International Trade Issues And Their Resolution

Saturday, September 22, 2012 - 10:54

The Editor interviews Juliet Blanch, Partner in the London office of Weil, Gotshal and Manges LLP and head of the firm’s International Dispute and Resolution practice, and Theodore R. Posner, Partner in Weil’s Washington, DC office.

Editor: Please tell us about your backgrounds.

Blanch: I have been practicing since 1986, so I have seen significant change in the way business is conducted around the world. I am based in London and co-head the firm’s international dispute practice. I have represented clients in disputes taking place in London, Washington, DC, and all over Europe, Central Asia, Asia, Latin America and Africa. My practice includes both litigation and arbitration, although the majority of my practice relates to arbitration, and I advise on both commercial and investment treaty arbitrations. I spent 20 years with the English law firm Norton Rose, where I headed their international arbitration group and was also head of the energy practice, which covered both disputes in the energy world and also the transactional side of energy. I moved to Weil Gotshal to help build its International Disputes practice.

Posner: I am located in Weil’s Washington, DC office and am a member of Weil’s International Arbitration group. About 90 percent of what I do is international arbitration, mostly treaty-based arbitration, as opposed to commercial or contract-based arbitration. These arbitrations are primarily under bilateral investment treaties and free trade agreements. A typical arbitration is between an investor of one country and the government of another country – the host country -- where the investor’s investment is located.

The other 10 percent of my time is spent on international trade work which consists of a variety of different things, including representing companies engaged in mergers and acquisitions in the United States that are subject to review by the Committee on Foreign Investment in the United States. It includes advice on issues related to agreements of the World Trade Organization, free trade agreements and a variety of other legal issues involving U.S. trade statutes.

I came to Weil in February of 2012 following three years at another law firm in Washington, DC. Before that, I spent 10 years in the U.S. government working in various capacities for both the legislative and executive branches, but always dealing with matters related to international trade and international investment. Among other government positions, I worked for the Office of the U.S. Trade Representative where I litigated disputes before the World Trade Organization.

Editor: What are the world’s key emerging industries and where are they developing?

Blanch: Although the energy industry has been in existence for centuries, it is a good example of a key emerging industry. This is because it is constantly evolving with new forms of energy supplies and as new technology develops to enable economic and environmentally safe recovery of oil and gas. For example, shale gas has become an important industry in Northern America and Europe. Renewable forms of energy are also sources of new development. What I find particularly fascinating is the interaction of energy with geopolitics and the fact that this can lead to disputes at a commercial and political level.

Another emerging industry is the water industry. Already, there are disputes regarding access to water resources. Finally, techniques for the extraction of precious minerals that are needed in high-tech applications are constantly evolving.

Work in these industries is frequently necessary in countries where the rule of law is weak. However, the fact that so many Western companies are carrying out business in these emerging markets is beginning to influence those countries to concentrate on the development of their legal systems.

Posner: We are seeing interesting issues associated with solar energy and other renewable energy sources. There is an increase in complaints about subsidies that governments provide to stimulate development of their solar energy industries. I have had a client in a dispute involving alleged subsidies associated with the generation of hydropower. I suspect that we will see more cooperation between industry and government in the development of non-fossil fuel sources of energy, which may give rise to more trade and investment disputes and increased recourse to arbitration.

Editor: Are our industries targets for businesses controlled by foreign nationals? What businesses are being targeted by funds?

Posner: My interaction with the world of mergers and acquisitions is primarily in the context of the activities of the Committee on Foreign Investment in the United States, which is an interagency body of the U.S. executive branch that reviews certain mergers and acquisitions from a national security perspective where there’s a possibility that foreign acquisition of a U.S. business could have an adverse impact on U.S. national security. Energy is an important part of what we refer to in this context as “critical infrastructure,” and so it’s not uncommon to see M&A in the energy sector going before that Committee.

Blanch: What you often find in energy is that a smaller company will undertake the initial exploration, particularly in jurisdictions that are less secure or politically unstable or where legal rights are uncertain. Smaller companies take the risks of pioneering in such areas, and if they are successful, they will become attractive targets for acquisition.

In addition, sovereign wealth funds and private equity are increasingly interested in investing in energy companies.

Editor: Are efforts being made to prevent U.S. companies from moving their headquarters abroad?

Posner: There is an incentive for our political leaders to say that they’re trying to keep U.S. companies in the United States. A number of years ago, the U.S. Congress passed a law dealing with U.S. corporations that move their place of incorporation overseas (“inverted domestic corporations”), which essentially said that if you met the definition of an inverted domestic corporation, your inversion would be ignored for U.S. tax purposes. A later law said that such corporations would be prohibited from bidding on U.S. government contracts. Perhaps companies have gotten the message and now know the problems they’ll face in the event that they try to emigrate with a view to avoiding U.S. taxes.

Editor: Are exports suffering because of the multiplicity of regulations? A lot of businesses talk about the burden of regulations.

Posner: Over the past two or three years there’s been a concerted effort by the United States to work with other governments to pursue “regulatory coherence.” The way it is described by the U.S. officials who are working on it entails harmonizing regulations where that’s possible. For example, a company that does business in both the United States and the EU would not have to deal with two radically different regulatory regimes when it comes to product safety, financial reporting, and various other regulatory hurdles.

There’s a lot of discussion of what is called “upstream harmonization,” where you have an area that neither jurisdiction regulates yet or doesn’t regulate very heavily today. Countries would be encouraged to work together upstream to develop coherent regulations that would avoid inadvertently creating burdens that could impede trade once the area starts to be regulated.

Editor: The U.S. has fewer free trade agreements than other major countries. What, if any, problems does this create for U.S. companies?

Posner: A large sophisticated U.S. company can organize itself so as to take advantage of trade agreements to which the U.S. is not a party, because it is free to locate operations in countries that are parties to such agreements and to export and make its investments from those bases of operation.

Because the United States led the trend of free trade agreement negotiations, it has not been uncommon for negotiators in other countries to look to a U.S. model such as NAFTA. NAFTA set the standard in terms of free trade agreement negotiations. As the United States negotiates fewer new free trade agreements and other countries negotiate more such agreements, we may well see negotiators look to models other than the U.S. model for inspiration.

Editor: What issues are generated by the adoption of national laws with global reach?

Blanch: Global companies based in the U.S. need to ensure that they are not only FCPA compliant, but that they comply with regulatory regimes in each of the countries of the world in which they operate. They must be aware that, like the FCPA, other national regulatory regimes may have international reach affecting conduct that might have taken place outside the relevant country. Further, it’s not necessarily always understood that the way business is conducted and regulated within the U.S. and the way the legal system operates within the U.S. is not always replicated outside of the United States. Conversely, it is important for them to be aware that they may have liability within the U.S. for their actions or the actions of their subsidiary companies outside of the United States.

It should be noted, for example, that the Bribery Act in England is even more onerous than the FCPA in that it creates liability for facilitation payments which are permitted by the FCPA. The Bribery Act applies to companies that have a presence in England. An American company, if it has a presence in England and is undertaking business in a country where it makes facilitation payments, will run afoul of the UK Bribery Act.

Editor: Does your firm advise companies with respect to those kinds of risks?

Blanch: We advise with respect to FCPA and Bribery Act risks. We work with companies and review their business model, consider the industry in which they’re working, analyze the countries in which they’re working and then advise on key risk areas and design a training model for their employees, and, where appropriate, agents and other companies they work closely with. We will help identify the risks and develop systems whereby the company is alerted if an issue should arise in the future.

Editor: Disputes, particularly involving U.S. companies, are becoming increasingly global and thus U.S. companies are increasingly having their disputes heard in non-U.S. forums and sometimes civil law lawyers if an arbitration.

Blanch: As more and more companies operate cross-border, they will inevitably face the risk of disputes with a company that’s based in a country outside the U.S. Just as a U.S. company is likely to feel uneasy about resolving disputes in the courts of another country, their counterparty will equally feel uncomfortable appearing in the American courts.

Arbitration has been found to be the best answer to this dilemma. Parties are more prepared to trust a neutral forum to determine a dispute. A Chinese company and an American company entering into a contract may be more comfortable if their dispute is heard in London or in Paris or somewhere else that they both consider neutral. Enforcement is also facilitated by a multilateral convention, the New York Convention, pursuant to which all signatory countries agree to recognize and enforce any arbitration award that has been issued by an arbitration tribunal in any other signatory country. There is no equivalent convention which has such wide-ranging signatories for the mutual recognition and enforcement of U.S. court judgments.

Posner: A phenomenon that I find fascinating is the extent to which we see disputes being litigated in multiple forums often in parallel with one another. In the area of investment arbitration, we are increasingly seeing cases where a country that is the respondent in a treaty-based arbitration will object to the jurisdiction of the tribunal on the ground that the claimant has brought its complaint in another forum pursuant to a contract, a statute, or perhaps a different treaty.

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