Chapter 4 Politics and Law Learning Objectives

Economic Risk

• Exchange controls may be levied
• Tax policies may be used to control corporations and their capital
• Price controls may employed to control prices of imported products or services

Managing the Risk

• Demonstration of concern with host country’s society can be effective.
• Firms can take out insurance to cover losses due to political and economic risk.

Legal Differences and Restraints

• Countries differ in their laws as as well as in their use of the law. There are two major legal systems worldwide:
• Common Law: Based on tradition and dependent upon precedent and custom.
• Code Law: Based on a comprehensive set of written statutes.

International Relations and Laws

• International Politics:The effect of politics on international business is determined by both the bilateral political relations between home and host countries and by multilateral agreements governing the relations among groups of countries.
• International Law:Plays an important role in the conduct of international business. Treaties and agreements have a strong influence on international business operations.

International Law

• The World Trade Organization defines internationally acceptable economic practices for its member nations.
• The Patent Cooperation Treaty (PCT) provides procedures for filing patent applications.
• The United Nations has developed codes and guidelines that affect international business.

In cases of disagreement, the parties can choose:

• Arbitration: Procedures are quicker and often spelled out in the original contract
• Litigation: Often involves extensive delays and is very costly