March 23, 2023

U.S. and Europe Seek Backing for Landmark Trade Pact

BRUSSELS — President Barack Obama and the top trade official for the European Union sought to rally support Tuesday for a landmark trans-Atlantic free trade deal, saying it would benefit a wide variety of exporters and offer a significant boost to growth.

Karel De Gucht, the E.U. trade commissioner, said one of the biggest beneficiaries of a trade deal with the United States would be automobile manufacturers like BMW that have long rankled at tariffs.

Mr. De Gucht was shoring up support for a mandate to negotiate on behalf of E.U. member states — like Germany, home to a powerful auto sector — and whose governments still must agree to let him lead the talks. He called on the bloc to “now quickly decide to open negotiations so work can begin with the United States before the summer break.”

Mr. De Gucht also sought to assuage France, where there is widespread skepticism about the benefits of free trade, by suggesting that Paris would not have to dismantle quotas and subsidies designed to promote French films and other cultural products.

His comments came as Mr. Obama spoke in Washington, signaling the challenges that lay ahead, indicating that “we’re going to need the help of industry and labor” to get a deal done.

“One of the things that we’ve also been trying to do during the course of this process is to make sure that it’s not just the Xeroxes and the Dow Chemicals that are benefiting from this,” Mr. Obama said, “although we want our Fortune 100 companies to be selling as much as possible.”

“We actually think that there’s room for small and medium-size businesses to export directly — not just supplying large businesses, but also to break open and enter into these markets,” Mr. Obama told the President’s Export Council, his main trade advisory committee on international trade, made up of lawmakers and other officials.

Exports of motor vehicles from Europe to the United States could increase 149 percent if a deal removed existing tariffs and harmonized different safety standards, according to a study conducted by the Center for Economic Policy Research in London and released Tuesday by Mr. De Gucht’s office.

“I feel just as safe when I drive a car in the U.S. as I do when I drive in Europe, so we should find ways to align our systems to find ways to cut costs,” Mr. De Gucht said at a news conference.

He also said that product tariffs, currently 4 percent on average, should be dropped to zero, either immediately or over an agreed period of time.

A surge in trans-Atlantic trade would increase the Union’s vehicle manufacturing sector 1.5 percent, according to the study issued by his office. Other sectors in Europe likely to see significant increases in sales included metal products, processed foods, chemicals and transport equipment, the study said.

European auto companies, particularly German ones, want to make it easier to sell cars they now make in the United States in their home markets. An agreement could add hundreds of millions of euros annually to BMW’s revenue, in part by easing restrictions that now add tariffs to the cars the company makes in Spartanburg, South Carolina, but ships back to sell in Germany and other European countries.

Between them, the United States and Europe already account for about half of global economic output and one-third of world trade. Bilateral trade in 2011 amounted to €455 billion, or about $593 billion, with a positive balance for the Union of more than €72 billion, according to Mr. De Gucht’s office. The United States is the bloc’s main export market, buying €264 billion of goods, or about 17 percent of total E.U. exports, according to his office.

But previous attempts to forge a free trade deal have failed.

Government officials and industrialists who support such a pact say it is different this time, partly because Europe is seeking ways to accelerate growth without raising domestic spending in the wake of its sovereign debt crisis, and partly because the United States is eager to set global standards with Europe that giant emerging economies like China would have to follow.

Mr. Obama gave the talks added impetus last month when he pledged to “launch talks on a comprehensive Trans-Atlantic Trade and Investment Partnership with the European Union” during his State of the Union address.

Mr. Obama’s pronouncement at the time met with a frenzy of enthusiasm from large swathes of the business community on both sides of the Atlantic. On Tuesday, he reiterated that he wanted “to lock in” a deal.

But there are huge obstacles, largely because the biggest gains will not come from the relatively easy goal of dropping tariffs but from bulldozing “behind the border” restrictions like customs procedures that create bureaucratic hurdles.

In particular, the Union wants to pry open so-called public procurement markets and scrap “Buy American” clauses that restrict the ability of European companies to sell goods and services to states and cities. The Europeans also have long complained about restrictions on foreign ownership of U.S. airlines.

The Americans are eager to see a reduction in barriers to exports of agricultural goods including produce from genetically modified organisms and cloning, opposed by many Europeans.

The talks also could run into difficulties over European initiatives like privacy restrictions on major online operators like Facebook and Google, and a tax on financial transactions aimed at recouping money from bankers.

Mr. De Gucht said there still should be a “comprehensive agreement” covering a wide variety of sectors, but he also said it was possible to reach a “living agreement with a number of approaches in it for the future that you then develop once the agreement is in place.”

“I’m not saying every topic and every comma should be finally and in a definite way resolved,” he said.

Jack Ewing contributed reporting from Frankfurt and Brian Knowlton contributed reporting from Washington.

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Fair Game: Mortgage Task Force Has Fancy Name, but Will It Get Tough?

Some greeted this new task force — its unwieldy name is the Residential Mortgage-Backed Securities Working Group — with skepticism. It is an election year, after all, and many might wonder if this is just a public-relations response to the outrage against the institutions and executives that almost wrecked the economy.

If this task force nailed some big names, and soon, it would help to allay deep suspicions that the authorities have given powerful people and institutions a pass during this awful episode.

Among those heading the working group are officials from the Securities and Exchange Commission and the Justice Department — the same institutions already charged with rooting out and punishing wrongdoing. Their record in these pursuits has been disappointing so far. This is especially so, considering the evidence of wrongdoing unearthed in private lawsuits against mortgage originators and securities firms in recent years.

According to the S.E.C.’s Web site, the commission has filed 25 such cases since 2009. A total of 46 top executives have been sued and 25 individuals have been penalized, either by being barred from their industry or from acting as a corporate director or officer, or by no longer being permitted to appear before the S.E.C. as a lawyer or an accountant.

Such bars typically last five years, but some are permanent. The S.E.C.’s settlement with Angelo Mozilo, 73, former head of Countrywide Financial, barred him from acting as a director or officer of a public company for the rest of his life.

Some cases on the list are still being litigated. Those that have been settled have generated $1.97 billion in penalties, disgorgement and other monetary relief, according to the S.E.C. Harmed investors have received $355 million of that.

Drilling into the details, though, indicates that little of this money was paid by individuals. The payments came from companies, or more precisely, their shareholders.

Talk about making the wrong people pay.

Only one of the cases seems to involve a clawback of executive compensation. It’s the 2009 case against three former top executives of New Century Financial, a quintessential Wild West lender. Together, the three paid $1.5 million when settling charges of making false and misleading statements about the company’s soundness as it imploded.

If this is justice, it’s certainly not rough. Brad Morrice, the company’s former chief executive, returned just $542,000 to regulators; he took home at least $2.9 million in incentive pay in the two years before New Century collapsed.

It seems obvious that until executives are forced to dig deep into their own pockets to pay penalties in these matters, they will be tempted to take as many risks as possible to generate fat paychecks. Then they will move on to the next opportunity.

The S.E.C. is clearly proud of its financial crisis cases. But comparing its tally with the mountainous evidence produced in private lawsuits shows how much more work there is to be done.

Consider the most recent complaint filed by the Assured Guaranty Corporation, an insurer of mortgage securities, against Bear Stearns, the defunct brokerage firm; EMC, Bear’s mortgage origination and servicing unit; and JPMorgan Chase, which bought Bear in March 2008.

Filed in November, the complaint shows what kinds of revealing material can be dug up by determined investigators.

The complaint contends that Bear Stearns knew it was stuffing its mortgage-backed securities with crummy loans. It cites an e-mail written by a former EMC analyst in the unit that dealt with these instruments. “I have been toying with the idea of writing a book about our experiences,” the analyst wrote. “Think of all of the crap that went on and how nobody outside of the company would believe us … the fact that data was constantly changing and we sold loans without the data being correct — wouldn’t investors who bought the MBS’s want to know that?”

Indeed they would.

Discovery in the case also identifies top executives who oversaw the mortgage machine that felled Bear Stearns. Thomas F. Marano, senior managing director and designated principal of the mortgage- and asset-backed securities department, was “well aware of the amount of risk that was being taken on in terms of acquiring assets and … the activities with respect to securitization,” the complaint said, citing a Bear Stearns executive’s deposition.

The complaint also contends that John Mongelluzzo, the Bear Stearns vice president for due diligence, misled investigators for the Financial Crisis Inquiry Commission when he described the extensive vetting the company did when it bundled mortgages.

Mr. Mongelluzzo told the commission that Bear Steams tested “all of the due diligence firms and their contract underwriters, and if they couldn’t pass the underwriting test, they weren’t permitted to work on our transactions,” the complaint said. He also told the investigators that the company “instituted a process where we went out and audited the individual diligence firms to see what their processes were and what they were doing internally as well.”

But in a subsequent deposition, Mr. Mongelluzzo conceded that Bear had not started to test its underwriters until February 2007, well after the mortgage market had begun crumbling, and that it didn’t begin its audit program of due diligence vendors until April 2007.

Mr. Marano is now chairman and chief executive of Residential Capital, the mortgage unit of Ally Financial. Mr. Mongelluzzo is an executive there as well. Both declined to comment.

It is to be expected that investigators for private law firms will turn up loads of ammunition to help them in their court battles. But in the past, law enforcement was similarly aggressive in its own pursuits.

Now, the balance seems to have shifted, with private litigants doing more legal heavy lifting than those who serve the public.

Perhaps the new working group will right this imbalance. But its members don’t have a lot of time, with the election coming. Private litigants have drawn a pretty clear road map for the places that this new group might go. Its leaders should welcome the assistance, given that the clock is ticking.

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Exxon Executive Promotes Shale Gas to Europeans

The executive, Andrew P. Swiger, a senior vice president at Exxon, said that the conventional gas fields currently supplying Europe were expected to decline, raising dependence on imports delivered through pipelines and as liquefied natural gas.

“By 2030, Europeans are expected to be significantly more reliant on imports of natural gas than they are today,” Mr. Swiger said in London at the Oil and Money conference, which is jointly organized by The International Herald Tribune and Energy Intelligence. “Europe’s unconventional natural resources can provide the opportunity to offset this changing mix with domestic supplies,” he said.

One of the main obstacles to drilling for gas trapped in fine-grained shale rock is the growing public skepticism about the environmental impact of “fracking,” using pressurized water, sand and chemicals to release the gas.

Mr. Swiger’s remarks came after a decision this summer by the French Parliament to revoke permits from companies using the method. Since then, health and environmental activists have stepped up efforts to extend similar restrictions across the European Union.

Europe is far from united against gas fracking. Poland and Bulgaria are among the countries enthusiastically developing shale gas, partly as a counterweight to mounting anxiety about depending on Russia for natural gas.

Mr. Swiger said fracking could be done safely and cleanly, and he said local regulators should be permitted to decide whether to permit the technique in their communities. He said Europe’s shale resources, although different in some ways from the resources in North America, “may prove to be significant,” partly because of rapidly evolving drilling and extraction techniques.

Since 2008, Exxon has drilled a number of exploratory wells in Germany for shale gas and for coal-bed methane, which is found in coal seams or in the surrounding rock, Exxon officials said. The company is still analyzing those results to establish their commercial potential, the officials said.

Other experts who spoke at the conference said geologists needed to do more work to determine whether shale gas could be produced in Europe.

“It remains to be seen whether Central Europe has the same rich source rocks as North America,” said Thomas S. Ahlbrandt, a former senior official at the United States Geological Survey, which is credited with numerous oil and gas discoveries.

Michelle Michot Foss, chief energy economist and head of the Center for Energy Economics, part of the Bureau of Economic Geology at the University of Texas at Austin, said companies looking for opportunities in shale gas were undeterred — for now.

“You go where you can go, and Eastern Europe seems to be more the place where everybody can go right now,” Ms. Foss said. “The question will be whether they get enough drilling and commercial success in Poland and other places to make it worthwhile.”

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Lawsuit Against Chevron in Ecuador Clears Hurdle in U.S.

The three-judge panel of the United States Circuit Court of Appeals for the Second Circuit previously expressed skepticism that a New York judge could wield jurisdiction outside the United States.

The lead lawyer for the plaintiffs, Pablo Fajardo, said they expected to start collecting by the first quarter of 2012 the damages that a court in Lago Agrio, Ecuador, ordered Chevron to pay.

“We can now at least dream there will be justice and compensation for the damage, the environmental crime, committed by Chevron in Ecuador,” he said.

“Chevron remains confident that once the full facts are examined, the fraudulent judgment will be found unenforceable and those who procured it will be required to answer for their misconduct,” the oil company said in a statement on its Web site Monday. Chevron has appealed the decision, issued in February, and Mr. Fajardo said he expected an appeals court ruling in Ecuador in the next few months.

In New York, United States District Judge Lewis A. Kaplan had barred collection of the award, after determining that Chevron could prove that lawyers had manipulated a corrupt legal system in Ecuador. The company had argued that the plaintiffs would collect the judgment before an appeals process was completed.

But a lawyer for the plaintiffs told the appeals court in oral arguments Friday that they would not try to recover damages until the appeal in Ecuador was completed. The award followed nearly two decades of litigation.

The plaintiffs blamed Texaco, a subsidiary of Chevron since 2001, for environmental contamination and illnesses resulting from its operation of an oil consortium from 1972 to 1990 in the country’s lush rainforest.

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Familiar Obama Theme on Labor Day

Mr. Obama, speaking to a riverfront crowd estimated by the police to number 13,000, said he would propose “a new way forward on jobs” in his speech on Thursday to a joint session of Congress, which returns this week from its August recess.

Mr. Obama did not provide details — “Tune in on Thursday,” he teased — but he said millions of unemployed construction workers would be able “to get dirty” building roads, bridges and other public works under his infrastructure proposals.

Organized labor and business leaders are on board, Mr. Obama said. “We just need Congress to get on board,” he said, prompting cheers of “Four more years!” from an audience filled with members of unions for autoworkers, public employees, service industry workers and teachers.

It remains unclear what new ideas Mr. Obama will propose on Thursday. But he faces high expectations after recent evidence that job growth has stalled and because of his own buildup since announcing a month ago that he would lay out a short-term stimulus program after Labor Day.

Mr. Obama also faces skepticism because of persistent unemployment. Recent polls give him his lowest ratings to date for job approval and his handling of the economy, though the ratings of Congress, and especially Republicans, are even more negative.

Mr. Obama has indicated that besides infrastructure proposals, he will call for extending and expanding temporary tax cuts for businesses and individuals, including a payroll tax cut for which he won Republicans’ support in December after agreeing to extend the Bush-era tax cuts on high income. He is expected to propose that employers get a tax credit for each new person hired, and to help local governments avert more teacher layoffs.

Separately next week, Mr. Obama is expected to recommend ways to reduce annual budget deficits to a special Congressional committee charged with finding up to $1.5 trillion in savings over 10 years. He plans to propose more than that in deficit reductions, aides say, partly to offset the stimulus costs.

But in Detroit Mr. Obama emphasized job creation. His backdrop was the high-rise headquarters of General Motors, which, along with Chrysler, has restructured and returned to profit and hiring after their rescue early in his administration.

“We’ve got a lot more work to do to recover fully from this recession,” Mr. Obama said. “I’m going to propose ways to put America back to work that both parties can agree to because I still believe both parties can work together to solve our problems.”

That expression of faith in bipartisanship drew loud groans of skepticism, reflecting a growing sentiment among Obama supporters that he is too conciliatory toward Republicans.

As if acknowledging the skeptics, Mr. Obama quickly added, to applause: “But we’re not going to wait for them. We’re going to see if we’ve got some straight shooters in Congress. We’re going to see if Congressional Republicans will put country before party.”

Flying here with Mr. Obama were several union leaders, including Richard Trumka, president of the A.F.L.-C.I.O., who has been critical of his compromises with Republicans.

Also joining Mr. Obama was Senator Carl Levin, Democrat of Michigan, who, as Mr. Obama told his audience, gave the president a Labor Day address that President Harry S. Truman delivered in Detroit in 1948, the year of his come-from-behind election after campaigning against “do-nothing” Republicans.

Afterward, Mr. Levin said he told the president, “Here’s a ‘give ’em hell’ kind of speech.”

En route to Detroit, an Obama spokesman, Josh Earnest, volunteered to reporters that the president was in “a good mood.” Yet the familiarity of the day’s theme had to be sobering, particularly since Mr. Obama is just over a year away from Election Day — too little time for unemployment to fall much from heights that give Republicans hope of recapturing the White House.

The president’s Labor Day speeches trace the stubbornness of the crisis he inherited.

In 2009, he spoke to an A.F.L.-C.I.O. picnic in Cincinnati, just after the government reported 216,000 jobs lost in August — relatively good news because it marked a second month of declining losses from a high of 750,000 as Mr. Obama took office. Six months earlier, in February, a Democratic-controlled Congress had passed his two-year, $800 billion stimulus program of tax cuts and spending.

“It’s working,” Mr. Obama said then. Most economists agreed, though many have since concluded that the package was not forceful enough to counter a recession and crises in the financial and housing sectors. Republicans, who generally opposed it, continue to say that the stimulus program failed and that they will not support another round.

“We’re on the road to recovery, but we’ve still got a long way to go,” Mr. Obama said two years ago. That would become a refrain.

Last year, Mr. Obama was in Wisconsin with union families. While private-sector hiring had expanded for eight months, the unemployment rate was 9.6 percent — just a tenth of a percentage point lower than the year before. With his two-year stimulus plan winding down, Mr. Obama announced new plans for infrastructure projects and more.

“Now the plain truth is, there’s no silver bullet or quick fix to the problem,” he said in Milwaukee. “Even when I was running for this office, we knew it would take time to reverse the damage of a decade’s worth of policies that saw a few folks prosper while the middle class kept falling behind.”

But his infrastructure plans went nowhere before Republicans, capitalizing on voters’ economic frustrations, won control of the House in November.

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Companies May Face Rule to Shift Audit Firms

James R. Doty, who became chairman of the Public Company Accounting Oversight Board this year, said in a speech that he had been disturbed by evidence turned up by board inspectors that many auditors failed to show sufficient independence from their clients.

“Considering the disturbing lack of skepticism we continue to see,” he told a conference at the University of Southern California, “the board is prepared to consider all possible methods of addressing the problem of audit quality — including whether mandatory audit firm rotation would help address the inherent conflict created because the auditor is paid by the client.”

The idea of forcing companies to change auditors, perhaps every seven or 10 years, has been raised periodically in response to accounting scandals since at least 1977, when Senator Lee Metcalf suggested such a step in the wake of the scandal at Equity Funding, an insurance and mutual fund company that falsified its sales figures.

It has been bitterly opposed by accounting firms, which argue that such rotations would do little for audit quality but would drive up costs and create great problems for complex companies trying to explain their operations to a new set of auditors.

Such a requirement was considered by Congress in 2002 when it passed the Sarbanes-Oxley bill that established the accounting oversight board, but was not included in the final version. But the law did require that audit partners be rotated off engagements every seven years.

Mr. Doty said he had not decided yet whether it was necessary to require changing auditors. But he made clear that he thought changes had to be made to “more systematically insulate auditors from the forces that pull them away from the necessary mind-set.”

Mr. Doty took the post in February, after being appointed by the Securities and Exchange Commission. A securities lawyer who served as general counsel of the S.E.C. from 1990 to 1992, Mr. Doty has said he was outraged by some audits the board had inspected, and would consider changes in a number of areas.

On Thursday, he cited one auditor who allowed a company to count a sale in the third quarter, even though the contract was signed in the fourth quarter — a move that allowed the company to meet its earnings target. He mentioned another auditor who helped a company conceal an error by suggesting changes in the company’s accounting policies. In each case, the firm had held the account for decades.

Another step the board will consider, he said, is to require that the engagement partner sign the audit. Currently audits are signed by the firm without any indication which partner took the lead. Advocates of such a change say partners might be more hesitant to sign off on dubious accounting if they knew their name would be publicly attached to the audit if problems were later discovered.

In addition, Mr. Doty said the board would consider forcing audit firms to disclose the amount of work done on audits by other firms, including foreign affiliates that are not inspected by the board.

The board has also announced that it will propose possible changes in the information auditors provide to investors. Currently, auditors either approve statements or they don’t, but do not offer any opinions on the relative quality of accounting choices.

Financial statements often include many estimates, and auditors now simply conclude whether an estimate is or is not reasonable. That has been a problem in valuing some securities that rarely trade, with the same audit firm approving widely varying estimates by different clients. One possibility may be for disclosures to be made on the range that the auditor deemed reasonable, and where the estimate fell within that range.

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