International Law and its Importance to Businesses

This article is authored by Aparna Gupta, 3^rd Year BA LLB at University Law College & Department of Studies in Law, Bangalore University.

International law, also known as law of Nations or Public International Law, is a body of rules that apply in relations between sovereign States or other State and Non-State Actors. The term ‘International law’ was first created by Jeremy Bentham in 1780.

It is the law that applies during transactions or relations between individuals, firms, governments, organisations and so on of different nations. As per the international law, all the sovereign States are equal regardless of their GDP, geographical area, size of population and so on. It applies to all the nations equally, at least on paper. Consider the example of the border dispute between India and Pakistan. This dispute will be dealt with as per international law. The law that regulates political, economic and social relationships of countries is International Law. 

Definitions of ‘International Law’

According to Bentham, “International law is a collection of rules governing relations between States.” 

According to Oppenheim, “International law is a body of customary and conventional rules which are legally binding by civilised states in their intercourse with each other.” 

According to Gray, it is a “body of rules which regulate the states in their intercourse with each other.”

A modern definition of international law given by Schwarzenberger is that it is a “ body of legal rules applying to sovereign States and entities that have been granted an international personality.” 

All these definitions bring out that international law is a legal body of rules regulating the conduct of sovereign States and other bodies like Multinational Corporations, International organisations and so on. Like domestic law applies to individuals of one country, international law applies to countries, which are legally bound to abide by them. 

International law and businesses

With the onset of globalisation, the world is becoming one whole bigger economy. A lot of companies have expanded their business in other countries either by trading with the country or by setting up manufacturing houses in foreign lands. This enables them to enter new markets, avail labour and raw materials at cheaper prices and thereby reduce production costs. Sometimes, MNCs get tax rebates or other benefits from the hosting country as well. 

The question is, which country’s law will apply during an interaction between two companies from two different sovereign nations. The domestic laws of one country cannot apply to a foreign company set up in some other country. Then which law will apply?  When two international bodies deal with each other, the International Law, i.e., the law of conventions, treaties and customary practices, enforced by International Organisations shall apply. 

To understand this better, let us take an example of Samsung, a South Korean electronic brand engaging in trade with an Indian businessman. Now, in case a dispute arises, it will not be adjudicated by the domestic laws of either India or South Korea but rather referred to a dispute settlement body.

International organisations like WTO, WIPO, OECD etc. enforce international laws relating to business. WTO (World Trade Organisation) regulates trade-related activities of nations; WIPO (World Intellectual Property Organisation) regulates intellectual property rights of people; OECD (Organisation for Economic Co-operation and Development) stimulates economic progress and world trade. Even UNCITRAL regulates trade and finance at international level. All the member nations of these organisations abide by the laws established by these organisations itself.

It is very important for businesses to be aware of these laws and to abide by them as ignorantia juris non excusat (mistake of law is not excusable). International law strives to increase the global business potential by aiding more open borders, modernised customary exchanges and diminished trade barriers across the globe.

Important Principles of International Business Relations:

For a business looking to shine globally and to preserve the integrity of the business principles of International Business Relations must be adhered to. These consist of the Principle of Comity, Act of State Doctrine, and Doctrine of Sovereign Immunity. 

The Principle of Comity: The term ‘comity’ means legal cooperation. It implies that other jurisdictions will advance a measure of consideration to another jurisdiction, whether in another nation or in different jurisdictions within the same nation. If two countries follow identical legal and political ideologies, one country will yield to the laws and rulings of the other. The countries agree to recognize the constitutional decisions of other countries’ executive, legislative bodies, or judicial branches. It is important to be considerate when doing business internationally – cooperating and practising mutual understanding.

The Act of State Doctrine: The Act of State Doctrine provides that every sovereign nation’s integrity should be maintained. Every state is independent, and the courts in a foreign state cannot adjudicate over the actions of other states. All nations are sovereign within their borders, so it is not a Himalayan task to understand that judicial bodies from another country may not scrutinize official actions within the said territory. This is important because it limits courts outside the jurisdiction from deciding cases that interfere with the country’s foreign policy.

The Doctrine of Sovereign Immunity: The Doctrine of Sovereign Immunity is a principle that is often quoted in international business law. As per the Doctrine, the state cannot be sued or charged with a crime before foreign courts without assent from the state itself. It is based on the common law principle ‘King can do no wrong’. Sovereign immunity has been evoked in multiple instances, including incidents where a state has been found liable for violations of human rights or environmental damage caused by its foreign agents. 

IMPORTANCE OF INTERNATIONAL LAWS FOR BUSINESSES

International Laws have a huge impact on a company. They tell what can be sold and where, how much can be legally sold, tax rates, shipping process and even payment process in a trade transaction. They are also important because they outline the domestic framework of different countries. These laws provide direction as to how to conduct business in this global community and to avoid fines and penalties while interacting with other states.

Importance of International laws for businesses can be explained under following headings:

1. To carry out trade smoothly on an international level.
2. Protects industrial property of businesses 
3. Provides dispute resolutions to parties of an international transaction
4. Protects labourers from getting exploited.
5. Establishes Trade regulations
6. Helps to reduce business risks
7. International Financing and Investments are regulated by international laws.
8. Consumer Protection laws are also established by international bodies.

1. 1. To carry out trade smoothly on an international level.

International Trade Treaties, Conventions or other global agreements contain responsibilities and requirements such as protocols, charters, rules and regulations that enable members to carry out their business effectively and efficiently. They all help in carrying out trade in harmony on an international level. They help businesses, individuals and organisations to understand business laws helping the transactions to be carried out smoothly. International laws are used to impose sanctions when a country violates any law set and accepted by many countries sharing customs, treaties, and conventions. These organizations and conventions adopt different resolutions to establish standardized behaviour and common rules to enable businesses to operate among countries that participate.

• Protects industrial property of businesses 

Intellectual property rights like Patents, Copyrights, Designs, Trade Secrets, Brand name etc. are all exclusive rights of businesses or individuals. These are important to businesses and any infringement of these may cause havoc and affect the continuance of the business. Beside protecting their intellectual property rights, business enterprises are faced with more complex problems like dealing with piracy and counterfeit goods. Pirators and imitators cause great harm as they deprive the owner of the protected work his share of royalty, the authorized dealer his share of profit and the buyer of good quality products. Another problem faced by business enterprises is a gray market, where legitimate goods are marketed through unauthorized channels.

 International treaties and conventions like Paris Convention for the protection of industrial property (1883), TRIPS Agreement, Hague Agreement etc. lay down the guidelines or standards that are applicable to anyone from the member nations. 

• Provides dispute resolutions to parties of an international transaction 

The most important function of international law is dispute resolution. The Dispute Settlement Body of WTO deals with the commercial disputes of international level. As per the Dispute Settlement Understanding, the parties should first try to settle the dispute amicably. However, if a peaceful settlement is not possible then the Dispute Settlement Board can be approached by the dissatisfied party.  The UNCITRAL Model Law provides a useful foundation for dispute settlement as it consists of all of the essential and applicable regulations to make sure that arbitration proceedings run smoothly. Many international trade disputes have been resolved through arbitration than by the courts because it helps for both parties in the arbitration matter to benefit from the same, without incurring a huge loss. 

• Protects labourers from getting exploited (Labour laws)

The ILO is the source of international labour law that has embodied in its Conventions, recommendations and the documents that stem from the supervisory mechanism responsible for employing those international labour standards.  An industry or a corporation is bound to follow established Labour Law and Employment Standards. 

ILO’s recommendations range from national tripartite consultation to grievance proceedings of businesses, salaries, working time, leave, occupational safety and casual sick leaves, maternity benefit, non-discrimination to positive action for the elderly, disabled women and other vulnerable groups, labour market legislation, employment management etc. 

• Establishes Trade Regulations

International organisations like the WTO establish many laws and trade regulations intended to promote fair, impartial, and unbiased competition. For example, the accepted number of quotas and tariffs on imports, subsidies, bans on the sale of certain products like drugs or arms and ammunitions, etc.  even the shipping of goods through airways or waterways is regulated by international bodies. International laws also have the potential to affect human travel, imports, financial transactions, and business investments.

While entering into cross-border transactions, the companies should consider the established international trade law, precedents and the domestic laws of the country like the taxation policy, accounting rules, corporate tax rules, financing rules etc.  

• Helps to reduce business risks

A proper study of international law and the domestic law of the other country can help businesses to reduce business risks or losses due to foreign exchange regulations, taxation policies, import restrictions, payment procedures and so on. Being well-aware of these can help to avoid huge losses in business.

• International Financing and investment are also regulated by Intl. law

The 2008 global financial crisis was extraordinarily severe in the magnitude, breadth, and persistence of its effects. Financial crises cause huge monetary losses for professional investors and they impose high human costs for those who lose their jobs, homes, and savings. In order to protect their citizens, governments generally adopt a catena of financial regulations with the objective to reduce the risk of a failure that could affect the whole economy. These comprise of balance-sheet standards, insider trading rules, conflict-of-interest laws, and consumer protection law.

The Basel Committee emphasises on banking regulation, whereas the Financial Stability Board, set up by the G20 after the financial crisis of 2008, coordinates the development of regulatory policies across the broader international financial markets, unifying national authorities, international financial institutions, and sectoral standards setters. Basel Accords III stipulates the amount of money that should be kept as reserves with the banks and how much can be lent.

• International Consumer Protection laws are established by international bodies.

The International Consumer Protection and Enforcement Network (ICPEN) supervises and ensures protection of consumers’ rights across the globe.  The UN Guidelines for Consumer Protection provides that member states must formulate, review, maintain or fortify as appropriate mechanisms for the exchange of information on national policies and measures in the field of consumer protection, to promote sustainable consumption, international bodies and business should work together to develop, transfer and spread environmentally sound technologies, including through appropriate monetary support from developed countries, and to develop brand new innovative mechanisms for financing their transfer among all countries.

Conclusion

Therefore, for any business to sail smoothly and effectively on global waves, understanding and playing by the international rules is necessary. International law relating to trade and business provides various cautions and steps to be taken considering cross-border transactions. International law protects businesses, labourers and consumers at global level. International law provides for amicable dispute settlement systems for cross-border transactions.  Any violating country can be sanctioned for such violation, making international trade free and fair. MNCs, especially, need to be well aware of international laws relating to their area of business and the domestic laws of the country they want to expand their business to. 

References: 

1. International Business Laws: Significance and Principles, available at https://anangpuria.com/international-business-law-significance-principles/#:~:text=Significance%20of%20International%20Business%20Law,systems%20operate%20in%20different%20countries.

2. Melissa Randell, International law, available at https://biz.libretexts.org/Bookshelves/Law/Fundamentals_of_Business_Law_(Randall_et_al.)/06%3A_International_Law.

3. Business Across Borders: The importance of international business law, available at https://online.york.ac.uk/business-across-borders-the-importance-of-international-business-law/ .

4.International Business Law, available at https://www.cliffsnotes.com/file/189287597/International-Business-LAW-1editeddocx/ .

5. ​Discuss the Basis and Nature of International Law.  Or Whether the International Law is Law in the Proper Sense of the Term? Give Reasons for Your Answer, available at https://birkhangbrahma.wordpress.com/2017/06/28/%E2%80%8Bdiscuss-the-basis-and-nature-of-international-law-or-whether-the-international-law-is-law-in-the-proper-sense-of-the-term-give-reasons-for-your-answer/ .