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ECONOMICS, POLITICAL, AND LEGAL SYSTEMS

ECONOMICS, POLITICAL, AND LEGAL SYSTEMS. Brief review of International economics Trade policy The political environment Legal systems The California “Win-Win” Project. VERY BRIEF REVIEW OF ECONOMICS. Exchange rates Floating (supply and demand) fixed

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ECONOMICS, POLITICAL, AND LEGAL SYSTEMS

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  1. ECONOMICS, POLITICAL, AND LEGAL SYSTEMS • Brief review of • International economics • Trade policy • The political environment • Legal systems • The California “Win-Win” Project

  2. VERY BRIEF REVIEW OF ECONOMICS • Exchange rates • Floating (supply and demand) • fixed • Trade balances and their impact on exchange rates • Measuring country wealth • gross domestic product • “purchase parity” vs. nominal

  3. Demand for Currency Depends On • Trade deficit (demand for foreign currency to fund this) or trade surplus (demand for country’s currency) • Interest rates: Higher interest rates (real) attract foreign investors (especially for “stable” U.S. bonds and equities) • Inflation: Reduces the attractiveness of holding the currency

  4. Nominal vs. Purchase Parity Adjusted GNPs—Examples (2004) Source: World Bank http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf

  5. Cautions on Interpreting Per Capita Figures • Averages are not very meaningful! • Regional variations • Socio-economic differences • Comparison to U.S. dollar and U.S. costs is arbitrary

  6. Obstacles to Trade: Protectionism • Differing interests of consumers and manufacturers • Benefits of trade tend to be more diffused than benefits to specific groups of protectionism

  7. Approaches to Protectionism • Tariffs • Quotas • “Voluntary” export restrictions • Subsidies to domestic producers/exporters • Non-tariff barriers • legal obstacles • differential treatment

  8. U.S. Protectionism--justified or not... • Defense industry • Agricultural products--e.g., beef, sugar • Textiles • Automobiles (“voluntary” import restrictions) • Steel

  9. Justifications for Protectionism • Protect infant industry • Resist “unfair” or inappropriate competition • Protect home market (ensure that product can be produced domestically)--defense • Intervene into temporary imbalance • Maintain domestic living standards • Preserve jobs • Bargaining power/retaliation (Super-301 provision in U.S.)

  10. Effects of Protectionism • Reduced competition ---> inflation • More tariffs • Weaken balance of payments (have to pay more in own currency) • Reduce choice to consumers • May induce global trade wars (vicious cycle)

  11. THE POLITICAL AND LEGAL ENVIRONMENTS • Political history and stability • Political relations between countries --impact on business • Legal differences between countries • Extra-territorial application of laws

  12. The Legal Environment • Which laws apply when doing business between countries? • contractual specifications • treaties • extra-territorial applications of laws • “compulsion” as a defense

  13. Some Political Risks • Confiscation, expropriation, and domestication • Economic risks • Exchange controls • Local content requirements • Import restrictions • Tax controls • Price controls • Labor problems

  14. Development of Legal Systems • Laws on the books vs. laws enforced (transparency) • Japan: “Administrative guidance” • The ability to sue--a blessing or a curse? • Means of litigation • Implications for contract initiation and enforcement • Evolving nature of legal systems

  15. Approaches to Law • Common law (U.S., Britain, and many English speaking countries) • Code law (much of Europe and Louisiana) • Islamic law • Socialist based law • Asian laws

  16. Common Law • Gradually evolved in British courts, settling issues as they arose • Emphasis on precedent • Recognized by U.S. Constitution • Standards • criminal: “Innocent until proven guilty” • civil: “Preponderance of evidence”

  17. Code (Napoleonic) Law • Law governed by explicit statutory codes--”match” codes to issues as well as possible • Somewhat different standards in contracts --what constitutes an “act of God” canceling contractual obligations? • Criminal law: “Guilty until proven innocent” but difficult to bring to trial

  18. Islamic Law • Note that different varieties exist • Traditions of Islamic countries are not all tied to Islamic religion per se • Purpose of promoting justice • assets are thought to be held in “trust” • interest is frowned upon • Much wider scope than Western law: Shar’ia: the way

  19. Socialist Law • Basis for law in China, former Soviet Republics, and countries influenced by Communist allies • Based on the view that the government owns productive resources ---> • contract and intellectual property laws are typically not well developed • Legal scholars from the West are helping to reform

  20. Asian Law • Based on compromise and accommodation • Less emphasis on abstract principles • Less emphasis on consistent application across circumstances • Emphasis on informal resolution

  21. U.S. Laws of Interest to firms with U.S. Involvement • Anti-trust • Foreign Corrupt Influences • Anti-boycott laws • Trading With the Enemy

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