer loans. The Venezuelan president raised the
possibility of seizing control of the bank. Banco Provincial belongs to Spanish banks Banco
Santander SA and Banco Bilbao Vizcaya Argentaria SA.
In a statement released following Chavez's speech, Banco Provincial denied the bank has
turned its back on clients seeking loans. Last year, the bank granted loans to 3,256 families
seeking to buy homes, financed the construction of 31 residential complexes and
cooperated with the state-run National Housing Bank, approving over 1,600 requests for
housing-related loans, it said….
From: BBC.GO.COM

8. Bolivia plans to expropriate
mines
Mines were sold to private interests by
earlier governments
By Alex Emery, Bloomberg News April 13, 2011
http://www.vancouversun.com/business/Bolivia+plans+expropriate
+mines/4610801/story.html#ixzz1NxDB4v4Y
Bolivia's President Evo Morales plans to expropriate zinc, silver and tin mines sold off by
previous governments, an official said. Morales will announce a decree May 1 to
"dismantle the privatization model," said Nicolas Fernandez, a spokesman for state mining
company Corp. Minera de Bolivia, known as Comibol.
"The government is recovering all the privatized companies," Fernandez said today in a
telephone interview from La Paz. "When the decision is taken, Comibol will be ready to
manage these mines.“ Comibol may rescind contracts with companies including Glencore
International AG, Pan American Silver Corp., and Coeur d'Alene Mines Corp., La Paz-based
newspaper La Razon reported today, citing Comibol President Hugo Miranda….

9. Zimbabwe PM allays fears of foreign businesses expropriation
February 18th, 2011 in Business, News
Zimbabwean Prime Minister Morgan Tsvangirai has allayed fears of expropriation of
foreign businesses under the country’s controversial indigenisation regulations, assuring
visiting German investors on Thursday that the measures have not been adopted yet by
government.
The Indigenisation Regulations published last year by the Minister of Youth Development,
Indigenisation and Empowerment, Saviour Kasukuwere, have caused consternation
among new and existing investors.
Tsvangirai told a visiting German business delegation, Afrika-Verein, that the regulations
would not be used to expropriate investors’ properties. "The indigenisation law was
passed in 2004 by ZANU PF and for four years they could not implement it because there
was no clarity on how to undertake the process….
Under the regulations, which were published in February last year, foreign investors are
required to cede at least 51 percent of their shareholdings to black Zimbabweans and
those who violate the law are liable to a two-year imprisonment.
Tsvangirai noted that the regulations were published prematurely ….

10. THE LEGAL ENVIRONMENT
I. INTERNATIONAL LAW
International law may be defined as the rules and principles that nation-states consider
binding upon themselves. There are two categories of international law: public law, or
the law of nations; and international commercial law, which is evolving. International
law pertains to trade and other areas that have traditionally been under the jurisdiction of
individual nations.
II. ESTABLISHMENT
Under what conditions can trade be established? To transact business, citizens of one
country must be assured that they will be treated fairly in another country.
Before doing business in a foreign country, organizations need to know the established
rules for international commerce and how likely a government is willing to uphold these
laws

11. International trade agreements provide organizations from any country the right
to nondiscriminatory treatment in trade, the reciprocal right to establish a
business, and, particularly, to invest.
Commercial treaties provide one with the privilege, not the right, to engage in
business activities in other than one's own country. This can create problems for
business managers who may still be under the jurisdiction of their own laws even
when they are out of their native country.
U.S. citizens, for example, are forbidden by the Foreign Corrupt Practices Act to
give bribes to an official of a foreign government or political party, even if bribes
are customary for conducting business in that country.

12. III. JURISDICTION
Company personnel working abroad should understand the extent to which they are
subject to the jurisdiction of host-country courts.
Employees of foreign companies working in the United States must understand that
courts have jurisdiction to the extent that the company can be demonstrated to be
"doing business" in the state in which the court sits.
The court may examine whether the foreign company maintains an office, solicits
business, maintains bank accounts or other property, or has agents or other employees
in the state in question.
IV. INTELLECTUAL PROPERTY: PATENTS, TRADEMARKS and COPYRIGHTS
Patents and trademarks that are protected in one country are not necessarily protected
in another, so global markets must ensure that patents and trademarks are registered in
each country where business is conducted.
A copyright is (as the word says) the right to copy an original work (literature, audio,
video, etc), trade with it and make a profit.

13. V. ANTITRUST
The word trust is a synonym of cartel
Antitrust laws are designed to combat restrictive business practices and to encourage
competition.
In the U.S. The Sherman Act of 1890 prohibits certain restrictive business practices,
including fixing prices, limiting production, allocating markets, or any other scheme
designed to limit or avoid competition.
The law applies to foreign companies conducting business in the United States and
extends to the activities of U.S. companies outside U.S. boundaries as well if the
company conduct is deemed to have an effect on U.S. commerce contrary to law.
Similar laws are taking on increasing importance outside the United States as well.
The European Commission prohibits agreements and practices that prevent, restrict, and
distort competition. The interstate trade clause of the Treaty of Rome applies to trade
with third countries, so that a company must be aware of the conduct of its affiliates.

14. Google and EU in antitrust
resolution talks: source
Google has begun preliminary talks with
European Union regulators in an effort to
resolve an antitrust investigation that began in
November, according to a source cited by
Reuters today.
(Reuters) - Google and European Union regulators are in tentative talks to resolve an
antitrust probe against the Internet's dominant search engine, a source familiar with
the case said on Monday.
A deal could avert a lengthy battle and possible fine for the U.S.-based company.
The European Commission opened an investigation into Google last November after
three complainants accused it of abusing its position by demoting rival sites in search
results and giving preference to its own services.
"There is some interest from both sides, some tentative discussions in resolving the
issue, but no really concrete proposals on the table," the source told Reuters.
A Commission spokeswoman said the EU executive was not in discussions with Google
at the moment and was still reviewing the case.

15. EU Antitrust Probe Includes Asian Carriers
Peter T. Leach | May 18, 2011 7:08PM GMT
The Journal of Commerce Online –
Shipping lines confirm office raids
European Union antitrust officials raided the European offices of a number of Asian
carriers on Tuesday in addition to European shipping lines as part of a probe into
suspected price fixing in the sector, the lines said on Wednesday.
Neptune Orient Lines, OOCL, Evergreen Marine and Hanjin Shipping all said that were part
of a European Commission investigation into the violation of antitrust rules.
EU regulators on Tuesday raided several liner shipping companies including Maersk
Line, CMA CGM, and Hapag-Lloyd.
The European Commission, the EU’s executive wing, said it “has reason to believe the
companies concerned may have violated the antitrust rules that prohibit cartels and
restrictive practices and/or abuse of a dominant market position.”
The EU outlawed price-setting liner conferences in October 2008 when it abolished
carriers’ long-standing exemption from antitrust enforcement….

16. VI. THE WORLD TRADE ORGANIZATION AND ITS ROLE IN INTERNATIONAL TRADE
In 1948 when 23 countries underlined in the General Agreement on Tariffs and Trade
(GATT) their determination to reduce import tariffs, this was considered a milestone in
international trade relations. GATT is based on three principles.
The first concerns nondiscrimination: Each member country must treat the trade of all
other member countries equally.
The second principle is open markets, which are encouraged by the GATT through a
prohibition of all forms of protection except customs tariffs.
Fair trade is the third principle, which prohibits export subsidies on manufactured
products and limits the use of export subsidies on primary products.
In reality, none of these principles is fully realized as yet, although much progress was
made during the Uruguay Round on issues such as nontariff barriers, protection of
intellectual property rights, and government subsidies.