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E.U. Commission Wants the Financial Sector to Pay

By: T. Christina Colosimo, Associate, The Global Business Law Review

After the global economic crisis, the European Union’s (EU) economy has suffered one of the worst recessions since the 1930s.  The financial sector played a major role in the EU’s economic crisis starting in 2007 with a steady increase of failing banks.[1]  EU governments and citizens committed 4.6 billion euros in an effort to support and rescue the financial sector with taxpayer funded bailouts.[2]

The European Commission’s (Commission) response to the recession has been swift and proactive.  On September 28, 2011, the Commission announced a proposal for a financial transaction tax (FTT) for the 27 Member States as a resource for the EU’s budget.[3]  The Commission’s proposal for the FTT is available at http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/com(2011)594_en.pdf. The proposal requires unanimous support from the 27 Member States, and if approved by all, it would levy a tax on transactions involving financial instruments between institutions if at least one party is located in the EU.[4]  The tax rate for the exchange of shares and bonds is set at 0.1% and a rate of 0.01% on derivative contracts.[5]

The Commission has considered a financial transaction tax since the bailouts.  The financial sector’s contributing role in the financial crisis has piloted the proposal and will ensure that the financial sector contributes at a time of fiscal need. The proposed FTT will raise revenue of €57 billion ($78 billion) in one year, and the tax will strengthen the EU single market.[6]  The FTT is also designed to create a disincentive for transactions that do not enhance the efficiency of the financial markets and will prevent a future crisis.

European governments are split over the merits of the proposed financial transaction tax.  Some fear that the tax may drive business away from the EU, increase the cost of raising capital and damage member states’ economies.[7]  The UK believes that the Commission needs to realign its focus on growth during the recession, rather then implementing a tax that will push the financial sector abroad to New York and Singapore.[8]  Financial Times Newspaper also reported that the proposal could shrink EU’s gross domestic product by 1.76 percent over time.[9]

For the Opening Act: A Greek Tragedy

By: Erik Dickinson, Associate, The Global Business Law Review

On October 27, 2011, after months of uncertainty and growing fears, European leaders reached a three-pronged agreement[1] designed to lower Greece’s debt burden and prevent the crisis from escalating by spreading to other Eurozone states[2] and potentially crippling the European Union and others on the global market. In the few weeks that have followed, many, including the Greeks, have questioned Greece’s place in Europe, a prime minister has resigned, and questions remain.

First, private investors agreed to take a 50% loss on their Greek bonds.[3]  As a result, Greece’s debt will be reduced from the current rate of 160% of its GDP to 120% by 2020.[4]  Second, banks will be required to raise around 106 billion euros in new capital by June 2012.[5]  The goal is that the new capital will protect the banks, as well as larger economies, from any government defaults.[6]  Finally, the Eurozone member states agreed to increase the lending capacity of the European Financial Stability Facility (EFSF)[7] from 440 billion euros to over 1 trillion euros.[8]

The EFSF bailout fund could be leveraged in a handful of ways.  Insurance could be offered to debt purchasers[9] thereby making the bonds more attractive to investors.[10]  Another proposal with support is to create special investment vehicles to allow big investors, including countries like China, to contribute.[11]  Most likely, these and other options would be used simultaneously.

Moving forward from this agreement, EU leaders continued their calls for more stringent financial reform and now square their focus on Italy, the Eurozone’s third largest economy.[12]  Recently, German Chancellor Merkel and French President Sarkozy criticized former Italian Prime Minister Berlusconi for his reluctance to follow through with promised budget cuts and other economic reforms.[13]  EU President Van Rompuy specifically noted that the main concern for Italy is implementation of Berlusconi’s proposals.[14]   Even as this crisis may be averted for now,  the looming question of Italy tempers enthusiasm for this agreement and highlights the balancing act for Europe’s leading economies as they continue charting a path to a more robust unity, continued cooperation, or disappointing abandonment of the EU.

Russia and China Lead the Way in Paying Bribes; U.S. 10th Least Corrupt

In the lead up to our March 30, 2012, Symposium on Anti-Bribery, we will occasionally highlight news focused on the global efforts to combat corruption.  A recent study , as reported by the BBC, conducted by the anti-corruption group Transparency international ranked companies from Russia and China as the most likely to pay bribes to ensure their business dealings go through. “Given the increasing global presence of businesses from the countries, bribery and corruption are likely to have a substantial impact on societies in which they operate and on the ability of companies to compete fairly in these markets.” You may access the BBC’s article and the complete rankings at http://www.bbc.co.uk/news/business-15544841.

Unlike in Iraq and Afghanistan, the U.S. Appears to be Taking a Hands-Off Approach to Libya

By Paul Shugar, Associate, The Global Business Law Review

Since a 27-year-old Muammar Qaddafi seized control in 1969, Libya has known no other leader.[1]  While his relationship with the United States could best be described as neutral in the 1970s, it soured in the 1980s when terrorist attacks in Europe were linked to the dictator.[2]  After U.S. President Ronald Reagan deemed Qaddafi “the mad dog of the Middle East,” U.S. warplanes struck Benghazi and Tripoli in 1986.[3]  Further Qaddafi-sponsored terrorist acts led to Great Britain and France joining the U.S. in imposing United Nations sanctions on Libya.[4]  The U.S.-Libya relationship remained tense until 2003, when Libya renounced its weapons of  mass destruction program after the U.S. invasion of Iraq.[5]  The two countries rekindled diplomatic relations in 2006,[6] but that relationship ended when the U.S. joined the NATO-led operation to overthrow Qaddafi in March of 2011.[7]  Now, the U.S. is left to forge a new relationship with Libya after Qaddafi’s death.

While the U.S. congratulated Libya on its freedom, the U.S. has not clearly defined what its role will be in rebuilding the war-torn country.[8]  After watching Iraq spiral out of control following the ouster of Saddam Hussein, the U.S. appears more than willing to take a back seat to NATO.[9]  Billions of U.S. dollars have been spent rebuilding Iraq and Afghanistan, but the U.S. has sent only $135 million in aid to Libya.[10]  The State Department also announced that it has sought no new congressional funding for aid to Libya.[11]

Whether U.S. companies end up investing in Libya likely will depend on how quickly the country becomes secure again.[12]  Firms that construct or maintain oil fields are currently the only American companies doing business in Libya.[13]  But whom will seize control of Libya’s lucrative oil fields remains to be seen as the country continues to form its new government.[14]  A process that should take time with Libya lacking numerous government organizations,[15] but – unlike in Iraq and Afghanistan – the U.S. appears disinterested in attempting to expedite this process.

Has Justice Finally Arrived for the DRC?

By: Lindsay Raskin, Associate, The Global Business Law Review

The conflict in the Democratic Republic of the Congo (DRC) now ranks as the world’s deadliest conflict since World War II.  Since its outbreak in August 1998, fighting between the factions has led to the deaths of approximately 5.4 million people and created a refugee crisis with more than 1.5 million displaced.[1]  A profound product of this violence, fueled by intrinsic cultural norms in the DRC, is rape.  The international community considers the DRC the rape capital of the world.  Current studies estimate that 1.8 million women in the DRC are raped during their lifetime at a rate of 48 rapes every hour.[2]

On August 12, 2011, the DRC’s parliament finally took action by adopting legislation creating a specialized court to hear cases of war crimes, crimes against humanity and genocide committed in the DRC since 1990.[3]  While many human rights advocates consider the action taken by parliament a triumph, it is unclear whether a specialized tribunal is the most effective forum for victims of these humanitarian crises.  The international community tends to favor specialized tribunals, which have been seen in East Timor and Cambodia, because the country where the conflict occurs bears the burden of providing the majority of funding for the tribunal as well as the majority of the tribunal’s staff.[4]

Despite recent action, rape continues to be one of the most common crimes committed in the DRC, and reporting its commission is still taboo in Congolese society.[5]  Women who are raped are viewed as “dirty” and are often forced to “weigh [their] desire for justice against the social consequences.”[6]  Thus, despite the strides the DRC has made in recent years, the country currently lacks the infrastructure and support programs for the victims of these crimes.  If women are unwilling to come forward, how can they ever receive justice?  Furthermore, not even the ICC is a suitable forum for justice for the victims of rape.  While the Lubanga case is the first case in which the ICC allowed victims to participate, the names of those who participate in trials at the ICC are widely known.[7]  Thus, the victims of rape who testify will face the same social consequences—namely the risk of being ostracized from their community—that they would have faced if they participated in a case in the DRC.  Rather than rushing to appease the international community, the DRC, as well as the international community as a whole, should take the time to create an effective forum, such as an ad hoc tribunal, which can protect the identity of rape victims who testify in court and focus on building a system of support and acceptance to aid these victims.

South Korean Free Trade Agreements: U.S. and E.U.

by Robert Molnar, Associate, The Global Business Law Review

The United States and South Korea are moving closer to establishing a free trade agreement between the two countries.  The full text of the proposed agreement is available at http://www.ustr.gov/trade-agreements/free-trade-agreements/korus-fta/final-text. The two countries originally signed the treaty in 2007, but its approval in the U.S. stalled when the auto industry objected to the level of access it would receive to the South Korean market.[1] Three years later, President Barack Obama re-committed the U.S. to the treaty and reached a new agreement by the end of the year.  The Treaty would be the largest free trade agreement signed by the U.S. since the North American Free Trade Agreement of 1994 (NAFTA), and is the first bilateral agreement between the United States and a major Asian economy.[2]

The European Union signed a free trade agreement with South Korea on October 6, 2010.  The European Parliament ratified the agreement in February of this year and the agreement became law in July.  The agreement is designed to decrease trade barriers between South Korea and the EU by 98% over the next five years.[3] Senator Rob Portman of Ohio has cited the EU-South Korea free trade agreement as already successful at boosting imports from the EU to South Korea, and has urged passage of the U.S.-South Korea agreement.[4] Scott A. Snyder of the Council on Foreign Relations has claimed that the agreement will create new American business opportunities in South Korea.[5]

Sherrod Brown, U.S. Senator also from Ohio, has urged President Obama not to submit any free trade agreements to Congress until Congress approves an extension of Trade Adjustment Assistance (“TAA”), a federal government program that helps American workers whose jobs are sent overseas.  Brown, a critic of past free trade agreements, introduced legislation to extend TAA benefits in the Senate, which passed the bill on September 22, 2011.[6]

Earlier this year, The American Lawyer reported that several large American law firms have expressed an interest in opening offices in South Korea.[7] However, expansion of legal services in South Korea may have more to do with the deregulation of legal training by the South Korean government than the pending trade agreement.[8]

Honoring Shark Week

This comment takes no position on the killing of those cuddly animals we call sharks, but what better time, Discovery Channel’s Annual Shark Week, to highlight a basic tension in international law. One of the more difficult challenges of international law simply comes down to cultural perspectives sometimes.  Trade provides some of the more fascinating struggles between advocacy groups and states but also states versus other states.

The article we highlight this week brings attention to the advocacy group Oceana’s attempt to end the trade in shark products by urging the United States to use its power under the Shark Conservation Act of 2010 to ban imports on shark products from China and Japan among others. You can read more about the dispute by clicking here.

In 2010, Oceana put out a report concerning the international trade in Shark Fins which you may read by clicking here.

Should Chinese Producers be Allowed to “Dump”

On its website, The World Trade Organization (WTO)  defines dumping as “a company export[ing] a product at a price lower than the price it normally charges on its own home market . . . .” In light of ongoing disputes even between the U.S. and E.U., the primary target of these “dumping” charges is China.

China continues bringing parties, including the U.S. and the E.U. before the WTO  with the express purpose of maintaining their competitive advantage.  The U.S. and E.U along with countries like Brazil are joining together to argue that producers from Non-Market Economies (NMEs) are at a distinct advantage over local producers  when they “dump” products at lower prices.  China will continue to vigorously fights these practices with some success int he WTO.

We’d like your thoughts . . . Should NME producers be allowed to continue this practice at the expense of workers and businesses in free markets?

ARGH!!!! Pirate Attacks on the Increase

Hollywood and fairy tales may fantasize pirates, but for international maritime trade pirates are certainly a plague. The International Maritime Bureau (IMB) reports that for the first half of 2011 pirate attacks increased to 266 from 196 for the same period of 2010. While more than 60% of these attacks stem from Somali-pirates this is a growing worldwide phenomena. Europe Online Magazine reports that that maritime piracy costs the global economy up to $12 billion last year. You can read more of the IMB’s report here: http://www.icc-ccs.org/news/450-pirate-attacks-at-sea-getting-bigger-and-bolder-says-imb-report.

Challenges Await New IMF Leader

Did you know Europe was now the biggest client of the International Monetary Fund? Newly elected IMF Managing Director Christine Lagarde certainly does. While she may have been the favorite among the inner circle all along, convincing non-European countries of her impartiality is one of many challenges she must confront if the IMF is to be relevant around the globe. You may read more about her selection and the most pressing issues she will be forced to confront by following this link http://www.economist.com/node/18897575