How Multinational Businesses Can Improve Their Trade Compliance

Introduction

Globalization is a wave informing and shaping the practices of many companies operating in different parts of the world. Such corporations need to take the issue of international business law seriously because all goals, actions, and projects are governed by different jurisdictions. Investors and organizational leaders need to consider the legal frameworks and requirements promoted in foreign countries to avoid potential challenges that might disorient their operations. The important goal is ensuring that the best jurisdiction is identified before pursuing a given business activity or transaction. The intended research topic for this paper is examining how companies operating at the global level could maximize their trade compliances if they are to emerge profitable and sustainable.

Background and Legal Problem

Companies rely on their respective research and development (R&D) departments for innovation and delivery of superior products that can meet the changing demands of their clients. The global community is characterized by governments, business partners, and customers with diverse expectations. Many countries implement customized policies and guidelines that form an integral element of international business law.¹ With the emergence of revolutionary services and goods, multinational entities need to understand and formulate the most appropriate strategies for doing their business across international borders. This continuous process of innovation requires that all players collaborate and engage in activities that are legally binding and acceptable.

Unfortunately, some gaps exist that make it impossible for some companies to achieve their maximum potential from international business operations. Cases of sanctions and banned licenses tend to emerge when investors fail to engage the right partners or comply with the outlined laws. Governments implement such policies with the aim of protecting their national interests and getting rid of possible interferences. Such countries also focus on the best ways to safeguard their economic aims.² This acknowledgment supports the fact that compliance in international trade is an integral topic or area of international business law. Experts need to be aware of the outlined requirements and consider appropriate mechanisms to meet them and plan how they can eventually achieve the intended aims.

The level of compliance to international trade agreements remains low.³ Some companies, and especially startups, find it hard to maneuver some of the established laws and policies. The emergence of modern technologies becomes a nightmare since more firms are on the rise that promises to offer proper support and help other international businesses succeed. This problem has compelled more companies to stop operating in specific countries due to their leaders’ inability to comply with the implemented trade policies.⁴ Some also engage in dishonesty practices and business dealings that can trigger both foreign and domestic legal cases. This legal problem, therefore, forms the basis for this discussion.⁵ The purpose of the analysis is to analyze the issue and present a superior theory for guiding emerging business to maneuver the complexities associated with international trade compliance.

Presented Claim and Legal Discussion

Compliance in international trade is a practice that policymakers and governments expect businesses to take seriously. Unfortunately, Safaeimanesh and Jenkins observe that many companies and their advisors on legal matters ignore some of the implemented trade laws.⁶ This gap exists because some of the participants tend to imagine that such policies might be inapplicable to them. What stands out from most of the available findings is that the global commerce environments continue to evolve. This reality needs to compel investors and businesspeople to transform their operations and be aware of all key requirements. Crow acknowledges that countries are constantly forming and signing new regulations to control flow of a wide range of goods into and out of their territories.⁷ Some of these possible triggers of such changes include terrorism threats, consumer demands, security measures, and overall competitiveness of the local market.

International trade operations remain critical because they make it possible for countries to meet the demands of their citizens. Within the wider field of international business law, different nations have signed various treaties to govern imports and exports while supporting the demands of all involved players. A good example would be the United Nations Convention on Contracts for the International Sale of Goods (CISG) which established the best playing ground for contributors in the wider international business practice. In 2020, CISG was supporting operations in around 94 countries that had ratified the convention. This agreement plays a significant role in promoting all aspects of international business operations by reducing most of the existing barriers. The contract goes further to provide uniform policies that dictate a wide range of issues, including delivery of goods, obligations of the involved parties, how to remedy breached agreements or contracts, and how to pursue the intended transactions.⁸ The effectiveness of this convention has helped reshape international businesses and sales. Member states come from all corners of the globe, thereby contributing a lot to the trans-border commerce. The guidelines and requirements associated with the policy have helped reshape international businesses entailing the importation and exportation of a wide range of consumer products. The model ensures that involved countries are able to pursue their trade goals without necessary engaging in fraudulent practices.

Some outstanding laws are worth noting to describe why international trade remains and ever-changing field. For example, the U.S. Department of Commerce presented the Export Administration Regulations (EAR) with the aim of controlling most of the items exported or even re-exported out of the country.⁹ Focusing primarily on items that fall under the commercial category, this policy identifies products that should be licensed before any exportation decision is made. Companies operating in the U.S. and planning to export some of their commercial goods should take the EAR into consideration.¹⁰ Similarly, the Philippines have established a two-tiered model for its tariff policy with the aim of controlling sensitive agricultural products. Some of these products include coffee, chicken meat, corn, pork, and even rice. This strategy has been aimed at discouraging importers from bringing such products into the country since they will attract an increased tariff rate quota (TRQ).

The Philippines remains a major global trading partner because of its geographical location and the availability of cheap labor. Many companies in different parts of the world have been focusing on the power of offshoring practices to support their production targets. Consequently, the government of the Philippines has been considering various policies and trade laws to support the pursued international trade activities. To begin with, the Philippines is one of the member states of the World Trade Organization (WTO). This means that the trade operations in the country have to adhere to various agreements, including the Information Technology Agreement of 1996 and the 2014 Protocol Concerning the Trade Facilitation Agreement.¹¹ It has gone further to become a member of the Asia-Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN). On top of these conventions, the Philippines has gone further to sign bilateral agreements with several nations, including Japan and the European Union (EU), that have helped support international trade operations.

The Foreign Investments Act of 1991 has outlined a number of business activates that should only be pursued by local citizens. This means that quotas models are allowed in such a way that ownership of land, engagement in specific businesses, and other initiatives are governed by the country’s laws. The ultimate aim is to ensure that foreigners do not take advantage of the locals and affect their overall earnings. Additionally, the Bureau of Customs (BOC) remains the leading agency that plays a crucial role of regulating and controlling international trade in the country.¹² It would collect taxes and import duties while at the same time preventing activities that could amount to customs fraud. The nature of these policies has played a significant role towards making the country successful while protecting the rights of the targeted taxpayers.

Just like in other countries, the United Kingdom has a wide range of laws aimed at dictating international trade practices. For example, the Legal Services Act (2007) determines how professionals from the country and abroad could offer their legal services in the country.¹³ Such individuals need to be qualified and possess the relevant requirements that are acceptable by the relevant regulator. Additionally, the U.K. Customs and Excise Management Act (1979) present powerful guidelines for importations and the relevant tariffs.¹⁴ This law describes how a tribunal is formed to address emerging challenges and breaches. Foreign business investors and corporations need to consider all the available policies before settling on their trade deals or initiatives.

With this information, it becomes necessary for business leaders to develop the best frameworks before settling on a specific country or region to pursue their business objectives. The same procedure would be needed when planning to launch operations in a new country. This strategy is relevant since the decision to do international business entails a wide range of issues, including the economic expectations of the involved countries and the security of their respective citizens. Twigg-Flesner capitalizes on this point to describe why investors planning to engage in international trade would have to analyze the specific venture and be aware of the specific goods or services in questions.¹⁵ This would be followed by a detailed approach for navigating all the available international regulations.¹⁶ During this practice, the participants will be keen to consider how goods could be acquired out of a specific country through the process of importation. They will go further to navigate al the established standards and guidelines for exporting their finished items to a specific nation.

Other scholars have gone further to offer additional insights that are instrumental in the development of the proposed theory for international trade operations. For instance, Bhala encourages businesses to do a thorough background check before identifying the most appropriate partner to engage in international trade.¹⁷ Failed cases have been reported whereby some companies engaged corrupt individuals or supplying, thereby being blacklisted from doing their operations in the specific country.¹⁸ Marhold goes further to explain how and why any successful business with activities globally could be unable to make meaningful investments in North Korea.¹⁹ Such a country has specific policies that make it impossible for companies to export or even import goods from the country.

Some countries lack proper mechanisms or laws to ensure that the pursued international trade activities are completed diligently. This gap could be attributable to the economic and political forces experienced in the specific destination country. Nagy indicates that the mechanisms put in place to enforce some of the formulated laws and policies could be inadequate or incapable of delivering a level ground for international business.²⁰ This situation creates a new gap whereby companies find it hard to identify ethical or responsible business partners. In some countries, business players tend to engage in corruption by bribing others to win contracts for supplying various services or products.²¹ While some of these malpractices might go undetected or unreported, it becomes necessary for international businesses to make positive decisions and complete additional researches to mitigate such outcomes.²² The reasoning behind such an argument is that the malpractices could eventually backfire and eventually have detrimental implications on the performance of the selected business entity.

Irrespective of the business procedures and practices another country promotes, multinational businesses and their respective leaders need to remain professional and implement the relevant requirements. In a study by Srivastava, it emerged that people from the U.S. were barred from engaging in bribes and other corrupt deals.²³ Such requirements were applicable to those operating in the country or elsewhere across the globe. This progressive policy had been put in place to discourage dishonesty business practices at the international level. Such offenders would have higher chances of being imprisoned or attracting heavy fines that might eventually affect their careers.²⁴ This reality should encourage players in international business to comply with all regulations without focusing on the loopholes in policy implementation existing elsewhere.

When companies consider the outlined issues and the presented propositions, chances are high that they will be willing to do what is right. Such investors will align their business models with the export and import requirements. The model will present a new approach for doing business while promoting the company’s sustainability agenda. Corruption also remains a major challenge of the developing world and some developed countries. Businesspeople need to consider the possible gaps and tricks that their potential partners could apply to deceive them. The possible outcome is that such actors would be keen to promote what is right and overcome some of the legal problems that might emerge.²⁵ They should also identify emerging laws since the international market is an ever-changing environment characterized by new or progressive policies.

Potential Benefits

Dishonest business practices have compelled companies to quit their operations in different regions. Some local investors have received heavy fines because of failing to comply with formulated trade laws and political at the international level. The formulated theory serves as a powerful benchmark for guiding corporations and their representatives to pursue their global business aims diligently. The area of international law compliance remains emotive and divisive within the wider international business law.²⁶ This remains the case since countries present changing standards and policies to control trade operations. Companies that embrace this form of understanding will establish new departments to analyze such policies and implement proper compliance mechanisms.

This outcome will make it easier for such companies to pursue their aims diligently and without any form of interference. The continuous observation of trade compliance laws will attract additional business partners and improve the worthiness or acceptability of its foreign business operations. This achievement will help attract more potential clients and eventually improve organizational performance.²⁷ Any company relying on this practice will achieve its business gals much faster, remain productive, and eventually maximize its profits. The corporation will go further to develop new procedures for meeting other requirements within the realm of international business law, including environmental protection and ethical practices.²⁸ Such achievements will create room for improved organizational performance and eventually make the company more relevant in its respective sector.

Conclusion

The emerging legal problem from this discussion is the existence of diverse requirements for international trade compliance. Many businesspeople tend to be tempted to engage in a wide range of malpractices or ignore some of the newly-formed policies. This gap has the potential to disorient performance and affect the recorded profits. The proposed theory can guide companies to maneuver most of the challenges and changes in international trade, identify emerging laws, attract the right business partners, and make proper business models that can deliver positive results. In conclusion, corporations that embrace this theory and implement it when pursing international trade goals will become sustainable and relevant in their respective industries. Ignorance of most of these issues within the wider realm of international business law will affect the goals and performance of many investors and their respective business enterprises.

Reference List

Bhala, R., International Trade Law: A Comprehensive Textbook, Durham, NC: Carolina Academic Press, 2019.

Choukroune, L. and Nedumpara, J.J., International Economic Law: Text, Cases and Materials, Cambridge, UK, Cambridge University Press, 2022.

Crow, K., International Corporate Personhood: Business and the Bodyless in International Law, New York, NY, Taylor & Francis Group, 2021.

Cruz, F. and Adiong, N., International Studies in the Philippines: Mapping New Frontiers in Theory and Practice, New York, NY: Taylor & Francis, 2020.

Fellmeth, A.X., Introduction to International Business Transactions, Northampton, UK, Edward Elgar Publishing, 2020.

Fenwich, M. and Wrbka, S., International Business Law: Emerging Fields of Regulation, New York, NY, Bloomsbury Publishing, 2018.

Folson, R.H, Principles of International Trade Law: Including the World Trade Organization, Technology Transfers, and Import/Export/Customs Law, St. Paul, MN, West Academic Publishing, 2018.

Gustafsson, M.P.L., ‘Compliance and Membership Value in International Economic Law’, Georgetown Journal of International Law, vol. 48, no. 1, 2017, pp. 1201-1242.

Hagemeyer-Witzleb, T.M., The International Law of Economic Warfare, New York, NY, Springer Shop, 2021.

Hoekstra, J., Non-State Rules in International Commercial Law: Contracts, Legal Authority and Application, New York, NY, Taylor & Francis, 2021.

International Trade Centre, Faster Customs, Faster Trade: Using Technology for Trade Facilitation, Geneva, CH, ITC, 2018.

Jafari Sadeghi, V., Biancone, P.P., Giacoma, C. and Secinaro, S., ‘How Does Export Compliance Influence the Internationalization of Firms: Is It a Thread or An Opportunity?’, Journal of Global Entrepreneurship Research, vol. 8, no. 3, 2018, pp. 1-15.

Kuhlmann, K. and Agutu, A.L., ‘The African Continental Free Trade Area: Toward a New Legal Model for Trade and Development’, Georgetown Journal of International Law, vol. 51, no. 1, 2020, pp. 753-808.

Lookofsky. J., Understanding the CISG: A Compact Guide to the 1980 United Nations Convention on Contracts for the International Sale of Goods, Riverwoods, IL, Kluwer Law International.

Magklasi, I., The Rotterdam Rules and International Trade Law, New York, NY, Taylor & Francis Group, 2018.

Marhold, A., Energy in International Trade Law: Concepts, Regulation and Changing Markets, Cambridge, UK, Cambridge University Press, 2021.

Mattoo, A., Rocha, N. and Ruta, M., Handbook of Deep Trade Agreements, New York, NY: World Bank Publications, 2020.

McKinsey Global Institute, Globalization in Transition: The Future of Trade and Value Chains, Washington, DC, McKinsey & Company, 2018.

Mitchell, A.D. and Sheargold, E., Principles of International Trade and Investment Law, Northampton, UK, Edward Elgar Publishing, 2020.

Nagy, C.I., Global Values and International Trade Law, New York, NY, Taylor & Francis Group, 2021.

Nayan, R., Global Strategic Trade Management: How India Adjusts its Export Control System for Accommodation in the Global System, New York, NY, Springer Shop, 2019.

Safaeimanesh, S. and Jenkins, G.P. ‘Trade Facilitation and Its Impacts on the Economic Welfare and Sustainable Development of the ECOWAS Region’, Sustainability, vol. 13, no. 1, 2021, pp. 164-185.

Shackelford, S.J., Raymond, A.H. and Richards, E.L., Legal and Ethical Aspects of International Business, Frederick, MD, Aspen Publishing, 2021.

Srivastava, A., Modern Law of International Trade: Comparative Export Trade and International Harmonization, New York, NY, Springer Shop, 2020.

Twigg-Flesner, C., Foundations of International Commercial Law, New York, NY, Taylor & Francis Group, 2021.

Valbrune, M., de Assis, R. and Cardell, S., Business Law: Essentials, New York, NY: 12th Media Services, 2019.

Wevers, H., A Basic Guide to International Business Law, New York, NY, Taylor & Francis, 2021.

Willemyns, I., Digital Services in International Trade Law, Cambridge, UK, Cambridge University Press, 2021.

Footnotes

1. R. Nayan, Global Strategic Trade Management: How India Adjusts its Export Control System for Accommodation in the Global System, New York, NY, Springer Shop, 2019, p. 37.
2. M.P.L. Gustafsson, ‘Compliance and Membership Value in International Economic Law’, Georgetown Journal of International Law, vol. 48, no. 1, 2017, p. 1207.
3. V. Jafari Sadeghi, P.P. Biancone, C. Giacoma and S. Secinaro, ‘How Does Export Compliance Influence the Internationalization of Firms: Is It a Thread or An Opportunity?’, Journal of Global Entrepreneurship Research, vol. 8, no. 3, 2018, pp. 6.
4. McKinsey Global Institute, Globalization in Transition: The Future of Trade and Value Chains, Washington, DC, McKinsey & Company, 2018, p. 12.
5. M. Valbrune, R. de Assis and S. Cardell, Business Law: Essentials, New York, NY: 12th Media Services, 2019, p. 39.
6. S. Safaeimanesh and G.P. Jenkins, ‘Trade Facilitation and Its Impacts on the Economic Welfare and Sustainable Development of the ECOWAS Region’, Sustainability, vol. 13, no. 1, 2021, pp. 168.
7. K. Crow, International Corporate Personhood: Business and the Bodyless in International Law, New York, NY, Taylor & Francis Group, 2021, p. 11.
8. J. Lookofsky, Understanding the CISG: A Compact Guide to the 1980 United Nations Convention on Contracts for the International Sale of Goods, Riverwoods, IL, Kluwer Law International, p. 53.
9. International Trade Centre, Faster Customs, Faster Trade: Using Technology for Trade Facilitation, Geneva, CH, ITC, 2018, p. 18.
10. R.H. Folson, Principles of International Trade Law: Including the World Trade Organization, Technology Transfers, and Import/Export/Customs Law, St. Paul, MN, West Academic Publishing, 2018, p. 16.
11. F. Cruz and N. Adiong, International Studies in the Philippines: Mapping New Frontiers in Theory and Practice, New York, NY: Taylor & Francis, 2020, p. 76.
12. A. Mattoo, N. Rocha and M. Ruta, Handbook of Deep Trade Agreements, New York, NY: World Bank Publications, 2020, p. 38.
13. S.J. Shackelford, A.H. Raymond and E.L. Richards, Legal and Ethical Aspects of International Business, Frederick, MD, Aspen Publishing, 2021, p. 63.
14. A.X. Fellmeth, Introduction to International Business Transactions, Northampton, UK, Edward Elgar Publishing, 2020, p. 8.
15. C. Twigg-Flesner, Foundations of International Commercial Law, New York, NY, Taylor & Francis Group, 2021, p. 18.
16. L. Choukroune and J.J. Nedumpara, International Economic Law: Text, Cases and Materials, Cambridge, UK, Cambridge University Press, 2022, p. 52.
17. R. Bhala, International Trade Law: A Comprehensive Textbook, Durham, NC: Carolina Academic Press, 2019, p. 38.
18. H. Wevers, A Basic Guide to International Business Law, New York, NY, Taylor & Francis, 2021, p. 58.
19. A. Marhold, Energy in International Trade Law: Concepts, Regulation and Changing Markets, Cambridge, UK, Cambridge University Press, 2021, p. 27.
20. C.I. Nagy, Global Values and International Trade Law, New York, NY, Taylor & Francis Group, 2021, p. 9.
21. A.D. Mitchell and E. Sheargold, Principles of International Trade and Investment Law, Northampton, UK, Edward Elgar Publishing, 2020, p. 21.
22. K. Kuhlmann and A.L. Agutu, ‘The African Continental Free Trade Area: Toward a New Legal Model for Trade and Development’, Georgetown Journal of International Law, vol. 51, no. 1, 2020, p. 759.
23. A. Srivastava, Modern Law of International Trade: Comparative Export Trade and International Harmonization, New York, NY, Springer Shop, 2020, p. 65.
24. T.M. Hagemeyer-Witzleb, The International Law of Economic Warfare, New York, NY, Springer Shop, 2021, p. 41.
25. M. Fenwich and S. Wrbka, International Business Law: Emerging Fields of Regulation, New York, NY, Bloomsbury Publishing, 2018, p. 26.
26. J. Hoekstra, Non-State Rules in International Commercial Law: Contracts, Legal Authority and Application, New York, NY, Taylor & Francis, 2021, p. 19.
27. I. Willemyns, Digital Services in International Trade Law, Cambridge, UK, Cambridge University Press, 2021, p. 43.
28. I. Magklasi, The Rotterdam Rules and International Trade Law, New York, NY, Taylor & Francis Group, 2018, p. 72.