U.S. Trade Representative Ron Kirk Praises Action Against Airbus

In a high-profile legal battle regarding European support for aircraft manufacturer Airbus, U.S. Trade Representative Ron Kirk praised U.S. efforts to declare such support illegal under world trade rules, despite the World Trade Organization ruling that the European loan mechanism, challenged by the United States, was legal.

Still, Kirk emphasized that "[t]his agency has worked long and hard to make the case that the loans and other subsidies provided to Airbus are inconsistent with WTO rules." Not in a position to offer details, Kirk further stated in a letter that "[t]he administration is not in a position to disclose publicly the content of the interim report in this dispute."

While Kirk did not explicitly character the WTO decision as a U.S. victory, Senator Patty Murray took it a step further. "This ruling is much more than a confirmation that Airbus has been breaking the rules. It is a victory for American workers who have been producing the best planes, but have been fighting an uphill battle."

Murray, whose state is home to Boeing's biggest manufacturing facilities, said she has urged President Barack Obama "to take the strongest possible actions to prevent European governments from providing Airbus further with an additional illegal trade-distorting subsidy."

The Stomp of the Chicken Feet

After President Obama's decision to levy tariffs on Chinese tires, chicken feet became the latest focus in the escalating U.S.-China trade war. The Chinese announced that they were considering import taxes on automotive products and chicken meat, a development that some trade experts feared could grow into a full-blown trade war in the midst of the Great Recession.

American executives expressed concern about losing what recently has become the largest export market for their chickens, one that is expanding rapidly as the Chinese population grows more affluent and consumerist. However, the executives also expressed relief Chinese importers are wanting to maintain current import levels to satisfy large consumer demand.

At a time when feed prices are high and domestic chicken sales to restaurants are down because of the recession, the Chinese market is important to the industry. Exports of American poultry totaled $4.34 billion last year, out of which, $854.3 million worth of chicken meat, less than 2 percent of total revenue by the American chicken industry was exported to China and Hong Kong. While the sum may seem miniscule, the U.S. industry emphasized that exports to China are very profitable.

About half of the chicken parts sold to China are wings and feet, which are worth only a few cents a pound in the United States. As delicacies in China, they fetch 60 cents to 80 cents a pound, a price that no other foreign market comes close to matching, according to industry experts.

China appeared to be ready to cut off imports of American chicken products in July, and American poultry producers said the issuance of import permits slowed temporarily, only to pick back up since then.

In an effort to calm Beijing's retaliatory mood, American poultry producers have emphasized that they have nothing to do with the Congressional import ban and say they do not fear competing with Chinese canned or frozen chickens.

“We believe in free and open trade and we feel our industry has a lot more to lose by being an obstructionist in trade than in supporting China’s position,” said James H. Sumner, president of the U.S.A. Poultry and Egg Export Council.

Two weeks ago, Mr. Sumner’s group and the National Chicken Council joined other American food organizations in sending a letter to Ron Kirk, the U.S. trade representative, warning that action against Chinese tires could lead to retaliation, stating that “[f]or some, the Chinese market is the difference between profitability and possible bankruptcy.”

Now that the Chinese are threatening retaliation, industry officials remain hopeful, taking into account the insatiable Chinese demand for chicken feet.

The U.S.-China Debacle: A Looming Trade War?

On September 11, the Obama Administration imposed tariffs of 35% on vehicle tires imported from China. Obama defended the tariffs, justifying them on the basis of enforcement of existing trade treaties between the two nations, arising under international trade law. A safeguard petition was filed to protect U.S. tire producers from surging imports from China. Observers in the trade and business industries consider the act to be purely political. Obama promised trade protections to various interest groups, including the steelworkers union, a key political ally of Obama and representing 15,000 employees at 13 tire plants in the United States. Supporters of the petition argue that Chinese manufacturers are pricing their tires far below market rates, thus harming U.S. manufacturers.

The U.S. International Trade Commission (ITC) recommended that Obama impose tariff duties for three consecutive years, commencing at 55%. A tariff this high would effectively block tire imports from China. According to the ITC however, all of the U.S. tiremakers have operations in China, and none of the companies have publicly supported the steelworkers complaint. Further, Chinese officials and lobbying groups for multinational companies such as Microsoft Corp., Citigroup, Inc., and Caterpillar, Inc., have pressed Obama to resist imposing tariffs, stating that it would result in a "downward protectionist spiral." Additionally, Chinese tires amount to 17% of all tires distributed in the U.S. and are lower-priced, causing concern among businesses and consumers alike.

China responded swiftly to the U.S. decision by filing a complaint with the World Trade Organization. China also commenced an investigation alleging dumping of U.S. auto and chicken products in the Chinese market, a prelude to what will likely be the imposition of tariffs on the sale and distribution of such goods.

Whether this debacle will serve as the prelude to a trade war remains to be seen. One one hand this episode may simply serve as bargaining positions at the G-20 trade meeting in Pittsburgh. On the other hand, it may be a genuine disagreement over China's manipulation of its currency. Still, as two economic powerhouses with deeply intertwined economic interests, the U.S. and China cannot afford to let political shortsightedness obstruct sound economic policy.

In related news, the U.S. House has narrowly passed environmental legislation which would impose tariffs on Chinese environmental goods. The American Clean Energy and Security (ACES) Act would require the U.S. to cut greenhouse gas emissions 17 percent by 2020 and 83 percent by 2050. The legislation would establish a "cap-and-trade" system that would put a value on emissions permits, giving industries an incentive to cut pollution. A specific provision in the legislation would require the U.S. Environmental Protection Agency to calculate "appropriate amounts" of emissions "allowances" for cheaper imports from countries that do not impose greenhouse gas limits. In effect, the result would be a tariff on Chinese goods if the country continues to resist mandatory caps on emissions. Supporters argue that an "equal-playing field" should exist between the U.S. and China with regard to emissions. Opponents argue that such legislation, if passed, will only compel China to impose retaliatory measures while avoiding any cuts to its emissions.

The question of tariffs is particularly sensitive when considering China's relentless purchase and investment of U.S. Treasuries, debt financing, corporations and domestic real estate. With the economic health of both nations interdependent, an exchange of tariffs is viewed as moot.

Sheheryar T. Sardar, Esq. is a Partner at Sardar Law Firm LLC. He can be reached at 631.838.0178 and sardar@sardarlawfirm.com.

Trading To The Letter

Many international shippers find themselves in a difficult position when they must secure payment from buyers after a sale of goods. Often, international sale of goods transactions are secured through a Letter of Credit (LC). The LC serves to facilitate prompt payment for goods purchased. Parties to the LC include the seller, buyer, buyer's bank (issuing bank), and seller's bank (receiving bank).

For the seller/shipper, issues arise when the buyer refuses payment. When the seller demands payment, the buyer often directs attention to the LC, citing a lack of LC compliance with banking standards. Banks which have not adequately ensured they will be reimbursed by their customer (the buyer), have narrowly applied LC principles to deny payment. These decisions have been upheld by courts on the grounds that the seller has not strictly complied with the terms of the LC. For the seller, a comprehensive way to secure payment is to take preventative action.

Control the Process

When negotiating with the buyer, the seller should attempt to persuade the buyer to use a bank of the seller's choice to issue the LC. The seller should conduct due diligence, discussing with its own bank, preferably a bank with a substantial international presence, what corresponding bank it uses in the country of the buyer. If the buyer can have the LC issued by that corresponding bank, the process can proceed more expeditiously.

Confirming the LC

If the seller does not have confidence in the bank of the buyer's choice, or if there is any question about the political stability of the foreign country where the issuing bank is located, then the LC should be confirmed by a U.S. bank. When a U.S. bank confirms an LC issued by a foreign bank, it takes upon itself the payment obligation. Thus, if a U.S. bank confirmed an LC, and subsequently, for political or economic reasons, the foreign bank could not reimburse the U.S. bank, the U.S. bank must pay the beneficiary under the LC.

There is a charge for confirmation, which becomes more expensive in proportion to how big a risk the U.S. bank believes it is taking in confirming the LC. There are some situations where the risk may appear so high that a U.S. bank will not agree to confirm. If the bank refuses to confirm because of political instability, advise the client to try to have the LC issued outside the politically unstable area, in a country such as Switzerland. The question of who pays the U.S. bank's confirmation charges is negotiable, but if not negotiated in advance, the bank will generally charge the beneficiary for this service.

Keeping Documents Simple

The seller should negotiate with the buyer prior to the issuance of the LC exactly what documents must be presented to the bank for payment under the LC. The seller's priority must be have as few documents as possible, to have as simple a description as possible, and to be sure that all documents called for by the LC can in fact be produced. Cases have occurred where one of the documents is a certificate supposed to be issued by the foreign government, which was simply never produced. Another problem can by created if the LC requires a document to be signed by someone under the control of the buyer. The document may not be signed by the right person, or may not be signed at all.

Almost all LC's require production of a commercial invoice and a transport bill of lading. With respect to the commercial invoice, the LC will typically state the description of the goods which must be found in the invoice. If the goods are not described exactly the same way, the seller may not be paid. In one case where payment was denied, the LC required for the commercial invoice to describe the goods as "100% Acrylic Yarn." When the invoices were presented to the bank, they described the goods as "Imported Acrylic Yarn." Even though the packing list attached to the invoice described the goods as 100% Acrylic Yarn, the court upheld the bank's refusal to pay under the LC because the documents did not strictly comply with the requirements of the LC. Courtaulds North America, Inc. v. North Carolina National Bank, 528 F.2d 802 (4th Cir. 1975).

Even if the documents do not comply exactly, the buyer will agree to waive any discrepancies in the documents, and, if the bank agrees, the payment will occur. However, an issuer bank has no duty to amend a letter of credit upon the request of a customer and a beneficiary. See AMF Head Sports Wear v. Ray Scott's All-Am. Sports Club, 448 F. Supp. 222 (1978); See Also Leaseamerica Corp. v. Northwest Bank Duluth, N.A., 940 F.2d 345 (8th Cir. 1991).

To prevent denial of payment, sellers should understand the following:

• Documents must be accurate.
• If there is a mistake or a problem with the documents which the LC requires to be presented, the seller/beneficiary should not ship goods until the LC has been amended. Further, no amendment can take place unless the issuing bank, the confirming bank, if any, and the seller, agree to it.
• A prudent seller will not let the buyer take possession of the goods until he has been paid under the LC. If there are discrepancies in the documents preventing payment of the LC, a buyer in possession of the goods has much less incentive to waive discrepancies so the seller can be paid.
  

Meeting the deadlines

Every LC has three important dates: (1) the date by which goods must be shipped; (2) the date by which documents must be presented; (3) and the expiry date for the LC. A seller should make sure that each of these dates can be met, and should allow a large margin for error. After the LC has been issued, if the seller learns that the date for shipping goods cannot be met, he should not ship any goods until he obtains an amendment to the LC permitting later shipment.

For more information on how to prevent trade disputes, please contact me, Sheheryar Sardar, Esq., at 631.838.0178 or sardar@sardarlawfirm.com. Please visit www.sardarlawfirm.com.