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International trade

Discuss about the International Business for Themes and Issues.

International trade is increasing day by day, every country whether big or small are engaged in providing goods and services across the globe. Globalization integrated the world’s economy which has helped in accelerating the trade process. However it has thrown a major challenge on the international economic institutions. A global business complication has increased due to expansion of trade practices across the border. The global demography and economy is changing the overall structure of conducting business.  It has led to ample of opportunities and a platform to the new organizations. However it has affected the major issues regarding structuring of the business, secondly making a business contracts across the borders. Business structure refers to the type of business one is planning to pursue (Johnson and Turner, 2004). There are major global strategies to expand business over sea which are, either through joint venture, strategic alliances, collaboration, etc. It is necessary to adopt a global strategy to triumph over the international market (McDonald et al, 2002). Any industry jumping in without any strategy will probably be defeated in its objective.  The world understands the importance of global business and its necessity due to increase in opportunities.  Global business focuses on utilizing the resources of the host country to increase the productivity. The international business environment has been changing at a rapid speed. There is a requirement to keep a check on the political, economical, and legal issues of the host country. Every country has a different system of conducting business, therefore it is important to understand the local environment and the issues related to expansion of the business. International trade has led to majority of serious legal issues across the border which needs to be dealt as per the regulations and treaties (Keillor and Kannan, 2011).

As a result of globalization, the world understands the need of balancing the legal system while doing international trade. Due to increase in role of international trade the world is moving towards the technological era. World is moving towards use of international trade across the borders with the different national governments which creates a mutual contract between the parties. The mutual contract creates a legal obligation on the parties which sometimes causes legal contingency. This happens due to one party disagreement to perform its obligation or doing an act beyond its power. Every country has its own law and order while conducting international business which is essential to follow the rules and guidelines by the trading company (Schaffer et al., 2014). The process of sale of goods and services creates a legal contract between the parties. International trade can lead to international legal dispute if any party commits any act which is not mentioned in the contract. It creates a problem in deciding the jurisdiction, law enforcement, applicability of law, and the explanation of procedures of the parties. This issue not only includes individual party but involves conflict with the state on the issue related with the legal aspects of business transaction.  They are settled either by appointing an arbitrator or through international tribunals. There are end numbers of treaties signed among various countries to settle the legal dispute. Wherever a business crosses its border it raises the concern related to legal problems. Depending on the venture one has to research the current legislations and issues which are related to the trade law and customs. Legal aspects are given more importance to conduct fair trade practices. Legal environment has led to some serious issues which need to be dealt significantly under the strict guidelines (McGovern, 2016). A government of every country is keeping a check on the trade practices by simplifying the trade laws. Business expansion is significant for any organization for its future growth. A legal activity has created urgency in the development of better trade practices. The international trade law provides safety against the adversities which are arising at the international platform. Custom law is accepted as a source of leading the trade practices across the border. In the United States the government has created a foreign trade zone adjacent to the port, which is utilized for the purpose of promoting trade practices. The foreign companies are allowed to practice trade freely with certain privileges. The act is under the supervision of U.S. Customs and Border Protection under the United States Homeland Security Council. There are nearly 230 foreign trade zone projects and near about 400 subzones in the United Sates (U.S. FOREIGN-TRADE ZONES,2016) (Enforcement and Compliance,.2016). The report discusses a prominent case law related to the Foreign-Trade Zones Act of 1934 (Hinkelman,2005).

Legal aspect of International Trade

The foreign trade act 19 USC authorizes the establishment of foreign trade zone within the United States for this purpose the act has appointed a board to grant corporations (public or private as defined in the case law) the autonomy of organizing, operating, and maintaining foreign-trade zones closest to the ports under the authority of the United States. It allows carrying merchandise into the foreign trade zone without violating any custom law of land (Linderfalk, 2007) (Foreign-Trade Zones Board, 2016).

Nissan has bought in heavy machinery without seeking permission from the custom department inside the free trade zone. Nissan argued that the machinery is a part of merchandise as mentioned clearly in the act. It imported production machinery for use in the subzone which included a highly mechanical, integrated system of engineering robots, computerized conveyors and other mechanized interface. Nissan further mentioned that the proposed final arrangement of the machinery is capable of carrying testing of equipments for the manufacturing of the machinery. Custom disagree on the ground that the goods which are bought in is not a part of the merchandise which is mentioned in the act. Custom postponed assessment of duty as the machinery were completely installed and tested in full scale production of the automobile in the subzone. C.S.D. 82-103, 16 Cust. Bull. 869, 870 (March 4, 1982). The issue related to the case is whether the machinery imported by Nissan from Japan into a U.S. subzone for use in the production of motor vehicles is subject to duty or not(Nissan Motor Manufacturing Corp. v. United States: An Update in Foreign Trade Zone Law, 2016)?

As per the Foreign Trade Zones Act, 19 U.S.C. §§ 81a-81u (1982), it has authorized the establishment of free trade zones in the United States.  The board has an authority to put the conditions and restrictions and various other regulations as per the laws. The board has a right to grant the status to the corporation, it can help in establishing, operating, and maintaining foreign trade zones adjoining to ports of entry under the jurisdiction of the United States. The power to the number of zones is limited by the board. The board has a right to increase the number of zone if the current zones are unable to solve the purpose. As per the rule the zones are established for providing free trade which establishes the rule that merchandise are free from any custom duty.  No organization has an authority to include anything which is not mentioned in the act. The zones are operated under the guidelines mentioned in the law (Nissan Motor Mfg. Corp., U.S.A., Plaintiff-appellant, v. the United States, Defendant-appellee, 884 F.2d 1375 (Fed. Cir. 1989), 2016).

Issues

The rule further states that the Merchandise may be brought into a foreign trade zone for the purposes which is mentioned in the statue without ignoring the custom laws of the United States." 19 U.S.C. § 81c (1982). The act allows the entry of the goods subject to the general rule of statutory construction: “expressio unius est exclusio alterius” which means the items which are not mentioned in the list are impliedly assumed by the law as an excluded item.  The items which are not mentioned by the act are subject to exclusion and nobody can take advantage of the statue. The act is based on the issue which determines the authority of the act. Any act beyond the act will be an ultra virus act(Raymond et al.)

Nissan made an argument by saying that the equipments imported into the U.S. subzone are not subject to the duty as per the Foreign Trade Zones Act, and further disagreed that the merchandise goods only become dutiable if they are sent to the custom territory of the United States. Whereas the government argued that the equipments imported by Nissan are subject to the duty mentioned in the foreign trade zone act. They further argued that the equipments cannot be treated as merchandise because they were installed, consumed, and used. Hence they are not covered under the exemptions mentioned in the act. In 1952 the board broadcast regulations in pursuant to 19U.S.C. 18h which authorizes the establishment of the zones to carry specialized services or they can establish a zone in area seperated from the existing free trade zone. They can be used to serve the multiple purposes of manipulating, manufacturing, storing or exhibiting the goods. The municipal has contracted the area for the other purpose which is not mentioned in the act. A foreign trade zone was established at Nissans Motor Vehicle manufacturing and assembly part in Smyrna, Tennessee (19 U.S. Code § 81b - Establishment of zones.2016).

The united states court of appeals reviewed the 1950 amendment to the foreign trade zones act of 1934 where Section 3 states foreign and domestic merchandise may, without being subject to the customs laws of the united states can be bought into a zone and can be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise or otherwise not to influence any other type of manufacturing. Nissan impoted the heavy production machinery for use in the sub zone which include high automatic, incorporated system  of industrial machine, automated conveyor and stamping systems and a complex computerized interface. Nissan asked for a verdict from United States custom services under 19 cfr sec 177 (a) (1) (1988) regarding its obligation for the duties. Nissan was unaware whether the proposed machinery would be able to serve the required purpose which can only be decided after running few tests. Some of the machinery was returned to the manufacturer for the purpose of replacement, redesigning (NISSAN MOTOR MFG. CORP., U.S.A. v. U.S., 2015).

Rule

The custom decided that the production equipments which were imported from Japan are a part of dutiable goods and will not be included in the definition of merchandise for the purpose of exemption. The custom wanted Nissan to pay a formal duty for entering the goods for testing in the sub zone without seeking permission. The production equipments were valued approximately $ 116314883 with over $ 3000000 in admittance of duties. Nissan pleaded that it entered merchandise which are mentioned in the act and filed a case on its liquidation. The court of international trade held that Nissan has to pay a duty for entering the goods into the sub zone. The acts allow to store, sold, exihibit, assemble, distribute, mix, repacked the goods which are mentioned in the act under the definition of the merchandise and forbids the entry of the goods which are marked as prohibited under the act. The law states if the goods are sent into the custom territory of the United States they are subject to the law and regulation of the state. Nissan challenged that the foreign trade zone is outside the territory of the customs in United States so they are not subject to be considered as the dutiable goods. The government thereby announced that the foreign trade zone cannot be used to defer the payment. It further stated that goods which enter the custom territory are subject to the payment of the duty. Here Nissan has bought in heavy equipments which are not mentioned in the act therefore they are subject to duty. The international court thereby stated that used or intended to be used to produce motor vehicles are not mentioned under the act. By applying the general rule of statutory construction expressio unius est exclusio alterius which means the expression of one thing is the exclusion of the alternative thing. The court stated that amended provisions will not be included in the authorization of the consumption of merchandise in the zone.

Nissan considered that duties cannot be imposed on any article which is bought inside the foreign trade zone until and unless it is sent into the customs territory of the United States. The fact that a complete listing is set forward in the statue indicates that congress did not wanted to exclude the merchandise items from the ambit of dutiable goods which are imported inside the border.

The activities carried by Nissan in the foreign trade subzone with the imported machinery are not permitted by the reading of the statue. In accordance with the section 81 c which mentions that the imported equipments may be installed, used, or consumed in the subzone. Section 81c states that the goods which are brought into a foreign trade zone may be stored, exihibit, repacked, assembled , sorted, graded, mixed , manipulated. This act does not support the import of goods which are bought inside without any information. The 1950 amendment of the foreign trade act and its legislative theory supports the former reading of the statue. Before 1950, duties were to be paid on merchandises inside the zone for a period of two years. The act was amended because the duties should only be paid if the goods are sent to the customs territory. The amended provision does not permit consumption of merchandise in a zone subject to the determination of the taxes. Previously the act was not clear on the term merchandise which is mentioned in the act.

Analysis

The amendment and its legislative theory do not give permission for entry of duty free equipments. The exemption from duty is not permitted for merchandise to be consumed within the zone.

The production machinery from Japan is mentioned in the list which does not permit an entry of any such equipment to make other article. In the amendment of 1984 foreign trade act, describes that the current law does not provide exemption to the goods which are brought into the foreign trade zone by any foreign company operating in the foreign trade zones.


Nissan supported on the case of Hawaiian indep. Refinery v. United States for its position. Nissan consider merchandise as the crude oil which has to be entered into the foreign trade zone for manufacturing of the crude oil products. A portion of crude oil was consumed into the manufacturing process and customs assessed duty on the constructive theory. The international court of trade held that entry of crude oil was exempt at the time of entry and held that the Hawaiian indep. Refinery case was not similar to this case. The court disagreed on the contention of Nissan for deferring payment of duties (Hawaiian Independent Refinery, Inc., Appellant, v. the United States, Appellee, 697 F.2d 1063 (Fed. Cir. 1983).2016).

The court stated the disagreement of Nissan was obvious to put off the payment of duty by misusing the information which was not mentioned in the act. The international court of trade found this act under deferring the duties which is necessary to be paid. This case focuses on negligence of law by taking undue advantage by misinterpreting the statue. The term merchandise has been defined in the act which does not include installation of heavy machineries which are bought in from Japan. It is a case of sheer misusing the powers which are defined by the act. The act further limits the power by amending the required situations which are necessary to be taken care while importing the goods from outside countries in the free trade zones (Court Listener,2016).

Conclusion

The machinery which were bought by Nissan motors are subject to duty. The court affirmed the judgment of the international court of trade. Whereas the court denied the appeal of Nissan on the ground that the act doesn’t include heavy machinery in the definition of merchandise. The court further asked Nissan motors to pay the duty amount as mentioned in the act. The act to defer the payment is subject to payment of duty. It is unacceptable on the ground of misusing the power which is conferred by the act. The act assures that when the goods move from foreign trade zone to the custom zone they are subject to duty except to the merchandise which are mentioned in the act.

Although in my opinion the behavior of Nisan is considered to be unclear. They wanted to revoke the duty after bringing the dutiable machineries in the zone without the permission of the authority. Moreover the company filed a protest after its liquidation which rightly states their intention to defer the payment of duty to the authority. The free trade zone Act was unclear on certain grounds while defining merchandise for which Nissan tried taking undue advantage.

The free trade zone act should have been clearer regarding the term merchandise as it is silent on certain ground. They should have cleared the definition of merchandise to remove the confusion.. However the act is based on the statue of expressio unius est exclusio alterius which means the expression of one thing is the exclusion of the other thing. The statutory rule applies in general to describe that if the act is silent about certain things then those things are excluded by the act. One should not do any act beyond its power. In this case merchandise doesn’t include heavy equipments the plaintiff tried to defeat the provisions of the act by interpreting it as per the case law of Hawaiian indep. Refinery v. United States (Court Listener, 2016). Both the cases were completely different and plaintiffs’ appeal regarding exemption was ignored on the ground of revocation of duty (International Studies Primer).

The act is silent on mentioning certain issues. The international court of trade was however convinced that the foreign trade zone is not to be used for the misinterpretation of the act. Nissan has to pay the duty as decided by the act. The court in its judgment upheld the order passed by the international trade court. Although the act was silent at certain places which created an actual confusion. The definition of merchandise as per the act is exhaustive. It doesn’t define the activities which are included in the act for payment of duty but the other party should not take undue advantage of the act.

References

Schaffer,R.  Agusti,F. and Dhooge,L.(2014) International Business Law and Its Environment, pg-330. USA:Cengage Learning

Johnson,D. and Turner,C.(2004).International Business: Themes and Issues in the Modern Global Economy .Routledge, 2004

Raymond F. Burghardt, Leo M. Gordon, United States Court of International Trade Reports, Volume 23. Government Printing Office

 Nissan Motor Mfg. Corp., U.S.A., Plaintiff-appellant, v. the United States, Defendant-appellee, 884 F.2d 1375 (Fed. Cir. 1989), .2016 (Online).Available from:  https://law.justia.com/cases/federal/appellate-courts/F2/884/1375/463930/ (Accessed on 21/09/16)

Edmond McGovern, 2016. International Trade Regulation, Volume 2 International Trade Regulation. Globefield Press

19 U.S. Code § 81b - Establishment of zones.2016.  (Online).Available from: https://www.law.cornell.edu/uscode/text/19/81b  (Accessed on 21/09/16)

Linderfalk,U.(2007).Volume 83 of Law and Philosophy Library. On the Interpretation of Treaties: The Modern International Law as Expressed in the 1969 Vienna Convention on the Law of Treaties. Springer Science & Business Media

Hawaiian Independent Refinery, Inc., Appellant, v. the United States, Appellee, 697 F.2d 1063 (Fed. Cir. 1983).2016. (Online).Available from:  https://law.justia.com/cases/federal/appellate-courts/F2/697/1063/11356/ (Accessed on 21/09/16)

Bruce David Keillor, Vijay R. Kannan. 2011. International Business in the 21st Century, Volume 1. ABC-CLIO,

McDonald, F., Burton, F.and Dowling, P.2002. International Business Volume 3. Cengage Learning

U.S. FOREIGN-TRADE ZONES. (2016). (Online).Available from: https://ia.ita.doc.gov/ftzpage/letters/ftzlist-map.html (Accessed on 21/09/16)

Enforcement and Compliance,.2016. (Online).Available from:  https://www.trade.gov/enforcement/index.asp#news (Accessed on 21/09/16)

Nissan Motor Manufacturing Corp. v. United States: An Update in Foreign Trade Zone Law, 2016. (Online).Available from:   https://heinonline.org/HOL/LandingPage?handle=hein.journals/ncjint14&div=32&id=&page= (Accessed on 21/09/16)

NISSAN MOTOR MFG. CORP., U.S.A. v. U.S., 2015. (Online).Available from:  https://www.leagle.com/decision/19881876693FSupp1183_11747/NISSAN%20MOTOR%20MFG.%20CORP.,%20U.S.A.%20v.%20U.S. (Accessed on 21/09/16)

Court Listener. (2016). (Online).Available from: https://www.courtlistener.com/opinion/2357262/nissan-motor-mfg-corp-usa-v-united-states/? (Accessed on 21/09/16)

Court Listener. (2016). (Online).Available from:  https://www.courtlistener.com/opinion/2093925/hawaiian-independent-refinery-v-united-states/? (Accessed on 21/09/16)

Hinkelman,E.(2005) Dictionary of International Trade: Handbook of the Global Trade Community Includes 21 Key Appendices. World Trade Press

Foreign-Trade Zones Board. (2016) (Online).Available from:   https://www.federalregister.gov/agencies/foreign-trade-zones-board (Accessed on 21/09/16)

International Studies Primer. Volume 2 of Jang-Hee Yoo series on international studies Ewha Womans University Press. Online).Available from:   https://books.google.co.in/books?id=2gtm3AxI4ZUC&dq=NISSAN+MOTOR+MFG.+CORP.,+U.S.A.+v.+U.S.&source=gbs_navlinks_s (Accessed on 21/09/16)

Manresa,M.(2010). How to Open and Operate a Financially Successful Import Export Business. Atlantic Publishing Company

United States, United States. Congress. House. Committee on Ways and Means. (2005). Overview and compilation of U.S. trade statutes, Volume 4, Part 1. U.S. G.P.O

Enforcement and Compliance.(2016). (Online).Available from:   https://enforcement.trade.gov/ftzpage/19uscftz/ch1a.html (Accessed on 21/09/16)

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