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Transnational Commercial Law Summary
- Instelling
- Hogeschool Van Amsterdam (HvA)
Summary covering all the learning materials needed for the exam of the course Transnational Commercial Law.
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Introduction to International Commercial andEuropean Law Book - Chapters 1, 2, 3, 4, 8, 10,
11, 12, 13
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International Business & European Law: Ch. 1, 2, 3, 4, 8, 10, 11, 12, 13
Chapter 1 – Introduction
Part 1. Risks in International Trade
The success / failure of an individual contract is determined by the terms of the agreement and the economic,
geopolitical, environmental, societal and technological changes which can endanger an individual contract.
- Political risks (can be covered by trade credit insurance)
• Foreign policy
Foreign policy risks make it impossible to deliver goods or to get paid. The greatest foreign
policy risk is restrictions on trade. Measures that restrict trade:
o State aid to national companies
> Makes it difficult to compete.
o Competitive devaluation
The WTO (World Trade > Printing more money leads to depreciation of the currency against others,
Organisation) was founded can lead to currency wars
to avoid trade restrictions o Consumption subsidy
that can lead to trade wars. > If governments subsidise consumption this is bad news for producers of
It is a forum for competitive products, non-subsidised product becomes more expensive
governments to negotiate o Export subsidy
trade agreements and > Subsidies on exported products will increase the price > less competition
settle trade disputes. o Export taxes or restriction
> Governments aim to control export of goods to protect national security,
preserve natural resources, and encourage raw material supply
o Import ban
> Used by governments to protect domestic industries and reduce import
dependency (or for population health)
o Investment measures
> Implement legislation which prohibits foreign investors from investing
o Local content requirement
> Measures that require broadcasting stations to adhere to certain rules
o Migration measure
> Allow fewer immigrants to protect own workforce
o Other service sector measure
> E.g. states saving banks with taxpayer’s money
o Public procurement
> Laws giving preference to locally produced goods
o Quotas and tariff measures (including tariff-rate quotas)
> Quota limits quantity of certain products brought into a country, tariff
makes product more expensive in the country with the tariff.
o Sanitary measures
> Laws aiming at supplying safe food
o Sub-national government measure: technical barrier to trade
> Legislations for requirements in certain products
• Domestic policy
o Piracy
> Poses considerable risk to cargoes and seamen. Piracy and armed robbery
incidents are reported to the International Maritime Bureau (IMB).
o Terrorism
> Is a great risk to commercial transactions, often directed to people working
for exporting companies (extortion/kidnapping).
• Economic policy
o Capital controls
> Instituting capital controls to stop money from leaving the country
o Nationalisation
> When nationalising a company, owners are often expropriated
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Credit Insurance
For protection against the above risks, a seller can take out trade credit insurance – an insurance which protects
the seller against non-payment by the buyer. If the buyer does
not pay, the credit insurer pays the seller an agreed percentage
of the seller’s claim. The insurer can then try to get to buyer to
pay the money originally owed (subrogation).
Trade insurance is done by Export Credit Insurance agencies
(ECAs) which are government-owned or private insurance
companies (big three: Atradius, Coface, Euler Hermes).
Features of Credit Insurance
- Policy conditions are of utmost importance
• Risks covered and obligations of insurer are governed by terms and conditions
- Credit insurance never covers 100% of the risk
• Around 85-90% of losses are covered (100% would create moral hazard)
- Credit insurers have credit limits per policy, per customer, and per country
• There is a max amount of money an insurer has to pay out under the policy (credit limits)
- Export transactions
• Based on political and commercial risk, insurer has a credit limit per country. Three limits:
o Policy limit (max amount insurer is liable for)
o Country limit (max amount insurer is liable for in a particular country)
o A credit limit for each debtor (in whole turnover insurance, credit limit is
determined by above criteria, credit control procedures, etc.)
- Credit insurance policy covers the whole turnover of the seller
• In principle insurance policy covers seller’s whole turnover. Insurance companies want all
debtors (not just bad ones), so
o A credit insurer has the right to cancel credit limits for a specific customer
o Credit limits will specify the max payment term authorised for sales to the debtor
Part 2. International Contract of Sale
When entering into a contract with buyers or sellers from other countries there are some important legal points
to pay attention to:
1. Laws vary from one legal system to another so it is important to understand how legal systems deal
with general conditions of sale and retention of title( very important to the international sale of goods)
2. Another important subject is product liability. Since an international sale of goods means that goods
have to be transported between countries, the subject of the contract of carriage and Incoterms will
be addressed. Other subjects covered are payment conditions and law and jurisdiction.
Incoterms: standard trade rules dealing with the passing of the risk of the destruction or full loss of the goods
from seller to buyer and which party pays for the transportation and insurance of the goods.
When drafting a contract between two parties from different countries there are two main problems:
1. Legal systems differ from one country to another.
2. Legal terminology has a different meaning from one legal system to another, which can make
translating English terminology into another language difficult.
Therefore, one is well advised to draft the contract in plain English and avoid legal terminology as much as
possible.
Although every country has its own legal system with its own peculiarities, there are five main categories
1. Civil law (based on Roman law > laws are codified and written down)
2. Common law (judge-made law > judges decide a case on the basis of earlier judgements)
3. Customary law
4. Muslim law
5. Mixed law systems (refer not to a single system but to a combination of systems)
The most important legal systems are civil law and common law.
2
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Chapter 2 – European Law
Institutions of the EU
1. The European Parliament
The Members of the European Parliament (MEPs) are directly elected for a 5-year term by EU citizens (Article
14 under 2 TEU). The European Parliament (EP) has a max of 751 members. The distribution of seats is based on
‘degressive proportionality’: the larger the population of a Member State, the more MEPs it has and the larger
the number of inhabitants represented by an MEP. The main powers of the EP are:
- Legislative
• Together with Council of EU the EP is the co-legislator of European legislation. Article
294 TFEU outlines the procedure for the adoption of European legislation:
1. European Commission sends proposal (directive or regulation) to legislators
2. European Parliament and Council negotiate the draft text
3. Commission’s proposal becomes law when both legislators approve it.
- Control of the executive
• The EP monitors the Commission (can ask questions, Article 230 under 2 TFEU)
• EP is permitted to question the Council of the European Union (Article 230 under 3
TFEU)
• The Commission must answer, the Council does not; the EP can submit a motion which will,
with 2/3 majority, force the resignation of the entire Commission from office, Article 234 TFEU
- Budgetary powers
• The European Parliament has to approve the budget of the European Union, Article 314 TFEU
2. The Council of the European Union (Council of Ministers)
• Formally, there is one single Council. But the composition of the Council depends on the topic,
Article 16 under 2 TEU. The Council consists of the ministers who deal with that particular
Represent the interests
of their own countries
subject in their own country.
• The Council drafts (together with the EP) the legislation of the EU.
• The Lisbon Treaty expanded use of qualified majority voting (QMV) in Council, replacing
unanimity as standard procedure. The voting powers of Member States are based on
population (qualified majority is reached: 55% of Member States (minimum of 15) whose
populations comprise of at least 65% of EU citizens). To block legislation, at least four countries
(representing > 35% of EU population) have to vote against the proposal.
3. The European Council (Heads of State)
• Consists of the Heads of State or government of the 28 Member States, the President of the
European Commission and the President of the European Council, Article 15 TEU.
• European Council meets at least 4 times a year to define EU’s general political guidelines and
political priorities. The European Council does not have a legislative function.
4. The European Commission
• Operates as an executive committee of the EU (28 commissioners). Members are chosen for
Represent the interests
5 years, with one Commissioner per Member State. President is chosen from Commissioners.
• Main tasks of the European Commission, Article 17 TEU:
o Submit legislative proposals to the EP and the Council of Ministers
of the entire EU
o Manage the policy of the EU and execute EU policy
o Verify compliance of Member States and individuals with Community law and take
measures if necessary
o Be a spokesperson for the EU and negotiate on
behalf of the EU with other countries about
international trade and cooperation agreements.
5. The Court of Justice of the European Union (Luxembourg)
• Has the task of monitoring the correct application of EU law
• Reason of existence is to unify the interpretation of European
Law
3
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