International business law covers many topics including international law, conflict of laws, and economic law. The document outlines the key concepts of international law including what international law is, how it is made through treaties and customs, its sources, scope of application, and subjects like states, international organizations, and individuals. International law governs relationships between states, persons and states, and persons with each other. It is a binding legal system created through the consent of states based on their practice and beliefs.

1. International business law
 International law
 Need for international law
 Conflict of laws

International private law

International public law

International economic law

2. International Business Law

3.  A. WHAT IS INTERNATIONAL LAW?
 B. THE MAKING OF INTERNATIONAL LAW
 C. SOURCES OF INTERNATIONAL LAW
 D. THE SCOPE OF INTERNATIONAL LAW IN
ACTUAL PRACTICE
 E. INTERNATIONAL PERSONS
 F. THE RIGHTS OF INDIVIDUALS UNDER
INTERNATIONAL LAW
 G. LEGAL SYSTEMS IN THE WORLD

4. Conflict of laws
 Effectiveness of law in other sovereign
nations
 Laws differ in different nations
 Conflict of laws arises between states
 Need for rules in the international plane

5. A. WHAT IS
INTERNATIONAL LAW?
 Defined: The body of rules and norms that
regulates activities carried on outside the
legal boundaries of nations.
 Three international relationships are governed
by international law:

Those between nations and nations.

Those between nations and persons.

Those between persons and persons.

6. A. WHAT IS
INTERNATIONAL LAW?
 Is International Law Really Law?
 It is because nations regard it as something
they are obligated to respect.
 Distinguish: Comity

Comity is courtesy. It is the practice between
nations of treating each other with goodwill and
polite.

Comity is NOT law because countries do not regard
it as something they are obligated to respect.

7. B. THE MAKING OF
INTERNATIONAL LAW
 There is no formal international
law-making machinery
 The basic mechanism for creating
international law is: The consent of
the international community.
(example: Diplomatic privilege,
 1961 Vienna Convention on Diplomatic
Relations)

8.  General consent--State practice:

Multilateral treaties

statement: diplomatic exchanges, formal
instructions, judiciary decisions

Inaction
 Particular consent
 Declarations of government , domestic
legislations…
 Arbitration tribunals

9. C. SOURCES OF
INTERNATIONAL LAW
 Sources listed in Article 38(1) of the Statute of
the International Court of Justice:
 International conventions.
 International custom.
 General principles of law.
 Judicial decisions.
 Teachings of publicist.

10. C. SOURCES OF INTERNATIONAL LAW
 1 Treaties and Conventions - The
most important sources of international
law.
 Treaties: agreements between one or more
nations.
 Conventions: agreements sponsored by
international community

11. C. SOURCES OF INTERNATIONAL LAW
 Reasons for binding effect of treaties

Shared sense of commitment.

Because one country fears that if it does not
respect its promises, other countries will not
respect their promises.
- Rules governing treaties:

Traditionally customary.

Now codified in the Vienna Convention on the Law
of Treaties (in force since 1980 ).

Case 1-1. Legal Status of Eastern Greenland

The effect of an authorized oral commitment made
by a gov’t official … is deemed to be binding .

12. Binding effect of the pact
 State may choose to bind itself through
signature, but also by ratification or accession
國家可以選擇通過簽署條約以約束自己，更可採取「認可」或「加入」
Ratification is act where state declares itself
bound by treaty
「認可」是指國家宣布自己受限於某條約
Instrument of ratification deposited with
designated state or I.O

13. C. SOURCES OF INTERNATIONAL LAW
 Custom
Rules that have been around for
a long time or which are
generally accepted.

14. two elements — one behavioral and one
psychological:
 1) Usus (Latin for: usage):
 Is the consistent and recurring action (or
lack of action if the custom is one of
noninvolvement) by states.
 2) Opinio juris sive necessitatis (Latin
for: Of the opinion that the rule is proper
and required): The custom must be
regarded by states observing it as one
that they must obligatorily follow.

15. Exceptions to the application of custom
1) Persistent objector: A state that
persistently objects to a practice during
its formative stages will never become a
party to it.
 2) A state allowed by the international
community to deviate from a customary
practice.
 Case 1-2. The Asylum Case

16. C. SOURCES OF INTERNATIONAL LAW
 2 Customary rule

Pacta sunt servanda

is a basic principle of international law and civil law. It is
Latin and it means "pacts must be respected" by all sides.
With reference to international agreements, "every treaty in
force is binding upon the parties to it and must be performed
by them in good faith" (Vienna Convention on the Law of
Treaties, 1969, art. 26, and the Vienna Convention on the
Law of Treaties between States and International
Organizations or between International Organizations, 1986,
art. 26). All serious state and international organizations
observe this fundamental and basic principle of international
law. If a state does breach the agreements she had inked or
promises she had given, no state will trust her in future

17. C. SOURCES OF
INTERNATIONAL LAW
 Domestic laws ( foreign related)
 General Principles - those legal
principles common to nation states.
 Interpretation of treaties, customs,
and general practice
 Judicial decisions
 Teachings (publicists )

18. D. THE SCOPE OF
INTERNATIONAL LAW
 The Practice in International
Tribunals
 Municipal law is regarded as subordinate
(subservient) to international law.
 States have a general obligation to bring
their municipal law into compliance with
international norms.
 Procedurally, municipal law is treated as
“mere fact.”—the onus of proof

19. D. THE SCOPE OF INTERNATIONAL
LAW
 The Practice in Municipal Courts:
 International law is regarded as
(correlative).

Court determines if a particular international
law has been received into the municipal
jurisprudence.

If it has, the Court applies it as if it were a
local law and not a mere fact.

20. D. THE SCOPE OF INTERNATIONAL
LAW
 Determining if International Law has been
Received Into the Local Jurisprudence

Customary international law:
 Doctrine of Incorporation: a custom is
automatically part of a nation's laws as long
as it is not inconsistent with those laws.
(Majority rule)
 Doctrine of Transformation: a custom is not part of a
nation's laws until expressly adopted by legislative or
(legislative) act, or by local usage. (Minority rule)

21. As for treaties:
 Reception rules depend upon two factors:
 (i) The nature of the treaty; and (ii) The constitutional
structure of the ratifying state.
 1] The nature of treaties — they may be:
 Self-executing treaty: One that contains a provision that
says the treaty will apply in the parties’ municipal courts
without their having to adopt any domestic enabling
legislation.
 Non-self-executing treaty: One that has no such
provision.
 2] The structure of states
 — constitutions may assign to one or more state organs
(or branches) the responsibility for entering into treaties.

22. Making and effectiveness of the
pact
 Bilateral treaties produced by foreign ministries
or embassies.
 Multilateral treaties made through conferences
Signing of treaty does not indicate acceptance of
treaty by signatory
Merely indicates authentication of text. Usually
two-thirds of conference must authenticate text

23. E. INTERNATIONAL
PERSONS
 States
 Intergovernmental organizations (IGOs)
 Nongovernmental organizations (NGOs)
 Business organizations

Sole proprietorship

Partnership

Company--MNC
 Individuals

24. E. INTERNATIONAL
PERSONS
 States
 Defined: Political entities that have all of
the following characteristics –

A territory.

A population.

A government capable of entering into
international (community).

A government capable of controlling its territory
and people.

25. E. INTERNATIONAL
PERSONS
 Kinds of states:

Independent: free from political control of
other states.

Dependent: have formally surrendered some
of the their political and governmental functions
to another state.

Inchoate: lack some _conditions_ required to
be a state.

26. E. INTERNATIONAL
PERSONS
 International Organizations
 Permanent organizations set up by two or more
states to carry on activities of common interest.

Inter-government organization

Non-government organization
 Characteristics:

Permanent.

Set up by two or more states.

Pursue matters of common interest to the creators.

Function ___ as independent international persons.

27. E. INTERNATIONAL
PERSONS
 Examples:

European Union

United Nations
 Creation: essentially in the same fashion as a
corporation.— charter

28. E. INTERNATIONAL
PERSONS
 Legal capacity of IGOs:

the right to carry on diplomatic relations with states and to
sue or to be sued in international tribunals.

Sources of legal personality:

Constituent treaty

Case law
 Acquired by recognition.
 Automatically from its own state members .Becoming a state
implies recognition of the igo .
 Exceptional: in U.K. a special certification should be
given by the gov’t to recognize the legal capacity of
the igo .
 When specifically granted by non-member states.

29. E. INTERNATIONAL
PERSONS
 Nongovernmental Organizations
(includes Non-profit NGOs and for-
profit NGOs) Set up by individuals or groups
 Governed by the law of the country where the NGO is incorporated
 Ex.: Amnesty International, Greenpeace
 States are usually not parties of NGOs
Non-profit NGOs:

serve as independent agencies for private
national groups in international affairs

For-profit NGOs: businesses operating
internationally

Other names:
 Multinational Enterprises (MNEs)
 Transnational Corporations (TNCs)

30. INTERNATIONAL REGULATION OF
MULTINATIONAL ENTERPRISES
 Several International Organizations
Have Promulgated Rules of Ethical
Behavior for Multinational Enterprises,
including:
 Organization for Economic Cooperation and
Development (OECD).
 International Labor Organization (ILO).
 International Chamber of Commerce (ICC).
 These are only Suggested Rules
 Binding international codes do not exist as yet.

31. HOME STATE REGULATION OF
MULTINATIONAL ENTERPRISES
 The most important forms of home state regulation
are:
 1) Regulation of competition.
 2) Regulation of injuries caused by defective
products.
 3) Prohibition of sharp business practices.
 4) Regulation of securities.
 5) Regulation of labor and employment.
 6) The establishment of accounting standards.
 7) Taxation.

32. Some of these rules are applied
extraterritorially by home state
 most notably:
 1) Regulation of competition.
 2) Regulation of injuries caused by defective
products.
 3) Prohibition of sharp business practices.
 The country that has been most willing to apply its
laws extraterritorially has been the United States.
 1) The European Union, to a lesser extent, has
also begun to apply its internal regulations
extraterritorially.

33. The Host nation’s Regulation
 Local regulation: A host state may regulate a
foreign firm that is doing business within the
state
 Extraterritorial regulation: A host state may
some-times seek to regulate the foreign firm.
 Consent to the Jurisdiction of the Host State.
 Common Enterprise Liability
 Piercing the Company Veil

34. Piercing the Company Veil
 Ignoring the corporate structure of a
company (i.e., “piercing the company
veil”) and exposing the shareholders to
personal liability.
 E.g. The commingling of corporate and
personal assets.

35. F. RIGHTS OF
INDIVIDUALS UNDER
INTERNATIONAL LAW
 Traditional view: no rights, only duties.
 Evolving view:
 Individuals have basic human rights
 Individuals may sue state in some
international tribunals
 Icsid-- oecd

36. G. COMPARISON OF
MUNICIPAL LEGAL SYSTEMS
 The Romano-Germanic Civil Law System
 The Anglo-American Common Law
System
 The Islamic Law System
 Review of Chinese law

37.  Comparative Law: The study and
analysis of the different municipal law
systems.
 a. Legal “families”:
 1) Romano-Germanic Civil Law.
 2) Anglo-American Common Law.
 3) Islamic Law.
 b. These are divided into subfamilies.
 c. There are also hybrids.
 d. There are also some practices that are
unique to a particular country.

38. Civil law system
 Derived from Roman law. It is a complete
code of written laws whose primary source of
law is legislation. It is inquisitorial in form and
forms the basis of the legal systems of most
western European countries. Japan and the
former colonies of France, Spain and
Portugal in Latin America, the near East,
Indonesia, Thailand, Vietnam and parts of
Africa

39.  Countries with Civil Law systems distinguish between
the civil law and public law.
 1] Public law evolved separately from the
movement for codification of civil or private law.
 a] Civil law (for civilian lawyers) is only the law
contained in the codes and its auxiliary statutes (that
is, the law of persons, family law, property law,
succession law, the law of obligations, commercial
law, labor law, and criminal law).
 b] Public law is constitutional and administrative
law.

40. Common law system
 Derived from case law (or precedent)
and statute. It is accusatorial in form
with an emphasis on remedies. It forms
the basis of English law and can be
found in the U.S. , as well as
Commonwealth nations including
Canada, Singapore, Malaysia, New
Zealand, India, Pakistan

41. Introduction to THE BUSINESS FORM
 a matter of municipal law.
 The company laws of every country in the world are unique in many
ways.
 A prudent business investor planning to organize a firm abroad will
investigate in detail the company laws of the particular country involved.
 b. Most national company laws are derived from:
 a) The civil law, especially French and German law.
 b) The common law, especially English law.

42. Business Forms in Civil Law
States
 Company:
 Partnership:
 Limited partnership:
 Silent partnership:
 Partnership limited by shares
 Corporation: A company of capital whose
owners have limited personal liability.
Stock corporation
Limited liability company

43. Business Forms in Common
Law States
 Company:
 Partnership:
 Joint stock company:
 Business trust:.
 Corporation:
 1) Public corporation:
2) Private corporation:
 3) Limited liability company:

44. 
Limited liability for equity investors.

1) Unlimited liability corporation

2) No liability corporation

45. The Importance of the Separate Legal
Identity of Companies
 a. Juridical entities (such as companies) have legal
identities separate from that of their owners.
 b. Significance:
 1) The liability of the owners is limited to their
investment in the company.
 2) The owners are neither managers nor agents nor
representatives of the company.
 3) The rights and benefits accruing to the company
belong to the company and not its owners.
 a) The property rights of a company can only be
claimed by that company.

46. Chapter 2Chapter 2
SalesSales

47. introduction
 International trade
 sale, transportation,insurance

48. The sources of international trade law
 International conventions
 The UN convention on the limitation of the Int’l sale of
goods
 The UNIDROIT convention on Agency
 The UNCITRAL ,Model law on Procurement of goods,
construction and services 1994
 International customary rules
 ICC –International commercial term (INCOTERMS)
 Domestic laws
 Relevant international conventions takes priority if the
relevant country ratified and incorporated the convention into
the domestic law.

49.  Application of law for international trade
contract
 Autonomy of will
 The most significant connection
 conventions

50.  145. The parties to a contract involving
foreign interests may choose the law
applicable to settlement of their
contractua1 disputes, except as
otherwise stipulated by Law.
 If the parties to a contract involving
foreign elements have not made a
choice, the law of the country to which
the contract is most closely connected
shall be applied.

51. A. CISG
 United Nations Convention on
Contracts for the International Sale
of Goods
 In effect since January 1, 1988

Current state parties: 64, including
Canada Mexico
China Russia
France United States
Germany
Web site: http://www.uncitral.org/

52. B. COVERAGE OF CISG
 International contracts: buyer
and seller must have their places of
business in different states.
 Both states must be contracting parties to the
convention, or
 The rules of private international law must
lead to the application of the law of a
contracting state.

Exception: A contracting state may declare that it
will apply the CISG only when the buyer and seller
are both from contracting states.

53. B. COVERAGE OF CISG
 Opting in and out
 The parties to a contract may exclude or
modify the CISG’s application by a choice
of law clause.
 Whether parties can exclude a domestic
law and adopt the CISG in its place
depends on the rules of the state where
the case is heard.

54. B. COVERAGE OF CISG
 Merchants: CISG applies only to
commercial sales transactions between
merchants
 CISG Art.1: buyers and sellers must both
have “places of business.”
 CISG Art. 2(a): the Convention does not
apply to sales of goods bought for
personal, family, or household use.

55. B. COVERAGE OF CISG
 Subject Matter of CISG:
 The formation of contracts.
 The remedies available to buyers and
sellers.

56. B. COVERAGE OF CISG
 Subject Matter Not Covered:
 The validity of contracts.
 The competency of the parties.
 The rights of third parties.
 Liability for death or personal injury.
 Sales to consumers.
 Sales of services

57. B. COVERAGE OF CISG
 Sales commonly subject to special regulation:

Auction sales,

Sales on execution or otherwise by authority of law,

Sales of stocks, shares, investment securities,
negotiable instruments, or money

Sales of ships, vessels, hovercraft, or aircraft, and

Sales of electricity.

58. C. CISG COMPARED
 General sources of CISG rules:
French Civil Code, the French
Commercial Code, and similar civil law
codes.

59. C. CISG COMPARED
 Distinctive CISG provisions:
 Contract formation(offer /acceptance)
 Firm offers
 Time of acceptance
 Acceptance with additional terms
 Definiteness
 Formalities
 Obligations of the buyer/seller
 Remedies

60. Offer/acceptance
 Withdraw an offer
 Revocation of an offer
 Rejection an offer
 Counter offer
 Modified acceptance
 Rules for calculating the time of acceptance
 Effect of late acceptance
 Conclusion of contract

61. FIRM OFFERS
 Firm Offer is Irrevocable if:
 the offeror indicates, whether by stating a
fixed time or otherwise, that it is
irrevocable, or
 the offeree acts in reliance on the
reasonable belief that it is irrevocable.
 Firm Offer Does Not Have to be:
 in writing (as required by the UCC), or
 supported by consideration or cause.

62. TIME OF ACCEPTANCE
 Acceptance is Effective and a
contract formed only when the
indication of assent reaches the offeror.
 Caveat: An offeror may not revoke an
offer once it has been dispatched.
 Basis: French Civil Code's receipt rule.

Compare: UCC provides that an acceptance is
effective upon dispatch.

63. ADDITIONAL TERMS
 Additions, limitations, or other
modifications constitute a
“counteroffer.”
 Caveat: This is so only if—

the additional or different terms materially
alter the terms of the offer, or

the offeror fails to promptly object to changes
that are not material.

64. ADDITIONAL TERMS
 Material alterations are changes to the
following:

Price

Payment

quality and quantity of the goods

place and time of delivery

extent of one party’s liability to the other

settlement of disputes
 Basis: French mirror image
rule and UCC § 2-207.

65. FILANTO, SPA v. CHILEWICH INTERNATIONAL CORP.
United States District Court, Southern District of New York, 1992.
 Chilewich had a contract to deliver footwear to Russia. This
contract contained an arbitration provision that called for all
disputes to be arbitrated in Moscow. Chilewich then
engaged Filanto (an Italian corporation) to supply it with
footwear that Chilewich had contracted to deliver to Russia.
Chilewich’s correspondence to Filanto said that the
arbitration provision in the Russian contract was to be part
of their contract as well. Filanto supposedly sent Chilewich
a counteroffer rejecting the arbitration provision. Chilewich
meanwhile proceeded to obtain a letter of credit benefiting
Filanto and proceeded as if there was a contract. Filanto,
however, signed a contract on August 7 that contained this
provision, although it said in its cover letter that it was not
bound by the provision. When a dispute arose and Filanto
sued in a US court, Chilewich invoked the arbitration
provision and asked the court to dismiss Filanto’s suit.

66.  ISSUE: (1) Was the August 7 reply a
counteroffer? (2) If it was, was there a
contract anyway based on unobjected-
to performance?

67.  LAW: A reply that purports to be an acceptance but
contains material additions, limitations, or
modifications are a rejection of the offer and a
counteroffer. (1) The objections to the arbitration
provision in the August 7 cover letter were a material
modification amounting to a rejection of the offer.
 If the offeree knows that the offeror has begun
performance and fails to notify the offeror within a
reasonable time that it objects to the terms of the
contract, it will be deemed to have assented to those
terms. (2) Because Chilewich went ahead with the
contract (getting the letter of credit) and Filanto did
not timely object, Filanto accepted the terms of the
Chilewich’s proposed contract.
 ORDER: Case dismissed; the matter must be
arbitrated in Moscow.

68. DEFINITENESS
 A contract must be sufficiently
definite so that a court can enforce it.
 A contract is sufficiently definite if it:

describes the goods, and

expressly or impliedly fixes or makes provision
for determining the quantity.

69. DEFINITENESS
 Price should be stated or a means
provided for determining it.
 Price not stated: courts imply will the
price generally charged at the time of the
contract for like goods sold under
comparable circumstances in the trade
concerned

70. FORMALITIES
 No Formalities: The CISG does not
require a contract to be in any particular
form (article 11,12,96)
 A contract may be proven by oral
testimony regardless of the price involved.

Basis: French
Commercial Code.

71. GENERAL STANDARDS FOR PERFORMANCE
 Fundamental Breach:
 When one party substantially fails to deliver what the other
reasonably anticipated receiving. (art. 25)
 Avoidance: (art. 26)
 The right to be excused from having to perform any obligation
required by the contract.
 3. Requests for Specific Performance( art. 46)
 a. An injured party make ask a court “to require performance” if
the other party fails to carry out its obligations.
 b. A court is not obliged to order specific performance unless the
court can do so under its own domestic rules.


72. Avoidance
 Requirements:
 The other party must have committed a fundamental
breach.
 The injured party must notify the other party.
 The injured party must be able to return any goods he has
already received.
 2) Effect of avoidance:
 Only the obligation to perform is set aside.
 Avoidance does not affect any provision in the contract
concerning:

The settlement of disputes (such as arbitration, choice of law,
or choice of forum clauses), or

Any other provisions governing the rights and duties of the
parties “consequent upon the avoidance of the contract.”

73. Obligations
 For the seller:
 Delivery of goods
 Transfer of Bills
 warranty
 For the buyer
 Payment
 Take delivery

74. REMEDIES
 Buyer’s Right of Avoidance
 Requirements for avoiding a
contract:

The seller commits a fundamental breach,
or

The seller commits a lesser breach and the
buyer gives the seller a Nachfrist notice that
the seller rejects or does not comply with during
the period it specifies.
 Basis: German Civil Code.

75. REMEDIES
 Nachfrist Notice: the fixing of an
additional period of time of reasonable
length for performance by the seller of his
obligations.

The period must be definite and the obligation
to perform within that period must be clear.

During the Nachfrist period the seller is entitled
to correct (i.e., “cure”) the non-conformity at his
own expense.
 A cure may not be made if the breach is fundamental and
the buyer chooses to avoid the contract.

76. REMEDIES
 Time for Avoidance: Once the Nachfrist
period has run, or once the fundamental
breach becomes clear, the buyer has a
reasonable time in which to avoid the
contract.

77. REMEDIES
 Seller’s Right of Avoidance
 Analogous to that of the buyer’s avoidance
remedy

78. REMEDIES
 Buyer’s Right to a Reduction in
Price
 Applicable when:

the seller delivers non-conforming goods

the buyer accepts them, and

the seller is not responsible for the non-
conformity

79. REMEDIES
 Formula for determining the price
reduction: The price is to be reduced by
that ratio of:

The value at the time of delivery of the goods
actually delivered, to

The value that conforming goods would have
had at the time of delivery.

80. REMEDIES Example

Idaho potatoes sold at $3.50/bushel for delivery in Djakarta

Damaged in transit by act of nature

Undamaged potatoes are worth $4.00/bushel if purchased in
Djakarta

Damages potatoes are worth $2.80/bushel
 The price reduction ratio is:
$2.80 = 7
$4.00 10
 Applying this ratio, the reduced price the buyer pays is:
$3.50 x 7/10 = $2.45

81. Anticipate breach of contract
 Article 71:
 suspend the performance of a contract
on the ground of an anticipatory breach.
 Deficiencies in ability or creditworthiness
 The act in performing or preparing the
contract show that …can not perform at
least of the substantial part of the contract

82. Passing of Risk
 Vital issue:Who is liable for losses incurred
before the completion of the contract.
 Passing of risk and the duty to pay
 When:
 To be transported by carrier
 Sold in transit
 Through delivery
 In unascertained goods

83. Impediment beyond control
 Force majeure
 A party is not liable for damages resulting from his
failure to perform if he can show that:

His failure was due to an impediment beyond his control.

The impediment was not something he could have reasonably
taken into account at the time of contracting, and

He remains unable to overcome the impediment or its
consequences.
Typical situations: Natural disasters, war, embargoes, strikes,
breakdowns, and the bankruptcy of a supplier.

84.  Dirty hands
 One party may not rely on a failure of the other party to
perform to the extent that such failure was caused by the
first party’s act or omission.
 Case 10-8
 Italy 14 January 1993 District Court Monza (Nuova
Fucinati v. Fondmetall International) [translation
available]
[Cite as:
http://cisgw3.law.pace.edu/cases/930114i3.html]

85. Other conventions
 The United Nations Convention on the
Limitation period in the international
sale of Goods
 Convention on international agency

86. INTERNATIONALECNOMIC LAW
chapter 3chapter 3
Trade TermsTrade Terms

87.  Use of Trade Terms: sales contracts
involving transportation customarily contain
abbreviated terms to describe:
 When buyer takes delivery.
 Who arranges for
transportation.
 Additionally:

place of payment.

the price.

the time when the risk of loss shifts from the seller to
the buyer.

the costs of freight and insurance.
A. TRADE TERMS

88. A. TRADE TERMS
 Trade Terms Used Inconsistently
 Domestic laws define trade terms for
domestic sales. Some states define
trade terms for international sales.
 Contracting parties may themselves
define trade terms. By incorporating
definitions from:
 foreign legislation.
 private rules. The most widely used private trade terms
are the “Incoterms” published by the International
Chamber of Commerce.
Web address: www.iccwbo.org

89. A. TRADE TERMS
 “Free” Terms
 Several of the common trade terms begin with
the word "free" (e.g., free on board, free
alongside, free carrier).
 “Free” means: the seller has an obligation to
deliver the goods to a named place for
transfer to a carrier.

90. B. F.O.B.
 Free On Board (port of shipment)
contract: requires a seller to deliver goods on
board a vessel that is to be designated by the
buyer in a manner customary at the particular
port.
 “On board” means that the goods:

have been appropriated to the contracts.

have crossed rail.

91. B. F.O.B.
 Use limited to seaborne commerce in most
of the world.

The Incoterms uses it only in connection with
the carriage of goods by sea.

In common law countries it is also applies to
inland carriage aboard any “vessel, car or other
vehicle.”

92.  Free Alongside or Free Alongside Ship
Contracts: requires the seller to deliver goods to a
named port alongside a vessel to be designated by the
buyer and in a manner customary to the particular port.

“Alongside” means that
the goods be within reach
of a ship's lifting tackle.
C F.A.S

93. D. C.I.F.
 Cost, Insurance and Freight (port of
destination): requires the seller to arrange
for the carriage of goods by sea to a port of
destination and to turn over to the buyer the
documents necessary to obtain the goods from
the carrier or to assert a claim against an insurer
if the goods are lost or damaged.

94. D. C.I.F.
 Three document represent the CIF
contract:

the invoice.

the insurance policy.

the bill of lading.
 Seller’s duties: deliver the documents to
buyer
 Buyer’s duties: pay the seller on delivery
of the documents

95. E. C.F.R.
 Cost and Freight
(port of destination):
same as the CIF contract,
except that the seller
does not have to procure
marine insurance against
the risk of loss or damage
to the goods during transit.

96. F. D.E.S.
 Delivered Ex-Ship (arrival contract): requires
seller to deliver goods to buyer at an agreed port of
destination.
 Seller remains
responsible for
the goods until
they are delivered.

Seller is not obliged
to obtain insurance
for the buyer's benefit.

97. G. F.C.A.
 Free Carrier or Free Carrier
Alongside: requires the seller to deliver
goods to a particular carrier at a named terminal,
depot, airport or other place where the carrier
operates.
 Risks of loss and
liability for cost of
transportation shift
to buyer upon seller
making delivery.

98. H. E.X.W.
 Ex-Works: seller delivers the goods at his
own place of business.
 All risks and transportation.
costs are the responsibility of the
buyer

99. Chapter 4Chapter 4
Transportation

100. Contract for carriage by
sea,air and land
 A . Introduction
 Modes of international
transportation

By sea ( bill of lading/charter
party)

By air

By land

Multimodal transport of goods
 Application of law relating to the
contract for carriage by sea.

101. Legal frame work for carriage
by sea
 It is presently regulated by both international conventions and
domestic laws.
 Conventions:
 The Hague Rules 1924
 The Hague-Visby Rules 1968
 Hamburg rules 1978
 The UN Conventions on International Multimodal Transport
of Goods 1980
 The UN Conventions on the Liability of operators of
Transport terminals in international trade,1991

102. B. BILL OF LADING
 Bill of Lading Defined: an
instrument issued by an ocean carrier
and given to a shipper with whom the
carrier has entered into a contract for
the carriage of goods at the time the
goods are delivered to the carrier.

103. BILL OF LADING
 Purposes( 法律性质） :
 Receipt for the goods.
 Evidence of a contract of
carriage.
 Document of title.

104. RECEIPT FOR GOODS
 Functions of a bill of lading:
 Describes the goods.
 States their quantity.
 States their condition.

105. . RECEIPT FOR GOODS
 Kinds of Bills of Lading
 “On Board” Bill of Lading: certifies that the
goods have been properly loaded.

Bill is prima facie evidence that goods
were received by the carrier as described on the
bill
 Carrier can introduce rebutting evidence if
the bill has not been negotiated to a third
party.
 Carrier is barred from introducing rebutting
evidence if the bill has been negotiated.

106.  “Claused” Bill of Lading:
One that notes a discrepancy on
its face and is non-negotiable.

Discrepancy must refer to a
problem noted at the time the
goods are loaded.
Notations as to problems that
occur later do not effect the
negotiability of the bill.

107. CONTRACT FOR CARRIAGE
 Bill of Lading is evidence of a
contract of carriage between the
shipper and the carrier.
 Carrier can introduce rebutting evidence
if the bill has not been negotiated to a
third party.

108. DOCUMENT OF TITLE
 Rightful possessor of a bill of lading
has title and is entitled to possess, use, and
dispose of the goods that the bill represents.
 Two main kinds of bills of lading:

Straight bills of lading

Order bills of lading
（ OPEN BILL OF LADING ）

109.  Straight bills of lading: a non-
negotiable bill issued to a named
consignee.
 Transferee acquires same rights
as than those of his transferor.
DOCUMENT OF TITLE

110. DOCUMENT OF TITLE
 Order bills of lading: negotiable bill issued to a named
consignee.
 Transfer is by negotiation:
by endorsement and delivery.
 Third party holder has title and the right to take
possession of the goods described in the bill.

Must receive the bill in good faith through due
negotiation.

Must surrender the bill to the carrier in order to take
delivery of the goods.

111. CARRIER’S DUTIES
 Exercise Due Diligence in:
 Making the ship seaworthy.
 Properly manning, equipping and supplying the ship.
 Making the holds, refrigerating and cool chambers, and all
other parts of the ship in which goods are carried, fit and
safe for their reception, carriage and preservation.
 Properly and carefully loading, handling, stowing, carrying,
keeping, caring for, and discharging the goods carried.
 Duties are strictly enforced.

112. CARRIER’S IMMUNITIES
 Carrier is exempt from liability for
damages arising from “perils” such
as:
 Act, neglect, or default of the master,
mariner, pilot, or the servants of the
carrier in the navigation or in the
management of the ship;
 Fire, unless caused by the actual fault
or privity of the carrier;
 Perils, dangers and accidents of the sea
or other navigable water;

113. CARRIER’S IMMUNITIES
 Carrier’s Immunities are
Strictly Construed: carrier is
responsible despite any listed
exemption if it fails to exercise due
diligence in carrying out its
fundamental duties.

114. CARRIER’S LIABILITY
LIMITS
 Carrier Must Issue Bill of
Lading
 Limits set by the Hague
Rules of 1924:

₤100 per package, or

₤ 100 per unit when shipped in
“customary freight units.”

115. P. CARRIER’S LIABILITY
LIMITS
 Limits set by the Hague-Visby
Rules are the higher of:
 10,000 gold francs per package
or unit,
 30 gold francs per kilo of the
gross weight of the goods lost or
damaged, whichever is the
higher.

116. P. CARRIER’S LIABILITY
LIMITS
 Limits do not apply if:
 Parties agree to higher
amounts.
 Carrier acted either:

With intent to cause damage, or

Recklessly and with knowledge
that damage would probably result.

117. Q. THIRD PARTY
RIGHTS
 Liability Limits do not Apply to Third
Parties: Hague Rules and Hague-Visby Rules
liability limits apply to the carrier only.
 Third parties who help in the transport of
the goods, but who are not parties to the
carriage of goods contract contained in
the bill of lading, have no contractual
right to claim the liability limits
established
by the Rules.

118. Q. THIRD PARTY
RIGHTS
 Himalaya Clauses:
Clauses added to bills
of lading extending
the Hague Rules or
the Hague-Visby
Rules liability limits to third parties.
 Unenforceable in most other countries.

Rationale: privity of contract.

119. The Hague Rules
Common Carriage/The Bill of Lading
 APPLICATON
 The Carrier’s Duties Under a Bill of
Lading
 The Carrier’s Immunities (P 73)
 Liability Limits
 Time Limitations
 Third-Party Rights (Himalaya
Clause)

120. Contracts for the carriage of
goods by air
 Introduction
 Warsaw System
 Warsaw convention
The Hague protocol 1955
Guadalajara convention 1961
 Objectives of Warsaw system

121. Carriage of goods under the
Warsaw Convention
 Air Consignment of Note(CAN)
 Definition
 Issue of ACN
 Functions

122. Liability of the carrier
 Liability and the period of laibility
 Excluded liability
 Limited liability
 Liability of successive carriers

123. Rights and obligations of the consignor
 Obliged to
 Information
 documents
 Entitled to
 Take goods back
 Stop the carriage of goods on any landing
 Direct goods to the person other than the
consignee

124.  Limitation period
 Incase of loss of or damage to
goods,complaint must be made within
7days after receiving the goods
 Later delivery 14 Ds
 Forum of action
 The carriers ordinary residence;
 The carriers principal place of business
 The place the carrier’s rep. Actually made
the contract
 The place of destination

125. Chapter 5Chapter 5
INSURANCEINSURANCE

126. Marine insurance
 Introduction
 Cargo insurance contract
 Contract of indemnity
 Classification of contracts

Valued and unvalued policies

Voyage and time policies

Floating policies

127. Risk ,loss and cost
 Risk
 Peril of the sea
 Risks incedental to the adventure
 Additional risks
 Loss
 Toal loss
 Constructive loss
 Partial loss
 General average
 Partial average
 Cost

128. Chapter 6Chapter 6
PAYMENT

129. Lecture 7Lecture 7
The World Trade Organization

130.  World Trade Organization
 Agreement Establishing WTO came into
effect January 1, 1995.

WTO supercedes the ad hoc organization that had
administered the General Agreement on Tariffs and
Trade of 1947.
A. WTO

131. A. WTO
Agreement Establishing WTO provides legal
framework to administer various trade pacts. Final
Act Embodying the Result of the Uruguay Round
of Multilateral Trade Negations, the Marrakesh
Agreement establishing the World Trade
Organization and 1 Annexes annex 1 A Annex
1B Annex 1c, Annex 2,Annex 3, Annex 4
 Annex 1A,1B,1C

General Agreement on Tariffs and Trade of 1994 and
other agreements on trade in goods.

General Agreement on Trade in Services.

Agreement on Trade-Related Aspects in Intellectual
Property Rights.

132.  Annex 2
 Agreement Understanding on Rules and
Procedures Governing the Settlement of
Disputes.
 Annex 3
 Trade Policy Review Mechanism
 Annexes 4
 Plurilateral Trade Agreement

Annex 4a Agreement on trade in civil aircraft

Annex 4b Agreement on Government
Procuremnet

133.  They are two ways to become wto member.
 Origianal member GATT 1947
 Contracting party:“state or special customary
territories possessing full autonomy in the conduct of
its external commercial relations and of the other
matters provided for in this agreement and Multilateral
trade agreements may accede to this agreement on
terms to be agreed between it and the WTO
Consessus for admission of new members. A
prospective member needs to negotiate with all
existing members, who have expressed special intent
in its application for admission.

134.  Organs of the WTO
 Ministerial Conference: the WTO’s supervisory and
policy making organ.
 General Council:

Also functions as the WTO’s:
 Dispute Settlement Body.
 Trade Policy Review Body.
 Council for Trade in Goods.
 Council for Trade in Services.
 Council for Trade-Related Aspects of
Intellectual Property Rights.
 Secretariat headed by Director-General.
A. WTO

135. Ministerial conference
General council
secretariat
DSB
COMMITTEE
S
councils
BOARD

136. B. THE GATT 1994
 Purpose of the GATT Rules: to
progressively liberalize world trade.
 This is done by giving WTO member
states:

Equal access to markets

Reciprocity in trade
concessions.

Transparent and stable
trading conditions.

137. B. The Principles Underlying
the GATT Rules
 Nondiscrimination
 Most-Favoured-Nation Treatment
 National treatment
 Tariff concession
 Market Access
 Elimination of Quantitative restrictions
 Anti-dumping and countervailing
 Transparency

138. C. NONDISCRIMINATION
 Basic principle of GATT: International
trade should be conducted without
discrimination.
 Rules giving expression to
principle of nondiscrimination:
 Most Favored Nation Rule.
 National Treatment Rule.

139. C. NONDISCRIMINATION
 Most Favored Nation Rule:
WTO member state must apply its tariff rules
equally to all other members.

General exceptions to the MFN Rule:
 Contracting states may take actions to counter
dumping and subsidization.
 Contracting states may join together to create
customs unions and free trade areas.
 Contracting states may restrict imports to protect
public health, safety, welfare and national
security.

140. C. NONDISCRIMINATION
 Special exceptions for developing member states.

Generalized System of Preferences
allows developed countries to grant
preferential treatment to developing
countries, and to do so on a nonreciprocal
basis.

South-South Preferences allows
developing countries exchange tariff
preferences among themselves without
extending the same preferences to
developed countries.

141. C. NONDISCRIMINATION
 National Treatment Rule: A WTO
member state must treat imports equally with
its own domestic products once the imports
are inside its borders.

National treatment means that a WTO
state must accord to the nationals of
another WTO state treatment equivalent to
that which the state accords to its own
nationals.
 Interpretation: Products must be treated equally vis-
à-vis their content; they may not be discriminated
against because of the way in which they were made.

142. C. NONDISCRIMINATION
 Exceptions to the National Treatment
Rule:

A member state can maintain the
preferences it had in place at the time it
became a WTO member state.

A member state’s government agencies
can discriminate when they procure goods.

A member states can discriminate in
paying of subsidies to domestic producers.

A member states can discriminate in favor
of domestically produced movies.

143. D. TARIFF concession
 Protection Through Tariffs: a WTO member
state may only protect its domestic industries with tariffs.
 Implementation:

Quotas and other quantitative
restrictions are forbidden if they block
the price mechanism function (Art. XI).

Tariffs may only be collected at the
time or point of importation (Art. II).
 This ensures that internal taxes
will not be disguised tariffs.

144. E. TRANSPARENCY
 WTO member state governments
must disclose to the public, and to
other governments, the rules,
regulations and practices they follow in
their domestic trade systems.

145. F. EXCEPTIONS TO
GATT
 The Escape Clause (or GATT safety
valve): Allows a WTO member state to
temporarily avoid GATT 1994 obligations
when a surge in the number of imports coming
from other member states threatens a
domestic industry.

An injured member may impose
emergency, restrictive trade measures.

146. F. EXCEPTIONS TO
GATT
 Prerequisites – before adopting restrictive
measures a WTO member state must:

Determine threat to a domestic industry.

Notify the WTO of its affected exporting
member state to arrange planned action.

Consult with the for compensation.
 Effect of failure to consult: injured
exporting state may withhold
substantially equivalent concessions in
order to restore the previous balance of
trade between the two countries.

147. F. EXCEPTIONS TO
GATT

Safeguards Agreement sets out
the procedures for engaging in
consultations and for withholding
concessions.

148. F. EXCEPTIONS TO
GATT
 Permanent Exceptions: GATT 1994
allows WTO member states to permanently
implement certain public policies that are in
conflict with its general goal of liberalizing trade.
These are known as:
 General Exceptions
 Security Exceptions

149. G. EXCEPTIONS TO
GATT
 General Exceptions: GATT Art. XX allows a
WTO member state to take measures contrary to its
GATT obligations that:

Are necessary to protect public morals.

Are necessary to protect human, animal, or plant
life, or health.

Relate to the importation or exportation of gold or
silver.

Are necessary to secure compliance with laws or
regulations which are not inconsistent with the
General Agreement.

150. 
Restrict imports of prison labor products.

Protect national treasures of artistic, historic, or
archaeological value.

Relate to the conservation of exhaustible natural
resources.

Are undertaken in accordance with an
intergovernmental commodity agreement.

Involve restrictions on exports of domestic materials
needed by a domestic processing industry during a
period when the domestic price is held below world
prices as part of a governmental stabilization plan.

Are essential to acquiring products in short supply.

151. F. EXCEPTIONS TO
GATT
Prerequisite to implementing
a general exception: A WTO
member state may not adopt an
exception as a way to arbitrarily
or unjustifiably discriminate or as
a disguised restriction on
international trade. (GATT Art.
XX)

152. G. EXCEPTIONS TO
GATT
 Security Exceptions: GATT Art.
XXI allows WTO member states to
avoid any obligation that is:

contrary to an essential security interest, or

in conflict with duties imposed by the United
Nations Charter for the maintenance of
international peace and security.

153. G. WTO MULTILATERAL
TRADE AGREEMENTS
 WTO Multilateral Trade
Agreements supplementing the
GATT 1994, include:
 Antidumping Code
 Agreement on Subsidies
and
Countervailing Measures

154. H. ANTIDUMPING CODE
 Agreement on Implementation of Article VI of GATT
1994 (the Antidumping Code)
provides the procedures a WTO member state may take to
counter dumping.
 Dumping is the introduction into the commerce of another
country a product at less than its normal value.
 Dumping is not forbidden.
 Anti-dumping law and it’s features
 Investigation and procedure

155. H. ANTIDUMPING CODE
 States may take antidumping measures to
counter dumping – but only if they determine:
 Goods are dumped.(price)

Tests for determining normal value of goods
 A domestic industry within the importing country
is materially injured or threatened with material
injury.
 The dumped goods are the cause of the injury
or threatened injury.

156. I. SCM AGREEMENT
 Agreement on Subsidies and Counter-vailing
Measures (the SCM Agreement) specifies the
actions a WTO member state may take to
counterbalance an improper subsidy.
 Subsidy defined: a financial contribu-tion
made by a government or other public body
that confers a benefit on an enterprise,
group of enterprises, or an industry.

157. I. SCM AGREEMENT
 Only specific subsidies are subject to the
disciplines of the SCM Agreement.

Specific subsidies are subsidies
that target:
 A specific enterprise or industry.
 A group of enterprises or
industries.
 Enterprises in a particular region.

158. I. SCM AGREEMENT
 Categories of Specific Subsidies:

Prohibited subsidies (red subsidies)
are subsidies that either:
 Depend upon export performance, or
 Are contingent upon the use of domestic
instead of imported goods.

159. I. SCM AGREEMENT
Actionable subsidies (yellow subsidies) are
subsidies that are trade distorting because, in the
way they are used, they:
 Injure a domestic industry of another member
state.
 Nullify or impair benefits due another member
state under GATT 1994.
 Cause or threaten to cause serious prejudice to
the interests of another member state.

160. I. SCM AGREEMENT
 Nonactionable subsidies (green subsidies) are
subsidies that either:
 Are not nonspecific.
 Are infrastructural subsidies that involve government
funding to:

Assist (but not fully cover) the cost of business
research activities.

Aid disadvantaged regions.

Help existing facilities adapt to new environmental
requirements.

161. I. SCM AGREEMENT
 Actions an injured state may take:

Do nothing.

Request consultations with the subsidizing
state.

Ask the WTO to authorize it to impose
countervailing duties.

Independently impose countervailing duties.
 Must follow the same procedures used for
imposing antidumping duties.

162. 第十四讲
WTO Dispute
Settlement
 WTO’s most individual contribution to the stability of the
global economy.
 makes the trading system more secure and predictable.
 clearly structured, with flexible timetables set for
completing a case.
All final rulings or decisions are made by the WTO’s full
membership. No single country can block these.

163.  What is this agreement called?
Understanding on Rules and Procedures
Governing the Settlement of Disputes
 How are disputes settled?
Settling disputes is the responsibility of
the Dispute Settlement Body (the
General Council in another guise).
 Bodies involved in the system
DSB/Secretariat/the panel/appellate
body/Director - General

164. The Dispute Settlement Body has the
sole authority to
 1) establish “panels” of experts to
consider the case, and
 2) to accept or reject the panels’
findings or the results of an appeal.
It monitors the implementation of
the rulings and recommendations,
and has the
 3) power to authorize retaliation
when a country does not comply with
a ruling.

165. First stage: consultation
 countries in dispute have to talk to
each other to see if they can settle
their differences by them-selves
 they can also ask the WTO director-
general to mediate
 up to 60 days

166. Alternative stage
 Good office
 Conciliation
 mediation

167. Second stage: the panel
 the complaining country can ask for a
panel to be appointed by the Dispute
Settlement Body .
 The panel’s final report should
normally be given to the parties to the
dispute within six months.
 up to 45 days for a panel to be
appointed, plus 6 months for the panel
to conclude

168. How the panel works?
 Before the first hearing: each side in the
dispute presents its case in writing to the
panel.
 First hearing: the case for the complaining
country and defense
 Rebuttals: the countries involved submit
written rebuttals and present oral
arguments at the panel’s second meeting.

169.  Experts: if one side raises scientific or
other technical matters, the panel
may consult experts or appoint an
expert review group to prepare an
advisory report.
 First draft: the panel submits the
descriptive (factual and argument)
sections of its report to the two sides,
giving them two weeks to comment.

170.  Interim report: The panel then
submits an interim report, including
its findings and conclusions, to the
two sides, giving them one week to
ask for a review.
 Review: The period of review must
not exceed two weeks. During that
time, the panel may hold additional
meetings with the two sides.

171.  Final report : A final report is submitted
to the two sides and three weeks later, it
is circulated to all WTO members.
 The report becomes a ruling: The report
becomes the Dispute Settlement Body’s
ruling or recommendation within 60 days
unless a consensus rejects it. Both sides
can appeal the report.

172. Appeals
 Either side can appeal a panel’s ruling.
 Each appeal is heard by three members of a
permanent seven-member Appellate Body
set up by the Dispute Settlement Body.
 Members of the Appellate Body have four-
year terms. They have to be individuals
with recognized standing in the field of law
and international trade, not affiliated with
any government.

173.  Appeals have to be based on points of law
such as legal interpretation — they cannot
reexamine existing evidence or examine
new evidence.
 The appeal can uphold, modify or reverse
the panel’s legal findings and conclusions.
(in 60 days )
 The Dispute Settlement Body has to
accept or reject the appeals report within
30 days — and rejection is only possible
by consensus.

174. How long to settle a dispute?
 Consultations, mediation, etc 60 days
 Panel set up and appointment 45 days
 Final panel report to parties 6
months
 Final report to WTO members 3 weeks
 DSB adopts report(if no appeal) 60 days
 Appeals report 60-90 days
 DSB adopts appeals report 30 days

176. The case has been decided:
what next?
 If the country that is the target of the
complaint loses, it must follow the
recommendations of the panel report or
the appeals report.
 If it fails to act within “reasonable
period of time”, it has to enter into
negotiations with the complaining
country (or countries) in order to
determine mutually-acceptable
compensation.

177.  If after 20 days, no satisfactory
compensation is agreed, the complaining
side may ask the Dispute Settlement Body
for permission to impose limited trade
sanctions (“suspend concessions or
obligations”) against the other side.
 In principle, the sanctions should be
imposed in the same sector as the dispute. If
this is not practical or if it would not be
effective, the sanctions can be imposed in a
different sector.(cross sector retaliation)

178. GATT: The tuna-dolphin
dispute
 In eastern tropical areas of the Pacific Ocean,
schools of yellowfin tuna often swim beneath
schools of dolphins. When tuna is harvested
with purse seine nets, dolphins are trapped in
the nets. They often die unless they are
released.
 The US Marine Mammal Protection Act
sets dolphin protection standards for the
domestic American fishing fleet and for
countries whose fishing boats catch yellowfin
tuna in that part of the Pacific Ocean.

179.  If a country exporting tuna to the
United States cannot prove to US
authorities that it meets the dolphin
protection standards set out in US law,
the US government must embargo all
imports of the fish from that country.
 The embargo also applies to
“intermediary” countries handling the
tuna en route from Mexico to the United
States. Often the tuna is processed and
canned in an one of these countries.

180. Mexico asked for a panel in February
1991. A number of “intermediary”
countries also expressed an interest.
The panel reported to GATT members
in September 1991. It concluded:
 1) that the US could not embargo
imports of tuna products from Mexico
simply because Mexican regulations on
the way tuna was produced did not
satisfy US regulations. This has become
known as a “product” versus
“process” issue.

181.  2) that GATT rules did not allow one
country to take trade action for the
purpose of attempting to enforce its
own domestic laws in another country
— even to protect animal health or
exhaustible natural resources. The
term used here is “extra-
territoriality”.
 The report was never adopted. Mexico
and the United States held their own
bilateral consultations aimed at
reaching agreement outside GATT.

182. WTO: Gasoline Case, 1995
On 23 January 1995, Venezuela
complained to the Dispute
Settlement Body that the United
States was applying rules that
discriminated against gasoline
imports, and formally requested
consultations with the United
States.

183.  Just over a year later (on 29 January
1996) the dispute panel completed its
final report.
 The United States appealed. The
Appellate Body completed its report,
and the Dispute Settlement Body
adopted the report on 20 May 1996
 The United States and Venezuela then
took six and a half months to agree on
what the United States should do.

184.  The case arose because the United
States applied stricter rules on the
chemical characteristics of imported
gasoline than it did for domestically-
refined gasoline. Venezuela said this
was unfair because US gasoline did not
have to meet the same standards — it
violated the “national treatment”
principle and could not be justified
under exceptions to normal WTO rules
for health and environmental
conservation measures.

185.  The dispute panel agreed with
Venezuela. The appeal report upheld
the panel’s conclusions.
 The United States agreed with
Venezuela that it would amend its
regulations within 15 months and on
26 August 1997 it reported to the
Dispute Settlement Body that a new
regulation had been signed on 19
August.

186. comments
Powerful
Integrated
Multilateral
respectable

187. International Business Law
Lecture 10Lecture 10
Dispute SettlementDispute Settlement

188. THE SETTLEMENT OF
DISPUTES
 Disputes may be settled
1. By diplomacy, ADR
2. By litigation
3. By arbitration
1. Definition of arbitration
2. Arbitration agreement
3. Rules of arbitration

189. 1. SETTLEMENT OF
DISPUTES THROUGH
DIPLOMACY
 Diplomacy: The process of reconciling the
parties to a disagreement by negotiation,
mediation, or inquiry., formally between
states .
 Informally it is also used to resolve the
disputes involving institutions and /or
persons., which is commonly referred as
“alternative dispute resolution” --ADR

190. 1. SETTLEMENT OF
DISPUTES THROUGH
DIPLOMACY
 Negotiation: The process of reaching an
agreement by discussion.
 Mediation: The use of a third party who transmits
and interprets the proposals of the principal parties,
and sometimes, advances independence proposal.
 Inquiry: The determination of a disputed fact or
facts by an independent third party.

191. 2. THE SETTLEMENT OF DISPUTES BY
LITIGATION
 A. Litigation
 States or IGOs v. states or IGOs –
cases are heard in:

International courts (such as Inter-
national Court of Justice)

International arbitration tribunals
(icsid)

Municipal courts (rarely)

192.  Private persons v. private persons,
states, or inter-governmental
organizations – cases are heard in:

International arbitration tribunals (such
as International Center for the
Settlement of Investment Disputes
tribunals)

Municipal courts
LITIGATION—international courts and
tribunals

193. International Court of Justice --ICJ
 Created in 1945 as one of the organs of the UN. All the
member states of the UN are automatically parties to the ICJ’s
statute,
 Kinds of judgments that can be handed down by the ICJ.
 1) cases between states (based on the Court’s “conten-
tious” jurisdiction).
 2) Those requested by organs or Specialized Agencies of
the United Nations (based on the Court’s “advisory”
jurisdiction).
 3) Caveat: ICJ has no authority to hear cases involving
individuals or entities other than those just mentioned.

194. W T O
 The World Trade Organization (WTO)
implements and enforces international
agreements regulating international trade.
 Regulatory agreements include:

General Agreements on Tariffs and Trade

General Agreement on Trade in Services

Agreement on Trade-Related Aspects of
Intellectual Property Rights

195. Procedures For Dispute settlement
 Consultation: Member states are encouraged to resolve disputes
with each other by consultation.
 Dispute Settlement Panels will be established. Dispute
Settlement Panel. Panel reports are adopted automatically within 60
days after being circulated,
 Third Party Participation If both parties agree, they may seek the
assistance of third parties in conducting negotiations about their
dispute.
 Appellate Body. An appeal board made up of seven persons who
serve terms of four years. Decisions of the Appellate Body will be
adopted automatically unless the DSB decides by consensus not to do
so

196. ICSID
 International Center for the Settlement
of Investment Disputes (ICSID)
 Established in 1965 by the World Bank
sponsored Convention on the Settlement of
Investment Disputes between States and
Nationals of Other States (the Washington
Convention)

197. ICSID
 Purpose of Washington Convention: To
encourage private investment in underdeveloped
countries by providing a reliable mechanism for
impartially resolving disputes between an investor
and the country of investment.

198. ICSID
Constituting an Arbitration Tribunal
 Requirements:
1. Host state and home state of the investor must
both be parties to the Washington Convention.
2. The host state must have notified ICSID of the
class or classes of disputes that it considers
arbitrable. The dispute must be a legal
dispute arising out of on an investment
3. The investor and the host state must both
consent to ICSID jurisdiction.

199. ICSID
 Effect of consenting to ICSID arbitration:

Litigants agree to exclude all other remedies.
 The case cannot be tried in a municipal or another international
tribunal.
 The investor may not ask its home state for diplomatic
protection.

Caveat: The host state can require that all local remedies
be applied before the dispute can be taken to ICSID.

Unilateral withdrawal is ineffective

200. ICSID
 ICSID Awards
 ICSID awards are binding and
contracting states agree to comply with
them.

Any review of the award by the courts
of the state party to a particular dispute
is considered to be in noncompliance
with the award.

201. ICSID
 Review: The tribunal itself can review an
award either to interpret it or to revise it.
 Appeal: Appeal is allowed to an ad hoc
committee which has the power to annul
an award.

202. B. DISPUTE SETTLEMENT
IN
MUNICIPAL COURTS
 Introduction
 Jurisdiction: the competence of a
municipal (or national) court to exercise the
power to try a case.
 Immunity: The ability of a party (usually a
state) to escape the jurisdiction of a court -
such as:

Sovereign Immunity

Act of State

203. G. DISPUTE SETTLEMENT
IN
MUNICIPAL COURTS
 Jurisdiction in Civil Cases
 Jurisdiction over Persons

In personam jurisdiction
exists when a natural or
juridical person is physically
present within the forum state.

204. G. DISPUTE SETTLEMENT
IN
MUNICIPAL COURTS
 Consent to Jurisdiction

Expressly by:
 Appearing in court after a suit has
commenced.
 Appointing an agent within a state to receive
service of process on him.
 Agreeing to the personal jurisdiction of a
particular court in a forum selection clause
contained in a contract.

205. G. DISPUTE SETTLEMENT
IN
MUNICIPAL COURTS

Impliedly by having “minimum contacts” with
the forum state.
 Minimum contact depends on:

Whether the defendant engaged in acts
that relate to the forum state

Whether the suit is based on those acts,
and

Whether the defendant has indicated by
its conduct that it intended to rely on the
benefits (such as doing business) of the
forum state

206. G. DISPUTE SETTLEMENT
IN
MUNICIPAL COURTS
 Jurisdiction over Property

In rem jurisdiction: The power of a
municipal court to determine the
ownership rights of persons as to
property located within the territory of
the forum state.

207. I. CHOOSING THE
GOVERNING LAW
 Municipal courts apply the laws of
other states when that is the fair
thing to do.
 Rationale: To have a court in another
country apply different laws would
discourage international exchanges of all
kinds.

208. I. CHOOSING THE
GOVERNING LAW
 Rules for Choosing the Governing
Law
 Courts use choice of law or conflict
of law rules to determine if they should
apply their own laws or the laws of
another state in settling disputes.

209. I. CHOOSING THE
GOVERNING LAW
 Procedure:
 Step One: If the parties to a dispute have
agreed to the application of the laws of a
particular country, the court will apply those
laws.

The agreement of the Parties may appear in:
 A choice of law clause.
 Statements made to the court.

210. I. CHOOSING THE
GOVERNING LAW
 Step Two: If the parties have not agreed as
to which laws should apply (either expressly or
impliedly), then the court (depending on the
state it is located in) will determine for itself
which laws it should apply by:

Following statutory dictates,

Using the most significant relationship test.

Using the governmental interest test.

211. I. CHOOSING THE
GOVERNING LAW
 Statutory Choice of Law Provisions
 Commonly found in civil law countries in:

Statutory codes (usually).

International treaties (occasionally).
 Common basis of these provisions:

Vesting of Rights Doctrine: A court is to apply
the law of the state where the rights of the parties to
a suit vested (i.e., where they legally became
effective).

212. I. CHOOSING THE
GOVERNING LAW
 Rules for determining vesting.

The general case: The law of the place where
the act occurred shall govern the dispute.

The particular case: Depends on the type of
dispute.
 For example: for a dispute involving the
interpretation of a contract:

The law of the place where the contract
was made governs questions of validity.

The law of the place where the contract
was to be performed governs questions of

213. I. CHOOSING THE
GOVERNING LAW
 Most Significant Relationship Test
 A court is to apply the law of the state which has the
most contacts with the parties and their transaction.

General factors that a court will consider in all
cases are (in essence):
 Which law best promotes the needs of the
_____________ system?
 Which state's law will be furthered the most by
applying it to the case at hand?
 Which law will best promote the underlying
policies of the legal subject-matter area involved?

Specific factors that a court considers depends on

214. I. CHOOSING THE
GOVERNING LAW
 Governmental Interest Test
 If asked to make a choice of law, a court using this
test will look to see which state has a legitimate
interest in determining the outcome of the dispute.

If only the forum state has an interest: the
court will apply the forum state's law.

If the forum state and another state/states
have an interest: the latter should be applied,
as the court obviously understands those interests
better.

215. I. CHOOSING THE
GOVERNING LAW

If only one state other than the forum has
an interest: the court will apply that state's law.

If two states other than the forum state
have interests: the court may –
 Dismiss the case if the state in which the court
is located can use the doctrine of forum non
conveniens (discussed later).
 Apply whichever law it feels is the sounder.
 Apply the law that is most like that of the _____
_______.

216. J. REFUSAL TO EXERCISE
JURISDICTION
 Forum Non Conveniens
 Doctrine: a court may refuse to exercise
its power to hear a case when it believes
that it would be fairer and more convenient
for the case to be decided elsewhere.

Factors that courts consider:
 Private interests of the parties (e.g., the ease
and cost of access to documents and witnesses).
 Public interest factors (e.g., the interests of the
forum state, the burden on the courts, and the notion
of judicial comity).

217. L. RECOGNITION and
ENFORCEMENT OF FOREIGN
JUDGMENTS
 Recognition of Foreign Court's
Judgment
 Hearing will be held by a court asked to
convert a foreign judgment into a local
judgment.

Common consideration: Did the foreign court
have JURISDICTION before handing down its
judgment?

Other considerations depend on the country.

218. L. RECOGNITION and
Enforcement OF FOREIGN
JUDGMENTS
 Recognition of Foreign Arbitral
Awards
 Treated like domestic judgments in courts in
states that are parties to the United Nations
Convention on the Recognition and
Enforcement of Foreign Arbitral
Awards.
 Otherwise, must be converted into a foreign
judgment in the state where the arbitration
takes place, and then that judgment is treated
like any other foreign court judgment.

219. NEW YORK CONVENTION(p607-
617)
 Foreign arbitral judgment
 Recognition and enforcement of
judgment
 Procedure
 Refusal of recognition and enforcement
 Public policy