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Abstract

It is a commonly held myth that the rise of U.S. global economic hegemony rests upon a free trade philosophy. On the contrary, protectionist trade policies were central to galvanizing American industrialization. This misconception lies at the heart of why the trade liberalization policies enforced under the U.S.-led Bretton Woods institutions, the World Bank and the International Monetary Fund (IMF), brought ruinous results to many poor countries. The subsequent decline in credibility of these institutions challenges their continued relevance and opens a space for powerful nations to fashion alternative rules of trade. China is a member of the IMF but has only 3.8% of the voting share of the institution—the same power as Italy, whose economy is five times smaller. Consequently, China is now developing its own set of financial institutions to rival the Bretton Woods institutions and is building Free Trade Agreements (FTA) with countries in its emerging sphere of influence in the South China Sea. The reduction in credibility of the Bretton Woods regulatory order has affected the U.S.’s outsize ability to influence the economic architecture of global trade. As a result, the United States is seeking to meet the challenge of growing Chinese power by establishing its own network of FTAs. FTAs have become a key foreign-policy plank used to structure the architecture of global trade and increase geopolitical influence. Notably, FTAs contain provisions that maintain protective tariffs on imports from nonmember states, which run counter to the global free market philosophy of the Bretton Woods institutions. The U.S. and China are thus engaged in a zero-sum game to rewrite the rules of global trade for the post-Bretton Woods world. The goal is to establish enough FTAs to achieve regional economic hegemony. This “pivot to Asia” animates U.S. interests in leading ongoing negotiations among twelve Pacific Rim nations for the Trans-Pacific Partnership (TPP), which will operate in the Chinese sphere of influence and redesign the economic architecture for 40% of global trade. While traditional critics of FTAs highlight the potential negative effects on U.S. labor and the dangers of increasing corporate power, the animating force of the TPP is not built upon a free trade philosophy. Rather, the animating force rests upon the U.S.’s realpolitik goal of restraining the rise of Chinese hegemony and ensuring adherence to the international rule of law, customs, and norms established during the Bretton Woods regulatory order. Notably excluded from the TPP negotiations is China, which covets regional economic hegemony. China’s exclusion from the TPP negotiations is not an accident, as recent Chinese initiatives aimed at creating parallel financial institutions represent an unambiguous effort to displace Western institutions and ideologies. These actions are consistent with the public statements of China’s paramount leader, President Xi Jinping, who cares little for the Bretton Woods regulatory order, which China played no role in establishing, and even less for its Western principles. The success of the U.S.’s geopolitical strategy, however, is threatened by the overzealous, extraterritorial application of a U.S. criminal law designed to curtail corporate bribery of foreign officials: the Foreign Corrupt Practices Act (FCPA). The Obama Administration interprets the FCPA in a way that criminalizes the giving of gifts to foreign business persons employed by state-run enterprises. The Obama Administration’s draconian enforcement of the FCPA threatens to undermine the success of the U.S.’s TPP policy objective, which is to design an economic architecture to counterbalance China’s regional and even global economic ambitions. It does so by disincentivizing U.S. corporations from investing in the Chinese sphere of influence. The FCPA prohibits U.S. citizens, corporations, and their employees from giving “anything of value” to “foreign officials” in order to secure business advantages. The policy objective of the FCPA is to deter bribery to better aid the U.S. in building international economic and diplomatic alliances—an objective similar to that of the TPP. However, deeply-rooted cultural norms of gift-giving and the maintenance of personal relationships in many Asian TPP member states create a business culture where the FCPA’s overly-broad conception of bribery occurs in the regular course of business. Gift-giving that would be termed bribery under the FCPA is not only common in the Pacific Rim, but is accepted as a valid means of doing business. Thus, the vague language of the statute creates a compliance minefield for U.S. businesses operating in the Chinese sphere of influence. The FCPA, which calls for criminal fines of up to $2 million per violation, is strictly enforced by the courts. Recent cases have resulted in fines of over $1.6 billion, and courts have sentenced Americans to prison terms of up to fifteen years for major violations. Moreover, an indictment alone, not even a conviction, can lead to suspension of the right to transact business with the U.S. government. The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have significantly increased enforcement efforts in recent years. Between 2003 and 2006, for example, the DOJ and SEC brought a total of thirty two enforcement actions. By contrast, in 2010 alone, the DOJ and SEC brought seventy-four enforcement actions, up 85% from 2009. In addition, the amount of fines has increased dramatically over the past five years. In 2007, U.S. authorities levied FCPA-related fines of $87 million. In 2010, the DOJ assessed $1.8 billion in aggregate FCPA penalties, including fines and disgorgements. Moreover, a company cannot pay fines levied against individuals. The vague language and strict enforcement of the FCPA conspire to disincentivize corporations from entering those TPP markets that the U.S. perceives to be more corrupt, and thus where it enforces the FCPA most strictly. One of the most negative ways in which FCPA enforcement undermines the TPP is in its definition of what constitutes a “foreign official.” A federal court recently ruled that the question of whether an employee of a state-owned enterprise (SOE)44 is a foreign official is a fact-based inquiry based on the totality of the circumstances. Because SOEs are a primary feature of many TPP members’ economies, potentially labeling all employees of an SOE as “foreign officials” disincentivizes U.S. corporations from investing in the region, because all such individuals could be potential sources of FCPA liability. The purpose of this Article is to provide a realpolitik argument for why the TPP furthers the U.S.’s geopolitical objectives in the Pacific Rim, to define how the U.S’s enforcement of the FCPA undercuts those objectives, and to recommend reforms to the FCPA that will align its enforcement with the policy objectives of the TPP.

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