Legal aspects of international business transactions

International trade is expanding day-by-day, small and big countries of the world are engaged in transfer of huge quantum of goods and services. The mutual contract between the parties, at time, creates legal problems. These problems arise from the first act of offer made by a trading partner and its acceptance by the other trading partner. The contracts created between the traders are generally binding on the parties.
Goods are sold against letter of credits, guarantees, and post-arrival payments or through barter trade. All these segments of trade processes create legal bindings. Where the legal instruments are properly made nothing happens, but where there are mistakes errors or shortcomings in the trade instruments, the fact may lead to dispute and litigation. These disputes create problems of jurisdiction, applicability of law, enforcement of judgements obtained and the interpretation of actions of the parties in arriving at trade contracts.
The issues not only relate to individual parties, but also include conflict with states on the issues relating to promises made by the states before the investment was made by the investor. Generally, such conflicts are related to legal aspects of business transactions and are settled through legal mechanism either through municipal course or through international tribunals. These disputes as such may be settled through arbitration or through International Chamber of Commerce or through ICSID where the states agree to settlement and arbitration. Particular reference is invited towards Bilateral Investment Treaties (BITs). There are thousands of such treaties between different countries which govern the rules for Foreign Direct Investments (FDI) ICSID tribunal has in many cases found the violation of bilateral or multilateral treaties. But in many cases, investors have lost the case against state party on complex legal grounds.1
As regards private parties, the emerging issues are generally governed by conflict of laws where the principle of lex domicile determines the issue of jurisdiction. The general principles of international law do become applicable. The transactions between the parties suggest that which country and which court have the jurisdiction to settle the dispute. That is why; the trading parties should be more vigilant in respect of their international business transactions. It is suggested that merchants should be careful while agreeing to the terms and conditions of the contract specifying the jurisdiction and the applicable law to settle the disputes. Although International Chamber of Commerce plays an important role for settlement of such disputes through arbitration, yet another important instrument is the United Nations Convention on Contracts for the International Sale of Goods. In addition to the said convention, the Uniform Commercial Code and the law of sale and the UNIDROIT principle of international commercial law also become applicable where disputes arise from the transactions of international sale of goods. One has to be vigilant to compare the said convention, the UNIDROIT principles and article 2 of the uniform commercial code in order to understand the complexities arising from the bilateral relationship between the trading partners.
We have so far discussed the relationship between private parties in international business transactions. However, there exists relationship between private individuals and the states as well, ie, that is the contracts with the states in respect of investments, etc. In such cases, the disputes arise from the violation of bilateral treaties, restrictions imposed on transfer of technologies, creating licensing requirements and imposition of technical fees. As regards the bilateral relationship between the states, the issues are settled through arbitration either by the International Chamber of Commerce or by the tribunal constituted under ICSID.2 The tribunal under ICSID have so far arbitrated and decided many important cases in relation to foreign investments, particularly where conditions stood changed, once the investment was made such events generally happen in developing and underdeveloped countries. In some of the leading cases decided by ICSID, Argentina was one of the contesting parties.3
WTO, under the GATT 1994 is another important institution which defines the limits of international business transactions in the framework of international agreements agreed among the states. A WTO dispute settlement process is very much in operation. WTO tribunals have decided many important principles of international law. The leading case relates to the dispute between Panama and Columbia which did involve wrong application of article 7 of the agreement on customs valuation and restrictive barriers to the trade. These limits were prescribed by Columbia in violation of GATT principle.4
There are many vague areas relating to commercial trade under GATT, for example, quantity restrictions, rules of origin, technical specifications, and health regulations, all these instruments have been used to restrict and to bar the trade from member countries in order to provide protection to domestic industry. Although in many such cases, domestic industries are generally either inefficient or through domestic regulations monopoly is created to ban imports from other countries.
Evident is the fact that there are legal disputes, disputed regulations, unethical state policies and the powerful domestic lobbies, and all these actors create barriers to trade by applying restrictive and unhealthy laws. But on the other hand, there are cases where even the import traders have been unethical to import goods either by mis-declaring their values, quantity or description or by violating the state regulations with regard to fitness of the goods so imported. I recall one such case where in violation of domestic health laws an importer did import cooking oil which was unfit for human consumption and in spite of the fact that goods were not fit for consumption; the legal battle was won by the unethical trader on the basis of flaws in the relevant laws. There are two sets of views. One view suggests that import control authorities have no legal authority to detain imported goods since the fitness problem falls within the domain of laws controlled and implemented by the local authorities. The other view states that trade control authority can withheld release of imported goods where the same are found to be unfit for human consumption. The examples suggest, how complex are the legal aspects of international business transactions.
To sum up, it is stated that the flow of goods and service across borders confronts legal problems relating to: (a) licensing (b) quality (c) fitness (d) quantity (e) specification (f) value (g) importability (h) contractual obligation (i) origin of goods (j) state policies (which often change without prior notice) which do not consider the contractual obligations between the parties as a final step towards commercial bargain.5 Furthermore, there can be disputes between a state and an individual relating to promises made at earlier and withdrawn subsequently.6 There may be issues relating to public policy, where the investor can be denied the contractual obligations on the name of public policy.
One can imagine the complexities of legal aspects of international business transactions. Trading partner should be careful about the impact of laws and regulations controlling the international trade. The moment you show laxity in understanding the legal aspects of international business transactions you are going to suffer loss and damages.
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates)
1. See the case of Cotechna vs Islamic Republic of Pakistan decided by ICSID in fever of State of Pakistan.
2. International Convention on the Settlement of Investment Disputes.
3. See CMS Transmission Co v Argentina, ICSID Case No ARB/01/08, Award dated 12th May 2005.
4. See WTO decision in the case relating to Panama vs Columbia decided by WTO Dispute Settlement Body.
5. For example see Section 31A of the Pakistan Customs Act, 1969.
6. It may be noted that promissory estoppels does not apply to the state.