Negotiating The Vast Web Of Trade Rules And Treaties

Monday, May 13, 2013 - 11:42

The Editor interviews Stephen Orava, Practice Group Leader for King & Spalding’s International Trade Group.  He provides information on the scope of his practice, new developments, and advice for how corporate counsel can take advantage of trade rules to grow revenue and profitability.

Editor: Steve, please describe your practice. How do you divide your time between King & Spalding’s Washington, DC office and Geneva, where you are one of the founders and the former managing partner?

Orava:  My practice covers a wide range of substantive areas, including WTO dispute settlement, market access, and trade remedies, including antidumping and countervailing duty (anti-subsidy) cases around the world. We have half a dozen ongoing WTO disputes, numerous market access matters, and ongoing antidumping cases now in China, Brazil, the EU, the United States, and Mexico, including an ongoing NAFTA panel. My practice also includes work on climate change, particularly focused in California. The nature of international trade work also involves trade policy and diplomatic negotiations both in and outside the U.S. While I am not directly involved, I am the leader of our practice that extends to other areas, including trade compliance (export controls, sanctions, and customs) and Section 337 actions, which provide a trade-related remedy to intellectual property violations. I usually spend at least one week a month in our Geneva or London offices or the Middle East helping to facilitate the practices. 

Editor: You recently became practice group leader for the International Trade Group. Describe the challenges you see in leading the group forward.

Orava: The real challenge with a sizable group of over 40 lawyers and professionals is to manage the scope and diversity of the practice, both substantively and geographically. It is important for us to have the experience provided by a global footprint in order to address our clients' interests. Prospectively, we are dealing with a new age in terms of the economic realities of the legal industry. My role is to ensure that we are giving value to our clients by increasingly thinking creatively about how to solve problems for clients - not simply by reacting to a particular legal case or conflict. We’re really seeking to partner with our clients to understand their businesses by identifying where the trade and investment rules can help them in growing their businesses, by being on the front end of new issues in terms of how matters will potentially affect our clients, and by ensuring that we are bringing the best knowledge and experience to matters for our clients with the broadest and most effective menu of expertise. For example, we work closely with our international arbitration group on bilateral investment treaty issues, with our global litigation experts on cross-border disputes, with our public international law experts, and with other groups ranging from corporate to government investigations to Islamic finance. Our objective is to provide the right menu of options to identify opportunities and provide sound advice.

Editor: What are some of the key developments that you are monitoring in the trade area that would be particularly interesting to corporate counsel?

Orava: The development and expansion of applicable trade rules through bilateral and regional free trade negotiations as well as implementation of agreements that have been agreed to previously are much in the public eye. There is also the continuing relationship and difficulties between the U.S. and China in terms of how their trade policies interact and conflict. WTO developments are of high importance with the election of a new director general, which could create new impetus for the global trade alliance. There are ongoing WTO negotiations on a limited scale and stalled negotiations on a broader scale, but the activity is still continuing in Geneva, together with an increasing amount of important dispute settlement proceedings. In terms of U.S. trade developments, the Obama administration has announced that trade is part of its strategy for economic growth in the second term. As part of that program, the President appointed Michael Froman to be the new U.S. Trade Representative. His former role as a key White House insider reinforces the importance of trade in Obama's second term. 

The administration is also involved in intense negotiations on the Trans-Pacific Partnership (TPP) agreement and the launching of the Transatlantic Trade and Investment Partnership (TTIP), a free trade agreement between the United States and the European Union. The latter is a major development that could also have an impact on the willingness of other countries and regions to return to the negotiating table for multinational negotiations. There is also activity on the trade compliance side with new U.S. legislation being proposed for customs and new efforts in the administration to streamline export controls.

We are also watching whether fast-track authority will be granted to the administration by a divided Congress, given the skepticism about whether it’s truly something that Congress is willing to grant the administration. What people often forget is that fast track and the negotiating guidelines and principles that are embodied in the fast-track legislation include positive takeaways for both sides of the political spectrum and could reinforce a consensus for meaningful trade policy to grow the U.S. economy.

Editor: What are the key trade negotiations and what are the highlights to keep in mind over the next year or two?

Orava: The two biggest issues from a U.S. perspective are the Trans-Pacific Partnership and the TTIP. These major initiatives require a lot of energy and effort by U.S. negotiators to reach some understanding with other countries with diverse interests that will facilitate the bringing down of barriers, both tariff and non-tariff.  With the TTIP, we are starting from a much lower threshold than with the TPP in terms of the types of barriers that still exist, but the ones that do exist in the U.S.-EU context are often highly controversial. We have already seen the French draw some bright lines in terms of their audio-visual sector; there are also systemic interests in agriculture that are expected to create challenges for the negotiators. The opportunities are significant, but the question remains whether there is a will to get this done.

Editor: What is your view on the current stalled multilateral trade negotiations (the Doha Round) and their relationship to the significant increase in bilateral and regional free trade agreement negotiations and dispute settlement proceedings?

Orava: The Doha Round has been stalled for quite some time. I think there’s some belief that at least two main factors will perhaps drive the Doha Round to getting negotiators back around the table. One will be the appointment of Roberto Azevedo of Brazil as the new WTO Director General. His extensive experience in Geneva should bring new energy and perhaps a new approach to bringing the parties together in a meaningful way. The other is the significant proliferation of free trade agreements, both the bilateral ones that are happening all around the world and the major regional trade agreements that are being negotiated, including the TPP. There is a general view that this patchwork of FTAs can create some very difficult and distorted incentives, creating winners and losers, whereas the multilateral forum is a better place to bring everybody together.

Editor: What are other issues at play in the multilateral forum (Doha)?

Orava: The least developed nations are certainly a focus of the multilateral negotiations because of ongoing efforts to ensure that all barriers to trade with these nations are removed.  I also think the BRIC countries, Brazil, Russia, India and China, are somewhat wary about entering any agreement multilaterally because of their different sets of interests and, with respect to Russia and China, the concern that they have already “paid” to enter the WTO and should not be required to pay again. While Brazil and India are traditionally concerned with agriculture, China and Russia are driven by other matters that may not be aligned with the interests of the U.S. and the EU. It is going to be difficult to bring all of these divergent interests together.

WTO dispute settlement continues to be a place where a lot of issues are being addressed in the absence of any movement on the Doha Round, which may not be healthy for the system. There are also ongoing services negotiations among a subset of like-minded member countries that are moving at least on a relatively reasonable pace in Geneva, which could be quite helpful from a U.S. point of view since they may capture important areas like financial services and even touch on “new” services involving, for example, search engines and associated advertising, social media, and cybersecurity.

Editor: Is the services area part of the Doha agenda?

Orava: Yes, the services aspect is part of the negotiations that were intended to be part of Doha, but services negotiations were broken off to allow negotiation by like-minded countries. There are also some other issues, like trade facilitation and duty-free access for least-developed countries that are still moving, but its difficult to see what kinds of agreements can be done at the multilateral level when a large number of countries continue to want to ensure that there is a fuller package allowing for trade-offs across different sectors and subject areas.

Editor: What are the key issues to watch in the area of trade remedies?

Orava: We are continuing to see the use of trade remedies (antidumping and countervailing duties) by many countries, not just the traditional users, such as the U.S. and the EU, but also increasingly aggressive use by India, China, Brazil, and others. There continues to be conflict and trade tensions between the U.S./EU and China in the trade remedy area, most easily highlighted by the “solar wars” that we have seen - trade remedies being imposed on solar panels and retaliatory measures being proposed in China on polysilicon. Despite the clear political and commercial interests, including those relating to the development of renewable energy, to reach a settlement on these issues, the parties continue to show reluctance to come to the negotiating table to work out a sensible solution that would prevent irreparable harm to these industries and curb the unemployment that has accompanied these actions.

Another major issue is how companies are going to deal with the risk of future trade remedies, particularly U.S. companies and those in the Middle East that are going to have an advantage in terms of cost in the petrochemical and chemical area from lower-cost feed stocks. The availability of natural gas and the huge increases in capacity that are planned in the U.S. will enable U.S. exports to have a distinct advantage when they enter the global market, creating a risk of trade remedies on the part of less-advantaged countries. There are ongoing discussions about how to mitigate some of that trade remedy risk.

From a somewhat longer-term perspective, discussions are already beginning on how the U.S., EU, and other countries will transition in 2016 their treatment of China from a non-market to a market economy as is referenced in the Chinese accession agreement - and how that transition is going to take place and what sort of methodologies regarding dumping, etc. are going to evolve as that transition comes forward.

Editor: What are the key issues to watch in the area of trade compliance, including export controls, sanctions and customs?

Orava: In the narrow trade remedy area, we are seeing substantial efforts by exporters trying to circumvent trade remedy measures. U.S. Customs & Border Protection and Congress are responding, for example, by considering ways to ensure that circumvention activities are curtailed. More generally, because of revenue and security implications, we expect continued efforts by Customs  to enforce its rules often by systematically targeting specific industries for audits and enforcement actions. There are also proposals in Congress and in the administration to revise Custom’s rules as well as to modernize and change the export control regime. These may be motivated in part by recent issues that have emerged relating to cybersecurity. For example, we are seeing legislation being proposed to limit imports and procurement of Chinese telecom equipment due to national security reasons. Trade compliance developments are also being highlighted in the context of the increasing tensions regarding national security with respect to Iran, North Korea, and China. The administration ideally tries to strike a balance between achieving its goals of expanding exports while also protecting basic national security issues.

Editor: What would your advice be to corporate counsel on how to take advantage of existing rules in the vast web of multilateral, regional and bilateral trade and investment agreements?

Orava: Corporate counsel does a disservice to their clients by not taking advantage of the enormous number of agreements being negotiated and rules on the books both in the trade and the investment area, which create rights and obligations applicable to government activity. These rules were developed to benefit companies in expanding markets and provide greater flexibility in how they structure their operations. What we try to communicate to our clients is that these rules provide a vast toolbox of ways that companies in private negotiations and in discussions with governments can help to leverage commercial solutions. These rules are intended as a baseline for governments’ regulation of private activity, and our experience is that they are underutilized by companies in addressing market access problems and opportunities.

On a broader basis, when business clients come to their counsel in companies on such issues as declining market share, discriminatory treatment, or unfair competition owing to government action, counsel should urge the client not to accept the status quo. There may be a rule, a right or obligation under one of the trade or investment agreements that can be used as leverage in negotiations (and far short of any formal dispute settlement action) to achieve better treatment or the removal of the impediment. We pride ourselves as a firm in ensuring that in-house counsel is prepared to identify some of those issues and has access to solutions that can be used in addition to or instead of perhaps less favorable commercial options. From our perspective, advising counsel in this regard allows the legal function within a company to be a unique and valued source for revenue generation and profitability.

 

Please email the interviewee at sorava@kslaw.com with questions about this interview.