International Business Law Advisor : International Business Lawyer & Attorney : Santiago Cueto Law Firm : Global Business Litigation & Finance Commentary

I traveled to Washington D.C. a few weeks ago and spent several whirlwind days on Capitol Hill meeting with an assortment of Cabinet Members, Senators and Congressmen on pending climate change legislation. Thanks to climate and energy advocate extraordinaire Susan Glickman for putting the trip together,

Before anyone says anything--the irony of the snow falling on me as I made my way up the Capitol steps did not escape me. 

My involvement with the pending climate change bill stems from an innovative program my firm launched to accept carbon offset credits as partial payment for legal fees. Our firm’s program was the subject of a Wall Street Journal article, which you can read about here.

While others may not follow my lead, that's quite all right—I'm beholden to a much higher authority: my 15 month-old daughter. 

Although the meetings went smoothly, it appears less likely that the pending legislation will make it to vote this year. But I’m glad to see that interest in this heated debate only continues to build.

Famed internationalist and New York Times columnist Thomas Friedman wrote a proactive op-ed piece on the subject today.

In the article, Global Weirding is Here, Mr. Friedman proposes, among other thins, that we abandon use of the term “Global Warming” and adopt the term “Global Weirding.”

I’ll allow Mr. Friedman to explain:

Avoid the term “global warming.” I prefer the term “global weirding,” because that is what actually happens as global temperatures rise and the climate changes. The weather gets weird. The hots are expected to get hotter, the wets wetter, the dries drier and the most violent storms more numerous.

The fact that it has snowed like crazy in Washington — while it has rained at the Winter Olympics in Canada, while Australia is having a record 13-year drought — is right in line with what every major study on climate change predicts: The weather will get weird; some areas will get more precipitation than ever; others will become drier than ever.

More importantly, Mr. Friedman also proposes that, wherever you sit on the issue, population growth alone will be reason enough to demand renewable energy and clean water. He also points out how China is way ahead of the game:

Even if climate change proves less catastrophic than some fear, in a world that is forecast to grow from 6.7 billion to 9.2 billion people between now and 2050, more and more of whom will live like Americans, demand for renewable energy and clean water is going to soar. It is obviously going to be the next great global industry.

China, of course, understands that, which is why it is investing heavily in clean-tech, efficiency and high-speed rail. It sees the future trends and is betting on them. Indeed, I suspect China is quietly laughing at us right now. And Iran, Russia, Venezuela and the whole OPEC gang are high-fiving each other. Nothing better serves their interests than to see Americans becoming confused about climate change, and, therefore, less inclined to move toward clean-tech and, therefore, more certain to remain addicted to oil. 

 These are valid points. What are your thoughts on the issue?

Leave a comment below and let's get this issue rolling.

    -Santiago

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Because my international practice involves working with folks all over the world, I keep a keen eye on world holidays and do my best to schedule my work around them.  This is one of the best ways I can show my respect for other cultures.

The folks overseas always appreciate the extra attention to detail and you will be amazed how far this will take you in building long term relationships. 

There are several big holidays coming up in the next several weeks that will temporarily slow or even halt  the business activities of several countries. The two biggest holidays take place in China and Brazil. China celebrates its New Year next week and Brazil Celebrates Carnival the week of February 22.  

For other international holidays be sure to download the 2010 World Holidays Guide. The guide lists the main holidays of over 43 countries.   I’m not sure why Brazil and India were not listed but here they are:

Brazil

January 1 - New Year's Day
February 26-27 - Carnaval
February 28 - Ash Wednesday
April 13* - Good Friday
April 21 - Tiradentes Day
May 1 - Labor Day
May 13 - Ascension Day
June 14* - Corpus Christi
September 7 - Independence Day
October 12 - Our Lady of Aparecida
November 2 - All Souls' Day
November 15 - Proclamation of the Republic
December 25 - Christmas

India

January 26 - Republic Day.
February 12 - Mahashivratri.
February 26 - Milad-Un-Nabi
March 28 - Mahavir Jayanthi.
April 2 - Good Friday.
Aprril 5 - Easter Monday.
April 28 - Buddha Purnima.
August 15 - Independence Day.
September 2 - Janmashtami.
September 10-11 - Id ul Fitr (End of Ramadan).
October 2 - Mahatma Gandhi's Birthday.
October 17 - Dussehra (Vijaya Dashami).
November 2 Guru Nanak's Birthday.
November 5 Deepavali or Diwali (Festival of Lights).
November 16- 17 - 17 Idu'l Zuha/Bakrid (Feast of the Sacrifice).
December 7 Muharram (Islamic New Year).
December 25 Christmas Day.
December 26 Boxing Day.

*Cajun Nation

February 7-28  - Super Bowl celebration and Mardi Gras

*With so much going on, New Orleans might as well be a sovereign nation for the moment. Don't event think about getting anything done there in the next few weeks. With the Saints' Super Bowl victory and Mardi Gras, February will be a month-long holiday for these folks.

        -Santiago

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And Why Relocating to Switzerland May be the Best Corporate Strategy

There’s nothing more annoying than finding hidden fees buried deep inside obtuse and mangled contract language. The only thing worse than finding hidden fees is learning about these punishing provisions from someone else—after you’ve signed the agreement. 

If you thought hidden fees provisions were the exclusive craft of credit card and cable companies, I’ve got bad news. The biggest offender just might be the drafters of the proposed federal budget making its way through Congress.

International Tax Increase Buried in Proposed Bill

Thanks to the keen eyes of the Wall Street Journal’s Matthew Slaughter, U.S. based Multinationals have a chance to lobby against what may be the largest hidden fee--an obscure tax provision--ever levied against them. Matthew writes in the article “How to Destroy American Jobs:”

Deep in the president's budget released Monday—in Table S-8 on page 161—appear a set of proposals headed "Reform U.S. International Tax System." If these proposals are enacted, U.S.-based multinational firms will face $122.2 billion in tax increases over the next decade. This is a natural follow-up to President Obama's sweeping plan announced last May entitled "Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas."

A proposed $122 Billion international tax burden? Placed on pg. 161? On a chart? Apart from the obvious lesson to carefully scrutinize the details of everything, and I do mean e.v.e.r.y.t.h.i.n.g., that comes across your desk, the substantive point of the article is absolutely correct—the proposed tax hike on U.S. based MNCs will bankrupt those that earn a significant amount of their revenue overseas.

Proposed Tax Will Force US-based MNCs to Relocate Overseas

As one commenter noted, it is the fiduciary responsibility of the board of a company to protect the investors in that company, and to provide them with the maximum safe return on their investment. In the new tax and regulatory environment the U.S. is in the process of imposing, any company that earns a large percentage of their revenues outside of the US simply cannot remain U.S. based.

Under the proposed tax hike on U.S. based MNCs, what incentive is there for Coca-Cola to remain a US based multinational? Why not move the corporation to Switzerland, where the favorable corporate tax structure has long been lured the operations of large MNCs such as Johnson & Johnson and Burger King Holdings Inc.

Switzerland Offers Optimal Tax Environment for MNCs

The timing could not be better for companies looking to relocate their operations overseas-- and to Switzerland in particular.  The Wall Street Journal recently reported on an emerging trend among Swiss cantons to compete for the business of MNCs by lowering their corporate tax rates. In the article Switzerland’s States Compete on Tax Cuts, the cantons of Zug, Schaffhausen (just north of Zurich) and Lucerne have all cut their tax rates in a heated battle to lure more MNCs.

For U.S.-based MNC’s looking to dodge the proposed international tax bullet, Switzerland provides the most favorable corporate tax environment in which to relocate U.S. based operations.

Conclusion

According to KPMG’s Corporate and Indirect Tax Survey 2009, the current effective U.S. Corporate tax rate is 40%, while in Switzerland the effective tax rate is 21.2%--and considerably less in some cantons. Under the proposed bill, the tax gulf will only grow wider.

It will be interesting to see what happens with the proposed tax. Until then, MNCs should take a look at Switzerland.

Trend to Watch: If the Proposed International Tax is Enacted Look for an Exodus of U.S.-based MNCs to Switzerland and to Other Favorable Tax Climates.

       --Santiago

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Corporate Codes of Conduct Played a Major Role in the Collapse of Apartheid in South Africa and Are a Viable Means to End Digital Censorship in China.

The remarks of U.S. Secretary of State Hillary Clinton yesterday that “we stand for a single Internet where all of humanity has equal access to knowledge and ideas” echoed the stern tone of Ronald Reagan twenty years ago when he challenged Soviet leader Mikhail Gorbachev: "Mr. Gorbachev, tear down this wall!" 

Fast forward to 2010 where digital walls have replaced brick and mortar to divide repressed citizens of authoritarian regimes from the world’s free flowing current of information and ideas.

Corporate Codes of Conduct a Viable Means to Challenge Digital Censorship in China

Secretary Clinton’s remarks concerning the” information curtain” dividing the world, reminded me of the apartheid era where much greater injustice and unspeakable acts against humanity were challenged and ultimately overcome through the use of corporate codes of conduct.

These corporate codes of conduct, which came to be known as the Sullivan Principles, were pioneered by the African-American preacher Rev. Leon Sullivan, a zealous promoter of corporate social responsibility.

 In 1977 Rev. Sullivan was a member of the board of General Motors. At the time, General Motors was one of the largest corporations in the United States. General Motors also happened to be the largest employer of blacks in South Africa, a country which was pursuing a harsh program of state-sanctioned racial segregation and discrimination targeted primarily at the country's indigenous black population

Corporate Codes of Conduct Originally Developed to Challenge Apartheid

Rev. Sullivan developed the codes to apply economic pressure on South Africa in protest of its system of apartheid. Before the end of South Africa's apartheid era, the principles were formally adopted by more than 125 U.S. corporations that had operations in South Africa. Of those companies that formally adopted the principles, at least 100 completely withdrew their existing operations from South Africa. The principles eventually gained wide adoption among United States-based corporations and played a significant role in the collapse of that regime.

In reflecting on the success of his anti-Apartheid efforts, Rev. Sullivan recalled:

Starting with the work place, I tightened the screws step by step and raised the bar step by step. Eventually I got to the point where I said that companies must practice corporate civil disobedience against the laws and I threatened South Africa and said in two years Mandela must be freed, apartheid must end, and blacks must vote or else I'll bring every American company I can out of South Africa.”

Given the success of the Sullivan principles in ending apartheid, we should look at applying the same principles to lift the information curtain in China.

Why Multinationals Should Adopt Corporate Codes of Conduct

Google, to its credit has pioneered this movement, albeit not under the auspices of any articulated corporate code of conduct as far as I know. Google's defiance of China's censorship mandate illustrates the power of corporate social responsibility initiatives to influence and reshape the repressive policies of authoritarian regimes.

While most major multinational companies consider a presence in China critical to their future success, Google has demonstrated that even the largest of corporations are willing to forgo short term gain in the interest of an ultimate triumph over censorship--similar to how corporations sacrificed profits to challenge apartheid in the 1970s and 1980s.

In Google's case this will come at a cost of an estimated $300 million a year in revenue. Although it will hardly make a dent in Google’s coffers, it’s a step forward in the right direction. Sure, China can thumb its nose at Google and Yahoo by pointing to Baidu and Alibaba.

But it risks the alienation of countless other multinationals who could conceivably adopt corporate codes of conduct and refuse to do business with China until the Great Firewall is torn down.

Conclusion

While the preferred course of action of companies concerned about censorship is to avoid repressive regimes altogether, it is likely that some companies will not choose that course. Those that do not should consider a corporate code of conduct so that they can turn their involvement in oppressive systems from a potential human rights liability to a neutral or maybe even positive act of engagement.

The challenge now will be to put these ideas practice by incorporating them into diplomacy and trade policy to apply meaningful pressure on companies to act responsibly through the adoption of corporate codes of conduct.

What do you think?

       -Santiago

 P.S.   A little about my interest in this area: I’ve been an advocate for corporate codes of conduct for well over a decade and authored an extensive note on the topic for the Florida Journal of International Law to address industrial oil pollution in Latin America:  Oil's Not Well In Latin America: Curing The Shortcomings Of The Current International Environmental Law Regime In Dealing With Industrial Oil Pollution In Latin America Through Codes Of Conduct  Viewed as a cutting edge proposition, the article has since been cited by numerous textbooks and academic journals including West’s Environmental Law treatise, the New York University Journal of International Law and the Georgetown University Journal of International Environmental Law.   

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We are thrilled to announce the latest addition to the iTunes App Store--the International Business Law Advisor App for the iPhone. 

The App is yet another way we can add exceptional value to our readers utilizing cutting edge technology. In addition to keeping our readers up to date, the App allows users to take advantage of the latest social media tools. With the App they can share each blog post with friends and colleagues through email and twitter--ensuring that everyone stays on top of breaking news and emerging trends in global business.

The International Business Law Advisor App is available as a free download here through the iTunes App Store.

Let us know what you think and please share with your friends and colleagues!

      -Santiago

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 Nothing is more interesting than the intersection of international business law and sports. Add Charlize Theron into the mix and things get, well, even more interesting. Over the weekend, Ms. Theron, representing the host country South Africa, announced the draw for World Cup 2010, the biggest sporting event on the planet.

If you haven’t already, you can read all about the draw in the Wall Street Journal article The Envelopes, Please and in the Financial Times article English hopes rise after World Cup draw. Also be sure to check out the Fédération Internationale de Football Association (FIFA) website, the go-to site for World Cup information.

EU Sports Are Big Business

Because of the massive revenue the World Cup generates for each participating nation, soccer  has become big business to which the rules on competitive and anti-competitive behavior apply. How these rules are applied often determine which teams ultimately qualify for the world’s greatest sporting event.

No region has more at stake than the EU, which is sending many of its members to South Africa. With so much on the table, it is unsurprising that the business decisions of EU football clubs are often contested under anti-trust laws. This is particularly true in the areas of M&A, salary caps and media rights.  

EU Anti-Competition Law Increasingly Applied to Sports

England, Spain, Germany, France and Portugal are considered the European Union’s top contenders to win the World Cup in 2010. And all of them are subject to the same EU Anti-Trust laws, which are contained in Articles 81 and 82 of the EEC, which state:

Agreements, decisions and concerted practices between undertakings which have as their object or effect the prevention, restriction or distortion of competition are prohibited by art. 81 (1) of the Treaty of Rome if and in so far as they may affect trade between EC member states.”

The following is an overview of the areas and issues where EU Anti-trust laws are frequently invoked to contest the business decisions made by EU football clubs.

• M&A Activity: At present, no two or more clubs participating in a UEFA club competition may be directly or indirectly controlled by the same entity or managed by the same person. However, one might question how legitimate this rule is given the broad definition of 'control' that is typically adopted in the context of mergers. Should an investment fund be prevented from buying more than one club, if it is just a financial holding company with no right to influence the club's management?
• Salary Caps: Salary caps have an inherent potential to breach EC competition rules. They may constitute an anti-competitive agreement or concerted practice between national or international sporting associations and either clubs or players' unions under article 81(1) EC. Equally, there is a potential for violation of article 82 EC, given that sporting associations can be dominant in the market for the competitions they control. Need I mention the Yankees?
• Media Rights: The restricted structure of the broadcasting market has frequently raised issues under articles 81(1) and 82 EC. Team owners in the industry show a clear willingness to seek redress under EC law when their commercial interests are threatened, and may be even more likely to do so as bottom lines are squeezed in the current recession. As the largest revenue stream in sport, media rights will continue to be the focus of disputes across the EC and beyond. The next major battlegrounds are likely to include access to content on the internet and territorial broadcasting restrictions

As these issues illustrate, competition law remains at the heart of EU sports law disputes and often impact how each national team fills its roster. Ultimately, this plays a central role in which teams qualify for the World Cup.

Trend to Watch: Look for EU Anti-Competition Law to Be Increasingly Applied to Sports …And Look for Spain to Take the World Cup in 2010.

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Foreign Policy just released its first annual list of 100 Top Global Thinkers. While the list included many of the world's leading intellectuals, one person stood out for me— No. 57, Baltasar Garzón, Judge for the National Court of Spain. Garzon indicted Chilean dictator Augusto Pinochet in 1998 during the ex-president's trip to London and has since acquired a reputation as a legal crusader against corrupt government officials. Garzón believes that laws extend beyond national boundaries---- making him a hero to the human rights world, a pain to politicians, and a major intellectual force for international jurisprudence.

Another  person on the list that stood out for me was No. 70, Esther Dyson, for accurately forecasting how the Internet will shape us.  In a 1995 Wired magazine essay, the internet entrepreneur presciently theorized that the easy replication and distribution of digital content meant that companies would ultimately give it away for free and profit from other merchandise and services.

It was disappointing to see that Hernando de Soto, who Bill Clinton called "the world's greatest living economist.," did not make the list. I had the honor of meeting De Soto last month and wrote about his remarkable keynote speech in an earlier post.

There are some names on the list that surprised me--including one below.

Here’s the top 20:

1. Ben Bernanke  

2. Barack Obama

3. Zahra Rahnavard

4. Nouriel Roubini

5. Rajendra Pachauri

6. Bill Clinton and Hillary Rodham Clinton

7. Cass Sunstein and Richard Thaler

8. David Petraeus

9. Zhou Xiaochuan

10. Sayyid Imam al-Sharif

11. Fernando Henrique Cardoso

12. Bill Gates

13. Dick Cheney

14. Larry Summers

15. Martin Wolf

16. Mohamed El-Erian

17. Benedict XVI

18. Richard Dawkins

19. Malcolm Gladwell

20. Ashraf Ghani and Clare Lockhart

Did any names on the list surprise you?

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I am back from attending the American Bar Association International Law Section’s Annual Conference in Miami. I had the pleasure of meeting the country’s leading legal bloggers including Dan Harris of the China Law Blog. I look forward to the Section’s Spring meeting in New York and the next annual meeting in Paris, France. I hope to see some of you there!

The key note speaker of the conference was Dr. Hernando de Soto, who Bill Clinton has described as "the world's greatest living economist."  His explanation of the credit crisis left me spellbound. Frankly, I'm still trying to make sense of it all.  His speech echoed his recent op-ed piece in the Wall Street Journal. Here is one of his most thought provoking quotes:

If you think about it, everything of value we own travels on property paper. At the beginning of the decade there was about $100 trillion worth of property paper representing tangible goods such as land, buildings, and patents world-wide, and some $170 trillion representing ownership over such semiliquid assets as mortgages, stocks and bonds. Since then, however, aggressive financiers have manufactured what the Bank for International Settlements estimates to be $1 quadrillion worth of new derivatives (mortgage-backed securities, collateralized debt obligations, and credit default swaps) that have flooded the market. 

These derivatives are the root of the credit crunch. Why? Unlike all other property paper, derivatives are not required by law to be recorded, continually tracked and tied to the assets they represent. Nobody knows precisely how many there are, where they are, and who is finally accountable for them. Thus, there is widespread fear that potential borrowers and recipients of capital with too many nonperforming derivatives will be unable to repay their loans. As trust in property paper breaks down it sets off a chain reaction, paralyzing credit and investment, which shrinks transactions and leads to a catastrophic drop in employment and in the value of everyone's property.

Whew. That's some pretty deep analysis.  What do you think?

 

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