Solar Panel Litigation & the Emerging Clean Energy Trade War — Good for Whom?

Posted on October 21, 2011 by Stuart Malawer

A new dumping / subsidies case was filed recently by American solar panel makers attacking China’s subsidies to its manufacturers. This filing with the International Trade Administration / U.S. International Trade Commission is a new skirmish in the emerging clean energy trade war between the U.S. and China.
Actions by related manufacturers, such as the steel towers for wind turbines, are being contemplated in this emerging front in global trade actions by the U.S. and its firms against China in the green energy sector. (The U.S. previously brought an action in the WTO against China concerning wind turbine subsidies .)
This case may or may not be easy to win. Even with reliance on the fact that China is considered a non-market economy, so it’s easier to establish trade remedy violations, this could be a difficult case to win. This is because of the complex nature of the corporate structures and financial transactions involved.
If trade restrictions are eventually imposed Chinese firms could establish American operations to avoid these newer  restrictions. The same way foreign auto firms did throughout the American south in the 1980’s and 1990’s and continue to do so. Just note the poor shape the rustbelt auto producers found themselves in after the establishment of these foreign plants.
Undoubtedly, states throughout the U.S. would seek this new foreign investment from Chinese firms. Which would actually be good for workers but not the firms or the employees of those firms that brought this new litigation.
Trade protection doesn’t necessarily really help U.S. manufacturers. In fact, some U.S. firms might move to China to partner with Chinese firms in order to have access to those foreign subsidies.  It’s not only multinationals that can enter into cross-border transactions and take advantage of foreign regulations and financing. It’s a globalized world.
To me the better answer is not more domestic litigation by industry but more effective trade negotiations by the USTR.  Get China to fully report existing subsidies  as required by its accession agreement. Address them diplomatically and if that fails through the WTO litigation process. This process has proven to be fairly quick and effective. The U.S. has won most its cases brought against China.
Posted in Global Trade Relations | Tagged , , , , , , , , , , , , , , , , | Leave a comment

Foreign Investment and National Security – Restricting Huawei’s Contracts & Investments – Wrong Signal?

Posted on October 17, 2011 by Stuart Malawer

Various attempts to acquire business opportunities in the U.S. by the Chinese telecom company, Huawei, have been blocked by the federal government. These federal actions have been based upon national security concerns over technology transfer and cybersecurity.
 Global mergers and foreign investment are essential to the economic prosperity of the U.S. While there is a “security exception” under the WTO rules governing trade relations it has never been relied upon or adjudicated. 
The U .S. needs to clarify its dealings with Huawei. It should fully address the issues of technology security and foreign government ownership. This clarification would help ensure that U.S. policies are sound and are consistent with its general policy of  attracting foreign investment.
 Greater transparency that encourages foreign investment is good for jobs, economic development, and global transactions.
National security restrictions need to be justifiable and not provide cover for protectionist actions. We do not want foreign governments to use national security as an excuse to preclude U.S. investment into their markets. Global investment into the U.S. should be welcomed and not scared away.
During this presidential election season the clash of interests in Washington between national security and global trade is obvious. But this domestic political debate cannot become self-destructive. Sensible policies should be formulated and implemented to encourage direct investment but also to protect our national interests.
It is a tricky balance to engage in the global trading system, to manage important bilateral economic relations, and to provide for the national defense in the 21st century.
 It is a globalized world, hyper-charged by technology and greater connectivity. We need to embrace this global environment in order compete aggressively to succeed. But we also need to be safe.
Posted in Global Trade Relations | Tagged , , , , , , , , , | Leave a comment

Three New Bilateral Trade Agreements — What’s the Real Impact? — Economic or Political?

Posted on October 13, 2011 by Stuart Malawer

Congress just passed the bilateral trade agreements with South Korea, Colombia and Panama. This is clearly a rare bipartisan act and a success for President Obama. But what is the real significance of these new free-trade agreements? Is it economic (read American jobs) or political?
It seems to me that in the context of interlocking issues of globalization and global commerce these agreements are not particularly important. It appears to many that the impact will be small in terms of new U.S. jobs.
It’s interesting that these agreements were passed by Congress while it was voting favorably for the restrictive currency legislation aimed at China.  Perhaps the vote for the protectionist legislation provided cover for those voting for the free-trade agreements.
Nevertheless, the passage of the bilaterals is a real political achievement for President Obama.  It may have significant and beneficial overtones for U.S. foreign policy.
Hopefully, the passage of this legislation will lead to a more robust American trade policy and leadership in global trade relations generally. The Congress should start by renewing the fast track authority (“Trade Promotion Authority”) for the President. This would help make the U.S. look more serious in its trade negotiations.
Posted in Global Trade Relations | Tagged , , , , , , , , , , | Leave a comment

Trade Remedy Actions — Which countries are the biggest users and biggest targets? — Some Surprises.

Posted on October 12, 2011 by Stuart Malawer

Which countries are the biggest users of trade remedy actions? Which countries are the most often targets of these investigations? What are the global trends in these cases?
Here’s some very interesting data from the WTO concerning antidumping cases, countervailing duty proceeding and safeguard actions:
  • The two leading countries initiating countervailing duty investigations in 1995-2010 were: India 48 and China 43. (The U.S. had 12.)
  • The two leading countries initiating antidumping investigations in 1995-2010 were: China 804 and Korea 273. (The U.S. had 224.)
  • The two leading countries initiating safeguard investigations in 1995-2010 were: India 26 and Turkey / Jordan 15. (The U.S. had 10.)
  • New antidumping investigations declined 29% from 2009 to 2010. India and the EU reported the most new ones.
  • New safeguard actions declined worldwide from 43 to 26 in 2010 (3rd quarter compared to the 1st quarter).
The following is data from the Congressional Research Service concerning antidumping actions for 1995 – 2005:
  • The three most often targets of antidumping actions were India, U.S. and the EU.
  • The four most often initiating antidumping actions were China, the EU, South Korea and the U.S.
The above is very interesting. The U.S. is not the biggest user of trade remedy actions or the biggest target for such global actions. In fact, the numbers of such actions globally have actually been declining.
Posted in Global Trade Relations | Tagged , , , , , , , , , | Leave a comment

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