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International Trade and Halacha

We live in an era of increasing globalization. Even the simplest of goods are often designed in one country, manufactured in a second, on behalf of a company located in a third country. While international trade enables consumers to benefit from products made throughout the world, it comes at the cost of increased complexity of supply chains, legal matters, and some fascinating halachic questions, which are the focus of this article.

Minhag, business norms, play a critical role in monetary transactions. When parties enter into an agreement, it is certainly wise to specify all of the terms of the transaction. If, however, aspects of the transaction are not discussed, the local minhag, or business norms, will apply. In fact, the Yerushalmi writes Minhag Mevatel Halacha- Minhag actually overrides the laws of Choshen Mishpat. This does not mean that one can violate a prohibition if the Minhag is to do so. Minhag simply defines the terms of an agreement, even in ways that may differ from the halachic default. For example, according to halacha, lease payments are only due at the end of a lease. Nevertheless, if a person rents a house today, they must pay rent in advance in the beginning of the month, since that is the universal minhag.

When trade is local, a minhag is fairly simple to verify- by definition a Minhag must be widespread and well known to be binding, and therefore a simple query to a handful of local businessman is sufficient. When trade is international however, the question becomes more complex. How does Minhag govern trades between different locations which have conflicting norms? Which party’s Minhag would prevail, and to what extent can a foreign party be held liable for a local Minhag that he may not have been aware of?

To properly understand these issues, we need a basic understanding of why Minhag plays such an important role in Halacha. The reason is that parties are presumed to be operating pursuant to normative business practices, unless they specify otherwise. Thus, whenever a deal is made without clearly stipulating the terms, the parties are implicitly agreeing to all of the typical terms and conditions. A party that desires different terms has the burden of making such stipulations before the deal is finalized. For example, if an employee is hired to work for the day, the hours he must work are set by local norms. If, as was the practice in some locations, the norm was to work from sunrise to sunset, the worker must comply with this norm. A worker that only wanted to commit to an eight hour work day would have to stipulate as such prior to accepting the job. In areas where the typical workday is nine to five, the reverse would be true. Hiring an employee for a day would be presumed to mean nine to five, unless the employer stipulated his different expectations in advance. A common modern application of Minhag is terms. If the industry standard is to allow customers thirty or sixty days to pay their invoices, all customers would be entitled to that grace period unless the parties specified otherwise in advance.

Normative Practices

Based on the above, Minhag is only meaningful if it is well known and widespread.[1] Since its halachic underpinning is that the parties to an agreement are implicitly accepting the Minhag[2], they can only be held to minhagim that they were aware of. If however, there are differing practices within the local community, or if the matter is uncommon and not well known, there would be no qualified Minhag, and the default halacha would apply. Thus, if many wholesalers in a particular industry give their customers sixty days to pay their invoices, but some do not, a customer would not be entitled to terms unless it was specified in advance. Because the practice is not universal, it would not qualify as a Minhag.

Doing Business with Foreigners

This leads to a crucial point. When both parties to a trade are local, they are each familiar with the local norms. What is the halacha if a foreigner does business and then claims to have been unaware of local practice? This question is subject to significant debate. Shach 42, Tumim 61 (3) rule that the minhag is not binding on a party unaware of its existence. Erech Shay Even Haezer 50:7 adds that a foreigner is believed if he claims to have been ignorant of the practice. However, Chachmas Shlomo 42 argues that the burden of proof is on the person claiming ignorance of the local practice. In the absence of proof, we presume he was aware of the local Minhag[3]. Thus, a Belgium businessman that sells diamonds at a trade show in the USA would not be bound to local practice that he was unaware of.

The same would apply to an internet based transaction. If the location of the customer or provider is not obvious, one cannot argue that either party is accepting to be bound by local norms, since nobody is aware which location they are dealing with. As such, only terms specified in the agreement would be applicable.

This discussion applies when one party was (or claims to have been) unaware of specific practices in the area they were doing business. What happens when the trade is done between two locations, which each have well known but conflicting practices? Whose rules govern the transaction?

Importing workers

Yerushalmi Bava Metzia 7:1 discusses a case involving employment agreements between residents of two cities. Workers in one particular city worked longer hours than workers in the other. The Yerushalmi rules that if a worker from the longer hours city travels to the shorter hours city and is hired, he works only the shorter hours as per the custom of the city that he was hired in. If an employer from the shorter hour city travels to the longer hours city and hires workers, they must work the longer hours, as per the norm in the location of the hiring. Even if the actual work is done in the shorter hours city, since the employment agreement was reached in the longer hours city, we presume the reason the employer traveled was to benefit from the longer hours, and the worker is bound to this custom.

Based on this, if a client hires a service provider in a cheaper location without discussing the fees, he typically pays the cheaper rate regardless of where the provider is from, or where the work will be performed. Therefore, a customer that meets with a company in New Jersey to provide service for him in Manhattan would pay based on Jersey rates, not the NY rate.

Services provided across borders

The above applies when the employer or employees physically traveled to another city to transact. How would this apply to a transaction that takes place over the phone or internet?

Igros Moshe 2:57 discusses a Shadchan that ‘Redt” a shidduch over the phone to someone living in a foreign country. The shadchan did not discuss the fee, and the two countries had different norms as to how much a Shadchan was paid. Igros Moshe writes that we follow the minhag based on the location of the shadchan. Since the shadchan is working in his/her physical location, they are paid based on their local norm, regardless of where the chosson or kallah are located. Similarly, tech support personal based in India would only be entitled to the local rate in India, even if they were hired to service American clients, while a USA based company could bill at the USA rate, even for services provided to Indian customers. (See however, Btzel Hachachma 3:28 that disagrees, and focuses on where the services are being received. It is the client’s location that governs, and not the provider’s physical location. Therefore, tech-support provided to USA consumers would bill as per the USA rates regardless of where the support personnel are located.)

Who Initiated the Transaction

There is however, an additional factor to consider. Erech Shay suggests that just as a party that physically travels to another city to transact is bound to the local practice where the transaction took place, this applies to a remote transaction as well. Although the parties do not physically travel to another city, we view the party that took the initiative by either calling or sending a letter to the other party as if they ‘traveled’ to the recipient’s location. As such, the party that initiated the contact is implicitly accepting the practices of the location that he is contacting. Therefore, a consumer that calls a company in a cheaper country to retain them is the equivalent of the consumer traveling to the cheaper country, and he pays the lower price. We presume that he specifically reached out to a company located in the cheaper country in order to avail himself of the discounted rate. The same is true if a client contacts a provider that is in a more expensive location- by reaching out to someone in a pricier country, there is an implied acceptance to pay the higher rate. In contrast, if the service provider initiated the contact and called the client that resided in the more expensive location, the reverse would hold true. The provider is presumably reaching out overseas because of the greater pricing there, and is entitled to the higher rate unless specified otherwise. Thus, we do not focus on the physical location of either the services or the provider. Rather, we focus on which side initiated the contact, and we follow the minhag of the passive party.

In conclusion, while it is always important to have clear and specific contracts, it is especially critical when engaging in cross-border transactions. Otherwise, determining which location’s minhag should apply is dependent on the various technical factors mentioned above, and the results may be rather unpredictable. 


[1] Ramuh 331

[2] Radvaz 1:545

[3] See however Btzel Hachachma 3:29 that maintains that local norms are usually binding on all, regardless of the parties knowledge.