Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Is the Canada-EU CETA Dead? An Update

Posted in Canada's Federal Government, Cross-border trade, International Arbitrations, Politics, Trade Agreeements

iStock_000019169483XSmallAs a trade lawyer, I remain optimistic that the Canada-EU Comprehensive Economic and Trade Agreement (“CETA”) will be signed. I am not ready to issue a “call of death”; but I am closer to that call than I was last week.  The problem is that Canada is finished negotiations of the CETA and will not reopen the agreement for further modifications and concessions.  Wallonia has indicated it will oppose the CETA unless the investment chapter is reopened and rewritten to remove the investor-state dispute settlement mechanism. Further, Belgium has indicated that three jurisdictions oppose the CETA.  This means that the CETA deal is in critical condition.

However, Donald Tusk, President of the European Council has tweeted:

“Together with PM , we think Thursday’s summit still possible. We encourage all parties to find a solution. There’s yet time.”

@CanadianPM tweeted:

“PM Trudeau and agree that the EU and its member states should continue to work towards the Summit on Thursday.

This may mean that heroic measures are being taken to revive the dying CETA.  Prime Minister Trudeau’s plane is ready to fly to Europe and give CETA CPR.

Timeline

Before I discuss about where we are and where we are going, we need to review where we came from:

  • In June 2007, Canada and the European Commission agreed to conduct a joint study examining the costs and benefits of pursuing a closer economic partnership.
  • In October 2008,  Canada and the EU issued a joint study entitled “Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership”.
  • In March 2009, the joint report was finalized.
  • In May 2009, Prime Minister Stephen Harper, EU President Mirek Topolánek and European Commission President José Manuel Barroso, announced the launch of CETA negotiations.
  • In October 2009, Canada and the EU engaged in the first round of CETA negotiations.
  • By October 2011, nine formal rounds of CETA negotiations are completed.
  • In October 2013, Prime Minister Harper and José Manuel Barroso announced that Canada and the EU had reached an agreement in principle.
  • In August 2014,  Canada and the EU announced that they had reached a complete text of the Canada-EU CETA, marking the conclusion of negotiations. Canada and the EU commenced the legal review and translation of the text into the other 22 EU treaty languages.
  • In September 2014, Canada and the EU released the text of the CETA.
  • In February 20916, a joint statement is issued by Canada and the EU after CETA is revised to address concerns within the EU.
  • In July 2016, the revised text of CETA is released.
  • In October 2016, Canada meets with counterparts in the EU to address additional concerns.
  • On October 13, 2016, a German Court dismisses a legal case brought to block CETA.
  • On October 14, 2016, Wallonia’s Parliament indicates they will veto CETA.
  • Canada and the EU work on a joint declaration to clarify the CETA and reinforce some important points in an attempt to alleviate the concerns of Wallonia.
  • On October 21, 2016, the negotiations break-down due to demands by Wallonia.
  • On October 22, 2016, Martin Schultz has meetings with Canada and Wallonia and announces that more time is needed.
  • On October 24, 2016, Charles Michel, President of Belgium said that Wallonia and two other jurisdictions will not sign off.  Mr. Paul Magnette said that Wallonia will not be pressured by the European Commission to sign on for CETA.

Where are we now?

On October 21, 2016, Mr. Paul Magnette attempted to extract more concessions out of Canada because he believed that he had Canada backed in a corner.  At this point. Canada’s Trade Minister Chrystia Freedland walked out of the negotiations (as she should).  She issued the following statements:

  • “Canada has worked, and I personally have worked very hard, but it is now evident to me, evident to Canada, that the European Union is incapable of reaching an agreement even with a country with European values such as Canada, even with a country as nice and as patient as Canada.”
  • “Canada is disappointed and I personally am disappointed, but I think it’s impossible. We are returning home. At least I will see my three children tomorrow at our home.”

She indicated that she was heading home to Canada – but stayed in Belgium overnight to attend meetings in the morning of October 22.

As at 8:30 AM on October 22, 2016, Canada’s Trade Minister Chrystia Freedland correctly stated that “[t]he ball is in Europe’s court and it’s time for Europe to finish doing its job.”  Canada is not prepared to reopen the CETA again so that Wallonia can extract further concessions.

Minister Freeland is now on Canadain soil and gave a press conference at 1:45PM on October 24, 2016.  Minister Freeland clearly stated that:

  • “CETA isn’t dead”;
  • “the ball is in Europe’s court”;
  • “it is entirely up to EU to overcome opposition”;
  • “The problems on the table are European problems”;
  • “For us, it is a good agreement … we are ready to sign it”;
  • “Today all the Europeans, including the Wallooons, have public accepted that Canada’s job is done”; and
  • Paul Magnette (Wallonia) said “Negotiations with the Canadians are over and we are pleased with the results of the negotiations.”

In short, Canada is ready, willing and able to sign the CETA this Thursday (October 27).

Where do we go from here?

First, Thursday is an arbitrary deadline.  However, if there is no deadline, there will be no momentum.  If there is no momentum, the CETA will stall. An open ended time period will surely result in a flat-lining of CETA.

Second, there is not much that Canada can do while the European Union addresses their internal issues.

Third, if the Thursday deadline passes and CETA flatlines, we might have to wait for the European Court of Justice (“ECJ”) decision regarding the EU-Singapore challenge on ISDS (Investor State Dispute Settlement).  It is only if local governmetn approval is not required can the CETA be revived.

Fifth, to the extent that Wallonia is worried about a future trade negotiation with the United States, Canada cannot fight that ghost of the future.  It is unlikely that President Clinton or President Trump will be able to commence comprehensive negotiations with the EU (especially in light of Brexit) and even less likely that the United States will be the giver in the negotiations. The United States is not going to just sign on to accede to CETA – that will never happen.

It would be very helpful to Canadians if the Walloons clearly articulate the problems that the European Commission must overcome.  At this point, there is an understanding that it has something to do with:

  1. agriculture,
  2. the Investment Chapter and the Investor-State Dispute Settlement;
  3. environmental, labour and consumer protection legislation;
  4. hormones in beef; and
  5. a perceived issue with sovereignty.

That being said, it is important for Canada to understand the specific concerns that need to be addressed and whether further clarifications (not concessions) are in Canada’s best interests. If Canada determines that further language relating to the Investment Chapter would benefit Canadians, it may possible to offer such clarifications to allow Wallonia to save face.  If Canada determines that there are benefits to Canada by addressing additional concerns, why wouldn’t we.

Finally,what might hold Canada and the EU back is Article XXIV of GATT, which requires that in any new free trade agreement “the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) [must be] eliminated on substantially all the trade between the constituent territories in products originating in such territories.”

If the EU cannot sign a trade agreement with Canada, it is unlikely that the EU can negotiate any trade agreements.  Any future negotiating country will be nervous about these types of last minute obstructions.  After all parties put their best offers on the table, after the agreement is negotiated, after the text is translated into all necessary languages, after the language is scrubbed, after further modifications are made, after joint interpretative note is developed, there should not be a reopening of the text.  That is not negotiation in good faith.  Wallonia should have raised the issues sooner and if they did, the compromise had been reached long ago.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or by email at cyndee@lexsage.com.  Please look at additional articles posted on the LexSage website.

What Is A CITT Section 18 Reference?

Posted in Antidumping, Canada's Federal Government, Cross-border trade, Legal Developments, Trade Remedies

Question In Maze Showing Confusion And Puzzled

On October 17, 2016, Canada’s Department of Finance announced that the Government of Canada had asked the Canadian International Trade Tribunal (“CITT”) to conduct an inquiry (actually, it is a Reference) in respect of the antidumping case involving gypsum board from the United States and imported into Western Canada in order to hear from a wide range of stakeholders and the public, and to report its findings in early January, so that the Government can determine the best path forward.  The Reference is contained in Order of Council 2016-0879 (October 13, 2016), which states, in part:

“Whereas the circumstances merit timely consideration of whether the imposition of duties is in Canada’s economic, trade and commercial interest;

Therefore, His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 18 of the Canadian International Trade Tribunal Act,

(a) refers to the Canadian International Trade Tribunal the matter of whether the imposition of provisional duties or duties, applicable to gypsum board imported from the United States for markets in Manitoba, British Columbia, Saskatchewan, Alberta, Yukon and the Northwest Territories, is contrary to Canada’s economic, trade or commercial interests, and specifically whether such an imposition has or would have the effect of substantially reducing competition in those markets or causing significant harm to consumers of those goods or to businesses who use them; and

(b) directs that the Tribunal report to the Governor in Council on those matters no later than January 4, 2017 and submit to the Governor in Council, within 15 days after that date, its findings and recommendations on any remedy that could be taken.”

I have been asked many times this week: “What is a section 18 Reference”?

A Section 18 Reference is a rarely used legal proceeding conducted by the CITT whereby the Governor-in-Council (the Federal Cabinet) may ask the CITT to review and report on any matter in relation to the economic, trade or commercial interests of Canada with respect to any goods or services or any class thereof. Section 18 is in the Canadian International Trade Tribunal Act and not the Special Import Measures Act.  This means that a Reference is separate from and not directly related to Canada’s trade remedies regime.  The end product is a Report (containing a summary of the evidence and economic analysis) to be submitted by the CITT to the Governor-in-Council.

The last Reference occurred 19 years ago when the CITT was asked to look into a number of issues concerning Canada’s dairy industry.  The Reference decisions are:

Before the cases prior to the Dairy References are also agriculture related:

There has never been a Reference relating to an ongoing antidumping proceeding.  Normally, the CITT makes a decision regarding material injury and threat of material injury.  If the CITT determines that the domestic industry has suffered, is suffering or is threatened with material injury, then the CITT may commence a public interest inquiry pursuant to subsection 45(1) of the Special Import Measures Act.  This means that we are in uncharted territory.

What we do know from prior References, the CITT may issued orders to receive testimony of relevant persons:

It might be that the Reference will be similar to the recommendation phase of a Safeguard Inquiry.  In a Safeguard Inquiry, the CITT considers whether a surge in imports has caused serious injury to the domestic industry.  If the answer is “Yes”, the Tribunal makes recommendations to the Minister of International Trade concerning the level of duties to be imposed.  In that sense, this Gypsum Board Reference may be a cross between a Public Interest Inquiry and a Safeguard Inquiry.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or email cyndee@lexsage.com.  For more information, please see Canada Acknowledges That Antidumping Proceedings Can Hurt Consumers.

Is the Canada-EU CETA Dead?

Posted in Canada's Federal Government, Cross-border deals, Cross-border trade, International Arbitrations, Trade Agreeements

iStock_000019169483XSmallAs a trade lawyer, I remain optimistic that the Canada-EU Comprehensive Economic and Trade Agreement (“CETA”) will be signed. I am not ready to issue a “call of death”.  However, the CETA deal is in critical condition.  Canada has walked away from the table because of the actions of Wallonia.  The good news is that many people are working hard to see that CETA survives.  But, there are those who wish for the obituary to be written.

Recent experience has demonstrated that large trade deals are no longer possible.  CETA, if it survives and is ratified, may be the last major trade deal to be signed this decade. The Transpacific Partnership Agreement (TPP) is unlikely to proceed under President Clinton or President Trump. It may be that only small bilateral trade deals are possible for the next decade. It is most likely that any new activity at the WTO is doomed for failure as small regions (with an effective veto) will have learned from the Wallonia example.

Timeline

Before I discuss about where we are and where we are going, we need to review where we came from:

  • In June 2007, Canada and the European Commission agreed to conduct a joint study examining the costs and benefits of pursuing a closer economic partnership.
  • In October 2008,  Canada and the EU issued a joint study entitled “Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership”.
  • In March 2009, the joint report was finalized.
  • In May 2009, Prime Minister Stephen Harper, EU President Mirek Topolánek and European Commission President José Manuel Barroso, announced the launch of CETA negotiations.
  • In October 2009, Canada and the EU engaged in the first round of CETA negotiations.
  • By October 2011, nine formal rounds of CETA negotiations are completed.
  • In October 2013, Prime Minister Harper and José Manuel Barroso announced that Canada and the EU had reached an agreement in principle.
  • In August 2014,  Canada and the EU announced that they had reached a complete text of the Canada-EU CETA, marking the conclusion of negotiations. Canada and the EU commenced the legal review and translation of the text into the other 22 EU treaty languages.
  • In September 2014, Canada and the EU released the text of the CETA.
  • In February 20916, a joint statement is issued by Canada and the EU after CETA is revised to address concerns within the EU.
  • In July 2016, the revised text of CETA is released.
  • In October 2016, Canada meets with counterparts in the EU to address additional concerns.
  • On October 13, 2016, a German Court dismisses a legal case brought to block CETA.
  • On October 14, 2016, Wallonia’s Parliament indicates they will veto CETA.
  • Canada and the EU work on a joint declaration to clarify the CETA and reinforce some important points in an attempt to alleviate the concerns of Wallonia.
  • On October 21, 2016, the negotiations break-down due to demands by Wallonia.
  • On October 22, 2016, Martin Schultz has meetings with Canada and Wallonia and announces that more time is needed.

Where are we now?

On October 21, 2016, Mr. Paul Magnette attempted to extract more concessions out of Canada because he believed that he had Canada backed in a corner.  At this point. Canada’s Trade Minister Chrystia Freedland walked out of the negotiations (as she should).  She issued the following statements:

  • “Canada has worked, and I personally have worked very hard, but it is now evident to me, evident to Canada, that the European Union is incapable of reaching an agreement even with a country with European values such as Canada, even with a country as nice and as patient as Canada.”
  • “Canada is disappointed and I personally am disappointed, but I think it’s impossible. We are returning home. At least I will see my three children tomorrow at our home.”

She indicated that she was heading home to Canada – but stayed in Belgium overnight to attend meetings in the morning of October 22.

As at 8:30 AM on October 22, 2016, Canada’s Trade Minister Chrystia Freedland correctly stated that “[t]he ball is in Europe’s court and it’s time for Europe to finish doing its job.”  Canada is not prepared to reopen the CETA again so that Wallonia can extract further concessions.

Where do we go from here?

There is not much that Canada can do while the European Union addresses their internal issues.  Canadians are patient.  We have come this far, we can give the EU some time to determine the appropriate internal compromise (understanding that Canada is not willing to renegotiate the CETA).  Also, we can wait for the European Court of Justice (“ECJ”) decision regarding the EU-Singapore challenge on ISDS (Investor State Dispute Settlement).

To the extent that Wallonia is worried about a future trade negotiation with the Untied States, Canada cannot fight that ghost of the future.  It is unlikely that President Clinton or President Trump will be able to commence comprehensive negotiations with the EU (especially in light of Brexit) and even less likely that the United States will be the giver in the negotiations. The United States is not going to just sign on to accede to CETA – that will never happen.

That being said, it is important for Canada to understand the specific concerns that need to be addressed and whether further clarifications (not concessions) are in Canada’s best interests. If Canada determines that further language relating to the Investment Chapter would benefit Canadians, it may possible to offer such clarifications to allow Wallonia to save face.  If Canada determines that there are benefits to Canada by addressing additional concerns, why wouldn’t we.  What might hold Canada and the EU back in Article XXIV of GATT, which requires that in any new free trade agreement “the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) [must be] eliminated on substantially all the trade between the constituent territories in products originating in such territories.”

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or by email at cyndee@lexsage.com.  Please look at additional articles posted on the LexSage website.

Canada Acknowledges Antidumping Proceedings Hurt Consumers

Posted in Antidumping, Canada's Federal Government, Trade Remedies

Gypsum BoardThis has never happened before.  This is very important.  Trade lawyers outside Canada (and inside Canada) will be shocked by the steps being taken in Canada during an active antidumping proceeding.

On October 16, 2016, the Department of Finance asked the Canadian International Trade Tribunal to commence a section 18 (of the Canadian International Trade Tribunal Act) reference concerning the effect of preliminary and final antidumping duties on gypsum board (also called drywall and wall board) from the United States into Western Canada (British Columbia, Alberta, Saskatchewan, Manitoba and the Yukon and Northwest Territories). The antidumping proceedings at the center of the request are the Canada Border Services Agency (“CBSA”) dumping investigation that commenced on June 8, 2016 and the Canadian International Trade Tribunal (“CITT”) injury inquiry that commenced on September 6, 2016.  The CITT issued a preliminary determination of injury on August 8, 2016. On September 9, 2016, the CBSA made a preliminary determination of dumping and imposed antidumping duties at rates ranging from 105.2% – 276.5%. On September 28, 2016, the CBSA released its reasons for the preliminary determination of dumping.

The preliminary duties at 275.6% have been difficult for many Canadians, especially in Fort McMurray, Alberta and other communities which have experienced forest fires and flooding.  The Department of Finance has responded to the concerns that have been raised about the increases in prices of drywall and the lack of supply of drywall in Western Canada.  The Department of Finance states:

“Concerns were raised that anti-dumping duties on imported drywall were leading to price increases and supply shortages of the product. Imposed to address unfair trade, these duties may be having unintended impacts, including delays in the reconstruction of Fort McMurray.”

This is important. This statement recognizes that antidumping duties can hurt consumers.

On October 17, 2016, the CITT commenced a reference inquiry in response to the Department of Finance request.  What is happening is that the CITT is combining the final injury inquiry and the reference.  A new schedule for the final injury inquiry was issued.  The hearing has been moved up one week to accommodate 2 weeks of testimony (sometimes there is only one day of testimony in an injury inquiry hearing).  The CITT anticipates many new parties joining an already large group of participants in the injury inquiry (I must admit that I am representing a US producer of gypsum board and its Canadian subsidiary importer).

The relevant portion of the CITT Notice which sets out the terms of reference for the Reference states:

“Further, on October 13, 2016, His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 18 of the Canadian International Trade Tribunal Act (CITT Act),

(a) referred to the Canadian International Trade Tribunal the matter of whether the imposition of provisional duties or duties, applicable to gypsum board imported from the United States for markets in Manitoba, British Columbia, Saskatchewan, Alberta, Yukon and the Northwest Territories, is contrary to Canada’s economic, trade or commercial interests, and specifically whether such an imposition has or would have the effect of substantially reducing competition in those markets or causing significant harm to consumers of those goods or to businesses who use them; and

(b) directed that the Tribunal report to the Governor in Council on those matters no later than January 4, 2017, and submit to the Governor in Council, within 15 days after that date, its findings and recommendations on any remedy that could be taken.

Pursuant to section 18 of the CITT Act, the Tribunal will inquire into and report on the matter referred to it by His Excellency the Governor General in Council.”

Given that both inquiries must be concluded by January 4, 2017, the Tribunal will combine them to provide for a more expeditious process in accordance with rule 6.1 of the Canadian International Trade Tribunal Rules and section 35 of the CITT Act.

This has never happened before.  Usually, a public interest inquiry may be commenced after a final determination of injury by  the CITT.  In the present case, since winter is coming and people in Western Canada need drywall, the Department of Finance and the CITT are expediting the process.  We are in new procedural territory with this combined proceeding.

Anyone who is affected by the new drywall antidumping duties needs to know that if they do not come forward, the CITT cannot know how the drywall duties are affecting people.  The CITT needs to hear from homeowners, businesses, contractors, drywall suppliers, and construction industry associations in Western Canada.  Please write to the CITT at Registrar, Secretariat to the Canadian International Trade Tribunal, 15th Floor, 333 Laurier Avenue West, Ottawa, Ontario K1A 0G7, 613-993-3595 (telephone), 613-990-2439 (fax), citt-tcce@tribunal.gc.ca (e-mail).  Notices of Participation are due by October 31, 2016.  Submissions are due November 17, 2016 by noon (Ottawa time). The hearing starts on November 28, 2016.  Share this information with others who have information to provide to the CITT.

If you have any questions about Canada’s antidumping laws, please contact Cyndee Todgham Cherniak at 416-307-4168 or email cyndee@lexsage.com. There is information on the LexSage web-site about antidumping procedings (scroll to the bottom of the page).

Why Should You Know About Canada’s Export Controls and Economic Sanctions Laws?

Posted in Aerospace & Defence, Border Security, Canada's Federal Government, Controlled Goods Program, Corporate Counsel, Cross-border trade, Export Controls & Economic Sanctions, Exports

smiley-vector-illustration-puzzled_X1AqT-_LI am often asked why export controls and economic sanctions are important.  The simple answer is that if you export a controlled good or export goods to a sanctioned country, your company could become front page news.  If that should happen because your company manufactured and sold goods that are used to kill a Canadian soldier, your company’s reputation (and maybe your reputation) will be damaged.

Even if no one dies, your company’s reputation may suffer damage to its brand.  Or, customer trust in your company may be damaged.  Things may never be the same.

Your company may lose business opportunities.  For example, and this is a real possibility, if your company is under investigation, Canada may not issue your company other export permits.  You might not be able to sell your goods into export markets if you cannot get an export permit.  Other countries (e.g., the United States) may learn that you have breached Canada’s export controls and/or economic sanctions laws and put your company on the SDN (Specially Designated Nationals) List. If this should happen, U.S. companies will not be able to sell goods to your company. Also, financial institutions will not want to enter into transactions involving your company.

Let’s go back to U.S. companies not being able to sell to your company.  This could shut down your production if you cannot obtain the inputs you require to manufacture your goods.  This slowdown in the supply chain may take place for many months as you work to resolve the issues.

Resolving the issues will likely mean money spent on lawyers.  There will be hours on internal investigations.  The RCMP could come and raid your offices. You may see documents leave your premises in evidence boxes.

Resolving the issues may mean new reporting requirements.  You may have to spend significant amounts of money on new software. You may have to change how you do business.  You may have to pay penalties for the non-compliance. There could be a public criminal trial.

Have I convinced you yet that export controls and economic sanctions laws should be taken very seriously? Export controls and economic sanctions are possibly the number one non-financial risk an export business faces.

For more information about Canada’s export controls and economic sanctions laws, please contact Cyndee Todgham Cherniak at 416-307-4168 or email cyndee@lexsage.com. Also, we have more information on the LexSage web-site.

Canada Continues To Impose Economic Sanctions Against Liberia

Posted in Canada's Federal Government, Cross-border trade, Export Controls & Economic Sanctions, Exports

iStock_000019169483XSmallCanada imposed economic sanctions against Liberia to implement United Nations Security Council Resolution 1521 (2003).  The multilateral economic sanctions are imposed pursuant to the United Nations Act and the Regulations Implementing the United Nations Resolutions on Liberia.  However, on May 25, 2016, the United Nations unanimously adopted resolution 2283 (2016) deciding to terminate all arms, travel and financial sanctions against Liberia with immediate effect.  Canada has done nothing to implement UN Security Council Resolution 2288 (2016).  In other words, the Canadian economic sanctions remain in effect despite the fact that the underlying UN Security Council Resolution has ended.  Global Affairs must continue to apply the law as it is on the books.

Canada’s economic sanctions against Liberia include:

  • a prohibition on the export of arms and related material to any person in Liberia;
  • a prohibition on the provision, to any person in Liberia, of any technical assistance related to the provision, manufacture, maintenance or use of arms and related material;
  • an assets freeze against persons designated by the UN committee established by Resolution 1521 (2003) to oversee the sanctions against Liberia (the “1521” Committee); and
  • a travel ban against persons designated by the 1521 Committee.

There are exceptions.

Other countries have ended their economic sanctions against Liberia. For example, back in 2015,  President Obama lifted the U.S. sanctions against Liberia.  The EU lifted their sanctions against the Liberia in June 2016.

What this means is that Canadian businesses are not able to take advantage of business opportunities.  It also means that Canadian individuals working for U.S companies (who are no longer subject to U.S. sanctions) may breach Canadian law when they comply with U.S. law.  There is an inconsistency between Canadian economic sanctions and other countries’ sanctions laws.

There is a real impact on Canadian businesses.  There is an increased burden.  There are divergent sanctions.  They must review numerous lists. There is increased risk.

For more information about Canada’s economic sanctions, please contact Cyndee Todgham Cherniak at 416-307-4168 or email cyndee@lexsage.com.

Canada Continues To Impose Economic Sanctions Against Ivory Coast

Posted in Canada's Federal Government, Cross-border deals, Cross-border trade, Export Controls & Economic Sanctions, Exports, Uncategorized

globe and calculatorCanada imposed economic sanctions against Ivory Coast to implement United Nations Security Council Resolution 1572.  The multilateral economic sanctions are imposed pursuant to the United Nations Act and the United Nations Côte D’Ivoire Regulations.  However, on April 28, 2016, the United Nations unanimously adopted resolution 2283 (2016) deciding to terminate all arms, travel and financial sanctions against Ivory Coast with immediate effect.  Canada has done nothing to implement UN Security Council Resolution 2283 (2016).  In other words, the Canadian economic sanctions remain in effect despite the fact that the underlying UN Security Council Resolution has ended. Global Affairs must continue to apply the law as it is on the books.

Canada’s economic sanctions against Ivory Coast include:

  • a prohibition on the export of arms and related material to any person in Côte d’Ivoire;
  • a prohibition on the provision to any person in Ivory Coast of technical assistance related to military activities;
  • an assets freeze against persons designated by the UN committee established pursuant to paragraph 14 of Resolution 1572 (2004) (the “1572 Committee”), persons designated by the 1572 Committee who are acting on behalf of, or at the direction of, another person designated by the committee, and entities owned or controlled by a person designated by the 1572 Committee; and
  • a travel ban against persons designated by the 1572 Committee.

There are exceptions.

Other countries have ended their economic sanctions against Ivory Coast. For example, on September 14, 2016, President Obama lifted the U.S. sanctions against Ivory Coast.  The EU lifted their sanctions against the Ivory Coast in June 2016.

What this means is that Canadian businesses are not able to take advantage of business opportunities.  It also means that Canadian individuals working for U.S companies (who are no longer subject to US sanctions) may breach Canadian law when they comply with U.S. law.  There is an inconsistency between Canadian economic sanctions and other countries’ sanctions laws.

There is a real impact on Canadian businesses.  There is an increased burden.  There are divergent sanctions.  They must review numerous lists. There is increased risk.

For more information about Canada’s economic sanctions, please contact Cyndee Todgham Cherniak at 416-307-4168 or email cyndee@lexsage.com.

Hanjin Claim Deadline Approaching

Posted in Corporate Counsel, Cross-border deals, Transportation

Hanjin has published on its website information about how to file claims in the Korean bankruptcy case (called a rehabilitation proceeding ).  Details can be found on the Hanjin website at http://hanjin.com/hanjin/CUP_HOM_1001.do. See also the attached file – 8254715.

The deadline to file claims is October 25, 2016, so do not delay. Referrals to Korean counsel can be provided.

Make Your Hanjin Bankruptcy Claims Now!

Posted in Corporate Counsel, Cross-border deals, Cross-border trade, Legal Developments, Transportation

There is a lot of press coverage about the Hanjin bankruptcy, but very little of it provides tangible facts for traders to rely on.  One thing we know for sure is Hanjin filed a Chapter 15 bankruptcy in the U.S. What that means is the U.S. bankruptcy court will defer to the Korean bankruptcy court regarding how the case will proceed. The U.S. court will limits its orders to cargo in the U.S. or touching the U.S. Most importantly right now, if you think you have a claim against Hanjin, you need to file that claim in the Korean bankruptcy proceeding, and you must do that between October 11 and 25, 2016. If you miss that claim deadline, you will be out of luck.  There are a handful of Korean lawyers representing the interests of cargo owners and other potential claimants in Korea and they should be contacted immediately. Referrals are available.

Beside this one fact, there are a lot of pending questions. The Federal Maritime Commission is accepting consumer claims, but can only facilitate a discussion, as it has little jurisdiction in this context. It does have the bully pulpit, but seems reluctant to use it.

In court proceedings, Hanjin asserted it is owed $80 million in accounts receivables, about half of which is owed by its top 40 creditors.   In that context, the bankruptcy carrier is typically invoking the lien provision in its bill of lading (Paragraph 11) which allows it to exercise a general lien, meaning it can hold cargo for any amounts owed, even if unrelated to the cargo being held.  Of course, in doing so, it is ignoring any offsets due to its failure to perform and deliver goods are contracted.   Even the judge chided Hanjin about its hard ball tactics.

It is impossible to get a clear picture of which ships are still at sea and when they might come into port and unload. Hanjin needs to raise more money, but it also needs to be clearer about its intentions.  Also silent throughout all of this are Hanjin’s consortium partners.  The party who issued the bill of lading remains liable to get it to destination. The consortium is the CKYHE Alliance, which consists of COSCON (Cosco), “K”Line, Yang Ming, Hanjin and Evergreen Line. The current betting is Hanjin’s assets will be sold so it will no longer be a member, but in the meantime, each of these carriers is coloading cargo with Hanjin. Just how much money those partners might be able or willing to put up to get the straggling vessels unloaded remains unclear.

At the same time, the single biggest headache one hears beside when will the remaining ships arrive in port and be unloaded is what happens to the empties? In a recent webinar about the Hanjin bankruptcy one self-described shipping expert said there is a glut of space so no real capacity downside to the Hanjin bankruptcy. He clearly has not been listening to the stories about chassis shortages, or the complete chaos being caused by the few places to which empties can be delivered where the delivery terminates all charges. Earlier today, Hanjin released the news that for the West Coast, Hanjin owned empties can be terminated at Terminal 46 in Seattle or Pier T in Long Beach. Hanjin also released information about its container lessors and provided their contact details.

The U.S. bankruptcy court has ruled that Hanjin will not be assessing demurrage charges for late containers. Whether that solves the problem remains to be seen.  The best estimate right now puts the count at 20,000 containers looking for a home just in the Los Angeles/Long Beach area alone!

NVOCCs and others subject to tariffs continue to be confused about what charges being incurred with third parties to get containers to destination may be passed along to customers, and which will have to be absorbed because they are not provided for in the carrier’s tariff.  NVOCCs and other carriers who have tariffs on file must operate within the limits of those tariffs and if the charges are not listed, the tariff must be updated. However, the rule is if a charge is being increased, 30 days’ notice is required. This is another situation where the FMC could have taken the position that so long as the NVOCCs promptly filed those charges, the 30 day waiting period will be waived due to the exigency of the situation.

At the same time, given that carriers and other service providers are charging cargo owners directly instead of waiting for Hanjin, there is every reason to think those with lower value shipments will abandon their goods rather than face staggering cost increases. When that happens, NVOCCs are stuck. Hanjin is really not operating to full capacity in the U.S. so how do you notify the carrier the shipment is abandoned? Even if you can get through to Hanjin and provide notice, no one at Hanjin is dealing with abandoned cargo right now. That means once the Korean equivalent of the bankruptcy trustee gets to considering revenue recovery sources, it is likely the container related per diem and the sizable charges associated with abandoned goods could be tempting charges to assess. At least in the U.S., when it comes to abandoned goods, when the carrier takes an unreasonable period of time to dispose of those goods, the defense of failure to mitigate damages can be raised. It is not clear that same defense applies under Korean law.

The U.S. bankruptcy court entered an order on September 9th that contained important benefits for cargo owners.  One such provision recognized the right of beneficial cargo owners (BCO) to pay third parties to get goods to destination, provided Hanjin had been paid the full freight charges owed.  Hanjin was ordered to fully cooperate. The court went on to order that any interest Hanjin had in any container was not to impair the right of the BCO to his goods.  Any monies paid by the BCO to third parties is subrogated to the rights of those third parties, and all rights against Hanjin are reserved.  However, if Hanjin paid all the charges, the court’s order does not apply, a conclusion which makes sense since the goods are ready to be released. Of course, the overlooked issue is if there are additional charges in the form of demurrage, etc., due to delays, the BCO will have to pay those charges and file his claim against Hanjin in Korea.

One of the longer term but potentially vexing issues is if a BCO has a service contract with Hanjin, despite the fact the carrier is in bankruptcy, there may be still be exposure under the liquidated damages provision of that service contract.  The way this works is the service contract commits the BCO to ship a certain quantity of containers with Hanjin. Other cases have held that once the carrier is no longer able to perform, the obligation to tender containers to that carrier ends. Despite what seems like an obvious  outcome, there is a bankruptcy case under consideration right now – The Containership Company –  where the carrier argued its BCO contracting parties waited until late in the contract year and, in fact, waited so long that if all those parties tried to tender enough cargo to meet their volume requirements, the carrier could not haul it all in a timely manner. Therefore, the attempt is to have the court order each BCO to pay some proportionate share of what it owes based on having shipped some as yet undefined quantities of cargo sooner in the contract year.  Where that ends up will be interesting for all concerned, but the original decision held once the carrier filed bankruptcy, shippers were relieved of their existing volume obligations.

On Friday, October 7th, the U.S. bankruptcy judge heard arguments on several issues but has yet to issue his ruling. Those issues included the claim by Ashley Furniture that is should be entitled to put the funds it is paying to Hanjin to get its goods into an escrow account so it stands some chance of getting its damages paid which arose when Hanjin terminated shipments before delivery. There was also an issue raised that Hanjin be obligated to clarify which ships are coming off charter and when. The concern being those vessels will be beyond the reach of creditors once they are returned to their owners. This is particularly vexing if the cargo is still on board the vessel. On the other hand, those holding maritime liens want to be able to arrest those vessels. They cannot do so now under the bankruptcy court’s stay order, but could once Hanjin no longer has them on lease.

One order that was issued last Friday was in favor of NVOCC GlobeRunner. The NVOCC was successful in expanding the court’s existing order to cover its shipments. If the container serial number starts HJCU, HJSU or SENU and is a container leased to Hanjin, Hanjin disclaims all rights and GlobeRunner is free to make other arrangements to get that cargo. If the container is owned by Hanjin, GlobeRunner is permitted to empty the container and return it without further charge. If it chooses to use the empty for other purposes, the relevant charges are stated.  If the container is to be used to export a shipment and was tendered to the carrier, Hanjin relinquishes all rights to claim freight on these shipments provided they are shipped to destination by other carriers.

There are many more issues to be resolved, and the complexity of this bankruptcy can be expected to have ramifications for years to come, but get your claim filed now!

Hillary or Donald?

Posted in Elections

As the Presidential election cycle comes to a close, and that cannot happen soon enough, the question we are all faced with is do we support Hillary or Donald? Yes, there are third party candidates running, but none of them has a serious chance at being elected, and voting for one of them hands the race to whoever it is you are unhappy with. What to do?

Both candidates have excoriated international trade almost to the point of saying it is the source of everything wrong in this country, that is when they aren’t blaming each other, President Obama or the “other” major party.  However, if we are going to be earnest in our consideration of the candidates, we want to look things more objectively. Looking through the lens of international trade,  what do we find?

The International Trade Administration estimates that 11.5 million U.S. jobs are supported by American exports. Various sources indicate there are a total of 398 trade agreements which were entered into by countries around the world. The U.S. is a party to only 14 of them or 3%.  We are getting out clocks cleaned internationally! What is next?

Both major party candidates say that America is losing jobs in its manufacturing base. Is that correct? How is that tied to international trade?  Acknowledging that one can find studies that conclude almost anything to back up a position, we are going to turn to two coming from generally thought to be reliable sources. One was published by Ball State University in June 2015, and the other was released on October 6, 2016 by Pew Research Center.

The Ball State study is entitled “The Myth and the Reality of Manufacturing in America”. It was issued through the university’s Center for Business and Economic Research.  The report itself can be found at: http://conexus.cberdata.org/ under “Related Studies”.  What makes this report of particular interest is it recognizes the total number of manufacturing workers has declined, but looks at the root causes of that decline rather objectively.  While acknowledging that trade has had an impact on job loss, the report goes on to conclude that manufacturing has rebounded from the 2007 to 2009 recession,  but that due to automation and increased productivity, the number of workers employed has not.  The report cites specific industry sectors which have rebounded and identifies others which have not.  It notes that international competition is dependent on “production costs and productivity and transport costs of goods … The increase in productivity and decrease in price facilitates an increased quantity demand by consumers”.   The most interesting comments in the report for our purposes focus on the total number of employees needed in 2010-levels of production using 2000-level worker productivity and concludes : “[h]ad we kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1. million”!

What this Ball State study concludes is manufacturing continues to grow, but employment in this sector has remained stagnant for years, primarily due to “growth in productivity. Three factors have contributed to changes in manufacturing employment in recent years: Productivity, trade and domestic demand. Overwhelmingly, the largest impact is productivity. Almost 88 percent of job losses in manufacturing  in recent years can be attributable to productivity growth, and the long-term changes to manufacturing employment are mostly linked to the productivity of American factories”.

The Pew Research Center released its study conducted with Markle Foundation under the title: “The State of American Jobs”. It looked a job retention generally and framed the discussion based on factors the Americans surveyed think are important to their long term employment. See http://www.pewsocialtrends.org/2016/10/06/the-state-of-american-jobs/.  “Tectonic changes are reshaping U.S. workplaces as the economy moves deeper into the knowledge-focused age. These changes are affecting the very nature of jobs by rewarding social, communications and analytical skills. They are prodding many workers to think about lifetime commitments to retraining and upgrading their skills. And they may be prompting a society-wide reckoning about where those constantly evolving skills should be learned – and what the roll of colleges should be”.

The “vast” majority of those surveyed concluded that “new skills and training” are key to their future job success.  They also see the need for more “education, training and experience”.   Focusing specifically on trade-related issues, the Pew study states 80% of adults conclude that “increased outsourcing of jobs to other countries” is harmful to American workers.  77% think foreign-made products sold in the U.S. are also harmful.  Those surveyed also cite increased use of contract and temporary workers and declines in union membership (57% and 49%) as harming American workers. Conversely, 68% conclude that exports and the sale of American products in foreign markets are helpful to workers!

The study also points out its analysis of employment data shows “that job categories with the highest growth tend to require higher social skills, analytic savvy and technical prowess. .. The shifting demand for skills in the modern workplace may be working to the benefit of women. Women, who represent 47% of the overall workforce, make up the majority of the workers in jobs where social and analytical skills are relatively more important, 55% and 52%, respectively. For their part, men are relatively more engaged in jobs calling for more intensive physical and manual skills, making up 70% of workers in those occupations. This is likely to have contributed to the shrinking of the gender pay gap … from 1980 to 2015 given that wages are rising much faster in jobs requiring social and analytical skills”.

Given the ever more complex international trading regulations and climate, it was notable that 63% of those with  a 4 year degree or more felt they would need to keep advancing their skills “throughout their career, compared with 45% of those with no college experience who feel the same sense of urgency”. Equally noteworthy was that 61% of young adults (18 to 29) are more likely than “their older counterparts to see skills and training as essential.” 56% of those ages 30 to 49 also see on-going training as essential, as do about 25% of workers aged 50 and older.

The skills most Americans felt were critical to their success and are those they most relied on in their jobs are interpersonal skills, critical thinking, and good written and spoken communication skills. Some gained these skills through life experiences, others through work experiences and others through formal education.  72% say a lot of the responsibility for “preparing and succeeding in today’s workforce starts with [the] individuals themselves.”  The discussion about where those skills should be learned was included in the report, and raises thoughtful questions about the value of a college education, and even how strong is education prior to college in terms of preparing individuals to enter the workforce.

Against this backdrop, it was not surprising to read “the pay gap between manual and analytical jobs has grown over the years”.  There are notable comments regarding the roll schooling should play as well as observations about how secure workers feel in their jobs, which again varies based on the worker’s level of education and the nature of his or her job.  Immigration and automation are also commented about.  Remarkably regarding trade, “big majorities” acknowledge exports along with technology are aids to workers, but there is “no significant gap between Democrats and Republicans when it comes to the importance of global trade”.

Regardless of which candidate you prefer,  they both should be held to providing the electorate with serious answers to the pressing issues of the day.  Simply saying trade is bad and deals need to be renegotiated so they are fair to Americans, trade means outsourcing, and other similar inane sound bites should not be satisfactory. The U.S. is facing serious challenges to which we need serious answers, not quick one-liners. Where do we look for those serious answers? Certainly not in this election cycle unless we all visit our Members and Senators during the current recess or when next in D.C. They need to hear about the importance and positive influence of international trade to all of our lives and careers!