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

2. 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. 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 4

5. 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 6

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 7

8. 8 McNamara v. Korean Air Lines (3 rd 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 21

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 22

23. 23 Adler v. Fed. Rep. of Nigeria (9 th 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”