No company, domestic or international, large or small can conduct business without considering the influence of the political environment within which it will operate. One of the most undeniable and crucial realities of international business is that both host and home governments are integral partners. A government reacts to its environment by initiating and pursuing policies deemed necessary to solve the problems created by its particular circumstances. Reflected in its policies and attitudes towards business are a government’s ideas of how best to promote the national interest, considering its own resources and political philosophy. A government controls and restricts a company’s activities by encouraging and offering support or by discouraging and banning or restricting its activities – depending on the pleasure of the government.
International law recognizes the sovereign right of a nation to grant or withhold permission to do business within its political boundaries and to control where its citizens conduct business. Thus the political environment of countries is a critical concern for the international marketer.
In the context of international law, sovereign state is independent ad free from all external control, enjoys full legal equality with other states; governs its own territory; selects its own political, economic and social stems; and has the power to enter into agreements with other nations. Sovereignty refers to both the powers exercised by state in relation to other countries and the supreme powers exercised over its own members. A state sets requirements for citizenship, defines geographical boundaries and controls trade and the movement of people and goods across its borders. Additionally a citizen is subject to the state’s laws even when beyond national borders. It is with the extension of national laws beyond a country’s borders that much of the conflict in international business arises. This is especially true when another country considers its own sovereignty to be compromised.
Nations can and do abridge specific aspects of their sovereign rights in order to coexist with other nations. The European Union, North America Free Trade Agreement (NAFTA), North Atlantic Treaty Organization (NATO) and WTO represent examples of nations voluntarily agreeing to give up some of their sovereign rights in order to participate with member nations for a common, mutually beneficial. As indicated, the US, involvement in international political affiliations is surprisingly low (i.e. it is largely sovereign). Indeed, when it comes to participation in international treaty regimes the US is ranked near the bottom of the 62 countries included in the Foreign Policy magazine rankings tied with Thailand, Indonesia and Iran (at 57th) and ahead of only Malaysia and Taiwan. Most notably the Kyoto Protocol on global climate change and the International Criminal Court were rejected by the Bush administration, long with lesser known treaties such as the Basel Convention on the control of Trans-boundary movement of Hazardous Wastes. This apparent lack of international political engagement is particularly hard to understand given the wide acceptance that such agreements lead to peace and mutual understanding.
Countries that agree to relinquish some of their sovereignty often are subject to a nagging fear that too much has been given away. For example, the WTO is considered by some as the biggest threat so far to national sovereignty. Adherence to the WTO inevitably means loss of some degrees of national sovereignty because the member nations have pledged to abide by international covenants and arbitrations procedures that can over ride national laws and have far reaching ramifications for citizens. Sovereignty was one of the issues at the heart of the spat between the United States and the European Union over Europe’s refusal to lower tariffs and quotas on bananas and critics of the free trade agreement with Central American countries (CAFTA) claim America’s sacrifice of sovereignty is too great.