The International Business Transactions Blog

U.K. to Join Growing Pacific Trade Club

By Yuki Taylor
Law Student Editor

On March 8, 2018, 11 countries, namely Australia, Brunei Darussalam, Canada, Chile, Japan, Mexico, Malaysia, New Zealand, Peru, Singapore, and Viet Nam, signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a version of the Trans-Pacific Partnership Agreement (TPP) succeeding the withdrawal of the United States.  On December 30, 2018, CPTPP entered into force, with ratification by a majority (Australia, Canada, Japan, Mexico, New Zealand, Singapore, and Viet Nam).  The free trade agreement (FTA) concluded as a contingency to TPP has thus far been ratified by 10 original signatories except for Brunei, representing approximately 13% of global GDP.

The origin of TPP was a 2005 trade pact between a small group of Pacific Rim countries comprising Brunei, Chile, New Zealand, and Singapore.  In September 2008, President George W. Bush announced that the United States would begin talks with the group, leading Australia, Vietnam, and Peru to join.  The United States was the lead architect, with support from U.S. presidents from both political parties.  TPP was set to become the world’s largest FTA, covering 40% of the global economy, and would have been the most comprehensive commercial accord since the ill-fated 1948 Charter for an International Trade Organization (ITO).  On February 4, 2016, TPP was signed by the 11 CPTPP signatories plus the United States under the Obama Administration with a presidential comment that “TPP allows America – and not countries like China – to write the rules of the road in the 21st century, which is especially important in a region as dynamic as the Asia-Pacific.”

Unlike most treaty negotiations, the TPP drafts were kept secret until a completed draft was ready to be released.  In the United States, the TPP text was classified until June 2014, even from the eyes of Congress.  On his first day in office, on January 23, 2017, President Trump issued an executive order withdrawing the U.S. signature from the TPP, because it was “too complicated” for him to understand or even read, and it was part of a Chinese plot.  China was not part of the negotiations, however.

To salvage the pact, the remaining 11 signatories continued talks and agreed to CPTPP one year later.  Further, the U.S.’s withdrawal essentially paved a way for China to join the world’s largest FTA, the Regional Comprehensive Economic Partnership (RCEP), which was signed by 15 Asia-Pacific countries in November 2020.  Consequently, six countries, Australia, Japan, Malaysia, New Zealand, Singapore, and Viet Nam are members of both CPTPP and RCEP

On February 1, 2021, one year after Brexit, the UK became the first country to submit an accession request to CPTPP.  After acquiring unanimous consent among all original signatories, on March 31, 2023, UK’s accession was substantially concluded, and the former EU member soon joins the FTA in the Pacific region.  Following the UK, five other states have thus far requested accession to the FTA, specifically China and Taiwan in September 2021, Ecuador in December 2021, Costa Rica in August 2022, and Uruguay in December 2022.  No other membership applications have earned the requisite unanimous consent to commence negotiations. 

The UK’s membership to CPTPP would reportedly result in a trivial increase in the nation’s GDP, calculated at 0.1% in exchange for losing 4% from Brexit.  The UK Investment Minister Dominic Johnson defends the membership on the basis that the FTA is also a salient concept to help boost the economy in many intangible ways while protecting state sovereignty for the domestic economy.  CPTPP is currently the fourth largest trade bloc after RCEP, the USMCA, and the EU.  With the high bar set for accession, an increase in CPTPP membership may be limited in the future.  However, now that CPTPP includes three G7 members, Canada, Japan, and the UK, the prestige of its membership is certainly heightened.

Bypassing the WTO Dispute Settlement Impasse

By Yuki Taylor
Law Student Editor

The World Trade Organization (WTO) Dispute Settlement Understanding (DSU) provides for binding dispute settlement of certain claims of violation of the WTO agreements, or nullification and impairment of obligations under those agreements, by contracting parties.  Pursuant to the DSU, contracting parties unable to settle their differences may invoke binding dispute settlement before the Dispute Settlement Body (DSB), which will appoint a panel of three independent trade experts.

A party dissatisfied with the panel’s decision is entitled to refer the panel’s decision to the Appellate Body (AB), consisting of seven trade experts, which will hear the appeal.  The AB is the final stage in the adjudicatory part of the WTO’s dispute settlement system.  Members of the AB are appointed by the DSB to serve four years with a two-term limit.  If a party found by the AB to have acted inconsistently with the WTO Agreements has not taken any action to comply with the decision within a reasonable period of time, the DSB will authorize retaliatory measures by the injured party, most commonly a withdrawal of equivalent trade concessions.

The U.S. Trade Representative (USTR) has been critical of the WTO’s dispute settlement procedure, in particular the AB, alleging that it chronically violates the DSU on the bases that: (1) disregarding the deadline for issuing a decision; (2) allowing former members to decide cases; (3) reviewing panel findings of fact rather than limiting itself to considerations of law; (4) issuing advisory opinions; (5) treating prior decisions as binding precedent; (6) declining to make recommendations about the WTO-compatibility of measures that expire after a panel’s establishment; and (7) encroaching on the domain of other WTO bodies.  The USTR has further accused the AB of erroneously interpreting the GATT on numerous occasions.

The United States initially sought to address its perceived problems through negotiations.  Since 2000, the United States has expressed concerns with the AB’s failure to follow WTO rules and its allegedly erroneous interpretations of the WTO Agreements in over 56 cases.  Notable issues that USTR most criticized included: (1) the AB’s interpretation of nondiscrimination, in which it concluded that country-of-origin labeling for certain agricultural products was de facto discrimination, even if it was not de jure discrimination; and (2) interpretations of what constitutes a “public body” with regard to subsidies by the Chinese government favorable to Chinese state-owned enterprises.

The negotiations having failed to create a consensus around the U.S. point of view, USTR changed its tactics starting in 2011 to oppose certain new nominations to the AB.  The U.S.’s obstruction was continued during the Trump Administration, which opposed all member reappointments or nominations in hopes of shutting down the AB altogether.  As the result, on December 11, 2019, the Appellate Body lost its necessary quorum of three and has been unable to hear appeals.  The Biden Administration has so far continued the predecessor’s approach of blocking AB membership appointments.  Although some countries share the U.S. concerns, they nevertheless object to the USTR’s unilateral obstructionist tactics

To restore the DSB to functionality, in March 2020, sixteen WTO members (the EU, Australia, Brazil, Canada, China, Chile, Colombia, Costa Rica, Guatemala, Hong Kong China, Mexico, New Zealand, Norway, Singapore, Switzerland, and Uruguay) concluded the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a plurilateral treaty.  The MPIA effectively mirrors the usual WTO appellate rules.  On April 30, 2022, 20 WTO members formally notified the WTO of the MPIA, which operates for dispute arbitration pursuant to Article 25 of the DSU among them.  On March 10, 2023, Japan became the latest and the 26th WTO member to join the MPIA.  As a result, most world trade dispute resolution has been re-enabled, and the effects of U.S. tactics have been accordingly limited.

CFIUS and National Security Relating to U.S. Farms

By Yuki Taylor
Law Student Editor

The Committee on Foreign Investment in the United States (CFIUS) assists the President in reviewing national security risks arising from foreign direct investment in the U.S. economy.  CFIUS was initially implemented in 1975 under the Ford administration to study and monitor the impact of foreign investment in the United States against the backdrop of a rapid ownership increase by OPEC countries.  Because of the diverse interests involved, CFIUS is an inter-agency committee composed of the heads of nine federal agencies and chaired by the Secretary of the U.S. Department of the Treasury.

The first major enhancement to CFIUS review was made in 1988, when concern was growing over foreign acquisition of U.S. companies, particularly by the Japanese.  The Exon-Florio provision was introduced to the Defense Production Act of 1950, which grants the President the authority to block foreign direct investment in U.S. assets when he considers that it may threaten national security.  The authority to conduct the initial Exon-Florio review was delegated to CFIUS.  Although the President has ultimate authority to approve or block foreign investment, presidential disagreement with CFIUS recommendations is rare.  However, there have been seven instances of proposed foreign acquisitions blocked by Presidents: four by President Trump, two by President Obama, and one by President George H.W. Bush.  Notably, all seven cases of denial involved investors from the People’s Republic of China.  A majority involved intended acquisitions in the semiconductor industry.

The purview of CFIUS has since been significantly extended by executive orders and legislation in response to perceived threats to U.S. national security arising from foreign investment in the United States.  In August 2018, the Foreign Investment Risk Review Modernization Act (FIRRMA) was signed into law.  The Act substantially broadened the purview of CFIUS and modernized its risk assessment processes.  In particular, the Act provides CFIUS with jurisdiction over real estate transactions in the proximity of sensitive government facilities.  The Treasury issued regulations to implement the FIRRMA amendment effective February 13, 2020.  Under 31 C.F.R. Part 802, two broad categories of the covered real estate localities are described depending on the nature of a subject military installation: (1) close proximity, i.e., “area that extends outward one mile from the boundary of such military installation, facility, or property,” and (2) extended range, i.e., “area that extends 99 miles outward from the outer boundary of close proximity to such military installation.”

Most recently, on September 15, 2022, President Biden issued an executive order to provide CFIUS with formal presidential direction for national security assessment.  It contains five specific focal factors including supply chains, advanced technology such as microelectronics and artificial intelligence, cybersecurity, and sensitive personal data.

On December 13, 2022, Fufeng USA, a U.S. subsidiary of the Chinese agribusiness giant Fufeng Group, announced that it had been informed by CFIUS that, at the completion of a 45-day national security review, the interagency committee would not take any further action against Fufeng with respect to its proposed US$ 700 million corn milling project on land acquired from private landowners in the vicinity of Grand Forks, North Dakota.  Since the land acquisition was not a “covered transaction” subject to the Exon-Florio review, CFIUS lacks jurisdiction.  The project was planned on a 300-acre patch of prime Dakota farmland, 12 miles away from Grand Forks Air Force Base, which has been known as one of the nation’s most sensitive locations for the development of military drone technology.

Under the FIRRMA Amendment to Exon-Florio, the planned corn milling project is not in close proximity, but certainly in the extended range of Grand Forks Air Force Base.  However, interestingly, the Air Force Base is not identified as a sensitive facility in Appendix A to 31 C.F.R. Part 802, i.e., the list of designated military installations and other U.S. government sites for CFIUS review.  It is possible that CFIUS denied its own jurisdiction under 31 C.F.R. Part 800 concerning foreign investment in U.S. businesses as opposed to Part 802 with regard to real estate purchase, because Fufeng filed its notice pursuant to Part 800.

However, on January 27, 2023, the Department of the Air Force sent a letter to the North Dakota Senates, stating: “While CFIUS concluded that it did not have jurisdiction, the Department’s view is unambiguous: The proposed project presents a significant threat to national security.”  Amidst an uproar concerning the Chinese investment in rural land, on February 6, 2023, the Grand Forks City Council voted unanimously to deny Fufeng the necessary building permits for the project.  More generally, states may decide whether foreign investment in agricultural land is permitted (and currently 14 U.S. states prohibit such acquisitions).

Because a possible loophole in CFIUS review has been exposed, a bill named the Foreign Adversary Risk Management Act or the FARM Act, first introduced in 2021, was reintroduced in the current session of Congress.  The bill adds the Secretary of Agriculture to CFIUS, and includes agricultural systems and supply chains in the definitions of critical infrastructure and critical technologies for the purposes of CFIUS review.  The bill further requires the Department of Agriculture and the Government Accountability Office to analyze and report on foreign influence in the U.S. agricultural industry.

The consequence of increased CFIUS scrutiny of foreign acquisitions of U.S. agricultural land is potentially far-reaching.  Although most foreign investors in U.S. agricultural land are close U.S. allies, such as Canada and states of the European Union, not all are.  China has acquired significant interests in the U.S. food chain and agricultural land, and Saudi Arabia and the United Arab Emirates have acquired significant farmland in California and Arizona in recent years.  Although U.S. relations with these Middle Eastern countries are currently friendly, that may not last indefinitely.  Both are hereditary dictatorships with deplorable human rights records.

Blog Editors

Faculty Editor
Prof. Aaron Fellmeth

Law Student Editor
Yuki Taylor

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