National Lawmaking Powers and the Regulation of U.S. Trade

1. National Lawmaking Powers and the Regulation of U.S. Trade Chapter 8 © 2002 West/Thomson Learning

2. Trade Law and Foreign Policy? • Trade law governs trade relations with foreign countries including export and import laws • Trade law reflects not only economic policy but foreign policy as well • Examples: Cuba Embargo, Soviet Grain embargo, China, North Korea, Libya, Iran, Myanmar

3. Regulation of US Trade • Allocation of power between Congress to regulate commerce with foreign nations and among states (Article I) and President (Article II). • Trend of Increasing Presidential Power • Delegated Power by Congress • Need for Flexibility

4. Legislative Power • Article I: Congress has “all legislative powers” • Article I, Sec. 8: commerce clause – power to regulate foreign commerce • Delegate Power to President • Senate: Ratify Treaties by 2/3 vote

5. Presidential Power • Power to negotiate treaties • Power to appoint ambassadors • Commander in chief • Inherent executive powers: • sole- executive agreements • Powers delegated by Congress • Congressional – Executive Agreement authority granted by statute, joint resolution or treaty

6. Youngstown Sheet & Tube v. Sawyer • Limits to Presidential Power: Truman’s Seizure of Steel Mills during Korean War • Inherent Executive Power • Power as Commander in Chief • Seizure Here Not Authorized by Statute • Selective Service Act • Defense Production Act • President Not Executing Congressional Policy – So Act Not within Executive Power • Justice Jackson: Concurring Opinion: Presidential Power • At Maximum when Acts Pursuant to Express or Implied Authorization by Congress • In Absence of Congressional Grant: Must Rely on Inherent Powers • Acting in Ways Incompatible with Express or Implied Will of Congress – Power “At Lowest Ebb” • Congressional Provisions on Seizure of Private Property Limit Presidential Action • Commander in Chief Power Does Not Supersede Representative Government of Internal Affairs • Congressional Limits on Using Army to Execute General Laws • When “Turned Outward” – Wide Latitude • When “Turned Inward” – No Latitude • Presidential Seizure of Steel Mills was Unconstitutional

7. Treaty Power • Article II, Sec. 2: President has power to negotiate treaties • “With advice and consent of Senate” • Senate: Ratify Treaties by 2/3 vote • Domestic Effect of Treaties • Self-executing: Become law once ratified • Non-Self-executing: Require Act of Congress or President to have legal effect

8. McNamara v. Korean Air Lines (3rd Cir. 1988) • Facts: M dismissed by KAL as part of reorganization • KAL replaced American managers with younger Koreans • M sued KAL for employment discrimination under Title VII and the ADEA • Trial court held that FCN treaty permitted conduct; M appealed • Issue: Was KAL subject to US EEO law or did FCN treaty apply? • Decision: CA remands to consider if discrimination was intentional • Reasons: Art. VIII of FCN doesn’t shield KAL from liability for intentional discrimination • But FCN does shield from liability for disparate impact discrimination • CA relied on Sumitomo v. Avagliano (SC 1982) holding that FCN did not apply to US subsidiary of foreign corporation

9. Are all agreements treaties? Dole v. Carter (D.Kan. 1977) • Facts: President Carter made an agreement to return historic regalia to Hungary. • Issue: Did the President exceed his authority under the Constitution by entering into a treaty with Hungary without the advice and consent of the Senate? • Decision: No. • Reasons: This was not a treaty but an executive agreement made pursuant to the President’s Constitutional inherent executive authority. • Agt. here lacks the magnitude of agts. Concluded in treaty form • Action here of limited duration in time: no on-going commitment

10. Trade agreements • Trade agreements are classic examples of congressional - executive delegated power • Star-Kist v. United States (Cust. & Pat. App. 1959):delegation of authority to president to amend import duties held constitutional • Congress set out sufficiently discernable standard to guide exercise of delegated power

11. Examples of Delegated Power • GATT • Fast Track Negotiating Authority – NAFTA and CAFTA • Emergency powers • Trading with the Enemy Act • International Emergency Economic Powers Act (IEEPA) 1977- basis of economic sanctions

12. President’s Emergency Powers • Trading with the Enemy Act: repealed in 1977 • National Emergencies Act: requires Congressional approval of state of emergency declarations after 1 year • Int. Emergency Economic Powers Act: grants wide discretion to control int. financial transactions • Freeze assets, impose embargos, or other sanctions • Usually implemented by Treasury Dept. • USA Patriot Act: antiterrorism powers • Seizure of property, financial transactions reporting • Some provisions recently held unconstitutional

13. Fast Track Negotiating Authority • Instituted by Trade Reform Act of 1974 • Process: “Trade Promotion Autnority” • President notifies Congress of intent to enter agt. • Congress authorizes President to negotiate • Agreement submitted to Congress within specified time • Congress must vote to accept or reject within a specified time period (usually 60 or 90 days) • Congress can’t amend agreement

14. Preemption of Trade Law: State- Federal Conflict • Supremacy Clause: federal law pre-empts state law • 1996: Mass. law banned business with Myanmar • 1997: Federal Executive order placing restrictions on investing in Myanmar • Crosby v. National Foreign Trade Council (US 2000): Supreme Court strikes down Mass. law on basis of preemption • Import – Export Clause • Commerce Clause • Japan Line, Ltd. V. County of Los Angeles (US 1979): state tax on property used exclusively in foreign commerce violates commerce clause and is unconstitutional • Prohibits state restrictions on exports or and limits restrictions on imports

15. Federal Agencies Involved in Trade • Dept. of Commerce • International Trade Administration (ITA) • U.S. Commercial Service • U.S. Bureau of Industry and Security • Dept. of Homeland Security • Border and Transportation Security • Customs & Border Protection • Immigration and Customs Enforcement • Citizenship & Immigration Services • Transportation Security Administration • Secret Service • Federal Emergency Management Agency • U.S. Coast Guard • 24 Hour Rule: Advance Notice of Shipments to US • U.S. Trade Representative • International Trade Commission (ITC): bipartisan, investigate trade disputes

16. Court of International Trade • Hears cases on trade and tariff law • Jurisdiction over actions against the U.S. involving: • revenue from imports or tonnage • tariffs, duties, fees or taxes on imports • embargoes or quantitative restriction (other than for health and safety reasons) • Administration or enforcement of customs laws.

17. Foreign Corrupt Practices Act • Passed in 1977, amended in 1999 to reflect OECD Convention • Prohibits bribery of foreign officials • Requires firms to establish internal accounting and record keeping mechanisms to detect bribery • Criminal provisions not vigorously enforced • OECD and EU adopted similar provisions

18. FCPA: Anti-bribery Provisions • Anti-bribery provision: prohibits US firms from “corruptly” paying foreign official for assistance in obtaining or retaining business • Prohibits payment to agent if firm knows portion of payment will go to public official • Payment must be knowing • Excepts payment of “facilitating payments” for routine government action • Penalties: fines up to $2 million for firms; fines of $100,000 and up to 5 years in jail for individuals

19. FCPA: Accounting Provisions • Firms required to keep records and accounts that accurately reflect transactions and dispositions of assets • Firms must devise and maintain internal accounting controls to provide reasonable assurances that transactions are authorized and access to assets is tracked • No concept of materiality – relative scale of payments to be tracked

20. FCPA –Review Opinion Procedure Release 10-01 • DoJ review of opinion request • Firm required to hire individuals, at least one is foreign official, to construct and work at facility • Firm will pay $5k per month for one year • Individual’s position and services at facility are separate from role as foreign officer • Individual will not perform services on behalf of firm or make decisions affecting firm • DoJ will not take any enforcement action • Individual is being hired pursuant to agreement btwn. US Govt. Agency and the foreign government • Individual not in position to affect firm – neither procurement nor contracting decisions • Opinion relates only to specific facts of request and has no binding application to any other party or request

21. SEC v. Siemens Aktiengesellschaft(SEC Litigation release, 12/15/08) • Siemens violated FCPA by systematic bribery of foreign officials to obtain business • Created elaborate payment schemes to conceal bribery payments • Inadequate internal controls allowed corrupt practices • At least 4283 payments used to pay government officials – total of $1.4 billion • Kickbacks to Iraqi ministries for work under UN Oil for Food program – made $1.1 billion profit • At least 1185 additional payments to third parties for illicit purposes - $391 million • Siemen’s Board failed to implement and maintain controls required by German adoption of OECD anti-bribery convention and by US FCPA • Corporate culture tolerated and rewarded bribery • Siemens began reforms in Nov. 2006 • Siemens agreed to pay $1.6 billion in fines and disgorgement - $350 million to SEC and $450 to DoJ, $854 to German prosecutors

22. Soleimany v. Soliemany (U.K. – Ct. of Appeal, Civil Div. 1998) • P arranged export of carpets from Iran in violation of Iranian law • Dispute arose between partners, and they signed arbitration agreement before Beth Din under Jewish law • Beth Din disregarded illegality because it had no effect on rights under Jewish law • Beth Din awarded £ 576,574 to P • P sought to have award enforced as arbitration award • Trial court enforced award • D appealed • Appeals Court refused to enforce award • Carpets illegally smuggled out of Iran • English courts would refuse to enforce contract indicating intent to commit illegal act • Arbitrator has no authority to award damages on illegal contract

23. Adler v. Fed. Rep. of Nigeria (9th Cir. 2000) • Facts: A, US citizen, controls Mexican firm • Firm offered $60 million contract with Nigerian oil company • Required to make payments to officials in return for contract – paid officials $5 million • Firm never got contract • A sues for recovery of payments to officials • Trial court refuses to allow recovery – “clean hands” rule • Issue: Can A recover payments to officials • Decision: No; clean hands rule bars recovery • Reasons: Person seeking relief must have acted without fraud or deceit • A attempted to bribe officials to get contract • A was party to scheme to steal $60 million from Nigerian treasury • Won’t let A sue for “failed bribe”