outlook for international trade and foreign policy and its ...€“ blocking acquisitions where...
TRANSCRIPT
CONFIDENTIAL© Copyright Baker Botts 2017. All Rights Reserved.
Shari Sacks, Matthew T. West, Dr. Georg M. Berrisch, Ginger Faulk
May 3, 2017
Outlook for International Trade and Foreign
Policy and its Impact on Cross-Border
Transactions
BAKER BOTTS
Agenda
1) U.S. Trade Policy: Changing Perspectives
– The President's Top Trade Priorities and Objectives
– The President's Trade Policy Tools
– Impacts and Considerations (China and NAFTA)
2) EU Perspective and Options for EU Companies
– EU Approach
– Border Tax Adjustment
– WTO Process
– Trade Implications of Brexit
3) U.S. Sanctions Updates and Impacts
– Iran and Russia Sanctions
– Trends in U.S. Enforcement
– M&A Considerations2
BAKER BOTTS
President's Top Trade Priorities
1. Defending our national sovereignty over trade
policy
4
2. Strictly enforcing US trade
laws
3. Using leverage to open
foreign markets
4. Negotiating new and better
trade deals
BAKER BOTTS
U.S. Trade Policy Objectives
"Expand trade in a way that is freer and fairer for all Americans"
• Every action with respect to trade will be designed to–
– Increase U.S. economic growth
– Promote job creation in the U.S.
– Promote reciprocity with our trading partners
– Strengthen U.S. manufacturing base and our ability to defend ourselves
– Expand U.S. agricultural and services industry exports
• Focus on bilateral negotiations rather than multilateral negotiations
• Renegotiate trade agreements when U.S. goals are not being met
• Reject position that the U.S. should, for geopolitical advantage, ignore
unfair trade practices that disadvantage American workers, farmers,
and businesses in global markets
5
BAKER BOTTS
Trade Tools – New Taxes on Imports
• The border adjustment tax is intended to stimulate U.S.
economic activity, and deter corporate inversions and base
erosion
• Permanently denying tax deductions for the costs of imports
(including products, services, and intangibles), and
permanently exempting sales of exports from U.S. tax
• The Administration also has floated the idea of a border tax
that works by imposing a tax on imports
• President Trump’s recent tax reform proposal does not include
a border adjustment tax
• Congress may still press forward with a border adjustment tax
as part of the tax reform package
6
BAKER BOTTS
Trade Tools – U.S. Trade Laws: AD/CVD
Antidumping
Dumped imports
Domestic industry materially injured
or threatened with material injury
Duties on imports equal to the
dumping found
Countervailing Duties
Foreign subsidized imports
Domestic industry materially injured
or threatened with material injury
Countervailing duty equal to the ad
valorem value of subsidies
Statutory time limits for investigations
Final outcome is nondiscretionary
Relief is prospective only
Fear of retaliation in foreign countries that are subject to investigation
7
BAKER BOTTS
Trade Tools – U.S. Trade Laws: Other Petitions
• US escape clause (safeguard) law (Section 201 of the Trade Act of 1974)
– Volume of imports of an article cause serious injury (no allegation of unfair trade)
– President decides on relief to provide (limited time period and other restrictions)
• Section 337 of the Tariff Act of 1930
– Addresses other unfair trade practices not covered by AD or CVD laws
– Practices must threaten or destroy/injure an industry or monopolize trade in US
(except for IP infringing acts) -- U.S. Steel Corporation complaint
• Section 232 of the Trade Expansion Act of 1962
– National security threatened by imports of an article
– Recently invoked by Administration against foreign steel and aluminum imports
• Section 301 of the Trade Act of 1974
– formal method for private interest to raise issues of actions of trading partners
that either violate agreements or are otherwise unfair to US interests.
8
BAKER BOTTS
Trade Tools – U.S. Trade Laws: Delegations
President wields delegated authority to impose trade relief measures under a
number of U.S. trade laws:
• Trading with the Enemy Act of 1917 §5(b)(1)(B) -- broad power during time of war
• Tariff Act of 1930 §338(a) -- duties in response to unfair treatment of US exports
• Trade Act of 1974 §122 -- temporary import relief for balance of payments problem
• Trade Act of 1974 §501 -- duty free treatment from beneficiary developing country
• International Emergency Economic Powers Act of 1977 §203 -- national emergency
Limited by defined conditions and frequently include time restrictions
President can withdraw from existing trade agreements (e.g., WTO, NAFTA) with
6 months notice
9
BAKER BOTTS
Trade Tools – National Security Reviews/CFIUS
Committee on Foreign Investment in the United States (CFIUS)
• Seeing enhanced scrutiny under current authority
• Potential enhancements/changes to CFIUS review jurisdiction
– Addition of food safety, biotech, agriculture products and technology to
definition of national security
– Require consideration of acquisition’s effect on labor and employment,
environmental effects
– Apply a net economic benefit analysis (similar to Canadian reviews)
– Elimination of the “greenfield” acquisition exemption to CFIUS review
– Blocking acquisitions where certain foreign governments (e.g., China and Russia)
would control the U.S. business
• Changes would likely have wide bipartisan support
10
BAKER BOTTS
Impacts of U.S. Trade Policy – China
• Existing concerns with trade with China
– Dumped or subsidized imports causing economic harm to U.S. industries
– Unfair competitive behavior by state-owned enterprises
– Currency manipulation
– Barriers to investment, in-country operations, and market access
– Theft of intellectual property and American trade secrets
– Cybersecurity
• Aggressive U.S. trade measures could cause U.S. companies operating
in China to face higher scrutiny
• U.S. companies may be subject to regulatory harassment, including –
– Customs and tax audits
– Antitrust and anticorruption investigations
– National security threat accusations
– Delays in processing licensing applications
11
BAKER BOTTS
Impacts of U.S. Trade Policy – NAFTA
• NAFTA came into force on January 1, 1994
• Eliminated tariffs and non-tariff barriers on goods produced and traded
within North America
• Potential changes if NAFTA discussions reopened (NAFTA 2.0)
– Country of Origin : Raise content requirements & eliminate loopholes
– Dispute Settlement : Eliminate trade and investor-state mechanisms
– Buy American : Eliminate waiver for Mexico and Canada
– E-Commerce : Update NAFTA to include rules, using TPP as a model
– Services : Eliminate obstacles to services (e.g., express delivery) exports
– Currency Manipulation : Create binding rules, subject to trade sanctions
– Labor Mobility : Increase versus restrict labor mobility
– Customs : Simplify paperwork and raise shipment value thresholds
– Border Infrastructure : Improve infrastructure to facilitate cross-border trade
– Labor & Environment : Strengthen provisions and include in NAFTA 2.0
12
BAKER BOTTS
Trade Considerations for Companies
• Negotiations create unpredictability which
disrupts supply chains
• Border adjustment tax raises goods and services
costs
• Statements and actions have chilling effect on
foreign direct investment
• Tighter NAFTA rules of origin limit content from
outside North America
• Exporters vulnerable to retaliatory measures by
trading partners
• Focus on Buy American is a double edged sword
for government contracts
• Trade protection may help some domestic
industries while raising costs for others.
13
BAKER BOTTS
Business Planning for the Possible
14
Trade
Policy
Monitor
developments
& timetables
Assess
impact on
your business
Develop
contingency
plans
Build
industry
alliances
Engage with
government
officials
BAKER BOTTS
Options for (EU) Companies Affected by (possible) U.S.
Measures Affecting Exports to the US
1. Try to prevent
– political and legal arguments
2. Explore domestic remedies in the U.S.
3. Alert European Commission and EU Member States
4. Pressure for WTO case
5. Counterveiling duty (CVD) complaint in EU
6. International Centre for Settlement of Investment Disputes (ICSID) arbitration against US
16
BAKER BOTTS
General EU Approach
• Committed to multilateral trading system
– negotiates at WTO on behalf of all EU Member States
– seeks to ensure market access for European companies
• Committed to rules-based approach
– does not support unilateral measures
– appears regularly before WTO dispute settlement body (DSB) (as complainant and defendant)
– generally complies with WTO rulings (exceptions politically very sensitive cases, e.g., beef)
17
BAKER BOTTS
Border tax adjustment
• Proposal
– x% cash flow tax on revenue of domestic sales
• domestic input can be deducted from domestic revenue
• imported input canot be deducted from domestic revenue
– 0% corporate tax on revenue of export sales
• WTO inconsistent discrimination of imported products vs domestic products
– tax on imported products exceeds tax on domestic products
– VAT is the same for domestic and imported products
• Prohibited export subsidy
– direct or indirect tax?
– if indirect tax: same as for domestic products?
18
Domestic sales / input
Wages (not
taxed)
Other (taxed)
Imports
Wages
(taxed)
Other
(taxed)
Export sales
Wages (not
taxed)
Other (not
taxed)
BAKER BOTTS
WTO Dispute Settlement - Process
• Step 1: Consultation
– Countries must attempt to settle dispute
• Step 2: Panel
– 3/5 experts consider arguments & evidence and issue a report
• Step 3: Appeal to Appellate Body
– Appeal on points of law only - cannot re-examine evidence
– Can uphold / modify / reverse Panel's legal findings
• Step 4: DSB adopts Panel / Appellate Body Report
• Step 5: Implementation
• Step 6: Dispute on implementation and arbitration on compensatory measures
19
BAKER BOTTS
WTO Dispute Settlement - Implementation /
Compensation
• Losing defendant must comply with DSB ruling within a "reasonable period of time"
• Consequences of non-compliance:
1. Compensation for complainant (e.g., tariff reductions)
2. Retaliatory measures by complainant (e.g., increasing import duties)
• DSB must grant permission for retaliation
• DSB continues to monitor defendant's compliance even if retaliatory measures are authorized
3. Amount of compensation / retaliation = amount of trade affected by WTO-inconsistent measure
4. $ 4 trillion in US-Foreign Sales corporations
20
BAKER BOTTS
WTO Dispute Settlement - Timeline
• Targets
– 1 year for Panel Report + 3 months for
Appeal + time for implementation
• Reality
– Surge in complaints has strained DSB
resources and created backlog
– 3 years panel + 1 year AB + 3 years
implementation / authorization to impose
adopt retaliation
21
BAKER BOTTS
Options for (EU) Companies Affected by (possible) U.S.
Measures Affecting Exports to the US
1. Try to prevent
– political and legal arguments
2. Explore domestic remedies in the U.S.
3. Alert European Commission and EU Member States
4. Pressure for WTO case
5. Counterveiling duty (CVD) complaint in EU
6. International Centre for Settlement of Investment Disputes (ICSID) arbitration against US
22
BAKER BOTTS
Trade Implications of Brexit
1. UK-EU 27 Trade
– UK headed for "hard" Brexit
– UK companies no longer have access to EU internal market
– Worst-case scenario: trade on WTO terms
2. UK-US Trade
– UK no longer covered by any EU trade agreements
– EU trade measures (including AD and CVD duties) no longer applicable to imports into the UK
– UK can only start negotiating deal with US after it has formally left the EU (i.e., after March 2019)
3. EU 27-US Trade
– No immediate consequences
– But companies importing to the EU through the UK may need to adapt
23
BAKER BOTTS
Some Conclusions
• Uncertain times lie ahead
– Will the Trump administration implement unilateral measures?
– How will the EU, China, and others react?
– Can the WTO survive--and how--if the US were to systematically ignore adverse
rulings or adopt unilateral measures to challenge real or perceived WTO violations?
– What about the future of NAFTA?
– What will Brexit look like?
• Unpredictable effects on all companies relying on a global supply and sales
chain
• Companies should explain to decision-makers the benefits of open markets
• Hope for the best and prepare for the worst
– detailed analysis of current supply and sales chains and assessment of possible
adverse effects and possible counter measures
24
BAKER BOTTS
IRAN
• 2016 Implementation of Joint Comprehensive Plan of Action ("JCPOA)
– U.S. persons remain broadly prohibited from engaging in
transactions or dealings involving Iran, including the Government of
Iran.
– Three aspects of primary sanctions were eased:
• General License H authorizes:
– U.S.-owned or -controlled foreign subsidiaries permitted to engage in Iran
related activities, subject to limitations; and
– Limited exceptions to U.S. person "facilitation" prohibition with respect to
their foreign subsidiaries' initial engagements in or with Iran.
• Aviation
– Favorable licensing policy for sale or lease of commercial passenger
aircraft, spare parts/components, and associated services
• Imports
– U.S. persons are generally authorized to import certain Iranian-origin
carpets and foodstuffs and conduct related dealings. 26
BAKER BOTTS
IRAN: Challenges Beyond Implementation Day
• Partial easing of Iran sanctions presents opportunities for (non-U.S.)
companies and banks but also key challenges:
1. Greater disparity between U.S. and EU sanctions laws
2. Uncertainty arising from prospect of “Sanctions Re-Implementation Day” due to
snap-back
3. Concerns surrounding the enduring enforcement consequences of failing to
comply with sanctions regulations
4. Risk of disguised/indirect transactions with Iran
• U.S. sanctions against Iran will continue to be strongly enforced by the
USG.
27
BAKER BOTTS
RUSSIA/CRIMEA
▪ "Specially Designated Nationals"
(SDNs)
▪ Blocked property and imposed travel
restrictions on designated parties
▪ Russian officials, politicians,
businessmen
▪ Russian and Ukrainian entities
▪ Russian defense companies
• "Sectoral sanctions" prohibit
targeted activity in banking, defense
and oil and gas development and
production
• Embargo on trade with Crimea
28
BAKER BOTTS
DOJ (National Security Division) Guidance on Voluntary Self-Disclosures,
Cooperation, and Remediation in Export Control and Sanctions Investigations
Overview
o Encourages voluntary self-disclosure ("VSD")
of potential criminal violations of U.S. export
controls or sanctions to NSD's Export
Control Section ("CES") in order to
potentially receive reduced penalties
o Sets out the criteria CES will use in
exercising prosecutorial discretion and
determining potential benefits to businesses
that make a VSD
o Resolution depends on the totality of the
circumstances and the specific facts
o Does not alter the standard practice
requiring companies to submit a VSD to the
appropriate regulatory agency (i.e., OFAC,
BIS, or DDTC)
What's New
o To receive cooperation credit, a company
must make a separate VSD within a
"reasonably prompt time" to NSD (CES) at
the outset after determining that the
conduct disclosed to the other agency "may
have been willful"
29
BAKER BOTTS
Sanctions Enforcement- ZTE Corp.
1. Companies are operating in an active enforcement
environment
• "We are putting the world on notice. . .Those who
flout our economic sanctions and export control
laws will not go unpunished - they will suffer the
harshest of consequences." - Commerce Secretary
Wilbur Ross
2. Mandatory independent compliance monitors as part
of plea agreements will likely increase; potential for
export debarment
3. Vigilant third-party due diligence is a must
• If you are working with intermediaries, ensure a
risk-based compliance program
4. Ethical considerations raised by the ZTE case
30
BAKER BOTTS
Sanctions Considerations in International M&A:
Limiting/Avoiding Successor Liability
• Pre-Closing Diligence
• Diligence questionnaires/information requests
• Contract considerations
• Dealings with lending institutions
• Post-Closing Compliance Review and Integration
• Continued diligence
• Compliance training
• Consider risks/benefits of pre/post-closing Voluntary Self-
Disclosure(s)
• USG licensing
BAKER BOTTS
Panelists
Shari Sacks
Senior Counsel │ Praxair, Inc. │ +1.203.837.2550 │ [email protected]
Shari Sacks is Senior Counsel for Praxair, Inc. and has been with the company for over 17 years. Ms. Sacks
received her Juris Doctor from New York University and practices in the areas of corporate and finance,
healthcare, procurement and international trade. She provides legal support for the company’s global
trade management program, working closely with the business and the company’s corporate trade
compliance department in a variety of transactions for various industries the company serves, including
healthcare, aerospace, chemicals, food and beverage, electronics, energy, manufacturing, primary metals
and many others. Praxair, Inc., a Fortune 300 company, is the largest industrial gases company in North
and South America and one of the largest worldwide. The company produces, sells and distributes
atmospheric, process and specialty gases, and high-performance surface coatings.
Matthew West
Partner │Baker Botts L.L.P. │ +1.202.639.7729 │[email protected]
Matthew West is a partner in Baker Botts’ Global Projects Practice Group in Washington, DC. His practice
focuses on international transactions, U.S. regulation of international trade and investment and global
trade policy. Mr. West represents clients in trade remedy and customs proceedings before the U.S.
government. Additionally he assists clients with all aspects of export controls and economic sanctions,
U.S. Antiboycott Regulations, the U.S. Foreign Corrupt Practices Act, and Exon-Florio (CFIUS) proceedings
and customs issues. Mr. West has worked extensively with clients on compliance systems planning in
these areas.
33
BAKER BOTTS
Panelists (continued)
Georg Berrisch
Partner │Baker Botts L.L.P. │+32.2.891.7340 │[email protected]
Dr. Georg M. Berrisch, a German Rechtsanwalt, is recognized as one of the most experienced trade
lawyers in Brussels, having practiced a broad range of trade matters for over 25 years. He is highly
regarded by clients for his practical advice on external trade, including export control of Dual Use Goods
and the operation of the EU’s economic sanctions against Russia, Iran, Syria and other countries. He also
regularly represents clients in EU anti-dumping and anti-subsidy investigations and assists them on issues
arising in the World Trade Organization.
Outside the area of International Trade, Dr. Berrisch is recognized as an effective litigator before the Court
of Justice and the General Court of the EU. He is known for developing innovative legal and political
strategies in complex contentious proceedings before the European Commission and other EU
institutions, in areas such as competition, state aid and trade.
Ginger Faulk
Partner │ Baker Botts L.L.P. │1.202.639.7756 │[email protected]
Ginger Faulk is a partner in Baker Botts’ Global Projects Practice Group based in the Washington office.
Ms. Faulk advises and represents multinational companies on matters involving U.S. government
regulation of foreign trade and investment and international transactions. She has broad and deep
experience advising companies in a variety of industries in compliance and enforcement matters involving
U.S. export controls, U.S. economic sanctions, and the Foreign Corrupt Practices Act (FCPA) and
frequently represents buyers and sellers in U.S. national security reviews conducted by the Committee on
Foreign Investment in the United States (CFIUS).
34
AUSTIN
BEIJING
BRUSSELS
DALLAS
DUBAI
HONG KONG
HOUSTON
LONDON
MOSCOW
NEW YORK
PALO ALTO
RIYADH
SAN FRANCISCO
WASHINGTON
bakerbotts.com
©Baker Botts L.L.P., 2017. Unauthorized use and/or duplication of this material without express and written
permission from Baker Botts L.L.P. is strictly prohibited. Excerpts and links may be used, provided that full and
clear credit is given with appropriate and specific direction to the original content.