Heald. International Trade Law. Oxford 2009.

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Contents

Class 1 Reading Summary/Response

US-Japanese FSX Fighter Aircraft Dispute

The US government, particularly congress, used powers intended to control the release of military secrets to regulate a trade agreement involving fighter jets, not because they were concerned Japan would obtain military secrets or power, but because they were worried Japan would use that knowledge to take over the civilian aircraft industry.

As the casebook asks, "Should the government invoke national security concerns as a means of advancing national economic interests?"

Casebook introduces other interesting questions/points, e.g.

  • that other countries often nationalize/own high-tech industries (and should US do the same (possibly via regulation))
  • could Japan simply "compensate the U.S. workers and stockholders for their losses" when negotiating a trade agreement that would cause the US negative externalities
  • does negotiating with both congress and the executive branch introduce transactional losses
  • are private firms best able to protect national interests because of their own motivation to protect their own trade secrets
  • do private firms cause more negative national externalities than positive national externalities when allowed to trade freely
  • are the government representatives selected in a way that makes them hostile to the national interest when negotiating trade agreements
  • etc.

Eventual European takeover

Despite heavy intervention on the part of the US govt, US lost stranglehold over civilian aircraft industry to European Airbus company. Book asks: Does this mean the US gov't should have saved itself the trouble, or been more proactive when forming trade policies with Europe?

Paul R. Krugman, 1 Is Free Trade Passe? Journal of economic perspectives 131 (1987)

Comparative Advantage defined

"the view that countries trade to take advantage of their differences"

Krugman's argument

"a protected domestic market can -- under some circumstances! -- promote rather than discourage exports, and possibly raise national income." the article seems agnostic to the possibility raised by Robert Wright in Nonzero that the ultimate externalities brought on by free trade will outweigh a short-term loss in national income, and i further wonder if treaties blocking subsidies will render the issue moot (it almost seems to demand cooperation since the chart looks very much like that for a prisoner's dilemma). in any event, krugman's argument still seems problematic.

the idea is that an industry with such a huge economy of scale that will only be profitable if there are few or zero other competitors raises the possibility that a modest subsidy from a national government can shift a massive industry from one nation to another. Krugman uses the example of US based Boeing and Europe based Airbus.

this would be the first benefit of a protected domestic market, that more national income can come in than is paid out because of the economy of scale.

  • what i find problematic is just how a government would capture the income from that industry. the nation can't both "subsidize" on one end and separate that from "taxing" on the other. (that's assuming the business isn't nationalized.) and if the business is nationalized, then it's really two governments competing with subsidies, at which point it's reduced to a prisoner's dilemma, guaranteeing cooperation in the absence of negotiating failures.
    • if the company is privately owned, then i wonder how and whether the nation is really receiving all of that income. it's not getting it back in taxes (which would cancel out the effect of the subsidy) which means all that's left are the shareholders and jobs; the shareholders can be (and probably are) anywhere (particularly since tax treaties frequently reward passive investments) and so could the jobs (like if european Airbus hired American engineers).
      • which in turn means the example only works if the subsidy is tied to a restriction on where the jobs are located (and in practice they almost always are)
        • but if you take that all the way down the rabbit hole, the employees aren't giving that money back to the country, unless they get taxed (again reversing the effect of the subsidy). and if they're not taxed, then free trade still seems to prevail, since the employees would move about freely and the income would still be distributed among the competing nations.
          • although i suppose that assumes employees could move about freely, and if they can, then we really don't have countries anymore. i'll have to think about this more later.

and one other problem: housing the company there introduces costs (roads, police) that have to be offset somehow.

the second benefit of externalities: aside from the benefit of plain-jane profits, Krugman mentions externalities, like knowledge. krugman concedes that a lot of knowledge gains would not remain within a nation's borders, and thus not justify payout of a subsidy, but he says that some would: "The best candidates for nationally limited externalities are where knowledge spreads largely by personal contact and word of mouth." The examples Krugman gives of this are "Silicon Valley and Route 128" (Route 128 being the equivalent of Silicon Valley in Massachusetts), which, in 2008, seem quaint, both because nobody knows what Route 128 is anymore, and Silicon Valley ate it hard when the dot com bubble busted. If you log into any software development forum on the internet in 2008 (and many years prior), you'll see a slew of international developers working together and a slew of different character sets required to render their names. This makes these examples remarkably quaint.

IFG Position Statement

The International Forum on Globalization "was created in 1994 in response to U.S. approval of [NAFTA]".

The position statement is short, critiquing the current agreements among nations as encouraging a motley of imperialist corporations to take over the world at the expense of the environment, indigenous peoples, community self-determination, cultural diversity, and so forth. The solution, they suggest, is "new international agreements that place the needs of people, local economies and the natural world ahead of the interests of corporations."

The casebook seems to give this position short shrift by not supplying a few examples or details of what IFG's suggested international agreements would look like or discussions of whether they're economically viable, leaving us only with a statement of IFG's distaste for the present economic order.

5. The New International Economic Order

Developing nations have banded together, and to some extent nationalized industries, in order to repel the trading dominance of developed nations.

The casebook notes that this has not led to any substantial change on the part of the laws or agreements made by the developed nations, but one wouldn't expect this to happen--they aren't going to give up their strangehold voluntarily.

The casebook lacks a replete discussion of the varied efforts developing nations have made to shift the economic order in their favor, grouping them all under an umbrella of "mercantilist tendencies" (protectionism).

  • one counterexample i can think of for this would be the sourcing rule for taxation of services--developed nations have sourced services at the point of the service provider, developing nations at the point of the customer. there is no theoretically or logically or philosophically proper way to source the location of a service transaction; instead, both groups have grounded their taxation policy in what will provide the greatest economic benefit. it's hard to characterize one taxing position as more protectionist than another, and i imagine there are other examples of economic policies within the sovereign power of developing nations that have met with success (and if they're not considered that way, i'd be curious to know why). this is more of an introduction for the casebook, so maybe there's more detail later.

6. Intellectual Property

Nations aren't enforcing IP rights of foreigners because they have (surprise!) no reason to do so. There's a big freeriding problem for small countries who don't hope to contribute to, say, the pharmaceutical industry, and so can just manufacture cheap generics as soon as they're invented.

7. Structure of Multinational Firm

Not interesting if you've taken a corporations, business associations, or a state/international/comparative tax course.

8. Role of Lawyers: Advisors, Lobbyists, Litigators

Lawyers do all three. The lobbying section is a bit interesting, noting that in many countries they do a lot more work with governments and regulatory officials, and that this may end up being "bribery" and "influence-peddling" or at least viewed as such. Casebook laconically suggests that lobbying can be done "ethically and properly" as though ethics and feelings on what's proper are universal across time or geography.

Problems in Operating an International Business

So if you make a contract with somebody in another country, or a bank makes a loan to another country's government, who adjudicates disputes and how and what rules do they use?

Paul B. Stephan, The Futility of Unification and Harmonization in International Commercial Law

The title says it all, but more specifically, he feels that special interests take over working groups like UNIDROIT, UNCITRAL, the Hague Conference, and the ICC and manipulate them to do their bidding and that they probably won't ever bring about any decent unification of trade law any better than that created by national governments acting at a national level.

I always wondered why the Warsaw convention posted on my airline ticket made it impossible for me to recover my luggage. I suppose there were no angry airline passengers writing it.

CISG and Other International Agreements

CISG: Convention on Contracts for the International Sale of Goods

  • Japan and US haven't ratified it but are "putative beneficiaries"
  • Most parties opt out of its provisions anyway

Hague Rules

  • Also known as Brussels Convention of the Unification of Certain Rules of Law Relating to Bills of Lading
  • Adopted in USA as Carriage of Goods by Sea Act (COGSA)
  • Can be opted out but must meet special procedural requirements to do so, probably giving it more heft than CISG

Warsaw Convention

  • Full name: The Warsaw Convention on the Unification of Certain Rules Relating to International Transportation by Air
  • "regulates rights and duties of air carriers vis a vis passengers and cargo"

The Big Question, or rather, the big problem with all these regulating bodies

In referring to the UN General Assembly's agreements about international trade, but with a statement that could apply to a great many organizations, the casebook makes the understatement of the century: "stature but not authority"

there may be some hope though--the casebook notes that the custom of various tribunals, both arbitral and judicial, may build up to something universal. which doesn't seem totally out of the question, given that a lot of things became universals in the USA states' common law of contracts.

January 5 - Class 1 Notes

get treatises soon before library priveleges gone.

insists on preparedness, wants note if you’re not prepared

read the headlines in the international trade daily emails from heald

Why do trade issues upset everyone?

Is fear of McDonald’s xenophobia? Fear of losing your own identity?

Does international trade intrinsically benefit the developed world over the less developed world? Where does that intuition come from?

(I’m tempted to say that it comes from psychology—our frame of happiness comes from comparison, not to any objective sense of our actual position. Trading brings that out, stratifies society. Maybe. This is a testable guess. It would also cause more unrest due to the anger caused by visibility of stratification.)

How bout India? Jobs aren’t necessarily sweatshops, India produces software, accounting reports, lawyering material…

You can find plenty of examples of the old imperialist tendencies… (blood diamonds, over harvesting of forests in Indonesia). But stories in southeast asia where standards of living have gone way up… countries that were once exploited for labor now exporting more than importing. Heald: “hard to see necessary” condition that int’l trade always leads to exploitation.

What did yall think of this IGF statement? (page 24-25)

What issues seemed real? Any resonate less with your own understanding/perception?

Argument: “the more we spread out and produce,” the more dire environmental results.

  • if we’re characterizing indonesia as a victim, why don’t they care more about it?
    • it’s a negative externality, perhaps suffered by the world at large. all the value of the logging can be captured by a population in the present, whereas the costs are suffered by a broader geographic group across a broader span of time. no government around who can tax international polluters, or for causing pollution that will be problematic ten thousand years into the future. the gist of the commons and the negative externality.)
    • heald notes, “no internalization of those costs”
    • korea used to be a classic IP pirate in the 50’s, so was the US in the 19th century. but once an economy picks up, they get very protective of patents, copyrights, and not because they’re forced to, but because it becomes their own best interest. so there’s a lot of subtlety in examining ‘’’which problems are worth worrying about, and whether they require domestic or international intervention.’’’

Krugman article

Kate Jensen: the prisoner’s dillemma. free trade is good if everyone buys into the system, but if anyone cheats, then you’re worse off if you don’t cheat too.

  • Heald: but why wasn’t that always obvious? shouldn’t all the nations have agreed to free trade by now?
  • old laissez faire economist used to claim that nobody could make themselves better off through subsidies, because other nations will retaliate. US will just up their subsidy to Boeing after EU gives subsidy to Airbus. So Krugman’s hypothetical is really an argument for international regulation—Heald: “you should see it as a destructive game,” and reason for regulation of international trade. It’s not an argument for free trade with no regulation, because gaming the system sometimes works.

How do countries favor local interests?

  • Subsidies
  • Tax discrimination
  • Embargos (EU does that with hormone treated beef, basically cutting off US beef imports)
  • Tarriffs/Duties
  • Establish an infrastructure (Heald: I’d throw that in with subsidies; if they’re not discriminatory then they’re not really helping a local interst over another)
  • Quotas
  • Forced monopoly (British Telecom)
  • Nationalized (with no profit motive can charge lower prices and suppress competition)
    • other laws that allow state takeover of international competitors
  • You can’t sell blackberries in the EU. Why not?
    • they only run on batteries that can’t be sold in the EU because they can’t be disposed here
    • environmental laws can discriminate against foreign competition
    • product specifications, often related to health laws; ban on genetically modified agriculture products
    • of course, sometimes we like environmental laws, but sometimes that can be disguises for trade blocking

so in international agreements we’ll see rules blocking all these things. we’ll see one case on infrastructure which said that they’re ok so long as they go to an entire industry and not a particular firm.

external economics

Kate: although there are costs generated, there are also beneficial externalities to having an industry in your geographical area.

When people innovate in an economy, why is it impossible to capture all the benefits of the innovation? Why can’t you use contract law to make sure people payout for all the benefits they gain? (Aren’t you getting a payout from a subsidy based on the net benefits to the community?)

  • The invention of the car benefitted people worldwide, it pushed the technology of the world further, other nations won’t respect the patent, and the knowledge from taking the engine apart will allow people to invent other things. “Pure economic spillovers”… McDonald’s makes most of its money from drive throughs, which were made possible by the car. Any company that has commuting workers benefits.
    • people in Georgia earn money from, for example, making radio broadcasts of football games.
    • Krugman, though, seems to be claiming that the benefits will be local enough to justify a subsidy.

So governments passed patent laws and copyright laws so that inventors could capture the core value of what they create.

Well written IP laws increase a country’s revenue—suggesting that truly free trade would be bad/inefficient. It’s OK for the US to have a patent law, that’s not anti-competitive, it’s presumably something everyone should do.

Anyone here a hardcore University of Chicago free-trader type?

We’re still in intro mode, there won’t be a Krugman question on the final.

Questions to keep in mind throughout the course

one thing we’ll be assuming throughout the course is that countries will be making rational choices.

When considering a law, particularly an international regulation, we’ll ask, “Is it internally beneficial to a country?” And where it’s not, it’s probably due to legislative takeover.

The US pays cotton growers 18 billion dollars to cotton growers, even though the US cotton industry is worth only 11 billion dollars. this allows the US to be the biggest cotton exporter in the world, driving down world cotton prices. 7 of the top 10 cotton producers are in sub-saharan Africa, and thus those countries get starved with bad cotton prices. We still haven’t complied with a WTO order to stop subsidizing cotton.

Always look for the human rights effects of WTO’s orders. The WTO can actually impose sanctions and countervailing duties, and is more effective than the UN in correcting aberrant behavior. One reason why the IGF statement “gives mea a little bit of pause” is because “a lot of the environmental and human rights problems” can be addressed in the WTO forum.

Another thing we have to ask: “If all countries behave similarly, THEN will country A be better off? What if all countries subsidized their cotton industries? Would we be better off then?

(Break to write down own thought: lack of fluidity in actual economic structures throws a wrench into everything. A country can go completely laissez faire if other nations alternate between crippling industries.)

Typical deal: someone wants to import something from United States into Japan. Importer is going to worry about paying for goods that don’t show up, and the exporter is worried about shipping things and not getting paid.

Diagram

Shows how they mediate risks. The American exporter is going to put the goods on the boat, and get a series of documents from the captain evidencing delivery to the carrier. Documents given to US insurance company and bank of exporter. Those documents electronically transmitted to collecting bank, the bank of the importer. That bank will show the documents to the importer, and if they match those required in the contract, then importer will pay its own bank (the collecting bank). so the exporter will get paid before the shipment is made, when the collecting bank pays the exporter’s bank. the importer then takes the title to the goods. that’s the basic shape to a documentary sale.

Class 2 Reading Notes: Beware the arbiter!

Vimar Seguros y reaseguros, s.a. v. m/v sky reefer

SCOTUS looks at COGSA and decides whether its provisions restricting shipping contracts from limiting liability means that contracts can't have arbitration clauses in foreign countries (since it's difficult to arbitrate elsewhere, which effectively limits the payoff from filing suit, and because the arbiter could be prejudiced which could make an award impossible to get).

SCOTUS, in keeping with nations all over and their interpretation of COGSA (and more importantly, they mention this as a reason), decides to make arbitration A-OK!

This is interesting in that the US isn't strictly interpreting domestic law--in the interest of "comity", they also interpret the Hague Rules (or rather, other nations' interpretation)... so maybe there's a basis for claiming international law isn't a total fiction.

one big caveat: the US retains jurisdiction, in case the arbiter does not apply COGSA, in which case the US could snatch the case back.

Chubb and Son, inc. v. Asiana Airlines

Kind of a fun chain of reasoning going on here. The most important thing to the eventual outcome (although with almost zero precedential effect) is the fact that there's no subject matter jurisdiction unless a treaty of some sort needs to be interpreted (i.e. raising a federal question).

They eventually decide that the treaty doesn't apply, but that doesn't stop the second circuit from exploring what would happen if it did!

They noted that since the shipper failed to provide Samsung with an accurate bill of lading, the shipper failed to fulfill the requirements of the Warsaw convention (for furnishing "particulars" on the bill of lading) and therefore the shipper didn't get the limits on liability granted by Warsaw.

Fair enough, and not so interesting.

Case is probably in here rather because of their machinations over the fact that the US adopted the Original Warsaw Convention, and South Korea adopted an Amended Warsaw Convention (AKA the Hague Protocol), and so they spend a long time explaining why that does NOT mean that the US and South Korea are both party to either a Truncated or the Original Warsaw Convention.

The Vienna Convention (to which the US is not a party, but which the court treats as authoritative) said that absent a stated intent otherwise, adhering to an amended treaty meant you adhered to an original treaty with nations that hadn't adopted the amended treaty.

  • so why didn't that happen here? the court said that the wording of the amended treaty referred to itself as "one single instrument" which to the 2nd circuit was an expression that they were adopting that particular warsaw convention and none of the others.

The court also mentions that there's not just one Warsaw conventions, but a bunch of them, all being individual (often bilateral) treaties between nations and sometimes private parties.

so who the fuck cares about lex mercatoria

i suppose the two cases are opposed to each other because they explore the idea of the lex mercatoria, and whether international law as applied domestically can take its shape from glomming together all of the chunks each country agrees on.

but this doesn't necessarily work--as the court notes in the discussion of articles 3, 4, 8, and 9 and their limiting effects on article 22 means that all of these articles work in concert with one another, and perhaps the only reason a nation agreed to one article is because a treaty included another. in this case, apparently (i'm not positive of the numbering, but the point is the same) both the original and the amended treaties included article 22, but not the limiting provisions. you can't just say that both nations are in agreement on article 22 and claim that a treaty exists in regard to that article.

the casebook notes that this approach (of glomming together the agreed-upon sections) might be similar to Article Two of the Uniform Commercial Code:

§ 2-207. Additional Terms in Acceptance or Confirmation. (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

it's not totally crazy--courts of arbitration will sometimes do something like this to come up with a law shared by two nations when judging disputes between foreigners.

this isn't quite the same as the issue of lex mercatoria as explored in Vimar, which is more along the lines of, "everyone else agreed with it, so we should follow suit."

in any event, i now am confident that i have no idea what lex mercatoria actually is, except that everyone else seems to be very confident that they know, which i find somewhat disturbing.

bautista v. star cruises

here the 11th circuit sees a conflict between the FAA and the Convention Act (the convention act being the enactment of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards--but so is the FAA!) and their way of resolving it is, at 1:35 in the morning, beyond comprehension.


January 7 - Class 2 Notes

There is a plan to the introduction.

  • First part is basic trade theory.
  • Ground level disputes-the practical side, a couple major international agreements.
  • Then an intro into how the governmental players organize themselves, NAFTA, WTO, EU structure.
  • Finally, a discussion of the US constitution and the way that it constrains treaty makery.

The core of the class a slew of international commercial disputes. This class is sort of like secured transactions, you’ve probably… (?)

If you’re an English major, take Bankruptcy.

We’ll look at contract language, non-governmental bodies, individual governments, and then look at international treaties. We should be suspicious and discerning thinking about broader issues in international trade.

Three broad reasons for international regulation:

  • Good reason for regulation: makes sense to make actors internalize the costs of their actions. Applies in the international arena just as it applies in the local arena. Environmental issues, bribery issues… people who are not parties to the transaction frequently pay the price.
  • Patent law is the first entitlement program—a government benefit given to inventors as a reward. One of the things you have to do is release your secret to the entire world. Which is a positive externality created by regulation. Zoning is the same way—land is more valuable because we make the chicken processing plants sit in one part of town.
  • Third reason that we discussed last time—we saw that rational nations may play these strategic games at the expense of others, creating races to the bottom.

How bout that virulent anti-globalization rhetoric?

  • Heald: child labor, pollution, a lot of these things can only be solved by the WTO. There’s a UN treaty about child labor, which has no effect at all. If the WTO were to do it, it would have teeth. American and European labor unions hate child labor, because it makes their goods less competitive.
  • Democracy is overrated, I think. It’s congress that’s spending 18 billion dollars for a 12 billion cotton crop. It’s Archer Daniels Midland who owns land who’s getting that money. Here, it would be nice if the anti-democratic WTO kicked around the democratic congress. I’m not arguing for fascism, but look at the practical effects.
  • Every economist who’s looked at it has said that everyone is better off from NAFTA, and that trade creates wealth for everybody.

The whole reason we had a WTO is because we knew that WWII and a worldwide depression grew largely out of tariffs. Protectionism leads to international tension. Arguably one of the causes of WWII. China has no incentive to attack the US because they have so much money in the US. The more interdependent we are, the less likely conflict will emerge.

Regulations oh my!

i use “regulation” loosely.

UNCITRAL: sponsored by the UN, but not an example of UN rule making. consists of a bunch of private commercial actors thinking about what () should look like. they’re crowning achievement is a set of arbitration boards. so the rules they set end up getting adopted by countries. kind of like the UCC, which eventually gets adopted by various states.

you can’t avoid mediation or arbitration in international business law.

then there’s UNIDROIT. they’re crowning achievement is the CISG, convention on the international sale of goods; an international version of the UCC. no power on its own, but a lot of countries adopt it, including the US in 1988.

UNIDROIT also came up with incoterms. the contracts refer to unidroit, so the terms get incorporated into lots of contracts.

third group of technocrats, the international chamber of commerce. carriage of goods at sea act.

how bout that criticism of the technocratic international trade law writers?

not many law professors. but that’s the way it’s always been.

lex mercatoria: go back to medieval times.

…and they just hired merchants in the field to judge disputes. there was no exterior economic goal of creating the finest and most efficient system, but rather enforcing a set of standard expectations among commercial actors.

so then in the UCC, they adopted rules based on the expectations of the merchants, the existing practice of merchants, the lex mercatoria. the goal was not to blindside people who do business.

so we see the same sort of history at uncitral, the hague conference, the international chamber of commerce.

defense of lex mercatoria: there’s not a whole lot of public interest in determining when liability passes in a letter of credit transaction. so i’d be a bit leery of the criticism in the book—it’s always been private lawmaking.

(by two types of regulation, i meant unadopted things like the incoterms, as well as straight up regulations)

the secret of first year contracts and the CISG

the CISG is law, ratified by the Senate, trumps any conflicts one would find in the UCC which is state law. there’s a statement that the CISG is the supreme law, and the rules are a little different between UCC and CISG. remember battle of the forms? 2-207? CISG has a different rule, they go back to the mirror image.

applies to any contract where the buyer and the seller are *from* two different countries—so it could apply in a lot of cases but the lawyers just don’t know that it applies. if an andean flute band is in america and selling things to americans, their contracts are governed by the CISG. so a totally different law could apply if you raise your hand and say, “excuse me, the CISG applies, not the UCC.”

modern issues

brazil put a ban on retreaded tires, claiming environmental problems.

still problems with EU beef hormons, EU ban on GMO’s, dumping oranges.

if you’re an international business, you can’t sell things cheaper abroad than you can at home. so a brazilian orange juice maker can’t sell OJ really cheap in the US. if you like orange juice, you like getting dumped on.

Sky Reefer

Galaxie sells Bacchus some fruit. Getting shipped on boat owned by Maritama and chartered to Nichiro. Vimar is Bacchus’ insurer and is suing the boat and the shipper.

They’re suing in a Massachusetts district court to keep the case out of Tokyo arbitration, where apparently both parties said arbitration should apply in the contract.

Insurer claims that COGSA should prevent enforcement of arbitration clause.

reminds us of the railroad limits on liability, that said you couldn’t sue if they killed you. COGSA makes it more difficult to do that. it’s not impossible, but at first cut, any clause in a shipping K which reduces liability for damage caused to goods can be rendered unenforceable.

  • so Bacchus is arguing that the arbitration clause is an effective limit on liability.
  • it wouldn’t be wildly insane for the case to come out the other way—what if it’s 100,000 worth of oranges and it’s costs 100,000 to litigate in tokyo? nonetheless, the court, resoundingly rejects that interpretation and says no, “we’re talking about real waivers of negligence.” which went against a long line of precedent in the lower courts.
  • the specific exceptions to liability might make it seem wildly friendly to shippers, but that’s not true. the shipper is the one sending the goods out initially, the carrier is the one moving the goods from the shipper to the buyer.
  • we know that a carrier can’t say, “we destroyed your oranges and we don’t care.” but check out the exceptions:
    • errors in navigations, latent defects in ship or equipment. so if your ship is defective in a way you didn’t know about, that can get you off the hook.
  • so the shipper always buys insurance.

Bautista v. Star Cruises

Negligence case gets gigantic. The plaintiff is from the Phillipines, defendant is from Norway. what’s the defendant’s basic argument that the case should be dismissed?

  • no subject matter jurisdiction.
  • UNCREFAA: adopted by the USA. is it a pro arbitration convention? yes. strongly pro arbitration, just like the FAA. what’s the national interest in arbitration?
    • takes things off court dockets, cheaper/faster, can be more neutral if the arbiter is in a neutral forum.

what’s the sailor’s argument then? we have strong federal legislation for arbitration.

  • there’s an exemption for seamen under 9 USC sec 1, saying commerce does not include seamen employment contract. the Jones act had made arbitration clauses uneforceable for situations where, say, a barge is flowing down the mississippi.

does the court says there’s a conflict between the Jones act and UNCREFAA? because things get dicey when there’s a conflict between federal laws.

UNCREFAA doesn’t apply unless factors in footnote seven fulfilled. must be commercial, in writing, deal with signatory of convention, and foreigners. we got phillipines a signatory and people from it.

is the legal relationship between the filipino sailor and the norwegian sailor a commercial relationship?

  • yes.
    • but the filipino lawyer invoked the jones act, which said that seamen employment was not commercial. but the court doesn’t want to import that meaning of commercial, because… UNCREFAA only references section 1 but not section 2 of the Jones act, suggesting they didn’t want to blindside trading partners by invoking a non-traditional definition of commerce. agonizing statutory interpretation.

bottom line: arbitration presumption very strong.

there’s also a conflict about whether there was a writing, and thus whether UNCREFAA is even satisfied. but there’s no hearing, just prima facie evidence that UNCREFAA applies, which turns out to be enough.

any other affirmative defenses?

  • fraud, mistake, durress, waiver, etc. the affirmative defenses are in a separate section of the law, which could have dodged UNCREFAA. then we would have a problem for whether UNCREFAA would overrule FAA. usually, the most recent law wins. the FAA was passed after the Jones act.

so, we see an international context law apparently taking precedence over a domestic rule.

Chubb and Son, inc. v. Asiana Airlines

one of my favorite cases.

plaintiff is subrogee of samsung. asiana lost half a million dollars worth of computer chips.

Asiana argued that no treaty applied, and alternatively, that convention would limit liability.

Original convention limited liability to 20 dollars per kilogram (page 65). strangely, we’re worried that an airline will go out of business if a plane crashes, but worried about shipping carriers contract out of liability.

the amended Hague Protocol would not limit liability on goods, which the US did not sign, not because they didn’t like that, because they weren’t happy with the limit on personal injury.

footnote 4: by private agreement, international carriers agreed to a 75,000 limit and not avail themselves of the protections of the warsaw convention. so we didn’t get what we wanted by going back and amending the convention. so you can’t find all the rules by looking at a statute, there’s private side deals like this.

we’ll meet again on monday.

class 3 notes: WTO, NAFTA, EU oh my!

EEC: Wikipedia sez:

The European Economic Community (EEC, it was also known as the "Common Market" in the United Kingdom) was an international organisation created in 1957 to bring about economic integration between Belgium, France, Germany, Italy, Luxembourg and the Netherlands.

It since enlarged to six other states and from 1967 its institutions also governed the European Coal and Steel Community (ECSC) and European Atomic Energy Community (EAEC or Euratom) under the term European Communities. When the European Union (EU) was created in 1993, the EEC was transformed into the European Community, one of the EU's three pillars, with EEC institutions continuing as those of the EU.

EC (European Community)

EFTA (European Free Trade Association): absorbed by EU shortly after EU's creation in 1994

GATT (General Agreement on Tariffs and Trade): Superseded by WTO, aka GATT 1994. First went into effect in 1948.

IMF (International Monetary Fund): Regulates currency exchanges among countries, keeps exchange rates stable. Supposedly. Sometimes loans countries money so that they can keep up with their debts rather than defaulting on credit obligations and causing financial crises.

World Bank: Along with the IMF, provides loans to cash strapped countries in exchange for open trade concessions, according to Sam Bryar. if he's wrong, you can blame him. this is a direct quote from sam bryar. he told me this at two in the morning while lying in bed, but he seemed fully awake and i think you should hold him accountable if he is wrong.

NATO

WTO

  • dispute resolution body makes it one of the few international government organizations with teeth.
  • still incorporates a great deal of the original GATT, calling it GATT 1994, preserving the most favored nation principle, "national treatment against imports" aka "national treatment," and "transparency in trade barriers."
  • GATT has moved toward more modern issues like dumping, standards effecting imports, export subsidies, trade in services, domestic subsidies for goods traded internationally,, and "standards-based exclusion of imports".

According to Wikipedia article, Uruguay round achieved:

The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations (a distinction is made between GATT 1994, the updated parts of GATT, and GATT 1947, the original agreement which is still the heart of GATT 1994).[6] The GATT 1994 is not however the only legally binding agreement included in the Final Act; a long list of about 60 agreements, annexes, decisions and understandings was adopted. In fact, the agreements fall into a simple structure with six main parts:

OECD (Convention on the Organization for Economic Co-operation and Development): Notable for my purposes because they promulgate the OECD Model Tax treaty. Also responsible for the OECD Convention on Combating Bribery of Foreign Officials. Seems to provide expertise and studies more than anything else, but the effect of their commentary on their model treaties' interpretation may end up being a source of positive law for states more amenable to truly international law and/or self-executing treaties. I think the UN may have written a more developing nation-friendly version of the model double taxation treaty, but my books on that are back in the US right now.

  • casebook article raises interesting question of what developed nations have to gain from the corrupt practices convention--don't they want their corporations to be able to bribe foreign governments? what's the downside to cutting out bribery internationally? is that really a nonzero/prisoner's dilemma kind of game that requires international cooperation? ahh... but the issue is getting other countries to enforce penalties against companies bribing your government while they sit protected in their country. so cooperation on that issue is nice.
  • OECD attempted to promulgate a Multilateral Agreement on Investment granting a set of rights to investing corporations, but that was a failure in 1998. article sez it partly grew out of disputes over IP protections, but the TRIPS agreement came into being in 1994.


European Economic Community --- Regulation on Imports of Parts and Components (The Japanese screwdriver case

EEC was using anti-circumvention legislation to hit Japan screwdriver manufacturers with dumping duties. The dumping rules were supposedly circumvented because the screwdriver parts were being sent over and then assembled within the EEC. The duties are imposed "not on imported parts or materials but on the finished products assembled or produced in the EEC." This means they're not really being imposed "in connection with importation within the meaning of Article II:1(b)."

The EEC had all kinds of weird arguments for why they should be regarded as being levied in connection with importation, like that the policy motive of the legislation should be imputed, or that the parts weren't really in free circulation, etc. etc., and some other crap the panel doesn't find convincing.

Then we have the securing compliance part of the imbroglio. Article XX(d) specifically allows legislation to "secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement". Japan argued that "The only part of the EEC's anti-dumping regulations that requires enforcement is the part establishing the obligation to pay anti-dumping duties. The anti-circumvention duties do not serve to secure the payment of these duties and can therefore in the view of Japan not be considered to be securing compliance with the EEC's anti-dumping regulations." EEC thought they should take a broader view, i.e. that they could do anything to prevent the undermining of the purpose of the anti-dumping rules. Panel says no, that they can only do things to specifically enforce the laws and regulations themselves, otherwise states would have way too much leeway in violating the GATT--all of their tariffs could loosely be designed to counteract some other state's perceived violation. And disaster would ensue. The language they use to say this is kind of dense.

The biggest problem with the EEC's duty was that it ended up being an internal tax rather than one at the border, which defeats GATT's purpose of making trade barriers transparent. We don't really know how it would have turned out if the duties had been imposed on the parts themselves at the moment of importation.

Lastly, the panel decides not to throw the baby out with the bathwater, saying the anti-circumvention laws in and of themselves are ok, but only if they're not applied to contracting parties (i.e. all of the GATT nations), and thus it was unacceptable to apply them to Japan.

Judgment of the Maastricht Treaty of October 12, 1993

There's a quote from a Lang & Brugger article: As Maarten Ellis put it, “it seems to me that the OECD Fiscal Committee and the Commentary making a statement that new versions of the Model and the new versions of the Commentary should be used as proper means of interpretation of older treaties remind me of baron of Münchhausen pulling himself out of a morass by his own hair. I find it very surprising that such a group of – be it authoritative – people can determine how authoritative they themselves shall be, and I do not think, therefore, that that is a very significant statement.“

So even though international organizations will say all kinds of things about their own authority, it's the national governments which are going to put the hammer down on how far they can go. The German Federal Constitutional Court does that here. Although the opinion reads as one saying that the EU is all fine and dandy, there's a not so subtle "so long as you don't try anything funny" disclaimer, noting that the treaty makes sure that "no exclusive competence for jurisdictional conflicts is established for the European Union, and that the assertion of other functions and powers by the EU and the European Communities is dependent upon amendments and usupplements to the Treaty and therefore to the consent of the national parliaments."

Germany also appears to consider the treaty non-self-executing, which is why "Only the Act of Accession to Germany's membership in an intergovernmental community need be judged here." The treaty isn't important the domestic legislation putting it into force is.

And not to worry about the Act of Accession referring/importing/referencing the Maastricht Treaty, and the Maastricht Treaty then changing--the Maastricht Treaty tail cannot wag the Act of Accession dog: "If European institutions were to interpret and aminister Art. F, par. 3 of the Maastricht Treaty in a manner which conflicts with its substance (read: our interpretation of its substance), which has been assumed into the German Act of Accession, such conduct would not be covered by the Act of Accession and would therefore not be legally binding within Germany... German State institutions would be forced to refuse compliance with any legal instruments based upon an interpretation of Art. F, par. 3 of the Maastricht Treaty of this nature." So the German court isn't mincing words here about setting up a defensive barrier.

Also, the bank stuff is more of a "suggestion" so that the states can agree to cooperate of their own accord--they aren't legally required, at least by German law, to meet the dates or obligations. There's a lot more said about it, but the court's general reaction is that the banking and currency cooperation is still just a slate of non-self-executing agreements, and if they want to change them, it'll have to go through the German parliament first.

January 12 - Class 3: Class Notes

Tomorrow at 2:30pm, law library induction.

Also you can do battels accounts now. Treasurer/bursar office, near Bodleian.

Also, cultural differences with tutors! You may have remembered the draconian deadlines in undergrad. I don't even think twice about extending deadlines. Things are different here--there's more of an authortarian tone. Treat them gingerly and with fear. Pretend fear.

Drug reimportation

Headline: Senators predict drug reimportation bill. It's illegal to reimport drugs without permission of drug manufacturer or license. You've seen schemes for buying drugs online, e.g. canadian pharmacy web sites. If you buy the drugs from canada and have it mailed in, you're not going to be caught. Why are prices of drugs lower in canada than in US? it's the same drug, same manufacturer. In NAFTA there are no tariffs whatsoever. Canada has universal health care, and negotiates directly with the drug companies for how much the drug costs. And the government has a lot of bargaining power.

So what do you do now if you're a drug company, and congress is about to open up the borders for reimportation? Price discrimination usually good, but how can you maintain that scheme after this statute? You could rewrite your contracts with Canadian pharmacies, banning them from selling drugs to US citizens. Contract could require Canadian ID. What if some of these pharmacies are going to cheat?

You could sell the Canadian drug with some slightly different chemical in it that isn't approved by the American FDA. Or just just remarketing, rebranding, make the Americans think that the Canadian version is less effective, like the generic, non-generic difference.

Or, calculate the amount of drugs Canadians need, and charge them a steeper prices for the overage.

Treaties!

We haven't promised any foreign country that we would enact COGSA--it's just recommended legislation by experts. But we are bound by treaties such as the Warsaw convention.

Chubb! page 63

So Samsung is shipping these very valuable microchips from South Korea to California, and the shipper loses half a million worth. If both nation had adhered to the original Warsaw convention, the shipper would have an argument that the liability is limited to $700. Aside from that question, there's a question over whether there's any treaty relationship between S. Korea and the United States given that US enacted the original warsaw convention and S. Korea enacted the later Hague Protocol.

The first judge got creative, and did something like the UCC, taking two conflicting pre-contractual instruments, and keeping the provisions that are in common. If, for example, A, B, and G are in both, then they say that the parties agreed on those three provisions. We don't do that with treaties, and the district court gets slapped down. There was a limitation on liability shared by the Hague Protocol and the Original Warsaw Convention, and the provisions in both treaties were severe. Why does the appellate court not like the idea of combining treaties?


Anyway, the Warsaw convention requires "particulars" be published on the bill of lading, whereas the Hague Protocol doesn't. So if you combined the two, the particulars are not required. So if you apply the original, there's no limitation on liability because the party here didn't publish the particulars.

But there's even more fun. The Vienna convention says that if you adhere to a later version of a convention, then you're agreeing to earlier versions of a convention with countries with an older version, unless you express some other intent. The court found that "other intent."

So where is this case going on remand? how does contract law pick a venue? where the contract was formed? you could go for negligence in california. so some local law is going to apply.

if a country adheres to one treaty, are they adhering to the earlier versions of that treaty?

Article 40(5) of the Vienna Convention:

"any state which becomes a party to the treaty after the entry into force of the amending agreement shall, failing an expression of a different intention by that State, (a) be considered as a party to the treaty as amended; and (b) be considered as a party to the unamended treaty in relation to any party to the treaty not bound by the amending agreement."

Court found that South Korea expressed a different intent because the Hague Protocol itself had language saying the protocol was "one single instrument." Not the most pronounced language of reservation you've ever seen, but whatevs. Also the squabbling that took place over the treaties indicated that it was unreasonable to merge them.

USA has not ratified the Vienna convention. The senate has not made it part of American law. so why is the 9th circuit using it?

because it's custom that everyone has already been following. and the state department treats it like it's law. one of the rules of pil is that if a country behaves like it's bound, then it is bound. because we treat the vienna convention like it's law, we're bound to it.

i'm shakey about international finance, so i'm not going to really hit it in the exams. but you should at least know the basic functions.

IMF is about fiscal policy, liquidity between banks, currency flow. designed to keep money circulating as efficiently as possible. it's the IMF's job to at least prevent technical impediments from throwing currency movement out of work. it does a little bit of debt relief/loans.

World Bank is the one that does a lot of loaning to poor nations.

The OECD provides a lot of economic expertise.

there was a realization that the protectionism and economic disasters allowed fascists to come to power.

GATT 1994. If there's any threat to the WTO, it's the unwillingness of developed nations to do away with agricultural subsidies and all of the tariffs. Two thirds of the EU's budget is agricultural subsidies. If those subsidies were eliminated you would see tremendous movement from undeveloped countries to the EU. The understood deal was the promise of reducing those subsidies. The developing nations were willing to pay more for drugs in the hopes they could sell their agricultural goods. Those talks of agricultural studies have shut down. All big decisions are taken by consensus. It doesn't take many countries to stop the wheels from turning. Biggest crisis in the history of world trade: the EU has to back down. French farmers might bring down the WTO. So keep your eyes on the ag talks.

Application of sanitary measures: faux safety regulations to be protectionist.

Clothes are cheaper in real terms today because those tarriffs are gone.

TRIM: banking

Preshipment inspection: prevent long inspection times from killing produce, etc.

Rules of origin: rules for where something comes from for duty calculations

Import licensing: can't make this onerous


General Council: although the rules say they vote, it's really a consensus. So Sri Lanka could demand something before Russia is allowed to join. China's accession documents is literally thousands of pages long for what it had to promise to become a member of the WTO. Russia is going through the same process.

the ministerial conference sets the agenda. it's the director general and the secretariat who are always in the building.

Dispute settlement body appoints the three judge panels and the seven judge appellate panels.

trade and development deals with the developing world.

balance of payments is something the IMF normally deals with, but the WTO knows its policies can have an effect on that too.

go to wto.org. and you can click on the label for the disputes. every single document that's been filed is there for you to see. the WTO web site is very transparent. you can't see what the countries are talking about behind closed doors. but the dispute resolution is very transparent.

under the old GATT, we had dispute resolution panels--but those ran under the same consensus rules, so it only took one party to veto a panel's opinion. the loser had a veto power. even then, the losers still didn't frequently exercise those veto powers. they didn't want to start a trend.

the presumption is now the opposite. we'll respect a panel decision unless the consensus says it's wrong. which hasn't happened in 14 years. every single appellate opinion has held up. it sounds like a radical change, but it's really a slight ratchet considering the respect parties gave to the decisions.

Dumping

How do we determine whether a firm in one country is selling its goods at an unreasonably low price in another country? If they're selling it for less than the price they're selling it for in the home country. So if Brazil is selling OJ for 1.50 in Brazil and for 1.25 in the USA, they're dumping with a .25 differential.

OJ consumers like being dumped on, but OJ producers don't. Most US countries sell their goods abroad for cheaper than they sell them in the USA. If you're Bennetton, you can't charge the same in New York as in Jakarta. Most of the time, countries say, "dump on me baby." Nothing intrinsically wrong with price discrimination, unless you're a competitor in the jdx.

A lot of countries let you petition your government for relief. You can go to the commerce department complain. And if they listen to you, the wheels can be put in motion to punish the Brazilian orange juice manufacturer.

The Screwdriver case

Japan is complaining about the duties placed on them. They were accused of dumping screwdrivers in the EU (or rather the EEC). Apparently to get around the duty, they imported the screwdrivers in parts to be assembled, rather than the screwdrivers themselves. I presume handles and the metal part. This sort of end-run is known as "tariff jumping."

But are the tariffs really on the original parts?

Why is it illegal under the GATT for germany to enforce this legislation?

Well, internal taxes are ok, but they're imposed on the international producers and not the domestic producers. It's ok to discriminate with import duties so long as it's sanctioned by the GATT, but not with internal taxes. That's a big no no. You don't ever get to levy an internal tax.

The taxes were levied against the final product, according to the proportion of foreign parts. So that's why it was an internal tax.

Heald's summary: if you're charging people at the border, it's an import duty. If you're charging them for what they do within your border, it's an internal tax. Formality matters here, since it makes international trade barriers much more transparent.

Adjustments for next class' reading

Look for an e-mail.

January 14 - class 4 class notes

remember the magic date for the library when you lose access. so try to pin down early what non electronically available resources are required.


two news items. USDA is announcing final rules on mandatory origin labeling of foods. you can't actively discriminate against food products coming into your country usually--Korea got into huge trouble banning US beef. you can't discriminate unless you have a food safety reason. but most of the game playing is discouraged by WTO rules. but if you want to at least notify consumers, you can have labeling requirements. so now if you want to sell beef, lamb, nuts, some other stuff in the US, you have to clearly label it. if you're not playing games with the type of labeling, and locals have to do it too, no discrimination. but it does allow consumers to discriminate if they want to. we'll run into a few more of these non-tariff barriers.

export controls--the US is huge exporter of technology--some of them we want to keep to ourselves. export controls are barriers at the US border that attempt to keep US technology from crossing borders. the basic story is that they're a disaster as implemented now and congress needs to redo it. one very important technology we want to keep our hands on is cryptographic technology. but how can you keep software from being sent electronically around the world very easily? what sort of export deterrent can keep that from getting out.

eu dumping

let's use cars instead of screwdrivers because it helps me make a point about china right now. let's imagine that some japanese company is selling cars in the EU, and the japanese firm is selling cheaper in the EU than in Japan. so EU slaps some duties on the japanese firm. so instead they ship the car in parts. the EU is still not happy. the local car manufacturers once again facing cheap japanese competition.

so then eu uses anti-circumvention duties, claiming japan firm is circumventing dumping duties.

and we discover in that case that the kind of anti-circ duty they're using is bad, because it works as an internal tax, taxing foreign but not domestic parts, and tax regimes cannot be discriminatory (although tariff regimes can).

the point i wanted to make:

the WTO has never really figured out how to deal with anti-circumvention duties in general. what if the EU levies the anti-circ duties when the parts cross the border? the WTO hasn't shown consensus on whether you should be allowed to do this or not.

second point has to do with cars. many tariffs have been eliminated but not on cars. china levies a flat 10% tariff on cars being exported from japan. the duty on car parts is 20%. The US does not like this at all. the US car parts industry is a lot stronger than the US car industry. there's a better market for parts than fully assembled cars. so we've managed to convince the WTO that there's a problem with the Chinese approach.

questions about the anti-dumping case? we'll get more dumping cases later.

EU itself.

we've seen rules promulgated by the private groups like the international chamber of commerce, now we're looking at government alliances.

see Treaty of Rome, exhibit 14.2. Article 3 (A): elimination... of customs duties etc.

now see Maastricht treaty--much more specific economic goals... same interest rates, rates of inflation, common currency.

citizenship of the EU.

we won't talk about the german constitutional case over the maastricht case--we only give up as much power as we voluntarily concede incrementally over time.

germany france italy spain gets two commissioners, rest get one. ag policy and competition policy driven by the commission. it's focus is what we would normally think of as the FTC and the Dept. of Agriculture.

  • the commission cannot pass things that look like laws.
  • there are EU directives which have to be obeyed at the moment of their passage, and regulations which are commands to EU governments to adopt and implement changes in their own domestic law, which could take a long time, years and years.

council chooses whether to adopt things from the commission. the council consists of weighted representation, with germany france italy getting 29... it's the council voting with the commissioner that has the power to pass directives/regulations. the proposals initiated by the commission don't become law until approved by the council. council has to debate and vote up or down, unless the council has complete unanimity.

the EU parliament is the only democratically elected part.

the power of the parliament has been growing. worries among residents of the EU as the EU becomes stronger that the council shouldn't be too strong... parliament should approve of what the council is doing. parliament is also in control of treaty obligatoins. EU can't enter treaties without parliament approval.

NAFTA

What's the difference between a free trade area and a customs union. What's the major difference? A customs union works together against everyone else--they have common external tariffs. A free trade area doesn't necessarily have that, they just trade tariff free between each other.

Can you shop tariffs by importing into the country with the lowest tariff?

NAFTA has reduced tariffs to almost zero on just about everything.

When was NAFTA enacted? 1992. How was it enacted?

Through standard legislation process. There was a case brought instantantly that it was unconscitutional, because it was a treaty and not approved by 2/3 of the senate. that treaty, oddly enough, is just a district court case. tremendous debate among academics over whether it's constitutional--most agree that it is constitutional, although there's notable exceptions.

clear if you look at the numbers that all countries are much much wealthier. but you can find individual industries that have suffered and died. but the overall GDP shows that all three countries have benefitted substantially.

on page 107, two really interesting things.

  1. 19 USC 312: no provision of the agreement which is inconsistent with the law of the United States will have effect. Congress was worried that NAFTA would conflict with things enacted in the past. normal rule of statutory interpretation with a true conflict is that the later in time statute wins. this section of the agreement says, NOT with nafta.
  2. 102(c): no state law or the application thereof may be considered invalid, except in an action by the United States. what does that mean? why is it there?
    1. maybe it's a commerce clause issue--a pro-state provision. normally the preemption rule is that the state law loses to the federal law. but not with NAFTA. it doesn't automatically strike down a state law, unless the US takes the action itself. it's the executive branch that gets to decide when a state law is struck down for being inconsistent with NAFTA. if you're the states, you're worried about NAFTA taking away too much of your power. a concession to states, with the worry that states would do things that states would do things to piss off mexico and canada.

so you throw the states a bone but still give the executive branch the ability to step in and stop a state from going too far.

Mexican steel-plate anti-dumping case

Steel plates! Why is Bethlehem steel mad?

SECOFI determined that the US firms were dumping their steel in Mexico, and hit them with a 76% and 46% duty. who initiates this suit? who's the plaintiff in the suit? and what's the nature of the panel that's hearing the dispute?

AMSA, a Mexican corporation, filed a complaint with SECOFI.

Private firms and individuals have standing to bring suit under NAFTA. This is really rare. Very few treaties give private individuals a cause of action. Almost always only countries can complain. But under NAFTA, there are private causes of action. Also private causes of action if FDI is getting discriminated against. If you want to open a chicken franchise in Mexico, you can defend yourself with a cause of action in NAFTA. It's a binational panel of experts, for obvious reasons. What law does the binational panel have to apply?

  • the law of the importing country. so they apply mexican law. kind of strange that the cause of action you're bringing is a violation of mexican law, but that's how it works.
  • argument in steel plate case is that the mexican government organization didn't legally exist under mexican law.

so the anti-dumping duties were illegal under mexican law, and the american corporations were able to get out from under the duties. it's interesting to see these panels teaching themselves on the fly american and mexican administrative law.

Canadian lumber

Who is dumping what on whom?

Canada dumping lumber on the US. This controversy has been running for twelve years. This is only one part of the story.

What does the Byrd amendment tell US customs to do when a foreign firm is found guilty of dumping?

It collects duties and then disperses them to the injured domestic industries AND the labor union working in that industry. where did the dollars used to go before the byrd amendment? to the government. now they go directly to the domestic industry. this would include georgia pacific, louisiana pacific, etc. So Byrd amendment obviously very friendly. Why did the WTO declare the Byrd amendment illegal under the GATT? why do you think we lost that?

  • it indirectly favors US companies--it's a subsidy to the industry, and actually makes the industry better off than if no company had dumped at all. dumping duties are supposed to level the playing field, but the Byrd amendment goes further than just leveling the playing field. It was a no brainer in the dispute resolution panel.

How did the US suffer after that WTO decision?

  • the WTO allowed tariff concessions to be taken away. There were nine countries allowed to impose tariffs. Canada was able to put a 15% surtax on oysters, live swine, specialty fish... mexico imposed it on candy, baby formula, various wines... we call this cross sector retaliation. why expect this cross sector retaliation? why would it be effective?
  • it diffuses the blow across your economy and political groups. the weaker industry is already a squeaky wheel, but now that the candy manufacturers are getting nailed, their likely strategy is to start hiring lobbyists. cross-sector retaliation creates a huge lobbying front. the candy manufacturers are going to ask, why are we protecting the lumber industry?
  • and we got rid of the Byrd amendment. WTO process worked.

why can't the plaintiff point to the WTO decision and instantly win? why can't canadian lumber say, "we won before the WTO, why relitigate?" because this is NAFTA, and they're applying the laws of the United States, the importing country, to see if the duties are illegal under US law. it's violation of international law, but we're looking for violation of domestic law.

there's nothing in the WTO/GATT to give private individuals or firms any rights whatsoever. the WTO decision said the US breached its obligation to Canada, and that Canada can retaliate. But only Canada is given rights under the WTO agreement, not private parties.

NAFTA has a provision that says you can't amend anti-dumping rules without notifying affected countries first. And the domestic NAFTA statute had a magic words requirement for getting the anti-dumping tariffs in the future to apply to Canada and Mexico. So the private parties were arguing that it was illegal under US (the importing nation) domestic law.

  • what's the american argument that the canadian firms lack standing?
    • "approval of" language. approval thereof does not apply to give plaintiffs their own cause of action. "no person" shall have any "cause of action." why isn't that crystal clear, that nobody can sue under NAFTA?
      • that language didn't apply to the implementing act.

so you have the US, Canada, and Mexico sitting at a table. They make a bunch of promises to each other about how they'll change their domestic law.

after that treaty is signed, it'll be approved by the legislature. and in the US, the way we decided to approve it, was to have a majority of both the house and senate approve it, rather than 2/3 of the senate. what section 102 says at the treaty phase is that individuals don't have a cause of action under the treaty. but congress has to change a bunch of american laws to comply with the treaty, and the NAFTA implementation act, a laundry list of changes to American laws. and the court makes it clear that private causes of action contained in the NAFTA implementation act exist, that private parties have standing, and that 102 only refers to a private individual complaining that a state has failed to implement its treaty.

so the canadian lumber companies have standing to complain.

what part of the NAFTA implementation legislation is at issue here? what's the precise argument that the Canadian lumber companies are making?

  • that the US legislation didn't specifically mention Canada and Mexico, meaning the duties were illegal under US domestic law. the amendment should never have applied, and they want their money back. they're not complaining about the illegal subsidy. the lumber company argument in this case is a lot more straightforward: under american law, the dumping duty should not have applied to canada. the administrative agency didn't read the statute right.
    • i wonder why they chose a NAFTA panel and not a US district court.

any questions about the case?

fast track?

practical problem. there's a lot of wheeling and dealing and work in crafting a particular international treaty. if you're a negotiator, the last thing you want is to give congress the ability to fool around and tinker with individual parts of the agreement.

so the team gives congress the implementation act as a package deal. it's the only way to countries to negotiate. i don't think that procedure drives any of the legal arguments in the case at all. but it's important as a practical matter to understandd that the NAFTA implementation act isn't written by congress.

so when you impose anti-dumping duties--do firms end up just raising the prices to match their domestic price? or you could lower the domestic price. you can't make that adjustment and quickly get relief. it takes about a year to open the case back up--it's a difficult and time consuming procedure. in a sense it's kind of unfair to canada and a canadian lumber company, but we have no clear feeling on what the sunset review is for anti-dumping duties.

more questions

why is the Byrd amendment so bad? doesn't it make more sense to give the money to the companies? because it's duplicative, it wipes out the disadvantage of the dumping margin, and then provides an advantage on top of that.

a university of chicago economist doesn't believe that dumping ever happens. it's highly unlikely anyone will sell something below cost. all "dumping" is for them is predatory pricing. chicago economists don't believe predatory pricing works. (why?)

January 19 - class 5 class notes: NAFTA, limits on presidential power, congressional accessions to international law

at 2:00 tomorrow professor ann davies will appear.

mentioned in an earlier e-mail walking tour to winchester.

first saturday in february? 2nd saturday?

the basic overall theme is what are the sources of international commercial law... we saw private sources, uncitral, arbitration rules, wto... regional sources, like the EU, and NAFTA, which we're in the middle of right now. you need to understand the ways the us constitution interferes with total implementation of international agreements.

back to the byrd amendment

senator from WV always protective of US economic interests, gets subsidies through and anti-dumping duties on Canada's timber. And we get in trouble, not because the byrd amendment is unconstitutional, and not because it violates the WTO agreement (which it does), but because under US law it's simply not being enforced properly in the regs. because of an earlier statute that required mexico and canada to be specifically named.

interesting points: nafta provides a private cause of action, allowing canadian companies to charge into american courts. the claim is that a US agency didn't follow domestic law. the case we lost at the WTO is not dispositive here. As a result of that WTO case we experienced cross-sectorial retaliation, which is mentioned in the suit, and provides a nice illustration of the price you might pay. (penalty under nafta? money.) we revoked the byrd amendment. note that this dispute goes on. we're still fighting the lumber dispute in all sorts of forms. now it's mostly about subsidies as opposed to dumping--canada now trying to justify its subsidies to its lumber industry.

countervailing duties are the duties that go against subsidized goods. anti-dumping duties are on dumped goods.

mexican trucking

why are mexican companies upset?

  • because the US has left in place a moratorium on mexican trucking or mexican investment in trucking. note that this has created a huge bottleneck in the border. if you're trucking something from mexico to chicago, you have to unload everything into an american truck.

how is this ban enforced on a practical matter?

  • they're required to file DOT applications and the DOT simply holds onto the application if the affidavit says the company is owned by mexican people/firms.

what reason do we give?

  • alleged lack of safety for mexican trucks.
    • different environmental standards

what do you think the real reason is?

  • protectionism! the teamsters and the trucking companies can hold hands and say that mexican trucks are dangerous. all politics. president bush very much in favor of lifting the ban.

what's the technical legal argument?

  • it violates the national treatment and most favored nation treatment principles of nafta. it violates national treatment because American trucking applicants are reviewed on a case by case basis, and they get a permit, even if you have exactly the same truck, even if the mexican truck is much nicer.
    • most favored nation violated because we allow canadian trucking companies to operate freely.

what's the US' legal argument?

  • not really clear with this pared down version of the case, but they argued about something relating to "like circumstances".

when is it ok to engage in differential treatment?

  • when you have a "legitimate justification"
  • when there are not 'like circumstances"

why isn't it legitimate to say that in general, mexican trucks are more polluting or less safe?

  • because that's over-inclusive. con law has this concept of "least restrictive means". if you're going to try to justify discrimination, you're going to have to do it in the least objectionable way possible. which would be individual checks. brake check. steering. emissions. etc.

how bout that like circumstances:

  • even under con law, you might not need to have the same rules for pineapples and apples. we made a very aggressive statement in saying that there was such a difference between canadian trucks and mexican trucks that they were quantitatively different. but that didn't convince nafta panel.
  • you can have a different tax on coffee and alcohol--and for the us in the nafta panel, there was a similar difference between canadian and mexican trucks. bit of a stretch.

what is the WTO test here for when it's ok to discriminate? because the court does say the WTO precedent is at least informative. see middle of p. 123:

  • any moratorium must
    • secure compliance with some other law or regulation that does not discriminate
    • be necessary to secure compliance; and
    • must not be arbitrary or unjustifiable discrimination or a disguised restriction on trade
  • also bound to use among the measures reasonably available to it that which entails the least degree of inconsistency with other provisions

questions about mexican trucking?

little further history? bush lifted the moratorium in 2002. this moratorium had happened through executive order. so why still no mexican trucks six years later? the transportation agency started a pilot program to get mexican trucks across the border. you know agency rule making takes a while. and the national resources defense council, and some labor groups, bring a suit challenging the pilot program for really technical reasons--environmental impact statement wasn't done, etc. so it got delayed a couple times. and the pilot program has not been put into place.

  • note from alex: the investment restriction could be usurped somewhat via notional contracts

Dames and Moore

Today, two constitutional cases, the second being the EPA case and congress, this case being executive vs. congressional law making ability.

What are the president's powers and law making ability in the international/domestic sphere absent congressional action?

Any specific clause in the constitution about the Prez' ability to do stuff internationally?

  • sign treaties
  • appoint and receive ambassadors
  • commander in chief
  • "execute the laws" internationally

that's pretty much the extent of it. how about congress' powers in the international arena?

  • senate ratifies treaties
  • declare war
    • although they haven't done it in 67 years
  • spending power
    • congress doesn't often play games, but none of the prez' powers mean anything if he can't spend any money on anything.
  • foreign commerce regulation

why did dames and moore sue iran in the first place?

  • breach of contract suit
    • number of suits astounding. the shah of iran hired a ton of us firms to do things in iran. so when the revolutionary gov't took over, everybody wanted their money, thousands of suits. how far did their particular suit get?
      • they won on summary judgment.

the shah trusted US banks and law firms, so there were billions of dollars of iranian money sitting in the US. good news if you're after a garnishment order. you have to walk your judgment to the clerk of courts, start garnishment proceedings, but it's straightforward. you also want a pre-garnishment order to keep the money from evaporating before you get your judgment in.

iran and the US entered an agreement in the hostage negotiation, which kicked all of the claims into arbitration. this brought dames and moore back to square one, and this time, iran is going to show up. and dames and moore will have to go all the way to the hague, in the netherlands. trivia question: this tribunal is still operating. it's been 27 years, but it's so complicated that it's still going. i met a lawyer at the iran-us claims tribunal.

this is shocking: the prez yanked courts out of america and chucked them into europe. what's the argument that this is unconstitutional?

  • prez lacks authorization from congress
  • congress can't delegate that authority (a consistent loser of an argument)
  • judgment would be a taking, they've already gotten their right to the money, gov't can't take that away
  • article III violation: they've trampled the judicial's abilities

does the absence of congressionl authorization mean the prez can't act?

  • not necessarily. so what can the prez do when he/she lacks authorization? youngstown and sawyer case; the basic holding of youngstown?
    • prez truman ordered that steel mills be seized, and they said that the president was within his power to do that. or at least, that's what you would think the result was, from reading this case. pres truman, korean war, national emergency, congress hasn't said anything about taking over steel mills, there's a long history of presidents doing this, and the supreme court slaps him down. if you read this case, it seems inevitable that youngstown would have to come out the same way. how can you distinguish the two cases? why is it ok for the prez to send a case to europe but not run into a factory and take over steel production?
      • the youngstown taking was more domestic... sort of.

what about the argument that there is congressional authorization?

  • hostage act. if there are hostages, prez can take certain steps.

the reason truman took over the steel mills was because workers were going to strike and shut them down. what truman did looked much more in conflict with what congress had done in the past. in the past, congress had friendly legislative history, taking steps to regulate prior cases where the prez had snatched cases and pushed them into arbitration (p. 149) like with the regulations for the arbitration of yugoslavia arbitration in 1949.

this is all a typical way of dealing with a conflict over whether the prez has overstepped.

so:

  • congress authorizes, ok.
  • absence of authorization, usually goes to prez
  • when congress says no, we don't know what happens. congress hasn't done it, and when congress has, courts have pretended that it didn't happen. no court wants to be the one to assign mastery to the two organs who have these different responsiblities and obligations.

NRDC vs. EPA case

challenge to an executive action clearly authorized by congress.

congress basically tells the executive, "you're in charge," and the executive, through the epa, passes many minute regulations about emissions of stuff into the air. what's the goal of the montreal protocol?

protecting the ozone! reducing international production of substances that destroy the ozone layer. it's a general goal, so how does the protocol work?

  • it's not self executing, for the most part. parties work out among themselves how much to produce and cut.
  • in march of 2004 the parties specifically decide in their first extraordinary meeting the critical use of methyl bromide.

what did the EPA do?

  • they gave non-critical use to the existing stockpiles, which on its face is at odds with the meeting's critical rule, which didn't allow non-critical use of methyl bromide at all.

what's the NRDC's argument that these rules are inconsistent with the montreal protocol? assuming their allegations are correct? what are the other two problems that the NRDC sees with the new EPA rule. US alleged to have withheld information, in violation of the montreal agreement. is this an argument that there's some inherent defect in the EPA rule making? is this a claim that the EPA has somehow violated american law?

student says no, but i would argue yes. NRDC argued that the clean air act required the EPA to abide by the protocol, and the protocol authroized future modifications. court disagrees, says that congress didn't delegate rule making authority to an international organization.

so two arguments: exec violated a treaty (dangerous argument, almost never wins, private parties just don't have the ability to demand that treaties be enforced)

"exec violated US law" going to be much better. in this case, argument was that Clean Air Act required EPA to abide by montreal protocol. so you can suck the montreal law into domestic law. why doesn't this argument work?

becacuse montreal protocol doesn't say that future changes are part of the montreal protocol.

the georgia constitution has a rule against allowing georgia law to change because of actions of other states or agencies... we don't allow the constant/future importation of others' rules.

little ftc act: any decision of the FTC becomes part of state law. that would be against the georgia constitution, because it would make the georgia law change every time the FTC changed its law.

go 160-200. 


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January 21 - class 6 trade

stuff from Sam's notes

What seems to upset states the most is when states won't let the other's goods across the border.

Chickens in the US

Cleaned using a bit of chlorine to kill bacteria

EU has taken the position that this treatment is not healthy and unsafe - used to ban all poultry imports from the US.

26 of 27 EU ministers affirmed the ban and we filed suit before the WTO

random stuff

we don’t have a treaty trumps all rule in the United States. the world is not that simple. the way treaties are enforced is quite complicated. and we have a federal system, so not only do federal actors create rules, states create rules.

as a consultant to foreign firms, you can explain why they can’t claim benefits to a treaty that’s out there. you can explain executive action, congressional action, agency action, and (subnational) state action. you’ll see this discomfort tomorrow with the homestyle exemption in IP and european music.


i’d like to just sort of summarize congressional executive action to get a feel for where we are.


congressional action

difficult to complain about. forget about arguing toa court that congress doesn’t have the power to regulate some sort of question of domestic international commerce. but you may be able to complain that the legislation violates the takings clause or some sort of constitutional restriction; classic bill of rights actions,etc. that’s pretty much your only hope.

if president is blessed by congress, he’ll have broad executive plenary power.

if prez hasn’t been authorized…

then y ou have dames and moore analysis, history of congressional acquiescence, that sort of thing. mushy analysis of whether exec has authority. no cases where exec contradicted congress.

i think that with a pure trade regulation, congress wins. if congress says the tariff on banana is 10 cents, and exec says it’s 12, congress wins. constitution pretty clear in the commerce area that congress wins.

but i think the prez wins if there’s a contradiction in the foreign affairs area, like if obama says “we’re leaving iraq” on july 29th, prez wins even if congress says “no we’re staying.”


how bout agency action?

we haven’t talked about administrative law very much or the way agencies behave. since much of what the exec does is through agencies, it’s important to think about how to attack agency action.

two basic ways of doing it, if you’re upset with a federal agency.

like the canadian lumber case. lumber companies were upset and they made a direct attack on the agency’s interpretation of a statute.

  • substantive attack on agency power.
    • ultra virus. the agency has behaved ultra virus, something outside of its powers. doing something that it wasn’t authorized to do. agencies can only do what congress gives them power to do.
    • agency misinterpreted governing statute. see canadian lumber case. “you misread the statute, agency!”
  • procedure attack. attack on procedures that agencies didn’t follow in promulgating its resolutions and such. APA claims. (agency procedure act.) agency didn’t file environmental impact statement. agency didn’t read comments after proposed regs published in federal register. that’s why we don’t have mexican trucks yet. they were nailed for forgetting to file important pieces of paper in promulgating regs that would have allowed mexican trucks to come in. these sort of attacks win frequently. common approach to getting relief.


but what about the states?

how can states discomfort international power.


(i was on call so i didn’t take notes for the barclays case)


amaerican insurance association v. garamendi

lots of insurers had policies out on holocaust victims. so how did children collect? you had to learn whether the parents had a policy at all. how much was it for. how do you prove that your parents died without a death certificate? some swiss insurers particularly nasty if you don’t have a death certificate, and the third reich didn’t issue death certificates. also timely notification procedures. mayb eyou had to notify insurance company within a month, and kids aren’t going to know how to do that or even know when parents died.


so: big problems with uncooperative and nasty swiss insurers that could just appropriate the money.


how did california try to make it easier? they gave insurance companies an obligation to disclose if you were selling policies to california citizens. what did you have to put in public registry?

  • policy name, policy number, whether it was paid, and to who. origin, domicile, names of beneficiaries. enough info for interested parties to search the database and find whether they are listed.


did federal law or any treaty require these disclosure rules? no. why didn’t congress, back in he 50’s or 60’s, do something incredibly simple like this? it’s not even an unfunded mandate, it’s costless for the gov’t. why didn’t congress do this long before california?

it seems like the federal government’s scheme was to use “kid gloves”. they wanted germany to get back on its feet. they learned after world war one not to keep a country squashed. but their economy is great by the mid sixties. why not establish central registry then? it doesn’t burden german government at all, and burdens swiss insurance companies the most—no reason to treat them with kid gloves. this is a really simple, straightforward approach.

maybe they didn’t want to open a can of worms of industrial complicity in nazi activities? we did deal with the slave labor issues. i’m open to any conspiracy theory. there’s no rational justification why congress shouldn’t have done this a long long time ago, once the germany economy is revved up, and especially the swiss. write a novel about it. maybe the insurance companies own the gov’t.


what did the executive or rather various presidents do?

it came up with a mass settlement scheme, where the german gov’t and companies would establish a fund out of which claims would be paid, instead of individual litigation. it’s been 50 or so years. idea that cooperative resolution works better. but of course, there’s still no central registry established by the executive branch’s negotiations to let people know whether they can make a claim or not.

according to the court, what clause of the constitution does the law violate? that it was pre-empted. but pre-empted in what way? frustrating the congress’ objectives, or the executive’s objectives? the idea is that the president doesn’t have enough negotiating power if the states can reverse his promises. the framers probably didn’t have the thought of states eviscerating the executive’s ability to negotiate. and we assume that post-war negotiations, being as important as war negotiations, fall within the scope of executive power.

so: not california’s call. that’s the whole point of the preemption doctrine.


so: executive action alone can pre-empt state law.


(so does this power flow from congress in this situation? maybe not! this could be exclusively within the war powers of the prez.)


you get the feeling that whenever states try to defy federal policy they get slapped down. what states can do, and they did during apartheid, divested investments in south africa. but that’s just states deciding how to manage their money. even though it was a desire to motivate world events.



kate: in the barclays case, no formal executive agreement. in barclays you’re dealing more with a commerce issue than a foreign affairs issue, whereas garemendi… what if there HAD been an executive agreement in barclays? would the exec be able to do that? does exec need explicity authority from congress to interfere with tax policy? purely a hypo, no case has decided this yet.

  • maybe just leaves twilight zone of presidential powers.
  • on national security it’s easy. but not so with tax, commercial cases.


sovereign immunity!

a new topic! moving away from what states can do. book calls this the court’s role in talking about congress, executive agency, etc.


used to be judge made doctrine, and you could say here’s where the courts are in control of foreign transactions. harder to say now that courts have a unique role after the passage of the Act.


who os amerada hess and why are they upset?


they had hired the ship owned by this other company, and coming back it was empty (thankfully) and after they announced their presence, argentina bombed the ship, they waived white flag, and argentina bombed it again. the total damages were only 10 million for a super tanker. also no insurance company involved. (insurance companies tend to have act of war exclusions, which is kind of sad.) maybe 10 million is the deductible, who knows. anyway they sue argentina in federal court. are they allowed to do that?

  • no.

what if the bombers were a private firm. could amerada hess sue the bombers in federal court?

  • yes, under the alien tort act on p. 189. district courts have jdx over aliens violating a law of nations or a treaty obligation.


why can’t it use the alient tort act against argentina?

  • the foreign sovereign immunities act is the sole source of original jdx overa foreign sovereign. any time you’re going after a foreign sovereign, they’re immune unless you can fit in an exception.

if there’s a conflict between the two, the foreign sovereign immunites act prevails as last in time. but court interprets that there’s no conflict.

does the FSIA cause you to always lose? no, there are exceptions:

  • waiver of immunity
  • commerce within the US
  • property expropriated in violationo of international law
  • real estate something
  • non commercial something
  • lien on a boat owned by a foreign country


under our old law, foreign countries were much better off. we used to have way stronger foreign sovereign immunity.


what’s the best argument that amerada hess can make that its suit falls under an express exception listed on p. 192?


non-commercial tort in the us? but it happened in the middle of the ocean?:

192 has a definition of the US which includes all territories and waters within the admiralty jdx, and they argue that it’s within admiralty jdx and therefore within the US. court says we have words to refer to the high seas. like “high seas”. congress meant a three mile jdx line off the coast, which makes sense.


what horrible things does argentina do in the next case?

all of their international transactions have to be denominated in foreign currencies, in this case, us dollars. they issued bonds to back up loans that argentinian companies had with foreign companies. and when the bonds matured, they didn’t have the reserves to make the payments. so they unilaterally extended the bonds, obviously to the detriment of whoever is holding the bond.

a breach of contract: funny name to call a “unilateral change of terms”


and they can sue argentina. what’s the exception under the FSIA? commercial activities causing a direct effect on the united states. how does argentina argue that this a commercial activity?

  • they’re acting as a central bank, not trying to make money. why doesn’t that argument work?
  • court says the proper test is the nature of the activity, not the purpose. which is a pretty common test in a lot of areas. so they lose.
  • it’s kinda nice because you’ll see on occasion in your law careers that look at the nature and not the purpose of the transaction. this is a great illustration. if you look at the purpose of the transaction, it looks like a political action. but if you look at the nature, it’s owing money at an interest rate, issuing a bond, something private firms do all the time, it’s definitely commercial.


much like the market participation doctrine from dorman commerce clause jdx. normally states can’t discriminate, but they can if they’re market actors. like selling concrete, or forcing people to use its garbage dumps, etc. so states can sacrifice themselves to injure other industries. if they want. which they hopefully don’t, because it’s purposeless economic suicide in almost every instance since there’s not much advantage in the economy of scale and such.


i will summarize 200-207. i will just tell you what’s there. then do the reading as assigned for january 26th. 


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January 26 - class 7 o’ trade (Alex's drunken notes)

sam, nick, and anil: burn!


guatemala joins some trade complaint.


i am drunk!


no subsidies allowed or something. export subisidy or something.


EU FARMERS FAIL. well not yet. but oh they wil.l. what with their eu subisides. EU buying butter and milk to prop up diary producers. in my eyes, that industry should be failing. but instead they’re amking money off of government purchases. and i want to replace those bastads!


third! eue supports two gm corn crops. eu fighting genetically modified products from getting in, but they broke down and let some gen mod corn get in. 95% of corn grown in the US is genetically modified.

readings for today: something@!

executive sticks finger in someobody’s international affiars. and by international affairs, i mean, well, you know. shocker!


what in the hell page are we on?


200-207 material: some act of state and foreign sovereign immunity stuff

foreign sovereign immunity act: says if you’re foreign sovereign you can’t be sued except under some circumstances:

  • waiver: sometimes sovereign states in treaties promise to waive immunity. e.g. bilateral investment treaty, where foreign sovereign promises to treat investors fairly to make sure they don’t get screwed under state law. mexico and canada waived it under NAFTA.
  • commercial activity in the US with direct effect on US: when a state acts like a business it’s not immune under law
  • expropriation: if complaint based on state’s taking of property in violation of international law. if canada took all of a company’s vehicles and nationalized them. no sovereign immunity against the expropriating state.
  • real estate in the US
  • non-commercial tort committed in the US
  • no immunity if involves attachment of maritime lein. (remember in admiralty you can sue ships if the ship owners owe you money—you can stop the ship in port. so you can sue ships owned by governments if they’re in port.


some case: bond specified payment in new york city, which made it sufficient to satisfy direct effect in US prong.


central banks have blanket immunity against attachment. so even if you win against a foreign sovereign, and they don’t pay, you’ll have to find argentinian property in the US. can’t go against the bank of argentina.

  • collecting the judgment is a fun part of the law that isn’t studied very much.



sometimes you can’t tell if you want to sue the state or not. what if you’re suing the argentinian state university, or a corporation heavily owned by the argentinian gov’t: when is it or is it not the foreign state under the statute? the key:

  • foreign state itself
  • political subdivision
  • any private corporation, the majority of whose shares are owned by the state
    • interesting case involving an isreali plane manufacturer. even though it looked like a private business it got treatment under the foreign sovereign immunities act.



act of state doctrine: confusing, and conceptually incoherent. bodansky and coenen gave me contradictory versions

in theory, american courts won’t render a judgment inconsistent with an act of a foreign state. judges feel like it’s none of their business to say that an official act of a government is invalid. it’s a deference driven by the judiciary’s view that the executive branch should be the ones pissing off foreign countries. clear example where this works:

  • american cts won’t invalidate foreign trademark. if american trademark is being abused abroad, they won’t say that a foreign trademark registration is invalid.
  • when the act of state is a law or official regulation, the american court won’t declare it invalid. but there’s muddiness.
    • someone bribed the nigerian gov’t to get contracting work, which is in violation of the foreign corrupt services act. and they said it was act of state doctrine, the nigerian gov’t said you had to pay a 20% “commission” to build the plane strip. court said no, that’s not an official act of state. but why isn’t? it’s bad, and corrupt, but why not an act of state?


ships!

we’re skipping ahead to the 800’s so that we can start with the underlying commercial controversy.


what do buyers and sellers seem to care about most here? risk management. there’s an international business transaction class that focuses on this stuff. on the buyer’s side, risk of loss: risk of paying for damaged or undelivered products. seller’s risk of being paid, a financial risk. buyer’s risk managed through insurance and the list of incoterms. the seller’s risk is managed through this documentary payment system, the notion being that the seller gets paid when he or she transfers the documents evidencing shipment. incoterms help sellers manage risk too. incoterms frequently define point of transfer for liability of damage at the point when the product passes the ship’s rail. (what if they throw the product off the rail and into the sea?)


what are the baseline obligations?


under the CISG, what’s the seller’s obligation in terms of delivery?

  • if the contract is FOB, you have to load the goods on board the ship.
  • what if there are no cool terms on the contract? what’s the presumption for delivery term?
    • no obligation for delivery, you can set out those boxes on the dock and call it a day.


when does the risk of loss pass… under FOB? the seller doesn’t need to provide for the freight or insurance? the risk of loss occurs when the goods cross the ship’s rail at the point of shipment. so literally if the crane drops the goods over the ship or the dock, there’s a different responsibility for either. if it’s an FOB contract who pays export fees? (this is page 813) the seller pays the export fees, and the buyer pays the freight. who pays to unload goods? the buyer.


what about CIF? what changes? the seller pays insurance and freight to buyer’s port. and the risk of loss happens at exactly the same place, the rail at the point of shipment, which is why, of course, that the seller is put in charge of buying insurance for the buyer. so for FOB, the buyer buys insurance, but in both circumstance, risk of loss transfer is the same place. why would a buyer want the seller to pay for insurance? usually we want to be familiar with our insurer.

  • sometimes it’s cheaper because the local insurer can inspect the goods and can insure for a lower price.


main question in…


biddell bros

under CIF contract, the seller gets paid when the documents are delivered and the goods have been loaded onto the ship. when the bill of lading is delivered, that’s when payment is required. that’s not the normal rule under the UCC. under UCC when there’s no payment terms, you don’t have to pay until conforming goods are delivered.


how can the buyer manage this risk of paying for goods they’ve never seen before that are in the middle of the ocean? as part of the contract, the goods are insured, and the buyer can reconvey the goods before they’re delivered. if it’s oil, it’ll change hands ten or twenty times. so one way to manage it is to resell, one is insurance, one is preshipment inspection (hire professional in the port city to make sure the goods are conforming).


most goods still travel by ship. it’s expensive to ship anything by plane. so these cases are good law virtually everywhere. what you should do probably… just sit down with the documentary sale handout and go over it before thursday and get a feel for the way documents move back and forth, and take a peek at the incoterms.


let’s talk a little more about this


warner bros. vs. isreal

a thousand tons of sugar. did the seller get paid? to what extent did the seller of the sugar get paid?


the seller got 95% of the purchase price by transferring the documents to the buyer. the word letter of credit isn’t used here, but this is a letter of credit transaction. who was the seller paid by? it wasn’t the buyer.

  • it was the…
  • the goods are loaded onto the ship by the seller, the ship’s captain gives the bill of lading back to the seller. the seller then gives this bill of lading, along with the insurance document (this is CIF) to prove goods are being shipped and are insured… bill of lading proves the goods are being freighted since it’s proof from the ship’s captain. who does the seller give the documents to? sometimes they give the document directly to the buyer, but sometimes seller doesn’t trust the buyer. so how does the seller further manage his risk of not getting paid when the bill of lading and insurance are presented?
  • the buyer has a bank in New York. the buyer, at the seller’s request, has set up a letter of credit at his (the buyer’s) bank. that’s one more document, called a sight draft. so the seller shows up to the buyer’s bank with a bill of lading, insurance document, and a sight draft (which functions like a check to yourself) and says “pay me,” and the buyer’s bank pays. even if the buyer is lousy and untrustworthy, once the letter of credit is issued, the buyer can’t renege, the bank has an obligation to pay. so this is a wonderful way to manage your risk. even if the buyer is bankrupt in rio de janeiro.

so why is the seller suing? for the 5% holdback.

why is the buyer upset? the sugar was never delivered, and was held in a warehouse, because at the time the US had the sugar quota act which blocked incoming sugar. minnesota is the biggest sugar producer in the US. so to protect sugar market we put a quota on phillipine sugar. so the buyer will have to find some other buyer somewhere else in the world for the sugar, but the worldwide price of sugar has dropped. so the buyer is clearly upset.

what’s the buyer’s argument that the seller is responsible? this is probably a sugar middleman, trading in sugar. there were provisions in the contract to determine the price when the sugar actually arrived, so they argued that this adjustment scheme meant that payment should be conditional on delivery.

ct was saying even though there were those provisions, there were no violations, and the adjustment scheme would just adjust the price later (e.g. seller might have to give a few dollars back), it didn’t have this effect of making payment conditional.

  • remember, it’s not a law that you have to structure the deal this way. buyers can negotiate for other shipping terms. but if you put the word “cif” in there, you need to contract around it in an incredibly clear way.


suez canal gets bombed: the tsakiroglou case

it’s CIF, so the seller is responsible for getting the goods to the buyer’s port. what sort of cost did the canal closing impose on the seller?

there was an alternative route around the cape of good hope.


the shipper said it was frustrated. was it literally impossible to deliver the goods? it was possible. just suddenly very inconvenient. was the suez canal mentioned in the contract? no. but it was the usual and normal route. so the argument hinges on they’re proving that the contract required the goods to go through the suez canal.

  • did it look like an urgent deal where the parties must have assumed the goods would have to go through the suez?
    • no. the nuts seem to survive OK. frustration has be a quantum leap order of magnitude different.


why doesn’t the force majeure clause provide us with an answer?

  • it only kicked in if the blockade prevented shipment within the time fixed. there was a two month space allotted in the contract. “preventing the shipment within the time fixed”, and the time fixed leaves enough time to bring the goods around the cape of good hope.


eugenia

skipped!


again, a court unwilling to shift risk because the risk was foreseeable, the contract clearly stipulated the cost of renting the ship and doesn’t allow one party or the other to shift those costs.


in eugenia, the dispute was over how much the person who rented the boat has to pay. the charterparty/rental agreement goes on longer than it was supposed to. since it wasn’t the fault of the person who rented the boat, do they have to pay? yep!

constructores tecnicos, s. de R.L. v. sea-land service, inc

great place to learn terminology in these shpment cases, since almost eveyr term shows up here.


seller in this case: what are they selling?

  • diesel truck and drilling accessories
  • who is the shipper?
    • who is responsible for getting the goods shipped? in this case, it’s the buyer. the seller isn’t always the shipper. JWS may be a small firm that doesn’t know anything about shipping to south america.


the consignee: the person to whom the goods should be delivered when they arrive at port. the consignee is also the buyer in this case.


golden eagle is the freight forwarder.


freight forwarders are indirect carriers. they negotiate contracts with direct carriers. they take care of everything from A to Z, negotiating rates, logistical service provider. their expertise is getting goods from one place to another.


on a low level, fedex and ups are freight forwarders, they deal with customs.


golden eagle is in charge of finding a ship. a huge percentage of shipments are arranged by freight forwarders. who is the charterer? and what is a charterer? the person renting the boat. sea-land, in this case. so sea land rents the boat from san miguel.


san-miguel is the ship-owner. is the ship owner contractually obligated to do anything? what’s their role? to provide a ship to the charterer.




exceedingly common for shipowners to rent their ships out.


who is in charge of insuring the goods in case they’re damaged?

  • international cargo.


so that’s all the players in this game. what happened to the truck?

  • it was stored above board, and there was a hurricane. and the truck got destroyed when things fell on the truck and it was improperly stored. whose fault was it that stuff on the deck was improperly lashed? sea-land, and also the stevedore perhaps. stevedores in charge of taking goods from docks and putting them on ships and sometimes for securing them on the ships. so we might have a case where fred the stevedore is at fault for bad lashings.


what’s sealand’s argument that it’s liabiliity is limited to 500? COGSA limits liability to 500 if the value is not reflected in the bill of lading. Golden Eagle didn’t put the value on the bill of lading. bad! no wonder golden eagle settled. the response of the charterer might be “i’m not taking these goods, they’re too valuable.”


so the function of the rule is to let the carrier know how valuable the goods are so they can either buy insurance or refuse carriage. (why isn’t delta in the business of selling insurance? no idea.)

  • we want carriers to know how valuble things are.


what’s the argument that COGSA is called off? even though the value wasn’t listed on the bill of lading?

  • a clean bill of lading implies that the products will be shipped below deck. if you deviate, more than a reasonable deviation, you lose your COGSA limits on liability. so even though the carrier says to him/herself, “i could blow this shit up,” they still need to adhere to the contract. and it wasn’t. therefore they deviated from the carriage contract. calls off the 500 dollar limitation.


and contec gets to recover the full amount of damage, 70 something thousand. do all deviations from a carriage contract kibosh the liability limiation?

  • no, it needs to be more than what is reasonably expected.
  • serious issue if you deviate more than reasonable from the shipping contract.


finish up with eurymedon case, which is a very interesting case, review it again. you read the trade policy stuff. i’ll email you with adjustments. 

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January 26 - Sam's sober notes

How does US Con law impact the behavior of international players and the extent to which international law impacts the U.S.


Sovereign Immunity

Congress calling the shots, as opposed to judges

Foreign Sovereign Immunity Act

If you are a foreign sovereign, you cannot be sued in the US. But has exceptions

Exceptions

Express waiver (sovereign states in treaties may promise to waive their immunity - bilateral investment treaties.) NAFTA is also an example.

Unless commerical activity occurring in the US with a direct effect in the United States. - When a state acts like a business

Expropriation - if the complaint is based on a state's taking of property- outright illegal expropriation where a country takes your property and nationalizes it.

If the object of litigation is property in the US or inhereinted in the US

Non-Commerical tort committed in the US

Attachment of a maritime lien. - You can sue ships when a ship owner owes you money. Just because a ship is owned by a sovereign you can still go after the ship.


Two part test

Direct effect in the United States

Within the United States

In the Argentine case from last week, all that was necessary was the fact that the bond had to be paid in New York


Central banks have blanket immunity from attachment.

Youc an't get the money from the central bank even if you win. You must find their property in the U.S. to put a lien on. Argentinian property or money not held in a central bank.


Sometimes your client wants to sue an entity that is not clearly the state, nor not state.

Say a national university, or a company so heavily subsidized that it's like the state.

Definition of what constitutes a foreign state

Foreign state itself

Political subdivision

Any private operation the majority of whose shares is owned by the foreign state.


Active State Doctrine

IN THEORY - American courts will not render a judgment inconsistent with a foreign act of a foreign state.

We do not feel justified in telling a state that their laws are invalid

Judiciary believes that the executive should piss of foreign states- that's the executive's job and maybe the legislatures.

EXAMPLE

No invalidation of a foreign trademark, even if the American is being wronged and the courts have jurisdiction.

When the active state is like a law or a regulation, then we will not pursue this either.

Muddy case

Bribing of Nigerian to get work done.

In violation of US law to bribe an official - corrupt practices act.

But the American said this is an official act of state to bribe this person.


International Regulation of Goods and Trade and Services


This is the new section. Everything before is its own section.




Risk Management

What parties care about

Risk of non-paynment v. Risk of loss

Buyer's risk - insurance

Seller's risk - documentary system


If you know when you're on the hook, you can manage your risk.


CSIG

Seller's obligation

FOB

Delivering the goods onboard the vessel

What if no terms exist?

Presumption that the goods are ready to be picked up.

Article 31 (c)

FOB

Seller does not need to worry about insurance

When goods are delivered crossing the ship's rail it's on the buyer.

Seller pays export license and fees

Freight charges are buyer's - customs, etc.

Buyer pays to unload the goods.

c.i.f.

Insurance and freight are the duty of the seller.

Risk of loss is transferred across the ship's rail just as in FOB



Seller's duty is fulfilled and that goods do not need to be delivered to the buyer before the buyer has to pay. Seller is paid once the goods are loaded on the ship, and when the bill of lading is given to the buyer.

Insertion of c.i.f. requires buyer to pay upon receiving the shipping documents.

How can the buyer be protected?

Goods are insured by seller

Buyer can reconvey the goods before they are even delivered.

If a big player, you can pay a professional inspector to look at the goods and make sure they conform, watch them loaded, and make sure they remain in conforming order.


Warner Bros v. Israel

1,000 tons of sugar

Seller got 95% of the pruchase price through insurance

This is a letter of credit transaction 


                  goods

Seller ------------------------------> Ship ---> Buyer

| ^ |

| | Bill of lading | |

| ---------------------------------------- | 

   |     |  Bill of lading insurance                              \/

   |      -------------------------------------------> NY Bank

   |   95% of price with sight draft to seller   |

   ------------------------------------------------------|


Buyer says sugar was never delivered

US created a quota for Phillipine sugar

Quota was filled up.

World wide price of sugar has plummeted in the time.

Buyer argues that seller is responsible for its damages

Provisions in K regardining how to determine price including net delivered weights.

Adjustment scheme if sugar was at the wrong temperature.

Court says that the K is pretty clear.

Despite these provisions, they were not violated. The sugar was as it was required in the K. Besides, it was not the seller's duty to make sure they goods arrived. They just had to get it on the ship.


Tsakiroglou v. Noblee & Thorl

c.i.f. contract

Seller's responsibility to get goods to buyer's port

Carrier originally wanted to go through Suez Canal

Argument over which route to take - Suez is closed, Cape is still open.

Seller says that the contract was frustarted by impossibility to get the goods to their destination, though only through Suez. Good Hope is still available.

Seller wants "Usual route" to be read as "Suez Canal"

In fact, all the K was interested inwhas getting the nuts within two months or so.

The alternative route means that the purpose is neither impossible or frustrated.


Mere expense is not sufficient for frustration - it must be unjust.


Force Majeure clause only kicks in if the blockade prevents the goods from being delivered in two

months. However, you can get the goods there in two months around the Cape of Good Hope.


Constructores Tecnicos v. Sea-land service

Seller - J.W.S.

Truck and trucking accessories

Shipper/buyer/consignee (person to whom goods will be delivered once in port)

Contec

Freight forwarder - The agent of Contec. Prepare documentations, bill of ladings, logistics coordinator.

Golden Eagle

Charterer - Renting the ship

Sea Land Services

Ship Owner

San Miguel

Insurer

International Cargo

Japan Shipowners Mutual Protection and Indemnity Association


Ship was held above deck. A package hit the truck and totally wrecked it.

Fault for this damage was the Charterer - Sea Land.


Sea-Land says its liability is $500 under COGSA unless shipper delcares value of cargo is reflected in the bill of lading. - This was not on the bill of lading.

Purpose is to make sure that parties know what they are carrying.

HOWEVER- Sea-Land violated COGSA because it violated the requirements because the bill of lading was clean, meaning that an inherent assumption was that the goods would be below surface.

Unreasonable for Sea-Land to not inform Contec that the goods would be above deck.

COGSA says that if you deviate from the contract with the shipment in a more than reasonable manner, then COGSA does not apply.





Eugenia case-

Chatrter agreement goes logner than it was supposed to

Did they have to pay because it ran over? Yes.


Wednesday

Finish this reading

Getting some adjustments

January 29 - trade class 8 notes

three big international transaction questions

when is payment due?


who makes the shipping arrangements?


when does the risk of loss pass?


these questions are all answered privately. so check out the web of arrangements in the Golden Eagle case.


it looks like Contec is responsible for making the shipping arrangements because it’s Contec who contacts Golden Eagle.


Exworks. could be exworks.


golden eagle doesn’t have its own ships, so it enters into a contract with sea-land, which is a carrier and charterer (and not the owner of the boat). normally the ship owner wouldn’t be part of the litigation, but apparently they were helping to get the goods loaded onto the deck.


golden eagle i presume is responsible for getting the insurance on contec’s behalf. so the contract between golden eagle and the insurance company makes contec a third party beneficiary.


so contec has contracts with san miguel, the ship owner, and with the stevedore.


notice JWS isn’t involved in the litigation. why is that? probably because they’ve been totally paid in full. JWS presumably got a bill of lading, a document which indicated it had performed its duty, it was entitled to payment by contec, or by contec’s bank. so jws presented the bill of lading to somebody and got the cash.


note the power of the documentary sale system.


what about contec and the insurance company? it says in the case that inland cargo, according to the lower court summary judgment disposition, does have to pay on the loss. my guess is there was a dispute going on here—why might inland cargo have been arguing with contec about paying? it’s related to an argument that sealand made about why they perhaps weren’t liable.

  • agency argument: we only have to pay innocent victims of accidents—if it’s contec’s fault the damage occurred. whether that argument makes any sense depends on whether golden eagle is the agent of contact or not. remember, court says nah, golden eagle more like an indy contractor than an employee.


it’s possible that inland cargo subrogated contec’s rights and is suing in the victim’s name. second possibility: contec’s trying to double dip on the insurance policy and collect twice. you can do that on personal injury claims, although i don’t think you can do that with property. moral hazard fraud problem.


golden eagle settled with contec for forty thousand.


oh by the way, the court said you do have to credit the remaining defendants for the settlement value, you can’t recover more than your total loss.


notice that a big storm, an act of god, is what destroys everything. but that doesn’t change any of the contractual obligations.

some news items

shocking news: brazil starts requiring licenses for many imports. used to be that if you wanted to get stuff into brazil, you’d fill out a form online. now 70% of their imports must be inspected individually, and trade secretary has 60 days to approve everything. nowhere near enough staff to inspect everything. driven by the slump in their trade surplus. this is clearly in violation of their GATT obligations unless they really have the staff to approve those applications. this could be the tip of a really shocking iceberg—it’s a big deal for a country to totally bail on its primary treaty obligations.


only 49% of international patents went to US, which means rest of the world is catching up.


one of my favorite cases: eurymedon

you can soon rap with hip maritime lawyers. couple factual notes first.


these conventions regulate and address the liability of carriers. Sealand in the case we just discussed might want to disclaim all liability. But COGSA and these international carriage agreements basically say that Sealand can’t just do that. it places responsibility firmly on Sealand, but it does allow sealand to escape liability in a couple different circumstances.

  • beyond $500 per package if shipper fails to declare value of goods on bill of lading (we didn’t know whether that was contec’s or golden eagle’s fault. we find out that doesn’t work because you can’t take advantage of the 500 limit if you deviate from the K in a significant way, and putting the goods above deck was a significant deviation.


these rules generally don’t apply (about when you can and can’t limit liability) to non-carriers. like the stevedores! and the crew of the ship! these int’l agreements and COGSA don’t say anything about the ability of the crew and stevedores to limit their liability (more likely a union of stevedores).


in the famous case involving the Himalaya, who sued whom? That involved a Himalaya clause. on 844 note 1. there’s a passenger who suffered injuries and sued the crew. and the crew was indemnified by the carrier. not a crazy contract—i’m indemnified by the university of georgia if i do something stupid. it’s a clause which is demanded absolutely by stevedores. when sealand calls the stevedores, they’ll say fine, but we gotta be indemnified. you would think there would be competition among stevedores, and some would offer to skip indemnification. any guesses why that doesn’t happen? it’s a powerful union! the laws that make unionization legal are really laws that bless what would otherwise be antitrust violations.

  • so how do carriers respond?
    • they put the now famous himalaya clause in the contract between the carrier and the shipper/freight forwarder. and what does that clause say? it holds the crew harmless. we know that sealand in this K can’t get itself off the hook for its own negligence because of COGSA, but it can, via the himalaya clause, create immunity for stevedores, crew, and the sea captain.


back to the golden eagle case. say the carrier was protected from liability, and the damage was caused by the crew, and there was no contract preventing anyone from suing the crew. why would that upset the carrier, that the crew members would be held liable? because they indemnify the employees.


eurymedon (heald loves this case and will put it on the exam along with the himalaya note)

why does the shipper sue the NZ shipping company (the stevedore) rather than the carrier (federal steam navigation)? given that cogsa and other conventions prevent the carrier from waiving its own liability? why isn’ tthis a boring suit where the shipper sues the carrier?

  • there was no declaration about the value of the goods on the bill of lading. which means carrier gets to apply the $500 limitation. which means the shipper’s only hope is to bring this complex suit against the stevedores instead. what defense do the stevedores raise?
    • the bill of lading clause waiving their liability. they were protected by a Himalaya clause. do you remember the legal argument that claimed the himalaya clause was not enforceable?
      • they argued that the stevedores gave no consideration for the waiver, so there was no contract between the shipper and the stevedores. kind of ridiculous given the broad world of third party beneficiaries in American contract law, but whatever. (this is a new zealand court, so it’s not quite as crazy.) under american law, we would ask whether third party beneficiaries were supposed to benefit under the contract, a very crystal clear “yes.” but in new zealand contract law?
        • still unsuccessful. so on the facts of the case, the himalaya clause is unenforceable.


so: shipper is totally SOL.


one important note: this might be privy council of new zealand. i better check. in the UK and other jdx, these clauses have been held unenforceable as violatiosn of public policy. but not in the US and New Zealand. UK and Canada would have a different result than US and New Zealand.


the more you stare at it, the more sense it will make. the law isn’t all that hard.


dumping! federal mogul corporation v. united states

let’s jump into this dumping case on 863 and get some basic terminology down.


acronym for price in exporting country: FMV, foreign market value (what an awful choice for an acronym)


USP: United States price.


dumping occurs when the USP is less than the FMV. the US statute adjusts the dumping margin by taking into account shipping costs and taxes. if a car is being sold for the exact same price in japan and the US, then we can say that dumping may be going on. (seems kind of unfair, i would think you’d just want to adjust for the price difference, but the whole dumping principle seems weird to me). if the car is 20,000 in both places, and shipping is 800, then the USP is 19,200.


FMV is wholesale price, not retail price. we’re not looking at how much the camry costs on the car lot, we’re looking at how much the factory charges to a dealer. and we’re gonna compare that to the price that’s charged to the first buyer in the US, probably also a car dealer.


commerce department job: collect data and do this number crunching. lawyers are needed now!


what if japan required a better exhaust system than is in the US version? that could be an explanation for why japan is able to charge a lower price in the US.


what if Toyota doesn’t sell any Camrys in Japan? this happens. some car companies sell different cars in different jdx’s. Commerce guesses at the price. they’ll look at other countries receiving similar exports and use that as a proxy. but what if they’re dumping on ‘’everyone’’? then they’ll mentally build a Camry in Japan, calculate the profit margin, and then guess that way.


the exam won’t make you calculate all of this. but you need to know the concept.


how does Commerce adjust for the taxes charged in Japan? in particular the VAT?


(question: the VAT that would have been charged isn’t actually going to be what would have been applied to the FMV, it’ll be on the parts and services purchased by the company to build the car.) the statute refers to the rebated portion of the tax, which would be the figure i mentioned.


why is commerce so interested in a tax neutral result? they’re aware of their international obligations, and they want to follow the statute, which appears to seek a tax neutral result.


non-business: founder’s dinner. real goat cheese on the menu. we have a table there. the table sits ten. and that’s all we have. so, if you could, this is on the night of february 12. email me if you’re interested. we’ll pull names out of a hat.


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Trade Class 9, February 2, 2009

reading assignments in trade now a convoluted mess. i think the reason these different materials are so close together… the trade cases, goods moving back and forth, are essentially what we care about, what the WTO cares about. and what we see in these cases is basically self-regulation. where we see law tends to be lex mercatoria, this merchant law, with minimal gov’t interference.

  • we see a little bit of paternalism with damage waivers. gov’ts wont’ always enforce these if a big carrier is trying to escape liability through its status as a dominant , repeat player.
  • almost all disputes solved in arbitration now.


but the gov’t of course is the intervenor in these dumping cases and the banning of asbestos and the classification of like kind and so on and so forth. it’s the WTO’s job to make sure that when states do slow down commerce, it’s not on the basis of illegal protectionist grounds.


brazil already revoked all of the import regulations it claimed it was going to impose on the rest of the world. to review specifically where we were (and we’ll review the dumping code later) we found that, mandated by the GATT, the department of trade tries to make sure that anti-dumping measures are tax neutral. we didn’t get to the Timbec case.


Timbec

page 17 and 18, how anti dumping measures can be challenged, how they come into force in the first place. it takes the commerce dept and the international trade commission workking together in order to impose an anti dumping duty. it’s the job of the ICC to investigate dumping, and make a finding that a US industry is threatened because of it. then it goes to commerce and commerce does the math to calculate the duty. a nd then it’s the Customs dept, part of the Treasury, that collects the duty.


what hapepns if you’re a foreign firm and you’ve had a dumping duty imposed on you? you can invoke the administrative procedure act, say that commerce or icc screwed up, through raising it in an american court. if you’re a canadian or mexican client, you can demand a NAFTA panel. or you can convince your govt to bring a complaint to the WTO.


what happens if price in home country is 2.00, and the shipments in the US are half 1.75 and 2.25? the commerce dept used to impose dumping duties on this, until they got slapped down by the WTO. you can only bring a WTO complaint if the consistent rules or practice are violative.


p218 we find out what happens in the US system if the US loses a case to a foreign NAFTA panel or before a WTO panel. congress thought quite hard about what should happen when we lose a anti dumping case. what congress does in sec. 129 is require the ICC to look at why we lost and consider whether practices can be changed to ensure compliance. bottom of 218 is the most important about power to revoke. (i better read that supplement part later.) USTR has the power to revoke the anti dumping order—but not the power to force commerce to recalculate the anti dumping duties. but i nthis case i think commerce got tired of losing over canadian lumber. USTR is like a bulldog, tweaking the practice/law a little bit and hope that commerce reads the report, recalculates the dueis. eventually commerce gets tired, and evne though USTR wants to recalculate one more time, commerce won’t play ball. so USTR orders commerce to play ball. “read our report, recalculate the duties.” and commerce won’t do it, and the court says commerce doesn’t have to. USTR doesn’t have the authority to do this. that part of the case is quite boring… us agency overreaching. what’s interesting is what you can do if one of your clients doesn’t agree with an anti-dumping order, what are your avenues of relief, and what sorts of responses congress has anticipated when dividing power between commerce and USTR.


MFN: if you extend a benefit to a member of the WTO, you have to extend the benefit to all members of the WTO. does this really work as a one way ratchet to liberalize trade? even though the state effect is that a deal with one results in a deal to all, but this would prevent making the deal to one in the first place.

  • book notes exceptions to the MFN principle. includes…
    • customs unions (uniform duties)
    • free trade areas
    • those are both regional pacts. either regional trade pacts could become massive disastrous bastions of protectionism, or, as the hope was, the liberalization among those economies would maek everyone see the benefits of free trade and get more used to the idea and be more willing to make other free trade agreements.
    • less developed nations. MFN would be too harsh… we can’t drop textile duties to cambodia if their political climate improves and deny it to myanmar. we retain the ability to discriminate in favor of less developed nations. result of colonial guilt.


how can a country get around MFN if it wants to discriminate? say all you care about is short term benefit to domestic industries? take advantage of the fact that you can’s discriminate between “like products” and then define “like products” such that they are no longer like products, allowing you to discriminate, and if you plan things, you can make it have a result that discriminates against a country. like a species of tree or coffee bean.

imagine that japan favors american growers of douglas fir to canadian growers of spruce. how to discriminate? tax the spruce, not the douglas fir. why isn’t this automatically a violation of the MFN principle?

  • the burden falls on the complainer to establish that a “tariff arrangement has been diverted from its normal purpose so as to become a means of discrimination in international trade.”
  • what matters in japan’s evaluation of wood?
    • size matters. (laughter) in regards to this case.
    • finished/unfinished
    • species

notice how there’s other things that might be relevant. the intended purpose, the shape the wood is cut into. whether it’s a hardwood or softwood. coniferous vs. deciduous. there are deciduous softwoods. why isn’t the panel willing to find that the choice of these three factors is a disguise for japanese favoritism? canada claims that the most important standard for wood is dimensionality. what’s japan’s argument that dimensionality shouldn’t be relevant here? did japan invent this? what’s the international convention on the harmonized coding system? it’s the harmonized system’s position. there are ten volumes of books categorizing different goods. all the way down to dressers with three or more drawers. why? age of englightenment need to categorize everything? it’s driven by the fact that customs, tariffs, and taxes all tend to be levied on particular categories of goods. business people lik ecertainty. they want to know if they’ll have to pay atax or not. so they come up with a basic suggesetion for the world, he’s an idea for how to describe all the goods in the world.


pp. 879: International Convention on the Harmonized Commodity Description and Coding System. Simple and straightforward. But might have the result of screwing Canada. there’s a big chunk of wood in canada that falls into a species that gets hit with a tariff, and competing wood in other countries that doesn’t.


asbestos: p 885

it’s a 1990, pre modern GATT case. it’s an MFN case. you’ll notice a much more searching approach in this case. why such a different approach in asbestos case than lumber case a few pages earlier?


if you’re violating national treatment, you’re discriminating against all foreigners in favor of locals. if you’re violating MFN, you’re discriminating between two foreigners, one foreigner over another. a case that should be in here but isn’t, involving game playing in the taxation context, one of the most famous national treatment cases, involving a japanese liquir called Honchu. made from rice, but could be made from any starchy vegetable. vodka taxed at 100%, but honchu not taxed. until liqour industry got mad. struck down by WTO.


reminds me of case with hawaii trying to not tax pineapple wine.


so, asbestos. ban on import of asbestos, with exception for cases where there’s no safer material. but that exception doesn’t come up in the substance of the case. what’s the argument that Canada makes? they say that PCG and asbestos are like products. but what’s wrong with that? how is this a national treatment violation? it’s a uniform treatment of asbestos.

  • me: (because domestic producers of asbestos might be A-OK. that’s a national treatment issue. is heald looking for the MFN issue? yes.)
    • virtually all asbestos manufactured in canada. 98%.


panel says PCG and asbestos ARE like products, that there’s a big overlap in the uses. but panel nonetheless upholds ban for health reasons, (section 20 of the GATT), it’s ok to ban stuff for health reasons. i think the WTO would fall apart very quickly if countries couldn’t ban unhealthy things. the panel opinion and the appellate opinion uphold the ban via very different routes.


article 3-2 and article 3-4. how are those two articles relevant? III is the national treatment section. III-2 is taxes—you can discriminate in yoru tax code between unlike products. III-4 says you can discriminate in your general regulations between unlike products.

  • if you look in your fat document supplement in article III of the GATT… there’s no article III there. most of the bulk of GATT 1947 is incorporated into 1994. so you have to poke around. the language that the panel finds so relevant is not in article III-2. what’s the difference between the language in 2 and 4 that the court seems to find relevant?
  • III-2 has statements about an obligation to like products and subsitutable products, 4 just talks about like products. so the taxes national treatment is apparently different than what’s required for the general regulations.
    • treat the imported goods which are the same as your own goods which are the same under your tax code. pp.888—there’s a second sentence which lays down a second obligation, which says to treat goods which are directly competititve or subsitutible the same. margarine and butter might be a borderline product. if you go to III-2 online you won’t see this language. but there is an asterisk.
      • with taxes we seem to be really worried about game playing with the internal taxation system. whereas with general regulations, we just have the general obligation to treat like products alike. and what does panel say about second sentence of III-2 to inform its interpretation of III-4? not really sure. maybe they just didn’t want to leave the information in the clerk’s memo.


so what sort of framework does the appellate body construct to determine whether PCG and asbestos are like products? product properties, end uses, tariff classifications, consumer tastes and habits. how does the panel apply these factors?

  • the overlap in uses doesn’t overwhelm consumers’ avoidance of carcinogens


we see in this case an appellant panel not wanting to waste time on remand, so they just make some factual interpretations on their own. the appellate body says if you lose part one of the test, physical properties, you bear a heavy burden of proof on the remainder. end use, tastes of consumers, and tariff classifications.

question i want to leave you with: does the court do as convincing a job regarding the asbestos cinderblocks and tiles? it seems clear the court’s right to say the blanket ban is fine. but do the canadians have a better argument regarding the big bricks you can buy in europe but can’t be imported? 


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February 4 - trade class

to situate us… we’re in the foggiest part of the course. i basically wanted to say that in a world with only private ordering via contract, goods flow freely throughout the world. but even the most ardent freetraders don’t want to live in this world. why? because important health and environmental goals would be frustrated. elephant tusks, dioxin, asbestos, false advertising, etc.


free traders, being good historians, don’t trust states to act in furtherance of legitiamte regulatory aims—they’ll seek their own profit at the expense of others if given the chance, maybe ina race to the bottom.


so we have WTO, deciding what is legitimate regulation. t his is to me the core of the book. if the casebook had nothing but turtles and asbestos and beef hormones, i would have chosen that book. last time we encountered several rules to prevent discrimination. which doesn’t preclude treating different kinds of products differently. simple example: country decides beer causes fewer health problems than hard liquor. assuming they’re not like products, states could impose different taxes on each one. there’s all sorts of non tax regulations that would implicate different things, different labels on liquor, different hours it can be sold, different licenses. result will depend on critical question of likeness.


i think of the japanese dimensional lumber case as a tax case because it’s a governmental fee that has to be paid. why does japan get away with it, and why is there so little scrutiny of the japanese system in this case? this is in stark contrast to the tough look the asbestos regulation gets. japan is using a harmonized classification system, and the WTO tries to encourage countries to adhere to international standards.


the japanese people are also negatively effected by the tariff—MFN violations aren’t designed to protect local producers, in fact they usually disadvantage local consumers, so MFN cases get less scrutiny than national treatment cases.


sochu case: 1/10 the tax on sochu as on vodka. local sochu producers greatly benefitted. looks instantly more suspicious, and court goes right to that national treatment language, and the substitutable products language. they may not be like products, but they’re substitutable. second sentence in article III:2 (or did he say 4?). if they’re substitutable or directly competitive, then tax is going to get kiboshed by the WTO. sochu nowhere on international classification system either.

  • note that in sochu case they didn’t go through four prong scrutiny as there was in asbestos case. which was a III:4 case rather than a III:2 case. or something.


confusion!


what if the regulation at issue clearly benefits local producers? in those situations we’ll get tougher scrutiny. what if the country had a huge brewery and taxed hard liquor? then it starts to look like the asbestos case, and we have reason for more scrutiny. that’s what’s going on in asbestos: french have a strong PVG industry, Canada is the only producer of asbestos. it doesn’t mean the regulation is invalid, but it does justify a much longer and more thorough opinion, rather than a two page diddy over wood sales in japan. “if japan wants to screw itself, fine.”


what about flame resistant tiles? you have a building with asbestos in it and a building with PVG. flame resistant tiles. they have exactly the same uses. consumers probably still care a little bit about asbestos in the tile, but it’s much less dangerous, once the tile is formed.


even if like products, health and safety requirement in article 20 could justify a ban. and those tiles are problematic if you ever want to destroy the building, or the building is destroyed on accident.


book keeps referencing GATT, so i thought it’d be helpful to get this document.


article 11: transparency

provides for general ban on quantitative restrictions. requires a tariff, rather than quota or licensing mechanism or fee which effectively prohibits importation of goods. so restrictions on trade need to be transparent and obvious. one advantage the casebook notes: easier for consumers to see what they’re missing and what tariff they’re paying. another advantage: importers are blindsided by quotas in terms of whether they’re goods will get in, they don’t know ahead of time what will happen. also makes negotiations easier when you can provide for a worldwide drop on soybean tariffs. math becomes easier.


scotland puts a 1000% import tax on canadian and irish whiskey. they’re violating national treatment, and MFN (malaysian whiskey importers are fine), and in violation of article 11 because when you have a tax that high it’s effectively a ban at the border.


under article 11, all quotas are banned. although there are some exceptions, countries can lift the prices of all agricultural goods.


turtles!

import prohibition violates article 11.


congress trying to protect sea turtles. sec 609 restricts imports on shimp from countries that don’t have regulations banning fishing methods that are turtle unfriendly.

  • countries have to get certified, which they have to apply for. need to be requiring use of turtle excluder devices, or old fashioned techniques, or be fishing in turtle free waters.


what if you’re a fisher in a non-certified country, but you don’t capture turtles? in your off time you sit on beaches and prevent other animals from digging up turtle eggs. are you allowed to import your shrimp into the US?

  • no. which is extremely problematic.
  • originally the guidelines written by commerce allowed this, but those were sturck down and weren’t in operation at the time of this litigation.


what was the holding of the initial panel?

  • panel said “you can’t tell countries on the other side of the world how they can fish.” if every member of the WTO regulated countries on the other side of the world, the whole regime would fall apart. we would be back to square one in international cooperation.
  • the appellate panel thought the first instance panel’s rationale was too broad. the first instance panel considered the general purpose of the GATT.
    • appellate panel insisted on tying everthing to the GATT language.


so US had a prima facie violation of article 11. but what’s the next step in the logic? the first panel ddidn’t go much further, just said it was extraterritorial and struck it down. the appellate body went a little further. the US argued that 609 was justified under another section of the GATT. which one gave us an affirmative defense?

  • article 20: general exceptions. “nothing in this agreement shall be construed to prevent the adoption or enforcement … of measures…” that conserve exhaustible national resources, 20(g); or protect “animal or plant life” 20(b).
    • but there’s something that you can use to hit the ball back, to trump the affirmative defense. thrust, parry, riposte. what’s the riposte?
      • the exception can’t result in arbitrary discrimination or unjustifiable discrimination—this comes from the “chapeau” of article 20.


to review logical order:

  1. article eleven provides cause of action
  1. article 20 (g) and (b) provides affirmative defense
  1. chapeau of article 20 provides riposte to the affirmative defense.


“unjust discrimination”

  • no legitimate interest in preventing turtle friendly fishers from importing their shrimp just because they’re not from a turtle friendly state.
  • inflexible
  • hardly any phase in
  • tech transfer of TED’s to nearby countries looks like MFN discrimination
  • the ban is too harsh: a complete ban at the border. we used the biggest bomb available.


“arbitrary discrimination”

  • anything that looks like a violation of due process.
  • we don’t inform countries when they’re rejected or explain why . no review if turned down. we look like india in the patent case. this isn’t the way you’re supposed to do business.


so what happens after we lost?

  • we changed regulation to conform. do they turn out to be consisten with article 20? yes. but it’s a win for the environmentalists. why? we can still influence the way people fish on the other side of the globe. we just have to go about it properly.
    • but is it really possible to rely on international fishers’ statements about their protection of turtles? what if the country doesn’t do any inspections?


THIS IS THE MOST IMPORTANT CASE IN THE BOOK. HEALD LOVES THE TURTLE CASE.


EU beef hormone case.

  • EU restricting beef imports from countries which use hormones.
  • EU consumers seem perfectly willing to pay higher price than they would have.
  • what part of the GATT is violated by the EU beef hormone ban?
    • the agreement on sanitary and phytosanitary measures.


professor heald: why isn’t this a violation of 11, like the last case? it’s a barrier at the border?

  • because of a part of 11 i didn’t give you, the list of exceptions contains the following language: article 11 does not extend to import restrictions on agriculture products that apply to nationally produced agriculture products.
  • so why doesn’t that apply to the shrimp case?
    • mass confusion! (maybe they don’t fit definition of fisheries, or fish, or something)


next week: technical reason why EU was able to rely on 11:2(c)(1) but we weren’t with the shrimp.


anyway, this case turns on the separate agreement on sanitary and phytosanitary measures. what’s the codex alimentarius?

  • we ran across the international convention harmonization of descriptions blah blah blah, these are consortiums of private groups. in the ICHCDC case, there was a consortium for defining standards for stuff. chest of drawers broken up into how many drawers there are. ISO does much the same thing for industrial standards. so there are standards for photocopy machine operation and standards for plant safety.
  • codex alimentarius does the same thing for proper treatment of food. sanitizing of raw chicken. proper feed for cattle to prevent them from getting mad cow disease. no crunched up bone marrow from dead cattle. what’s the relevancy of codex alimentarius? did the EU adopt the codex? no, they took much stricter positions. what would have happened if they had?
    • would they be absolutely immune from attack? no, but it provides a rebuttable presumption. the codex is privately promulgated.


so if they had adopted the codex they would have been golden. but the EU didn’t do that. so they had to justify they position. did the EU base their regulation on the codex at all?


can anyone come up with an example that isn’t quite conforming to the codex but is based on the codex? we don’t get an example in the case. getting back to beef, the codex is going to have a list of dozens of different diseases. maybe you disagree with them and add a few or subtract a few diseases. but the EU isn’t doing that. there’s nothing in the codex that’s pro or anti hormone. if you want to go beyond the codex, what can you do?

  • article 3:3 allows for higher sanitary standards, but that’s limited by article 5.


my wife refuses to buy beef with hormones. why did the EU lose the case?

  • because they didn’t base it on any evidence or scientific risk assessment.
  • case is still ongoing because EU still doesn’t let our beef in.

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we’re mostly looking at behaviors that the WTO forbids.


just use the document that i e-mailed you and update it as you go along.


review of side agreements and beef hormones and such

prohibition against discriminating against trading partners, transparency requirement, discriminating in favor of domestic industries. what other sorts of regulations can a member not pass? GATT 1947, then 1994, then side agreements added in uruguay round, the countervailing measures side agreement, TRIPS agreement, phytosanitary side agreement. so we’ll see all kinds of things that are prohibited. we’ve seen sanitary measures that can’t be imposed, subsidies that can’t be given, and certain duties that can’t be imposed. helpful to think of these restraints as providing causes of action.


the question comes, when can you discriminate, when can you block goods at the border, when can you justify a subsidy, countervailing duty, or sanitary measure? as far as MFN and national treatment goes, the things you see that look like affirmative defenses are in Article 20. aka article XX.

  • prison labor, protecting morals, some a lot more specific than others. exhaustion of natural resources. these affirmative defenses, when asserted, have to pass muster under the chapeau of article XX. you can protect animals, but it can’t be arbitrary, unjustifiable discrimination, and not a covert interference with free trade.


  • if the prohibition comes from a side agreement, then the side agreement itself will contain the particulars of the exceptions. e.g. if the regulation is based on the codex alimentarius then it’s presumptively ok, etc. remember the beef hormone case, not only was it not an extension of the codex, it was a pure invention, so it needed to be justified by scientific research to fulfill the requirements of the phytosanitary agreement.


you see in article 2:3 of the phytosanitary measure language that looks a lot like the chapeau of article 20, prohibiting arbitrary or unjustifiable discrimination where similar conditions prevail, and cannot be a disguised restriction on international trade.


today we get to look at the ultimate affirmative defense, one that works against GATT ’47, and any of the prohibitions in the side agreements, and that’s the escape hatch clause.

  • then we’ll deal with the subsidies and countervailing measures stuff.


curious about the present status of beef hormone case? EU lost, and then chagned their rules a little bit, but not enough to satisfy mexico, us, canada, australia. those countries maintained their sanctions against the EU for the EU’s refusal to import hormone enhanced beef. that lead EU to sue canada, saying that canada’s punishment was unjustified. so that decision came down march 2008. canada wins partially, canada gets a slap on the wrist for its unilateral action. but the rest of the decision makes it clear that the new EC regulations don’t comply. you’ll notice if you look at beef in the eu there isn’t any from canada or the US. things people feel really strongly about tend to drag on. sometimes these thigns are too hard literally for people to swallow.


popular consensus among EU regulators and people on the street that you shouldn’t shoot up cows with hormones to make the meat bigger and cheaper, even though there’s no scientific study proving it hurts people. what do you do when there’s a strong divergence in scientific and popular opinion?


you could treat food like you treat drugs, requiring people to prove safety of drugs. but agricultural producers would hate that. how about a labeling requirement? we do it in reverse, people can put an organic label on there if they’re nonusers. why is the EU’s response to that so negative? why haven’t they taken that path?

  • consumers might take the risk, but the EU will bear the burden of consumer healthcare, so they have a paternalistic interest in not letting citizenry make unhealthy decisions.
  • why do american beef growers care? why don’t they just not shoot up some of their cows with hormones? they can probably sell it at a competitive cost. why view this as discrimination when we can comply very easily? and if they allow hormones, EU farmers will just shoot up their cows.
    • the difference is very subtle: american farmers don’t want to have to guess where they’ll make the most money next year. beef growers are hesitant to commit to that. the world you’d rather live in as an american beef grower is to be able to have a choice over where to sell on patty of beef. that flexibility is all that’s at stake, having one market instead of two.


news items!

china bans import of US peanut butter.

we have a salmonella problem. american business person said “the ban is not illogical.” this should be ok under the phytosanitary measures.


another thing i’ve been carrying around, the president’s current economic stimulus package, public works project, buried in there is the requirement that the steel be bought from US producers. we’re gonna find an escape clause on government procurement—governments are not willing to give up choice over who they can buy from. the federal gov’t can decide not to buy the cheapest steel from korea and buy more expensive steel from US instead. we’ll look at gov’t procurement later.


escape hatch, safeguard clause!

what did the GATT 1947 provision say? and what’s the basic notion of the safeguard provisions?


p.939: when faced with unforeseen developments, increased quantities, imports that cause or threaten serious injury to domestic producers, and increases of imports that are the effect of the party’s GATT obligations…

  • then a country can partly withdraw from GATT obligations. what’s the primary response you can make to protect your industry?
    • a duty! always the preferred method under the WTO, these visible tariffs on imported goods. we don’t want subsidies on domestic industries or difficult technical regulations.
    • why have an escape clause like this?
      • if you’re the president trying to convince congress to join the WTO, safeguard clause makes it easier to sell. congress people less worried about a local industry getting destroyed. “if things get really bad we can bail out, it’s not a suicide pact.”


how was this changed in the 1994 negotiations? did it become easier or harder to invoke the safeguard clause? the top of 939 is the 1947 text, but this was modified significantly. from the four part test, which two parts disappeared?

  • p.950: amendments after the Uruguay round (AMEND STATUTE SHEET). “The Agreement on Safeguards eliminated the Article XIX requirements that the increase in imports result from “unforeseen developments” and be “the effect of obligations incurred by a contracting party” under the GATT.” on its face it seems easier, but under the hatters fur case, you can see that the 1947 requirements were interpreted broadly.
  • as you can see from the case on 940, the US test dovetails exactly with the Uruguay Safeguards side agreement.
  • the lamb case still good law, regarding causation, the damage has to be caused by the imports. (substantial cause, serious threat to domestic injury all that’s required.)


for a long time, until about 5 years ago, you could have pretty substantial tariffs on textiles. this prevented the cheap chinese textile industry from destroying the globe’s textile industries. so now we have worldwide presumption of zero tariffs on textiles. this made countries exceedingly nervous, they prepared to use safeguard tariffs. the chinese voluntarily restrained their exports in order to prevent angering the entire world by crippling its textile market. so there was no WTO case examining whether it would have been justified to keep out Chinese textiles.

  • bit of reading in the book that countries used to be able to negotiate private agreements restricting exports, but the revisions made those side agreements (the VERs) prohibited. see p. 950.

car parts case!

so: what product was getting imported into the US? automobile parts!


who did the ITC determine was getting injured?


we have section 201. who determines under US law who is getting relief? who do you have to convince if you’re an industry that you’re entitled to relief? the ITC, the international trade commission. can the ITC implement the tariff on its own?

  • no. the president is in charge of it, prez has to sign off on it. prez doesn’t need to sign off on countervailing, dumping duties.
  • why no safeguard recommended by the ITC in this case?
    • commission found that although the domestic industry had been injured, the increased imports weren’t the substantial cause of that. why was the industry hurting? according the commission, it was the 78,79 recession, incredibly high interest rates (low APR car loan was 18%, credit card loan rates). high credit will affect sales, recession will affect sales. our first round at making gas guzzlers hadn’t subsided. we learned this lesson for about ten years and then went back to SUV’s. a lot of preference for foreign vehicles driven by mileage concerns.
    • quite bravely, the ITC says it’s not the fault of the Japanese, backs it up with data in tables on page 944 and 945. you can always run the numbers.


in year X, imports are 1,000,000. in year x +1, imports are 1,200,000. in year x+1, domestic sales go down four million. in simplistic view of chrysler, there’s an increase in imports and a decline in sales, therefore two part test is met. not so, says ITC.


as we see yet again, american auto makers have no vision. japanese notice that consumers want more fuel efficient cars.


the car parts case makes for a nice explanation of how causality needs to be shown to get ITC to recommend that prez impose a duty.


lamb!

fresh, chilled, and frozen lamb meat! who did the ITC determine was injured?

  • everyone in the lamb market: growers and feeders, packers and breakers. the response is to slap a tariff on lamb meat.
  • how did the US violate the trade agreement? according to the appellate body? what’s the proper definition of the affected industry?
    • has to be a produce of a like good or one that’s directly competitive. they didn’t feel that growers of lamb qualified, that only packers and butchers were technically producing the like good, fully butchered and packaged lamb meat. isn’t it appropriate to include lamb farmers? lamb farmers produce lambs. isn’t it logical to say they’ll be harmed by really cheap imported lamb from new zealand and australia?
      • that’s what the ITC felt, since they said it was a “continuous line of production from the raw to the processed product”. what’s the language in the statute that forces the ppellate body to rule the way they do? “like or directly competitive product.” lambs and lamb meat are not directly competitive.


is there any way to make sense of this? it seems impossible to use the safeguard provision to protect any agricultural product, there’s no live animals imported into the US. anybody feel disturbed for american farmers because they apparently can’t get any benefit?

  • maybe the benefit will trickle down (or up rather) from the packers to the farmers.
  • if we protect the butchers and the packers, they’ll be a proxy for the farmers.


buuuuut we weren’t even able to protect the packers and the butchers, because the ITC analysis was insufficient. the “serious injury” prong went unexplained, because they used uncharacteristically high price years to show that prices had fallen.


according to the appellate body, what do the numbers really show about an american industry getting injured?

  • over the period of the investigation, prices increased, except for a drop near the end. so there was variation, but hard to show damage caused by the imports.
  • sometimes you can bend the numbers to make them look how you want, assuming the reviewer doesn’t notice.


appellate body also annoyed that ITC didn’t address importance of other factors that hurt lamb industry.


CUT AND PASTE ARTICLE 4, SUBSECTION B: DETERMINATION SHALL NOT BE MADE UNLESS OBJECTIVE EVIDENCE SHOWS CAUSAL LINK BETWEEN INCREASED IMPORTS AND SERIOUS INJURY OR THREAT.


apparently at the same time the US dropped subsidies to lamb growers.


why go through all of those elements? often if you’re a federal court, if there’s one dispositive element, you can attack one thing and ignore the rest. but the appellate body wants to appear objective, and sell the world a new legal system, so they want to cross all their T’s and dot all their I’s for political reasons. finally, i left a little note about the casebook’s possible explanation for the lamb tariff: p. 959: Montana Senator Max Bauchus, close ally of Clinton, was big producer of lamb meat.


subsidies and countervailing measures

the basic right to impose a countervailing duty is in article 6 of the GATT itself, but it’s pretty broad language, so we have to jump into the SCM agreement. dumping is mentioned in the agreement but it’s pretty broad.


two kinds of subsidies: export subsidy (benefit contingent upon exportation), and domestic subsidies which affect exported goods. the basic evil of the export subsidy is that you’re making the goods of your country easy to export to a foreign country. they’re not all illegal. really broad export subsidies are OK—if the federal gov’t spends 200 million to improve the port of savannah, that makes american goods cheaper to export.

  • what’s a domestic subsidy?
    • ones that prop up a domestic industry. domestic subsidies can have two effects: they can lower the price domestically, so importers are disadvantaged. the EU subsidizes the dairy industry, which is why the butter and milk are so cheap here. but subsidies also can have distorting effects outside the area where the subsidy is granted. that’s the problem with the cotton the US exports. so a double potential whammy with domestic subsidies.


Zenith

what is complainant angry about?


that Japan is not imposing a commodity tax on exports. the tax is an indirect (consumption) tax. zenith wants japan to lay tax on exported goods just like it does on taxes imposed within japan. what does SCOTUS say?

  • longstanding tradition that remissions of consumption taxes don’t violate international trade laws or US norms.
  • if this case came out differently today, we’d be in violation of GATT obligations.


fairly straightforward sort of case, at least of an example…


overseas private investment corporations, export bank: gov’t agencies which want to increase US exports (US is still number two in global exports). is it permissible for the gov’t to have an agency that advises and counsels business that want to export overseas?


i’m a widget manufacturer in Dublin—permissible to have an agency that hooks me up with freight forwarding companies and international retailers? seems like people might go into it not knowing what they’re doing, and cause huge problems for the country. seems like a good idea to keep US out of unnecessary trouble. it seems to be fine, most coutnries do it, and nobody complains about anyone else doing it.


what about an insurance scheme whereby the gov’t sold insurance at less than market rates to firms that want to export their goods? what if the gov’t made it really cheap to buy the sort of insurance you need to get to ship overseas? would that sort of preference for export run afoul?

  • it does seem like a subsidy on exporting. (but it’s not directed toward a specific industry… doesn’t GATT require that?) i haven’t seen any cases looking at that. what about what Mexico does in the PPG case?
  • p. 978: did you understand in PPG what FICORCA was doing for Mexican companies? how did it help facilitate Mexican exports? it’s pretty easy to understand the gas subsidies in the case. a bit harder to understand what FICORCA was doing.
    • it raises an interesting question. imagine you’re just a mexican firm, or a US firm, and you’ve got a forward contract to ship something into the US. so january 1st, you enter contract to ship stuff into US in six months. contract price is 100 dollars. throw in another variable: exchange rate on january and june 1st. say the exchange rate in january favors mexican firm, the dollar is weak. you’re assuming when you get paid, you’re going to get 100 dollars, which you can convert to 500 pesos. what happens if the exchange rate does something bad? and when the time comes, 100 dollars is only worth 400 pesos. and you were counting on getting the equivalent of 500 pesos. so every export deal is you betting on the exchange rate. over time, if you do business over years and years, you’ll probably break even. but if you’re not a multiple player and you don’t want to speculate, what the mexican gov’t does is sell you incredibly cheap insurance in case something like this happens. so you can spend five pesos to insure against your currency risk. so if things go bad, the mexican gov’t will pay you the extra hundred pesos you thought you’d get. the mexican gov’t does this for any exporter. takes the worry out of exporting.
    • was this OK? yes. it wasn’t specific enough to violate GATT.
    • what if all countries behaved this way? things would be fine. it wouldn’t cause horrible trade wars or global trade distortion.


FSC case

i don’t think i’ll have the next class read this case, it was pretty terrible. so just get the takeaway rule. so go ahead and do the reading for next time as assigned.

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February 13ish - trade class

poor editing skills, and a failure to give you in the text the relevant sections of the agreements.


so let’s introduce, summarize, finish up our discussion of subsidies.


what sections are relevant to you in the GATT?


main GATT 1947 says it’s ok to impose countervailing duties against subsidized goods, and you get a definition of subsidy: “direct transfer of funds, revenue otherwise due, giving it a loan with better than market terms, other than general subsidies to infrastructure, like roads, ports, police, etc. as does any form of income or price support, like if the gov’t says the minimum price for milk is $2.00. in article 3, you get direct prohibitions.


3.1 says, (a), subsidies contingent upon export. also, clearly prohibited, subsidies contingent on using domestic over imported goods, e.g. “Ford can only use American steel.” These are the two absolutely prohibited categories.


article 6 talks about the domestic subsidies that will get you in trouble. a total ad valorem subsidy exceeding 5% creates a strong presumption of subsidy, suggesting that de minimis subsidies might be ok. 6.1.b, subsidies helping companies suffering operating losses, presumption of serious prejudice there. direct forgiveness of debts. then we have lesser presumptions, like subsidy intended to replace or impede imports or exports. subsidies that have significant price undercutting effects likely to be problematic. and any subsidy that increases the world market share of a primary product also likely to be problematic.


aticle 8 has nonactionable subsidies. subsidies which are not specific (this is the mexican flat glass case). all industry in mexico gets cut rate electricity, and that’s ok. query whether you can make something look general, but is actually pointed toward a particular industry, like a subsidy on uranium, which would benefit mostly nuclear power plants and some medical supply industries.


usually you get to depreciate the value of something you purchase over its useful life. auto firms make investments in highly durable goods, so the ability to depreciate something over fifty years doesn’t help. what if you can depreciate something really rapidly? that’s a sort of disguised subsidy to a specific industry, if only one or two or three industries seem to benefit. we don’t have an answer to that under the current GATT. it would probably depend on the numer of industries receiving a disproportionate benefit.


also ok: assistance for primary research, particularly for universities. can’t cover more than 75% of cost of industrial research, somewhat of a break, but it looks like the US can subsidieze 75% of a particular firm’s research. limited to cost of personnel, instruments, consulting, overhead related to research, and other running costs. so, the research.


also ok: assistance to disadvantaged regions. think of FDR in the 1930’s pouring money into appalachia. (clearly, it did a lot for them.)


also ok: assistance to meet environmental regulations. paying for scrubbers on smoke stacks.


as far as the cases go, we didn’t get to this really long tax case. that’s what we didn’t get to. let’s talk about that, or let me talk about it.

  • congress wanted to help out US exporters but didn’t want to get in trouble by providing an illegal subsidy, so they came up with a really complicated system, maybe hoping that nobody would notice, and they could at least get a couple years helping american exporters and not suffer retaliation. what congress basically did was create a tax shelter, if you were an american firm exporting a lot of goods, you were encouraged to create an offshore corporation and have that corporation do a lot of your selling activity, and then issue a parent a dividend, which normally in the US is taxed, but the operative part of the law made it non taxable. that was the main thing they took advantage of. so by doing a little restructuring, you could get away with not paying a tax that domestic corporations have to pay. ALL CONTINGENT on export activity. heald sez: clear violation of export subsidy rule. “i think it’s a game playing case.”



subsidies

types:

  1. . direct domestic (money, tax break, loan)


  1. . upstream domestic (cheap electricity or primary parts)


  1. . export contingent


what about countries that privatize their industries and then later sell it to a public firm. that’s one way a country can save an industry and then subsidize it. like the US gov’t might take over the US auto industry, and it would become the owner and manager of the auto industry and pour billions of dollars into it. you can never accuse a country of subsidizing the shit that it owns, military, dams, roads, whatever. but what happens if you have an initial public offering of the US auto industry, but all that’s been raised is 5 billion dollars, and we invested ten? it looks like the government made a bad deal, and/or pumped five billion into the US auto industry. is that bad? there’s nothing in the SCM agreement which really speaks to this at all.


we take the position that at least some of that money constitutes an illegal subsidy. we sort of half won and half lost a WTO case on this. what seems to be clear is that if the US is going to do some calculation, what’s the overall illegal subsidy, we have to look at how the 10 billion was spent. if it was spent to build a new factory, that would be a countervailable subsidy. but a lot of this money would not make the auto industry more competitive—it could be money spent on propping up the employee’s pension system, paying back wages, making plants safer, environmental improvements, things which don’t make the cars cheaper to make or any better. so without answering the question directly it seems like the WTO’s position would be that a privatization followed by going public scheme would sometimes generate an illegal subsidy as long as the gov’t suffered a loss, and the money went to improvements that would make the product more competitive in overseas markets.


in tough economic times, privatization becomes tempting.


enough, let’s move on to…


dumping

rather than slog through the facts of this case on page 994, Consumer Products v. Silver Reed, i want you to think how far you’ve gotten in the last month.


bottom line. anyone have a nikon camera? fabulous camera. japanese company. imagine they sell digital cameras to walmart japan for $200. the camera comes with a one year warrant and is delivered to the stores in packaging that allows it to be stocked immediately. special packaging that walmart demands, and nikon does that for walmart. nikon also subsidizes walmart’s advertising related to the camera, 5% of camera sales for TV ads. Nikon also pays a $2 tax on each camera levied by the governments. Walmart has 90 days to pay after receiving cameras.

That’s in Japan.


Japan delivers same cameras to Target in the US, for $180. They just come in bulk containers. they don’t come with a warranty. nikon doesn’t pay any japanese tax on exported cameras. but it does have to pay $5 to the US gov’t for reasonable import fees. and target must pay cash on the barrel (pay immediately when received). it only costs nikon japan $2 to ship to japan stores, and $5 to ship to the US.


at first glance, it looks like there’s a huge dumping margin. but we know now that we need to adjust the FMV (foreign market value) and the USP (US price).


we’re trying to figure out how much of the sales price is to actually purchase the camera. that means we have to subtract other things that nikon is selling along with the camera.

FMV=$200 (initial sale price). warranty -10, cost of special packing -2, reimbursed ad costs -5, tax to japan -2, value of credit extended -1, cost of transport -2 = 178 dollars.


so the japanese camera costs 178. 200 is after you add in the additional costs.


USP = 180, import fees -5, transport -5 = 170.


so once you’ve done all this math, 4.7% paid at the border for Nikon to get its goods in.

we can also make adjustments if there are quantity discounts involved. if the camera is primarily designed for the US market, target buys 300,000 a month, and walmart japan buys 10,000 a month, then target will get a discount for being a huge buyer.

all of these are what we call DIRECT SELLING EXPENSES.


this is the guts of dumping. in order for the US to use an anti dumping duty, the DOC will have to calculate the dumping margin, and then it’ll go to the ITA to determine whether the 4.7% dumping margin is likely to cause material injury to american competitors. it’s not a no-brainer—this might be a kind of camera that american producers no longer make. there might not be any american competitors who sell cameras like that. no material injury.


that’s 90% of what you need to know about dumping, before we go to the interesting question and twist about this case.


let’s imagine that Nikon has to pay a fee to market research firms. companies like nikon will do this. say that nikon had to pay $2 to a japanese research firm to study what kind of camera the japanese public wants.


and say it only has to pay $1 to american research firms. these costs are indirect. how do we deal with these kinds of indirect fees under the statute, and is our agency method of calculation permissible under the anti-dumping agreement. so two part question, what do we do in reality, with the 2 dollars and 1 dollar, and is what the US does permissible or not.


the US has a cap rule. what Nikon wants is for all of the indirect costs in japan to be included. what in actuality do we do?

  • they limit the indirect costs on the FMV to what is taken away from the USP. in essence, or rather, exactly, the indirect costs are cut down to whatever the US indirect costs are. so they had a strong fairness argument here. why should the 2 dollar expense in japan be reduced in america because they found a cheap market research firm in the US. what does the court say about whether agency is able to make this interpretation of the statute? that it’s ok.


so you have the almost final twist on american anti-dumping rules.


what is zeroing?


actual selling expenses: what about the staff working with target? can you deduct them? i read a lot into this last sentence that overhead is part of the indirect category. you can make your head explode reading cases about how much overhead should count in lost profits (or, if i recall, is part of a capital or current expense).


say you had to hire a special person just for target sales. can you allocate their salary to USP? yes, at least, that’s what the american industry seeking duties will want to do. the sales people in japan will be limited.


sunset case

people got hit with some antidumping duties.


if you want to figure out FMV, you’ll need a lot of cooperation from the firms you’re investigating. sometimes you’ll see no cooperation from the firm, and then commerce will guess at everything. sometimes the commerce department will levy a dumping margin on an industry. it looks like the initial 36% rate was imposed on all importers, maybe with a few exceptions for certain cooperative companies. on page 233 you find that it goes down to 1.6% for one firm. how long do anti dumping orders last?


looks like five years under the anti dumping agreement that that’s the maximum, that within five years you have to engage in some sort of sunset review.


how does our sunset review policy work? and how did it play out in this case? do we have to do a complete recalculation of dumping margins?

  • no. you can use the calculations from the original review process.


when is the suset review supposed to say, “no more antidumping duties, go forth and sin no more.” if it’s not doing a complete initial calculation, what is it doing?

  • seeing if dumping has continuted unabated despite duties (makes sense)
  • seeing if imports have dropped (makes way less sense)
  • seeing if imports declined (also makes little sense)
  • good cause arguments


Commerce is treating a decline in imports as a sign that dumping will continue once the duty is removed, even though a decline in imports will be a totally reasonable business decision. this seems horribly harsh. of course your imports are going to go down if you’re paying a big anti dumping duty.


it looks almost hopeless for foreign firms at this point, and one would expect the US to get hammered by the WTO. what does the appellate body rely on to bless the sunset review scheme?

  • that there’s a presumption, but still enough discretion. and they can introduce context specific arguments via the “good cause” clause.


enormously long case. take away the initial calculation, the administrative review that lets firm hit with duties to negotiate the duties, sunset review which is mandated because it’s written into the GATT which doesn’t require recalculation, allowing them to apply these pirnciples on page 240, but with enough wiggle room to survive a review of the appellate body.


we find out in the GATT that one member is allowed to challenge a measure implemented by another member. you could use different words besides measure: legislation, judicial opinion, executive order, or a laundry list. instead the word chosen is “measure”. what IS the sunset review bulletin? it’s not a piece of legislation. it’s not even a regulation. it’s an interpretation given by the agency. tax instructions published by the IRS are not regs, they’re not laws. does that mean it’s not a measure and can’t be scrutinized? nope! a measure is a very broad word. norms and practices are measures, and to the extent the bulletin is used by the agency, it can be challenged like a formal regulation.


can you complain about a single bad judicial decision? does one bad case by the SCOTUS constitute a measure, or do you have to find a consistent practice? maybe the case is a one offer. 

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February 16 - class 13

last day of dumping. thank god.


definition of zeroing technique: when they are calculating the dumping margin, they didn’t count (or rendered zero) prices that were above the dumping value. in simpler terms, they didn’t average out the prices that would have mitigated their dumping margin.


corus staal

challenge to zeroing under US law. next case will be under GATT.


zeroing OK under US law. what’s Corus’ argument that it’s not cool?

  • Commerce exceeded authority under its statute.


biggest admin law is the Chevron case: any reasonable/plausible interpretation an agency offers will be respected.

  • there’s ambiguity in the statutory language; interp survives chevron, it seems reasonable with just the statute and the regulation.


so they move on to Charming Betsy doctrine. from 1804. states a proposition that if a court is interpeting a statute, and they have a choice, they should choose the interpretation that is consistent with international obligations. seems like a common sense policy to follow.


how come that doctrine doesn’t dictate the result that corus steel wants?

  • if it comes to choosing between chevron deference and charming betsy deference, they’ll roll with chevron.
    • can you harmonize those cases to say that agencies shouldn’t interpret statutes contrary to international law?
      • you could, but court doesn’t seem to be here.


Court can’t ignore charming betsy, it’s a supreme court case. so how do they get away with skirting charming betsy?

  • Charming Betsy says that *courts* should interpret statutes consistent with international obligations, not agencies. very formalist argument. why bind courts, and not the commerce department?
    • the commerce dept. is part of the executive branch, it has to do with whatever the president says. the commerce dept is not the FTC or the SEC, which can tell the president to jump in a lake. commerce dept. can’t do that. it’s totally under the control of the president.


GATT obligation vs. US practice

what does the GATT say you have to do?


2.4.2. of antidumping code (EXTRACT AND PUT IN YOUR HANDMADE SUPPLEMENT).


gives two ways of calculating dumping. “subject to the prosivions governing fair comparisons…”

  • ”weighted average normal value”.
  • or by comparison of “normal value” on “transaction to transaction” basis, still average normed weighted values.


Say Japanese normal value price is 110 in january, 110 in february, 100 in march, 100 in april, 100 in may.


Say US export price is 90/90/90 in january, 100 in february, 105 in march, 105 in april, 100 in may.


first method that’s clearly acceptable is to add up the numbers on the top and divide by five. add up the numbers on the bottom (seven transactions) and divide by seven.

104/97. so the dumping differential is the difference between these two numbers, which works out to be seven. that’s one easy, clean, cheap, simple, fairly understandable way to do it.


another option under GATT that allows a transaction to transaction basis. go from month to month, pair up the january transactions, pair up the february transactions, etc. in january, three transactions, so the total differential is 60 (20/20/20). in february it’s 10. march -5, april -5, may 0. you add those up and divide by seven, end up with a dumping differential of 8.6. you’re adding up the differences for the five separately viewed months, and then averaging that out. the court in the WTO appellate panel recognized that you can get different results under the two schemes. hard to say which one is fairer. panel suggests that over long periods of time, they work out similarly.



Commerce’s method

In the (transaction) T-T method, the first method (second in the notes represented here), they would not count any of the numbers for march, april, or may. they’re removing the -5,-5, and 0. which will systematically drive up the dumping differential.


couple of twists. remember how the dumping responsibility is divided so the commerce dept does the math, and the itc determines whether there’s material injury.


the ITC does not ignore the zeros and the negatives when it makes its determination. i don’t think it can under the statute. it’s only the commerce dept. that’s putting us in violation under the GATT, not the ITC. (me: although i think there’s a case coming where they do put us in violation, the third one assigned for today)


the normal value established under a weighted average basis is the 104 figure. (could it be that that number can then be compared to the individual transactions? something really confusing going on here.)


so why is our technique inconsistent under the gatt? there’s one of these many provisions that say it has to be a fair comparison, and our zeroing method would systematically increase the dumping margins.


what about showing damage under fraud? if A defrauds B for 6000, but B has made 8000 in profit off of all the transactions put together. can you still say B has been harmed? sho’ can. so that’s the principle underlying the approach here.


how about product categories? commerce only looks at the product categories or models where there’s dumping.


i’ll note news over the wire from the 10th of february is the followup to this case; WTO sides with Japan. we lost the case which you read, and it doesn’t go into particulars of what changes commerce made. japan now has permission to impose 248 million in retaliatory duties on US imports. it’ll be interesting to see if the Obama administration is in love with zeroing enough to suffer more retaliatory duties.


we had someone from commerce saying he didn’t understand why commerce was so in love with the zeroing method—all the advantages you get from calculating it that way come back to bite you when you lose.


maybe it’s because they knew a new administration was coming in and they were all about to lose their jobs.

the sharp case

what doesn’t sharp like about the way the EU has done the dumping analysis?


the main company, Sharp, is selling to an intermediary. who does sharp corp in japan sell these photocopiers to initially?

  • SBK. who does SBK sell to?
    • to Japanese consumers


that’s what’s going on in japan. who does sharp sell to in the EU?

  • retailers. probably stores like office depot. maybe some middlemen too.


so the intermediary in japan is SBK, and the intermediary in the EU is, for example, office depot. how is the EU calculating the normal value? (NV is that price in the offending nation usually). is the EU considering the price SBK sells to japanese consumers, or the price Sharp sells to SBK?

  • EU is using the SBK to Japanese consumer price to calculate normal value. and when it calculates the export price, which of the two prices is it using? the office depot to consumer price, or the sharp corp to office depot price?
    • the EU is using the Sharp to Office Depot price. so they’re compairing the retail price in japan with the wholesale price in the EU, which will artificially inflate the dumping margin. they’re not comparing apples to apples, and it will systematically disadvantage sharp. retail prices are higher than wholesale prices. so on its face, looks horribly unfair.


why is the EU doing this? what’s their best explanation? what is it about japanese corporations that justifies or prompts the EU to use the highly visible price that consumers pay?

  • because japanese corporations all own each other, and there’s government interference, so there’s never an arm’s length transaction among japanese transactions. the price is just on paper, what you see is not what you get with these intersubsidiary business dealings. there’s nothing in the GATT that says you have to take a non-arms-length wholesale price view.
    • the easiest thing to do would be to just look at the retail price charged in the EU. but for some reason EU isn’t doing this.


what other alternatives, proposed by sharp? both are permissible under the GATT.

  • Construct a price. it would be permissible for the EU to look at how much it costs to make a copy machine, add on the normal profit in the industry, and then construct a price. so, in essence, manufacture the price Sharp should have charged SBK if it were really an arms length transaction. of course, the problem with this method is that it’s a lot of work for the agency.
  • Look at sales to other countries. EU should look at the price charged to wholesalers in Singapore. what’s the problem with that?
    • they might be dumping in singapore too.


but EU doesn’t want to do any of that.

So, Last ditch argument:

  • sharp wants to be able to deduct all of the selling costs, if they’re going to get screwed like this. since SBK only sells domestically, they want to deduct all the costs that SBK incurs in selling these copy machines, to sort of make SBK disappear. Sharp wants to drive that price in japan down. that looks pretty fair too.
    • does the EU commission say no, we’ll never let you do that?
      • not quite. EU just says that Sharp had a failure of proof. sharp has not produced evidence that… deductions of SBK costs would be justified. (these failures of proof seem surprisingly common.)


The EU now endorses this last position by Sharp: when you get screwed in this way, they allow deduction of costs of the intermediary wholesaler.


this is a nice overview of the options nations have, and some of the flexibility that the GATT demands.


this was all around p. 1002 i think


Bratsk aluminum smelter

p. 269 of supplement.


the exporters are selling the silicon metal more cheaply in the destination country than in the origin country. no question there.

another non-issue: american producers incapable of meeting domestic demand. so it’s not a loss of market share, but a loss of price. price depression is the issue here, not lost sales.


with that in mind, why finding of no dumping?

  • couldn’t prove causation. there’s a number of countries that sell silicon metal at the price russia is dumping at. so even if russia is hit with duties, the nations that are selling silicon metal at the lower price (and who aren’t dumping) will continue to undercut/undersell the domestic silicon metal producers.


“if we hit canadians and spanish with antidumping duties, we’ll just help the russians.”


Baratsk is a russian dumper, but other russian non dumpers would fill the void. apparently.


reading will be cut for IP, that’s way too long.


disagreement between me and heald: is it that all the russians are dumping, but their market share would just be taken by non-dumping canadians/spanish, OR is it that just russian Baratsk is dumping, and its share would be replaced by non-dumping russians and dumping canadians/spanish? i was arguing for the former, heald arguing for the latter. 

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February 23 - Sam's notes

For the last five years, Argentina has a sliding export rate on goods leaving Argentina. Higher prices are worldwide, higher the export tariffs are on Argentinean goods.

Why do this?

Artificially lowers the costs of goods in Argentina

No distinction in GATT between export and import duties.

Why has no one complained about this? Why would you? It would just mean more competition for your goods.

What is the decision making process for a firm considering international trade?

  1. Make good domestically (expand production and sell abroad)
  2. License technology, know how, IP (Make money by foreign manufacturer and distributor giving royalties)
  3. Open own faclility abroad
    1. Can go with a private venture in the foreign company
    2. Can go with a joint venture - local partner
      1. State (many countries, the best option is the government)
      2. Private company

Advantages and disadvantages

Option Disadvanage
Making good domestically and selling abroad Shipping, material and labor costs may be higher.
May be cheaper abroad for taxes

Making the good abroad may jump taxes

License tech, know how Risk of loss of knowledge in the country.
If your most valuable asset is information, you run the risk of losing that in a foreign nation.
Royalties stop at this point.
Opening facility abroad Similar risks with local partner
Risk state will expropriate your property
Risk state will raise taxes killing profitability
Are there labor unions that can change rules of the game
Is there a zoning commission that might

When a firm decides whether to engage in an intenrational business transaction, the first thing you do is a market survey to assess whether you will make any money or not.

For firms that are IP intensive, you need to know

Will your good be protected

Will American IP law protect you

In gray market goods, can you get the goods past the border - can you sell in the jurisdiction you want to.

Exhaustion in the gray market goods question

Need to determine rights in the goods outside your home market

What are your rights to prevent goods from entering your home market

What goods will you have overseas?

They are based on the laws of the country in which you sell the goods.

If you want to assert your patent rights, you will be appealing to the law of that country. If you want to figure out what rights you have outside of your home market, you must do an analysis of the laws in that country.

Must learn lots of foreign law to determine what your rights are

Does our own domestic law get you anything at all?

If selling goods in a foreign country, does American law ever matter?

Extraterritoriality reach of US Patent law

Does US patent law ever allow you to sue someone outside of the United States for patent infringement?

Only time is if someone in the US sells the components to a US patent, and then ships them out of the United States so that they can be readily assembled outside of the US to infringe on the patent

Only an idiot would violate this. If X+Y+Z makes the patented good, you can just sell X and Y, and make Z somewhere else.

Infringement is generally governed by the country where the protection is sought. If you do not like something that is happening outside of the US, you usually (outside the above exception) need to seek help in that country's courts.

How about Copyright law.

Same as Patent, without that exception for assembling parts.

Always have to go to foreign court.

The one exception is ownership arguments.

If there is a question of ownership over something copyrighted, then the LAW of the country will apply, but the court can occur in the US. - Say when Pravda sued a Russian expat group in the US over ownership of copyrighted material. The case had to occur in the US, but Russian law was applied in determining who owned the copyrighted material. Shows respect for foreign law.

Why a different law for trademarks?

Formal reason is that TM law is based on the commerce clause.

Lanham act notes that government has power because TM springs from commerce clause 1-8-3 in US Con

Steele v. Bulova Watch Case

Selling Bulova watches. These watches were unauthentic and were sold in Mexico only.

Evidently some of the watches came back into the US from watch repairmen, but SCotUS did not rely on this at all.

SCotUS said - BAD MONKEY!

Three Factor Test

  1. Defendant's conduct had substantial effect on US commerce
  2. Defednant was a US citizen
  3. Whether the TM was registered in the foreign country.

This is not a test per-se. They are three relevant things. While lack of one may make pursuit of a case difficult, lack of two will make a case facially invalid.

Where does the US have authority

Within the United States

Regulation of our own citizens

When the US has a substantial effect within the U.S. (well established, but kind of hazy)

Note that the three factor test tracks most of the categories of when the US has authority in a case.

In Bulova case, all three factors met. Steele was hosed.

No TM

Both were American citizens

There was some trickling over, but Bulova lost revenue because they can't sell as well in Mexico and they cannot price compete with a pirate.

Vanity Fair

Canadian company has a similar trademark to a US firm

Presumably lost profits to the American firm.

The TM was not registered in Canada for the American company, but for the Canadian company.

As a result, this is lacking a bit under the Bulova case

Section 44 of Lanham Act Analysis

Question asks for an examination of whether the Lanham act should act extraterritorialy.

If so, then congress can apply Lanham act overseas.

Argument is that since we and Canada are part of the Paris Convention, then the law should apply - asking for Paris convention to come in and redo the statutory intent.

It is infact irrelevant.

The section of the Lanham Act 44(h) says you must protect foreign nationals agaisnt unfair competition.

This is because of Paris convention

44(I) asks us to treat Americans the same as foreign nationals. It has NOTHING to do with how this act works outside of the US. It was insane, but hey, nice try guys, I bet you got some sweet billable hours from this.

American Rice v. Arkansas Rice

This case exists solely in Saudi Arabia

The effect on US commerce is that the acts of one company in Saudi Arabia harms the income of the other company.

Both firms are American

Is there a TM? Not really. They use an agent for a TM, but the court says they do not stand in the shoes of their agent.

Why protect trademarks, when we do not do the same for patent or copyright infringement?

A trademark actually has far broader power and authority in the market

Prevents parties, both at home and abroad, from being confused. It actually helps overseas consumers, unlike a cheap counterfeit drug.

Trade class, post spring break, March 9, 2009

Review of what we’ve done. Remember that the source of this is a transaction or a business decision to open up a plant or something in a particular country. The internal rules set within the contract are the first cut at that (see an international business transactions class). Also softlaw norms: incoterms, international statements by the international chamber of commerce… international merchant norms collected and described by private agencies. i call them softlaw norms because incoterms and letter of credit rules aren’t the law anywhere, they are either incorporated expressly or incorporated impliedly. so we have the contract itself, and the softlaw norms surrounding it.

  • then we have the hardlaw norms. they are merchant law norms that are so attractive and agreed upon that countries incorporate them into law. saw that with COGSA and the Warsaw convention.
  • internal national legislation that will affect transactions occurring within a nation’s borders. think of something like subsidies. if firm A doing business in coutnry A is subsidized, they’ll be able to do business cheaper. anti-trafficking rules will have an opposite effect on transactions. export restrictions on technology. so on and so forth. internal legislative action that will have a positive or negative effect on international transactions.
  • we’ve also seen domestic legislation having effects on foreign state transactions—like with trademarks and the Lanham (sp?) act.
  • also FDI, expropriation regulations

a lot of different ways that countries can affect the flow of goods across borders. we know from a huge chunk of reading that Country A and Country B can’t do whatever they want. there are agreemenst limiting their ability to do any number of things.

we learned of the BITs, bilateral investment treaties.

there’s the WTO, NAFTA also regulating the regulators. but things like grey market goods are left completely alone by WTO. Country B can do whatever it wants about grey market goods. so it’s a very complex picture.

quick news item: EU to introduce duties because of our biodiesel subsidies. i don’t think we’re worried about that: the purpose of the biofuel subsidies was to break america free from foreign energy.

cuban sugar

eventualy cuba sugar sent to morocco. morocco buyer sends money to US firm, far/whitlock. which sends money to CAV, a receivership. (only 10% of businesses go into bankruptcy, the rest spiral down into receiverships which collect debts owed the company and distribute to creditors. why can’t FW hand money over to receiver Sabatino?

  • if you’re F/W and you didn’t know who to pay, you would hold onto the money. why did they give the money to Sabatino? they had to! new york court ordered them to.
  • what’s the legal claim CAV had to the cash? they were the original owners of the sugar and the sugar was taken illegally by cuban gov’t. so when cuban gov’t sent sugar to morrocco, there was no valid title. so F/W promised to pay CAV, CAV promised to send sugar to morocco. FW is a sugar arbiter.
  • F/W doesn’t want to pay CAV. when does their duty to pay kick in? when does FW have to pay for the sugar? what kicks in FW’s legal obligation to pay? when the bill of lading is presented showing the sugar has been shipped. CAV of course never hands FW a bill of lading. the sugar was taken from them. the captain of the hornfels issued a bill of lading, but not to CAV. bill of lading issued to Cuba. so cuba’s bank exterior calls up FW and says their contract is worthless, but they can contract with cuba if they’re still interested in selling to guy in morocco. which they actually do. so cuba’s bank’s sub in america has the bill of lading and asks FW for the money.

so two people demanding money: Cuba’s bank, which appropriated the sugar, and CAV the original owner of the sugar. and then New York state court requires them to pay the money to Sabatino, CAV’s receiver. and then Banco National sues CAV, saying they had the legitimate bill of lading, and that’s their money.

what was the law cuba passed? USA issued quotas on importation of cuban sugar. in response, cuba then took any property it could owned by the United States. maybe a head fake of compensation. on paper there’s a compensation scheme but it’s clear no compensation is ever going to be paid.

  • so argument is that cuba’s expropriation is a violation of international law. is it?
    • what’s the argument that it’s not?
      • there’s no international law constitution. what are the sources of international law we can look at to determine whehther it’s a violation of international law to expropriate property?
        • youd first look to overarching treaties. if you don’t have anything like that, you’d look to customary international law to see if there are any norms. do we see a rule against nationalization of property? no. half of the developed world finds it not cool, communist side seems ok, they can’t say blanketly that expropriation is not ok.

but we’re about out of communist countries these days. how is customary international law doing on this issue now? might want to check if former objectors had changed their stances in FDI treaties.

calvo doctrine? anybody underline that? calvo doctrine… if you don’t give protection to your own nationals, you pretty much never have to give it to anyone else. and cuba was expropriating from its own nationals. so there’s another possible reason the court dodges the bullet here. but even if the court had held this wasn’t a violation of international law, would the case outcome have been altered?

the court here ruled that banco national had lawful title. they weren’t going to do anything in this circumstance. CAV/Sabatino has to give the money to BN.

what if the court had said it was a violation of international law? would sabatino have won?

  • go to page 630 and read the last sentence of that partial paragraph at the top.

a narrow holding, but suggests we will tolerate some violations of international law under this act of state doctrine. would it matter if the state department says go ahead, you got the green light, court!

  • state dept said it was a violation of international law. apparently there were letters from State not objecting to this bit of litigation, but still court says sabatino has to give the money to banco national. what’s the rationale behind this harsh result, where a coutnry can expropriate property, and come into courts and get a remedy hinging on the alleged expropriation said to be illegal?
  • any sort of judical encroachment into foreign relations is a bad thing. why?
    • there could be a clash between judiciary and state—but there probably wouldn’t be here. hard to see why the executive wouldn’t be on board. but still court wanted to set a precedent of staying way the hell out of foreign interaction, i.e. telling a foreign gov’t that it violated international law.
    • also a judicial competence argument. but judges do make plenty of international judgments.
    • could also cause uncertainty in the chain of title.

court mentions two exceptions to the act of state doctrine. did you note the two kinds of laws american courts don’t have to worry about recognizing?

  • penal or revenue laws. we won’t enforce german criminal laws. if german court says someone is guilty of something, act of state doctrine serves no bar. but if we have an extradition treaty that treaty will govern. we can otherwise ignore criminal convictions in other countries. same with tax laws. in the absence of a treaty.

what was congress’ response to this opinion? as you can imagine, congress and the exectuve branch were not happy. castro was not their friend. they passed a law… overruling the case. p.339. pretty clear. no court should decline on the act of strate doctrine to decide… takings… violation of international law… intended to overrule the case.

  • but courts read it so narrowly that they hardly ever find a violation of international law. property has to be moved into the united states, and of course, the most valuable property is real property which is staying in cuba.

court in 1973 declared a cuban confiscation illegal, but nothing happened because the cuban gov’t seized bank property to enforce a letter of credit. basically a dead letter.

metal clad case

something like 2000 bilateral investment treaties.

somebody bought some land somewhere. what sort of permits did they get to set up their dump? imagine you’re metal clad. you really wanna be careful. nobody likes people creating new dumps. always controversial, especially in the US.

in mexico, who’s in charge of approving noxious landfilles? to what branch of the mexican government does mexico give the leeway to approve landfilles? mexico, like us, has municipal, state, federal governments. who has the power in mexico? to decide who gets a permit and who doesn’t?

  • the federal government. whichi isn’t the way we do it in the US. we do it at the municipal level.

what did the municipality do to block the construction? what permits do municipalities have the right to issue or deny?

  • construction. i’ve done this before. went to athens municipal gov’t to get my house worked on. why wasn’t it legitimate for the municipality to deny a construction permit which effectively shut down the whole dumping operation? it happened 13 months after submission of the application.
    • what’s a legitimate reason a municipality could give? the buildings were being made out of asbestos or something.

municipality didn’t give notice to metal clad. you can’t have a zoning meeting and then not give the party a chance to appear. what does article 11-10 of nafta say? when does a state violate obligations under NAFTA?

  • no party should directly expropriate, except for a public purpose, nondiscrimination, due process, and compensation. note that this is broader than the takings clause of the US constitution. you can’t indirectly expropriate an INVESTMENT. so american citizens have broader rights under this language in NAFTA than they do under the US constitution’s takings clause. so in that respect, you’re safer putting investments in mexico and canada, at least in terms of gov’t internference. they made this investment, and now their investment is worthless because they can’t open the dump site. they were denied a permit for no reason and not even invited to the meeting. looks like we have a due process problem. so the municipality seems to have violated article 11-10.

so municipalities are going to be treated just like states. Athens could violate NAFTA. that was decided in the negotiations. no distinctions drawn between state, municipal, federal governments. they all have to follow NAFTA.

Normal 0 false false false EN-US X-NONE X-NONE

organized happy hour this friday? let’s hear outrageous vacation stories!

following story might have caught your eye: mexico seeking nafta ruling over dolphin safe labeling.


US has a ban in place which prohibits the sale of tuna catched with those mile long dolphin killing nets. mexico’s entire fleet uses those nets. so there’s been a complete ban on mexican tuna.


mexico claimed that in 2007 only two hundred something dolphins were killed. america claimed dolphin count too low. argument that mexico has made enough adjustments to these mile long nets to be safe? could US now be arbitrarily discriminating?


SO: FDI protections. a nation has been seductive, lured FDI in, and a corner of the gov’t swoops down in some way and destroys the investment. it’s a kind of harm generally not cognizable under WTO agreements.


Metalclad and Lowen from NAFTA, Argentinian case generated by bilaterail FDI treaty between Argentina and Germany. Cases decided by ICSID arbitrators. International Center for Settlement of Investment Disputes.


ICSID is where every serious investment dispute gets decided. World Bank sponsored it, but it’s not controlled by the World Bank. I think. Anyway, ICSID very important.


Metalclad: nation uses construction permit process to expropriate. federal gov’ts responsible for actions taken by municipalities.


NAFTA: expropriation provision. says if a state wants to physically take a piece of investment property, must be for a public purpose, must be hearing/transparent fact finding, must be done on non-discriminatory basis (only the french!), finally there has to be prompt/adequate/effective compensation.


NAFTA also has fair and equitable treatment provision. firms doing business have to be treated equitably and fairly by host government.


Third, foreign state has to provide full protection and security to investor.


So Metalclad in Mexico: what was not fair and equitable? They were told by Mexico, do XYZ and you can open the dump, and that turned out not to be true. Also, the municipality was clearly abusing its construction permit process. there was nothing suggesting they could block creation of a dump even if the contruction practices were perfect.


is there an expropriation? almost certainly so. four part test of expropriation. there was no compensation here for the lost investment. all the money poured into creating the dump was completely lost, not only because of what the municipality did, but what the state did. “by the way, we’re turning your property into a park.”


remember the Lucas case from the United States: in the US, you have to have a complete and total loss of your investment to qualify as a taking. very harsh. NAFTA is softer. so even though there was still some value left to the land, still an expropriation under NAFTA, even if it wouldn’t be considered as such in the United States.


Lucas not used as much, Penn Central used more often. which sets the threshold around 75%.


Lingal vs. Chevron.


Three prong test of Penn Central to determine whether taking by regulation—because there was already a large investment in the building, it was a taking. Three prong test was: severity of burden, legitiamcy of investment backed expectations, gov’t interests.


Lowen: got some more facts on the case so you can get a little more sense of how the trial went.


initial dispute was purely a commercial sale that fell through. Lowen was aggressively buying local funeral parlors, typical expansion. they entered a K with O’Keefe, the former mayor of Biloxi, Miss. Lowen agreed to buy the funeral homes. the purchase price was… in the neighborhood of two million dollars. they also thought they were getting not only the funeral homes, but the funeral insurance that O’Keefe was selling. pay o’keefe 30 dollars a month and you get a free burial when you croak.


lowen thought it was getting the funeral homes and the insurance biz. o’keefe made it clear he wasn’t selling the insurance biz. lowen got mad, backed out, said this was a legitimate reason. consider the possibility that lowen simply breached. what’s the highest amount of damages you could possibly owe? expectation damages? certainly capped by the K price. normally we take the difference between the K price and the actual price, like if O’Keefe auctioned the property off for one million, then he can get the second million in damages.


so how the hell did you get a 500 million judgment? plaintiff asked for 5 million, and the jury gave 100 million.


and where the hell did the punitive damages come from? o’keefe argued that from the very beginning he was a victim of fraud. lowen was comitting a tort and was simply trying to drive him out of business, and they knew all along they were trying to behave badly.


the governor of mississippi condemned the trial as the worst case of home cooking that he had ever seen.




they could still appeal, but they would face immediate execution of the judgment.


you have to take bankruptcy law: second greatest class in law school. when you file for bankruptcy, instantaneous stay on all of your creditors. they can’t even ask for the money. they could have filed chapter eleven.


they didn’t because it would destroy their share price. but from losing the case, share price had already dropped from 42 to 8. and investors usually have already perceived the problems that lead to the chapter eleven declaration. stigma of chapter eleven has definitely dissipated. look at delta. so a bit of a mystery why chapter eleven wasn’t filed given that the stock price had already taken a huge hit.


one altnerative: appeal w/o bond. reasonable remedy? or futile? nafta panel didn’t consider that reasonable. they don’t have to suffer execution first before pursuing nafta redress. that would be too harsh. and compound due process violations.


paragraph 215: lowen failed to present evidence disclosing its reasons for entering into the settlement agreemen. lowen had the burden of proving that the two remaining options, cert and chapter eleven, would have been futile. they were successful in doing that with the bond appeal alternative. so it was actually an evidence problem. bleh.


heald’s theory as to why loewen didn’t reveal its reasons for filing cert petition/ chapter 11. any lawyer is going to say pay 100 dollars and go for chapter eleven rather than paying 175 million dollars (shareholders were not happy about that settlement). this is my guess, i don’t have inside info. i would be stunned if they didn’t get advice to do this. and if they did, and if they were told that, it makes them hard to support the argument that it was futile and counterproductive.


chapter eleven can be very strategic. you can renegotiate your contracts. doesn’t necessarily have to be a situation where your creditors are pirahnas. and here they’re only fighting one person.


huge mystery why they didn’t file chapter eleven. i have no idea why they didn’t do this. at the end of the story they still had to file for bankruptcy, which makes it even more mysterious.


one more thing about the case: think about scenarios where a plaintiff could win. the facts weren’t on loewen’s side here. but imagine they were! they file for chapter eleven, pursue the appeal, and lose. US supreme court doesn’t take cert. all the remedies are exhausted. at that point in time, they can fly over to switzerland and get a judgment against the united states for all the damages they suffered from this unfair trial: 500 million dollars. this opinion opens up an unbelievable possibility for foreign litigants who get screwed in local state court or local zoning committee to recover their damages from the united states. it’s only fair to have this exhaustion requirement given that US is on the hook, SCOTUS should have the last say.


REMEMBER THIS CASE. if you have a foreign client, it’s a whole new avenue of complaint, if you’re willing to exhaust all domestic remedies.


and note the diversity rule: for nafta diversity, you have to be a foreigner when the wrongdoing occurs, all the way until the arbitration occurs. striking that the panel goes to the trouble to condemn the mississippi trial court.


if mississippi abused the locals just as much as it abused the foreigners, still a NAFTA claim? sho’ is! standard set forth on page 650, chapter 11 of NAFTA, is keyed to customary international law. it’s an international sense of due process. even if mississippi is abusing its own people just as much as it is abusing foreigners, it’s a due process, not a discrimination claim.


why isn’t this a NAFTA panel, btw? heald: my impression is that you have a choice between choosing a NAFTA panel or going to ICSID. i’ll check that. and get back to you.



siemens

what sort of contract did siemens enter into with the argentine gov’t?


a national identity card system. a lot of equipment i assume in making/reading the cards. they were going to produce them and ship them out to individuals. i’m not sure whether argentina had identity cards before this. United States has always resisted this, you don’t have to have a passport unless you want to travel.


what did the argentinian gov’t do to upset siemens? argentina pushed it back, and eventually suspended the contract or renegotiated it under this argentina emergency law. lots of feet dragging and naughtiness.


why doesn’t siemens sue argentina in its own courts? fear of home cookin’. two other reasons: sovereign immunity rules, maybe argentina makes itself immune to breach of contract suits. in united states you have to go through the federal court of claims in washington DC. there may be limited remedies for breach of contract in argentina. you might not remember the damage rules… foreseeability, etc. they tend not to be necessarily adequate under all circumstances to compensate you for what you’ve lost. so you might worry about the state of argentinian contract law.


what part of the treaty did argentina allegedly violate? 7(2). which says… siemens is protected from what sort of behavior…

which breackes of K are a violation of the treaty? things which are unique exercises of gov’t powers. if a tank rolls into the factory, obviously gov’t activity. if it’s something you could analogize to the sort of breach a private party could perform, that wouldn’t be actionable under the treaty. if argentina pays a month late, supposed to provide space in a building, the kinds of breaches a private party could make, that won’t be enough. breach has to be within its activity as a sovereign. what does it do as a sovereign?


some of these breaches occur through decrees and laws. private parties can pay late, but they can’t pass laws to make their breaches legal. that makes the case easy, when the state breaches via decree. how else does argentina breach the agreement in a way that only a government could?


the need for the K was based on a law that had been passed, and they pulled a rug on the contract. “we’re in an economic crisis and therefore need to renegotiate.” when they excused themselves based on public policy grounds, and their failure to secure cooperation from local gov’ts as they promised, made it characterizable as a gov’t function breach. an omission only a gov’t could do.


one can imagine closer calls between garden variety breaches and breaches which trigger the treaty.


what’s the actual treaty language that’s been violated?

“fair and equitable treatment.” and “expropriation”. in what was is siemens a victim of unfair and inequitable treatment?


argentina used its extra authority to get a better price. looks unfair and inequitable.


expropriation argumetn: what was expropriated here allegedly? siemens hadn’t built a factory. whatever investment siemens had made… they refer to intangible… unclear whether panel is referring to expected income stream, or the costs that siemens had already put into the project. either way, we’re not talking about real property. this case would be impossible to win in the united states. if an american company was working with the US, and the US did this, no way they would win a takings case. most you can do is go to us court of claims. but here, because of the bilateral investment treaty, a tough case under US law becomes an easy case for the foreign investor.


questions?


remember, if you want to adequately advise a foreign corporation, you’ll need to check out whether there’s a bilateral investment treaty. you can go to the ICSID web site and type in Argentina, Defendant and see the bad things argentina has done to its investors. interesting area of practice, and one you can practice in. you’ll hardly ever get to argue over the WTO, but you can get some trips to geneva to argue these investment treaty obligations.


five minutes to discuss the last bit of reading which covers a lot and would be fun to flesh out. i’m just going to say you don’t have to worry about preinvestment regulatory regimes, the stuff in p 661-669. but suffice it to say, some countries will force you to preclear your investment. the US preclearance is completely tied to national security concerns. if you’re a foreign firm planning to merge with, buy, run, take over an american company, which is in the national security business, or implicates national security, this american committee, CFIUS, can investigate and undo the transaction. committee has 45 days to decide whether something is proper or needs to be undone. no statute of limitations there. so if your’e a foreign firm and you decide to buy an american software company selling encryption tech to the CIA, that transaction will always be unstable, because at any point in time CFIUS could get wind of it and block you and force you to divest. so what you can do is ask for preclearance review. if you get preclearance, which you can only get through self-identifying, your transaction becomes bulletproof. no worry that three or four years later CFIUS will discover and undo and force you to divest. even under the preclearance regime, you’re in danger of CFIUS blocking until transaction completed.


in the last 20 years, 1900 preclearance requests, a little less than a hundred a year. CFIUS is not particularly active, and seems to be fairly generous in its approvals. remember the dubai ports? united arab emirates entered agreement to buy most american port facilities. it didn’t happen not because of CFIUS… CFIUS had precleared it. congress and citizen uproar stopped it.


with a merger and acquisition, the mere beginning of a CFIUS investigation will kill a transaction. so it’s hard to investigate and count how often they approve and deny. they’ve been disappearing in the developing world, but the US has been ramping up its preclearance regime.


03 16

2:45-4:00 thursday makeup.


open book, open notes. no internet.


no exam software. word document.


ip is a 90 minute essay.


trade experiment: i’ll e-mail you the question at 9:00. take it wherever you want. e-mail attachment to secretary.


we left the WTO behind. entered hazy new world, where there’s no agreement over gray market goods. then there’s the fairly open territory of BITs, sometime NAFTA, over foreign direct investment.


foreign investment regulatory regimes. some countries require some sort of approval before you engage in foreign investment. when can countries discriminate in this situation? what hanky panky? opening up a manufacturing facility, buying an existing firm, transferring technology.


two treaties are GATS and TRIMS. list of schedules saying “we’re not going to discriminate with this particular service sector.” that covers opening branches of service firms, like if Hertz car rental wants to open a branch in Oxford. that sort of activity is at least potentially covered by GATS. so in that situation GATS might be relevant, you just have to look at the schedules. but that’s really the only relevance of GATS. Trade Related Investment Measures. TRIMS name suggests broad scope. but it’s mostly aspirational at this point in time. only has a little bit of bite.


TRIMS forbids export/import requirements, as well as content requirements imposing certain percentage of locally made parts (IF the rule only applies to foreigners). also prohibited are laws forbidding you from taking money out of the country unless your business has brought in the same amount in. so there’s a little protection in there. but not a whole lot.


p. 669, FN 41. Suggestion that MFN might apply to investment rules (not national treatment). “only argentinians can own banks.” that’s ok. “only germans and argentinians and swiss can own banks” is not ok. well, maybe. that’s what’s suggested by a WTO decision.


bottom line: if you have a client who wants to buy an existing firm, there’s a lot of potentially relevant regulations, which might be constrained by a bilateral investment treaty that the client country has entered into with the host state.


what does US law require if you’re a foreigner seeking US investment?


the committee on foreign investment in the united states that investigates national security stuff. foreign investment includes US subsidiaries of foreign corporations. Siemens can’t just open up a Delaware corporation.


you would think the word investment would include not only an ownership interest (e.g. north korea firm buying interest in tech company) but also a north korean firm LENDING the money and putting a lot of strings and requirements on it. those strings might include requirements of information sharing.


say north korean firm makes a ten million dollar loan with the business as collateral. notice that this gives the north korean corporation just as much control over the corporation as if it had been an actual sale. will depend on the terms of the agreement. american foreign investment regulation doesn’t cover this, except if the US firm is about to go bankrupt, at which point it counts as an investment that can be scrutinized by CFIUS (sp?). CFIUS created in 1975 by Gerald Ford. corporations supposed to voluntarily notify CFIUS. most transactions submitted are approved.


when CFIUS starts investigating, it can kill a merger.


CFIUS: Committee on Foreign Investment In the United States.


Trojan Technologies

PA tried to help its dying steel industry. Said that suppliers of public works projects could only get their steel from the United States. The statute was extremely broad—it wasn’t just steel girders, it was steel in ANYTHING that the state of pennsylvania or its governmental entities purchased. Whether toasters in schools, cooking knives, or in this case, water purifiers.


easy to see who the winners are from this law, american steel companies, like those in PA. who are the losers? the citizens. you can’t buy cheap UV cleaner, you have to buy the next most expensive one, if it’s available, and maybe it isn’t. taxpayers eat it. companies that are used to making goods with foreign steel, whether american or foreign sellers, eat it as well. (although in a free marketplace, they accommodate just fine, for a higher price, so only the taxpayers eat it. unless they can’t afford it, or decide not to buy, in which case, sellers lose.)


pre-emption: if federal gov’t legislates in certain area, state gov’ts get pre-empted. comes from the supremacy clause of the constitution. if congress intends for state law to be inoperable, then it’s inoperable. two kinds of pre-emption: express pre-emption (sometimes congress makes it clear that the state laws are getting voided)


ERISA: pension protection rules are pre-empted.


is there any indication in this case that congress expressly pre-empted? no. argument here is totally implied pre-emption. the most important implied-premption is CONFLICT preemption. the state law conflicts with congressional wishes. two other kinds infrequently invoked. FIELD pre-emption: congress filled up field with so many different laws that implication is that federal gov’t doesn’t want states meddling. example: nuclear regulation. but didn’t even work with nuclear regulation, so field pre-emption is almost a guaranteed loser. national uniformity is a related argument: particular issue needs a uniform rule, and therefore it’s natural that states shouldn’t stick their nose into it. courts almost never invalidate state law unless you can show that a state law is frustrating what a federal statute is trying to do.


why doesn’t NAFTA pre-empt the pennsylvania buy-america provision?


what does NAFTA do aside from praising gov’t cooperation?


binds a named list of federal agencies that will not discriminate in federal procurement. the existence of this list implies that NAFTA isn’t trying to bar anyone not on the list, i.e. state governments.


why doesn’t the GATT agreement on government procurement prevent this situation?

  • just like the NAFTA agreement, contains no express attempt to restrict state governments. horribly weak arguments.


there’s a strong presumption of there being no conflict, because it’s very intrusive for a federal court to do to tell a state that its law is void. and if the federal court is mistaken in finding no preemption, congress can easily correct the mistake.


i rely on this book a lot, it will be on reserve at St. Anne’s. i wanted to learn a little more about gov’t procurement. the GATT 1994 agreement on gov’t procurement is one of these voluntary agreements, it only binds members who sign it. when you sign it, you present the schedule which details the extent of your promises not to discriminate. 20 countries have signed it, 90 US federal agencies ffrom the department of labor to the battle monuments division. the dept. of defense is exempted. 37 states have agreed to comply, and they’ve posted lists. with their own exclusions.


Environmental Tectonics v. W.S. Kirkpatrick

how did kirkpatrick and carpenter assure they would get the nigerian aircraft contract?


they bribed the nigerian gov’t via subsidiaries in panama. funneled money through those corporations. we even get a breakdown of where the bribes went, including political party, cabinet minister. just because it’s corruption doesn’t mean it’s disorganized. is this illegal?


it is in America!


maybe legal in Nigeria, we don’t know. but it appears to be tolerated in practice.


Kirkpatrick and Carpenter get fines and community service. Kirkpatrick gets fined, Carpenter gets community service. part of the deal for the lenient sentence was them giving up information about how the scheme worked. (once they’re found guilty, they lose 5th amendment right not to answer questions, by the way.)


where did the 1.7 million dollars come from? the ultimate source is Nigeria. they just added 1.7 million dollars to the contract price. that’s part of the reason the bid was so much higher. it’s not kirkpatrick that’s paying the bribe, it’s the nigerian people. this is absolutely the same as if these guys had broken into the nigerian central bank and stolen 1.7 million dollars. it has exactly the same impact. should have the same moral oppropium.


we know if you embezzle a million dollars you get community service, but if you rob a bank you get twenty years. it seems clear that this law doesn’t do an adequate job of deterring anyone, which may be why the creative pleading in this case survives judicial scrutiny.


does the foreign corrupt practices act provide any sort of remedy to the plaintiff, the corporation environmental tectonics? how have they suffered?

  • they lost profits. does the foreign corrupt practices act provide a private right of action for competitors who become victims of the bribe?


No. FCPA is a criminal statute. you just hope they get enforced. so the plaintiff has to get creative. they use violation of the FCPA as a pattern of criminal conduct under RICO.


Racketeering Influenced Corrupt Organizations act. originally aimed to stop the mafia. but it got expanded. now there’s a private remedy for anyone who is a victim of racketeering, which is defined broadly as a pattern of criminal activity, and “pattern” is likewise defined broadly.


it was broad to capture the broad range of criminal activity the mafia was involved in. “let private lawsuits suck the mafia dry with treble damages.”


so how is the pattern requirement fulfilled? seems like a single bribe. because the court is satisfied that the structuring of the deal over a long period satisfied the pattern requirement. so the RICO pleading works here, and plugs a huge hole in the deterrent aspect of the FCPA. FCPA is enforced by the US Justice Department, which is going to have a hard time identifying foreign bribes. but competitors screwed by rigged bidding can certainly enforce the law.



a little more on RICO. because it’s very handy. and can be used to hammer people in business who regularly bribe or who have any complex bribe you can prove.


1977: FCPA, first law of its kind in the world. US disadvantaged its own businesses by forbidding them to bribe foreign companies. french companies still can. that broke a log jam. started talk of a convention, and a collective action problem. countries at large don’t want rampant bribery. so the US threw its self on the collective action pyre, but by 1999 there’s a convention of 34 countries agreeing not to bribe, and those 34 are homes to just about all of the world’s biggest corporations. US law is now harmonized to the convention.


“corruptly paying or offering to pay a foreign official for assistance in obtaining or retaining business.” what does corruptly mean? what does foreign official mean? foreign official includes any payment where you know the money will eventually end up in the hands of a foreign official. can’t do it through intermediaries. penalty: jail up to 5 years, fines up to 2 million dollars.

petty graft is OK, for performance of routine governmental functions. if you know you have to slip Max ten dollars in the passport office to get an employee their passport, no problem. there’s a lot of countries where the beauraucrats are underpaid, and if you want the approval of a building permit, you have to pay something extra. it’s different from what this case is about.


HOWEVER, extortion is not a defense. if you have a facility overseas, and a gov’t says we’ll shut you down for safety violations unless you bribe me, YOU CANT PAY THEM. you can go to jail for five years. but for that reason, you get less requests like that.


impact of the FCPA in the nineties: US invesments in Russia have largely vanished. it was so difficult to do business in Russia in the nineties that it fell off. there are accounting rules under the FCPA to ensure enforcement. definitely burdensome on corporations. wouldn’t it be nice if you could get preclearance for a payment? what if you’re getting asked to pay 50,000 and you can’t tell if it’s a bribe, or petty graft, or part of the fee structure… what do you do then? the DOJ has a clearance system. you can give the terms of the deal and say “please tell me if this is a bribe or not.” which seems an entirely reasonable function. unfortunately, almost nobody uses it. the DOJ has up to 60 days to perform its review, and there’s no promise of a firm answer. the DOJ can be silent. the bigger problem however is that because of the freedom of information act: the info you submit to the DOJ is public and available to your competitors. you have to thus reveal the deal to everyone the prices in your contracts and the names of the officials. which might upset the officials. so even though the clearance idea is a good one, it’s mostly unused.


how bout that act of state doctrine? that was omitted in the casebook reproduction. what’s the strongest complaint that the plaintiff should lose? what they’re doing is impugning an act of the nigerian gov’t. you can’t fine someone for something done by the nigerian gov’t. but that argument doesn’t work. my opinion: if it were really an act of state, then it wouldn’t be a corrupt bribe. and the act of state at issue isn’t the awarding of the contract, it’s the acceptance of the bribe.


March 19 - Sam's notes

Anti-Trust - used to be popular in the1970's

Heating up again, especially in int. context.

Getting people to act in concert for anti-competitive behavior

Abuse of market power/dominant economic position

Concerted action - Hartford case

Concerted behavior to restrain trade

Forming cartel to restrict trade, limit output, dividing nation into exclusive regions for doing trade.

Forming with another competitor to destroy a third firm.

Norr-Pennington Doctrine

Allows people like Opthomologists to lobby so they are the only ones to sell glasses. If the state agrees to screw your competitors, that's accepted. Don't collude with competitors - collude with the state congress.

Once you have a monopoly, you must behave more carefuly than those that are about to acquire market power. Market power is the ability to charge a super-competitive price. No set figure, but 60% of a market may be enough. It's a highly fact intensive look.

What constitutes abuse?

Vertical price fixing - requiring those that sell from you to set a specific price. Reason you see Suggested Retail Price.

Tieing arrangements - Using dominant position in one field to get a dominant position in another area - but need to have a likelihood of success.

With MS Windows, you have to get the windows media player. - Cuts down on competition from other players like RealPlayer

Hospital requiring you use their anesthesiologist - this was rejected as well.

Coercive activity - MS threatened other OEM producers not to use Netscape.

Engineering non-compatibility - Designed to fail with wordperfect and netscape - would crash a lot. This was done on purpose to discourage use.

All this behavior is OK, so long as you are not a monopolist. Once you obtain that dominant position, you are in trouble.

Defense if you can argue a valid business justification for the activity.

Outside of price fixing of course.

Hartford Case

ISO has an exception that allows it to create a uniform K for all insurance members. Would be completely illegal in many other cases.

ISO - provides underlying services and forms used to file most claims

Insurance companies themselves have to insure themselves, usually with groups like Lloyds of London.

What is the problem with all but the largest insurers sharing the risks with another firm?

You have large hoops to jump through for regulation

Large companies also track large trends, something that is too expensive for the smaller firms. You need massive data to know what to charge people based on different circumstances.

Hartford does not want to be a lone ranger- other companies would point to the ways that Hartford is trying to screw the consumer.

Instead, they applied pressure to groups that provide reinsurance, and use the London reinsurers to encourage behavioral change by coercing other US firms. Refused to write new reinsurance contracts.

Colluders say they are immune under the McCarren Ferguson act -

Not true. If business is not regulated by state law, it does not apply

If there is any attempt to boycott, intimidate or coerce, it does not apply.

SCotUS said that the boycott was enough of a reason to nullify McCarren Ferguson.

If behavior was foreign, but meant to produce and indeed did produce a negative effect on US commerce, it is illegal.

London Reinsurers claim that the law should not be applied. Even if they did collude, it would be improper under an intenrational comity holding.

This type of enforcement has risk of conflicting with international law where this happens. Britain says to but out.

Breyer says that as long as your are able to commit to both sets of laws, there is no conflict.

Scalia

Dissent says that London reinsurers are correct.

Applies two canons of statutory construction

Legislation of Congress, unless a contrary intent appears, is meant to stay within US borders.

Restatement 403 says that even if there is some basis for jurisdiction on people of foreign states, we should not apply it if it is unreasonable.

WTO says nothing about competition law, or near nothing.

Does allow anti-trust law to take away IP rights.

i.e. EU can hammer MSFT, despite having a copyright. Anti-trust law trumps TRIPS.

Pfizer v. Government of India

Pfizer and friends tried to monopolize broad spectrum anti-biotics in India, Iran and the Phillipines.

Saw it as fair revenge, because those states did not respect their patents - tried to makeup the loss in other areas.

Pfizer argues that India is not a person for anti-trust purposes

US is not a person according to court

Georgia is a person - because the US had other alternatives, but Georgia was limited in its remedies.

For the purposes of most law, corporations are persons.

Why is India not upset about the application of US law to US companies when the acts occur in India? Because it may provide them stronger tools than they have back in India. This will reduce costs in India by breaking the cartel.

India probably should have protected their own citizens with their own laws, but that never occurred. Possibly a reason for judicial abstention.

trade, march 23

tomorrow’s trip to london!

we’re meeting at B on the map. but that’s not where we meet the guide. we’ll go in as a group and check in inside. (but we’ll all be on the same train car anyway so whatevs.)

take tube to westminster.

local MP has moved visit back to 12:45, so we have time to visit cafeteria before we meet evan harris. 17 tickets for house of commons.

you can leave for coffee or whatever if it gets boring. we’ll meet at 4:30 at warwick court, a building. at central reception. if you can get into the lobby, then meet there, if you can’t, meet outside. right by st. paul’s cathedral. 40 minute walk from westminster, or you can take the tube. some restrictions on when you can go back.

thursday class cancelled. one thing that’s new, i’m talking at king’s college on monday. class will be bumped to tuesday. so, four day weekend!

international corporate finance: wheeeee!

we’re looking at domestic and international rules that affect the financing of trade. i know quite a bit about letters of credit, but not about balance of payments through IMF or the World Bank—and so you won’t be tested on what i don’t know.

we want to finish up with antitrust

american antitrust law

a monopolist can act alone. but say we have a conspiracy between two people in the EU. and say that conspiracy has a significant effect on the United States. in Hartford, people in the EU were discussing what would be in American contracts. or a price fixing scheme directly affecting the price of vitamins in the US. when is that activity covered by antitrust law?

bottom of p. 706: “it is well established by now that the Sherman Act applies to foreign conduct that was meant to producfe and did in fact produce some substantial effect in the United States”

p.727: “direct, substantial, reasonably foreseeable effect on US commerce” will trigger US antitrust law to condemn and make actionable a conspiracy that may be occurring wholly overseas.

how bout local conspiracies that harm parties overseas? say two americans are engaging in a conspiracy fixing prices in australia. we saw in the Pfizer case that that activity is illegal. but there is a mechanism they can use to immunize their behavior. in Washington DC we have the FTC, and we learn that if the americans, a big group of americans, can register under this Webb-Pomerene act as an export association. and engage in various kinds of activity that would otherwise be a violation of US antitrust law. only 1.5% of US exports immunized under Webb-Pomerene. why? your names get published, a flag to other countries that you’re about to screw their consumers.

say their’s an antitrust conspiracy in the EU directed at everybody, australia and the united states. and say australians want to sue the EU’ans in the United States. we know US law leaks to americans committing antitrust violations overseas. y’all were victims of this particular conspiracy. did it say whether american plaintiffs could sue and recover? absolutely, that’s a rerun of Hartford. after Hartford, not controversial. people conspiring in Switzerland extracted tens of billions of dollars from the US via their price fixing. the australian plaintiffs lose before the supreme court, because the exceptions on page. 191 (supplement) don’t apply. page 191 is where you get the full language of the sherman act directed to extraterritorial reach. the initial presumption is that it doesn’t apply. then there’s exceptions for hartford, (something something), 1a makes it clear hartford and hoffman directed to US victims is covered by US antitrust law, 1b covers Pfizer and export commerce.

australians will have to argue impact on US import or export commerce. but instead of closing the door, they remand to the district court, recognizing a possible argument that this language on 199 was met, that the conspiracy directed to australia had a reasonably foreseeable effect on import trade into the United States. how did that work? it’s a cool argument. ties in with int’l IP. when we were talking about gray market goods, if it’s ok in australia and not in the US, they’ll just ship to australia and then to the US. “the conspiracy directed against australia screwed the US.” imagine a world where australians are not victims of the conspiracy. if australia has an unlimited supply of cheap vitamins, they’ll ship them straight to the US and undercut and destroy the EU price fixing. the price fixing in the US will not work unless Australia is victimized by the same strategy. it has to be a worldwide conspiracy to work (and it was). so that’s how the foreign plaintiffs try to tie their fate as victims to the united states.

  • i checked on remand, cause i liked this argument. district court said they didn’t make the argument in the brief. court of appeals said they did, and that was the end of the trail. they settled. so no clear answer to that argument.

anyone know what the foreign sovereign compulsion defense is?

  • if the foreign nation requires you to operate as a monopoly, that’s a defense. really only works if you’re obligated by the nation’s laws to be cartel-like. the supreme court has never blessed this defense, and it certainly doesn’t work if the foreign nation’s laws merely allow or condone cartel-like/monopolistic behavior. but if you’re forced into it, you’re probably ok. i won’t test you on this, but the DOJ gives a summary of the guidelines on page 752 of when they won’t bring civil antitrust prosecutions. they have a four part test. “existence of genuine compulsion as opposed to mere encouragement.” 2. the legality under the foreign sovereign’s laws
    • note that this is utterly unbinding to the courts or private plaintiffs.

i read this matsushita case. antitrust litigation is the most expensive litigation, patent litigation is second. so it’s awfully nice if summary judgment rules make summary judgment possible, i.e. prevent things from going to trial. matsushita makes SJ easier to get as a defendant. in that situation, japanese electronic firms operated a cartel in japan and engaged in price fixing which in US would be clearly illegal. our firms were having difficulty cracking the japanese market—why? they should be able to undercut the high prices in japan. but there’s no walmarts, targets, etc. in japan because japan is incredibly friendly to mom and pop stores in japan, making distribution virtually impossible. in the EU, there’s probably about five companites you have to contact if you want distribution. but in japan, there’s ten thousand mom and pop stores. and the cartel already has a distribution association and they’re not sharing information with american electronic firms who the mom and pop dealers are and how to get in touch with them.

so although we’re concerned, there’s no way to argue that US antitrust law reaches that activity. so then they get the sense that the japanese electronics firms are engaging in an international conspiracy: to flood the US market with cheap electronic goods, long enough to kill off the US consumer electronics sector and then become a monopolist there too. a classic allegation of predatory pricing. that’s what goes to the supreme court, the predatory pricing conspiracy.

what’s interesting about the case is the court says that circumstantial evidence of the predatory pricing scheme isn’t enough to survive summary judgment. you need actual evidence.

raises questions, U Chicago style, of whether predatory pricing ever works. it’s a very risky strategy. has it ever worked? the court is seduced by chicago style reasoning and makes it hard for a plaintiff to survive antitrust summary judgment in that style of antitrust case.

EU antitrust law!

wood pulp case and EU antitrust law

US and Canada, Finland and Norway, countries with many forests, conspiring to raise the price of bleached sulphate pulp. victimizing the EU paper making industry and the european paper consumers at large. what’s the procedural posture of this suit? who has sued the wood pulp cartel?

  • the EU commission. the EU commission is the one that enforces antitrust litigation.
  • in the US, the law encourages private individuals to take on firms, they can even get treble damages. the EU on the other hand, the executive branch of their government, polices antitrust law. quite central in their national consciousness.

the KEA, the kraft export association, is a webb-pomerene association of wood pulp producers. that would immunize them in US law, but certainly doesn’t help them in the EU. if the US doesn’t give you credit when the foreign nation condones your monopoly, the EU certainly isn’t going to grant reciprocity. this is the inverse of Hartford.

there’s no international law conflict—we only care about that when a firm can’t comply with the law of both jurisdictions. webb-pomerene doesn’t require you to price fix. so KEA could comply with both laws by not price fixing, enough to demonstrate the lack of a conflict or any obligation on the EU to back off. Souter dealt with same argument in Hartford: the insureres could avoid colluding and obey the laws of both the UK and the US.

top of pge 578: if other countries can nail you, why bother registering under the webb pomerene act if you’ll get kicked by other nations? maybe that’s why so few companies actually use web-pomerene. but it does allow you to take advantage of nations without antitrust law (about 80% of the world!). also the EU doesn’t have treble damages. so price fix, price fix, price fix!

if you don’t have any assets in the EU, can they even collect? say you want to price fix to screw the remaining 80% of the world and don’t care what the EU does. you could just avoid selling to the EU entirely, and the only goods that will get there will be grey market reexportations from the price fixed nations you are exporting to. huzzah! worst EU can probably do is hit your company with retaliatory tariffs. who cares about those?

futures! options! currency! exchange rates! currency risk!

the tauber case. the only reason the market exists is because of fluctuating currency values. here’s an example.

on january 1st, american buyer buying 1000 bushels of hops at 10 euros per bushel. 10,000 euros. forward contract for hops for 10k. for delivery on april 1st. the exchange rate at the time of the K is 1.00 dollar = 1 euro. which is what it used to be, briefly, during a happier time. april 1st comes around, and the dollar equals 0.8 euros. this is a problem if you’re the american buyer. if you had bought the hops on january 1st, you would have spent 10,000 dollars. now you’re obligated to pay 12,500. if the value of the dollar had gone up, you could have ended up paying only 8k. currency traders take this risk happily. but brewers aren’t interested in speculating in currency. massive companies might feel that it nets to zero over time, but smaller buyers might be uinterested in the potential of benefitting in light of the risk of a big loss. you might not be able to take a loss for a whole year.

how can you hedge the risk here? you buy your euros now! buy 10,000 euros on january first. or more realistically, buy an obligation for someone to pay you 10,000 euros plus interest in exchange for 10,000 dollars now, or an obligation to make that exchange in april where you both pay at that time.

slightly more complicated: buy an option to purchase 10,000 euros on april 1st for 10,000 dollars. you’re basically purchasing insurance. there’s a formula called the Black Shoal’s equation, a logarithmic variation of prior years, that you can use to come up with an option price. it might not be all that much, may just be 30 or 40 dollars. so an option is low risk way to speculate on currency fluctuations. if you want that vegas feeling. probably better than a lottery ticket. the currency dealer might be betting against you, or may just plan on the fluctuations netting to zero and collecting on the imputed fees.

the punch line here is that at least two, and probably three of these options rely on a market for currency created by currency traders. they’re the ones selling the options and euros. insurance companies don’t like taking this risk, so they often hedge their risk by making the same kinds of hedging deals with other currency traders.

the law is pretty boring. the defendant’s argument that he didn’t have to pay the debt was that the commodities exchange act didn’t cover currency, or something, it was stupid, case was just there to explain the currency markets. and to point out that parts of it are unregulated, parts are and require trading on exchanges.

March 25 - Sam's notes

375 F.3d 168

Masterfund case

This section is really just about learning vocab. The case itself is pretty basic for the most part.

Hops example - someone who has to pay in Euros may

Buy euros in advance hoping for an increase in the value of the Euro

Buyt an option to buy euros down the road at a set rate.

Buy insurance to cover FX risks.

Black-Schoals equation - set to price options. Within weeks of its creation, you have a market for options agreements.

GM Trading Corporation v. Commissioner of International Revenue

103 T.C. 59 (1994)

Mexican government is trying to attract FDI

Creates a debt-equity swap program - it trades you mexican pesos for mexican debt. It buys that debt at near the paper rate, despite the fact that the debt trades on the open market at around half its face value.

Texas company buys 1.2 mil of Mexican debt for 600K

Mexico however agrees to pay about 1.044 Mil for that debt.

Mexico wants the bonds to limit the crash of its financial sector - namely its foreign exchange market.

This money is then used by the Texas firm to build up the operations in Mexico.

The money comes in the form of stock for the Mexican subsidiary that the US company has created. The Stock is then sent to Mexico for Pesos - this is where the 1.044 Mil comes in.The stock is exchanged for the pesos.

Pareto Optimal exchange -

What we don't see?

GM is being sued on the grounds that GM claimed that the money was tax free. The IRS is really not amused.

If the 400K is a foreign contribution to a government subsidy, it is not taxable.

The court says no - this 400K profit is taxable. This was not a capital contribution subsidy, it was a taxable profit on a 600K investment that netted 1.044 Million.

trade, March 31, 2009, big whompin banks

a lot of stuff for today, leftover case. United City Merchants on page 346.

these cases driven by currency restrictions operating throughout the world, and we see deals that are tortured to make them more profitable because of the desire to avoid revenue restrictions. my own personal experience with currency restrictions. i lived in spain, 1982-1983. i got paid is pasetas, which were declining in value. i would go to barclays and turn them into dollars. this was illegal, but it wasn’t enforced. barclays was british. i was american. by the time i left, there had been a 50% decline in the value of the paseta. another illegal thing to do: take a big chunk of pasetas out of the country. first, restrictions usually easy to get around—these people in the cases got caught, but most don’t. second, nations, don’t like seeing their currency leave the country. i got money from the spanish, and gave it to the french and the germans. also me not keeping my money in their bank reduced their currency reserves, making it harder for them to meet their debt obligations and stay solvent.

so that’s the background driving these twisted transactions.

we see that in United City Merchants. it’s a contract between Glass and V, where V promises to pay twice the value of the machine. in return Glass provides the machine, and a rebate equal to half the contract price. why do you want to get a rebate? because they get paid in dollars, deposited in an american bank. peruvian currency restrictions make it illegal to do this, having a US bank account in dollars and converting peruvian currency into dollars. (my question: what is Glass doing with all the extra peruvian currency? who wants it, and why? and why doesn’t that cancel out the perceived negative effects of the transaction?)

anyway Glass gives documents to united city bank, documents then go to Bank of Canada, Bank of Canada has promised to send the k price, 2x, to Glass. but then bank of canada refuses to pay on the documents. why isn’t the case Glass v. Bank of Canada? because united city bank is what’s called a confirming bank, and bank of canada is the issuing bank. united city bank had already promised Glass to pay on the documents. a confirming bank’s worst nightmare happens in this case, as United City pays Glass, submits docs to Bank of Canada to get reimbursed, Bank of Canada says no, there was fraud in the transaction. Bank of Canada has gotten its money from V in peru, but holds onto it.

there is something in the IMF charter… “exchange contracts.. contrary to currency restrictions… uneforceable in territory of any member”

anyone write in their notes whether bank of canada had an excuse? why doesn’t IMF art. 8 bail them out? article 8 only applies to exchange contracts. and this isn’t a standard exchange contract, where one party hands in peruvian currency and gets back dollars. court says the entire K isn’t an exchange contract, part of it really is for the machine. and that part of the K ends up getting enforced. the part of the K that’s meant to exchange money does not get enforced. i presume this relieves Glass of the obligation to pay x dollars into an American bank account for the benefit of V, since the K is getting kiboshed.

key point: an exchange contract can be disguised in a lot of different ways.

scenario two: say the deal goes through. 2x gets paid by bank of canada. the deal works. then peru sues glass in US court. Glass has participated knowingly in a scheme to help V evade its obligations under peruvian law. we know the answer to that question, because we read the brasil case for today. there’s no cause of action, no relief.

isreali commodity banco brasil case. page 350. imagine a situation where you do the deal in Brazil. say in brazil the forced exchange rate is 2 dollars = 1 lb of coffee = 180 cruzeiros. but in america, in new york, they enter into a deal in dollars, and 1 lb of coffee = 1 dollar. you’ve got a happy buyer, so why would the seller want to do this? the seller can take it to brazil and sell it on the blackmarket for 220 cruzeiros. now we can see that the seller ends up with 220 cruzeiros, better than the 180, so everyone comes out ahead by doing the deal in new york in dollars.

what’s illegal technically about that, under brazilian law? exchange regulations required exchange through their bank. they forge the documents about having sent money to the bank of brazil, so you have what looks like an outright case of fraud. a lie to the brazilian gov’t that hurts the brazilian gov’t. what reason does the court give for not recognizing this as fraud?

there’s a longstanding rule against enforcing revenue laws of another country. countries have no obligation to help each other with collecting back taxes. in the US, it at least applies to countries seeking judgment enforcement.

what about the IMF aricle, p. 345, that merely obligates a nation to not enforce a K? well, that’s not the issue. the K may be unenforceable in court, but it’s already been executed. this isn’t about enforcing the K, but about the brazilian gov’t trying to swoop in after a deal already went through.

(by the way, bank of canada is a private bank.)

suppose royal bank of canada gets fined and sues glass. how does that case come out? it’s a suit for fraud. page 356, Banco Frances E Brasileiro v. John Doe. in that case, different outcome if it’s a private party suing. why isn’t article 8 relevant for the facts of that case? because new york isn’t compelled by what article 8 says, it’s irrelevant here. article 8 is silent to private remedies. (of course, article 8 doesn’t demand anything in particular for public plaintiffs either.) individual state can recognize that sort of fraud, and the state of new york apparently does. relief is discretionary.

4th scenario: what if the US government sues Glass for fraud? the deal’s been done. US has been screwed over by the rescission of the contract or maybe they’re harmed in some other way. then what? that’s the case in the supplement on page 106, Pasquantino. The US can prosecute under the wire fraud statute, even though it looks like enforcement of a foreign law and in particular a foreign tax obligation.

who are the Pasquantinos? they smuggle cheap liquor into Canada. they got it from a wholesaler in Maryland. what US criminal law did they allegedly violate? it’s easy to see what canadian law they violated. the american law was the Wire Fraud statute.

how bout that wire fraud? broad language on top of page 108. “any scheme or artifice to defraud” out of money or property. what’s the money or property? the canadian tax obligation. why doesn’t the cleveland case help, where the defendant lied to get a video poker license? (convicted felons weren’t supposed to get video poker licenses.) because defendant there was brushing up against purely regulatory actions, not economic actions—the US gov’t wasn’t getting defrauded out of any property interests. cleveland paid for his license, just like any other person would have.

the state that got lied to did get lied to. but they didn’t get deprived of an expected income stream, which you need to fulfill the wire fraud statute. this took a lot of local government corruption out of the realm of the wire fraud statute, because pure corruption and bribery won’t necessarily deprive the state of a vested income stream.

what’s the false representation here? what misrepresentation did the pasquantinos make? they failed to disclose on the customs forms. is it a representation not to reveal? well they probably signed something saying they weren’t bringing anything else in.

are they liable for any crime under the smuggling statute? maybe, we don’t really see.

what quasi plausible argument do they make in their defense? note that they get four justices on their side, it’s a 5-4 decision. probably the only case decided where Ginsburg, Breyer, Scalia, and Souter are in one camp. if there’s two interpretations you should pick the less harsh one. page 123: “when confronted with ‘two rational readings of a criminal statute, one harsher than the other, we are to choose the harsher only when Congress has spoken in clear and definite language”. what common law rule do the Pasquantinos say exists and would have immunized their activity before the statute?

the revenue rule!

but the revenue rule doesn’t do it. only applies to collection of judgments, sez SCOTUS.

the victim compensation statute will send money to the canadian gov’t. so it looks like the canadian gov’t will get the money it’s been after. is majority worried about collecting revenue from canada? nope! if the executive wants to do it, why stop them? the executive speaks internationally anyway.

page 354: J Zeevi and Sons Ltd. V. Grindlays Bank Uganda.

what hiram zeevi has done through grindlays and citi bank is created a way to get money to j zeevi. hiram gives 400k to local ugandan bank, and extracts a promise, a letter of credit, (a cite draft) from the New York Chemical Bank. or rather, J Zeevi can write a check to himself, in the form of a cite draft, and redeem it at the New York Chemical Bank.

why doesn’t Hiram just send money to the New York Chemical Bank and put it into an account owned by J Zeevi?

probably some attempt to get around some regulation. this used to be the way to do your european tour if you were a graduate in the 1800’s going on your european tour—daddy won’t give you 40,000 in cash. he’ll set up letters of credit in london, paris, and vienna, so child can write a check to him or herself. but this is a 1975 case. things have changed. but maybe it’s dangerous to do it any other way.

in any event, hiram puts 400k in the local account, New York Chemical promises to pay 400k to j zeevi.

the anticipated flow of money gets stopped in uganda when citibank/grindlays refuses to send the money to NY Chemical, because the minister of ugandan finance bars them, saying that isreali companies can’t send money out of the country anymore. what’s the holding? j zeevi wins because citibank can’t duck the K via IMF article 8. court says it’s not an exchange contract governed by article eight, even though money is going in in ugandan currency and coming out as dollars. how the hell do they get to that conclusion?

the only explanation we get is that last paragraph on 355, that the Bretton Woods Agreement doesn’t apply. maaaaaybe hiram is putting dollars into the ugandan bank (nope, says notes). or maybe there’s no currency restrictions in place. or maybe it’s an implicit acknowledgement that the treaty bars discrimination against nationals of a particular country.

heald: the suggest that this is not an exchange contract has got to be wrong.

trade, april 1

you only need to know what happened in class. there’s a lot in the book we didn’t do. we read a whole section on the world bank and the imf, and the stuff we do in class is what will be on the exam.

that said, we went through a lot of cases yesterday, didn’t get to the IMF and the World Bank.

what youneed to know.


ARTICLE 8 of the IMF treaty, which requires members to respect the currency regs of other members and not enforce contracts dodging those regulations. “i will sell you 100 euros next month for 100 dollars.” that’s an exchange K. perfectly legal in many countries. but some nations might restrict the exchange rate, or which citizens can exchange, or whatever, K won’t enforce.


i would put J zeevi and united merchants (the partial exchange partial sale case) together. is something just a disguised exchange K? or really something else?

what you should get out of that is that courts might look behind the agreement. the court in j zeevi wasn’t nearly as realistic about the K as it could have been.


i mentioned the possibility of using gold as a middleman to exchange currency, and plenty of courts will allow that even though it effectively brings about a currency exchange.


you can walk into court, admit you made a promise, and get away with not keeping it.


what happens in a world where the agreement goes through? post execution?

1. a state can’t come into an american court, complain about the deal, and ask to be compensated. the state won’t have a remedy post execution. seems to be the core of the revenue rule. banco de brazil.

2. if the currency regulation is evaded through fraud (you can evade them without fraud and without lying, you don’t have to lie like they did in united merchants when they lied to peruvian authorities) a victim of fraud can sue if they’re a private party. banco frances.

3. banco pasquantino. if someone commits wire fraud to evade a foreign restriction, US gov’t can prosecute.

that’s the core takeaway.


the imf and the world bank

you probably need a course on banking to figure this out.


we know different countries have different currencies. if you buy from a currency exchange or bank, the trail eventually returns to a central bank. which can keep money on reserve or print more. if they don’t have enough, they need someone else standing behind the central bank. the IMF is the bank for national banks, preventing balance of payment problems among the central/national banks. the IMF is greasing the wheels of a zero sum game, the balance of payments should net out to zero. the IMF keeps watch over national banks to make sure they don’t become too much of debtor banks and others don’t become too much of creditor banks.

the IMF is not for loaning money to Africa.


the world bank tends to loan money directly. the role of the world bank is fairly simple. in washington DC there’s 7000 employers of the world bank. if you borrow money fromt e world bank, strings are attached, you have to fix currency regulations, have transparency in national banking system, promise not to do and do a bunch of things. the world bank tends to get entangled in national policy, not because they directly regulate like the IMF, but because the world bank has a vision of what good banking practices are. and uses the carrot of money to escape.


in re sealed case

we’ve escaped the world of expropriation, but now we’re in the world of sovereign bankruptcy. key facts on top of page 385.

bank owned by country X. bank does business in country Y which has severe bank secrecy restrictions. and a manager in the US is subpoenaed about info happening in country Y, and manager refuses, says he’ll be prosecuted back in Y.


any idea what use immunity is? it immunizes him against being prosecuted for what he says to the grand jury, so long as it relates to the proceedings. he can’t blurt out, “i killed my wife! haha! immunity!” so he can provide full disclosure of what he did at the bank, so even if it shows he’s guilty of money laundering, he’ll be immune.


but that doesn’t convince him to testify. because he’ll be subject to prosecution by country Y if he ever returns there. he can’t obey the laws of both countries. seems to be a total conflict. we’re forcing him to commit a crime.

why does the bank’s argument succeed? the bank can’t escape prosecution the way the individual can. does a court have the power to issue a contempt order in a case like this? yes. if there’s an express grant from congress, they certainly can.


allied bank international v. banco credito agricola de cartago

who is the syndicate of banks on p. 395?


a bunch of banks acting together to loan money to Costa Rica. what did Costa Rican gov’t do to sour the relationship?


Costa Rica started having balance of payment problems, and suspended payments. they survived summary judgment on the act of state doctrine. 38 of the 39 banks settled via refinancing. we saw this before with argentina. but Fidelity holds out. and Allied as the agent must represent Fidelity. And Fidelity gets a rehearing from the 2nd circuit. how do they manage that, on rehearing?


they say the act of state doctrine is not applicable. we’ve seen the act of state doctrine before. we know it’s concerned with comity between the US and our foreign neighbors. it’s more or less because they had backed off the first time because the executive branch hadn’t piped in yet, but then executive came in and said that Costa Rica should have settled its debts through the IMF rather than suspending payments.


and also at issue, the situs of the debt was in new york. the reason cuba got away with nationalizing property in Sabatino, cited at the end of section III, if a country is nationalizing within its borders, the US court has to stand down until congress tells them specifically what to do. but the court says this isn’t a situation of expropriating within its own borders, because the debt is in new york (the contract expressly says the debt is in New York). so from their perspective, the gov’t is trying to reach into the united states. this seems convincing, and consistent with Sabatino. what bugs me is why what the justice department says is relevant at all. does the executive get to call up a court and say who will win?

heald doesn’t like it. i disagree, because the act of state doctrine seems built on not embarassing the executive, so if the executive speaks up, what’s the problem?


international comity only applies when you’re interpreting a federal statute, and you’re guessing at what congress wanted you to do, whereas act of state is more about judicial restraint. comity: can be between courts, over executive agreement, a statute.


key at least on the fact that the debt is in new york. (even when other cases hold that a debt is located at the debtor.)


remember to take bankruptcy! you’ll learn more there than anywhere else. bankruptcy is like a surgeon doing autopsies. you get to learn about all these dead businesses, why they died, and what happens to the body parts afterward. kind of gruesome.


in the US, we have chapter 7 which deals with liquidation. trustee gathers up assets and distributes the assets to creditors. chapter 11 is different. filed by the firm that’s in trouble, seeking to stay alive.


municipalies and cities can go bankrupt and reorganize. they can’t sell off the capital though.


but there’s no sovereign bankruptcy law. when sovereigns get in trouble, there’s no WTO or UN treaty. the IMF can offer some help, but it’s mostly a no-man’s land.


also problems arise when debtors show preferences to some debtors.


what happens when it’s an international corporation spread all around the world that goes bankrupt? how do you determine where creditors stand in line? there’s no treaty, no regulation by the WTO. courts are just making it up.


drexel v. galadari

who is drexel? drexel was a conduit through which galadari was trading commodities. galadari was a very wealthy person in Dubai. and he owes Drexel… 13 million dollars. significant amount in 1985. how did drexel diminish its risk? there was a promissory note, six million shares on a bank in the middle east as collateral.


why does this normal way of protecting their investment fail them?


because all the assets of galadari are taken over in a United Arab Emirates, chapter 7 style liquidation proceeding. Dubai doesn’t have a bankruptcy law yet.


why is it better to be a secured debtor in a bankruptcy proceeding? you get paid first. highly important to be a secured creditor. federal gov’t usually gets paid first, but secured creditors are almost at the top, and they get full, 100%, before anyone else gets paid off. so if you’re an employee, unsecured creditor, or tort victim. maybe the phone company, which generally doesn’t take collateral. all of the secured creditors will be paid off 100% before anyone else gets anything.


so why is drexel still about to eat it?


because dubai authority is keeping the shares out of the hands of the secured creditors. they’re worried about a financial crisis from putting the shares in a general pot. the UAE also said the securities were not notarized/registered.


for example, if you secure a mortgage with a house, car with a title, then the notation is put on the title, or in the courthouse. i can look up everyone who’s lent someone money and what collateral they’ve taken in the courthouse.


at common law, securing transactions wasn’t allowed, where the creditor separated ownership from possession.


so the UAE said there was a records failure to get the stocks notarized and registered. which made drexel an unsecured creditor. which totally sucks. you might get nothing. and so UAE took the shares to use in the reorganization.


what’s the attitude of US courts toward foreign bankruptcy proceedings? do they automatically defer to foreign insolvency proceedings? not necessarily. they judge the fairness of the foreign bankruptcy proceeding. (but their evaluation seems to be pretty lenient.)


that gets us to the second case. next week we’ll do maxwell, second drexel case. i’ll cut the reading assignment down to…


428-440. five days to read twelve pages! sounds reasonable.


trade! april 6

double IP’s on tuesday and thursday, presentations on friday. you all have to come on friday. so you can fill out evaluation forms. royal oak afterward. double class tomorrow, running from 11:00-1:30.


capital movement!

we have to figure out these international insolvency cases, letter of credit cases. insolvency cases always have to do with debt financing. who gets the remaining assets of the debtor, based on how much they’re owed, whether they’re secured creditor with collateral who gets to jump the queue, etc.

securities cases are about equity financing.

letters of credit cases neither debt nor equity, they’re about managing the risk of capital flow.


(i don’t know if these distinctions are very helpful, but those are the topical breakdowns for the sake of time management)


how can investors protect themselves, when they invest in foreign markets? whether it’s letters of credit, equity financing, or debt financing?

if you loan to a sovereign nation, you can get those credit default swaps. there’s MIGA insurance from the world bank—if you’re doing business in a foreign country, you can insure against risk of expropriation, war, currency devaluation… and you get some protection in these bilateral investment treaties, as well as buying currency futures/options.


is the debtor a sovereign nation or a firm? we know that foreign sovereigns usually get more respect. but if it’s acting like a business rather than a government, the calculus could change, particularly in the form of the sovereign immunities act. (remember, the foreign private firm bankruptcy proceedings might be respected, while a bankrupt gov’t still has to pay up).

if the situs of a foreign debt (allied bank case) is outside of its borders, the sovereign can’t use the act of state doctrine to seize the debt. note that foreign sovereign immunities act is a separate defense from the act of state doctrine.


drexel

loans by drexel to galidari so galidari can invest in securities markets, collateral being stock galidari owns in bank in dubai. fine, until galidari goes bankrupt. hand drexel hadn’t jumped through the registration hoops for getting the stocks recognized as collateral. this sucks drexel into the UAE bankruptcy proceeding with a bad position in line.


UAE then trying to figure out how to split all the asssets.


what credence do we give to foreign bankruptcy proceedings? page 405 gives a state law source: “courts will defer to an alient bankruptcy proceeding only so long as the foreign authority has jurisidction over the bankrupt and the foreign proceeding has not resuloted in injustice to new york citizens, prejudice to creditors’ new york statutory remedies, or violation of the laws or public policy of the state.”


the court punts. not enough info on the record to determine how good UAE’s bankruptcy process is. back to the lower court!


section 304

page 406: section 304 only kicks in when the trustee makes a formal filing in the United States basically asking for help, saying we already got a proceeding going overseas, we would like american courts to enjoin collection attempts within the United States. prevents a bunch of foreclosure actions in the United States from screwing up the foreign bankruptcy. so it allows a foreign bankruptcy court to apply for help from the US bankruptcy mechanism, to keep the assets intact pending conclusion of foreign bankruptcy proceeding.


that was not invoked in this case.


drexel: round two!

what would have been interesting were if this a case if this were an appeal from the district court’s evaluation of the quality of the Dubai bankruptcy proceedings. the case is not brought from someone holding the assets of galidari. it’s an action against the committee managing the bankruptcy.


drexel’s not doing very well in dubai.


hope that subsidiary will be able to contribute to debt gets dashed. related firm not included in bankruptcy pot, and they’re upset. (they’ve already been screwed out of their place in the queue with the secured credit failure).


complaints about documents being issued in arabic even though some proceedings were in english. the first case was: here’s some assets in the US we want to get at. here, we have a case brought against the dubai proceeding asking for an injunction to shut it down (how would they shut it down?). so, foreign sovereign immunities act defense? pitting courts against foreign governments is a big deal. we know that in general foreign sovereigns are immune from suit, unless they’re not really behaving as governemtsn, but rather as commercial actors. if UAE acts like Amoco or Exxon, you can sue them if they don’t pay like they’re supposed to. you can sue in american court all day long for failing to pay for their oil or failing to deliver barrels or whatever.


what the court rightly says is this: what you’re complaining about is that the bankruptcy proceedings is this, that the bankruptcy proceedings aren’t being handled properly. it’s not a complaint about the way the committee is running galidari’s business. the UAE is trying to rehabilitate and reconstruct the business, sort of like chapter 11, which makes the government look a little bit like a commercial entity—but drexel isn’t complaining about their chapter 11 duties of running the business, the gravemen of the complaint is about drexel’s failure to allocate the assets among the debtors. which is a typical government proceeding. the opinion here doesn’t allow the commercial activity to poison the whole affair and remove their sovereign defense.


drexel loses again.


should we be troubled by the quality of the proceedings in dubai?


questions about the case?


what do you do if you’re a company like drexel in the future? you want to do a better job of registering and securing your collateral. the easiest thing to do is raise your rate, knowing you’ll take some losses from failures in the insolvency law. you can’t ask a lawyer to give you a crystal clear opinion.


you can write a 100 page law review article on whether a choice of law provision will be respected in a foreign bankruptcy proceeding. but there’s always a risk they’ll be voided by a foreign court.


maxwell

maxwell croaks. the company he left behind is seeking to reorganize. in a reorganization, it’s the firm itself in charge of gathering up the assets. “debtor in possession.” security interests are a great way to fight a debtor in possession, btw.


but in maxwell, we have a little bit of an easier situation.


pre-bankruptcy maxwell transfers millions of dollars to various banks to whom it owed money. it’s teetering on the verge of bankruptcy, and pays off the banks it prefers. outside of bankruptcy, it’s ok to pay off who you prefer. it’s not illegal. however, we have a rule in american bankruptcy law which voids any transfers on account of antecedent debts in the 90 days before bankruptcy. so when maxwell declares bankruptcy in the US, it would normally be able to snatch that money back (there’s exceptions, see bankruptcy course).


english law is still stuck in the 19th century, reading the old bankruptcy act. the pre-petition payments are only voided if the debtor has bad intent. americans don’t care about intent at all. bad intent will be impossible to show here.


debtor in a weird position. they have to go to court in america and ask for english law not to apply.


does anyone remember what the basic argument is here?


american court defers to the british court, feeling that the british courts have primacy here. is it just a feeling that the english have a better position here? what’s the key factual finding driving the comity decision?


this is the second time (in re sealed case the first) we encounter a true conflict, a conflict we couldn’t find in the hartford case. maxwell couldn’t comply with both the british bankruptcy law and the american bankruptcy law, they can’t abide by both.


conflict: where it’s impossible to distribute assets consistently with both rules.


heald says conflict analysis is broader here and that this is a triumph of scalia’s approach. (scalia wanted to find a conflict and give comity to british under-regulation.) i disagree… maxwell was in no legal position to cancel the payments to those banks.


securities cases!

psimenos v. ef hutton and co.

psimenos, greek dude, suing ef hutton for fraud for bad securities management. who’s been lying to psimenos? employees of delaware corporation, lying to him in greece and in paris. flier published in US promised superactive supervision, “you can trust us”, although that’s not enough.


what’s the argument that it should be american securities law juding one greek citizen lying to another greek citizen? we have securities law tests that can bring foreign conduct under the ambit of US courts.


where do those tests come from? the effects test comes from schonbauer. conduct comes from lesco.


what’s the very first question we ask in an extraterritoriality question?

  • did congress intend it to? did congress want the law to apply overseas, or not? like trademark law, antritrust, securities act applies to commerce that can be regulated by commerce. so it’s the broadest defintion of jurisdiction we can have. so the assumptin was that congress meant to regulate securities fraud to the extent it had the power to regulate it. so securities fraud jdx limit might butt up against the limits of the constitution.


conduct, effects, citizen limits of extraterritoriality principles. so we get the conduct and effects tests from the extrat principle. what’s this three part test that the 2nd circuit comes up with?


page 432 articulates the effects and the conduct test:


evaluates whether there’s a link between the US and the fraud. third cateogory outlines conduct test “acts or failures to act within the US directly caused losses”


the sale occurred on an american commodities exchange consummated the fraud, and that was enough american conduct to deploy US courts. thus, anyone around the world who buys an american security on an american exchange is protected by the securities and exchange act.


does the court give any hint as to why congress would want this broad jdx? basically didn’t want to make it too convenient for foreigners to use the american exchanges for fraudulent activity. it’s about making the american exchanges look good.


if you’re going to commit fraud, you want to sell singapore securities on a singapore exchange. what’s our self interest here? what’s the upshot for america? drives business to american securities markets. no matter where you are in the world, you’re protected against fraud. fabulous!


other countries probably won’t mind fraud rules leaking out.


we already read hartford. if congress can dictate what london reinsurers can and can’t do, i don’t see how you could have a problem with this case.


so how do they enforce this judgment? it’s actually pretty easy—it’s brought against EF Hutton. they’ll put a lien on an EF Hutton account. what if there were no assets in the US? you may be able to take the judgement back to greece, but that’s difficult.


they probably won’t allow people to trade on the exchanges without having assets in the US anyway. wheeeee!

consolidated gold v. minorco

gold fields british and american, minorco basically south african. proposed merger. minorco trying to take over gold fields. it makes a tender offer, an offer to buy all of gold field’s shares. what do you do? make an attractive offer to the shareholders. one way of conducting a hostile takeover. you’re not allowed to lie in that process. american securities laws apply. what’s the alleged lie that minorco has allegedly stated? they lied about the percentage of minorco controlled and owned by south african individuals. it’s 1989, and it’s not good to be a south african corporation. you’re more heavily regulated. minorco’s trying to shield their true ownership from the world. that’s the alleged fraud. what’s the connection to the US?


some of the shareholders are americans!


2.5% of shareholders american, but that’s enough.

makes it seem like every single tender offer would fall under american law. what can you do?

  • openly refuse to buy from americans so no american can accuse you of defrauding them. so there is an out.


why does this lie make a difference to goldfield shareholders? “your stock traded for 35$ and we’ll buy for $50. you’re selling your stock, why do you care if Goldfield has business trouble abroad? reason court gives makes no sense. perhaps because the Newmont subsidiary would be negatively affected, but why would it matter if a third party subsidiary is negatively affected?


april 8

letters of credit

see diagram. buyer will either give funds to confirming bank, or some kind of collateral or agreement to pay the bank or whatever they work out. may just be a promise if they have a long payment history.

confirming bank calls up issuing bank, says confirmer will promise to pay issuing bank if appropriate docs are given to confirming bank. (we, confirming bank, will give you, issuing bank, money if you give us docs. if buyer has never dealt with seller before, they might require an inspection document. that inspection letter has to go with the bill of lading and the sight draft in order to get paid.


independence principle

bank’s obligation to pay independent of the underlying contract. mostly (exception of the three cases: fraud).


newsprint case: o’meara

the seller is o’meara, selling paper. buyer is sun herald.

in order to draw on letter of credit, they had to submit commercial invoices, proof the goods had been shipped, proof that they had been weighed, stuff like that. o’meara provided the proper documents to the bank.


Park bank is the issuing bank. why did they refuse to pay? because the paper was not of the standard they had asked for. and sun herald had instructed their bank not to pay. the buyer has gotten wind of the failure…


the UCC and alternative legal regime, UCP stuff, was written by banks. the way the rules go, you’re always safe if you’re an issuing bank and you pay on proper documents, even if there’s fraud. only way to get in trouble is if the issuing bank pays on non-conforming documents, OR by not paying. (does he mean legal or economic trouble?)


what are the damages the seller is claiming here? seller had to store and resell for a lower price, and claims the difference in damages.


the issuing bank has refused to pay, which is very weird. if it had paid, it would have been immune from a lawsuit. the only way to explain this is that national park bank has a very tight relationship with sun herald. what is the holding of the case here? who wins? o’meara or national park bank?


o’meara wins. paradigmatic case for the independence principle. even though, even assuming o’meara breached the contract, they didn’t ship the quality of paper specified, they still had o pay up.


anything sun herald could have done to protect its interests? they could have required an affidavit from an independent inspector. smart thing to do. sometimes deals not big enough to justify it, or you have an experience drelationship, but in a large first time deal, makes sense to add another condition to the contract.


there’s a dissent from cardozo. he’s almost always right. but he’s totally wrong here. the documentary system only works because the banks don’t care at all whether the K is fulfilled. caveman system: “Og gets docs. Og pay.” So we see where Cardozo is coming from, but notice that the buyer has a cause of action against O’Meara.


the LOC system is made to let sellers feel comfortable, that they’re going to be paid for sure, therefore they will pay and ship. it is a financing device that stimulates the seller to produce and ship. debt financing or equity financing, i dunno.


the UCC probably meant to codify this case.


issuer can refuse to pay if there’s big gigantic fraud in the transaction.


sometimes the “confirming bank” will really be an advising bank.


united bank v. cambridge sporting goods (boxing gloves

cambridge is the buyer. United/Muslim is confirming bank. Manufacturers is the issuing bank. duke is the seller. letter of credit issued by Manufacturers Hanover to the seller.


seller shipped old destroyed gloves, basically out of fraud, and presents the documents. so there were appropriate documents, but it was total fraud.

muslim shouldn’t have paid because it got nonconforming documents. united paid on receipt of the documents (which arrived on time but there was underlying fraud).


issuing bank refused to pay, said goods were worthless.


confirming bank’s worst nightmare: you’ve paid seller, but issuing bank refuses to pay. why isn’t this United v. Manufacturers? There is a contract between United and Manufacturers. Because Cambridge is the one that got injunctive relief in another piece of the lawsuit, Cambridge had enjoined Manufacturers. what happened to the money that manufacturers has? it’s levied and the sheriff holds it. so manufactuers is out of the picture. sheriff is the one with the money.


when does an issuing bank not have to honor its payment obligation?

  • non-conforming docs
    • occurs in almost fifty percent of LOC transactions. incredibly common for the letter of credit to have minor discrepancies. USA has perfect LOC requirement. bank has to tell the beneficiary as soon as possible and why the LOC isn’t being honored so that the beneficiary can correct the discrepancies, and they are often correctable. also allows the beneficiary to call the buyer and ask the buyer to waive the requirement, which they often will (e.g. one day late).
  • forged documents (bank has no independent duty, but sometimes the buyer will find out, or the bank can tell. in which case the bank can call the shipping company and confirm.)
  • fraud in the transaction (language that doesn’t appear in the UCP version which is drafted by the ICC but which does exist in 514 of the UCC.
    • if you have cow hair instead of hair bristles, no paying!
    • basically when there’s total chicanery, then the fraud is enough. (what if there’s only some chicanery? see the next case, the iranian tv one).


does the seller have any even plausible argument that it complied with the contract?

  • that kinds sucks, because now we have to get into the mind of the seller.


i think this case should come out the other way, but we have just this inability of courts to stomach paying sellers when they haven’t even tried to honor their obligations. in real life, cases like cambridge are really rare. they usually make it really really hard to avoid the independence principle. only exception seem to be total chicanery or iranian revolution.


but it may be inseperable from the paper case—the paper produce might have been really really evil and knew they were sending crappy paper.




i read every LOC case in every US jurisdiction. and this fraud thing appears in 90% of the cases. opens the door for a lot of would be injunctors.


note that the seller in this case got paid. the seller isn’t even a litigant. so the confirming bank is on the hook to sue the pants off its fraudulent customer. so banks have an interest in preventing their customers from being all fraudy.


anyone here taken commercial paper? the confirming bank has a sight draft, a check.


you’ve taken checks before. you know that if miss ingram writes me a check and she has 1000 in her bank account , i can cash it, regardless of what evils may have gone into her getting the 1000 dollars. she may have gotten the check from her mother. either way, as long as i’m the “holder in due course,” i’ve taken the check for value and i don’t know of any underlying problems, then it’s negotiable and good. her bank has to honor the check when i present it. this is what we want. we don’t want people having to do research behind where the check comes from.


the confirming bank has a sight draft in its possession, which is in fact a check. regardless of any fraud, the issuing bank should have to honor that check.

  • so the case actually turns mostly on whether the confirming bank is a holder in due course. if the confirming bank is an innocent holder of the check, it doesn’t matter what evil occurred in the transaction.
  • who has the burden of establishing they are the holder in due course? United! they have to prove that they took the sight draft without any knowledge of the underlying fraud. we don’t really get a feel then, for how this will turn out. if it turns out the confirming bank knew the seller had committed fraud, it’s S.O.L (unless it can sue the seller and get money). if seller can show that it’s innocent and knew nothing of the fraud, it will get to submit the sight draft to Manufacturer’s and get paid.
  • sentence on 469; when this deal started to crumble, the case doesn’t tell us whether Manufacturers did what it had to do, which was to immediately notify United of what was going on. if that’s the way the facts turn out, then they can unilaterally destroy United’s ability to be a holder in due course
    • correction: Cambridge HAD notified United. so it turns on whether cambridge had notified United *before* United paid Duke. if they paid anyway, they lose their holder in due course status. they probably knew before they paid duke. sucks to be them!


notice one thing that could have happened but didn’t. United could have sold the sight draft and such to another bank, and that other bank with no notice of the underlying fraud could force Manufacturers to pay, even though United knew of the naughtiness. if you’re the bank engaged in hanky panky, you want to negotiate and sell these docs as quickly as possible.


standard LOC contract will force seller/beneficiary to hold the confirming bank harmless in case the confirming bank suffers a loss at the hands of the issuing bank.


final case: harris v. national iranian radio

my wife used to be a radio personality in tallahassee florida. you can’t use your real name because if you have a sexy voice you’ll get bothered all the time. she saw “Harris” written on the table and named herself Jill Harris.

the purpose of this LOC is a little different. it’s not meant to reassure a seller to create a manufactured good. rather it’s a way of creating collateral to make a buyer feel more comfortable.


in this case, the buyer is NIRT. seller is Harris. the buyer is nervous about Harris. Harris has promised to deliver, install radio equipment, train people to use it. so to protect the ongoing relationship, NIRT has this amortizing letter of credit which they can collect on if things go bad. a threat over Harris to make sure Harris performs.


and things go bad.


Harris is seller, connected to issuing bank Continental, connected to confirming bank Melli, connected to NIRT the beneficiary. if NIRT submits an affidavit to Melli saying it’s a victim of breach plus a sight draft, Melli will have to give NIRT money, and Continental will have to give Melli money. gives the buyer a unilateral power to punish a non-conforming seller.


all you have to do is fill out an affidavit and write yourself a check.


Harris is willing to do this, because in the grand scheme of things, it’s a relatively small percentage of the contract, and if the buyer lies and is in fact not a victim of breach, Harris can still sue NIRT.


unless there’s an Iranian revolution. which there is.


seller’s not able to complete the terms of the contract. it is at least in technical breach of the contract. enabling NIRT to go to the Melli bank. a primitive collateralization device. primitive secured financing. what happens when NIRT tries to collect on this letter of credit?


Harris isn’t happy, they don’t feel they’re at fault for breach, because there’s a force majeure clause nullifying the K. “due to force majeure, we’re not abreacher, therefore NIRT is lying about tehre bing a breach.”


is the Iranian revolution an act of nature? no. is it an act of government? by definition, no… the iranian government was brought down by the revolution. although the spirit of the clause suggests they should be let off the hook. but i can’t confidently predict how this K dispute will work out. so in my mind, this isn’t a crystal clear situation, to justify that NIRT is really committing fraud. that said, NIRT and bank Melli were taken over by the iranian gov’t. but definitely not a case of shipping dirty old gloves or cowhair, or bags of garbage (there was a case where 27 tons of garbage were shipped instead of wheat.)


Harris enjoins continental from paying Melli, enjoins melli from paying nirt, enjoins nirt from collecting. everybody gets enjoinded by the district court. 11th circuit affirms.


highly disturbing case, example in the casebooks of a case that can’t be right because it seems to do so much violence to the independence principle. the book points out that in all cases like this before the revoltuion come out the other way, and after the tribunal come out the other way, only right in the middle of the hostage crisis do they come out like this where the iranian banks don’t win.


we did an incredible amount of business in iran in the 70’s, thousands of contracts subject to standby letters of credit which have to be breached by american firms due to the revolution.


so the litigation isn’t really turning on the facts and whether this is fraud, but whether there’s still hostages in Tehran. somewhat disturbing case. if you want another reason to feel disturbed, remember that harris is asking for a preliminary injunction—to win one of those you have to show irreparable harm. the claims tribunal had already been set up. the underlying claim will be heard, we did this in Dames & Moore. it’s really hard to see this as an irreparable harm case when they’ll both go to binding arbitration.


LOC scholars and bankers are horrified by this case. they can sort of understand the Cambridge case.


there’s even cases where there’s two letters of credit, where both buyer and seller and draw on letter of credit if certain things go bad.

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