New High Speed Silk Road from China to European Union

Francisco A. Laguna & Wojciech Kornacki

This week, we continue our discussion of China’s One Belt – One Road project to establish a 21st Century Silk Road over land and by sea, focusing on the development of high speed rail connections between China and the European Union.

China is creating a network of new high speed train rail links connecting it to the European Union via Central Asia.  As more and more factories move deeper into the Western parts of China, Chinese officials and businessmen alike realize that it is very expensive and time consuming to move their products to the international markets by air or water.  To remedy this, China is spending billions of dollars to build new rail links across Central Asia.

US$ 242 Billion in Investments over the Next 8 Years

Currently, China plans to build two rail links to Europe.  One going directly through the Russian Federation (marked in light blue).  The second one going through Kazakhstan and Ukraine to Poland and beyond. (marked in green).  Both rail links will dramatically reduce the time and costs for all businesses using the rail system to connect the European Union with China, and offer countless business and investment opportunities.  Courtesy of http:// http://en.wikipedia.org

Currently, China plans to build two rail links to Europe. One going directly through the Russian Federation (marked in light blue). The second one going through Kazakhstan and Ukraine to Poland and beyond. (marked in green). Both rail links will dramatically reduce the time and costs for all businesses using the rail system to connect the European Union with China, and offer countless business and investment opportunities. Courtesy of http:// http://en.wikipedia.org

China envisions two major train rail links.  The first one will go through the Russian Federation and Belarus to Poland and the rest of Europe.  The second one will travel through Kazakhstan and Ukraine to Southern Europe.  It is expected that China will spend approximately US$ 242 billion over the next 8 years on a 7,000 km high speed rail link from China to Moscow alone.  This will mean massive Chinese investment and spending across Central Asia.  It will also mean thousands of new jobs, major growth potential for many cities, and the need for supporting infrastructure.  When finished, this will be the longest rail network in the world moving trillions of dollars in goods.

The Benefits of Shipping Goods by Train

Shipping goods by train is cheaper, faster and more environmentally friendly.  According to the Eurasia Express Bridge, transporting goods from China to and from Europe takes approximately 14 days.  This also includes customs clearance for many different countries.  The delivery of the same products by sea takes almost twice or three times as long, and is more expensive.

Typically, China transports its manufactured goods to its coast, and then uses maritime shipping companies to ship it to Europe or elsewhere via the Suez Canal. To mitigate time and expense, China is currently looking to utilize train links to transport it directly to Europe, in essence creating the 21st century version of the Silk Road.

Chongqing, People’s Republic of China.  It is located in central China.  This city is expected to be the starting point for the high speed iron silk road.  Courtesy of http:// http://en.wikipedia.org

Chongqing, People’s Republic of China. It is located in central China. This city is expected to be the starting point for the high speed iron silk road. Courtesy of http:// http://en.wikipedia.org

Several European businesses have been sending products to China by train for years.  This includes BMW and other major manufacturers.  It is similarly cheaper for European businesses to transport goods to China by rail than by sea or air.

In 2013, one of the first trains from China loaded with electrical supplies arrived in Łódź, Poland.  Since then, the number of connections and the volume of products have grown rapidly, and they expected to grow even more.  These trains also travel to other parts of Europe, including France and Spain.  Beijing estimates that the annual trade between Europe and China is expected to exceed $ 2.5 trillion in a decade once the rail links are completed.

If you are interested in learning more about future business opportunities involving the new high speed silk road, TransLegal or call 1.703-566-9427.

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Alibaba: The Scandal You Should Know About Before Investing

Francisco A. Laguna & Rolanzo White

For those unfamiliar, Alibaba is an e-commerce company based in China. Founded in 1999 by Jack Ma, this giant has grown into one of the most valuable technology companies in the world.  It raised US$ 25 billion from its United States IPO, and in 2014, transactions on their sites totaled US$ 248 billion.

"Alibaba Group Logo" by Source (WP:NFCC#4). Licensed under Fair use via Wikipedia

“Alibaba Group Logo” by Source (WP:NFCC#4). Licensed under Fair use via Wikipedia

Alibaba does not warehouse, ship or sell products, instead they offer sales portals and platforms whereby third-party merchants can sell their goods to third-party buyers. The company began as an online business-to-business wholesale company operating as Alibaba.com. Over the next decade, Alibaba launched a variety of businesses including Taobao, an online payment system called Alipay, an online marketing technology platform called Alimama, Tmall, and Alibaba Cloud Computing. The Company derives the vast majority of its revenue – 81.6% for FY2014 – from its China retail marketplaces, Taobao, Tmall, and Juhuasuan.

The sale of counterfeit and contraband goods over its platforms has long been an issue that could potentially impact Alibaba’s business significantly. Alibaba has always claimed to be against the counterfeiting on their sites.  On April 14, 2014, Alibaba’s proprietary news website, Alizila, published an article entitled “Fight against Online Sale of Fakes Goes on for Alibaba Group.” Alibaba claims to have removed an estimated 114 million listings for suspected fake goods from their giant Taobao marketplace during the first ten months of 2013. Their stated goal was to curb the infringement of intellectual property rights on its websites. The company has implemented measures to correct the problem which include searching their sites for merchants selling counterfeits and opening communication with government authorities and major brand owners. That being said, their current measures to stop counterfeiting have failed according to the recent complaints. The site rife with counterfeits is Taobao. Taobao is Alibaba’s largest shopping platform, hosting millions of merchants. Taobao offers buyers the ability to purchase unusual items and services like boyfriends for hire, live scorpions, and plenty of counterfeit merchandise.

"Jack Ma 2008" by World Economic Forum at en.wikipedia. Licensed under CC BY-SA 3.0 via Commons

“Jack Ma 2008” by World Economic Forum at en.wikipedia. Licensed under CC BY-SA 3.0 via Commons

Recently, Alibaba, Jack Ma and company executives have been hit with three class action law suits. The first was a derivative suit led by a common stock holder named Steve Surray (United States District Court for the Southern District of California). The second was a class action suit led by Gucci America Inc. who is joined by Balenciaga, Bottega Veneta, Yves Saint Laurent, Luxury Goods International (L.G.I.), and Kering (US District Court for the Southern District of New York). The last class action was filed by Myrtle Chao; the plaintiffs consist of people who bought the publicly traded ADSs of Alibaba on a U.S. stock exchange during the Class Period of 10/21/2014 – 01/28/2015 (United States District Court for the Central District of California).

Overall, these complaints accuse Alibaba of being untruthful about the counterfeiting problem on their sites and aiding and abetting the assailants. In other words, Alibaba is not only accused of allowing the sale of items like fake cigarettes, alcohol, restricted weapons and counterfeit luxury goods, it is also accused of providing an “ecosystem” for this type of behavior. In the Gucci complaint, the class claims that Alibaba knowingly encourages, assists and profits from the sale of counterfeits by providing online marketing, credit card processing, financing and shipping services. For example, Alibaba knowingly continued to allow the Hangzhou Yanbei Trading Company, a “Gold Supplier” and “Assessed Supplier” to sell counterfeit Gucci bags after inspecting them and concluding that they were, indeed, counterfeit. Alibaba is also accused of helping customers find counterfeit goods. For instance, they allow for keyword searches like “Gucci replica” and suggested terms like “cucci” and “guchi” when “Gucci” is typed into the search bars on their various platforms to intentionally drive customers to merchants of counterfeit products.

"Alibaba Binjiang Park" by Danielinblue, designed by HASSELL (architects)[1] - Own work. Licensed under CC BY-SA 4.0 via Commons

“Alibaba Binjiang Park” by Danielinblue, designed by HASSELL (architects)[1] – Own work. Licensed under CC BY-SA 4.0 via Commons

Alibaba is being sued for, among other things, trademark infringement, counterfeiting under the Lanham Act and violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The plaintiffs want Alibaba to stop aiding counterfeiters and take down any infringing product currently on their sites and have asked the court for statutory, punitive, and court-determined damages that could cost Alibaba millions.

Alibaba’s actions, if true, are illegal and could mean a severe drop in market value, which could further disrupt the Chinese economy and investor confidence.  The prudent investor may wish to consider waiting until the lawsuits are resolved, at least at the district court level.

TransLegal has offices throughout Asia, including China.  We assist our clients with enforcement of IP rights in the region.  Call us with your questions.

Future Business Opportunities in Iran

Francisco A. Laguna & Wojciech Kornacki

Under normal conditions, a country with a well-educated population, a large middle-class, 9% of proven world oil reserves, 18% of proven global gas reserves and an abundance of strategic minerals would be an excellent place to invest.  Unless, the country is Iran, which is currently subject, rightly, to complex and multi-faceted international financial and other sanctions that have reduced its economy by about 15 to 20%.  This may change soon, however, as Iran attempts to end its economic isolation.

According to a 2007 Goldman Sachs report, Iran’s energy sector, technology, and human capital could make it particularly attractive for foreign direct investment.  Now that there is a possibility that sanctions may be lifted, many national and private investors want to position themselves to benefit from the new and very attractive market when (and if) it opens.  Countries such as China, Russia, Turkey and various European countries are already preparing for the sanctions to be lifted.

Currently, the United States and Iran are engaged in extensive negotiations over Iran’s nuclear program.  Depending on the outcome, certain sanctions could be lifted against Iran.  This would open its oil, gas, technology, human resources, natural resources, automotive, airline, hospitality and tourism, and many other industries to foreign direct investment, and it would create billions of dollars’ worth of business opportunities in Iran and the world.   Courtesy of http:// http://en.wikipedia.org

Currently, the United States and Iran are engaged in extensive negotiations over Iran’s nuclear program. Depending on the outcome, certain sanctions could be lifted against Iran. This would open its oil, gas, technology, human resources, natural resources, automotive, airline, hospitality and tourism, and many other industries to foreign direct investment, and it would create billions of dollars’ worth of business opportunities in Iran and the world. Courtesy of http:// http://en.wikipedia.org

The expectation is that once sanctions are removed, new opportunities will create billions of dollars’ worth of business for local and international companies.  Essentially, Iran could be the “next big thing” (once the sanctions are lifted) after the opening of the markets in Central and Eastern Europe.  Some of its regional trading partners expect that their economies will also grow once the sanctions are removed.

Investors are already holding discussing Iran’s oil industry and auto industry.  Indeed, many international energy companies are very interested in Iran, including Royal Dutch Shell Plc, British Petroleum and Total SA.

Not all sanctions will be lifted overnight, and some sanctions may continue for years to come.  In addition to keeping an eye on the international sanction regime, a prudent investor should also consider the following Iranian industries, once the sanctions are removed.

Banking: New businesses and residents will require both domestic and international banking services.  The international banking community has started looking at the country’s potential.  It will be interesting to see which banks move in first.  Will the Swiss join?

Iran’s domestically developed drone capable of traveling almost 2,500 miles.  Due to sanctions, Iran has been forced to develop its own technologies.  Collaboration between international and domestic businesses partners is estimated to create millions of dollars’ worth of business, once the sanctions are lifted.  Courtesy of http:// http://en.wikipedia.org

Iran’s domestically developed drone capable of traveling almost 2,500 miles. Due to sanctions, Iran has been forced to develop its own technologies. Collaboration between international and domestic businesses partners is estimated to create millions of dollars’ worth of business, once the sanctions are lifted. Courtesy of http:// http://en.wikipedia.org

Construction / Real Estate:  Many Middle Eastern businesses are interested in Iran’s real estate market.  The lifting of sanctions is likely to result in the return of some of the Iranian diaspora as well as representatives of multinationals and other companies that will invest in the country.  This will create the need for housing and, as the economy progresses, more luxury condominiums and residences with Western amenities.

Consulting Services: International businesses are likely to begin working to pre-position themselves in a post-sanctions Iran.  To be successful in the country, businesses will need reliable consultants to assist them navigate cultural nuances, language barriers and business practices, including the practice of gift-giving.

Natural Resources and Minerals: After years of sanctions, Iran desperately needs billions of dollars to make its oil industry profitable again.  In 1974, Iran pumped 6 million barrels per day; today, it only pumps 2.8 million.

Cube of Zoroaster.  Iran’s rich culture spans over thousands of years.   This tower-like construction was in the 5th Century BC.  Iran’s tourism and industry are likely to grow fast once the sanctions are removed.  Courtesy of http:// http://en.wikipedia.org

: Cube of Zoroaster. Iran’s rich culture spans over thousands of years.
This tower-like construction was in the 5th Century BC. Iran’s tourism and industry are likely to grow fast once the sanctions are removed. Courtesy of http:// http://en.wikipedia.org

Tourism and Hospitality: Before the Iranian Revolution, Tehran was touted as one of the most cosmopolitan cities in the region.  Years of isolation and religious extremism have crippled Iran’s tourism and hospitality sectors.  As Iran seeks to re-open itself to the world, it will have to modernize these sectors, and FDI is the perfect means of accomplishing this goal.  There is much work to be done, however, for these sectors to be viable contributors to the Iranian economy.  Currently, tourism in Iran accounts only for 2% of the entire GDP; in most countries, it is typically around 5%.

It will be interesting to see how the government will approach FDI in strategic sectors such as banking, minerals, natural gas and oil, as well as non-strategic sectors.  How will it allow such investments to be structured?  What ownership percentage will be permitted?  What about repatriation of capital / profits or termination of investments?  How will corruption manifest itself? Equally important, how will it treat different religious views and cultural morés?

If sanctions are lifted, Iran will be an emerging economy.  It will not have the bargaining power of economies such as China that can exact concessions from investors.  The manner in which the government treats international investors will largely determine the success of a post-sanctions Iran.  Given the political and religious turmoil plaguing the larger region and the very real threat of terrorism, corporations will be cautious of investing financial and human resources for a deal that is overly burdensome with uncertain financial returns.

If you are interested in learning more about future business opportunities in Iran and how to increase your chances of harnessing them, contact TransLegal or call 703-566-9427.

The African Growth and Opportunity Act Continues to Grow Trade

Francisco A. Laguna & Wojciech Kornacki

In 2000, the United States opened its domestic markets to sub-Saharan African nations. At that point, no one expected that within 14 years, Africa would be exporting over $400 billion in goods and services to the United States. Currently, with the increased competition from the European Union and China, the US and its African partners are developing new trade and training opportunities that could benefit your business.

Background

Africa

Africa

 In 2000, the United States decided to expand, simplify and diversify its trade relations with sub-Saharan African countries. In part, this was in response to the trade agreements the EU signed with 79 countries in Africa, the Caribbean and Pacific during the same period. Through the African Growth and Opportunity Act, the United States unilaterally opened its domestic markets to the African countries in the sub-Sahara so long as the African countries reformed their economies and made them more transparent, among other requirements.

The benefit for US companies was that this created many new opportunities to provide credit and technical expertise to various sector in Africa. It also allowed many American companies to benefit from new business-to-business opportunities with the African businesses. Continue reading

Benefits of BRICS New Development Bank for Brazil

Francisco A. Laguna & Annapurna Nandyal

This week, we conclude our 4-part series on the BRICS’ New Development Bank (NDB), focusing on the potential benefits the NDB could offer Brazil, the only BRICS country in the Western Hemisphere.

The closest BRICS to Brazil is South Africa

The closest BRICS to Brazil is South Africa

Brazil is one of the world’s largest growing economies. In comparison to other BRICS, Brazil is seen as soft rising power rising, and it tends to be underrated: the country’s growth rate was just 3% in 2013, while China and India had 8% and 6%, respectively. Notwithstanding, Brazil is hot on the international stage: it held this year’s World Cup; it will soon be the home of the 2016 Olympics; and it hosted the 2014 Sixth Annual BRICS Summit this year. Heads of other South American states participated in the Summit for the first time, and the event turned out to be one of the region’s most significant geopolitical summits in recent history. Continue reading

Creation and Role of the BRICS New Development Bank

Francisco A. Laguna & Annapurna Nandyal

Map of BRICS countries

Map of BRICS countries

In July, Brazil hosted two important events, each significant in its own way: the FIFA World Cup; and the Sixth Annual Summit Meeting of Emerging Economies of Brazil, Russia, India, China and South Africa (BRICS). The members of BRICS meet annually to discuss the world economy, global development and the further strengthening of the BRICS group. Since its inception in 2009, BRICS have called for a greater role in international financial institutions like the World Bank and International Monetary Fund (IMF), as well as transparency in electing the leaders of these institutions. Despite robust economies, BRICS members continue to play a relatively minor role in global finance decisions. In a first step to provide an alternative to “Western-dominated” international financial institutions, the BRICS members announced a proposal to open the New Development Bank (NDB) during their 4th annual summit, held in Delhi, 2012. Continue reading

BITCOIN: Your Opportunities, Risks and Dangers

Francisco A. Laguna & Wojciech Kornacki 

This second part of our series focuses on the risks and opportunities associated with BITCOIN, the new virtual currency.  As Bill Maher, pointed out, if you have virtual currency, it may virtually disappear.  On the other hand, it is also possible to virtually find it, and, indeed, in March 2014, Mt. Gox, a virtual currency exchange, lost 850,000 bitcoins and 200,000 bitcoins, previously thought stolen, were found in a virtual wallet that was thought to be empty.

BITCOIN Risks

Not insured – There is nothing backing the current value of the bitcoins in your virtual wallet.  Unlike most national currencies which are backed by National Banks, bitcoin is not backed by entity or institution.  In the United States, the Federal Deposit Insurance Corporation (“FDIC”) covers all bank deposits, including checking and saving accounts, money market deposit accounts and certificates of deposit up to a certain amount.  Thus, the FDIC insures almost everything except for investments.  The standard amount is $250,000 per depositor per insured bank per category.  The FDIC was created in 1933 in response to thousands of bank failures during the Great Depression where millions of Americans lost their savings.  The value of bitcoins can virtually disappear overnight, and there is no recourse, as in 1920s.  It is possible that at some point in the future, the FDIC may begin insuring virtual currency as well, but right now, this is a substantial risk.

  1. Continue reading

Mongolia’s Mega-Mines attract Foreign Investment

Francisco A. Laguna & Wojciech Kornacki

 Mongolia is a country about three times the size of France, with a population equal to that of Crimea, only 2.4 million people.  In contrast, France has a population of ~ 68 million people.  Mongolia is the least populated country in the world, surrounded by the Russian Federation in the North and China in the South, the so called “last frontier”.  The U.S. Department of State reports that since early 1990s, Mongolia has been enjoying a democratic government and a mining boom.  With the emergence of China as a growing industrial power, Mongolia has benefitted from its neighbor’s need for Mongolia’s abundant natural resources.  Besides China, its main trade partners have been the United States, Canada, the Russian Federation, and Japan.  According to the World Bank, Mongolia’s GDP is expected to grow in double digits between 2013 and 2017. The rise of mega-mines in Mongolia 

Ivanhoe, a UK based multi-national mining company, is one of the leading companies in Mongolia.  In addition to mining, and obtaining additional licenses, Ivanhoe is also exploring other parts of Mongolia.  There are dozen more companies seeking to explore and develop various mines in Mongolia.  All this creates an economic boom, but also environmental concerns.   Courtesy of http://www.guardian.co.uk

Ivanhoe, a UK based multi-national mining company, is one of the leading companies in Mongolia. In addition to mining, and obtaining additional licenses, Ivanhoe is also exploring other parts of Mongolia. There are dozen more companies seeking to explore and develop various mines in Mongolia. All this creates an economic boom, but also environmental concerns.
Courtesy of http://www.guardian.co.uk

Due to its massive and previously unexplored natural resources, Mongolia is quickly developing the world’s biggest mines to meet global demands.  Guardian reports that one of the first mega-mines is Telvan Tolgoi, where approximately 6 billion tons of coal are being excavated.  International mining companies from the United States, China, the Russian Federation, and elsewhere around the world compete for the mining and exploration rights.  Another huge mega-mine is Oyu Tolgoi, operated by Ivanhoue, a United Kingdom headquartered multi-national mining company.  Its total output is expected to reach $200 billion.  The Mongolian government and the United Nations support multiple projects designed to ensure equal distribution of wealth and development of its population based on the wealth generated by the mega-mines.  The U.N. Development Program has been increasing its presence in Mongolia to assist in monitoring and advice.   Continue reading

China’s New Trademark Law: Procedures to Oppose & Calculation of Damages

Francisco A. Laguna & Jimmy Wang

This week, we conclude our two-part series on China’s new Trademark Law, by examining the Law’s provisions concerning trademark oppositions and the calculation of damages.

1.              Opposition and invalidation procedures

Great Hall of the People Photo Credit: Thomas.fanghaenel via Wikimedia Commons

Great Hall of the People
Photo Credit: Thomas.fanghaenel via Wikimedia Commons

The new Law addresses procedures to oppose and invalidate the registration of a mark. The owner of a prior right or an interested party can bring an opposition on “relative grounds”, but anyone can bring an opposition on “absolute grounds”. Relative grounds are based on the notion of preventing the registration of a mark either because it is similar to another trademark that has already been registered for the similar goods or services, or because it is identical to a well-known trademark. Absolute grounds are not based on a comparison with an existing trademark. A typical example of absolute grounds is to challenge the registration because it is not distinguishing, but rather merely descriptive and / or generic. Continue reading

China’s New Trademark Law

Francisco A. Laguna & Jimmy Wang

Shanghai’s Nanjing Road Photo Credit:  Nevilley via Wikipedia Commons

Shanghai’s Nanjing Road
Photo Credit: Nevilley via Wikipedia Commons

This week, we begin a two-part series on China’s new Trademark Law, passed on August 30, 2013. It took more than a decade for the Legislative Branch (National People’s Congress) to revise the old law and ratify the new one. The new Trademark Law will take effect on May 1, 2014.  Below are some of the fundamentals of the law.

 

1.              The principle of good faith

The Law introduces the principle of good faith in trademark applications. Trademarks cannot be registered or used if they fail to meet the principle of honesty and credibility. For example, if someone submits an application to register a mark that is similar to another trademark for similar goods, and the applicant is aware of the existence of such competing mark because of contractual, business interaction or other relations, the application shall not be granted. Continue reading