U.S., China and EU — Recent Trade Cases — What do the Portend?

Posted on October 11, 2011 by Stuart Malawer

The four major cases noted below have been decided by the WTO concerning China, the U.S. and the EU during 2011. What do they indicate? One, that China has won a major case against the EU. This is China’s biggest victory in the WTO. Two, the U.S. has won two major cases against China. Three, China mostly prevailed on appeals in an important case against the U.S. 
What are the lessons? One, the U.S. is doing pretty well in the WTO litigation process. Two, but so is China. What does this portend for future trade relations? The answer is simple. Both China and the U.S. know the global trade rules and they are perfectly able to defend their positions. Don’t take any litigation for granted. The U.S. recently filed another case against China late last month in the WTO. This one contesting China’s antidumping duties on the import of U.S. poultry into China. 
China
Recently Decided China Trade Litigation in the WTO in 2011.
Posted in Global Trade Relations | Tagged , , , , | Leave a comment

Foreign Policy is now driven by Domestic Economic Policy.

Posted on October 8, 2011 by Stuart Malawer

U.S. foreign policy is now driven by domestic economic policy considerations. Can the U.S. sustain overseas wars and military actions while China  and other countries are thriving and the U.S. is not? To me this is the threshold question confronting U.S. policymakers and electorate. After 10 years of fighting wars and cutting taxes the U.S. simply cannot continue businness as usual, which in increasing its economic distress daily. Foreign policies will now be judged more on a cost-benefit basis than ever before. We need to refocus our foreign policy goals and to formulate a more precise form of international involvement. We can’t do everything. How will our foreign policy impact the U.S. economy (jobs), relations with China, and global economic competitiveness? Is anything clearer than this?
Posted in Global Trade Relations | Tagged , , , , | Leave a comment

Free Trade and National Security — Stronger Foreign Economies are in our National Interest.

Posted on October 6, 2011 by Stuart Malawer

President Obama’s national security adviser Ton Donilon makes the free-trade case for national security when he advocates the passage of  three bilateral trade agreements recently submitted to Congress (Panama, Colombia and South Korea). He argues passage will signal our commitment to strengthening bilateral relations and demonstrate American strength and resolve. He argues these trade agreements  complement our political and military ties to these nations. I wonder if a better argument would be that bilateral trade agreements significantly support  economic development of countries and that is what  is important to American national interests.
Posted in Global Trade Relations | Tagged , , , , , | Leave a comment

Enforcing Corporate Responsibility when Banks Undertake Questionable Foreign Exchange and Currency Transactions.

Posted on October 4, 2011 by Stuart Malawer
Private whistleblower litigation and litigation by the state officials have been brought against the Bank of New York Mellon in courts throughout the United States including New York, Virginia, California, Florida, and Massachusetts.  Just this week the federal government (U.S. Department of Justice) also filed suit for $2bn for fraud in New York.
Generally these suits allege that the bank breached its fiduciary duty and defrauded state pension funds. In particular, they allege the bank overcharged state pension funds when it conducted foreign currency transactions on their behalf. These case further contend this cost the pension funds and state employees millions of dollars. 
Federal securities regulators (SEC) have also began to look at this situation.
This is clearly a situation where it is good public policy to utilize litigation and administrative action to enforce corporate responsibility when a bank conducts questionable foreign financial and exchange transactions on behalf of a client. And it is the bank that profits. It is good for corporate governance, state pension funds, and for state employees.
These cases argue that the bank intentionally charged state pension funds different rates for converting dollars to foreign currencies and converting foreign currencies to dollars. That the bank reported inaccurate data to its clients  to mislead them and pocketed the differences.  The bank argued that it owed no duty to its clients to disclose let alone to do anything any differently
Public pension funds have doubled their international transactions in the past 15 years. This is a huge problem that has only recently become apparent.
Some of the nation’s largest investment firms have also claimed that they have been overcharged in their foreign-currency transactions. For example, Black Rock, Inc., the world’s largest fund manager, identified questionable pricing issues with the Bank of New York’s buying or selling currency in the foreign-exchange market. It claims the bank exchanged currency at prices favorable to the bank under “standard instructions” rather than at the most beneficial prices for its customer, Black Rock, Inc.
To me, if a national bank is trying to systematically profit improperly at the expense of  investment banks, state pension funds, and state employees it should be called to answer in the courts and federal agencies. It is this type of financial self-dealing that was a significant cause of the recent financial crisis. Enforcing good corporate responsibility is good public policy via litigation, especially in tough times. 
Posted in Global Trade Relations | Tagged , , , , , , , | Leave a comment

Export Subsidies and Undervalued Foreign Currency — New Bill is a Bad Idea.

Posted on October 3, 2011 by Stuart Malawer

The U.S. Senate recently passed the “Currency Exchange Rate Oversight Reform Act of 2011.” This proposed legislation is very questionable. It purports to give a populist answer to a very complex set of problems. These problems include market access, recognition of intellectual property rights and cybersecurity.
The proposed legislation would allow the undervaluation of a foreign currency to be considered as a factor in determining an illegal subsidy. Technically, such undervaluation would be viewed under the WTO rules as an “actionable subsidy” allowing a countervailing duty in the form of a tariff surcharge. This is through by imposition of countervailing duties by the United States via the International Trade Commission / International Trade Administration process. This type of protectionist action in the midst of a global slowdown could lead almost inevitably to a trade war with China.
Here are two major problems, among many others, concerning the proposed legislation relating to the World Trade Organization (WTO) and third-party countries (countries other than China).
One, the U.S. legislation is simply not consistent with WTO rules. WTO rules concerning subsidies and currency obligations do not regulate general currency or monetary policies. Action by China against the U.S. in the WTO is  almost certain. (China is a very active litigant in the WTO’s dispute resolution process.)
Two, the rule of unintended consequences may come into play. Actions could be brought by U.S. firms against imports from countries other than China. This is because the language of the legislation is general and not specific to China. This might well involve litigation against countries such as Japan, Switzerland and Brazil. In addition, countries may bring actions against the U.S. and U.S. exports under their own laws and interpretation of WTO rules.  Countries have been critical of  the U.S. monetary policy of quantitative easing and proposals for future easing.  They argue this monetary policy leads to undervaluation of the dollar (“cheap dollar”) and helps U.S. exports, which of course it does. The issue of competitive devaluation is always lurking underneath the surface.
Merely filing subsidy actions in the U.S. against Chinese imports would most likely result in more trade friction with China. This is just what we do not need in the midst of this economic mess. Negotiations with China are more appropriate than more trade friction and increased global trade litigation.
Posted in Global Trade Relations | Tagged , , , , , , , | Leave a comment

Chinese Investment & State Economic Development in the U.S. — A Good Idea.

Posted on October 1, 2011 by Stuart Malawer

As a result of the 2008 global financial crisis and the Great Recession, states are confronting fierce fiscal challenges and the job market is weak. In addition, the U.S. economy is not recovering as it has in past economic downturns. In response to these increasingly bleak prospects, states have become more aggressive in the global marketplace. Fostering corporate investment from China is seen as one of the major strategies for job creation in the United States. What do you think?
Check my recent article “Chinese Investment and State Economic Development” in the New York Law Journal (Oct. 2011).

Virginia Lt. Governor Bolling & Stuart Malawer, Members of the Board of Directors of the Virginia Economic Development Partnership

Posted in Global Trade Relations | Tagged , , , , , , , | Leave a comment

Two Questionable Trade Proposals …. “Buy American” & Currency / Subsidy Determinations.

Posted on September 30, 2011 by Stuart Malawer

Malawer, FEDERAL REGULATION OF INTERNATIONAL BUSINESS (U.S. Chamber of Commerce)

The “Buy American” provision in President Obama’s “American Jobs Act” is viewed by some as an “anti-stimulus trade provision” similar to that in the earlier 2009 stimulus legislation. This may very well be illegal under WTO rules. Remember the uproar this type of provision caused with Canada.
The Senate is considering legislation requiring estimates of currency undervaluation when calculating anti-subsidy import tariffs. This may very well also be considered illegal under WTO rules. This proposal may represent in a perverse way an understanding that current WTO rules do not, in fact, outlaw currency actions in the context of subsidy determinations.
The larger question is why do the administration and the Congress propose legislation that is inconsistent with our global trade obligations? Do these proposals represent a backlash against globalization which is viewed as making things much harder for the U.S. economy?
Posted in Global Trade Relations | Tagged , , , , , | Leave a comment

Update on U.S. – China Litigation in the WTO — What’s the Verdict?

Posted on September 28, 2011 by Stuart Malawer

Stuart S. Malawer, WTO LAW, LITIGATION & POLICY.

Two instructive quotes concerning the WTO dispute resolution system and the role of China in observing the rules of global trade can be found in the Financial Times earlier this year.
“[The WTO is] the greatest advance in multilateralism …. It provides enhanced rule-based global economic trading system … Its dispute resolution mechanism has proved robust and effective …  [It has] many characteristics of a global legal system….. [I]n the highly sensitive area of trade a quasi-judicial system of adjudication … is [the] objective.” Sutherland, “The World Will Regret its Neglect of Doha.” Financial Times (Jan. 28, 2011).
“China wants to forge a new phase of globalisation where many of the roads – financial, commercial and perhaps eventually political. China is not seeking a rupture with the international economic system (although some foreign companies are fearful of a technology grab). But it is looking to mould more of the rules, institutions and economic relationships that are at the core of the global economy. It is trying to forge post-American globalisation.” “A Strategy to Reshape the Planet,” Financial Times (Jan. 18, 2011).
Here is an update of recent litigation between the United States and China in the WTO (2010-2011). I leave it to you to assess the role of China  in observing global trade rules.
… A WTO panel ruled that the United States violated its WTO obligations toward China in the poultry case filed by China contesting USDA restrictions on processing imports from China. However, in an unusual decision the panel did not make any recommendations since the relevant statutory provision expired. “U.S.-China Poultry Dispute.” WTO News (September 29, 2010).
… The Obama administration accepted the Section 301 labor (steel) filing and to investigate the clean energy polices of China as unfair trade practices involving, in part, quotas and taxes on export of rare earth metals. “U.S. Launches §301 Investigation into Trade & Investment Policies in Green Technologies.”  USTR Announcement (10.15.10).
…The USTR announced that the United States requested the World Trade Organization to establish dispute settlement panels in two cases against China. One case addresses China’s imposition of antidumping duties and countervailing duties on imports of grain-oriented flat-rolled electrical steel from the United States. The other case challenges China’s discriminatory and restrictive treatment of U.S. suppliers of electronic payment services. “USTR Requests Two New WTO Dispute Settlement Panels Against China.” USTR News (Feb. 11, 2011).
… A WTO panel has ruled generally in favor of China in its antidumping complaint against the EU concerning steel fastners. This is China’s biggest win in the WTO / DSU. China complained that the EU’s calculation of antidumping duties by use of constructive costs because it was a nonmarket economy wasn’t valid. Panel Report on China – EU Iron & Steel Fastners from China. (WTO Panel) (December 3, 2010).
… China has filed a new action in the WTO requesting consultations with the U.S. concerning its antidumping measures on shrimp imports from China. “China Files Dispute Against the U.S.” WTO News (Feb. 28, 2011).
… The Appellate Body reversed much of the panel report which ruled in favor of the U.S. The U.S. had argued that its CVD against China were justified because of Chinese subsidies on export of steel and other products. This decision addressed both “public bodies” and “double remedies.”  (Steel & Certain Products from China) WTO News (March 11, 2011).
… A WTO panel has found in favor of the U.S., the EU and Mexico and against China concerning its export restrictions on various minerals. These restrictions included export quotas, tariffs and minimum export prices. China relied upon environmental arguments but the panel rejected them because there were no corresponding measures to limit domestic industries. WTO News  (July 5, 2011).
… A WTO panel has ruled against the U.S. in using zeroing and on other issues concerning its antidumping duties on shrimp from Vietnam.  WTO News (July 11, 2011).
… The Appellate Body has ruled in favor of the United States against China concerning safeguard charges on tire imports, by upholding the earlier panel report. “U.S. Prevails in WTO Dispute about Chinese Tire Imports.” USTR News (September 5, 2011).
… The USTR has filed a new action against China concerning Chinese antidumping duties on import of poultry from the U.S. “New Action in WTO Contesting China’s A / D on Chicken Imports from U.S.” USTR News (September 20, 2011).
Posted in Global Trade Relations | Tagged , , , , , | Leave a comment

The Fight over International Taxation of Multinational Corporations is Just Starting.

Posted on September 26, 2011 by Stuart Malawer
The I.R.S. is increasingly targeting cross-border bank transactions worth billions of dollars. The I.R.S. has increasingly denied foreign tax credits to U.S. multinational firms. These developments need to be assessed within the context of the global financial crisis of 2008, the ongoing crisis over European sovereign debt, the debate over raising capital requirements of global banks, the continuing OECD review of transnational taxation, and the recent Obama administration proposals to reform the taxation of multinationals generally. Needless to say, the fight over international taxation of multinational corporations is just beginning.
Posted in Global Trade Relations | Tagged , , , , , , , , | Leave a comment

New U.S. – China Trade Litigation in the WTO — Active Trade Litigation Continues.

Posted on September 22, 2011 by Stuart Malawer

Yesterday the Obama administration filed yet another action against China in the WTO dispute resolution system.  This complaint involves China’s antidumping and countervailing duties on the import of poultry from the U.S. This filing continues the aggressive enforcement actions first initiated during the Bush administration and built upon by the Obama administration. It’s a good idea to enforce global rules of trade. It’s also a good idea to settle trade disputes in a legal forum and not fight them out in newspapers, where they can spin out of control. I’ve recently reviewed the 10-year history of U.S.-China litigation in the WTO.  I concluded that both countries actually enforce adverse rulings fairly diligently. That’s good for the United States, China and the global trading system. United States-China WTO Litigation (2001–2010)
Posted in Global Trade Relations | Tagged , , , , , , , | Leave a comment