Legal Analyses written by Mike Meier, Attorney at Law. Copyright 2017 Mike Meier. www.internationallawinfo.com.

Legal Analyses written by Mike Meier, Attorney at Law. Copyright 2017 Mike Meier. www.internationallawinfo.com.

1998 International Law Update, Volume 4, Number 4 (April).

ANTI-SUIT INJUNCTIONS

In suit over Indian air crash, House of Lords overturns unprecedented lower court injunc­tion that barred English claimants from continuing to litigate against Airbus in Texas courts

On February 14, 1990, an Airbus A320 air­craft, Indian Airlines' flight IC 605, crashed near Bangalore, India.  The Airlines (IC) operates domestically in India and had bought the French-made plane from Airbus (AB) in 1989.  Though most of the casualties were Indian citizens, eight of those injured or killed were English citizens and three were Americans.  An Indian board of inquiry concluded that pilot error had caused the crash.

On February 12, 1992, several English claim­ants of Indian origin sued IC and the airport operator (HAL) in the Indian courts.  Along with the American claimants, they also sued AB and others in Texas state court seeking compensatory and punitive damages under Texas product liability principles.  At the time of filing, Texas law did not allow for dismissals on grounds of forum non conveni­ens.  In May 1993, AB volun­tarily conceded that the Texas courts had person­al jurisdiction over it under the Texas long-arm statute, presumably based on its prior sale of an aircraft in Texas.

In November 1995, AB filed suit in the English courts to enjoin the English claimants from pursuing the Texas litigation on the grounds that those proceedings were oppressive and vexatious.  The lower court denied the injunction and AB appealed.  In the first reported English decision to issue an injunction to protect the jurisdiction of a non-English court, the Court of Appeal (Civil Division) allowed the appeal.

The Court found that India was the most convenient forum. The courts of France, AB's headquarters, as well as the place of manufacture and purchase of the A320 aircraft, would also be a natural forum under the Brussels Convention on Jurisdiction and Judgments.  There was no significant link, however, between this litigation and the Texas courts or its substantive law. 

The injunction will, practically speaking, terminate the English claimants' suits against AB.  This is more than counterbal­anced, in the Court's view, by their attempt to gain illegiti­mate and oppressive advantages by suing in an unrelated forum and by invoking ungermane Texas law as to strict liability and punitive damages. 

Leave was then given for defendants to appeal to the House of Lords.  In a wide-ranging and scholarly opinion by Lord Goff of Chievely, concurred in by the other four members of the Appellate Committee, the Lords allow the appeal and order the injunction dissolved.

As to the problem of the inconvenient forum, Lord Goff first summarizes the Civil Law ap­proach as embodied in the Brussels Convention of 1958.  It sets forth a tightly structured juris­dictional system aptly designed to avoid clashes between national systems.  A certain undesirable rigidity, however, may result from this tech­nique. 

In the common law system, in contrast, Lord Goff sees a "jungle" of broad and conflicting standards of jurisdiction.  The courts have adopt­ed a more flexible approach to these problems with forum non conveniens as a self-denying judicial doctrine to guide cases toward the clear­ly more appropriate forum.  Well developed in the U.S., it has spread to England, Canada, New Zealand, Australia, India and (perhaps) to Japan.

In Lord Goff's view, this case starkly presents the question of whether and to what extent international comity should act as a brake on the power of the English courts to order English parties to drop foreign proceedings.  The typical case is where the English court deems itself the natural forum, thus leading it to enjoin the foreign case.  This is an "alternative forum" case, however, where Texas and India, but not Eng­land, are the choices.

In this case, India is clearly the more appropri­ate forum. Its court lacks jurisdiction, however, to restrain the English defendants from continu­ing to litigate in Texas.  Moreover, at the appli­cable time, Texas did not have a forum non conveniens doctrine.  AB is thus asking the English courts to exercise its raw power over defendants in favor of the Indian courts.

"I am driven to say that such a course is not open to the English courts because ... it would be inconsistent with comity.  In a world which consists of independent jurisdictions, interfer­ence, even indirect interference, by the courts of one jurisdiction with the exercise of the jurisdic­tion of a foreign court cannot in my opinion be justified by the fact that a third jurisdiction is affected but is powerless to intervene.  The basic principle is that only the courts of an interested jurisdiction can act in the matter; and if they are powerless to do so, that will not of itself be enough to justify the courts of another jurisdic­tion to act in their place.  Such are the limits of a system which is dependent on the remedy of an anti‑suit injunction to curtail the excesses of a jurisdiction which does not adopt the principle, widely accepted throughout the common law world, of forum non conveniens." [trans.]

Lord Goff concludes by noting that forum non conveniens rests on the exercise of self restraint by an independent jurisdiction.  In this sense, it is "one of the most civilized of legal princi­ples."

Citation: Airbus Industries GIE v Patel et al., (transcript) (House of Lords, 2 April 1998). [See 1996 Int'l Law Update 126].

ARBITRATION

Second Circuit affirms Russian arbi­tral award under New York Conven­tion where losing party had withheld relevant facts about possible corrup­tion until after tribunal had rendered its award

In 1991 and 1992, International Development and Trade Services, Inc. (hereinafter "IDTS") entered into contracts with AAOT Foreign Economic Association (VO) Technostroyexport ("Techno") to buy non-ferrous metals in the Russian Federation.  The agree­ments provided for arbitration before the International Court of Commercial Arbitration of the Chamber of Commerce and Industry of the Russian Federa­tion in Moscow. 

After a dispute arose, the parties prepared to arbitrate. At the outset, IDTS sent an interpreter to Moscow to meet with representatives of the arbitration court and the Chamber of Commerce.  The representatives allegedly told the interpreter they would "fix" the case for $1 million.  IDTS refused to pay the bribe and later took part in the arbitration proceedings without disclosing the incident.

The tribunal handed down a $200 million award in favor of Techno.  Techno then sought to enforce the award in a New York district court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards [implemented in 9 U.S.C. §§ 201-208].  Reveal­ing the bribery incident, IDTS opposed the enforcement as "contrary to the public policy" of the U.S. under Article V(2)(b)   The district court nevertheless confirmed the arbitration awards and IDTS appealed.

The U.S. Court of Appeals for the Second Circuit affirms.  The Court points out that IDTS had revealed the alleged bribe offer for the first time when it objected to the enforcement of the award in district court.  Therefore, it has waived its right to assert the public policy exception.

"The settled law of this circuit precludes at­tacks on the qualifications of arbitrators on grounds previously known but not raised until after the award has been rendered. 'Where a party has knowledge of facts possibly indicating bias or partiality on the part of an arbitrator he cannot remain silent and later object to the award of the arbitrators on that ground.  His silence consti­tutes a waiver of the objection.'" [Slip op. 6-7]

Citation:  AAOT Foreign Economic Association (VO) Technostroyexport v. Int'l Development and Trade Services, Inc., No. 97-9075 (2d Cir. March 23, 1998).

ENVIRONMENT

Ninety-five nations draft agreement to require "prior informed consent" before states that make dangerous chemicals and pesticides export them to developing countries

Representatives from the U.S. and 94 other countries have reached an agreement through the U.N. Food and Agriculture Organization (FAO) and the U.S. Environment Program (UNEP) to control the export of dangerous chemicals by requiring a developing country to give "prior informed consent" (PIC).  The purpose is to tighten international control of trade in danger­ous pesticides such as DDT and Aldrin.  The FAO and UNEP had already set up a voluntary PIC system that required the express agreement of a developing country before such restricted chemicals could be taken there.  The new Con­vention will replace the voluntary PIC system.

Under the Convention, exporting countries must inform importing countries about their impending exports of severely restricted chemi­cals.  The exporting state must not only furnish this notification before the first export, but also has to repeat the notice for the first export each year.  Signatory countries will also undertake to transpose the Convention into national law and to create domestic enforcement mechanisms.  The International Court of Justice is to decide disputes over compliance with the Convention.

The Manufacturing countries severely restrict the chemicals concerned in the Convention but developing countries often lack the resources to control their distribution and use.  The initial agreement includes 27 chemicals (22 pesticides and 5 industrial chemicals).  They include Al­drin, Chlordane, DDT, HCH, Crocidolite, PBB, PCB, and PCT.

The Convention will be open for signature at a diplomatic conference in Rotterdam in Septem­ber of this year.

Citation:  UNEP News Release 1998/11 (16 March 1998); U.S. Department of State Press Statement (March 18, 1998). [For more informa­tion, contact Mr. Michael Williams, UNEP, Geneva, Phone: (41-22) 979-9242/44, FAX: (41-22) 797-3464, E-mail: mwilliams@unep­.ch].

GENOCIDE

Trial chamber of International Crimi­nal Tribunal for Rwanda (ICTR) rejects various defense challenges to its jurisdiction over Rwandan geno­cide and other charges against Joseph Kanyabashi

In July 1996, the ICTR charged Joseph Kanya­bashi with various acts of genocide, plus viola­tions of common Article 3 of the 1949 Geneva Conventions and Additional Protocol II.  The following April, the defense moved the trial chamber to dismiss the proceed­ings for lack of jurisdiction.

The defense's first point was that setting up ICTR had violated the sovereignty of Rwanda due to the lack of a sound treaty basis.  Citing the ICTR's Appeals Panel ruling in the Tadic case [see 1996 Int'l Law Update 70], the Court pointed out that Rwanda had requested the UN to form the tribunal. In addition, the Security Council had acted validly pursuant to Article 25 of the Charter.

The defense also argued that Chapter VII of the Charter did not empower the Security Coun­cil to set up ad-hoc tribunals to enforce interna­tional human rights especially since the conflict in Rwanda no longer posed a threat to interna­tional peace and security. The Court found no merit in these positions. U.N.C. Chapter VII reposes authority in the Security Council to determine authoritatively whether the Rwandan situation posed a threat to international peace and security.  Article 41 implicitly leaves room for the Council to develop measures designed to keep the peace and to protect international human rights.

Next, the defense charged that setting up ICTR violated the principle of jus de non evocando.  Under this civil law constitu­tional principle, a person is entitled in time of emergency to trial before the standard criminal courts rather than before a biased or politicized special tribunal. The Court agrees with the principle but not with its application to ICTR. This court is an inter­national creation of the Security Council de­signed to try international offenses not to elimi­nating the political enemies of one or another internal faction.

Nor does the ICTR chamber see any merit in the defense contention that the Security Council had authority only to deal with states that threat­en peace and security, not to put individu­als on trial criminally.  The defense has not shown that the dimensions and seriousness of the crimes failed to warrant the extension of international humanitarian law to individuals.

Finally, the panel rejects the defense claim that its establishment by the Security Council makes it into a dependent political body that does naught but police and coerce.  On the contrary, to ensure fair trials, the ICTR's organic statute demands fair procedures as well as impartiality and personal independence from its judges.

Citation: Prosecutor v. Kanyabashi, Decision on Jurisdiction. Case No. ICTR‑96‑15‑T. (Int. Crim. Trib. for Rwanda, June 18, 1997). [Based on case report by Ms. Virginia Morris, Office of Legal Affairs, United Nations, 92 Am. J. Int'l. L. 66 (1998)].

HABEAS CORPUS

Despite requests for stay of execution from Internation­al Court of Justice, U.S. Supreme Court denies habeas corpus relief to convicted Paraguayan citizen for citizen’s failure to raise  violation of Consular Conven­tion before Virginia courts

 Angel Francisco Breard was a 32-year-old citizen of Paraguay who had come to the United States in 1986.  In 1993, a Virginia jury tried and convicted Breard for the attempted rape and capital murder of Ruth Dickie. The State sched­uled the execution of Angel Francisco Breard for 9:00 p.m. on April 14, 1998.

At his trial in 1993, the State had put on potent evidence of guilt.  From the stand, Breard admit­ted that he had killed Dickie, but only because his father in law had put a Satanic curse on him.  On appeal, the Virginia Supreme Court affirmed Breard's convictions and sentences, and the U.S.  Supreme Court denied certiorari.  The Vir­ginia courts later denied him collateral relief as well.

In August 1996, Breard sought federal habeas corpus relief.  In that petition, Breard contended for the first time that the federal court should overturn his conviction and sentence because of alleged violations of the Vienna Convention on Consular Relations (Convention), April 24, 1963, [1970] 21 U.S.T. 77, T.I.A.S. No. 6820.  In particular, Breard alleged that arresting authori­ties had failed to notify him that, as a foreign citizen, the Convention afforded him the right to get in touch with the Paraguayan Consulate.

The District Court denied relief. It concluded (1) that Breard had procedurally defaulted this claim when he failed to bring it up in state court and (2) that Breard could not show “cause and prejudice” for this default as required by law. The U.S. Court of Appeals for the Fourth Circuit affirmed.  Breard then sought certiorari from the U.S. Supreme Court.

Meanwhile, in September 1996, the Republic of Paraguay sued various Virginia officials in Federal District Court.  Paraguay claimed that  Virginia’s failure to provide Breard with his Convention rights had breached its own distinct rights under the Convention.  The Consul Gener­al also raised a parallel § 1983 claim alleging a denial of his Convention rights.

The District Court, however, ruled that it had no subject-matter jurisdiction over these suits.  Since Paraguay was not alleging a 'continuing violation of federal law,' it could not bring itself within an exception to Virginia’s Eleventh Amendment immunity from suit.  The U.S.  Court of Appeals for the Fourth Circuit affirmed.  Paraguay has also asked the Supreme Court for a writ of certiorari.

On April 3, 1998, the Republic of Paraguay sued the United States in the International Court of Justice (ICJ), alleging that the United States had violated the Vienna Convention.  Six days later, the ICJ noted jurisdiction.  It also asked that the United States 'take all measures at its disposal to ensure that Angel Francisco Breard is not executed pending the final decision in these proceedings....'  The ICJ arranged for probable oral argument in November 1998.

To "enforce" the ICJ's order, Breard then sought an original writ of habeas corpus and a stay of execution from the U.S. Supreme Court. Paraguay then petitioned to file an original action in that Court, as a case affecting foreign consuls.

In a per curiam opinion with three dissenting votes, the Supreme Court denies the petition for an original writ of habeas corpus, the motion for leave to file a bill of complaint, the petitions for certiorari, and the stay applications filed by Breard and Paraguay.

The Court first points out that Breard had failed to raise his Vienna Convention issues at any time in the Virginia Courts.  It sees no merit in petitioners' argument that a Treaty "trumps" a procedural default rule.

First, with due respect to the ICJ, Article 36(2) of the Vienna Convention provides that parties shall exercise their Convention rights in accor­dance with the "laws and regulations of the receiving State."  Under U.S. law, a petitioner's prior failure to raise his Convention claims in the state courts precludes him from doing so on federal habeas corpus review.

Secondly, under U.S. Constitutional law, a later inconsistent federal statute nullifies the domestic effect of a prior interna­tional agreement to the extent of the conflict.  Although the Convention has been in force since 1969, Congress enacted the Antiterrorism and Effective Death Penalty Act (AEDPA) in 1996 before Breard had raised his Convention issue for the first time.  AEDPA generally denies a federal evidentiary hearing if, as here, a state prisoner has not previously brought out the factual basis of his Treaty-based claim in state courts. 

Moreover, the Court is unable to discern what adverse effect the lack of Consular advice might have had upon the outcome of Breard's case.  Thus, Breard had taken the stand against the advice of his American-trained lawyers.  The possibility that he might have made better choic­es with foreign consular advice is specula­tive at best.

Paraguay's suits fare no better.  The Vienna Convention does not clearly provide that a foreign country can bring a private suit in U.S. courts to challenge the conviction and sentence of its citizen for lack of consular notification.  Moreover, Paraguay's reliance on a single, long-past violation of the Convention does not bring it within any exception to Virginia's immunity from suit under the Eleventh Amendment.  Nor is Paraguay, acting by its Consul General, a "person ... within the jurisdiction of the United States" entitled to sue under § 1983.

Justices Stevens, Breyer and Ginsburg dissent.  They see difficult and far-reaching issues in this case and complain that Virginia's hasty execu­tion schedule had effectively deprived the court of the benefits of fuller briefing and arguments on the merits of these issues.

[Editorial Note:  Despite the urgings of Secre­tary of State Albright, Virginia authorities de­clined to stay Breard’s execution and carried it out during the evening hours of April 14, 1998].

Citation: Breard v. Greene, No. 97-8214 (A-732) (U.S. S.Ct. April 14, 1998).

IMMIGRATION

U.S. Immigration & Naturalization Service (INS) speci­fies rules for im­migration of foreign investors

Section 203(b)(5) of the 1990 Immigration Act permits foreign individuals who invest $500,000 in rural/high unemployment areas, or $1 million anywhere else, to obtain permanent residence ("green card") in the U.S. by virtue of the invest­ment (EB-5 visas).  Several U.S. companies assist foreign individuals as well as law firms and their clients to obtain U.S. permanent resi­dence through such investments.  Currently, however, the INS is carefully examining these applications.  An INS Memorandum of October 20, 1997 lays out new guidelines for adjudicating immigrant investor petitions.  It emphasizes that:

- The investment must be "at risk for the purpose of generating a financial return."

- The investment must be in the form of capital actually in the business, not in a protected ac­count such as a trust.

- The Service will scrutinize the use of promis­sory notes and balloon payments in each applica­tion.

- Chinese applicants generally cannot use their assets to secure an investment because China and the U.S. do not recognize each other's court judgments.  Therefore, a U.S. court judgment on a promissory note secured with assets located in China is not enforceable.

The U.S. Department of State has directed all consular posts to stop processing such applica­tions until the INS has published further guid­ance.

Citation:  INS memorandum on EB-5 Investors (October 20, 1997), published in AILA Monthly Mailing, February 1998, page 123; U.S. State Department cable (No. 97-State-241877) (De­cember 10, 1997).

LABOR

Second Circuit decides that ADEA protects domestic employees of foreign corporations and that foreign corpora­tion's foreign employees count for determin­ing whether company is sub­ject to ADEA

CEDEL, a Luxembourg bank, fired Ida Morelli (born 1939) in 1994 after she had worked at CEDEL's New York office for 10 years.  Mor­elli then sued CEDEL under the Age Discrimina­tion and Employment Act of 1967 (the ADEA) [29 U.S.C. §§ 621-634].  The district court dismissed the case on the grounds that, as a foreign corporation, CEDEL was not subject to the ADEA.

The U.S. Court of Appeals for the Second Circuit reverses and remands.  It holds (1) that the ADEA protects domestic employees of certain foreign corporations, and (2) that the corporation's foreign employees count for the purpose of determining whether the corporation has enough employees to be subject to the ADEA.

First, Section 4(h)(2) of the ADEA provides that it "shall not apply where the employer is a foreign person not controlled by an American employer."  In the Court’s view, however, Congress merely intended to limit the reach of a 1984 amendment.  It expanded the definition of "employee" in Section 11(f) to include U.S. citizens working at a foreign job site.

Furthermore, international comity does not require such an exemption.  The 1984 amend­ments seem to assume that U.S. corpora­tions operating abroad will be subject to foreign labor laws.  Conversely, congress presumably thought that foreign corporations operating in the U.S. will be subject to U.S. labor laws.

Second, even though CEDEL has only a few employees at its New York office, the number of its employees abroad bring it within the ADEA.  To be subject to the ADEA, an "employer" must have at least 20 "employees." [see 29 U.S.C. § 630(b)]. The 1984 revision did not distinguish between foreign and domestic employees.  There­fore, it does not show that the employees of a foreign corporation are not "employees" within the meaning of the ADEA. 

The ADEA does not have to protect all count­able employees.  For example, congress modeled the ADEA largely on Title VII.  The Second Circuit had previously identified several reasons for Title VII's minimum employee requirement, such as compliance burdens and potential litiga­tion costs.  Therefore, In deciding whether an employer meets the Act's minimum employee standards, courts have to take into account not only the size of the U.S. operations, but also of the international operations.

Citation:  Morelli v. CEDEL, No. 97-7277 (2d Cir. March 26, 1998).

PATENTS

Japanese Supreme Court issues opin­ion regarding "Doc­trine of Equiv­a­lents" for patents

On February 24, 1998, the Japanese Supreme Court decided the so-called "ball spline bearing case" applying the "Doctrine of Equivalents."

In this case, THK demanded damages from Tsubakimoto for alleged infringement of THK's patent, the "endlessly Sliding Ball Spline Shaft Bearing."  In the years 1983-1988, Tsubakimoto was making a similar product.  THK claims that Tsubakimoto's product includes most of the constituent features of its patented product and is therefore "equivalent."

Applying the Doctrine of Equivalents, the Tokyo High Court found that the allegedly infringing product was "equivalent" to the patent­ed product.  Tsubakim­oto appealed.

The Supreme Court finds that, for the Doctrine to apply, five criteria must be satisfied: "(1) the differing elements are not the essential elements in the patented invention; (2) even if the differ­ing elements are interchanged by ele­ments of the correspond­ing product and the like, the object of the patented invention can be achieved and the same effects can be obtained; (3) by inter­chang­ing as above, a person of ordinary skill in the art to which the invention pertains (hereinafter referred to as an artisan) could have easily arrived at the corresponding product and the like at the time of manufacture etc. of the corre­sponding product; (4) the corre­sponding product and the like are not the same as the known art at the time of application for patent; and (5) there is not any special circum­stance such that the corresponding product and the like are intention­ally excluded from the scope of the claim during patent prosecution." [Section 3.(1) of the deci­sion]

The Court then analyzed the technical knowl­edge about this type of bearings, and found that the constituent parts of the patented bearing are not necessarily novel.

"Therefore, given that the technologies related to the ball spline bearing ... were publicly known prior to the application date of the present inven­tion, the appellant's product is deemed to be simply a combination of a ball spline bearing ... Given that this combination could have been easily arrived at by an artisan without the disclo­sure of the present invention, the artisan could have easily conceived the appellant's product at the time of the application date of the present invention.  Therefore, the appellant's product cannot be said to be equivalent to the constitu­tion set forth in the claim of the present specifi­cation, and the appellant's product cannot be said to fall within the technical scope of the present invention." [Section 3.(2) of the decision].

The Supreme Court then remands the case for a full determina­tion of whether the allegedly infringing product is "equivalent" in light of the common technical knowledge at the time the product was patented.

Citation:  Tsubakimoto Seiko Co. Ltd. v. THK K.K., Supreme Court of Japan, Case No. 1994 (o) 1083 (decided February 24, 1998). [An English translation by Chris Mizumoto is avail­able on the internet at www.okuyama.com.  The original Japanese version is available on the www site of the Japanese Supreme Court at www.courts.go.­jp.].

TAXATION

Sixth Circuit allows Amoco Corp. foreign tax credit for payment ar­rang­ement with Egyptian government entity that controlled oil concessions and that declared itself responsible for Amoco's taxes

Amoco Corp. claimed a foreign tax credit on its U.S. tax returns for taxes allegedly paid in Egypt.  [The Internal Revenue Code generally permits U.S. taxpayers who have paid the equiv­alent of income taxes abroad to credit those amounts against their U.S. taxes, see 26 U.S.C. § 901].

Egypt organizes oil concession agreements through the Ministry of Petroleum and Mineral Resources, "a Public Authority endowed with an independent juristic personality..."  The Egyptian government controls the General Petroleum Corporation (EGPC) and it forms part of the Ministry.

In 1975, Amoco and the EGPC revised their agreements.   EGPC would receive a share of the oil produced and would pay Amoco's taxes out of oil received.  This would help EGPC to obtain foreign currency by oil sales.

Amoco claimed the foreign tax credit on its U.S. tax returns in the amounts that EGPC had paid to the Egyptian Government (varying in the years 1979-1982 between $304 and $453 mil­lion).  EGPC took a credit for that against its own Egyptian taxes.  The U.S. IRS interpreted EGPC's taking a credit to mean that nothing had been paid on Amoco's behalf.  The question became whether EGPC's income taxes paid on Amoco's behalf were "taxes paid to a foreign country" within the meaning of § 901(b)(1).

The Tax Court found for Amoco.  Because the credit for the Egyptian taxes paid on Amoco's behalf went to EGPC rather than to Amoco itself, the Court found that Amoco had in fact paid these taxes within the meaning of Treasury Regulation § 1.901-2(e)(2). The IRS appealed.

The U.S. Court of Appeals for the Sixth Circuit affirms.  Principles of domestic law determine whether a taxpayer may receive foreign tax credits.  Here, Amoco could not have been "reasonably certain" within the meaning of the Treasury Regulations that the payments to EGPC would be refunded somehow.  If EGPC had gotten a refund or credit, however,  it could not be attributed to Amoco.

Nor was Amoco's payment arrangement with EGPC an indirect subsidy.  The Tax Court had found that the indirect subsidy rule did not apply; EGPC was part of the Egyptian Govern­ment and thus incapable of subsidizing itself.  The Sixth Circuit essentially agrees but notes that the Supreme Court has eschewed bright-line rules in favor of a more functional approach.

"Our decision to treat EGPC and the Egyptian government as a single entity in this situation is no different from the way U.S. law occasionally treats the United States and its individual agen­cies.  For example, when monies are owed to an individual by one agency, and the individual has debts to another, the different agencies may set off the debts owed by one agency against claims that another agency has. ... We therefore hold that for tax purposes, the Government of Egypt and EGPC should be treated here as a unitary entity, even if in other contexts it would be appropriate to recognize EGPC as a separate corporate body." [Slip op. 36]

Citation:  Amoco Corp. v. Commissioner of Internal Revenue, No. 96-3632 (6th Cir. March 11, 1998).

TRADE

U.S. Supreme Court strikes down Harbor Maintenance Tax as contra­vening “Export Clause” of U.S. Con­stitution

Under 26 U.S.C. § 4461, a Harbor Mainte­nance Tax (HMT) requires exporters, importers, and domestic shippers to pay 0.125 percent of the value of the commercial cargo they ship through U.S. ports.  Taxpayers have to pay at the loading point for exports and at unloading time for other shipments.  The Customs Service collects the tax and deposits it in the Harbor Maintenance Trust Fund (Fund).  Pursuant to § 9505, Congress may draw sums from the Fund to pay for harbor maintenance and development projects and for related expenses. 

Between April and June of 1994, United States Shoe Corporation (U.S.Shoe) paid the HMT for articles the company had sent overseas during that period.  It then filed a complaint with the Customs Service arguing that, to the extent that the HMT applies to exports, it clashes with the Export Clause of the U.S. Constitu­tion.  Article I, § 9, cl. 5 declares that "No Tax or Duty shall be laid on Articles exported from any State."  In reply, Customs sent U.S. Shoe a form letter maintaining that the HMT is nothing but a statutorily mandated user fee.

U.S. Shoe then filed suit for reimbursement based on its constitutional stand. In giving summary judgment to U.S. Shoe, the Court of International Trade (CIT) held that it had juris­diction under 28 U.S.C. § 1581(I) and that the HMT amounted to an unconsti­tutional tax on exports.

The U.S. Court of Appeals for the Federal Circuit affirmed the CIT [see 114 F.3d 1564].  Upon granting the Government’s petition for certiorari, the U.S. Supreme Court also affirms. 

After upholding the CIT’s jurisdiction, the Court notes that the Export Clause flatly prevents Congress from taxing exports.  On the other hand, it does not bar the imposition of a "user fee." Such a fee is not the same as a generally applicable tax or duty.  On the contrary, the goal of a user fee is to pay for government-supplied services, facilities, or benefits.

The HMT bears the marks of a tax.  In § 4461, Congress expressly portrayed it as such and codified it as part of the Internal Revenue Code.  Section 4462 requires the government to treat HMT as if [it] were a “customs duty” for admin­istrative, enforcement, and jurisdictional purpos­es.  The Court’s precedents clearly point out that the Export Clause embodies a simple, direct, and unconditional ban on any taxes or duties.  This sets it off from other constitutional constraints on federal taxing powers.

Under the Export Clause, moreover, the nexus between a Government service and the sums it collects for that service must be tighter than is present here.  Here, the Court notes, Customs calculates the HMT totally on an ad valorem basis.  The value of exported cargo, however, is not a reliable function of those harbor services, facilities, and benefits that exporters do, or can, make use of.  Where the government imposes user fees in order to defray the cost of harbor development and maintenance, there must be a sound connection between the fees and the exporters' actual use of port services and facili­ties.

Citation: United States v. United States Shoe Corp., 118 S.Ct. 1290 (1998).

TRADE

Russia clarifies customs clearance procedures for goods imported by foreign entities

In the past, some Russian Customs Authorities have refused to clear even small quantities of goods imported by local representa­tives of foreign companies for individual consumption, because the importing entities were not "Rus­sian."

According to a letter issued by the Russian State Customs Committee on December 25, 1997, a foreign legal entity may distribute goods subject to customs in Russia even if that foreign legal entity's representative office in Russia does not have the status of a "legal entity."  [Accord­ing to Article 172 of the Russian Customs Code, only Russian entities may distrib­ute goods that are subject to customs.]  Foreign entities may distribute goods as long as the goods have been declared by a Russian entity.

Citation: Russian Federation State Customs Committee Letter Number 01-15/25164 of De­cember 25, 1997. [Received from the U.S. De­partment of Commerce, Russian Desk, Phone: (202) 482-4655 or 482-2000.]

TRADE

In settlement of WTO proceeding, U.S. and Brazil sign agreement on imported automobiles whereby Brazil relaxes investment requirements

The U.S. and Brazil have reached an agreement to settle their long-standing trade dispute regard­ing automobiles. The Brazilian system of De­cember 1995 granted automobile manufacturers reduced duties on imported cars and other bene­fits if they use Brazilian parts and export fin­ished cars.

The U.S. challenged the Brazilian regime before the WTO, claiming that it violated the WTO Agreement on Trade Related Investment Measures (TRIMS).  The consultations resulted in this agreement to settle the dispute.

According to the settlement agreement, Brazil will speed up the phasing out of  the old invest­ment requirements that benefitted Brazilian automobile manufacturers.  Brazil will not extend these measures to its MERCOSUR part­ners when they unify their auto regimes in the year 2000.

Citation:  U.S. Trade Representative Press Release 98-28 (March 16, 1998).

- Draft WTO report upholds U.S., EU and Japan's position in dispute about Indonesian Auto Policy.  According to a press release of the U.S. Trade Representative, a draft WTO dispute settlement report essentially upholds the U.S. criticism of Indonesian measures affecting the import of U.S. automobile products.  The U.S. had challenged the Indonesian tariff and tax incentives to automobile and automobile part manufacturers to buy specified amounts of Indonesian-made parts.  Since 1993, Indonesia had granted preferen­tial tax and tariff rates to cars with Indonesian content.  Under the 1996 National Car Program, "national cars" produced abroad could be imported duty-free.  The Korean company Kia Motors, which owned 35% of an Indonesian car company, was thus able to import up to 45,000 cars from Korea duty-free. In consolidated cases, the EU, Japan, and the U.S. each challenged the Indonesian measures.  The panel issued its draft report on March 24 and it should publish its final report around the middle of May.  Citation:  U.S. Trade Representative Press Release 98-34 (March 26, 1998). [The WTO report will become available in May on the WTO's website www.wto.o­rg].

- German court holds German subsidiary of Japanese company responsible for improper internet advertising of U.S. subsidiary.  A Frankfurt district court (Landgericht) has held the German subsidiary of a Japanese company responsible for the improper advertising of the U.S. subsidiary.  The German subsidiary's webpage had a link to the U.S. subsid­iary.  The home page of the U.S. subsidiary compared the company's product with a compet­itor's product.  U.S. law allows this "compara­tive" advertising but German competition law does not.  The German district court held the German subsidiary responsible and issued an injunction.  Citation: Landgericht Frankfurt am Main, 3-12 0 173/97 (22.9.97).

- WTO panel issues report unfavorable to U.S. in shrimp-turtle dispute.  According to a press release of the U.S. Trade Represen­tative, on April 6, 1998, the WTO issued a dispute settle­ment report in the Shrimp-Turtle dispute that essentially upholds the challenges to U.S. conser­vation measures.  In October 1996, India, Malay­sia, Pakistan and Thailand brought a joint com­plaint (WT/DS58) challenging the U.S. ban on imports of shrimp and shrimp products from those countries.  The Philippines brought a separate complaint (WT/DS61).  The U.S. ban is based on Section 609 of Pub.L. No. 101-62 which restricts imports of shrimp harvested with fishing equipment that results in incidental sea turtle mortality.  The U.S. requires U.S. shrimp fishermen to use a Turtle Excluder Device (TED) that permit turtles to escape the shrimp catch.  Citation:  U.S. Trade Representative Press Releases 98-40 (April 6, 1998) & 98-29 (March 17, 1998). [The WTO report will become available on the WTO's website www.wto.o­rg].

- U.S. suspends trade preferences for Honduras.  Because of Honduras' continued failure to protect U.S. intellectual property rights, the U.S. Trade Representative has announced the partial suspension of trade benefits for Honduras under the Generalized System of Preferences (GSP) and the Caribbean Basin Initiative (CBI).  Hon­duran TV stations allegedly have been rebroad­casting U.S. programs and pirating U.S. videos without permission.  The U.S. measure will susp­end the duty free treatment of approximately $5 million in Honduran imports, including fruit and vegetables.  Those products will be subject to the regular most-favored nation rates of duty. [The GSP program grants duty-free treatment to specified products that are imported from more than 140 designated developing countries and ter­ritories.  It includes an eligibility requirement based on effective protection of intellectual property rights.  The CBI program grants duty-free treatment of specified products from Carib­bean Basin countries.  Its eligibility require­ments also include the effective protection of U.S. copy­rights]. Citation:  U.S. Trade Representative Press Release 98-36 (March 30, 1998).

- WTO Appellate Body upholds U.S. win in challenge to Argentina's specific import duties and taxes.  The WTO Appellate Body has upheld the Dispute Settlement Body decision that Argentina's specific duties on textiles and appar­el, as well as its 3% "statistical" tax, violate WTO rules (see 1998 Int'l Law Update 11).  The U.S. had challenged Argentina's duties that exceed 35% on imported textile products as contrary to Argentina's commitments upon joining the WTO.  Argentina's 3% tax for "statistical" purposes violates the GATT require­ment that non-tariff charges on imports must not exceed the government's cost of providing service.  Citation:  U.S. Trade Representative Press Release 98-35 (March 27, 1998).