The Interlawyer

From the time that mainland China resumed its control of Hong Kong as a "Special Administrative Region" there have been concerns that its markets and industries would be swamped by its northern neighbour.

In an attempt to address these concerns, China recently established the Closer Economic Partnership Arrangement ("CEPA") with Hong Kong. This form of free trade agreement offers Hong Kong producers and service providers preferential access to the mainland market. The improved access is described as "WTO Plus" as it exceeds the requirements placed on China under the WTO. While there are also benefits for mainland Chinese companies trading in Hong Kong, I propose to focus on the implications for Hong Kong.

CEPA was signed on 29 June 2003 and took effect from 1 January 2004. An agreement reflecting a second phase of liberalisation (CEPA II) was signed on 27 August 2004 and will be effective from 1 January 2005.

In general terms, CEPA offers zero tariff on ninety percent of goods exported to China from Hong Kong, faster and easier market access in China for 26 service sectors and lower entry thresholds for smaller enterprises. Among the 26 service sectors receiving better market access are management consulting, advertising, real estate, legal and accounting services.

To benefit from the preferential trade in goods, products must be of "Hong Kong origin" being products either obtained entirely in Hong Kong or "substantially transformed" in Hong Kong. A Hong Kong exporter of goods also needs to be registered with the Trade and Industry Department of Hong Kong and hold a Certificate of Origin issued by that Department for each shipment of goods.

To attract preferential treatment for services, the service provider must be incorporated in Hong Kong, have carried on a business in Hong Kong for the past three to five years, be liable for Hong Kong profit tax and employ at least 50% of its staff in Hong Kong. The service provider must also apply to the Trade and Industry Department in Hong Kong for a Certificate which is then verified by the corresponding mainland authority. As at 30 September 2004, 592 applications for Certificates had been received of which 515 had been granted including 6 for legal firms and 254 for companies involved in the transport and logistics service industry.

Anecdotal evidence suggests that CEPA is affording increased opportunities for Hong Kong service providers to enter the Chinese market and will continue to assist Hong Kong law firms. At the same time it appears that high value manufacturing activities are being attracted to Hong Kong as a result of CEPA.

Melbourne
Andrew Hudson
+61 3 8602 9231

FISCAL YEAR 2005

H-1B VISA CAP REACHED

By: Brian Garcia, Shareholder Akerman Senterfitt

The U.S. Citizenship and Immigration Services (“USCIS”) announced on October 1, 2004, that the congressionally mandated H-1B visa cap of 65,000 for new employees has been reached. The USCIS made this determination based on the number of prior approved H-1B petitions for FY 2005 combined with the current backlog of pending H-1B petitions. Therefore, for the remainder of FY 2005, no new H-1B visas will be issued by the USCIS.

The following procedures have been implemented by the USCIS for the remainder of FY 2005:

· USCIS will process petitions filed for first-time employment received prior to the end of business on October 1, 2004.

· USCIS will return all petitions for first-time employment subject to the annual cap received after October 1, 2004, accompanied by the filing fee.

· Petitioners may re-submit the petitions when H-1B visas become available for FY 2006.

· Alternatively, the earliest date a FY 2006 H-1B new employment petition may be filed is April 1, 2005. The petition will be held in abeyance until FY 2006 H-1B visas become available. The start date for all new FY 2006 employment H-1B visas will be October 1, 2005

Petitions for current H-1B workers do not count towards the FY 2005 H-1B cap. Accordingly, the USCIS will continue to process petitions filed to:

· Extend the amount of time a current H-1B worker may remain in the United States.

· Change the terms of employment for current H-1B workers.

· Allow current H-1B workers to change employers.

· Allow current H-1B workers to work concurrently in a second H-1B position.

Petitions for new H-1B employment are not subject to the annual cap if the alien will be employed at an institution of higher education or a related or affiliated nonprofit entity, or at a nonprofit research organization or a governmental research organization.

If you have any questions regarding this or any other immigration matter, please do not hesitate to contact Brian M. Garcia at (305) 982-5699 or by email bgarcia@akerman.com.

Portugal and Spain

AN IBERIAN POWER MARKET: the MIBEL

Emiliano Garayar, Gomez Acebo & Pombo (Spain)

Last January 20, 2004 the Kingdom of Spain and the Republic of Portugal signed an International Convention for the creation and development of a global power market, the Iberian Power Market (the MIBEL).

MIBEL’s aim is to become a unique integrated market, merging the power industries of both countries, with all the operators having the same rights and obligations, and in which the final beneficiaries will be Iberian end-consumers.

This new Iberian platform is the second regional cross-bordered market created across Europe after the Scandinavian Nordpool, which was set up in 1993 between Norway, Sweden, Finland and Denmark. As opposed to MIBEL, however, the Nordpool, was not built upon EU rules and principles. This new regional market (which will soon be expanded to the gas industry) is, to a certain extent, the response of Spain and Portugal to the isolation strategy adopted by France which has been traditionally reticent to liberalisation, and in particular to increase the interconnection capacity across the Pyrenees.

The MIBEL will officially exist and commence operation as from next April 20, 2004. At this date, in a common multiparty electronic pool, all Spanish and Portuguese producers shall overturn their kWhs for acquisition by distributors, commersialisators (retailers and traders) and/or directly to end-consumers from both sides of the border. To such effect, both market operators (the Spanish OMEL and the Portuguese OMIP) must exchange in advance a 10%-stake in their share capital. Before April 20, 2006 both OMEL and OMIP will merge into a new and sole market operator, the Iberian Market Operator (OMI).

There will be three alternatives for physically buying and selling power in the MIBEL:

(a) The Spot Market (or Pool) - This comprises both a daily and an intra-day multiparty organised market for setting a “marginal” electricity price system by means of the Market Operator matching bids and offers for hourly electricity made by generators, distributors, commercialisators (retailers and traders), consumers and other market participants such as the External Agents. The “marginal price” for each scheduled interval will depend on the outcome of the matching process. This Spot Market will be based in Madrid and, initially, governed by the Spanish Market Operator OMEL.

(b) Forward Market – Power may be contracted for a maximum period of 1 year, with physical settlement at the maturity date. This Market will be located in Lisbon, and shall be run by the Portuguese OMIP.

(c) Physical Bilateral Contracts – Sellers and purchasers negotiate bilaterally (bilateral clearing) contracts with a minimum length of 12 months. The price can be freely agreed between the parties. The energy is settled through the market operator. In principle, the generating units involved in the performance of these contracts are exempted from the obligation to submit bids in the Pool for the portion of their generated power committed to the performance of such contracts. In the case of such contracts, credit terms and documentation are individually negotiated on a bilateral basis. Physical Bilateral Contracts can be entered into by and between generators, commercialisators (retailers and traders) and end-consumers. These contracts do not have priority rights on the use of the network.

An organised Financial Market (i.e. with financial settlement) is due to be created in the mid-term. Its functioning shall be governed by rules which are in the process of being defined by both OMEL and OMIP.

A Council of Regulators, made of representatives from the respective regulators (watchdog), the Spanish Comisión Nacional de Energía (CNE) and the Portuguese Entidade Reguladora de Servicios Energéticos (ERSE), will be created, having powers in the institution of proceedings in case of certain infringements as well as in extrajudicial dispute resolution relating to the economic and/or technical management of the system.

One of the mainstays on which the MIBEL rests, is that the recognition as an agent by either Spain or Portugal automatically empowers that agent to operate in the whole Iberian territory. The procedures to be followed so as to obtain any administrative authorisation to operate therein and, in general, future outcoming regulations, will be harmonised on a reciprocal basis. Third Party Access to infrastructure in the MIBEL shall be provided at regulated prices and tariffs in an objective, transparent and non-discriminatory manner.

The MIBEL’s goal is to give birth to a new scenario where Spanish consumers will be able to source its power needs from any supplier located in Portugal under conditions equivalent to those applying to Portuguese consumers and vice versa.

At this initial stage the MIBEL faces, however, several obstacles likely to impede immediate real competition, inter alia: the current limited interconnection capacity between Portugal and Spain (a problem which shall be overcome by 2005-2006, by which time existing capacity will be doubled); strong concentration (the four main Iberian utilities Endesa, Iberdrola, EDP and Unión Fenosa control over 75% of the existing generation capacity and more than 93% of the supply to end-consumers); structural imbalance due to the existence in Portugal of long-term supply contracts between the generators and the common carrier, REN; non-equivalent level of market opening (whereas Spain liberalised all demand on January 1, 2003, in Portugal full liberalisation is due to take place on 20 July 2004); EDP, the Portuguese incumbent, is still a State-controlled utility with a dominant position in all the links of the value chain in Portugal (with a share above 90% at all links); imbalance in regulated prices (tariffs, tolls and fees); initial lack of head-room for price competition due to high pool prices, etc.

In spite of the above, the MIBEL constitutes a significant opportunity for investment. With 50 million consumers and a turnover of 20,000 million euros,on even date herewith it represents almost 10% of the European power market. The MIBEL will be born, in terms of volume, as the largest spot market in Europe, above the Nordpool or the French (Powernext) and German (EEX) spot markets. In 2003, the Spanish pool negotiated, under a spot-basis, a volume up to 215 TWh, whilst Powernext mobilised up to 7,5 TWh and EEX up to 49 TWh. On its side, the Nordpool negotiated between January and August 2003 (last official figures available) 78 TWh, against the 130 TWh of the Spanish pool for said period.

Iberian utilities have announced investment in generation plants of around 3,500 million euros a year since the MIBEL shall require large investment in core business, due to higher competition along the value chain and increased risk profile and interdependency of the energy players.

It cannot be concluded without highlighting that, as stated in the Convention, the MIBEL constitutes the first milestone in Europe towards the construction of a real EU common market in the energy sector.

Gómez-Acebo & Pombo (Spain)
Corporate Governance.
Fernando de las Cuevas

Introduction

Nowadays corporate governance is prominent among the concerns of both private and institutional investors. Unfortunately, the cause of such concern is principally due to a number of financial scandals (such as the Enron case), in which negligence in corporate governance was the key factor. As a result of this, the regulators started to propose different alternatives to regain market confidence.

In Spain, these proposals starting taking shape in 1998 through the “Olivencia Code” which was commissioned by the authorities to modify corporate governance practices in listed companies. The original intention of such report was to support the establishment of self regulation codes.

Following the Olivencia Code, the Commission for the Development of Transparency and Security in Markets and Listed Companies, commonly known as the “Aldama Commission”, produced a new report at the beginning of 2003 which recommended continuing the development of self regulation but also recommended that the legislative body enact certain additional compulsory rules. Some of the recommendations included in the Aldama Report have been incorporated in the “Transparency Act” 26/2003 of 17th July and other subsequent regulations.

Consequently, initial recommendations with respect to self regulation have led to the enactment of rules establishing that non compliance with certain corporate governance rules shall be considered a breach of law.

Spanish corporate governance rules

Transparency Act 26/2003 of 17th July

The Spanish Government welcomed the recommendations set forth by the Aldama Report and decided to legislate on its most suitable aspects, by approving the Transparency Act.

The most important issues of the Transparency Act may be summarised as follows:

Publicity of shareholders’ agreements in relation to listed companies.

The execution, renewal or amendment of a shareholders’ agreement intended for the exercise of a voting right at general shareholders’ meetings which limits or conditions free transferability of shares or convertible or exchangeable bonds in listed public liability companies, shall be communicated to the company and to the Securities Market Commission, and shall be published as a relevant fact. Following such communications, the document shall be deposited with the Mercantile Registry.

Until the communications and deposit have been published as a relevant fact, the shareholders agreement shall have no effect whatsoever with respect to the issues in question, without prejudice to other applicable regulations.

The obligation of the general shareholders’ meeting to draw up a specific regulation for the general shareholders’ meetings.
Duties of Directors:

Directors shall refrain from performing, or recommending third parties to perform, operations involving the company’s shares or shares in subsidiaries, associated or related companies about which they have privileged information.
The Board of Directors shall issue an internal regulation of the board in accordance with the Act.
Directors shall not use the name of the company to perform operations on their own account.
Directors shall not, for their own benefit or for the benefit of third parties, make investments or perform any operations of which they may become aware whilst in office if the investment or operation has been offered to the company or in which the company may have an interest, unless the company has declined such investment or operation without the director have exercised any influence in this respect.
Directors shall inform of any situation that may arise which may be in conflict with the company’s interests.
Directors shall communicate their stake in the capital of any company with the same, similar or complementary line of business as the business purpose and offices or functions exercised therein, as well as the performance, on their own account or on account of any third party, of the same, similar or complementary line of business as the business purpose. This information shall be included in the annual report
Even after they have ceased to be in office, Directors shall keep all confidential information secret, and shall undertake to keep secret all information, data, reports or antecedents of which they are aware as a result of their position, and shall not communicate such information to third parties when this could jeopardise corporate interests.

Additionally, the new legislation has introduced a stricter regime with respect to directors’ liability by increasing the degree of diligence required and by removing minor distinctions in the degree of fault contained in the previous legislation.
Annual corporate governance report, communicated to the Securities Market Commission and published as a relevant fact.

Ministry of Economy Order 3722/2003 of 26th December and Securities Market Commission Circular 1/2004 of 17th March

The said Order stipulates the content of the annual corporate governance report to be issued by listed companies. Additionally, the Order establishes that listed companies shall keep a web page containing particular information such us the General Shareholders Meeting and Board of Directors Regulations, the company’s annual report and internal code of conduct, corporate governance report, documents of the ordinary or extraordinary General Shareholders Meeting, means of communication between the company and its shareholders, means and procedure for conferring powers to be represented in the General Shareholders Meeting, means and procedure for distance voting and the methods of voting via telematic means and relevant facts, in accordance with the Order. The Order also establishes that the company directors shall be responsible for keeping the web page updated and for supervising its content.

Additionally, through Circular 1/2004 of 17th March, the Securities Market Commission established different aspects with respect to the annual corporate governance report (including certain rules relating to foreign companies listed in Spain) as well as the information to be published on the web pages of the listed companies.