US Trade Act Proposed

Excerpt from North American Free Trade & Investment Report
published by WorldTrade Executive, Inc.

By Kenneth G. Weigel, Thomas E. Crocker and Eric Shimp
(Alston & Bird LLP)

The Trade Reform, Accountability, Development and Employment Act (TRADE Act) would seek to fundamentally change core tenets of U.S. trade agreements, mandate the renegotiation of several existing agreements, strengthen the role of Congress in trade policy, restrict fast track votes, and dilute the power of the federal government over the states in the area of trade and investment.
Fostered by core Democratic constituencies including ten major unions and NGOs, including Public Citizen and Friends of the Earth, the TRADE Act was launched on June 4. Democratic Representative Mike Michaud (ME) and Senator Sherrod Brown (OH) offered joint legislation aimed at a wholesale reform of the way the nation conducts trade policy. This bill will shape the debate over trade policy in Congress, on the campaign trail, and during the first year of the new presidential administration in 2009.

Key Provisions
The sprawling scope of the TRADE Act would compel key changes in U.S. trade policy, including:
• New objectives: Lays out new negotiating objectives, focusing specifically on trade and environment matters, and reducing the scope of provisions on investment and services disciplines.
• Trade agreement review: Mandates that GAO perform regular reviews of all existing trade agreements, examining data on job creation, wage levels, exports and imports, outsourcing and labor and environment issues. Criteria are clearly slanted to portray agreements as detrimental to the economy.
• Renegotiation: Compels the government to renegotiate all existing U.S. trade agreements, including NAFTA, to a) comply with new objectives and b) address faults found in review process.
• State opt outs: Would grant states the ability to reject all nontariff-related provisions of negotiated agreements (e.g., services, investment, government procurement, IPR). This particular provision is likely to cause significant problems for foreign trading partners who look to market access within the 50 states as a major benefit of FTAs with the United States.
• Services: Would move the U.S. to a positive list approach, thereby reducing potential market access gains for U.S. services providers in foreign markets.

To find out more about North American Free Trade & Investment Report

To receive your free International Corporate Counsel electronic briefing

EC Recommends Limiting Auditors’ Liability

Excerpt from EuroWatch
published by WorldTrade Executive, Inc.

by Andrea Hamilton
McDermott Will & Emery

The European Commission has issued a Recommendation to limit auditors’ civil liability with the objective of promoting the market entry of auditing firms that would otherwise be deterred by the threat of unlimited liability.

By encouraging new market entries, the Commission hopes that its Recommendation will protect European capital markets by ensuring that sufficient auditing capacity exists to perform statutory audits of EU-listed companies. This Recommendation is based on a mandate contained in the 2006 Directive on Statutory Audit, and reportedly also on an increasing trend of litigation and issues concerning insurance coverage in the auditing sector.

Member States are free to decide on the appropriate method for limiting liability and set caps for liability if they wish.

To find out more about EuroWatch

To receive your free International Corporate Counsel electronic briefing

Working Time Directive Agreement Reached

From EuroWatch.
published by WorldTrade Executive, Inc.
By Daniel Kelly
McDermott Will & Emery

The Employment and Social Affairs Council, following a meeting in Luxembourg on 10 June 2008, has adopted a Common Position on both the Working Time Directive and the Temporary Agency Workers Directive.

The agreement on the Working Time Directive only became possible after Spain and other countries overcame objections to an opt-out that allows an increase in the weekly cap to 60 working hours. A distinction was also drawn between “active” and “inactive” on-call time, allowing greater flexibility for doctors struggling to keep average weekly working hours below the agreed limit. Agreement on the Temporary Agency Workers Directive was reached after, Member States were given the option of derogating from the requirement of equal treatment as of day one for temporary agency workers in terms of pay, maternity leave and annual leave.

The Council Common Positions will now be sent to the European Parliament for a second opinion. If they are passed, they will return to the Council of Ministers for a second round of approvals, at which stage they will become EU Law.

To find out more about EuroWatch

To receive your free International Corporate Counsel electronic briefing

Is Comparative Advertising Going to Become Easier in Europe?

Excerpt from EuroWatch
published by WorldTrade Executive, Inc.

By Sahira Khwaja (Lovells LLP)

In answer to a reference to the European Court of Justice (ECJ) from the English Court of Appeal, Advocate General Mengozzi has issued an opinion which may make it more difficult for brand owners to stop comparative advertising by competitors.

The questions arose in a dispute in the mobile phone market between O2 and Hutchison 3G. In 2004 Hutchison ran a TV advertising campaign comparing its new pay-as-you-go service with that of O2 and other operators, implying it was cheaper.

If the ECJ agrees with the Advocate General’s reasoning that use of a competitor’s trademark in a comparative advertisement should be controlled under the Advertising Directive and not the TradeMark Directive, this will affect brand owners’ ability to enforce their rights, in some countries at least. A brand owner will not be able to sue for trademark infringement but will have to take whatever action it can under the national law implementing the Advertising Directive.

In the UK, for example, this would have a major impact as enforcement of those implementing regulations is by public bodies (the Office of Fair Trading and local authority Trading Standard Services). These have limited resources and objections of this type would be low priority (unless there was likely to be serious damage to consumers). There is no private right of action under the regulations, and complaints must be made to the public bodies. These usually only act if the complainant has first followed the complaints procedure run by the Advertising Standards Authority (the voluntary industry body), which may take two or three months.

To find out more about EuroWatch

To receive your free International Corporate Counsel electronic briefing

Mexico Enacts Important Commercial Litigation Reform

Excerpt from Latin American Law & Business Report
published by WorldTrade Executive, Inc.

By Oliver J. Armas, Luis Enrique Graham and Salvador Fonseca
(Chadbourne & Parke LLP)

A new system of "preventive" appeals, contained in the recently enacted reforms to the Mexican Code of Commerce, is designed to substantially reduce the complexities that currently tend to complicate commercial proceedings in Mexico.

The current system of appeals in commercial proceedings in Mexico is rather complicated. There are, for instance, intermediate and final appeals; the type of appeal depends on whether the challenge is directed against a resolution issued by the judge during the proceedings (intermediate appeal) or against the final resolution on the merits of the case (final appeal).

Currently, when filing an intermediate appeal, parties have to put forward all of their arguments and allegations before the court of appeals, even though there is the possibility that the issues discussed in the intermediate appeal will become moot once a resolution on the merits is rendered by the court of first instance. The reforms intend to remedy that.

The reforms, which will become effective July 16, 2008, primarily concern the appeals process. A new system of “preventive” appeals aims at substantially reducing the complexities that currently tend to complicate commercial proceedings in Mexico. The reforms also include new rules regarding documentary evidence and testimony from fact and expert witnesses; grant more time (15 instead of 9 business days) to file an answer, and harmonize default rules.

To learn more about Latin American Law & Business Report

To sign up to receive the free Latin American Law & Finance electronic briefing

Foreign Investment in the U.S.: Proposed Regulations

Excerpt from North American Free Trade & Investment Report
published by WorldTrade Executive, Inc.

By David J. Laing and Mark D. Menefee (Baker & McKenzie)

On April 21, 2008, the U.S. Department of Treasury issued proposed regulations which would implement the Foreign Investment and National Security Act of 2007 (“FINSA”). FINSA was enacted in July 2007 in response to what some members of Congress perceived as a failure of CFIUS to investigate thoroughly some investments into the United States. These are proposed regulations to implement FINSA, and these proposed regulations are subject to public comment before final implementation.

The focal point for the government’s review of foreign acquisitions will continue to be the inter-agency Committee on Foreign Investment in the U.S. (“CFIUS”), which is chaired by the Department of Treasury and which has been expanded to include additional agencies. CFIUS is authorized to investigate any foreign investments resulting in “control” of a U.S. entity by a foreign entity.

The proposed regulations would not fundamentally change the general U.S. policy of openness to foreign investments. The proposed regulations clarify what transactions would be subject to review and investigation by CFIUS, and set forth new procedures for notifying CFIUS of proposed transactions. However, FINSA and the proposed regulations confirm that future investments in U.S. entities by foreign entities will receive significantly increased scrutiny by CFIUS.

The regulations also would create important new requirements for the parties who submit voluntary notifications to the government concerning proposed transactions, or who enter into “mitigation agreements” with the U.S. government to reduce specific risks to the national security identified by CFIUS.

Given these proposed regulations, as well as CFIUS’s recent shift toward undertaking much more detailed reviews of transactions, we believe the key to a successful foreign investment in or acquisition of a U.S. company will be to use enhanced due diligence measures to (1) determine promptly if the transaction is covered by the regulations and if it involves critical technologies or infrastructure; (2) voluntarily notify and consult with CFIUS to identify any possible concerns by the government; and (3) if CFIUS expresses particular concerns, be prepared to modify the transaction and/or implement specific compliance procedures.

For more on North American Free Trade & Investment Report

To Sign Up for International Corporate Counsel

China: The M&A Due Diligence Process

Excerpt from Practical China Tax & Finance Strategies
published by WorldTrade Executive

By Lefan Gong (Zhong Lun Law Firm, Shanghai)

China has been going through an extraordinary period of mergers and acquisition activities. However, making successful investments and striking good deals in this turbulent market requires more than a gold-rush mentality. Investors doing M&A transactions in China are often faced with a number of unique risk and pitfalls, such as restrictions and limitations on deal structures, unfamiliar customs and practices, difficulty in discovering hidden liabilities and other problems, a “sellers’ market” created by a significant influx of investment capital, and a legal and regulatory system that is still in a state of flux.

An initial matter that a foreign investor needs to assess in setting its expectation is how the Chinese regulatory restrictions and the personal views of the applicable approval authorities may affect the structure and process of the deal. One of the first things that a buyer may want to look into is whether the target company, after being acquired by a foreign investor, can continue to conduct its business and operations in the same manner without becoming subject to additional regulatory restrictions.

There are still a number of business sectors in China that are not fully open for foreign investors, and in which such investors cannot establish wholly foreign-owned enterprises (“WFOEs”) or even joint ventures. A foreign investor should determine as early as possible whether there are percentage limitations on its potential ownership in an enterprise in a given industrial sector, as this will directly affect the deal structure. For example, if the target company is a conglomerate, some assets may need to be carved out to make sure the post-closing target company will steer clear of the sectors that are “prohibited” or “restricted” for foreign investment.

“Trust, But Verify” – the Assets You Acquire
In China, the verification of the ownership of assets can present substantial challenges. Publicly available information and government records, if they exist, may be inadequate or unreliable. For private companies, the internal documentation is usually not well kept and organized, and it may be insufficient to show what assets belong to whom. For the state-owned enterprises, the situation may not be significantly better, and requests for information often meet with reluctance and the “state-owned” attitude of secrecy.

It is important to realize that a target company’s assets may have been used in related-party transactions. For example, one company’s assets might have been pledged for another’s bank borrowings, and the same assets might have been used multiple times for making (registered) capital contributions in different companies. The buyer also needs to be extremely careful if substantial assets of a target company were bought from a bankruptcy auction of a state-owned enterprise. If the process was not properly supervised by the court and the case was not effectively closed, the sale could risk being overturned for reason of a flawed auction process.

More information on China M&A Due Diligence

To Sign Up For Free International Corporate Counsel Reports