Commercial Law International

By: Carsten Lexa

In 2009 there were about 30 million credit card holders in the UK, holding about 58 million credit cards, down from 66 million credit cards in 2008. Beyond that, total household debt in the UK has reached a level of 1400 billion pounds sterling, of which 55 billion pounds sterling is on credit cards. When loooking at these numbers, one can easily figure out that the credit card business is “big business” in Britain.

And the credit card lenders are making big money. This is partly due to the general interest on the money borrowed to credit card holders and also due to various fees for using the credit cards. But it is also partly due to a lot of practices that are – carefully spoken – very favorable for the credit card companies. One specific industry practice is for example that repayments go towards credit card debt at the lowest interest rate, not towards debt with the highest rate.

The UK Government and several credit card companies and related associations have now announced a “new deal” that will change a lot of the industry practices unfavorable for credit card users. Most of the contents of the “new deal” will come into effect in January 2011. UK Government estimates that the changes based on the “new deal” will save customers about 300 million pounds sterling a year.

Here is what´s new for credit card owners:

1. Under the “right to repayment”, credit card issuers will use customers´ monthly repayments to pay their most expensive debt first. For customers opening new accounts, the minimum payment will always cover at least interest, fees and charges, plus 1% of the principal. Formerly, the minimum repayment often covered only interest and not repayment of the principal.

2. With the “right to control”, consumers will have the right to choose not to receive credit limit increases in future and the right to reduce their limit at any time. Additionally, if certain consumers are at risk of financial difficulty, credit card companies may be banned from extending the existing credit limit.

3. The “right to reject” will give consumers more time to reject increases in their interest rates or their credit card limit.

4. The customers will receive a “right to information”. This means that customers at risk of financial difficulties will be given guidance on the consequences of paying back too little and that all consumers will be given clear information on increases in interrest rates or credit card limit including the right to reject.

5. Finally, the “right to compare” will provide consumers with an annual statement that allows for easy cost comparison with other providers of credit cards.

These changes should allow credit card users (and store card users, because the changes will also effect these type of cards) to manage their finances and their debt more easily. It will also save them money, because repayments will now go towards debt with the highest interest rate, meaning interest payments will be reduced. However, the changes are only part of an agreement between the UK Government and the credit card industry. They are not elements of new legislation. But the UK Government promised to place the agreement on a statutory footing if credit card companies do not stick to the agreement. Hopefully, this will not be the case.

For inquiries please contact the author: kontakt@kanzlei-lexa.de

By: Ainsley Brown

In a move to boost its faltering economy, the Japanese government is considering a radical alteration of its inheritance tax regime. The policy, if implemented and if it has the desired effect, could see trillions of yen being transferred from elderly savings conscious Japanese to their more free-spending children or grandchildren.

Japan: will the elder cash flow?

The policy basically boils down to having people pass on their money now rather than bequeath it in a will. The government then in turn believes that with this new ‘glut’ of cash, younger Japanese being less saving conscious than their elders will open their wallets giving the economy a much needed boost.

According to the Times, the governing Democratic Party of Japan led by Yukio Hatoyama will announce the new policy in its manifesto to be published next month. The policy change would see a significant rise in the inheritance tax being accompanied by the slashing of the gift tax by about half. In making it much cheaper for people to gift inheritances rather than by bequeath, the government hopes this will be sufficient enticement for the elders to give up their cash now. And secondly, with their new found wealth the younger Japanese will give domestic consumer spending and thus the economy a well needed boost.

Will it work? We shall see.

By: Ainsley Brown

It seems like there is more bad news for US exporters of Chicken to China – get ready for a whole new round of tariffs.

China has over the years become the largest export market for US chicken with sales of over US$722 million in 2008. The Chinese market for US exporters is a win/win; representing a dynamic market with tremendous growth potential, much of which consisting of chicken feet sales. The chicken feet market in the US is so small that chicken feet are often considered waste and therefore a cost; in China the reverse is true.

These new countervailing duties, of up to 31.4%, are on top of the anti-dumping duties China has already imposed earlier this year. The anti-dumping duties, as covered in a pervious post, range from 43.1% to 105.4% were imposed after a Chinese anti-dumping investigation  which found that the Chinese domestic market had suffered material injury from the cheaper US imports. Unlike anti-dumping duties, countervailing duties are not imposed because of dumping – selling goods cheaper than the cost of production – but because of unfair subsidization – state support. In this case the Chinese are complaining about the subsidies on corn and soybeans that go into making chicken feed.

These new tariffs represent a first for China; it has never before imposed countervailing duties on an agricultural import. The move by the Chinese Commerce Ministry comes as a bit of a surprised considering the recent warming of relations between the two nations.

By: Ainsley Brown

When an industry approaches being worth close to a trillion dollars it can no longer be considered a passing fancy or fad – Islamic banking and finance (IBF) is real and is as much a part of the global financial system as “conventional” finance.

It is this realization that has prompted Australia to conduct a review of its tax laws and their impact on IBF. The aim of the review, to be conducted by the Australian Board of Taxation, is to strategically position Australia to take advantage of the growing IBF market. As much was acknowledged by Australia’s Assistant Treasurer Senator Nick Sherry, “Islamic finance is a rapidly growing part of the global financial system and Australia is in an excellent position to capitalize on that growth, but we have to ensure our tax system doesn’t unnecessarily prevent that from happening.” Moreover, according to Sherry, “if Australia continues down the path of accommodating this type of finance it will serve Australia in terms of capital attraction, jobs and growth.”

The review is less about giving IBF special treatment under the law and more about finding and then removing barriers that unnecessarily and unfairly burden IBF. In ordering the Board of Taxation to conduct this review the Assistant Treasurer made it clear that “this is not about special treatment or concessions for Islamic finance or its providers, but about securing that our system doesn’t unfairly disadvantage or preclude such instruments and, in doing so, deprive Australia of capital, jobs and growth.”

The review will be among the first to be conducted by an Organization of Economic Co-operation and Development (OECD) country.

When will it be Canada’s turn?

From us here at Commercial Law International: Have a Happy Earth Day.

Let’s all work together for a prosperous and sustainable future.

By: Ainsley Brown

The trade skirmish that has erupted between China and the European Union over shoe tariffs has been one that I have being following very closely here on Commercial Law international. And, yes you guessed it, each side continues to exchange salvoes; the latest being China moving from the consultative stage of the World Trade Organization’s (WTO) dispute resolution procedure to the next stage, which is the request for the formation of a WTO Panel (tribunal) – click here for a break down of the WTO’s dispute resolution process.

As far as the Chinese concerned the 16.5% duty imposed by the EU violates WTO rules by being protectionist, namely the EU has not demonstrated that is shoe industry has or will suffer material damage from Chinese imports. The EU for its part has countered with the claim that its anti-dumping measures are not protectionist and are WTO compliant.

It will be interesting to see who will prevail in the end.

As an interesting aside a new front – an internal EU – has recently opened up in this battle and has to be watched closely. The Federation of European Sporting Goods Industry (FESI), the organization that represents many EU based sporting goods manufactures such as Adidas, Fila, Nike and Umbro, last month has taken the EU Commission to the European Court of Justice (ECJ). The FESI has launched suit in the belief that “the EU’s decision to extend the duties for a further 15 months in December 2009was based on inappropriate investigation and a flawed analysis of the facts,” according to its own press release.

It will be interesting to see what influences either proceeding will have other the other. For example what if the ECJ sides with the FESI, on what basis would the EU then justify the continuation of the duties at the WTO if its own internal court has ruled against it?

Lastly it will also be very interesting to watch if the Vietnamese, affected by the same tariffs, will join the Chinese in their complaint and how this would affect the recently launched EU-Vietnam trade talks?

All very interesting, indeed!

By: Ainsley Brown

As previously reported in another post, four white farmers who had their farms unlawfully seized under the regime of President Robert Mugabe are to seek and by all accounts gain compensation in South Africa. Well, I am please to report that the farmers have indeed gotten – some measure of – justice in South Africa.

Symbolic victory.....they matter

Justice for the farmers comes in the form of the seizure of a property owned by the Zimbabwean government located in Cape Town, this after a South African court ruling allowing this property and perhaps others to be attached and likewise seized. The South African ruling was a move at the enforcement of a Southern African Development Community (SADC) tribunal’s ruling that found that the Zimbabwean government’s seizures of white owned farms illegal and racist.

The property in no way comes close to reflecting the full value of the farms seized but it does represent a very important symbolic victory for the farmers – and yes symbols do matter.

By Charles Wanguhu

The town of Lamu began life as a 14th century Swahili settlement and is described in the official tourism website:

“Lamu is a place like no other, a peaceful tropical island where life is lived at it’s own relaxed rhythm. a beautiful place of rolling dunes and endless beaches, where tiny villages nestle among coconut and mango plantations and lateen sailed dhows ply the waters”

Lamu Old Town was inscribed as a World Heritage Site by UNESCO’s World Heritage Centre in December 2001. And up to recently the only motor vehicle present on the island was a government owned land rover.

What happens when a sleepy idyllic island is faced with accelerated development? Well the scene is unfolding in Lamu as the Kenyan government plans to build a multi-billion shilling ultra modern port Lamu Port that seeks to tap into the northern frontier with Ethiopia and Southern Sudan. Commercial drilling of oil in Uganda could further increase activity at the new port where a new refinery and the port are slated to be completed by 2016.

One of the other intriguing undercurrents of the Lamu project is a so called “soft competition” between China and Japan.  China’s Foreign Affairs Minister Yang Jiechi while meeting government officials offered a grant of Sh540 million and further committed to contribute towards the construction of the port. Japan on the other hand plans a Sh114 billion investment in 1400 kilometre-long oil export pipeline stretching from Juba, Southern Sudan to the port of Lamu.

There are two schools of thought on the whole project. With those adamant that the building of a port will have a negative impact and the other eagerly awaiting jobs and the much needed infrastructure to the island.

There is genuine fear that most of the eagerly awaited benefits may be more national than for the current dwellers of the island. Low levels of education hinder the enrolment of locals in the more prestigious and lucrative jobs.

With current inhabitants likely to suffer form sharing of the already scarce resources, as it is lamu has inadequate sewage and drainage systems. In addition water scarcity is another challenge with increased salination of wells.

Only time will tell whether development will be a dirty word for Lamu and whether modernisation can live side by side with social and cultural heritage.

By: Eran D. Grossman,  Esq.

More problems are on the horizon between government regulators and local U.S. banks (smaller, regional and/or community banks) over how to handle falling commercial property values.  Currently, banks are holding roughly $1.9 billion in commercial real estate loans, which equals about a quarter of all outstanding loans, according to Moody’s.  The values of such loans have plummeted about 50% since their peak in 2007.

Why is this a problem?

This drastic reduction in value country-wide is disproportionally hurting the smaller bank since they tend to have a larger concentration of capital invested in commercial real estate loans.  These smaller institutions compose the majority of banks in the U.S. as they hold a majority of outstanding commercial real estate debt.  These smaller banks are less equipped to handle sharp and steady decreases in commercial property values than their larger institutional bank counterparts.  As a result, since many of these loans are underperforming and in default, smaller bank failure may be right around the corner as banks struggle to stay afloat.  Therefore, there is now mounting pressure from government regulators over how to handle falling commercial property value and to keep these smaller institutions buoyant and lending.

One contentious problem is what constitutes a performing loan.  Banks argue that so long as the borrower is making interest payments only, the loan should be rendered performing.  Regulators argue that banks should be more realistic in their assessments as to whether a loan will remain performing, given the decreases in value in the marketplace.  Further, regulators indicated that a loan should not be reclassified simply because the value of the property has dropped.  However, bankers have stated this is exactly what is happening.

Due to this overwhelming problem- banks suffocating on the bad loans they originated- they have less desire to continue lending.  In fact, Moody’s has estimated that many smaller banks will not be participating in the Obama Administration’s $30 billion initiative to encourage small business lending because of insufficient capital.

Solutions?  Regulators want these banks to writedown the troubled loans.  A writedown is when a banks recognizes the reduced value of an impaired asset (an asset’s current market value is less than the market value at the time of loan origination), also commonly known as an underwater asset.  The problem for the bank is that a writeoff will leave the asset with a lower value, thus lowering the value of the banks overall assets.  This also poses a problem for bank investors.  If investors realize that this will become a common bank practice, they will be less inclined to invest, thus resulting in banks being less inclined to lend.  Stay tuned as this problem will only get worse before it gets any better…

By: Ainsley Brown

Four white farmers who had their farms unlawfully seized under the regime of President Robert Mugabe are to seek by all accounts gain compensation in South Africa.

A South African court has ruled recently that the farmers have the right to seek out and seize Zimbabwean government property in South Africa. The North Gauteng High Court ruled that the judgment in favour of the farmers handed down in December 2008 by a Southern African Development Community (SADC) tribunal was fully enforceable in South Africa. With this ruling the High Court made it clear, if there was any doubt, that as a signatory of the SADC treaty South Africa has an obligation to uphold and enforce judgments coming from a SADC tribunal.

The ruling clears the path for non-diplomatic property owned by the government of Zimbabwe to be subject to a writ of attachment, seized, and possibly sold to satisfy the judgment. Additionally, it also clears the path for similar moves by other white farmers.

But why South Africa? Zimbabwe is also a signatory of SADC, why not enforce the tribunals judgment there?

The simple answer is that for these farmers South Africa wasn’t so much a matter of choice but one of necessity. In fact the same could be said of the use of the SADC tribunal. The framers only tuned to the tribunal when it was clear that they could not get justice at home – the Zimbabwean judges being either complicit or too afraid to stand up to the Mugabe regime.

The SADC tribunal’s ruled in December 2008 that the farm seizures were racist and were an act of thief. It ordered the government to compensate those farmers that had lost their property and to leave those farmers remaining unmolested to continue their farming activities.

This was a great victory for the farmers, well so they thought until they tried to get the tribunal’s judgment registered and enforced in Zimbabwe. There they encountered the usual judicial opposition, this time with a judge dismissing their application because of the enormity of reversing the President’s land seizures.

Imagine that a judge dismissing your case because of the enormity/implications for an illegal government policy; just imagine. To that I have these words and I shall say them thrice: Rule of Law, Rule of Law, Rule of Law.

Fortunate for the farmers the High Court in South Africa knows and will fully up hold the Rule of Law.