More WTO and Federal Cases, More Sanctions, More Tax / Trade Debates — Any End in Sight? Better Rules Needed?

China and U.S. (FT July 2014)

     Early July was dominated by news concerning the U.S. and China concerning cyberespionage, trade, a recent WTO case as to SOEs decided against the U.S., a recent federal case decided against the Obama government concerning CFIUS, some state action in the U.S. concerning economic development, and continuing concerns over ‘corporate inversions’ to avoid U.S. taxes by MNCs.. These issues show the increasing importance of legal rules pertaining to international trade relations and U.S. economic policies. (Most recently renewed trade and financial sanctions against Russia, even prior to the destruction of the Malaysian airliner over the Ukraine, is dominating the trade debate.)
     To me this ever increasing relevance of trade to a host of non-trade areas only enhances the need for more rules and greater governance over cross-border issues.Here are some specifics:
….. Russia warns of possible retaliation over new U.S. and EU financial and trade sanctions that have been imposed recently. “Russia Warns of Consequences.’ Washington Post (July 18, 2014).
….. In 2012 China filed the most corporate deals (23) that were reviewed by CFIUS. Of the total 114 deals filed 22 were withdrawn during review or investigation. Appeals courts rejects the U.S. in a major loss concerning CFIUS. First Time. First major case addressing the national security reviews by CFIUS of foreign corporations making investments into the U.S. Major win for China and a loss for the U.S. Companies have constitutional rights to present cases based on unclassified evidence to the administration.Appeals Court and CFIUS.” Wall Street Journal (July 15, 2014).
….. This is a significant defeat for the U.S. in its litigation concerning China in the WTO. The WTO panel ruled that many of the countervailing duties imposed on China by the U.S., to counteract its subsides, were incorrect. Especially as they were applied to state-owned enterprises (SOE). This shows the growing significance of WTO litigation in resolving trade disputes before they become even more politicized. WTO News (July 14, 2014).
….. Doesn’t it make more sense for firms to relocate to other parts of the country to increase efficiency? Of course it does. Look at the move by Northrop Grumman to Virginia to be closer to its customer base in the defense industry. The same can be said for cybersecurity firms and the intelligence sector. This article fails to account for foreign investment and location of foreign subsidiaries to the U.S. State incentives to them don’t drain business from neighboring states. State Economic incentives are much more nuanced than simply stating they drain tax revenues. Economic Development Tactics and the Economy.” Washington Post (July 14, 2014).
….. Really need international corporate tax reform in the U.S. This is a good place to start. Off-shore avoidance by MNC and ‘corporate inversions.’ “Off-Shore Tax Avoidance.” Washington Post (July 13, 2014).
….. Governor’s Leadership, Trade and State Economic Development. Great piece in the Washington Post this morning. Connections and closing deals are essential aspects of state economic leadership. Virginia is benefiting from the new Governor’s networking and aggressive focus on international and national firms for bringing new investment and transactions to Virginia. Agriculture, manufacturing and tourism are all benefiting. As government spending is decreasing private sector development is essential. This is especially true for encouraging foreign investment from a variety of countries such as China and Qatar. They have the money and they want to invest and buy from Virginia. This benefits all of us. Greater state cooperation with the federal government including the USTR, Agriculture and Commerce is essential. “Virginia and Foreign Trade.” Washington Post (July 13, 2014).
….. Geopolitics and Globalization. Financial and trade links between the U.S. and China buffer against political and military tensions. Will this continue? Bilateral investment talks are increasing. Surge of Chinese investment into the U.S. But some Chinese industrial policies are counter to greater liberalization. It’s in the interest of all countries that economic diplomacy prevails over issues that could lead to confrontation rather than cooperation. “U.S. – China.” Financial Times (July 11, 2014).
….. Newest criminal indictment in cyberespionage. Story is part of larger Chinese industrial espionage and describes its ecosystem that includes individuals trying to sell to state-owned enterprises. “China and U.S. Cyberespionage.”  Washington Post (July 11, 2014).
….. China claims the NSA is conducting spying for economic advantage.The U.S. claims China is even more aggressive in spying for commercial advantage (violating intellectual property rights under the WTO). Too bad the joint committee on cyberespionage didn’t meet at the recent Strategic & Economic Dialogue in Beijing. This would have been a good diplomatic step to address these newer issues in international relations.  “U.S. Denies China’s Claims.”  New York Times (July 19, 2014).

….. Only good news from the recent Strategic & Economic Dialogue in Beijing is that the U.S. agreed to speed up talks for a bilateral investment treaty (BIT) and China has agreed to open closed areas for new foreign investment. This is good for mutual economic and trade relations. Maybe next time we’ll have some progress on cybersecurity issues (digital spying for economic and commercial advantage). Financial Times (July 11, 2014).

 

 

 

 

 

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About Stuart Malawer

Distinguished Service Professor of Law & International Trade at George Mason University (School of Public Policy).
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