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International Business Law: Export and Country of Origin Law Essay

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Updated: May 8th, 2022

Introduction

Organizations that engage in international businesses require an enormous knowledge of international legal provisions that regulate business conducts on international fronts. This knowledge is essential in aiding organizations to ensure that they operate their international businesses in a manner that does not violate the law. In this paper, the term international business is taken to mean “business transactions crossing the national borders at any stage of the transaction” (Love & Ganotakis 2012, p.213). Due to the drawback that an organization doing business in more than one nation would have to comply with all domestic laws applicable in the different nations, international business law comes in handy to provide a universally acceptable code of business conduct (Love & Ganotakis 2012, p.214). In the global age, many organizations are seeking a competitive advantage by extending their business beyond their domestic markets. In this process, such organizations will often be required to comply with various laws that restrict certain business conducts. These laws include import law, export law, and country of origin law. In the attempt to shed light on how the laws regulate international business and hence place certain obligations to an organization that endeavors to go global, this paper discusses export law and country of origin law by drawing evidence from various case studies. The paper begins with laying fundamental backgrounds to the introspection of the case studies by defining both country of origin law and the export law first.

Export Law

In the United States, organizations that supply various products to the international market face regulatory challenges. One of the principal challenges is the need to comply substantively with export controls that are applicable in the U.S. Failure to comply with the controls attracts consequences, which include but are not limited to business operation disruptions, damage to the reputation of the organization, and hefty monetary fines (Bilzi et al. 2011, p.3). A company caught breaching the U.S international export law can also be subjected to erosion of certain exportation privileges. To ensure that organizations are capable to minimise instances in which they would be forced to assume the liability of breaching the export law, they must evaluate whether their export items involve substances that are restricted for exportation. These items include “certain dual-use products, software, technology, defense articles, services that the US controls for export to foreign destinations, or foreign nationals” (Klaus 2003, p.106). These items are treated as part of the intellectual property of the United States. In case an organization wants to export these products, the export law requires an organization to acquire an exportation license. Depending on the nature of the products and or services that an organization wants to export, the license may be issued or denied. More often than not, a license is denied when the products scheduled for exportation involve items, which may open the US’ security intelligence and the US security in general to terror such as arms and other weapons (Luo 2007, p.448).

Fundamentally, export may be taken to encompass the psychical movement of products and services from a nation’s boundaries. However, in the context of the EAR and ITAR, it covers a myriad of activities. These activities include “sending, transmitting, or disclosing software or technology via mail, email, the internet, server access, facsimile, telex, video conference, webinars, and or telephone conversations” (Bilzi et al. 2011, p.3). They also include disclosure of certain technologies reserved for use in the US either verbally or via visual inspection to foreign nationals, granting control, registration, ownership of an item under ITAR control to a foreign national, or carrying out a defense service to benefit foreign people based in the foreign nation or living within the United States. Additionally, under ITAR, the term export also refers to “hand-carrying controlled products abroad, traveling abroad with laptops loaded with controlled software and/or technology, or traveling to assist foreign customers with testing and/or repairs using controlled products” (Sperino 2008, p.378). Re-exporting of or shipment of items originating from the United States is also not permitted under ITAR export regulations.

Despite the fact that an organization must resolve various issues reflected in the export law applicable in the country where it is established before exporting and or creating avenues for accessing items that are controlled under the export law, some of these issues are incredibly difficult to identify. Such a situation occurs, for instance, when the business deal for an organization in the international front involves “litigation support functions in which foreign nationals are provided access to documents containing technical data, drawings, and blueprints related to the manufacture of a product on the issue in the dispute” (Bilzi et al. 2011, p.3). Other conflicts take place when there is a need for an organization to establish and or support functions, which demand the transfer of software encryptions in the overseas-based organizations.

Another applicability of the export law in the regulation of conducts of business between two organizations based in different nations is the patent law. Patent law refers to “grants by the government of a monopoly to the inventor to use the subject matter of the invention for a specified period” (Doornaert 2005, p.30). Organizations must comply with the patent law while exporting products that are designed and produced with a valid patent. However, sometimes this is a challenge when “the preparation of patent applications requires the US-based company to provide technical data relating to its innovations to foreign nations overseas” (Bilzi et al. 2011, p.4). Nevertheless, failure to comply with the patent law attracts serious legal consequences with the company involved in breach of the law being required to assume a vicarious liability.

Country of Origin Law

Country of origin law places a requirement that products and or articles that are imported to a nation have the country of origin marked on the products or the article. With regard to the United States General Accounting Office (2003), country of origin refers to “the country of manufacture, production, or growth from where an article or product comes” (p.3). The law on the country of origin varies from one nation to another and or between international trading treaties. For instance, all food products that are exported to the UAE are required to have the country of origin marked on them. On the other hand, “there is a voluntary code for all food products” (Aiello 2008, p.324) in the United Kingdom. Other products that are exported to the UK are not subjected to mandatory codification requirements (Aiello 2008, p.325). However, in case of a misleading code, an organization, which produced and exported the products, is liable for prosecution under the trade descriptions act of 1968.

Depending on the applicable domestic laws on the country of origin, shipping products made in a nation to another nation demands the products to be clearly marked with the country of origin. More often than not, it is also required that the country of origin be included in the import or export documents accompanying the products or articles coupled with governmental submissions. To this end, States General Accounting Office (2003) reckons, “Country of origin will affect admissibility, the rate of duty, entitlement to specific duty or trade preference programs, antidumping, and government procurement” (p.4). Tantamount to the export law, compliance to the country of origin law makes organizations susceptible to some challenges. For instance, measures to cut production costs prompt organizations to outsource manufacturing of various parts that make up a complete product that would then be exported or imported while assembled. In such a situation, it becomes incredibly difficult to know the precise place of origin of the assembled product. This means that different rules and regulations need to be applied in the determination of the actual country of origin. To handle this challenge, the law on the country of origin in the US provides, “articles only change their country of origin if the work or material added to an article in the second country constitutes a substantial transformation, or the article changes its name, tariff code, character, or use” (Becker 2007, p.10). The value additions in every country may also have to be provided by the manufacturer of the imported product or article.

Additionally, in some nations such as the United States, the law on the country of origin goes further to demand the products imported from foreign nations to have the name of the destined purchaser clearly labeled on the products. For instance, the US ‘Tariff act of 1930’ provides, “every imported item must be conspicuously and indelibly marked in English to indicate the “ultimate purchaser” (Becker 2007, p.10). The United States customs use the terms, ultimate purchaser, to refer to individuals who will get the goods in the condition they have been imported. However, in case the imported goods will be subjected to additional substantial transformation, the ultimate purchaser is the organization or the company that will further process the goods. The country of origin law applied in the US “authorizes exceptions to labeling requirements such as for articles incapable of being marked, or where the cost would be economically prohibitive” (Aiello et al. 2008, p.334). These exceptions are collectively codified and termed as §1304(a)(3)(J) or J-list.

Case 1: Applicability export law for a company manufacturing goods in Asia and exporting in Europe: The case of HP China and Yuan Longping High-Tech Agriculture Co. Ltd

Due to the rising costs of labor, manufacturing companies in the west including the United States and Europe consider outsourcing some of their production tasks to nations that have low labor costs especially in Asian nations like China and India among others. For such nations, they must meet the key competencies that are required before a contract manufacturing deal is made between it and the European nation company. Some of these competencies entail the ability to manufacture products and deliver them in the European market while observing the legal regulations that are applicable in the contracting company’s nation. Such regulations include but are not limited to consumable goods’ safety. Apart from being outsourced, a manufacturing company based in Asia may target the European markets for its goods. In this section, HP China Company and Yuan Longping High-Tech Agriculture Co. Ltd are considered a case study for companies manufacturing in Asia (China) and exporting in Europe. The selected nation in Europe is Germany. Yuan Longping High-Tech Agriculture Co. Ltd engages in production coupled with the selling of various agricultural products. It provides corn, rice, vegetables, fruits, and agrochemical products.

Global economic growth is driven by several impulses including provisions of legal frames that support free trade between nations. With regard to the German business portal (2012), Germany is one of the European nations that have put forth legal frameworks to “support open and liberalized international trade within a set of clear and multilaterally negotiated agreements” (p.1). Consequently, minimal amounts of goods traded within the German markets are subjected to direct application of direct regulations of the market.

Nevertheless, in case Yuan Longping High-Tech Agriculture Co. Ltd may specialize in the processing of agricultural products for exportation to the German market, there are regulations that must be considered. Such regulations include food safety and hygiene regulations. To this end, the German business portal (2012) reckons, “specific import control regulations apply to products that may potentially pose a risk to human health, public security, or environmental protection such as medicine, weapons, or endangered species of plants and animals” (p.2). The significance of this argument is that the laws guiding the importation of products manufactured outside Germany are the regulations that an exporting company that bases its production outside Germany deserves to comply with. For instance, a company planning to sell steel and textile products into the European market (Maelcamp 2010, p.153) requires an export license. Both HP China and Yuan Longping High-Tech Agriculture Co. Ltd are likely to have some of their products wrapped in materials made of textiles. Hence, the license would be required for them to sell their products in Germany.

Apart from the legal controls that are product-related, additional regulations are put in place to enhance safety and environmental protection in the European nations. This means that HP china and Yuan Longping High-Tech Agriculture Co. Ltd have to label their products accordingly. Indeed, some specific regulations apply in Germany for electronic and electrical equipment, textiles, dangerous substances, and foods products among others. For instance, for the case of food products that are processed, it is mandatory for the manufacturer to provide information on the procedure of processing used, added agents such as preservatives, and even manufacturing and expiring dates among other information. However, it is crucial to note that this regulation does not only apply in the German market. Rather, according to the German business portal (2012) “mandatory product labeling is widely harmonized within the Single European market” (p.2). In the effort to enhance environmental protection, in Germany, consumable distributors have often been required to take their packaging wastes back since 1990. Therefore, HP China and Yuan Longping High-Tech Agriculture Co. Ltd deserve to arrange how the packaging wastes would be disposed of and or recycled. One of the mechanisms that are used by international firms to distribute products is to employ the help of a large organization established within the nation where the goods are to be exported. Such an organization purchases or simply imports the goods in bulk from the nation outside the European nations to be distributed on behalf of the manufacturing company. Therefore, while focusing on business strategies such as an expansion of the Asian-based company’s sales volume by targeting the European market, HP China and Yuan Longping High-Tech Agriculture Co. Ltd must consider the applications of the import law in the European Union. Concerning the German business portal (2012), the import law of Germany provides, “importers of large amounts need to notify the authorities via the “completeness statement’ (Vollständigkeitserklärung)” (p.3). German chamber of commerce and industry sets out detailed information on the essential requirements that must be met by the imported products both within and outside the European nations.

While endeavoring to focus on the exploitation of the European markets, for Yuan Longping High-Tech Agriculture Co. Ltd to develop the capacity to sell in the European market, its products must precisely meet the European nations’ hygiene requirements. Arguably, international trade introduces the challenges and risks of diseases and pest transportation. Therefore, “to protect itself from the economic and ecological impact, the member states of the European Union have agreed on union-wide phytosanitary standards and requirements” (Maelcamp 2010, p.155). In Germany, a number of institutions do this work. Hence, Yuan Longping High-Tech Agriculture Co. Ltd must comply with the legal provisions and policies that are made by these institutions if they are to sell their products in the German market. Plant health issues are handled by the federal biological research center for agriculture and forestry. On the other hand, according to German business portal (2012), “Federal Office of Consumer Protection and Food Safety assumes the tasks of risk management and coordinates the process of monitoring for food, animal feed, and commodities like tobacco products, cosmetics, and other items, which either come into contact with humans directly or with food for human consumption” (p.4). An organization, which intends to import products that are manufactured from plant products to supply them in the European market such as Yuan Longping High-Tech Agriculture Co. Ltd, is required by the institution concerned with the plant issues to seek registration with an appropriate responsible authority located in the targets area of distribution within the federal states. The EU Directive 2000/29/EG makes provisions for objects, plants, and even plant products that are subjected to plant health regulations. It is then of great importance for Yuan Longping High-Tech Agriculture Co. Ltd to determine the extent of the product’s compliance with the provisions of ‘The EU Directive 2000/29/EG’.

HP china and Yuan Longping High-Tech Agriculture Co. Ltd are bound by the applicable legal provisions on strict liability should the products sold in the market cause some foreseeable damages to their end-users despite having managed to go through the quality and safety screening systems. About the German business portal (2012), the European market authorities have the mandate to “constantly monitor the safety of goods sold on the Single European Market and utilize the European Rapid Alert System (RAPEX) to ensure that the market is quickly informed about dangerous products” (p.6). This step is essential in ensuring that defective products do not get into the market. However, should chances occur that defective products would get into the hands of the consumers, HP China and Yuan Longping High-Tech Agriculture Co. Ltd have to assume liability risks emanating from reasonably foreseeable instances of product misuses particularly if instructions of the use of the products are not done appropriately?

Stringent rules are enacted in Germany for products, which have direct contact with the body of their users. Indeed, some legal provisions that are applicable in Germany for such products are far stretched beyond the standards that are provided by the European Union. This argument is broadly applicable for products, which are used in everyday life though not utilized as foods products. This includes jewelry, toys, and textile (Maelcamp 2010, p.155). HP electronic and electrical products could also fit in this category. There are requirements in place for success in the placement of a product that comes into direct contact with the body of the end-user in the German market. In fact, the German business portal (2012) informs that a foreign-based manufacturing company is required through the importing agent to get a “special permit from the German federal office of consumer protection and food safety (BVL – Bundesamt für Verbraucherschutz und Nahrungsmittelsicherheit)” (p.7). There are also some companies, which may be based in Asia and in need of exporting products fitting in the classification of “dangerous products” under the European nations export and import law. Such products include the agrochemical sold by Yuan Longping High-Tech Agriculture Co. Ltd. The question that arises is how HP china and Yuan Longping High-Tech Agriculture Co. Ltd can manage to exploit the European market for dangerous products such as chemicals.

As argued before, the European nations are highly cautious about the impacts of imported products on the environment, people, and animal health. Driven by this concern, the European Union has established registration, evaluation, authorization, and restriction of chemical products (REACH). This body is established under the 1907/2006/EC. This regulation provides, “importers and manufacturers of dangerous materials need to meet several risk management requirements before their products may enter the Single European Market” (Djankov, La Porta, Lopez & Shleifer 2002, p.15). The regulation is also applicable for all products, which contain dangerous material substances. However, polymers are excluded from the products classified as dangerous. For Yuan Longping High-Tech Agriculture Co. Ltd, it is imperative for the company to evaluate the compliance of its agrochemical products to the set-out standards in accordance with the provisions of 1907/2006/EC.

Evaluating the compliance of Yuan Longping High-Tech Agriculture Co. Ltd agrochemical products to the 1907/2006/EC demands the manufacturer to assess the risks that are posed by the products on the environment, animal health, plant health, and human health before registration is sought for exportation of products into the German market from ECHA (European Chemicals Agency). This applies where the importing agents import “more than a ton of the respective substance(s) annually (Maelcamp 2010, p.157). Upon registration, ECHA proceeds to evaluate and investigate the materials that are exported to the European Union. Therefore, it is important for Yuan Longping High-Tech Agriculture Co. Ltd to “provide sufficient information on the safe handling of dangerous substances along their entire supply chains by labeling their products besides providing appropriate safety data sheets” (German business portal 2012, p.7). ECHA regulations are even stricter on the substances, which enter a single European market through special authentication.

Many companies dealing in the electrical and electronics industry have resorted to giving manufacturing contracts to nations located in Asia by virtue of the fact that, in Asian nations such as China, the labor costs are low. A good example of this is HP Company, which has contracted HP China to manufacture HP products in China. Consequently, the European nations became aware of this trend thus enacting the electrical and electronic equipment act in 2005. As the German business portal (2012) informs, “Germany was one of the first European countries to implement the respective EU directive on Waste of Electrical and Electronic Equipment (WEEE)” (p.7). Companies selling electronics and electrical products such as HP China have no option other than complying with the provisions of the act. Thus, it is essential for HP China to understand the requirements of the act. To this end, the German business portal (2012) informs, “the regulation requires producers to take back old appliances thus making them consider future recycling as early as in the designing stage” (p.8). Precisely, “the German association for information technology, telecommunication, and new media, and ZVEI, the German electrical and electronics manufacture’s association” (German business portal 2012, p.8) are mandated to conduct administrative work in the treatment of electronically coupled with electrical waste through the supervision of the federal environment agency. Determination of the capacity of the waste that is produced by Asian company products to be treatable using the mythologies provided by the EAR foundation is essential is HP China has to place her products in the European market. The electrical and electronics equipment act emphasizes that companies should take back their wastes. However, the act also recognizes and authenticates other bodies to take up the roles of recycling and or treatment of electrical and electronic wastes on behalf of the manufacturing companies. HP china has these two options for dealing with electronic wastes introduced in the European markets.

Case 2: Applicability the Country of Origin Law for a Company in the United States Exporting Goods to Europe

Many nations import goods to satisfy the deficits of their market demand. However, such goods must satisfy the quality standards that are established in the destination nations. In this section, HP China is considered as a case study for an organization based outside the United States (Europe) seeking to export its products to the United States. The goal is to establish various conditions that such a company must comply with about the legal provisions of the country of origin law applicable in the United States.

The United States country of origin law provides that all articles that are imported into the territories of the US have clear marks (labels) that indicate the country of origin of the article. About AMID logistics (2010), this is meant to “protect potential consumers by providing information on where the goods were made, grown and or manufactured” (Para. 2). HP China must ensure that the marking of the country of origin must be legible, permitted, and conspicuous. In legal terms, legible markings mean that the labels used on the articles manufactured in foreign nations must “not be too small, faint, or contrasting: labels must show up against the background” (Usunier 2006, p.63). The legal interpretation of permits is that the labels should remain on the unit article until such a time when the article has reached the end-user (Josiassen & Harzing 2008, p.265). Indeed, the provisions of the United States country of origin law prescribe stenciling, moulding, printing, and stamping among other methods as the most preferred techniques of marking the country of origin on a product. HP China can apply these methods on the HP computer casings and printer casings among other components. The end-user may be the customer who directly uses the product to satisfy his or her needs or the manufacturer who further processes the product before releasing it to the end-users for consumption (Krissoff, Kuchler & Kenneth 2006, p.20). The US’ country of origin law provides that products need to be marked with the “country of origin” and not the states or cities from where the manufacturing company is located.

The above discussion of the requirements of markings of the country of origin on products seems straightforward and easy to comply with. However, it is crucial to note that several challenges are experienced in the application of these legal regulations. These challenges are pronounced in situations in which many issues related to the country of origin arise. Such situations arise where raw materials may originate from different nations to be assembled or processed into finished products in a different nation before being sold to the United States. For instance, HP China may supply materials for making microchips to a computer company located in the US such as Dell computers. In such situations, the provision of 19 CFR is applied to help in the determination of the right marking of the country of origin. To this end, AMID logistics (2010) reckons, “if the article will be used in manufacturing, the manufacturer or processor in the United States is the ultimate purchaser” (Para. 5). However, “if the processing of the imported article results in a substantial transformation of the imported article, it becomes a good of the United States under the NAFTA Marking Rules (19 CFR Part 102)” (AMID logistics 2012, Para. 5). This example implies that, when transformations of articles take place in nations different from the original nation from which the raw material came, the country of origin markings deserves to change. However, this is not always the case.

In the United States, the law of the country of origin provides that an article that undergoes processing or substantive change may have the country of origin marking changed under several conditions. In the first place, such changes occur in case a product in the second country is taken through a process that gives it a substantive transformation when an article acquires a different character, use, or name (Josiassen & Harzing 2008, p.267). Secondly, if the article originates from NAFTA nation, the NAFTA labeling rules, which are provided under the 19 CFR Part 102, determine whether the second country is acceptable in legal terms as the country of origin or not. However, this law does not apply to all products since, for apparel and textile products, 19 CFR Part 102.21 may determine that the second nation is the country of origin without paying regard to the fact that the article may have originated from NFTA. The 19 CFR 12.130 is applicable to products that originate from Israel.

It is of great importance for HP China to note that not all products must be marked or labeled. This means that the United States country of origin law provides legal exceptions of product markings. These exceptions are provided for in the 19 U.S.C. 1304. Among the products that are exempted from being marked with their country of origin includes products that are impossible to mark such as pins and staples. They also include products that will be damaged while marked before shipment into the United States. This category includes the case where an article is composed of crude substances, in case an article’s container is marked with the country of origin given that it arrives in the United States without being opened and where the product is not to be sold in the state or form in which it has been imported among others. HP China must put in place strategies to ensure that its products would comply with the legal provisions for the country of origin that are applicable in the United States.

Conclusion

Conducting international business requires the parties that are engaged in the business transactions to observe regulations that are applicable in different nations. Even though there exist international business laws that guide companies on the internationally acceptable standards of products meant for global market consumption, targeting a specific market in a particular country requires compliance to the established exportation and importation legal stipulations that are accepted in the target market country. To shed light on how business regulations apply to impact international business, two case studies have been considered in the paper in the discussions of the export law and country of origin law. The first case study relates to two companies located in Asia exporting products to Europe (specifically Germany). These companies are HP China and Yuan Longping High-Tech Agriculture Co. Ltd. The second case discussed the applicability of country of origin law in the context of a company (HP China) seeking to sell its products in the United States.

References

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