UNIT III – INTERNATION LEGAL ENVIRONMENT

Law is a norm that prescribes what is assumed to be a proper mode of behaviour. Law includes a
process approved by society for applying coercive sanctions against those who do not obey and
therefore perform illegal acts.

Functions of Law

 Law communicates to individuals in a society their rights and duties in their daily interactions
with other people in the society.
 Law helps in controlling and preventing behaviour that the society considers undesirable.
 Government use law to promote social and economic welfare of society.
 Laws of a society reflects the norms, values, aims, and general benefits of a society.

General Principles of Law

The list of sources of international law of the International Court of Justice Statute are “general
principles of law recognized by civilized nations” (i.e. general principles of fairness and justice which
are applied universally in legal systems around the world).

Examples of these general principles of law are good faith, res judicata, and the impartiality of
judges. International tribunals rely on these principles when they cannot find authority in other
sources of international law.

These general principles of law can be found in decisions of international tribunals and national
courts; references to them may also be found in the teachings of the “most highly qualified
publicists” (i.e., eminent international law scholars).

In fact, Article 38 includes judicial decisions (of both international and municipal tribunals) and
scholarly writings as “subsidiary means for the determination of rules of law;” in other words, these
are not authorities, rather they are evidence of the sources of international law.

In international law, judicial decisions are not generally considered binding on subsequent disputes,
but are evidence of international practice and can assist in the interpretation of treaties and the
definition of customary law

Legal System

The legal system of a country refers to the rules, or laws, that regulate behaviour along with the
process by which the laws are enforced and through which redress for grievances is obtained. The
legal system of a country is of immense importance to international business. A country’s laws
regulate business practice, define the manner in which the business transactions are to be executed,
and set down the rights and obligations of those involved in business transactions.

There are three main types of legal systems or legal tradition in use around the world:

1. Common law – The common law system evolved in England over hundreds of years.
Common law is based on tradition, precedent, and custom. Tradition refers to a country’s
legal history, precedent to cases that have come before the courts in the past, and custom to
 the ways in which laws are applied in specific situations. When law courts interpret common
law, they do so with regard to these characteristics.
2. Civil law – A civil law system is based on a detailed set of laws organized into codes. When
law courts interpret civil law, they do so with regard to these codes. A civil law system tends
to be less adversarial than a common law system, since the judges rely upon detailed legal
codes rather than interpreting tradition, precedent, and custom.
3. Theocratic law – A theocratic law system is one in which the law is based on religious
teachings. Islamic law is the most widely practiced theocratic legal system in the modern
world, although usage of both Hindu and Jewish law persisted into the 20th century.

Effective Legal System

 The people in the society must understand and have knowledge of what the society
prescribes as legal behaviour.
 The members of the society must have agreed that the laws deserve to be obeyed.
 An effective system for punishing illegal behaviour must be in place.
 The government duly elected by the people, provides the machinery for an effective legal
system.
 The legislative branch makes the laws and judicial and executive branches together perform
the task of identifying illegal behaviour and punishing the law breaker.

International Law

International treaty is an international agreement in written form between nation-states under

International Custom

International custom entails habitual patterns of behaviour that evolve over a number of years to
reach the level of obligatory rules i.e., international - law which govern how nations and their
subjects inter-acted with one another. A rule of customary international law comes into existence
when almost all states behave almost exactly the same way for a long time and feel a legal obligation
to do so.

Convention

Convention is an agreement between states covering particular matters, especially one less formal
than a treaty.

International Court of Justice (ICJ) and World Trade Organization (WTO)

 Commercial Dispute
 Between two countries
 Between a country and a company
 Between two companies
ICJ adjudicate disputes between two countries only when both governments involved agree to
submit to the authority of the ICJ.

Ethics in International Business

Ethics are accepted principles of right or wrong that govern the conduct of a person, the members of
a profession, or the actions of an organization.

Business ethics are the accepted principles of right or wrong governing the conduct of business
people

Ethical strategy is a strategy, or course of action, that does not violate these accepted principles

Ethical issues in international business

1. Employment practices
When work conditions in a host nation is clearly inferior to those in a multinational’s home
nation, what standards should be applied? Those of the home nation, those of the host nation,
or something in between? Employment practices are a frequent source of ethical dilemma for
companies. Suppose, as we suggested earlier, work conditions in a host country are inferior to
those in the home country. Which standards should you apply--the home country standards or
the host country standards? Is it ok to employ minors to work a 50-hour week if it doesn’t
violate local laws? Do you have to supply safety gear to employees if it’s not required by law?

2. Human Rights
Question of human rights can arise in international business. Basic human rights still are not
respected in many nations. Rights that we take for granted in developed nations, such as
freedom of association, freedom of speech, freedom of assembly, and so on, are by no means
universally accepted.

3. Environmental pollution
Ethical issues arise when environmental regulations in host nations are inferior to those in the
home nation. Many developed nations have substantial regulations governing the emission of
pollutants, the dumping of toxic chemicals, the use of toxic materials in the workplace, and so
on. those regulations are often lacking in developing nations, and according to critics, the result
can be higher levels of pollution from the operations of multinationals than would be allowed at
home.

4. Corruption
Corruption has been a problem in almost every society in history, and it continues to be one
today. There always have been and always will be corrupt government officials, international
business can and have gained economic advantages by making payments to those officials. Some
economists have argued that the practice of giving bribes might be the price that must be paid to
do a greater good, while, others have argued that corruption reduces the returns on business
investment and leads to low economic growth.

5. Moral obligations
Multinationals corporations have power that comes from their control over resources and their
ability to move production from country to country. Although that power is constrained not only
 by laws and regulations, but also by the discipline of the market and the competitive process, it is
nevertheless substantial. Many people believe that companies need to recognize their noblesse
oblige and give something back to the societies that have made their success possible.

Ethical Dilemmas/ Ethical paradox

Ethical dilemma is a situation in which none of the available alternatives seems ethically acceptable.
The decision-making problem between two possible moral imperatives, neither of which is
unambiguously acceptable or preferable. The complexity arises out of the situational conflict in
which obeying one would result in transgressing another. Sometimes called ethical paradoxes in
moral philosophy, ethical dilemmas may be invoked to refute an ethical system or moral code, or to
improve it so as to resolve the paradox.

The Roots of Unethical Behaviour

1. Personal Ethics
Business ethics are not divorced from personal ethics, which are the generally accepted
principles of right and wrong governing the conduct of individuals. An individual’s personal
ethics will influence the decisions he/she makes on the job. Personal ethics are derived from
parents, from schools, from religion, from the media, and so on. An individual with a strong
sense of personal ethics is less likely to behave in unethical manner in a business setting.
2. Decision-making processes
Decisions are made based on economic logic, without consideration for ethics. A moral
compass can help determine whether a decision is ethical.
3. Organizational culture
The climate in some business does not encourage people to think through the ethical
consequences of business decisions. This brings us to the third cause of unethical behaviour
in businesses – organizational culture. Organizational culture refers to the values and norms
that are shared among employees of an organization.
4. Unrealistic performance expectations
A fourth cause of unethical behaviour is the pressure from the parent company to meet the
unrealistic performance goals that can be attained only by cutting corners or acting in an
unethical manner.
5. Leadership
Leaders help to establish the culture of an organization, and they set the example that others
follow. Other employees in a business often take their cue from business leaders, and if
those leaders do not behave in an ethical manner =, the employees might not either. Itr is
not what leaders say that matters, but what they do.