The International Legal Environment

The Pajama Caper:

The controversy arose over a US embargo forbidding US business to trade with Cuba and concerned whether or not the embargo could be enforced in Canada. Wal-Mart was selling Cuban made pajamas in Canada. When Wal-Mart officials in the United States became aware of the origin of manufacture, they issued an order to remove all the offending pajamas because it is against US law (the Helms Burton Act) for a US company or any of its foreign subsidiaries to trade with Cuba. Canada was incensed at the intrusion of US law on Canadian citizens. The Canadians felt they should have the choice of buying Cuban made pajamas.

Wal-Mart was thus caught in the middle of conflicting laws in Canada and the United States and Canada – US foreign policy feud over the extra territoriality of US law. Wal-Mart Canada would be breaking US law if it continued to sell the pajamas, and it would be subject to a million dollar fine and possible imprisonment of its managers. However, if the company pulled the pajamas out of Canadian stores as the home office ordered, it would be subject to a $ 1.2 million fins under Canadian law. After discussion with Canadian authorities, Wal-Mart resumed selling the pajamas. Canada was upset with the United States for attempting to impose its laws on Canadian companies (Wal-Mart Canada is a subsidiary of Wal-Mart US) while the United States says that Wal-Mart was violating its laws in not abiding by the boycott with Cuba. The situation illustrates the reality of the legal environment and international marketing companies are subject to both home country laws and host country laws when doing business in another country. The federal government finally settled with Wal-Mart in 2003 and the pajama caper was finally closed.

How would you like to play a game where the stakes were high and there are no standard set of rules to play by the rules. Rules changed whenever a new player entered the game, and when a dispute arose, the referee used the other players’ rules to interpret who was right? This fairly well describes the international legal environment. Because no single, uniform international commercial law governing foreign business transactions exists, the international marketer must pay particular attention to the laws of each country within which it operates. An American company doing business with a French customer has to contend with two jurisdictions (United States and France) two tax systems, two legal systems and a third super national set of European Union laws and regulations that may override French commercial law. The situation is similar when doing business in Japan, Germany, or any other country. Laws governing business activities within and between countries are an integral part of the legal environment of international business.

The legal systems of different countries are so disparate and complex that it is beyond the scope of this text to explore the laws of each country individually. There are, however, issues common to most international marketing transactions that need special attention when operating abroad. Jurisdiction dispute resolution intellectual property, the extraterritoriality of US laws, cyber law, and associated problems are in this article to provide a broad view of the international legal environment. Although space and focus limit an in-depth presentation the material presented should be sufficient for the reader to conclude that securing expert legal advice is a wise decision when doing business in another country. The foundation of a legal system profoundly affects how law is written, interpreted and adjudicated. The place to begin is with a discussion of the different legal systems.