Whenever human activity is organised, there will be rules of law, as expressed in the ancient adage ubi societas, ibi jus. Law is a complex set of rules and institutions. It consists not only of the formal rules enshrined in the constitutions, statutes, or precedents, but includes the legal practices that may or may not follow the formal law.
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Ignorance of law is no excuse to not to follow the legal dictates. There are sufficiently good reasons to be well aware of international legal environment:
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1. ‘National legal systems vary dramatically for historical, cultural, political, and religious reasons. The rule of law, role of lawyers, the burden of proof, the right to judicial review, and of course, the laws themselves differ from country to country’.
2. It is not only substance and procedure, but access to legal system may also vary from nation to nation. There are countries like the US where there is no discrimination to such an access. But in some of the nations, like China, such free access is not available. In the US, there are more than 500 lawyers per 100,000 of population.
But in South Korea it is around 8 only – showing shortage of lawyers therein and thus many international firms go in for out of court settlement. Like Portugal, in India it takes years to settle a civil suit. There is a huge backlog of pending cases in India. Thus an international manager should not venture out in settlement through court of law as far as possible.
3. All business activities occur in legal environment indicates attitudes to law in general and the wider values of a society. The legal environment of the country is an important part of any businessman’s briefing before assignment.
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Experienced business managers know it well that law affects all aspects of business in a number of ways. By developing an understanding of the complexity and relevance of the various types of laws, i.e., ‘rules of the game’, one can meet the challenges head on.
4. To an international business manager the law (i) provides guidelines for decision making, and (ii) helps in knowing and getting enforced legal rights and duties.
5. As already said above, international business laws show diversity and thus create numerous complexities. Some of the countries have highly developed laws. Some countries like Check and Poland are moving back to pre-World War II legal systems. Some of the nations like Russia and China are in the process of building up.
Some countries have the laws but very vaguely worded and thus lacking precision. Some of the countries, like developed ones, favour market competition, others favour protected industries. Some of the countries go in for extensive environmental protection, while others impose relatively few constraints. Countries operating under French civil law, with regard to protection to investors, believe in caveat investor, while common law countries provide with many ways to safeguard their investors.
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6. The legal systems vary not only in substance, procedures and remedies, but also in interpretation and enforcement. Many firms find difficult to understand such a reality. Even among countries following a particular legal system, laws are not the same. In China it is “rule by man and not by law”.
7. There is no international business law in a formal sense. In terms of scope, traditionally, the statutes, courts and administrative agencies have been national and not international. There are only national laws, often in conflict with one another. Even within a nation, there may be plethora of laws.
In the USA, there is one federal government, fifty state governments, and one for the District of Columbia, all with separate legal systems. Each state constitutes a system within a system. Thus it is important for an international manager to work with different legal frameworks not only in different countries but within one country markets.
In People’s Republic of China, for each of the 30 provinces, autonomous regions, and centrally administered cities, there is one Higher Level People’s Court (HLPC). The HLPC may refuse the execution of verdicts rendered by other provincial courts, unless there is a treaty between the two to reciprocate.
8. To do business internationally, one needs to know the legal scenario of the host country, home country and third countries. Many problems can occur, when the laws of more than one country having conflicting values are to be followed.
Third countries refer to regional law-making authorities (of which EU is the main example), and the global law-making authorities such as UN, its agencies, WTO, and other multilateral treaties. The third countries regulation may be called as trans-govermentalism or in the slightly more concentrated context of the EC, internationalism.
9. Law leads or lags economic development depending upon the type of legal rules. In transformation from underdeveloped to developing to developed countries, the development of a rational legal system has been a significant factor. We can come to know about the economic development by scanning the existing legal system of a nation.
10. Legal systems also differ in terms of reliability on the court as the primary conflict resolution mechanism. Legal systems do vary. But we need to be careful in detecting differences in the world, because many of the fundamental concepts in the laws that regulate business have been there all over the world for centuries.
11. The objective behind studying or teaching international business law is to sensitize future entrepreneurs to the risks of international business and the ways to manage such risks.
12. It is important to note that now there is increasing willingness of judges to apply international norms transnationally, to engage in a transnational judicial dialogue, and even adopt conceptions of universal jurisdiction.