Legal Environment

• Legal environment refers to the legal system

obtaining in a country

• The legal system than refers to the rules & laws that

regulate behaviour of individuals & organizations

• Failure to comply with the laws means that penalties

will be inflicted by the courts depending on the

seriousness of the offence

• The legal system of a country is of immense

importance to inter-national business

• A country’s laws regulate business practice, define

the manner in which business transactions are to be

carried out & set down the rights & obligations of

those involved in business deals

• The legal system prevailing in India should be

emulated by all the countries

• The legal resource is available to all – Indian or

foreigners

• Justice is meted to any petitioner, depending on the

merits of the case

• GE, for example, got back the entire investments of

$ 115 million from Dhabol once the latter vent bust

• Scott Bayman, the CEO, admitted that nowhere else

this would have been possible

• Laws do not change overnight

• They change over a long period of time & may lag

behind important cultural changes which are taking

place in a country

• In many cases, it is not cultural changes which invite

changes in the law but ambiguities in the law them-

selves which are challenged in the courts

• The legal system in a country is also influenced by its

political system

• The government of a country defines the legal

framework within which firms conduct business

& often the laws that regulate business reflect the

rulers’ political ideology

• Totalitarian states, for example, tend to enact laws

that severely restrict private enterprise, while

democratically elected governments pass laws that

are pro-private enterprise & pro-consumer

Systems of Law

• There are four basic legal systems prevailing around

the world :

1. Islamic Law

2. Common law

3. Civil or Code Law

4. Marxist Legal System

1. Islamic Law

• Islamic law, also called theocratic law, is derived

from the interpretation of the Quran & teachings of

Prophet Mohammad

• The word Islam translates into English as

‘submission’ or ‘surrender’

• Muslims submit to the will of God, who decrees

what is proper & what is improper

• God’s commandments, as revealed to Mohammad,

provide a path, or shari’a, for true believers to

follow

• The shari’a is not a coded law

• It provides ethical & moral precepts as well as rules

of public order

• Countries from Philippines to the former Soviet

Union have substantial Muslims who follow Islamic

cultural & legal traditions & Islamic traditions

dominate the legal & social environment of most Arab nations

• Islamic law is the product of divine revelation

• It cannot be changed as the people believe in the will

of God

• The immutability of the law requires Islamic nations

to look to other sources of law to govern & resolve

disputes • Among the unique aspects of Islamic law is the pro-

hibition of paying or receiving interest• The Islamic law of contracts states that any given

transaction should be devoid of riba, which is understood as unlawful gain by way of interest orusuary

• Prohibiting receipt & payment of interest is the nucleus of the Islamic system

• Prohibition against interest affects banking & business practices severely

• However, risk sharing, property rights, individual rights & duties, & sanctity of contracts are advocated

• Investments in alcohol, gambling, & casino’s are

prohibited

• Followers of Islam & their financial institutions have

had to develop alternative financing arrangements

to source & finance capital

• Businesses often rely on leasing arrangements,

rather than borrowing money, in order to obtain

fixed assets

• In Iran, banks often charge up-front fees that act as

a substitute for interest payments, & depositors

receive shares of the bank instead of interest

payments

• The international manager should have knowledge

of the religion’s tenets & understand the way the law

may be interpreted in each region

• Regional courts can interpret Islamic law from the

viewpoint of fundamentalists or they may use a more

liberal translation

• The inter-national manager should also know that

the Islamic legal system places emphasis on the

ethical, moral, social, & religious dimensions to

enhance equality & fairness for the good of society

Socialist Law

• This law evolves from the Marxist socialist system &

continues to influence regulations in former

communist countries, particularly those from the

former Soviet Union, as well as present day China,

Vietnam, North Korea, & Cuba

• Ideology plays a crucial role in socialist law

• Unlike a civil law code, which can be used by

governments of widely differing political viewpoints,

socialist legal codes are designed to achieve personal

& societal transformation

• The legal system is not just a set of institutions, but

means to achieve a Communist society, where each

gives according to his or her abilities & takes

according to his or her needs

• Communist ideology permeates socialist law

• The legal environment provides for state ownership

of the means of production & distribution, including

most businesses

• It also calls for state ownership of land &, in most

cases, collective use of land

• There is little tolerance of private property rights

• The code support centralised planning, allowing the

cultural government to set national & uniform

standards for business practices

• At the centres of the socialist legal tradition is the

Communist party

• The party is the keeper of the ideology of the state

& through its power to nominate officers, staff the

bureaucracy, & monitor workplaces, it determine

the norms that become law

• Russia & China are the two countries which comes

to one’s mind while discussing socialist law

• Each country has taken a difference direction in its

political & economic growth

• Russia is moving towards a democratic system,

whereas China is attempting to activate private

sector within a multi-component or mixed economy

in a socialist legal framework

• Both the countries are busy with passing laws to suit

changed political environments

• China has implemented over 150 laws but most laws

are vague

• Russia’s experience has been identical

• Vaguely worded laws have been passed without

mechanisms for implementation

• These countries are struggling with universal issues

such as states’ rights, freedom, rights of property

owners, ‘taxation’ & price control

2. Common law

• Common comes from English law & it is the found-

ation of the legal system in the US, Canada,

England, Australia, New Zealand, India, & many

other countries

• Common law is based on the cumulative wisdom of

judges’ decisions in individual cases

• In common law countries, vast areas of law, such as

contracts, torts, & agency are controlled by

collections of principles deduced from specific

disputes resolved in an adversary process

• A key concept in common law is that similar

disputes should achieve similar legal results

• Thus, parties to a dispute will look for similar,

earlier cases with favourable decisions

• These earlier cases have precedential value to a

current dispute

• If an earlier case is from a higher court in the same

jurisdiction, a subsequent judge is expected to follow

the earlier decision

• This practice of relying on past precedences provides

the stability required for business people to plan

their future action

• But there is also the flip side

• Laws affecting business practices vary somewhat in

countries which follow common law, creating

potential problems for the not so well-informed

inter-national business manager

• For example, manufacturers of defective products

are more vulnerable to lawsuits in the US than in

New Zealand as a result of evolutionary differences

in the law of negligence in the two countries

• Legislation & its accompanying regulations are

another major source of law in common law

countries

• Cases provide rules for individual, specific

circumstances, whereas legislation & regulators

offer blanket rules

• Finally, tradition is a major source of law in

common law countries

• The customary practices of an industry or of govern-

ment institutions influence the way a judge will

look at a particular case

3. Civil or Code Law

• The civil law system, also called a codified legal

system, is based on a detailed set of laws that make

up a code

• Rules for conducting business are a part of the code

• Over 70 countries, including Germany, France, &

Japan follow civil law

• The civil law system originated with the Romans in

the ancient times, who spread it throughout the

Western world

• The roles of judges & lawyers make civil law

different from common law

• In a common law system, the judge serves as a

neutral reference, defining points of law & ruling

on various motions put forth by the opposing party’s

lawyers

• These lawyers are responsible for developing their

client’s cases & choosing which evidence to submit

on their client’s behalf

• In a civil law system, the judge takes on many of the

tasks of the lawyers, for example, determining the

scope of evidence to be collected & presented to the

court

• The distinction between common law & code law

systems becomes more pronounced in protecting

intellectual property

• Under common law, ownership is established by use;

under code law, ownership is determined by

registration

• In some countries where civil law prevails, certain

agreements may not be enforceable unless properly

notarised or registered ;in a common law country,

the same agreement may be binding so long as proof

of the agreement can be established.

4. Comparative Law

• Comparative law is not a source or system of a law but an emerging discipline that examines differencesbetween legal systems prevailing in different countries

• Before a manager is posted on a foreign assignment,he or she is briefed about the host country’s legal system

• Understanding the legal system of a host country is not enough

• The inter-national manager needs to know how the laws of one country compare with those obtaining

in another nation

• Taking own country’s experience & generalising them as applicable to other countries may be a costly mistake

• The comparison of foreign criminal laws is important to business people who find themselvesunder the control of a foreign government &

accusedof crimes

• For example, a businesswoman was arrested in Nigeria for selling oil without a licence

• The penalty (changed after she was arrested) wasdeath

• She was tried & finally acquitted - the acquittal occurred because of active intervention by the counsel & US congressional representatives

• Another interesting case relates to a consultant

named Flynn who was assisting a US printing co.

that was unable to comply with the contract terms

with a Mexican co.

• Flynn flew to Mexico to resolve the issue & was

arrested & sentenced to six years in prison

• After three years of imprisonment, the conviction

was overturned on the ground that he had not been

a party to the contract

• It is not only criminal law which needs comparison

• Foreign investments law also invites comparison

• Many countries, including East European, Latin &

South American ones, have been changing their laws

to attract foreign capital, including laws on govern-ment approval for foreign investment & technology transfer agreements

• Some countries have removed restrictions on profitrepatriations, movement of capital, & form of ownership & lowered tax rates as incentives

• Each country, depending upon its stage of develop-ment as well as past experience with foreign invest-men, will develop unique investment codes

• Assumptions about what is permissible for businessin a particular country are dangerous because whileone country allows wholly owned foreign companies,other nations may require some level of local participation

International Dispute Resolution

• Legal disputes can arise in three situations : between

governments, between a firm & a government, & between two firms

• Disputes between governments are resolved throughthe intervention of the World Court at the Hague &the Inter-national Court of Justice, the principal judicial organ of the United Nations

• Disputes of the other two situations must be handledin the courts of the country of one of the partiesinvolved or through arbitration

• Which country’s court should handle a dispute is a

relevant question

• Often, contracts contain jurisdictional clauses which

specify that the law of a particular country will

apply, as agreed by the parties to the contract

• Often, the law of England is specified even though

neither party resides in the UK

• This is because English law has dealt with questions

of inter-national trade for many countries, is well

documented, & has ready answers for questions

arising from cross-border transactions

• If a contract does not contain a jurisdictional clause,

then the law of the country in which the case is

heard (normally the defendant’s nations, because the

defendant cannot be compelled to attend a court

outside his or her own country) will apply

• Jurisdictional issues within the European Union are

covered by the Brussels Convention of 1982 & the

Rome Convention of 1990 which establish the

circumstances in which cases will be heard

• Either the contract of sale will name a country, or

the country with ‘the closet connection’ with the

country must be chosen

• The principal means of resolving inter-national

disputes are conciliation, arbitration, & litigation

• Most inter-national businesses prefer a settlement

through arbitration rather than by suing a foreign

country

Conciliation

• Also known as mediation, this is a non-bonding

agreement between parties to resolve disputes by

asking third party to mediate

• The function of the mediator is to carefully listen to

each party & to explore, clarify, & discuss the

various practical options & possibilities for a

solution with the intent that the parties will agree to

it

• Unlike arbitration & litigation, conciliation session

are private & all conferences between parties & the

mediator are confidential ; the statements made by

the parties may not be disclosed or used as evidence

in any subsequent litigation or arbitration

• The track record for the conciliation process is

excellent, with a majority of disputes reaching settle-

ment & leading to the resumption of business

between the disputants

• Conciliation is considered to be especially effective

when resolving dispute with Chinese business

partners because they feel less threatened by

conciliation than arbitration

• The Chinese believe that when a dispute occurs,

informal, friendly negotiation should be used first to

solve the problem; if that fails, conciliation should

be tried

• In fact, some Chinese cos. may avoid doing business

with companies that resort first to arbitration

• Conciliation can be either formal or informal

• Both sides agreeing on a third party to mediate can

establish informal conciliation

Arbitration

• If conciliation is not used or an agreement cannot be

achieved, the next step often used is arbitration

• The usual arbitration procedure is for the parties

involved to select a disinterested & informed party

or parties as referee to determine the merits of the

case & make a judgment that both parties agree to

honour

• In most countries, decisions reached in formal

arbitration are enforceable under the law

Some of the more active are the following :

• The Inter-American Commercial Arbitration Com-

mission

• The Canadian-American Commercial Arbitration

Commission (for disputes between Canadian & US

businesses)

• The London Court of Arbitration (decisions are

enforceable under English law & English courts)

• The American Arbitration Association

• The Inter-national Chamber of Commerce

• The Commercial Dispute Resolution Center of the

Americas

• The procedures used by formal arbitration

organisations are similar

• Arbitration under the rules of the International

Chambers of Commerce (ICC) affords an excellent

example of how most organisations operate

• When an initial request for arbitration is received,

the Chamber first attempts conciliation between the

disputants

• If this fails, the process of arbitration is started

• The plaintiff & the defendant select one person each

from among acceptable arbitrators to defend their

case & the ICC Courts of Arbitration appoints a

third member, generally chosen from a list of

distinguished lawyers, jurists, & professors

• It may have a more streamlined process of getting

to a hearing, especially when compared to the expensive & cumbersome discovery process in countries

• A major factor in favour of arbitration is its lack ofpublicity

• Unlike court proceedings, which are open to the public & often result in published decisions, arbitration is a private process

• Other advantages of arbitration include flexibility in rules on the admissibility of evidence, compellabilityto implement decisions, & limited rights of a party to appeal

• In order to arbitrate a dispute, the parties must

agree to do so, usually in their initial contract

• Arbitration has become popular in both domestic

& inter-national business agreements

• An arbitration clause may be inserted in an employ-

ment contract, credit card agreement, cruise ship

ticket, or bank account application, as well as in big

contracts

Litigation

• Seeking justice in a court is generally avoided by

parties to an agreement

• The costs incurred, the frustrating delays involved,

& extended aggravation make victories in law suits

spurious

• There are other grey areas also in litigation :

1. Fear of creating a poor image & damaging

public relations

2. Fear of unfair treatment in a foreign court

3. Difficulty in obtaining judgment that may

otherwise have been possible in a mutually agreed

settlement through arbitration

4. The relatively high cost & time required to settle the

dispute. The issues of paying compensation to the

victims of the Bhopal gas tragedy has been only

recently decided though decades have gone by since

the disaster occurred

5. Loss of confidentiality. Unlike arbitration &

conciliation that are confidential, litigation is public

• The three approaches to dispute settlement –

conciliation, arbitration & litigation have their

advantages as well as limitations

• To sum up, we may state that to settle any dispute

(inter-national or domestic), four steps are needed :

• First, try to placate the affected party ;

• Second, if this does not work conciliate ;

• Third, if this also fails, seek arbitration, &

• Fourth, if arbitration fails ; resolve through

litigation . Though litigation is recommended as one of the options, a wise course of action would be to seek a settlement other than by

sueing

Areas of Concerns for MNCs

• The immediate legal issues that bother MNCs most

are the following :

a) Protection of intellectual property

b) Product liability & safety

c) Competition among businesses,

d) Payment of bribes & other corrupt practices

e) Advertising & sales promotions,

f) Formation & termination of contracts,

g) Shipping of goods,

h) Labour legislations &

i) Environmental laws

MNC

Protection of IPRS

Contracts

Advertising &Sales Promotion

Product Liability& Safety

Competition Laws

Bribery &Corruption

EnvironmentalLaws

Labour Laws

Shipping of Goods

a) Intellectual Property

• Property that results from people’s intellectual

talent & abilities is called intellectual property &

includes designs, novels, patents, trade marks, copy-

rights, computer software, & secret formulae as the

one used for making Coca Cola

• It is possible to establish ownership rights over

intellectual property through patents, copyrights, &

trade marks

• A patent grants the inventor of a new product or

process exclusive rights of manufacture, use, or sale

of that invention

• Copyrights are the exclusive legal rights of authors,

composers, play-wrights, artists, & publishers to

publish & disperse their work as they wish

• Trade marks are designs & names, often officially

registered, by which business people designate &

differentiate their products

• The philosophy behind intellectual property laws is

to reward the originator of an invention, book,

musical record, clothes design, software & the like,

for his or her idea & effort

• Such laws are a very important stimulous to

innovation & creative work

• They provide an incentive for people to search for

novel ways of doing things & reward creativity • Country vary widely in their intellectual property

laws• While many countries have stringent intellectual

property laws in their books, their enforcement hasbeen lax

• This has been the case even among the countries thathave signed important inter-national agreements toprotect intellectual property, such as the ParisConvention for the protection of industrial properties which has 96 countries as signatories to it

• Weak enforcement encourages the piracy of intellectual property

• China & Thailand are the worst offenders in Asia.

b) Product Liability & Safety

• Most countries have laid down product safety laws

which bind manufacturers to produce safe products

• Products liability holds manufacturers & sellers

responsible for damage, injury, or death caused by

defective products

• Affected parties can sue both for monetary compen-

sation through civil law suits, or imprisonment

through criminal lawsuits

• Civil lawsuits are frequently settled before cases are

filed in courts

• The United States has the toughest product liability

laws in the world, with Europe a close second

• Less developed & emerging countries have the

weakest laws

• By the same token, insurance premiums & legal

expenses are greater in those nations with strong

product liability laws

• Awarded damages tend to be several times larger in

the United States than in other developed countries

• Conforming to different inter-national laws can be a

complex process

• Consider a product as seemingly straightforward as

Chinese-made teddy bears

• Bears that were assembled in China with parts

made all over the world must meet manufacturing

& safety specifications for customers in Brazil,

Canada, the European Union, Japan, Mexico, & the

United States

• Before a teddy bear can be shipped to the United

States, four different certificates from four different

labs must be obtained

• Each one certifies that the toy complies with various

US federal regulations, including ASTM F-963, the

US voluntary toy-safety standard

• Teddy bears headed for Brazil need certification for

a recognised US or Brazilian laboratory

• Shipments headed for Japan must comply with Japanese toy-safety regulations & those destined forsale in the European Union must comply with ENZI,the European safety standard

• Enforcement of product liability laws differ from nation to nation

• In the United States, for instance, tobacco companiesare under attack for failing to warn consumers about the health effects of tobacco & nicotine

• In countries like India & Sri Lanka, however, theyare free from scrutiny by public-welfare organisations Because of far less stringent regulation, the biggest market for US cigarette

makers is Asia, followed closely by eastern Europe

• Philip Morris, the world’s biggest tobacco co.,

increased inter-national sales by 80 per cent (to 660

billion cigarettes) between 1990 & 1997

• In Poland, market potential is still quite large despite the curbing of cigarette advertising, raising of taxes, & banning of smoking on the job

• About 50 per cent of all Polish adults smoke,

compared to 25 per cent in the United States

c) Competition among Businesses

• Competition laws are enforced to break monopolies

& protect consumer interests

• It is truism that consumer interests are better

protected by encouraging competition among

manufacturers & sellers of products

• In India there is the Competition Law

• Other countries too have antitrust laws

• The US has antitrust legislation, as also in Germany

• In Japan, the fair Trade Commission enforces anti-

trust laws

• From South Korea to Brazil to the Czech Republic,

all countries have enacted competition laws

• All antitrust laws are identical in their focus on two

types of activities

• First, competition laws tend to prohibit agreement

between competitors that restrict competition

• Secondly, such laws prohibit the abuse of a

dominant market position

d) Bribes & Corrupt Practices

• Bribery is a deliberate attempt to persuade someone

(usually in position of power & authority) to act

improperly in favour of the party offering bribes in

the form of money or gifts

• Bribery is the root cause for corruption

• Corruption then may be understood as the abuse of

public office for private gain

• Inter-national businesses are known to bribe officials

to get favours

• Investigations of the US based MNCs in the 1970s &

of Italian firms in the 1990s, along with much

anecdotal information from several years, indicate

that the practice has been widespread.

e) Advertising & Sales Promotions

• Multinational businesses spend huge sums across the

globe for advertising their products

• Like advertising in domestic markets, there are

temptations to make exaggerated claims & tell un-

truths while conveying messages about the product

to be sold in inter-national markets

• Almost all nations have laws to prevent such false

claims

• The EU specifically excludes fraudulent advertising

from its general protection of commercial speech

• Even during the late 19th century, when there were

no specific laws to protect consumers (those were the

days of unbridled capitalism), courts found ways to

save the users

• In a country with no consumer protection laws,

English courts protected consumer by invoking

ancient contract law principles to news paper adver-

tising

• Advertising can also be outlawed even if its content

is perfectly true

• Advertising aimed at children, for example, is closely

regulated

• More than 40 countries prohibit or limit such advertising, reasoning that children cannot intelle-gently assess the contents of commercial ads

• Some countries insist of the use of local language which complicates cross-border advertising

• Indonesia, for example, insists on use of Bahasa in bill boards

• But Bahasa happens to be a second language in the country of 180 million people

• Similarly in France, every word used in advertising must be in French, even if the French people them-selves use English

• Almost all countries limit the advertising of tobacco & alcohol

• Starting in 1993, France banned all tobacco &

alcohol advertising – only exception being French

wine

• Bulgaria, has banned all tobacco advertising outside

of tobacco shops & threatened violators with a

$ 50,000 fine per violation

• In Britain, tobacco commercials are not banned but

the citizens believe the self-imposed & subjective

industry guidelines

• Sales promotions are marketing activities that

stimulate consumer purchases

• As is true in advertising, there are laws restricting

sales promotional activities

• Some countries prohibit premiums or free gifts

• In some countries, laws control the amount of

discount given to retailer, others require permits

for all sales promotions, & at least in one country, no

competitor can spend more on a sales promotion

than any other company selling the product.

f) Contracts

• A contract is an agreement by the parties concerned

to establish a set of rules to govern a business

transaction

• Contract law plays a major role in inter-national

business transactions because of the complexities

arising from the differences in the legal systems of

participating countries & because the host govern-

ment in many developing & communist countries is

often a third party in the contract

• Both common law & civil law countries enforce

contracts, although their means of resolving disputes

differ

• Under civil law, it is assumed that a contract reflects

promise that will be enforced without specifying the

details in the contract ; under common law, the

details of promises must be written into the contract

to be enforced.

g) Shipping of Goods (Carriage of Goods)

• Three subjects are relevant in this context ;

1. International Carriers’ Liability

2. Ocean Shipping

3. Insurance

1. International Carriers’ Liability

• The liability of an air carrier for death or personal

injury of a passenger or damage to property is

determined by the Warsaw Convention of 1929, as

amended in 1999

• The Warsaw Convention is an international convention which regulates liability for international carriage of persons, luggage or goods performed by aircraft for reward.• It was signed in 1929 in Warsaw. It was amended in 1955 at The Hague and in 1975 in Montreal.• In particular, the Warsaw Convention has the following rules:

• carriers issue passenger tickets; • carriers issue baggage checks for

checked luggage; • there is a limitation period of 2 years

within which a claim must be brought (Article 29); and a carrier's liability is at least:

250,000 Francs or 16,600 Special Drawing Rights (SDR) for personal injury;

o 17 SDR per kilogram for checked luggage and cargo,

o 5,000 Francs or 332 SDR for the hand luggage of a traveller.

On April 1, 2007, the exchange rate was 1.00 SDR = 1.135 EURO or 1.00 SDR = 1.51 USD.

The Montreal Convention, signed in 1999, will replace the Warsaw Convention system, once Montreal has been ratified by all states.

2. Ocean Shipping

• Two types of vessels are involved in ocean shipping -chartered ships & common carriers

• With a charter, the ship’s owner agrees to carry a particular co’s. goods

• A shipper with a large cargo of goods & commodities may decide to charter an entire ship totake goods to overseas markets

• A common carrier, on the other hand, will carry anyone’s goods by scheduled vessels

• The liability of the carrier (chartered or common carrier) for damage or loss to ocean-going goods, in

most nations of the world, is governed by the Hague

Rules

• As per these rules, the primary obligation of the

carrier is to provide a seaworthy ship

• Its liability for damage to cargo resulting from

errors in navigation, perils of the sea, & fire is

limited

• The losses usually fall on the insurer of the cargo &

vessel.

3. Insurance

• Insuring cargo is essential element in inter-national

business

• The potential for damage & loss to goods,

particularly during ocean shipments that are more

lengthy & more hazardous than air shipments, is

tremendous

• Such loss is sought to be minimised through

insurance

• Historically, marine cargo insurance covered two

separate categories of underwriting risks :

a) marine risks, & b) war risks

• Marine risks included, among others, perils of the

sea, piracy, fire, thieves & barratry (the serious

misconduct of the captain or crew)

• War risk included the risk of aerial bombardment,

mines, torpedoes, taking or seizures by governments

factions, or belligerents in wars, civil wars, &

rebellions

• Today, it is common to obtain insurance to cover all

risks, rather than to rely on a listing of specific risk

covered

• Some insurance policies contain the clause “free of

particular average” (FPA) which means that the

underwriter will not pay for any partial loss unless

the loss is general to the entire cargo

• If a ship jettisons some cargo in order to save the

ship,all shippers & the ship owner suffer

proportionately

• If a shipper is shipping wool that is partially

destroyed but the other shippers do not suffer any

loss, her loss would be “particular” & thus not pay-

able under an FPA clause

• Some policies state “FPA unless 10 per cent”

• In this situation, the insurer will pay for partial

losses exceeding 10 per cent of the valuation of the

cargo.

h) Labour Legislations

• Yet another area of concern for an MNC relates to

labour legislations prevailing in different countries

• Three main issues relating to labour are :

1. Employee dismissals

2. Working conditions

3. Discrimination

1. Employee Dismissals

• Any employer believes that he should have the right

to terminate the services of an employee the moment

the individual ceases to be productive

• This is the right an employer in the US enjoys

• Law in the UK mandates that an employer consult

with the appropriate trade union before making a

dismissal

• If the workforce is to be reduced by ten or more

employees, a consultation must take place sixty days

prior to termination

• Under German law, the employer should consult a

work council which must approve the dismissal

• If it does not, the employer may appeal in labour

court, but is likely to lose the appeal

• In Japan, an individual is expected to hold a job in

the same co. for a lifetime

• But conditions are changing on the labour front

• US businesses, for example, are being influenced

more & more by European & Japanese practices

• The employees are now given unpaid leave to care for family members & are guaranteed jobs back

after such leave & are warned in advance of any

plant closure

• Japanese, on the other hand, are being influenced by

American & European practices

• During the recession of the 1990s, for example,

giants such as Nippon Telephone & Telegraph, NKK

Corporation, & Nissan Corporation successfully

implemented reduction in their staff strengths

• These firms did not actually lay off employees, but

effected the reductions through normal attrition,

intra-company transfers, & transfers to subsidiaries

• But because many employees rejected unattractive

transfers & many subsidiaries went out of business,

the purpose was well served

• The days of lifetime employment are actually

numbered

• In the post-liberalisation period, India has witnessed

a series of layoffs & voluntary retirement schemes

being implemented both in public sector & private

sector units

• Change on the labour front notwithstanding, when

acquiring a co., an MNC is required to adhere to

its existing employment arrangements

• In other words, when acquiring a manufacturing

unit, one may be acquiring the collective bargaining

agreement that the seller had negotiated with the

trade union prior to the purchase of the company

2. Working Conditions

• In many countries, conditions under which workers

work are unsafe & unhealthy

• Child labour is also grossly abused

• One of the most common & dangerous of unsafe

practices is the blocking & locking of all exits in

manufacturing facilities as a low-cost measure to

prevent pilfering

• This practice has caused thousands of workers to be

trapped burnt alive when fires broke out in such

buildings

• For example, a fire in a locked toy factory near

Bangkok killed more than 240 workers & injured

hundreds of others

• In a separate incident, a fire in a locked facility

killed 80 young women in Dongguan, China

• The lack of ventilation in many factories increased

the incidence of tuberculosis & sinusitis among

workers

• A second, common safety issue is the use of

antiquated & poorly-maintained equipment

• Such equipment causes the rate of workplace

injuries to balloons

• In fact, in many developing nations, work-related

injuries have doubled in the last five years.

Child Labour

• Child labour is a widespread problem in developing

countries

• When children under age 14 work, their labour time

at minimum disrupts their schooling & in a majority

of cases, prevent them from attending school

altogether

• Compounding this, the health of child worker is

significantly worse, even accounting for their

poverty status, than that of children who do not

work ; physically stunting among child labourers is

very common

• In addition, a large fraction of labouring children

are subject to especially cruel & exploitative working

conditions

• The Inter-national Labour Office (ILO), a U.N body

that has played a lead role on the child labour issues,

recently estimated that some 120 million children in

developing countries between the age of 5 & 14 are

working full time, with another 130 million working

half-time

• Some 61% of the 250 million working children, or

nearly 153 million live in Asia, while 32%, or 80

million, live in Africa, & 7%, or over 17 million,

live in Latin America

• Inter-national trade treaties threaten such labour

practices

• Most developed nations have attempted to make

non-enforcement of employment laws a violation of

inter-national trade agreements

3. Discrimination

• Discrimination at workplaces still exists even thoughglobal firms are increasingly becoming cosmopolitan

• Discrimination is made on origin, religion, & gender• In a few countries, the law actually requires discri-

mination based on religion or nationality • When a country is synonymous with an ethnic group

that ethnic group sometimes justifies preservation of its ethnic identity by methodical exclusion of thoseoutside it

• For example, ethnic Kuwaitis & Jordanians have excluded Palestinian co-religionists from key jobs &

properties

• Gender discrimination is widespread

• Worldwide working women consistently earn less

than men

• In Japan, women earn only 63 per cent of what men

do

• In the United States, the figure is 74 per cent

• Northern European nations are some what better –

such as Sweden & Denmark, at 87 & 88 per cent,

respectively

• But others are measurably worse ;

• In some Islamic nations, restrictions are imposed on

women’s in workplaces

• In many countries, however, anti-discrimination laws & provisions are in place

• For example, Article 7, 48, 52, & 59 of the EU treaty forbid different type of discrimination within the Union on the basis of nationality

• Law-makers particularly focused on the issue of maternity leave

• An EU directive now provides for a minimum of fourteen weeks maternity leave & an allowance of

atleast 75 or 80 per cent of net salary

• It further stipulates that pregnant workers cannot be fired

• In Hong Kong, a new law provides for ten weeks

maternity leave at two-third of the woman ‘s latest

salary

• India requires six weeks leave at full pay

• The Equal Remuneration Act in India underlines

equal pay for equal work & prohibits any

discrimination in payment of wages

i) Environmental Laws

• Inter-national environmental law has lately become

a topic of considerable interest

• There have been large-scale inter-national

environmental disasters, such as the Chernobyl

nuclear plant disaster, the Samdoz Chemical spill

into the Rhine river, & various oil tanker spills

• At the same time, concern over the possible thinning

of the o-zone layer & global warming has intensified

• Political parties, with environmental protection as

main plank, have been formed around the world &

in countries like Germany they have become part of

governing coalitions

• Consequently, nations have been enacting

legislations & entering into treaties concerning the

environment.

Environmental Issues

• In the first place, it is the rich countries that talk

about environment & enact laws to protect the

ecology

• Poor nations tend to oppose extensive environmental

regulation because it impairs their ability to profit

from less-sophisticated production procedures

• Poor countries are more concerned about growth

than about environmental protection

• Secondly, wealthy countries enact environmental

laws to protect themselves from foreign competition

• The EU has been accused of this in order to protect its meat & dairy products industry, which has been battered by foreign competition

• In 1993, the EU traced an outbreak of disease in Italian livestock exported to Croatia

• Rather than banning Italian hoof & mouth Croatian meat, the union banned meat from the entire formerEast Bloc

• Needless to say, the arbitrariness of banning meat from half a continent on the basis of an outbreak in a region of a small nation, especially while not banning meat from only the country where the disease had occurred, struck many producers asunfair

• The EU has no exception, India also has imposedsimilar ban on import of poultry items

• In order to check the spread of bird influenza from across the borders, India first imposed ban on imports of wild birds, hatching eggs, bird semen, fresh meat, & processed poultry from Pakistan,

Thailand, South Korea, Cambodia, Vietnam & Japan • Later on January 28, 2004, the country extended the

ban on imports from all countries• Third, rich countries seem to have a vested interest

in enacting environmental laws & imposing them onother nations

• It is the wealthy nations which manufacture

machinery & equipment to check pollution of the

environment

• These countries are well aware of the fact that

environmental industry is big business.

Protective Measures

• Historically, countries were seeking arbitration to

resolve any dispute relating to pollution of the

environment

• In other words, the polluting country & the country

which suffers the consequence of pollution would

agree to arbitrate

• Arbitration can proceed only when both the

countries agree

• This rarely happens because a nation usually does

not voluntarily subject itself to a proceeding on

pollution generated from its own territory

• The second way of fighting pollution by any nation

is to enact legislation outlawing import of the

offending products

• Often, the offence lies not in the product but in its

manufacturing process

• Regulating such offences becomes difficult.

Regional Approaches

• These are :1. Banning export of hazardous material, as is

done in the US through its Federal Insecticide,

Fungicide, & Rodenticide Act;2. The single European Act 1985 for the EU;3. North American Environmental Treaties &

NAFTA;4. Regional marine treaties among nations

sharing bodies of water; &5. The ASEAN Agreement on the Conservation

of Nature & Natural Resources for Asian countries.

Global Solutions

• Many environmental pollution problems are global

in nature

• The United Nations began its work in this arena in

December 1972 when it adopted the Stockholm

Declaration on the Human Environment & founded

the United Nations Environmental Programme

(UNEP)

• UNEP has become the catalyst for the formulation

or adoption of almost 30 binding multilateral

instruments & ten sets of non-binding

environmental guidelines & principles

• Some of the global measures are :

i) the WTO;

ii) global ban on toxic substances such as PCBs,

DDT, dioxins, & furans;

iii) the Basel Convention on Transboundary

Movements of Hazardous Wastes & their

Disposal;

iv) the Conventional on Inter-national Trade

Endangered Species;

v) the Montreal Protocol ;&

vi) the Climate Control Convention.