AthenaStudies

Dear Student,

In front of you lies a carefully compiled curriculum in which all of the material for the
exam of International Business Law is included. It is important to bring this booklet to
each class, because all the practice questions, which you are going to make, are in
this booklet. These questions are all at exam level to prepare you in the best way as
possible for the exam.
We will post old exams and summaries in our Facebook group. Moreover, the tutors
in this group will help you solving these questions and answering your questions
about difficult material.
Facebookgroup:
www.facebook.com/groups/RUGIByear2/
In case you have any questions about the material of this course you can ask the
tutor. For other questions or remarks you can mail to ib.rug@athenastudies.nl
Good luck with the course and with your exam!

Table of contents
PART 1 SUMMARY.............................................................................4
Chapter 1: Introduction to international law....................................................4
A. What is international law?.................................................................................... 4
B. The making of international law............................................................................4
C. Sources of international law................................................................................. 5
D. The scope of international law in actual practice.....................................................5
E. International persons.......................................................................................... 6
F. The rights of individuals under international law.......................................................9
G. Comparison of municipal legal systems.................................................................9
Chapter 3: Dispute settlement...................................................................10
A. Settlement of disputes through diplomacy............................................................10
B. Settlement of disputes in international tribunals.....................................................10
C. Settlement of Disputes in municipal courts...........................................................12
D. Immunities of States from the jurisdiction of municipal courts..................................13
E. Choosing the governing law............................................................................... 14
F. Refusal to exercise jurisdiction............................................................................ 15
G. Opposition to the exercise of jurisdiction..............................................................15
H. Proving Foreign Law......................................................................................... 15
I. Recognition of foreign judgements.......................................................................15
Chapter 7: Trade in Goods.......................................................................15
A. History of contemporary international trade law.....................................................15
B. The World Trade Organization............................................................................17
C. The 1994 General Agreement on Tariffs and Trade................................................17
D. Multilateral Trade Agreements............................................................................21
Chapter 8 Services and Labour...............................................................24
A. General Agreement on Trade in Services.............................................................24
B. Regional Intergovernmental Regulations on Trade in Services.................................27
C. International Labour Law................................................................................... 29
D. Regional Intergovernmental Regulations on Labour...............................................31
E. Movement of workers........................................................................................ 33
Chapter 9 Intellectual Property..................................................................35
A. The Creation of Intellectual Property Rights..........................................................35
B. International Intellectual Property Organizations....................................................40
C. Intellectual Property Treaties.............................................................................. 40
D. The International Transfer of Intellectual Property..................................................42
E. Licensing Regulations....................................................................................... 43
F. Compulsory Licenses........................................................................................ 46
Chapter 10 Sales................................................................................46
A. United Nations convention on Contracts for the International Sale of Goods..............46
B. Transactions covered in CISG............................................................................ 46
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C. Contractual Issues excluded from the Coverage of CISG........................................47

D. Interpreting CISG............................................................................................. 48
E. Interpreting Sales Contracts...............................................................................48
F. Formation of the contract................................................................................... 49
G. General standards of Performance.....................................................................51
H. Sellers obligation............................................................................................. 51
J. The passing of risk............................................................................................ 52
K. Remedies........................................................................................................ 52
L. Excuses for non performance.............................................................................54
Chapter 11 Transportation.......................................................................54
A. Trade Terms.................................................................................................... 54
B. Transportation.................................................................................................. 55
C. Inland Carriage................................................................................................ 55
D. Carriage of Goods by Sea.................................................................................56
E. Charterparties.................................................................................................. 57
F. Maritime Liens.................................................................................................. 58
G. Maritime Insurance........................................................................................... 58
H. Carriage of Goods by Air................................................................................... 59
PART 2 EXAMS................................................................................61
Exam 1.............................................................................................61
Exam 2.............................................................................................66
PART 3 - EVALUATION FORM...................................................................73

PART 1 SUMMARY
Chapter 1: Introduction to international law
A. What is international law?
International law deals with three kinds of relationships

between states (public international law: states and IGOs)

between states and persons
between persons (private international law: individuals and NGOs)

International law = body of legal rules and norms that regulates activities carried on beyond
the legal boundaries of a single state.
There are three ways of looking at international law:
1. Cosmopolitans - international law is based on universal human rights, and the
consent of a state is irrelevant
2. Positivists - international law is based on the sovereign equality of all states in the
international system and state consent to individual international laws
3. Hobbesians - states will make agreements and abide by international law only when it
suits their self-interest
Comity = the practice of good manners existing between states of treating each other with
goodwill and civility (informal principle that nations will extend certain courtesies to other
nations, by recognizing the validity and effect of their executive, legislative and juridical acts.)
Case 1-1: Ignacio v. Texaco Inc, et al.
Under the doctrine of comity, a court should decline to exercise jurisdiction under certain
circumstances in respect to the laws and interest of another country. In this case, the US
government would interfere with Ecuadors right to control its own environment and
resources.

Despite limitations it has been customary for courts in many states to hear and decide cases
with international aspects. The basis for jurisdiction must be reasonable (e.g. territorial
basis/nationality basis).

B. The making of international law

Within states law is made by legislatures, courts and other agencies of the government.
However, at the international level is no formal law-making machinery. When states consent
to international law, it becomes into effect (under positivist principles).
General consent of the international community can be found in the state practice, which is
the conduct and practice of states in their dealings with each other. Statements of general
consent to international law can be found in decisions of the International Court of Justice
(ICJ), in resolutions passed by the UN, in international conventions and in multilateral
treaties (treaty between more than two states) & bilateral treaties (binding agreement
between two states).
Particular consent of a state to be bound to international law can be found in governmental
declarations, court decisions, treaties which it is parties to and its domestic legislation.

C. Sources of international law

Sources of International Law which tribunals can rely on are stated in Article 28 (1) of the
Statute of the ICJ. Court shall apply (in hierarchy)
1. International conventions: Legally binding agreement between states sponsored
by an international organization.
2. International custom: a long-established tradition or usage that becomes
o
o

customary law if it is
Consistently and regularly observed = usus found in official statements.
Recognized by states = opinio juris sive necesitatis
3. General principles of law recognized by civilized nations
4. Subject to the provisions of Article 59.

However, usually courts turn to treaties first. A treaty is a legally binding agreement between
two or more states. Article 2(1)(a) of the Vienna convention states that oral promises and
unilateral promises are not part of a treaty. However, the oral declaration of one state
government to an official of another state can be binding (Denmark v. Norway).
The Lotus case (on customs)
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If states had often proceeded with an action, but they do not perceive themselves as obliged
to do so, the custom is not customary law.
The Anglo-Norwegian fisheries case
When a state persistently objects to a practice during its formative stages, it becomes never a
party to it. Therefore, it is excused from this customary law.
Courts rely on general principles, which are principles of law common to the world's legal
systems. A Jus cogens is a norm of general international law of which no derogation is
permitted. Article 53 concerns treaties conflicting with a peremptory norm (jus cogens). A
treaty is a void if it conflicts with a peremptory norm of general international law.

D. The scope of international law in actual practice

International tribunals generally regard municipal law as subservient to international law.
That means, inferior in capacity or function.
The Greco-Bulgarian communities case
Municipal
law
cannot
prevail

over

those

of

the

treaty.

Exchange of Greek and Turkish populations case

Parties are required to modify their municipal law in order to ensure that the treaty will be
carried out.
In most countries, international law is received in accordance with the Doctrine of
incorporation (international law is part of domestic law to the extent that it is not
inconsistent). For some states (UK), the Doctrine of transformation applies (international
law is applicable domestically only after it is adopted by legislations, court decision or local
usage).
Reception rules found in treaties depend on two factors:
1. Nature of treaties:
- Self-executing treaty: treaty containing a term that says it is directly effective
- Non-self-executing treaty: treaty that requires state parties to enact enabling
legislation before it becomes effectively.
2. Kinds of treaties:
- Constitutional treaties = adopted according to constitutional provisions of the
ratifying state

Executive treaties = entered into by a state's executive without following the state's
constitutionally required ratification procedure.

E. International persons
o

States are political entities that have a territory, a population, a government capable
of entering into international relations and of controlling its own territory and peoples
Independent states = free from political control of other states.
Dependent states = formally surrendered some aspect of their political and

governmental functions to another state.

Inchoate = begun but not completed state. Imperfectly formed or developed.

For a state to exist, it must be recognized by other states (= formally acknowledged or

acceptance). It is possible to recognize a state, but not its government. When to recognize a
government:

Declaratory doctrine = by operation of law the legal existence of a state and

government happens automatically.

Constitutive doctrine = a state's legal existence depends on recognition of
other states

The Estrada doctrine was developed in Mexico after their revolution, with the hopes to get
recognized by more countries. It implies that foreign governments will not be explicitly
recognized. Instead, the state is recognized. This makes it easier to recognize governments
that came to power in a coup or revolution.
For a state to exist, it must have territorial sovereignty. This is the right of the government to
exclusively exercise its powers within a particular territory. However, other countries may have
servitude on this territory, which is the right to use another's property. This can also be
negative, as it could make states do something in another state which causes injury to this
second state, e.g. pollution. Basic rules stipulate that: A state must prevent pollution, and
should take all the reasonable measures to abate existing pollution.
Case 1-3: Trail Smelter Arbitration
A state owns at all times the duty to protect other states against injurious acts by individuals
from within its jurisdiction, as seen in international agreements such as Principle 21, 2 or the
report of the UN.
How to have territorial sovereignty? Acquire territory by:
1. The occupation of land not claimed by another sovereign;
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2. The voluntary transfer o territory from one state to another;

3. The conquest and continued occupation of the territory of another state.
If territory is acquired, a states title is either affirmed by formal recognition or by estoppel.
This means that one cannot make an allegation or denial of fact that is contrary to one's
previous actions or words. By failing to speak up, the new status quo is accepted.
When there is a change in territorial sovereignty, successor states are bound by dispositive
treaties, which are treaties concerned with rights over territory:
1. Merger rule: A + B merge and become C. Treaties in effect in the former state,
remain in effect in its territory when it becomes part of a new state.
2. Moving boundaries rule: Province state A becomes province of state B. Treaties of
a state absorbing new territory become effective within the absorbed territory.
3. Clean slate doctrine: a new state coming into existence through decolonization has
no obligation to succeed the treaties of its former colonial power.
4. Succession of states Occurs when (1) two states agree to join or when (2) a state
dissolves and its constituent states assume the role of the independent state, there is
no clean slate doctrine.
International organizations include IGOs and NGOs.
1. An intergovernmental organization (IGO) is a permanent organization set up by two or
more states to carry on activities of interest. They have a charter, which outlines the
principles, functions and organization of a juridical entity. For a IGO to have the Legal
capacity (= authority to carry on international relations) to deal with other international
persons, it must also be recognized (just like a state). Mostly implicitly recognized, this
happens if a state becomes a member. Examples:

United Nations is the most important IGO. Its goals are the maintenance of peace and
security in the world, promoting economic and social cooperation and protection of
human rights. They have many organs (=an agency that carries on a specific function
within the UN). The United Nations Systems is a group of autonomous

organizations affiliated with the UN (ILO, IMF, IFC).

European Union is also an IGO. Its goal is to eliminate internal frontiers and establish
a political, economic and monetary union. In 1992 the EU treaty established a political
union: common citizenship, social charter, monetary union, central bank, and a
common currency. The EU has supranational powers. That means that it is superior
to the laws of the member states.

Costa vs. ENEL case.

Any individual is entitled to invoke the EC treaty in the courts of the EU member states
Case 1-4 Commission of the European Communities v. Federal Republic of Germany
Article 30 of the Rome treaty states that quantitative restrictions on imports and all other
measures having the same effect shall be prohibited between member states.
Institutions of the EU:
Council of the EU: Representative of the member state governments and the co-legislative
body of the EU. Responsible for rule making. Made up out of ministers from each state.
European council: Consists of the heads of the state members, along with its president and
the EU commissions president. Deals with urgent foreign policy and focusses on establishing
general policies and goals for the EU.
European commission: Executive

and

administrative

branch.

Responsible

for

implementation of legislation.
European Parliament: Co-legislative body of the EU. Members are grouped by political
preference rather than nationality. Has oversight over all EU institutions.
European court of justice: Supreme tribunal of the EU.
European Economic and Social Committee: An EU consultative body made up of specialinterest groups.
European court of First Instance: The EUs trial court with jurisdiction over (1) disputes
between private persons against the EU and (2) employment disputes between the EU and
their employees.
European Central Bank: Central bank. Responsible for carrying out monetary policies.
European Court of Auditors: Institution responsible for supervising the EU budget.
Groups of specialized political, economic and social IGO's:
o

Customs union: reduced or eliminated trade barriers among members and a

common external tariff

Free trade area: Reduced or eliminated trade barriers among members but remain

individual barriers towards non-members

Economic consultative association: group of states that exchanges information

Nongovernmental organizations (NGOs) are the second type international organization. It

is made up of organizations other than states. Either non-profits or multinational Enterprises.
They could be businesses or individuals.

F. The rights of individuals under international law

International law ignores individuals; it applies only to states. But individuals do have rights
based upon the notion that injury to a national is an injury to the state (State responsibility).
International law sees individuals as subjects. Individuals have basic human rights.
Case 1-5 De Sanchez v. Banco Central de Nicaragua
An individual who is a national of a foreign state may not sue an agency of that foreign state
in another state's courts. As long as an injury involves only its own nationals, no other states
interest is involved, and the matter is regarded as purely domestically.

G. Comparison of municipal legal systems

Comparative law is a study, analysis and comparison of the world's municipal law systems.
1. Romano-Germanic civil law. This is a legal system derived from roman and Germanic
practice and set out in national law codes. This code is known as Corpus juris civilis:
Codification of Roman law ordered by an emperor who selected and arranged ancient laws.
The jus commune is law based on Roman law, canon law and interpretation of glossators. It
was common to Europe at beginning of the renaissance. Two of these national codes are
widespread and are regarded as the basis of modern civil law.
o French civil law - Napolon
o German civil law - based primarily on corpus juris civilis
2. Anglo-American common law system, also common law, is based primarily on courtmade rules (cases). The supremacy of the law (all persons are subordinate to the rule of
law) was invented so kings could not abuse the law. Common law should be distinguished
from law evolving from equity (=being impartial, just and fair). Common law is based on
precedent (=a model that can be used for later similar cases).
Law of torts = law of obligations
Tort of negligence = A breach of duty or failure of one party to exercise the standard

of care required by law, resulting in damage to the party to whom the duty was owed
Tort of trespass = a property owner may bring a Civil Law suit against a trespasser
in order to recover damages or receive compensatory relief for injury suffered as a

direct result of a trespass. (=entering another person's property without permission)

Tort of defamation = type of legal action brought against a person who is accused of
making (false) claims about another person or organization which are potentially
damaging to the reputation (usually libel (a written published false statement) or
slander (a false spoken statement).

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Neighbor principle = a person should take reasonable care to avoid acts or omissions that
he can reasonably foresee as likely to cause injury to the neighbor. Pacta Sunt Servanda =
agreements must be kept. International treaties should be upheld by all the signatories.
3. Islamic law system - shari'a, is derived from sources as the Koran, Sunna, academic
writings and consensus of the legal community.

Chapter 3: Dispute settlement

A. Settlement of disputes through diplomacy
Diplomacy = process of getting parties to a disagreement to an understanding through
negotiation, mediation or inquiry (when referred to disputes between states). But when
referred to institutions/individuals = Alternative Dispute Resolution.
Negotiation = process of reaching an agreement through discussion between 2 parties to a
dispute (most important tool in dispute settlement).
Mediation = the use of a third party who transmits and interprets the proposals of the
principal parties and sometimes advances independent proposals.

Channel of communications only, it is offering good offices.

Formal investigation and proposal, it is conciliation

Both parties must consent to mediation. The mediator must be accepted by both parties too.
Inquiry = process used to determine a disputed fact or sets of facts. A third party makes an
investigation to determine the facts, without resolving the dispute itself.

B. Settlement of disputes in international tribunals

International disputes are usually settled in the same way as domestic disputes: First
diplomacy, thereafter courts.
If a dispute is between states or IGOs, they can go to an international tribunal like the ICJ.
The International Court of Justice (ICJ) is a principal juridical organ of the UN. It settles in
accordance with international law legal disputes submitted to it by states, and it gives advice
on legal questions referred to it by authorized organs and agencies (advisory jurisdiction).
All UN members are automatically member of the ICJ.
It has jurisdiction:
1. Disputes between states - contentious jurisdiction (= power of a court to hear a
matter that involves a dispute between 2 or more parties)
2. Requested by organs or specialized agencies of the UN.
3. Optional clause jurisdiction. A unilateral grant of a state to the ICJ that allows the
court to resolve disputes involving that state (article 36 (2)).

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Rule of reciprocity implies that a state has to respond to a suit brought against it before the
ICJ only to the extent to which the state bringing the suit has also accepted the jurisdiction of
the ICJ (article 36 (2)).
Self judging reservation is a reservation that allows a state to exclude from the jurisdiction
of the ICJ any dispute that it determines is a domestic matter.
The case can be concluded in 3 ways:
1. The parties have reached a settlement; the court will remove the case.
2. The applicant state withdraws; the court will remove the case.
3. The court will deliver a judgement the decision of the court has no binding force
except between the parties and in respect of that particular case. The court is free to
depart from previous decisions. The parties are bound by the courts decision,
however, cannot be forced to comply.
International Criminal court (ICC) is an independent, permanent court that tries persons
accused of the most serious crimes affecting the international community. Jurisdiction is
governed by the Rome Statute (only those states that express consent).
Jurisdiction:

The accused must be a national of a state party or state accepting the ICC jurisdiction
The crime took place on the territory of a state accepting the ICC jurisdiction;
The UN Security Council has referred the situation to the prosecutor;
The event has taken place since 2002.

The World Trade Organization (WTO) is an international IGO responsible for implementing
and enforcing international rules regarding trade between nations. All disputes arising under
WTO agreements are subject to DSU (Dispute Settlement Understanding). The DSU
resolves disputes through consultation. A member is obliged to respond within 10 days, and
consult within 30 days. If not, the WTO DS Panel may be called upon.

Dispute settlement body establishes panels, adopts reports and monitors

implementation of rules and gives recommendations.

Dispute settlement panel assists in making an objective assessment of the matter.
Appellate body = confidential proceedings and opinions are anonymous.

Panel and appellate body reports adopted by the DSB are enforced by the DSB.
Legal precedent does apply to the WTO dispute settlement, but it is the flexible system of
precedent, not the rigid British or American common law system. Both the panels and

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Appellate body may rely on their own earlier legal rulings, but they are also free to deviate
from those rulings if necessary.
Case 3 1: Japan Taxes on Alcoholic beverages
Adopted panel reports should be taken into account where they are relevant for a dispute.
However, they are not binding, except with respect to resolving a particular dispute between
parties.
International centre for settlement of investment disputes (ICSID) exists to encourage
private investment in underdeveloped countries. ICSID arbitration is the process by which
parties to a dispute submit their differences to the binding judgement of an impartial third
person selected by mutual consent. Third party states are not allowed to intervene.
To set up a ICSID tribunal: the state wherein the investment is being made and the state of
which the investor is a national must both be parties to the Washington convention, and the
investor and host state must both consent to ICSID jurisdiction.
ICSID arbitrations = the process by which parties to a dispute submit their differences to the
binding judgement of an impartial third person selected by mutual consent. Arbitration is
adversarial, contractual and judicial.
The Holiday Inns v Morocco Case
The relationship between Morocco and the American subsidiaries located in Morocco was
described in separate agreements that did not have ISCID clauses. Therefore, the
subsidiaries were not allowed to be parties to the arbitration proceeding.
ICSID article 25(1) provides that jurisdiction of the Centre shall extend to any legal dispute
arising out of an investment. If proper consent had been given to establish an ICSID tribunal,
the tribunal can be set up when the host state or the investor refuses to participate.
The Alcoa minerals of Jamaica, Inc. (US) vs. Jamaica
The tribunal has jurisdiction to proceed if consent is given in writing, at the time that the case
was brought to ICSID. Also notification of reservation did not affect any prior consent.
The selection of arbitrators can be done by the two parties. If they want more than one, the
number should be odd. Article 38 and 40(1) states that should one of the litigants refuse to
cooperate in making the appointments; the chairman of ICSID's council will provide the
missing name(s) from a list. The place of arbitration is the ICSID headquarters. The ICSID
should have jurisdiction both over the parties involved and the matter.

13

Personal jurisdiction: a tribunal must have jurisdiction over the parties before it may
hear a dispute:
Natural person (human being) must have nationality when the parties consent

to arbitration and when the request for arbitration is registered at ICSID.

Juridical person (legal entity created by (inter)national law) must have had

nationality of a home state on the date parties consented to arbitration

Subject matter jurisdiction: there is only jurisdiction on disputes arising out of
investment
No collusive actions (Suit in which the parties are not at odds but cooperate

to obtain a judgement).
No advisory opinions
There should be an investment (commitment of money/capital to earn

financial return).
There should be a legal dispute (disagreement to the existence of a legal
right/obligation or to the nature/extent of the compensation due to a breach of
the contract).

The ICSID tribunal can recommend provisional measures and issue binding awards. These
awards are not final, but they are binding. The tribunal can review or revise it.

C. Settlement of Disputes in municipal courts

Municipal courts (domestic courts) are often called upon to settle international disputes. For
instance, if crimes/torts occurred outside the forum state (the nation-state in which the court
conducts its business), or when the contract was not made/performed in the forum state. The
ability to escape a courts jurisdiction is immunity. Natural and juridical persons have little
immunity. State agencies that carry out commercial activities have no immunity
Justification of jurisdiction by courts in criminal cases:
1.
2.
3.
4.

Territoriality nexus = an offense was committed within the forum state.

Nationality nexus = the defendant is a national of the forum state.
Protective nexus = national interest of the forum state was injured.
Universality nexus = the offense is recognized as universal concern.

Also, the connection between the forum and the person/activity must be reasonable (=
place, genuine link with the forum, character of the activity, interest of other countries etc.).
The 4 nexuses are not mutually exclusive.
Jurisdiction in civil cases:

In personam = determine the rights of a party who appears before the court

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Case 3-3 Bumper development corp. Ltd v. union of India and others, Claimants
States can recognize institutions as having separate legal personalities. If this is done, the
entity has the right to sue/be sued. Then, courts can accept the institutions as parties in suits
brought before them.
Forum selection clause is a clause in the contract naming the court or tribunal that has to
resolve any dispute that may arise concerning the contract
Case 3-4 Shell v. R.W. Sturge Ltd.
The forum selection clause should be enforced unless the plaintiffs can clearly show that:
1. Enforcement would be unreasonable
2. The clause was invalid due to fraud etc.
Forum selection clauses are valid because they provide predictability or orderliness. This
clause is often accompanied by a choice of law clause.
In rem jurisdiction determines the ownership rights of people as to property located in the
forum state

D. Immunities of States from the jurisdiction of municipal courts

Sovereign states are immune from jurisdiction from foreign courts if, they engage in activity
that is unique to sovereigns or if they act officially within their own boundaries
Sovereign or state immunity: municipal courts must decline to hear suits against foreign
states.
Absolute sovereign immunity: foreign state is immune from all types of suits (until middle
20th century; after that states were more involved with commercial activities as well).
Restrictive sovereign immunity: a foreign state is not immune when a cause of action for a
suit is based on conduct unrelated to the state's governmental actions (jure gestionis).
Foreign sovereign immunities act: states are not immune for certain activities.

Not immune if government engages in commercial activities.

claims for death or personal injury, damage/loss of property, intellectual property.

Case 3 -5 Abbott v. Republic of South Africa

A foreign state is immune for foreign state property used for governmental actions, but not for
property used for commercial activities. An embassy may not be ordered to disclose which
bank accounts are commercial and which are not, as an embassy is a governmental activity.
Therefore, its bank accounts are also immune from judgement.

15

Act of state doctrine implies that the act of governments within the boundaries of its own
territory is not subject to juridical scrutiny in a foreign municipal court. A municipal court will
decline to hear a dispute based on such acts.

E. Choosing the governing law

Choice of law = rules used by municipal courts to determine which state's law to apply.
1. If parties have agreed to the application of a specific law, this law should be applied
The choice of law clause is a provision in a contract designating the state whose law
will govern disputes relating to the contract.
2. If the parties have not agreed upon the application of a law, the court should decide:
a. Statutory dictates. Vested rights doctrine = a court is to apply the law of the
state where the rights of the parties became legally effective. The courts look
at the delict (private wrong or injury) and then choose the appropriate law.
Nowadays this doctrine is too rigid and fails to reflect true interests.
b. The state's law that has the most significant relationship with the dispute:
most significant relationship doctrine. Examples are place of injury & act.
c. The state's law that has the most interest in the outcome of the case:
governmental interest doctrine. Courts that apply this doctrine will make no
choice of law unless they were asked to do so. If they are not asked, they will
apply their own law. If they are asked to do so, they look which state has most
interests in the outcomes.
The multiproduct case
If both the defendant and the plaintiff declare that a specific law has to be applied, this law
shall apply.
Case 3 7 Bank of India v. Gobindram Naraindas Sadhwani and Others
To determine the governing law, courts use a three-step test:

The law the parties expressly designate

The law the parties impliedly designate
The law with which the transaction has its closest/most real connection

F. Refusal to exercise jurisdiction

Used by common law courts to refuse jurisdiction: Forum non conveniens (= a municipal
court will decline to hear a dispute when it can better or more conveniently be heard in a
foreign court).
4-part test: the defendant will prevail if there is an alternative forum that is
16

1.
2.
3.
4.

Available;
Adequate;
Private interest factors;
And public interest factors point towards the alternative forum.

Case 3 8 Jorge Luis Machuca Gonzales et al v. Chrysler Corporation et al.

The adequacy of the alternative court in forum non conveniens motions cannot hinge on
differences with respect to the economic viability of the lawsuit.

G. Opposition to the exercise of jurisdiction

Anti-suit injunction = court order directing a person not to proceed with litigation in a foreign
court.

H. Proving Foreign Law

After accepting to apply the law of a foreign state, several sources may be consulted in
determining the law of a foreign state. Those sources include statutory materials, case
decisions, commentaries, and expert opinion.

I. Recognition of foreign judgements

With little difficulty, usually foreign judgements are enforced in the forum state.
Burden of proof = responsibility of proving a disputed charge or allegation.

Civil cases = the plaintiff (=claimant)

Criminal cases = prosecution (=who conducts the legal procedure)

Caveat emptor = buyer beware =

When a sale is subject to this warning the purchaser assumes the risk that the product might
be either defective or unsuitable to his or her needs.

Chapter 7: Trade in Goods

A. History of contemporary international trade law
Certain interest groups complain that free trade ignores important environmental and labour
issues, with dire consequences for the environment and workers in developing countries.
Before the free trade were many years with protectionism.
Bretton Woods System is a multilateral institutional framework of rules and obligations to
promote trade liberalization and multilateral economic cooperation. (IMF, World Bank and ITO
the ITO failed).

17

General Agreement on Tariffs and Trade (GATT) 1947 is a multilateral agreement that set
out the rules under which the contracting states parties were committed to negotiate
reductions in customs tariffs and other impediments to international trade in goods.
Main principles:
1. Trade discrimination was forbidden. The most-favoured-nation status (When a
GATT member nation sets a favourable tariff rate on a type of goods imported from
another GATT member state, that member nation may not assess a higher tariff on
the particular type of goods being imported from any GATT nation) was forbidden.
Once foreign trade goods were imported, the foreign goods had to be treated the
same way as domestic goods. This is the National treatment principle.
2. The only barriers that one contracting state could use to limit the importation of goods
from another contracting state were customs tariffs.
3. The trade regulations of contracting states had to be transparent (=published and
available to other contracting states and their nationals)
4. Customs unions and free trade agreements are legitimate as long as they do not
discriminate against third-party states that are parties to GATT.
5. Only certain charges on imported goods are allowed: (a) an import tax equal in
amount to internal tax, (b) anti-dumping duties to offset advantages obtained by
imported goods sold below the price charged in their home market or below their
actual cost, (c) countervailing duties to counteract foreign export subsidies, and (d)
fees and other proper charges for services rendered.
Rounds = a meeting of the contracting parties of GATT to participate in multilateral trade
negotiations (MTNs). The first five rounds were devoted almost exclusively to tariff reductions,
while the last three completed rounds expanded their agendas to nontariff matters (Kennedy,
Tokyo, and Uruguay Rounds).

Kennedy Round = GATT MTNs held from 1964 to 1967 that established the practice of
setting an agenda for and defining the techniques to be used during GATT negotiations.
Moreover, it produced an agreement on anti-dumping duties and it dealt with the

problems of nonreciprocity for developing states and with nontariff obstacles.

Tokyo Round = GATT MTNs held from 1973 to 1979 that produced six nontariff codes
that were multilateral treaties open to ratification by any state (customs valuation,
subsidies and countervailing measures, anti-dumping, standards, import licensing, and

government procurement).
Uruguay Round = GATT MTNs held from 1986 to 1994 that resulted in the establishment
of the World Trade Organization (WTO). Part of the Uruguay Round was the multilateral
18

trade agreements, which are integral parts of the WTO Agreement and are binding on
all members of the WTO. It consists of (1) 14 Agreements on Trade in Goods (including
GATT 1994), (2) the General Agreement on Trade in Services (GATS), (3) the Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPS), (4) the Understanding
on Rules and Procedures Governing the Settlement of Disputes (DSU), and (5) the Trade
Policy

Review

Mechanism

(TPRM).

The four plurilateral trade agreements are also part of the WTO Agreement, but they are
only binding on those member states that have accepted them. They do not create either
obligations or rights for members that have not accepted them. (E.g. a treaty between a
limited number of states with a particular interest in the subject of the treaty like the
Agreement on Government Procurement)

B. The World Trade Organization

World Trade Organization (WTO) = intergovernmental organization responsible for:
(1)
(2)
(3)
(4)

Implementing, administering, and carrying out the WTO Agreement and its annexes;
Acting as a forum for ongoing MTNs;
Serving as a tribunal for resolving disputes;
Reviewing the trade policies and practices of WTO member states.

In order to join the WTO, a nation must complete an accession agreement which must be
approved by all WTO members. A state that did not qualify for admission as an original
member must negotiate entry into the WTO on terms to be agreed on between it and the
WTO and approved by the WTO Ministerial Conference by a two-thirds majority of the
member states of the WTO.
Decision making: Consensus = general agreement in the absence of any voiced objection.
(Figure 7.6) The WTO has five main organs: (1) Ministerial conference, (2) A general council
that also functions as the WTOs dispute settlement body and Trade Policy Review body, (3)
a Council for trade in Goods, (4) a council for trade in services and (5) a council for traderelated aspects of intellectual property rights.

C. The 1994 General Agreement on Tariffs and Trade

General Agreement on Tariffs and Trade (GATT 1994) = annex to the Agreement
Establishing the World Trade Organization that sets out the rules under which the member
states of that organization are committed to negotiate reductions in customs tariffs and other
impediments to international trade in goods (Figure 7.7). Gatt 1994 and 1947 look alike, but
the GATT 1994 is NOT the legal successor of GATT 1947. Hence, member states of GATT
1994 owe no legal obligations to the contracting parties of GATT 1947.
19

Direct effect = the principle whereby a treaty may be invoked by a private person to
challenge the actions of a state that is a party to the treaty. In particular, those provisions that
prohibit a state from taking action contrary to the General Agreement are directly effective.
Case 7 1 Finance Ministry v. Manifattura Lane Marz Otto, SpA
An Italian wool manufacturer sued the Italian Finance Ministry after being charged an
administrative services duty on wool it imported from Australia, claiming that this duty
violated GATT 1947, Article III (1) (b). The Finance Ministry asked the court to dismiss the
case, contending that Article III (1) (b) was not directly effective because the parliament had
not adopted implementing legislation. The court decided that the GATT provision that
prohibits a GATT member from increasing duties on imported products above the level
established when the member nation acceded to the agreement was directly effective. Thus,
it was part of Italian law and an individual citizen or company could bring a lawsuit to enforce
this provision.
Exceptions on the most-favoured nation rule (Article I of GATT requires each member to
apply its tariffs rules equally to all other members). The rule does not apply to:
1.
2.
3.
4.

The use of measures to counter dumping and subsidization.

The creation of customs unions and free trade areas.
Restrictions that protect public health, safety, welfare, and national security
Developing states.

Two other preferential treatment schemes were added in GATT 1994.

- Generalized System of Preferences (GSP) is a GATT scheme that allows a developing
state to obtain tariff concessions from a developed state on a nonreciprocal basis.
- South-South Preferences = a GATT scheme that allows developing states to grant tariff
preferences to each other without having to grant them to developed states.
Case 7 2 Japan Taxes on Alcoholic Beverages
Canada, the EU and the US complained that Japan imposed lower taxes on Shochu, a
locally produced alcoholic beverage, than on imported alcoholic beverages. This is in
violation with Article III paragraph 2 of Gatt 1994 (national treatment rule). In the view of the
Panel, the term like products suggests that for two products to fall under this category they
must share essentially the same physical characteristics while taking into account specific
characteristics in any single market. obligation under Article III:2, national treatment.
Additionally, the Panel recommends that the Dispute Settlement Body request Japan to bring
the Liquor Tax Law in conformity with its obligations under the GATT 1994.

20

The following exceptions apply to the application of the national treatment rule:
1. The maintenance of preferences existing at the time GATT 1947 came into effect (GATT
1994, Article III, para.6).
2. Discrimination in the procurement of goods by government agencies for governmental
purposes only. (Id. para. 8(a)).
3. Discrimination in the payment of subsidies to domestic producers (Id. para. 8(b)).
4. Discrimination in the screening of domestically produced cinematographic films. (Id. para.
10, and Article IV)
The second major principle of the GATT is that each member state may protect its domestic
industries only through the use of tariffs (governmental charges imposed on goods at the
time they are imported into a state) while quotas and other quantitative restrictions that block
the function of the price mechanism are forbidden by Article XI of GATT. Exceptions:

Temporary export prohibitions/restrictions to prevent critical shortages of essentials.

Restrictions related to the application of standards/regulations
Quantitative restrictions on agricultural/fishery products/ to safeguard the balance of
payments/ by a developing state to further economic development

Bound tariff rates = the highest tariff rates a WTO member state may set on imports from
another member state.
Essential to the operation of GATT is the principle of transparency (= principle that
governments must make their rules, regulations, and practices open and accessible to the
public and other governments: Article X). Complementing this principle is that member states
must strive to simplify their import and export formalities as found in Article VIII.
Harmonized System (HS) = a system of classifying goods for customs purposes (schedule
of about 900 tariff headings) established by the Convention on Nomenclature for the
Classification of Goods in Customs Tariffs.
GATT seeks to promote international trade through regional economic integration. It
accordingly encourages WTO member states to participate in free trade areas and customs
unions.
- Free trade area = a group of states that have reduced or eliminated tariffs among
themselves but that maintain their own individual tariffs in dealing with other states (NAFTA).
- Customs union = a group of states that have reduced or eliminated tariffs among
themselves and have also established a common external tariff

21

(MERCOSUR).

Once a free trade area or customs union is established, GATT rules apply to the area or
union as a whole and not to its constituent states. The WTO reviews the proposed agreement
to ensure that it complies with GATT Article XXIV.
Commodity arrangements = intergovernmental agreements regulating and stabilizing the
production and supply of primary commodities. Primary commodities = products obtained
by extraction (fuels) or harvest (foodstuffs and fish) that require minimal processing before
being used (e.g. bananas, cocoa, coffee, copper, cotton, rubber, tea etc.).
Integrated Program for Commodities (IPC) = proposal for developing countries that would
establish a Common Fund to underwrite the costs of maintaining a buffer stock of primary
commodities as a way to stabilize supplies.
Article XIX of GATT 1994, entitled Emergency Action on Imports of Particular Products,
offers an escape clause or safety value to member states. An escape clause allows a WTO
member state to escape temporarily from its GATT obligations when there is a surge in the
number of imports coming from other member states. The injured state could impose
emergency restrictive trade measures known as safeguards. Safeguards are emergency
trade measures imposed to protect domestic industry from a surge of imports.

A state

making use of the escape clause must notify the WTO and consult with the affected exporting
state to arrange for compensation. Article XX concerns general exceptions. Those are
situations that excuse a WTO member state from complying with its GATT obligations in
order for the state to protect certain essential public policy objectives.

Necessary to protect public morals

Necessary to protect human/animal/plant life or health
Related to import/export of silver or gold
Necessary to comply with consistent laws to GATT
Related to prison labor
Protecting national treasures
Related to conservation of natural resources
Undertaken in accordance with governmental commodity agreement
Restrictions on exports of domestic materials needed by a domestic industry
Essential in acquiring products in short supply

Article XXI concerns Security exceptions. Those are situations that excuse a WTO member
state from complying with its GATT obligations when those are in conflict with its essential
security interests or its duties under the United Nations Charter for the maintenance of
international peace and security.

22

Case 7 3 US Import prohibition of certain shrimp and shrimp products

There was a US ban on imported shrimp. The question was if this measure was permitted
under article XX of GATT 1994 (general exceptions). Generally, WTO members must treat
imported goods the same way as domestic goods and not subject them to additional
requirements. However, it is allowed to impose additional requirements if the state aims to
protect exhaustive natural resources. However, the state must take into account the
measures taken by these exporting states to protect the natural resources.
The Wassenaar Arrangement is an intergovernmental arrangement and organization to
coordinate national policies so that transfers of conventional arms and dual-use goods and
technologies do not contribute to the development of military capabilities that undermine
international and regional security and are not diverted to support such capabilities.
There are four other multilateral export-control programs:
Australia group: Multilateral group of states concerned with curbing the proliferation of
chemical and biological weapons.
Zangger committee: Exporting states parties to the Treaty on Non-proliferation of Nuclear
weapons that seek to harmonize their interpretation of the treatys export-control provision.
Nuclear Suppliers Group (NSG): A group of nuclear supplier states concerned with limiting
the proliferation of nuclear weapons by maintaining control lists for nuclear exports.
Missile Technology Control regime: An informal group of states concerned with limiting the
proliferation of missiles capable of delivering nuclear weapons.

D. Multilateral Trade Agreements

When goods cross an international frontier, they are charged a tariff that is based on a
percentage of their value. Agreement on Implementation of Article VII of GATT 1994
(Customs Valuation Code) = designed to harmonize the methods used by WTO member
states to determine the value of goods for customs purposes. The primary method of
customs valuation is to figure the transaction value of the imported item. This transaction
value is the customs value of imported goods that is based on the price actually paid or
payable for goods at the time they were sold for export. If the transaction value of imported
items cannot be fairly determined, then fallback methods are used. It involves determining the
transaction value of identical goods sold for export to the same importing country at about
the same time or determining the transaction value of similar items sold for export to the
importing country at about the same time. If this is not possible, use:

23

Deductive value = Customs value of imported goods that is based on the price
actually for similar goods by unrelated persons in the importing country at the same

time
Computed value = customs value of goods that is based on their price calculated

from the cost of manufacturing, overhead, and handling

Desired value = customs value of goods that is determined by using whichever of the
other methods fits best and adjusting it to the particular circumstances.

Agreement on Preshipment Inspection = allows WTO developing member states to use

preshipment inspections, subject to certain criteria, to prevent over- and underinvoicing and
fraud.
Technical barriers to trade have been discussed in the agreement on Technical Barriers to
Trade agreements. Those establish rules governing the way WTO member states draft,
adopt, and apply technical regulations and standards. Technical regulations are mandatory
laws and provisions that specify the characteristics of products; the processes and production
methods for creating products; and the terminology, symbols, packaging, marking or labelling
requirements for products, processes, or production methods.
Standards are voluntary guidelines that specify the same things that technical regulations
mandatorily specify.
Conformity assessment procedures are any procedures used, directly or indirectly, to
determine that relevant requirements in technical regulations or standards are fulfilled.
Agreement on the Application of Sanitary and Phytosanitary Measures (SPS
Agreement) is complementing the TBT Agreement by defining the measures that may be
taken by WTO member states to protect human, animal, and plant life and health. However, it
may not be a disguised means for restricting international trade nor may they act arbitrarily to
unjustifiably discriminate between states where identical conditions exist. Generally,
measures taken must be justified by scientific evidence (e.g. the ban on genetically modified
foods lacked necessary scientific proof to be justified under the SPS Agreement).
Case 7 4 Australia v. Canada Measures affecting importation of Salmon
Canada complained that Australia did not want to import their fresh, chilled or frozen salmon
anymore. Canada stated that this protection was allowed to prevent disease. However, no
other fish was prohibited from importing. Therefore, Australia had violated the GATT as there
was no scientific evidence. A country can ban importation of goods on the grounds of
protection of sanitary. However, it may only do so by providing scientific evidence.

24

Agreement on Trade-Related Investment Measures (TRIM agreement) = forbids

provisions commonly found in foreign investment laws that distort or reduce international
trade, including provisions that discriminate against foreigners and that impose quantitative
restrictions on the use of foreign products by foreign-owned local enterprises.
Agreement on import-licensing procedures = requires that import-licensing procedures of
WTO member states be neutral in their application and that they be administered in a fair and
equitable manner.
The Agreement on Implementation of Article VI of GATT 1994 (Anti-dumping Code)
allows WTO member states to counter dumping through the application of anti-dumping
duties. Dumping = selling exported goods at prices below their normal value (comparable
price, in the ordinary course of trade, for the like product). The Anti-dumping Code does not
prohibit dumping. It recognized instead that the dumping of imports might be countered
through the application of anti-dumping duties when an investigation determines that it
causes or threatens to cause material injury, or retard the establishment of a domestic
industry within the importing country.
Research must disclose evidence of dumping, material injury and a causal link between
them.
Provisional measures may be imposed after an investigation has been initiated, a preliminary
determination has been made of dumping and consequential injury to a domestic industry,
and the authorities concerned believe that such measures are necessary to prevent injury
being caused during the course of the investigation.
Final anti-dumping duties may be imposed at the discretion of the authorities concerned upon
the completion of an investigation and a final determination that dumping, injury, and a causal
link between them exist.
Case 7 5 Nippon Steel Corporation v. United States (2006)
The case demonstrates the complex interaction between the various agencies involved in
making a determination as to whether illegal dumping has occurred. The federal appellate
court finally resolves a long-running dispute between the U.S. International Trade
Commission and the Court of International Trade concerning the elements of proof necessary
to prove dumping and which agency has the role of making which finding. In this case, the
Trade Court improperly disregarded the important findings of fact made by the commission,
and the federal circuit court therefore reverses the decision and reinstates the findings made
by the commission that there was a material injury to a domestic industry.
25

Agreement on Subsidies and Countervailing Measures (SCM Agreement) = classifies

subsidies as prohibited, actionable, and nonactionable; forbids the first class and allows
affected WTO member states to request consultation, to obtain a remedy from the WTO, or to
impose countervailing duties independently.
Subsidy = a financial contribution made by a government or other public body that confers a
benefit on an enterprise, a group of enterprises, or an industry. Examples are (1) direct
transfers of funds (e.g. grants, loans, and equity infusions), (2) potential direct transfers of
funds (e.g. loan guarantees), (3) the foregoing of revenues (e.g. tax credits), (4) the providing
of goods or services (other than general infrastructure), and (5) the conferring of any form of
income or price support.
- Nonactionable subsidy = a subsidy that is permissible and nonchallengeable, such a
government funding to underwrite research activities, to aid disadvantaged regions, or to help
existing

facilities

adapt

to

new

environmental

requirements

(ended

on

1999).

- Prohibited subsidy = a subsidy that is trade distorting or is contingent upon the use of
domestic instead of imported goods (red subsidies).
- Actionable subsidy = a subsidy that may be challenged as trade distorting if it injures the
domestic industry of another WTO member state, nullifies or impairs the benefits due another
member state, or causes or threatens to cause serious prejudice to the interests of another
member state (yellow subsidies).
A WTO member state that believes that its domestic industries have been injured by either
prohibited or actionable subsidies has four options: (1) do nothing, (2) request consultations,
(3) seek a remedy from the WTO, or (4) independently impose countervailing duties. If an
injured member state chooses to do nothing, neither the WTO nor any other member state is
entitled to intervene.
Countervailing measure = a duty specifically levied to offset a subsidy as defined in the
SCM Agreement.
Safeguards = an emergency action that a WTO member state may take in order to protect
its domestic industry from serious injury due to a sudden increase in the quantity of an
imported product (official investigation required).
Agreement on Safeguards = establishes multilateral controls over the use of safeguards by
WTO member states.
To obtain a remedy from the WTO, a member state must first consult with the subsidizing
member state. If there is no solution found, they may refer to the WTOs DSB. They will set
up a panel and seek assistance of a group of experts. The appeal must be observed.
26

Exempt measures must satisfy two basic requirements: (1) they must be publicly funded
government programs and (2) they must not have the effect of providing price supports to
producers (e.g. support for research, pest and disease control, trainings services, extension
and advisory services, marketing and promotion services, infrastructure services, and
particular aid/support/protection programs.
Agreement on agriculture establishes guidelines for initiating a process of reform to
integrate international trade in agricultural products into the GATT system.
Agreement on textiles and clothing establishes a process for the phasing-out of existing
special arrangements governing international trade in textiles and clothing and the integration
of those products into the GATT system.
Agreement on Rules of Origin = establishes a three-year program aimed at bringing about
an international system of harmonized rules of origin. Rules of origin = laws, regulations,
and administrative procedures used by states for determining the country of origin of goods.
The country of origin is to be the one where a particular good was obtained or, when more
than one country is involved in its production, the one in which the last substantial
transformation is carried out.

Chapter 8 Services and Labour

A. General Agreement on Trade in Services
General Agreement on Trade in Services (GATS) is one of the three main multilateral
annexes (next to GATT and TRIPS) to the Agreement Establishing the World Trade
Organization. The purpose is to give international trade in services a set of rules and
principles and a basis for liberalization similar to those that GATT has applied to goods.
GATS: Contains rules and principles governing international trade in services and
establishes guidelines for negotiating the future liberalisation of such trade.
GATS is made up of three interrelated components:
1. The agreement itself (referred to as the Framework Agreement), which contains the
rules applicable to all the member states of the WTO (which are automatically parties
to the GATS). Examples are obligations, aims, scope and definitions.
2. The sectoral annexes that deal with issues unique to particular economic sectors (i.e.
movement of natural persons, air transport services etc.);

27

3. The national Schedules of Specific Commitments each member state has agreed to
undertake.
Although GATS is based on the provisions in GATT, it is significantly different. GATS contains
two sets of obligations instead of one. Due to the division in obligations, the principles and
rules of GATS are less binding than GATT. The obligations are:
1. A set of general principles and rules that apply to all measures affecting trade in
services;
2. And a set of principles and rules that apply only to the specific sectors and subsectors
that are listed in a member states schedule.
Case 8-1 European Communities Regime for the importation, sale and distribution of
bananas
Complaints were made by Ecuador, Guatemala, Honduras, Mexico and the United States
towards the European Communities. The complainants alleged that the European
Communities regime for importation, sale and distribution of bananas is inconsistent with
Articles I, II, III, X, XI and XIII of the GATT 1994 as well as provisions of the Import Licensing
Agreement, the Agreement on Agriculture, the TRIMs Agreement and the GATS. The EC
legislation regulations and measures provided for preferential tariff treatment for former
colonies of EC member states that were importing bananas to the EC. The WTO panel held
that the EC was in violation with the GATT 1994 and the GATS. The issues considered are:
whether the GATS applies to the EC importing licensing procedures and whether the GATS
overlaps with the GATT; or are they mutually exclusive. The WTO panel concluded that the
business operation was subject to regulations under both GATT and GATS (this is possible in
certain cases). The panel held that the actions of banana wholesalers in purchasing,
reselling and conduction a variety of related services did constitute the provision of services
under GATS. The appellate body recommends that the DSB request the EC to bring the
measures found in the report to be inconsistent with GATT and GATS into conformity with the
obligations of the EC under those agreements.
1. The Framework Agreement contains six parts, which concern:
1.1 The scope and definition of GATS
The Framework agreement covers all trade in services in any sector except those supplied in
the exercise of governmental functions. The agreement does not define a service or service
sector.
Services: an act or action, such as work rendered or performed for another.
Service sectors: any parts of the economy involving the performance of a service.
The Framework agreement does define trade in services, in modes of supply. Four modes:

28

1)

Cross-border

supply

of

services

that

do

not

require

physical

movement

(telecommunication).
2) Supply of services that require the consumer to go to the supplier (tourism).
3) Services by a service supplier from one-member state by means of a commercial
presence in another members territory (banking).
4) Services supplied in the territory of a member state by a service supplier from another
member state by means of the temporary presence of natural persons of another member
state (consulting).
This four-sided definition covers all forms of trade in services. Member states are allowed to
exclude one or more of these modes of supply in their Schedules of Specific Commitments.
1.2 General obligations and disciplines of member states
There are two general obligations in the Framework Agreement which apply to all WTO
member states:
Most-favoured-nation (MFN) treatment: GATS requirement that its member states accord
immediately and unconditionally to services and service suppliers of other member treatment
that is no less favourable than that it accords to like services and service suppliers of any
other state. The MFN treatment rule in the Framework Agreement (unlike in the GATT) is not
a binding requirement. An annex was added to GATS that allowed the original WTO member
states to submit a list of MFN exemptions that became effective when the GATS came into
force, and provided that any later applications for exemptions will be considered using the
ordinary WTO waiver procedures. MFN exemptions are limited in time (10 years) and subject
to future trade liberalization rounds.
Transparency provision: GATS requirement that its member states publish their regulations
affecting trade in services, that they notify the Council for Trade in Service of any relevant
changes, and that they respond promptly to request for information from other members.
To encourage the participation of developing countries, the agreement authorises developed
and developing member states to enter into negotiations targeted at improving the capacity,
efficiency, and competitiveness of the developing members.
GATS seeks to encourage regional economic integration both in trade in services and in the
movement of labour with provisions comparable to those in GATT that deal with the
establishment of common markets and free trade areas for goods.
No restrictions may be applied by member states to international transfers and payments for
current transactions.

29

1.3 Obligations and disciplines concerning specific commitments of member states

A member is to submit a Schedule of Specific Commitments for annexation to GATS that list
the sectors it is opening to market access. The member may also list limitations that apply to
these sectors. The 6 categories of limitations are:
1) Number of service suppliers allowed. 2). Total value of transactions or assets. 3) Total
quantity of service output. 4) Number of natural persons that may be employed in a particular
service sector. 5). Type of legal entity that a service supplier may use. 6). Participation of
foreign capital in terms of a maximum percentage limit on foreign shareholding.
For the sectors listed in a member states Schedule of Specific Commitments, and subject to
the limitations listed there, the member must observe two specific obligations:
1. Market access: GATS requirement that a WTO member state accord to services and
service suppliers of other member states treatment no less favourable than that listed
in its GATS Schedule of Specific Commitments.
2. National treatment: GATS requirement that a WTO member state accord to services
and service suppliers of other member states treatment no less favourable than what
the member grants its own like services and service suppliers.
1.4 A schedule for progressively liberalizing the worlds trade in services
The long-term objective of GATS is to encourage its member states to open as many of their
service sectors to market access as possible. We can refer to this as progressive
liberalisation. However, the member states are not permanently bound to the commitments
they make in their Schedules of Specific Commitments (3 years).
1.5 The institutional structure for implementing GATS
The operation of GATS is overseen by a Council for Trade in Services. A committee of
representatives of all WTO member states that oversees the General Agreement on Trade in
Services. It is in essence the WTO secretariat that provided technical assistance to
developing countries on matters related to trade in services.
1.6 Miscellaneous provisions
Including definition of key terms.
2. GATS Annexes are the second component of GATS. They deal with special aspects of
particular service sectors or issues.
Annex on movement of natural

Entry into a WTO member state territory may be regulated by

persons supplying services

that member state unless it makes a commitment to the

under the agreement

contrary.
30

Annex on Air Transport Services

GATS does not replace agreements on air traffic rights. GATS

applies to aircraft repair, selling and marketing of air transport

Annex on Financial Services

services and computer reservation services.

Regulating financial services. Member states are free to
maintain or adopt measures that protect the confidentiality of

Annex on Negotiations on

financial service customers.

Member states are not obliged to list measures applicable to

Maritime Transport Services

maritime transport services that are inconsistent with mostfavoured-nation treatment until the negotiation on such services

Annex on Telecommunications

are concluded
Requires member states that have granted market access to
service suppliers of other members to ensure that those
suppliers have access to the use of public telecommunications
transport networks and services.

B. Regional Intergovernmental Regulations on Trade in Services

The EU is a common market for goods, services and labour. In comparison with GATS, the
Treaty Establishing the European Community (EC Treaty) and the Lisbon Treaty of 2010 are
the principal source of law in the EU, and create a much more open and liberal market for
services between and among its member states. The EC Treaty states that within the EU,
restrictions on the freedom to provide services and restrictions on the freedom of
establishment are to be abolished. In essence, service suppliers and entrepreneurs
consistently acquired (as the EU integrates and EU law evolves) the right to do business in all
EU member states.
EU freedom to provide services: the right of member state nationals and firms to market
their services on a temporary or non-permanent basis throughout the EU (e.g. Danish firm of
consultants advises business in Greece)
EU right of establishment: the right of member state nationals and firms to settle
permanently and carry on a business throughout the EU. It includes the right to set up and
carry on a business both as an individual and as an employer.
However, there is concern that cases may fall between the scopes of both guarantees. To
ensure that those guarantees are meaningful, the EC treaty declares the self-employed and
the employees of service suppliers are entitled to travel freely within the member states of the
31

EU and to carry on their activities free from discrimination. In order to create a real internal
services market, the EU has enacted the Services Directive in order to increase the choice
offered to recipients and improve the quality of services both for consumers and businesses
using these services. But each nation still maintains a large body of its own labour and
employment laws and regulations, which are legal and enforceable as long as they do not
discriminate against foreign workers.
The EU laws allowing freedom of movement are no absolute rights. Entry can be limited on
the grounds of public policy, public security, and public health, and contracts with the public
service can be limited to nationals of the member state.
The Trade-in-services provisions in NAFTA are very similar to those in GATS: they observe
the basic rules of transparency, MFN treatment and national treatment. Also, service
providers are granted several rights. But there are some differences:
1. NAFTA does not deal with services, but with sectors. Its main provisions are in three
core service chapters (cross-border trade in service, telecommunications, and
financial services), two associated chapters (investment and temporary entry of
businesspeople), and three annexes (land transportation, professional services, and
specific reservations and exceptions). Because of this arrangement, rules such as
transparency, MFN treatment, and national treatment are repeated (with minor
variations) in different chapters.
2. NAFTA does not specifically define the four basic modes of supply. Instead deals with
them piecemeal. NAFTAs chapter on cross-border trade in services covers that
mode. The chapter on investments generally covers the presence mode of supply.
Other chapters cover the movement of consumers and the temporary movement of
natural persons.
3. The manner in which NAFTA deals with sectoral coverage. Unlike GATS, which
requires states to list the sectors covered (a positive list) and then list the limitations
that apply to them (a negative list). NAFTA requires its countries to specify the sectors
that are not covered in the agreement (negative list) and the limitations that apply to
them (negative list). Thus, if a NAFTA country does not list a sector or limitations,
NAFTAs rules automatically apply.
4. NAFTA countries may modify their lists of sectors and limitations. However, they may
not, unlike GATS member states, make the lists more restrictive.

32

C. International Labour Law

International law has been concerned with the rights of labourers from the beginning of the
20th century. Following World War I, the international community agreed to establish the
International Labour Organisation (ILO). The International Labour Organization (ILO) is a
specialised agency of the United Nations. It is responsible for promoting international efforts
to improve working conditions, living standards, and the equitable treatment of workers
worldwide. It carries out its objective by issuing recommended labour standards, organizing
conferences to draft international labour conventions, monitoring compliance with its
recommendations and conventions, and providing technical assistance to member states.
The ILOs structure consists of:
General Conference (legislative): The legislative body of the ILO, is made up of
representatives from the government, labour and management from each member state. 4
from each state: two governmental employees, one labourer and one employer.
Governing Body (executive): The governing body of the ILO is responsible for setting the
ILOs agenda. It is made up of representatives from government, labour, and management
from member states. 56 members, half appointed by government, quarter by workers groups
and a quarter by employers organizations.
International Labour Office (secretariat): Secretariat of ILO. Headed by the DirectorGeneral. Authors of ILO meant for the organization to involve itself primarily with manual,
blue collar labourers and not with other forms of employment. But now, the scope of the ILOs
concerns includes all forms of labour. The ILO attempts to establish rules or standards that
have international effect. Need for international effect because:
1) Individual states are not inclined to enact domestic labour laws: competitive disadvantage;
2) It keeps world peace;
3) It brings justice and humanity.
Two instruments are used to create international standards:
1) ILO conventions: Labour conventions sponsored by the ILO, when there is substantial
agreement in the international community about a particular labour practice.
2) ILO recommendations: International Labour Office opinions as to proper labour practices
and as to how ILO conventions should be interpreted. They are issued when the situation is
more complex. Both deal mostly with three concerns:
- Basic issues of labour protection (e.g. hours of work);
- Setting up basic machinery and institutions (e.g. labour inspection);
- Promote and protect human rights and freedoms of workers (freedom from forced labour).

33

Member states of the ILO are obliged to provide annual reports to verify compliance with the
conventions they have ratified, as well as irregular reports. Reports should provide:
1) Copies of the states statutory legalisation and administrative regulations dealing with the
particular contention and any documentation material.
2) Interpretation of materials provided in part 1.
3) Description of the actions that need to be taken to modify existing legislation. Reasons
why those actions havent been taken, statements as to if the actions will be taken.
4) Names of employers and workers organizations to which copies of reports were given.
There are two groups that are responsible for creating summaries of the reports:
1) ILO Committee of Experts on the Application of Conventions & Recommendations:
A committee of the ILOs Governing Body that analyses annual reports to determine the
extent of member state compliance with ILO conventions and recommendations. Reputation
for being impartial and knowledgeable.
2) ILO Conference Committee on the Application of Conventions & Recommendations:
Committee of the ILO General Conference responsible for making a list of member states
that have defaulted on their obligations to the ILO. On the special list are member states that
have defaulted on their obligations to the ILO. An inquiry (the process by which an impartial
third party makes an investigation to determine the facts underlying a dispute without
resolving the dispute itself) will follow.
If an ILO member state violates the ILO Constitution, an ILO convention, or the ILO
convention on the Freedom of Association, there are several dispute-resolution procedures
that can be invoked to reach settlement between ILO states. These include:
1) The investigation of complaints of noncompliance with ratified convention by commission
of inquiry: Article 26: every state can file a complaint towards another if it not satisfied.
2) The investigation of abuses by the Fact-Finding and Conciliation Commission on Freedom
of Association: Principle: recognition of the principle of freedom of association.
Convention concerning Freedom of Association (Article 87) grants workers the rights to form
and join trade unions. The convention concerning the Application of the Principles of the
Right to Organize and to Bargain collectively (Article 98) protects workers from antiunion
discrimination. ILO fact-finding and conciliation commission: Special ILO committee of
inquiry that considers complaints that a state has violated the ILOs Freedom of Association
conventions. If the state consents, the inquiry can proceed even though the state is not a
member of the ILO.

34

Questions on interpretations of the ILO should be asked to the ICJ. However, this is
expensive. The ILO Administrative Tribunal is a special court that hears complaints from
employees in the secretariats of the ILO and other IGOs. It does not have the power to order
an IGO to undertake an action it has not begun on its own.
Case 8-2
Peter Duberg, an American citizen and employee of UNESCO, did not return a loyalty
questionnaire to the US government. Therefore, he was asked to appear before the
international employee loyalty board, but he refused. His contract was not renewed because
of this incident. The ILO administrative tribunal decided that the director-general of UNESCO
had violated Mr. Dubergs rights. The director general had bent to the pressure of one nation,
rather than persevering the international character and independence of his organization, as
its constitution requires. However, the tribunal did not have the power to give Mr. Duberg his
job back, so it ordered that UNESCO pays him a sum of money if the director-general did not
reconsider his decision to terminate Mr. Duberg.
The basic principles underlying contemporary international labour law are found in the
Universal Declaration of Human Rights and in the International Convent on Economic,
Social and Cultural Rights.
Due to the Nazi practices, a determination to secure human rights appeared. The UN charter
declares that human rights are one of the four founding purposes of the UN.
-

Article 1 declares that member states agree to work together in promoting universal

respect for human rights and freedoms.

Article 55 states that the UN will promote universal respect for human rights and

fundamental freedoms.
Article 56 says members pledge themselves to take joint and separate action to
achieve that respect.

The nuclear commission on Human rights was established after the UN was set up. Their
first act was to draft and International Bill of Rights. Finally, the Universal Declaration of
Human Rights (UDHR) proclaims civil and political rights as well as economic, social, and
cultural rights. It is not a treaty, but a statement of customary international law. (See p. 456
for the rights of labourers)
Case Filartiga v. Pena-Irala
There are many arguments on whether the UDHR is legally binding. Nowadays, people
perceive the UDHR to be a statement of customary international Law. This case is the most
35

influential case supporting the idea that the declaration is customary international law, and
the first circuit decision interpreting the Aliens Tort Claims Act (ATCA). It concerned whether
torture was violating international law, and this was proven with the declaration. To state a
claim under ATCA: plaintiff must allege a claim by an alien, alleging a tort, violate the law of
nations (International law).
The international covenant on Economic, Social and Cultural rights:
-

Implements the rights stated in the UDHR;

Gives them the binding force of treaty law.

D. Regional Intergovernmental Regulations on Labour

EU freedom of movement for workers: Right of member state nationals to seek and accept
employment throughout the EU. The European Atomic Energy Community forbids any
restrictions based on nationality in the employment of qualified workers in the atomic energy
industry.
-

Article 39 of the EC treaty allows workers to accept offers of employment and to

remain in any member state to carry out that employment.

Article 40 authorizes the EU to remove administrative procedures that obstruct the

free movement of workers.

Article 42 grants the EU council the power to adopt such measures in the field of

social security as are necessary to provide freedom of movement of workers.

Article 39 (2) states that workers who are citizens of a member state cannot be
treated differently because of their nationality. A foreign worker is entitled to enjoy the
same social and tax advantages as national workers, and enjoy all the rights and
benefits as national workers in matters of housing, ownership etc. Examples of
improper requirements include those that:

Prescribe a special recruitment procedure for foreign nationals

Limit the vacancies in the press to conditions other than those applicable in

respect of employers pursuing their activities in the territory of that member state
Subject eligibility for employment to conditions of registration with employment

offices or impede recruitment of individual workers where person who do not

reside in the territory of that state are concerned.
The right to move freely across the EU borders is limited by denial on grounds of public
policy, public security and public health. One limitation to the free movement of workers in

36

article 39 of EC treaty: EC countries are allowed to reserve certain public-sector positions for
their own nationals (e.g. Public authority/governing).
Workers rights are protected by a variety of regional intergovernmental organisations. Among
those that are the Organisation for Economic Cooperation and Development (OECD), and
the Council of Europe.
OECD Guidelines for Multinational Enterprises: Norms suggested by the OECD for the
operation of multinational firms both in home and host states. The goal is to create an
organization dedicated to global development. The mission is to promote policies that will
improve the economic and social well-being of people around the world. The guidelines
concern business ethics, steps to obey the law, observe standards etc. The guidelines are
voluntary, but have some influence. Falling below the standard put companies in an awkward
position when dealing with local governments, local unions, and local and international
media.
The Council of Europe is responsible for enforcing the European Convention on Human
Rights of 1950 and the European Social Charter of 1961.
European Convention on Human Rights of 1950: Establishes and guarantees civil and
political rights for the nationals of the member states of the Council of Europe.
Article 11 of the convention states that:
- There is a right to freedom of peaceful assembly and association right to join a trade union.
- No restrictions on the exercise of these rights.
European Social Charter of 1961: Establishes and guarantees economic, social, and
cultural rights for the nationals of the member states of the Council of Europe. This is a
broader provision protecting the rights of workers. There is some overlap between the two
treaties. Part I lays out the rights and principles (e.g. working conditions and remuneration),
part II describes these rights and principles and part III sets out specific obligations.
Transnational labour unions, with the ability to represent employees across international
boundaries, can exist only where IGOs have the power to sanction them. The EU and council
of EU have such power. The EU has to authorize a transnational labour unions
establishment, article 5 is in favour of the unions. Article 5 of the Social Charter states that
employers and workers are allowed to form international organizations. This encourages
cooperative action, support national organizations and advocate rights of workers.

37

E. Movement of workers
Case 8-3 State v. Nagami
Nagami, a Japanese national, wanted to obtain a Japanese passport to visit China with her
husband (= U.S. national). Japan did not recognize China yet, so an entrance permit from
China was necessary. She did not get one, but sailed to China anyway. Both were arrested
for leaving a country without passport and being an accessory to the crime. She stated that
denying a passport is a breach of human rights and breach of constitution: the right to travel.
The court held that the granting of a passport is not a fundamental human right, and the
government can establish rules and regulations concerning the issuance of passports. The
court pointed out that there was a strong basis, both for the safety of citizens and for
international diplomatic and security reasons, for the Japanese government to enact and
enforce restrictions on travel to China.
The UDHR states that everyone has the right to leave any country. But this is restricted by the
requirements of passports and governmental permission. Passport: A warrant of protection
and authority to travel between nations. Visa: Formal authorization to enter a country. They
are a host states counterpart of the passport. They can limit the length of time and the
activities that can be done in the host country. Visas are temporary or permanent
(nationalization). See page 472 for a list of people who can get a temporary visa.
Most common temporary Visas:
- Visitor visas for tourists. The Visa Waiver Program (VWP) allows tourists from certain
countries to enter without a visa. The VWP has been modernized: The Electronic system for
Travel Authorization (ESTA) is an automated system that assists in determining the risks to
travel to the US under VWP (since 9/11).
- Business visitors; allowed to come for short trips (6 months), if they work for a foreign firm.
- Skilled professionals; to stimulate temporary jobs in the visa providing country.
- Students. Obtain a statement, show resources to get a student visa.
- Temporary employees, transferees: granted on petition of employer; a new one is needed if
the person switches jobs.
Permanent visas: allows an alien to stay indefinitely. States limit the number of permanent
visas to immigrants, because they want the alien to contribute to the states society. In the US
priority categories exist: 1) aliens with US family members. 2) aliens with special skills.
There is a limit on the number of visas that will be granted to aliens from any particular
country/year. Aliens are obliged to comply with the terms of their visas and to leave a country
when their visa expires/is withdrawn.
38

Case 8-4 England and Another v. Attorney-General of St. Lucia

David and Jean England (British) moved to St. Lucia in 1968 and became residents, not
citizens. David England was informed that the government thought he was helping extremists
with terrorist actions, and was therefore no longer welcome. The court decided that the laws
of St. Lucia had recently been amended to allow for the summary deportation that was
followed by the government. The governor-general was empowered to act in an executive
capacity by the law, and his decision was not reviewable in the court system in the absence
of bad faith, which was not alleged.
The same labour laws that apply to nationals govern foreign workers once they are allowed to
enter a country. States impose special rules on foreign workers. For example, percentile
legislation: A law requiring a certain percentage of employees to be nationals. Others limit
the benefits; Singapore requires alien employees to be paid the same rates and that housing
should be arranged for them. Sometimes the rules seem to grant them special privileges.
Especially when rules are set out in treaties: some allow foreign business to discriminate in
favour of national employees by assigning them to senior executive positions.
Case 8-5 Spiess et al. v. C. Itoh & Co (America), Inc.
Plaintiffs have filed suit against defendant pursuant alleging racially discriminatory
employment practices. Does the 1953 treaty of Friendship, Commerce and Navigation
between the US and Japan provide American subsidiaries of Japanese corporations with the
absolute right to hire managerial, professional and other specialized personnel of choice,
irrespective of American law proscribing racial discrimination in employment? The court had
to decide if the employer was subject to the civil rights laws of the US or not. It appeared that
the employer defendant was incorporated as a separate company under the laws of New
York. So the company was subject to US law. The 1953 treaty did not provide American
subsidiaries of Japanese corporations with the absolute right to hire managerial or
professional personnel of their choice, irrespective of American law prohibiting racial and
national origin discrimination in employment, where the subsidiaries are incorporated in the
US.
Countries refused to apply their labour laws extraterritorially. This is based on the concept of
sovereignty: each nation is independent and not subject to the laws of other nations. In the
US, it is recognized that the congress has the authority in certain cases to enforce its laws
beyond the territorial boundaries of the United States.

39

Chapter 9 Intellectual Property

Intellectual property (IP) = useful information and knowledge, divided (for establishing legal
rights) into two principal branches:

Artistic property = artistic, literary and musical works. (Protection: copyrights &

neighbouring rights)
Industrial property = inventions and trademarks. (Protection: patents, inventors
certificates & trademark laws)

IP is a creature of national law; international law does not create it but sets down guidelines
for uniformity. This chapter explains the aspects of IP law: creation, protection and transfer.

A. The Creation of Intellectual Property Rights

Information that can be owned, can involve either statutory (copyrights, patents, trademarks)
or non-statutory (know-how: trade secrets) rights.
1.1Copyrights
Copyright = an incorporeal statutory right that gives the author of an artistic work, fixed in a
tangible medium for a limited period, the exclusive privilege of making copies of the work and
publishing and selling the copies. Unlike a patent a copyright does not provide rights to
prevent others from using the idea/knowledge contained in the work, but only restricts use of
the work itself (Berne Convention 1886).
No formalities: symbols/signs , are needed.
The scope of a copyright remains within the territory of the state granting it.
-

The duration of copyright lasts 50 years after the authors death (some nations 70)

Exceptions to copyright protection in some countries: (1) in a court, or by police if

material is necessary to maintain public safety; (2) for instructional purposes in
schools; (3) private use; (4) in quotations in scholarly/literary works or in reviews (5) in

extended quotations of newsworthy speeches or political commentaries.

A copyright is title to certain (1) pecuniary (economic) rights (= the right of an author to
exploit a copyrighted work for economic gain (1a). the right of reproduction & (1b). the
right of public performance) and (2) moral rights.
(1a) The Right of Reproduction is the exclusive right of an author to make multiple copies
of a copyrighted work (the oldest and most common of the copyright rights). Piracy
(unauthorized reproduction/sale of copyrighted works) has become a serious problem due to
the Internet.
Distribution rights = the right of an author to place a copy of a copyrighted work into
circulation for the first time. But when are distribution rights exhausted?:
40

First sale doctrine or doctrine of exhaustion = once a copy of a copyrighted work

is in circulation, the author has no further right to control its distribution (otherwise
every transfer would be controlled by the copyright owner). There are three important
limitations:
1.

The right only applies to sales (when transferring an original by lending,

leasing or as part of an exhibition, distribution rights are retained for a

2.

subsequent transfer).
The doctrine only applies to the right of distribution of that copy. Rights to
reproduce original work and performance and moral rights are not affected (so
making photocopies of a book purchased by a transferee, still infringes the

3.

copyright holders right of reproduction).

Authors have the right to limit rentals of distributed original works/copies,
especially regarding pc programs/motion pictures (by a widely subscribed-to
international agreement).

(1b) In addition to reproduction/distribution rights, copyright owners have a pecuniary right of

performance = the right of an author to communicate a copyrighted work to the public,
applying only to public performances. Private performances (for small groups of personally
inter-connected people) do not infringe copyright (incorporated into the Agreement on TradeRelated Aspects of IP Rights Article 14 (1994)).
Case 9-1 Performing Right Society, Limited v. Hickey (on: difference public/private)
The defendant admitted playing records of copyrighted music in his public disco in Zambia.
Thus a performance was done, infringing the song composers copyrights. The judge decided
that the defendant didnt fully understand copyright at that time, so did not award damages
but held him liable for the profits made that day at the disco. Additionally, the court entered an
injunction prohibiting any further such infringement by the defendant.
(2) Moral rights = the right of an author to prohibit others from tampering with a copyrighted
work. They continue to exist in the author even if pecuniary rights have been transferred
(when someone else owns copyright).
Berne Convention: right to claim authorship, object to distortion/mutilation/modification or
derogatory

action

that

would

be

prejudicial

to

Belgian Copyright Law (1886): three basic moral rights:

1.
Right to object to distortion, mutilation, modification;
2.
Right to be recognized as the author;

41

the

owners

honour/reputation.

3.

Right to control public access to the work.

Moral rights are not recognized in copyright laws of countries using common law. The US
therefore adopted the Agreement on Trade-Related Aspects of IP Rights (TRIPS), which
is an annex to the Agreement Establishing the WTO. It creates a multilateral and
comprehensive set of rights and obligations governing the international trade in IP. TRIPS
requires WTO members to comply with Berne Convention, with one exception: no
requirement to grant moral rights to authors.
1976 US Copyrights Act lists 7 categories of works (an artistic, literary, musical, scientific
creation) eligible for copyright protection: 1. Literary works; 2. Musical works; 3. Dramatic
works; 4. Pantomimes/choreographic works; 5. Pictorial, graphic, sculptural works; 6. Motion
pictures/audio-visual works; 7. Sound recordings.
Not every work in these categories qualifies for copyright protection. A work must also be
original. That is a creativity effort invested by an author in raw materials that gives them a
new quality or character. However, if two people paint the same, both paintings are original
(reflecting creativity of its maker) despite the fact that neither is novel. Both painters would
receive copyright, as long as one did not copy the others work.
What is protected is not the idea/knowledge contained in the work, but the expression (= the
exact manner in which a particular work of authorship is set down in a tangible way).
Neighbouring rights = rights similar to copyrights that are protected by different statutes.
Often, Technology produces works fall outside of existing definitions (iPads/Kindles).
Case 9-2 Amar Nath v. Union of India (moral rights accepted in common law India)
The case on Mr. Sehgals mural (made for and sold copyright to the government, but 20
years later ripped of the walls during renovation and the remainders put into storage) shows
the importance of the moral rights section of the Berne Convention, adopted in the Indian
Copyright Act, and the weight it has been given by courts in India and Europe. Law is based
on the principle that there should be a law protecting the soul and essence of artistic
expression as much as the physical form of that expression, separate and distinct from the
economic rights of the artist/author. Eventually, the mural was returned to Mr. Sehgal.
1.2Patents
A patent is an incorporeal statutory right that gives an inventor, for a limited period, the
exclusive right to use or sell a patented product or to use a patented method or process. The

42

primary method of protecting and rewarding inventors is the patent. There are two historical
reasons for granting patents:
1. Patents are a confirmation

of

the

private

property

rights

of

the

inventor.

2. A patent is a grant of special monopoly to encourage invention/industrial development.

There are three kinds of patents:

Design patent; granted to protect new and original designs of an article of

manufacture.
Plant patent; granted for the discovery of a new and distinct variety of a plant.
Utility patent; granted for the invention of a new and useful process, machine, article
of manufacture, or composition of matter.

Variations on these basic patents are: confirmation (already patented in another country),
addition (improvement on already patented inventions), precautionary (issued for short time
period to an inventor who still has to perfect the intervention, so inventor is notified when
others apply for a same patent and has opportunity to object those applications).
Few countries grant a petty patent which is a statutory right given to the authors of minor
inventions (technical improvements) also called the utility model.
An invention qualifies for patent protection when it is:
1. New = no other inventor has obtained a patent for the same invention;
2. Inventive step = the subject matter of an invention was not obvious at the time of the
inventions making to a person having ordinary skill in the art of the subject matter;
3. Capable of industrial application = the product/process of an invention can be used
in industry/commerce.
Case 9-3 Monsanto Co. v. Coramandal Indag Products, (P) Ltd. (on: inventive step)
Monsanto and an Indian subsidiary brought to court an action in India for patent infringement
against a local Indian company, manufacturing/selling an herbicide product killing weeds
growing in rice fields. The court scrutinized the history of the product and found that its active
ingredient, Butachlor, and the emulsification necessary to apply the product, were well known
before the patent was granted. The court revoked the patent and found no infringement;
neither the product nor the process claimed by Monsanto was new, nor did they involve any
inventive steps not already known.
Inventions excluded from patent protection are those not meeting the basic definition of
patentability or violating basic social policies. The TRIPS Agreement allows some denial of
patents for certain inventions without prohibiting commercial exploitation. Including:

43

diagnostic, surgical, therapeutic methods; plants/animals other than microorganisms;

essentially biological processes for production of plants/animals.
Duration of patents under TRIPS is set at minimum 20 years for uniformity.
Scope of patents is only within the territory of the state granting it; states cannot prevent use
of patented technology outside their territory.
1.3Trademarks
Merchants and others use five marks to identify themselves and their products:
1. True trademark = a mark, word, device or symbol or any combination thereof
adopted and used to identify goods of a particular manufacturer or merchant.
2. Trade name = Name of the manufacturer (PepsiCo).
3. Service mark = a mark or symbol used to identify a person who provides services.
(Yum! Brands, Inc. uses service marks of KFC, Pizza Hut, to identify its service
establishments)
4. Collective mark = a mark or symbol used by a group to identify itself to its members.
5. Certification mark = a mark or symbol used by a licensee/franchisee to indicate that
a particular product meets certain standards. (Champagne, Roquefort, Grown in )
Facts on trademarks:
-

Trademark functions for owner: The right to put a product protected by a mark into

circulation for the first time.

Trademark functions for consumer: designates the origin of a product/service;
indicates a particular quality; represents the goodwill of the manufacturer; protects the

consumer from confusion.

Acquiring trademarks can be done 1. By use; 2. By registration. Famous trademarks
may not have to be registered to be protected, since in some countries registration is

not available (McDonalds in United Arab Emirates).

Registration of a trademark to publicly notify other potential users commonly starts
with an examination of the Trademark Office to determine suitability for registration.
Often it is simply examining the application form for compliance with statutory
definitions, wealthier countries have a large library, and the check might include

foreign records, union records, private materials, etc.

Registration criteria are commonly formed by the statutory definitional criterion that
appears in all trademark laws: distinctiveness = possessing a unique design that
distinguishes a product from other similar products. To be registered, a trademark
must not infringe another and be distinctive.

44

Refusing registration can occur based on statutory grounds that vary from country to
country. A mark/name will be denied in the US if it: (1) Does not function as trademark
to identify goods/services as coming from a particular source; (2) Is immoral,
deceptive, scandalous; (3) May be disparaging; (4) Consists of or simulates the
flag/other insignia of the US; (5) Is the name/portrait/signature of any living individual

that has not given written consent. Etc.

Registration review provides opponents with 30-90 days to oppose registration once
the mark has been published in the offices official gazette. An opposition hearing at
the end rules whether a registration will issue. Trademarks are protected for at least 7
years and are indefinitely renewable. Many countries require the holder to present
proof of actual usage upon renewal of registration, called usage requirements.

Case 9-4 Experience Hendrix, L.L.C. v. Hammerton (Similarity of two registered marks)
Hendrix L.L.C. is the owner of all rights relating to Jimi Hendrix, Mr. Hammerton is listed as
the administrative contact for the Internet domain name in issue: The Jimi Hendrix Fan Club
jimihendrix.com. The international arbitration panel decided that Hammerton had registered
the domain name to make profit, as he had done with multiple famous persons domains. The
panel found that Hammertons domain name was likely to confuse the public as to the identity
of the real Jimi Hendrix Fan Club; that he had no legitimate rights to the name; since he knew
Exp. Hendrix LLC and Hendrix claimed all rights to Jimi Hendrix, his actions were in bad
faith. His domain name jimihendrix.com- was transferred to Exp. Hendrix, L.L.C.
1.4Know-How
Know-How is practical expertise acquired from study, training, and experience (factual
knowledge). Unlike other forms of IP, know-how is generally not protected by specific
statutory enactments. It is rather protected by contract, tort and other basic legal principles (in
some countries by Trade Secrecy Laws, for secret know-how with commercial value).

B. International Intellectual Property Organizations

Two main international organizations are active in protecting international IP rights: the World
Intellectual Property Organization (WIPO) and the Council for Trade-Related Aspects of
Intellectual Property Rights (TRIPS Council) of the WTO.
The WIPO is an intergovernmental organization responsible for administering the principal
international intellectual property conventions, created in 1967 with the Stockholm
Convention. It promotes IP rights, hosts conferences for developing new IP rights

45

agreements, facilitates transfer of technology, and resolves Internet domain disputes.

Authorized to resolve disputes if:
1. The domain name registered

is

identical/confusingly

similar

to

an

existing

trademark/service mark;
2. The domain name registrant has no rights or legitimate interests in the disputed domain;
3. The domain name was registered and is being used in bad faith (The Jimi Hendrix case
was a dispute decided by WIPO).
The TRIPS Council is an organ of the WTO responsible for administering the Agreement on
Trade-Related Aspects of IP rights. It monitors WTO member states compliance with the
TRIPS Agreement, helps members consult each other on IP rights, assists in settling
disputes and cooperates with WIPOs constituent bodies.

C. Intellectual Property Treaties

Intellectual property rights are protected and regulated internationally by both bilateral treaties
and multilateral conventions. The principal agreement for IP obligations for most of the
worlds state is the TRIPS Agreement providing a multilateral and comprehensive set of
rights/obligations governing the international trade in IP, in 5 ways.
1.
2.
3.
4.
5.

Requires WTO members to adhere to the most important IP treaties.

It creates obligations that fill in the gaps in other IP conventions (patent life length).
Establishes criteria for effective enforcement of IP rights and dispute settlement.
Encourages the widest application of common rules/obligations set out in TRIPS.
It most importantly extends the basic principles of the GATT to the field of
international IP rights: no less favourable protection for foreign nationals regarding IP
(national agreement), publish and notify the Council for TRIPS of all relevant national
laws, regulations and respond to other members requests for information
(transparency). The most-favoured-nation treatment states that any advantage,
favour, privilege, immunity granted to any other country (WTO member or not) shall
be accorded immediately and unconditionally to the all other WTO members.

For artistic property, the Berne Convention for literary/artistic works, the International
Convention for performers/phonogram producers/broadcasting organizations, the Patent
Cooperation Treaty, the Satellite Transmission Convention and the WIPO Copyright Treaty,
are the main international agreements.

46

The Berne Convention for the protection of Literary and Artistic Works (Paris, 1886)
requires member states to establish common minimum rules to protect the pecuniary and
moral rights of authors without requiring them to comply with particular formalities.
Based on 4 basic principles:
1. National treatment: No less favourable treatment to foreigners than to its nationals.
2. Non-conditional protection principle = protection is not to be conditioned on the
use of formalities.
3. Protection independent of protection in the country of origin principal =
protection is granted to any person publishing a work in a member state, even if he or
she is not a national of a member state.
4. Common rules principle = common minimum standards for granting copyrights
must be observed by all member states.
International Convention for the Protection of Performers, Producers of Phonograms,
and Broadcasting Organizations (Rome Convention, 1961) = prohibits the unauthorized
recording of live performances, the unauthorized reproduction of recordings, and the
unauthorized recording or rebroadcasting of broadcasts.
Convention for the Protection of Producers of Phonograms Against Unauthorized
Duplication of Their Phonograms (Phonogram Piracy Convention, Geneva, 1971).
Requires member states to protect producers of phonograms from the unauthorized
reproduction of their works. Common law countries use copyright legislation, most others use
neighbouring rights laws.
Convention Relating to the Distribution of Program-Carrying Signals Transmitted by
Satellite (Satellite Transmission Convention, Brussels, 1974) = requires member states
to prevent the unauthorized transmission of electronic communications by satellite from their
territory (The means of implementing the latter two conventions is up to the member states).
World Intellectual Property Organization (WIPO) Copyright Treaty (Berne Union
conference, 1996) = requires member states to extend the provisions of the Berne
Convention to computer programs and databases.
For industrial property, the International Convention for the Protection of Industrial Property,
the Treaty on IP in Respect of Integrated Circuits, the Madrid Agreement for the Repression
of False or Deceptive Indications of Sources of Goods, the Patent Cooperation Treaty and
the Trademark Law Treaty, are the principal international conventions.

47

International Convention for the Protection of Industrial Property (Paris Convention,

1880) = requires member states to provide national treatment, right of priority, and common
minimum rules to protect owners of industrial property rights. Three basic principles in the
Convention are:
1. National Treatment Principle
2. Right of priority = for a period of one year, an application for a patent in a second
member country will be treated as though it had been filed on the same date as the
application made in the first member country.
3. Common Rules Principle which sets minimum standards for the creation of intellectual
property (beyond these, each member might have own rules for handling IP matters):
a. Protection of Industrial Property may not be denied for not being manufactured
in that state
b. Trade names must be protected without requiring registration
c. Member states must outlaw false labelling (false sources of goods/trader)
d. Each member is required to take effective measures to prevent unfair
competition
Treaty on Intellectual Property in Respect of Integrated Circuits (Washington Treaty,
1989) = requires member states to provide national treatment and common minimum rules
(like protection against unauthorized copying/importing contraband copies) to protect owners
of integrated circuits (PC memory chip designs).
Patent Cooperation Treaty (1970) = establishes an international mechanism that allows
inventors to make a single application for patent protection that is equivalent to making a
filing in all member states. One countrys office forwards the patent to an international
searching authority, where novelty is determined with the goal of elimination of unnecessary
repetition by patent offices and applicants.
Madrid Agreement for the Repression of False or Deceptive Indications of Sources of
Goods (1891) = requires member states to deny importation to goods bearing false or
misleading indications as to their source.
Trademark Law Treaty (1994) = requires member states to establish common minimum
rules to protect trademarks, to simplify national and regional trademark registration systems.
Renewal term for a trademark is set at 10 years.

D. The International Transfer of Intellectual Property

There are 5 ways in which IP rights are transferred internationally:
48

1. The owner works them abroad;

2. The owner transfers/assigns rights to another;
3. The owner licenses another;
4. The owner establishes a franchise;
5. A government grants a compulsory license for a third party to exploit. The
rules/procedures for transferring an owners rights in IP are the same as for any other sale.
License = non-exclusive, revocable authority granted by the owner of an intellectual property
to another allowing the latter the right to use it in some limited way.
Franchise = special license that requires the franchisee to work the licensed property under
the supervision and control of the franchisor. (More limited rights than the independent
licensee: a franchise is regarded as a unit of the franchisors business, both however have
the same governing rules/regulations). 3 types of franchising:
1. Distributorship = A franchise in which a manufacturer licenses a dealer to sell its
products (cars.)
2. Chain-style business = a franchise in which a franchisee operates under the
franchisors trade name and is identified as part of the franchisors business (KFC).
3. Manufacturing/processing plant franchise = the franchisee sells products it makes
from a formula or from ingredients provided by the franchisor (Coca-Cola)

E. Licensing Regulations
Most countries treat IP rights as special exceptions to their general laws prohibiting
monopolies. According to e.g. US Supreme Court, licensing agreements involving statutory
grants must be limited to the rights contained in the grant. Non-statutory grants (know-how)
do not qualify for the special exceptions granted to patents, trademarks and copyrights.
Article 40, par.2 of TRIPS provides that WTO members might adopt rules to regulate the
anticompetitive aspects of IP with propriety.
The US Sherman Antitrust Act is among the oldest laws prohibiting unfair competition
(conspiracy contracts & monopolizing a part of the trade). Similar provisions are found in
Articles 81 & 82 of the EU Community Treaty however the EU treaty provides an exemption
for the EU to authorize arrangements otherwise violating the prohibitions in article 81(3). An
exemption in the US law is made as well: the Rule of Reason is a court-adopted rule that
allows a reviewing court to reconsider the overall impact of a particular agreement on
competition within its relevant market, weighing pro/anticompetitive effects of an agreement.

49

Territorial Restrictions apply only to the immediate licensee, further trade cannot be limited:
exhaustion of rights. Exhaustion-of-rights doctrine = once a good made or sold under
license is in circulation, the licensor has no further right to control its distribution.
When member-states property rights impact the EU, EU law will govern. Member-states
rights are exhausted whenever the protected goods cross borders. Moreover, a patent
owner may not restrict any subsequent circulation of its products, but may restrict imports
from another state (exhaustion of rights). Another doctrine promoting free movement is the
common origin doctrine = owners of the same IP right who acquired it from a common
predecessor cannot restrict each other from using the right. A common problem is Grey
Marketing: the domestic sale of products manufactured under a license that only grants a
foreign licensee the right to sell the goods overseas parallel imports of protected products.
Case 9-5 LOral v. eBay (Online Marketplaces and Trademark Infringement by Users)
eBay and other online auction sites can be held liable for advertisements by users of their
sites if the ads do not clearly show that the offered goods do not originate from the trademark
owner. Better monitoring systems must come in place regarding products sold online,
geographical

location

of

buyers/sellers

and

remove

trademarked

keywords

from

advertisements. Otherwise online providers face severe legal consequences.

Export restrictions limit the rights of a licensee to export goods from where its production
facilities are located. Most countries prohibit export restrictions, but certain restrictions are
tolerated if local laws comply or parallel imports would occur. US examples restricting export:
Horizontal competition agreements = agreements between competitors that have the
effect of diminishing competition.
Vertical competition agreements = agreements between sellers and buyers.
Cartel = a combination of independent business firms organized to regulate the production,
pricing, and marketing of goods by its members. They are displayed in multiple forms:

Cross-licensing agreement = an agreement to exchange licenses

Patent pool = an agreement to share patents and other technology
Multiple licensing agreement = a contract for the licensing of industrial property
rights to two or more licensees

In the US, the first two are allowed unless they divide up territories and restrain trade. The
bottleneck principle requires that participants in an industry-wide patent pool must grant
reasonable access to the pool to any firm wishing to compete so that no firm will be
50

disadvantaged. (In Japan, cartels designed to avoid economic depression or improve

technology/productivity/quality, are valid). Price fixing and division of markets is illegal in the
US and EU.
Exclusive license = a license that restricts who may compete with the license. However,
the following terms are interpreted differently in different countries. Licensee receives:
-

sole rights (excluding everyone, even the licensor),

exclusive rights (preventing everyone, except the licensor),
nonexclusive rights (allowing licensor to grant more licenses).

Case 9-6 Ransome-Kuti v. Phonogram, Ltd. (carefully defining licensing contracts)

The question was, whether the license granted to a Nigerian company to reproduce the
plaintiffs copyrighted musical work throughout Africa also gave the right to subcontract the
rights to produce records in Ghana to another firm. The plaintiff brought up a previous case in
which such act had been prohibited. However, in that case the contract had said nothing
about reassignment, while this cases contract used the phrase successors and assigns
right at the beginning. Thus, the court found that reassignment of the right to produce records
to another Ghanaian company was allowed.
A sales/distribution arrangement limits a licensees freedom to organize its distribution
system independently of the licensor. Three basic approaches to regulation:
1. Prohibiting any interference by the licensor;
2. Prohibiting only those provisions that give the licensor exclusive distribution rights;
3. Prohibiting arrangements that allocate/monopolize the market.
Price-fixing clause: provision requiring a licensee to sell products at a price set by the
licensor. (All forms are generally prohibited world-wide).
Noncompetition clause = provision forbidding a licensee from competing with the licensor.
(All forms are generally prohibited world-wide; few allow it under exceptional circumstances).
No-challenge clause = provision forbidding a licensee from challenging the validity of a
licensors claim to a particular statutory right, to ensure compliance with agreed-torestrictions and payment obligations. (Most countries consider it a restrictive trade practice).
Tying clause = provision requiring a licensee to acquire or use, apart from the technology
wanted, goods or personnel designated by the licensor; license-prerequisite. (illegal unless
for quality standards concerns).
Quantity restriction = provision in a license limiting the quantity of goods that may or must
be produced.

51

Field-of-use restrictions = provision limiting the fields in which goods acquired or produced
under license may be used. (Developing countries prohibit, and developed countries allow
the latter 2 restrictions on statutory rights).
Restrictions on R&D relates to the research of transferred technology and the r&d of
competing technology. Both are condemned in all countries.
Quality control clause = provision requiring a licensee to meet quality standards or operate
under quality controls set by a licensor. (Allowed Trademark, avoiding product liability).
Grant-back provision = agreement that a technology licensee will transfer to the licensor
any improvements, inventions or know-how it acquires while using the technology.
There are view restrictions that can apply after the expiration of IP rights/licensing
agreement. Payment obligations/restrictions based on statutory IP rights terminate when the
statutory right expires. Patent misuse sometimes occurs with package licensing. This is the
transfer of multiple statutory rights under a single license. Since certain rights expire sooner
than others, a licensee is obligated to longer payments because the IP agreement has not yet
expired. Licensing agreements may impose obligations on the licensee continuing after
expiration: noncompetition agreements, restrictions on licensed-technology related R&D,
obligation to keep secret confidential information.

F. Compulsory Licenses
Compulsory License is the grant, by state decree, of a license to use a statutory right when
the owner has failed to work it. These are common in developing countries when the owner
of IP refuses/is unable to work the property in a particular country within a period of time. A
third party may apply for a compulsory license, issued by the government without consent of
the owner, to prevent abuses of the exclusive rights of the patent (e.g. AIDS medicines to
Africa). Two types of compulsory licensing apply to copyrights:

Statutory copyright license = authorizes a third party to use a copyrighted work for

a fee stipulated in the statute.

Compulsory copyright license = compels a copyright owner to grant a license but
allows the owner to negotiate the fee.

52

Chapter 10 Sales
A. United Nations convention on Contracts for the International Sale of
Goods
The CISG supersedes two earlier conventions: the ULIS and the ULF, which were not
supported due to the lack of participation of third world and Eastern Bloc countries. The
CISG incorporates rules from all major legal systems, and is supported by developed,
developing and communist countries. The objective of the CISG is the promotion of
harmonization and the unification of international trade law.
The CISG is organised in four parts:
1. Articles 1-13: the scope of the convention, rules of interpretation
2. Articles 14-24: formation of contract
3. Articles 25- 88: rights and obligations of buyers and sellers
4. Articles 89-101: provisions for ratification and entry into force of the convention

B. Transactions covered in CISG

The CISG applies to contracts for the international sale of goods:
-

a sale involving a buyer and seller with parties of business in different states.
either both of the states are contracting parties to the convention
or the rules of private international law must lead to the application of the law of a
contracting state.

The CISG may even apply in situations where neither the seller nor buyer had a place of
business in a contracting state. This is a threat, so in the final provisions of the convention, a
ratifying state is allowed to declare that it will apply CISG only when the buyer and seller are
both from the contracting state.
Choice of law clause: Contractual provision that identifies the law to be applied to the event
of a dispute over the terms or the performance of the contract. Parties to a contract may
exclude (opt-out) or modify its application by a choice-of-law clause. Whether they can use
the same clause to exclude a domestic law and adopt CISG in its place depends on the rules
of the states where the case is heard.
Case 10-1 Asante Technologies, Inc. v. PMC-Sierra, Inc.
Dispute involving the sale of electronic components. The defendant asserts that plaintiffs
claims for breach of contract and breach of express warranty are governed by the UN CISG.
The complaint alleges claims based in tort and contract. Plaintiff contends that defendant
failed to provide it with electronic components meeting certain designated technical
specifications. The legal issue before the US federal court was whether it had jurisdiction
over the case. In order to possess jurisdiction to hear the case, it was necessary that federal
53

law was involved. The court considered whether the parties were from different states
(nations), decided that they were, and thus the CISG applied. Then the court analysed the
plaintiffs claim that the parties had opted out of the CISG, but found little factual evidence to
support that argument. Finally, the court ruled that when Congress ratified the CISG, it
intended to pre-empt confliction state laws. Thus although the CISG was not specifically
mentioned in the complaint, it was the law that applied here. Important here is article 6 of the
CISG: parties may exclude the application of the convention. But this has to be mentioned.
The CISG does not define sales; it speaks of the sellers and buyers obligations. The Seller
is to deliver the goods, hand over documents and transfer the property in the goods, as
required by contract and this convention. The Buyer is to pay the price. Sale: The exchange
of goods for an amount of money or its equivalent.
It doesnt define goods either. Goods: a movable, tangible object. For the purposes of CISG,
goods do not include auction sales, goods for personal use (double standards and
protections. Unless the seller knew it was for personal use!), sales on execution (too unique,
hard to determine contract), stocks, shares and investments (wide variety of rules that govern
them), ships and aircraft (different domestic systems governing) and electricity.
Mixed sales: a seller of goods often implements services when delivering (e.g. restaurant).
The ESG looks upon mixed sales and services contracts as sales of GOODS, unless more
than half of the obligations of the seller consists in the supply of services. Contracts for
goods to be manufactured are considered sales, unless the buyer undertakes to supply a
substantial part of the materials. Substantial is a very vague concept (1/10? or is it 2/10?).

C. Contractual Issues excluded from the Coverage of CISG

The CISG only deals, in case of contract breach, with (1) the formation of the contract and (2)
the remedies available to the buyer and seller. It excludes questions about (1) the legality of
the contract, (2) the competency of the parties, (3) the rights of third parties, and (4) liability
for death or personal injury.
- Legality and competency are culture sensitive. To avoid disagreement by adopting the
CISG, questions concerning these topics are left for settlement by domestic law.
- To avoid the possibility for a deadlock in the drafting of the convention, the matters of 3 rd
parties and liability of a seller for death/personal injury were left out.
To determine if CISG applies to a particular contractual issue, one must look to the
convention instead of domestic law. If the convention applies, domestic law is pre-empted: to
take precedence over. A comparison of CISG and domestic rules on pages 570-572.

54

D. Interpreting CISG
The underlying goal of the CISG is the creation of a uniform body of international commercial
sales law. In deciding legal questions: article 7(2) directs a court to look at:
1. The convention Interpreting the words of the convention (article 7(1)): the international
character of the convention, the needs to promote uniformity in the conventions application,
and the observance of good faith. When interpreting the words, the court may only use the
plain meaning (rule). Plain meaning rule: A statute or treaty is to be interpreted only form
the words contained within the statute or treaty. In some countries (civil law) the court may
look into a statutes legislative history to determine its intent, called Travaux prparatoires:
The legislative history of a statute or treaty, that is, the negotiations leading up to its final
drafting and adoption. Courts in most countries use case law to interpret treaties.
2. General principles - Those principles underlying and common to a statutory scheme or
treaty. They should be looked at when making an interpretation on the convention. The two
suggested principles are (1) a party to a contract has the duty to communicate information
needed by the other party, and (2) parties have the obligation to mitigate damages resulting
from a breach. These principles must be derived from sections of the convention and then
extended to the case at hand.
3. Rules of private international law Only used when CISG does not directly settle a matter
or when the matter cannot be resolved by the application of a general principle derived from
the convention itself. Private International Law rules vary per country (inconsistent holdings).

E. Interpreting Sales Contracts

Article 8 of the CSIG establishes rules for interpreting the statements and conduct of the
parties. Article 9 deals with usages and practices.
There are two approaches for interpretation of a contract:
1. Subjective approach: Rule that contracts should be interpreted according to the
actual intent and understanding of the parties at the time they made their agreement.
Problem: in case of dispute, no witness of what was in your mind. Courts only use this
method, if the other party knew or could not have been unaware.
2. Objective intent approach: Rule that contracts should be interpreted according to
the understanding that a reasonable person would have had at the time the
agreement was made. This is done when a speakers intent is not clear.
To determine intent, article 8(3) of the CISG directs that due consideration be given to all
relevant circumstances including:
1. Negotiations: Preliminary discussions leading up to the adoption of an agreement
55

2. The practices that the parties have established between themselves

3. The parties conduct after they agree to the contract.
The purpose of Article 8 (3) is to do away with domestic technical rules to interpret contracts.
An example is the parol evidence rule: When a contract describes itself as being complete
and final, preliminary or informal agreements made prior to or at the same time the contract
was made will be ignored when interpreting it. If this is not specifically done, then the court
will look at all the relevant circumstances in the case. This rule is a common law rule.
Article 9 of the CISG states that parties are bound by any practice that they have established
between themselves. Practices: the method of performance established between parties by
their actions or conduct. Article 9(1) allows a court to consider any usages that the parties
agree to. Article 9(2) lets it consider a usage of which the parties knew or ought to have
known and which in international trade is widely known to, and regularly observed by parties
to contracts of the types involved in the particular trade concerned. Usage: The customary
method of performing or acting that is followed by a particular group of people.
Case 10-2 Treibacher Industrie, A.G. v. Allegheny Technologies, Inc.
Treibacher would sell TaC to TDY industries. Unbeknownst to Treibacher, TDY had purchased
the TaC it needed form another vendor at lower prices than those specified in its contract with
Treibacker. Treibacher did sell its TaC, but at lower prices than it would have gotten from TDY.
They filed a suit against TDY, to recover the balance. They disputed over the meaning of the
word consignment (the delivery term in both contracts). In this case, the court had to decide
how to interpret the word consignment in a contract between two business firms (Austria and
US). The result of the case turned on whether that word should be interpreted according to its
meaning based on the course of dealings between the parties or on its customary usage in
trade. After reviewing the relevant sections of the CISG, the court found that TDY and
Treibacher had defined the term consignment to require TDY to accept and pay for all of the
TaC specified in each contract, and that is how the term should be interpreted.
Traditionally, countries required that a contract be in writing, but in many countries this was
repealed. In civil law countries, no writing is needed in commercial transactions. In socialist
countries, the need for certainty is very important (so use writing). CISG thinks the writing
requirement is inconsistent with modern practices, due to speed and informality. However,
some countries did want writing requirements: A compromise was the result. A contract of
sale need not to be concluded by writing, but it may be proved by any means, like witnesses.
But article 96 authorizes a contracting state whose legislation requires contracts of sale to be
56

concluded in or evidenced by writing to make a declaration at the time of ratification, that

article 11 does not apply when a party has his place of business in that state.

F. Formation of the contract

A contract is formed, and parties are bound by its provisions when an offer to buy or sell a
good is accepted. Offer: A proposal by one person to another indicating an intention to enter
into a contract under specified terms.
A proposal is definite if the goods, price and quantity are properly described. Some
exceptions exist, so article 55 was added, even if no price is fixed, it is still an offer. The
concept of an urgent situation: e.g. a machine breaks down, and the buyer needs a new
one very quickly. He asks the seller to rush it to him as soon as possible; without agreeing on
a price. Additionally, an offer must be addressed to one or more specified persons.
Offers/proposals made to the public are intended to be invitations to negotiate. An offer
becomes effective when it reaches the offeree. Before they are received offers can be
withdrawn (revocation).
Revocation: Cancellation by the offeror of an offer. Only with offers that do not state they are
irrevocable can be revoked before the offeree dispatches an acceptance (mailbox rule). The
acceptance can be sent by any means under CISG. Firm offer - an offer that the offeror
promises to keep open for a fixed period of time- can be enforceable by making the offer
irrevocable.
A contract comes into existence if it is accepted by the offeree to the offeror in whichever
form he wishes. Acceptance; agreement to enter into a contract proposed by an offeror.
Silence does not mean acceptance. Acceptance must be received by the offeror within the
time period specified in the offer. If no time period is given, it must be done within a
reasonable time period. If the offer is oral, the acceptance must be made immediately, unless
the circumstances indicate otherwise.
Difference mailbox & receipt rule (CISG) is the allocation of risk when acceptance is either
lost or delayed. For example; a buyer sends an acceptance through the mail and is lost:
For the mailbox rule a contract comes in existence at the time the acceptance was mailed.
Therefore, the seller is required to perform. Under the receipt rule, no contract exists if the
acceptance gets lost. Therefore, the buyer stands empty-handed.

57

If the offeror asks for performance of an act rather than the indication of acceptance, the
acceptance is effective at the moment the act is performed (article 18(3)).
An acceptance is not effective until the offeror receives it, so the offeree may withdraw
cancellation by the offeree of an acceptance his acceptance any time before its receipt.
A rejection Refusal by an offeree to become a party to a proposed contract becomes
effective when it reaches the offeree.
Battle of the forms: the seller sends an offer to the buyer, the buyer responds with an
acceptance that modifies some of the terms in the offer. Different terms are considered to
alter the terms of the offer materially, and thus the would-be acceptance is a counteroffer.
Case 10-3 Filanto, SpA v. Chilewich International Corp.
The plaintiff corporation, Filanto, engaged in the manufacture and sale of footwear. Chilewich
signed a contract to deliver shoes to the SU. In order to fulfil the contract, Filanto would
supply them. The disputes would be settled by the USSR Chamber of Commerce. Filanto
claims that it made a counteroffer on this. Chilewich denied to ever receiving it. They buyer
claimed the shoes did not meet the contract specification and never completed the purchase
of all the shoes under the contract. The legal issue is whether under the CISG, the parties
were bound to a contract requiring arbitration of any contractual disputes in Russia. After
reviewing all the correspondence and the conduct of each party, the court concluded that the
arbitration clause was indeed part of the contract.

G. General standards of Performance

CISG imposes general standards of performance on buyer and seller. When a party fails to
perform, there is breach of contract (unless the party did not foresee and someone else in the
same situation would not have foreseen this result either). When one party breaches, the
other may avoid the contract of make a demand for specific performance.
One remedy for the injured party is avoidance: Notification by a party that he is cancelling a
contract and returning everything already received. The injured party must inform the other
party. It only cancels performance, not the settlement of disputes or rights/duties.
Additionally, an injured party may ask a court to require specific performance: A court order
directing a party to carry out the obligations he had contractually promised to do. Disobeying
is seen as a contempt of court, which can be punished by fines or imprisonment.

58

H. Sellers obligation
- Deliver the goods: the place agreed in contract, first carriers place, place where parties
knew goods were located/manufactured. If mode of transportation is not specified; must be
appropriate in the circumstances. If not required to arrange insurance, provide the buyer with
all information when requested. At delivery to the carrier: (1) identify the goods and buyer or (2) give the buyer notice of the consignment. Failure to do this is breach of contract (liable).
- Time of delivery: Deliver on date fixed in contract, or if not specified, within reasonable time.
- Hand over any documents relating to them: At the time and place of delivery.
- Ensure that the goods conform with the contract: Article 35 states that the seller must
deliver goods of quantity, quality, and description, which are well packaged, required by the
contract (warranty guarantee).
If a contract fails to specify how its done, CISG provides rules to fill in the gaps.
The buyer has an obligation to examine the goods for defects within a short period.
The seller is not responsible for a defect arising more than two years after delivery unless:
1. The seller knew a nonconformity and did not disclose it to the buyer;
2. The contract establishes a longer period of guarantee.
The seller is allowed to correct any defect up to the agreed-upon date of delivery, as long as
it does not cause the buyer inconveniences or expenses.

Buyers obligations:
- Pay the price: Pay the price at the time and place stated in the contract, or when time and
place is not specified, after delivery at the place of delivery.
- Take delivery of the goods: A buyer is obligated to cooperate with the seller to facilitate the
transfer and to take over the goods. If not; he will be responsible for the additional costs.
Case 10-4 The natural Gas Case
The court considered whether a seller of propane gas had breached its contractual duties by
failing to deliver the gas as promised, and if so, what damages were appropriate. First, the
court looked at each partys duties under the CISG and found that the buyer was supposed
to open a letter of credit. But there, the buyer could not do so because the seller never
supplied the necessary information for the letter. Also, the breach was really due to the
sellers failure to make proper arrangements to ship the gas, not because of the letter of
credit. So, the court concluded that the seller had breached the contract and the buyer was
entitled no damages.

59

J. The passing of risk

Passage of risk: The point in time when the buyer becomes responsible for losses to the
goods (even though it is covered by the insurance). The CISG allows parties to allocate risk
among themselves and when the risk will pass between them. The parties most commonly
do so through the use of trade terms: FOB and CIF. The CISG does not define any trade
terms. Goods may be transported by a carrier or delivered by the seller. The risk of loss will
not pass until the goods are clearly identified to the contract (markings, documents, notices).
Contract
Shipment contract

Requirements
Seller delivers goods to carrier for

Risk passed
When goods are handed over to

Transshipment

shipment, no particular place.

Deliver goods to carrier at named

the first carrier.

When the goods are handed

contract
In-transit contracts

place
Goods are sold after they are

over to the carrier at that place

At the time the contract is

Destination contracts

already aboard a carrier

Arrange transportation to a named

concluded
Handed over or paced at his

place
disposal at that place
* When goods are not shipped to the buyer, the risk of loss passes when the goods are
handed over by the seller or put at the buyers disposal (Article 69 (1)).

K. Remedies
CISG provides for remedies that are:
1. Unique to the buyer
2. Unique to the seller
3. Available to either party
Buyers remedies are cumulative able to be joined or taken together- and immediate.
Remedies that are unique to the buyer are:
- To compel specific performance- depends on the domestic rules. A buyer can ask the seller
to (1) deliver substitute goods, or (2) to make repairs.
- Avoid the contract for fundamental breach or non-delivery - Avoidance by a buyer is
patterned by a German law. Nachfrist notice: Fixing by the buyer of an additional
reasonable period of time in which the seller may perform. The buyer may avoid the contract
in case of breach of contract, or when the nachfrist notice is not accepted.
- Reduce the price Remedy that allows a buyer to pay less for nonconforming goods in
those cases where the buyer is not entitled to damages. Price reduction = (price x value
goods as delivered)/ (value of conforming goods at time of delivery).
- Refuse early delivery buyer is not obliged to take the delivery.
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- Refuse excess quantities buyer may accept or reject. If accept: pay extra.
Sellers remedies are both cumulative and immediate. It means that the right to recover
damages is not lost if a seller exercises any other available remedy, and courts will not grant
the buyer a grace period in which to perform. Remedies that are unique to the seller are:
- To compel specific performance primarily for symmetry. A seller may require a buyer to (1)
take delivery and pay for it, and (2) perform any other obligation required by contract.
- To avoid the contract for fundamental breach or failure to cure a defect mirror image.
Seller may avoid the contract if there has been breach or following a nachfrist notice.
- Obtain missing specifications - Missing specifications: Remedy that allows a seller to
ascertain specification himself when the buyer fails to supply them as required by the
contract or within a reasonable time after the seller requests them.
Remedies available to both buyers and sellers are:
1. Suspension of performance: Remedy available to either party when it becomes
clear that the other party will not perform a substantial part of his obligation because
of a serious deficiency in his ability to perform, his creditworthiness, his preparations
for performing, or his performance.
2. Avoidance in anticipation of a fundamental breach - Anticipatory avoidance:
Remedy available to either party when it becomes clear that the other party will
commit a fundamental breach. It differs from avoidance remedies in that it arises as
soon as it is clear that the other party will commit a fundamental breach (article 72).
Only a few cases in which it can be invoked:
- The specific goods promised to the buyer are wrongfully sold to a third party
- The sellers only employee capable of producing the goods dies or is fired
- The sellers manufacturing plant is sold
3. Avoidance of an instalment contract in cases of breach of contract with regard to
that instalment or if the breach of one instalment gives good grounds to believe that a
fundamental breach of later instalments will occur.
4. Damages - A breaching party is liable for any foreseeable damages. In some
countries there is a Foresee-ability test: A breaching party is liable only for those
damages that he foresaw or ought to have foreseen. The party claiming damages is
under an obligation to take reasonable measures to mitigate the loss. Mitigate:
Obligation of a party claiming damages to keep the damages to a minimum.

L. Excuses for nor performance

Two excuses are provided in CISG for a partys failure to perform:
- Force majeure: Superior force. An event or effect that cannot be reasonably anticipated or
controlled. The party must show: (1) that his failure was due to an impediment beyond his
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control, (2) that he could not have foreseen this impediment at time of contracting, and that
(3) he remains unable to overcome the impediment or its consequences. Examples are war,
natural disasters, and embargoes. Neither party is at fault, the breaching contract is excused
from paying damages. The breaching party has to notify the other party of its failure. In case
of a third party that failed (supplier), this party must be able to claim the excuse.
- Dirty Hands: Maxim that a party whose actions cause the other party to breach may not
complain.

Chapter 11 Transportation
A. Trade Terms
Trade terms = standardized terms used in sales contracts that describe the time, place, and
manner for the transfer of goods from the seller to the buyer. They may also include
time/place of payment, price, time when risk of loss shifts from seller to buyer, costs of freight
and insurance. Examples are: free on board (FOB) and Cost, Insurance, and Freight (CIF).
Incoterms = trade terms published by the International Chamber of Commerce. The most
widely used private trade terms, so most discussion of trade terms focusses on them. The
2010 version of the Incoterms included more on electronic data interchange and expanded
the term: free carrier = the seller fulfils his obligations to deliver by handing over the goods,
cleared for export, to a carrier named by the buyer. (See figure 11.1 for explanation
Incoterms 2010).
Delivery = the point in the transaction where the risk of loss or damage to the goods is
transferred from the seller to the buyer.
Free = when used in a trade term, it means that the seller has an obligation to deliver goods
to a named place for transfer to a carrier.
Free on board (FOB) = seller fulfils his obligations to deliver when the goods have passed
over the ships rail at the named port of shipment; only used for carriage of goods by sea.
(e.g. FOB Singapore requires the buyer to name the ship that will accept delivery in
Singapore, the seller must deliver the goods on board the ship as required by the port rules in
Singapore).
Free alongside ship (FAS) = the seller fulfils his obligations to deliver when the goods have
been placed alongside the vessel on the quay or in lighters (kind of flat-bottomed storage
boats) at the named port of shipment. Alongside means within reach of a ships lifting tackle.
Cost, Insurance, and Freight (CIF) = the seller must pay the costs and freight necessary to
bring the goods to a named port of destination and must procure marine insurance against

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the buyers risk of loss to the goods during the carriage. Seller must provide documents:
invoice (C), insurance policy (I), bill of lading (F). Preferred by buyers as it allows them to
compare prices from suppliers without having to take into account freight rates.
Cost and Freight (port of destination) (CFR/C&F) = the seller must pay the cost and
freight necessary to bring the goods to the named port of destination. Same as CIF, except
seller doesnt have to procure marine insurance.
Free Carrier (FCA) = applies to all forms of transport and the seller must deliver goods to a
particular carrier at a named terminal, airport, depot, etc. The costs of transportation and risk
of loss shift to the buyer at that time.
Ex Works (EXW) = the seller fulfils his obligations to deliver by making the goods available at
his premises. All costs of transportation are responsibility of the buyer.
Case 11-1 Guardian Insurance Company v. Neuromed Medical Systems & Support
An MRI scanner was sold by a German seller to a US buyer, but turned out damaged at the
arrival. Important was to determine when the risk of loss passed. The terms were CIF, New
York Seaport. Court stated that CISG incorporated the relevant incoterms, unless the parties
had specified otherwise, and found the term meant that the risk of loss effectively moved from
seller to buyer when the goods were loaded onto the carrier in Germany. The Incoterms
regarding risk of loss are not tied to the passage of title, as the buyer claimed, so the loss
must fall upon the buyer.
Case 11-2 Phillips Puerto Rico Core, Inc. v. Tradax Petroleum, Ltd. (CFR contracts)
A shipment was delayed after the goods had been loaded onto a ship, the contract terms
where C&F: the risk of loss passed to the buyer when the goods were properly loaded
aboard the carrier ship. Because of delay, the buyer refused delivery and payment of the
goods. Seller eventually re-sold the goods for much less. Court held the buyer had assumed
the risk of loss when the goods passed the rail under the Incoterms and, when the shipping
documents were properly presented, the buyer was responsible to pay the contract price.

B. Transportation
Buyers and sellers deal with intermediaries for the transportation of goods, such as
warehousemen, port authorities, stevedores, customhouse brokers and freight forwarders =
a firm that makes or assists in the making of shipping arrangements. (Quotations on
CIF/C&F contracts, arrange ships/ports, determining costs/space/licenses, prepare shipping
documents, insurance, etc.)

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C. Inland Carriage
Almost always the first stage of transportation and arranged by the seller (unless its an ex
works contract). Regional agreements regulate road/rail transport (EU has the CMR and
COTIF conventions for road and rail). Carriers are liable for loss/damage/delay if the
consignment note states carriage is governed by the CMR. Claims for loss or damages
should be asserted within 7 days, losses resulted from delay within 21 days.

D. Carriage of Goods by Sea

Most goods are transported by a common carrier = a ship that carries goods for all persons
who choose to employ it as long as there is room; subject of extensive municipal
legislation/international conventions. Three sorts:
1. Conference line = an association of seagoing common carriers operating on
established routes that have joined together to offer common freight rates.
2. Independent line = a seagoing common carrier operating over established routes
with a stated rate schedule.
3. Tramp vessel = a seagoing common carrier operating with a stated rate schedule but
without established routes.
A bill of lading = an instrument issued by an ocean carrier to a shipper that serves as (1) a
receipt for goods shipped, (2) as evidence of the contract of carriage, and (3) as a document
of title for the goods (the person rightfully in possession of the bill is entitled to possess, use
and dispose of the goods represented by the bill).
Clean bill of lading = a bill of lading indicating that the goods have been properly loaded on
board the carriers ship; conclusive evidence of the goods loaded once the bill has been
negotiated in good faith to a third party (buyer).
Claused bill of lading = a bill of lading indicating that some discrepancy exists between the
goods loaded and the goods listed on the bill (when the carrier notes a discrepancy at the
last check at the time the goods are being loaded).
Case 11-3 M. Golodetz & Co., Inc. v. Czarnikow-Rionda Co., Inc. (clean/claused bills)
A batch of sugar was delivered for shipment in good condition, when, after loading, 200 tons
of the sugar was destroyed by fire and water on the ship. Two bills of lading were issued; one
covering the 200 destroyed tons, a second covering the balance of the shipment. Second bill
was paid without problem, but the buyers refused to pay the first, calling it a claused bill of
lading. Question is: is this bill of lading clean and merchantable? Court examined both a
practical test and a legal test and concluded that the key point of time was when the goods

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were shipped: loaded on the ship. Since the bill of lading did not note any problems with the
goods when shipped, the document was clean under applicable law, despite the written
notation that the 200 tons of sugar had been discharged.
Between shipper and carrier, bill of lading is evidence of their contract of carriage. Two kinds
of bills of lading need to be distinguished: straight bill of lading = a bill of lading issued to a
named consignee that is not negotiable and an order bill of lading = a bill of lading that is
negotiable; holder of this bill has a claim to title and delivery of the goods. Bearer instruments
are transferred by delivery, order instruments by negotiation: endorsement & delivery.
A carrier has duties and immunities under a bill of lading, as agreed upon in The Hague and
Hague-Visby Rules. (See pages 634-635 for a list of duties/immunities).
Case 11-4 China Metal Industries Co. LTD v. Malaysian International Shipping Corp.
This case is about the interpretation of perils of the sea. This term is one of the exceptions
mentioned in The Hague Rules that protect the carrier from liability when goods are damaged
because of perils (dangers) of the sea. Court noted US/Can have a different interpretation
than UK/AUS, but the differences were not as large as had been argued and that in this case
the phrase had been interpreted in a uniform way. Court ruled that due diligence had been
exercised: where there was no negligence of the carrier and goods were properly loaded, the
damage caused by rough voyage was one of the perils of the sea (So it falls under one of the
carriers immunities, the injured cargo falls within one of the exemptions).
Carriers fall under liability limits as to what extent they are liable for loss of or damage to
cargo, but claims for liabilities must be instituted within 1 year after proposed delivery. The
monetary limits are established by The Hague Rules of 1921: UK100 per package or per unit
when shipped in customary freight units (CFU) (0.75/kilo). Parties can agree to higher
amounts and limits dont apply if carrier acted with intent to cause damage or recklessly.
Case 11-5 Croft & Scully Co. v. M/V Skulptor Vuchetich et al. (interpretation of CFU)
In this case, it is discussed what is a Customary Freight Unit (CFU) in connection with the
loss of 42,120 soft drink cans during loading onto a ship. A Himalaya Clause in The Hague
Rules, limited liability of the carrier/third-party to $500/CFU. Question is whether the CFU
was the 20-foot steel container holding all drinks, or the 1755 cartons of 24 drinks each.
District initially held there was only one CFU, but on appeal the court held that additional
inquiry into this issue was necessary, specifically as to the type of CFU upon which shipping

65

charges are based. Case was sent back to lower court, so it is possible that the damages will
be increased by 1,755 times over the original award.
Third parties who help in transport but who are not parties to the carriage-of-goods contract
contained in the bill of lading have no right to claim the liability limits established by The
Hague conventions and can be sued under local laws of tort without the convention-imposed
gap. To extend the liability of limits of the convention to third parties, carriers have added a
clause to their bills of lading: Himalaya Clause (third-party rights) = a term in a bill of lading
that purports to extend to third parties the carriers liability limits established by The Hague
and Hague-Visby Rules. (UK courts refuse to enforce this clause due to the privity of
contract doctrine: only persons who are a party to a contract may enforce its provisions).

E. Charterparties
Charterparty = a contract to hire an entire ship for a particular voyage or for a particular
period of time; oil, sugar, coal and other bulk commodities are almost always shipped under
such contracts. The Hague and Hague-Visby Rules dont apply to charterparties unless the
bill of lading comes into the hands of a third party; charterer and owner are free to set the
terms of their contract (a forum selection and choice-of-law clause are common provisions).
Voyage charterparty = a contract to hire an entire ship for a particular voyage.
Dead freight = a charge imposed on a charterer when a chartered ship has less than a full
load. If the ship-owner fails to arrive at the original port for loading at specified time, the
charterer will commonly be able to terminate the contract on a cancellation clause.
Lay days = the number of days that a charterer may keep a chartered ship idle for the
loading of goods, because modern ships are expensive and have short working life.
Demurrage = a charge made by a ship-owner when a charterer keeps a ship idle for more
than the agreed-upon number of lay days. Any holder of corresponding bill of lading must pay
off the charges before taking delivery.
Time charterparty = a contract to hire an entire ship for a particular period of time. Normally
monthly payment; if not, ship-owner is entitled to withdraw the ship from charterers use.
Demurrage and dead freight are not relevant, since the ship-owner receives time-hire while
the ship is loading/unloading and whether it is carrying cargo or not.

F. Maritime Liens
Maritime lien = a charge or claim against a vessel or its cargo, to satisfy some
debt/obligation. A maritime lien ensures that a vessel can adequately obtain credit to properly
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outfit itself for a voyage (In common law, a vessel is a separate juridical person. In civil law,
the lien is a right in property but the property is not independent of the owner lien exists
against owner as debtor). Maritime liens do not require possession, they attach to the
res = From Latin: a thing.: the vessel or cargo to which a maritime lien attaches. They are
secret. The res can be seized and sold by court, the proceeds are distributed among varies
lien-holders (first judicial costs/expenses, second seamans wages, third salvage, fourth tort
claims, fifth repairs/supplies/necessaries, last ship mortgages (Brussels Convention)). In civil
law, a suit is initiated against the owner and then the res is seized.
Case 11-6 Chinese Seamens Foreign Technical Services Co. v. Soto Grande Shipping
Corp., Sa (how courts apply the distribution-of-proceeds-ranking of lien-holders)
In this case, a ship-owner had contracted for a crew of 25 seamen for a one-year period, but
only a small portion of wages had been paid after 9 months. The law allowed seizure and
sale of the ship to satisfy the wage and other claims. The owner was notified but did not
answer the court petition, so judgment was entered for the plaintiff and the ship was sold at
auction. Court decided how to distribute the proceeds of the sale, according to the lienholders ranking of the Brussels Convention.

G. Maritime Insurance
Trade terms in the contracts determine which party is responsible for buying maritime
insurance and who benefits from it. Even if risk of loss shifts from seller to buyer, seller still
has interest in insurance of goods, as it may be the only basis for recovery when goods are
lost and the buyer is bankrupt/unwilling to pay. Cargo is often covered by an open cargo
policy, covering all of the exporters shipments in all forms of transportation. Perils covered by
such a policy are e.g.:

Loss/damage from the sea (weather, collision, stranding, sinking)

Fire
Jettison (dumping cargo to protect other property)
Forcible taking of the ship (piracy)
Barratry (fraudulent, criminal, wrongful conduct of captain/crew)
Explosion and damage from loading, discharging, or transhipping cargo

Case 11-7 Assicurazioni Generali v. Black & Veatch (insurance coverage)

The importance of carefully reading/adhering to the requirements of the contract/shipping
documents is demonstrated in this case. Correspondence between the parties was unclear
about which exact items were covered and required a special survey. Court found that the
policys language unambiguously stated a survey of critical items was only required for items
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in the list of items in the Survey Warranty Wording. It held that critical items must be
included within the policy and not in an ancillary document outside the written agreement and
that the critical items should be surveyed as per the warranty wording attached. Court
decided that no survey was required, that the claims for consequential damages ($38 million)
were covered under the second section of the policy.
Average clauses
Particular average (partial loss) = a loss to a ship or its cargo that is not to be shared in by
contributions from all those interested, but is to be borne by the owner of the injured thing.
General average = a contribution by those jointly involved in a maritime venture to make
good the loss by one of them for his voluntary sacrifice of a part of the ship or cargo to save
the residue of the property and the lives on board, or for the extraordinary expenses
necessarily incurred for the benefit and safety of all (usually covered by each shippers
insurance). A person claiming a general average contribution must show the loss was to the
benefit of all and the person making the claim was not responsible for causing the danger.

H. Carriage of Goods by Air

Regulated by the 1929 Warsaw Convention, amended by The Hague Protocol of 1955,
Montreal Protocols 1, 2 and 4 of 1975: together called the Warsaw System. The Montreal
Convention later became effective in 2003, modernizing the law to straighten it with the
developments in the air transport industry.
Carriers can be held liable without proof of fault once the goods are in the charge of the
carrier, with limited exceptions (defective packing by seller, war, problem with goods itself,
etc.). Formerly, the party claiming damages was required to prove the lack of due care. The
Montreal Convention provides the limits to monetary liability. At heart of the Warsaw System
is the air waybill = an instrument issued by an air carrier to a shipper that serves as a receipt
for goods and as evidence of the contract of carriage but is not a document of title for the
goods (includes: nature of goods, method of packing, weight/quantity/volume/dimensions,
apparent condition of goods and packaging, statement that the carriage is subject to the
conventions rules). Claims by persons entitled to delivery have to be made within 7 days of
planned arrival of goods (Warsaw), or 14 if covered by Montreal Convention. Time limits are
14 (Warsaw) and 21 days (Montreal) in case of damaged due to delay. The Convention latest
adopted by the countries between which transport is conducted, is the ruling convention.

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PART 2 EXAMS
Exam 1
Question 1
Select the most correct answer. Johns father promises him a holiday in the Far East if John
passes all his exams at university this year. What is the legal position here, if John actually
passes all his exams?
a. A promise is a promise and therefore a legally binding contract
b. A court will not enforce this type of promise
c. A court will enforce this promise if John writes the promise down
d. This is a so-called invitation to treat.
Question 2
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Select the most correct answer.

Both buyer (country A) and seller (country B) live in a country that have not signed up to the
United Nations Convention on Contracts for the International Sale of Goods (CISG). Buyer is
buying goods from seller and the performance of the contract is to take place in country Z.
Country Z is a contracting state. Now seller does not deliver the goods to country Z, he fails
to perform under the contract. Buyer now sues seller in country A.
Is it possible for the CISG to apply in this situation?
a. No, because both buyer and seller live in non-contracting states and therefore
the CISG will not apply
b. The court in country A may feel sorry for buyer and apply the CISG
c. The rules of private international law in country A may stipulate that the
location of performance of the contract is where the case should be
heard, i.e. country Z.
d. It is only possible for the CISG to apply if the contract was evidenced in
writing.
Question 3
Select the correct answer.
A company in Florida (USA) agreed to buy goods from a company which is headquartered in
Canada. In their contract they agreed that the laws of Florida would apply to their contract.
Now buyer failed to deliver the goods and the company in Florida is now suing the Canadian
company in a court in Florida. Both the USA and Canada have signed up to the CISG. The
question before the court is does Florida law or the CISG apply to this situation?
a. The law of Florida should apply as the parties clearly put this in their contract
and courts are very reluctant to ignore choice of law clauses.
i. In case of non-performance by buyer, the laws of buyers country should apply
ii. State laws are pre-empted and therefore the CISG applies
iii. The court in Florida should apply the concept of forum non conveniens.
Question 4
Select the correct answer.
a. Under the CISG parties are obliged to mitigate damages resulting from a breach
b. The parol evidence rule is a common law rule
c. Both a and b are incorrect
d. Both a and b are correct
Question 5
Select the most correct answer.
An offeror sends an offer to the offeree for the sale of some goods. Both offeror and offeree
live in countries that are signatories to the CISG. The offeree accepts the offer but changes
the arbitration clause in the offer. The question is is there a contract in this case?
a. Yes, under the CISG the offeree can change the terms of the offer and this will not be
seen as a counter-offer
b. The court will hold that there is no contract as this change is a material change
70

c. This change will be seen as a rejection and withdrawal of the original offer.
d. Yes, he can but then the court will not apply the CISG and the court will apply
domestic law
Question 6
Select the correct answer
Which of the following makes an offer effective?
a. when the offeror makes the proposal
b. when it reaches the offeree
c. when it mentions a fixed price for the goods
d. when it is addressed to the public
Question 7
Select the correct answer.
a. The United Nations Convention on Contracts for the International Sale of Goods
(CISG) will never apply if the buyers and sellers places of business are not in a
contracting state
b. Sales transactions involving electricity are within the scope of the CISG
c. Transactions involving auction sales are not within the scope of the CISG
d. The CISG deals with issues related to the legality of a contract

Question 8
Select the correct answer.
In case of a fundamental breach of contract the injured party can avoid the contract. This
means that:
a. The obligation to perform only is affected
b. The arbitration clause in the contract is affected
c. The choice of law form is affected
d. The choice of forum is affected.
Question 9
Which of the following OPTIONS is NOT a pecuniary right under copyright law:
a. Distribution right
b. Reproduction right
c. Moral right
d. Performance right

Question 10
Select the correct answer from the following statements.
I
International Law is the body of rules and norms that regulates activities
carried on outside the legal boundaries of nations
II
Private international law regulates relationships between states
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III
IV

Comity is also known as conflict of laws

Public international law applies to non-governmental organisations in their
international affairs.
e. One statement is correct
f. Two statements are correct
g. Three statements are correct
h. All statements are correct

Question 11
Select the INCORRECT answer:
A
The doctrine of transformation relates to the fact that customary international law
is not applicable until adopted by legislative action
B
In most countries the power to make treaties is shared by the executive and the
legislature.
C
International tribunals in general regard domestic law as being subservient to
international law.
D
In customary law consistent and recurring practice means lengthy practice
as in since time immemorial.
Question 12
Select the correct answer.
International law is divided into public international law and private international law.
Which of the following examples belongs to the category of private international law?
a Antitrust laws
b International personality
c International dispute settlement
d Law of the sea
Question 13
Select the correct answer.
A tort is an obligation imposed by law. A spoken false statement made about a person to the
extent that this statement affects the persons reputation negatively is known as .
a. Trespass
b. Libel
c. Negligence
d. Slander

Question 14
Select the correct answer.
Which of the following is a function of the European Commission?
a It adopts legislation together with the European Parliament
b It drafts legislation for submission to the Council and the Parliament
c It adopts international agreements
72

It co-ordinates the economic policies of the member states.

Question 15
Select the correct answer.
Evidence of the general consent of the international community to the existence of a rule of
international law can be found in state practice, that is in, for instance:
a. The conduct and practices of individuals in their dealings between themselves
b. Decisions by the Supreme Court
c. Resolutions passed by the UN General Assembly
d. All of the above
Question 16
Select the correct answer from the following statements.
I Common law is the legal system of England and is primarily based on codified law.
II Rules of equity are applied in those circumstances that are not covered by the
rules of law.
III The court procedure in Common Law is described as adversarial
IV The doctrine of supremacy of law limits the actions of the Government in
common law countries.
a. One statement is correct
b. Two statements are correct
c. Three statements are correct
d. All statements are correct
Question 17
Select the WRONG answer on the subject of the International Court of Justice (ICJ).
a. If a party refuses to comply with a judgment of the ICJ, then the other party may
have recourse to the General Assembly of the United Nations.
b. The advisory jurisdiction of the ICJ relates to the fact that the ICJ can give opinions
about issues of international law at the request of the United Nations or one of its
specialized agencies.
c. All member states of the United Nations are automatically parties to the Statute of the
International Court of Justice.
d. The decisions by the Court of Justice have no precedential value, i.e. the concept of
stare decisis does not apply

Question 18
A(n) ..is a court order directing a person not to proceed with litigation in a foreign
court.
a Self-judging reservation
b Forum non conveniens order
c Corpus juris civilis order
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Anti-suit injunction

Question 19
Select the correct answer on the subject of the General Agreement on Tariffs and Trade.
The ________ is a GATT scheme that allows a developing state to obtain tariff concessions
from a developed state on a nonreciprocal basis.
A. National treatment rule
B. Generalized System of Preferences
C. South-South Preferences
D. Escape clause
Question 20
Select the correct answer.
Which of the following is true of the remedy of avoidance used by an injured party of a
contract?
A. It can be used without notification to the injuring party.
B. It revokes all the provisions governing the rights and duties of the parties.
C. It cancels out any provisions in the contract concerning the settlement of disputes, once
used.
D. It can be used in case a fundamental breach of the contract has been observed.
Question 21
Select the correct answer by identifying the correct statement(s).
I.

States are always bound by a rule of customary international law, except for those
states that have recently acquired independence.

II.

During the formative stage of a rule of customary law a state can persistently
object to the rule and the rule will not apply to this state

III.

Jus cogens relates to a norm of general international law which states must
comply with.

a. all three statements are correct

b. statements I and II are correct
c. statements I and III are correct
d. statements II and III are correct
Question 22
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Select the correct answer. State A and State B merge to form new State C. In respect of
dispositive treaties that had been in force in State A;
a. they are no longer in force after the merger
b. they are in force in the whole of State C
c. the Moving Boundaries Rule will apply
d. they continue to be in force in that part of State C that used
to be State A.

Question 23
Select the correct answer. An International Center for the Settlement of
Investment Disputes (ICSID) arbitration tribunal has jurisdiction to do which of
the following?
a. Give an advisory opinion
b. Hear a collusive action
c. Hear an investment dispute
d. All of the above

Question 24
Select the correct answer.
States have developed responses to the extraterritorial application of American antitrust laws
through so-called blocking statutes. One of the features of the blocking statutes is a claw
back provision, which means that:

a. It is impossible for a successful claimant to enforce a US judgement outside

the US.
b. The extent to which a US plaintiff can obtain evidence outside the US is
limited.
c. A defendant can bring a suit in their home country to recover the punitive
damages paid in the US.
d. All of the above.
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Exam 2
Question 1
Select the correct statement. The General Agreement on Trade in Services
is one of the multilateral annexes to the Agreement Establishing the World
Trade organisation. Other annexes relate to;
1. The establishment of the International Chamber of Commerce
2. The establishment of the International Court of Justice
3. Trade-related aspects of Intellectual Property Rights
A. statements 1 and 2 are correct
B. statement 2 is correct
C. statement 3 is correct
D. all statements are correct

Question 2
GATS consists of three components. Which of the following is NOT a
component of
GATS?
a. the Framework Agreement
b. geographic limitation annexes
c. sectoral annexes
d. schedules of specific commitments

Question 3
Choose the most correct statement. The Most-Favoured-Nation Rule under
GATS:
I. is not a binding requirement that must be uniformly observed
II. can be the subject of exemptions
a. both statements are correct
b. neither statement is correct
c. statement I is correct
d. statement II is correct
Question 4
Choose the most correct answer. Under European Union Law the right of
establishment authorises;
a. A self-employed person to pursue activities in the EU,
irrespective of the kind of economic activity he is involved in;
b. Only natural persons to settle temporarily in a Member State to carry on
a business;
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c. Only companies to settle permanently in a Member State to carry on a

business
d. None of the above
Question 5
Choose the correct answer. The Administrative Tribunal of the ILO hears
cases dealing with;
I. violations of staff regulations of the ILO
II. non-observance of the terms of appointment of ILO officials
V. disputes between Member States
VI. fundamental breach of contracts for the sale of goods and services
entered into by ILO officials
a. all statements are correct
b. 1 statement is correct
c. 2 statements are correct
d. 1 statement is correct
Question 6
Choose the correct answer. The right of workers to move freely within the
EU member states is subject to grounds on which this right can be limited;
which limitation does NOT belong here?
a. public policy,
b. public opinion
c. public security and public health
d. public service
Question 7
Select the most correct answer. Negotiation as a form of Alternative
Dispute ;
a. is a process used to determine disputed facts and focuses on a
particular incident
b. involves the use of a third party who sometimes gives independent
proposals
c. is a process of reaching agreement by discussion
d. is an adversarial process to reach a settlement
Question 8
Select the correct answer. The International Center for the Settlement of
Investment
Disputes is an organ of;
a. the European Union
b. the International Labour Organization
c. the United Nations
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d. the World Bank

Question 9
Select the correct answer. The International Court of Justice has both
contentious and advisory jurisdiction to hear;
a. cases between states and individuals
b. cases between states
c. cases requested by organs of the EU
d. cases requested by domestic courts based on the ICJ;s advisory
jurisdiction.
Question 10
Select the correct statement(s). With reference to judgements given by the
international Court of Justice one could say that they;
I. are binding only on the parties to the dispute
II. are not subject to the doctrine of stare decisis
III. are final and without appeal
IV. might be revised in view of some previously unknown facts
a. all statements are correct
b. 2 statements are correct
c. 3 statements are correct
d. 1 statement only is correct
Question 11
Select the most correct answer. In respect of the World Trade Organisation,
the concept of legal precedent;
a. does apply in a flexible manner
b. does apply in a similar manner as it is applied in the US
c. does apply in a rigid manner as it is applied in English law
d. does not apply.
Question 12
Select the most correct answer. The main features of arbitration are, that
arbitration is;
a. adversarial
b. contractual
c. judicial
d. all of these features
Question 13
Select the correct answer. For a domestic court to establish jurisdiction to
hear a criminal case with an international aspect, the court refers to one of

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several nexuses; or a combination of the nexuses. Which of the following is

NOT a nexus;
a. general nexus
b. protective nexus
c. universality nexus
d. territoriality nexus
Question 14
Select the correct statement(s). On the subject of immunity, the concept
of Jure Imperii refers to the fact that;
a. the state is not immune from suit in cases of injuries resulting from
governmental commercial actions
b. the state is immune from suit in cases of injuries resulting from
governmental
actions
c. there is absolute sovereign immunity
d. none of the above
Question 15
Select the correct answer. Incoterms are classified into four categories.
The D group requires that;
a. the seller delivers goods to a carrier
b. the seller arranges and pays for carriage
c. the buyer takes delivery of the goods at the sellers premises
d. the seller bears all costs and risks of bringing goods to buyers
country
Question 16
Choose the correct answer from the following statements:
1. A bill of lading is an instrument issued by the ocean carrier to the seller
of the
goods.
2. A bill of lading is an instrument issued by the advising bank
3. A bill of lading is an instrument issued by the confirming bank
A. statement 1 is correct
B. statement 2 is correct
C. none of the above statements is correct
D. all three statements are correct
Question 17
Select the correct answer. A straight bill of lading;
a. is a bill that certifies that the goods have been properly loaded
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b. is a bill issued to a named consignee and is negotiable

c. is a bill that has a notation on it that mentions a discrepancy between
the goods listed and the goods loaded
d. is a bill issued to a named consignee and is nonnegotiable
Question 18
Select the correct answer. A clause in a bill of lading that extends to third
parties the
carriers liability limits under The Hague and The Hague/Visby Rules is
known as a
Himalaya clause.
1. this clause is only used in some English courts
2. this clause is only used in some US courts
3. this clause is used in both English and US Courts
4. this clause is not used in English or US courts
Question 19
Select the most correct answer. Which of the four options given is NOT
correct? A
feature of trading through open-account credit arrangements is that;
a. it is used in international sale of goods and services, as it is cheap
b. is done when seller knows the creditworthiness of the buyer
c. no formal debt instrument is signed by the buyer
d. seller and buyer deal at arms length.
Question 20
Select the correct answer. A so-called trade acceptance is a bill of
exchange commonly used in the sale of goods. On this type of bill of
exchange;
a. the seller of the goods is both payee and drawer
b. the buyer is both payee and holder
c. the seller is both drawee and payee
d. the buyer is both holder and drawer
Question 21
Select the correct answer. Under a letter of credit arrangement the socalled beneficiary is
A. the buyer
B. the party that instructs the confirming bank to open a letter of credit
C. the seller
D. the party that instructs the issuing bank to open a letter of credit.
Question 22
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Select the correct answer. Which option does not belong here?
a. a letter of credit must be in a particular form
b. a letter of credit must be in writing
c. a letter of credit must be signed by the issuer
d. a letter of credit must be complete and precise.
Question 23
Select the correct statement. In a letter of credit transaction, documents
submitted to a bank may be rejected by the bank if a name is misspelt, on
the basis of;
a. the rule of strict compliance
b. the rule of caveat emptor
c. forum non conveniens
d. the imposter rule
Question 24
Select the correct statement;
I. the account partys rights are based on the contract with seller for the
sale of goods
II. the account partys rights are based on the contract with the issuing
bank
a. neither statement is correct
b. both statements are correct
c. statement I is correct
d. statement II is correct
Question 25
Select the correct answer. An arrangement in which an exporter provides
equipment or technology and the buyer uses it to produce goods that are
used to pay for the equipment or technology, is called:
a. Barter
b. Counter purchase
c. Buyback
d. Offset
Question 26
Select the correct answer. A group of states that have reduced or
eliminated tariffs
between themselves and have also established a common tariff for all
other states is
known as a;
a. a free trade area
b. a common market
c. a customs union
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d. an economic union
Question 27
Select the correct statement. With reference to insider dealing; i.e. being
knowingly
connected with a company and trading in the shares of the company;
a. individual victims have a civil remedy in Britain
b. inside information is determined using the reasonable man test in
England
c. in the USA inside information is determined by whether it affects the
price
of a security
d. none of the above.
Question 28
Select the correct answer. Foreign investment can be restricted by
economic sector and/or by geographical limitations. The right of a
sovereign state to impose such restrictions is respected by other states.
This is known as;
A. the doctrine of forum non conveniens
B. the concept of absolute immunity
C. the concept of restrictive immunity
D. the doctrine of comity
Question 29
Select the correct answer. The contracting parties to GATT regularly take
part in
multilateral trade negotiations known as Rounds. As a result of the
Uruguay Round
(1986-1994) the following changes and/or agreements were implemented:
a. Establishment of the WTO
b. Customs valuation Code
c. Subsidies and countervailing measures Code
d. Trade and Development Agreement
Question 30
Select the correct answer. Countries that tax their citizens or nationals on
their worldwide income, no matter where they live then these countries
apply the so-called;
a. source principle
b nationality principle
c residency principle
d domestic or municipal principle

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PART 3 - EVALUATION FORM

Note that this form is anonymous. If you are done please fold it in half and give it to the tutor.
Please rate the question below from 1-10, these forms will be used to evaluate the tutor.
Date:
Name of the course:
Tutor:

Grade:

Question 1: To what extent was the tutor to explain the material?

Question 2: Did the tutor enhanced your confidence about the subject?

Question 3: How well did the tutor prepare you for the exam?

Question 4: To what extent can this tutor be seen as a excellent tutor?

Question 5: How well arranged was this course?

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In case you have any remarks please write them below:

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