Effect of International Commercial Law

International Commercial Law comprises permissible rules, conventions, treaties, national legislation, and customs, that regulates international business transactions. These transactions usually require transactions that typically take place between countries or when more than one country is involved. “Lex mercatoria refers to that part of international commercial law, which is unwritten, including customary commercial law; customary rules of evidence and procedure; and general principles of commercial law.^”[1]

In this article, we shall understand the law which governs and oversees these transactions. In addition to this, we shall also look into the legal factors for anyone who is actively participating in this type of transaction should consider.

Law

International trade is very much significant in maintaining stability and smooth functioning of the global economy. In regard to this, numerous international organizations have been established to support and facilitate trade among nations. Among the most important of these organizations are:

1. World Trade Organization (WTO),
2. The World Bank,
3. The International Monetary Fund (IMF),
4. The International Institute for the Unification of Private International Law (UNIDROIT),
5. The United Nations Commission on International Trade Law (UNCITRAL), and
6. The International Chamber of Commerce (ICC),
7. The United Nations Convention on Contracts for the International Sale of Goods (CISG).

The regulations which regulates obligations on the parties who are selling international goods are mainly governed by CISG. It was founded and created by UNCITRAL. Few main obligations are listed below:

1. Governing termination or conclusion of a sale contract,
2. Buyer and seller responsibilities,
3. Dispute resolution,
4. Remedies in case of a breach in sale contract,
5. Maintaining uniformity in international circuit,
6. Reflecting on good faith.

In addition to these rules, the CISG also states that in matters where there is no governing law in place, then the provisions of private international law shall apply. The UNIDROIT Principles on International Commercial Contracts also provide a ‘gap-filling’ role to supplement CISG, so long as it supports a principle deduced from the Convention.[2]

International commercial contracts are sale transaction agreements made between parties from different countries.[3]

The methods of entering the foreign market,[4] with choice made balancing costs, control and risk, include:[5]

1. Direct export,
2. One shall make use of foreign agents to sell and distribute goods,
3. To sell to local customers,
4. Manufacture products in the overseas country,
5. Provide license to a local manufacturer,
6. Enter into a joint venture with a foreign entity.
7. Appoint a franchisee in the foreign country.

Let us take help of an example of what an international commercial transaction would look like: 

 

“Johnson & Gamble (“J&G”) is a diversified multi-national consumer products company headquartered in the United States and listed on the New York Stock Exchange. J&G is represented by the company vice president who resides in central New Jersey and has had little international exposure. China Metals is a huge state-controlled conglomerate organized under the laws of the People’s Republic of China and headquartered in Beijing. It is engaged in the production of copper, aluminum, and nickel, among other metals. China Metals is also one of the largest metals trading companies in the world, trading over 12 million tons of steel annually. China Metals is represented by a team including a Senior Vice President of the company and an executive whose title is Chief of Discipline Inspection Committee. J&G wants to import Chinese steel in order to make its new MAK X disposable razor blades. Chinese steel is considerably lower cost than US steel, making this deal extremely attractive to J&G. China Metals is interested in expanding its sales to the United States but has also been instructed by its government ownership to encourage investment by J&G into China. All of the individuals involved personally want a deal to be struck because such a success would advance their careers and no doubt also result in personal financial gain. Both parties understand that disputes might arise during the course of their dealings. However, neither party is interested in submitting any disputes to the state or national courts of its counterparty’s country.”[6]

Jurisdiction of the parties involved in the transaction: Most countries will have governing law or an entire legal system which will likely differ and be different. The most basic distinction among the legal systems of the world is whether a particular nation has a civil law system, a common law system, or a mixed system.[7] Therefore, there is a dire need to understand laws of all the clients involved and at the same time, it is important to interpret the law. In addition to this, I believe that adding an “applicable law” clause will be very beneficial to parties involved as well. As most of your international contracts solve the question of jurisdiction but not of applicable law. Parties that have already agreed upon the same, ensures that the dispute resolution carry on smoothly.

It so often happens that when a country is in dispute with other country that have conflicting nature of laws, one tends to always rely on precedents. However, there are many factual distinctions which exist in any given situation, it is often difficult to find a previous case with the exact same facts as those in the principle case under consideration.[8] Where any differences do exist, advocates have leeway to argue that the new factual circumstance must be governed by a new rule of law and that such a result would still be consistent with previous case law.[9]

In reference to this, if one reads the Article VI of the United States Constitution, which states that, “all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land.” Other countries that do not have such a provision automatically making treaties law can choose to implement any given treaty through the adoption of a domestic statute.[10]

 

Conclusion: There are countless fundamental business and legal concerns that should be taken into account when considering commercial transactions. In all certainty international transactions which typically involve the sale of international goods obscure matters significantly. It is important to build a structure of an agreement, understand what your client wants, and anticipate all the possible drawbacks.

To know more about International Commercial Law, refer to Layman Litigation articles on

[1] International commercial law - Wikipedia

[2] Refer footnote 1.

[3] Mo, John S.; International Commercial Law (2003) 1.

[4] Draft 07-20-07 (ufl.edu)

[5] Refer Footnote 4.

[6] Supra 4.

[7] For additional scholarly commentary on the legal systems of the world, see R. David & J. Brierly, Major Legal Systems in the World Today (3d rev. ed., Stevens Publg. 1985), and Rudolf Schlesinger, Comparative Law: Cases, Text, Materials (6th ed., Found. Press 1998).

[8] In the United States, lawyers state that a case “is on all fours” if he or she finds a previous case with the same circumstances as the case at hand. Very seldom, however, does this occur.

[9] As Roscoe Pound famously pronounced, “Law must be stable and yet it cannot stand still.” Roscoe Pound, Interpretations of Legal History 1 (Harv. U. Press 1946).

[10] For example, the United Kingdom is a “dualist” state, meaning treaties must be incorporated into national law before they are binding. UK Parliament, The UK’s legal relationship with the EU, http://www.publications.parliament.uk/pa/cm201011/cmselect/cmeuleg/633/63304.htm (last accessed March 27th, 2022).