The ChamberPost

Business Applauds as Court Upholds Investor Protections

by Sean Heather

As the Obama Administration concludes its review of the U.S. Model Bilateral Investment Treaty (BIT), today’s Manhattan federal court decision by Judge Leonard Sand in a case between Chevron and the government of Ecuador is welcome news. Moreover, it has broad implications for the business community and the protections afforded to international investors.

Some critics have called for U.S. BITs to be stripped of their provisions allowing investors who believe they have been treated unfairly by a foreign government to have their case decided by international arbitration. Arbitration allows them to avoid resolving their differences with a sovereign nation in that nation’s courts.

These criticisms were heard during the Obama Administration’s review of the Model BIT, which is apparently drawing to its conclusion. The contention is that foreign investors somehow have a right not afforded to U.S. citizens as they can take their claims against the U.S. government out of U.S. courts and into international arbitration.

Leaving aside the many constitutional arguments that counter this claim, as well as the fact that the U.S. government has never lost an investment dispute in arbitration, today’s ruling again sets the record straight. Ecuador was essentially asking a U.S. Court to negate Ecuador’s commitment under its BIT with United States and revoke Chevron’s right to have its investment dispute settled through international arbitration.

Had Judge Sand sided with Ecuador, it would have rendered every BIT that protects U.S. investment abroad essentially null and void. No longer would U.S. companies investing abroad be able to take comfort that their investments were protected and assured a fair hearing in the event a dispute with a foreign government arose.

Allowing the possibility of international arbitration helps ensure the rule of law is upheld and that companies making investments around the world aren’t subject to court systems that are often susceptible to political manipulation.

It might be wishful thinking, but today’s ruling should put to rest any further debate around the appropriateness of investor-state arbitration. If not for everyone, at least, it should be enough of an endorsement to keep it as part of the highly successful U.S. BIT program.

The Week in Antitrust - EU Intel Decision

by Sean Heather
 
Leaving aside the merits of the Intel case, the Chamber's press release on the EU Commission's Intel decision called the huge fine part of troubling pattern in EU competition cases.  The sheer size of the fine begs questions that strike to the heart of procedural fairness and the method in which fines in the EU are calculated. 

How can the same behavior that has been deemed anti-competitive in Korea be a $26 million violation (as was the case last year), while this week the EU valued it at $1.44 billion.  Judging from Intel’s  2008 Annual Report, it doesn’t appear that Intel does 55 times more business in Europe than it does in Korea. 

Further, the EU Commission is able to fine companies up to 10% of global revenues, that’s right global revenues.  Today there are roughly a 100 antitrust authorities in at least half as many countries.  What if every jurisdiction adopted the same 10% approach?  How many times can a 100% of revenues be divided?  Even at 4% of global revenues, which was Intel’s fine, should Europe be able to base its fines on sales outside their jurisdiction?

In antitrust circles globally much has and is being done to bring together substantive convergence, however, it is becoming increasingly clear, not just in Europe, that a similar effort is desperately need to ensure a level of convergence around due process.  Policies governing the use and size of fines might be one good place to start.

The Week in Antitrust - Section 2 Report

by Sean Heather

Monday’s formal withdrawal of last year’s Section 2 report was just that – formal.  Or to put it another way, it was predictable.  Varney during her confirmation process earlier this year telegraphed the move by essentially praising the work that went into the report, acknowledging it as credible contribution to the debate on single-firm conduct, but also clearly stating she disagreed with its conclusions. 

On Monday she restated all of this in the closing line of the Department’s official press release “I want to commend the efforts of those who participated in the Section 2 hearings. While I do not agree with the conclusion of the Section 2 Report, I do believe that the hearings and the report provide a valuable discussion of the enforcement issues involving single-firm conduct.”

Since the announcement and Varney’s Tuesday speech at the Chamber everyone seems to be asking – What does this mean?  How do we know what policy will guide future enforcement actions?  Does this mean the U.S. is adopting the EU approach?  Perhaps most of all, “What company may be next?”  The answer is time will ultimately tell. 

The Chamber issued an essay reflecting on the Section 2 Report earlier this year.  In our essay we argued that the final report itself was a credible contribution to the debate on single-firm conduct.  We pointed out that the criticisms level against the report were not as well substantiated, but acknowledged that people can look at the same set of facts and come to different conclusions.

Although coming at it from the other side’s perspective, Varney’s comments which commended the report, but disagree with its conclusions sounds a lot like the moderate tone found in the Chamber’s Section 2 essay.  Perhaps that in and of itself is a clue as to where section 2 enforcement is headed.

Life Without Doha

by Sean Heather

With everyone Monday morning quarterbacking the collapse of the Doha negotiations there has been no shortage of color commentary and analysis of what happened.  But few have begun to ask, or better yet answer, the question of what happens next?  Yesterday’s WSJ op-ed "Greasing the World Economy Without Doha" by Daniel Ikenson offers a good glimpse into a new direction for global trade policy.

Ikenson rightfully reminds us all is not lost. In fact there is already a significant success story that is a result of the current global trading systems. He further suggests that a more inward focus by countries toward gaining efficiencies with respect to trade facilitation could yield sizeable economic gains.  He makes a very credible case. He rightfully points out that tariffs are only one form of barrier that hinders global trade and market access, he goes on to further list other plagues like "corruption, administrative incompetence, superfluous paperwork, transportation monopolies, and the use of antiquated technology."  Domestic regulatory policies should be added to the list.

Domestic regulatory frameworks worldwide are increasingly in conflict and create market distortions that can be every bit pernicious as tariff barriers. The local nature of regulations severely hinders the global nature of the world’s economy, making it vastly more difficult for companies to compete in multiple markets. In fact, Ernst and Young’s strategic business risks report for 2008 named global regulatory challenges as the number one global business risk. If large multinationals struggle to navigate myriad bureaucracies what hope is there for small and medium enterprises?

Regulators live in different worlds than trade negotiators and international work as part of a regulators normal course of work can be down right foreign. A bridge needs to be built between the trade world and the regulatory world given the proliferation in the number of regulators around the world, the vast number of divergent regulations being promulgated, and the challenges placed on commerce to comply. Additionally, for those governments looking to maintain protectionist policies, regulatory policies offer up an avenue to side negotiated trade deals.

The fact is the Doha round, if it could have successfully been resolved, would have done little to reign in market distorting regulatory policies. Herein lays a tremendous opportunity for global trade policy.

The good news is there are conduits in place with key U.S. trading partners that could use the energy and attention of the business and trade community that had previously been dedicated to Doha. The U.S.-EU dialogue launched last year know as the Transatlantic Economic Dialogue or the Security and Prosperity Partnership of North American that we have with Canada and Mexico are two that immediately spring to mind. Both of these dialogues are prime venues for addressing regulatory challenges to open and competitive markets. In fact, it has been estimated that ironing out regulatory differences between the U.S. and the EU would amount to 2-3% increase in GDP for both sides.

Doha symbolizes the traditional meat and potatoes of trade policy – tariffs.  Combating market distorting regulations and promoting regulatory policies that open and enhance competitive markets will dominate trade debates for decades to come. The time to begin to think about how best to address these regulatory challenges is now.