This is a Cross-post from SDCE Supply & Demand Chain Executive. Please contact Sarah Rathke with any questions.
This podcast interview led by SDCE Associate Editor Brielle Jaekel discusses surprising findings regarding buyer-supplier negotiations with Scotwork CEO Brian Buck and supply chain negotiation best practices with supply chain lawyer Sarah Rathke. You can listen to the podcast here.
This is a Cross-post from The Trade Practitioner blog.
On September 1, the Office of the US Trade Representative, working with the Departments of Commerce (DOC) and of Agriculture (USDA), announced a number of actions aimed at supporting domestic producers of seasonal/perishable produce. Their plans – which include new trade actions targeting certain fruit and vegetable imports – could have widespread impacts on produce prices and in how the US government responds to allegations of unfair subsidies supporting foreign-grown fruits and vegetables.
As part of the report, USTR announced:
DOC and USDA each also pledged to take actions aimed at supporting domestic producers of seasonal/perishable products, including efforts to promote domestic growers and to educate growers on unfair foreign subsidies.
Section 201 investigations are conducted by the ITC, which examines whether domestic industries have been seriously injured or threatened with serious injury as a result of increased imports. Notably, these actions do not require domestic parties to allege any unfair actions by the foreign producer (such as “dumping,” or selling merchandise for less than fair value, or benefiting from unfair foreign government subsidies). If the ITC finds in the affirmative, the President himself will decide what relief, if any, should be imposed. This relief could take the form of tariffs or quotas targeting foreign imports, either of which are almost certain to increase prices of the affected goods.
The joint agency actions comes after years of concerns voiced by domestic industry and congressional stakeholders that existing trade actions do not adequately address concerns with unfair imports of these goods, including as part of negotiations to modernize the North American Free Trade Agreement under its successor deal, the US-Mexico-Canada Agreement now in force.
For sovereign governments and businesses that may have questions related to Section 201 investigations and US trade enforcement proceedings, our team can help draft and submit comments during the investigation, work to secure congressional support for our arguments and counsel on the political dynamics underpinning any presidential action targeting foreign imports.
Please contact us with any questions.
This is a Cross-post from the Capital Thinking blog . Please contact Stacy Swanson with any questions.
On Tuesday, August 11, presumptive Democratic presidential nominee Joe Biden announced that he has selected Senator Kamala Devi Harris (D-California) as his vice presidential running mate. Since joining the U.S. Congress in 2017, Harris has in some instances served as a bridge between progressive and moderate Democratic positions and policies. However, Harris is typically characterized as a liberal, progressive Democrat. She has made immigration, equal pay and abortion rights core planks of her policy proposals. Her current congressional committee assignments in the 116th Congress include the Senate Judiciary, Homeland Security and Governmental Affairs, Intelligence and Budget.
A native of California, she was born in Oakland to immigrant parents from India (mother) and Jamaica (father). Prior to Congress, Harris, a lawyer, served as Attorney General of the State of California (2011-2017). She graduated from Howard University in Washington, D.C., and earned a law degree from the University of California, Hastings College of Law in San Francisco.
Early in her Washington, D.C., career, Harris was confronted with taking a public position on trade. During her 2016 Senate campaign, the Trans-Pacific Partnership (TPP) was one of the hottest political issues. She initially declined to take a firm stance on it, saying in 2015: “We want to strike a balance that allows America’s economy to prosper, and that’s going to be about our workers and our businesses.” After Representative Loretta Sanchez (D-California), a staunch TPP critic, challenged Harris for the Senate seat in California’s “top two” primary process, Harris came out in opposition to the trade pact, stating it did not adequately protect U.S. workers or the environment, citing in particular concerns with infringement on California’s environmental laws.
With respect to the U.S.-Mexico-Canada Agreement (USMCA), Harris was among a handful of Senators that opposed the trade pact even after it was modified to include additional labor and environmental enforcement provisions following negotiations between House Democrats and the Trump Administration. Biden voiced support for congressional approval of the deal that replaced the North American Free Trade Agreement (NAFTA). In voting against the USMCA, Harris stated the agreement would “set the [environmental] standards for decades, and I believe Californians and all Americans deserve better and more immediate action. For these reasons, I oppose this deal.”
During her 2019 presidential campaign, Harris sought to differentiate herself as a non-protectionist Democrat, saying, “We need to export American products, not American jobs. And to do that, we have to have a meaningful trade policy.” Harris has also said that the Trump Administration’s “trade taxes” (or tariffs) are taking $1.4 billion “out of working people’s pockets every month.”
She has criticized U.S. President Donald Trump’s proclivity to announce trade policy via Twitter. In a 2019 interview with CNN’s Jake Tapper, Harris said of U.S. trade policy, “I believe very strongly that we have to have policies that understand that, as it relates to the issue of trade, as it relates to the issue of various countries, including China, . . . that we have to supply and equip the American worker with the skills and the resources that they need to thrive, not only survive, but thrive.” Regarding Climate Change, Harris said, “[W]e need to do a better job in terms of thinking about the priorities that should be more apparent now perhaps than they were there, which are issues like climate, the climate crisis, and what we need to do to build into these trade agreements.”
Harris was an early supporter of the progressive’s “Green New Deal,” which seeks to reduce carbon emissions and create jobs by spending more on renewable energy. After the Senate voted down Senator Edward Markey’s (D-Massachusetts) Green New Deal bill in March 2019, Harris said, “Climate change is an existential threat, and confronting it requires bold action. . . . Combatting this crisis first requires the Republican majority to stop denying science and finally admit that climate change is real and humans are the dominant cause.” In July 2020, Harris introduced the Environmental Justice for All Act, companion legislation to a measure introduced earlier in the House of by Congressmen Donald McEachin (D-Virginia) and Raúl Grijalva (D-Arizona). The bill would give communities of color tools to address environmental disparities, including by engaging government decision-making processes, such as federal permitting decisions for infrastructure projects, the creation of climate resiliency plans, and the transition to clean energy. During the 115th Congress, Harris was a member of the Senate Environment and Public Works Committee.
Given her Climate Change platform and California origins, Harris will likely continue to support policies that favor electric cars over gas-powered cars in the United States. She has opposed the Trump Administration’s efforts to reverse the Obama-era fuel efficiency standards. During a 2019 Town Hall, Harris also stated she would push to have basically zero-emission vehicles only by 2045, however her climate plan as a then-presidential contender called requiring 100% of vehicles be zero-emission as soon as 2035.
Harris has said of the People’s Republic of China (China), “They steal our products, including our intellectual property. They dump substandard products into our economy. They need to be held accountable.” However, she opposes unilateral action against China, expressing a preference for working with allies to address issues with China, including “the threat that it presents to our economy, the threat it presents to American workers and American industries.” She has also previously acknowledged China could possibly help address climate change concerns and North Korea. Despite having connections to India, Harris has not been vocal on the ongoing trade talks or trade concerns with respect to that country.
In September 2019, Harris joined ten other Democratic Senators in sending a letter to U.S. Trade Representative Robert Lighthizer urging him against going forward with any trade negotiations with Brazil. The Senators expressed environmental concerns, saying Brazilian President Jair Bolsonaro needs to enforce fully his country’s environmental laws and regulations to protect the Amazon from continued illegal deforestation. The Senators also urged Ambassador Lighthizer to resolve the ongoing trade war with China, observing disrupted global trade patterns have driven China to rely increasingly on Brazil for beef and soybeans, which has in turn resulted in Brazil clearing more of the Amazon forest for agriculture.
Notably, Harris has broken with progressive Democrats with respect to their increased criticism of the Israeli Government. Married to Douglas Emhoff, a Jewish attorney who at previously served as partner-in-charge at Venable LLP’s Los Angeles office and currently at DLA Piper in Los Angeles, Harris takes a moderate position and supports a two-state solution in Israel and Israel’s “right to defend itself” from Hamas attacks from Gaza. She has also expressed support for the United States rejoining the Iran nuclear agreement, if the United States can verify Iran is complying with the strict requirements detailed in the Joint Comprehensive Plan of Action.
As a politician and former prosecutor, Harris will likely also push to tighten regulations. In her words, “In California, we have some of the strongest consumer protection laws in the country. While it is easy to conceive of innovation and regulation as mutually exclusive, California is proof that we can do both. We can innovate responsibly.” Ultimately, as his running mate, Harris will advocate Joe Biden’s policies and platforms. However, her positions can help influence Biden’s policies, including on trade and foreign policy matters, during the campaign and beyond.
This is a Cross-post from The Trade Practitioner blog. Please contact Frank Samolis and Ludmilla Kasulke with any questions.
Despite the Congressional recess and continued focus on COVID-19 economic relief, Trump officials announced several major trade actions over the last week that could impact global trade and supply chains. Here is a quick round-up of recent developments and what may be coming next.
As part of his remarks at a Whirlpool manufacturing facility in Ohio last Thursday, President Trump suggested that additional trade actions could follow. It is not clear whether he was referring to the TikTok/WeChat executive orders, which were signed later that afternoon. Furthermore, the Office of the US Trade Representative is expected to announce whether and how it will modify the tariff list in the large civil aircraft dispute with the EU as soon as this week.
August is traditionally a quiet time in Washington, especially in an election year, but not for trade. Our team continues to track developments and advise clients on how to shape their supply chains and operations in response to the latest developments.
Please contact Frank Samolis and Ludmilla Kasulke with any questions.
This is a Cross-post from the Conflict Minerals Law blog. Please contact Dynda A. Thomas with any questions.
In less than 7 months, the EU conflict minerals regulation will take full effect, and importers into the European Union of certain threshold amounts of tin, tantalum, tungsten and gold (3TG) and of metals containing 3TG will be subject to it. As of today, despite Brexit, importers into the UK will be subject to it as well. Those Union importers should be taking action now to supplement their compliance programs to address the due diligence, risk mitigation and audit requirements of the EU regulation. In anticipation of those requirements, some importers may consider replacing certain of their direct and indirect suppliers. And, such changes take time.
The EU conflict minerals regulation is expected to cover over 1,000 Union importers and will indirectly impact tens of thousands of economic actors in the European Union – many more than are covered by the US conflict minerals rule. The EU regulation covers more forms of minerals and metals and has a much broader geographic focus than the US rule. Further, Union importers will be required to obtain third-party audits and undertake consultations with stakeholders if they reach certain conclusions about the direct and indirect suppliers in their supply chains.
EU Conflict Minerals Regulation — Adding to Your Compliance Program outlines the types of initial steps a Union importer can take to develop (or expand) its conflict minerals compliance program to address the requirements of the EU regulation.
On June 8, 2020, the Federal Reserve (or “Fed”) published updated FAQs (the “FAQ”) and updated term sheets for the Main Street Lending Program (“MSLP”). The new FAQ, which may be further revised, updates prior FAQs that were published on April 30, 2020 and revised on May 27, 2020. The most recent revisions increase the appeal of the program for US businesses in a number of ways, including by (1) lowering the minimum loan size for “New Loans” and “Priority Loans” to $250,000, (2) increasing the maximum loan size for all Main Street Loans, (3) lengthening the term of the loans from 4 years to 5 years, and providing an additional year of payment deferment, (4) increasing the FRB Boston participation rate in “Priority Loans” to 95% (from 85%), and (5) reducing the amortization schedule for “New Loans”.
Our colleagues, James Schneider, Kirk Beckhorn, Adam Nazette, James Barresi, Thomas Reems, David Stewart, and Danielle Asaad, have prepared a client alert that summarizes key updates provided by the Fed over the past two weeks and summarizes the program forms provided by FRB Boston. It also calls attention to aspects of the MSLP that potential borrowers and lenders should consider when participating in the MSLP, and highlights some ambiguities that might affect their analysis of the program and its terms. In addition, it contains a chart at the end that summarizes the differences and similarities between the three categories of loans under the MSLP. Read the full client alert below:
Most states and U.S. territories have now begun reopening at least parts of their economies. The reopening efforts purport to follow a three-phase White House plan, even though not many states have met the plan’s benchmarks, including a “downward trajectory” in coronavirus cases. The White House guidelines are not mandatory. Rather, they advise governors to take a state-wide or county-by-county approach to analyzing the progress made in combating the coronavirus hotspots and permitting economic and social activity accordingly. Easier said than done. Reopening is proving challenging as leaders across the country are weighing health, economic, and political ramifications of opening too soon, too quickly, or not soon enough. At a congressional hearing last week, Dr. Anthony Fauci warned that reopening too quickly poses “a real risk that you will trigger an outbreak that you may not be able to control.”
Our colleagues Kristina Arianina and Dimitar Georgiev have prepared a thoughtful article that considers the roles both state and local officials have in determining the pace and approach at which to reopen. Read the full article here.
The announcement from HM Treasury on May 13 2020 to support trade credit insurance has to be very welcome news for many UK businesses and their supply chains. It is a very significant announcement because trade credit insurance plays a vital role in supply chains, oiling, as it does, the wheels of domestic and global trade.
In the UK and the world over, supply chains have been under very significant strain and distress over recent weeks, and in some cases are even broken right now, as a result of the ongoing COVID-19 pandemic. This will likely lead to increased risk of supply chain insolvencies with falling demand for some products or certain supply chain partners seeking to push out payment terms.
The further government assurance of trade credit, which complements all the other financial support packages put in place by the government over recent weeks, such as the various loan schemes and furlough arrangements, will undoubtedly help many businesses to better plan and continue to do (or recommence) business with added security and confidence as the economy re-opens/re-energizes – but without additional financial headaches and cash-flow constraints. We have prepared a client alert with more information on the announcement from HM Treasury to support trade credit insurance. Read the full client alert below:
This is a Cross-post from the Insurance and Reinsurance Disputes Blog. Please contact Aaron C. Garavaglia with any questions.
Back in March, when the novel coronavirus was spreading and local and state governments were issuing stay-home orders, we published a blog post on Civil Authority Orders and COVID-19 Coverage. Since that time, there have been over 125 lawsuits filed by insured businesses, many of them arguing that the economic damages caused by these COVID-19 governmental orders, by themselves, trigger coverage under business interruption-type provisions of property policies. The argument goes that because the civil orders restricted operations or forced businesses to close, the insurance policies should pay regardless of whether there is actual physical damage to property.
In this blog post, we take a further look into civil authority order provisions and whether the order alone is a sufficient trigger of coverage. As has been said previously, the specific facts of the alleged loss and the actual words of the individual policy may affect whether coverage exists.
Many business and property insurance policies contain a civil authority coverage provision. Under the most common policy language, this coverage applies when a civil authority (e.g., state, local or federal governmental entity) prohibits or restricts access to an insured’s premises due to direct physical loss of or damage to property other than at the insured’s premises, from a covered cause of loss.
A form of civil authority coverage has been in use for at least sixty years. In an early case, Cleland Simpson Co. v. Firemen’s Insurance Co. of Newark, N.J., 140 A.2d 41 (Pa. 1958), the Pennsylvania Supreme Court declined to find coverage after the mayor proclaimed a state of emergency and ordered stores closed in anticipation of a hurricane and related fire damage. The policy provision stated:
Liability under this policy is extended to include actual loss as covered hereunder sustained during the period of time, not exceeding two weeks, when as a direct result of a peril insured against access to the premises described is prohibited by order of civil authority.
Id. at 45. (Emphasis added). The court stated, “We can only conclude that the clear language of the policy restricts the loss to that following a direct invasion of the property by fire or another specified peril and the subsequent prohibition by civil authority of access to the properties.” Id. The court made two points. First, the order had to come after the peril for coverage to apply. Second, the peril had to affect the property (direct invasion of property by fire).
Several years later, in Bros., Inc. v. Liberty Mutual Fire Insurance Co., 268 A.2d 611 (D.C. 1970), the D.C. Court of Appeals affirmed summary judgment for the insurer and declined to find coverage under a civil authority provision. A restaurant’s business was interrupted after the District ordered a curfew to deter demonstrations in response to Dr. Martin Luther King, Jr.’s assassination. The policy in Bros. provided that:
This policy is extended to include the actual loss sustained by the Insured, resulting directly from an interruption of business as covered hereunder, during the length of time, not exceeding 2 consecutive weeks, when, as a direct result of damage to or destruction of property adjacent to the premises herein described by the peril(s) insured against, access to such described premises is specifically prohibited by order of civil authority.
Id. at 613. (Emphasis added). The court noted the insured “did not claim physical damage to the premises,” and “the claim was founded on loss of business due solely to the curfew and accompanying municipal regulations.” Id. at 612. When declining coverage, the court stated “though the loss alleged resulted from the curfew and municipal regulations, these did not prohibit access to the premises because of damage to or destruction of adjacent property.” Id. at 614. This is precisely the same factual situation presented by many of the COVID-19 declaratory judgment actions. The claims are founded on loss of business due solely to the stay-home orders closing non-essential businesses and not because of direct physical damage to adjacent property.
Since Cleland and Bros., civil authority provisions have continued to evolve. For instance, ISO Form CP 00 30 (4-02 ed.) states:
We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused or resulting from any Covered Cause of Loss (Emphasis added).
As numerous courts have stated, the presence of the phrase “due to direct physical loss of or damage to property,” or its equivalent, in policy language is crucial to determining whether coverage exists.
It is clear that the loss of income triggered by a civil authority order shuttering a business is, by itself, insufficient to trigger coverage. When a policy specifies “direct physical loss,” the absence of “physical loss” prior to a civil authority order is a dispositive factor that likely will preclude coverage.
For example, in Dickie Brennan & Co. v. Lexington Insurance Co., 636 F.3d 683 (5th Cir. 2011), the court addressed whether a series of New Orleans restaurants were entitled to coverage for income lost as a result of a mandatory evacuation order issued prior to Hurricane Gustav’s landfall. Id. at 684. The order specified “anticipated high lake and marsh tides due to the tidal surge, combined with the possibility of intense thunderstorms, hurricane force winds, and widespread severe flooding.” Id. at 684. The policy stated:
We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.
Id. at 685. (Emphasis added). The Fifth Circuit affirmed summary judgment for the insurer and set out a four-factor test for coverage under a civil authority provision. The test required a policyholder to establish a loss of business income:
(1) caused by an action of civil authority; (2) the action of civil authority must prohibit access to the described premises of the insured; (3) the action of civil authority prohibiting access to the described premises must be caused by direct physical loss of or damage to property other than at the described premises; and (4) the loss or damage to property other than the described premises must be caused by or result from a covered cause of loss as set forth in the policy.
Id. at 685. (Emphasis added). Focusing on the third factor, the court found the insured failed to “demonstrate a nexus between any prior property damage and the evacuation order.” Id. at 686. The court found that “physical damage to other premises in the proximity of the insured’s property” was a prerequisite to civil authority coverage. Id. at 687.
The court also rejected the policyholder’s argument that prior damage in the Caribbean and the hurricane’s projected path toward New Orleans were sufficient when the policy did not specify any geographical limitations. Id. at 686 (“Nothing in the record, including the order itself, shows that the issuance of the order was ‘due to’ physical damage to property, either distant property in the Caribbean or property in Louisiana.”). The court also acknowledged that both sides agreed there had been no property damage in Louisiana at the time the order was issued and the order identified future harm, e.g., “possible future storm surge, high winds, and flooding based on Gustav’s predicted path as reasons for evacuation.” Id. at 686.
Similarly, in Jones v. Chubb Corp., No. 09-6057, 2010 U.S. Dist. LEXIS 109055 (E.D. La. Oct. 12, 2010), the court granted summary judgment for the insurer. Citing “anticipated high tides and the possibility of hurricane force winds and widespread severe flooding” as factors that necessitated evacuation, the mayor of New Orleans issued two evacuation orders and declared a state of emergency. Id. at *3. The insured’s policy stated:
We will pay for the actual business income loss you incur due to the actual impairment of your operations, directly caused by the prohibition of access to your premises by a civil authority. This prohibition of access by a civil authority must be the direct result of direct physical loss or damage to property away from such premises or such dependent business premises by a covered peril.
Id. at *7. (Emphasis added). For the Jones court, the presence of the bolded language meant a prompt answer to the coverage question. The court found the policy should be strictly construed and stated:
The Policy does not insure against impairment of operations that occurs simply because a civil authority prohibits access unless the civil authority order meets the requirements of the policy–one of those requirements is a nexus between the order and certain physical damage. Reading the Civil Authority section as a whole, it is clear that it was not written with the expectation that a civil authority order prohibiting access would issue before the property damage that forms the basis of the order actually occurs.
Id. at **8-9. (Emphasis added). In Jones, the absence of prerequisite physical damage under common policy terms meant a civil authority order could not trigger coverage by itself. Underscoring that physical damage is a prerequisite to coverage, the court stated that the second evacuation order, issued after the hurricane made landfall, “arguably . . . could trigger Civil Authority coverage” because it prohibited access “in light of damage sustained throughout the City of New Orleans.” Id. at *10. Ultimately, the court held there was no coverage because of the waiting period in the policy.
The civil orders issued across the nation in response to the novel coronavirus pandemic, on their own, should not trigger coverage under most business interruption insurance provisions. Where the insurance policy requires direct physical loss of or damage to property by a covered cause of loss, the same analysis as the cases discussed above apply. Moreover, civil orders issued as preventive measures prior to any physical damage should not trigger coverage, as there has to be a direct nexus between preexisting physical damage to property and the civil order.
In the wake of the COVID-19 pandemic, we often are asked what our clients should do if a business counterparty (such as a vendor, customer or other contract counterparty) is suffering distress and may be contemplating filing for bankruptcy. It is, of course, impossible to anticipate every possible scenario, but our colleagues in the Restructuring and Insolvency group, Stephen D. Lerner, Karol K. Denniston, Christopher J. Giaimo, Nava Hazan, Norman N. Kinel, Peter R. Morrison, Jeffrey N. Rothleder, Mark A. Salzberg, and Kelly E. Singer, have prepared a very helpful client alert including several general “do’s and don’ts” to consider. Recognizing that the facts and circumstances differ as to each situation, as always, it is best to consult your restructuring advisors as soon as possible if you believe a business counterparty is suffering financial distress and may be close to bankruptcy. They will be able to tailor the advice to the specifics of the circumstances. Read the full client alert below:
