The Hidden Threat to Latin American Businesses: How 'Trade Policing' is Reshaping Corporate Governance

As a professor of corporate governance at a leading business school, I've been closely following an emerging trend that Latin American executives and board members need to be aware of: "trade policing."

A groundbreaking paper by Kathleen Claussen in the Harvard International Law Journal titled "Trade Policing" reveals how the United States and other countries are increasingly targeting individual companies, rather than governments, in their trade enforcement actions. This shift has profound implications for corporate governance, strategy, and risk management.

Key takeaways for Latin American business leaders:

1. Extraterritorial reach: U.S. trade agencies can now take action against companies operating entirely outside the U.S., even if they don't export to the U.S. market. This dramatically expands the scope of potential scrutiny.
2. New areas of focus: Trade policing extends beyond traditional trade issues to areas like labor rights, environmental protection, and human rights. Your ESG practices are now directly tied to trade compliance.
3. Severe penalties: Non-compliance can result in import bans, export restrictions, and other punitive measures that can severely disrupt operations.
4. Limited due process: Many of these enforcement actions lack traditional administrative safeguards, making it difficult to challenge or appeal decisions.
5. Supply chain implications: You're now responsible for the practices of your suppliers and business partners in unprecedented ways.

What does this mean for corporate governance?

1. Expanded board oversight: Boards need to broaden their risk oversight to include these new trade policing mechanisms.
2. Enhanced due diligence: Companies must invest in more robust supply chain monitoring and partner vetting processes.
3. Proactive compliance: Waiting for an enforcement action is no longer an option. Proactive alignment with U.S. and other countries' standards is crucial.
4. Strategic reconsideration: Some companies may need to reevaluate their global footprint and supply chain structure in light of these new risks.
5. Stakeholder engagement: Building stronger relationships with local communities, workers, and NGOs can help mitigate risks and demonstrate good faith efforts.

The landscape of global trade and corporate accountability is rapidly evolving. Latin American business leaders must stay informed and adapt their governance practices accordingly. This new era of trade policing presents both challenges and opportunities for those who are prepared to navigate it strategically.

I encourage you to read Claussen's full paper for a deeper understanding of this critical issue. What are your thoughts on how trade policing will impact Latin American businesses? How is your company preparing for this new reality?