National Security, Global Competitiveness, and Rules of the Road — The Right Balance at APEC & ASEAN — Promoting A Rules-Based Foreign Policy.

Posted on November 20, 2011 by Stuart Malawer

At the recent APEC and ASEAN trade meetings President Obama was concerned about balancing strategic and national security with global trade and competitiveness of U.S. firms. He also set a clearer tone for U.S. foreign policy, one promoting a rules-based system. This has been an unreported story.
In announcing the Pacific century for U.S. foreign policy, the President needed to balance the increasing China-bashing in the United States, growing concern over China’s military potential, and trade relations with China.
But the President was not only interested in diplomacy, trade and security concerns, he was also mindful of the global legal system and its promise of stability.
The President cited legal rules governing trade and international relations. In particular, he wanted China to play by trade rules and law of the sea rules as they pertain to the South China Sea. (Unfortunately, the U.S had not yet ratified the long-standing Vienna Convention on the Law of the Seas, which China has done.)
President Obama focused on peacefully managing the complex inter-related trade and national security aspects of U.S. – China relations. He wanted to demonstrate to countries of the region the staying power of the U.S. as it enters the endgame in Iraq and Afghanistan. Thus, the President declared a renewed military commitment to Australia and concern over conflicting territorial claims in the South China Sea.
Tom Donilon, President Obama’s National Security Adviser, subsequently wrote, “[The U.S.] requires the rights and responsibilities of nations are upheld …. By strengthening the international rules that must be the foundation of our shared future ….”
On balance the APEC and ASEAN meetings were beneficial. They sent a message that the U.S. administration intends to reenergize itself as an active participant in the Pacific region.
However, the most important long-term development at these summits was the President’s emphasis on the rights and obligations of nations as they participate in the international system.
This emphasis is important to regional and global systems as they evolve and as new actors rise and struggle to adapt. This more pragmatic and coherent U.S. approach to reliance on legal rules provides a framework for future U.S. policies despite political and economic dysfunction at home.
This rules-oriented approach to inter-state relations, balancing national interests with a developing multilateral system and institutions, reflects the President’s legal and professorial background. It complements and mirrors the traditional U.S. reliance on rules of law and institutions, both domestically and internationally.
Competing and conflicting interests are tricky to balance, as the APEC and ASEAN summits evidence, but so far so good.
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New Global Trade Push by U.S. — Any Impact on the Presidential Election?

Posted on November 14, 2011 by Stuart Malawer

There seems to be a renewed focus on global trade policy and particularly with nations across the Pacific by the United States. At the recent APEC meeting the U.S. forcefully backed the Trans-Pacific Partnership. President Obama has declared the 21st century to be the Pacific century.
The U.S. backs the trade liberalization proposed by the ASEAN nations. The U.S has been instrumental in fostering Russia’s accession to the WTO next month. Congress recently approved three bilateral trade agreements with Colombia, Panama and South Korea.
Is this good for global trade? The answer is “Yes.” The development of regional trade arrangements if done properly means more trade. The inclusion of the largest country still outside of the WTO makes the WTO more multilateral and relevant. The ratification of the bilateral trade agreements will increase U.S. trade with both East Asia and Latin America.
The question then becomes what is the impact of these trade actions on domestic politics within the U.S. during this presidential election cycle? Probably not much.
Certainly President Obama’s policies toward China need to reflect the increasing China-bashing in the United States. Thus, his public statements on the valuation of the Yuan and protection of intellectual property rights at the recent APEC meeting. He needs to balance these issues with the need for more U.S. exports to China and other trade and non-trade issues. He is highly concerned about balancing strategic and national security issues with  the need for U.S. global competitiveness.
More of the same can be expected at the forthcoming ASEAN summit. There will be more discussion of establishing a sustainable regional architecture, playing by the trade rules, and more cooperation in settling disputes. President Obama is clearly concerned about peacefully managing the various aspects of this most important bilateral relationship and encouraging greater Chinese investment into the United States. But still the domestic outcry in the U.S. is for jobs.
It is clear that the overwhelming interest in the U.S. electorate is jobs. These trade developments may have long-term implications, increase some trade and investment flows, but they have no immediate impact on unemployment. This is the central problem confronting President Obama.
Still these developments are good for the U.S., global trade, and global trade governance. They send a message that the U.S. administration is still an active participant in the global trading system, even thought there is strife between the political parties and within the political parties in the United States.
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Russia’s Accession to the WTO Will be Exactly 10 Years After China’s — Good for Global Trade Relations?

Posted on November 12, 2011 by Stuart Malawer

The Russian Federation’s expected formal accession to the WTO this December will be  exactly ten years after China’s formal accession in December 2001. Will this be good for global trade relations?
The history of China’s participation in the WTO’s dispute resolution system over the last ten years discloses that China was an active participant and implemented most of the recommendations against it. As trade increased between the U.S. and China more cases were filed. This is to be expected.
The main point is that the WTO provides a procedural mechanism to resolve trade disputes before they poison the larger bilateral relationship.
The same can be said about the potential for Russia’s accession to the WTO. As trade increases between it, the EU and the U.S. more trade disputes will percolate up. But it is the dispute resolution mechanism that can provide a firewall around these disputes and prevent them from escalating into major foreign policy clashes.
The United States now needs to exempt the Russian Federation from the outdated (1074) Jackson-Vanik amendment. It’s up to Congress to do this and it’s up to the President to ensure this outcome.
Yes, Russia’s accession to the WTO is good for future global trade relations. It subjects Russia’s chaotic capitalism to the strictures and rules of international trade law.
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Chinese Trade and Investment — Obama Goes to Asia to Stimulate Jobs Here. Good Idea?

Posted on November 8, 2011 by Stuart Malawer

President Obama is about to travel to China and Asia to promote Asian nations as among our most important trading partners in the 21st century.  Hilary Clinton in the new issue of Foreign Policy makes this very clear.
Hilary Clinton argues “On the economic front, the United States and China need to work together to ensure strong, sustained, and balanced future global growth.” She further states that “U.S. firms want fair opportunities to export to China’s growing markets, which can be important sources of jobs here in the United States … . At the same time, Chinese firms want to be able to buy more high-tech products from the United States, make more investments here, and be accorded the same terms of access that market economies enjoy.”
I agree. U.S. exports to China and investment from  China are key elements to the U.S. economic recovery. The United States needs to be more open to Chinese investment. It’s essential to our economic development.
However, there remains much skepticism, somewhat understandable, throughout the U.S. concerning Chinese investment. Chinese firms need to provide more transparency. But  U.S. officials need to be more open to do away with old prejudices stemming from the Cold War.
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Trade, Mercantilism and Cybersecurity — Better U.S. Legislation & Cooperation?

Posted on November 4, 2011 by Stuart Malawer

It’s been reported recently by the National Office of Counterintelligence that agencies and companies from Russia and China are conducting economic espionage and stealing U.S. corporate secrets. We’ve heard this story before.
Trade secrets, technology and intellectual property are being stolen from corporate and government computer systems at an increasing rate. This often state-sponsored activity is a threat to the U.S. economy and national security.
U.S. companies need to realize that foreign governments have a different relationship with their domestic firms than the U.S. government has to American firms. Foreign governments view their firms as full partners in state-corporate enterprises that compete aggressively in the global trading system.
How should the U.S. respond to this ever-growing set of inter-related problems of corporate espionage, cybersecurity, and global competition?
Four suggestions.
One, U.S. counterintelligence should not focus only on traditional military and diplomatic assets. It should focus on protecting domestic infrastructure including corporate networks. Two, establish a national counter-cyber center that promotes better government-business cooperation on cybersecurity. Three, more forcefully prosecute foreign actors under the Economic Espionage Act and other legislation. Four, adopt new legislation that specifically criminalizes extraterritorial cyber activity that impacts the security of U.S. corporate networks.
This would be a serious beginning. But don’t hold your breath.
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Limiting Extraterritoriality of U.S. Securities Law — Disincentive for Global Investors?

Posted on November 3, 2011 by Stuart Malawer

The Financial Times recently wrote glowingly of legal innovation. It claimed that lawyers were innovative because they were able to convince the Supreme Court last year to limit the application of federal fraud provisions in a case involving the purchase of a U.S. servicer of residential mortgages by a foreign bank. (Morrison v. National Australia Bank) This is a field that is close to the epicenter of the financial meltdown in the U.S. economy.
The lawyers argued that U.S. law should not apply to a scheme to defraud investors that was culminated abroad when the foreign bank purchased the U.S. firm. The Supreme Court held that the presumption of territoriality was not overcome; therefore, Rule 10(b)(5) did not have extraterritorial reach. There was plenty of evidence that fraudulent acts took place in the United States. The Financial Times argued incredibly that by adopting such a position the court helps protect corporations from unreasonable liability. Thus, it promotes foreign investment in the U.S. Really?
Given the obvious fact that the fraud in this case was perpetuated by a U.S. company doing business in the U.S. and related to valuation of U.S. assets, the court’s decision is baffling. Money and investors tend to go where legal systems provide protection and predictability. In case of fraud corporate investors want an opportunity to have a fair and transparent adjudication.
It seems uncontestable that investors want to know that once a cross-border fraudulent scheme is detected, they get a fair hearing in a well developed legal system against  corporations participating in the fraud.  (The Russian Federation is finding out that its shaky legal system of rules, prosecutions, courts and arbitrations is a huge stumbling block for encouraging foreign and domestic investors.)
In light of the continuing and growing financial chaos it doesn’t make sense for U.S. courts to shut its doors to global investors contesting cross-border financial transactions involving the purchase of American companies doing business in the United States and involving valuation of U.S. assets. Laws drafted years ago need to be interpreted in context of today’s globalized  environment. The decision of the Supreme Court amounts to corporate protectionism that places the court on the wrong side of history. The Supreme Court should be far less restrictive in reading economic legislation.
It is in the genuine interest of all investors that U.S. courts welcome litigation of this sort. Not all innovation is good.
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Presidential Politics — Forget National Security, Isn’t it all about Jobs and the Domestic Economy?

Posted on November 1, 2011 by Stuart Malawer

The latest WSJ / NBC poll found that 61% of Americans approve of President Obama’s handling of national security. That’s the good news. The bad news is only 6% really care and believe that national security should be the top issue in the presidential election. The remaining 94% of Americans think the primary issue is the domestic economy and jobs. And only 39% of Americans approve of the way the President is handling the economy. Given the continuing poor state of the global and domestic economies this spells trouble for the Obama reelection campaign.

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Domestic Compromise and Competitive Globalism – Isn’t it Obvious?

Posted on October 30, 2011 by Stuart Malawer

President Bill Clinton and Stuart Malawer (Oct. 2011)

I was at an event last week when former President Bill Clinton made a great point. As global competition becomes fiercer there is a need for greater political cooperation domestically within the United States. This cooperation between political parties is needed to formulate policies to allow private companies to compete globally. Who can disagree?
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Extraterritorial U.S. Economic Regulation and Prosecution — What’s the Impact? — Not Much?

Posted on October 26, 2011 by Stuart Malawer

What are the U.S. policy implications of extraterritorial application of U.S. economic legislation?
Many pieces of U.S. economic legislation apply to operations and transactions of U.S. firms outside of the United States. They also apply to transactions of foreign corporation outside of the U.S. on various jurisdictional grounds.
Transactions subject to extraterritorial U.S. regulation and prosecution include among others global mergers, corruption of foreign government officials, taxation of foreign income of U.S. firms, reporting foreign bank holdings of  U.S. nationals, participation in foreign government boycotts, securities violations (disclosure and inside trading), rules concerning commodity trading, antitrust violations such as price-fixing, violation of export and reexport controls, trade sanctions including financial transactions, and corporate governance especially as to firms listed on public markets within the U.S.
So what is the impact of all this legislation as to foreign transactions and foreign actors? It’s hard to say. But what is amazing is that the U.S. still remains the number one location for foreign investment.
The answer is somewhat unclear as to the competitiveness of U.S. firms abroad. However, it should be noted that U.S. multinational corporations are thriving with huge amounts of retained earnings in both the U.S. and abroad. (The same can’t be said for the U.S. government or economy.)
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Russia’s Accession to the WTO, Almost — It’s Long Overdue.

Posted on October 22, 2011 by Stuart Malawer

        

With the EU’s favorable action this week and Moscow’s announcement of its plan to join the Information Technology Agreement, the Russian Federation’s accession to the WTO has moved forward significantly. It’s almost completed. Only the opposition of Georgia seems to be holding it up.
Russia’s membership in the WTO is long overdue. The integration of Russian Federation into the global economy is essential. The WTO is the only major multilateral organization that really works. Its goal is the creation of a rule-based trading system and its dispute-resolution system is extraordinarily effective.
 Global trade has expanded exponentially since the organization’s founding in 1995. The underlying premise of the WTO is that, as a rule-based system developed to govern global trade, it will help foster rules and institutions within the civil society of member states, making them more democratic and wed to the free market. This system is the critical link between global trade, economic prosperity and political development — as envisioned by the United States as the principal architect of the WTO.
Russia’s membership in the WTO is in the interest of the EU, the U.S. and the global trading system.
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