Henri Yuan ITRN603 Fall 2014 Beyond Eron Scandal: Trade Implications on Corporate Social Responsibility of U.S. firms abroad

Background & Take-Aways U.S. Legislation and Key Measures Respond to Enron’s scandal, Sarbanes-Oxley Act (SOX) was unveiled – also known as Corporate Responsibility Act Increase corporate accountability and punish those who were convicted of participating in conspiracy to commit a financial crime; Provided a directive to the US Sentencing Commission to sentence convicted offenders; Severe penalty for a CEO/CFO who makes false certification However, the requirements under federal securities law for companies to disclose environmental and social information are narrowly defined. Emerging Issues/Concerns Rise of Interest Groups and Community Activism abroad Compliance is not enough Increasing international trade activities between developed and developing markets Market access problem triggered by third party certification In contrast to Europe, US’s requirements for companies to disclose nonfinancial information are limited.

Issues at hand & References Beyond Enron Scandal: Issues at Hand EPA survey: 74% of publicly traded US corporations openly violate the SEC’s environmental financial debt accounting regulations SEC S-K environmental accounting regulation requires all publicly traded companies to report significant environmental material expenses to shareholders Cases Studies: Extraterritoriality & environmental liabilities in international trade Lessons from growing community awareness and activism Oil leak from ConocoPhillips and CNOOC in Bohai Gulf, China Protests and Cease of operations: Hongda copper molybdenum in Sichuan Eco-labeling and trade justification Forestry Stewardship Council (FSC) vs. The Programme for the Endorsement of Forest Certification (PEFC) References

Research Diagram Pros Corporate Accountability Disclosure Audit Oversight Sentencing provision Cons Limited coverage on nonfinancial content Only applicable to public companies Higher compliance cost Research Sarbanes- Oxley Act SEC S-K Regulation Pros SEC: ‘King’ of corporate law Environmental disclosure + litigation Accounting of social/environmental losses Cons No recognized standards for disclosure Lack of the interests in environment among investors - Environmental disclosure & Extraterritoriality - Disconformity of CSR standards and market access problem

Next Steps Collect and build database on trade cases and dispute settlements Track and outline legislative and regulatory progress Assess direct/indirect losses relate to the extraterritoriality and environmental liabilities: Oil Leak and Copper cases Research on the competing schemes in forestry and agri-food industry Study the role of WTO in extraterritoriality: As long as they do not discriminate based on country of origin or create unnecessary obstacles to international trade, the uses of eco-labels for procurement purposes seem to square with the rules. This assessment is crucial because each agreement contains its own set of rules, some of which overlap with rules in other agreements.