International business law text cases and readings 6th global edtion by august

International Business Law
Text, Cases, and Readings
Sixth Edition


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International Business Law
Text, Cases, and Readings
Sixth Edition

Ray August (1944–2004)
J.D., University of Texas at Austin; LL.M. in International Law, University of
Cambridge; Ph.D. in American Legal History, University of Idaho
with revisions by

Don Mayer
Professor in Residence, Daniels College of Business, University of Denver; J.D., Duke
University; LL.M. in International and Comparative Law, Georgetown University Law
Center; Member, North Carolina State Bar
and

Michael Bixby
Professor, Legal Studies in Business, Boise State University; J.D., University
of Michigan; Member, State Bar of Michigan
International Editions contributions by
Suryapratim Roy
Researcher in Behavioural Law and Economics, University of Groningen

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Authorized adaptation from the United States edition, entitled International Business Law: Text, Cases, and Readings, 6th edition, ISBN 978-0-132-71897-4, by Ray August, with revisions
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Brief Contents
preface 17

Chapter   1  Introduction to International and Comparative Law  21
Chapter   2  State Responsibility and Environmental Regulation  71
Chapter   3  Dispute Settlement  127
Chapter   4  The Multinational Enterprise  183
Chapter   5  Foreign Investment  238
Chapter   6  Money and Banking  300
Chapter   7  Trade in Goods  358
Chapter   8  Services and Labor  429
Chapter   9  Intellectual Property  489
Chapter 10 Sales 559
Chapter 11 Transportation 609
Chapter 12 Financing 657
Case Index  702
Statutory Index  705
Topical Index  716

5

Contents
Preface  17

Chapter 1  Introduction to International and Comparative Law  21
What Is International Law?  21
CASE 1-1 Ignacio Sequihua v. Texaco Inc. et al.  23
The Making of International Law  25
Sources of International Law  25
Treaties and Conventions  25
Custom 27
General Principles and Jus Cogens 28

The Scope of International Law in Actual Practice  28
The Practice in International Tribunals  28
The Practice in Municipal Courts  29

CASE 1-2 Sei Fujii v. State of California  30
International Persons  32
States 32
Territorial Sovereignty  34
Negative Servitudes: Air and Water Pollution  34

CASE 1-3 The Trail Smelter Arbitration  35
International Organizations  39

READING 1-1 Overview of the UN Global Compact and the Millennium
Development Goals, and the Ten Principles  44
READING 1-2 The End of the Euro? Fears of Financial Contagion  48
CASE 1-4 Commission of the European Communities v. Federal Republic

of Germany  51
The Institutions of the European Union  54

The Rights of Individuals Under International Law  62
CASE 1-5 De Sanchez v. Banco Central De Nicaragua  63
Comparison of Municipal Legal Systems  65
The Romano-Germanic Civil Law System  65
The Anglo-American Common Law System  68
The Islamic Law System  69

Chapter Questions  70

Chapter 2  State Responsibility and Environmental Regulation  71
Introduction 71
State Responsibility  72
Doctrine of Imputability  72
Nonimputable Acts  72

CASE 2-1 Sandline International Inc. v. Papua New Guinea  73
CASE 2-2 Flatow v. The Islamic Republic of Iran  78
READING 2-1 State Responsibility, Corporate Responsibility, and Terrorism  83
Fault and Causation  87

Standard of Care  88
The National Standard of Care  88

6


Contents  7

The International Standard of Care  88
Expropriation 89

In Brief: CASE 2-3 Acsyngo v. Compagnie De Saint-Gobain (France) S.A.  90
Denial of Justice  93

CASE 2-4 Chattin v. United Mexican States  93
Objections 96
Lack of Standing  96
Lack of Nationality  96
Lack of a Genuine Link  97
Failure to Exhaust Remedies  97

CASE 2-5 The M/V Saiga Case (Merits)  98
Other Objections  103

Relief 103
Insurance 103
CASE 2-6 Re Letelier and Moffitt  104
Private Insurers  107
National Investment Guaranty Programs  107
Multilateral Investment Guaranty Programs  109

Environmental Protection  109
Regulation of Pollution  111

CASE 2-7 Southern Bluefin Tuna Cases: Provisional Measures  112
READING 2-2 The U.S. View and the “Basic” View on the Kyoto Protocol
and its Renewal  120

Protection of Natural Resources  123
Liability for Environmental Damage  124

Chapter Questions  125

Chapter 3  Dispute Settlement  127
Settlement of Disputes Through Diplomacy  127
Negotiation 128
Mediation 128
Inquiry 128

Settlement of Disputes in International Tribunals  129
International Court of Justice  129

READING 3-1 Iran and the United States at the ICJ: Oil Platforms Case (Islamic
Republic of Iran v. United States of America)  133
International Criminal Court  135
World Trade Organization Dispute Settlement Procedures  136

CASE 3-1 Japan—Taxes on Alcoholic Beverages  138
International Center for the Settlement of Investment Disputes  140

CASE 3-2 In the Matter of the Loewen Group Inc. and Raymond L. Loewen,
­Claimants/Investors v. United States of America Respondent/Party  145
Other Arbitration Tribunals  148

Settlement of Disputes in Municipal Courts  148
Jurisdiction in Criminal Cases  148
Jurisdiction in Civil Cases  149
Jurisdiction over Persons  149

CASE 3-3 Bumper Development Corp. Ltd. v. Commissioner of Police of the
Metropolis and Others (Union of India and Others, Claimants)  150


8 Contents

CASE 3-4 Shell v. R. W. Sturge, Ltd.  154
Immunities of States from the Jurisdiction of Municipal Courts  159
Sovereign or State Immunity  159

READING 3-2 China and Sovereign Immunity  162
CASE 3-5 Abbott v. Republic of South Africa  163
Act of State Doctrine  167

CASE 3-6 W.S. Kirkpatrick Co., Inc. v. Environmental Tectonics Co.  167
Choosing the Governing Law  169
Agreement of the Parties  170
Statutory Choice of Law Provisions  170
Most Significant Relationship  171

CASE 3-7 Bank of India v. Gobindram Naraindas Sadhwani
and Others  172
Governmental Interest  175

Refusal To Exercise Jurisdiction  176
Opposition to the Exercise of Jurisdiction  176
CASE 3-8 Jorge Luis Machuca Gonzalez et al. v. Chrysler
Corporation et al.  177
Proving Foreign Law  180

Recognition of Foreign Judgments  181
Chapter Questions  181

Chapter 4  The Multinational Enterprise  183
Introduction  183
Strategies for Doing Business Globally  184
Exporting and Importing  184
Branches and Subsidiaries  184

READING 4-1 China Merchants Bank  185
Licensing Intellectual Property and Franchising  185

The Business Form  186
The Importance of the Separate Legal Identity of Juridical Entities  186

The Multinational Organization  186
The Parent Company  186

CASE 4-1 Case Concerning Barcelona Traction, Light and Power Co.
(Second Phase)  187
The Subordinate Structure  192

International Regulation of Multinational
Enterprises 193
READING 4-2 The ISO 26,000 Standard for Global Business
Conduct 193
Bribery and Corruption Rules  196

Home State Regulation of Multinational Enterprises  196
Unfair Competition Laws  196

CASE 4-2 Metro Industries v. Sammi Corp.  200
In Brief: CASE 4-3 Airbus Industrie G.I.E. v. Patel  208
READING 4-3 F. Hoffman-La Roche Ltd. v. Empagran  209
Tort and Products Liability Laws  210

CASE 4-4 Dow Jones & Co. Inc. v. Gutnick  211
In Brief: CASE 4-5 World-Wide Volkswagen v. Woodson  217


Contents  9

CASE 4-6 Asahi Metal Industry Co., Ltd. v. Superior Court of California, Solano
County United States Supreme Court  219
Sharp Practices  224

CASE 4-7 United States v. Blondek, Tull, Castle, and Lowry  225
READING 4-4 Current Events in International Law: The New Global Reach
of Anti-Corruption Laws  229
Host State Regulation of Multinational Enterprises  231
Consent to the Jurisdiction of the Host State  231
Common Enterprise Liability  231

CASE 4-8 Touche Ross & Co. v. Bank Intercontinental, Limited  232
Piercing the Company Veil  236

Chapter Questions  236

Chapter 5  Foreign Investment  238
Foreign Investment Laws and Codes  239

READING 5-1 Pacific Rim Mining v. El Salvador: An ICSID Arbitration under the
U.S.-Dominican Republic Central American Free Trade Agreement
(DR-CAFTA) 240
National Foreign Investment Policies  243
Regional Investment Policies  245
Screening Foreign Investment Applications  246
Formal and Informal Application Processes  248
Approval of Foreign Investment Applications  249

In Brief: CASE 5-1 Arab Republic of Egypt v. Southern Pacific Properties, Ltd., et al.  249
Business Forms  250
Limitations on Foreign Equity  252
Sectoral Limitations  252

READING 5-2 Foreign Direct Investment in India  253
Geographic Limitations  257

CASE 5-2 Brady v. Brown  257
Free Zones  262

CASE 5-3 Nissan Motor Mfg. Corp., U.S.A. v. United States  264
Foreign Investment Guarantees  268

Supervision of Foreign Investment  270
Start-Up Standards  270
Operational Reviews  270
Modification of Foreign Investment Agreements  271

CASE 5-4 Arbitration Between Wintershall AG et al. and the Government
of Qatar  271

Protection of Subsidiaries  274

CASE 5-5 The Bhopal Case  277
Penalties for Noncompliance  281

Securities Regulations  282
Securities 282
Trading in Securities  283
Securities Exchanges  283
Issuance of Securities  284
Clearance and Settlement Procedures  286
Insider Trading Regulations  287

CASE 5-6 Batchelder v. Kawamoto  288
Takeover Regulations  292


10 Contents

Enforcement of Securities Regulations Internationally   294
International Enforcement Cooperation  295
The Convention on Insider Trading  296
Extraterritorial Application of U.S. Securities Laws  297

Chapter Questions  298

Chapter 6  Money and Banking  300
Money 301
The Value of Money  301
The Choice of Money  302

Maintaining Monetary Value  302

CASE 6-1 Republic of Argentina et al. v. Weltover, Inc. et al.  303
The International Monetary Fund (IMF)   307
Origin of the IMF  307

READING 6-1 The U.S. Dollar as International Currency Reserve?  309
IMF Quotas  310
Organization of the IMF  310

READING 6-2 IMF Quota Reform is Inadequate; Reaction to IMFC
Communiqué 311
READING 6-3 Calls for Debt Audit as IMF Austerity Fails  311
IMF Operations  313
Currency Exchange  313
Currency Exchange Obligations of IMF Member States  313
Enforcement of Exchange Control Regulations of IMF Member States  314

CASE 6-2 Wilson, Smithett & Cope, Ltd v. Terruzzi  315
Enforcement of Exchange Control Laws in the Absence of IMF Membership  319

CASE 6-3 Menendez v. Saks and Company  319
Enforcement of Other IMF Member State Currency Exchange Obligations  322
Exemptions for New Members from IMF Member State Currency Exchange Obligations  323

Currency Support  323
IMF Facilities  323
IMF Conditionality  324

Development Banks  324

Controversies at the World Bank  326

READING 6-4 The IMF and the World Bank: How Do They Differ?  328
The Bank for International Settlements  333
The Central Banks’ Bank  334
Promoter of International Monetary Cooperation  334
Agent for International Settlements  335
BIS and Basel III  335

Regional Monetary Systems  336
National Monetary Systems  338
National Monetary Organizations  338
Bank Deposits  339

READING 6-5 Islamic Banking  340
Eurocurrency Deposits  342
The Interbank Deposit Market  342
The Foreign Exchange Market  343
Foreign Exchange Contracts  344


Contents  11

In Brief: CASE 6-4 Hunt et al. v. Alliance North American Government Income
Trust, Inc. et al.  344
Arbitrage 346
The Transfer of Money  346
Branch Banking  346

CASE 6-5 In Re Sealed Case  347

Conflicts Between Host and Home State Regulations  351

CASE 6-6 Vishipco Line et al. v. Chase Manhattan Bank, N.A.  351
CASE 6-7 Libyan Arab Foreign Bank v. Bankers Trust
Company 355
Chapter Questions  357

Chapter 7  Trade in Goods  358
History of Contemporary International Trade Law  359
Protectionism 360
The Bretton Woods System  362
The 1947 General Agreement on Tariffs and Trade  363
Multilateral Trade Negotiations  363
The Uruguay Round  364

The World Trade Organization  365
The WTO Agreement  367
Membership of the WTO  367
Structure of the WTO  369
Decision Making within the WTO  372

READING 7-1 The WTO from Seattle to Doha to Hong Kong to Geneva
(and beyond)  372
Waivers 375
Dispute Settlement  375
Trade Policy Review  376

The 1994 General Agreement on Tariffs and Trade  376
Direct Effect  376

In Brief: CASE 7-1 Finance Ministry v. Manifattura Lane Marz Otto, SpA 378
Nondiscrimination 379

CASE 7-2 Japan—Taxes on Alcoholic Beverages  381
Protection Only Through Tariffs  385
Transparency 386
Regional Integration  386
Commodity Arrangements  387
Escape Clause  388
Exceptions 388
Export Controls  389

CASE 7-3 United States—Import Prohibition of Certain Shrimp and Shrimp
Products 389
Other Multilateral Export-Control Programs  396

Multilateral Trade Agreements  398
Customs Valuation  399
Preshipment Inspection  400
Technical Barriers to Trade  400
Sanitary and Phytosanitary Measures  402
Trade-Related Investment Measures  402


12 Contents 

CASE 7-4 Australia—Measures Affecting Importation
of Salmon  403
Import-Licensing Procedures  408
Anti-dumping 409

CASE 7-5 Nippon Steel Corporation v. United States  410
Subsidies and Countervailing Measures  414

CASE 7-6 United States—European Communities—Measures Affecting Trade
in Large Civil Aircraft  416
Safeguards 421
Agriculture 422
Textiles and Clothing  424
Rules of Origin  425

Chapter Questions  427

Chapter 8  Services and Labor  429
Introduction  429
General Agreement on Trade in Services  429
The Framework Agreement  430

CASE 8-1 European Communities—Regime for the Importation, Sale,
and Distribution of Bananas  431
GATS Annexes  439
GATS Schedules of Specific Commitments  439

Regional Intergovernmental Regulations on Trade in Services  441
EU Law on Trade in Services  441
Provisions Governing Trade in Services in the North American Free Trade Agreement (NAFTA)  444

International Labor Law  445
International Labor Organization  445

READING 8-1 Equality at Work: Tackling the Challenges of Disability  447
The Human Rights of Workers  451

CASE 8-2 DUBERG v. UNESCO  452
Regional Intergovernmental Regulations on Labor  462
Employment Laws in the EU  462
Employment Standards of the Organization for Economic Cooperation and Development
(OECD) 465
Protection of Workers’ Rights by the Council of Europe  466
Transnational Organized Labor  468

Movement of Workers  468
Visas 469

CASE 8-3 State v. Nagami  470
READING 8-2 United States Visa Regulations  474
CASE 8-4 England and Another v. Attorney-General of St. Lucia  476
Regulation of Foreign Workers  479

CASE 8-5 Spiess et al. v. C. Itoh & Co. (America), Inc.  480
Application of Home State Labor Laws Extraterritorially  483

CASE 8-6 Morelli v. Cedel  483
Chapter Questions  487

Chapter 9  Intellectual Property  489
Introduction  490
The Creation of Intellectual Property Rights  490
Copyrights 490

Contents  13

CASE 9-1 Performing Right Society, Limited v. Hickey  494
CASE 9-2 Amar Nath Sehgal v. Union of India  499
Patents 504

CASE 9-3 Monsanto Co. v. Coramandal Indag Products, (P) Ltd.  507
Trademarks 512

READING 9-1 Starbucks and Ethiopia Dispute Coffee Trademark Issues  513
CASE 9-4 Experience Hendrix, L.L.C. v. Hammerton  516
Know-How 523

International Intellectual Property Organizations  524
World Intellectual Property Organization  524
Council for Trade-Related Aspects of Intellectual Property Rights  526

Intellectual Property Treaties  526
Comprehensive Agreements  527
Artistic Property Agreements  528
Industrial Property Agreements  531

The International Transfer of Intellectual Property  533
Licensing Regulations  534
Territorial Restrictions  536
Export Restrictions  539

CASE 9-5 L’Oréal v. eBay  540
Cartels 542

Exclusive Licenses  543

CASE 9-6 Ransome-Kuti v. Phonogram, Ltd.  543
Sales and Distribution Arrangements  545
Price-Fixing 546
Noncompetition Clauses  546
Challenges to Validity  547
Tying Clauses  547
Quantity and Field-of-Use Restrictions  548
Restrictions on Research and Development  550
Quality Controls  550
Grant-Back Provisions  551
Restrictions That Apply After the Expiration of Intellectual Property Rights  552
Restrictions That Apply After the Expiration of the Licensing Agreement  553

Compulsory Licenses  553
Patents 554
Copyrights 554

READING 9-2 Compulsory Licensing of Patents on Aids and other Drugs: WTO
Rules and Actions by Certain Nations  555
Chapter Questions  558

Chapter 10 Sales  559
United Nations Convention on Contracts for the International Sale
of Goods  560
Transactions Covered in CISG  560
Opting In and Out  562

CASE 10-1 Asante Technologies, Inc. v. PMC-Sierra, Inc.  562

Sales Defined  567
Goods Defined  567
Mixed Sales  568

Contractual Issues Excluded from the Coverage of CISG  569


14 Contents
Illegality and Incompetency  569
Third-Party Claims and Personal Injuries  570
Preemption 570

Interpreting CISG  572
The Convention  572
General Principles  574
Rules of Private International Law  574

Interpreting Sales Contracts  574
Statements and Conduct of the Parties  575
Negotiations 575
Practices and Usages  575

CASE 10-2 Treibacher Industrie, A.G. v. Allegheny
Technologies, Inc.  576
Form 579

Formation of the Contract  580
The Offer  580
Effectiveness of an Offer  582
Acceptance 582

Acceptance with Modifications  584

CASE 10-3 Filanto, SpA v. Chilewich International Corp.  585
General Standards of Performance  587
Fundamental Breach  588
Avoidance 588
Requests for Specific Performance  588

Seller’s Obligations  589
Place for Delivery  589
Time for Delivery  589
The Turning Over of Documents  589
Conformity of Goods  589

Buyer’s Obligations  591
Payment of the Price  591

CASE 10-4 The Natural Gas Case  591
Taking Delivery  594

The Passing of Risk  594
Agreement of the Parties  595

CASE 10-5 Chicago Prime Packers, Inc. v. Northam Food Trading Co.  595
Means of Delivery  598
Breach of Contract  599

Remedies 599
Buyer’s Remedies  599

CASE 10-6 The Shoe Seller’s Case  600
Seller’s Remedies  603
Remedies Available to Both Buyers and Sellers  604

Excuses for Nonperformance  606
Force Majeure  606
Dirty Hands  607

Chapter Questions  607

Chapter 11 Transportation  609
Trade Terms  609


Contents  15

CASE 11-1 St. Paul Guardian Insurance Company v. Neuromed Medical Systems
& Support, GmbH  610
A Note on the Incoterms  614
“Free” Terms  615
FOB—Free on Board  615
FAS—Free Alongside Ship  616
CIF—Cost, Insurance, and Freight  616
CFR—Cost and Freight  616

CASE 11-2 Phillips Puerto Rico Core, Inc. v. Tradax Petroleum, Ltd.  616
FCA—Free Carrier  620
EXW—Ex Works  620

Transportation 620

Inland Carriage  621
Carriage of Goods by Sea  622
Common Carriage  623
The Bill of Lading  623

CASE 11-3 M. Golodetz & Co., Inc. v. Czarnikow-Rionda CO., Inc.
(The ­Galitia)  629
Carrier’s Duties Under a Bill of Lading  634
Carrier’s Immunities  634

CASE 11-4 Great China Metal Industries Co. Ltd. v. Malaysian International
­Shipping Corp.  635
Liability Limits  640

CASE 11-5 Croft & Scully Co. v. M/V Skulptor Vuchetich et al.  640
Time Limitations  643
Third-Party Rights (Himalaya Clause)  644

READING 11-1 Cargo Theft Is Big Business  645
Charterparties 645
Voyage Charterparties  646
Time Charterparties  646
Charterparties and Bills of Lading  647

Maritime Liens  647
CASE 11-6 The Chinese Seamen’s Foreign Technical Services Co. v. Soto Grande
Shipping Corp., Sa  648
Maritime Insurance  650
Perils 651

CASE 11-7 Assicurazioni Generali (Underwriters) v. Black & Veatch  651
Average Clauses  653

Carriage of Goods by Air  654
Chapter Questions  656

Chapter 12 Financing  657
Introduction 658
Financing Foreign Trade  658
Bills of Lading  658
Bills of Exchange  658
The Law Governing Bills of Exchange  659
Types of Bills of Exchange  660

Promissory Notes  661


16 Contents

Negotiability of Bills and Notes  664
Unconditional Promise or Order to Pay  664
Definite Sum of Money or Monetary Unit of Account  665
Payable on Demand or at a Definite Time  665
Signed by the Maker or Drawer  666

The Negotiation and Transfer of Bills and Notes  666
Assignment 666
Negotiation 666

CASE 12-1 Miller v. Race  667

Forged Endorsements  670

CASE 12-2 Mair v. Bank of Nova Scotia  671
Limitations on the Excuses That Drawers and Makers Can Use to Avoid Paying Off a Bill
or Note  674
Liabilities of Makers, Drawers, Drawees, Endorsers, and Accommodation Parties  675

CASE 12-3 Far East Realty Investment, Inc. v. Court of Appeals  676
The Role of Banks in Collecting and Paying Negotiable Instruments  678

CASE 12-4 Charles R. Allen, Inc. v. Island Cooperative Services Cooperative
Association 679
Letters of Credit  682
Governing Law  683
Applying for a Letter of Credit  685

CASE 12-5 Trans Trust Sprl v. Danubian Trading Co., Ltd.  687
Documentary Formalities  689
Advising and Confirming Letters of Credit  689
The Obligations of Banks  692

CASE 12-6 Sztejn v. J. Henry Schroeder Banking Corp.  695
Rights and Responsibilities of the Account Party  696
Rights and Responsibilities of Beneficiaries  697

Financing Foreign Operations  697
Private Sources of Capital  697
Governmental Sources of Capital  697
Regional and International Development Agencies  698

Countertrade 699
Chapter Questions  700

Case Index  702
Statutory Index  705
Topical Index  716


Preface
This textbook is designed for business majors or programs in related disciplines and business people
whose work relates to international business. The subject matter examined would be appropriate for
both undergraduate and graduate courses in colleges of business, as well as professional development and executive education programs. This text gives students from many cultures and traditions a
good look at the overall structure of the global “legal environment” in which business operates today.
It should also prove useful for business people and legal practitioners who need an effective overview of nation-to-nation relations, multinational enterprises, dispute settlement across national borders, and rules for global trade in goods and services. Special treatment is given to global legal issues
in intellectual property, foreign investment, money and banking, sales, transportation, and financing.
International Business Law, Sixth Edition provides a comprehensive look at critical issues and
functions in the global legal environment. Business today is truly international. A business that remains domestic (confined to the laws and policies of one nation) cannot take advantage of the sea
change in business that has taken place in the 21st century.
The goal of this book is to highlight the major issues confronting those individuals and companies who do business globally. No single legal system is emphasized; rather, materials and cases
have been collected from many countries to show both the diversity and similarity of business and
of the law.

New to this Edition
With this edition we have added the following items:
• New Cases, including

• United States—European Communities—Measures Affecting Trade in Large Civil Aircraft
(the Airbus case)

• L’Oreal v. eBay
• Assicurazioni Generali v. Black & Veatch

• New Imagery Today’s students are highly visual so we have added more graphics, charts, and
photos.
• Internet Boxes Key Web sites are featured throughout the book.
• New Readings




• Eurozone crisis
• The United Nations’ Global Compact and Millenium Development Goals
• Work of businesses and NGOs partnering with the UN, state responsibility and corporate
responsibility with regard to terrorists (including Chiquita’s payment to Colombian terrorist
organizations)












• The increasing use of ICSID investment arbitration

• Ongoing global climate change negotiations to replace the Kyoto Protocol
• China’s refusal to accept the doctrine of restrictive sovereign immunity
• The ISO 26,000 standards for corporate social responsibility
• The growing trend toward anti-corruption legislation
• The potential fall of the U.S. dollar as an international currency reserve
• New developments in the World Bank
• The United States–European Union Airbus dispute at the World Trade Organization
• Developments in protection of intellectual property around the world
• International labor and employment issues
17


18  Preface 

The revised text adds information on important topics of current interest. The challenges of
when to give diplomatic recognition to new governments in nations like Libya, the reorganization of the European Union, and international transboundary water pollution are all discussed in
Chapter 1. Chapter 2 updates ongoing climate change negotiations and discusses corporate and
state responsibility for terrorist acts. Chapter 3 relates new developments in the International
Criminal Court and China’s stance toward sovereign immunity. Chapter 4 introduces changes in
anti-corruption laws, including the new U.K. Anti-bribery Act, and the new ISO standards for
corporate social responsibility. Chapter 5 includes new material on China’s foreign investment
policies, the investment environment in India, and the growing collaboration between government to detect securities fraud. Chapter 6 includes new material on the Bank for International
Settlements, the IMF voting structure, and the question of the U.S. dollar’s continuing viability
as an international currency reserve.
There are new and updated discussions and materials on all legal aspects of globalization
in Chapter 7, including coverage of the stalled WTO Doha Development Agenda and analysis
of the difficulties inherent in reaching the goals set out in the Doha agreement; several new
readings examining the legal issues raised by the rise of China as a financial and exporting
power, and some of the resulting WTO disputes; a new case and reading exploring the lengthy
WTO disputes between the United States and the European Union over governmental subsidies

provided to both Airbus and Boeing; new information regarding the number of times different
countries have used WTO safeguard measures to protect domestic industries; and a specific example of the type of commitments a country agrees to make regarding the service sectors that it
has opened to international market access under GATS (using Chile as an example).
Regarding labor and employment, this edition contains additional new material in Chapter 8
and elsewhere concerning how individual European Union member countries may retain certain
national employment regulations, while also following general EU principles; a discussion of the
most recent court interpretations of the Alien Tort Claims Act; new coverage of the set of “Guiding
Principles for Business and Human Rights” adopted in 2011 by the United Nations Human Rights
Council; and examination of the OECD’s new “Guidelines for Multinational Enterprises,” which
contain the section “Employment and Industrial Relations” establishing norms for the employment
of workers in both home and host countries.
Chapter 9 of the sixth edition includes new material regarding current issues in intellectual
property such as piracy and its effects; analysis of the legal issues involved when copyrighted goods
lawfully manufactured outside the United States are imported into the United States without the
permission of the copyright holder; a recent decision of the European Court of Justice concerning
the patentability of stem cell inventions; a “Recent International Developments” box detailing a
trademark dispute in Israel between the owners of the marks “Miss Sixty” and “Miss Sexy”; and a
new European Court of Justice case, L’Oréal v. eBay, concerning the liability of online auction sites
when items sold over these sites are counterfeit or have been lawfully manufactured in one country
but not intended or licensed to be sold in other countries.
Chapter 10, concerning the sale of goods and the CISG, includes “Recent International
­Developments” reporting on a case involving the issue of whether a contract for “enriched uranium
products” dealt more with the sale of goods or “enrichment services,” a new case where the goods
became spoiled at some point in their journey from seller to buyer and the key issue was which
party should bear the risk of loss under the CISG. Chapter 11 has been revised to include information about the new (2010) version of Incoterms, a set of trade and shipping terms published by the
International Chamber of Commerce (ICC), which are used in international sales around the world
by trade councils, courts, and international lawyers; a new reading examining the increasing amount
of actual “piracy on the high seas” in which modern-day pirates with automatic weapons highjack
ships; and a recent case in England dealing with charter parties. Chapter 12 includes a new reading concerning a situation in which the owner of a Miami company was sentenced to 46 months
in prison for a scheme to defraud the U.S. Export-Import Bank; and a box discussing how forged

bills of lading and other documents regarding the delivery of 30,000 bicycles to the Kenyan town of
Mombasa led to the loss of $1.7 million.


Preface  19

For Instructors
Instructor’s Manual  Includes teaching outlines, case briefs, and reading summaries.
Test Item File  Contains more than 1,000 objective questions keyed to the text plus essay
questions for each chapter. It is available for download by instructors only at our Instructor’s
Resource Center at www.pearsoninternationaleditions.com/august.
PowerPoint Slides  A ready-to-use PowerPoint slide show designed for classroom ­presentation.
Use it as is or edit the content to fit your individual classroom needs. It is available for download
by instructors only at our Instructor’s Resource Center at www.pearsoninternationaleditions​
.com/august.

Acknowledgments
Professors Mayer and Bixby are honored to be able to carry on the work of Ray August. While we have
added much new material and updated all important sections of this book to reflect the most important
international business legal issues of the 21st century, we have tried to retain the high level of scholarship, thoroughness, and attention to detail that was the hallmark of Dr. August’s work. Ray’s untimely
death in the fall of 2004 was a loss to students, faculty, and all international business scholars and
practitioners. In addition, Ray’s passing was a profound loss to the two of us, as Ray was a friend and
mentor to both of us. The authors would like to acknowledge, with thanks, the individuals who made
this text possible. For the sixth edition, Dr. Bixby would like to thank his wife Sharon for her continued
support and encouragement, as well as MBA students Grant Band, Amanda Hundt, Katy Rallens, and
Molly Haberl for their research assistance. Dr. Mayer thanks Andy Reger for his diligence and scholarship and Kevin O’Brien and Anna O’Brien Mayer for their continuing friendship and support. A very
special thanks to Kathleen Adair for her unwavering encouragement. Both authors have appreciated the
collegiality of working together on this text and would also like to thank the members of the Pearson
editorial team, especially Karen Kirincich and Toni Z. Ackley for their guidance and assistance.

Reviewers
Patricia Abril, University of
Miami
Carlos Alsua, University of
Alaska-Anchorage
Albert Assibey-Mensah,
­Kentucky State University
Joan E. Camara, Bryant
­University
Katherine Hope Chew
Sandra Defebaugh, Eastern
Michigan University
Janet Hale, Texas State
­University

John Lanham, Salem International University
Garold Lantz, Monmouth
University
Lisa Johnson, Centura College
Samuel Kohn, New York Institute of Technology
Faith O’Reilly, Hamline
­University
Marisa Pagnattaro, Terry
­College of Business,
­University of Georgia
Gary Patterson, California State
University-San ­Bernardino

Jeffrey D. Penley, GardnerWebb University
Roger Reinsch, Northeastern

Illinois University
Kurt Schulzke, Kennesaw
State University
Karen J. Smith, Columbia
Southern University
Janis Stamm, Edinboro
­University of Pennsylvania
Robert Viguerie, University of
Louisiana at Lafayette

The publishers wish to thank Jhini Sinha Phira for reviewing the content of the International Edition.


About the Authors
Michael Bixby
Michael Bixby is Professor of Legal Studies in Business in the College of Business and Economics at
Boise State University. He is a graduate of the University of Michigan Law School and practiced law in
Michigan for 11 years prior to joining the Boise State faculty. During his years at Boise State, Dr. Bixby
has written widely in academic and professional journals. He is the lead author of the textbook The Legal
Environment of Business (5th ed., 2011), also published by Pearson. He authored the monograph The
Enron/Andersen Debacle: A Case Study with Legal Implications (Prentice Hall, 2003). Dr. Bixby has
received many honors for his teaching, including the highest teaching award at Boise State University,
awarded to only one faculty member each year. Bixby has taught often internationally, including one
semester each in Spain, Chile, Italy, and China during the past 15 years.

Don Mayer
Don Mayer is Professor in Residence at Daniels College of Business at the University of D
­ enver,
where he teaches law, policy, ethics, and sustainability. He has published often on issues of international law, business ethics, and environmental law and has received many awards for his writing. He
is a Fellow at the Institute for Enterprise Ethics at the University of Denver. Dr. Mayer received his

J.D. from Duke University and his LL.M. in International and Comparative Law from Georgetown
University Law Center.

20


Introduction
to International
and Comparative Law
Chapter Outline
A. What Is International Law?
B. The Making of International Law
C. Sources of International Law
Treaties and Conventions
Custom
General Principles and Jus Cogens
D. The Scope of International Law in Actual Practice
The Practice in International Tribunals
The Practice in Municipal Courts
E. International Persons
States
Territorial Sovereignty
Negative Servitudes: Air and Water Pollution
International Organizations
The Institutions of the European Union
F. The Rights of Individuals Under International Law
G. Comparison of Municipal Legal Systems
The Romano-Germanic Civil Law System
The Anglo-American Common Law System
The Islamic Law System

Chapter Questions

A. What Is International Law?
International law deals with three kinds of international relationships: (1) those between states1 and
states, (2) those between states and persons, and (3) those between persons and persons. Traditionally,
international law was all about the relationships between states. That is, the law of nations resolved
issues between two or more states, and the legal relationships between and among states is what is
generally called public international law. As transactions among private entities grew, the phrase
private international law was applied to the laws governing conduct between people (and corporations) from different states. Examples of public and private international law are shown in Table 1.1.
For many, international law remains a contradiction in terms. There is no single world government to make and enforce laws, and no globally recognized forum in which to bring disputes
between citizens of different nation-states. To those who see law as “the command of a sovereign,”
the more consensual nature of international law makes it “soft” law or no law at all. Moreover, the
decline in the power of states relative to the private sector2 poses new challenges to contemporary
In international law, a country has traditionally been referred to as a state, nation, or nation-state. This book will generally
use the word state to refer to nation-states.
2
See Daniel Yergin and Joseph Stanlislaw, The Commanding Heights: The Battle Between Government and Marketplace
That Is Remaking the Modern World (1998).

1

Chapter

1


22    Chapter 1  •  Introduction to International and Comparative Law

Table 1.1

Public International Law

Private International Law

Examples of public and

Sources of international law
International personality
State territory
State succession
State responsibility to aliens
Law of the sea
International dispute settlement
Law of war

Torts
Inheritances
Money and banking
Intellectual property
Commercial
Contracts and sales
Transportation
Financing
Securities regulations
Antitrust
Taxation

private international law

international law

The body of legal rules
and norms that regulates
activities carried on
beyond the legal boundaries of a single state.

public ­international
law
The division of international law that deals
primarily with the rights
and duties of states
and intergovernmental
organizations as between
themselves.

private ­international
law
The part of international
law that deals primarily with the rights and
duties of individuals
and nongovernmental
organizations in their
international affairs.

comity
(From Latin comitas:
“courteousness.”) The
practice or courtesy
existing between states
of treating each other
with goodwill and

civility.

international law. Today, the term international law applies to any conduct outside the boundaries of
states, whether of a public or a private nature.
There are at least three ways of looking at international law. Cosmopolitans claim that
international law is based on universal human rights. Thus, international law should restrain
states from violating norms based on universal human rights, and the consent of a state is
irrelevant. By contrast, Positivists focus on the sovereignty of states and their consent to limits
on that sovereignty. Thus, Positivists claim that international law is based on (1) the sovereign
equality of all states in the international system and (2) state consent to individual international
laws, either through treaties or customs. Positivist international law can be seen as a series
of contracts between states; international law becomes binding only through such explicit or
implicit contracts. In contrast to either Cosmopolitans or Positivists, Hobbesians are more cynical, believing that states will make agreements and abide by international law only when it suits
their self-interests.
Scholars, jurists, and politicians will rarely adopt one school or another with consistency, and
combinations of these views can coexist among principal actors in the same nation-state. At a minimum, however, international law is understood to be more than just good manners or mutual respect
between or among sovereign nation-states. Comity, for example, is the practice between states of
treating each other with goodwill and civility. It is not law, however, because states do not regard it
as something they are required to respect. For example, until it became a matter of legal obligation
under Article 36 of the 1961 Vienna Convention on Diplomatic Relations, it was long considered to
be a customary courtesy to allow foreign diplomats the privilege of importing goods they intended
for their private use free of customs duties. This privilege was not a legal right guaranteed by international law, however, because states did not feel compelled to grant the privilege except as a courtesy.3
Such courtesy can be seen as a kind of anticipatory reciprocity in which states do unto other states
as they would hope to be treated in turn.
Comity is thus understood as an informal principle that nations will extend certain courtesies to other nations, particularly by recognizing the validity and effect of their executive,
legislative, and judicial acts. This principle is most frequently invoked by courts, which will
not act in a way that demeans the jurisdiction, laws, or judicial decisions of another country. In
Case 1-1, the limits on a state’s jurisdiction to make and enforce law are discussed in terms of
the doctrine of comity.
Even where a state does not object to another state’s taking jurisdiction of a dispute focusing on

activities in the first state, self-imposed limitations abound. Courts in the United States, for example,

3
Another example of comity is set out in Republic of the Philippines v. Westinghouse Elec. Corp., Federal Reporter, Third
Series, vol. 43, p. 65 (3rd Circuit Ct. of Appeals 1994). In this case, the appellate court overturned the U.S. trial court’s order
requiring the Philippine government to cease harassing witnesses in the Philippines. The appellate court held that the trial court
could request compliance by a foreign sovereign as a matter of comity but that it could not order compliance as a matter of law.


Chapter 1  •  Introduction to International and Comparative Law     23

Case 1-1  Ignacio Sequihua v. Texaco Inc. et al.
United States District Court for the Southern District of Texas,
Houston Division, 847 F. Supp. 61 (1994)

Map 1.1
Ecuador and the
United States

UNITED
STATES

ECUADOR

Opinion of Judge Black
Plaintiffs, residents of Ecuador, filed this action in Texas state court asserting a variety of
causes of action arising out of the alleged contamination of the air, ground, and water in Ecuador.
In addition to monetary relief, Plaintiffs asked for an injunction requiring Defendants to return
the land to its former condition and for a “trust fund” to be administered by the Court. The case
was removed to federal court, and the Court finds that the removal was procedurally proper. In

considering the defendants’ motions to dismiss, the Court used “comity” to rule for defendants.
Under the doctrine known as comity of nations, a court should decline to exercise jurisdiction
under certain circumstances in deference to the laws and interests of another foreign country.
Section 403(3) of the Restatement (Third) of the Foreign Relations Law of the United States
sets forth a number of factors to be considered in determining whether the comity of nations
deference should be applied. The Ninth Circuit applied similar factors in Timberlane Lumber Co.
v. Bank of America National Trust and Savings Assn., 749 F.2d 1378 (9th Cir. 1984), to affirm a
District Court’s decision not to exercise jurisdiction. Consideration of these factors leads to the
inescapable conclusion that the Court should decline to exercise jurisdiction over this case. The
challenged activity and the alleged harm occurred entirely in Ecuador; Plaintiffs are all residents
of Ecuador; Defendants are not residents of Texas; enforcement in Ecuador of any judgment
issued by this Court is questionable at best; the challenged conduct is regulated by the Republic
of Ecuador and exercise of jurisdiction by this Court would interfere with Ecuador’s sovereign
right to control its own environment and resources; and the Republic of Ecuador has expressed
its strenuous objection to the exercise of jurisdiction by this Court. Indeed, none of the factors
favor the exercise of jurisdiction. Accordingly, the case should be dismissed under the doctrine
of comity of nations.

Casepoint
Under the doctrine known as comity, a court should decline to exercise jurisdiction under certain circumstances
in deference to the laws and interests of another country.4

4
The litigation over environmental damage to native lands in Ecuador has gone on for decades. For the latest developments, see
Web sites from Chevron and also the NGO called Business and Human Rights at www.business-humanrights.org/Categories/
Lawlawsuits/Lawsuitsregulatoryaction/LawsuitsSelectedcases/TexacoChevronlawsuitsreEcuador. The Chevron Web site is
www.chevron.com/ecuador/.


24    Chapter 1  •  Introduction to International and Comparative Law

will often avoid taking jurisdiction of a case where the defendant is a sovereign state,5 where the
foreign defendants do not have sufficient “contacts” with the United States,6 where there is another
judicial forum that is “more convenient,”7 where Congress did not intend a U.S. statute to apply
extraterritorially, or where deciding a case would require the court to render a judgment that an act
of a sovereign state on its own territory violated international law.8
Despite all these limitations, it has been customary for courts in many states to hear and decide
cases with international aspects. If a business incorporated in one state operates a manufacturing
facility in another state and violates the law of the other state, the other state will have the wellrecognized power under customary international law to hear and decide a case against the foreign
defendant. This is known as a state’s territorial basis for taking jurisdiction over a case involving
foreign actors. A second well-known basis for jurisdiction exists: If U.S. companies do certain acts
in other states, they may still be held accountable in U.S. courts under the principle of nationality
jurisdiction. If foreign companies act in ways that directly affect a state other than their own, they
may be held accountable by the other state. But this objective territoriality jurisdiction is more
problematic and has been the subject of many judicial decisions, such as the Timberlane case noted
in Case 1-1. As the Restatement (Third) of the Foreign Relations Law is relied upon in Case 1-1, it
is worth some consideration here.
Section 403 of the Restatement provides that even if a nation has a basis for jurisdiction,
such as conduct outside of the nation that has intended and actual effects in the nation, the
nation “may not exercise jurisdiction to prescribe law with respect to a person or activity having connections with another state when the exercise of such jurisdiction is unreasonable.” The
Restatement then sets out a set of factors relevant to evaluating whether the exercise of jurisdiction is reasonable:
a. The link of the activity to the territory of the regulating state, that is, the extent to which the
activity takes place within the territory, or has substantial, direct, and foreseeable effect upon
or in the territory;
b. The connections, such as nationality, residence, or economic activity, between the regulating
state and the person principally responsible for the activity to be regulated, or between that
state and those whom the regulation is designed to protect;
c. The character of the activity to be regulated, the importance of regulation to the regulating
state, the extent to which other states regulate such activities, and the degree to which the
desirability of such regulation is generally accepted;

d. The existence of justified expectations that might be protected or hurt by the regulation;
e. The importance of the regulation to the international political, legal, or economic system;
f. The extent to which the regulation is consistent with the traditions of the international system;
g. The extent to which another state may have an interest in regulating the activity; and
h. The likelihood of conflict with regulation by another state.
Having one forum where all international civil cases could be resolved would eliminate the need for
such balancing under the guise of reasonableness. There have been such proposals, but nothing of
the kind is imminent. In the meantime, multilateral agreements such as the Hague Choice of Courts
Agreements Convention are in place to minimize both the friction and the ambiguities that happen
when state courts (often referred to as “municipal” courts) decide cases with parties from more than
one state.9

This is based on the historic recognition of the immunities of foreign sovereigns, codified in the United States in the Foreign
Sovereign Immunities Act of 1976, which grants blanket immunity to foreign sovereigns, subject to a number of important
exceptions. See Chapter 3, Section D, “Immunities of States from the Jurisdiction of Municipal Courts.”
6
See Chapter 3, Jurisdiction in Civil Cases (Jurisdiction Over Persons), and Chapter 4, Personal Jurisdiction Requirements of
U.S. Products Liability Laws, at p. 129 and p.197.
7
This is the doctrine known as forum non conveniens. See Chapter 3, Refusal to Exercise Jurisdiction, and Jorge Luis Machuca
Gonazalez et al. v. Chrysler Corporation et al.,Case 3-8, p. 157.
8
This is the Act of State Doctrine. See Chapter 3, p. 147.
9
See 2005 Hague Choice of Court Agreements Convention at www.hcch.net/index_en.php?act=conventions.pdf&cid=98.
5