Here in Hawaii, we have seen a surge in Korean visitors since the the U.S. visa waiver program was implemented a couple years back.
Seventy U.S. senators and more than 300 members of the House of Representatives voted for it the last time around. That is about as bipartisan as you can get in Washington – and yet renewal of the Generalized System of Preferences (GSP) is always a slow and “iffy” thing. GSP, of course, is the U.S. version of a worldwide program to help developing countries use trade to move their economies and their people out of poverty. We have had the GSP program since 1976, so you would think Congress would get used to re-authorizing it. The U.S. Congress always seems dilatory about re-approving our GSP program and then, when all the arguing is done, GSP gets passed overwhelmingly. Go figure.
For those unfamiliar with GSP, the U.S. version allows duty-free entry for close to 5,000 products from 127 developing countries and territories. All the other developed countries have similar GSP programs. GSP is the primary exemplar of the much vaunted “trade – not aid” approach to economic development.Our current GSP program expires on July 31. If nothing is done before then, the zero duties now granted to developing countries automatically go up to the full value that applies to any other country around the world. That could very well happen because GSP votes are often delayed well past the expiration of the previous authorization. Our politicians love to fight about which countries should get GSP treatment or even which products, because you can be sure that some member of Congress is going to go to the mat to protect some constituent’s factory. Amazingly few of our elected leaders seem to realize that the GSP program doesn’t just help developing countries. It also lowers prices for American consumers and provides jobs at factories dependent on imported parts and materials. In fact, in 2005, the U.S. Chamber of Commerce estimated that GSP helps support 80,000 American jobs.
The last time GSP was up for renewal, in 2010, Congress dithered for ten full months before voting overwhelmingly for the program. That delay cost American importers (and consumers and workers) $2 million every day in additional customs duties – that’s a tax increase if any Republicans are reading this. That led some companies to reduce worker benefits, freeze salary increases or even lay American workers off. All just for a delay on the vote.
The Coalition for GSP, a grouping of American companies (small and large), chambers and trade associations is launching a lobbying campaign this coming Monday to make sure that GSP is renewed on schedule. You can join the push here. GSP saved American companies $742 million in 2012. Don’t let Congress screw it up again.
You may have noticed that posts have been sparser than usual. Combine my retirement with a lengthy visit from my 3-year-old grandtwins and that is what you get. I will post intermittently and likely shorter than usual whenever I get a chance to concentrate.
Typical of the complaints was an op-ed piece in the Washington Post by somebody who should know better – Robert Herzstein, who was an undersecretary of Commerce in the Carter Administration. Here are Mr. Herzstein’s arguments:
●Food safety: Will health standards at Smithfield be undermined when the company is controlled by Shuanghui International, which closed a plant after reports that its pigs were fed a chemical that makes the meat lean but sickens humans? U.S. food regulations would continue to apply to Smithfield’s operations in the United States, but such oversight is notoriously spotty. Much of our regulation of food companies and other enterprises depends on voluntary compliance, not just enforcement. Reports of egregious food adulteration in China suggest a culture where companies have little concern for safety and health standards.
●Technology transfer: Shuanghui is expected to use Smithfield’s animal gene technology in its production in China, potentially displacing the export market for U.S. pork products in that country and perhaps, in a few years, reversing the course of trade. Meanwhile, U.S. companies seeking to invest and sell in China’s state-dominated economy have been forced to share their intellectual property and manufacturing and marketing know-how with Chinese competitors.
●Reciprocal investment and market opportunities: U.S. firms seeking to operate in China face additional demands, including sharing ownership with state enterprises or including local firms in their supply or distribution chains. Sometimes they must make other formal and informal deals and concessions. Yet Chinese investors in U.S. companies, such as the businesses that acquired the AMC movie theater chain and IBM’s personal computer business, operate free of such demands in an open market governed by transparent rules.
The food safety argument is a red herring. Yes, China has incredible problems with food safety, but that doesn’t mean that Chinese safety attitudes will automatically be transferred to Smithfield, with its totally different corporate culture. If there is any transfer, it may well be that Smithfield’s safety techniques will be taught to Shuanghui’s plants in China. I strongly expect that part of their motivation for buying Smithfield is to obtain good, reliable sources for pork that would then be sold to high-end customers in China who no longer trust Chinese-sources pork. If there are deficiencies in how we conduct safety inspections, as Mr. Herzstein asserts, don’t those deficiencies exist independently of who owns the company? Shouldn’t the United States be responsible for fixing its own deficiencies, regardless of ownership?
Technology transfer is perhaps a more serious issue. But I question that Smithfield’s technology is so advanced and sophisticated that Shuanghui couldn’t obtain it elsewhere. It’s not like Smithfield has a monopoly on pork-processing technology. Shuanghui could license or copy the technology in any number of ways and places. If U.S. companies are worried about losing their edge due to tech transfer, keep improving the technology to keep a step or two ahead of the competition.
Reciprocal investment and market opportunities may be the most serious issue of all. It is undeniable that China is a tough, tough market to work in. Some U.S. firms with deep pockets have done it rather well, but many have lost their shirts. And it is a beauty of our economic and legal systems that Chinese, and other foreign investors, can operate more openly in the U.S. market. The United States has benefitted mightily from that openness and the general attractiveness of our market, drawing in more than $2.5 trillion in direct foreign investment over the years. No other country can say that. China is paying a heavy price for its closed and difficult nature (which includes the domination by state-owned companies). While their incoming FDI has been strong, it is nowhere the levels the United States has experienced for decades. Mr. Herzstein does not propose a “fix” for this issue. I expect the solution is for the United States to remain open and let Beijing gradually discover that its closed shop policies don’t work in the longer term.
I don’t mean to single out Mr. Herzstein for criticism. In fact, his op-ed piece is one of the better, more reasoned ones. There are others who stop just short of racism – and some who cross the line. It is reminiscent of our “yellow peril” fears when Japan was the fastest growing country in the world. We had a great debate in Hawaii in those days about whether or not we should allow Japanese investors to buy hotels on Waikiki Beach. Many did not want to “cede control” of tourism to Japan for reasons that were never very clear. I was one of those advising Hawaii’s governor to do nothing. After all, what could a Japanese owner do? Move the hotel? The Japanese gave us a financial shot in the arm that prompted renovation of an aging Waikiki, leading to growth for the entire industry. Perhaps this is just what Smithfield needs.
The article did not say much more. The pithiest part is here:
We will analyze the advantages, disadvantages and the possibility of joining the TPP, based on careful research and according to principles of equality and mutual benefit. China also hopes to exchange information and materials with TPP members on the negotiations.
~ Shen Danyang, Ministry of Commerce spokesman
It brought to mind a conversation I had with a Chinese delegate to the APEC meetings in Honolulu in 2011. He asked about the Trans Pacific Partnership and how a country would go about joining the talks. I responded that, in my opinion, China should not sit on its hands waiting for an invitation, but should be forthright and say that they want to be in the talks. This surprised him because he assumed that China was being excluded from the TPP. I told him that entry into the TPP would involve much negotiating, toing and froing, but that – to my knowledge – no Pacific nation is excluded a priori. Sure enough, that is exactly what happened when Canada and others wanted in, and is what Japan is going through now.
Could the China Daily blurb be a trial balloon starting the entry process for China?
You can sort of see why the politicians expect quick results. After all, the FTA provided American exporters with immediate duty-free access to 67% of Korea’s tariff schedule. We already had zero-duty access for 13%, so we suddenly find ourselves able to ship 80% of the Korean tariff schedule without having to pay customs duties. Note: That doesn’t mean that 80% of our trade with South Korea is duty-free, just 80% of the items listed in the tariff schedule. That’s still pretty impressive.
So have U.S. small business exporters benefitted from the tariff cuts? Hard to say, because there is a lot of friction in international trade. Old contracts, done in the days before the cuts, have to be worked off. If their previous suppliers weren’t American, Korean buyers have to be convinced to try new unknown suppliers. Small U.S. exporters need to be convinced that the Korean market is worth going after and they need to learn how to operate in the market. In short, there is a longer learning curve than those expecting quick results might like.
The ITC based its report on surveys of small U.S. exporters trying to do business in South Korea. After only a year (less actually, when the surveys were done), they had only a small sample with which to work. Here are the ITC’s conclusions:
A small number of companies provided the requested information, with responses coming from firms in diverse sectors of the economy, including agriculture (wine, tree fruit, potatoes, hay), manufacturing (tool and die, aircraft parts), and services (media, software). Responding SMEs reported varying experiences. Several indicated immediate sales increases, while others reported that potential trade gains have been delayed because of long implementation time frames. Narratives of expanding business opportunities and the creation of new relationships were partly countered by concerns about remaining nontariff measures (such as current phytosanitary restrictions) and new administrative burdens. Nonetheless, most respondents expressed the belief that the FTA had already proven helpful and would benefit their companies even more over time.
The ITC was able to look at trade stats for most of the period the FTA has been in effect: March 2012 – February 2013. That doesn’t tell us much because such a small sample can be skewed by exchange rate changes, economic growth (or lack of it) and so much else beyond the scope of mere tariff cuts. So it isn’t a huge surprise that U.S. exports to South Korea actually dropped by 7.2% during the first year of the FTA. That said, there were good increases in sales of beverages and tobacco products, chemicals, textiles, and transportation equipment. On the other hand, sales of U.S. petroleum and coal, plastics and rubber products, and fabricated metal products didn’t fare so well. The ITC saw trade data on U.S. services exports to Korea for April – December 2012 that showed a strong increase of 8.4% over the same period in 2011.
The ITC report provides detailed analysis of the trade barriers that still hamper sales of specific companies in South Korea, especially phytosanitary restrictions that face food products. Despite these issues, however, the companies interviewed almost uniformly expect that the free trade agreement will end up increasing their sales to South Korea.
Hardly a scientific sample, but – just a couple of weeks ago – a trade mission of several small Hawaii exporters made their initial foray into the South Korean market. Overall reports from the Hawaii firms were good and good sales are expected, but we were delighted that a small Molokai company, Hawaii Kai Corporation, has already made its first sale to Korea for its Hawaiian sea salts.
How important is the travel and tourism industry to the global economy? My previous post gives some hints: T&T is pretty damned important. To think of it as an industry, however, you have to think of hotels, theme parks, restaurants, national parks and airports as industrial facilities – as factories. I know, they don’t look like a factory, but they serve the same function, producing goods and services (bedrooms, food, scenery, activities and more) that the customers (tourists, business travelers) are willing to pay for. Once seen as an industry, it is readily apparent that it is one of the most widespread industries on the planet, providing employment and prosperity throughout the world.Travel and tourism is a tremendously scalable industry. You can see it at its most industrial on the Strip in Las Vegas, but it is also an industry for a town with a couple restaurants and a locally-owned B&B. The only difference is scale. Well, perhaps a little taste.
The Comparative Economic Impact of Travel & Tourism is a study by Oxford Economics released by the World Travel & Tourism Council. True, the study is a celebration of the importance of the T&T industry, but the numbers don’t lie. The authors compared the T&T business with half a dozen other major industries: financial services, automotive manufacturing, education, chemical manufacturing, communication services and mining. Some are smokestack industries, others are services we use daily. And travel and tourism ranks right with them. In terms of direct contribution to global GDP, T&T ranks ahead of auto manufacturing and chemical production – and pretty close to education, communications and mining. When the economists add in indirect impacts of these industries, travel and tourism accounted for $6.3 trillion of world GDP in 2011.
At 9.1% of global GDP, Travel & Tourism generates more economic output than automotive manufacturing (7.9%), mining (8.0%) and chemicals manufacturing (9.0%).
The travel and tourism industry directly employed 98 million people in 2011. If you add in the people indirectly employed to supply the industry, the employment effect climbs to 255 million jobs. That’s 8.7% of worldwide employment! Direct T&T employment is 6 times more than automotive manufacturing, 5 times more than the global chemicals industry, 4 times more than the global mining industry, twice the global communications industry, and a third more than the financial services industry.It shouldn’t surprise you that travel and tourism is one of the world’s great export industries. Inbound passengers from other countries count just as much as an export as outbound metal ingots or wheat. Their impact on the balance of payments is identical. And far more important to the balance of trade (when it includes services) than you might expect.
One would think this beneficial impact on economies and on exports would lead some governments to push travel and tourism very strongly. In many places (e.g., Europe and East Asia), you would be correct, but the United States is a big exception. National tourism organizations in Europe spent over $1.7 billion on destination marketing in 2012. The United States, where the fifty states handle most of their own marketing, doesn’t have an equivalent national tourism body. The states spent roughly $398 million in fiscal 2011/2012 to market tourism in their states, but only $48.3 million was spent in other countries, creating new exports.
No matter how you cut it, the United States is way behind the rest of the world in tourism promotion spending. Part of that is because Hollywood and American “culture” are front-of-mind in much of the world, so we can get away with less spending. But much of it is because our politicians fail to think of travel and tourism as a “real” industry. Washington was falling all over itself to prop up an ailing automotive industry, but helping travel and tourism through the recession? Not so much. Worse, we had the gall to increase our entry price – the cost of a visa to visit. But few of our politicians realize that a hotel is a factory and part of a real industry.
Does marketing by official tourism organizations have an impact? Yeah. The WTTC study presents “best practices” stories from around the world. Among them are returns calculated on 11 discrete promotions and ad campaigns run by U.S. states. For every dollar spent on travel promotion, the state saw a return (inbound travelers) of between $47 and $305. The average ROI for travel promotion campaigns was $123. I wish my investments got returns like that.
Did you know that…
• Travel & Tourism contributes more to GDP than automotive manufacturing?
• Travel & Tourism directly employed 98 million people worldwide in 2011? That’s …
• 6 times more people than automotive manufacturing.
• 5 times more than chemicals manufacturing.
• 4 times more than mining.
• Travel & Tourism supports more jobs than the automotive and chemicals manufacturing industries combined?
• Travel & Tourism directly supports more jobs than the financial services, communications and mining industries?
• For every one dollar spent on Travel & Tourism, 3.2 dollars are generated in GDP?
• $1,000,000 in tourism sales generates twice as many jobs than the same $1,000,000 in financial services, communications and automotive manufacturing?
These are just some of the startling findings in a new study of the comparative economic impact of travel and tourism around the world. The study was prepared by Oxford Economics and published by the World Travel & Tourism Council. It was sponsored, appropriately, by American Express and the TUI travel group.I spent a lazy Memorial Day weekend, celebrating my birthday and getting house projects done, so I haven’t yet absorbed all the implications of this report. As I do, you may see more posts about it in coming days.
I haven’t done a post in a long time about my outrigger canoe paddling. That’s because I missed the 2012 season due to a shoulder injury – and I am missing this year’s season because my heart isn’t strong enough to race at full speed. I was hospitalized back in December with congestive heart failure and just need more time to get back to a racing pace. I plan to back in a boat by this fall. In the meantime, there’s a lot of fast walking and swimming.
The 2013 sprint season kicked off Sunday at Oahu’s Ke’ehi Lagoon, so I went over to see my team and speed them on.