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Nov 28

However, it is perfectly legal for a U.S. company to contract with an overseas manufacturer for labor, without insisting that those workers are paid a wage equal to the U.S. federal minimum wage. In the United States, that power rests with the president, though Congress also has important roles. Figure 13.3 The Vertical Nature of U.S. In the United States, laws are handed down by the legislative branch in the form of statutory law, by the judicial branch in the form of common law, and by the executive branch in the form of executive orders, rules, and regulations. If you were creating a contract with a supplier in a different country, what types of things would you consider when deciding on the choice of law clause? Business and the Legal and Ethical Environment, Chapter 13.1. Of course, people can influence who become members of the branches of government through elections and which issues are brought before government to consider and possibly legislate, but that does not change the fact that people are subjected to laws that are handed down in a vertical nature. As noted in the example concerning U.S. companies doing business with Foxconn and Hon Hai Precision Industry Co., international business can involve creating contracts between parties from different nations. Figure 13.5 The Horizontal and Vertical Nature of Contract Relationships in the Global Legal Environment. Since each state is sovereign, that means that one sovereign state is not in a legally dominant or authoritative position over the other. Consider the case of a criminal in the United States. Domestic Law”. This is why fleeing criminals can legitimately be caught and brought to justice in domestic law through extradition. A choice of law clause within the contract designates which country’s law will apply to a dispute arising under an international contract. However, it is necessary to first examine of the nature of international law to understand this complexity. For this reason, many horizontal laws, like treaties, contain provisions that require the parties to the treaty to submit to a treaty-created dispute resolution panel or other neutral tribunal, such as the International Court of Justice (ICJ). What learning outcome relates to this content? In the United States, contracts laws are state law rather than federal law, so should the laws of a particular state, like California, be applied to this dispute? Domestic Law”, Figure 13.4 “An Illustration of the Horizontal Nature of International Law between Nation-States”, Figure 13.5 “The Horizontal and Vertical Nature of Contract Relationships in the Global Legal Environment”, agreement-nafta,, CC BY-NC-SA: Attribution-NonCommercial-ShareAlike. If Foxconn and Hon Hai disputed this allegation, which rule of law should govern the dispute? When domestic laws apply to businesses operating internationally, that is a vertical legal structure, such as is illustrated in Figure 13.3 “The Vertical Nature of U.S. International Business law is the scope and practice of law in the global business market. The prevailing party in the arbitration could take the award to court in either Washington or China and convert it into a legally binding judgment under the treaty. Indeed, the sovereign states themselves have the only power to conduct foreign affairs. Compare and contrast the structure of international law with that of domestic law. If this were the case, Apple may wish to terminate its relationship with these companies. However, it is unlikely that the Asian companies would agree. Examine the differences between vertical structure and horizontal structures of law. For example, treaties have a horizontal structure. International business law varies by jurisdiction. Though it is common for treaties to set forth expectations that disputes will be heard before some predesignated tribunal, some international relations experts believe that the state of international law is one of persistent anarchy. There is a legitimate law-creating authority at the “top,” and the people to be governed at the “bottom.” The law might be conceived of as being “handed down” to the people within its jurisdiction. There are several reasons for this. For example, perhaps a member of a treaty has broken its treaty promise to refrain from fishing in a certain fishery. If true, should these U.S. companies find another electronics manufacturer to assemble their products? Compare this to a sovereign state that violates a treaty agreement. An obvious challenge to laws created in horizontal power structures that lie outside of any legitimate lawmaking authority “above” the parties is that enforcement of violations can be difficult. For example, the Senate must ratify a treaty before the treaty binds the United States and before its provisions become law for the people within the United States. Domestic Law. This is a vertical structure of law, because there is some “higher” authority that imposes a rule of law on the people. How can the content in this section help you demonstrate mastery of the learning outcome? This is because the parties to international treaties are sovereign states. Figure 13.4 An Illustration of the Horizontal Nature of International Law between Nation-States. However, when we look at the question of how a company might “follow the law,” we need to consider which laws we are referring to. Another common challenge in international law is that the laws are applicable only to parties who voluntarily choose to participate in them. Everyone within the United States, for example, is subject to the jurisdiction of certain state and federal courts, whether they voluntarily choose to submit to jurisdiction or not. A choice of law clause is a contractual provision that specifies which law and jurisdiction will apply to disputes arising under the contract. We are all subject to domestic laws, because we all live in a sovereign state. Why or why not? It’s important to note, however, that not all law can be conceived as a vertical structure. Foxconn, which is part of the Taiwan-based Hon Hai Precision Industry Co., operates a large electronics assembly complex in China. Understand the difference between international law between states and law as it applies to businesses operating internationally. Additionally, a well-established United Nations treaty, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, provides for the enforcement of arbitral awards among member states. Try to make a distinction between the nature of international law between nation-states and the nature of law as it applies to businesses operating in the international arena. This is precisely the situation that Apple, Dell, Hewlett-Packard, and others find themselves in. Some laws, such as international law, or law between sovereign states, are best thought of in a horizontal structure. Could a U.S. state enter into a treaty with a sovereign nation outside the United States? However, businesses are required to abide by their own applicable domestic laws as well as the laws of the foreign country in which they are conducting business. Compare this with domestic law. Businesses are not involved in signing treaties or in creating law that applies between sovereign states. In domestic law, or law that is applicable within the nation where it is created, some legitimate authority has the power to create, apply, and enforce a rule of law system. In the case of Hon Hai and Foxconn, none of the U.S. companies can get into legal trouble regarding the fact that, until very recently, the average worker there made the equivalent of $132 per week, which is, of course, far below the U.S. federal minimum wage.Ting-I Tsai, “Hon Hai Gives Workers a Raise,” Wall Street Journal, May 29, 2010, (accessed September 27, 2010). Do consumers have any voice in this matter? The criminal can be prosecuted by the laws of the United States (federal or state, depending on the jurisdiction of the offence) and, if convicted, will have to submit to the authority of the United States for punishment. Or should Chinese law apply? Imagine hearing allegations that your company’s products are being assembled overseas in working conditions that have resulted in extreme despondency among workers, including several suicides.

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