1-Domestic Law
A. Various Sources of Domestic Law
Domestic law is very important in international legal practice. Domestic law in question, as separate from international law, includes law of foreign countries. In reality, the understanding and application of laws of other countries are always a ‘nightmare’ for both international traders and lawyers.
The sources of domestic law are various, and it could focus on some followings
1. Legislation
Ancient international trade and business rules were created in order to protect foreign merchants and govern international transport in goods. The first written rules existed in the Hammurabic Code (2,500 BC), in which were stipulated the protections for foreign merchants and the breach of contract issue.
In general, domestic rules applying to domestic business transactions would concurrently apply to international business transactions. Besides, since states need to protect its national interests in international trade and business transactions, it should regulate policy such as on trade in goods, and on trading partners. Concretely, which goods/technologies would fall into the lists of prohibited import export or restricted import-export? Which trading partners would not be beneficiaries of preferential treatment? Should it strictly regulate the strong foreign currency transfers abroad? In which sectors should it restrict FDI?
An important source of domestic law concerning the international trade and business law consists in trade law statutes. For example, in the US legal system, the US Tariff Act 1930, US Trade Act 1974, US Trade Agreements Act 1979, US Uniform Commercial Code (hereinafter the ‘US UCC’) and others are very important sources of international trade and business law. Besides, various statutes concerning contract law, civil law, and civil procedure law, etc. and included in the domestic law of countries are also truly pertinent legal sources. In terms of domestic law, the key areas covered are the so-called ‘trade remedies and customs law. Regulations on ‘trade remedies’ (mainly consisting of AD, countervailing duty and safeguard measures) are truly ‘legal’ trade barriers to both fair trade and unfair competition. Also important are customs regulations, under which governments collect import-export duties and regulate import-export.
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2. Domestic Case Law
Another source of domestic law concerning international trade and business transactions is case law. Many are highly significant for legal experts, such as the Belgian case of 1878 concerning the ‘restrictive’ jurisdictional immunity; or the case United City Merchants (Investments) Ltd v. Royal Bank of Canada [1983] passed by an UK tribunal clarified the fraud exception of the principle of autonomy of the credit in the field of international payment, while the UCP 600 does not stipulate this kind of exception; and Banco National de Cuba v. Manhattan Bank [1981] related to the application of the ‘Act of State’ Doctrine by the US Court.
3. Other Sources of Domestic Law
Domestic law includes national mercantile customs and usages as well as general principles ‘in foro domestico’. These are the general principles found in domestic law and accepted by all legal systems. It originated usually from Roman law or was formulated in Latin, such as ‘non bis in idem’, ‘nemo judex in propria causa’, ‘ex injuria jus non oritur’, etc. Besides, the principles of due process, proportionality, non-retroactivity, etc. are quite familiar with most legal systems all around the world. These principles are applied only as a subsidiary source, in the case of the nonapplication of other legal sources.
B. Limits of Domestic Law in Governing International Trade and Business Transactions
The effect of the domestic law of a state is usually limited to governing acts done by subjects who are its citizens and performed in its territory. The determination of a MNC’s nationality becomes very important and complex in the case where government needs to protect the interest of its MNC in international business activities.
The limit of domestic law in governing international trade and business transactions sometimes conflicts with the issue of the extraterritoriality of jurisdiction. The extra-territoriality of jurisdiction of a state is the competence to govern by law: –
– acts of breach of law done by its citizens and performed outside of its territory. For example, a Chief Executive Officer (‘CEO’) who is a Japanese citizen and performed the act of bribery in Viet Nam would be put on trial by Japanese tribunal.
– acts done by foreigner and performed abroad injuring national security or other interests of State;
– acts of breach of law performed abroad of which victim is its citizen;
– acts of international crimes, such as sea piracy, air piracy, slave trade, genocide, etc.
The extra-territoriality of jurisdiction issue frequently leads to incidents in diplomatic relation.
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2. International Law
A. International Mercantile Customs and Usages
1. Concept of International Mercantile Customs and Usages
International mercantile customs and usages are a very significant legal source of International Business Law. Traders, driven by economic goals, have always spoken in a common language, that of international mercantile customs and usages.
International mercantile customs and usages could be understood as a whole of unwritten rules generated from the acts/ behaviors of merchants and were considered as ‘the law’ by them. For example, International Commercial Terms (hereinafter the ‘INCOTERMS’); Uniform Customs and Practice for Documentary Credits (hereinafter the ‘UCP’); or International Standard Banking Practice (hereinafter the ‘ISBP’).
2. Lex mercatoria (‘Merchant Law’)
The true development of international trade and business law begun since Middle Ages, when international mercantile customs appeared and developed in fairs in Europe on the late seventeenth century. During the Middle Ages, merchants would travel with their goods to fairs and markets across Europe and use their mercantile customs. Over time, emperors allowed merchants from different countries and regions to use their mercantile customs for dispute settlement, therefore these customs came into effect. From beginning, lex mercatoria (‘merchant law’) was an ‘international’ law of commerce, since it existed independently of emperors’ law. It was based on the general customs and practices of merchants, who were common throughout Europe, and was applied almost uniformly by the merchant courts in different countries.
During the Middle Ages, lex mercatoria included the whole of international mercantile customs and usages, with strong effects, and stipulating the rights and obligations of merchants. The scope of lex mercatoria was very broad, governing many commercial issues, such as the value and legal force of contract, breach of contract, letters of credit, accounting books, bills of lading, the setting up of a company, partnerships, bankruptcy, mergers, and trademarks. It emphasized freedom of contract and freedom of alienability of movable property.
… [T]heir disputes would be settled by special local courts, such as the courts of the fairs and boroughs and the staple courts, where judge and jury would be merchants themselves. These merchant courts would decide cases quickly and apply the lex mercatoria as opposed to the local law’.
Most significantly of all, it was speedily administered by merchant courts that avoided legal technicalities and often decided cases ‘ex aequo et bono’ (in equity). The lex mercatoria derived its authority from voluntary acceptance by the merchants whose conduct it sought to regulate. The lex mercatoria really suited merchants’ needs during that period.
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As the center of European commercial life, Italy had pride place in the development of lex mercatoria in the Middle Ages. Its merchants and lawyers were creative in the development of maritime and commercial instruments, such as the bill of lading and the bill of exchange, all of which gave rise to a corpus of substantive rules based on mercantile usage. The influence of the Italian merchants was felt throughout Europe, such that even the great fairs of the Champagne region (France) were dominated by Italian traders.
Later, when emperors gained wider powers, and more nation-states were created in the late Middle Ages in Europe, lex mercatoria tended to be integrated into domestic legal systems. For example, in the UK, lex mercatoria was a part of the UK law applied by commercial tribunals. The lex mercatoria was fully incorporated into the common law and this was largely done through the work of Sir John Holt (Chief Justice from 1689 to 1710) and Lord Mansfield (Chief Justice from 1756 to 1788). However, most lex mercatoria changed through being applied by tribunals of different countries.
From the nineteenth century, States started to conclude treaties relating to international trade and business transactions. Subsequently, lex mercatoria seems to remain of only historical significance. However, lex mercatoria, which is sometimes complemented by lex maritima (‘the law for merchants of the sea’), still has an impact on the development of modern international trade and business law concerning the international sale of goods, international payment, and international transport of goods.
3. International Chamber of Commerce (ICC) and Compilation of International Mercantile Customs and Usages
The ICC is an international non-governmental organization serving world business. The ICC plays a dominant role in ensuring harmonization through the compilation of international mercantile usages for incorporation by those engaged in international business transactions. The ICC has produced numerous uniform rules, adopted by incorporation into contracts. These fall broadly into three groups: banking and insurance, international trade and international transport.
Many of these rules are based on what the merchants may have adopted as customs or standard practices over time for their own convenience. For example, International Commercial Terms (‘INCOTERMS’); Uniform Customs and Practice for Documentary Credits (‘UCP’); International Standard Banking Practice (‘ISBP’); International Standby Practices (‘ISP’); or the UNCTAD/ICC Rules for Multimodal Transport Documents. Bankers throughout the world have adopted the UCP, now used almost universally in documentary credit transactions.
B. Treaties
Treaties are dominant source of international trade and business law. There are different means of the classification of treaties. International trade and business treaties would be bilateral agreements or multilateral agreements, including global and regional levels.
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At the global level, good examples of international trade and business treaties include WTO agreements; United Nations Convention on Contracts for the International Sales of Goods 1980 (‘CISG’); United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (hereinafter the ‘New York Convention’); The Hague-Visby Rules and the Hamburg Rules, etc.
Within the framework of the WTO agreements, there are ‘plurilateral’ trade agreements. These are agreements voluntarily concluded by some WTO members, thus came into effect for these members only. Plurilateral agreements are not binding on other WTO members who do not conclude them. On the date from when WTO entered into force (1 January 1995), there were four plurilateral trade agreements: the Agreement on Trade in Civil Aircraft; the Agreement on Government Procurement; the International Dairy Agreement, and the International Bovine Meat Agreement. The Information Technology Agreement 1996 was a recent plurilateral agreement. In late 1997, the International Dairy Agreement and International Bovine Meat Agreement were terminated. The conclusion of plurilateral agreements aims at allowing smaller groups of WTO’s members to move forward, outside the single undertaking, on issues important to them.
At regional level, States usually conclude such as Free Trade Agreements (hereinafter the ‘FTAs’), for instance, NAFTA, AFTA; or Bilateral Trade Agreements (hereinafter the ‘BTAs’). European states have concluded those such as the Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters EEC 1968 (hereinafter the ‘Brussels Convention’); Council Regulation (EC) No 593/2008 of 17 June 2008 on the Law Applicable to Contractual Obligations (known as Rome I Regulation), etc.
Treaties relating to international trade and business law should have a direct effect or should be ‘nationalized’ into the domestic legal system.
C. International Cases
WTO cases and decisions/judgments passed by international jurisdictions, such as international courts, international arbitrations, are very important in the legal source system. For example, the WTO’s case Japan-Alcoholic Beverage [1996] clarified the concept ‘like product’ in litigation concerning the application of the principle of national treatment, a cornerstone principle of international trade law, while WTO agreements cannot do this.
Besides, international cases in the FDI’s field are very important. In the case Factory at Chorzow [1927] decided by the Permanent Court of International Justice (hereinafter the ‘PCIJ’), the expropriation, nationalization and compensation standards were clearly explained. Similarly, the case Barcelona Traction [1970] decided by the International Court of Justice (hereinafter the ‘ICJ’) showed the rule on determination of the MNC’s nationality.
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The European Court of Justice’s cases (it is now Court of Justice which is a part of the Court of Justice of the European Union, form a substantive body of law binding EU institutions and its member States. The leading case Van Gend en Loos [1963] is an example.
The final dispute settlement panel determinations within NAFTA have made significant contributions to the jurisprudence of international trade law, and to investor-state arbitration law in particular. We may look at two cases, Metalclad v. Mexico and Thunderbird v. Mexico, within the framework of NAFTA.
D. Other Sources
General principles of international law are significant for issues such as those relating to State responsibility, or to fair and just compensation within the FDI’s field. One of these is the principle of good faith, which controls the exercise of rights by States. General principles of international law are, in principle, binding on all states.
Pursuant to Article 38(1) of the Statute of the International Court of Justice (‘ICJ’), the ‘teachings of the most highly qualified publicist’ are subsidiary means for the determination of rules of international law.
‘Soft law’ is popularly mentioned by academics. ‘Soft law’ is rules which are not legally binding, but which in practice will normally be adhered to by those who subscribe to them. Examples include, most Resolutions and Declarations of United Nations General Assembly, legal doctrines, Model Rules, Codes of Conduct, Action Plan, etc. It should list some interesting ‘soft law’ as follows: UNGAOR, Res. 1803 Supp. (No.17), 115, UN Doc. 5217 (1962) concerning permanent sovereignty on natural resources; UNGA, Res. 3201 (S-VI), UN Doc. A/9559 dated 1 May 1974 concerning new world economic order; OECD, Declaration 1976 on international investment and MNCs; ‘Act of State’ Doctrine, and the Calvo and Drago Doctrines.
The ‘Calvo Doctrine’ is a foreign policy doctrine which holds that jurisdiction in international investment disputes lies with the country in which the investment is located. The Calvo Doctrine thus proposed to prohibit ‘diplomatic protection’ practice or armed intervention by the investor’s home country of the investor. An investor, under this doctrine, has to use the local courts, rather than those of their home country. The Doctrine, named after Carlos Calvo, an Argentine jurist, has been declared since the nineteenth century and applied throughout Latin America and other areas of the world. The ‘Drago Doctrine’ is a narrower application of Calvo’s wider principle.
Other ‘soft law’ in the field of international business law which should be known is UNIDROIT Principles of International Commercial Contracts (hereinafter the ‘PICC’); the Principles of European Contract Law (hereinafter the ‘PECL’) prepared by the Commission on European Contract Law; and UNCITRAL Model Law on Electronic Commerce.
Although ‘soft law’ has no legally binding force, it would be worth recommending and highly orienting for law-making by states as well as in the negotiation of international agreements.
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It would be not unreasonable for DCs to consider that international trade and business law reflects mainly the interests of developed countries. Lex mercatoria was born of the Mediterranean Sea trade center and European fairs of Middle Ages. Although the endeavor is to harmonize the ‘trade rules of the game’ all around the world, the modern international trade and business law takes little or no interest in the experience and trade capacity of DCs. The question now is how to manage a globalized world of deep integration and multiple ‘powers’?
