307Chapter Overview 15.1 International Law and Busines.docx
1. 307
Chapter Overview
15.1 International Law and Business
• Sources of International Law
• Some Basic Principles of International Law
• Conducting Business in the International Arena
• The International Business Contract
• Doing Business Internationally Within the
Limits of U.S. Law
15.2 Environmental Law and Business
• Types of Environmental Law
• Air Quality Regulation
• Water Quality
• Toxics and Waste
15.3 Chapter Summary
• Focus on Ethics
• Case Study: Arc Ecology v. U.S. Dept. of Air Force
• Case Study: Karuk Tribe of California v. United States
Forest Service
• Critical Thinking Questions
• Hypothetical Case Problems
• Key Terms
Edi_Eco/iStock/Thinkstock
15
3. ered. What kind of regulations must you deal with, both in your
own country and in the
foreign country? Where would disputes be settled, and under
whose law? Do U.S. laws
still apply when your company is acting outside U.S. borders? A
basic understanding of
international business law is important for the business student.
Increasingly important, too, is the state of that globe, the planet
on which we live and do
business. An awareness of environmental issues and laws is
relevant not just from the
standpoint of compliance with regulations and avoiding
liability, but also because we face
in the 21st century a stark necessity of working to preserve our
limited resources of fresh
air and water, or dealing with ever worsening consequences.
15.1 International Law and Business
International law is in many ways very different from the law
you studied earlier in this book. Until now, we have been
examining law in the context of its being rules enforced by the
government. If someone commits a crime, the government
prosecutes. If some-
one breaches a contract, the other party can use the courts to
enforce it. With international
law, enforcement is less likely, because there is no powerful
international entity that can
do so to the same degree an individual country can within its
own borders. Nonetheless,
international law does still exist, and in this section we shall
examine its sources and some
of its basic principles.
Sources of International Law
5. agreements/north-american-free-trade-agreement-nafta
http://www.ustr.gov/trade-agreements/free-trade-
agreements/north-american-free-trade-agreement-nafta
https://www.loc.gov/law/help/us-treaties/bevans/m-ust000004-
0762.pdf
309
CHAPTER 15Section 15.1 International Law and Business
holdout). However, in 2016 Great Britain voted to leave the EU,
a process which, if com-
pleted, could take up to two years. Most of the countries in the
EU share a common cur-
rency, the Eurodollar, and have cooperated to facilitate
increased trade among nations and
(to a lesser extent) to coordinate fiscal policy. The economic
recession that began in 2008
has, however, strained EU relations in recent years, with
countries such as Ireland and
Greece experiencing financial crises and needing much aid from
the EU.
GATT, which began in the 1940s, has done much to lower trade
barriers between the sig-
natory nations by decreasing tariffs, which are taxes on
imported goods, from 40 percent
to an average of 4 percent for manufactured goods. One effect is
that consumers tend
to see lower prices from increased competition among
manufacturers. GATT also led to
creation of the World Trade Organization, or WTO, which may
hear and adjudicate trade
disputes among signatory nations.
6. Example 15.1. Brazil claimed that U.S. government subsidies
for its domes-
tic cotton industry violated trade agreements and were
distorting the mar-
ket, since U.S. manufacturers were able to offer cotton at a
lower price
(because the government was in effect paying part of their costs
for them).
In 2004 the WTO agreed with Brazil. The usual remedy the
WTO offers is
that of “retaliation,” meaning that Brazil could legally tax U.S.
goods at a
higher level. But the WTO went a step further, and allowed
Brazil “cross-
retaliation,” which meant lifting intellectual property protection
of U.S.
products. This would mean that patents and copyrights could be
ignored
by Brazil; for example, it could legally pirate Hollywood
movies and make
knock-offs of U.S. patented drugs. To avoid Brazil’s retaliation
without
ending the cotton subsidies, the U.S. government agreed in 2010
to pay
$150 million a year to support Brazilian cotton farmers.
International Organizations
There are many organizations created by the agreement of
member nations. Some are
primarily military in focus, such as the North Atlantic Treaty
Organization (NATO), but
some, such as the United Nations, deal with a wide variety of
international issues. The UN
has fostered increased uniformity in trade regulations with the
1980 Convention on Con-
tracts for the International Sale of Goods (CISG), which is
8. Example 15.3. Under French law, fashion designs
are protected by very strict copyright laws. An
American company that published photographs
of original French fashions on a website without
permission of the designer could be held liable
under French law for infringement. But if the
French designer sought to enforce the judgment
in the United States, the U.S. court might find
that French law conflicts with the First Amend-
ment right to freedom of expression, and refuse
to enforce the judgment.
Sovereign Immunity
The doctrine of sovereign immunity means that one
nation cannot sue another. In the United States, a spe-
cific federal law, The Foreign Sovereign Immunities Act
(FSIA) of 1976, provides that a foreign nation cannot gen-
erally be sued, but there are exceptions where the foreign
state has:
• Waived its immunity;
• Engaged in commercial rather than political activity; or
• Committed a tort in the United States or violated specific
international laws.
Example 15.4. Canada contracts to buy 15 airplanes from U.S.-
based Boe-
ing Co. Canada breaches the contract. Since this is commercial
activity,
Canada can be sued in the United States.
The Doctrine of “The Act of State”
The legal principle of respecting an act of state means that
courts in one nation will not
question public acts committed by a recognized foreign
10. Example 15.5. A U.S. company has an oil refinery in an African
nation.
After an election where a different political party comes to
power, the Afri-
can country’s new government decides to nationalize the oil
industry. If
the nation pays the company for the refinery, this is legal
expropriation. If
the government simply seizes the refinery and does not pay fair
compensa-
tion, this is called confiscation and violates international law.
Obviously acts of state such as expropriation represent a
significant risk of doing business
in other countries. Companies may want to invest in insurance
to cover such risks. While
not cheap, such insurance can nonetheless remediate otherwise
catastrophic losses.
In the Media: 9/11 Families Seeking Justice Through
International Law
FSIA protects a foreign government from being sued in Ameri-
can courts under most circumstances, with limited exceptions.
The statute (16 U.S.C. §§ 1601–1611) is a legislative version of
what American common law provided, going as far back as a
U.S. Supreme Court case in 1811, The Schooner Exchange v.
M’Fadden, and it establishes under what conditions a foreign
sovereign nation can be brought under the jurisdiction of the
American legal system.
After the 9/11 attacks on America, hundreds of families whose
loved ones were murdered sued the kingdom of Saudi Arabia
and
members of the Saudi royal family for over $100 trillion,
alleging
11. that the Saudis helped fund the Al Qaeda terrorists behind 9/11.
The evidence was compelling, and even as late as 2012 two for-
mer U.S. Senators who were privy to secret information the U.S.
government gathered following the September 11 attacks filed
affidavits. One of the senators even stated under oath that he
was “convinced that there was a direct line between some of the
terrorists . . . and the government of Saudi Arabia.”
In 2005, the federal district judge who had jurisdiction over the
suit dismissed it because of the Foreign
Sovereign Immunities Act. That dismissal also applied to the
Saudi royal family members, because
they are part of the Saudi government. The families then
appealed to the 2nd Circuit Court of Appeals,
which affirmed the trial court’s decision in 2008. Finally, the
families sought an appeal of that deci-
sion before the U.S. Supreme Court. The primary argument of
the 9/11 families was that an exception
added in 1996 to the FSIA applied, namely, that a government
that sponsors terrorism loses the pro-
tection of the FSIA. While the Supreme Court was considering
whether to take the case, the Obama
administration filed a legal brief with the Supreme Court (a
brief written by then Solicitor General Elena
Kagan, who would become a Supreme Court justice in 2009),
arguing that the 2nd Circuit’s decision
should be upheld.
After the attacks on the World Trade
Center in 2001, family members of
victims filed a $100 trillion lawsuit
against the Saudi Arabian royal
family. After it was determined
that Saudi Arabia does not sponsor
terrorism, the FSIA protected the
royal family from the suit.
13. for the case to proceed in federal
district court. In 2015, Saudi Arabia was again dismissed as a
defendant by Federal District Court Judge
George Daniels, who ruled that the plaintiffs did not present
enough evidence that Saudi Arabia was
involved in the 9/11 attacks to overcome its sovereign
immunity. Meanwhile, Congress had been
considering legislation that would make it easier for the 9/11
plaintiffs to sue Saudi Arabia. They
passed the Justice Against Sponsors of Terrorisms Act in
September 2016, but President Obama
vetoed the bill shortly after.
Sources: http://www.cnn.com/2002/LAW/08/15/attacks.suit/
http://www.cbsnews.com/2100-201_162-5051884.html
http://www.nytimes.com/2009/06/30/us/30victim.html
http://www.scotusblog.com/case-files/cases/samantar-v-yousuf/
http://articles.philly.com/2014-07-
02/business/51005807_1_saudi-arabia-saudi-government-cozen-
o-connor
http://www.bbc.com/news/world-us-canada-34405451
http://www.cnn.com/2016/05/17/politics/senate-9-11-saudi-
arabia-bill/
https://www.govtrack.us/congress/bills/114/s2040/text/enr#com
pare=es
http://www.usnews.com/news/articles/2016-09-20/9-11-
families-protest-at-white-house-ask-obama-to-
sign-bill-allowing-them-to-sue-saudi-arabia
16. Example 15.8. Polyglot now has gone into the general security
business,
and is looking to import burglar alarms from France. Polyglot
will need
to find out if there are any restrictions on such imports, and if
they are
allowed, how much the tariff will be. The costs of tariffs should
be factored
into the cost of acquiring the product.
Tariffs can vary widely, depending on the type of goods and the
country from which one
is importing. For example, there are generally no tariffs on
trade between Canada and the
United States.
Dumping refers to a foreign company selling its goods in the
United States at a cost less
than fair value, usually in an attempt to dominate the market
and be able to raise prices
in the long run.
Example 15.9. A Chinese company was selling solar panels in
the United
States at less than the cost of production, putting U.S.
companies at a com-
petitive disadvantage. The U.S. government then assessed
additional anti-
dumping tariffs of 30 percent and higher on the Chinese solar
panels.
Of course, there is always a risk that the manufacturing country
will then raise its tariffs
in retaliation, and thus cause what is sometimes known as a
trade war to break out, where
18. 314
CHAPTER 15Section 15.2 Environmental Law and Business
that the choice of forum (where any lawsuits will be brought) is
Sweden.
Payment will be in U.S. dollars, and the payment method will be
wire
transfer from the Swedish company’s bank to Wells Fargo,
which is Cargo
Four’s U.S. bank. Because Cargo Four is a company that
routinely engages
in international business and they are familiar with Sweden,
Cargo is not
concerned about the choice of law and forum. The Swedish
company, on
the other hand, is a small boutique business that was not willing
to risk an
international lawsuit.
Doing Business Internationally Within the Limits of U.S. Law
One of the difficult issues confronting those doing business in
an international environ-
ment is combining compliance with U.S. law with the differing
customs of other nations.
Nowhere is this more highlighted than when one considers the
impact of the Foreign Cor-
rupt Practices Act (FCPA). Passed by Congress after
investigations discovered U.S. compa-
nies were paying millions of dollars in bribes (payments made
to influence the decision of
a public official in performance of public duties) to foreign
officials, the law is intended to
preserve confidence in the free market system. However, the
companies complain that in
fact it puts them at a competitive disadvantage, given that
19. bribes are “business as usual”
in much of the world. Even in countries where such payments
are illegal, there is often
little enforcement. One confusing aspect of the FCPA is that
while bribery is illegal, grease
payments (which are made not to influence an official’s
decision, but to expedite a pro-
cess) are not.
Example 15.11. Can-do Inc. pays a Mexican official to award
Can-do a con-
struction contract for a new highway. This is an illegal bribe.
Example 15.12. Can-do pays an official to move its application
to the front
of the line, so that it gets looked at six months earlier than it
would other-
wise. This is a legal grease payment.
Another significant issue relates to whether U.S. employment
laws that protect against
discrimination apply extraterritorially (outside the United
States). Generally, courts have
held that the laws do apply to U.S. companies with regard to
employees who are U.S. citi-
zens, except when it would break the law of the foreign country
(such as with mandatory
retirement ages), or if there is a bona fide occupation
qualification or BFOQ (discussed
previously under employment law).
Example 15.13. In Saudi Arabia, women cannot drive vehicles
on public
roads, so there would be a valid BFOQ for a delivery driver to
be male.
21. planet, and without effective regulation we can all expect
to pay a heavy price in the form of our health and that of
future generations.
As individuals, we all have little control over the quality
of the air we breathe, the water we use, or the soil in which
our food is grown. Yet clearly we are affected deeply and
directly by polluted air and water and soil. Even when
we seek to make healthy choices, there is often too little
information available (or so much it becomes hopelessly
confusing) or no way to protect ourselves.
Example 15.14. Organic brown rice has long been
a staple of healthy diets. In 2012 it was found that
it absorbs arsenic, often found in agricultural land even when
chemicals
have not been used on crops, at an especially high
concentration. Syrup
made from brown rice is a common ingredient in energy bars
and baby
formula.
A famous story, “The Tragedy of the Commons” by Garrett
Hardin, illustrates one of
the difficulties of regulating the environment. At the center of a
community is a pasture,
which is a “common,” that is, property that belongs to no
particular person. Members of
the community use the pasture to graze their cows and sheep.
This works well as long
as no one puts too many animals on the pasture. But one day, a
farmer decides to add
more cows. His neighbor sees this, and she decides that if he is
going to use more graz-
ing, so should she and she puts out more sheep. Before long,
everyone in the community
23. 316
CHAPTER 15Section 15.2 Environmental Law and Business
the goods the factory produces. The factory has little incentive
to install pollution control
equipment as a result. Compounding the problem is the fact that
corporate law often rein-
forces that the duty of management is to increase the value to
the company’s shareholders.
Even a socially responsible, ecologically concerned manager
may find it difficult to make
decisions that benefit society but cost the company profits.
Another problem with achieving effective regulation is that
when lawmakers do cost/
benefit analyses, the environment is often left out of the
equation. It is much easier to
calculate the economic benefits of drilling for oil in a wildlife
refuge than it is to know the
cost of an animal species becoming extinct. Scientists have long
recognized that the planet
is a complex, interrelated system that exists in a delicate state
of balance, but the ramifica-
tions of upsetting that balance are not always known.
Compounding the problem is the
fact that lawmakers are generally politicians who act in
response to fairly short (in the
United States, two to six years) election cycles. Generally, the
effects of pollution, of global
warming and climate change, and even of exposure to toxic
substances are longer term,
making it easy for lawmakers to keep putting off until some
indefinite point in the future
the need to regulate and enforce environmental protections.
24. Free markets and personal ethics cannot protect the environment
from degradation; the
job is left to the law. In this section we will examine the
primary types of regulations and
analyze their effectiveness.
Types of Environmental Law
Much environmental law is statutory, such as the federal Clean
Air Act and Clean Water
Act. The Environmental Protection Agency (EPA), created in
1970, has the primary respon-
sibility for passing rules to implement such laws and for
bringing actions against those
who violate the law. States also regulate in this area; for
example, many of the laws that
require recycling are state or local in origin.
The common law also plays a role. For example, an agricultural
worker exposed to dan-
gerous chemicals who later developed lung disease might sue
the manufacturer for neg-
ligence because of inadequate warnings. Homeowners with
riverfront property whose
beaches are fouled by a factory’s discharge might sue for
trespass. In what are known
as toxic tort cases, multiple plaintiffs may bring lawsuits for
personal injuries caused by
dangerous substances, such as the situation where a company’s
dumping of a chemical
pollutes a town’s water supply. But many people injured by
pollution lack the resources to
bring a lawsuit, and proving that a particular defendant’s
activities caused specific dam-
age can be extremely difficult.
Example 15.15. After Hurricane Katrina devastated the Gulf
26. discharged water
within certain temperature limits, but the factory is free to
decide whether
to hold the water in tanks until the temperature comes down or
to install
cooling equipment.
Another method is the command-and-control model, such as
requiring that power plants
install certain emissions control equipment.
One problem with both these type of rules is that they are only
effective to the extent they
are enforced.
Example 15.17. Suppose a utility company has failed to reduce
emissions
to the proper level. The company may actively lobby for the
rules to be
changed, or it may contribute to the political campaign of a
presidential
candidate who will seek a smaller budget for the EPA and cut
its personnel.
In some cases, companies simply find it cheaper to pay an
occasional fine
than to follow the law.
Some statutes authorize criminal prosecutions as well as civil
lawsuits for damages. For
example, under the Clean Air Act (42 U.S.C. § 7401 et seq.
(1970)), not only the company
may be fined, but corporate officers who knowingly violate the
law (for example, by
falsely reporting information) may be subject to fines up to $1
million and imprisonment
up to two years. The same law authorizes citizen suits, which
27. give private individuals
some ability to enforce the law even if the government doesn’t
act. However, in many
situations polluters have sufficient political clout that
authorities may take a hands-off
approach to enforcement, and citizens may not have the
resources to bring private suits.
Example 15.18. An area known as the Chemical Corridor in
Mississippi
and Louisiana was home to operations of several major
companies, who
were polluting with highly toxic substances. Residents of the
Corridor were
suffering from many often fatal health problems, but they were
primarily
low-income minorities who could not afford lawyers. After a
law clinic at
Tulane Law School stepped in to represent them and took
effective action
on their behalf, the governor of Louisiana threatened to
withdraw funding
from the school, and the Louisiana Supreme Court (which is
elected and
thus subject to political concerns) barred the clinic from
representing resi-
dents in suits against the chemical industry.
Other types of legal mechanisms include taxes on pollution and
market-based regula-
tion, which seeks to turn the external cost of pollution into an
internal cost. Cap and
trade systems, where, for example, a factory must buy a credit
for every ton of emissions
it produces, mean that businesses have incentive to reduce
emissions. Since there are a
29. sibility for planning how to achieve those
standards. Substances regulated include
carbon monoxide, nitrogen dioxide, mer-
cury, asbestos, particulate matter (dust,
soot), and ozone (smog, not to be confused
with the ozone layer in the atmosphere,
which prevents harmful rays from the sun
from penetrating to the surface), among
others. In setting limits the EPA does not
have to consider the cost of compliance to
a factory or industry, and one of the goals
of the law is to prevent deterioration of air
quality in places with clean air.
Acid rain is a type of pollution caused by
sulfur dioxide emissions, which largely
emanate from coal-burning plants located
in the Midwest and eastern states such
as Ohio and Pennsylvania. One problem
is that the pollutants are carried on the
wind to other states and countries such as
Canada, where the precipitation falls and the damage is done to
forests, crops, lakes,
and ponds. The states with the plants may have little incentive
to demand costly equip-
ment be installed, since they are not suffering the harm.
Another problem is that older
power plants were not covered by the law unless they undergo
major renovation, so
that power companies have little reason to clean up existing
plants or build newer, more
efficient ones.
Mobile sources of emissions (primarily cars) are regulated
primarily through require-
31. estimates that by the year 2020, regulations will save 230,000
lives in the United States.
Water Quality
The Clean Water Act (CWA), 33 U.S.C. § 1251 et seq. (1972),
and its subsequent amend-
ments, regulate discharge of pollutants into navigable waters.
Originally this definition
was broadly interpreted, but more recently the courts have
excluded wetlands, intermit-
tent streams, ponds, or lakes that do not connect to open water,
and waterways within a
single state. While the EPA has a permitting system for point
source discharges, such as
those from a factory, an animal feedlot, or a municipal sewage
treatment plant, it is largely
left to the states to oversee regulation for non-point sources,
such as agricultural or urban
runoff, a significant source of water pollution. The CWA also
sets water quality standards,
which vary with the intended use of the body of water. For
example, a lake used for swim-
ming and fishing would have tougher standards than a pond
used for irrigation. The
minimum standards are initially based on the Best Available
Technology that could be
used to control pollution, but the CWA includes antidegradation
policies as well.
Another provision requires a permit before a wetland can be
dredged and filled, in an
attempt to prevent real estate developers from eliminating these
natural filtering systems
and wildlife habitats. Wetlands policy is intended to result in no
net loss, but in practice
this has not proved to be the case. Environmentalists point to
32. the aftermath of Hurri-
cane Katrina as an example of the consequences of wetland
destruction. Draining of the
swamps around New Orleans meant elimination of the natural
“overflow” that histori-
cally prevented much flooding. The result was that large
sections of the city were ren-
dered uninhabitable. Years later, much of the New Orleans
displaced population has not
returned to the city.
The Safe Drinking Water Act (SDWA) applies to public
drinking water systems and
requires the EPA to set standards and oversee implementation
by the states. It also requires
that community water systems send consumers an annual report
disclosing the level of
contaminants in drinking water. Unfortunately, no standards
have been set (and thus no
testing done) for the vast majority of chemicals (upwards of
70,000) in the United States,
many of which may be leaching into groundwater, and so the
real level of contamination
in drinking water is unknown. In a recent high profile case, city
officials in Flint, Michigan
have been charged with violation of the SDWA due to high
levels of trihalomethanes and
lead in the city’s water supply. Congressional hearings have
called into question the EPA’s
effectiveness in administering the SDWA in Flint.
Other federal laws governing water are the Ocean Dumping Act
of 1972, which prohibits
waste disposal without a permit, and the Oil Pollution Act of
1990, which regulates ships.
Tankers using U.S. ports are required to have double hulls to
34. Recovery Act (RCRA) deals with disposal of present waste,
both household and toxic, set-
ting standards for landfills and mandating processes and
recordkeeping for disposal of
dangerous substances. The Comprehensive Environmental
Response, Compensation, and
Liability Act (CERCLA) imposes joint and several liability on
toxic polluters and on any
owner of polluted property.
Example 15.19. Lola buys pastureland in 2000. Five years later,
when she
decides to sell the property, the prospective buyer’s surveyor
discovers that
twenty years before Lola bought the property, a chemical
company owned
the property and used it to dump barrels of toxic waste, which
they then
bulldozed over before selling the property. Even though she had
nothing
to do with the pollution and did not even know of the previous
owner’s
conduct, Lola could still be held liable for cleanup costs, which
may be mil-
lions of dollars.
This expansive liability for property owners has always been
controversial, but the law
was attempting to solve a practical problem: too often it is
difficult to finance cleanups
that occurred long ago, and the public interest in having the
toxics removed is too great
to finance only through liability on parties that may have
disappeared or gone out of
business.
36. https://www.epa.gov/rcra
https://www.epa.gov/laws-regulations/summary-comprehensive-
environmental-response-compensation-and-liability-act
https://www.epa.gov/laws-regulations/summary-comprehensive-
environmental-response-compensation-and-liability-act
321
Section 15.3 Chapter Summary CHAPTER 15
will need to make decisions on whether to operate
internationally through subsidiaries
or licensing arrangements, or whether they wish to operate
directly in a foreign country.
Compliance with environmental regulations should also be a
major concern. Much of the
law focuses on preventing, or at least limiting, pollution with
regard to air and water qual-
ity and disposal of waste. As the world population grows and
industrialization increases,
businesses and individuals alike will face the challenge of
dwindling resources, including
the basic necessities of fresh air and water and unpolluted land.
The choices made now
will affect the state of the world in the decades to come.
Focus on Ethics
To what extent should a U.S. company be responsible for the
conduct of a
foreign firm doing its business? Sportswear and equipment
company Nike
came under fire in the 1990s for contracting with overseas
manufacturers
37. described as sweatshops, located in countries including China,
Vietnam,
Pakistan, and Indonesia. Labor advocates charged that the
companies vio-
lated minimum wage and other worker protection laws. In 1998
Nike, in
response to pressure, pledged to eliminate child labor for Nike
products and
to improve conditions for workers in overseas companies to
meet U.S. stan-
dards. However, it did not address wage issues. In 2001, the use
of child
labor again became an issue. In 2011, there were reports of
physical abuse
at factories in Indonesia. Examples included workers being
punched and
kicked and made to stand for hours in the sun when they failed
to make
production quotas. Nike issued a statement saying that while
they regret-
ted the abuse of workers, there was little they could do to stop
it. In 2012,
a settlement with an Indonesian labor organization was
announced, where
Nike agreed to pay $1 million to compensate about 4,000
workers for over
593,400 unpaid overtime hours worked over two years. (The
workers’
unpaid labor went back further than that, but Indonesian law
only applied
to the two-year window).
Questions for Discussion
1. Is Nike’s response enough? Do you think they are acting
ethically by continuing to use contrac-
39. Cases Study: Arc Ecology v. U.S. Dept. of Air Force
411 F.3d 1092 (9th Cir. 2005)
Facts: A decade after the United States vacated its occupation
of Clark Air Force Base and Subic Naval
Base in the Philippines, the plaintiffs, citizens and residents of
the Philippines who live near the bases,
sued under CERCLA to compel the U.S. government to perform
an assessment and cleanup of alleged
contamination.
Issue: Does CERCLA have extraterritorial application, allowing
plaintiffs outside the United States to
sue for environmental harm in the Philippines?
Discussion: The plaintiffs pointed to CERCLA’s definition of
the “United States,” which refers to the
several States of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, Guam,
American Samoa, the U.S. Virgin Islands, the Commonwealth of
the Northern Marianas, and any other
territory or possession over which the United States has
jurisdiction. The United States argued that
the term “possession” instead refers to U.S. property that does
not rest within the territory of another
sovereign nation.
However, the court looked at the fact that even if Clark and
Subic should be considered possessions
of the United States, the property had been under control of the
Philippines for ten years prior to
the plaintiffs filing their lawsuit, and thus was not a possession
at the time of the lawsuit. It was thus
unlikely that Congress, in enacting CERCLA, envisioned that
41. 323
Section 15.3 Chapter Summary CHAPTER 15
Cases Study: Karuk Tribe of California v. United States Forest
Service
681 F.3d 1006 (9th Cir. 2012)
Facts: Since “time immemorial,” the Karuk Tribe has inhabited
what is now northern California and
depended on coho salmon in the Klamath River for cultural,
religious, and subsistence uses.
In 1997, coho salmon in the river were listed as “threatened”
under the Endangered Species Act (ESA).
The Klamath River also contains gold, and as a result
recreational mining there is regulated by the U.S.
Forest Service. If mining activities “might cause” disturbance of
surface resources, a person proposing
such activities must submit a Notice of Intent (NOI) to operate.
In 2004, the Karuk Tribe representatives
warned the Forest Service about the harmful effects of mining
on fisheries in the Klamath River, but
the Forest Service approved four NOIs. The Karuk Tribe sued
the Forest Service for the violation of the
ESA by approving of mining activities in a critical habitat of
coho salmon without consulting first with
other federal wildlife agencies, as seemed to be required by
Section 7 of the ESA. The tribe asked the
court for injunction—to prohibit mining activities approved by
the Forest Service. The trial court ruled
for the Forest Service, and the Karuk Tribe appealed.
Issue: Did the Forest Service violate the Endangered Species
Act by allowing recreational mining in a
42. critical habitat of coho salmon without first consulting with
federal wildlife agencies?
Discussion: The 9th Circuit Court of Appeals noted that “the
heart” of the ESA (Section 7) requires federal
agencies to ensure that none of their activities “will jeopardize
the continued existence of listed species
or adversely modify a species’ critical habitat.” The purpose of
consultation with federal wildlife agencies
is to obtain an expert’s opinion on the possible adverse effects
of proposed activities. Under Section 7, an
agency must consult only when it makes an authorization or an
“affirmative act.” In this case, the mining
regulations and actions of the Forest Service proved that the
agency “affirmatively authorized private min-
ing activities” at the Klamath River area when it approved four
NOIs. The letters from the Forest Service
to the miners expressly granted permission for mining.
Therefore, the Forest Service’s approval of the four
NOIs at issue here constituted an agency action under the
Section 7. Finally, the appellate court noted that
the agency must consult with federal wildlife agencies if it’s
action “may affect” a listed species or a criti-
cal habitat. The Forest Service’s regulations require miners to
submit NOIs when mining activities “might
cause” disturbance of surface resources, and the phrase “might
cause” means that proposed mining “may
affect” critical habitat of coho salmon. Thus, the court
concluded that the Forest Service violated Section 7
of the EPA when it approved four NOIs without first consulting
with federal wildlife agencies.
Holding: The appellate court reversed the trial court’s decision
and remanded the case for entry of
judgment in favor of the Karuk Tribe.
44. 1. How do the laws governing tariffs affect an individual
business? How do they
affect the national economy?
2. Why hasn’t environmental regulation been more effective?
3. In what way is environmental regulation an international
issue? Try researching
the subject online. Would you say the United States has been a
good world citizen
in this regard?
Hypothetical Case Problems
Case 1. Kare Inc. is a U.S. company that manufactures
electronic components. The
company is interested in expanding into overseas markets, and
has already
been approached by defense contractors in Great Britain and
Russia. Kare is
also looking at buying raw materials from a company in South
Africa, since
it appears they would be cheaper than the supplier in Colorado
that Kare is
currently using.
A. What legal considerations must Kare look at before selling
overseas?
B. What issues may arise with regard to using the South
African supplier?
Case 2. Ace Apparel LLC is a U.S. company that imports
clothing wholesale from the
Philippines. An assistant minister of trade in the Philippines has
suggested
46. act of state An act of a public nature com-
mitted by a recognized foreign govern-
ment within its own borders.
bribe An illegal payment made to a public
official, intended to influence the perfor-
mance of the official’s duties.
cap and trade A type of pollution regu-
lation that provides that polluters must
buy credits for a certain unit of pollution
generated.
comity A legal doctrine that states that
a nation will defer to and give effect to
the laws and judicial rulings of another
country, to the extent that they are consis-
tent with the law and public policy of the
accommodating nation.
command-and-control A type of regula-
tion that mandates specific behavior.
dumping Selling goods in another coun-
try at less than fair value, usually in an
effort to dominate the market before rais-
ing prices.
export Taking and often selling goods
outside the country of manufacture.
expropriation The seizure of privately
owned assets for the public good.
externality A cost of a practice that is
50. CHAPTER 15Section 15.1 International Law and Business
Business today exists in a global environment. Even if your
company only sells in the United States, it is still potentially
affected by competition from overseas. If you seek to expand
your markets beyond the borders, there are many issues to be
consid-
ered. What kind of regulations must you deal with, both in your
own country and in the
foreign country? Where would disputes be settled, and under
whose law? Do U.S. laws
still apply when your company is acting outside U.S. borders? A
basic understanding of
international business law is important for the business student.
Increasingly important, too, is the state of that globe, the planet
on which we live and do
business. An awareness of environmental issues and laws is
relevant not just from the
standpoint of compliance with regulations and avoiding
liability, but also because we face
in the 21st century a stark necessity of working to preserve our
limited resources of fresh
air and water, or dealing with ever worsening consequences.
15.1 International Law and Business
International law is in many ways very different from the law
you studied earlier in this book. Until now, we have been
examining law in the context of its being rules enforced by the
government. If someone commits a crime, the government
prosecutes. If some-
one breaches a contract, the other party can use the courts to
enforce it. With international
law, enforcement is less likely, because there is no powerful
51. international entity that can
do so to the same degree an individual country can within its
own borders. Nonetheless,
international law does still exist, and in this section we shall
examine its sources and some
of its basic principles.
Sources of International Law
Treaties and Agreements
A treaty is an agreement or contract between two (bilateral) or
more (multilateral) nations
that must be authorized and ratified by the government of each
nation. Some notable
examples of treaties relating to business are the North American
Free Trade Agreement
(NAFTA) and the General Agreement on Tariffs and Trade
(GATT). Both are the subject of
considerable disagreement as to whether they are good or bad
for the U.S. economy.
NAFTA, which originally took effect in 1994, is an agreement
between the United States,
Canada, and Mexico to eliminate most trade barriers between
these countries. It has
resulted in much more trade among these countries, but some
charge that because Ameri-
can manufacturers must compete with Mexican companies with
much lower labor costs,
NAFTA has caused jobs to leave the United States. Others
counter that the United States
benefits from the expanded market.
The European Union (EU) is a similar agreement among 28
countries as of 2016, includ-
ing Great Britain, France, Germany, and most of Europe
53. to an average of 4 percent for manufactured goods. One effect is
that consumers tend
to see lower prices from increased competition among
manufacturers. GATT also led to
creation of the World Trade Organization, or WTO, which may
hear and adjudicate trade
disputes among signatory nations.
Example 15.1. Brazil claimed that U.S. government subsidies
for its domes-
tic cotton industry violated trade agreements and were
distorting the mar-
ket, since U.S. manufacturers were able to offer cotton at a
lower price
(because the government was in effect paying part of their costs
for them).
In 2004 the WTO agreed with Brazil. The usual remedy the
WTO offers is
that of “retaliation,” meaning that Brazil could legally tax U.S.
goods at a
higher level. But the WTO went a step further, and allowed
Brazil “cross-
retaliation,” which meant lifting intellectual property protection
of U.S.
products. This would mean that patents and copyrights could be
ignored
by Brazil; for example, it could legally pirate Hollywood
movies and make
knock-offs of U.S. patented drugs. To avoid Brazil’s retaliation
without
ending the cotton subsidies, the U.S. government agreed in 2010
to pay
$150 million a year to support Brazilian cotton farmers.
International Organizations
There are many organizations created by the agreement of
55. in English courts and wins a judgment against
Seller. However, because Seller ’s assets are in
the United States, Buyer will need the coopera-
tion of the U.S. courts to enforce the judgment.
Will the United States honor the British court’s
judgment? Probably yes, because it is unlikely
that there is any conflict with American law or
public policy.
Example 15.3. Under French law, fashion designs
are protected by very strict copyright laws. An
American company that published photographs
of original French fashions on a website without
permission of the designer could be held liable
under French law for infringement. But if the
French designer sought to enforce the judgment
in the United States, the U.S. court might find
that French law conflicts with the First Amend-
ment right to freedom of expression, and refuse
to enforce the judgment.
Sovereign Immunity
The doctrine of sovereign immunity means that one
nation cannot sue another. In the United States, a spe-
cific federal law, The Foreign Sovereign Immunities Act
(FSIA) of 1976, provides that a foreign nation cannot gen-
erally be sued, but there are exceptions where the foreign
state has:
• Waived its immunity;
• Engaged in commercial rather than political activity; or
• Committed a tort in the United States or violated specific
international laws.
Example 15.4. Canada contracts to buy 15 airplanes from U.S.-
based Boe-
57. http://usun.state.gov/sites/default/files/organization_pdf/218088
.pdf
311
CHAPTER 15Section 15.1 International Law and Business
Example 15.5. A U.S. company has an oil refinery in an African
nation.
After an election where a different political party comes to
power, the Afri-
can country’s new government decides to nationalize the oil
industry. If
the nation pays the company for the refinery, this is legal
expropriation. If
the government simply seizes the refinery and does not pay fair
compensa-
tion, this is called confiscation and violates international law.
Obviously acts of state such as expropriation represent a
significant risk of doing business
in other countries. Companies may want to invest in insurance
to cover such risks. While
not cheap, such insurance can nonetheless remediate otherwise
catastrophic losses.
In the Media: 9/11 Families Seeking Justice Through
International Law
FSIA protects a foreign government from being sued in Ameri-
can courts under most circumstances, with limited exceptions.
The statute (16 U.S.C. §§ 1601–1611) is a legislative version of
what American common law provided, going as far back as a
U.S. Supreme Court case in 1811, The Schooner Exchange v.
M’Fadden, and it establishes under what conditions a foreign
58. sovereign nation can be brought under the jurisdiction of the
American legal system.
After the 9/11 attacks on America, hundreds of families whose
loved ones were murdered sued the kingdom of Saudi Arabia
and
members of the Saudi royal family for over $100 trillion,
alleging
that the Saudis helped fund the Al Qaeda terrorists behind 9/11.
The evidence was compelling, and even as late as 2012 two for-
mer U.S. Senators who were privy to secret information the U.S.
government gathered following the September 11 attacks filed
affidavits. One of the senators even stated under oath that he
was “convinced that there was a direct line between some of the
terrorists . . . and the government of Saudi Arabia.”
In 2005, the federal district judge who had jurisdiction over the
suit dismissed it because of the Foreign
Sovereign Immunities Act. That dismissal also applied to the
Saudi royal family members, because
they are part of the Saudi government. The families then
appealed to the 2nd Circuit Court of Appeals,
which affirmed the trial court’s decision in 2008. Finally, the
families sought an appeal of that deci-
sion before the U.S. Supreme Court. The primary argument of
the 9/11 families was that an exception
added in 1996 to the FSIA applied, namely, that a government
that sponsors terrorism loses the pro-
tection of the FSIA. While the Supreme Court was considering
whether to take the case, the Obama
administration filed a legal brief with the Supreme Court (a
brief written by then Solicitor General Elena
Kagan, who would become a Supreme Court justice in 2009),
arguing that the 2nd Circuit’s decision
should be upheld.
60. capacity is not protected by the FSIA,
which, in effect, seemed to reopen the debate all over again.
In 2013, the Second Circuit Court of Appeals reversed its 2008
ruling and reinstated Saudi Arabia as a
defendant in the case. Saudi Arabia appealed the ruling to the
United States Supreme Court. In 2014,
the Supreme Court declined to hear the appeal, clearing the way
for the case to proceed in federal
district court. In 2015, Saudi Arabia was again dismissed as a
defendant by Federal District Court Judge
George Daniels, who ruled that the plaintiffs did not present
enough evidence that Saudi Arabia was
involved in the 9/11 attacks to overcome its sovereign
immunity. Meanwhile, Congress had been
considering legislation that would make it easier for the 9/11
plaintiffs to sue Saudi Arabia. They
passed the Justice Against Sponsors of Terrorisms Act in
September 2016, but President Obama
vetoed the bill shortly after.
Sources: http://www.cnn.com/2002/LAW/08/15/attacks.suit/
http://www.cbsnews.com/2100-201_162-5051884.html
http://www.nytimes.com/2009/06/30/us/30victim.html
http://www.scotusblog.com/case-files/cases/samantar-v-yousuf/
http://articles.philly.com/2014-07-
02/business/51005807_1_saudi-arabia-saudi-government-cozen-
o-connor
http://www.bbc.com/news/world-us-canada-34405451
http://www.cnn.com/2016/05/17/politics/senate-9-11-saudi-
arabia-bill/
61. https://www.govtrack.us/congress/bills/114/s2040/text/enr#com
pare=es
http://www.usnews.com/news/articles/2016-09-20/9-11-
families-protest-at-white-house-ask-obama-to-
sign-bill-allowing-them-to-sue-saudi-arabia
Conducting Business in the International Arena
Suppose your company wants to take advantage of overseas
markets. One of the first
things you will have to do is make sure that you are allowed to
export, or sell outside the
United States, your goods. Exports are regulated by a number of
different laws, including
those designed to protect national security. For example, if you
manufacture ballistic mis-
sile systems, you would probably expect there to be restrictions.
But what if you manu-
facture lie-detector equipment? Sometimes restrictions are
based on not just what is being
sold, but where it is being sold.
Example 15.6. Polyglot Polygraph Inc. plans to sell polygraph
equipment
to Honduras. This export is regulated and a license will be
required. But if
Polyglot is selling the same equipment in Iceland, a license is
not required.
Often a U.S. company will find an agent to act for them in the
foreign country, and the
agent will receive the exported goods and arrange for their sale.
Sometimes a company
will instead decide to do the actual manufacturing overseas.
63. desirable for a nation, there is
also a fear that too much importing can hurt domestic
businesses, as discussed earlier in
relation to treaties such as NAFTA. One way in which countries
restrict imports is by the
imposition of tariffs, or duties, which, as mentioned earlier, are
basically a tax on goods
entering the country.
Example 15.8. Polyglot now has gone into the general security
business,
and is looking to import burglar alarms from France. Polyglot
will need
to find out if there are any restrictions on such imports, and if
they are
allowed, how much the tariff will be. The costs of tariffs should
be factored
into the cost of acquiring the product.
Tariffs can vary widely, depending on the type of goods and the
country from which one
is importing. For example, there are generally no tariffs on
trade between Canada and the
United States.
Dumping refers to a foreign company selling its goods in the
United States at a cost less
than fair value, usually in an attempt to dominate the market
and be able to raise prices
in the long run.
Example 15.9. A Chinese company was selling solar panels in
the United
States at less than the cost of production, putting U.S.
companies at a com-
petitive disadvantage. The U.S. government then assessed
64. additional anti-
dumping tariffs of 30 percent and higher on the Chinese solar
panels.
Of course, there is always a risk that the manufacturing country
will then raise its tariffs
in retaliation, and thus cause what is sometimes known as a
trade war to break out, where
countries act in an increasingly protectionist fashion and grant
preference to manufactur-
ers in their own countries. Governments have to strike a careful
balance, seeking to keep
good trading relationships while not disadvantaging business
within their borders.
The International Business Contract
Obviously much of what you have already learned about
contracts is equally applicable
in the international setting, but when contracting across
international borders, there are
some additional considerations to take into account. What
language should the contract
be written in? For example, the law of France requires that
some types of contracts be in
French. If disputes arise, what country will have jurisdiction?
What law will be applied?
How will payment be made, and whose currency will be used?
These are all matters that
should be spelled out in the contract.
Example 15.10. Cargo Four, a U.S. shipping company, decides
to contract
with a Swedish company for a shipment of sweaters. The parties
agree
that the language should be English, but that Swedish law will
apply and
66. investigations discovered U.S. compa-
nies were paying millions of dollars in bribes (payments made
to influence the decision of
a public official in performance of public duties) to foreign
officials, the law is intended to
preserve confidence in the free market system. However, the
companies complain that in
fact it puts them at a competitive disadvantage, given that
bribes are “business as usual”
in much of the world. Even in countries where such payments
are illegal, there is often
little enforcement. One confusing aspect of the FCPA is that
while bribery is illegal, grease
payments (which are made not to influence an official’s
decision, but to expedite a pro-
cess) are not.
Example 15.11. Can-do Inc. pays a Mexican official to award
Can-do a con-
struction contract for a new highway. This is an illegal bribe.
Example 15.12. Can-do pays an official to move its application
to the front
of the line, so that it gets looked at six months earlier than it
would other-
wise. This is a legal grease payment.
Another significant issue relates to whether U.S. employment
laws that protect against
discrimination apply extraterritorially (outside the United
States). Generally, courts have
held that the laws do apply to U.S. companies with regard to
employees who are U.S. citi-
zens, except when it would break the law of the foreign country
(such as with mandatory
retirement ages), or if there is a bona fide occupation
68. Hooker Chemical Company in Love Canal, New York,
in the 1970s and W.R. Grace in Woburn, Massachusetts,
through the 1980s (the latter became the subject of a book
and movie, A Civil Action).
But environmental issues are not just a matter of busi-
ness compliance and costs. The state of the environment
has profound consequences for every living thing on the
planet, and without effective regulation we can all expect
to pay a heavy price in the form of our health and that of
future generations.
As individuals, we all have little control over the quality
of the air we breathe, the water we use, or the soil in which
our food is grown. Yet clearly we are affected deeply and
directly by polluted air and water and soil. Even when
we seek to make healthy choices, there is often too little
information available (or so much it becomes hopelessly
confusing) or no way to protect ourselves.
Example 15.14. Organic brown rice has long been
a staple of healthy diets. In 2012 it was found that
it absorbs arsenic, often found in agricultural land even when
chemicals
have not been used on crops, at an especially high
concentration. Syrup
made from brown rice is a common ingredient in energy bars
and baby
formula.
A famous story, “The Tragedy of the Commons” by Garrett
Hardin, illustrates one of
the difficulties of regulating the environment. At the center of a
community is a pasture,
which is a “common,” that is, property that belongs to no
particular person. Members of
69. the community use the pasture to graze their cows and sheep.
This works well as long
as no one puts too many animals on the pasture. But one day, a
farmer decides to add
more cows. His neighbor sees this, and she decides that if he is
going to use more graz-
ing, so should she and she puts out more sheep. Before long,
everyone in the community
is crowding the common pasture with livestock. Each person
thinks there is no point to
being the one to withdraw their animals, since the others will
only continue to graze the
land. In time, the animals have eaten all the grass and the
former pasture is barren ground.
The problem is that for the individual farmer, the benefit of
giving his cows more grazing
is obvious and immediate, while the down side of overgrazing is
a problem longer in the
making, and shared by all.
Air and water are clearly commons, and the tragedy is that
people use them in the way
that is convenient, without having to bear the costs. Thus a
factory may find it makes
sense to dump pollutants in a river, because it’s a cheap
disposal method. The long-term
effects of the pollution are not borne by the factory’s owners,
but potentially by everyone
downstream. This is an example of an externality, a cost that is
not factored into that of
The 2010 explosion on the Deepwater oil
rig set off a chain of litigation against both
British Petroleum and its contractors.
Gerald Herbert/Associated Press
71. United States, two to six years) election cycles. Generally, the
effects of pollution, of global
warming and climate change, and even of exposure to toxic
substances are longer term,
making it easy for lawmakers to keep putting off until some
indefinite point in the future
the need to regulate and enforce environmental protections.
Free markets and personal ethics cannot protect the environment
from degradation; the
job is left to the law. In this section we will examine the
primary types of regulations and
analyze their effectiveness.
Types of Environmental Law
Much environmental law is statutory, such as the federal Clean
Air Act and Clean Water
Act. The Environmental Protection Agency (EPA), created in
1970, has the primary respon-
sibility for passing rules to implement such laws and for
bringing actions against those
who violate the law. States also regulate in this area; for
example, many of the laws that
require recycling are state or local in origin.
The common law also plays a role. For example, an agricultural
worker exposed to dan-
gerous chemicals who later developed lung disease might sue
the manufacturer for neg-
ligence because of inadequate warnings. Homeowners with
riverfront property whose
beaches are fouled by a factory’s discharge might sue for
trespass. In what are known
as toxic tort cases, multiple plaintiffs may bring lawsuits for
personal injuries caused by
dangerous substances, such as the situation where a company’s
73. Example 15.16. A factory discharges water that has been heated
into a
nearby stream. Because the warm water can affect the ecology
of the
stream in a negative manner, the change in water temperature is
consid-
ered a form of pollution. The factory is ordered to keep
discharged water
within certain temperature limits, but the factory is free to
decide whether
to hold the water in tanks until the temperature comes down or
to install
cooling equipment.
Another method is the command-and-control model, such as
requiring that power plants
install certain emissions control equipment.
One problem with both these type of rules is that they are only
effective to the extent they
are enforced.
Example 15.17. Suppose a utility company has failed to reduce
emissions
to the proper level. The company may actively lobby for the
rules to be
changed, or it may contribute to the political campaign of a
presidential
candidate who will seek a smaller budget for the EPA and cut
its personnel.
In some cases, companies simply find it cheaper to pay an
occasional fine
than to follow the law.
Some statutes authorize criminal prosecutions as well as civil
74. lawsuits for damages. For
example, under the Clean Air Act (42 U.S.C. § 7401 et seq.
(1970)), not only the company
may be fined, but corporate officers who knowingly violate the
law (for example, by
falsely reporting information) may be subject to fines up to $1
million and imprisonment
up to two years. The same law authorizes citizen suits, which
give private individuals
some ability to enforce the law even if the government doesn’t
act. However, in many
situations polluters have sufficient political clout that
authorities may take a hands-off
approach to enforcement, and citizens may not have the
resources to bring private suits.
Example 15.18. An area known as the Chemical Corridor in
Mississippi
and Louisiana was home to operations of several major
companies, who
were polluting with highly toxic substances. Residents of the
Corridor were
suffering from many often fatal health problems, but they were
primarily
low-income minorities who could not afford lawyers. After a
law clinic at
Tulane Law School stepped in to represent them and took
effective action
on their behalf, the governor of Louisiana threatened to
withdraw funding
from the school, and the Louisiana Supreme Court (which is
elected and
thus subject to political concerns) barred the clinic from
representing resi-
dents in suits against the chemical industry.
76. from unpleasant to fatal.
The Clean Air Act, along with its subsequent amendments,
regulates emissions from
sources both stationary (power plants, factories) and mobile
(cars). For stationary sources,
the EPA sets the maximum limits for various pollutants, but
states have the first respon-
sibility for planning how to achieve those
standards. Substances regulated include
carbon monoxide, nitrogen dioxide, mer-
cury, asbestos, particulate matter (dust,
soot), and ozone (smog, not to be confused
with the ozone layer in the atmosphere,
which prevents harmful rays from the sun
from penetrating to the surface), among
others. In setting limits the EPA does not
have to consider the cost of compliance to
a factory or industry, and one of the goals
of the law is to prevent deterioration of air
quality in places with clean air.
Acid rain is a type of pollution caused by
sulfur dioxide emissions, which largely
emanate from coal-burning plants located
in the Midwest and eastern states such
as Ohio and Pennsylvania. One problem
is that the pollutants are carried on the
wind to other states and countries such as
Canada, where the precipitation falls and the damage is done to
forests, crops, lakes,
and ponds. The states with the plants may have little incentive
to demand costly equip-
ment be installed, since they are not suffering the harm.
Another problem is that older
78. 319
CHAPTER 15Section 15.2 Environmental Law and Business
Despite some of its weaknesses, the Clean Air legislation has
undoubtedly been effective
in reducing some pollutants and their negative consequences for
human health. The EPA
estimates that by the year 2020, regulations will save 230,000
lives in the United States.
Water Quality
The Clean Water Act (CWA), 33 U.S.C. § 1251 et seq. (1972),
and its subsequent amend-
ments, regulate discharge of pollutants into navigable waters.
Originally this definition
was broadly interpreted, but more recently the courts have
excluded wetlands, intermit-
tent streams, ponds, or lakes that do not connect to open water,
and waterways within a
single state. While the EPA has a permitting system for point
source discharges, such as
those from a factory, an animal feedlot, or a municipal sewage
treatment plant, it is largely
left to the states to oversee regulation for non-point sources,
such as agricultural or urban
runoff, a significant source of water pollution. The CWA also
sets water quality standards,
which vary with the intended use of the body of water. For
example, a lake used for swim-
ming and fishing would have tougher standards than a pond
used for irrigation. The
minimum standards are initially based on the Best Available
Technology that could be
used to control pollution, but the CWA includes antidegradation
policies as well.
79. Another provision requires a permit before a wetland can be
dredged and filled, in an
attempt to prevent real estate developers from eliminating these
natural filtering systems
and wildlife habitats. Wetlands policy is intended to result in no
net loss, but in practice
this has not proved to be the case. Environmentalists point to
the aftermath of Hurri-
cane Katrina as an example of the consequences of wetland
destruction. Draining of the
swamps around New Orleans meant elimination of the natural
“overflow” that histori-
cally prevented much flooding. The result was that large
sections of the city were ren-
dered uninhabitable. Years later, much of the New Orleans
displaced population has not
returned to the city.
The Safe Drinking Water Act (SDWA) applies to public
drinking water systems and
requires the EPA to set standards and oversee implementation
by the states. It also requires
that community water systems send consumers an annual report
disclosing the level of
contaminants in drinking water. Unfortunately, no standards
have been set (and thus no
testing done) for the vast majority of chemicals (upwards of
70,000) in the United States,
many of which may be leaching into groundwater, and so the
real level of contamination
in drinking water is unknown. In a recent high profile case, city
officials in Flint, Michigan
have been charged with violation of the SDWA due to high
levels of trihalomethanes and
lead in the city’s water supply. Congressional hearings have
