Recent Developments in Customs and International Trade Law
Free Trade Agreements with South Korea, Panama, and Colombia move closer to final passage
On Monday, October 3, 2011, after years of stalled progress and political wrangling by both opponents and proponents, President Obama submitted the texts of three Free Trade Agreements (FTAs) to Congress. The FTAs, between the U.S. and South Korea, Panama, and Columbia, respectively, should proceed through the House and Senate quickly, since House Majority Leader Eric Cantor has already introduced them as standalone bills (Colombia – H.R. 3078; Panama – H.R. 3079; South Korea – H.R. 3080); since House Speaker John Boehner has labeled the agreements a “top priority for the House”; and since House Ways and Means Committee Chairman Dave Camp has committed to having all three agreements marked up on Wednesday “so that they can be considered as soon as possible by the full House.”
The recent standoff over these three agreements has centered on the Trade Adjustment Assistance program (TAA), which provides extended unemployment benefits to workers displaced by globalization. Negotiations have, however, resulted in a TAA compromise that permits the FTAs to move forward in the ratification process and permits the FTAs and the TAA to be addressed by Congress concurrently.
In terms of the benefits to be derived from these three agreements, below are some of the highlights.
The U.S.–Korea Trade Agreement
The U.S. International Trade Commission (ITC) has estimated that the tariff cuts alone in the U.S. – Korea trade agreement should increase exports of American goods by $10 billion to $11 billion, as the agreement would eliminate tariffs on over 95% of industrial consumer goods within five years. The agreement will also open up South Korea’s $580 billion services market, creating jobs for American workers in sectors such as delivery and telecommunications services, distribution, and energy and environmental services.
The U.S.–Panama Trade Agreement
This agreement grants American companies access to Panama’s $21 billion services market, including dynamic industries such as financial, telecommunications, computer, distribution, express delivery, energy, environmental, and professional services. Moreover, U.S. products in industries such as information technology equipment, agricultural and construction equipment, aircraft and parts, medical and scientific equipment, environmental products, pharmaceuticals, fertilizers, and agro-chemicals will immediately gain duty-free access to the country.
The U.S.–Colombia Trade Agreement
The Colombian economy is the third largest in Latin America. This translates into what the ITC estimates as a tariff reduction-driven export expansion of more than $1.1 billion. In addition to over 80% of U.S. products gaining immediate duty-free access, remaining industrial tariffs will be phased out over 10 years and virtually all other tariffs will be eliminated within 15 years. The agreement will also provide American companies access to a services market estimated at $166 billion.
Does your company envisage engaging in these new avenues for international trade? If so please feel free to contact one of the attorneys at Middleton & Shrull. We will be monitoring the progress of these FTAs closely and look forward to discussing with you how they might best be taken advantage.
The Foreign Corrupt Practices Act: a growing concern for exporters and their corporate officers
The FCPA was enacted in 1977 in order to make it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.
Specifically, the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.
Since 1977, the anti-bribery provisions of the FCPA have applied to all U.S. persons and entities, as well as certain foreign issuers of securities. With the enactment of amendments in 1998, the anti-bribery provisions of the FCPA were expanded to also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.
Why should you be concerned as an exporter?
Last year, the U.S. government initiated a record number of FCPA enforcement actions, and penalties associated with FCPA violations have become increasingly severe. In fact, 2010 and early 2011 gave rise to eight of the ten largest monetary settlements for FCPA violations ever (the largest, Siemens at $800 million, and second largest, KBR at $579 million, occurred in 2008 and 2009 respectively), with the combined fines and penalties to the SEC and DOJ exceeding $1.8 billion. These include BAE at $400 million, Snamprogetti Netherlands at $365 million, JGC Construction at $218.8 million, Daimler AG at $185 million, Technip S.A. at $338 million, Alcatel-Lucent at $137 million, Panalpina at $81.8 million, and Johnson & Johnson at $70 million. In many of these instances, even though the violations were perpetrated by the foreign entity, the U.S. parent or affiliate was ultimately held liable.
Although these well publicized cases involved large companies in which cultures of bribery were pervasive and where there were multiple violations over long periods of time, the SEC and DOJ have initiated investigations and prosecuted companies that have violated the law on a much smaller scale.
What about civil or criminal action?
A October 4, 2011 report issued by the law firm Chadbourne & Parke LLP reviewed the circumstances surrounding 61 individuals who were the subject of government-initiated civil or criminal action alleging FCPA violations in the past six years. The study determined the following:
• The majority of those who were charged with civil and/or criminal FCPA violations held the titles of President, Chief Executive Officer, or Chief Operating Officer.
• Mexico, Central America and South America were the areas where alleged bribes were most often linked to prosecutions, accounting for 44% of cases studied. Other regions accounted for the following percentages: Asia (32%); Africa (21%); and Europe (3%).
• Although in general the risk of civil and/or criminal liability increased as the amount of the alleged bribes were paid, the report determined that there were almost as many cases with bribes totaling between $100,000 - $500,000 and $500,000 - $1,000,000 as there were with bribes totaling between $1,000,000 - $2,500,000.
• As an individual’s level of knowledge and/or involvement in the alleged bribe increased, the risk of civil and criminal charges being filed grew substantially.
Conclusion
FCPA enforcement activities that target both companies and individuals, have been trending up steadily over the past decade and the number and scope of such cases has increased significantly over the past several years. Because of the priority that the SEC and DOJ have been placing on conducting anti-bribery investigations and prosecuting violators, companies engaging in cross-border operations should not only educate themselves concerning the provisions of the FCPA, but also evaluate the extent of their exposure to the FCPA and draft an effective FCPA compliance program. We here at Middleton & Shrull would be honored to help your company in this endeavor.
Matthew Bock
Associate Attorney
Middleton & Shrull - Customs and International Trade Lawyers