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.

2002 International Law Update, Volume 8, Number 3 (March)

CHILD ABDUCTION

In constitutional challenge to International Parental Kidnapping Crime Act (IPKCA), Ninth Circuit finds that international airplane flight of children is sufficient to invoke Congress’ power to regulate under Commerce Clause

In 1989, Cole Cameron Cummings married Dana Hopkins. They had three children together, all of whom were born in the U.S. and lived with their parents in Washington State. In 1995, Cummings and Hopkins divorced, the Washington court awarding Hopkins primary custody.

Cummings later married a German citizen. Hopkins also remarried, but it appears the relationship was rocky. For example, Washington State Child Protective Services received complaints that Hopkins’ new husband was abusing the children. Cummings thereupon took the two younger children to Germany, where they remain today.

Hopkins petitioned a German court for the children’s return pursuant to the Hague Convention on the Civil Aspects of International Parental Child Abduction (October 25, 1980, T.I.A.S. No. 11670, Arts. 8-20). Hopkins also filed a civil contempt action against Cummings in Washington State court for breaching its custody order.

In addition, the U.S. government had Cummings indicted under the International Parental Kidnapping Crime Act (IPKCA) [18 U.S.C. Section 1204(a)] for removing and retaining the children outside the U.S. The district court found Cummings guilty. It sentenced him to six months in prison, and ordered him to pay Hopkins’ attorney’s fees in the separate state and international civil proceedings to regain custody of her two younger children. Cummings appealed the federal conviction and the award of attorney’s fees. The U.S. Court of Appeals for the Ninth Circuit affirms.

Cummings argued that Congress did not have constitutional authority under the Commerce Clause to criminalize through IPKCA the retention of an American child in a foreign country. The Court disagrees. Here, the wrongfully removed children traveled in the channels of foreign commerce to reach Germany, where Cummings illegally retained them.

 “Congress’s Commerce Clause authority is broad enough to stretch beyond the simple regulation of commercial goods traveling in interstate and foreign commerce to include regulation of non-economic activities – such as racial discrimination or growing wheat for personal consumption – that affect, impede, or utilize the channels of commerce. (Cits.)”

“Thus, so long as Section 1204(a) falls into one of the delineated ‘categories of activity that Congress may regulate under its commerce power,’ its reach need not be confined to commercial goods to be constitutional. (Cits.) The Supreme Court has identified three such categories: (1) regulating the use of the channels of commerce; (2) regulating and protecting the instrumentalities of commerce or persons in interstate commerce, even though the threat may come only from intrastate activities; and (3) regulating activities that have a substantial effect on commerce.” [Slip op. 4-5]

Further, the Court rejects Cummings’ argument that once the “movement in commerce” ended (i.e., when the children arrived in Germany), the channels of foreign commerce ceased being affected.

“The cessation of movement does not preclude Congress’s reach if the person or goods traveled in the channels of foreign commerce. ... [W]e upheld 18 U.S.C. Section 922(o)’s prohibition on machinegun possession because the statute was ‘an attempt to prohibit the interstate transportation of a commodity through the channels of commerce.’ ... We concluded that ‘by regulating the market in machineguns, including regulating intrastate machinegun possession, Congress has effectively regulated the interstate trafficking in machineguns. (Cit.)”

“Likewise, Section 1204(a) reaches conduct once the unlawful foreign transportation has ended. (Cit.) We are satisfied that Congress can act to prohibit the transportation of specified classes of persons in foreign commerce and thus proscribe conduct such as the retention of those persons, even though transportation is complete.” [Slip op. 8-9]

Furthermore, according to Cummings, the IPKCA targets the interference with the individual rights of a parent, a matter traditionally left to state regulation. The Court disagrees. While family law does remain largely a matter of state law, IPKCA deals first and foremost with international kidnapping. This is clearly not an area traditionally reserved to the states.

Finally, the district court did not err in ordering Cummings to pay for attorney’s fees incurred in the related civil proceedings. The Victim and Witness Protection Act of 1982 (VWPA) permits restitution to a victim even if the costs arose in other, but related, U.S. or international proceedings. See 18 U.S.C. Section 3663(a)(1)(A).

Citation: United States v. Cummings, 281 F.3d 1046 (9th Cir. 2002).

INSURANCE (PUNITIVE DAMAGES)

After surveying punitive damages law in U.S. and other common law systems, Supreme Court of Canada rules that, with compensatory damages properly set at $345,000, jury’s punitive award of $1 million against insurer for baselessly resisting claims of low income family whose home and contents were destroyed by fire was within rational limits

After midnight in January 1994, Daphne Whiten and her husband Keith saw a fire in the addition to their $157,000 house in Haliburton County, Ontario. The parents and their daughter had to run out of the house wearing only their night clothes although the temperature was about four below zero Fahrenheit. Keith gave his slippers to his daughter to go for help, causing him to suffer serious frostbite to his feet. This condition required hospitalization and considerable time spent in a wheel chair. The fire devastated the home and its contents, including three cats and some valuable antiques. The Whitens were able to rent a small winterized cottage not far away for $650 per month.

Pilot Insurance Company, their insurer, made a single $5,000 payment for living expenses and took care of the rent for several months. Then Pilot stopped paying the rent without telling the family and took on a confrontational stance although it well knew that the Whitens were strapped for money.

After several investigations, the local fire chief, Pilot’s own expert investigator and another of its experts all reported to Pilot that there was not a bit of evidence suggesting arson. Rather the evidence pointed to a kerosene heater on the porch as the culprit. Pilot took the opposite stance, thus requiring a long, drawn-out trial of the issue, costing plaintiffs $320,000 in legal fees. Plaintiffs’ counsel succeeded in entirely discrediting the company’s position before the jury and even Pilot’s own appellate lawyer later admitted that the charge of arson had been frivolous. The jury came in with compensatory damages of $318,000, an equivalent figure for litigation costs, and $1 million in punitive damages.

Pilot took the case to the Ontario Court of Appeal. There a majority of the Court allowed the appeal in part and lowered the punitive damages award to $100,000. There was a further appeal and cross-appeal by the parties. In a six to one vote, the Supreme Court of Canada allows the plaintiffs’ appeal and restores the original jury award. It decides that, though on the high side and more than the Court itself would have arrived at, the jury’s punitive award fell within rational limits.

“Punitive damages are awarded against a defendant in exceptional cases for ‘malicious, oppressive and high‑handed’ misconduct that ‘offends the court's sense of decency:’ Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, at para. 196. The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour. Because their objective is to punish the defendant rather than compensate a plaintiff (whose just compensation will already have been assessed), punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment).” [para. 36]

 “Punishment is a legitimate objective not only of the criminal law but of the civil law as well. Punitive damages serve a need that is not met either by the pure civil law or the pure criminal law. In the present case, for example, no one other than the appellant could rationally be expected to invest legal costs of $ 320,000 in lengthy proceedings to establish that on this particular file the insurer had behaved abominably. Over‑compensation of a plaintiff is given in exchange for this socially useful service.” [para. 37]

The Court surveys the somewhat similar approach to the law of punitive damages in the United States where commentators have often criticized these awards. “For practical rather than such theoretical reasons, numerous pieces of state and federal legislation now add a variety of controls, ranging from elimination of punitive damages, elimination of punitive damages in certain causes of action, caps, ratios, and diversion of portions of the money (or ‘kickers’) to public funds so the total amount of compensation does not go to the plaintiff. The most common form of intervention has been to cap the punitive damages at three times the compensatory award. Additionally, there are constitutional [due process] limitations (both federal and state) on the awards of punitive damages.” [para. 61]

The Court then applies the principles widely recognized in Canada and other common law countries to the facts of this case. “In my view, an award of punitive damages (leaving aside the issue of quantum for the moment) was a rational response on the jury's part to the evidence. It was not an inevitable or unavoidable response, but it was a rational response to what the jury had seen and heard. The jury was obviously incensed at the idea that the respondent would get away with paying no more than it ought to have paid after its initial investigation in 1994 (plus costs). It obviously felt that something more was required to demonstrate to Pilot that its bad faith dealing with this loss claim was not a wise or profitable course of action.” [para. 103]

“I earlier referred to proportionality as the key to the permissible quantum of punitive damages. Retribution, denunciation and deterrence are the recognized justification for punitive damages, and the means must be rationally proportionate to the end sought to be achieved. A disproportionate award overshoots its purpose and becomes irrational. A less than proportionate award fails to achieve its purpose.” [para. 111] Thus analysis of whether the jury made an award of a reasonable amount must make the following inquiries.

“[Was it] proportionate to the blameworthiness of the defendant's conduct? The more reprehensible the conduct, the higher the rational limits to the potential award. The need for denunciation is aggravated where, as in this case, the conduct is persisted in over a lengthy period of time (two years to trial) without any rational justification, and despite the defendant's awareness of the hardship it knew it was inflicting (indeed, the respondent anticipated that the greater the hardship to the appellant, the lower the settlement she would ultimately be forced to accept).” [para. 112] “[Was it] proportionate to the degree of vulnerability of the plaintiff? The financial or other vulnerability of the plaintiff, and the consequent abuse of power by a defendant, is highly relevant where [as here] there is a power imbalance.” [para. 114]

“[Was it] proportionate to the harm or potential harm directed specifically at the plaintiff? The jury is not a general ombudsman or roving Royal Commission. There is a limited role for the plaintiff as private attorney general. It would be irrational to provide the plaintiff with an excessive windfall arising out of a defendant's scam of which the plaintiff was but a minor or peripheral victim. On the other hand, malicious and high‑handed conduct which could be expected to cause severe injury to the plaintiff is not necessarily excused because fortuitously it results in little damage.” [para. 117]

“[Was it] proportionate to the goal of deterring future similar wrongdoing? The theory is that it takes a large whack to wake up a wealthy and powerful defendant to its responsibilities. The appellant's argument is that the punitive damages award of $ 1 million represents less than one half of one percent of Pilot's net worth. This is a factor, but it is a factor of limited importance.” [para. 118]

“[Was it] proportionate, even after taking into account the other penalties, both civil and criminal, which have been or are likely to be inflicted on the defendant for the same misconduct? Compensatory damages also punish. In many cases they will be all the ‘punishment’ required. To the extent a defendant has suffered other retribution, denunciation or deterrence, either civil or criminal, for the misconduct in question, the need for additional punishment in the case before the court is lessened and may be eliminated.” [para. 123]

“[Was it] proportionate to the advantage wrongfully gained by a defendant from the misconduct? A traditional function of punitive damages is to ensure that the defendant does not treat compensatory damages merely as a licence to get its way irrespective of the legal or other rights of the plaintiff.” [para. 124]

“While, as stated, I do not consider the ‘ratio’ test to be an appropriate indicator of rationality, the ratio of punitive damages to compensatory damages in the present case would be either a multiple of three (if only the insurance claim of $ 345,000 is considered) or a multiple of less than two (if the claim plus the award of solicitor‑client costs is thought to be the total compensation). Either way, the ratio is well within what has been considered ‘rational’ in decided cases.” [para. 132]

Citation: Whiten v. Pilot Insurance Co., 2002 Can. Sup. Ct. LEXIS 22, 2002 SCC 18 (Sup. Ct. Can. Feb. 22, 2002).

HUMAN RIGHTS (SPEEDY TRIAL)

In reviewing claims of unreasonable delay in two Scottish criminal prosecutions based on European Human Rights Convention, Judicial Committee of U. K. Privy Council rejects claim in perjury case involving two police officers but upholds contention in prosecution of juvenile for molesting younger relatives

At a trial in April 1998, a Scottish sheriff gave it as his opinion that two police officers, John Watson and Paul Burrows, had perjured themselves. After a special investigation as provided for in the Book of Regulations (which applies to alleged wrongdoing by police officers), the authorities formally charged them with perjury in January 1999. In April 1999, the widely publicized case was assigned to a prosecutor who called for the taking of precognitions or pretrial statements from the witnesses. With one exception, it was not until early 2000 that all statements had been taken. In April of that year, the government served a complaint aiming for a trial date of August or September 2000.

The sheriff held that the delays since January 1999 were unreasonable under Article 6(1) of the European Convention on Human Rights and Fundamental Freedoms [213 U.N.T.S. 222]. It provides: “In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.” The Crown obtained review but a majority of the High Court of Justiciary refused the appeal in April 2001.

In the second case, the Scottish authorities charged fourteen-year-old JK in October 1998 with rape, sodomy and other indecent practices committed over the preceding twenty months against several younger cousins whose ages ranged from 5 to 8 years of age. A specially trained prosecutor got assigned the case but the taking of pretrial evidence continued until the period of December 1999 to January 2000 when police found out there was a fourth possible victim of JK’s alleged actions. JK appeared on petition in March 2000 and intervals of evidence taking lasted the rest of that year. The government served an indictment on JK in January 2001.

In an appeal from a contrary ruling by the trial judge, the Scottish High Court allowed the appeal and dismissed the indictment. It ruled that the twenty-seven months that passed between October 1998 and January 2001 was substantially too long under Article 6 standards. The trial judge had failed to take into account JK’s age and the government’s failure to treat the case with increasing urgency as delays began to build up.

The Crown obtained review of both cases in the Judicial Committee of the Privy Council. In the perjury matter, it contended that the case did not demand expedition and that the special procedures involved protected the officers’ interests. Thus the overall length of time to dispose of this case was not unreasonable under the Convention.

In JK’s case, the Crown argued that it demanded sensitive and expert handling and that the special procedures were unavoidably time-consuming. In ruling as it did, they maintained the High Court had not taken into account the particular facts of the matter or the interests of the victims or of the public at large.

The Privy Council dismisses the appeal in the perjury case but in JK’s case, it allows the appeal and remands for dismissal of the charges. In the first place, it notes that the Convention did not contain specific time limits but rather contemplated an objective, common measure of protection. The right to a trial within a reasonable time was a freestanding one that seeks to safeguard all parties against too many procedural delays. Prejudice to the accused does bear on the issue of reasonableness but a party does not have to show that he or she had suffered, or would suffer, any actual prejudice.

Secondly, the Council reads the Convention as concerned not with lapses from the ideal but with the basic rights and freedoms of the accused as well as with the public interest. Thus an accused has to show that his or her case crossed a fairly high threshold before a court would rule that the delays in question were unreasonable. Only if the delay on its face generated real concerns should a court scrutinize the factual details and circumstances and put the onus on the government to explain and justify the passage of time.

Thirdly, the Article 6 jurisprudence of the European Court of Human Rights focuses on three sectors of inquiry: (1) the complexity of the case, (2) the behavior of the defendant and (3) the manner in which the government authorities had dealt with the case. In the present appeals, factor (3) is central.

In the police perjury case, the twenty months that passed from January 1999 to August 2000 did not, in the Council’s view, raise real prima facie concerns. Moreover, ECHR case law does not suggest that this period amounted to improper delay under Article 6. Although there was a particular need to examine the conduct of the two officers in a careful and independent manner; their cases fell into no class that demanded priority of handling. Finally, the period of delay was not so great as to put at risk the effectiveness and credibility of the Scottish criminal justice system.

As to the second case, the Council reads the time requirements for juvenile matters under Article 6 in light of the United Nations Convention on the Rights of the Child [28 I.L.M. 1448 (1989)]. Article 40(2)(b) of the Convention declares that “Every child alleged as, or accused of having, infringed the penal law has at least the following guarantees: ... (iii) to have the matter determined without delay.” Other international instruments require governments to expedite the prosecution of criminal proceedings involving children. The Council also discusses at length the U. S. Supreme Court’s opinion on the Sixth Amendment’s right to a “speedy trial” in Barker v Wingo, 407 U.S. 514 (1972).

The twenty-seven months of delay in JK’s case is grounds for real concern, in the Council’s view. While the government apparently thought that the appearance of a fourth victim made it inappropriate to incorporate him or her into the pending cases, it should have taken the pending charges to trial much more promptly than it did. Thus, Scottish authorities had not handled JK’s case with the urgency which the lateness of the case warranted. Nor has counsel for the government put forth a persuasive explanation for the long lapse of time. In light of all these considerations, dismissal of the case was the only proper remedy.

Citation: Dyer v. Watson; K. v. H. M. Advocate, 2002 WL 45284 (Privy Council), 2002 S.L.T. 229 (January 29, 2002).

IMMIGRATION

Ninth Circuit rejects defendant’s challenge to border search conducted pursuant to suspicion that defendant was violating U. S. immigration laws by escorting illegal aliens from Korea to Hawaii on false passports

On October 19, 1999, the U.S. Immigration and Naturalization Service (INS) detained two individuals trying to board a flight to Honolulu from Guam International Airport when they were unable to answer an INS officer’s questions. Upon review, the officer discovered that their Taiwanese passports were photo substitutions, and that their legal names were He and Chen.

Further investigation turned up the fact that the two had stayed at a Guam hotel that was paid for by the credit card of one His Huei Tsai. Arrival flight records showed that Tsai was a passenger not only on the flight He and Chen were trying to board, but also on the flight He and Chen had taken to Guam. No other passenger was present for both flights. The INS inferred that the three had been traveling together and that Tsai was aiding and abetting He and Chen in their effort to enter the U.S. illegally.

Upon the flight’s arrival at Honolulu airport, an INS officer stopped Tsai as he deplaned. A search of Tsai’s valise turned up an airline ticket jacket with the names “Cheng Wen Ping” and “Chang Ching Hsueh” inside: the names that appeared on the fraudulent passports of He and Chen. Interrogation of Chen revealed a collaborative alien smuggling plot in which Tsai and a female escort, using the name “Jessica Huang,” had initiated a three-legged journey for He and Chen. First, the aliens flew from Saipan to Seoul with Ms. Huang, using the corporate credit card of a company called “La Marie Co., Ltd.” Tsai’s wife ran this company, using her husband’s address in the State of Georgia as its business address. The aliens stayed in a Korean motel room for several weeks, until Tsai appeared to escort them to Guam. The final leg of the journey was to consist of the flight from Guam to Honolulu.

Authorities also found airline vouchers for a Yee Khong Lim and Gaik Choo Tan in Tsai’s carry-on luggage at Honolulu airport. From Tsai’s credit card statements, and Chen’s testimony, the INS concluded that Tsai had escorted Lim and Tam from Saipan to Honolulu one month earlier, in exactly the same fashion as he had done with He and Chen. Further investigation uncovered a similar plot that enabled a fifth alien to travel to Atlanta on a stolen South Korean passport, using the name Ji Yeong Yun.

The Guam district court found Tsai guilty on three counts of escorting unauthorized aliens into the United States for financial gain in violation of 8 U.S.C. Section 1324(a)(2). Tsai appealed, alleging, inter alia, that the INS search of Tsai’s effects at the Honolulu airport was unlawful. He argued that the INS inspector knew that the government suspected Tsai of criminal activity in Guam, and therefore he had improperly conducted the search for a specific investigative purpose.

The U.S. Court of Appeals for the Ninth Circuit affirms. The Court views the Honolulu airport as the “functional equivalent” of a land-border, with respect to searches of international air travelers. The INS search of Tsai was only minimally intrusive, since it probed no further than his valise and carry-on luggage.

When the law requires a search warrant, its scope applies in a broad and general manner. When the law removes the need for a search warrant, e.g., for border searches, it rescinds it in an equally broad manner. The Court is unwilling to conclude that the customary, non-invasive, warrantless search endured by Tsai would be permissible for every other passenger excepting those under suspicion by the INS of taking part in criminal activity. The searching officer had reasonable cause to suspect that Tsai was aiding and abetting aliens in their attempts to penetrate the borders of the U.S. illegally. He also had grounds to believe that Tsai had thereby rendered himself ineligible to enter the U.S.

Citation: United States v. Tsai, 2002 WL 338230 (9th Cir. March 5, 2002).

SOVEREIGN IMMUNITY

In action against Iraq’s state-owned commercial bank, Second Circuit finds not only that FSIA jurisdiction existed to decide merits of dispute arising out of bank’s “commercial activity” in U.S. but also that FSIA conferred jurisdiction over contempt proceedings in aid of collecting default judgment

In 1990, First City Texas-Houston, N.A., an American bank, filed suit in federal court against Rafidain Bank (the state-owned commercial bank of Iraq) (RB) and Central Bank of Iraq (as RB Bank’s alter ego) (CBI) to recover over $50 million in unpaid principal and interest on defaulted letters of credit issued by RB. The district court entered a default judgment of $53.2 million against the defendants. A year later, defendants moved to vacate the default judgment.

The court granted CBI’s motion on grounds that service had been insufficient but denied RB’s motion to vacate. First City again served CBI. This time CBI moved to dismiss the amended complaint on grounds of sovereign immunity. In connection with this motion, First City sought discovery concerning CBI’s claim that it was RB’s alter ego. RB failed to answer interrogatories, however, and CBI has failed to supply full discovery. First City then served a subpoena and additional document requests on Iraq’s Permanent Representative to the U.N. in New York, as RB’s registered agent. There was no response.

Thereafter, CBI renewed its motion to dismiss, based upon several arguments (including lack of jurisdiction). First City resisted the motion, asserting that defendants’ several failures to observe the discovery rules hindered its attempts to collect evidence and filed a motion to compel discovery. The district court, however, granted CBI’s motion to dismiss with prejudice based on sovereign immunity.

First City appealed and the Second Circuit remanded. It found that allowing First City to seek further discovery from RB would not intrude upon sovereign immunity. First, RB is a party to the suit. Second, its activity falls within the FSIA’s ‘commercial activity’ exception. Finally, First City had a judgment in its favor against RB. The Court authorized First City to obtain full discovery from RB, and told the lower court to refrain from deciding the alter ego question until discovery was complete.

First City then served RB with a subpoena for jurisdictional discovery, and RB again failed to respond. First City then moved to hold RB in contempt and to compel CBI to respond to discovery on the ground that discovery was unobtainable from RB. CBI renewed its motion to dismiss for lack of jurisdiction. The Court granted First City’s motion to hold RB in contempt with a fine of $1,000 per day until RB purged itself of its contempt.

RB finally appeared and unsuccessfully moved to vacate the contempt order on the grounds that the district court lacked subject matter jurisdiction and personal jurisdiction to enforce the subpoena. The Court also ruled that service of the 1998 subpoena was enough, ordering that discovery should immediately resume.

Arguing that it is no longer a party to the action and that the district court therefore lacked subject matter jurisdiction under the FSIA to compel RB to provide discovery, RB appealed and moved to stay all discovery pending appeal. The district court granted the motion for a stay regarding the 1998 subpoena, but denied it with respect to the 2000 subpoena seeking post-judgment discovery. RB also claimed that the court lacked personal jurisdiction over it.

On further appeal, the U.S. Court of Appeals for the Second Circuit concludes that the lower court did have personal jurisdiction over RB, and that RB had waived sovereign immunity for the purposes of First City’s law suit against it. Since jurisdiction continued through post-judgment discovery and collection of the money judgment, the Court affirms the order of the district court denying RB’s motion to vacate and quash.

RB does fall within the definition of “a foreign state and its agencies.” On the other hand, its activities came within the FSIA’s “commercial activity” exception. Because RB took part in commercial banking transactions in the U.S., it submitted itself to the jurisdiction of American courts. Thus, RB had a duty to comply with the procedures and legal responsibilities that go along with such jurisdiction.

In addition, the district court had subject matter jurisdiction under 28 U.S.C. Sections 1330(a) and 1605(a)(2) to decide the controversy arising from RB’s commercial activities in the U.S. The Court finds that a foreign state’s waiver under section 1605 (a) (2) is broad enough to sustain the court’s jurisdiction over proceedings (including discovery) to collect the default judgment. Otherwise, the FSIA would have conferred jurisdiction on district courts merely to enable them to hand down unenforceable judgments. This cannot have been its purpose.

Moreover, the Court holds that service of the 1998 subpoena on RB was enough to perfect personal service under the FSIA. Where subject matter jurisdiction exists under the FSIA, personal jurisdiction also exists over a defendant where the plaintiff has made proper service under section 1608.

Finally, the Court points out that the sixth paragraph of the agreement between RB and First City clearly states that RB “... consents to being served in any suit, legal action or proceeding in New York and Federal courts sitting in New York, by serving a copy thereof upon the Permanent Representative of Iraq to the U.N. ...”

Citation: First City, Texas-Houston, N.A. v. Rafidain Bank, 281 F.3d 48 (2d Cir. 2002).

TRADE

Over strenuous objections from EU, Japan, and other WTO members, U.S. imposes temporary tariff safeguards to reduce steel imports as way of assisting struggling U. S. steel industry

Pursuant to Section 201 of the U.S. Trade Act of 1974, the U. S. President had opened an investigation in June 2001 to determine whether foreign steel was entering the U.S. in such increased quantities as to be a substantial cause of serious injury, or threat thereof, to the domestic steel industry. To help out the embattled U.S steel industry, the President instituted temporary safeguards in the form of tariffs on imported steel and steel products on March 5, 2002.

Pursuant to Section 203(b)(1) of the Trade Act of 1974, the President reported the safeguards to Congress. According to the Report, these measures include: (1) a 30% tariff on imports of plate, hot-rolled sheet, cold-rolled sheet, and coated sheet, as well as tin mill products and (2) a 15% tariff on certain welded tubular products and stainless steel bars, as well as stainless steel rods.

These tariffs do not apply to NAFTA or other Free Trade Agreement (FTA) partners. The tariffs took effect on March 20, 2002, and will remain in force for three years with periodic reviews of their effectiveness and of the need to continue them. There were vigorous protests from the EU, Japan, and other WTO members.

In a press release, the EU stated that these U.S. measures fail to meet the requirements of the WTO Safeguards Agreements. The Korean steel case (see WTO dispute DS202), for instance, found that a similar U.S. approach was incompatible with WTO trading rules. Thus, the EU brought a complaint before the WTO on March 7, 2002. In its view, the problems facing the U.S. steel industry result not from imports but from “legacy costs” such as health and pension obligations for laid-off and retired workers. The EU also contends that a multilateral approach towards solving the problems of the U.S. steel industry would have been preferable, such as a surcharge on all sales of steel in the U.S.

Citation: Action under Section 203 of the Trade Act of 1974 Concerning Certain Steel Products, 67 Federal Register 10593 (March 7, 2002); Proclamation 7529 of March 5, 2002 ... To Facilitate Positive Adjustment to Competition From Imports of Certain Steel Products, 67 Federal Register 10553 (March 7, 2002). [See also European Union in U.S. news release No. 11/02 (March 5, 2002); www.CNN.com report of March 6, 2002, “EU lashes out at U.S. steel row”; Press release of Ministry of Foreign Affairs of Japan of March 6, 2002, available on www.mofa.go.jp; President’s Report is available on website of U.S. Trade Representative at www.ustr.gov; The Washington Post, March 8, 2002, page E3; Further information on EU position is available on website of European Commission at http://europa.eu.int.]

WORLD TRADE ORGANIZATION

WTO Appellate Body issues report on U.S.-Korean dispute over safeguard measures applied to Korean steel line pipes where decision on most issues is adverse to U.S. position

The U.S. had imposed definitive safeguard measures on imports of circular welded carbon quality line pipe from Korea in 2000 following an investigation by the U.S. International Trade Commission. In particular, the U.S. imposed a 19 percent ad valorem duty on all imports of such products except from Canada and Mexico, to decrease to 15 percent for the second year, and then to decline to 11 percent for the third year.

Korea brought a complaint before the World Trade Organization (WTO), alleging that the U.S. safeguards violated GATT 1994 and the Agreement on Safeguards (hereinafter “Agreement”). In its Report distributed on October 29, 2001, the Panel found that the line pipe measure was inconsistent with certain provisions of GATT 1994 and the Agreement.

The U.S. appealed. On February 15, 2002, the Appellate Body issued its report in this matter, finding that the U.S. safeguards were largely inconsistent with WTO trading rules. The Appellate Body, in particular:

(a) Upholds the Panel’s finding that the U.S. had failed to comply with Article 12.3 of the Agreement by not allowing enough of a chance for prior consultations with Korea which had a substantial interest in these exports;

(b) Sustains the Panel’s finding that the U.S. had acted inconsistently with Article 8.1 of the Agreement by declining to maintain a substantially equivalent level of concessions and other obligations;

(c) Agrees with the Panel’s conclusion that the U.S. had failed to obey the Agreement, which provides that WTO members shall not apply safeguard measures against a product originating in a developing country Member as long as the imports do not exceed the individual and collective thresholds in Art. 9.1;

(d) Reverses the Panel’s finding that the U.S. had failed to conform to Agreement Articles 3.1 and 4.2(c) by failing to specify in its published report that increased imports have caused serious injury or are threatening injury; and

(e) Reverses the Panel’s conclusion that the U.S. did not violate its obligations under Articles 2 and 4 of the Agreement by exempting Canada and Mexico from the line pipe measure.

Therefore, the Appellate Body recommends that the U.S. bring its line pipe measure into compliance with WTO trading rules.

Citation: United States - Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea (WT/DS202/AB) (15 February 2002). [Report is available on WTO website “www.wto.org.”]

WORLD TRADE ORGANIZATION

WTO issues arbitration award in U.S.-Japan disputes over U.S. anti-dumping measures on hot-rolled steel products from Japan setting fifteen months as reasonable time for U. S. to comply with Dispute Settlement Body’s Report where U.S. had asked for eighteen months

On August 23, 2001, the WTO Dispute Settlement Body (DSB) adopted the Appellate Body Report and the modified Panel Report in the matter of “United States - Anti-dumping measures on Certain Hot-Rolled Steel Products from Japan.” The U.S. next agreed to implement the DSB rulings within a “reasonable period of time.” The U.S. and Japan then asked that a WTO arbitrator decide how long the “reasonable period of time” should be.

The WTO arbitrator issued the report on February 19, 2002. The U.S. had requested that the time period be set at 18 months, to expire on February 23, 2003. Japan claimed that the Dispute Settlement Understanding requires “prompt compliance” (see Article 21.1), and that the implementing Member bears the burden of proof that “prompt” or “immediate” compliance is impracticable.

After a hearing on January 18, 2002, the arbitrator issued a report, finding that a reasonable period for the U.S. to implement the DSB rulings is 15 months, i.e., on or before November 23, 2002.

Citation: United States - Anti-dumping measures on hot-rolled steel products from Japan (WT/DS184/13). The report is available on WTO website “www.wto.org.”

U.S. State Department issues notice on statutory debarment under ITAR. On March 5, 2002, the State Department released a Public Notice, specifically informing the public of the statutory debarment of eight individuals and companies, pursuant to Section 127.7 (c) of the International Traffic in Arms Regulations (“ITAR”) (22 C.F.R. 120  to 130), who have been convicted of violating or conspiring to violate Section 38 (g) (4) of the Arms Export Control Act (“AECA”) (22 U.S.C. 2778). The relevant portion of the AECA bars the issuance of licenses and other certifications for the direct or indirect export of defense articles or services to persons or entities convicted of violating the AECA or certain other U.S. criminal statutes. The ban also applies to licenses or similar authorizations required for the transfer of technical data and for the furnishing of defense services. A period of statutory debarment typically lasts for three years from the date of conviction. Provided that the involved agencies have set up a proper procedure, the party may eventually ask for discretionary reinstatement of its license from those who have taken part in each of the mandated interagency consultations. Citation: 67 Federal Register 10033 (March 5, 2002).

Chinese government issues stricter media guidelines for political reporting. The Central Publicity Department of the Chinese Communist Party (CCP) is trying to rein in the country’s media and to stop the indiscriminate selection and sensational presentation of news stories gotten from the Internet. According to a story in Hong Kong’s Ming Pao Daily News on February 23, 2002, the new strictures ban even “objective” reports that could destabilize Chinese society. Previous media “misdeeds” have included sensationalist stories, as well as articles that supposedly incited the people to sue party officials. The CCP also bans the use of leaked internal deliberations of the CCP on such matters as whether to give civil servants a 30% raise. The media had also published stories on the CCP’s intention to sell shares in state-owned enterprises. This stunned the stock market, bringing a severe backlash from party leaders. The CCP document also disapproved “inappropriate” reports such as those about the AIDS epidemic in central China, those that allegedly damaged relations between different ethnic groups, and those that supposedly publicized “Western” perspectives and values. CCP rules demand that future stories on significant official policies rely on “official” versions from the state-controlled Xinhua news agency. Finally, the government must approve every future article about the nation’s leaders or their relatives before its publication. Citation: The Straits Times, Monday, February 25, 2002 (e-mail report by Manon Anne Ress, mress@essential.org).

U.S. and Canada reach final agreement on Salmon fisheries. The Pacific Salmon Commission that recommends fishery regimes to the U.S. and Canada has persuaded both countries to agree to a fishery management plan for southern area “coho” salmon for the years 2002-2008. This was the only unfinished item under the 1999 Agreement between the U.S. and Canada under the Pacific Salmon Treaty. According to the management plan, both countries will keep the exploitation at a biologically sustainable level that will vary each year. Citation: U.S. Department of State Media Note (February 22, 2002).

U.S. Treasury issues rule letting financial institutions share information on money laundering and terrorism. The U.S. Department of Treasury, Financial Crimes Enforcement Network (FinCEN), has issued an interim rule to implement the “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 [Pub.L. 107-56]. The Act seeks to improve information sharing among financial institutions to identify and report suspicious activities that may involve money laundering and terrorism. Section 314(b) of the Act allows financial institutions, upon notifying the U.S. Treasury, to share information with other institutions to aid in identifying suspicious financial activities. The new rule implements Section 314(b) in particular. It defines “financial institution” broadly, including not just banks, but also brokers and credit card processors. Such outfits may voluntarily share information as long as they have notified the U.S. Treasury pursuant to the procedures in the new Appendix B to 31 C.F.R. 103. FinCen has also set up a special section on this issue at “www.treas.gov/fincen.” Citation: 67 Federal Register 9874 (March 4, 2002).

Belgian court investigates charges against Ariel Sharon of crimes against humanity in Lebanon. A group of Palestinians has filed a criminal complaint with a Belgian court asking it to prosecute Ariel Sharon and others for crimes against humanity. The case arises out of the slaughter of 800-2000 Palestinian civilian refugees by Lebanese Phalangists in the camps of Sabra and Shatila in September 1982 when Mr. Sharon was Israel’s minister of defense. According to the charges, Israeli forces had surrounded the camps and had given the Phalangist militia a green light to avenge a recent assassination by clearing the camps of terrorists. Soon after the killings, Israel appointed the Kahane committee, a national commission of inquiry. It concluded that Mr. Sharon was indirectly responsible for the killings and that there was no possible justification for his “disregard of the danger of a massacre.” As a result, Mr. Sharon had to quit his post as defense minister. Complainants are invoking a unique Belgian statute that confers on its courts a form of “universal jurisdiction” traditionally applied to slavery and piracy offenses. The statute empowers the Belgian courts to arrest and prosecute anyone for war crimes and crimes against humanity regardless of where they took place. There are three basic steps in Belgian criminal procedure. Having decided that the Sharon case was worth looking into, the Belgian prosecutor has completed the first step. The second step involves gathering evidence. If the case reaches the third step, the Belgian court may issue an international arrest warrant for Mr. Sharon and the other defendants and set a trial date. War crimes complaints pending in the Belgian courts include some against Iraq’s President Saddam Hussein, Iran’s former president Ali Akbar Rafsanjani and Chile’s former leader General Augusto Pinochet. Citation: Agence France‑Presse, Thursday, January 24, 2002 WL 2324717; AOL Time-Warner Company (online source).

U.S. Department of Justice issues final guidelines on assistance to American victims of terrorism and crimes of mass violence. The U.S. Department of Justice, Office of Justice Programs (OJP), has issued final Guidelines for the Antiterrorism and Emergency Assistance Program for Terrorism and Mass Violence Crimes [OJP[OVP]-1309F]. Their goal is to implement the victim assistance provisions in the USA PATRIOT Act of 2001 and other laws, and to outline the authority of the Office for Victims of Crime to compensate victims of terrorism and mass violence. The office does not grant assistance automatically; the victims must request it. The Program intends only to supplement, and not to supplant, already available resources. Citation: 67 Federal Register 4822 (January 31, 2002).

U.S. strengthens import ban on rough diamonds from Sierra Leone and Liberia. The U.S. Department of Treasury, Foreign Assets Control Office, has issued regulations to carry out Executive Order 13194 of January 18, 2001 which bans the importation of rough diamonds from Sierra Leone and Liberia (31 C.F.R. Part 591). The goal is to cut off any support to the insurgent Revolutionary United Front (RUF) in Sierra Leone which allegedly uses diamond sales to support its military operations. The Liberian government is allegedly facilitating the sales of such diamonds through Liberia. Citation: 67 Federal Register 5472 (February 6, 2002).

German High Court issues opinion on relationship between German and Italian litigation involving similar issues. The German High Court (Bundesgerichtshof, BGH) has issued an opinion on the relationship between German and Italian actions both of which turn on the legality of plaintiff’s discharge from employment. The plaintiff was a sales representative in Germany for an Italian company (defendant). Defendant fired plaintiff and sought a court determination in Italy that the discharge was justified. Plaintiff then sued defendant for damages in Germany. Defendant moved to suspend the German proceedings based on Article 21, paragraph 1, of the European Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (September 27, 1968, 1990 O.J. C189)). Apparently to prevent vexatious litigation and inconsistent results, this Article provides that in parallel proceedings, the court where the first action was filed must determine whether it is competent to hear the case. If so, it may proceed. The German district court, however, went ahead and heard the lawsuit, awarding damages to the plaintiff. The State Supreme Court, however, held that the lower court should have suspended its proceedings. On appeal, the German High Court agrees. It notes that these parallel actions involve the identical core of issues as defined in the jurisprudence of the European Court of Justice (ECJ). In this case, the Italian court’s decision in the discharge matter is entitled to settle the issue of whether plaintiff has any claim for damages. Citation: Bundesgerichtshof (BGH), Urteil vom 6. Februar 2002 - VIII ZR 106/01; BGH press release No. 11/2002.

U.S. again allows American carriers to enter Afghanistan airspace. The U.S. Department of Transportation, Federal Aviation Administration (FAA), has again authorized flights by U.S. carriers in Afghanistan air space. The FAA had vetoed such operations on September 19, 2001. In light of the apparent decline of the Taliban and Al Qaeda forces, the FAA has decided that the previously existing threats to American air carriers no longer exist. Citation: 67 Federal Register 5888 (February 7, 2002).

U.S. and Russian Federation ratify Mutual Legal Assistance Treaty. On January 31, 2002, the U.S. Secretary of State and the Russian Ambassador to the U.S. signed a Protocol of Exchange of Instruments of Ratification to bring into force the U.S.-Russian Mutual Legal Assistance Treaty. The U.S. Senate consented to presidential ratification of the Treaty on judicial assistance in criminal matters in December 2001; it replaces the 1995 MLAT. The new agreement provides for bilateral mechanisms to pursue transnational organized crime, global terrorism, trafficking in persons, computer crime, and money laundering. Both countries also have agreed to work together in identifying and freezing criminal or terrorist assets. Citation: U.S. Department of State Fact Sheet (January 31, 2002).

Mexico exempts soft drinks sweetened by U.S. High Fructose Corn Syrup from tax. According to the U.S. Trade Representative, Mexico has relieved soft drinks sweetened with High Fructose Corn Syrup (HFCS) from the special tax that entered into force on January 1, 2002. It hurt sales of U.S. HFCS to Mexico, particularly to the Mexican beverage industry. The Mexican Government has imposed an exemption until September 30, 2002. – The HFCS sweetener was the subject of a WTO dispute between the U.S. and Mexico, see WTO Dispute DS132 “Mexico - Anti-Dumping Investigation of High Fructose Corn Syrup from the United States,” available on the WTO website “www.wto.org.” Citation: U.S. Trade Representative press release 2002-29 (March 5, 2002).

U.S. International Trade Commission issues rule on trade investigations focusing on China. The U.S. International Trade Commission (USITC) has issued interim rules with requests for comments to amend its rules of practice and procedure to implement Public Law 106-286. The statute had added sections 421 and 422 to the Trade Act of 1974 [19 U.S.C. 2451 and 2451(a)]. They require the USITC to carry out new ways to investigate market disruptions or trade diversions and to review relief actions. For example, Section 421(b) requires the USITC to determine whether Chinese products are being imported as increased quantities or under conditions that may cause market upsets. Section 422(b) requires the USITC to investigate any trade-distorting acts by China or any withdrawal of trade concessions to China by a WTO member. Citation: 67 Federal Register 8183 (February 22, 2002).

Permits for non-immigrant aliens required to bring sport firearms into U.S. The U.S. Department of Treasury has issued a temporary rule (Treasury decision) to bar non-immigrants (foreign nationals with visas such as a B visitor visa or an H1B work visa) from bringing firearms and ammunition into the U.S. for hunting and sporting purposes without a permit issued by the Bureau of Alcohol, Tobacco and Firearms (ATF). Citation: 67 Federal Register 5422 (February 5, 2002).

EU terminates anti-dumping proceeding of U.S. polysulphide polymers. The EU Commission has issued a regulation to end the anti-dumping proceeding concerning imports of polysulphide polymers (CN Code ex 4002 99 90) originating in the U.S. Akcros Chemicals GmbH of Germany had brought the complaint, which it later withdrew because the only U.S. producer of the chemicals stopped making them. Citation: 2002 O.J. of the European Communities (L 45) 1, 15 February 2002.

EU sets up police force for Bosnia and Herzegovina to succeed United Nations International Police Task Force. The EU Council, by Joint Action, has established a European Union Police Mission to ensure that there will be police forces available in Bosnia and Herzegovina (BiH) to continue the work of the United Nations International Police Task Force (IPTF). The purpose is to establish “sustainable policing arrangements” pursuant to the Dayton/Paris Agreement, and raise the BiH police standards. Citation: EU Council Joint Action 2002/210/CFSP, 2002 O.J. of the European Communities (L 70) 1, March 13, 2002.

U.S. and Uzbekistan sign strategic partnership agreement. On March 12, 2002, U.S. Secretary of State Colin L. Powell and Uzbekistan Foreign Minister Adulaziz Kamilov signed a political and strategic partnership agreement on behalf of their respective countries. The “Declaration on the Strategic Partnership and Cooperation Framework” outlines the countries’ goals in cooperation, such as intensifying economic relations, cooperating in security matters, and exchange of information in legal and political matters. Citation: U.S. Department of State Fact Sheet of March 12, 2002.