Tag Archive | "international trade"

Critical Analysis: The Lime Crisis of 2014

The other day, I walked into a bar and ordered a gin and tonic. Instead of the customary lime wedge or wheel, my gin and tonic came equipped with a slice of orange. In response to my confused look, the server mumbled something about Mexican cartels. This piqued my interest and led me to discover that Mexican cartels, while a key ingredient, are not solely to blame for the current lime shortage. Flooding, disease, and a domestic lime shortage are also contributing to low lime supply and elevated prices.

Conflict in Mexico is contributing to the shortages of limes and the increase in prices. Image Source: Huffington Post

Conflict in Mexico is contributing to the shortages of limes and the increase in prices. Image Source: Huffington Post

Lime prices in Denver are currently set to a troubling high of $.50 each at Safeway, and $.89 each at King Soopers. Large-scale orders are faring even worse, with 40-pound cases going for a whopping $100, compared to just $15 last year. The graph to the right is a U.S. Department of Agriculture graph, republished by the Huffington Post, which demonstrates the price spike.

This price elevation is mainly due to the age-old relationship between supply and demand. Supply is down because of a disease, huang long bing, also called “Yellow Dragon,” that has hit lime trees in the Yucatan and is spreading to other regions, such as the high export state of Veracruz. Unusually harsh rains in November and December also diminished lime yields because of damage inflicted to lime blossoms. Demand, however, has remained stable and is even increasing, particularly with the Americanized Cinco de Mayo holiday just around the corner.

The panic, however strong in Denver, seems all the more real in New York City, where some people are growing their own in order to avoid the shortage and even profit from it. Things are getting even scarier in the Mexican state of Michoacán, where the conflict is coming to a head. The violent Knights Templar Cartel has been threatening and attacking local farmers, taking their limes and their lands hostage in order to take advantage of elevated lime prices.

Image Source: Latin Post/Getty Images/Joe Raedle

Forty pound cases of limes are selling for $100 each. Image Source: Latin Post/Getty Images/Joe Raedle

An interesting twist to this story is that a handful of farmers and laborers in Michoacán have taken up arms to protect their families and their livelihoods, forcing the Knights Templar to retreat out of the area. Some speculate that this could lead to revolution on a larger scale, particularly as people who had migrated to the United States return home to combat the cartel. Hopefully, this conflict will demonstrate to Americans that even the seemingly inconsequential decision of garnishing their beverage of choice with a lime wedge can lead to striking consequences abroad.

 

Katie McAuley is a 2L, a Staff Editor for the Denver Journal of International Law and Policy and the incoming Candidacy Editor.

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wind farm

Aligning International Trade with Sustainable Development

The New York Times Editorial Board recently published an article explaining the need for greater transparency and stricter environmental regulations in trade agreements. The Times missed the opportunity to explain the history of international trade and investment agreements and their tenuous relationship to sustainable development.

With globalization has come greater intergovernmental cooperation, increased trade, and a widening global middle class. However, globalization has also created greater environmental degradation, increased emissions of greenhouse gases, and the exploitation of labor in developing countries. Given the positive and negative consequences associated with globalization, governments and non-governmental organizations have acknowledged the need to align global trade with sustainable development. Recent bilateral investment treaties and model investment treaties have acknowledged sustainable development as a primary objective. Yet the trend towards large multilateral trade agreements has cast doubt on whether sustainable development will remain a priority.

wind farm

Meeting the world’s rising energy demand through sustainable means will require strategic global investment (UN)

Bilateral investment treaties proliferated during the 1970s through 1990s. Developing nations entered into these treaties under the theory known as the Washington Consensus: that allowing foreign investment and lowering trade barriers would ultimately lead to economic growth, raise quality of life, and reduce poverty. Developing nations became wary of this logic once the perils of a free-market became apparent and investors pulled out of regions following a rise in wages. These countries have begun incorporating greater protections on human rights and the environment in addition to acknowledging the right of the State to legislate in the best interest of the public.

There is some doubt as to the efficacy of bilateral investment treaties for attracting investment. There is scant data showing that they increase investment, and little that they do to enforce obligations. The Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) illustrate the trend towards homogenizing trade regulation through multilateral agreements. While this is generally positive for international trade, concerns remain.

The TPP has been negotiated in secret, and what has leaked has caused concern for many observers. It seems that a predominant goal is to lower trade barriers while protecting the interests of large companies. Investor protection provisions demonstrate how companies may challenge legitimate regulations made for environmental or ecological concerns. Additionally, while environment and human rights have been addressed in negotiations, those issues have not been a priority and there is little to suggest that they will get the robust enforcement needed.

For sustainable development to remain a priority in international trade, there must be a concerted effort to weave the principles of sustainability into the purpose of multilateral trade agreements. However, this is not sufficient to ensure sustainable development will continue. Local governments must hold businesses accountable to their communities and resist a race to the bottom. Most importantly, businesses must commit to sustainable development in practice and not simply pay it lip service. Such action will result in a mutually beneficial relationship between businesses and the communities in which they operate.

 

Alex Milgroom is a 3L at the University of Denver and the Online Editor-in-Chief of the Denver Journal of International Law and Policy

***

This article is based on an academic paper by the author available here.

 

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Critical Analysis: Economic Espionage and International Law

Economic espionage involves a state’s attempts to covertly acquire trade secrets held by foreign private enterprises. Many countries have long considered economic espionage important to national security and economic development. Several economic trends have escalated the risk and prevalence of trade secret theft, including the globalization of trade and interconnected supply chains, the growing important of innovation and information technology to competitiveness, and the rise of overseas markets as a critical source of production and economic opportunity. Advancements in technology, increased mobility, rapid globalization, and the anonymous or pseudonymous nature of the Internet create growing challenges in protecting trade secrets. This is a cause for concern in countries worldwide, and is increasingly a point of contention in diplomatic and trade relations between countries. General Keith Alexander has said that the bleeding of industrial information and intellectual property via cyber espionage represents the “greatest transfer of wealth in history.”

Firms feel that China poses one of the highest threats of IP theft

Firms feel that China poses one of the highest threats of IP theft

Worldwide, cyber espionage cost an estimated $1 trillion in expenses last year alone. On average, trade secrets are worth two-thirds of a company’s information portfolio. For knowledge-intensive industries, trade secrets are worth even more—up to 70 to 80 percent more, on average. Intellectual property theft costs American companies $250 billion annually, while cyber crime rings in at more than $338 billion total. That means, on a yearly basis the annual theft of intellectual property from U.S. businesses is worth nearly the same amount as the current value of exports to Asia. A European Commission study shows that over the past ten years, approximately twenty percent of responding European companies has experienced at least one attempted or successful theft, and nearly forty percent of responding companies believe that they are more at risk in the past ten years than ever before. In 2007, Japan’s Ministry of Economy, Trade, and Industry conducted a survey of 625 manufacturing firms and found that more than thirty five percent of those responding reported some form of technology loss. South Korea approximates economic espionage damage has more than tripled from 2004 to 2008. Sixty percent of these victims are reported to be small- and medium-sized businesses. Germany’s Federal Office for the Protection of the Constitution appraises the value lost by German companies to be between $28 billion-$71 billion annually due to foreign economic espionage. Economic espionage also costs Germany between 30,000 and 70,000 jobs per year. A Canadian report claimed in 2010 that eighty six percent of large Canadian corporations had been victimized, and that cyber espionage against the private sector had doubled in the past two years. The United Kingdom estimates that attacks on computer systems, including industrial espionage and theft of company trade secrets, cost the private sector $34 billion annually, of which more than forty percent represents theft of intellectual property such as designs, formulas, and company secrets.

There is no international treaty specifically governing economic espionage. The desire to combat economic cyber espionage confronts a lack of international law on espionage and economic espionage. Although a victim country could assert that spying violates the principles of sovereignty and non-intervention, state practice has accepted state-sponsored espionage such that these appeals are not serious claims. International trade law, however, does provide a minimum for protection of trade secrets as an intellectual property right. In particular, trade negotiations and dialogues can offer effective means to elevating the importance of trade secrets protection, raising global standards, and promoting more effective deterrence. Under the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), WTO members are required to protect intellectual property rights, which include trade secrets. TRIPS Article 39 requires WTO members to protect undisclosed information that is secret, is commercially valuable because it is secret, and has been subject to reasonable steps to be kept secret. The TRIPS Agreement also requires that members make available civil judicial procedures concerning the enforcement of any intellectual property right covered by the Agreement. Also, TRIPS allows  “criminal procedures and penalties to be applied in other cases of infringement of intellectual property rights, in particular where they are committed willfully and on a commercial scale.” Aside from failing to enforce its own laws, a government may be pursuing an “indigenous innovation policy,” in which tech handovers are a prerequisite to market entry. For example, the Chinese government has measures and policies that condition market access or investment in China on the transfer of intellectual property from foreign to domestic entities.

Global firms feel that the threat of cyber espionage and trade secret theft are higher coming from China, Pakistan, Russia, and India than from the rest of the world because of corruption and inadequate protections for intellectual property. According to a survey by the U.S. International Trade Commission (ITC), only 0.6 percent of U.S. firms that reported material losses due to trade secret theft between 2007 and 2009 in China pursued any trade secret misappropriation proceedings in China due to imprecise standards, a lack of deterrent penalties, and a host of procedural difficulties. Only an average of thirty percent of trade secret cases brought in Shanghai Higher People’s Court reach conclusions and fewer than half of those result in findings of infringement. The most troubling form of economic espionage is state-sponsored espionage that obtains information from private-sector companies located outside their territories.

Even if there were a clear rule that a victim could show was being violated, the victim nonetheless has to establish the identity of the responsible party. WTO cases have yet to involve accusations against government-sponsored espionage, so the difficulty of doing so is untested, and therefore unpredictable. It is not clear that a WTO member could satisfy this burden by relying on evidence from private-sector entities such as The Mandiant Report and without revealing counter-intelligence means and methods. This is why the state privilege justification of “national security” can sometimes be a bigger burden than a benefit. It is invoked often, and the public has no way of determining the feasibility of the claim. The general public has no idea what their government is doing in the name of national security because it is classified. Therefore, challenging a government’s cyber espionage is particularly difficult because a government will be reluctant to hand over classified information that can be used as evidence against it, and it will claim national security as the basis for withholding such information. Additionally, a government’s participation in spying sends the message that economic espionage is acceptable and lawful in that country, which companies think means that there can be no state responsibility under international law.

The U.S. is currently negotiating two major trade agreements. The Trans-Pacific Partnership Agreement (TPP), which involves 11 other countries in the Asia-Pacific region, and The Trans-Atlantic Trade and Investment Partnership (T-TIP) with the EU both afford opportunities for cooperative advancements in the protection of trade secrets that would help to establish a stronger and more uniform standard worldwide. The U.S. has also been talking with China about a Bilateral Investment Treaty, which allows equitable standards, a better market access for investors, and a forum for dispute resolution between countries. These kinds of talks are definitely a step in the right direction, but it is going to take more than that to establish a norm workable on a widespread level. Time is not something that the economy can afford though, with the ever-increasing expenses caused by escalating cyber snooping and violations of intellectual property rights.

Katelynn Merkin is a 2L at the University of Denver and staff editor on the Denver Journal of International Law and Policy

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Critical Analysis: U.S. Federal Government Shutdown Impact on International Exports

As we wrap up week one of the federal government shutdown, impacts on international exports are being felt in a major way.  Visit the Department of Commerce’s Bureau of Industry and Security (BIS) website and you find the following disclaimer:

The Federal Government is currently shut down due to a funding lapse. As a result, the Department of Commerce’s Bureau of Industry and Security (BIS) is no longer accepting export license applications, classification requests (CCATS), encryption reviews, encryption registrations, or advisory opinion requests. Similarly, BIS will not be issuing any final determinations. The SNAP-R application on BIS’s Website is not available and will not reopen until the Federal Government shutdown ends. All pending export license applications, commodity classification requests, encryption reviews, encryption registrations, and advisory opinion requests will be held without action by BIS until the shutdown ends.

A similar notice appears on the State Department’s Directorate of Defense Trade Control (DDTC) website.

The Federal Government shutdown is having a significant impact on U.S. trade with foreign countries.  Photo: Bloomberg

The Federal Government shutdown is having a significant impact on U.S. trade with foreign countries.
Photo: Bloomberg

The two agencies process various types of export licenses for military and dual-use goods (goods with both a military and commercial use).  These goods include everything from military vehicles and ammunition to composite structures and computer processing chips.  Given the large military/dual-use industry in Colorado, Ball Aerospace, Lockheed Martin, Jeppesen, etc., it seems appropriate to look at the potential impact the shutdown will have on international trade and local Colorado companies.

The grant of export licenses is nearly at a standstill with the exception of those “emergency licenses” needed to support ongoing combat and contingency missions.

In 2012, BIS processed 23,229 export licenses requests and the DDTC processed 89,650 between September 2012-September 2013; equating to 112,879 licenses total.  Based on these numbers, the two departments process approximately 2,170 licenses a week.  On average, it takes both the agencies 12-15 business days to process and respond (grant, return without action, or deny) the requests.  Each day that the government remains shutdown, the number of license requests sitting in the backlog grows.  In turn, companies are unable to ship goods until a budget is passed, funds are appropriated, and the backlog is depleted.

International customers are becoming frustrated because U.S. companies cannot provide accurate lead times for the shipment of goods.  These customers, who are arguably already frustrated by the high level of regulation of military and dual-use items, will start looking outside of the U.S. for companies who can ship a competing product in a timely fashion.  Further, this standstill has created a significant slow down in sales of military/dual-use products.  U.S. companies struggling to obtain export licenses during the shutdown have expressed concern for profitability and stock prices, especially as many companies are wrapping up their final fiscal quarter.

Exports make up $2.196 trillion of the $15 trillion U.S. economy.  If the government remains shutdown for much longer, it will have a significant impact on companies’ bottom line, the U.S. economy, and international market relations.  In the short term, companies’ final quarter will experience a decline in their international exports, which will ultimately affect a large portion of the U.S. economy.  In the long term, companies risk losing international customers who have found competitors outside of the U.S. and the international opinion of the U.S. military/dual-use market will be further compromised.

Alicia Guber is a 2L and the Alumni Editor on the Denver Journal of International Law and Policy.

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Critical Analysis: The Trans-Pacific Partnership and its Discontents

Not everyone likes trade agreements

President Obama is touting the Trans-Pacific Partnership (TPP) as a 21st Century trade agreement, a model for everything from industrial goods to Internet services. The principal purpose of which, like the North American Free Trade Agreement (NAFTA), is to increase trade and remove restrictions on the flow of goods and capital between member states. So far, the negotiations include the U.S., Australia, New Zealand, Malaysia, Brunei, Singapore, Chile, Peru, and Vietnam. Last week, President Obama and U.S. Trade Representative Ron Kirk announced to Congress that Canada and Mexico, the U.S.’ largest trading partner and second largest export market respectively, will join the negotiations as well.

The 13th round of talks concluded this week on July 10th in San Diego after a week of negotiations, with many officials lauding “significant progress” on issues from copyright protection, agriculture products, state-owned enterprises, and financial services. Once an agreement is reached, it is poised to become a trading bloc representing 686 million people and with a total GDP of $20.5 trillion.

The prospect of increased profits and jobs notwithstanding, 132 Congressmen wrote to U.S. Trade Representative Ron Kirk expressing their concern that the negotiations lack transparency. Congressman Darrell Issa, a Republican from the San Diego area and Chairman of the House Oversight and Government Reform Committee, sought to attend the talks in San Diego (a rare request from a Congressman) but was denied access to anything beyond generic public events. As with most trade agreements, the negotiations occur behind closed doors with very few given access to the agreement’s text until it is finished. Congress, however, believes that in such a large and unprecedented trade agreement, too much is left in the hands of negotiators and the 600 special interest lobbyists who do, in fact, have access to and influence over sensitive negotiations materials.

A “Stop TPP” demonstration was organized to bring attention to the treaty negotiations through an ambitious array of protest marches, rallies, press conferences and teach-ins. The coalition included union leaders, Occupy San Diego, Public Citizen, and Global Trade Watch. The AFL-CIO has also voiced its opposition to the TPP. Their concern? Again, that special interests and corporate lobbyists are selling America’s future (and their jobs) across the Pacific for the sake of increased profits.

Although the TPP is far from finished, it is gaining notoriety especially since Canada and Mexico became negotiating partners. At the moment, Japan and South Korea have observer status, however; it is likely these two countries will also join in the near future. The TPP may one day encompass the entire pacific-rim with the exception of – you guessed it – China. China has not been invited to join the talks, nor do the current negotiating parties plan on extending one. Many see this is an American move to contain China economically. Whatever the motive, China’s absence does give one pause. And it does make one think that profits are not the only motive involved.

 Michael Cox is a rising third-year law student at the University of Denver, a Senior Editor for the View From Above, and a Candidacy Editor for the Denver Journal of International Law and Policy.

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Critical Analysis: Welcoming Russia to the WTO

Presidents Putin and Obama (CBS)

By the end of the summer, Russia will become the newest member of the World Trade Organization (WTO) after nearly twenty years of negotiations.  This presents tremendous opportunities for American businesses, exporters, and innovators. Russia is the 7th largest economy in the world and trade between the United States and Russia is far from realizing its full potential. U.S. exports to Russia totaled almost $9 billion last year, and some studies indicate this could double within 5 years of Russia joining the WTO. Furthermore, when it does become a member, Russia will “be required—for the first time ever—to establish predictable tariff rates, ensure transparency in the publication and enactment of laws, and adhere to an enforceable mechanism for resolving disputes.” This means added protections for American agricultural exports and intellectual property rights. Ever hear of pirated DVDs you can buy for a dollar on the streets of Moscow? This will, sadly, become a thing of the past.

This all sounds too easy. And it is. First, both countries, in order to take advantage of the WTO agreement, must grant each other Permanent Normal Trade Relations (PNTR). Second, the U.S. Congress must lift trade restrictions contained in the 1974 Jackson-Vanik law. This targeted the former Soviet Union for blocking Jewish citizens from emigrating during the Cold War. Since this law prevents favorable trade relations with American businesses, the U.S. cannot grant Russia PNTR without also lifting Jackson-Vanik. In other words, unless the U.S. lifts Jackson-Vanik, the rules of the WTO will not apply between the two countries. If the rules of the WTO do not apply, American business will not benefit from the advantages that come with Russia’s WTO membership. IPR protections will not apply nor the lower tariff rates on U.S. products. And, to make matters worse, American business will have to sit and watch Chinese, Japanese, Canadian, and European businesses cash in on the freshly opened Russian market.

As if this could not become any more complicated, members of Congress are concerned that lifting Jackson-Vanik excuses Russia’s uninspiring human rights record. In Jackson-Vanik’s stead, many Congressmen on both sides of the aisle, including Senate top dogs John McCain and Joe Lieberman, support a new bill named after the late Russian lawyer, Sergei Magnitsky. Beaten to death while in prison, he was arrested after exposing massive tax fraud by officials within the Russia Interior Ministry. This bill would block individuals involved in human rights abuses in Russia from traveling to, studying in, or living in the United States. Congressmen want to make sure that if we grant PNTR to Russia (along with lifting Jackson-Vanik), we also communicate our disgust with how they treat their own citizens, their support of the Assad regime in Syria, and so on.

Recently, Secretary of State Hillary Clinton reassured us that granting PNTR is not a gift to Russia, as some may feel. Instead, “it is a smart, strategic investment in one of the fastest growing markets for U.S. goods and services. It’s also an investment in the more open and prosperous Russia that we want to see develop.” The Obama Administration, as well as Russian President Vladimir Putin, share this view.

The situation is compelling: creating jobs through international trade on the one hand versus supporting human rights on the other. Congress, of course, wants to have their cake and eat it too. After all, why can’t we, after engaging in some hard-nosed politics, bring both hands together? Perhaps, in 2012, engaging in trade with a fast-growing and modernizing Russia is the best option to foster human rights protections. Or perhaps, that is just a convenient excuse to put our wallets before our values.

Michael Cox is a rising 3L, a Candidacy Editor on the Denver Journal of International Law and Policy, and a Senior Staff Editor for The View From Above

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The United States Announces Updated Model Bilateral Investment Treaty

State Department at Foggy Bottom (Wikipedia)

On April 20, 2012, the U.S. Department of State and the Office of the United States Trade Representative announced the posting of a revised Model Bilateral Investment Treaty (BIT).  The new document, 42 pages in length, updates the 2004 Model BIT.  Additional background materials can be found here and here.

A BIT provides binding legal rules for the treatment of one country’s investors by a foreign jurisdiction and aims to protect the interests of the overseas investor.  Their general aims are to protect the interests of a country’s investors when making investments in countries where investors’ rights may not be sufficiently protected by existing treaties or international agreements.  BITs cover topics such as fair and equitable treatment of foreign investors compared to domestic investors, issues of compensation if/when expropriations take place, questions concerning management personnel, and can be helpful when they address funds transfers (possibly stipulating market rates), and may also include a stipulation concerning the form of dispute resolution to be used.  BITs can promote transparency and are generally seen as supporting the development of international law standards.

According to the State Department press release: “[t]he Administration made several important changes to the BIT text so as to enhance transparency and public participation; sharpen the disciplines that address preferential treatment to state-owned enterprises, including the distortions created by certain indigenous innovation policies; and strengthen protections relating to labor and the environment.”

Here is a link to the USTR page on the 40 current US BITs.  Some non-U.S. BITs are here and additional investment treaty information, including other model BITs is here.  BITs for OAS countries can be found here.

And, to relate this to indigenous peoples, the Chevron / Ecuador dispute is currently under review by the Permanent Court of Arbitration in The Hague.  There is debate over whether it is appropriate for a case that has been fully litigated in a domestic court to then be subject to a BIT arbitration clause.  So, for another column . . . how do/should domestic court decisions interact with decisions of international tribunals? This was also one of the questions raised during the ASIL 2012 Annual Meeting’s program, “Confronting Complexity.”

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