Concern About Financial Stability Following the Recent US Legal Expansionism: International Law and East Asian Perspectives

This chapter looks into the effects of the extra-territorial application of US economic laws on financial institutions. It undertakes to do so both from the perspective of international law in general, and from an East Asian perspective in particular. It is argued that the expansionist approach applied by US governmental agencies is not only questionable under the principles of international law, but may actually also create risks for the financial stability of East Asia. This is because the banks in the region increasingly feel the impact of US law compliance costs, which may induce them systematically to decrease their use of US dollars in international transactions. This, in turn, may foster the development of payment systems in East Asia that avoid the US dollar or the United States, and thus harm financial stability in the global US dollar market. A solution to this problem may lie in the conclusion of a multilateral agreement on economic sanctions similar to the “Basel Concordat” framework, or of a bilateral treaty like the US-Japan “Agreement Concerning Cooperation on Anticompetitive Activities” or to the US-Japan “Income Tax Convention”.