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.

2000 International Law Update, Volume 6, Number 12 (December).

JUDGMENTS

In action by Lloyd’s to enforce English money judgments against U.S. insurance syndicate members, Seventh Circuit finds that English courts provide basic due process protections and rejects arguments that Illinois law allows imposition of citations to enforce judgments only after court has found judgments enforceable

After winning judgments in an English court, The Society of Lloyd’s brought an action in an Illinois federal court against American members of Lloyd’s-managed insurance syndicates to enforce the money judgments in the U.S. The defendants opposed the enforcement of the judgments claiming that the English procedures had denied them due process of law and were therefore unenforceable under the Illinois version of the Uniform Foreign Money-Judgments Recognition Act (735 Ill. Comp. Stat. Section 5/12-618 to 626). The district court ruled against defendants. The U.S. Court of Appeals for the Seventh Circuit affirms.

“The judgments about which [the defendants] complain were rendered by the Queen’s Bench Division of England’s High Court, which corresponds to our federal district courts; they were affirmed by the Court of Appeal, which corresponds to the federal courts of appeals; and the Appellate Committee of the House of Lords, which corresponds to the U.S. Supreme Court, denied the defendants’ petition for review. Any suggestion that this system of courts ‘does not provide impartial tribunals or procedures compatible with the requirements of due process of law’ borders on the risible. ‘The courts of England are fair and neutral forums.’” [Slip op. 3-4]

The foreign legal proceedings do not have to provide precisely the same due process requirements as the U.S. Rather, the foreign procedures need only be “fundamentally fair” and not offend “basic fairness.” The Court calls this the “international concept of due process.” The key question in this case is not the fairness of Lloyd’s actions but the fairness of the English court in holding in favor of Lloyd’s. The English court’s interpretation of the contract is not so unreasonable that it would be denial of international due process.

Furthermore, the Court upholds Lloyd’s ability to issue citations to collect its judgments, and rejects the defendants’ argument that a court has first to hand down an order recognizing the judgment.

“We cannot see any legal or practical basis for such a two-step, ... The issue of the judgment’s enforceability is raised by way of defense to compliance with ... the citations proceeding ... There is no reason to make the judgment creditor bring two separate proceedings, one to enforce the judgment and the other to collect it.”

“Any doubt on this score is dispelled by reading in tandem the statutes governing enforcement of foreign-state and foreign-nation judgments respectively. The Illinois Enforcement of Foreign Judgments Act, which governs the enforcement in Illinois of judgments rendered in the courts of other states of the United States, as distinct from foreign nations, not only treats such judgments the same as Illinois judgments ... which means that no separate step of ‘recognition’ is necessary before they can be enforced ... The Uniform Enforcement of Foreign Money-Judgments Act, which governs judgments of courts outside the United States, makes such judgments, if enforceable at all, ‘enforceable in the same manner as the judgment of a sister state which is entitled to full faith and credit.’” [Slip op. 22-23]

Citation: The Society of Lloyd’s v. Ashenden, No. 99-3195, 99-4064, 00-0166, 00-1371, 00-1430 & 00-0172 (7th Cir. November 27, 2000).

JUDICIAL ASSISTANCE (SERVICE OF PROCESS)

Washington Supreme Court replies to certified questions from federal appellate court that compliance with Hague Service Convention may require extension of time periods fixed by state law for effecting service of process upon German defendant

Gary Dean and Denise Broad (plaintiffs) filed a diversity personal injury case in a Washington federal court. Mr. Broad received his injury while demonstrating the Kingdome Mannesmann Facade Maintenance System made by Mannesmann Anlagenbau, A.G. of Germany. [See 1999 Int’l Law Update 165]

Both Germany and the United States are parties to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361, T.I.A.S. No. 6638 [1969] (the Hague Convention). The Hague Convention applies "where there is occasion to transmit a judicial or extrajudicial document for service abroad." It requires that every party designate a Central Authority to receive and help to perfect local service of process issuing out of litigation taking place in another party.

While the Convention allows for several alternative service methods, Germany has objected to them and demands that foreign plaintiffs work through the appropriate German Central Authority. That Authority has to see to it that the complaint and summons get served "by a method prescribed by [Germany's] internal law for the service of documents in domestic actions upon persons who are within its territory." Art. 5(a). The Convention itself does not set time limits for service. Washington law, however, provides that service after the complaint is filed tolls any applicable limitations period for 90 days. Failure to effect service within that extended period makes the case untimely.

Mr. Broad’s injury took place on May 1994 and plaintiffs filed their complaint on May 16, 1997, the end of the limitations period. After having to remedy the fact that they had not translated the legal documents into German, plaintiffs authorized a German firm to translate the documents and to forward them to the proper Central Authority in Germany. The German firm notified plaintiffs on September 24, 1997 that the Central Authority had sent their papers to a local court for service upon defendant. The latter took place on September 18, 1997, 125 days after the filing of plaintiffs’ complaint.

For failing to accomplish service within 90 days, the district court gave defendant a summary judgment of dismissal for lack of timeliness. On appeal, the Ninth Circuit decided that the lower court had failed to take into account that the Convention required plaintiffs to surrender control over service to a Central Authority for an indefinite time period. The Circuit court then certified two questions to the Washington Supreme Court to obtain clarification of the operation of Washington law in a Convention context.

These questions were 1. "[W]hether state law deems a designated foreign central authority a 'substitute' or 'agent' for purposes of meeting Washington's 90‑day time period for service of process," or; 2. "[A]lternatively, whether state law recognizes an exception to [or an extension of] the 90‑day time limit for service of process where plaintiffs must, under the Hague Convention, relinquish control over serving a defendant to a foreign central authority for an indefinite period of time." See Broad v. Mannesmann Anlagenbau, A.G., 196 F.3d 1075, 1076 (9th Cir.1999). The Washington Supreme Court answers first that the Central Authority is not an “agent” of the defendant for service purposes, and second that sending the complaint and summons to the Central Authority within 90 days of the filing of the state complaint should extend the 90-day period.

Sitting en banc, the Washington Court first points out that the Hague Convention preempts inconsistent state law where it applies. In a case like this, for example, it requires a plaintiff to send the suit papers to the designated Central Authority to be served on a German defendant. By its terms, the Central Authority cannot play the role of defendant’s agent, contrary to plaintiffs’ contention.

In addition, the Convention is not a “long-arm” provision independently authorizing service outside the U.S. On the contrary, in the Court’s view, it merely sets up various methods of serving process abroad, if and when a state or federal statute permits transnational service. Nor does the Convention purport to set up criteria for personal jurisdiction over a foreign defendant.

Plaintiffs analogized the situation here to cases where the law makes service upon a defendant’s agent complete, e.g., for limitations purposes. The Court is unconvinced. “The Hague Convention clearly contemplates, and explicitly states, that the central authority itself serves the defendant, not that the central authority itself may be served. ... [It] does not provide that the central authority merely forward notice to the defendant, but instead provides that the central authority actually serve the defendant or arrange to have the defendant actually served.” [678-79]

Plaintiffs, however, fare better on their “tolling” argument. “Once the necessary documents are transmitted to the central authority, the timing of service is out of a plaintiff's control. Service thus may be effected after a state statute of limitations runs. In Marschauser v. Travelers Indem. Co., 145 F.R.D. 605 (S.D.Fla.1992), for example, Israel's central authority had not sent the required certificate indicating whether service had been made on one of the defendants nearly nine months after receiving the request for service abroad. Also, the French central authority took over six weeks to serve the defendants, as noted in the unpublished opinion of Greene v. Le Dorze, 1998 WL 158632 (N.D.Tex.1998). The Hague Convention stands as a positive rule of law which could prevent timely commencement of suit.” [683] In such situations, Washington precedent recognizes a need to extend the 90-day period.

The Court cautions that transnational service of a complaint and summons other than pursuant to the Convention or to its declarations and reservations would not have a “tolling” effect. Since plaintiffs’ English versions did not comply with German specifications, plaintiffs had to, and did, get the translated documents to the Central Authority within the full 90-day period.

Citation: (Certification in) Broad v. Mannesmann Anlagenbau, A.G., 141 Wash.2d 670, 10 P.3d 371 (2000).

JURISDICTION (CRIMINAL)

In case of sexual offense allegedly committed by U.S. citizen on U.S.-controlled installations in Japan and Philippines, Ninth Circuit finds that U.S. federal courts have jurisdiction over such cases, disagreeing with Second Circuit which recently decided similar case

From 1993 to 1996, Clifton Corey was the civilian postmaster at the Yokota Air Force Base in Japan and at the U.S. Embassy in Manila, Philippines. In Japan, Corey and his family lived on the Air Force Base, and in Manila they lived in an apartment building called “Lopez Court” rented by the Embassy. As it turned out, Corey had sexually abused his stepdaughter during that period and he was charged and convicted in the U.S. of aggravated child abuse.

The Hawaii federal court rejected Corey’s challenge to the court’s “extraterritorial” jurisdiction because the offenses did not occur on U.S. territory. On appeal, Corey asserted error in the district court’s jurisdictional ruling. In a two-to-one vote, however, the U.S. Court of Appeals for the Ninth Circuit affirms.

The relevant statutes, 18 U.S.C. Sections 2241(a) and 2242(1) provide punishment for performing sexual acts on other persons “in the special maritime and territorial jurisdiction of the United States...” Under 7 U.S.C. Section 7(3), the term “special maritime and territorial jurisdiction of the United States” includes: “Any lands reserved or acquired for the use of the United States, and under the exclusive or concurrent jurisdiction thereof, or any place purchased or otherwise acquired by the United States by consent of the legislature of the State in which the same shall be, for the erection of a fort, magazine, arsenal, dockyard, or other needful building.” Thus far, only two courts have ruled on whether this statute applied to lands within the territory of a foreign nation.

The Court first notes that Congress may enforce its laws beyond U.S. territorial boundaries of the United States. Nevertheless, U.S. laws presumably apply only within the territory of the United States unless Congress states otherwise. In the Court’s view, lands falling within Subsection 7(3) are not “extraterritorial” but within the legislative jurisdiction of the U.S. The Court thus concludes that Subsection 7(3) can apply to territory outside the borders of the 50 U.S. states, disagreeing with the Second Circuit’s contrary ruling in a similar case (see United States v. Gatlin, 216 F.3d 207 (2d Cir. 2000)).

In discussing its disagreement with the Second Circuit, the Ninth Circuit remarks that “construing subsection 7(3) as applying only to federal lands within the United States serves neither congressional intent nor American foreign policy. All it does is hand a get-out-of-jail-free card to American civilians who violate U.S. law while stationed abroad.” (Slip op. 27)

“[W]e conclude that the United States exercises concurrent, and indeed primary, jurisdiction over the actions of United States nationals on both the Yokota Air Force Base and Lopez Court. This conclusion arises out of the plain meaning of subsection 7(3), the relevant international agreements, and the practical realities of the situation. The United States has negotiated a modus vivendi with both Japan and the Philippines for the lands under United States dominion in their respective countries. Were we to hold that federal court jurisdiction is not coextensive therewith, we would risk destabilizing the accommodation that the Executive Branch has worked out with the foreign powers. Congress intended through subsection 7(3) to avoid such dangers by extending the federal criminal laws as far as U.S. dominion.” [Slip op. 48-49]

The dissenter would hold that there is no jurisdiction in this case because of the presumption against extraterritoriality, combined with the ambiguous language of the statutes and the absence of any clear congressional intent to include foreign locations. The real question is whether Congress intended for this statute to apply extraterritorially, and the dissenter cannot find such an indication. Therefore, it would be up to Congress, not the courts, to extend the reach of the criminal laws beyond the borders of the U.S.

Citation: United States v. Corey, No. 99-10232 (9th Cir. November 20, 2000) (unpublished opinion).

JURISDICTION (PERSONAL)

In breach of securities contract litigation, British Columbia Court of Appeal dismisses U. S. defendants’ appeal from lower court ruling that it had personal jurisdiction over them based on occurrence of damages in B. C. and that forum non conveniens doctrine did not preclude exercise of that jurisdiction

Pacific International Securities, Inc. (Pacific) is a securities dealer in British Columbia. It entered into a share purchase contract over the telephone confirmed by fax messages. The deal involved buying $68,040 worth of Shopping.com shares. These shares are listed on the National Association of Securities Dealers (NASD) Bulletin Board, an OTC market. Drake Capital Securities (Drake) advertised the availability of these shares.

A Pacific employee in Vancouver made the arrangement by phone with a Drake employee in California while the confirmation messages went between Vancouver and Paine Webber Inc. in New Jersey. None of the parties whom Pacific dealt with have an office or other physical presence in British Columbia or anywhere else in Canada. As for delivery agents, the Canadian Depository for Securities (CDS) is in Toronto and the U.S. Depository Trust Company (DTC) is in the U.S.

Ultimately, the shares never got delivered, requiring Pacific to borrow shares to cover its short position with the client. It brought a breach of contract action against Drake, Paine Webber and others for the added cost of doing so.

Since defendants are all U. S. companies, plaintiff relied mainly on Rule 13(3) of the B.C. Rules of Court on perfecting service of process ex juris. That Rule states: “ In any case not provided for in subrule (1), the court may grant leave to serve an originating process or other document outside British Columbia.” 

B.C. law is clear that Rule 13(3) necessarily incorporates a “real and substantial connection” test for personal jurisdiction. The chambers judge upheld service of the writ under this Rule because he thought that the test was met in this case. He also ruled that he should not refuse to exercise jurisdiction based on forum non conveniens. On review, the British Columbia Court of Appeal, in a two-to-one vote, dismisses.

The majority first addresses jurisdiction simpliciter under Rule 13(3). “Pacific submits that the real and substantial British Columbia connection in this case is the obligation imposed by B.C. regulatory authority to buy or borrow shares to meet its obligation to its client. It claims that the damage in the amount of the differential cost of the shares was sustained in compliance with the regulatory directive. It will raise that obligation in response to any defence of failure to mitigate. Thus Pacific contends that ... the damage was suffered in British Columbia and in compliance with duties imposed by British Columbia law.” [Para. 14]

The majority agrees. “[D]amage sustained within the jurisdiction arising from a breach of contract outside the jurisdiction meets the real and substantial connection test discussed in [the] authorities ... Thus jurisdiction on that ground is consistent with the general principles of conflict of laws and inter‑jurisdictional comity. Although ... damage sustained within the jurisdiction is not a specific ground for asserting jurisdiction in a breach of contract case under Rule 13(1), I see no reason why it cannot be relied upon as a real and substantial connection ‘in any other case’ under Rule 13(3).” [Para. 15]

Noting the difficulty of these questions, the majority are not persuaded that defendants were doing business in B.C. “[T]he business of litigation, like commerce itself, has become increasingly international. With the increase of free trade and the rapid growth of multi‑national corporations it has become more difficult to identify one clearly appropriate forum for this type of litigation. The defendant may not be identified with only one jurisdiction.”

“Moreover, there are frequently multiple defendants carrying on business in a number of jurisdictions and distributing their products or services world wide. As well, the plaintiffs may be a large class residing in different jurisdictions. It is often difficult to pinpoint the place where the transaction giving rise to the action took place.” [Para. 20]

On the issue of forum non conveniens, the majority sees no reversible error by the chambers judge in deciding that there was no clear showing that a U.S. forum would be more appropriate. That judge had declared that “First, the Plaintiff is incorporated and carries on business in British Columbia. Second, the Plaintiff suffered damage in British Columbia. Third, inconvenience to potential witnesses for the Defendants will be minimal since the matter may be heard by way of summary trial with evidence given by way of affidavit. Fourth, [the] cost of conducting the litigation in this jurisdiction will be kept to a minimum since the matter may be heard by way of summary trial. Finally, if United States securities law is applicable, I am not convinced that its interpretation and applicability by this Court will be a bar to a fair trial in this jurisdiction.” [Slip op. 24]

The dissent writes a vigorous argument that supports the allowance of the appeal. “The most significant finding of the chambers judge was that the alleged breach of contract occurred in California and not in British Columbia. On the basis of that finding, he correctly held that the service ex juris of the writ of summons was invalid. The first issue on appeal is whether his finding that service of the writ could be upheld under Rule 13(3) on the ground that there is real and substantial connection between the cause of action and British Columbia can be upheld. In my view, it cannot and it is therefore not necessary to consider the question of forum non conveniens.” [Para. 31]

Citation: Pacific International Securities, Inc. v. Drake Capital Securities, Inc., 2000 B.C.C.A. 632 (B.C. Ct. App. Nov. 23, 2000).

JURISDICTION (SUBJECT MATTER)

Second Circuit affirms lack of subject matter jurisdiction under Alien Tort Claims Act over private company that later acquired government-seized property; Court notes that international comity might suggest that court decline to exercise its diversity jurisdiction

Raphael Bigio and other members of his family (jointly “the Bigios”) brought this action against the Coca-Cola Company and one of its subsidiaries to recover damages for the seizure of their assets in Egypt in 1962. The defendants allegedly knew about the seizure when they took possession of the premises in 1993.

The Bigio’s alleged jurisdiction (1) under the Alien Tort Claims Act (28 U.S.C. Section 1350) (ATCA) and alternatively (2) based on diversity of citizenship under 28 U.S.C. Section 1332. The district court granted the defendants’ motion to dismiss for lack of subject matter jurisdiction. The U.S. Court of Appeals for the Second Circuit, however, reverses and remands because the district court clearly has subject matter jurisdiction based on diversity of citizenship (see 28 U.S.C. Section 1332(a)(2)). The Court expresses some doubt as to whether international comity might suggest that the U.S. court decline to exercise its jurisdiction.

First, ACTA provides that “[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” Here, the plaintiffs failed to allege that the defendants had taken part in the actions of the Egyptian government. Even though certain forms of individual conduct can violate the “law of nations,” such as the bans on genocide and war crimes, the plaintiffs would have to show here that the defendants had worked hand-in-hand “under the color of law” with the Egyptian government in seizing the property. This does not come about simply by buying property from the government. Therefore, the defendants did not violate the law of nations and the district court therefore had no subject matter jurisdiction over their ATCA claim.

Second, the Court finds that international comity might justify a discretionary abstention from exercising the court’s diversity jurisdiction in this case. “ ... [Comity] may take the form of ‘a discretionary act of deference by a national court to decline to exercise jurisdiction in a case properly adjudicated in a foreign state.’ ... When a court dismisses a complaint in favor of a foreign forum pursuant to the doctrine of international comity, it declines to exercise jurisdiction it admittedly has. ...”

“The questions that would be addressed by the district court in this case would appear to include (1) whether the plaintiffs’ property in Egypt was wrongfully seized by the Egyptian government during the early 1960s, at which time the plaintiffs were living in Egypt, and (2) whether the plaintiffs have rights to that property. ... This lawsuit’s connection to Egypt is therefore undeniably strong. By contrast, the only connection between this lawsuit and the United States ... is the identity of the defendants as United States corporations. Under these circumstances and on the basis of the information before us, we cannot say that retention of jurisdiction would be the only possible course of action for the district court.” [Slip op. 40-43]

Citation: Bigio v. The Coca-Cola Co., No. 98-9058 (2d Cir. December 7, 2000).

NATIONAL SECURITY

In government suit to recover ill-gotten gains by Soviet spy whose autobiography breached his confidentiality agreement with U. K. Secret Service, House of Lords employs accounting-for-profits theory rather than constructive trust approach of U. S. Supreme Court in Snepp v. United States

A British citizen named George Blake belonged to the Secret Intelligence Service (SIS) between 1944 and 1961. When he had joined the SIS, he signed a required undertaking "not to divulge any official information gained by me as a result of my employment, either in the press or book form ... not only during the period of service but also after employment has ceased.”

Between 1951 and 1960, however, Blake served as an agent for the Soviet Union. He pleaded guilty in 1961 to five counts of unlawfully communicating information in violation of Section 1(1)(c) of the Official Secrets Act of 1911, the court sentencing him to serve 42 years in prison. Five years later, he broke out of prison and got himself to Moscow where is still residing.

Blake’s 1989 autobiography set out substantial amounts of information about his activities in SIS and about data obtained by him during his SIS service. Jonathan Cape, Ltd., published his book in the U.K. in 1990. Blake had never asked for the Crown’s permission to publish the book nor had he sent in the manuscript for prior Crown approval. His publishing contract involved a payment of 150,000 pounds sterling of which Blake has already gotten 60,000.

On the Crown’s behalf, the Attorney-General (AG) filed an action in May 1991 to deprive Blake of financial benefit from the book’s publication and, in particular, to bar payment of the 90,000 pounds owed by Cape. Blake’s pro bono attorney in turn filed a third party proceeding against Cape. The Crown admitted that the information in the book was no longer confidential and that its revelation was not injurious to the public interest. Moreover, it had never asked the court to bar the book’s publication. The theory of the Crown’s case at first instance was that Blake had violated fiduciary duties owed to the Crown. The Court, however, dismissed the suit.

The AG took his case to the Court of Appeal. Here he amended the Crown’s claim, first, to allege that Blake had breached a contract and, second, that public law warranted relief in that the suit was enforcing the criminal law. There was no claim for an account of profits or for restitutionary damages for breach of contract. The Court of Appeal dismissed the private law appeal but allowed the public law appeal.

Blake appealed to the House of Lords and the AG cross-appealed. The AG contended for the first time that the Crown should be able to recoup Blake’s profits from his contract breach on restitutionary grounds. Five members of the House unanimously allow Blake’s appeal in public law and, with one dissent, allow the AG’s appeal in private law.

While most contract litigation seeks compensation, the law sometimes measures contract damages according to the benefit gained by the wrongdoer. The loss-of-profits approach applies only when the courts consider damages, specific performance and injunction inadequate remedies. One general element is that a claimant have a rightful interest in barring the defendant’s profit-making activity.

“The present case is exceptional. The context is employment as a member of the security and intelligence services. Secret information is the lifeblood of these services. In the 1950's Blake deliberately committed repeated breaches of his undertaking not to divulge official information gained as a result of his employment. He caused untold and immeasurable damage to the public interest he had committed himself to serve.”

“In 1990 he published his autobiography, a further breach of his express undertaking. By this time the information disclosed was no longer confidential. In the ordinary course of commercial dealings the disclosure of non‑confidential information might be regarded as venial. In the present case disclosure [by an SIS officer] was also a criminal offence under the Official Secrets Acts, even though the information was no longer confidential.” [968]

The quite similar case of Snepp v. United States, 444 U.S. 507 (1980), the House notes, showed a majority of the U.S. Supreme Court approving the imposition of a “constructive trust” on the profits made by a former CIA employee who had violated his nondisclosure agreement in a book that disclosed official, but unclassified, information. Providing the plaintiff with an account of profits under U.K. law “is a different means to the same end.” [970]

In this case, the Crown had a right against Blake to an account of his profits and to a money judgment enforceable by attachment of the debt as usual. As to Cape, the AG was entitled to have it pay the Crown a sum that matched whatever amount Cape still owed Blake. An injunction against the payment of royalties awarded by the Court of Appeal is to continue in force until Cape pays the Crown instead.

The House points out (incidentally) that the AG’s public law claim rested on the theory that Blake “owned” the royalties payable by Cape. The Court of Appeal, however, did not intend to issue a confiscatory order to blot out Blake’s title to the payments but one to “freeze” them until the occurrence of some future event. Theoretically this might be a future criminal prosecution of Blake under the Secrets Act. Such a prosecution would trigger the application of the Criminal Justice Act of 1988 which does allow for confiscations of criminal proceeds under defined conditions. The Crown has admitted, however, that it sees no prospect of Blake’s return to England for trial.

“This being the case, one must look elsewhere for the event which will decide what is to happen to the money thus frozen in Jonathan Cape's hands. ... The Crown suggested that at some stage in the future an application might be made to the court for the money to be released to a charity, or used in some other way which would not benefit Blake. The Court of Appeal envisaged the possibility of some use for the unpaid royalties which would not be ‘contrary to the public interest.’”

“But these suggestions serve only to underline that, although not so expressed, the effect of this order is confiscatory. The order will have the effect of preventing the money being paid to Blake. It is not envisaged that the money will ever be paid to him.” [971]  As a result, the court lacked the power to enter such an order.

Citation: Attorney-General v. Blake, [2000] E.M.L.R. 949, [2000] 4 All E.R. 385 (House of Lords).

WORLD TRADE ORGANIZATION

On appeal, U.S. largely prevails over EU in banana dispute; WTO Appellate Body disagrees with Panel’s broad statements that arbitrators could rule on WTO-consistency of measures taken to comply with WTO recommendations, and upholds U.S.’s increased bonding requirements for EU products

On December 11, 2000, the Appellate Body of the World Trade Organization (WTO) circulated a report in the “banana” dispute between the U.S. and the European Union (EU). The report reverses several findings of the previous Dispute Settlement Panel’s report favors mostly the U.S.

Effective March 3, 1999, the U.S. had imposed sanctions on certain EU products in response to the EU’s failure to properly implement the WTO dispute settlement report in the banana dispute. Specifically, the U.S. imposed bonding requirements on imports of specific EU products, levied by the U.S. Customs Service to ensure that the U.S. could collect duties retroactively after WTO arbitrators determined the exact level of harm caused to the U.S. as a result of the EU banana regime. The U.S. removed these bonding requirements by April 19, 1999, shortly after the Dispute Settlement Body (DSB) granted authorization to impose 100 per cent customs duties on designated EU products.

A WTO Dispute Settlement Panel published its report on July 17, 2000, finding that the U.S. actions failed to comply with WTO dispute settlement rules by imposing them prior to the time authorized, and that the U.S. bonding requirements violated GATT trading rules. The Panel emphasized that WTO remedies are prospective rather than retroactive. See 2000 International Law Update 125.

The Appellate Body reverses several of the Panel’s findings and broad legal statements. Specifically, the Appellate Body first concludes that the Panel erred in stating that arbitrators appointed under Article 22.6 of the Dispute Settlement Understanding (DSU) can rule on the WTO-consistency of a measure taken by a Member to comply with recommendations and rulings of the Dispute Settlement Body (DSB). Therefore, the Panel’s statements on this issue have no legal effect (see paragraph 89).

Secondly, the Body concludes that the Panel erred in stating that “[o]nce a Member imposes DSB authorized suspensions of concessions or obligations, that Member’s measure is WTO compatible (it was explicitly authorized by the DSB).” The statement thus has no legal effect (see paragraph 96).

The Body reverses the Panel’s finding that the increased bonding requirements are inconsistent with GATT Articles II:1(a) and II:2(b), first sentence; and overturns the Panel’s finding that, by adopting the March 3, 2000, measure, the U.S. acted inconsistently with Article 23.2(a) of the DSU.

Finally, the Appellate Body agrees with Panel that the U.S. had acted inconsistently with Articles 23.2(c), 3.7, and 22.6 of the DSU, and upholds the Panel’s finding that the March 3 measure was inconsistent with Article 21.5 of the DSU. On the other hand, because the U.S. measures imposed in March 1999 on EU products are no longer in effect, the Appellate Body did not make any specific recommendations.

Citation: United States - Import Measures on Certain Products from European Communities (WT/DS165/AB/R) (December 11, 2000). [Report is available on WTO website www.wto.org; U.S. Trade Representative press release 00-87, December 11, 2000.]

To advance inquiry into “U.S.S. Cole” bombing, U.S. and Yemen have signed investigation agreement. To foster the investigation of the attack on the “U.S.S. Cole” in Yemen, the U.S. and Yemen signed “Guidelines for Joint Investigation” on November 29, 2000. U.S. Ambassador Barbara Bodine acted for the U.S., and Rasheed Ahmed Al-Gholom, Deputy Secretary of Interior for Police Affairs, represented Yemen. According to the U.S. Department of State, it provides for access to information and witnesses according to the legal principles of both parties. The Department also stated that this is not a public document subject to publication. Citation: U.S. Department of State Daily Press Briefing, November 29, 2000 & November 14, 2000; New York Times, page A5, November 30, 2000.

India implements protectionist trade measures. The Government of India has issued a series of decisions to protect local industry from import competition. The measures require foreign exporters and manufacturers to first register at Manak Bhavan, New Delhi, before customs will admit their goods. There are also new labeling requirements including the “Maximum Retail Price,” a generic product name, the month and year of entry, the importer’s name, and the content quantity. Citation: India Trade Notes, November 27, 2000, published by Mr. Arun Goyal of Academy of Business Studies, New Delhi, Email: arung@nda.vsnl.net.in.

India partially lifts currency transfer restrictions for foreign investment purposes. India strictly controls foreign currency transfers, making it hard for Indian companies to transfer funds out of the country. The new Foreign Exchange Manual Act (FEMA) Regulations 2000, however, contain important changes that will allow Indian companies to invest abroad. For example, Part I (Direct Investment Outside India) states the general rule that no Indian resident shall directly invest abroad, and that no Indian party shall directly invest in a foreign entity engaged in the real estate or banking business. On the other hand, an Indian party may now directly invest in a Joint Venture or in a wholly owned subsidiary outside India as long as (1) the total financial investment does not exceed U.S.$50 million, (2) the foreign entity is engaged in the same line of business. Citation: FEMA (Transfer of Issue of any Foreign Security) Regulations 2000, published as FEMA Manual by Nashi Publications, P.O. Box No. 37, New Delhi - 110001, India.

EU provides for trade measures to stabilize Yugoslavia and Macedonia. The European Union (EU) has amended its trade Regulation aimed to stabilize the Federal Republic of Yugoslavia and the Former Yugoslav Republic of Macedonia. Yugoslavia and Macedonia receive trade preferences and tariff concessions that facilitate their exports to the EU. — In a related matter, the EU has amended its Common Position on arms exports to former Yugoslavia and will now consider applications from Croatia on a case-by-case basis. The EU, however, has decided to keep its sanctions on Slobodan Milosevic in effect. Citation: Regulation 2563/2000, 2000 O.J. of the European Communities (L 295) 1, 23 November 2000 (stabilize Yugoslavia and Macedonia); Council Common Position 2000/722/CFSP, 2000 O.J. of the European Communities (L 292) 1, 21 November 2000 (arms exports to Croatia); 2000 O.J. of the European Communities (L 287) 1, 2, 19, 14 November 2000 (sanctions on Milosevic).

U.S. waives economic sanctions on China for missile assistance to Pakistan and Iran. The U.S. has decided to waive possible sanctions against China for the latter’s past assistance to missile programs in Pakistan and Iran. The Chinese Foreign Ministry’s spokesperson made a statement on November 21, 2000, which committed China to refrain from assisting other countries to develop ballistic missiles designed to deliver nuclear weapons. China will also draw up an export control list for dual-use items. The U.S. has also decided to recommence cooperation in commercial space ventures, such as by launching U.S. satellites in China. Finally, the U.S. and China will resume discussions to extend the 1995 U.S.-China Agreement Regarding International Trade in Commercial Launch Services. — In a related matter, the U.S. will impose sanctions on Pakistan and Iran because of their missile programs. It will soon appear in the Federal Register. The sanctions will bar those two countries from U.S. exports of defense-related items for two years. Citation: U.S. Department of State Daily Press Briefing, November 21, 2000; The Washington Post, November 22, 2000, page A20; U.S. Department of State press release, November 21, 2000; New York Times, page A8, November 25, 2000.

U.S. and China agree to build new embassies. On November 1, 2000, the U.S. and China signed a Memorandum of Understanding to regulate the building of new embassies. Admiral Prueher signed on behalf of the U.S., and PRC Assistant Foreign Minister Zhou Tianshun signed on behalf of China. Pursuant to the Agreement, the U.S. will acquire a 40,000 square meter site in Beijing for a new Embassy, as well as a 30,000 square meter site in Guangzhou for a new U.S. Consulate. China will acquire a 10,800 square meters site in Washington, D.C., for a new embassy. Citation: U.S. Department of State Daily Press Briefing, November 1, 2000; The Washington Times, page A18, November 2, 2000.

U.S. and Jordan sign Free Trade Agreement. On October 24, 2000, the U.S. and Jordan signed the U.S.-Jordan Free Trade Agreement (FTA) to get rid of duties and other trade barriers. The signers were U.S. Trade Representative Charlene Barshefsky and Jordanian Deputy Prime Minister Mohammad Halaiqah. The FTA virtually eradicates tariffs on industrial and agricultural products within 10 years. The Agreement also includes novel features for such a trade agreement, such as a memorandum on the protection of intellectual property rights, as well as provisions dealing with the environment, workers’ rights, and electronic commerce. Since U.S. and Jordan have already concluded a separate Bilateral Investment Treaty, the FTA does not include an investment chapter. This is only the fourth free trade agreement that the U.S. has concluded. The existing ones are with Canada, Israel and Mexico.— In a related matter, the U.S. Trade Representative has designated three new Jordan-Israeli “Qualifying Industrial Zones” (QIZs) from which goods can enter the U.S. duty free. Citation: U.S. Trade Representative press releases 00-75 (October 24, 2000) (Free Trade Agreement with Jordan) & 00-88 (December 12, 2000) (QIZs); Special White House Briefing with U.S. Trade Representative Charlene Barshefsky (October 24, 2000). [Additional information on Agreement, along with full text, is available on website of U.S. Trade Representative at www.ustr.gov.

U.S. Senate approves ten bilateral investment treaties. On October 19, 2000, the U.S. Senate gave its advice and consent to the ratification of ten bilateral investment treaties (BITs). These treaties are with Azerbaijan, Bahrain, Bolivia, Croatia, El Salvador, Jordan, Honduras, Lithuania, Mozambique, and Uzbekistan. The BIT with Panama was amended. These BITs serve to protect investments by providing for the free transfer of capital, profits, and royalties, as well as guaranteeing access to international arbitration in case of dispute. Citation: U.S. Trade Representative press release, October 19, 2000.

European Parliament issues resolution on native Americans. The European Parliament has issued a resolution calling on the U.S. government to respect the rights of Dineh (Navajo) people who reside in the Hopi Partition Lands in the Black Mesa region. They face eviction from the lands based on the Relocation Act (Pub.L. 93-531). Citation: B5-0152, 0157, 0163, 0171 and 0174/2000, 2000 O.J. of the European Communities (C 339) 276, 29 November 2000.

U.S. Senate consents to U.S.-Ukraine MLAT. On October 18, 2000, the Senate consented to the presidential ratification of a U.S.-Ukraine Mutual Legal Assistance Treaty (MLAT) which both parties had signed on July 22, 1998. The Treaty provides for mutual assistance in criminal investigations, including service of documents, searches and seizures, and inter-country transfers of witnesses. Citation: U.S. Department of State press statement, October 20, 2000.

French court threatens to fine Yahoo! for selling Nazi artifacts. On November 20 last, a Paris court ordered Yahoo! to block French users from getting into a U. S. auction site where a user can buy Nazi memorabilia. The court based its ruling on French anti-racist laws and gave Yahoo! three months to come up with a method of barring French citizens from the site. Noncompliance will cause the court to begin fining Yahoo! 100,000 French francs per day. Three court-appointed international experts had testified that a system of checking on the users’ nationality along with password checks could enable Yahoo! to identify 90% of those trying to buy Nazi items from France. Yahoo! had contended that a French court could not extend this prohibition to its U. S. sites because that could breach its federal constitutional right to free speech. Licra, the international league against racism and anti-semitism, had brought the suit. One of its officials pointed out that Yahoo! was prepared to go along with Chinese political demands in order to set up its operations there. The French judgment, he said, reinforces the notion that cyberspace operators have to respect the national laws and customs of individual countries. Citation: The Financial Times (London), London Edition, November 21, 2000, First Section, page 1.

U.S. approves U.S.-Mexico boundary treaty favoring oil and gas exploration. On October 18, 2000, the U.S. Senate gave its consent to the ratification of a treaty with Mexico that establishes a continental shelf boundary in the Western Gulf of Mexico beyond 200 nautical miles off their respective coasts. It does not, however, affect the water column above the continental shelf, which will remain part of the high seas. This Treaty favors the prospecting and exploration of oil and gas resources on the continental shelf. To avoid conflicts over transboundary reservoirs, the parties have agreed to a 1.4 mile area on each side where no commercial exploration will take place for the next 10 years. Citation: U.S. Department of State press statement, October 23, 2000.

U.S. and Korea reach agreement on implementation of WTO report on DRAMS. Pursuant to a complaint by Korea, a World Trade Organization (WTO) dispute settlement panel had ruled that the U.S. had improperly imposed an anti-dumping order on Korean Dynamic Random Access Memory Semiconductors (DRAMS) (Case WT/DS99/1). See 1999 International Law Update 20. On October 20, 2000, the parties notified the WTO Dispute Settlement Body that they have resolved the issue of how to carry out the WTO decision. The U.S. has revoked the antidumping order at issue as the result of a five-year “sunset” review by the U.S. Department of Commerce. Citation: Notation in overview of WTO dispute settlement cases on WTO website www.wto.org.

EU ends its investigation of U.S. origin rules for textile products. The European Union (EU) has discontinued its investigation of the U.S. rules of origin for textile products. The Italian Federation of Textile Industries (Federtessile) had brought the complaint in 1996, alleging that the U.S. rules of origin constituted a trade obstacle because they deny EU origin status for products processed in the EU with non-EU fabrics. The EU also began dispute settlement procedures before the WTO. On August 16, 1999, the parties agreed that the U.S. would seek an amendment to 19 U.S.C. 3592 to grant EU-origin status to fabrics that have undergone two or more finishing operations in the EU. The U.S. Trade and Development Act of 2000 [Pub.L. No.106-200, 114 Stat. 251], which U.S. President Clinton signed into law on May 21, 2000, includes this amendment. Citation: Commission Decision 2000/667/EC, 2000 O.J. of European Communities (L 278) 35, August 31, 2000.

China revises Laws on Foreign Investment. Chinese Premier Zhu Rongji presented a bill to the legislature to revise three laws on foreign investment in China which it enacted on October 31, 2000. The changes concern Chinese-foreign joint ventures, Chinese-foreign cooperative ventures, and solely-foreign-funded ventures in China. The changes aim to facilitate China’s accession to the WTO. The changes affect, e.g., the mandatory foreign exchange balances, as well as requirements for purchasing local products and  for selling products to overseas markets. Citation: Newsletter, Embassy of People’s Republic of China, October 31, 2000; Agence France Presse report, October 31, 2000; Xinhua General News Service report, October 31, 2000.

Azerbaijan revises tax code. Azerbaijan has revised its Tax Code, and President Aliyev signed it into law on July 11, 2000. The changes retain the 10% tax rate on profits, but lower the VAT rate from 20% to 18%. The withholding rates on payments made to foreign entities will apply to dividends, interest, rent and royalties at 10%, insurance premiums and leasing at 4%, and management fees and other income at 15%. It will enter into force on January 1, 2001. Citation: New Tax Code - Azerbaijan, report provided by BISNIS department of U.S. Department of Commerce, available on internet at www.bisnis.doc.gov or by contacting BISNIS by email at judithrobinson@ita.doc.gov or telephone at (202) 482-2000.

U.S. revises rules on encryption equipment. The U.S. Department of Commerce, Bureau of Export Administration, has revised the Export Administration Regulations (EAR) [15 C.F.R. Parts 732, 734, 740, 742, 744, 748, 770, 772, and 774] to streamline the export and re-export of encryption items to European Union (EU) member states, Australia, the Czech Republic, Hungary, Japan, New Zealand, Norway, Poland, and Switzerland. For example, the Rule removes the 30-day waiting period and the government/non-government end-user distinction for these destinations. Also, for the first time, it allows exporters to unilaterally self-classify controlled encryption products. The Rule, however, does not change the export restrictions as to the seven terrorism-supporting states (Cuba, Iran, Iraq, Libya, North Korea, Sudan, Syria). The effective date was October 19, 2000. Citation: 65 Federal Register 62600 (October 19, 2000).

U.S. restricts imports of Nicaraguan archeological items. To protect Nicaraguan archeological artifacts, the U.S. Department of Treasury, U.S. Customs Service, has issued a final rule to prohibit the import of such artifacts dating from 8000 B.C. to 1500 A.D. (See 19 C.F.R. Part 12). The U.S. and Nicaragua had previously reached an agreement under the authority of the “Convention on Cultural Property Implementation Act” (Pub.L. 97-446, 19 U.S.C. 2601) which carries out the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (823 U.N.T.S. 231). Citation: 65 Federal Register 64140 (October 26, 2000). [Further information on import restrictions of archeological and ethnological artifacts is regularly available at http://exchanges.state.gov/education/culprop.]

U.S. releases documents on past human rights violations in Argentina and Chile. The U.S. Department of State has announced that it is making documents available to the public on human rights violations that occurred during the military dictatorship in Argentina 1976-1983, and in Chile from 1968-1991. As for Argentina, the U.S. had received mutual legal assistance treaty requests from Argentina and Spain, and the Grandmothers of the Plaza de Mayo had asked the Secretary to release information about the kidnappings of children that occurred during the military dictatorship. The release of documents held by State, CIA, Defense, FBI, National Archives and Records Administration, and National Security Council, also seeks to show to what extent the U.S. may have taken part in undermining democracy and human rights in Chile during that period. The documents will be available for public review at the National Archives in College Park, Maryland, at the Department of State FOIA Reading Room, and on the internet at http://foia.state.gov. Citation: U.S. Department of State press releases of November 13, 2000 (Chile) & November 17, 2000 (Argentina).

U.S. issues guidelines for environmental review of trade agreements. On December 13, 2000, the U.S. Trade Representative and the Council on Environmental Quality released the final guidelines for implementing Executive Order 13141 of November 1999 (Environmental Review of Trade Agreements). The Order requires a careful assessment of the environmental impact of trade agreements, and the integration of environmental considerations into trade negotiations. It demands that government officials review major trade agreements such as multilateral trade rounds to assess their environmental impact. Most sectoral liberalization agreements, however, will probably not require such a review. Citation: U.S. Trade Representative press release 00-89, December 13, 2000. [Guidelines are available on website of U.S. Trade Representative (www.ustr.gov), and will also appear in Federal Register.]