New Threads

The story:

On February 14, a suicide bomber in Kashmir killed 40 Indian soldiers. The attack was claimed by Pakistan-based terrorist group Jaish-e-Muhammad (“Army of Muhammad”), a group whose main motive is to separate Kashmir from India. Kashmir has been a historic bone of contention between India and Pakistan, with both countries having fought four wars and several skirmishes over the region.

Although Pakistan’s Prime Minister, Imran Khan, offered his country’s cooperation in a peaceful investigation, India retaliated by carrying out several “pre-emptive” airstrikes on terrorist camps in Pakistan. Relations between the two countries subsequently deteriorated sharply. Pakistan responded by shooting two Indian aircrafts, and capturing an Indian pilot. Fire was traded on the ground across the Kashmir line of control, and at least six Pakistani civilians were killed in the conflict.

Mike Pompeo, US Secretary of State, and Jeremy Hunt, UK Foreign Secretary, called for both sides to exercise restraint and to de-escalate the situation. On March 1st, Pakistan returned the Indian pilot as a gesture of peace and goodwill. However, the situation is far from resolved. In response to Pakistan’s announcement that the pilot would be returned, Indian Prime Minister Narendra Modi suggested ominously that the airstrikes on Pakistan were just a taste of what was to come. “A pilot project has just been finished. Now, the real thing must be done, the first one was just practice.”

Impact on business and law firms:

The escalating violence of last week prompted Pakistan to shut down its airspace, causing severe disruptions to international airlines. Several routes connecting Asia and Europe with the Middle East rely on passage through Pakistani airspace, and several airlines were forced to reroute or cancel their flights as a result of the shutdown. Emirates, for example, cancelled all flights from Dubai-Pakistan on March 1, while Singapore Airlines and Thai Airways rerouted their Europe-bound flights through Dubai, Mumbai and China instead.​

The conflict also had a broader impact on Asian markets, as global investors shy away from the region more generally. On the day Pakistan shot down the Indian jets, stock markets in Singapore, Hong Kong and Malaysia swung into the red, alongside the Indian and Pakistani bourses. Investors seeking to avoid geopolitical risks in the Indian subcontinent moved instead to safer assets, such as the Japanese yen and Swiss franc, both of which gained against the US dollar.

For law firms, the India-Pakistan conflict underscores the importance of managing geopolitical risk for businesses. A common contractual mechanism is to include a force majeureclause. Such a clause relieves contractual parties of liability when an unforeseen and/or uncontrollable event makes contractual performance impossible. By way of example, Indian-owned GAIL (previously known as Gas Authority of India Limited) has a 20-year supply contract with US LNG supplier Cheniere, and a similar contract with the US Cove Point plant in Maryland. In an interview with analysts from Wells Fargo, Cheniere’s CEO indicated that the conflict had not yet escalated to a force majeuresituation for GAIL, and that the GAIL contract would continue to be honoured.
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2. End to the trade war? - Trump’s decision to pause increasing taxes over China (Sara)
The story

Tariffs on $200 billion worth of Chinese exports to the US was due to rise from 10% to 25% on March 1st. However, on 24thof February, President Trump announced that the US will be suspending the tariff rise on China indefinitely, following “productive” talks, which led the two sides “getting very, very close”. Trump tweeted that there has been “substantial progress” on negotiations with Xi Jinping on issues including intellectual property protection and forced transfer of US technology. Last Sunday (3rdMarch), the Wall Street Journal reported another hopeful news that the two leaders are “in the final stage of completing a trade deal”, and that the deal may be reached around March 27.

The final trade deal, which will bring an end to the year-long trade war, is likely to include China lowering tariffs and other restrictions on “American farm, chemical, auto and other products” and the US “removing most, if not all, sanctions levied against Chinese products since last year”. In regard to the trade deficit between the two countries (the US is purchasing significantly more from China than China is from the US), China has already committed itself to buy an extra $1.2 trillion of American goods.

Impact on businesses and law firms

The US-China trade war had serious ramifications worldwide and in industries of all kind. The 10% tariff on Chinese goods raised costs of production and thus final price of goods, costing American businesses and consumers $2 billion per month. The trade war also caused extra damage to the Chinese economy, which was already slowing down. This led to a fall in consumer confidence, which was a huge threat around the globe, as demand from the world’s largest consumer base drastically fell. The effects were even felt by the tech titan Apple and US-based construction machinery behemoth Caterpiller as their profits fell. Honda also recently announced to close its Swindon plant, blaming China’s economic slowdown and the trade war for its decision. Therefore, the trade deal, if reached, will recover business certainties around the world and hopefully, assist China in getting out of the economic slump. Following the news on a possible trade deal, China’s benchmark stock index, the Shanghai Composite, rose more than 3% and the European stocks were traded higher (the pan-European Stoxx 600 provisionally closed 0.23% higher) on Monday.
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3. US Task Force on Competition in Technology Industry (Kit)​

The story:

Last week, the US Federal Trade Commission (FTC) announced that it would be setting up a Technology Task Force. This would be a task force focusing on “monitoring competition in U.S. technology markets, investigating any potential anticompetitive conduct in those markets, and taking enforcement actions when warranted”.

The task force will include approximately 17 staff attorneys and a Technology Fellow, “who will provide important technical assistance and expertise to support the task force’s investigations”.

The task force’s powers will include reviewing existing and prospective mergers of technology companies. For the former, the task force would be able to seek the full set of remedies, such as unwinding and divestment of companies, that would be available during the review of a prospective merger.

The FTC has not named specific companies or deals which would be targeted by the task force.

Impact on businesses and law firms:

The FTC’s move is the latest in what appears to be a transnational trend towards greater regulation of technology companies’ market conduct. For instance, last year, the European Commission imposed an unprecedented fine of €4.34bn on Google for abusing its dominance in the online search market by restricting the use of its Android operating system. An example of such a restriction is that Google has arrangements with Android device manufacturers which incentivise the pre-installation of Google’s products on the devices. In a more recent case last month, Germany’s Federal Cartel Office prohibited Facebook from combining data from Facebook, Instagram, WhatsApp and third-party websites without the explicit consent of Facebook users.​

Overall, it seems that Big Tech would be facing an increasingly stringent regulatory landscape. Technology companies, and the law firms which advise them, should be prepared to review whether their seemingly innocuous, existing market conduct is likely to be deemed anti-competitive. They would also need to be conscious of the possible anti-competitive implications of any future policies and behaviour which they wish to adopt.​