Currency

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By Jennifer Pilla Taylor

When Importing Is an Upwind Battle

American wind-energy producers import much of their wind turbines and towers from abroad. But getting that gear here safely is not exactly a breeze. Successfully importing equipment for wind energy demands extensive preparation, says Patton Boggs partner Hwan Kim. "A standard purchase order simply won't work," Kim says. "People generally don't miss the big things—price, delivery date, product specifications—but there are many, many little things that can trip them up."

"It's all about ... not assuming that things are done the same way there as they are here."

HwaN Kim, on importing wind-energy equiptment

For example, it's not enough to let the manufacturer choose how to ship the equipment just because they are responsible for delivery. Kim says he's seen suppliers send 50-meter steel wind towers across the Pacific Ocean without the right packaging to protect them from the salty air. They arrived pitted and rusty.

Before placing an order, Kim says, buyers should travel abroad to inspect a potential supplier's manufacturing plant. He also insists the supplier secure a performance bond worth the full or a significant percentage of the purchase price—an unusual provision in an equipment purchase contract. The bond minimizes the risk that the buyer won't have to seek compensation through a foreign legal system.

"If the supplier won't [secure the bond], my questions would be: Are they financially viable and are they as good as they say they are?" Kim says. "It's all about being as thoughtful as possible, planning for contingencies and not assuming that things are done the same way there as they are here."

Buyers should also make sure their purchase contract gives them the right to inspect their equipment at the manufacturing plant before it gets shipped to the United States. "The engineering specs on these things are very tight," says Kim. "If you get 50 turbines to a remote location in South Dakota and it turns out they're not quite right, it's not as easy as saying 'Well, we'll just return them.'"

Restoring Faith in Dubai

Major creditors of the debt-laden conglomerate Dubai World recently accepted the terms of a $24.5 billion restructuring deal, and it appears the Gulf city-state's financial crisis is nearing resolution. Still, no clear framework for dealing with future insolvencies has emerged, says Dubai-based Patton Boggs partner Simon Schmidt.

After Dubai World requested a debt standstill in late 2009, Dubai decreed that the United Arab Emirates' federal corporate insolvency law—widely considered outdated and ambiguous—would not apply. Instead it set up a tribunal, akin to a U.S. bankruptcy court, to hear creditors' claims. The tribunal has not heard many claims, as most have been settled privately or will be addressed by the global agreement between Dubai World and major creditors.

Investor confidence in Dubai and the rest of the United Arab Emirates may depend on the passage of a comprehensive insolvency law. "I think that will happen, but it will have to be done at a federal level," says Schmidt. "And unfortunately, the pace of legislative reform at the federal government level can be glacial."

Unprepared for the Future

Economic history may be repeating itself in the East, and the West needs to do more to prepare for it, former World Bank President James Wolfensohn told attendees at a recent Patton Boggs Foundation "Issues of Our Time" lecture.

In the early 1500s and again in 1815, the economies of China and India accounted for 50 percent of the world's GDP, but fell to 1.5 percent after World War II. Now, that percentage is headed back up again.

"The dynamics are such that there is clearly a move back to Asia generally, and to China and India specifically," Wolfensohn told an audience that included Japanese Ambassador Ichiro Fujisaki and 19 other ambassadors. Today, he noted, China and India account for about 10 percent of the global GDP, and while the economies of the developed world have faltered recently, there has been 8 to 10 percent growth in China and India. It is projected that by 2050, China and India will again account for half of the global GDP and their per-capita incomes will be between $35,000 and $40,000—compared to $3,000 to $4,000 today. As a result, he said, the world's major middle class will be in China and India.

Despite these trends, Wolfensohn noted, Westerners continue to act as if their hemisphere will dominate indefinitely. "This is sheer lunacy," he said. "We're not preparing in terms of the education of our kids. We're not preparing in terms of the structure of our institutions. We're just basically not preparing."

Medical Devices

What's Exempt?

When Congress passed an excise tax on medical devices last March, it exempted items "generally purchased by the general public at retail for individual use." The ambiguity of that phrase leaves room for manufacturers to argue for an exemption. "Our contacts within the IRS and Treasury are telling us that while they haven't formally asked for comments on this issue, they would welcome them," says Patton Boggs tax associate Joanne Perry Hodge.