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Step 1: Considering exporting
You are here:Step 1: Considering exporting >The various environments you will encounter abroad > The legal environment


 

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 on TV

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.

Contracts

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 contracts.

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 revenues.

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.

International Law

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 involuntarily.

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 law.

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.

 

 
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Step 1: more information

Step 1: Considering exporting
      The various benefits of exporting
      The various drawbacks to exporting
      The difference between domestic and export marketing
      The various environments you may encounter
            dotThe sociocultural environment
            arrowThe legal environment
            dotThe economic environment
            dotThe political environment
            dotThe technological environment
            dotThe physical environment
      The various barriers you may face

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© Cornelius Bothma

More information on Step 1
Learning to export...
The export process in 21 easy steps
Step 1: Considering exporting
Step 2:Current business viability
Step 3:Export readiness
Step 4:Broad mission statement and initial budget
Step 5:Confirming management's commitment to exports
Step 6: Undertaking an initial SWOT analysis of the firm
Step 7:Selecting and researching potential countries abroad
Step 8: Preparing and implementing your export plan
Step 9: Obtaining financing for your exports
Step 10: Managing your export risk
Step 11: Promoting the firm and its products abroad
Step 12: Negotiating and quoting in exports
Step 13: Revising your export costings and price
Step 14: Obtaining the export order
Step 15: Producing the goods
Step 16: Handling the export logistics
Step 17: Export documentation
Step 18: Providing follow-up support
Step 19: Getting paid
Step 20: Reviewing and improving the export process
Step 21: Export Management
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