Ultimate Guide to Resolving International Business Disputes
A lot of good came out of globalization in business and trade, giving rise to what is now known as the “global marketplace”. The globalization of markets and competition was brought about, in large part, by the high speed of technological advancements.
As transportation and communication vastly and quickly improved, so did the access of consumers to products and services, even if they happen to come from different parts of the globe. International divides and barriers that used to be seen as obstacles to trade have become manageable, so that even small businesses are now able to sell their products and services to consumers in other countries.
This guide goes deep into 1) the impacts of globalization of trade and business, 2) international business disputes, and 3) how to resolve international business disputes through jurisdictional and non-jurisdictional process.
IMPACTS OF GLOBALIZATION OF TRADE AND BUSINESS
Let us go over the many positive benefits gained from the globalization of business and trade. Right off the bat, we can say that the emergence of the global marketplace has resulted in economic growth all across the globe. Floundering economies have been injected with new life, and already flourishing economies find themselves prospering even more.
- Easier and faster access of end users and consumers to quality products and services from around the world. It is no longer impossible or difficult for someone from the United States, for example, to acquire goods manufactured and sold in Asia, and vice versa.
- Broader selection of products and services enjoyed by consumers. End users are no longer limited when it comes to choices, since they can look to other countries for the products and services that they are looking for.
- Increased awareness of business opportunities in different parts of the globe. International investments definitely get a big boost over this, aside from the fact that aspiring entrepreneurs who may find their own markets to be lacking in opportunities can look beyond their borders and shores to find better business opportunities.
- Increase in the quality of products and services. Competition in the global market place spurred businesses and industries to improve the quality of the products and services that they offer to the global consumer. They know that, if they do not focus on quality, they will be left behind by their competitors from other countries.
- Increase in job and income-generating opportunities. Jobs are created as businesses the world over increasingly become competitive. Earning power of workers are likewise increased while raising their income levels.
There are also some downsides to this globalization, and we can see them in the various economic and social disruptions that spring up. It’s like a double-edged sword; it will bring the great benefits, but the negatives can be just as devastating.
In the global market place, international disputes are no longer new. In fact, they are almost always expected to crop up every now and then. What we should focus on, then, is on how to resolve these international business disputes when they do crop up.
INTERNATIONAL BUSINESS DISPUTES
International disputes are, by definition, major disagreements between two or more countries on matters such as territory, maritime rights, and human rights, to name just a few. These disagreements may also be over business, considering how trade and business has joined the globalization bandwagon.
International disputes, however, are not limited to two or multiple parties disagreeing actively, because they may also arise from declarations made unilaterally by one country that are not acknowledged or accepted by other countries.
If these international disputes are not addressed and resolved, they could lead to bigger problems of global proportions, such as animosity and hostility between and among countries, tense international relations, or, worse, armed conflicts and wars.
RESOLVING INTERNATIONAL BUSINESS DISPUTES
International trade and business, just like your regular domestic business, faces a lot of risks. This is why local businesses establish their own sets of risk management strategies. It is no different in the case of businesses that are engaged in international trade. They are also at risk of being embroiled in disputes and so they should also come up with ways to manage this risk. One way to do that is to pay attention to their dispute resolution measures.
Before you can start resolving an international business dispute, however, it is important to first have a full understanding of what the dispute is all about. Several types of international business disputes have been identified.
Types of International Business Disputes
Dispute on the sale of goods or commodities
The dispute could arise from the issues on:
- Product quality and quantity;
- Pricing or costing issues;
- Payment issues, such as the conditions and modes of payment, as well as the timing of these payments;
- Transportation or logistics, including the conditions on delivery of commodities or products;
- Other contractual provisions or stipulations, including how they were presented in a contract. Often, disputes arise due to vague stipulations and references on written contracts.
Clearly, this type of business dispute can be easily avoided if the contract was prepared properly and accurately, eliminating any vagueness or ambiguity. Everything should be set out clearly in order to avoid confusion.
Dispute on the roles of distributors and agents
The distinction between a distributorship contract and an agency contract must be made clearly. Often, these two are confused, which leads to disagreements.
A distributor buys the products or commodities from the manufacturer or original seller, and proceeds to sell them. An agent, on the other hand, does not buy the products outright. Instead, they act on behalf of the manufacturer or original seller and promote the products or services and negotiate terms of sale. Agents do not sell the products; it’s the manufacturer or original seller that sells them.
Disputes arise when the original seller does not conform to the terms of the distributorship contract, or vice versa. It is possible that the distributor may have overstepped his bounds and started manufacturing the same products or services, or even sold the products outside of the area or territories agreed upon. The manufacturer may also fail to deliver the agreed-upon quantity, or the distributor may not pay the amount she is due to pay in exchange for the products delivered to him.
Similarly, the agent may also start taking on the role of a distributor, purchasing the products from the manufacturer, and selling them. These confusions in roles are potential roots of international business disputes.
Disputes on construction, engineering and infrastructure projects
Companies involved in these industries often find themselves working in foreign territories and being subjected to various international rules and regulations. International contracts of this scale are often seen to be riddled with disputes because of any of the following:
- Noncompliance with contractual requirements
- Impositions and requirements by various governments in countries where the construction projects are being conducted
- Disagreements over guarantees made between the parties
Again, these disputes will be avoided if the contract is prepared correctly, and the terms adhered to by the parties involved.
Disputes on Procurement
Even during the bidding stage, some disagreements may arise. In fact, in international trade, you will hear many disputes over the bidding process itself, since they cover sensitive topics such as deadlines and mandatory requirements to be complied with. Once the bidding process is done and they move on to the contract, disputes may still arise regarding the terms stated therein.
Disputes on Intellectual Property
Countries are becoming increasingly sensitive (and possessive) when it comes to intellectual property rights. And rightly so. You may have heard of disputes on royalties, patent and trademark licensing, as well as the transfer of technology and/or technical know-how, and even the provision of technical assistance.
- Disputes on Domain Name. International business disputes may also arise from disagreements over the ownership and registration of internet domain names, notwithstanding the fact that many rules and legislations have been put in place for their regulation and control.
- Disputes on Joint Venture. Companies often enter into joint venture agreements when undertaking international business projects because they simply cannot handle these projects all on their own. As a result, they will be joining forces with other businesses, often also from other countries. The dispute is likely to result from disagreements over the terms of the agreement, particularly on the share or contribution of each participant.
- Disputes on Maritime Contracts. International trade means bringing products overseas and oceans to and from foreign markets. Maritime disputes, then, are to be expected, especially if the terms of the maritime contract are not followed.
- Disputes with Customs Authorities. Importers and exporters often find themselves in disagreement with authorities in customs offices of the countries they operate in. Most of the time, the disagreement is on valuation of the products being imported/exported, and the classification of the products, since they also have tax implications.
Learn more on international intellectual property law.
Choosing How to Resolve International Business Disputes
There is no fixed rule on how you can resolve a business dispute that is on an international scale. You cannot expect to use a method that you used to resolve one dispute on another, since there may be circumstances that they differ in. However, the basic approach towards solving the dispute is very much similar in international disputes.
- The first thing that must be considered is the type of international business dispute. You have to consider the reasons for the dispute, or how they came about. Resolving a joint venture dispute, for example, will take a different route from resolving a domain name dispute, considering how international joint ventures are more complex when it comes to their nature and structure.
- Consider the applicable laws in the countries where the businesses and the disputes have arisen. Remember that laws in countries often differ; one country may allow settlement by arbitration, while another may not allow arbitration and prefer to go straight to litigation. Employment contract disputes, on the other hand, may be settled taking into consideration the applicable labor laws, depending on where the personnel were hired from.
- Anticipate the other types of disputes that may arise in the process of resolving the current dispute. By taking an anticipative stance, you are looking forward and, therefore, able to be more prepared in dealing with any repercussion of the actions you are taking at the moment to resolve a dispute.
There are several ways to resolve an international business dispute, and they can be classified into two: jurisdictional (arbitration and litigation) and non-jurisdictional (alternative dispute resolution or ADR and mediation).
RESOLVING INTERNATIONAL BUSINESS DISPUTES THROUGH JURISDICTIONAL PROCESSES
When you hear disputes concerning importing and exporting of international commodities, you often hear arbitration being the preferred method of resolution since it is faster and less costly. It is also not as divisive as, say, a court action or litigation taken between two parties in conflict.
In other words, instead of going into trial, parties may opt to undergo arbitration instead.
When two parties in dispute agree to go into arbitration, both agree to be bound by the ruling or decision of the arbitrator, who is the one who will hand down the decision on how to settle or resolve the dispute. He hands down his decision, and the dispute is resolved. In short, he acts as a judge, which means that sometimes his decision may also be contested.
There could be a single arbitrator, or there could be a panel composed of several arbitrators, acting as a single entity.
There are two types of arbitration:
- Institutional arbitration: These days, there are now a lot of arbitral institutions in place, all with the objective of providing arbitral services or administering arbitrations that are related to international business and commercial disputes. They play an active role in an institutional type of arbitration.
- Ad hoc arbitration: This type of arbitration is carried out without an institution or specialist administering the proceedings. The parties are the ones to organize the proceedings, including the selection of the arbitrator or arbitrators.
Most businesses try to avoid litigation as much as possible. After all, as mentioned earlier, they can be far costlier, and definitely more stressful. Compared to arbitration, litigation usually takes more time. Litigation, then, is seen as the last resort when arbitration, mediation and conciliation are unsuccessful.
In this method, the disputes are submitted to the court which has the jurisdiction over it – it may be the country of the one who is making the claim, or that of the respondent. There may be another dispute on which tribunal or court should have jurisdiction (which is another reason why businesses want to avoid going to court unless they have to).
There are also other considerations to be factored in, such as the applicable laws and the language and culture of the territories.
RESOLVING INTERNATIONAL BUSINESS DISPUTES THROUGH NON-JURISDICTIONAL PROCESSES
Another alternate dispute resolution scheme that stays away from jurisdictional process is conciliation, which is currently governed by the Conciliation Rules adopted by the United Nations Commission on International Trade Law (UNCITRAL).
In conciliation, the parties involved are:
- The parties in dispute; and
- The conciliator, or a third party to settle the dispute. The conciliator must have been chosen by the two parties in dispute. He or she is the one who decides how to go about resolving the dispute, depending on his or her judgment. She may want to hear out the parties separately, or together.
Just like arbitration, there are two types of conciliation proceedings that may be conducted by the conciliator:
- Institutional conciliation: The proceedings are organized and managed by an institution that specializes in administering arbitrations.
- Ad hoc conciliation: The conciliation is organized, managed and carried out by the parties, without the participation or assistance of an arbitral specialist or arbitration institution.
As the word implies, conciliation requires the full agreement or consent of all the disagreeing parties. After the proceedings, the conciliator will present his proposals or recommendations. If the parties agree, the conciliation is a success. If not, they can try other methods, such as mediation or arbitration. However, the conciliator will no longer qualify as an arbitrator.
In an analogy made by Daniel Q. Posin, he likened the resolution of an international business dispute to a simple case of a rear-end SUV collision. The parties involved undergo mediation in order to avoid the “risks, expense, delay and the stress of litigation” that are likely to result if the dispute is not resolved. In short, there is not much difference between international business mediation and domestic mediation; it’s just the scope and the scale that is different, but the concepts are basically the same.
Mediation and conciliation are also similar in many ways. However, the third party is known as the “mediator”. He will examine the claims of the disagreeing parties and, after evaluation, presents possible solutions to resolve the problem.
His role is to present all sides of the story to the parties, without trying to influence them to decide on one thing. He does not propose a way to resolve a problem, he just presents possible solutions. The final decision on whether to choose any of these possible solutions remains in the hands of the parties. In other words, the mediator also acts as a guide and a moderator.
Again, mediation also has two types: ad hoc and institutionalized.
Watch this case study on international business mediation.
The name may deceive you into thinking that it is a judicial process. In a way, it looks like one, but it is not. It is, for all intents and purposes, a shorter and non-juridical version of a court trial. Currently, this method is used in the United States, and its main objective is to get disagreeing parties to reach an agreement and an amicable settlement without going to a full trial.
Both parties will choose their own legal counsels or representation, and the mini-trial conducted in front of senior executives of the parties, in the presence of advisers or observers who will take a neutral stance throughout the proceedings. In the proceedings, they will be giving advice when asked, and the senior executives are there to come up with an amicable settlement or solution, and not to decide on who will win the dispute.
Resolving international business disputes is not an easy task. Fortunately, there are processes in place that can be used in order to speed up the process and ensure the international trade continues to operate smoothly, and the global marketplace does not suffer from unresolved disputes.