Saturday, May 6, 2017

State of Trade - 100+ Days Later

Perhaps one of the most curious developments of the past 100+ days of the Trump administration has been the lack of progress on the trade front. The only campaign promise that has been delivered on is the withdrawal from the Trans-Pacific Partnership (TPP), which to give President Trump credit, was done the next business day after he was sworn into office, on January 23, 2017

For his hundredth day in office, President Trump was set to announce the US’s withdrawal from NAFTA, a move he soon backtracked from when informed that many of the areas that would be hardest hit were heavily Trump-supporting agricultural areas. It is unclear when and if NAFTA will be renegotiated, although it seems likely that, rather than unilateral withdrawal, the United States will instead attempt to renegotiate the agreement with Canada and Mexico.

The TPP page on the USTR website has finally been updated to reflect the withdrawal (for several months the full text remained, along with praise for the agreement). Despite President Trump’s rhetoric regarding the awfulness of the deal and the need to renegotiate NAFTA, however, the NAFTA page continues to extol the virtues of the current agreement.

That trade has not been a priority is especially clear from the state of the Office of the United States Trade Representative. The USTR Twitter account hasn’t tweeted since October 2016. Robert Lighthizer, Trump’s official nominee, has yet to be confirmed, delayed by the need to obtain a waiver of the rule prohibiting persons who represented a foreign government from serving as US Trade Representative. (Interestingly, a provision in the new budget bill has bypassed the waiver requirement, even though he would not be the first USTR appointee who needed a waiver and it seems clear that his representation of foreign governments in the 1980s and 1990s does not pose any conflict of interest.)

In March 2017, President Trump appointed Stephen Vaughn, a member of his transition team, acting United States Trade Representative. The positions of Deputy Trade Representative and Deputy Trade Representative in Geneva (which deals with the WTO) remain vacant. Given Lighthizer’s bipartisan support, it appears likely that he will be confirmed in the near future, which should pave the way to a more functional USTR.

With trade having been such an important talking point of the election cycle on both sides of the political spectrum, the disregard for trade policy in recent months is indicative of chaos in the administration and the well-documented conflict between Trump’s campaign populism and presidential status-quoism. As my co-blogger, Alison Peck, noted in her post on trade and security in Asia, trade policies are not conducted in a vacuum.

In an interesting twist, with China recently banning the import of North Korea coal and turning back coal shipments in an effort to pressure North Korea into curtailing its nuclear testing, the United States has stepped up as a major coal supplier to China. The United States supplied no coking coal (used for making steel) to China between 2014 and 2016, but supplied 400,000 tons in February 2017. If President Trump is going to make good on his promise to revitalize the American coal industry, this is certainly one way to go about it.  

So where does this leave us?  

NAFTA is likely to be renegotiated at some point. President Trump has also suggested replacing TPP with bilateral agreements. The irony there is that TPP was largely based on recent US FTAs, with entire chapters containing almost identical language to that found in agreements such as the US-Chile FTA and the US-Korea FTA. This was a US-driven text that would have been great for US business interests (there were plenty of other issues with TPP, but those are outside the scope of this post).

Both Lighthizer and Vaughn are trade law experts and understand the realities of international trade policy. It is hard to imagine them straying far from the existing bilateral FTAs. Since the USTR will be led by pragmatists, once it is ultimately fully staffed, it seems likely that any new bilateral agreements and a potentially renegotiated NAFTA will reflect much that is already existing. Of course, this all remains to be seen, and if support for President Trump were to wane in agricultural regions of the country, the possibility of unilateral withdrawal from NAFTA of course remains on the table.

May 6, 2017 in Current Affairs | Permalink | Comments (0)

Thursday, May 4, 2017

Buy American, Blow Off the WTO?

On April 18, President Trump signed an Executive Order setting out his “Buy American, Hire American” policy. A month earlier, the Department of Commerce issued a request for comments on requiring a specified minimum domestic content in pipeline construction.

Both of these moves are consistent with Trump’s campaign promises to promote American industry. But both may violate the WTO Agreements and, if successfully challenged, could give rise to trade retaliation by other countries against U.S. industries.

What’s more, those moves are likely to tick off other countries and lead to the imposition of more domestic content requirements of their own. It’s difficult to see how strict enforcement of Buy American laws would offset the costs to U.S. industry if the world descends into a flurry of protectionist procurement legislation.

The National Treatment Principle under the GATT

The DOC’s potential imposition of domestic content requirements on the pipeline construction industry is the more legally thorny of the two. First of all, it’s also not clear whether the domestic content requirements on private contractors are valid. It’s one thing for a government to set guidelines for purchasing by its own agencies (although there are limits there too), and another thing for a government to tell private industry like pipeline construction contractors who they are allowed to do business with. In its comments on the DOC notice, the European Union noted that imposing domestic content requirements on the purchasing decisions of private companies would be “unprecedented” in the trade sphere and “would have serious consequences also with respect to policies with third countries.”

Moreover, domestic content requirements – or legal requirements that producers include a certain amount of domestically-produced raw materials into a final manufactured product – were among the types of restrictions that nations deliberately limited when they entered into free trade and investment agreements in the first place. Domestic content requirements fly in the face of the “National Treatment principle,” one of the pillars of the General Agreement on Tariffs and Trade (one of the many agreements that makes up the WTO Agreements). “National Treatment” is a somewhat confusing name, sounding at first blush perhaps like an endorsement of nationalism in trade relations. National Treatment actually means that a nation may not treat the products of its trading partners differently than the products of its own nation. (Likewise, National Treatment’s ironic sister principle, Most Favored Nation, prohibits favoritism among different foreign countries’ products. Never a dull moment in trade law.)

The National Treatment principle for the GATT is stated in Article III. Entitled “National Treatment on Internal Taxation and Regulation,” Article III, paragraph 4 says,

The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation distribution or use. …

In other words, all WTO members have a legal obligation not to discriminate against foreign products that are “like products” to those produced in their own country. (Whether two products are “like products” is a fact-based inquiry based on the products’ physical properties, end uses, and consumer tastes and habits as to substitutability.)

The governments of both Canada and the EU made the point in their comments on DOC’s request for information that any minimum domestic content requirements on pipelines would appear to violate the National Treatment principle. Were the U.S. to require that pipeline contractors purchase a minimum amount of domestic steel (or be denied federal permits, presumably), it is almost certain that someone – Canada, the EU, and other countries whose steel industries compete for those contracts – would challenge the regulation before the WTO.

In introducing the President’s trade policy agenda in an annual report by the Office of the United States Trade Representative, USTR suggested that the Trump Administration might not comply with adverse WTO decisions, but that’s questionable and complicated (and a post for another day). Suffice it to say that any persistent failure to respect an unfavorable WTO decision would trigger WTO-sanctioned retaliation against other U.S. products or industries that those industries would surely not take kindly to in the next domestic election cycle. It’s not so easy just to blow off the WTO.

Limiting the "Public Interest" Exemption from Buy American Laws

Does the order change anything? The short answer is maybe. 

In the short term, the Executive Order directs federal agencies to strictly comply with Buy American laws already on the books. One thing that might change immediately is contractors’ ability to obtain waivers from the Buy American laws. Right now, the Federal Acquisition Regulations allow waivers when purchasing from a foreign supplier is in the “public interest” because a trade agreements (like the WTO) allows it; where the material is unavailable domestically; or when the domestic supplier’s price is “unreasaonble” based on a prescribed calculation

The "public interest" exemption is what saves the Buy American statutes from violating National Treatment right now. If agencies are now instructed to apply that exemption strictly, does that mean that they won't grant an exemption even where the Buy American requirement would violate National Treatment? 

Opaquely, the order instructs Commerce and the United States Trade Representative to “assess the impacts of all United States free trade agreements and the World Trade Organization Agreement on Government Procurement on the operation of Buy American laws” with 150 days of the signing of the order. It could be that he plans to use this study to be sure that Buy American laws, and the new Executive Order, comply with the United States’ international obligations.

But it would be more consistent with Trump’s rhetoric to use that assessment to decide whether to renegotiate or terminate U.S. commitments that he believes impair U.S. industry. Although Trump seems to have decided against withdrawing from NAFTA for now, it’s unclear what demands he will make to renegotiate both NAFTA and the WTO Agreements and what might make him change his mind and walk away. “Assessing the impacts” of the country’s free trade agreements on domestic sourcing laws might give him a starting point for crafting his positions in renegotiating.

National Treatment in Government Procurement

The WTO Agreement on Government Procurement also incorporates the National Treatment principle of nondiscrimination, although subject to many exceptions. The interaction between Buy American laws and those articulated exceptions will be studied by DOC and USTR.

Only nineteen WTO members, including the U.S. (and the EU on behalf of all its members), are parties to the Agreement on Government Procurement, a “plurilateral” side agreement to the WTO Agreements. That suggests that renegotiation or withdrawal from that Agreement might be more feasible than tampering with any of the 100-plus member multilateral agreements in the WTO. If Trump is unsatisfied with the results of Commerce and USTR’s study about the impacts of the agreement on Buy American laws and wants to identify the low-hanging fruit of renegotiation in the WTO, this might be a place to start.

Policy Concerns

If Trump decides to go down the road of minimum domestic requirements for construction and tougher Buy American laws in government procurement, hopefully he will consider the potential effects of those policies. First, other countries may follow the lead of the U.S. and implement Buy National policies of their own, cutting off overseas market for U.S. products and services. The European Union emphasized this risk in its comments on the Commerce notice:

Both the US and the EU have in the past been pursuing a clear policy against localization requirements in third countries, including China, India, and Russia. … These potential measures, which would be harmful to US industry, would also make the international fight against third countries’ local content requirements much more difficult.

Second, requiring private industry like the pipeline construction industry to source domestic products even when prices or quality are not competitive could degrade those firms’ competitiveness and potentially lead to the elimination of American jobs. The Associated General Contractors of America made this point in its comments to Commerce. For example, the Executive Order excludes a certain segment of the steel industry from qualifying as “produced in the United States” because the industry’s raw materials (steel slabs) are not commercially available in the U.S. Currently, the industry’s products are still considered to be products of U.S. origin due to waivers of the Buy American laws. The Executive Order, as currently drafted, eliminates that option and makes U.S. slab converters noncompetitive. The AGC said:

If a key aim of the memorandum is to maximize jobs in the U.S. steel industry, we are concerned that it will more likely have the effect of shuttering many U.S. operations spread around the country and replace some of those operations with a consolidated finished steel industry that will be limited both geographically and by ownership.

There’s been recent evidence that Trump can be persuaded to consider the larger impacts that his policies would have on U.S. industry, beyond their stump-speech value. Last week, news reports indicated that Trump was persuaded by some members of his cabinet, especially Secretary of Agriculture Sonny Perdue, not to withdraw from NAFTA. According to the reports, Perdue showed Trump a map of regions that would be hard hit by loss of NAFTA trade, a map that overlapped substantially with one showing strong voter support for Trump. It is likely that a map of the steel industry would as well. The assessments Trump is commissioning may show that this is another case of what he has learned in his first 100 days: things that sound good on the campaign trail don’t always look so good when the legal details are analyzed.

May 4, 2017 in Current Affairs | Permalink | Comments (0)

Thursday, April 27, 2017

Trump, Trade, José Abreu, and a Heineken: Trafficking in Cuban Baseball Players

Since it’s April, I thought it was worth a time out to look at some major legal developments on an international trade issue that’s probably been on your mind lately, even if you don’t realize it: the rules governing the market for prospective Major League Baseball players from Cuba.

Donald Trump’s statements on Cuba have shifted over the past year. During the Republican primaries, Trump expressed approval of some form of diplomatic relations with Cuba, although he wanted “better deals.” During the campaign, he talked tougher on Cuba, saying he would roll back the Obama Administration’s policies unless the Castro government “meets our demands.” Since taking office, the Trump Administration has only said that the White House is studying the issue, leaving some concerned, and some hopeful, about a possible rollback of the more open policies initiated by Obama.

MLB would probably say that the future of the next generation of Cuban athletes depends on what the White House decides. This is not entirely true. Regardless of U.S. policy on Cuba, MLB could substantially reduce the exploitation of another generation of Cuban ballplayers by changing its rules, which currently have Cuban players caught in the crossfire of U.S.-Cuba relations. Having just renegotiated its collective bargaining agreement without fixing the problem, however, MLB will undoubtedly wait for the Administration’s move.

MLB has hidden its greed behind U.S. policy for years. Although sports journalists have reported suspicious circumstances around the defection and signing of Cuban players since the baseball-related defection from Cuba by Rene Arocha in 1991, those circumstances mostly remained shrouded in mystery. Baseball fans thrilled by the heroics of José Abreu, Yoenis Céspedes, or Aroldis Chapman may have, in the lesser angels of our nature, preferred it that way.

But the truth about Cuban baseball players’ journeys to MLB stardom has come out, as the truth tends to do sooner or later. The recent trial and conviction of a baseball players agent and an athletic trainer for smuggling ballplayers from Cuba has produced testimony sensational for both its glamorous celebrity and its underworld horror. Baseball fans who are paying attention should not be able to watch their Cuban heroes without feeling serious qualms that someone, somewhere, ought to do something. And those who are not paying attention should start.

United States v. Hernandez

On March 15, a federal jury in Miami convicted two baseball professionals, a players’ agent named Bartolo Hernandez and an athletic trainer named Julio Estrada, of conspiring to smuggle Cuban ballplayers illegally into the United States for private financial gain. The government alleged a scheme of coercing players, falsifying documents, and carrying out illegal border crossings in order to collect large percentages of the contracts that Cuban players eventually signed with MLB clubs. Hernandez was also convicted of one count of smuggling in connection with the entry of Seattle Mariners outfielder Leonys Martín. Estrada was convicted of conspiracy and three counts of smuggling in connection with the entry of Chicago White Sox first baseman José Abreu, Philadelphia Phillies pitcher Dalier Hinojosa, and former New York Yankees minor leaguer Omar Luis. Neither any players nor the MLB were charged in the case.

Several MLB players testified at trial, describing a dangerous and expensive path to their baseball careers in the U.S. Leonys Martín testified that he was originally smuggled from Cuba to Cancún by other smugglers connected to the defendants, who then increased their demand for payment from the usual $10,000 to upwards of $2.5 million. He testified that the smugglers later moved him to Monterrey and took his family across the Mexican border to one of the smuggler’s homes in Miami. Martín said he was afraid to flee because his family remained with the smugglers, and because he feared being picked up by the Mexican police and returned to Cuba.

In Monterrey, Martín said, he met Hernandez and agreed to pay him five percent and the Monterrey baseball group thirty-five percent of his first contract. Martín ultimately signed with the Texas Rangers for $15.5 million. Martín testified that after the contract had been negotiated, one of his keepers in Monterrey was kidnapped and Martín decided to enter the U.S. illegally out of fear for his own safety. The Mexican group later sued Martín for breach of contract in Broward Country Circuit Court in Florida, and Martín countersued, claiming the contract was the product of coercion.

In the case against Hernandez and Estrada, the government claimed that the defendants employed agents with a history of violent and coercive human smuggling in order to coerce the ballplayers and ensure that they never met or had the chance to sign with other sports agents. If a defector’s family in Cuba or the U.S. refused to pay the smugglers’ fee, according to the government, smugglers called the family and demanded money as their loved one screamed under torture. Baseball players received special treatment because they were worth more money, the government said, but after one player fled, smugglers called his wife and threatened to kill him if he did not return.

White Sox star José Abreu testified that the defendants helped him enter Haiti and to obtain residency papers within days of his arrival there. He said he signed a contract agreeing to pay five percent of his first contract for representation and negotiations, and twenty percent for training and personal needs. Abreu testified that he didn’t realize at that time the amount of money that the contracts represented. Abreu eventually signed with the White Sox for $68 million. At trial, Abreu described a close relationship with Estrada, who was best man in his wedding. Abreu also said he paid Estrada $25,000 a month under their contract after Estrada’s assets were frozen because of the indictment.

One of the most curious incidents described in the trial was Abreu’s testimony that he entered the U.S. illegally in October 2013. He said he had failed to obtain a copy of his Cuban passport and feared that failure to appear for a physical and contract signing would jeopardize his pending contract with the White Sox. With the help of a Haitian agent who was also named in the indictment, Abreu said, he obtained a Haitian passport with his photo but a false name. He testified that the Haitian smuggler had told him to destroy the passport before arrival in the U.S., so he attempted to tear up the document in the lavatory but was interrupted by a flight attendant’s knock. Abreu testified that he ripped out the identification page, returned with it to his seat, and swallowed the document in pieces, washed down by a Heineken. When asked by an investigator what the passport tasted like, Abreu reportedly answered, “Freedom.”

At trial, lawyers for Hernandez and Estrada attempted to separate their clients from the fraudulent, coercive, or violent actions of other smugglers, describing both defendants as strictly baseball professionals who helped the Cuban ballplayers achieve their dreams of playing professional baseball in the U.S. Both Hernandez and Estrada, through their lawyers, have said they will appeal their convictions.

 Law and Baseball

The details of the player-smuggling scheme described at trial makes more sense in the context of MLB Official Professional Baseball Rules Book (the business rules, not the baseball rules, which are here and a lot more fun but not really relevant). Rule 3(a)(1) treats signing U.S. and Canadian residents differently from signing residents of other countries. Here’s Rule 3, in relevant part:

    1. General Rules. … A Major or Minor League Club may contract with a player under the conditions and restrictions set forth in this Rule 3 …
      1. A player who has not previously contracted with a Major or Minor League Club, and who is a resident of the United States [defined to include Puerto Rico] or Canada, may be signed to a contract only after having been eligible for selection in the Rule 4 draft. A player shall be considered a “resident of the United States” if the player enrolls in a United States high school or college or establishes a legal residence in the United States on the date of the player’s contract or within one year prior to that date.
      2. A player who has not previously contracted with a Major or Minor League Club, who is not a resident of the United States or Canada … may be signed to a contract if the player:
        1. Is at least 17 years old at the time of signing, or
        2. Is 16 at the time of signing, but will attain age 17 prior to the end of the effective season for which the player has signed or September 1 of such effective season, whichever is later.

So U.S. and Canada residents have to go through the Rule 4 draft (better known as “the draft”), but residents of other countries can be signed as free agents. That’s great for Dominicans and Venezuelans and Japanese but not so great for Cubans because of the Cuban Liberty and Solidarity Act (better known as the Helms-Burton Act). The Helms-Burton Act instructed the Secretary of the Treasury and the Attorney General to enforce the Cuban Assets Control Regulations and created a $50,000 civil penalty for violating the regulations. Those Regulations prohibit all transactions with Cuba or Cuban nationals in terms so sweeping as to be almost incomprehensible on first reading. Cuban baseball players would be treated as international free agents under MLB Professional Rule 3(a)(1)(B), except that the Cuban Assets Control Regulations prohibit MLB clubs from transacting with Cuban nationals, let alone paying any fees that the Cuban authorities might demand in order to release them from their contract with Cuban national teams.

So what are the options for an aspiring Cuban player? Option 1: Defect to the United States to avoid the embargo – but then be subject to the draft and sign for pennies on the dollar, in some cases. Or option 2: Take the Joe Cubas loophole. Cubas was a Miami-based sports agent known for helping Cuban ballplayers defect not to Miami but to the Dominican Republic, where they could negotiate as free agents under Rule 3(a)(1)(B) if they could establish residence. Many of Cubas’ clients signed multimillion-dollar deals with MLB clubs, creating in the process a tantalizingly lucrative career for sports agents in human trafficking of Cuban ballplayers.

A History Lesson on Rule 3(a)(1): Viera v. MLB

Rule 3(a)(1) has been subject to legal challenge as national origin discrimination, but the lawsuit was ultimately unsuccessful. In 2001, Rolando Viera, a Cuban pitcher who had defected to the U.S., sued the MLB over the rule in federal court, claiming that it discriminated against Cuban players by placing them in the draft. On June 4 of that year, the district court denied Viera’s request for a preliminary injunction. The same week, Viera was drafted in the seventh round by the Boston Red Sox, at 27 the oldest player taken in the draft that year.

In July 2002, the court denied Viera’s motion for summary judgment on his claims under Title VII and the Florida Civil Rights Act. In its ruling, the court repeatedly emphasized that Cuban players were not subject to discrimination because they could defect to other countries and sign as free agents from there. In its July 19, 2002 Order on Plaintiff’s Motion for Summary Judgment, the court stated:

Defendant [MLB] has submitted evidence demonstrating that Cuban players who relocate from Cuba to countries including the Dominican Republic, Venezuela, Panama and Australia have contracted as free agents with franchises without being required to participate in a Rule 4 draft. … Thus, Cuban players may avoid participating in Defendant’s Rule 4 draft by residing in a location other than the United States or Canada. If they choose to establish residency in the United [S]tates, however, they are required to participate in the Rule 4 amateur draft. This evidence does not support Plaintiff’s contentions that Defendant discriminated against him on the basis of his national origin or that Rules 3 and 4 have the effect of unlawful national origin discrimination.

The court’s order denying relief to Viera, then, turned on the presumption that Cuban ballplayers could simply go to the Dominican Republic or Haiti or Mexico first – a presumption that effectively ushered Cuban baseball players into the smuggling ring detailed at the Hernandez/Estrada trial.

The Future of Cuban Prospects in MLB

Although only open trade with Cuba could entirely end the risk currently run by Cuban ballplayers, MLB could remove much of the pressure on Cuban prospects by changing its professional rules.

The Obama Administration took a step toward putting the human traffickers out of business. On March 15, 2016, Treasury issued regulations that permit businesses in the U.S. to negotiate with and hire Cuban nationals, as long as no funds are paid to the Cuban government in connection with the hire. The new regulations take advantage of a Treasury-controlled ejector button in the Cuban Assets Control Regulations. Those sweeping regulations contain an equally sweeping administrative exception that says the prohibitions of the regulations apply “except as specifically authorized by the Secretary of the Treasury by means of regulations, rulings, instructions, licenses, or otherwise.”

This change cleared the way for two MLB clubs in 2016 to sign the most recent high-profile Cuban baseball defectors, the brothers Yulieski Gourriel and Lourdes Gourriel Jr. Although the Gourriel brothers defected while playing at a tournament in the Dominican Republic, they did not have to establish residency there to be eligible to negotiate contracts with the MLB clubs. The newly-authorized negotiations brought big paydays for the Gourriels: the Houston Astros signed Yulieski to a five-year, $47.5 million deal in July 2016. Lourdes signed a seven-year, $22 million deal with the Toronto Blue Jays, possibly with the right to arbitrate for a higher salary in future years.

For players still in Cuba, however, the future remains uncertain. Even if Trump retains or further loosens the right of U.S. businesses to negotiate with and pay salaries to Cuban nationals, it remains unclear whether the Cuban government would demand a portion of any payments made to the players, a demand that would violate the current regulations. Just before the Treasury regulations were announced last year, MLB submitted a proposal to Treasury that would allow the clubs to negotiate contracts directly with Cuban players and pay into a fund that would be directed toward improvements in baseball programs for Cuban youth. It’s unclear whether either government would accept that arrangement, however. Unless and until both countries agree to a deal, young Cuban ballplayers may remain tempted to try to establish residency in a third country by whatever means necessary.

A Partial Fix: Amend Rule 3

For now, the problem is not pressing for MLB or for a large number of Cuban ballplayers. The Gourriel defections followed about 100 others by Cuban players in the past generation, leaving no top MLB prospects currently in the Cuban league. For vulnerable Cuban ballplayers, however – lesser talents still hoping for a shot, or very young players just now coming up through the Cuban system – the smuggling circuit may still prove attractive in the face of great uncertainty or in the event of chilling in U.S.-Cuba relations.

And MLB cannot simply hide behind claims of tough U.S. policies or unreasonable Cuban demands. The danger to Cuban players could be greatly reduced by amending Rule 3(a)(1) of the professional baseball rules to say that Cuban players who enter the United States to seek asylum can sign as free agents and do not have to go through the draft. While smugglers might still attempt to extort deals from Cuban players that they help to cross the Strait of Florida, the players would be in a far less vulnerable position if they were at home and not being effectively held captive in a foreign country, and if they were not dependent on fixers in those countries to secure their identification and residency documents. If a top prospect arrived safely in the U.S., he would be free to seek asylum and to meet with the many sports agents who would undoubtedly compete to represent him, without coercion and for more reasonable fees, in negotiations with MLB clubs.

The MLB had an opportunity to change the rule in December, but didn’t. The MLB professional rules state that, where the rules are inconsistent with the collective bargaining agreement between MLB and the MLB Players Association, the agreement will control. But the treatment of Cuban players remains largely unchanged after renegotiation of the agreement during the 2016 Winter Meetings. The owners sought an international draft for all foreign players to cap spending by larger-market teams, but the MLBPA objected. Instead, they agreed on a hard cap for international amateur signings (the old cap could be exceeded, with penalties, and routinely was), and raised the minimum age for a player to be signed as a professional from 23 to 25. 

Under these new rules, Cuban ballplayers under 25 will be less lucrative for smugglers – the new hard cap on amateur signings is $4.75 million to $5.75 million per club, depending on market size. But those numbers may still look extremely attractive to young prospects and to smugglers. And any players who don't decide to defect until age 25 will still offer big potential paydays to those who would exploit them.

It’s true that Cuban players can theoretically choose to come directly to the United States instead of to a third country, seek asylum, and submit to the draft. They are going to third countries to make more money. But young Cuban ballplayers, who can’t talk to any U.S. clubs or sports agents directly, have little business sophistication or bargaining power. Under the new collective bargaining agreement, it remains likely that sports agents motivated by large payouts from free agent contracts will coerce Cuban players to travel to third countries under dangerous circumstances. Young ballplayers who look like dollar signs to sports agents and smugglers may have few realistic alternatives.

In the Viera litigation, MLB defended its Rule 3/Rule 4 policy for Cuban defectors on the grounds that MLB clubs were not allowed to do business in Cuba and therefore could not scout Cuban players as they could players from other countries. The court quoted from a letter from the Office of the Commissioner to Viera’s agent, stating that

Our guidelines are informed by our desire to maintain an equitable basis for all Clubs to scout player talent. According to our policy, Clubs may not negotiate with or sign a native player from a country where any Major League Club is prohibited from entry or doing business unless the player’s residence and employment status would permit such signing, all Clubs are notified of the player’s availability and all applicable draft and signing rules are observed. Thus, it would not be permissible for a Cuban defector who becomes a United States resident to ‘quietly’ remain in the United States through the Rule 4 draft and then sign as a passed-over player, as you suggest. All Clubs would need to be notified of the player’s eligibility.

This defense doesn’t hold water in the real world of scouting for Cuban players. MLB clubs routinely send scouts to international tournaments to identify Cuban prospects of interest. One convicted smuggler told reporters that the MLB club representatives will observe players at these tournaments and inquire obliquely when a certain player might be available to sign, setting the gears of smuggling and defection in motion. For MLB to claim that the clubs are unable to scout Cuban players until they take up residence in third countries under dangerous circumstances is disingenuous.

Baseball isn’t the only business waiting to see what Trump will do on Cuba. Airlines and other transportation and tourism businesses with routes to Cuba are also continuing business while poised for changes. But MLB is one business that could solve a significant part of its own problem, and eliminate massive amounts of human suffering by the young men that the clubs seek to hire, by changing its own rules.

Revisiting a Title VII Claim post-Hernandez

It is possible that the Trump Administration will further loosen the embargo, granting MLB clubs the right to contract with Cuban players and pay into a fund in Cuba for baseball development. It is possible that the Castro government will agree to that deal. If not, MLB and the MLBPA should amend Rule 3(a)(1), allowing Cuban ballplayers to defect to the U.S. and sign as free agents, before another generation of Cuban players is exploited and endangered for our entertainment.

If the embargo is tightened and Rule 3 doesn’t change, the Hernandez case might lend support to a new Viera-type lawsuit against MLB for national origin discrimination. Hernandez suggests that the district court’s assumption in the Viera case was false: Cuban ballplayers are not similarly situated to ballplayers from other countries just because they can sign as free agents from third countries. When Cuban players – but players of no other nationality – have to risk their lives to sign as free agents and pay extortionate portions of their contracts to unethical agents and human traffickers, the rule may well violate Title VII.

April 27, 2017 | Permalink | Comments (0)

Friday, April 14, 2017

International Trade and National Security, Hand in Hand in Asia

On Wednesday, President Trump told The Wall Street Journal that he did not plan to name China as a currency manipulator. This makes sense as a matter of economics, at least in the near view: Although China did for years artificially depress its currency to make its exports more attractive, it hasn’t done so since 2014. Naming China as a currency manipulator now seems to be, as my grandfather would have said, “a day late and a dollar short.”

Turning His Back on Campaign Promises

Trump’s statement this week was a stark reversal from his campaign pledges. In November, Trump said in The Wall Street Journal that he would name China as a currency manipulator on the first day of his presidency. That hasn’t happened. Instead, in talks with Chinese President Xi Jinping this week, the Trump Administration committed to a 100-day timeline for comprehensive new trade talks. Secretary of Commerce Wilbur Ross admitted in a White House press briefing that such a schedule “may be ambitious” given the scope of the issues, but called it “a sea change in the pace of discussions” between the U.S. and China and “a very very important symbolization of the growing rapport between the two countries.”

This reversal probably won’t do much to win President Trump favor in my state of West Virginia or in other states heavily dependent on manufacturing that supported him in the election. Recent studies show that as many as 2.4 million jobs were lost in the United States because of China’s past policy of currency manipulation that enabled cheap Chinese imports to undercut their domestic competitors. Moreover, the U.S. economy has failed so far to transition those workers to more competitive industries, as economists had predicted would happen. Instead, high unemployment remains in those regions.

The Legal Basis for Naming Currency Manipulators

Naming China as a currency manipulator wouldn’t necessarily have had any immediate legal ramifications, but it couldn’t have helped that “rapport” that Secretary Ross is talking up. Trump was referring to a provision of the Omnibus Trade and Competitiveness Act of 1988, Section 3304, which requires each Administration to make an annual report to Congress on “whether countries manipulate the rate of exchange between their currencies and the U.S. dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” No penalties attach to being named a currency manipulator under the law, however. The President is merely instructed to engage in negotiations with the country if they have “material global account surpluses” and a “significant bilateral trade surpluses with the United States.” Notably, there is an exception for cases “where such negotiations would have a serious detrimental impact on vital national economic and security interests.”

The Department of the Treasury now pairs this analysis with the requirements of another statute, Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015, which does include penalties for countries that manipulate their currencies. The 2015 Act requires the President to undertake “enhanced bilateral engagement” and take possible remedial actions against any country that has a “significant bilateral trade surplus with the United States,” a “material current account surplus” and has “engaged in persistent one-sided intervention in the foreign exchange market.” Again, however, the 2015 Act contains a waiver for such actions if they would hurt U.S. economic or national security interests.

China, North Korea, and Keeping Trade in Perspective

This week, U.S. economic and national security interests in Asia are promenading hand in hand through a minefield of North Korean weapons and intentions. In a White House press call today, senior administration officials discussed the Vice President’s upcoming trip to South Korea, Japan, Indonesia, and Australia. The trip, they said, would be focused on creating a “framework” for further discussions, but the three key themes (presented in this order) would be to emphasize U.S. commitment to its security alliances in the region in the face of the threat from North Korea; to demonstrate continued U.S. economic participation in the region despite the Trump Administration backing away from the Trans Pacific Partnership; and to work with countries and regional organizations such as ASEAN to defeat ISIS, denuclearize North Korea, and uphold “the rules-based order.”

It’s no secret that China is best situated to exert pressure on North Korea to reduce the nuclear threat. The Trump Administration has settled on a policy of “maximum pressure and engagement” in North Korea, with the help of China. As North Korea continues missile tests, the U.S. can scarcely afford a trade war with China.

Trump’s statement Wednesday that he will not name China as a currency manipulator is an inevitable recognition that trade policies are not pursued in a vacuum. Fast trade talks of the type hailed by Secretary Ross may produce movement on China’s currency policy, but the U.S. is in no position to take a hard line on this issue in light of the need for China’s cooperation on serious national security concerns. The Vice President’s trip to the Pacific offers a good opportunity for the Trump Administration to establish cooperative relationships throughout the region – albeit not based on a multilateral trade accord like the TPP – that could be beneficial for U.S. economic interests and critical for U.S. national security interests.

April 14, 2017 | Permalink | Comments (0)

Wednesday, April 12, 2017

Welcome to International Trade Law Prof Blog

If you’re not an international trade specialist, you’ve come to the right place.

As you’ve probably noticed, international trade law is a different game in 2017.

For at least a generation, the accepted wisdom in legal circles has been that trade liberalization is a Good Thing. Tariffs are bad, investment is good, and the rising tide will raise all boats if states get out of the way. All the Big Economies got that way by liberalizing and the Small Economies need to follow suit if they want to become Big Economies. National economies will reallocate resources to their comparative advantage and overall gains will be sufficient to compensate the losers in the Reallocation Roulette.

Then Britain voted for Brexit. Donald Trump was elected President of the United States. Marine Le Pen gained political momentum in France. And just like that, a half-century of trade liberalization orthodoxy was back on the table.

Feeling Out the Fault Lines in Trade Law and Policy

Trump’s changes and pledges of change would throw open the barn doors on decades of U.S. trade policy. As a candidate and as President-Elect, Trump criticized automakers for moving manufacturing jobs to Mexico and threatened border taxes. Reading Trump’s tweets, Ford Motor Company decided to withdraw plans for a $1.6 billion investment in Mexico and instead invest $700 million in a U.S. plant.

In his first weeks in office, Trump has withdrawn the United States signature from the Trans Pacific Partnership, a trade deal of unprecedented size and scope negotiated by the Obama Administration. He called it a bad deal for American workers. He moved quickly (if not smoothly) to schedule meetings with the leaders of Mexico and Canada on renegotiating the North American Free Trade Agreement. Trump’s Secretary of Commerce, Wilbur Ross, told the Senate Commerce Committee that the Administration planned to level the trade playing field with China, a country that Trump in December said he would name as a trade manipulator.

What does this mean for lawyers and law professors – especially those who are not trade specialists?

A Trade Law Blog for Non-Trade Specialists

Right now, no one can predict the effects of the Trump Administration’s changes and proposed changes to U.S. trade policy, or the effect of Brexit on trade in Europe and the around the world. What is certain is that lawyers and professors who have not specialized in trade law will be fielding questions from clients and students about the effects of these changes on their businesses or practice areas.

How would increased Chinese influence over trade in the Pacific Rim impact human rights in the region? How would a trade war with China alter global enforcement of intellectual property protections? How would changes to NAFTA affect the U.S. food system or immigration law enforcement? Can the Trump Administration legally make Mexico pay for a border wall? And if it’s not legal, could anyone stop him from doing it?

We aim to be a source of information, perspective, and discussion for those of you in the legal community who are thinking more about trade law than you ever did (or perhaps ever cared to) before. Our goal is to spark conversation about how the current political controversy over trade affects many areas of the law.

The editors of this blog come to the study of international trade law from a variety of doctrinal areas: environmental, intellectual property, agricultural, immigration, and administrative law, as well as more traditional international economic law perspectives. We are watching to see how trade law and policy will affect our doctrinal areas of interest and how they will affect yours.

Our goal is not to provide updates on every new development in trade law. That kind of information is already available elsewhere (and if you really get excited about every new anti-dumping investigation you are probably already reading those sources). We will, however, share breaking news when we think it has broader relevance within the legal profession, and will comment on what we think to be its implications.

Nor is our goal to provide detailed, trade-wonky analysis on every issue before the ITC, CIT, or WTO (you’re welcome). But we will go into relevant legal details necessary to understand the larger implications of important law and policy shifts. Want to know if Trump can charge a 20% tax on Mexican imports without violating Most Favored Nation? Want to know what happens under domestic law if he withdraws from NAFTA? So do we.

Much is unknown in this new political landscape, and the ripple effects of trade law and policy on other legal areas can only be monitored in real time. This potential reconfiguration may leave new winners and new losers, and emotions may run high. We hope to offer a forum for thoughtful, informed, and lively discussion about the fault lines in international trade and investment law and policy in 2017 and beyond. Thanks for participating.

April 12, 2017 | Permalink | Comments (0)