China-U.S. Trade Law

China-U.S. Trade Law

Insights & commentary on active trade disputes between China and the U.S.

U.S. Court Rejects Challenge To CFIUS National Security Review 美国法院驳回三一集团国家安全审查之诉

Posted in CFIUS and Investment

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This blog previously reported in July 2013 on a lawsuit that Ralls Corporation brought against the President of the United States and the Committee on Foreign Investment in the United States challenging the President’s order for Ralls to divest its interest in four wind farm projects in Oregon. The United States District Court for the District of Columbia,on February 26, 2013, dismissed most of Ralls’ claims on the grounds that the merits of the President’s decision were not subject to judicial review, but allowed to proceed Ralls’s claim that the divestiture order was an unconstitutional deprivation of property without due process. On October 10, 2013, U.S. District Judge Amy Berman Jackson issued an opinion dismissing the constitutional claim.

Ralls alleged that the President’s Order violated the due process clause of the Fifth Amendment to the United States Constitution because it deprived Ralls of property without giving it an adequate opportunity to be heard or providing the reasons behind the President’s decision. In effect, Ralls claimed it had a Constitutional right to a detailed explanation of why the President ordered divestiture. The U.S. Government filed a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss Ralls’s remaining claim for failure to state a plausible claim for relief. Both sides submitted briefs and participated in oral argument before the Court on the motion to dismiss.

Judge Jackson dismissed the case based on her findings that Ralls failed to allege that: (1) it had a protected property interest; and (2) the government did not afford it sufficient procedure. The Court found that Ralls did not have a protected property interest because it acquired the wind farm projects subject to the known risk of a Presidential veto. Ralls also waived the opportunity provided in the Foreign Investment National Security Act to obtain a determination from CFIUS before the acquisition.

Judge Jackson found that Ralls received sufficient process because it had notice and an opportunity for a hearing appropriate to the nature of the case. CFIUS informed Ralls in June of 2012 that if it were not to file the voluntary notice, the Department of Defense would file an agency notice that would trigger committee review.

Ralls then filed a “voluntary” notice of the transaction with CFIUS in which it set forth its reasons why the acquisition did not raise national security concerns. Ralls also attended a meeting with CFIUS and made a presentation on July 11, 2012.

CFIUS informed Ralls that, if it were not to divest voluntarily, CFIUS would recommend that the President order divestiture. Judge Jackson, therefore, determined that Ralls’s constitutional claim was based solely on its assertion that it was entitled to know the President’s reasons for prohibiting the transaction and to have an opportunity to rebut those reasons specifically.

Judge Jackson disposed of Ralls’ constitutional claim as follows:

In this case, involving the application of this particular statutory scheme, the President has a valid interest, grounded in the national security of the United States, to withhold the particular evidence that gave rise to his concern about a national security threat from the entity that he believes might pose the threat. And that conclusion is bolstered by the fact that Congress specified that the President’s determination would not be subject to review.

The key take-away from this case is that foreign companies, particularly Chinese, seeking to acquire U.S. businesses, should take advantage of the opportunity to obtain a CFIUS determination in advance of the acquisition. We have recommended in prior articles on this blog published in December 2009, January 2010 and February 2011 that companies take advantage of this opportunity. Ralls did not do so, and was forced to divest. Detailed information that can help companies decide whether to file a CFIUS notification and on the process can be found in Chapter 14 of MERGERS & ACQUISITIONS IN THE UNITED STATES A Practical Guide for Non-U.S. Buyers.

Ralls undoubtedly lost money in this transaction, not only because of its investment in the deal, but because it had to remove wind towers whose value surely was diminished when they no longer could be installed in a nearby location. The land, which a domestic company might have been able to use for a wind farm, became limited in its potential use and therefore its value. Yet, Ralls made no claim about just compensation under the Fifth Amendment to the Constitution, and so the legal case was concluded on a procedural dispute where Ralls was unable to hold the President accountable to explain a national security decision.

Other recent Chinese acquisitions have been able to go forward with careful attention in advance to the CFIUS process. For example, this blog also reported in July 2013 about congressional and other opposition to the proposed Chinese acquisition of Smithfield Foods. The parties to that transaction made a voluntary notification to CFIUS before the transaction was completed and received CFIUS’s blessing. Even Chinese acquisitions in the sensitive energy sector have received CFIUS approval. Sinopec received CFIUS approval for its $1 billion purchase of a 50 percent share of Chesapeake Energy Corp.’s natural gas shale operations in Oklahoma. Similarly, when CNOOC Ltd. sought to acquire Nexen Inc., a Canadian company with substantial U.S. assets, it was able to receive CFIUS approval by structuring the deal to alleviate concerns that some of those assets were in areas of the Gulf of Mexico that were close to sensitive military installations and subsea telecommunications cables.

Had Ralls taken the same approach as Sinopec and CNOOC, a voluntary notification in advance of its transaction, it might have been able to work with CFIUS to structure the deal in such a way as to mitigate the national security concerns short of a full divestment. We may never know, but at a minimum, by failing to make a voluntary disclosure in advance of the transaction, Ralls found itself in the middle of an expensive failure that might have been avoided.

Ralls appealed Judge Jackson’s decision on October 16, 2013 by filing a notice of appeal to the U.S. Court of Appeals for the District of Columbia Circuit. The appellate court proceedings are likely to last well into next year. Should Ralls be successful on any of the issues on which it appeals, the case would likely be returned to Judge Jackson for further proceedings in accordance with the appellate court’s decision. Should the appellate court uphold Judge Jackson on all issues, then Ralls’s challenge to the President’s divestment order would end then. Ralls could petition the U.S. Supreme Court to issue a Writ of Certiorari to review the appellate court’s decision, but the Supreme Court would not have to take the case. The Court only takes only a very small percentage of the cases brought to it each year.

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TPP, TTIP, And Congress: The Elephant In The Room 国会与贸易谈判

Posted in Trade Negotiations

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TRADE TALKS

The Washington trade policy community is buzzing over the two largest international trade negotiations since the effective collapse of the Doha multilateral trade round. The buzz may be even louder in foreign capitals. The Obama Administration, in mid-July, was still promising to complete the Trans Pacific Partnership (“TPP”) negotiations by year-end, while starting up the Trans-Atlantic Trade and Investment Partnership (“TTIP”) negotiations with similar speedy objectives. For both deals there is engagement and enthusiasm. Inside U.S. Trade, the trade community’s weekly Bible, devoted over thirty pages, all but one article in a recent edition, to these negotiations.

Conspicuously, China is not part of these negotiations. To the contrary, TPP negotiations began as the inspiration of smaller Asian countries (beginning with Singapore, New Zealand, and Brunei) and Chile, all worried about China. They induced the United States in 2008 to join their negotiations, with the net around China then beginning to expand to Australia, Peru, Vietnam and eventually Japan, Canada, Mexico and probably South Korea. Seven more countries in the last twelve months (including Taiwan) have asked to join.

The Doha Round cratered over agriculture, especially Chinese and Indian complaints about American and European subsidies. It was to have been the “development round” of world trade talks. One critical feature of the congressional debate about the U.S. Farm Bill in 2013 was that it did not involve serious reductions in subsidies, and as long as the United States will not reduce its agricultural subsidies, neither will the European Union (EU”). Without reductions in both, there can be no global trade negotiations.

The TPP was to be, by contrast, a “high standard” regional agreement with an emphasis on twenty-first century concerns such as intellectual property and financial services. It was fashioned, therefore, almost expressly to China’s exclusion.

The TPP acquired the look and feel of containment, especially when discussion over Japan’s entry encouraged reinforcement of Japan as a U.S. ally in the region and a bulwark against China. Acceleration of the talks coincided with President Obama’s “pivot” to Asia and intensifying American complaints about Chinese cyber-spying, trade actions against critical Chinese green technologies, and adversarial reviews of Chinese direct investments into the United States. Rhetorically, the TPP door was open to eventual Chinese membership, but politically it was locking shut in a cordoning fence.

For a while, China articulated a concern that the TPP was exclusionary and part of a growing American hostility, but as the number of participants grew and the subject matter became more complex, China appeared to worry more about its own slowing economic growth and its more regional talks with South Korea and Japan. China might also have noticed that, as more interests were implicated by more complicated negotiations, the probability of conclusion receded.

As the TPP appeared to advance, absorbing enough countries to represent some 40 percent of world trade (the United States and Japan, Canada and Mexico, being the crucial participants), anxiety grew in Europe. The American “pivot” initially appeared strategic and military; the TPP made it appear economic as well. Canada and the EU already were negotiating a free trade agreement, but the EU had longed for a revitalization of trans-Atlantic relations with the United States, especially as persistent Eurozone troubles threatened economic recovery and the EU itself. Balancing the American pivot and harnessing the American economic recovery for European benefit became critical, while the Obama Administration seemed to see talks with Europe as potential proof that the pivot toward Asia was not “at the expense of” Europe, and could be another vehicle for “high standards” that would appeal to the business community. As the United States entered what it insisted would be the final year of TPP negotiations, it launched on the other side of the globe TTIP with the EU. For the United States, restoration as the world’s lone superpower was manifest in playing the indispensable partner looking both east and west.

Late entries of Canada, Mexico, and Japan could complicate TPP ratification, but generally the negotiating countries can deliver on an agreement their leaders may sign. That proposition, however, is much less true for the EU. France already has signaled discomfort (especially over the National Security Agency’s PRISM project) and it is unlikely that the outside negotiation alone can supply the glue required to hold the Eurozone together. Still, assuming agreements can be reached and all foreign partners can deliver, there is an elephant roaming in these negotiating rooms.

THE ELEPHANT

The Congress of the United States will have to approve any trade deal, whether through a majority in both Houses (an “agreement”) or through two-thirds of the United States Senate (a “treaty”). And both Houses will have to write and pass implementing legislation wherever the agreements (or treaties) require changes in U.S. law.

The American presidential system is unlike political systems in almost every other country. Prime Ministers preside over the majority party of legislative bodies. They derive their authority from leading the majority party. When they commit their countries internationally, they almost always can guarantee the approval of their legislatures. American Presidents, however, have no such authority. It is not unusual for them to lead political parties that are in the minority in Congress, in one or both Houses. After they negotiate and sign an international agreement with foreign leaders, they have to negotiate with domestic legislative leaders who can oblige them to change the deal, going back on their word with the Prime Ministers and Presidents of foreign countries.

Remarkably, one of the momentous events of the twentieth century seems forgotten now by world leaders. President Woodrow Wilson, following protracted and difficult negotiations, settled the “war to end all wars” with a League of Nations. The United States Senate, in part miffed by its exclusion from Wilson’s delegation in Paris negotiating the Treaty of Versailles, rejected it. When the peace began to disintegrate, the United States was not a member of the League of Nations meant to preserve it.

The President and Congress, mutually recognizing that the United States was unable to negotiate trade agreements in good faith because negotiating partners could not rely on the President’s signature, created “fast track authority” in 1974. The President promised to engage Congress throughout trade negotiations; Congress pledged a vote, up or down without amendment, on trade agreements and treaties. (President George W. Bush renamed “fast track” “trade promotion authority” (“TPA”).) Fast track, or TPA, promised nothing as to implementing legislation, but trading partners were assured that the text of the agreement itself would not be changed by Congress after the President had signed it.

The more Presidents wanted legacies associated with trade liberalization and international agreements, the more contentious approval of TPA became. Members of Congress quickly recognized that when Presidents want something badly enough, they are prepared to negotiate and to give up things in exchange. Instead of an expression of American foreign policy and government solidarity, TPA approval became an occasion for domestic negotiation and horse-trading, and the more the President might want it, the more Members of Congress reckoned they could get from him. Ultimately, Members of Congress saw they could withhold TPA altogether as a means for denying a President signature accomplishments in foreign affairs.

When Congress declined to renew fast track authority for President Clinton, part of the punitive environment enveloped in his second term impeachment, the trade community wondered what Charlene Barshefsky would do as the new Trade Representative. Cleverly, she focused on amendments to established multilateral agreements (most significantly, China’s accession to the World Trade Organization), and on narrow bilateral proposals (such as adding Chile to NAFTA, which failed). Large-scale new agreements effectively were beyond her grasp.

President Bush wanted TPA badly and pursued it vigorously in the first months of his Administration. He got it on a 215-212 vote on a House bill detailing negotiating requirements. In his second term, amidst growing criticism of a foreign policy that had the United States tied down in two expanding land wars (Afghanistan and Iraq), Congress declined to renew TPA and his international trade efforts withered without it.

President Obama did not assign international trade the priority President Bush had accorded it upon election. His first picks to be the United States Trade Representative declined, one notably telling him he did not think the President was likely to accord international trade sufficient importance in his Administration. One priority after another – health care; fiscal responsibility; budget deficits; Iraq; gay rights; Pakistan; Afghanistan; hunting down Osama Bin Laden; immigration – overwhelmed a trade agenda, and he has now gone longer without TPA than any President since the idea was first implemented in 1974. Yet, unlike past Presidents when they did not have such authority, President Obama has plunged into large-scale, multilateral trade negotiations. He seems to be betting that he does not need TPA after all, and that his trading partners will believe him to have more power to complete, sign, and implement than trading partners have believed about Presidents in the past.

Most trade “experts” have been conspicuously silent about the charging elephant. Others who have spoken (few) appear split. Stuart Eizenstat, a senior official in the Carter and Clinton Administrations and former Ambassador to the EU, told a hearing of the House Committee on Ways and Means in May that fast track was “absolutely essential” for TTIP: “Negotiations with the EU can be launched, but they cannot be concluded. The EU is not going to accept our final deal if they know it can be second-guessed by Congress.”

Theodore Posner, former senior staffer on the Senate Finance Committee, wrote in July that a debate in Congress over TPA “probably will saddle our negotiators with certain unwieldy negotiating objectives crafted in an attempt to broker compromises between competing constituencies.” He concludes that TPA legislation probably should not be introduced before negotiations for both the TPP and TTIP are concluded. Writing for a professional newsletter, Law 360, he does not mention that two-thirds of the Democratic caucus in the last House of Representatives wrote the President objecting to their exclusion from the negotiations (the warning echo of Senator Henry Cabot Lodge), or that thirty-six Democratic freshmen sent an alarming letter of similar content to Democratic House leadership in June. Posner emphasizes congressional caprice, not congressional prerogatives, and he assumes, contrary to Eizenstat, that U.S. trade partners will complete negotiations without assurances that the President can deliver on his signature.

House Ways and Means Ranking Member Sander Levin (D-MI) told a Peterson Institute for International Economics audience on July 23 that work on TPA legislation had not yet engaged members and at the staff level was still “rudimentary.” He declined any prediction as to whether there would be legislation in 2013 and avoided mention of the involvement of the Obama Administration. But, he emphasized that TPA legislation would have to strengthen the role of Congress in developing trade agreements, which he said was necessary to build bipartisan support for the outcomes.

Republicans have indicated support for TPA, but Tea Party Members of Congress quietly have indicated their reluctance to grant the President more powers. In the past, Presidents might have counted on Republican votes for negotiating free trade. Today, at best the Republican Party probably would split.

New USTR Michael Froman, at a July 18 Ways and Means Committee hearing, effectively reported that leadership on TPA would not be coming from the White House: the Administration was, he said, “ready to engage and to help in that process as requested.” Two weeks later, he told the U.S. Chamber of Commerce – the leading champion of TPA – that “we stand ready to provide technical assistance and are doing so as required.” On July 30, the President himself declared his interest in TPA, but said he would pursue his interest by providing support to Congress.

A substantial number of Members of Congress from the President’s own party are complaining that they must define the objectives of trade agreements, have access to all information throughout the negotiating process, and be fully informed. They are complaining, with specific reference to the TPP, that they have not had access to information, have not participated in framing negotiating objectives, and have not been kept well informed.

As congressmen complain that negotiations have been “secretive” and they have been excluded, Ambassador Froman told the Chamber of Commerce that, “It’s an incredibly complex negotiation,” an observation that could hardly comfort legislators being asked to surrender authority to the judgments and choices of the President.

The White House, meanwhile, has been trying to accelerate completion of TPP negotiations, without Congress. Inside U.S.Trade quoted a “business source” at the most recent negotiating round in Malaysia saying, “There’s a lot of pressure to close everything that can be closed,” and referred to other private sources saying that “this pressure is more palpable than it has been in any negotiating rounds this year.” It may be merely coincidental, but as Congress has complained of being excluded, the Administration seems eager to complete the deal faster.

There are additional considerations. USTR has complained publicly that it does not have enough negotiators to cover TPP and TTIP negotiations simultaneously (they are negotiating 29 different chapters in the TPP alone). Closing chapters will oblige late entrants to the negotiations (such as Canada, Mexico, and Japan) to accept terms negotiated by others or be excluded. There may be broader economic considerations, that completion of a sweeping and landmark trade agreement could jump-start economies that have been improving from the Great Recession, but slowly.

Despite all the possible explanations, it is apparent that the Obama Administration is not going to seek TPA aggressively before completing the TPP negotiations. It is also apparent that this Congress, and any Congress, would be reluctant to endorse a negotiated package without having participated intensively in its development and strategic intent.

And then it is essential to consider this Congress in particular, a Congress that could not agree for more than a month on a formula to control interest rates on student loans nor on any formula to preserve food stamps for the poor. Even if Congress were not crippled by partisanship and ideological division, and not directed by party leaders with little apparent control of their caucuses (a problem especially acute in the Republican Party), it would still be a Congress whose opposition party is determined to deprive the Democratic President of any major accomplishments. With a Republican Party study warning of the party’s demise without comprehensive immigration reform, House Republicans have blocked it. Republicans still, four years after passage, seek repeal of the Affordable Care Act, long after their efforts failed in the courts. The introduced legislation for this purpose for the fortieth time at the end of July. A plan of certain Senate Republican luminaries is to defund the Affordable Care Act during autumn budget talks, reminding the President that even legislation he thinks he has passed remains vulnerable to the opposition.

Successful completion of either trade negotiation would deliver to the President a signature accomplishment. With a Senate whose Minority Leader said his sole objective was the defeat of this President and a House of Representatives that routinely rejects legislation approved in the Senate, it is difficult to imagine why anyone would expect Congress to deliver President Obama a signature achievement in international trade. Perhaps, understanding the odds, the President is unprepared to invest much capital in Congress for such doubtful support.

Democratic Presidents often have more success with international trade deals than Republicans, if only because Democrats are presumed to be protectionist and Democratic support is particularly difficult to muster for free trade. When a Democratic President presents a free trade agreement (or legislation for trade liberalization), he can expect bipartisan support because his own caucus, typically reluctant about free trade, will not abandon him. For this reason, if no other, President Obama may expect approval of his negotiations after the fact. Such a calculation, however, with the present (and likely next) Congress would reflect exaggerated optimism.

CONCLUSION

The merits of the TPP and TTIP may be undeniable. They could improve trade and enhance the world economy. They could create jobs. There is logic in the enthusiasm negotiations for them have inspired.

There are also concerns about the merits. China may have stopped its private complaint about the TPP because, realistically, it may have nothing to fear from it, but China cannot have missed the message. It is a message that will not make China-U.S. relations easier, or stimulate mutual confidence and trust.

There are also legitimate concerns about specific contents, particularly because the many constituencies that must be satisfied have not yet seen and understood what the United States is negotiating. The Administration gives the impression that it does not want constituencies to be fully informed. Otherwise, there would not be a congressional chorus about deprivation of adequate information.

Even were all in order – the merits impeccable and constituencies pacified if not satisfied – it remains that Congress is to be presented deals after their completion. No Congress likely would stand for it, but this Congress, determined to deprive the President of any and all achievement, is likely to grant neither an up-or-down vote (were the President ever to ask), and even less likely to accept the agreements as negotiated.

When President Obama inherited from the Bush Administration three bilateral trade agreements requiring Congressional support, he spent years renegotiating terms before presenting them to Congress, even though they had been negotiated by a President when he possessed fast track authority. President Obama has no such authority, is not likely to receive it, and is not likely to confront a Congress eager to anoint him a successful champion of free trade.
Mexico’s Ambassador to the United States told a Washington audience in July that he had spoken with fifty Members of Congress since January about Mexico and North America in the context of world trade. He seemed to think this number significant. Senior European officials, when asked about the congressional veto over TTIP, have referred to discussions with USTR. There are no signs of a concerted effort to rally congressional support. Instead, they seem to assume what the Administration apparently assumes, that when the time is right Congress will endorse a sweeping new trade agreement. Regrettably, neither history nor institutional prerogatives lend any credibility to what seems to be little more than wishful thinking.

The TPP and TTIP have aroused extraordinary interest in international trade and policy and have provided employment for a widening trade community inside and outside government. Such engagement and enthusiasm, however, does not mean these agreements will go to completion and, if somehow they do, there remains even less probability that the elephant in the room will not step on them.
华盛顿的贸易政策圈正热烈讨论自多哈会谈失败以来规模最宏大的两大国际贸易谈判。在世界其他国家的首都,讨论可能更为热烈。奥巴马政府在七月中旬提出在年底前完成跨太平洋战略经济伙伴关系协定(TPP)谈判,同时也为跨大西洋贸易和投资协定(TTIP)谈判制定了相同的目标。贸易政策人士每周必读的“圣经”——《美国贸易内幕》近期以30页的篇幅报道了这两大谈判。

中国的缺席引人注目。其实这并不令人惊讶。TPP谈判的倡议者是势力单薄的亚洲国家——新加坡、新西兰和文莱以及南美洲的智利,这些亚洲国家无一例外都担心日趋强大的中国。它们于2008年说服美国加入它们的贸易谈判,并扩张至澳大利亚、秘鲁、越南,乃至日本、加拿大和墨西哥,逐渐编制了一张包围中国的网。最近一年里,七个国家和地区(包括台湾)要求加入谈判。

多哈会谈因农业问题而陷入困境,中印等国抱怨欧美等国为本国农业提供大量补贴。在它们看来应为“发展回合”国际贸易谈判。2013年美国国会讨论农业法案时,争论的焦点就是实质性削减补贴。连锁反应,欧洲也不会削减补贴。两大贸易团体不采取实质性举动,世界贸易谈判也将停滞不前。

TPP的设计宗旨是侧重于21世纪关注议题的“高标准”区域协定,例如知识产权保护和金融服务等。因此,它从诞生开始就将中国排除在外。

TPP看起来、并同时让人感觉是遏制中国,当美国在亚太地区的盟友加入谈判时更加深了这一印象。TPP谈判加速同时,奥巴马总统提出“重新侧向”亚洲、美国政府严厉指控中国网络谍战、针对中国绿色科技展开贸易措施、严格审查中国对美投资。因此,虽然言论上声称欢迎中国加入TPP谈判,但实际上是建立封锁中国的长城。

长时间以来中国认为TPP是美国敌意增长的最佳表现,但随着谈判国家数量增加、谈判内容日趋复杂,中国显得更担心自身经济增长速度放缓以及与日韩的三边贸易谈判进展。中国可能也认识到谈判日趋复杂、牵涉的利益越多,完成谈判的可能性也逐渐缩小。

当代表全球百分之四十贸易量的国家参与TPP谈判时(美国、日本、加拿大、墨西哥等),欧洲的不安与日俱增。美国的“重新侧向”亚洲政策一开始仅仅表现在战略和军事领域,TPP谈判使得这一政策带上经济色彩。加拿大和欧洲此前已经开始自由贸易协定谈判,但是面临经济衰退的欧盟更希望能振兴对美关系。奥巴马政府则希望借跨大西洋贸易谈判表明美国侧向亚洲并不以牺牲欧洲为代价、同时另一“高标准”协议也可吸引企业支持,

平衡美国对外政策、让欧洲也从美国经济复苏中受益显得非常重要。当美国进入完成TPP谈判的关键时刻,美国与欧盟展开自由贸易谈判。假设这些谈判能够实现,局促不安的大象正在谈判屋里走来走去。

 

大象

美国政府谈判签订的贸易协定需经国会批准,或是参众两院的多数票、或是参议院三分之二票。如果贸易协定将改变美国法律,则参众两院都需起草并通过执行法案。

美国总统制与世界其他国家的制度不同。在其他国家,占议会多数席位的党派占据部长要职,他们的权利来自议会选举胜利。当他们在国际舞台上代表国家作出承诺后,几乎都能保证获得立法机构的批准。但是美国总统没有这样的权利。有时美国总统所在的党派仅在参众议院占少数席位。当美国政府代表和国外政府签署协议后,他们需要与参众两院领导人协商;有时美国政府被迫再度与谈判国家展开谈判。

令人惊讶的是,各国领导人似乎都遗忘了二十世纪最重大事件之一。一次世界大战结束后,威尔逊总统通过艰苦而漫长的谈判成立了国际联盟。但是美国参议院以被排除在《凡尔赛条约》谈判之外为由否决了这一条约。当国联解体时,美国无法作为成员国之一维持这一国际组织。

总统和国会都充分认识到如果总统签字没有说服力,则美国无法有效推进国际贸易谈判,因此于1974年设立了“快轨程序”机制。“快轨程序”机制即为:总统保证在进行贸易谈判时与国会充分沟通,国会则或是批准、或是否决这一协定,决不添加任何修正案。(小布什总统将“快轨程序”改名为“贸易促进权”。)“快轨程序”或“贸易促进权”并为就两院起草并通过的协定执行法案提供任何保证,但是贸易伙伴可以确信当总统签署协定后,美国国会不会修改协定内容。

当总统希望通过国际协定、贸易自由化留下丰功伟绩时,国会就会就授予“贸易促进权”刁难政府。国会成员迅速认识到当总统迫切希望得到某一权利时,他将愿意与国会谈判并以放弃某些权利为交换。就这样,“贸易促进权”从美国对外政策和国家团结的表现转变为国内政治讨价还价的武器。总统越希望获得“贸易促进权”,就有更多国会成员估算自己可以帮助总统获得这一权利。最终,国会成员可通过拒绝授予总统“贸易促进权”的方式否决总统在外交领域获得成就。

国会在克林顿总统就任后拒绝重新批准快轨程序,贸易圈内纷纷猜测贸易代表巴尔舍夫斯基可以取得什么成就呢TPP她通过修正案促进了多个多边协定(最引人注目的自然是中国加入世界贸易组织)以及双边提议(如将智利添加至《北美自由贸易协定》,但是失败了)。但规模宏大的新协定就不在她掌控范围内了。

布什总统迫切希望得到“贸易促进权”,上任伊始就积极努力寻求国会授权。他以215票对212票获得众议院批准,同时众议院详细列出谈判要求。在他第二任内,他的阿富汗、伊拉克战争政策使他的外交政策饱受批评,国会也因此拒绝重新批准“贸易促进权”。

与布什总统相比,奥巴马总统对国际贸易的重视程度不高。奥巴马总统就任伊始,他的美国贸易代表首选婉言谢绝这一提名,因为这一候选人认为总统不会充分重视贸易事务。对奥巴马总统而言,比贸易政策更重要的是:第一是医疗改革,其次分别为财政支出、政府预算赤字、伊拉克、同性恋权利、巴基斯坦、阿富汗、通缉拉登、移民等。同时奥巴马也没有获得快轨程序授权。自这一程序从1974年实施以来,他是没有这一授权时间最常的总统。但是与其他没有这一授权的总统不同,奥巴马总统开展了大规模多边贸易谈判。他似乎下赌注认定自己并不需要快轨程序,他的贸易伙伴将会相信他比史上其他美国总统拥有更大的权利,可以完成并顺利实施这些贸易协定。

多数贸易“专家”面对屋中大象保持沉默。少数已经发表意见的则各持己见。卡特及克林顿总统任内的高级官员、前美国驻欧盟大使Stuart Eizenstat五月在众议院筹款委员会举办的听证会上发言指出,快轨程序对跨大西洋自由贸易谈判至关重要。他指出:“与欧盟谈判可以开始但却很难结束。如果欧盟知道国会可能会对协定有所疑议,他们不会接受我们的终稿。”

全文请参见英文全文

翻译: 朱晶

 

American Suspicions Could Deter Chinese Investment 美国的猜疑将阻碍中国对美投资

Posted in CFIUS and Investment

By Elliot J. Feldman and John J. Burke

Chinese officials have long complained about American national security reviews, insisting they are an obstacle to Chinese investment in the United States. We have long pushed back, including in several articles posted on this blog in December 2009, January 2010, February 2011 , and May 2011, insisting the complaints have been exaggerated. Despite some celebrated instances that seemed very explicable (obstacles to Huawei, for example, because of its links to the PLA; objections to First Gold because of its proximity to military installations), almost all Chinese investments have proceeded without incident or challenge, and the American market has been open and welcoming.

The welcoming environment may be changing, both because Chinese investments may be of higher profile, and because there may be growing suspicions about Chinese intent. Two cases over the last year have led us to think that China’s complaints may be, at least to some degree, legitimate, and that there may be an anti-China prejudice beginning to manifest itself.

The first case involves a project that fell victim to the Committee on Foreign Investment in the United States (“CFIUS”) and presidential action, only the second of its kind. The second case has no discernible connection to national security and likely will be completed, but it has elicited an hysterical, xenophobic reaction reminiscent of the Japanese acquisition of Rockefeller Center twenty-four years ago.

Promoting Green Technology

         The Project And The Problem

Ralls Corporation, incorporated in Delaware and owned by two Chinese nationals –Dawei Duan and Jialing Wu — who are senior managers in the Sany Group in China, acquired interests in four Oregon wind farms, called the “Butter Creek Projects,” from Terna Energy USA Holding Corporation (Terna), a Greek company, in March 2012. There are many wind farms in this area of Oregon with turbines manufactured by a variety of companies, foreign and domestic. According to the Ralls owners, the location presents an excellent opportunity to showcase Sany’s Chinese turbine technology. They envisioned the installation of Chinese equipment to compete, potentially, with other turbines for projects all around the United States.

The Oregon project sites overlap a restricted airspace and bombing zone used by military aircraft out of Naval Air Station Whidbey Island. The original developers, Oregon Windfarms LLC, obtained in 2010 and 2011 a “Determination of No Hazard” from the Federal Aviation Administration (“FAA”) for each of the projects, which included a Department of Defense review to prevent, minimize, or mitigate adverse impacts on military operations and testing. Overall, the Naval Air Station is some two hundred miles from the Butter Creek projects.

Only one of the four Butter Creek projects intruded upon restricted airspace. The U.S. Navy alerted Ralls of concerns, and Ralls cooperated with the Navy to relocate the project. The new location required new approvals (approvals for the other three projects had conveyed with acquisition), and the Navy wrote to the Oregon Public Utility Commission on Ralls’ behalf.

Ralls and Terna did not submit a notification to CFIUS until after the transaction closed, two months after construction had begun, and only then because CFIUS requested that they do so. Notwithstanding advice from a Treasury Department official to postpone construction until after CFIUS’ review was completed, Ralls continued construction of Chinese wind turbines on the four sites.

Ralls was proceeding with confidence that the Butter Creek projects presented no national security questions. Three of the projects were outside restricted airspace and the fourth had been moved in cooperation with the U.S. Navy. Other foreign companies were erecting and operating wind farms in the same area. Solar and wind technologies were the primary subjects of agreements between Presidents Obama and Hu Jintao for Chinese-American cooperation in the development of green technologies. Chinese investment in the U.S. was being encouraged.

        CFIUS Intervention: A National Security State?

After conducting the initial 30 day review, CFIUS determined that a full investigation was needed. It also imposed an interim mitigation order on July 25, 2012, ordering Ralls to stop all construction and operations at the wind farms and prohibiting access to the project sites except by CFIUS-approved U.S. citizens. Ralls complied, and all construction stopped.

On August 2, 2012, CFIUS amended that order to prohibit Ralls from selling or transferring any Sany-produced items to third parties for use at the project sites and from selling the project companies without first giving CFIUS notice and opportunity to object to any intended buyer. These restrictions effectively took from Ralls all the value of its efforts.

President Obama issued an Order on September 28, 2012 prohibiting the ownership of the wind farm companies by Ralls, the two Chinese individuals who owned Ralls, or Sany, because of “credible evidence” that they, “through exercising control of the [companies,] might take action that threatens to impair the national security of the United States.” No evidence of this threat was offered to Ralls or Sany or the public.

The last time a President of the United States acted this way (and the only previous time), George H. W. Bush issued a similar order in 1989, requiring Chinese divestment of an aircraft parts manufacturer. Aircraft parts, however, are more plausibly a national security risk than wind towers.
Ralls was given 90 days to divest and 14 days to remove all structures or physical objects from the project sites. The Presidential Order also prohibited Ralls and its agents from accessing the project sites.

        Ralls Strikes Back

Ralls sued on September 12, 2012, claiming that CFIUS’s interim mitigation order violates the Exon-Florio Amendment and the Administrative Procedure Act. Ralls subsequently amended its complaint to include President Obama’s order and a claim that the divestiture requirement is an unconstitutional “taking” of property without due process of law because Ralls was not given an opportunity to review, respond to, or rebut any evidence upon which CFIUS or the President based their orders.

The United States District Court for the District of Columbia, on February 26, 2013, dismissed Ralls’ claims that the President’s order violated the Exon-Florio Amendment and the Administrative Procedure Act, finding that the President acted within his powers under those laws and that the statute prohibits judicial review. The court found that it did have jurisdiction to consider the Constitutional challenge, however, and, therefore, allowed it to proceed without making any ruling on the merits of the claim. Meanwhile, Ralls has forfeited the projects and its investment, hoping to recover the latter through its Fifth Amendment constitutional claim.

Whose Pork?

On May 29, 2013, China’s Shuanghui International Holdings Ltd. announced it was acquiring Smithfield Foods, Inc., the largest U.S. publicly-traded, and the world’s largest, pork processor and hog producer. Shuanghui, a private holding company based in Hong Kong, owns China’s largest meat processor, which is publicly-traded, of the same name. Shuanghui Chairman Wan Long indicated his intention was to expand and improve service to the Chinese market and its growing demand for quality pork. Smithfield President and CEO Larry Pope said he did not think anything would change in Smithfield’s operations, but Smithfield’s ability and opportunities to export – a key international trade goal of President Obama – would improve.

Although there is no obvious national security interest in raising and slaughtering hogs, buying and selling pork, Smithfield voluntarily invited CFIUS review. It was prudent to do so. On the day of the announced merger, Senator Chuck Grassley (R-Iowa) called for a thorough CFIUS review, complaining that, “No one can deny the unsafe tactics used by some Chinese food companies,” asking, “How might this deal impact our national security? What role does the Chinese government play in Shuanghui, like it does in so many other ‘private’ companies?” He declared these questions “important” “for CFIUS to get answered.”

United States Senator and Agriculture Committee Chairwoman Debbie Stabenow (D-MI) opined on June 7 that her committee likely would hold hearings on the acquisition and that CFIUS should “proceed with caution.” She questioned Shuanghui’s food safety record while acknowledging that CFIUS had not previously addressed food safety. She complained, in the same breath, that CFIUS “typically” had been ”pretty narrow in terms of military security,” adding that, “We all say food security is national security.” Senator Stabenow encouraged alternative bids for Smithfield, apparently preferring buyers other than Chinese.

Senator Stabenow followed her June 7 statement with a letter on June 20, coauthored by the Ranking Member of the Agriculture Committee, Thad Cochran (R-MS), addressed to Treasury Secretary Jack Lew, raising food safety questions, as did the Chairman and Ranking Member of the Senate Finance Committee (Max Baucus, D-MT, and Orrin Hatch, R-UT) in a separate letter (the Senate Finance Committee controls international trade; its letter complained about Chinese barriers to imports of U.S. foodstuffs, particularly pork and beef). As we have written before, nothing seems to unite the divided, partisan Congress of the United States like China, and not in a good way.

The thinly disguised antipathy toward Chinese ownership of Smithfield was expressed by others. Virginia Republicans (Frank Wolf and Randy Forbes) asked the Department of Justice for a market impact investigation. They alleged “evidence to suggest strong ties” between Shuanghui and the Chinese government, but could identify, when questioned, nothing more than a loan from the Bank of China. Massachusetts Democrats, Senator Elizabeth Warren and Congresswoman Rosa DeLauro, in a letter to the new U.S. Trade Representative Michael Froman, questioned foreign ownership of agricultural land, even though Massachusetts is not one of the eight states that restrict such ownership and agricultural land was not at the center of the transaction.

A group of seventeen farm, producers, consumer and rural organizations addressed a letter to CFIUS on July 9 opposing the acquisition by alleging threats to unnamed U.S. security interests, food security, safety of food supply, and even technology transfer for maintaining safety in food supply (implying that they would rather have China deficient in food safety than have China benefit from American experience and technology). The private sector letter was prelude to the Senate Committee hearing Senator Stabenow promised, which convened on July 10.

Larry Pope, President and CEO of Smithfield Foods, disarmed much of the criticism at the hearing. Declaring that, Smithfield’s operations would not be changed in any way by the Shuanghui acquisition, he concluded by declaring that “The bottom line is that this is all about US exports to the Chinese market, not Chinese exports, or a loss of US competitiveness.” He directly contradicted the complaints from the Senate Finance Committee about barriers to American exports of meat products to China: this transaction, Pope explained, was about opening the Chinese market.

The anti-Chinese sentiment, despite Pope’s reassurances, did not abate. Senator Sherrod Brown (D-Ohio) called on the Obama Administration, at the same Agriculture Committee hearing, to include officials of the United States Department of Agriculture in the CFIUS review of the transaction. He was reasserting the argument of a bipartisan letter he had addressed to Secretary Lew on June 20, co-signed by fifteen Senators, including most of the Agriculture Committee. He claimed the government, because of the sheer size of the transaction, should scrutinize the “long-term impact on workers, producers, and consumers,” notwithstanding that there is no legal basis for such an inquiry: “We need guarantees that under Chinese ownership, we will continue to see high-quality food products that comply with stringent American food safety and biosecurity standards.” Of course, U.S. laws and regulations do not discriminate between domestic and foreign owners: Chinese owners would be subject to the same régime as American owners for “food safety and biosecurity standards.”

Lessons And Ironies

The safety and security of American food supply is not without its critics. Europeans, Japanese, and Koreans all have refused to import American beef because of doubts about its quality and safety. The United States does not have a monopoly on a safe and secure supply of food.

Many analysts traced the 2009 swine flu epidemic to deplorable conditions at a Smithfield Foods compound in Mexico. Smithfield has been accused, although perhaps not as often as Shuanghui, of inhumane treatment of animals and doubtful food safety standards. The operating assumption in the U.S. Congress, however, is that no American operation could compare unfavorably to operations in China.

Without any legal basis for questioning the foreign acquisition of a food processor, Senators and Congressmen, Democrat and Republican, are looking to CFIUS to save their special interests and to express their anti-China sentiments. It is apparent, however, that CFIUS cannot (and should not) be bent into this new shape.

CFIUS has continued to approve potentially controversial deals involving China, recently a Chinese oil company’s acquisition of Nexen Energy. Nevertheless, the campaign to broaden the CFIUS mandate to Smithfield Foods threatens every future Chinese investment. Taken with the Ralls/Sany experience, Chinese wariness appears warranted.

The Ralls case reinforces at least three points. First, threats to national security can vary drastically based on the facts of the case. In Ralls, it was not what the target company did that created the national security issue. Ralls was building wind farms in Oregon, as were many other companies, foreign and domestic, an activity encouraged by the leadership in both China and the United States. Instead, it was who they were, and their location (and location could yet jeopardize aspects of the Smithfield acquisition).

The fact that the Ralls project is Chinese and has been treated differently from similar projects involving other foreign enterprises in the same geographic area is particularly troubling. Sany has said it wanted to develop wind farms in this location because it wanted to demonstrate the superiority of its products in direct competition with wind farms erecting turbines from Denmark, the United States, and other countries in the same geographic area. It then hoped to market its wind turbines elsewhere in the United States. Because CFIUS is secretive, the fact that the project was Chinese has not been identified as the salient cause for rejection, but the Butter Creek projects were proceeding without difficulty when owned by a Greek company.

Second, the location, in proximity to military installations, created a basis for rejecting the projects. Nonetheless, it is significant that the U.S. Navy and the Department of Defense both had been involved directly in providing and even championing approvals for Ralls, and wind farms owned by other foreign interests were operating in the area.

Smithfield filed a voluntary notice for CFIUS review even though there was no apparent need for one. This step should not have been necessary, but probably was wise. Foreign businesses, especially Chinese, should give very serious thought to filing voluntary notices with CFIUS prior to closing a transaction, even when the project does not self-evidently raise a security question. In the wind farm case, Ralls certainly knew of military concerns, having been engaged by the U.S. Navy regarding location. Smithfield probably learned this lesson from Ralls, that it is better to volunteer for review regardless how doubtful the need may seem.

Because the courts cannot review the merits of a divestiture order from the President, working with CFIUS to address national security concerns prior to an acquisition is essential. Had Ralls done so, it might have been possible to work out some mitigation arrangement that would have allowed at least some part of the transaction to go through. Even were that not possible (and this case raises doubts because problems arose not from the nature of the project – wind farms – nor strictly from location – because other foreign operations were in the area – but apparently because the project was Chinese), Ralls might have avoided the costs and adverse press of an acquisition and forced divestiture. For Smithfield, it appears unlikely that CFIUS could question more than potential proximity to some security installations. The overall deal is likely to survive review.

There remain abundant opportunities for Chinese investment in the United States, and the Smithfield case, the largest ever, may be the best example. Nonetheless, the Ralls case does suggest, as Smithfield is experiencing, that Chinese investments may face particular scrutiny. It would be prudent for Chinese buyers, in particular, to err on the side of caution by voluntarily seeking CFIUS review when there appears to be even a remote possibility of national security concerns, and that they organize for effective diplomatic, political, and public relations before their projects go public.

Implications For A Bigger Picture

There is apparently a growing ambivalence in the United States toward China. The Obama Administration aggressively assailed Chinese cyberspying, only to face the Snowden leaks of American spying on allies and citizens. New reports have emerged that the Pentagon is sketching an AirSea Battle plan against China. American officials are promoting again the alliance with Japan in the presence of a nationalist Japanese Prime Minister who is rolling back even a glimmer of reconciliation with China following Japanese invasion and occupation during the last century.

These classic national security measures are being complemented by muscular economic policies. The Administration is pressing to complete the Trans Pacific Partnership, which conspicuously embraces almost everyone in the Pacific except China. Decisions of the U.S. Department of Commerce and the U.S. International Trade Commission have blocked imports from China of solar cells and wind towers, the essential elements of the green technology for climate change promoted by Presidents Obama and Hu Jintao.

Officially, publicly, and logically, China is not an enemy of the United States. There are critical planetary issues that require bilateral cooperation. Climate change, for example, requires the cooperation of the two leading producers of carbon. The global economy cannot right itself without the two leading producing and consuming nations managing together. The North Korean nuclear threat cannot be contained without the joint efforts of China and the United States. For all its occasional bravado, China remains a developing country that needs American support of its continuing reduction of widespread poverty.

Recent developments must be a source of worry. Americans do not have to be naïve to promote cooperation and friendship. They do not have to instill paranoia in a country too accustomed to foreign occupation and humiliation. CFIUS is perhaps the least transparent of American political processes. In the most recent cases reported here, it also appears to be discriminatory.

CFIUS, to remain credible as a defender of national security, must resist the anti-China sentiment demanding a mandate expanded to food safety. Further, it should recognize the constitutional implications of the Presidential Order divesting Ralls and find a way to compensate. The alternative is to discourage Chinese investment, Chinese confidence, and Chinese trust. American security will not be enhanced by growing distrust between China and the United States.

For their part, Chinese must recognize the sentiments being expressed in the Congress of the United States. Shuanghui, wise to invite CFIUS review for a project with no traditional implications for national security, should set an example for other Chinese investors. To get what they want and need, Chinese may have to go further than the law would seem to require. Mutual trust, it seems, remains still more aspiration than achievement.

U.S. Export Control Reform To Move Wide Array Of Aircraft Parts Off The Munitions List But Still Prohibit Many Of Them From Being Exported To China 美国出口控制改革进展

Posted in Export Controls, Trade Disputes

The U.S. Department of State, in response to the President’s Export Control Reform Initiative, published final rules in the Federal Register on April 16, 2013 moving export control jurisdiction from the State Department to the U.S. Department of Commerce for a wide range of aircraft and aircraft parts that formally were controlled as military items. On that same day, the Commerce Department published its own final rules to implement that transfer of jurisdiction. The new rules, which amend the International Traffic in Arms Regulations (“ITAR”) and the Export Administration Regulations (“EAR”), will take effect on October 15, 2013.

These rules, and the rulemaking process that led up to them, reflect the continuing tension within the U.S. Government between approaching China as a friend or as a foe, specifically as to security and military-related issues. China has long responded to U.S. complaints about the trade imbalance between the two countries by stating that, were it not for U.S. export controls, China would buy a lot more from the United States . The new rules will make more U.S. products available to China, but due to the lingering view of China as a potential security threat, do not go nearly as far as they might have. China remains a special case, not treated as an enemy like Cuba, Iran, North Korea, Syria and Sudan, but still not trusted to have access to military equipment and technology. Consequently, the implementation of the new rules is unlikely to resolve the question of whether more liberal export controls on China would result in a material reduction in the trade imbalance.

A main focus of the President’s initiative is to revise the U.S. Munitions List (“USML”) to become an objective list of equipment and technology that actually warrants more stringent export controls imposed under the ITAR for military items. Items that do not require being controlled under the ITAR would then be moved to the Commerce Control List (“CCL”) where they would be subject to the more exporter-friendly EAR (treated more as commercial than military items).

The USML, prior to these new rules coming into effect, contained broad catch-all provisions that covered as a military item anything that was specifically designed or modified at any point, for a military application. Thus, the slightest modification to meet a military customer’s specifications would turn a basic commercial item into a “defense article,” requiring a license for almost all exports. Such modifications cause products, like all other products subject to the ITAR, to be subject to the U.S. arms embargo that prohibits the export of defense articles to China.

The new rules have not quite accomplished the objective of the reform initiative because the “specially designed” catch-all language remains in the USML, albeit applied to a much narrower group of products, and it is being added to the EAR in new 600 series Export Control Classification Numbers (“ECCN”) that will apply to many of the items being transferred over from the ITAR. Moreover, the new 600 series ECCNs will perpetuate many of the regulatory impediments to exporting, such as a presumption of denial for exports to China. However, not all items transferred over from the USML will fall into the 600 series ECCNs and those new 600 series ECCNs distinguish among various aircraft parts being transferred, with a large number eligible for export without a license to most countries. Thus, whether a part can be exported to a particular destination and the regulatory burden can be imposed on that export will vary greatly, depending on how the part is classified under the Commerce Control List.

An important benefit of the shift from the ITAR to the EAR is that affected products no longer will be “ITAR Contaminated.” Foreign and even U.S. customers are reluctant to purchase parts for their own products when those parts are controlled under the ITAR because the ITAR controls on those parts would then apply to the customer’s product into which that part was incorporated.

There is no de minimis level for ITAR content. Thus, for example, a $1000 part that is subject to the ITAR could cause a commercial aircraft worth millions of dollars to be subject to the ITAR. The EAR, by contrast, has a de minimis provision that exempts from U.S. export controls foreign-made equipment when the equipment contains less than 25% controlled U.S. content. The EAR de minimis rule would apply to items transferred over from the ITAR, except that the zero de minimis rule would continue to apply to 600 series ECCNs when the foreign item into which they are being incorporated would be re-exported to a country subject to the U.S. arms embargo.

The arms embargo includes China. Thus, whether the product can be exported to China under the new rules will depend predominantly on whether the product would be classified under the new 600 series ECCNs. The bottom line is that a fair number of products that previously could not be exported to China will become available to China after October 15, 2013, but not the more militarily sensitive products that will remain subject to the arms embargo.

Determining Which Products Will Be Subject To The New Rules

The first step companies must take in transitioning to the new rules is to determine which of their products are being transferred to control under the EAR and which will remain subject to the ITAR. This step can be accomplished by reviewing the new Category VIII of the USML. Subcategories VIII(a) and (f) provide a list of the types of aircraft that remain subject to the ITAR. When a company’s aircraft is not on the list, that aircraft is no longer subject to the ITAR. Subcategory VIII(h) contains a detailed list of the types of aircraft parts that remain subject to the ITAR. The “specially-designed” catch-all remains with respect to parts for certain named aircraft and aircraft components (e.g., tail hooks and arresting gear and specially designed parts and components for them).

The ITAR will have a new two-part definition of “specially-designed” following a “catch and release” model. The first part – the “catch” – contains broad language to ensure that any products the government would want covered by the ITAR are caught by the specially-designed definition. The second part – the “release” – then contains numerous exceptions to release from ITAR-control those products and technologies the government has decided no longer need to be controlled under the ITAR. The net result is that most aircraft parts currently subject to the ITAR would not fit any of the types of aircraft parts listed in the new subcategory VIII(h) or would be released under the second part of the “specially-designed” definition and, consequently, will be subject to the EAR after October 15, 2013.

The State Department’s Final Rule also established a new USML Category XIX to cover gas turbine engines and associated equipment formerly covered in Categories IV, VI, VII, and VIII. The new Category XIX contains a detailed list with technical specifications of the gas turbine engines covered and a catch-all of all engines “specially designed for armed or military unmanned aerial vehicle systems, cruise missiles, or target drones.” It also covers specifically enumerated parts and components for gas turbine engines and generally any other parts and components specially designed for the engines included in the category.

When the product is no longer included in the new USML Categories VIII or XIX, the next step in the transition is to determine under which ECCN the product would be classified in the EAR. The Final Rule adds new ECCN 9A610 for military aircraft and related commodities and ECCN 9A619 for military gas turbine engines and related commodities. The new ECCN 9A610 currently has a subcategory (a) covering military aircraft moved over from the USML and eleven subcategories for specific types of parts for military aircraft that would be covered under ECCN 9A610. It also contains a catch-all subcategory (x) that covers any part “specially designed” for a military aircraft that does not fit under one of the other subcategories. The Commerce Department then uses its own version of the two part “specially designed” test that would first “catch” in subcategory (x) most of the aircraft parts being transferred over from the ITAR and not already captured by the other subcategories, but then “release” many of them that do not require the more stringent controls of the 600 series ECCNs. One of the criteria under which an aircraft part may be released is that it is functionally equivalent to a similar part used in a commercial aircraft.

The Bottom Line

The licensing requirements vary greatly depending upon which subcategory covers a particular part. For example, items classified under subcategory (y), which has a large list of covered aircraft parts, can be exported without a license to any country, except China and the handful of countries subject to anti-terrorism controls (Cuba, Iran, North Korea, Sudan and Syria). By contrast, most of the other subcategories are subject to national security controls and presumptively need a license to be exported to any country other than Canada. However, various exceptions to the licensing requirements may apply, depending upon the specific transaction, although those exceptions generally will not be available for exports to China.

Many of the regulatory burdens that exist under the ITAR will follow those products to the EAR because of new requirements being added to the EAR for the 600 series ECCNs. For example, an AES filing will be required for all such exports (i.e., the exceptions to filing an AES for most exports to Canada and most exports under $2,500 will not apply), the ECCN must be added to the standard destination control statement and there are certain reporting requirements even when it is possible to use a license exception to ship the product to one’s own foreign customer.

The commercially most significant regulatory burden that will follow products classified under the new 600 series ECCNs is that they may not be exported to China without a Commerce Department license. Although the absolute prohibition on licenses for those countries found in the ITAR will not exist in the EAR, the usual licensing policy is likely to be one of denial.

The bottom line for China in these new rules is that most aircraft parts that cannot be exported to China because they are subject to the ITAR under the old rules still cannot be exported to China under the new rules inasmuch as they either remain subject to the ITAR or to the new restrictions in the EAR covering 600 series ECCNs. However, China will be able to buy some products previously controlled under the ITAR that no longer will be subject to the ITAR and are released from the 600 series ECCNs by the second part of the specially designed test. Many of those items would fall under existing ECCNs that do not require a license for export to China. Thus, many of the products that are released from both the ITAR and the 600 series ECCNs will move from the USML, where they could not be exported to China, to classifications on the Commerce Control List that could go to China without even needing a license.

Feldman, Burke Examine GPX Case and NME Subsidies 本所合伙人探讨GPX案对非市场经济体反补贴调查案件的影响

Posted in CVD

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The China-U.S. Trade Law Blog has not posted a new article in a while, but mostly because Elliot Feldman and John Burke have been working on a major article – Testing The Limits Of Trade Law Rationality: The GPX Case and Subsidies in Non-Market Economies for the American University Law Review.  It will be published this week and we are pleased to provide a link here.

Introduction

Chinese merchandise has been the subject of most international trade disputes, all over the world, for several years. All of China’s principal trading partners, including the United States, Japan, and the European Union, treat China as a non-market economy (NME), applying special methodologies for determining whether Chinese enterprises are exporting merchandise at less than fair value. However, until 2006 the recognition of China as an NME meant that unfair trade allegations were based on pricing theories for antidumping, never government programs or actions unfairly subsidizing exported merchandise. The general rule was that government subsidies are countervailable only when they distort markets, and NMEs have no markets to distort.

The United States began launching simultaneous antidumping (AD) and countervailing duty (CVD) investigations of Chinese merchandise after the November 2006 congressional elections. This change in practice inevitably triggered legal disputes that collectivized under the banner of GPX, an American importer of off the- road tires (OTR Tires) from China. The U.S. Court of International Trade (CIT) and the U.S. Court of Appeals for the Federal Circuit (CAFC) were asked to decide whether CVD investigations into merchandise from NMEs were in accordance with law and, if they were, whether they could be conducted simultaneously with antidumping investigations. The United States Congress, unhappy with the decisions of the appellate court, swiftly rewrote the law. The constitutionality of the revised statute then was challenged in the same courts.

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Hong Kong Seeks to Strengthen Trade, Investment Ties with U.S. 香港加强对美贸易投资关系

Posted in CFIUS and Investment

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The largest-ever Hong Kong promotion in the United States will be held this summer to showcase Hong Kong’s advantages for American companies looking to tap new business opportunities in Asia, particularly on the Chinese mainland.

"Think Asia, Think Hong Kong," will feature two major symposia in New York and Los Angeles on June 11 and 14 respectively. Speakers include The Honourable C Y Leung, Chief Executive of the Hong Kong Special Administrative Region and over 60 prominent senior executives from global companies will participate. The event is organized by the Hong Kong Trade Development Council, (HKTDC) with support from 14 Hong Kong partners and nearly 100 U.S. supporting organizations.

USA-Hong Kong Ties

"As the global economic balance continues to shift to Asia, Hong Kong is the ideal business platform from which to access the myriad regional business opportunities now available in the growing ASEAN area and Chinese mainland," said HKTDC Chairman Jack So. "Our low taxes, free economy, rule of law, English-speaking environment and world-class business services make us the preferred partner for any overseas businesses wishing to tap these growing possibilities."

There are approximately 1,400 U.S. firms in Hong Kong, concentrated in trading, banking and finance, and transport. As of October 2012, there were 333 regional headquarters and 536 regional offices of US companies in Hong Kong, ranking first among other regions.

U.S. exports to Hong Kong in 2012 grew by 41 percent from 2010 to over $37 billion. Over the past decade (2003-2012), U.S. exports to Hong Kong have surged by 177%. In response to the U.S.’s National Export Initiative, HKTDC launched the Pacific Bridge Initiative (PBI) to further encourage American companies to use the Hong Kong platform. Since its implementation, the number of "new-to-market export successes" increased by 124 percent year-over-year in 2011, while the dollar value of export successes was up by 161.4 percent.

Symposia Will Highlight Advice and Opportunities for Entering Asian Markets

The sessions will feature information on why U.S. companies should consider using Hong Kong’s business advantages. These sessions also will consider how mainland enterprises have been expanding their international presence through Hong Kong, and what they are looking for when seeking global partners. In addition, there will be approximately 10 industry sessions to provide practical tips on selling consumer brands to China and throughout Asia, explore technology partnership opportunities, discuss finance-related topics, and learn about the latest trends of Chinese outbound investment and collaborations on film and digital entertainment.

Extended Networking Opportunities

More than 100 Hong Kong government officials and business leaders from a wide spectrum of sectors including lifestyle products, fashion, food and wine, technology, finance, accounting, legal, logistics and marketing will take part in the June program, and participate in business matching with U.S. companies onsite. The TATHK campaign is expected to attract more than 2,000 American corporate leaders, government representatives, heads of SME’s and opinion leaders with a special interest in Asia.

 

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Feldman Says Trade Law Impedes Renewable Energy Development 贸易法阻碍再生能源发展

Posted in Trade Disputes

        Elliot Feldman delivered the Distinguished Alumni Lecture at the University of Chicago’s Center in Paris on February 5, 2013.  He explained how international trade law is impeding the development of renewable energy such as solar, wind, and electric cars, focusing on relations between China and the United States. 

费德门博士于2013年2月5日在巴黎举办的芝加哥大学杰出校友论坛上发表演讲,详细分析国际贸易法如何影响中美关系以及可再生能源发展,例如太阳能、风能以及电动汽车等。

Feldman Lecture on U.S. Elections and China-U.S. Relations 费德门就美国大选、美中关系发表演讲

Posted in Trade Disputes

After the November elections, Elliot Feldman lectured on their implications for China-U.S. relations at the University of Chicago Center in Beijing. The link to the lecture is here. It features video of the remarks by candidates Obama and Romney on China during the presidential debates.

总统大选结束后,费德门博士在芝加哥大学北京中心发表演讲,分析大选如何影响中美关系发展。他的讲座深入浅出、赢得听众阵阵掌声,他为讲座精心准备的短片也异常精彩。

So What’s The Big Idea? 什么好办法?

Posted in CVD

中文翻译请点击这里

The discovery and development of economically efficient means to extract shale oil and gas, “fracking,” is undermining efforts to reduce the use of hydrocarbons because alternative energy production, especially through solar cells and wind turbines, is more expensive than natural gas for producing electricity, particularly in North America. Many governments, demonstrating a priority for clean energy production, have been subsidizing solar and wind power to produce electricity (and batteries to power automobiles), but their own international trade laws confound their efforts: they cannot export the subsidized clean technology without encountering countervailing duty complaints.

This problem is particularly acute among China, the United States, and the European Union. The United States and the European Union’s trade laws are blocking the export of Chinese-made solar cells and wind towers; China’s trade laws have been gearing up to block American battery-powered cars and have applied “Buy China” rules excluding foreign imports, especially of higher technology solar cells and wind turbines. We previously described some of these issues on this blog in our article The Sun Does Not Shine on Trade Policy: Hypocrisy in Technological Green. There is a critical and accelerating need to reconcile unavoidable subsidies for alternative energy (enabling it to catch up to a century or more of subsidies for “conventional” energy) with fair trade, and to dismantle other protectionism.

Our “big idea” is a proposal to move forward alternative energy through a Chinese initiative. The reasoning, in summary, is:

1. Climate change is a critical issue;
2. Climate change is caused, at least in significant part, by human dependence on and burning of hydrocarbons;
3. Dependence on hydrocarbons cannot be arrested without alternatives;
4. The United States and China are the world’s leading consumers of hydrocarbons;
5. The world often looks to the United States for global leadership, but on this subject the President of the United States is stymied by domestic politics, competing priorities, and a growing perception that the matter is not urgent because of a bonanza in shale oil and gas that will make the United States the world’s leading producer of oil and gas by 2017;
6. China’s new leaders, at the National Party Congress, already have claimed a clean environment to be a top priority; they also called for raising living standards for all Chinese, maintaining economic growth, encouraging innovation and expanding imports, all objectives that would be served by this proposal;
7. The development and deployment of green technologies, such as solar and wind, can enable reductions in dependence and use of hydrocarbons;
8. Trade laws impede the development and deployment of green technologies by challenging subsidies when products are exported;
9. China is in an ideal position to assume leadership: it is the exporting power most impacted negatively by the application of the trade laws; it has the greatest potential for deploying green technologies; most dependent on coal, it has the greatest need to find and deploy alternatives to hydrocarbons; it has the clearest commitment of its political leaders;
10. There are two specific ways in which China can assert leadership now:
a. Commit to a specific number of gigawatts to be produced in China by solar and wind by 2020 that that would equal 50 percent of projected Chinese electricity consumption;
b. Use this commitment as a challenge to other countries to convene a global conference on climate change in Beijing in May 2014.
11. Challenge and commitment are good for China: China would export less and consume more at home of rapidly developing and improving solar and wind technology, thereby saving jobs that might have been lost in trade wars impeding Chinese exports, while cleaning up China’s air and environment;
12. Challenge and commitment are good for the United States: President Obama has championed efforts to arrest climate change; he would be helped by an irresistible challenge from China defined as a commitment to reduce Chinese exports, increase domestic consumption, and clean up the environment, all in one bold policy;
13. The global conference should lead to an international agreement that subsidies for the development of green technologies would be excluded from trade remedy actions so that the public policies developing these technologies would not be victims of traditional international trade disciplines. The Marrakesh Round established precedent for such an agreement, making subsidies for the adaptation of existing facilities to meet new environmental standards non-actionable subsidies under Article 8.2 of the WTO’s Subsidies and Countervailing Measures Agreement.

Explaining The Big Idea

Climate Change, International Trade, And Policy Priorities

The United States

The 2012 American elections concluded in the midst of “Superstorm Sandy,” a hurricane that collided with a second storm to yield one of the lowest readings of barometric pressure on record. Although climate change probably did not cause the storm, it arguably did contribute to its intensity and to its devastation. Politicians had avoided the subject of climate change throughout the autumn electoral campaign, but Sandy reminded them that the subject could not forever be avoided.

There is no apparent constituency to address climate change in the Republican Party, but President Barack Obama’s persistent commitment to science and research has energized some of his supporters who are persuaded that climate change may be the single most important issue of the day. Many Democrats want the President to take environmentally protective actions that will arrest the damaging effects of climate change.

President Obama was quick to say after his re-election, and after Sandy had passed, that climate change is not one of his immediate policy priorities. He has promised to address the economy and the “fiscal cliff,” and then to deliver immigration reform, especially to those groups who were instrumental in his electoral victory. He left Washington for Asia within two weeks of his re-election to reinforce his convictions about a “pivot” in American foreign policy, and could not avoid a new military crisis in the Middle East. Climate change appears to be slipping quickly off his agenda.

China

Within days of President Obama’s re-election, the Chinese Communist Party was naming new leadership for the first time in a decade. The new leaders, in turn, like Obama, focused primarily on domestic matters. However, they were also keen to assert China’s expanding role as an emerging world power, and they acknowledged that a clean environment is important to their goal of a better life for all Chinese.

The new Chinese leadership emphasized an openness to new ideas and called for more domestic consumption; more imports; and a commitment to raise living standards. All these goals would be served by a commitment to a radical expansion of alternative energy use and an assertion of global leadership on climate change.

Climate Change And Trade

Trade with China, by contrast with climate change, remains a priority for President Obama and was the subject of his final remarks as he departed Asia for the United States just before Thanksgiving. Yet, the President does not seem to have connected climate change with international trade, even as American trade actions against Chinese products may be impacting climate change profoundly.

President Obama has championed the development of alternative energy sources, specifically solar, wind, and electric cars. During a visit to China in 2009, he and President Hu Jintao entered mutual commitments to promote the development of all three. Yet, since then, all three have been the subjects of dispute and trade protectionism from both sides.

The United States and China urgently need to address together the contradictions in promoting green technologies while invoking trade restrictions. Customarily this blog offers observations and analyses of trade matters arising between China and the United States. This article, by contrast, proposes specific actions to resolve the contradictions.

The Trade Law Impedes Going Green

We have written before that the trade law impedes the development of green technologies. Presidents Obama and Hu agreed to develop wind and solar power and electric cars. Both poured subsidies into their respective industries. However, China had the temerity to out produce the United States and to export product. U.S. industries, very subsidized themselves, employed the trade law to halt Chinese exports, and China retaliated in kind.

The U.S. petition against Chinese solar cells has succeeded, although many believe that petitioners seriously erred in defining scope, resulting in a substantial loophole that will enable Chinese producers, well within the law, to circumvent the antidumping and countervailing duty orders. Chinese solar cells, therefore, may continue to enter the U.S. market in large volumes, despite the orders. Had petitioners been more careful and effective, the analytical results in the Department of Commerce and at the International Trade Commission likely would have achieved their objectives.

China is exporting around 90 percent of the solar cells it is producing. The wave of imports has created thousands of jobs in the United States because there are many more jobs to be had in installation and maintenance than in fabrication. Nonetheless, there are two obvious problems with this situation: China continues to build coal-fired plants to produce electricity instead of expanding substantially its use of solar energy; the United States falls behind in needed research and development in solar energy because its production is sharply curtailed and its R&D capabilities starved for capital by underpriced, unfairly competing Chinese cells.

China’s retaliation was on automobiles. China complained about subsidies to electric cars, even though no electric cars were being exported to China and they were not the subject merchandise. The findings against a class of American saloon cars, consequently, could not be interpreted reasonably as anything but retaliation for American actions against China’s subsidies for green technologies.
The U.S. petition against wind towers from China will be decided by the International Trade Commission in January. The U.S. wind power industry has survived, making it competitive with conventional energy, only because of a Production Tax Credit, yet the tower industry petitioned against Chinese subsidies. But for the Chinese towers, the development of wind power on the coasts and islands (east and west, Puerto Rico and Hawaii) would not have been possible, and if the U.S. tower industry were to prevail in their complaint, it would jeopardize the future of the U.S. wind turbine industry, which in terms of jobs and advanced manufacture is far more valuable to the American economy. One domestic industry injuring another and more valuable domestic industry, all for the purpose of excluding Chinese products.

American and other international producers are not without their reasonable complaints regarding Chinese protectionism in the development of wind power. China has applied “Buy China” rules effectively keeping out foreign wind power components, while pirating foreign technology. The United States has brought this matter to the WTO.

There is no ultimate solution within the trade law for these problems. The law enables self-defined industries to petition and, when they satisfy a checklist, to pursue measures that would exclude foreign products. The non-market economy methodology employed by the U.S. Department of Commerce against Chinese goods almost guarantees findings of dumping and subsidies. Chinese often imagine that the President could mitigate or moderate these actions, he is powerless to do so. Unlike in China and many other countries, there is no public interest provision in U.S. law. When the Department of Commerce finds dumping or subsidies and the International Trade Commission finds an American industry injured by reason of unfairly traded imports (any petitioning industry), the Department of Commerce must issue a tariff order and Customs and Border Protection must enforce and collect it. There is no role for the President.

Conventional energy has been subsidized in every imaginable way for more than a century. Oil, gas, and coal have benefited from everything including depletion allowances, direct subsidies, special tax provisions, and free land leases. New technologies such as solar and wind cannot compete with them and keep energy costs down for consumers without being subsidized themselves. Dependence only on domestic markets is financially hazardous, but exports are exposed instantly to subsidy complaints. Hence, without subsidies these industries will not develop and compete; without exporting they will not compete successfully; when subsidized and exporting, they will be subject to crippling trade remedy actions.
Solving The Problem

The development of green technologies means, as President Obama frequently has claimed, creating new and many jobs. The obverse also is true: shutting down production in these industries costs jobs.
These technologies will not develop without government subsidies because the century of subsidies conferred on their energy competitors leaves them too far behind to compete without help. Yet, the trade law then intervenes to threaten their very survival.

China does not want to reduce solar cell production because its products may now be excluded from the United States and probably, soon, the European Union. It would cost China many thousands of jobs. But China could continue to produce solar cells without worry if it were consuming more of them at home.

Many in China say the difficulty is in connecting solar to the country’s electricity grid. This technical excuse is not credible. China has taken immense pride in conquering virtually all technical obstacles – building roads, high speed rail, new airports — yet claims it has to export solar energy components, reducing the pace of development at home, for a technical reason. China surely can solve this technical problem and reverse ratios: consuming 90 percent of solar cell production at home, and exporting 10 percent.

Were China to reverse the solar ratio and deploy solar modules throughout the country, it would produce many gigawatts more of electricity from clean, green sources. It would save jobs threatened by trade actions in the United States and Europe. It would cast a glow of leadership throughout the world.

A Proposal For Addressing Climate Change

China has new leaders. There has been much skepticism about what these leaders may do. They are mostly unknown. But they enunciated in the closing days of the National Party Congress commitments to prosperity, peace, a clean environment, and world leadership.

The convergence of climate change (accepted by most scientists as accelerating due, in major part, to the burning of hydrocarbons) and trade law (impeding and retarding the development of clean, green technologies) requires bold leadership. Although President Obama apparently would like to lead, he acknowledges that American politics prevents him from moving forward while other priorities capture his attention. China and the United States are the world’s leading polluters. Improvement in this area will come about only through their leadership.

The new Chinese leaders should call immediately for a global conference on climate change, to be convened in Beijing in May 2014. Eighteen months from the time they ascended to power ought to be sufficient to organize such a conference, and it would guarantee six months of remaining flexibility for President Obama before his mid-term elections.

There is no compelling reason why the world should rally to a conference called by China on climate change. China has shown no leadership to date, exploiting the development of green technologies for export, pirating foreign innovation, without demonstrating significant commitment at home. China, therefore, must base its call for a conference on a promise – that by 2020 half the electricity it generates for domestic consumption will be generated by wind and solar power.

This promise would yield for China many dividends: solar cell and wind tower production would continue apace through domestic consumption, thus preserving the manufacturing jobs jeopardized by international trade remedy actions; the world would recognize that alternative energy sources can significantly fuel an economy and society; China would reduce substantially its own pollution, thereby fulfilling the promise of new leaders to clean up the environment.

The combination of a call for the world to convene on climate change and the Chinese guarantee of a major conversion to clean technologies for energy ought to be irresistible to world leaders. President Obama should rally to it as a conscientious Chinese contribution to a better world, acting upon the agenda the President feels paralyzed from pursuit at home himself. India could not be idle if China and the United States agreed to meet, and the rest of the world could be expected to follow.

The Proposal’s Objective

The 2014 Global Conference on Climate Change in Beijing should have as its primary objective a treaty that would sideline application of the trade law as to the development and deployment of green technologies. China would have demonstrated a powerful preference for the domestic consumption of such technologies, but should not then be held back from exploiting its achievement through export, especially as the exported product should help arrest climate change. The United States would not face a threat of retaliation or trade action were it to begin exporting electric cars or wind turbines to China, each country thus experiencing the comparative advantage it derives from superiority in different technologies. Like the exclusion in the Marrakesh Round for adapting facilities to new environmental standards, the treaty would bar countries from impeding trade that helps clean up the environment and arrests climate change. The general public good would trump the narrow interests promoted by trade protectionism.
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The U.S. Election and China-U.S. Relations 美国大选及美中关系

Posted in CFIUS and Investment, Strategic & Economic Dialogue, Trade Negotiations

          Dr. Elliot J. Feldman last week led discussions on the U.S. presidential election’s impact on China-U.S. relations at the University of Chicago Center in Beijing, the Beijing Arbitration Commission, and two other fora in Shanghai and Guangzhou. The video clips he prepared from the presidential debates exposed substantial anti-China rhetoric but also more nuanced policy positions. He forecast more bilateral trade disputes, but noted that President Obama’s re-election should contain any escalation in animus toward China that might have been featured in a Romney Administration.

            Additionally, Dr. Feldman addressed business audiences about the legal and political hurdles Chinese investors may face when they invest in the United States, based on the treatise, Mergers and Acquisitions in the United States: A Practical Guide for Non-U.S. Buyers, that . BakerHostetler LLP has published with Aspen/Wolters Kluwer/CCH. Dr. Feldman is the editor and coauthor of the treatise, which has been published in both English and Chinese.