Chinese Investment — Surges in the U.S. and the EU — On Real Estate — Repeat of the 1980s?

Posted on October 7, 2014 by Stuart Malawer
     EU and China Flags
     Chinese direct investment in the EU was $108bn last year (2013). The U.K. was its largest market with a focus on real estate. Over the most recent nine-year period Chinese investment into U.K. real estate was over $7.1bn. Recent Chinese direct investment in the U.S. was also  focused on real estate. Yesterday it was announced that the Waldorf Astoria hotel in New York City was sold to Anbang Insurance Group of China for nearly $2bn. What are two implications? One, Chinese investors have a lot of money and they want to invest it outside of China, into developed countries. Two, real estate is perceived as a safe and understandable investment. These investments are by both state-owned companies and private ones. One concern. Is this a repeat of the Japanese investment into U.S. real estate in the 1980s?
“China’s Huge Bet on European Assets.” Financial Times (Oct. 7, 2014).
Chinese Investment into the U.S. 2d Quarter 2014. (Rhodium Group Website, July 2014).
“Waldorf Astoria Sold for $2Billion.” New York Times (Oct. 7, 2014).
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Investor-State Clauses and Other Trade Issues — Still Contentious.

Posted on October 6, 2014 by Stuart Malawer
Globe and Conflict (FT)
     The issues of maritime shipping (containerization), export subsidies, currency valuations, global taxation, Investor-State clauses in investment treaties, and WTO litigation continue to be big issues in global trade relations. They issues go to the core of global trade today. Unfortunately, many of these issues are still very contentious. It’s good that the global trading system is moving toward greater judicial determination in the WTO and bilateral investment relations. Here are some specifics:
“Colossus Cargo Ships.” New York Times (Oct. 4, 2014).
…. The author contends that an export-driven economy relying upon export subsidies is a sustainable trade strategy. This is a misplaced idea. Even China today is moving away from that dated notion. Protectionism cannot replace free trade as the best means of achieving economic development and job creation. “Faith in Free Trade.” New York Times (Oct. 4, 2014).
…. Keeping currency values low is now a key export & economic development strategy not just for China but for the EU & Japan. “Overseas Stimulus.” New York Times (Oct. 3, 2014).
…. This argument that Investor-State clauses (ISDS clauses) are invalid because they work against the host-state and the environment is simply incorrect. They support firms and freer trade and investment. This has been a staple of U.S. trade and investment policy for decades. They have been included in our bilateral investment treaties (BIT) and have proven to be forward-looking in moving away from nationalistic and restrictive practices. “Trade Clauses and Governments.” Washington Post (October 2, 2014).
…. Global tax strategies by technology firms have managed to create a global backlash by governments. This has actually been beneficial to the chances of revamping the existing system. “Technology Tax Defense.” Financial Times (Oct. 2, 2014).
…. The WTO Director-General recently discussed the Dispute Resolution system. He noted 4 broad conclusions: (i) Disputes over 16 years have involved over $1 trillion of trade flows; (ii) Dispute mechanisms in Regional Trade Agreements have not been used even though they could have been; (iii)There has been a surge in use of the DSU, with the highest number in 2014, a doubling since 2012, and a high rate of appeal; (iv) More than 2/3 of the members have utilized the system. This is impressive in contrast to the poor history of the WTO to negotiate new rules. “WTO Disputes and Challenges.” WTO News (Sept. 27, 2014).
…. U.S. multinationals are already world-class experts in tax avoidance. This has already created the ‘territorial’ tax system that they want. This needs to be aggressively remedied. The new Treasury rules should only be the beginning. “Banked Overseas.” New York Times (Sept. 26, 2014).
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Active WTO Litigation and Other Global Trade Developments.

Posted on September 25, 2014 by Stuart Malawer

Ships

     Important trade developments recently have involved the WTO as to the ‘Bali Agreements,’ EU-Russia litigation, and threatened Russian litigation over U.S. trade sanctions. Also have had recent developments concerning U.S. anti-tax inversion rules and Chinese antitrust and corruption actions. Here are some specifics:
….. India is on the verge of ruining the ‘Bali Agreements’ and WTO negotiations stemming from the Doha Round. The new government objected to proposed new WTO provisions (concerning reducing customs restrictions) that would restrict, in India’s assessment, its extensive food subsidies. India argues that these subsidies are necessary to ensure sufficient supplies and food security in its domestic market. This is too bad. India was once a constructive force in trade negotiations in the WTO as well as a forceful participant in its dispute resolution system. “India and Trade Talks.” Financial Times (Sept. 25, 2014).
….. Two panels were established by the WTO to hear two trade disputes between the EU and Russia. Russia is contesting EU antidumping duties and the EU is contesting Russian agricultural import bans (pork, pigs). This dual-trade dispute is in addition to the EU – Russian dispute over the legality of EU trade sanctions imposed on Russia over the Ukraine. “Two Panels EU – Russia.” WTO News (July 22, 2014)
….. U.S. Treasury Dept. action to restrict corporate tax inversions in cross-border mergers. Long overdue. Only the beginning to address this critical policy issue seriously. Guidelines issued pursuant to existing regulations. Relate to various issues such as internal loans and control between affiliated and subsidiary corporations. “Tax , Inversions and U.S. Corporations Abroad.” New York Times (Sept. 23, 2014).
….. Historical verdict under Antiterrorism Act (ATA). Foreign bank liable for its assistance in providing financing of terrorist organizations. “Terror Funding Litigation.” New York Times (Sept. 23, 2014).
….. China has aggressively used its antitrust law against multinationals in corruption probes. (Of course, the same can be said for the U.S.) The issue now becomes to what degree is antitrust law used as a pretext to protect its own firms and to create a new restriction on trade and investment. “China Fines GSK for Corruption $500 Million.” New York Times (Sept. 20, 2014).
….Russia may very well file an action (request consultations) in the WTO over U.S. trade sanctions. This would be the first time the ‘Security Exception’ (GATT Article XXI) would be tested. Hard case to win. But if Russia prevails this would throw the WTO legal system and the global trading system into complete havoc.  “Russia and WTO Litigation Over U.S. Sanctions.” DK (Sept. 21, 2014).
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International Tax, Internet Governance, Trade Sanctions — International Institutions Fostering Global Rules.

Posted on September 17, 2014 by Stuart Malawer
Web and Globe 
    Four recent developments are really interesting. They deal with international taxation and new OECD and G20 proposals, ITU and  governance of the Internet, and threatened Russian litigation in the WTO over U.S. and European trade sanctions. The thread that connects these four items (global taxation, the Internet governance and political trade sanctions involving export and financial controls is the role of international institutions (the OECD, ITU and the WTO) in promoting global rules in these critical global commerce areas.
… Combatting corporate tax avoidance, especially in its international aspects, is a top policy objective of governments across the globe. The OECD is making surprisingly significant progress. It’s proposing mandatory reporting by multinationals on country-by-country basis of revenues and taxes. The G20 is also active in proposing new rules such as to transfer-pricing. Newer issues remain as to digital and ecommerce. Good start by global institutions to address global issues. “OECD and Corporate Tax Evasion.” Financial Times (Sept. 18, 2014).
…  The OECD had made major gains in moving toward a new multilateral tax agreement restricting a firms ability to move profits to an offshore jurisdiction. The proposed provisions include company reporting on a nation-by-nation basis and replacement of many bilateral tax treaties. “Global Tax and OECD.” Wall Street Journal (Sept. 17, 2014).
…. ICANN is under attack again at the International Telecommunications Union (ITU). This time the “Balkanization” of the Internet is becoming somewhat more likely. There is a growing reaction against the openness of the Internet in light of the NSA snooping and U.S. technology firms and service providers apparent acquiescence.  “Tying Up the Internet.” Financial Times (Sept. 17, 2014).
… Russia threatens to sue in the WTO over U.S. and EU transactions imposed over its action in the Ukraine. This case if it is filed has the potential of being a game-changer for the WTO and global trading system. Would involve the never-litigated ‘Security Exception’ (Article XXI) of the GATT agreement. Long-shot. But would raise great political opposition to the WTO if Russia prevails. “Russia Threatens Law Suit in WTO over Sanctions.” Russia Today (Sept. 13, 2014).
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Novel Trade Issues in a Changing Global System.

Posted on September 9, 2014 by Stuart Malawer
Global (Definition)

 

      A number of global events recently have raised interesting and novel questions in global trade relations and foreign policy generally. They involve the relationship between antitrust law and trade law (WTO), the disconnect in the U.S. between financial markets and geopolitics, the continued use of ‘tax inversions’ by U.S. multinationals,  foreign funding of policy research in the U.S., the reemergence of power politics in global affairs, and retreating from globalization. To me these developments evidence the increasingly changing nature of international relations today and its constantly evolving reality, into newer directions. Here are some particulars:
….. The U.S. Chamber of Commerce contends that China’s use of its new antitrust and monopoly law may violate its WTO trade obligations. It argues WTO litigation should be considered by the U.S. against China. This is a difficult undertaking. The old GATT and the WTO never specifically included competition rules as part of its trade rules. This issue has been on the negotiating table for ever. The WTO should expand its coverage to cover competition rules by negotiating and creating newer rules. This should not be done through its dispute resolution system. “China’s Antitrust Rules and WTO Rules.” New York Times (Sept. 9, 2014).
….. Geopolitics and Financial Markets. Some argue that there is a disconnect between U.S. markets and global politics. That geopolitics aren’t relevant. My take … They aren’t relevant until they are and then it’s too late. Nothing like sticking your head in the sand. “Investors Ignoring War.” Financial Times (Sept. 9, 2014).
….. ‘Inversions’ allow offshore funds to escape U.S. tax liability, to ‘lend’ back, and to deduct ‘interest.’ Enough is enough. We need some sane tax policy and corrective legislation. “Tax Inverters.” Financial Times (Sept. 8, 2014).
….. The best research foreign money can buy? Should the Foreign Agents Registration Act of 1938 apply to Washington think tanks that take foreign money and conduct foreign policy and public policy research? Maybe not but how about at least full disclosure. “Foreign Powers and Think Tanks.” New York Times (Sept. 7, 2014).
….. Is the world in more ‘disorder’ today than previously in global history? Has President Obama ‘over-corrected’ as a matter of foreign policy? What is the balance between Realpolitik (and its heavy reliance on national interest) and a ‘values-driven’ foreign policy’? These are questions that Henry Kissinger deals with in his new book. Still have lingering doubts about his views after his service in the Nixon White House. But he does raise and discuss important foreign-policy issues of the day in a good historical and political context. “World Order.” Financial Times (Sept. 5, 2014).
….. Nothing like cherry-picking and weaving a negative narrative. Nationalism and economic interdependence are indeed global forces at work today. The nature of globalization is evolving, not deconstructing. Back to the future is never a good policy. Leadership can’t rest on only one state. Developing a consensus should be part of a U.S. strategy. One that holds it’s in the national interest of all stakeholders that rules are developed and enforced to provide effective global governance to transnational transactions. “Marching Back From Globalization.” Financial Times (Sept. 4, 2014).

 

 

 

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The Changing Role of Trade in the Changing International System.

Posted on September 3, 2014 by Stuart Malawer

China and Opiium War (WSJ 7.13.13)

     Recent developments have occurred the last few weeks highlighting the changing role of trade in international relations, the changing international political system, the changing nature of trade relations involving cybersecurity and tariffs, the growing role of sub-national units (such as Virginia) in the global marketplace, as well as the often unrecognized but significant role of foreign students in promoting greater trade and investment opportunities. in the U.S. Here are some specifics:
….. A novel trade action was filed recently by Solar World Americas with the U.S. Dept. of Commerce asking for higher tariffs on imports of solar panels from China. This action is intended to counter the Chinese government’s hacking and theft of trade secrets from it. This is an attempt by a private firm to use trade tools to counter official Chinese government economic cyberespionage. “U.S. Tariffs and Chinese Cyber Spying.” New York Times (Sept. 1, 2014).
…..This program concerning cybersecurity start-ups is only one of several initiatives in Virginia concerning cybersecurity and economic development. This is based in the Center for Innovative Technology (CIT). Earlier this year the Virginia Economic Development (VEDP) supported a study promoting cybersecurity exports as part of Virginia’s new Global Defense Initiative. “Virginia Accelerator and Cybersecurity Companies.” Washington Post (Sept. 1, 2014).
….. The international order faces a paradox: Prosperity is dependent on the success of globalization. However, it produces a reaction that works counter to it. A new order is emerging. But its shape and the U.S. role is still uncertain. “Kissinger on the New World Order.” Wall Street Journal (August 30, 2014).
….. I agree that investment needs are staggering for infrastructure in the developing world. But I would also add the same is true for developed economies, especially for the U.S. There is a desperate need for an upgrade in both policies and institutions on the state, federal and international levels. “Martin Wolfe — The Shifts and the Shocks.” Financial Times (August 30, 2014).
….. Trade is often thought of as limiting potential military conflict between trading partners. But is this true? The opium trade clearly led to a bitter war between the British and China. The Opium War of the mid-19th century was sparked by China’s restrictions on the import of opium by the British from India. The British considered the war as ‘Just.’ The Chinese viewed the resulting treaties as unequal, imposed, and illegal. So what are the lessons for today? Two lessons. One, the impact of trade depends on what type of trade. Two, trade is not a panacea for peaceful relations. “Opium War and Trade.” Wall Street Journal (August 29, 2014).
….. Aligning the ‘new Virginia economy’ with the ‘global marketplace’ is the challenge that Virginia’s new Strategic Planning Committee faces. We need to get this right. It’s critical for the economic development of Virginia especially given the huge shortfalls we are having in the budget. “The New Virginia Economy and the Global Marketplace.” Virginia Governor News Release. (August 27, 2014).
….. Three really good points about local and state leaders leveraging foreign students to promote global trade and investment. This is an untapped strategy for state and local economic development. Public universities have a significant role to play in this process. Sooner the better.
1. Foreign students are a growing economic force in the United States, with huge potential to increase jobs and investment.
2. Local and state leaders should leverage foreign student connections with their home communities abroad to facilitate and deepen economic exchange with large foreign markets.
3. It’s time for local and state leaders to become truly global by realizing that foreign students studying in their regions are economic ambassadors connecting U.S. local economies to communities and networks around the globe.
….. “Foreign Students and D.C. as a Global City.” Washington Post (August 29, 2914). For the full Brookings report see “Geography of Foreign Students in the U.S.” (August 29, 2014). 

 

 

 

 

 

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International Judicial Institutions and Global Trade Disputes — Some Favorable Developments.

Posted on August 19, 2014 by Stuart Malawer

 

China and Microsoft (NYT 8.11.14)

     Significant events concerning global trade continue to occur recently this August. They involve a new WTO decision against China concerning export restrictions, a European Court of Human Rights decision against Russia, a Permanent Court of International Arbitration against Russia (both involving Yukos), increased use of antitrust laws by China concerning trade issues, and an appeal to the International Court of Justice by Argentina against the U.S. concerning sovereign debt obligations. To me the upside of all this is that countries are increasingly using international judicial institutions to help resolve trade disputes. This reflects favorably upon the larger governance issue of creating a rules-based global trading system. Here are the particulars:
The recent win by the U.S. against China in the ‘Rare Earth Case’ will help various industries access various minerals for exports. This win is not unexpected. “USTR Announcement and Rare Earth.” USTR News (August 11,2014) and “China Metals Curb Violates Trade, Law.” New York Times (August 8, 2014) and “WTO AB Report.” WTO News (August 7, 2014).
The growing relationship between foreign antitrust law and trade restrictions is highlighted by China’s aggressive action against Microsoft. Has enforcement of such laws become a trade barrier governed by WTO rules even though the WTO does not specifically address competition law? “China’s Enforcement of Antitrust Laws and Trade.” New York Times (August 11, 2014).
Now the Argentine debt comedy gets really interesting. My judgment — Argentina doesn’t stand a chance in the International Court of Justice in the Hague. The notion of ‘restrictive sovereign immunity’ is well known. Argentina has a long history of avoiding its international debt obligations that goes back to the 19th century. It has often been on the wrong side of international law. Besides the U.S. had previously withdrawn its acceptance of the compulsory jurisdiction of the court. It certainly won’t consent to such jurisdiction now.”Argentina Sues in International Court of Justice.” New York Times (August 7, 2014).
Russian counter-sanctions on agriculture imports. What’s next?  “Russia’s Counter-Sanctions — Food and Agricultural Restrictions.” New York Times (August 7, 2014).
“India Now Rejects Bali Agreement.” New York Times (August 8, 2014).
Robust institutions and rule of law is still the hallmark of the Western-based global trading system. But bugging International tragic and arbitrary economic sanctions weakens the legitimacy of that basis, so says this editorial. Sounds about right. “Western Rules …” Financial Times (August 1, 2014).
Three days after word arrived that Russia’s handling of OAO Yukos Oil Company would result in the largest arbitration award in history by a factor of 20, the European Court of Human Rights on Thursday announced a judgment thought to be its largest by a factor of over 100. “European Court of Human Rights and Yukos Award.” American Lawyer (July 31, 2014).
International arbitration is an ever-growing aspect of a rules-based global commerce system today. Just look at the largest arbitration award ever. A $50 billion award was just announced by the Permanent Court of Arbitration against Yukos Oil. Combined with the New York Convention on Arbitration domestic actions will now be filed worldwide to enforce this award. Arbitration of global business disputes is often more effective than litigation in global commerce. Unlike arbitration awards court judgments still remain outside of obligatory national enforcement. “Permanent Court of International Arbitration and Yukos Judgment.” New York Times (July 28, 2014).

 

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Corporate and International Taxation — Is Tax Avoidance Becoming the No. 1 Issue?

Posted on August 7, 2014 by Stuart Malawer

Tax Avoidance

     Rampant tax avoidance by global banks and multinational corporations keep happening.  Corporate taxation and specifically taxation of global transactions is now becoming the number one political issue in the United States this fall. It’s not just corporate inversions but a range of tax strategies and deductions that are being eyed by the general public and politicians as something that need to be addressed immediately. I agree. If the Congress doesn’t act the President should. I also agree. The Treasury Department has great responsibility in interpreting existing legislative enactments and issuing and revising its regulations.
“The Tax Dodge Goes On.” New York Times (August 7, 2014).
“Tax Trouble.” New York Times (August 7, 2014).
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Global Trade Rules & Courts Needed to Ensure Order in Increasingly Disorderly Global Relations.

Posted on August 3, 2014 by Stuart Malawer

 

Globe and Conflict (FT)

 

“WTO plunged into crisis as doubts grow over its future.” Financial Times(August 1, 2014).
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More WTO and Federal Cases, More Sanctions, More Tax / Trade Debates — Any End in Sight? Better Rules Needed?

Posted on July 18, 2014 by Stuart Malawer

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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