UBS says IRS has 20 Swiss banks in its sights

Fri, 12 Mar 2010 16:37:59 GMT

The Associated Press reported earlier today that, in a letter written to Swizz parliamentarians, UBS AG said that the U.S. Internal Revenue Service has collected information on the cross-border activities of about 20 Swiss banks in the course of its amnesty program for American tax evaders.

The letter was written to urge the Swizz lawmakers to approve a treaty between Switzerland and the United States on improving cooperation on tax evasion matters.

The Zurich-based bank wrote that "the risks for the Swiss financial center and the economy as a whole if parliament were to withhold its approval are very considerable."

Wow, a Positive Story on PRC Factory Workers

stanabrams@gmail.com (Stan Abrams) — Fri, 12 Mar 2010 14:00:41 GMT

You don’t see stuff like this every day: It turns out that factory workers — not the activists labeled “preachy” by one expert, and not the Nike executives so wounded by criticism — get the last laugh. Villagers who “went out,” as Chinese say, for what critics described as dead-end manufacturing jobs are sending money back [...]

You don’t see stuff like this every day:

It turns out that factory workers — not the activists labeled “preachy” by one expert, and not the Nike executives so wounded by criticism — get the last laugh. Villagers who “went out,” as Chinese say, for what critics described as dead-end manufacturing jobs are sending money back and returning with savings, building houses and starting businesses.

Workers who stitched shoes for Nike Inc. and apparel for Columbia Sportswear Co., both based near Beaverton, are fueling a wave of prosperity in rural China. The boom has a solid feel, with villagers paying cash for houses.

This flies directly in the face of the accepted wisdom of the U.S. media, which includes:

Foreign companies go to China because of low wages and/or poor environmental laws.
Foreign companies in China always adopt local standards, which include low wages and unsafe working conditions.
Foreign companies in China try to cover up information about their China factories because the facts are ugly.

Now, I’m the first to admit that those three statements are correct some of the time. Absolutely true. However, somewhere along the line, it became cool to write stories about these problems, which has led to a perception that this is descriptive of all foreign factories here. That of course is incorrect and highly misleading.

So when the article excerpted above, from the Portland Oregonian, takes such a different tack, it is worth notice. But why did the Oregonian dare to be different? Some sort of crusade for the truth?

Perhaps. I suspect, however, that Nike’s presence in Portland, and that company’s past PR problems with respect to China factory working conditions, motivated the piece. That being said, this is not a Nike apologia, and is in fact quite balanced:

Improved living standards don’t negate criticism by activists who castigated the outsourcing industry, especially Nike, a 1990s lightning rod for allegations of low pay and onerous working conditions. Abuses continue in some plants, especially those unconnected to international brands.

But longtime activists acknowledge that the sweatshop issue has lost steam, at least concerning China. Conditions and wages have improved, says Jeffrey Ballinger, a critic who still dismisses corporate-responsibility programs — in which Nike, Columbia and other companies set standards and inspect factories — as spin.

Kudos to the Oregonian for neither accepting conventional wisdom nor writing a puff piece on a local corporate giant.

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Post tags: china factories, china working conditions, labor conditions, nike, portland oregonian

FREIGHT FORWARDERS ARRESTED IN MIAMI FOR SHIPPING SONY PLAYSTATIONS

Fri, 12 Mar 2010 13:10:43 GMT

To the dismay of the local international trade community, three international freight forwarding companies and their owners are being criminally prosecuted for illegally exporting merchandise to a company in Paraguay. The company in Paraguay had been designated a "Specially Designated Global Terrorist" by the United States Government. Exporters and forwarding companies sending any cargo to such a company, even Sony PlayStation video games, would be in violation of the law.

In an Indictment dated October 1, 2009, Case No. 09-20852-CR-GOLD, the United States Attorneys' Office in Miami charged three Miami freight forwarding companies and their owners with violating the International Emergency Economic Powers Act (IEEPA),50 U.S.C. 1701 et seq., 18 U.S.C. 554 (fraudulently exporting from the United States), 18 U.S.C. 371 (conspiracy), and 13 U.S.C. 305 (knowingly submitting false Shippers Export Declarations or information through the Automated Export System (AES).

In summary, the Government has alleged that the Paraguay company paid an Ohio distributor of Sony PlayStations to ship those items to the freight forwarding companies in Miami. Once in Miami, according to the Indictment, the freight forwarders and their owners allegedly created documents falsely identifying the address of the company in Paraguay because they knew they could not ship the Sony PlayStations to the real address. The real address of the company in Paraguay, according to the Indictment, had been designated by the Office of Foreign Assets Control (OFAC) as a Specially Designated Global Terrorist. The designated terrorist was Galeria Page, an office mall in Ciudad del Este, Paraguay.

The case was investigated by the Miami office of the U.S. Immigration and Customs Enforcement (ICE) which issued a Press Release. According to the Penalty Sheet filed with the Indictment, the maximum penalty for the individual owners of the freight forwarding companies who were arrested for the alleged violations is 20 years imprisonment.

To obtain a copy of the Indictment which was just unsealed on February 26, 2010, please contact me.

Should Banks Be Held Responsible for Losses which their Clients have Suffered as a Result of Purchasing Wealth Management Products?

Fri, 12 Mar 2010 09:37:51 GMT

By Wang Fengli and Wang Jiangang, King & Wood's Dispute Resolution Group

For many people, their main wealth management strategy involves purchasing financial products promoted by banks. Since the first impact of the global financial crisis was felt in 2008, the performance of different bank-issued financial products has varied greatly. Some Chinese investors have lost money as a result of buying financial products promoted by foreign-funded banks, and some have even sued those banks for compensation. Since financial products are generally quite complex, hurt investors often make their claim against a bank on the grounds that the bank failed to give clear notice about the risks inherent in the financial product which it was promoting and that the bank induced the investor into purchasing a product while concealing important facts.

Although claims of this kind are generally for small amounts, their impact on the banks concerned should not be underestimated. The dispute between the bank and the investor is often quite intense. For these reasons, Chinese financial regulators are very concerned about the potential impact of such cases on the larger financial order. Another issue is that cases involving small claims are usually tried in local courts which do not have expert knowledge of complex financial products. This means that the relevant courts take a cautious approach to the conduct of such trials and the resulting court decisions reflect this cautious attitude.

Case Background
On February 18, 2008, at the recommendation of a wealth manager at the Oriental Plaza sub-branch of ABN AMRO (China) Co., Ltd (“ABN AMRO”) a Chinese investor decided to invest in a structured deposit (Phase III) product linked to the ABN AMRO/AIG “Chinese Agricultural Products Gross Return Index” (the “structured-deposit-based financial product”) . The principal invested in this particular product was guaranteed if the investor maintained its investment until maturity. On February 19, 2008 the investor deposited AUD 50,000 into an account which he had opened with ABN AMRO. Then, on February 21, 2008, the investor went to ABN AMRO to complete the formalities for purchasing the structured-deposit-based financial product. The product did not perform well during the developing global financial crisis. Therefore, on September 24, 2008 the investor filed an application for redemption of his investment and accordingly, ABN AMRO commenced the procedures for redemption. On October 16, 2008 ABN AMRO converted and settled the investor's redeemed funds in Chinese yuan renminbi at the investor's request.

By then the investor had lost RMB 142,621 which included a loss of RMB 40,565.64 due to his early redemption decision and RMB102,040 due to the conversion of Australian dollars into Renminbi.
On November 10, 2008, the disappointed investor filed a lawsuit with the Dongcheng District Peoples' Court in Beijing, claiming compensation from ABN AMRO for the loss which he had suffered on the basis of alleged fraud, concealment of important facts and breach of contract by ABN AMRO. In 2009, the Dongcheng District People's Court dismissed the investor's claim emphasizing that there are risks associated with wealth management products and setting out the duties and obligations that banks should observe when performing contracts for fiduciary wealth management. This case has served as an important reference for similar cases which have subsequently arisen.

Case Analysis

Was ABN AMRO’s structured-deposit-based financial product valid under PRC law?

Article 46 of the Interim Procedures for Administration of Personal Wealth Management Business of Commercial Banks (the “Procedures”) promulgated by the China Banking Regulatory Commission in September 2005 states that:

“commercial banks shall receive approval from the China Banking Regulatory Commission before they carry out the following wealth management services for individuals: 1) earning-guaranteed financial products; 2) new investment products designed on an earning-guaranteed basis for personal wealth management business; and 3) other personal wealth management services subject to approval from China Banking Regulatory Commission”.

Article 51 of the Procedures states that “commercial banks do not need to obtain approval for other personal wealth management services but they must report the same to the China Banking Regulatory Commission or its local agency in a timely manner pursuant to the applicable regulations”.

In the case mentioned above, ABN AMRO's structured-deposit-based financial product did not fall within the meaning of “investment products designed on an earning-guaranteed basis” as defined in the Procedures. However, in his complaint, the investor challenged the legality of ABN even issuing the product in China on the basis of an allegation that ABN AMRO had only filed the product with the banking regulatory agencies in Shanghai and Beijing and had not received approval for the product. He further alleged that the banking regulatory agencies did not provide any acknowledgement or receipt after they had received the product filing from ABN AMRO.

In answer, ABN AMRO submitted a bound volume to the court, which contained all of the recorded documents filed with the two banking regulatory agencies in Shanghai and Beijing, with the date of filing and the signatures of the handling clerks at the two banking regulatory agencies evident on the face of the documents. The court admitted this evidence after verifying it with the two agencies concerned and, as a consequence, accepted that the structured-deposit-based financial product issued by ABN AMRO was valid and legal, observing that the procedures for reporting to the China Banking Regulatory Commission's local agencies had been timely completed.

Did the bank give clear notice about the possible risks associated with the structured-deposit-based financial product when promoting it to the investor?

Because of the complex structure of wealth management products, most courts in China suspect that banks’ wealth managers overstate the potential earnings capacity and conceal the risks associated with their products while misleading clients into purchasing high-risk products. As a result, courts tend to sympathize with individual investors and this approach reflects the most common approach taken in legislative and judicial practice in China generally. For instance, when interpreting the insurer’s obligation under the PRC Insurance Law to “make clear explanation” of the “disclaimer” in an insurance policy, the Supreme People’s Court has decided that the disclaimer may not be deemed valid unless the insurer has clearly and expressly explained to the policy holder or its agent, either orally or in writing, the definitions, content and legal consequences of or relating to the disclaimer in addition to including notices to the same effect in the insurance policy.

With this approach in mind, banks responding to similar lawsuits in China need to be able to adduce evidence sufficient to prove that they have given express notice about the specific risks associated with the particular wealth management products which they have promoted to each client on each occasion. In the case above, ABN AMRO had in fact elaborated on the clauses contained in the contract for the structured-deposit-based financial product and had also expressly drawn the investor’s attention to notices in related documents which illustrated the risks associated with that particular product in language understandable to persons who are not financial professionals (in this case in particular, concerning risks to the principal investment and foreign exchange rate risks in the context of an early redemption by the investor). At the same time, ABN AMRO had also presented evidence to the court that the investor had delivered responses to an “Evaluation Questionnaire for Investments by the Client” and a “Suitability Questionnaire” provided by the bank. In this way ABN AMRO was able to prove that it did give detailed notice about the risks associated with the particular structured-deposit-based financial product in question when promoting the product to the investor in that particular case. As a result, the Dongcheng District People’s Court concluded in its final judgment that the investor had purchased the product voluntarily on the basis of a full understanding of the risks associated with the product.

Did the bank induce the investor into early redemption?

In performing its fiduciary wealth management service, ABN AMRO had sent the investor monthly statements and reports through express courier delivery service and had properly maintained records of each statement and report. These documents showed that even though the product was not performing well, ABN AMRO had, on a monthly basis, truthfully informed the investor about the performance and net value of the product as well the risks associated with an early redemption .

By contrast, the investor had alleged in his complaint that he chose early redemption as a result of demands and inducements received from ABN AMRO's staff. In answer to these allegations, ABN AMRO presented a notarized record of telephone calls between the investor and ABN AMRO's wealth manager, which showed that the investor had chosen early redemption on the basis of his own judgment of the condition of the international financial market at the time, despite knowing that his principal investment was not guaranteed unless he held the product until maturity. In addition, notarized evidence showing the variations in the Australian dollar's exchange rate and in the product's value after the investor redeemed his investment proved that it was the early redemption decision by the investor which had caused the investor's loss. As a result, the court ultimately dismissed the investor's claim.

Given that the financial derivative market in China is not yet mature, banks should give careful thought about how wealth management products that are promoted in China can be designed and advertised well, and how their fiduciary obligations to customers in China can be performed well. Banks may be exposed to legal risks and held liable for the risks inherent in the products which they promote if they have not paid careful attention to these matters and have not strictly adhered to applicable regulations in some aspects of their services. After all, customers entrust their assets to banks because they look at banks as trustworthy financial experts. It is true that investments do come hand in hand with risks, but banks always have an obligation to keep risks within a reasonable limit.

?Wang Fengli is a partner and Wang Jian’gang is a lawyer from the litigation and arbitration team in the head office of King & Wood PRC Lawyers in Beijing.?

China-Google Dispute Has Become Media’s Attractive Nuisance

stanabrams@gmail.com (Stan Abrams) — Fri, 12 Mar 2010 09:31:21 GMT

It’s been all Google, all the time, at least in China IT/tech circles. With this week’s hearings in D.C. on the topic of Google and Net censorship, the media is in a bit of a frenzy at the moment. As usual, the media reaction to a hot story like this includes: 1) beat the thing unmercifully [...]

As usual, the media reaction to a hot story like this includes: 1) beat the thing unmercifully until you’ve extracted every last drop of blood; and 2) try to tie the Google dispute in with as many other China stories as possible.

The problem is that there are a lot of things going on with respect to foreign companies in the China tech industry at the moment. Some of them are related or overlap, while others are wholly independent.

Case in point, a Businessweek article from Wednesday, whose headline suggests that it is a story about the foreign software industry’s travails in China. Indeed, this is what the article covers for the most part, starting off with a straightforward discussion of piracy rates (high, but lower than they used to be) and persistent problems:

That’s not good enough, says Robert Holleyman, president and CEO of the BSA. The Chinese, he contends, are not maintaining their momentum on getting PC users off of illegitimate software. “We’ve really stalled on this process,” he says in an interview from Washington. Although the BSA won’t have data on the 2009 Chinese piracy rate until May, Holleyman says, anecdotal evidence suggests “we are not making further progress.” In the past, Beijing has pledged that state enterprises would use proper software, he adds. “There is nothing that I have seen or heard that suggests that commitment has been met.”

The BSA has had a good run for a few years, with successes on the government procurement front in particular. But that was relatively low-hanging fruit. Trying to get SOEs nationwide to follow these rules is a tough job, and no one should be surprised that the promises on this are not being kept, or at least not yet.

So far, so good. This is where the article runs off the rails, though.

Holleyman went to Capitol Hill on Mar. 10 to spread the word about the software industry’s impatience with China. He was a featured speaker at a hearing on Beijing’s censorship of the Internet.

Come again? The BSA certainly has more on its plate than piracy, but seguing from copyright infringement to Net censorship in one paragraph like that makes me dizzy. The only common thread here seems to be the participation of Mr. Holleyman, the BSA chief.

So now the article is about Net censorship? No, unfortunately immediately after the paragraph describing who was speaking at the House hearing (shout out to Rebecca MacKinnon!), the subject heading of the next section was “Intellectual Property Transfer?” What that has to do with copyright piracy and/or Net censorship is beyond me.

Actually, IP transfer does concern the software industry, sort of, and the article next turned towards recent problems with indigenous innovation policy, which is leading some to call foul over local IP requirements for government procurement contracts. Again, important topic, but it has nothing to do with Net censorship.

I’m not trying to single out this article, or at least not much. It’s just that with so much in the news about Google, I think it’s become very attractive to throw the subject into anything you’re writing. This article is actually about what problems the software industry is facing in China. If the author had stuck to government procurement and IP, things would have been fine.

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Post tags: Business Software Alliance, copyright infringement, Google

CIRC Published Revised Administrative Measures for Insurance Clauses and Premium of Property Insurance Company

Fri, 12 Mar 2010 08:44:09 GMT

Recently, CIRC revised the old Administrative Measures for Insurance Clauses and Premium of Property Insurance Company 2005 and published a new one (“New Administrative Measures”). The new one will be effected since 1^st April of this year.

The New Administrative Measures were revised to be in line with the new Insurance Law which was published and effected last year and were mainly revised from three aspects: (1) completing filing system of insurance clauses and premium; (2) enhancing the management of compliance chief officer and actuary chief officer; (3) strengthening supervision of insurance companies in line with new Insurance Law. Specifically speaking, the New Administrative Measures put focus on the following points.

1. Changing the way of supervising regional products. New Administrative Measures provide that the head officer of insurance company need to file the materials of regional products directly in the CIRC. According to this stipulation, all developments and filings of products must be handled by the head office of insurance companies. On the one hand, the CIRC may use this regulation to strengthen the supervision of insurance companies and prevent insurance institutions disturb market or infringe insurance applicants or insureds by extension clauses, special agreements or adjusting premium rate in regional products. On the other hand, the CIRC may concentrate on examining the compliance, standardization and actuary of premium when all products are filed and examined only by CIRC.

2. Increasing the regulations on co-insurance products management. According to the development of insurance industry and insurance practice, the New Administrative Measures increase the regulations on clauses premium rate under circumstance of co-insurance. Other insurance company may directly use the chief insurer’s insurance clauses and premium which was filed or approved by CIRC without separate application.

3. Strengthen the management of compliance chief officer and actuary chief officer. Firstly, the New Administrative Measures require insurance companies to increase management level, establish internal accountability system and report relevant management system to CIRC. Secondly, this New Administrative Measures raise the thresholds of being a compliance chief officer. The compliance chief officer must be a formal staff of the insurance company and shall be at least a department officer in the company with more then 3 years consecutively domestic insurance or legal experiences. Thirdly, the New Administrative Measures impose some administrative penalties on insurance company for illegal acts.

4. Establishing standard products data base system. This reversion clarified that Insurance Association of China and all insurance companies shall positively promote the popularization and standardization of insurance clauses and premium rates. They shall establish an industry basic data platform and standard products data bases to improve the quality of products and to regulate the market.

After publishing the New Administrative Measures, CIRC schedules to creat a training program covering whole insurance industry to explain this new regulation and to improve the products management capability of insurance companies.

viharg

viharg@yahoo.com (Vihar Georgiev) — Fri, 12 Mar 2010 08:09:36 GMT

The Report on progress in creating the internal gas and electricity market says that the correct transposition of the European electricity and gas legislation in all Member States is still not complete. The key violations identified lack of transparency, insufficient coordination efforts by transmission system operators to make maximum interconnection capacity available, absence of regional cooperation, [...]

The key violations identified lack of transparency, insufficient coordination efforts by transmission system operators to make maximum interconnection capacity available, absence of regional cooperation, lack of enforcement action by the competent authorities in Member States and the lack of adequate dispute settlement procedure.

OFAC Returns To Its Senses On Cuba Ag Export Payments (Temporarily)

Fri, 12 Mar 2010 01:56:09 GMT

Yesterday the Office of Federal Assets Control (“OFAC”) published a notice in the Federal Register that reversed, at least temporarily, the absurd interpretation that it had adopted of the statutory requirement in the Trade Sanctions Reform and Export Enhancement Act (“TSRA”) that exports of agricultural and medical goods to Cuba required “payment of cash in [...]

British High Court stops EMI from Unbundling Pink Floyd albums online

Thu, 11 Mar 2010 17:40:14 GMT

As reported earlier today by Stephen Adams, Arts Correspondent of the Daily Telegraph, fans of Pink Floyd will be unable to buy their songs individually on websites like iTunes after lawyers for the rock band won a British High Court ruling against EMI.

Band members took the record label to court on Tuesday arguing it had broken a 1999 contract which expressly “ prohibits the sale of albums in any configuration other than the original configuration". Robert Howe, QC, for Pink Floyd, had said this applied to all recordings including those distributed online. He said the band had wanted to maintain artistic control over their "seamless" albums, in all formats.

Elizabeth Jones, QC, for EMI, had argued the ban was limited to physical records.

Earlier today Sir Andrew, Chancellor of the High Court, agreed with Mr Howe, and granted Pink Floyd the declaration they sought preventing EMI from allowing the band's albums – including Dark Side of the Moon and The Wall – from being chopped up for sale as individual track downloads, a process known as 'unbundling'. The Pink Floyd case is thought to be the first time a band has succeeded in obtaining a court ruling preventing a label from selling its albums as individual online tracks. Sir Andrew said the purpose of the clause was to "preserve the artistic integrity of the albums".

This decision causes problems for record companies because iTunes, the biggest online music retailer, prefers artists to allow their albums to be sold as individual tracks.

adammizera

mizera@robic.com (Adam Mizera) — Thu, 11 Mar 2010 17:18:43 GMT

Extrait d’un document de formation de l’OMPI The Patent Attorney Song A patent attorney/what is he a patent attorney/what is he A patent attorney is a mystery man a person whose job nobody can tell he is the inventor’s pathfinder the interpreter of businessmen’s dreams To look for a priority to search for the novelty to claim an exclusivity that’s his ability A patent attorney is a [...]

Extrait d’un document de formation de l’OMPI

The Patent Attorney Song

A patent attorney/what is he
a patent attorney/what is he

A patent attorney is a mystery man
a person whose job nobody can tell
he is the inventor’s pathfinder
the interpreter of businessmen’s dreams

To look for a priority
to search for the novelty
to claim an exclusivity
that’s his ability

A patent attorney is a mystery man
a person whose job nobody can tell
he enjoys patentology
half law and half technology
he likes to play the rights of Monopoly!

He gets excited with oppositions
he falls in love with litigations
he feels happy with applications
he likes to write his client: we won, we won, we won

To assess patentability
to appraise originality
to advise registrability
that’s his ability

A patent attorney is a mystery man
a person whose job nobody can tell
he enjoys patentology
half law and half technology

he is an element of world’s ecology
to be protected for common welfare,
to be protected for common welfare.

The patent attorney/the best of the best
the patent attorney/the best of the yourself

US Treasury Seeks to Boost Internet Communications in Iran,Sedan and Cuba

Thu, 11 Mar 2010 16:46:18 GMT

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) have amended the Iranian Transactions Regulations, Sudanese Sanctions Regulations, and Cuban Assets Control Regulations to ensure that individuals in these countries can exercise their universal right to free speech and information to the greatest extent possible. The amendments add general licenses authorizing the exportation of certain personal Internet-based communications services – such as instant messaging, chat and email, and social networking – to Iran, Sudan and Cuba. The amendments also permit the exportation of related software to Iran and Sudan.

The new general licenses authorize exports from the United States or by U.S. persons to persons in Iran and Sudan of services and software related to the exchange of personal communications over the Internet, including web browsing, blogging, email, instant messaging, and chat; social networking; and photo and movie sharing. Today's amendments also provide that specific licenses may be issued on a case-by-case basis for the exportation of services and software used to share information over the Internet that not covered by the general licenses.

The sanctions regulations on Cuba also have been amended to include a similar authorization and statement of licensing policy for the exportation of such services to Cuba. Unlike Iran and Sudan, the exportation of goods and technology, including software, to Cuba is separately licensed or otherwise authorized by the Commerce Department.

"Consistent with the Administration's deep commitment to the universal rights of all the world's citizens, the issuance of these general licenses will make it easier for individuals in Iran, Sudan and Cuba to use the Internet to communicate with each other and with the outside world. Today's actions will enable Iranian, Sudanese and Cuban citizens to exercise their most basic rights," said Deputy Treasury Secretary Neal Wolin.

Smells a Lot Like Import Substitution

stanabrams@gmail.com (Stan Abrams) — Thu, 11 Mar 2010 12:00:46 GMT

Import substitution industrialization (also called ISI) is a trade and economic policy based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. (Wiki) During the past six months or so, one of the big themes in foreign investment circles has been the extent to which [...]

Import substitution industrialization (also called ISI) is a trade and economic policy based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. (Wiki)

During the past six months or so, one of the big themes in foreign investment circles has been the extent to which China has rolled up the red carpet for foreign companies. Some of this talk is in reaction to recent government enforcement policies that have made it more difficult for foreign companies to do business here. Additionally, China’s industrial policy has led to significant concentrations in certain market sectors, dominate by “chosen” State-owned Enterprises (SOEs).

In my own law practice, I have seen a disturbing trend with respect to technology transfer. In the past year, I have seen one tech license deal go bad because of a very questionable patent invalidation decision — the result allowed the local company to use the tech royalty-free. The other matter was a transfer of Chinese tech offshore, a purchase by a foreign entity; a couple of years ago, this deal would have gone through within days but now is bogged down in red tape.

For a long time, two of the chief motivating factors behind China domestic innovation programs are: self sufficiency and avoidance of paying royalties to foreign enterprises. As a developing country, China’s econ policy here makes some sense if it leads to domestic innovation and a continuous rise up the value chain of tech products.

However, if this attitude leads to specific policies designed to dislodge foreign suppliers in favor of domestic firms after tech know how has been shared, that’s not so cool. So what should we make of this sort of report:

China spends billions of dollars importing high-end scientific instruments every year, and its global competitiveness in manufacturing this technology is dwindling, a survey has found.

Conducted by Peking University and the National Center for Nanoscience and Technology and the National Science Library, the survey found that in some sectors scientists rely 100 percent on imported high-end instruments.

Importing these high-end instruments, including DNA sequencers and particle colliders, cost several billion US dollars in 2009, an increase of 30 percent on the previous year, the report found, without specifying an exact figure. (China Daily)

On its face, this is a simple report about how China is spending a lot of money, perhaps inefficiently. Maybe I’m reading between the lines too much here, but in addition to being more efficient, the obvious solution to this problem is import substitution.

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Post tags: china economic development, import substitution, industrial policy, technology transfer

China Bank Exec Pay Limits – Some Details Emerge

stanabrams@gmail.com (Stan Abrams) — Thu, 11 Mar 2010 07:29:10 GMT

I wrote about this topic a while back on china/divide, explaining that although China was seriously looking into compensation limits for bank executives, there were serious problem in moving ahead with comprehensive rules: [B]anks are not independent institutions in China and, at least in the past, were specifically referred to as “policy banks,” since they were [...]

I wrote about this topic a while back on china/divide, explaining that although China was seriously looking into compensation limits for bank executives, there were serious problem in moving ahead with comprehensive rules:

[B]anks are not independent institutions in China and, at least in the past, were specifically referred to as “policy banks,” since they were instrumental in implementing economic development policies.

When the government wants to stimulate the economy, like it did last year, the policy banks get the job done, lending to a variety of capital projects around the country. In return for doing so, they are backstopped to some extent by the government with respect to risks like Non-performing Loans.

So when it comes to assessing bank executive performance, one cannot simply take a look at the balance sheet or stock price — there’s a lot more going on at any given time. Moreover, it’s not even easy to define exactly what “compensation” is at a State-owned institution[.]

Seems like quite a complicated issue, and certainly not something that lends itself to a quick fix. The U.S. approach was to go for simplicity, a USD 500,000 cap, which is quite a ham-handed way of dealing with this.

Given what was announced yesterday, the China solution is starting to look a lot like the U.S. rule:

Senior bank executives’ performance-related bonuses should be within three times that of their basic salary, the China Banking Regulatory Commission said in its new guidelines.

At least 40 percent or more of an executive’s bonus must be delayed for a minimum of three years and could be withheld if their bank suffers losses due to poor control of risk.

Well, the three-year holding period is kind of interesting. If someone racks up huge numbers in one year and receives a fat bonus for his work, but then those investments go sour within 36 months, the bonus could be adjusted. On paper, that sounds like a good way to reduce risk-taking.

That sort of holding period would never fly on Wall Street. Those guys already despise the (usually) much shorter mandatory holding periods following IPOs, M&As, etc. (depending on either legal or contractual provisions). Asking them to wait three years before they can spend/invest that bonus cash? Heaven forbid!

On the other hand, are those bonus reductions mandatory/automatic or discretionary? If the latter, then all of this may be bullshit at the end of the day.

Banks must consider a range of indicators, such as capital adequacy ratio, non-performing loan ratio and provisions for bad loans, when assessing executives’ performance, the banking regulator said.

OK, but again, what does this mean? Will there be quantitative guidelines? How much is mandatory and how much discretionary? I think we’re going to need some lengthy implementing regulations on this one.

Ireland Passes Arbitration Act of 2010: Incorporates UNCITRAL Model Law on International Commercial Arbitration

Thu, 11 Mar 2010 04:53:09 GMT

I’ve been lucky to have visited Ireland a few times in the past several years. From the unbridled majesty of the Cliffs of Moer, to the emerald hills of Kilarney, to the bustling streets of Dublin, everything about Ireland is pastoral and progressive at the same time.

Leave it to an international law geek like me to notice that even its judiciary reflects this unique mix. While holding strong to its English common law heritage, I found that Ireland is willing to abolish entire legislative codes that fail to keep up with modern jurisprudence.

Ireland Arbitration Act of 2010

In keeping with its progressive mandate, Ireland recently passed a new arbitration act that removes the distinction between domestic and international arbitration and creates a Swiss-style one-stop shop for post-award court proceedings.

The 2010 legislation includes the entire text of the United Nations Convention on International Trade Law Model Law on International Commercial Arbitration (Model Law) and will be instantly recognizable to lawyers across the globe. The Arbitration Act of 2010 will apply the Model Law to all arbitrations in Ireland and do away with the historical distinction between domestic and international arbitration.

UNCITRAL Model Law

The UNCITRAL Model Law has been adopted by more than 50 countries and covers all stages of the arbitral process. While initially designed for international commercial arbitration in mind, other countries such as Germany, New Zealand and Kenya have extended it to domestic arbitrations. Ireland originally adopted the Model Law in the Arbitration (International Commercial) Act 1998, but only for international commercial arbitrations.

Key Revisions to Irish Arbitration Law

1. No Distinction Between Domestic/International Arbitrations

There will be no difference between the legislative provisions relating to domestic arbitrations and international arbitrations. Irish practitioners will need to be familiar with the Model Law and this will be particularly useful when advising on contractual arbitration clauses, particularly those which have an international dimension.

2. Judicial Intervention Virtually Eliminated

The Arbitration Act of 2010 abolished the 'case stated' procedure. Arbitrators will no longer be able to refer to the courts a question of law arising in the course of the arbitration. The removal of the case stated procedure and significant reduction of the scope for judicial intervention will likely to lead to an increased focus on the choice of arbitrators and appointment mechanisms and requirements.

3. Limited Award Challenges

The only method of challenging an arbitral award will be under Article 34 of the Model Law. The grounds are extremely limited and the 2010 legislation will make it far more difficult to challenge an arbitral award than was the case under the previous legislation. The Model Law grounds of challenge have been interpreted narrowly in other jurisdictions, and the Irish Courts are likely to adopt a similar approach, in keeping with their approach to arbitration generally*.

4. Cost Allocation

The 2010 legislation allows the parties to agree on the allocation of costs either before or after the dispute has arisen (Section 21). The previous legislation provided that any such agreement on costs was only binding if it was reached after the dispute had arisen.

Effective Date June 2010

The 2010 legislation will apply to all arbitrations which commence after the legislation comes into operation. The 2010 legislation comes into operation in June 2010, 3 months from the enactment date.

Trend to Watch: Look for a Precipitous Increase in International Commercial Arbitrations Taking Place in Ireland in the Next Several Years

-Santiago

GAO Report on Iran Sanctions Blasts OFAC’s Dead Tree Licensing System

Thu, 11 Mar 2010 01:26:38 GMT

The Government Accountability Office released a report last Thursday on the Iran Sanctions and there is, you might say, good news, bad news and old news in the report. First, the good news. The GAO’s audit of the licensing process of the Office of Foreign Assets Control (“OFAC”) found that all of the licenses [...]

FMC settles four investigations for $ 625,000

Wed, 10 Mar 2010 20:27:48 GMT

The Federal Maritime Commission announced four compromise agreements in which an ocean carrier and intermediaries agreed to pay a total of $625,000 in civil penalties for alleged violations of the Shipping Act of 1984.

China Shipping Container Line, headquartered in Shanghai and controlled by the government of the People's Republic of China, agreed to pay $440,000 to settle alleged violations involving more than one thousand shipments over four years. These alleged violations included: (1) providing transportation services to intermediaries that did not have tariffs, licenses, or bonds as required by the statute; (2) misdescribing cargo they shipped; (3) allowing use of service contracts by persons who were not parties to those contracts; and (4) providing transportation that was not in accordance with the rates and charges set forth in published tariffs.

A.T.I. U.S.A. Inc., a licensed and bonded NVOCC and freight forwarder based in Elizabeth, New Jersey, paid $115,000 in civil penalties to settle allegations that it misdeclared the measurements of certain shipments of motor vehicles and permitted use of service contracts by persons who were neither signatories nor affiliates to those contracts.

Other licensed and bonded NVOCC's MT Global Freight Solutions Inc. of Grapevine, Texas and Cosa Freight Inc. of Pomona, California. Cosa Freighteach aslo made payments of $35,000 pursuant to compromise agreements.

Federal Maritime Commission Chairman Richard A. Lidinsky, Jr. praised the Commission's Area Representatives and Bureau of Enforcement for their hard work protecting competition and the shipping public: "These penalties should serve as a reminder to any carriers or intermediaries who may be tempted to disregard the Commission's rules against unfair or deceptive practices. The Federal Maritime Commission's team on the front lines will be vigilant in protecting the emerging green shoots of recovery in the ocean shipping industry, international trade, and the larger economy."

Although the settling parties paid penalties, they did not admit to violations of the FMC Act or the Commission's regulations.

US Copyright Law Discriminates against Foreign Copyrights

Wed, 10 Mar 2010 17:04:11 GMT

A U.S. District Court Judge declined to find that the registration prerequisite for statutory damages under the U.S. Copyright laws was preempted by the Berne Convention.

Elsevier B.V., Elsevier Inc., and Mosby, Inc. (collectively “Elsevier”) own or exclusively license copyrights in scientific books and journals which they offer to subscribers to their on-line database, ScienceDirect ®. A large percentage of those publications are created abroad and their foreign copyrights have not been registered in the United States. Elsevier alleged that Defendant Ingenix, Inc. (“Ingenix”) violated the terms of its subscriber agreement with Elsevier by allowing unauthorized access to the ScienceDirect ® database. In seeking statutory damages in a case filed in the US District Court for the Southern District of New York, Elsevier assered that Article Five of the Berne Convention for the Protection of Literary and Artistic Works (the “Berne Convention”) conflicts with § 412 of theUS Copyright laws to the extent that it conditions an award of statutory damages and attorney's fees for infringement of a Berne Convention copyright on the registration of that copyright in the United States.

Article Five of the Berne Convention provides that “the enjoyment and the exercise of [rights under the Convention] shall not be subject to any formality.” Elsevier argues that the Berne Convention superseded § 412 of the Copyright Act of 1976 because statutory damages and attorney's fees are integral to the enjoyment and exercise of foreign copyrights.

The US District Court noted that that argument requires a finding that the Berne Convention was self-executing and became law upon ratification. However, in adopting the Berne Convention Implementation Act of 1988 (the “Implementation Act”), Congress declared that the Berne Convention was “not self-executing under the Constitution and laws of the United States”; that “[t]he obligations of the United States under the Berne Convention may be performed only pursuant to appropriate domestic law”; and that “[t]he amendments made by this Act ..., together with the law as it exists on the date of the enactment of this Act [October 31, 1988], satisfy the obligations of the United States in adhering to the Berne Convention and no further rights or interests shall be recognized or created for that purpose.” Berne Convention Implementation Act of 1988, Pub.L. No. 100-568 § 2, 102 Stat. 2853 (codified as amended at 17 U.S.C. § 101 et seq.)

The court concluded that since the Berne Convention is not self-executing, it cannot serve as the basis for a claim of preemption under Article VI of the United States Constitution.

This decision, although correct on the law, highlights a bias in our copyright laws. We cannot complain about inequities in other countries' IP rights unless we address this issue in our own laws.

Wake Up and Smell the Threats: Two Recent Examples of Why Municipalities Need Cyber Insurance

ppengelley@cozen.com (Pamela Pengelley) — Wed, 10 Mar 2010 16:56:53 GMT

Odd as it may seem to those of us who live and breathe cyber, tech and privacy insurance, I have heard anecdotally of municipal authorities who profess that their cities and towns do not need to incur the expense of buying cyber insurance. “Why do we need it? We don’t operate on the internet,” they [...]

Well, my response is “why don’t you think you need it?” Do you maintain a bank account? Do you store personally identifiable information about private citizens, whether in your property records, police files, tax databases or otherwise? Are your employees able to access your municipality’s computer systems remotely? Is it really possible that every single piece of information you maintain is recorded on paper and nothing is stored on a mainframe, whether located on- or off-site? Come on. Its 2010. That’s virtually impossible, isn’t it? Haven’t you read my December 23, 2009 post “No One is Immune. Even Government Entities Need Cyber/Tech Insurance.” Since that posting, additional municipalities have suffered cyber attacks and been the subject cyber lawsuits.

Most recently, hackers broke into a bank database and stole $378,000 in funds from the Town of Poughkeepsie, New York. Shortly thereafter, leaders of the neighboring City of Poughkeepsie, New York (same name, but this one’s a City) authorized the purchase of cyber insurance with a minimum policy limit of $500,000. According to the City’s mayor, it will be one of the first municipalities in its area (the Hudson Valley, north of New York City) to purchase such insurance. (I guess that officials in the other local towns and cities and their brokers don’t read this blog. Shame on them). Needless to say, if I was a broker or underwriter, I’d descend on the region and market the need for cyber insurance till I dropped. To their credit, officials in the City of Poughkeepsie also announced that they were increasing the limits on their employee theft (fidelity) insurance from $25,000 to $100,000 per occurrence and their separate theft coverage from $100,000 to $500,000 per occurrence for certain City officers, at an added cost of a reasonable $10,000 premium Smart, prudent and forward thinking. (Now, about that name).

While this was going on, my own local municipality, Lower Merion Township, Pennsylvania, was involved in its own brouhaha. If you haven’t heard (and, to be honest, who hasn’t heard), the Lower Merion School District provides all of its approximately 2300 high school students with an Apple laptop. (No wonder my taxes are so high). What school officials didn’t do was notify students and parents that the laptops had built-in cameras which school officials could turn on and off without warning. While officials say this system was used only approximately 43 times, and only when the computers were reportedly lost or stolen, the use of the system on one occasion has lead to the filing a federal court class action lawsuit, purportedly brought on behalf of all Lower Merion high school students. Many local students and parents with whom I have spoken are not necessarily in favor of this lawsuit (I’ve heard comments like: “all I’m doing is paying lawyers… at the expense of increased taxes…” and “I’ll be taking money out of one pocket and putting it into the other…” and “the school district didn’t mean any harm; they were just protecting their property…”); nonetheless, it has caused the Township to hire Big Firm lawyers to investigate the situation and deal with the fallout. To the point, even if the School District didn’t do anything wrong, or simply made a mistake, the attorneys’ fees alone likely will run into the six figures. (My tax dollars at work). Would cyber insurance cover such an incident? Perhaps, depending on the facts and the coverages purchased. It certainly wouldn’t hurt.

In short, these latest incidents further highlight the need for underwriters and brokers to get out there and market cyber/tech/privacy insurance products to municipalities and other public institutions. How could the City of Poughkeepsie be one of the few communities in the Mohawk Valley to purchase such insurance? The Valley is an hour or so outside of New York City, as close to the insurance capital of the U.S. as one can be. And its communities are un- or underinsured? Seriously? Needless to say, there must be similar pockets of Americana which are similarly uninsured. In this age of computer crime and the ease with which insurance professionals can communicate with distant clients, it shouldn’t be difficult to get the word and the products out. In other words, let’s all get to work.

Invitation: Update on Employment Law

lisa.stam@bakernet.com (Lisa Stam) — Wed, 10 Mar 2010 15:03:04 GMT

My firm is hosting an employment law update on Wednesday, March 31, 2010 from 8:30-11:30am in Toronto, and we would like to open it up to attendees beyond our current clients. This will particularly be of interest to HR professionals and people within your organization who deal with day to day employment law issues.

If you are interested in attending, please contact me to rsvp (lisa.stam@bakermckenzie.com).

The topics are:

Keeping your Workplace Policies up to date: Bill 168, temp agencies & the cell phone ban;
the new court rules and how they apply to employment law cases;
update on the new human rights regime in Ontario and what employers need to know;
social media in the workplace; and
round-table employment tips for the post-recessionary economy.

This will be a Tweet-friendly event, so we will encourage people to ask questions and make comments throughout.

Is HP the New Toyota?

stanabrams@gmail.com (Stan Abrams) — Wed, 10 Mar 2010 09:30:50 GMT

Potentially some tough times ahead for HP in China, at least in the short term. The problem: bad Nvidia graphics cards in some laptops. Sorry, gamers. I assume that HP has a good relationship with a PR firm used to handling crisis management in China. The photo is from a 2009 Greenpeace protest against HP last [...]

Potentially some tough times ahead for HP in China, at least in the short term. The problem: bad Nvidia graphics cards in some laptops. Sorry, gamers.

I assume that HP has a good relationship with a PR firm used to handling crisis management in China. The photo is from a 2009 Greenpeace protest against HP last year. I wonder if HP has already met with their consultants on this issue?

A couple of isolated tort cases would be unfortunate, but certainly no cause for alarm. However, there seems to be much more going on. The Financial Times has details today:

Chinese lawyers have filed a complaint on behalf of more than 170 consumers against Hewlett-Packard, requesting that the Chinese government order a recall of allegedly faulty notebook computers.

Uh oh. Some good news/bad news for HP here. The good news is that the complaint was not a lawsuit. The bad news is that it was a formal request sent to the General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ), asking the government to open an investigation, institute a recall of the laptops, and order HP to provide compensation.

This is probably a smart move on the part of the lawyers involved. Class action lawsuits are not really a formal process here, although the functional equivalent is possible. However, big lawsuits are frowned upon and not in keeping with a Harmonious Society. On the other hand, mediation led by a government agency can be quite acceptable, as long as you go through the right channels and have enough political support.

What makes this worse than your run-of-the-mill product liability/consumer law type of case is the backdrop of the Toyota dispute (my previous post on Toyota) hanging out there and the sensitivity towards non-reciprocal customer remedies. Ouch, the complaint alleges the same thing with this dispute:

“We have also noticed that HP in the US offered consumers extended warranty periods for even more models and compensated them for transport costs, but in China, it has not made a statement or offered services, and openly discriminated against Chinese consumers,” the complaint said.

Not good at all. How bad it will be for HP depends on a number of factors, including the total number of people involved (so far, rather small), whether there is political support for this action, the reaction of HP, and media interest.

As to the latter, I already noticed one article in Xinhua today (Chinese) about an enterprising young law student from Zhejiang who had laptop problems and went up against HP to get compensation. Poor kid buys a laptop made in Taiwan and, within the two-year warranty period he gets the black screen (??) (of death) after the graphics card overheated. Bummer, no more World of Warcraft.

If the Chinese media is already starting to pen feature articles describing poor unfortunates who have suffered after their HP laptops have given up the ghost, then bad times might be ahead. The next bump in the road is March 15, International Consumer’s Day. Expect AQSIQ to announce some new campaigns at that time to show the higher-ups in the government that they are diligently protecting the interests of the people.

Update: China Daily is on the story too.

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Post tags: class action, consumer law, Hewlett-Packard, product liability, product quality

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