The U.S. regulatory agencies are continuing with aggressive extraterritorial application of U.S. economic legislation to foreign banks and foreign auditors under the Dodd-Frank legislation. Most recently the Federal Reserve is about to require foreign banks to increase their capital requirements and the SEC is about to suspend Chinese auditing affiliates of U.S. firms for failure to turn over work documents as part of a SEC’s investigation of Chinese firms. “Exporting U.S. Rules for Banks.” New York Times (January 23, 2014) and “Judge Suspends Chinese Units of Auditors.” Wall Street Journal (January 23, 2014).
The question now is how will this impact U.S. multinationals abroad and their regulation by foreign countries.
Specifically, as to China, the clash of U.S. and foreign regulation is most stark. This is a clash of sovereignty. The U.S. is attempting to apply its regulations to Chinese firms inside of China. China views this, as most countries would, as a violation of its sovereignty. Unintended consequences of U.S. regulatory actions impacting foreign transactions and actors may mean tougher Chinese regulation of U.S. multinationals in China.
This most recent episode highlights a critical trade issue of this decade. How to diplomatically and legally manage the clash of different national regulatory systems. Obviously, this calls for additional rule-making my bilateral, regional or multilateral agreements.