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.

1995 International Law Update, Volume 1, Number 11 (November).

ARBITRATION

Second Circuit holds that district court erred in compelling Liquidator of insolvent Kentucky insurance company to arbitrate with foreign insurers under New York Arbitration Convention because the latter did not pre-empt Kentucky liquidation statute

In 1985, a Kentucky state court found that American Delta re Insurance Company (Delta) was insolvent and appointed a Liquidator. The Liquidator filed suit in the Southern District of New York against various U.S. and foreign reinsurance companies, who had ceded risks to Delta, to recover present and future premiums due to Delta.

One insurer, British Aviation Insurance Company, Ltd., moved to compel arbitration under Chapter 2 of the Federal Arbitration Act (FAA) which implements the New York Arbitration convention [21 U.S.T. 2517, 330 U.N.T.S. 18]. Relying on domestic U.S. law rather than the Convention, the lower court found that the FAA pre-empted the anti-arbitration provisions of the Kentucky statute and declined to compel arbitration.

On appeal of this issue, however, the U.S. Court of Appeals for the Second Circuit reverses.  The foreign insurers had argued that, pursuant to the Supremacy Clause, the Convention preempted the Kentucky statute. The Court reads the Convention, however, as a non-selfexecuting treaty having no automatic effect as binding domestic law within the U.S. Chapter 2 of FAA is the vehicle for translating the Convention into domestic law.

On the other hand, the McCarran-Ferguson Act, 15 U.S.C. § 1012(b) (1994) provides that courts shall not construe any act of congress as superseding any law that regulates the business of insurance. Since the Kentucky statute falls into that class, the FAA does not compel arbitration as to these foreign insurers.

Citation: Stephens v. American International Ins. Co., No. 1516, 94-9143, 64 U.S.L.W. 2165 (2nd Cir. September 14, 1995).

COMPETITION

EU publishes notice on the application of EC competition rules to banks' cross-border credit transfers

The EC Commission outlined its view on the application of competition rules (EC Treaty Arts. 85 and 86) to cross-border credit transfers. The notice replaces the "Principles on competition for credit transfer systems" (1992). Applying to credit institutions and other participants in the cross-border credit transfer system, the notice summarizes the Commission's view of the relevant markets, the pricing of cross-border transfer systems, and multilateral interchange fees. The membership in cross-border credit transfer systems must take into account EU laws other than competition rules, for example the freedom of movement as to services and the Second banking directive (Directive 89/646/EEC).

Citation: 1995 Official Journal of the European Communities (C 251) 3, 27 September 1995.

CONTRACTS

Private yacht racing rules agreed to by participants in regattas waived inconsistent provisions of convention on collisions at sea, according to First Circuit

In October 1992, two large sailing yachts, the ENDEAVOUR and the CHARLES JOURDAN were competing in two nearby but separate regattas in waters off Southern France. By agreement, the International Yacht Racing Rules (IYRR) governed both races. As the two vessels converged on a buoy, however, the boom of the ENDEAVOUR struck the CHARLES JOURDAN's backstay, causing $10,000 in damages. An International Jury found that, under the IYRR, ENDEAVOUR should have yielded to the CHARLES JOURDAN.

In September 1993, the CHARLES JOURDAN sued the ENDEAVOUR for damages in a Maine federal court. Plaintiffs invoked not only the IYRR but also the Convention on the International Regulations for the Prevention of Collisions at Sea (COLREGS). After a bench trial in admiralty, the district court ignored the IYRR and the jury findings. Applying COLREGS as a treaty with world-wide applicability, it found the CHARLES JOURDAN 60% liable because, as overtaking vessel, it should have kept clear of ENDEAVOUR. The court thus reduced plaintiffs' award to $4,000. The CHARLES JOURDAN appealed.

In a case of first impression, the U.S. Court of Appeals for the First Circuit reverses and orders defendants to pay the full $10,000. It holds that when the yacht owners had voluntarily agreed to abide by the IYRR and its due process procedures, they had contracted not only to waive any inconsistent provisions of COLREGS but also to abide by the Jury findings. Blind application of COLREGS among private vessel owners in this situation, the Court noted, would be logically unsound. "The [lower court's] decision could even have a serious negative impact on such international races as the America's cup or the yachting events of the forthcoming Olympic games in Atlanta." [p. 7]

Citation: Juno SRL v. S/V Endeavour, 58 F.3d 1 (1st Cir. 1995).

CRIMINAL PROCEDURE

D.C. Circuit lifts lower court injunction against physical surrender of extraditees

On August 31, 1995, the District Court for the District of Columbia concluded that the U.S. extradition statute (18 U.S.C. 3184) violates the separation of powers doctrine by permitting the Secretary of State to "review" decisions of extradition judges. On September 15, 1995 the court enjoined the government from "surrendering, under Title 18, § 3184 et seq., of the United States Code, the plaintiffs or any member of the plaintiff class to another nation, pending further order of this court." [see 1995 Int'l L. Update 4 (October)]. On September 29, 1995, the U.S. Court of Appeals for the District of Columbia Circuit issued a brief order lifting the injunction. The Court stayed the district court's order of September 15, 1995, with respect to all persons other than the petitioners.

In the meantime, federal courts have issued orders on extraditions. In one case, the U.S. District Court for the Southern District of New York did not follow Lobue. Switzerland is seeking the extradition of Ira Harvey Cherry under the U.S.-Swiss extradition treaty. The court concluded that Lobue is insufficient to afford petitioner relief at this time.  Cherry's claims under Lobue are not ripe unless and until the magistrate judge has found that petitioner is extraditable. Furthermore, Lobue appears inconsistent with Ward v. Rutherford, 287 U.S.App.D.C. 246, 921 F.2d 286 (1990), which found the extradition statute to be constitutional. See Cherry v. Warden, 95 Cr. Misc. 1 p.7 (S.D.N.Y. October 11, 1995).

Citation: Lobue v. Christopher, No. 95-5293 (D.C. Cir. September 29, 1995).

GOVERNMENT

PROCUREMENT

EU Council adds Austrian, Finnish and Swedish authorities to E.C. regulation on U.S. access to public contracts

EC Council Regulation 1461/93 restricts access for United States tenderers in respect of certain contracts awarded by certain public authorities.  Following the accession of Austria, Finland and Sweden to the European Union, it was necessary to adapt the list of "purchasing entities" listed in the Annex to Regulation 1461/93 by adding similar entities from these three States. The new Regulation 1836/95 contains such lists of "purchasing entities" in the new Member States.  This Regulation entered into force on August 3, 1995.

Citation:  Council Regulation (EC) No 1836/95 of 24 July 1995 completing the Annex to Regulation (EC) No 1461/93 concerning access to public contracts for tenderers from the United States of America, 1995 Official Journal of the European Communities (L 183) 4, August 2, 1995.

IMMIGRATION

Fourth Circuit holds en banc that withholding of deportation does not require separate determinations as to dangerousness to the community of aliens convicted of aggravated felonies

After American courts had convicted a Liberian citizen and a Panamanian citizen of drug offenses, immigation judges and the Board of Immigration Appeals found both ineligible for "withholding of deportation." Petitioners argued to the Circuit Court that the statute clearly requires the Attorney General to make a separate determination of dangerousness even as to convicted felons.

Denying the petitions for review, the U.S. Court of Appeals for the Fourth Circuit holds en banc 7 to 5 that 8 U.S.C. § 1253(h)(2)(B), which authorizes withholding of deportation, does not require a separate determination of dangerousness to the community in the case of an aggravated felon. "We agree with the view of the INS that the alien constitutes a danger to the community because he has been convicted of a particularly serious crime, so once the particularly serious crime determination is made, the alien is ineligible for withholding without [the need for] a separate finding on dangerousness. ... In addition, this interpretation is one that we share with five other circuits [the 5th, 7th, 9th, 10th, and 11th Circuits]." [page 1088-1089]

The Court also rejects Petitioners' reliance on Article 33 of the United Nations Convention Relating to the Status of Refugees (July 28, 1951) [to which the U.S., not being a signatory, is bound as to Articles 2-34 via the Protocol Relating to the Status of Refugees (January 31, 1967), 19 U.S.T. 6223, T.I.A.S. 6577]. The Court considers the provision on "refoulement" identical to the statute, so that someone who has been convicted of a particularly serious crime is inherently a danger to the community.

Citation: Kofa v. U.S. Immigration & Naturalization Service, 60 F.3d 1084 (4th Cir. 1995).

Airline held not responsible for expenses of detaining aliens without visas who request asylum while in transit through the U.S.

Though hundreds of airlines have agreements with the INS for "transit without visa" for passengers seeking asylum, several have challenged the imposition on them of the expenses of their temporary detention.

The U.S. Court of Appeals for the Second Circuit rules that Linea Area Nacional de Chile (LAN) is not responsible to the Immigration and Naturalization Service (INS) for these expenses because the 1986 amendments to the Immigration and Nationality Act had relieved airlines of this burden. Congress had repealed Section 233 of INA (8 U.S.C. § 1223), which made carriers responsible for such aliens. Thus the INS now lacks the power to contract with air carriers to be responsible for expenses incurred for asylum seekers. The Court also finds that Congress has waived sovereign immunity to allow the airlines to recover the moneys that carriers have paid to the INS.

Citation:  Linea Area Nacional de Chile S.A. v. Meissner, No. 94-6288 (2nd Cir. September 11, 1995).

JUDICIAL ASSISTANCE

German competent authorities for the Hague Service Convention published

The German federal gazette (Bundesgesetzblatt) issued a notice on the Hague Convention on Service Abroad of Judicial and Extra Judicial Documents in Civil or Commercial Matters (T.I.A.S. 6638, 20 U.S.T. 361).

The revised list of German central authorities for matters arising under the Convention is as follows:

Baden-Württemberg, Justizministerium Baden-Württemberg, Schillerplatz 4, D-70173 Stuttgart.

Bayern, Bayerisches Staatsministerium der Justiz, Justizpalast, Prielmayerstrasse 7, D-80335 München.

Berlin, Senatsverwaltung für Justiz von Berlin, Salzburger Str. 21-25, D-10825 Berlin.

Brandenburg, Ministerium der Justiz des Landes Brandenburg, Heinrich-Mann-Allee 107, D-14460 Potsdam.

Bremen, Der Präsident des Landgerichts, Domsheide 16, D-28195 Bremen.

Hamburg, Präsident des Amtsgerichts Hamburg, Sievekingplatz 1, D-20355 Hamburg.

Hessen, Hessisches Ministerium der Justiz, Luisenstrasse 13, D-65185 Wiesbaden.

Mecklenburg-Vorpommern, Ministerium für Justiz, Bundes- und Europaangelegenheiten des Landes Mecklenburg-Vorpommern, Demmlerplatz 14, D-19503 Schwerin.

Niedersachsen, Niedersächsisches Justizministerium, Am Waterlooplatz 1, D-30169 Hannover.

Nordrhein-Westfalen, Präsident des Oberlandesgerichts Düsseldorf, Cecilienallee 3, D-40474 Düsseldorf.

Rheinland-Pfalz, Ministerium der Justiz, Ernst-Ludwig-Strasse 3, D-55116 Mainz.

Saarland, Ministerium der Justiz, Zähringerstrasse 12, D-66119 Saarbrücken.

Sachsen, Sächsisches Staatsministerium der Justiz, Archivstrasse 1, D-01097 Dresden.

Sachsen-Anhalt, Ministerium der Justiz des Landes Sachsen-Anhalt, Wilhelm-Höpfner-Ring 6, D-39116 Magdeburg.

Schleswig-Holstein, Der Justizminister des Landes Schleswig-Holstein, Lorentzendamm 35, D-24103 Kiel.

Thüringen, Thüringer Justizministerium, Alfred-Hess-Str. 8, D-99094 Erfurt.

Citation: Bekanntmachung über den Geltungsbereich des Haager Übereinkommens über die Zustellung gerichtlicher und aussergerichtlicher Schriftstücke im Ausland in Zivil- oder Handelssachen, 1995 [German] Bundesgesetzblatt II, number 28, page 755, September 22, 1995.

JURISDICTION

In blood contamination case, Irish Supreme Court denies stay of Irish court proceedings to allow plaintiffs to return to New York federal court which had already found that it was not convenient forum

Irish domiciliaries sued Armour Pharmaceutical Company, Inc. (Armour), a New York domiciliary, and others in a New York federal court claiming that they or their deceased had gotten AIDS from contaminated blood supplied by Armour. On motion of defendants, the New York court stayed its proceedings conditioned on defendants' submission to an Irish court as the more convenient forum. Once in that court, however, plaintiffs sought to stay the Irish proceedings on forum non conveniens grounds so that they could return to the New York court. One of plaintiffs' grievances lay with the Irish system of pretrial discovery. The Irish Supreme Court, however, declines to order a stay and dismisses the appeal. If plaintiffs had been unhappy with the American court's ruling, the proper procedure would have been a direct appeal.

Moreover, the Court views it as unjust to demand that defendants in effect start over again in the federal court which had already ruled that the Irish courts were the more convenient forum. Finally, the American court had already set the main condition for return as being an Irish court's holding that it lacked jurisdiction to hear the case on the merits.

Citation:  Doe v. Armour Pharmaceutical Co., Inc., [1995] Int. Lit. Proc. 48.

Under forum conveniens doctrine, Ontario court declines to dismiss suit brought by Ontario residents against U.S. corporation arising out of Florida slip-and-fall accident

While on a Florida holiday in February 1990, Eva Dino, an Ontario resident, slipped and fell in a supermarket owned by Albertson's, Inc., a Delaware corporation, seriously injuring her knee. In August 1993, Eva, her husband and her daughter Monika sued Albertson's for more than $1,000,000 in an Ontario court with service upon defendant in Florida. Monika also filed a Canadian Family Law Act claim since she has had to drop her career to look after her mother. Defendant then moved to dismiss on the grounds that Ontario was not the convenient forum.

The Ontario Court of Justice (Gen. Div.) weighs the relative burdens on both sides and denies the motion. It notes that defendant had many stores throughout the U.S. and is thus presumably geared up to deal with the evidence transportation problems that often arise in the litigation of accident claims in many states. Plaintiffs, on the other hand, have long been Ontario residents on whom the hardship of litigating in Florida would be much greater. Moreover, Eva's knee condition needs long-term care within Ontario. Finally, although the ordinary negligence law appears to be quite similar in both Ontario and Florida, the daughter's cause of action does not exist in Florida.

Citation:  Dino v. Albertson's Inc., [1995] Int. Lit. Proc. 443.

Düsseldorf Court of Appeal concludes that Krefeld Landgericht had jurisdiction over dispute between German buyer of wood-cutting machine and its Indiana manufacturer

Plaintiff, a German corporation, bought a wood-cutting machine from an Indiana corporation and installed it in a furniture combine in Russia. Some time thereafter, there was an accident involving the machine that killed one worker and injured another. On demand of its Russian contractor, plaintiff allegedly spent DM 273,207 [about $191,000] to correct the problem. It then sued the American company in the Krefeld Landgericht for reimbursement and for indemnification for present and future damage claims arising out of the accident. Defendant unsuccessfully made a preliminary challenge to the international jurisdiction of the German court and then appealed.

The Düsseldorf Court of Appeal affirms. It finds that Section 29(1) of the German Code of Civil Procedure grants competence in contract cases to the court of the place where defendant was to perform its obligations. Under German law, Indiana law determines the place of performance as Indiana is defendant's main center of management. Indiana having implemented the U.N. Convention on Contracts for the International Sale of Goods, Article 57(1)(a) read with Articles 45 and 74 persuade the Court that plaintiff is to litigate its claim at the seat of the creditor, i.e., Krefeld.

Citation:  Re a Wood-Cutting Machine, [1995] Int. Lit.Proc. 191.

MARITIME LAW

U.S. Supreme Court rules that trial court erred in telling jury in Jones Act case not to count time that injured plaintiff's vessel was in German drydock

Antonios Latsis was a salaried engineer for Chandris' fleet of six passenger vessels. In May 1989, his ship's doctor failed properly to treat plaintiff's serious eye condition while his ship was sailing from Baltimore to Bermuda. Despite emergency surgery, plaintiff lost 75% of the vision in his right eye. In September 1989, plaintiff sailed with a Chandris ship to Bremerhaven for a six months period of overhaul. Plaintiff later sued Chandris under the Jones Act. The Act gives heightened legal protection to "seaman" over other maritime workers because of their exposure to the perils of the sea. The district court told the jury not to count the time when plaintiff's ship was out of navigation in Germany. The jury found for plaintiff but the Court of Appeals vacated the award, believing the instruction incorrect.

In an opinion for six justices, Justice Sandra Day O'Connor affirms the need for a new trial. Justice O'Connor reviews the "labyrinth" of precedents and formulates a twofold test of the employment relationship between a maritime employee and a ship in navigation for Jones Act purposes. First, the worker must contribute to the function of the vessel or to the carrying out of its mission. Secondly, the maritime worker must have an allegiance to a vessel or to an identifiable group of vessels in navigation that is substantial in terms of both its duration and its nature. Whether a ship in a relatively short six-month drydock period is in or out of navigation is normally a fact-specific jury question. In the absence of overwhelming evidence, therefore, the trial court erred in taking that issue away from the jury.

Justice John Paul Stevens, with whom Justices Thomas and Breyer join, concur in the outcome. They differ, however, in the test to be applied. In their minds, a ship's employee actually injured while exposed to the perils of the sea as plaintiff was, is always a "seaman" under the Jones Act, regardless of what he was doing before or after the voyage.

Citation: Chandris, Inc. v. Latsis, 115 S.Ct. 2172, 132 L.Ed.2d 314 (1995).

PATENTS

Change to terms of protection made in European Patent Convention

Several states, including Austria, have adopted the changes in Article 63 of the Convention on the Grant of European Patents of 5 October 1973 (13 I.L.M. 271). Article 63 now provides that the term of the European patent shall be 20 years from the date of filing. However, states may extend such protection if there is an intervening emergency or if the product must undergo an administrative authorization procedure. The Austrian Bundesgesetzblatt reprinted the English, French and German versions of Article 63.

Citation: Akte zur Revision von Artikel 63 des Übereinkommens über die Erteilung europäischer Patente (Europäisches Patentübereinkommen) vom 5. Oktober 1973, 1995 [Austrian] Bundesgesetzblatt, 191. Stück, number 591, page 7245, 31 August 1995.

SOVEREIGN IMMUNITY

The Sixth Circuit rules that FSIA service provision § 1608(e) applies to default judgments against foreign agencies, instrumentalities and political subdivisions, and that enforcement depends on actual notice

Several plaintiffs who had been injured by asbestos brought  suit in Ohio against Atlas Turner, Inc. (Atlas), a subsidiary of Société National l'Amiante, a Crown Corporation of Canada, and others. During 1985, the parties settled most of these cases without Atlas' participation.

The plaintiffs obtained default judgments against Atlas, and sought to enforce the judgments in 1990. They served the default judgments on an attorney who in the meantime had withdrawn as Atlas' counsel.

Atlas unsuccessfully moved for relief from the judgments under F.R.Civ.Pro. 55(c) and 60(b)(4), and then appealed, arguing that it did not receive proper service of the default judgments under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1602 et seq.

Atlas contended that because its counsel had withdrawn, the default judgments were void as not having been served in accordance with FSIA § 1608(e) [... A copy of any such default judgment shall be sent to the foreign state or political subdivision in the manner prescribed for service in this section.]

The U.S. Court of Appeals for the Sixth Circuit affirms in part and reverses in part. First, the Court reads § 1608(e) to require any judgment, including judgments against agencies and instrumentalities or political subdivisions to be sent to the foreign state. Without such service, the default judgment would be voidable. It would not be void, however, because there would be no change in the propriety of the judgment.

Whether or not the judgments here were voidable depends on whether Atlas had actual notice. Atlas' former attorney asserted the attorney-client privilege when asked whether he had forwarded the judgments to Atlas. The Court notes that the attorney-client privilege does not apply to the mere mailing of the application for default judgment. If Atlas lacked actual notice, however, the district court might have to set aside the default judgments.

The Court therefore remands for further findings and a determination of whether Atlas had received notice of entry of judgment and whether, even if Atlas had notice, good cause exists to set aside the default judgment.

Citation: Antoine v. Atlas Turner, Inc., No. 94-3355 (6th Cir. September 20, 1995).

Ninth Circuit holds that pork processing plant owned by governmental parent is not agency or instrumentality of foreign state under FSIA

Alberta Pork Producers Development Corp. (Alberta Pork), is a Canadian governmental entity that markets and promotes hogs raised in the Canadian province of Alberta. Alberta Pork bought a pork processing company in British Columbia with a California subsidiary. Employees of the subsidiary in California sued the subsidiary because it had terminated their employment and health coverage. Plaintiffs also named Alberta Pork and the parent company, among others, as defendants. Defendants sought dismissal pursuant to the Foreign Sovereign Immunities Act of 1976 [28 U.S.C. §§ 1602]. Refusing to dismiss, the district court found defendants subject to federal jurisdiction because their actions came within the "commercial activities" exception.

Upon appeal, the U.S. Court of Appeals for the Ninth Circuit holds that Alberta Pork did not waive its sovereign immunity because it was not involved in the subsidiary's termination of employee benefits. The FSIA provides immunity to "foreign states," and "any agency or instrumentality of a foreign state."  The parent company in British Columbia -- a simple pork-processing plant -- cannot be considered an agency or instrumentality of the Province of Alberta. Alberta Pork is entitled to immunity unless it falls within one of the FSIA exceptions.

The FSIA may subject foreign state entities that are engaging in "commercial activities" to jurisdiction in the United States if the cause of action is "based on" those activities. The FSIA presumes, however, that courts are to treat separate juridical entities as independent from one another. In this case, Alberta Pork's stock ownership of the parent, without more, did not create any relationship to the California plaintiffs' claim against the subsidiary.

Citation: Gates v. Victor Fine Foods, 54 F.3d 1457 (9th Cir.), cert. den., 64 U.S.L.W. 3223, 3245 (1995).

TAXATION

Canadian Supreme Court holds that Bahamian company with its headquarters in United States is not resident in U.S. within meaning of Canada-United States Tax Convention

Norsk Pacific Steamship Company, Ltd., (Norsk) is a Bahamian corporation with its sole place of business in the San Francisco area. Its principal source of income derives from the international carriage of newsprint. Norsk also rents maritime barges to Crown Forest Industries Ltd. (Crown Forest) which the latter uses to carry wood products to markets in Canada and the United States. A New Zealand company owns both Norsk and Crown Forest. Believing that Norsk was a "resident" of the United States within the meaning of the Canada-United States Tax Convention of 1980 [T.I.A.S. 11087, Tax Treaties (CCH) p.1031], Crown Forest withheld 10% of the rental for Canadian tax purposes for taxation years 1987-89. Canadian tax authorities, however, reassessed the tax rate at the usual non-resident rate of 25%, deeming that Norsk was not "resident" in the United States.

Pursuant to a reciprocal exemption under U.S. law for foreign trading corporations, Norsk actually paid no U.S. tax on the rental payments. After lower federal courts (in which the U.S. had intervened) ruled in favor of the lower rate, the matter came before the Supreme Court of Canada.

Disagreeing with the lower courts, that Court holds that the Canadian government should withhold at the 25% rate. Analyzing Article IV of the Tax Convention and comparing it to similar provisions in other tax treaties such as the O.E.C.D. Model Tax Convention, the Court construes it liberally to achieve its intent to avoid double taxation of international corporations. That Article defines a "resident of a contracting state" as "a person who under the laws of that state is liable to taxation [in one of the two contracting states] by reason of its domicile, residence, place of management, place of incorporation or any other criterion of a similar nature." Since Norsk's business and its earned income is connected to the U.S., it was liable (but for the above exemption) to U.S. taxation for income sources in the U.S. but not for its worldwide income.

In the Court's view, however, the Convention treats as a "resident" of the U.S. only an entity that is subject to full taxation by the U.S. on its worldwide income. Thus, Norsk was not an Article IV resident of the U.S. for purposes of paying the reduced tax rate.

Citation: The Queen v. Crown Forest Industries, Ltd., 125 D.L.R.4th 485 (Can.Sup.Ct. 1995).

Federal Circuit declines to disregard eighty-year-old Supreme Court case holding that taxation of insurance on exports is unconstitutional

When the IRS audited the excise tax returns of IBM for tax years 1975 through 1984, it concluded that, under 26 U.S.C. § 4731, IBM owed an excise tax of 4% on premiums its subsidiaries paid to foreign insurers who insured common carrier shipments of IBM equipment to its foreign subsidiaries. The policies listed both IBM and the sub as beneficiaries.

The statute imposes the 4% tax on each policy of casualty insurance issued by a foreign insurer (not otherwise subject to U.S. income taxes) to a domestic company against risks wholly or partially within the U.S.

IBM paid the taxes and then sued the United States in the Federal Claims Court for a refund. IBM argued that such a tax on premiums of products in the export stream is in practical effect a direct tax on the products themselves and thus invalid under Article 1, Section 9, Clause 3 of the Constitution. The so-called Export Clause provides that "No Tax or Duty shall be laid on Articles exported from Any State." Relying on Thames & Mersey Marine Ins. Co. v. United States, 237 U.S. 19 (1915), the Claims Court ruled for IBM. The United States appealed, challenging the authority of Mersey as modern precedent.

The U.S. Court of Appeals for the Federal Circuit affirms. The Court rejects the government's arguments that the tax is valid because it is general and nondiscriminatory and does not specifically target the exported product. Despite some evidence of a later lack of judicial enthusiasm for the rule in Mersey, the Supreme Court's related precedents have not "clearly foreshadowed" that it might overrule it.

Citation: International Business Machines Corp. v. United States, 59 F.3d 1234 (Fed. Cir. 1995).

TRADE

In antidumping proceeding, Federal Circuit holds that tax-neutral method used by Commerce Department in adjusting for fact that Japan imposes a value added tax on home sales of antifriction bearings but not on exports was reasonable

When foreign producers sell their goods in the U.S. at a price less than they bring in the home market (HM), the Department of Commerce has the duty of determining whether this constitutes "dumping." Japan imposes a value-added tax (VAT) on bearings in the HM but not on exported bearings. This creates the appearance of dumping though the Japanese companies have no control over the terms of the tax. The search, therefore, has been for a tax-neutral method of determining the dumping margin, i.e. the gap between foreign market value (FMV) and the U.S. price (USP) to determine the amount of compensatory duties. Two domestic companies challenged Commerce's method of computing the dumping margin in a suit against the U.S. and several Japanese bearing makers. The U.S. Court of International Trade found Commerce's method for determining USP impermissible.

On appeal by defendants, however, the U.S. Court of Appeals for the Federal Circuit reverses. In an effort to avoid the so-called multiplier effect of using the VAT percentage rate, Commerce had added the actual amount of VAT paid on HM sales of the bearings to get the FMV and then added the same amount to the USP. Though the language of the statute is ambiguous, the Court concludes that the method Commerce used here was a not unreasonable way of achieving a large measure of tax neutrality as Congress intended.

In addition, Article VI(4) of the GATT seems to demand tax neutrality, though in case of conflict with federal statutes, the latter would control. Nevertheless, by general canons of statutory construction, federal courts are to read statutes in light of the nation's international obligations. Finally, separation-of-powers considerations also counsel judicial deference to the executive branch's reasonable efforts to achieve tax neutrality in this area.

Citation:  Federal Mogul Corp. v. United States, 63 F.3d 1572 (Fed. Cir. 1995).

European Union imposes anti-dumping duty on disodium carbonate originating in the United States

The EU Council has imposed anti-dumping duties on disodium carbonate (soda ash, CN code 2836 20 00) originating in the United States.  Soda ash is a very common chemical, used in the glass, steel, chemical, detergent, paper and pulp industries, as well as for food and water treatment. The U.S. sold 578,000 tons in the EC in 1992 (9.7% European market share in 1992).

The U.S. companies for whom anti-dumping duties between 2.5% and 8.9% have been specified in the Regulation are FMC, AG Soda Corp., General Chemical Partners, NACC, Rhône-Poulenc of Wyoming, and Solvay Minerals Inc. For other exporters, the anti-dumping duty is 13.9%. The Commission will review the issue in October of next year.

Citation: Council Regulation (EC) No 2381/95 of 10 October 1995 imposing a definitive anti-dumping duty on imports of disodium carbonate originated in the United States of America ..., 1995 Official Journal of the European Communities (L 244) 32, 12 October 1995.

TRANSPORTATION

Delta Airlines' petition for review of DOT's award of two London routes to American Airlines is denied by D.C. Circuit

After two routes to London became available for U.S. air carriers, the Department of Transportation [DOT] began carrier selection procedures under its expedited "show cause" process of Subpart Q. American and Delta air lines sought these routes. After considering only the written submissions from the airlines and other parties, DOT awarded both routes to American. DOT conceded that awarding one of the routes to Delta would enhance competition among U.S. carriers since American was already the dominant carrier in the U.S. to U.K market. On the other hand, DOT deemed American's better ability to compete with foreign carriers the more urgent concern. Delta then filed a petition for judicial review.

The U.S. Court of Appeals for the District of Columbia Circuit, however, denies Delta's petition. It rejects Delta's claim that DOT had disregarded its own regulations by failing to employ a procedure insulated from political influence including an evidentiary hearing before an ALJ. The Court also sees no merit in Delta's complaint about the power of a political appointee to determine which procedure to adopt in a route selection matter.

The Court concludes that, though aware of the dangers of political influence in awarding international air routes, Congress had consciously declined to require DOT to make use of insulated procedures in all international carrier proceedings. Finally, DOT's assessment of the relevant statutory factors fell within its congressional mandate.

Citation: Delta Air Lines v. Dept. of Transportation, 51 F.3d 1065 (D.C. Cir. 1995).

Greenhouse effect:  The United States Environmental Protection Agency (EPA) has proposed to adopt international figures on the "global warming potential" of certain ozone-depleting substances (which are already regulated under the Montreal Protocol as implemented in the U.S. Clean Air Act (CAA), 42 U.S.C. 7401 et seq.). The figures have been developed by the United Nations Environment Program and the World Meteorological Organization, and would be regulated in the CAA. Citation: 60 Federal Register 52357.

International tax law in Switzerland:  The Swiss Tax Department published two handbooks on Swiss tax treaties and administrative regulations, Internationales Steuerrecht der Schweiz and Steuerentlastungen auf Grund von Doppelbesteuerungsabkommen. They can be obtained from the Eidgenössische Steuerverwaltung, Abteilung DBA, CH-3003 Bern.

EC harmonization:  The EC Commission has published its Twelfth Annual Report on Monitoring the Application of Community Law.  Each year the Commission presents a report on how member states have implemented EC directives. The report reviews the percentage of implementation in specific sectors, such as competition, pharmaceuticals and environment.  Citation:  Twelfth annual report on monitoring the application of Community law - 1994, 1995 Official Journal of the European Communities (C 254) 1, 29 September 1995.

U.S. Technical cooperation with Russia:  The United States and Russia have concluded four cooperation agreements in the areas of nuclear research and space flight. The agreements entered into force on June 30, 1995.  Citation:  [U.S. Department of State] Dispatch, September 11, 1995, Vol. 6, Number 36, page 690.