By Alexander Spano
Competition Law and Development is the second book in the new series Global Competition Law and Economics edited by D. Daniel Sokol, Thomas K. Cheng, and Ioannis Lianos and published by Stanford University Press. This volume provides “a number of viewpoints of what competition law and policy means both in theory and practice in a development context.” As the volume makes clear, developing countries have certainly made great progress in the area of competition law. Still, the application of new competition rules inevitably encounters several obstacles, and their effectiveness also depends on the implementation of other institutional and legal reforms. Expected challenges relate to issues pre-dating the enactment of competition law: the ongoing process of economic transition that developing countries pursue. Thus, although competition law and policy certainly represent a stimulus to accelerate economic reforms and establish a competitive market environment, this should not be seen as an isolated step. Without an adequate legal and institutional infrastructure, the ambitious market reform initiatives of developing countries may not achieve their desired success.
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By Josh Steinman
With the unprecedented growth of the Chinese economy, an increasing number of Chinese companies have sought to access the American capital markets. In recent years, many Chinese companies have done so by employing transactions known as reverse mergers. A Chinese Reverse Merger (CRM) involves a privately held Chinese operating company utilizing a suitable shell company, or kegongsi, as a vehicle for trading its shares in the United States. Over the past several years, reverse mergers have been the preferred mode for Chinese companies to become publicly traded in the United States, and CRMs have comprised a substantial proportion of the overall number of reverse mergers. These transactions have garnered a significant amount of public scrutiny due to numerous instances of fraud, accounting deficiencies, and other nefarious activities.
To a certain extent, the skepticism of CRMs expressed by commentators, scholars, and regulators is warranted. However, the current regulatory trend aimed at reverse mergers, and CRMs in particular, is not the ideal approach to curb fraud among CRM companies. CRMs are not inherently problematic, and regulations that unduly burden reverse merger transactions in the United States may have a chilling effect on American capital markets. More efficient laws would involve a continued push towards cooperation with Chinese authorities. This collaboration should allow the Public Company Accounting Oversight Board to play a more prominent role in the inspection of Chinese audits and provide the U.S. Securities and Exchange Commission with the ability to require the disclosure of filings with Chinese regulators. These measures would target the primary means by which CRM companies engage in fraud—namely, misrepresenting their financial health and taking advantage of the lack of cooperation between China and the United States to provide Chinese and U.S. regulators with drastically different filings.
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By Kate Barth
During the tumultuous fiscal years of the past few decades, the World Bank, acting in its capacity as a lender of last resort, granted unsecured loans to debt-ridden sovereigns. Instead of taking a lien over the state’s assets, the World Bank protected its interests via a broadly worded Negative Pledge Clause. This clause ensures that any lien created on any public assets as security for external debt that results in priority for a third-party creditor equally and ratably secures all amounts payable by the borrowing state. In short, should such a lien be granted, the World Bank shares in the amounts paid out to the third party creditor, thus preventing the creditor from enjoying senior creditor status and undermining the value of any later-granted lien. Including the Negative Pledge Clause in World Bank loan agreements helps mitigate the World Bank’s risk of providing unsecured loans by ensuring that a developing nation will not give a later creditor priority over its assets. In theory, such a pledge protects both the World Bank as a creditor and the sovereign nation as the debtor. However, the barrier that the Negative Pledge Clause constructs around a state’s ability to engage with other creditors is so formidable that the clause may prevent the state from attracting commercial investment for project financings.
As currently drafted, the Negative Pledge Clause dissuades commercial lenders from investing in exactly the kinds of projects that might further development and enrich a nation (thus strengthening the nation’s ability to pay back its debts). This is not only unfortunate for the developing countries involved, but also challenges the raison d’être of the World Bank, a multilateral institution designed to promote development. This article proposes reforming the Negative Pledge Clause by clarifying the language of the text and the consequences of a breach in a way that narrows the breadth of the clause. This article also argues that the World Bank would better achieve its overall purpose of promoting development by including a project finance exception to the Negative Pledge Clause in an effort to attract investors to projects that help expand the debtor nation’s infrastructure.
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By Amitendu Palit
In response to Sumeet Jain’s article, “You Say Nano, We Say No-No:” Getting a “Yes” Instead for Special Economic Zones in India, Amitendu Palit challenges Jain’s position that greater incorporation of public views and procedural reforms will generate more favorable perceptions of India’s Special Economic Zones (SEZs) policy. Though Palit acknowledges that the opposition to SEZs stems from the lack of debate or discussion around the implementation of these development zones, he does not agree that SEZs will gain more support with an increased induction of public opinion and technical improvements in SEZ policy.
At bottom, the underlying conflict between “market-based” and “rights-based” approaches to industrial development in India must be settled. According to Palit, it is unclear whether regulation negotiations, even if fixed specifically on the issue of acquiring land for industry and SEZs, can yield the right solutions unless proponents of both approaches are primed to better appreciate each other’s positions.
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By Anne Sweigart
Across Europe, quotas for female membership on corporate boards have been generating interest, and in a few countries, these quotas have been passed and are awaiting implementation. The quotas are designed to rectify the extreme gender imbalance on corporate boards, which persists despite female advancements in education and workforce participation. In the European Union, women represented just 9.7% of the board members at the top 300 companies in 2008. The lack of progress in women’s corporate leadership is not a European problem alone: in the United States, women make up fewer than 15% of all Fortune 1000 directors.
Since January 1, 2008, Norway has enforced a gender quota requirement for corporate board membership at all public limited liability companies. For most of these companies, the quota requires 40% female board membership. While it is too early to tell exactly how this quota has impacted Norway, the positive effects associated with women on corporate boards indicate the value of increased gender diversity. Quotas like the ones passed in Norway are the most viable means for increasing board diversity and, ultimately, adding value to firms in other countries as well.
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By Daniel Gandert
This year, London is preparing to be the first city to host the Olympic Games three times. While there has been news about the various preparations taking place for the games, one story that has made the British headlines is the question of whether Dwain Chambers and other British athletes with past doping offenses will be eligible to participate. A British Olympic Association (BOA) bylaw prohibits any athlete with a past doping offense from representing Britain in the Olympics for life.
Dwain Chambers, a sprinter, established himself as the fastest European at the 2000 Olympics in Sydney. He became involved with the Bay Area Laboratory Cooperative (BALCO) scandal, which is perhaps the biggest doping scandal in the history of sports. In this scandal, the BALCO laboratory provided prohibited substances to many elite athletes in both track and field and U.S. professional baseball. As part of the scandal, Chambers consumed the steroid Tetrahydrogestrinone (THG) and upon getting caught, was suspended from competing in athletics for two years. This triggered the BOA’s Bylaw 25, which prohibits athletes with doping offenses from competing for Britain in the Olympics for life. Chambers admitted to using prohibited substances, came back to the track world, and ended up running faster than he did while he was doping. Nonetheless, because of the Bylaw, Chambers is prohibited from representing Britain at the Olympics again even though athletes from other countries who have completed their doping suspension will have no legal obstacle preventing them from competing in this summer’s games. The Court of Arbitration for Sport held a hearing regarding the validity of this rule on March 12th, with a decision to be released in early April.
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By Matthew H. Adler
A recent decision by the United States Court of Appeals for the Second Circuit represents a dramatic step backward for the enforcement in the United States of international arbitration awards. In Figueiredo Ferraz e Engenharia de Projeto Ltda. v. Republic of Peru, the Second Circuit held that enforcement of international arbitration awards pursuant to a multilateral treaty is subject to the U.S. common law doctrine of forum non conveniens (FNC). Given that FNC relates to the convenience of holding a trial on the underlying merits, rather than the “convenience” of locating and executing upon assets post-judgment, FNC should have little if any relevance to enforcement actions. The Second Circuit’s reasoning is particularly weak because it did not proceed on commonly understood convenience factors at all. Instead, the Second Circuit expressed concern that enforcement in the United States would demonstrate improper respect for a Peruvian statute that would restrict payment of the arbitration award. Therefore, the court deemed it inconvenient for any Peruvian entity that would be entitled to the protective armor of this statute in Peru to be subject to enforcement proceedings in the United States.
The Second Circuit managed to mangle several doctrines at once, creating a number of problems. First, FNC should be a narrowly restricted doctrine that relates to the trial of underlying facts and not to the enforcement of a resulting award or judgment. Once an award is rendered, assets should be deemed convenient to attach wherever they are located, a point that is the essence of enforcement. Second, public policy concerns have nothing to do with FNC; rather, the public policy exception of the New York Convention is a wholly separate section of that treaty. Third, it is not the blanket “public policy” of the United States to defer automatically to the laws of other countries, especially where those laws interfere directly with the multilateral commitment made by both the United States and Peru to enforce international arbitration awards. By cloaking its public policy holding in FNC garb, the Second Circuit misapplied one doctrine, misstated another, and left enforcement of future international arbitration awards—at least in the critical commercial center that is New York—potentially in considerable disarray.
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