The legal environment
1: Considering exporting > The
various environments you will encounter abroad
> The legal environment
The legal environment is derived partly
from the political climate in a country and has three distinct
dimensions to it:
- The domestic laws of your home country
- The domestic laws of each of your foreign markets
- International law in general
Legal systems vary from country to country.
You are likely to find that the legal systems in operation
in the buyers' country are in many respects different from
that of South Africa.
Domestic laws govern marketing within a country,
e.g. the physical attributes of a product will be influenced
by laws (designed to protect consumers) relating to the
purity, safety or performance of the product. Domestic
laws might also constrain marketers in the areas of product
packaging, marking and labelling, and contracts with agents.
Most countries also have certain laws regulating advertising,
e.g. Britain does not permit any cigarette or liquor advertising
Different legal systems
The legal systems of most of the non-socialist
countries can be grouped into common law and code law.
Common law is generally based on precedents or past practices
while a code, which is a comprehensive set of volumes having
statutory force and covering virtually the whole spectrum
of the country's law, is established by arbitrary methods
- e.g. a speed limit of 80 kph or a three-day period for
cancelling a contract.
South Africa's commercial legal system has
been influenced by English law. English courts create and
follow precedents just as South African courts do. Furthermore,
English cases are regularly cited as authority in our courts
in situations where there is no domestic decision on the
point and the particular case concerns an area of our law
(such as insurance or negotiable instruments) which derives
from, or was considerably influenced by, English law.
Central to all commercial activities is the
contract. The purpose of a contract is to specify the respective
rights and obligations of the parties to an agreement and
outline specific procedures or actions that must take place.
In this way, the possibility of disputes arising between
the parties is reduced. In the context of international
business, with its inherent risks and complexities, contracts
assume a vital role. The principal legal arrangement underlying
an export transaction is the export sales contract. However,
when a company obtains materials from a local supplier,
engages the services of a freight forwarder or insurer,
or concludes agreements with carriers, e.g. shipping lines,
airlines and domestic road hauliers, it is also entering
In many cases, a contract is entered into
once agreement has been reached. It is important to agree
at the beginning of the negotiations that all agreements
are reduced to writing before contracts are formalised.
When an international commercial dispute
occurs, the problem must be settled in one of the countries
involved according to the laws and regulations of that
country unless the contract states otherwise. If the dispute
cannot be settled amongst the parties involved, resolution
can possibly be obtained through arbitration (i.e. through
negotiations facilitated by a independent third party).
Where the process of arbitration fails, for one reason
or another, the option of litigation, i.e. going to court,
might be considered. Disputes that go to court usually
involve either large monetary transactions or the ownership
of patents, copyright (see chapter 4) or physical property.
Court actions can take from a few months to several years
and can involve large expenditure in legal fees and lost
Whose system of law (i.e. South African law
or that of the importing country) is applicable at a particular
stage of an international business transaction depends,
inter alia, on the nature and terms of the agreement.
Buyers and sellers are at times also subject
to international law, which may be defined as that body
of rules which regulates relationships between countries
or other international legal persons. There is neither
an 'international parliament' empowered to create international
law; nor an 'international police force' to enforce it.
The principal sources of international law
are treaties and conventions. These are created when several
countries reach agreement on a certain matter and bind
themselves to it by authorising their representatives to
sign a document embodying that agreement. Essentially,
they have entered into a contract that obliges them to
do something or to refrain from doing something. Failure
to comply is the equivalent of breach of contract.
Other sources of international law are custom
(i.e. international practice that is accepted as law) and
the general principles of law recognised by civilised nations
or natural law (the basis of human co-existence). Although
there is no organised body to 'enforce' international law,
there is an International Court of Justice situated at
The Hague in The Netherlands. This court decides any matter
which the parties regard as suitable for submission to
it for adjudication. This means that a country approaches
the court voluntarily; it cannot be 'brought' to the court
Before a country is liable to comply with
the provisions of a treaty or a convention, it must have
signed the original protocol (i.e. the original treaty
document or minutes of the convention). Once a country
has signed the protocol, the method of enforcement depends
on the terms of the treaty or convention. A common way
of bringing a defaulting country to heel is by imposing
sanctions against it. Sanctions may take many different
forms and can be applied with varying degrees of severity.
Obviously, the more parties there are to the protocol,
the easier it is to enforce by virtue of the weight of
opinion and the efficacy of any measures that can be taken
against an offender.
The Incoterms (2000), as published
by the International Chamber of Commerce, are not,
strictly speaking, part of international law.
Incoterms (2000) define the costs, risks
and responsibilities of both the seller and buyer under
13 specific trade terms, e.g. FOB, CIF, etc.
There has been no treaty or convention whereby
countries have bound themselves to the use and meaning
of Incoterms. The Incoterms have been published merely
as an aid to international trade. Some countries have incorporated
the Incoterms in their domestic laws by legislation but,
in most cases, they are merely a guide. However, their
usage has, largely, become a norm in international trade.
Another area in which international law plays
an important role is in controlling the use of the sea
and the environment outside the territorial waters of countries.
The control of international air travel by organisations
such as IATA (International Airline Transport Association),
or structures such as The Hague-Visby Rules in relation
to ocean freight, may also be regarded as part of international
Exporters need to be able to recognise
the legal significance of their actions in the general
course of marketing and export-related activities both
in South Africa and abroad. Potentially costly errors will
be avoided and should develop greater confidence in conducting
negotiations at both a domestic and international level.