What Is International Business Law?
International business law is a complex field encompassing the wide array of legal regulations, treaties, and conventions governing trade between nations, as well as national laws applicable to international business activities. At its core, international business law regulates the conduct of businesses engaged in commerce and other economic activities across international borders. The scope of the legal frameworks involved is immense, covering everything from trade tariffs to intellectual property rights to employment and labor standards.
International trade law largely hinges upon various trade treaties, whether bilateral or multilateral in scope. In the 20th century, global trade law was highlighted by the General Agreement on Tariffs and Trade (GATT), which brought together most of the world’s economies under one umbrella. Following the Uruguay Round, a long global trade talks campaign, the GATT was replaced by the World Trade Organization (WTO), which was designed to be the "head" of the international trade law system, with the GATT as one of its primary components. Since the accession of the WTO in January 1995, it has played an important role in international trade dispute resolution as well as the set of international commercial law rules and principles that encompass trade.
The WTO’s "membership" is made up of the individual nations participating in the agreements ranging from trade in goods to investment and services . These national agreements work together to form a cohesive legal structure supplementing and guiding domestic rules and regulations. Many of these regulations stem from the World Intellectual Property Organization (WIPO), an international IP law treaty provider, and other international IP law conventions, with the Paris Convention, Berne Convention, and Madrid Protocol being the most important.
In addition to overarching international trade regulations, companies conducting international business must consider how to draft, review, and negotiate international business contracts. The use of the Vienna Sales Convention, known as the CISG, should be considered early in the process, before any agreement is drafted. The Vienna Sales Convention dictates the basic legal principles underlying international sales transactions. Thorough knowledge of these principles can provide competitive advantages and save substantial resources.
In many cases, companies must also draft good choices of law and arbitration provisions. This means they should consider the competing benefits of domestic and foreign legal systems. International arbitration has become a popular tool for resolving disputes between parties in a wide range of industries. It provides neutrality, speed, and relative cost-savings. Nevertheless, the most effective litigation strategy for your case will ultimately depend upon your particular situation.
Investing time to understand the relevant international legal documents and agreements is the first step in a successful international business endeavor.
The Need for an International Business Law Firm
For companies engaged in cross-border business, an international business law firm is a necessity. Countless Fortune 500 companies understand the need to use an international business law firm to avoid the type of problems that can easily be avoided by spending some money up front on the right advice, such as by having the right contracts. It is inevitable that businesses with little experience in doing business in foreign lands will make mistakes in their forays overseas. Those mistakes, if not helped remedied by knowledgeable lawyers, can cost tens or even hundreds of thousands of dollars, and take years to clean up, especially in civil law countries.
Excellent employers do not simply trust those they hire for the most important tasks, especially those as important as taking their companies abroad. The best employers pay a little up front for the right people to help them do anything important and international business is no different. This is true for both Chinese companies thinking about investing abroad or those investing abroad and looking for help on the ground with personnel issues. It is equally true for North American and European companies hoping to tap into the Chinese marketplace.
An international business law firm is usually composed of lawyers who have both a substantial international business practice, along with a substantial China practice. Successful international business law firms have learned that their real value comes from having knowledge about both a client’s hometown country and the country where it is seeking export business. International business laws differ widely from nation to nation, even among those in the same legal system. Countries with civil law systems are governed by codes and may adhere more closely to the law as written. Common law countries are not as strict in this regard.
Multinational corporations know they should not go to a dentist or car mechanic for legal advice because they go to specialists for those things. Why not also go to international law specialists for international business law advice? The question seems obvious but many companies appear to make decisions contrary to that logic.
Vital Services Provided by International Business Law Firms
The services of an international business law firm extend well beyond general counsel. These law firms, which may focus on the legal needs of both international and domestic companies doing business in cross-border markets, also focus on companies involved in import/export sales transactions.
Such law firms usually have lawyers that are conversant with federal, state, and local regulatory requirements of all countries where the company conducts business. An example is tax compliance on income generated in the foreign country. Some countries impose "branch tax" on income derived by a branch office from its own operations. Other countries impose "dividend remittance tax" on the remittance (or royalties or service fees) of the income that the branch office generates to the home office. The home office may not deduct taxes paid when determining its taxable income. Instead, any taxes that it pays may be credited against the branch office’s income tax liability in the foreign country.
Likewise, laws affect how the company can allocate income and costs between the home office and the subsidiary, assuming that the company has an indirect foreign investment. For example, management fees and royalties that the parent company charges the subsidiary are critiqued by foreign tax authorities as violating transfer pricing rules.
Another service provided by international business law firms is advising foreign investors on appropriate structures for doing business in the United States. A common structure is a limited liability company (LLC) that passes through income to the foreign member. The foreign member may then pay the tax on the income to the U.S. federal government and the state where the LLC is organized.
Foreign owners of an LLC need to keep records in accord with the rules of the country where the member is a tax resident. Countries vary substantially in their adoption of the International Financial Reporting Standards (IFRS). Some countries allow companies to choose between IFRS and U.S. Generally Accepted Accounting Principles (GAAP). Also, countries differ in how share-based payments to key employees are treated. Many countries require that compensation be expensed and based on the fair value of the stock or options at the date of grant. In contrast, under U.S. GAAP, employers can use the intrinsic value of the award (the difference between the market value of the underlying stock at settlement and the exercise price) and don’t have to expense an award that is not vested and not probatable.
A third type of service offered by international business law firms is helping companies secure, sustain, and enforce intellectual property rights abroad. For example, some foreign countries do not recognize common law protection against unfair competition. For this reason, U.S. companies should consider registering service marks or trademarks in the foreign country. Also, some foreign countries require all patents, including pharmaceutical and agricultural patents, be registered with the government.
A fourth service offered by international business law firms is merger & acquisition guidance. There are many tax and non-tax consequences to the company and its shareholders of a merger/ acquisition. For example, shareholders of a foreign corporation generally do not pay U.S. dividends tax on U.S. mergers/acquisitions of foreign companies. A U.S. company that merges with a foreign company should structure the acquisition such that shareholders of the foreign company receive shares of the U.S. company. This structuring would enable shareholders of the foreign company to be taxed only on the disposition of their stock in the U.S. company, not the foreign company.
Finally, international business law firms advise companies on how to resolve disputes under foreign law. This advice may be needed initially such as when entering a foreign contract or after a contract dispute has arisen.
How to Select the Optimal Law Firm
Choosing the right international business law firm is a critical decision that requires careful consideration of a variety of factors. First and foremost, companies should look for a law firm that has extensive experience in their particular field. Business law is a broad and multifaceted discipline, and each industry presents its own unique legal challenges. For example, a technology company considering doing business in a foreign country would benefit from working with a law firm that specializes in international technology law.
Another important criterion when selecting a business law firm is specialization. Companies should look for firms that focus exclusively on international business law, rather than those that engage in a wide range of practice areas. Such firms are typically more knowledgeable on the intricacies of doing business in specific countries. They also tend to employ lawyers who have extensive experience in international business law, rather than generalists with a surface-level understanding of the discipline .
In addition to experience and specialization, companies should also consider the reputation of the law firm. Does the firm have a track record of success when it comes to advising businesses on legal matters? Are they well-respected in their field as evidenced by the accolades they have received? It is also important to look for reviews and testimonials from past clients. These can provide valuable insight into the law firm’s strengths and weaknesses.
Finally, companies should examine the law firm’s fees. The most expensive firm may not necessarily be the best choice; likewise, the cheapest law firm may not deliver the services or expertise required. Companies should inquire about the firm’s billing and payment policies during the initial consultation. This will help them gain a clear understanding of whether the firm will be affordable for them in the long run.
International Business Law Case Studies
Case Study 1: Assisting a Fortune 500 in Market Entry
One of the most prominent Fortune 500 companies in the technology sector faced destruction of over $250 million worth of its equipment over insurance coverage disputes. Following significant losses resulting from an Indonesian earthquake, the company was unable to recover due to a "known loss" exclusion in the policies with a Brazilian insurance company. Our international business law firm was brought in to solve the problem. We began by forming an international team to bring our collective expertise to bear. Our partners in Indonesia advised the client on the initial coverage decision and our attorneys in South America gave invaluable guidance on the state of the insurance industry. We then strategized with the client on how to proceed with the insurance company and put together an aggressive surveillance, negotiation and litigation strategy to collect the money owed. Within two years, we settled for over 80% of the funds.
Case Study 2: International Business Deal Gone Bad
A startup in the United States had an opportunity to make several deals with a business in Russia to distribute their product. The U.S. company had arrangements with several manufacturers to provide the product to the Russian company. Due to its limited resources, the U.S. company was forced to focus on getting the product produced while the Russian company handled the deal-making and distribution process. The Russian company started out strong, but the owner ended up falling into personal financial hardship and began to divert the company’s funds to settle his personal debts. Our international attorneys were called in when the startup discovered that the Russian company’s management failed to keep any records on its sales. We engaged in a thorough investigation of the assets of the Russian company and its owner and were able to work out a settlement with the Russian government to secure funds sufficient to pay off the company’s obligations.
Case Study 3: International Employment Litigation
Our client, an international engineering and construction firm based in one country with operations in several other jurisdictions, was facing a substantial lawsuit in Europe. One of the company’s supervisors allegedly harassed a senior employee. After a weeklong trial, a jury decided that the alleged harassment did indeed take place, but that it was not sufficiently severe enough to constitute unlawful harassment. Although this was a positive outcome for our client, the jury awarded the plaintiff over $750,000 in attorney fees, which the judge then dramatically cut down to approximately $300,000. The company’s European employees were not covered by an anti-defamation statute that exists in the U.S., which significantly reduced the applicable insurance for defense and settlement costs to the amount of the coverage for general damages (approximately $100,000). Our international business law firm partners along with our insurance recovery partner, negotiated policy exceptions with the client’s insurers in the United States to cover the attorney fee award as well as German and French labor law claims.
New Developments in International Business Law
The future of international business law is influenced by several major trends. Among them are the growing complexity of regulatory regimes and compliance requirements; the need for companies to adapt to emerging technologies, such as artificial intelligence and advanced data analytics; and the challenges of protecting intellectual property in a global marketplace.
The trend towards increased legal complexity is gaining momentum as new regulations are introduced at a rapid pace. This is particularly evident in the European Union, where the General Data Protection Regulation (GDPR) came into force in May 2018. The implications of GDPR for doing business in Europe are significant; for instance, it requires both data controllers and data processors to implement technical and organizational measures to secure personal data, introduces a new regime for handling cross-border data transfers and allows for a new level of individual control over their data by providing rights to erasure, restriction of processing, and data portability.
Law firms can expect to see their workload increase significantly as a result of GDPR and similar regulations. To help clients navigate the increasingly complex legal landscape, many law firms are employing a multi-disciplinary approach that incorporates not only traditional legal expertise but also technology and process management skills. This enables law firms to better understand and address the needs of their clients in a more comprehensive manner.
Another big trend in international business law is the impact of technology on businesses globally. For example , with the advent of AI and data analytics, companies must determine how these tools can be used to optimize operations while at the same time ensuring compliance with relevant laws and regulations. Law firms are adapting to these changes by investing in technology themselves. This might mean leveraging machine learning to assist with legal research or using advanced analytics to help clients understand their own legal risks more clearly.
Emerging technologies are impacting the legal industry as well; for example, some law firms are rapidly adopting eDiscovery tools that allow for faster data review and analysis. This can be particularly beneficial for international business law firms, since these tools can simplify cross-border discovery and reduce the time and effort involved.
Finally, the global nature of today’s business landscape presents challenges that must be addressed. For instance, despite the fact that the U.S. and many other countries have enacted laws that make it illegal to export certain technologies to certain countries, it is still relatively easy for businesses to do so, either because they do not know what is required of them or because they purposely ignore the laws that exist. Law firms that specialize in international business law can assist their clients in addressing this risk by creating internal compliance programs that minimize the risk of exporting controlled technologies to other countries.