Southeast Asia & Pacific

The 15-member U.N. Security Council (the Council) imposed new sanctions on North Korea (also known as the Democratic People’s Republic of Korea or DPRK) on November 30, 2016 by unanimously approving a resolution imposing new sanctions — UN Security Council Resolution (UNSCR) 2321.

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The resolution is a clear response to North Korea carrying out its fifth and largest nuclear test so far in September 2016. The resolution tighten the sanctions adopted by the Council in March 2016 and is aimed at cutting North Korea’s hard currency that it uses to fund its prohibited weapons programs.

The sanctions impose a cap on coal exports, which is North Korea’s chief source of hard currency and constitutes about one third of North Korea’s export revenue. Pursuant to the resolution, North Korea can sell no more than 7.5 million metric tons of coal a year, or bring in no more than $400 million in sales, whichever comes first. In addition to restricting the export of coal, the resolution also bans North Korean copper, nickel, silver and zinc exports.

Two of the five permanent members of the Council, China and the United States, have been working together to pass the resolution. China is North Korea’s principal patron and coal customer. China’s permanent representative to the United Nations, Liu Jieyi, called on North Korea to halt its nuclear tests. He said the resolution demonstrated “the uniform stance of the international community.”

The U.S. Ambassador to the United Nations, Samantha Power, said that “the United States recognizes that China is working closely with us.” Power stated that “[n]o resolution in New York will likely, tomorrow, persuade Pyongyang to cease its relentless pursuit of nuclear weapons. But this resolution imposes unprecedented costs on the DPRK regime for defying this council’s demands.”

The resolution also requires countries to tell the United Nations how much North Korean coal they are buying and expands the list of banned items for import by North Korea, including luxury goods like rugs and tapestries valued over $500 and porcelain and bone china worth more than $100.

In addition to other export controls, the resolution also imposes banking restrictions and transportation restrictions. The resolution includes an expanded list of individuals and entities that are subject to travel bans and asset freezes, including North Korea’s ambassadors and envoys to Egypt, Sudan, Syria and Myanmar.

On December 2, 2016, the US Treasury Department’s Office of Foreign Assets Control announced related sanctions designations of additional individuals and entities with ties to the Government of North Korea or its nuclear and weapons proliferation efforts, and aircrafts blocked as property of a designated entity.

North Korea has been under United Nations sanctions since 2006 over its nuclear and ballistic missile tests. For United States businesses the resolution does not significantly change the status quo, as US law already prohibits nearly all activity involving North Korea. The resolution will primarily impact areas where North Korea has a strong international presence, including banking, transportation and commodities trade.

Earlier this year, the US Department of Justice announced a one-year pilot program under which US corporations could mitigate their own liability for violations of the Foreign Corrupt Practices Act (FCPA) by voluntarily self-disclosing FCPA violations within their organization, in addition to fully cooperating with DOJ investigations and taking steps to remediate any misconduct. Skeptics, however, wondered if and when evidence that voluntary self-disclosure was impacting FCPA prosecutions would ever come to light.

The DOJ’s decision not to pursue charges against Johnson Controls, a global conglomerate which produces among other things, automotive parts and large scale HVAC components, may be the bellwether that everyone has been waiting for.

On July 11, 2016, the US Securities and Exchange Commission imposed $14 million in sanctions and served Johnson Controls with a cease-and-desist order regarding certain practices in China. The SEC alleged a scheme in which 16 Johnson Controls employees (including high-level executives of its Chinese subsidiary) created inflated and sham purchase orders and then used the money paid toward these purchase orders to bribe Chinese officials.

Significantly for those watching the DOJ pilot program, while SEC imposed penalties, the DOJ issued a declination letter and closed its investigation without bringing charges against Johnson Controls. The declination letter specifically cited the the DOJ pilot program as part of its basis for not pursuing charges. Further, the declination letter explained the factors leading to its decision, including: Johnson Control’s voluntary self-disclosure of of the matter, the company’s extensive investigation, its cooperation in the investigation, and its remedial steps such as terminating all the individuals involved.

If the pilot program is extended, and voluntary self-disclosure is the new cost of admission to meaningful mitigation of corporate liability for FCPA violations, then internal monitoring, auditing, and investigation of such activities are more valuable than ever. Further, training employees to identify potential FCPA violations and creating mechanisms through which they can report suspicious conduct internally is also critical because it gives the company an opportunity to investigate and self-disclose, ideally, before the conduct has become a target of US authorities.

Jesse Harris writes:

As a penalty for selling their products in the American market below fair value, the U.S. Department of Commerce (the “Department”) has imposed increased anti-dumping duty rates on cold-rolled steel imported from China and Japan. The duty rates imposed on China’s and Japan’s largest cold-rolled steel exporters are now 256.44% and 71.35% respectively.

Steel manufacturing
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The Department’s determination came in response to allegations made by some of the U.S.’s largest steel producers, including U.S. Steel and AK Steel, that an influx of subsidized imports of cold-rolled steel from these foreign producers has captured a large share of the U.S. steel market. This increased market share has harmed production, shipments, and most importantly, selling prices and margins of U.S. steel makers. Indeed, the price of Chinese steel tends to be 20% to 50% lower than the prices in any other country.

This begs the questions: Will the anti-dumping duties work? And what are the implications of these duties?

Cold-rolled steel is used to produce, among other things, auto parts, appliances, shipping containers, and construction materials. Analysts believe that the U.S. imposed duties will prop up steel prices, and for companies that are in the business of purchasing foreign cold-rolled steel, this will increase costs. Steel manufacturers, however, will benefit from a decrease in foreign competition because of the restoration of fair trade conditions in the U.S. They will more easily compete with foreign prices because the anti-dumping duties inherently make foreign steel more expensive than U.S. steel.

However, the market demand will likely not improve, especially in the oil and gas segment; and without an increase in market demand, the duties may not result in any sustained, long-term benefits. This is especially true given the likelihood that Chinese manufacturers will not cut steel production despite the increased duties because of potential political fall outs from resulting job losses.

The U.S. already has anti-dumping duties in place on 19 categories of Chinese steel, yet these duties have done little to help the now sluggish U.S. steel industry. In 2015, the benchmark hot-rolled coil index fell 35% to under $400 per ton, contributing to a $1.5 billion loss at U.S. Steel, and over a $7 billion loss at ArcelorMittal, the world’s largest steelmaker. These companies have been forced to lay off U.S. workers as a result of the losses.

The anti-dumping duties not only affect the U.S., but will significantly impact other countries such as Brazil, India, Korea, Russia, and the U.K. These countries rely heavily on Chinese and Japanese steel. The estimated U.S. demand of steel is 110 million tons per year, which is far higher than the U.S.’s annual production of about 80 million tons. Given the U.S’s reliance on foreign steel, the increased duties are an attempt to strike a balance between fair competition and necessity.

Similar duties are being proposed for certain Chinese carbon and alloy steel products as well. It is possible that other countries will soon follow suit and implement similar anti-dumping duties.


Jesse Harris is a summer associate based in the firm’s Philadelphia office.

U.S. President Barack Obama announced that the U.S. would fully lift a ban on the sale of lethal arms and military equipment to Vietnam. President Obama announced this change in U.S. policy, which has been in place for about fifty years, during his visit to Vietnam on Monday, May 23, 2016. At a joint news conference with Vietnamese President Tran Dai Quang, President Obama said this move would remove a lingering “vestige of the Cold War” and complete what has been a lengthy process towards normalization with Vietnam, which began in 1995.

Despite the complete embargo lift, sales with Vietnam will still need to meet strict trade requirements. The sale of arms will still depend on Vietnam’s human rights commitments and will be made on a case-by-case basis.

Reporters suspect that this measure is a response to the activity of China in the South China Sea. China has claimed several contested reefs in the South China Sea and constructed military capable airfields. Critics claim that the decision to lift the arms ban suggests that the U.S. is more concerned with China’s activity in the South China Sea than it is with Vietnam’s record of improving human rights in Vietnam. However, President Obama said the arms lift was not related to China.

The trip to Vietnam is meant to strengthen the bond between the U.S. and Vietnam. Both imports and exports between the two countries have steadily increased in recent years. Security experts see the U.S. decision to lift the arms embargo as an effort to form a bond with Vietnam as a trade and security partner in that region.

Copyright: lkunl / 123RF Stock Photo
Copyright: lkunl / 123RF Stock Photo

On Tuesday, the U.S. Department of Treasury continued its effort to ease sanctions against Myanmar, which the U.S. refers to as Burma, by creating and extending general licenses for banking services, personal transactions and other trade that impacts state-owned banks and businesses. The sanctions relief is intended to allow American individuals, banks and companies to do business with Burmese financial institutions.

The sanctions relief is in response to Burma’s political and economic progress. Burma held historic elections last November and transitioned away from the military ruling party toward a democratic government in April of this year. It has also shown steady improvement of its record on human rights.

The U.S. had waived its longstanding bans on investment and trade in 2012 after Burma began political and economic reforms, but has retained restrictions on dozens of companies and individuals because they oppose reform or were implicated in human rights abuses and military trade with North Korea. With the new sanctions relief that started in 2012 and that has been expanded by the Treasury yesterday, U.S. companies can gain a foothold in the Burmese market.

In a statement about the sanctions relief, President Obama said:

“The Government of Burma has made significant progress across a number of important areas since 2011, including the release of over 1,300 political prisoners, a peaceful and competitive election, the signing of a Nationwide Ceasefire Agreement with eight ethnic armed groups, the discharge of hundreds of child soldiers from the military, steps to improve labor standards, and expanding political space for civil society to have a greater voice in shaping issues critical to Burma’s future.”

President Obama also recognized that Burma still poses a threat to the U.S., and the U.S. continues to have concerns regarding human rights violations. Despite the sanctions relief, the U.S. will continue to keep restrictions on trade and investment with the military in place.

As part of the sanctions relief, the Treasury’s Office of Foreign Assets Control (OFAC) updated an existing general license that frees up the ability to transact business with entities that were on OFAC’s Specially Designated Nationals (SDN) List. The Treasury also removed 10 state-owned businesses and banks from the SDN List, allowing those entities to trade and invest with their U.S. counterparts.

However, OFAC also added several entities to the SDN List, blocking the assets of six different companies that are more than 50 percent owned by other SDN entities: Steven Law and Asia World, which were initially blocked for supporting the former military-led government in Burma.

You can learn more about the current Burma sanctions at the Treasury’s website.

Copyright: paulprescott72 / 123RF Stock Photo
Copyright: paulprescott72 / 123RF Stock Photo

On Thursday, April 28, 2016, the United States and Sri Lanka adopted a joint plan to boost trade between the countries. U.S. Trade Representative Michael Froman and Sri Lanka Minister of Development Strategies and International Trade Malik Samarawickrama announced the deal after a meeting in Washington, D.C, under the nations’ bilateral Trade and Investment Framework Agreement.

The goal of the plan is to expand trade and encourage foreign investment. The plan also focuses on promoting business in Sri Lanka. The plan aims to make Sri Lanka’s business and trade sectors more accessible to women and to promote workers’ rights and ethical practices in the work force.

The two countries aim to achieve the goals of the plan over a five year period, and they will release their proposals for implementing the plan later this year.

The U.N. Security Council unanimously approved sanctions that will toughen penalties against North Korea. The approved resolution contains the most stringent measures ever passed against North Korea, which will undermine North Korea’s ability to raise money and secure technology and other resources for its nuclear program.

The sanctions include the following:

  • All countries are required to inspect all North Korean cargo entering or leaving that country.
  • North Korea cannot sell gold, titanium ore, vanadium ore and rare earth minerals.
  • A ban on aviation fuel exports to the country, including “kerosene-type rocket fuel.”
  • Watercraft, snowmobiles and other recreational sports equipment have been added to a ban on luxury goods.
  • North Korea cannot send martial arts experts to train police officers in foreign countries.
  • Countries are required to expel North Korean diplomats accused of illicit activities.

The U.S. administration also announced related actions by the Treasury and State Department that levied sanctions against additional individuals and entities. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated two entities and ten individuals with ties to the Government of North Korea and its nuclear and weapons proliferation efforts.  In a related action, the State Department designated three entities and two individuals for activities related to weapons of mass destruction proliferation. These designations freeze any properties the individuals or entities may have under U.S. jurisdiction and bars U.S. citizens from doing business with them.  For information on the designated individuals and entities, see OFAC’s SDN List update.

Treasury Secretary Jacob J. Lew commented on the resolution, stating: “Today the United Nations Security Council approved a historic Resolution which included key designations against North Korea, and the United States issued sanctions also targeting supporters of this repressive regime.  Together, these actions reflect a strong and unified response to North Korea’s provocative, destabilizing, and dangerous activities…. Our coordinated efforts send a clear message: the global community will not tolerate North Korea’s illicit nuclear and ballistic missile activities, and there will be serious consequences until it modifies its reckless behavior.”

The U.N. Security Council has delayed its vote on the proposed sanctions against North Korea until Wednesday, at the request of Russia.

Last week, the United States and China proposed expanded sanctions against North Korea, which include mandatory inspection of cargo leaving or entering North Korea, by sea or air. The United States and China had spent seven weeks negotiating the new sanctions in response to North Korea’s nuclear tests.

The U.N. Security Council, composed of 15 member nations, will vote on the resolutions on Wednesday. The vote was delayed after Russia invoked a procedural 24-hour review of the resolutions.  Russia has requested more time to review the lengthy text of the resolutions and consider the changes to the current sanctions.

Copyright: hypermania2 / 123RF Stock Photo
Copyright: hypermania2 / 123RF Stock Photo

The United States and China agreed on draft resolutions, which, if accepted by the United Nations Security Council, would result in increased sanctions against North Korea. The United Nations has enforced sanctions against North Korea since 2006 because of its multiple nuclear tests and rocket launches. Currently there is a U.N. embargo on arms exports to and imports from North Korea, and Pyongyang (North Korea’s capital) is banned from importing and exporting nuclear and missile technology and is not allowed to import luxury goods.

The United Nations Security Council has adopted four major resolutions since 2006 that impose and strengthen sanctions on North Korea. These resolutions are aimed at preventing North Korea from continuing to develop its nuclear weapons program, and they also call on Pyongyang to dismantle its nuclear program and refrain from ballistic missile tests.

In response to the claim in January of this year that North Korea tested a nuclear weapon, the United States and China began intense negotiations to once again strengthen sanctions against North Korea. The United States and China have reached an agreement, but to-date the text of the resolution proposed by the two countries has not been supplied to the public.  Diplomats believe that the resolutions should come before the United Nations Security Council within the coming days.

Skepticism exists as to whether the proposed new sanctions would actually curb North Korea’s nuclear program, and whether other countries would enforce the sanctions. However, if adopted, the resolutions would be legally binding.

The proposed sanctions would require countries to inspect all North Korean cargo entering or leaving a country. Additionally, 31 ships that have been identified as trafficking in illegal nuclear goods will be banned from docking in any port.  The resolutions are expected to call for the blacklisting of certain individuals and entities.  The resolutions would also prohibit countries from sending any item to North Korea that could be used by the North Korean army, like trucks that could be repurposed for military use.

Despite the new sanctions, North Korea would still be able to buy oil and sell coal and iron ore, provided that such materials are not being used to fund its nuclear weapons program, something which would be difficult to prove.

 

The Story

Asia-Pacific Region
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After many years of negotiations, the 12 countries making up the Trans-Pacific Partnership (TPP) (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam) finally reached a trade agreement on October 4, 2015.  Note that the deal still needs to be approved by Congress (after the President gives Congress a 90 day advance notice that he intends to sign it).

Why Does it Matter?

The deal opens up trade and promotes regional integration among 12 countries that collectively produce almost half of the world’s products and services. This can have a huge impact on the global economy.

The goals of the deal are to promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty; and promote transparency, good governance, and enhanced labor and environmental protections.  Geopolitical reasons of establishing a strong partnership in Asia to challenge China’s stronghold in the region is also certainly a motivating factor.

Key Features Of The Deal

  1. Comprehensive market access. The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services, to create new opportunities and benefits for businesses, workers, and consumers.
  2. Regional approach to commitments. The TPP facilitates the development of production and supply chains, and seamless trade, enhancing efficiency and supporting the goal of creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets.
  3. Addressing new trade challenges. The TPP promotes innovation, productivity, and competitiveness by addressing new issues, including the development of the digital economy, and the role of state-owned enterprises in the global economy.
  4. Inclusive trade. The TPP includes commitments to help small- and medium-sized businesses understand the Agreement and take advantage of its opportunities.  It also includes commitments on trade capacity building, to ensure that all Parties are able to meet the commitments in the Agreement and take full advantage of its benefits.
  5. Platform for regional integration. The TPP is intended as a platform for regional economic integration and designed to include additional economies across the Asia-Pacific region.

What Does the Deal Mean for US Businesses?

  1. The deal reduces tariffs for American products traded in the TPP region and, therefore, opens up the TPP region for American products. It also makes it cheaper for American companies to purchase products from the TPP region.
  2. Expedited customs procedures for TPP members will ensure faster and easier shipment.
  3. More transparent, non-discriminatory rules for technical regulations will mean easier compliance with trade regulations for US companies.
  4. Investment in TPP countries will become easier and more transparent.
  5. E-commerce companies doing business in the TPP region will encounter fewer restrictions.