Government and Legal System PDF

GROUP 1 Government and Legal System  REPORTERS Group 1 Palmar, Ashanti Mae D. Lambon, Anna Lorraine Abril, Alexa Roxas, Alliah Kryzel Firma, Ian Rafael Manrique, John Joseph Suede, Doris Anne Camilo...

GROUP 1 Government and Legal System  REPORTERS Group 1 Palmar, Ashanti Mae D. Lambon, Anna Lorraine Abril, Alexa Roxas, Alliah Kryzel Firma, Ian Rafael Manrique, John Joseph Suede, Doris Anne Camilon, Cristal Joy Monleon, Zryll Kim Arceo, Rodelyn  TOPIC 8: Legal Environment LEGAL Environment As As political politicalideologies ideologiesdiffer differamong among countries, countries, so do do legal legalsystems. systems.Thus, Thus,a key a key aspect aspect of the international of the international business business environment environment is how a iscountry how a develops, country develops, interprets, interprets, and enforces and its laws. Businesspeople, enforces its laws. understandably, Businesspeople,champion understandably, consistency in champion laws fromconsistency country to coun- in laws try. Uniform, transparent from country lawstomake coun- ittry.easier Uniform, to plan transparent where tolaws invest makeand, it easier once there, to planhow where to to compete on competencies, invest and, once not connections. there, how to compete on competencies, not connections. LEGAL System Specifies the rules that regulate behavior, the processes by which laws are enforced, and the procedures used to resolve grievances. Legal systems differ across countries due to variations in tradition, precedent, usage, custom, or religious precepts. Moreover, with the exception of the members of the European Union, countries rarely recognize the legitimacy of legal practices or court judgments from other nations.  THREE CONSTITUTIONAL LAW CRIMINAL LAW Components CIVIL AND COMMERCIAL LAW  TYPES OF Legal Systems 01 Common Law 02 Civil Law 03 Theocratic Law 04 Customary Law 05 Mixed Legal System 06 Common Law A common law system relies on tradition, judge-made precedent, and usage. It respects established case law in resolving disputes. Judicial officials refer to statu- tory codes and legislation, but only after considering the rules of the court, custom, judicial reasoning, prior court decisions, and principles of equity. Civil Law A civil law system relies on the systematic codification of accessible, detailed laws. It assigns political officials, rather than government-employed judges, the responsibility to translate legal principles into a compendium of regulatory statues. THEOCRATIC Law A theocratic law system relies on religious doctrine, precepts, and beliefs. Ultimate legal authority is vested in religious leaders, who regulate business transactions and social relations based on their interpretation of a sacred text. CUSTOMARY Law A customary law system reflects the wisdom of daily experience or, more formally, enduring spiritual legacies and time-honored philosophical outlooks. It anchors legal systems in many indigenous communities, defining the rights and responsibilities of members. MIXED LEGAL System A mixed legal system emerges when a nation uses two or more of the preceding types. In a sense, legal pluralism results when two or more legal systems apply cumulatively or interactively.  TRENDS IN Legal Systems 01 Shift from Collectivism to Individualism 02 Authoritarian Use of Law 03 Basis of Rule 04 Rule of Man 05 Rule of Law 06  SHIFT FROM COLLECTIVISM TO INDIVIDUALISM TRENDS IN Third Wave of Democratization: rise in individual legal Legal Systens rights, due process, and transparency in the law. Democracy’s decline shifts focus to strong, authoritarian states using law for state control rather than justice. AUTHORITARIAN USE OF LAW Authoritarian regimes use the legal system to control both public and private sectors. Justice becomes arbitrary and serves the state’s interests, lacking impartiality and fairness. “THERE IS NO SEPARATION OF LAW AND STATE; THE STATE USES THE LAW TO CONTROL PUBLIC AND PRIVATE MATTERS. BLUNTLY PUT, JUSTICE IS NOT BLIND BUT ARBITRARY, OPPRESSIVE, AND STATE-SERVING.” China's National Security Russia's Foreign Agent Law Law for Hong Kong This law gives the Chinese This law requires government broader control individuals, organizations, over legal and political or media outlets that matters in Hong Kong. It receive foreign funding and criminalizes acts that China considers secession, engage in political subversion, terrorism, and activities to register as collusion with foreign forces. "foreign agents." TRENDS IN Examples LEGAL SYSTEMS  THE BASIS OF RULE TRENDS IN Legal Systens Emerging markets are becoming central in the global economy, influencing legal trend perceptions. Economic growth in these markets requires managers to reassess local legal philosophies and regulatory approaches. Managers must evaluate whether a country operates under the rule of man (authority based on individual power) or the rule of law (authority based on impartial, established laws). “What is the basis of rule in a given country?” Understanding whether a country follows the rule of law or rule of man helps managers anticipate legal risks, navigate regulations, and make better strategic decisions in these emerging markets. TRENDS IN Legal Systens Rule of Man VS. Rule of Law RULE OF MAN RULE OF LAW Authority resides in one person; laws are based on Everyone is subject to the same laws, applied fairly DEFINITION the ruler's will and whims. and impartially. Sovereign leader holds unchecked power; not restricted Government authority is bound by written, transparent AUTHORITY by constitutions or regulated by criminal codes. laws; officials and citizens alike are accountable. Arbitrary and often unjust; laws serve the ruler’s or Justice is impartial and protects fundamental rights; JUSTICE state’s interests; justice is largely absent. legal standards are applied fairly. Constitutional and criminal codes are used to suppress Laws are clear, publicized, and protect citizens; LEGAL OPERATION opposition; citizens are subjects to the ruler’s will. independent judiciary enforces accountability. Creates oppressive, state-serving system; citizens Constrains government power, promotes liberty, IMPACT ON SOCIETY lack protection and face arbitrary rule. and enables stability, investment, and growth. EXAMPLE Dictatorships or authoritarian regimes Democracies and constitutional systems Justice is symbolized by the balanced scales, sword SYMBOLIC MEANING Law as an extension of ruler’s power and control. (court’s power), and blindfold (impartiality).  Managers IMPLICATIONS FOR RULE OF LAW IMPLICATIONS Stable Business Environment Protection of Contract and Property Rights Investor Confidence Low Risk of Corruption RULE OF MAN IMPLICATIONS Unpredictable Legal Environment Arbitrary Protection of Rights Bribery and Corruption Risks Increased Vigilance Required Democracy’s THE CONFOUND OF Retreat THE CONFOUND OF Democracy’sRetreat DEFINITION In recent years, democracy, once heralded as the pinnacle of governance, has faced a global decline, leaving many political analysts, governments, and citizens concerned and puzzled. This phenomenon, known as the retreat of democracy, is happening in countries around the world, even in nations once considered democratic strongholds. It poses a significant challenge to global stability, human rights, and the international political order. This report aims to explore the key factors driving democracy’s retreat and why it’s such a complex and confounding issue.  GLOBAL SIGNS OF DEMOCRACY DECLINES In the last 20 years, many countries have shifted from democratic practices to more authoritarian rule, weakening free elections, press freedom, and the rule of law  DEMOCRATIC BACKSLIDING Countries like Hungary, Poland, and Turkey, which once embodied the success of democratic transitions, are now cited as FREEDOM HOUSE RATINGS examples of democratic erosion. Meanwhile, authoritarian regimes such as those in According to Freedom House, a global Russia and China continue to consolidate organization that rates countries power, suppress dissent, and undermine based on political freedoms and civil democratic movements within and beyond liberties, the number of “Free” their borders. countries has been steadily declining, while the number of “Partly Free” and “Not Free” nations is on the rise.  THE CAUSES OF DEMOCRACY'S RETREAT Economic Inequality and Populism Weakening Democratic Institutions Technological Impact and Misinformation Authoritarian Resurgence  ECONOMIC INEQUALITY AND POPULISM The gap between the rich and poor in a society, where a small group holds most of the wealth while many others struggle to meet basic needs. Populism often arises in response to this inequality, with leaders exploiting public discontent by promising to fix the system, but WEAKENING DEMOCRATIC INSTITUTION often undermining democratic institutions and focusing on dividing society instead of Democratic governance requires addressing the root causes of inequality. strong institutions that uphold the rule of law, checks and balances, and press freedom.  TECHNOLOGICAL IMPACT AND MISINFORMATION The digital age, while democratizing information access, has also opened the door to AUTHORITARIAN RESURGENCE misinformation and disinformation campaigns. Social media platforms have amplified these Many authoritarian regimes have perfected issues, leading to increased political their tactics for maintaining power, including polarization and public distrust in democratic manipulating elections, controlling the processes. In authoritarian countries, media, and crushing opposition. Leaders in technology is also being used for surveillance and suppression of dissent, further weakening countries such as Russia, Belarus, and democratic movements. Venezuela use these methods to stay in power, often with popular support, despite the clear erosion of democratic norms.  THE RULE OF LAW VS THE RULE OF MAN One of the central challenges in the retreat of democracy is the shift from the rule of law to the rule of man. The rule of law ensures that government authority is exercised based on established laws that apply equally to all citizens. In contrast, the rule of man allows leaders to operate above the law, making decisions based on personal power rather than legal principles  IMPACT ON INTERNATIONAL BUSINESS The confound of democracy’s retreat is especially evident in the challenges faced by multinational enterprises (MNEs). Historically, Western businesses avoided investing heavily in authoritarian or developing nations due to the risks associated with legal instability and corruption. However, as economic growth slows in the West and emerging markets become increasingly central to global growth, many MNEs find themselves entering environments where the rule of man dominatesWhile these markets offer enormous economic opportunities, the lack of legal protections can create significant risks for businesses. In markets governed by authoritarian regimes, contracts may be unenforceable, intellectual property rights are often ignored, and the political influence of local elites can skew competition.. WHY IS IT CONFOUNDING? WHICH RULE When? The progression of legal systems in developing countries, particularly fast-growing emerging economies like China, Russia, Argentina, Nigeria, and Malaysia, is often seen through the lens of Western historical experiences. In developed countries, the shift from agrarian to industrial economies naturally led to the adoption of the rule of law, which sanctioned property rights and economic development. As these countries evolved, they moved from relying on the "rule of man"where power is centralized in a leader to the "rule of law," where decisions are guided by written laws. However, recent developments complicate the assumption that emerging economies will follow a similar path. This report explores whether these countries will adopt the rule of law as they continue to grow economically, or if their unique circumstances will lead to alternative legal structures.  THE HISTORICAL PREMISE As Western countries shifted from farming to CHALLENGES TO THE ASSUMED PROGRESSION industrial economies, they saw the need for The idea that developing countries will always legal systems that protected property and adopt the rule of law is being questioned. In supported growth. They adopted the rule of law, many places, especially under authoritarian where laws applied to everyone, not just regimes, the rule of law conflicts with leaders powerful leaders. This led to the belief that who seek unchecked power. For example, China developing countries would follow a similar path continues to grow economically despite its lack as they industrialized and adopt the rule of law. of strong legal systems, and still attracts foreign investment. Similarly, countries like Russia, Saudi Arabia, and Venezuela show that authoritarian governments can still succeed economically without fully adopting democratic laws, raising doubts about the connection between the rule of law and prosperity.  THE EMERGENCE OF RULE BY LAW A more likely scenario for emerging economies NATIONAL LEGACIES AND LOCAL CONTEXT is a move from rule by a leader to a system It's crucial to recognize that each country’s legal and where the government follows laws, though political history plays a role in shaping its future these laws may be different from Western ones. path. The assumption that Western legal In this system, leaders would still have power philosophies apply universally is overly simplistic. In many countries, stability and efficient governance, but be held accountable by laws, and the often under autocratic leadership, are prioritized over growing middle class would push for better the messy, unpredictable nature of democratic property rights and more accountability. Over systems. For example, in China, a one-party time, this could lead to broader acceptance of autocracy led by an enlightened group of leaders has the rule of law, even if it's not exactly like proven to be stable and efficient, despite the lack of Western legal systems. democratic processes. Historically, China has never practiced democratic governance based on the rule of law, and its civilizational legacy favors centralized, authoritarian rule.  TOPIC 9: Legal Issues in International Business International LEGAL ISSUES IN Business OPERATIONAL CONCERNS MNEs face complex legal challenges due to diverse laws and regulatory requirements globally. These issues impact core operational activities, including starting, managing, and closing businesses. GETTING STARTED Starting a business involves activities such as registering a name, choosing the appropriate tax structure, obtaining licenses and permits, arranging credit, and securing insurance. Some countries expedite this process; others do not. MAKING AND ENFORCING CONTRACTS Companies make and enforce contracts with buyers and sellers, which are essential for business transactions. The United Nations Convention on Contracts for the International Sale of Goods offers guidelines for these contracts, but practices differ by legal system. Common law countries usually have detailed contracts, while civil law countries prefer less specificity. The average time to resolve a contract dispute worldwide is about 615 days. HIRING AND FIRING Hiring and firing workers is a complex process influenced by varying legal standards around the world. While some countries, like Singapore, New Zealand, and the United States, have flexible labor regulations, others, such as Angola, Belarus, and Paraguay, impose strict rules and generous severance payments for termination. China allows significant flexibility in hiring, firing, and setting employment conditions. GETTING OUT OR GOING UNDER Closing a business involves more than just locking the doors; it requires legal and financial steps. In the U.S., businesses must report asset sales, payments to subcontractors, and retirement plan terminations to the Internal Revenue Service. While bankruptcy laws in Western countries have become easier over time, in developing nations, unclear laws can complicate the process, leading to fewer bankruptcies.  Wealth & A KEY RELATIONSHIP: Regulation  A KEY RELATIONSHIP: WEALTH AND REGULATION Data indicate an inverse relationship between a nation’s general wealth and its regulation of business activity. Richer countries typically regulate business activities less. Poorer countries typically regulate more.  A KEY RELATIONSHIP: High-Income Countries (e.g., the United States, France, Japan) WEALTH AND REGULATION Starting a business requires an average of 6.28 procedures, spans 18 days, and costs 7 percent of per capita income. Middle-Income Countries (e.g., Mexico, Poland, Malaysia, China, India, South Africa) Requires an average of 7.8 procedures, spans 36 days, and costs 28 percent of per capita income Low-Income Countries (e.g., Bangladesh, Ethiopia, Nepal), One is facing 7.5 procedures, a 90-day span, and 37 percent of per capita income TABLE 3.4 EASY HERE, HARD THERE: DOING BUSINESS IN VARIOUS COUNTRIES  TOPIC 10: Strategic Concerns STRATEGIC CONCERNS Strategic concerns direct their attention to long-term issues that shape the competitiveness, profitability, and sustainability of the firm. A country’s legal environment influences each aspect, shaping an MNE’s strategic decisions on making a product, marketing it, and safeguarding its proprietary features. Strategic concerns that managers face worldwide include Product origin and local content. Marketplace behavior. Legal jurisdiction. Product safety and liability. Intellectual property protection.  COUNTRY CHARACTERISTICS National laws significantly impact the flow of products across borders, with regulations like Country of Origin Labeling (COOL) designed to inform consumers and support local producers. For national security reasons, some countries enact strict rules, such as the U.S., Australia, and Canada banning Chinese companies Huawei and ZTE from public contracts due to espionage concerns and close government ties. COUNTRY CHARACTERISTICS Politicians also enact regulations to protect jobs, appease voters, placate special interests, and preserve tax revenue. Not surprisingly, host governments prefer that MNEs make the greatest possible portion of their product(s) locally. Besides boosting local enterprise, technology transfers and knowledge spillovers support domestic innovation. To spur reluctant companies, governments enforce local content regulations. PRODUCT SAFETY AND LIABILITY Countries regularly impose product-safety and liability laws that require an MNE to adapt a product or else forsake market access. As a rule, wealthier countries impose stringent standards, whereas poorer countries, reflecting developing legal codes and rule-of-man legacies, apply inconsistent ones. The European Union’s product-liability directive shapes global standards.It outlines the legal responsibility of manufacturers and stipulates the process of product-liability compensation claims. Then again, some MNEs proactively preempt the risk. LEGAL Jurisdiction Legal jurisdiction refers to the authority granted to a legal body to administer justice within a defined field of responsibility. In the context of international business, understanding jurisdiction is crucial for resolving disputes that cross national boundaries. Rule-of-Law vs. Rule-of-Man: MNEs from stable legal systems (rule-of-law) face challenges in countries with discretionary legal systems (rule-of-man) CHOICE-OF-LAW CLAUSE MNEs often include a choice-of- law clause in contracts, specifying which laws govern dispute resolution, ensuring both parties are aware of legal frameworks.  Property INTELLECTUAL A general term for creative ideas, expertise, or intangible insights that grant its owner a competitive advantage for an individual, company, or country.  TOOLS FOR SAFEGUARDING IPR An Intellectual Property Right (IPR) refer to the right to control Patent and derive the benefits from writing (copyright), inventions (patents), Trademark processes (trade secrets), and identifiers (trademarks). Copyright CHALLENGES IN IPR ENFORCEMENT 1 Global Piracy Issues 2 Weak IPR Enforcement in Certain Countries 3 Matters of Jurisdiction  TOPIC 11: The Basis of Political and Legal Differences THE BASIS OF POLITICAL AND Differences LEGAL  Introduction A key theme of this chapter is that inalienable differences exist between countries regarding political practice and legal regulation. Students new to the study of international business often find it helpful to understand the historical, economic, and cognitive basis for these differences. As we just saw, IP is a critical component of the development of any economy, no matter how rich or poor. Whereas some countries steadfastly affirm strong protection, others are less inclined. Still others turn a blind eye, informally sanctioning piracy. Making sense of the differences in attitudes and outlooks, as would be the case for other political or legal issues, follows from making sense of the effects of historical legacies, economic conditions, and cultural orientations.  Legacies HISTORICAL  HISTORICALLegacies Many counterfeit goods are produced in markets where the "rule of man" dominates, meaning laws are applied based on individual or government power rather than a consistent legal system. In China, despite having laws that meet international standards on paper, there is often resistance to enforcing foreign laws. Chinese citizens and officials question the legitimacy of these laws, leading to inconsistent enforcement, especially regarding intellectual property (IP) rights. A Chinese legal expert noted that China's IP laws primarily protect Chinese IP from foreign IP. This issue isn't unique to China. Countries like Indonesia, Malaysia, the Philippines, South Korea, and Thailand have also seen declines in governance measures such as accountability, political stability, and rule of law over the past decade. While there are calls for China and other nations to improve IP protection under the "rule of law," progress is expected to be slow. Experts suggest it may take China 20 years to improve transparency, and even then, it may fall short of U.S. standards. The long history of China's legal system under the "rule of man" (now under the Communist Party) means that such a transformation would be a massive undertaking in the country’s social infrastructure. ECONOMIC Circumstances  ECONOMIC CIRCUMSTANCES IP protection varies based on a country's economic development stage. Developed countries view IP protection as a way to stimulate innovation. Strong protection has led to extensive IP in the West, with developed countries controlling nearly 95% of all patents worldwide. In developing countries, 80% of patents belong to residents of wealthy countries. Developing countries advocate for less-stringent protection, viewing IP rights as predatory, monopoly privileges. Critics argue that property rights are state-created privileges that impoverish the majority to concentrate wealth and power among the privileged. Hard economics is likely the key determinant of a country's protection of IPRs. In Kenya, for example, many Kenyans buy pirated copies of products that improve productivity, fight illness, or provide relief.  THE CHANGING GLOBAL ECONOMY, PARTICULARLY THE MARKET MOVEMENTS DRIVEN BY EMERGING ECONOMIES, MODIFIES INTERNATIONAL LEGAL OUTLOOKS AND INSTITUTIONAL FRAMEWORKS.152 COMMON VIEWPOINTS SUPPORT LESS STRICT PROTECTION IN DEVELOPING NATIONS, CLAIMING THAT INTELLECTUAL PROPERTY RIGHTS ARE SUPERIOR. PERCEIVED AS MONOPOLISTIC, PREDATORY PRIVILEGES THAT IMPOSE EXPENSES BY: stifling the creativity, innovation, and inhibiting local development and inflating the prices that poor nations pay emulation that support technological lowering global welfare by constraining for products and processes that are and cultural advance. the use of existing knowledge. available only from wealthy nations. creating intellectual monopolies that stipulating licensing fees and regulatory protect business interests, bestow burdens that increase the cost of idea monopoly profits, and lessen the efficiency creation and slow the diffusion of gains of free trade. innovations. CULTURAL Orientation CULTURAL ORIENTATION The attitudes toward intellectual property (IP) protection vary significantly across cultures, reflecting individualistic and collectivist orientations. In Individualist countries like the United States and Australia, personal property rights are viewed as fundamental; creators believe they should control the use and reproduction of their work. Collectivist countries such as South Korea, Thailand, and China prioritize societal welfare and sharing over individual ownership. For instance, a South Korean diplomat noted that intellectual discoveries are seen as public goods meant for communal benefit, with cultural esteem driving creativity rather than financial gain.  CULTURAL ORIENTATION Different Interpretations of IP Laws: Countries interpret and enforce IP laws differently. In 2013, India’s Supreme Court allowed drug makers to use different processes to produce drugs patented elsewhere. Indian law protects the processes of drug production, not the drugs themselves. Technology and Changing Attitudes Towards IP: Technology influences how both individualist and collectivist cultures engage with IP rights. Piracy is becoming more common among demographics in both rich and poor countries. Economic hardship drives some to seek affordable options, leading to theft. Young people in various countries may believe that if piracy is easy, it’s acceptable. Advances in technology make piracy cheaper and easier, increasing violations of IP rights. THE POTENTIAL FOR Cross - National Convergence  KEY POINTS: Countries that generate intellectual property are strong advocates of ownership rights. - Legal legacies, economic conditions, and cultural orientations hinder IP protection. - Rising piracy rates despite institutional initiatives (e.g., WTO). - Wealthy countries have 1 year compliance periods, poorer countries have 5 - 10 year grace periods. Historically, countries that create IP eventually enforce property rights, as seen in the United States' evolution from copying others' IP to advocating strong IP rights. China, now leading in patent applications, aims to transition from "factory floor" to "product lab." As Chinese firms like Huawei and ZTE battle over patent violations, the government targets 2 million domestic patent applications annually by 2015.  THE POTENTIAL FOR CROSS-NATIONAL CONVERGENCE - China's IP practices will shape global standards. - Resolution of piracy vs. protection conundrum will impact international IP practices. - Effective IP protection is crucial for innovation, economic growth, and trade. - 2.14 million patent applications filed worldwide (2011). - China: 526,000; US: 504,000; Japan: 343,000; South Korea: 179,000. - China aims to be top two patent-owning countries by 2020. THANK You  Distribution of Topics Topic 8: The Legal Environment - PALMAR Topic 10: Strategic Concerns - FIRMA Types of Legal Systems - PALMAR Country Characteristics - MANRIQUE Trends in Legal System - LAMBON Product Safety and Liability - MANRIQUE Legal Jurisdiction - SUEDE Implications for Managers - LAMBON Intellectual Property - SUEDE The Confound of Democracy's Retreat - ABRIL Which Rule When - ABRIL Topic 11: The Basis of Political and Legal Differences - CAMILON Historical Legacies - CAMILON Topic 9: Legal Issues in International Business - ROXAS Economic Circumstances - MONLEON Operational Concerns - ROXAS Cultural Orientation - MONLEON A Key Relationships - FIRMA The Potential for Cross-National Convergence - ARCEO