Business Beyond the Reef

• The mind boggles.  Club Med has invested in a ski resort in China.  Way up in the northeast, in Heilongjiang Province, Club Med has bought into a financially-strapped ski resort.  This may be an intriguing clash of cultures.
• President Obama’s approval of loan guarantees for two nuclear reactors in Georgia has split the unions.  Construction unions love it, but the approval is drawing fire from the United Steelworkers because some 20% of the package will buy critical components from steelmakers in China or South Korea.  The union is trying to create doubts about the safety of Chinese steel, but we are not talking about consumer goods here.  China has been successfully manufacturing reactors, while our own industry has been moribund for thirty years.  Why should we expect to be competitive on something with which we have little experience?
• We had the pasta war, several chicken wars, even the turkey ball war.  But the toilet paper war is just beginning.  Unions in Australia are challenging imports of cheap toilet paper from China and Indonesia, saying the product is being dumped (I’m not going to touch that pun).  Having had personal experience with cheap toilet paper in both Indonesia and China, this dispute is self-limiting.  Australian consumers are only going to buy it once.
• Brazil now exports more to China than it does to the United States, a reflection, of course, of the recession.  The problem is that China buys a vastly different group of products than Brazil sells to U.S. customers.  Brazil’s trade with the United States is mainly in industrial goods, but China is mostly buying commodities such as soybeans and iron ore.  This destroys the value-added business of Brazilian product companies and sends Brazil back to the days of simply being a commodity supplier.  This will presumably end when the U.S. economy moves into recovery.  In the meantime, not everybody is dancing in Brazilian streets.  For more, see the article in Asia Times.
• The recession also hurts the Cuban cigar trade.  Sales were down by 8% in 2009, reflecting reduced international travel (which, of course, cuts sales at duty-free airport shops) and Spain’s economic downturn.  Spain has historically been Cuba’s largest cigar market, but … up in smoke.
• A suit brought by Totes-Isotoner alleging gender discrimination in customs classifications was tossed out by a Federal appeals court this week.  The company argued that having different duty rates for men’s and women’s clothing (a time-honored practice around the world) discriminated against whichever gender got the higher rate on a particular item of clothing.  I would guess this is about gloves.  The court in New York disagreed.  Totes-Isotoner says they will appeal to the Supreme Court.  (note: these classifications are set, at the 4-digit level, by international agreement – not by any one country.)
• Shipping lines complain loudly about all the empty containers they have to move westbound across the Pacific.  So what do they do about it?  They raise their westbound rates. What a novel idea – raise prices to attract business.  Gotta think about that.

Let’s go back to how Hollywood portrays embassies.  Remember those diplomatic receptions I mentioned in the previous two posts?  See them here and here.

An embassy reception can be wonderful – if you are not working.  The food is usually good and the drink well picked and enjoyable.  Conversation is sometimes stimulating – and sometimes not.  If you work at the embassy that is giving the reception, however, you are working and working hard.  Knowing who has been invited, you have picked your targets to establish new contacts, make points that couldn’t be made in another setting, or pumping for information.  Many of the guests are doing the same to you, just as you would at someone else’s reception.  It takes concentration, a strong memory, and a willingness to forgo.  At receptions at my own embassies, I drank nothing alcoholic until late in the evening when all my targets had departed.  Dinners are different; you have to drink the wine.

Once you have run out of your chosen targets, you still don’t relax.  You are on the lookout for any guest who is alone or seems out of sorts.  After all, the purpose of a diplomatic reception is to project your country’s image, so you don’t want anyone unhappy.  Among old-school diplomats, too, we did not leave an embassy function until after our ambassador had departed and the last guests were out the door.  I had one ambassador who delighted in announcing to 200 guests that they should party as long as they wished, and then she would disappear up the stairs and go to bed – leaving her officers to entertain for a few more hours.

4th of July at Embassy Budapest (Embassy photo by Attila Németh)

Food offered by an embassy is generally superb, but there are exceptions.  In bad budget years, you eat little at your own receptions until you know there is enough for your guests to enjoy.  One ambassador insisted on serving vegetarian lasagna at every event, sometimes relieved by hotdogs or sliders if it was July 4.  That brings up the subject of holidays.  Most embassies are closed on local holidays as well as on their own holidays.  That sounds generous, but some of those “holidays” are hardly restful.  I never looked forward to Independence Day.  At any American embassy, July 4 occasions the biggest longest party of the year – and embassy officers spend much of the day wearing coat and tie, talking to the targets described above.  Receptions were not my favorite part of embassy life though, I’ll admit, there are some who thrive on it.  I knew one officer in Singapore who managed to go to receptions or dinners almost every night.  Neither he nor his wife cooked.

I am often asked about diplomatic passports, the famed “black” passports.  Vastly overrated, though occasionally they get you into a faster immigration line at an airport.  In many countries, however, a diplomatic passport is required to have a visa before you can enter – even if you don’t need one on a tourist passport.  And guess what happens to the passport-carrying American diplomat when terrorists seize your aircraft?  I carried a normal passport whenever possible.

Now, a subject near and dear to American hearts: are diplomats really exempt from obeying local laws?  No.  They are not exempt, but they may not always be subject to the same penalties.  Diplomats can be declared persona non grata and deported, but you are not likely to do that for a few unpaid parking tickets.  In U.S. embassies you are told that, if you break local law, the embassy is not going to bail you out of trouble.  In fact, unpaid parking tickets were billed to the embassy by local authorities and collected directly from you by your own admin people.  Not all nations’ embassies are quite so cooperative.

Lastly, are embassies safe?  There is a memorial plaque in the main lobby of the State Department to U.S. diplomats who have died in service overseas.  The plaque carries 239 names, ranging from a diplomat lost at sea in 1780 to an officer murdered in Ethiopia last year.  ‘Nuff said.

I am always ready to respond to questions about embassy life and living in other countries.  Send in your questions!

In A Small Town In Germany, one of John le Carré’s characters walks into the British embassy in Bonn, but is confused as to whether his meeting is with the commercial section or the economics section.  The embassy receptionist responds: “Oh, they are quite different, you know!“  But a businessperson, new to embassies, may not know.

Amembassy Bratislava

As mentioned in yesterday’s post, an embassy can be an enormous managerial challenge.  The typical embassy, American or otherwise, is organized into a number of functional sections, and these may be subdivided in larger embassies.  The sections with which a company is most likely to work include the commercial and agricultural sections, and the defense attaché’s office.  These are the sections most concerned with helping companies get deals done.  The DAO’s office (names vary in embassies), obviously, is concerned with military sales and can provide invaluable insight and contacts with foreign defense ministries.  An agricultural section, equally clearly, focuses on agricultural sales and issues, and most food and beverage exports.  The commercial section is the catch-all, dealing with close to 90% of U.S. exports.  When in doubt, start with the commercial section and they will put you in touch with others as needed.

Other sections often are needed, especially when a U.S. company is going after big procurement contracts.  Sikorsky spent years trying to sell Black Hawk helicopters to the Austrian military.  The military wanted them, but it took the DAO’s office talking to the defense ministry, the commercial section convincing the finance and economics ministries, and personal lobbying by the ambassador to get the job done – all working hand-in-glove with Sikorsky’s own efforts.

A company running into a trade policy issue may see a different cast of characters.  Say you need to get a country to modify a product standard to get your products on the market, or you feel you have been hurt by some outrageous local regulation, you will likely need to work with the commercial or agricultural section (depending on your product), the economics section and possibly the political section.  Trade policy is generally split up between the first three, but that varies tremendously depending on the expertise of the individuals in those positions.  Again, commercial is a good place to start.

Embassies have many other sections, many of which you will never see.  There is an administrative section dedicated to the running of the embassy and its logistics.  A communications section, a public information or public diplomacy section and many more.  Even intelligence sections.  One section that may prove critical to you is the consular section.  These are the people to contact when you lose your passport or, heaven forbid, you land in a foreign jail.  (They can’t spring you, but they can give you good advice and make sure you get a decent lawyer.)

But their major fascination for you may be the consular officers who approve or disapprove visa applications.  You may want your new foreign partner to come to your plant in Ohio for training, but if they can’t get a visa, it isn’t going to happen.  It is always good to let the consular section know who you are inviting and provide them with cogent, written details of why that person needs to travel to the United States.  Consular officers, by law, have to deny applications from people they consider potential illegal immigrants, so you want to make sure they know this isn’t the case.  Provide copies of the same materials to your foreign contact so that they have them with them when they go to the consular section for an interview.  Files can get lost when you are handling hundreds of applications a day in some places.

What can you expect when you visit with a commercial or agricultural section?  Good professional help and advice.  These sections are dedicated to helping American export sales.  If you are a newcomer to the market, they will give as thorough a briefing on doing business there as you could want.  There’s a good chance they have already done market research that bears on your product, which is available free of charge.  If they haven’t you can commission research (for a fee, usually).  They do a whole lot else and both the Commerce and Agriculture Departments use them to offer dozens of services to help sell U.S. products (check out www.export.gov).  These services can provide you contacts with potential business partners, checking on their bona fides, helping you get ready for a trade show, and much more.  If you are having a business problem, talk it over with these sections.  They will either have a solution or will have some good ideas of how to get started.

I wrote yesterday about Foreign Service Nationals (FSNs).  Don’t make the mistake that many companies do – insisting that they must speak to or meet an American officer.  It is often the local FSN, who may specialize in your industry, that knows what he or she is talking about.  An American officer may have developed that knowledge during an assignment, or you might find that the officer has been in country all of two weeks.  If the Americans tell you to talk to an FSN, be grateful they recognize their limitations and do it.  The FSNs who worked for me in five different embassies continually surprised me with what and who they knew.

You won’t find commercial or agricultural sections in every embassy or consulate.  The U.S. Commercial Service staffs the commercial sections, and they only have enough budget to provide sections in most U.S. embassies, but not all.  Agricultural sections, staffed by the Foreign Agricultural Service, are found in fewer places.  If there is no ag section, ask for the commercial section.  In the truly small embassies, commercial functions will be handled by a State Department officer who tries to address commercial, agricultural, economic and many other issues at once – kind of a one-armed paperhanger.  Be kind and adjust your expectations.  You’ll likely be pleasantly surprised.

Tomorrow, we’ll get to a few nagging questions, like what does a black passport get you, what are diplomatic receptions really like, and are diplomats really exempt from host country law?

Can embassies help you sell?  You bet!  Most American exporters avoid contact with U.S. embassies until they are way over their heads with problems, and then they want the embassy to magically sort it out in an instant.  Big mistake.  I assume this is part of our American individualism and a deep distrust of government.

My former colleagues and competitors in other countries’ embassies, though, tell me they see the same thing.  So perhaps it is merely a lack of knowledge of what an embassy can or can’t do to help a company in international business.  We’ll get to that.

First, what’s the popular Hollywood concept of an embassy and how does it compare to reality?  In the average film, an embassy is a grandiose building with surprisingly few people, staffed by a gruff ambassador and a few attachés, who seem to spend their time either drinking at receptions or dashing about on secret missions in the dark.  They apparently do little work in the daytime.  Oh, and in American embassies, they all work for the State Department or an intelligence agency.  That’s the perception.  No wonder businesses don’t go there.

The buildings can be grandiose; it depends on when they were acquired and what the budget was like at the time.  A country always wants to project an image and that takes money.  Some embassies are purpose built, some use existing buildings.  The winning design for the new U.S. embassy in London was announced yesterday.  The American embassy in Vienna is housed in a former palace that was Austria’s diplomatic training academy.  But the former U.S. embassy in Bonn was previously a mental hospital.  Some view that as appropriate, but it was what was available at the time.  (Incidentally, the building we speak of as an embassy is actually the chancery.  The actual embassy is the house in which the ambassador lives.  But I quibble.)

Embassy staffs vary enormously, depending on where the embassy is located and what functions are needed there.  The new embassy is London is designed to accommodate a staff of 1,000.  The American embassy in the Marshall Islands is considerably smaller.  The staff in some places, such as the U.S. consulate in Frankfurt, may be larger than you might expect because people are positioned thereto cover entire regions, providing support, say, for the smaller embassies throughout eastern Europe and central Asia.

They won’t all be from the State Department.  State Department employees are only a plurality in most American embassies.  You will see people from Defense, Commerce, Agriculture, sometimes Treasury, Justice, FAA or most any other agency in Washington that has an international mission.  And, yes, the intelligence agencies will be there, too.  Most of their people are known to the host government and are there for liaison work with local intelligence agencies.  Not all these people are “diplomats”.  That epithet is reserved for members of the Foreign Service (what other countries call a diplomatic corps), which can include officers from State, Commerce or Agriculture.  And much of the staff is support personnel, the admin specialists, communications and IT experts, a few secretaries (increasingly few), cooks, drivers, cleaning crews and other folks who keep things humming.

An embassy staff is not all American (insert your own country here).  Many of the staff members, often the most valuable, are local employees – called Foreign Service Nationals (FSNs) in U.S. embassy jargon.  They range from menial labor to some of the highest paid employees.  There have been cases of senior FSNs getting paid more than the ambassador.  It’s the FSNs who have the deep local knowledge that can be critical to your business success.  They often are personal friends of the top government or corporate officers that your company needs to get to.  In one country I served in, I had no trouble getting to see the finance minister on short notice; one of my FSNs used to date him.  The local knowledge of the American officers, while often quite good, cannot be as deep as that of the senior FSNs.  Most of the Americans are in place for three or four year tours, then off to a new assignments.  It’s generally a good combination.  Fresh thinking coming in, while saving the deep local knowledge.

The Hollywood concept is that embassies have no organization.  Everybody reports to the ambassador, clearly an unreasonable assumption, but one that leads many companies to insist on speaking to the ambassador, even on trivial issues.  The ambassador, or his or her deputy, the Deputy Chief of Mission (DCM), is a manager as well as being a representative for the country, and most of the work of an embassy is delegated down – just as any company would do it.  An embassy, by the way, is an interesting management proposition.  Yes, the reps of all those agencies report to the ambassador, but they also have their own bosses in Washington, which can lead to conflicts when their home agency and the State Department disagree.  My toughest negotiations have been between agencies rather than with other countries.

The United States uses both career (from the Foreign Service) and political appointee ambassadors.  I had good ones and bad ones of both stripes.  Just as the relationship between a CEO and a COO is critical for any corporation, the same is true of how an ambassador and the DCM work together.  The DCM is the Chief Operating Officer and that role becomes even more crucial if the ambassador is political and doesn’t know how to work the system.

Tomorrow, I’ll plan to look at how an embassy is structured and get into which parts of an embassy a business needs to know.  And I’ll let you know what those diplomatic receptions are really like.

Yesterday, I saw an article by Tony Daltorio at Investment U Research about how Google forgot Rule #1 of international marketing: know your market.  Seems obvious, but it often catches companies out when they make a run at a new market.  They don’t stop to think about the market, or they haven’t done the research to get to know a market.

Daltorio’s article points out that Google strode into China with all the hubris of a Greek tragedy.  They knew little about the local competition, like Baidu, which might have enabled Google to pick up on what was driving Baidu’s market share in China – free music downloads, which are not a core expertise for Google.  Google also assumed that their U.S.-style model would automatically work for China, as it had worked in so many other places, but they built no good way to cope with Chinese character searches.  Chinese users want to minimize typing, but do want to be able to merely click on buttons to conduct a search.  (Would a Yahoo-style search by categories work better in China?)  Daltorio says that Chinese internet users are more likely than the rest of us to use the Internet for entertainment, not for the business searches that reign supreme in other markets.  And, says Daltorio, Chinese tend to use blogs more than company websites, preferring to trust word-of-mouth recommendations, which puts a premium on putting blogs high up in search results.  Now, that is not to say that Google didn’t run into all sorts of official and unofficial blockages in China.  Most companies do.

The article got me to thinking about companies I have worked with that did a good job of learning the market – and those that didn’t.  We did some market research in Germany for a firm (that should remain nameless) that wanted to introduce an American consumer product.  Our findings were very negative; in fact, we told the company they would lose their shirts in Germany and probably in much of Europe.  I was a U.S. commercial officer at the time and the company was so angry they complained all the way up to the U.S. Secretary of Commerce.  We stuck by our research.  The company then went to a neighboring European market with their original approach – and promptly lost their shirts.  Never ignore negative market research. It can be the most valuable research you will ever see.  (BTW, the company never apologized.)

I saw KMart fall on its face in Singapore.  They came into the market in a rush and opened up what appeared a magnificent store in downtown Singapore.  What they didn’t realize was that Singapore already had plenty of cheap goods, that they are sold through small stores in the many housing estates on the island, and that – once the flash of the new was over – few Singaporeans would make the trip downtown to buy such things. Why wait for a Blue Light Special when you can get the same thing cheaper from the guy down the street?  (The expat community, which didn’t live in public housing estates, worshiped KMart.  They had that part right.)

Some firms do get it right.  I have worked over the years with a Honolulu architecture firm, Wimberley Allison Tong & Goo, that makes a fetish of getting cultural things right.  When they begin work on a project, say a resort or hotel, they send architects to the site for months or even a year to study the local culture, mores and architecture before they begin to design the project.  The goal is to please the customer, make sure the resort fits with the local culture, and please the visitors to these hotels who want an experience that can’t be replicated in a chain hotel.  WATG has been so successful at this, and has won so many international awards for their work, that now they need to do very little marketing.  International customers come to them.

Doesn't Sell in Germany

Germany was the site of one of the most egregious cases of ignorance of the market I have experienced.  We were helping U.S. companies at a trade fair for costume jewelry in Stuttgart when we found a California company setting up to sell their biker jewelry.  Bikers seem to love old SS-style symbols, swastikas and especially the SS deaths heads.  But Germany, for good historical reasons, has outlawed display of such stuff.  The U.S. company had not thought to ask about selling Nazi paraphernalia in the country that invented it.  We got the deaths heads under cover just before the police arrived.  Phew!

The bottom has dropped out of French alcoholic beverage exports – except for vodka.  Wait a second.  Since when does France produce vodka?  Isn’t that some proletarian beverage from further east in Europe?  Nope.

Bacardi’s Grey Goose vodka is made in France, and makes up virtually all of France’s vodka exports.  Running counter to normal recession trends, French vodka exports rose 13.7% in 2009 to $324 million.  And 70% of that was sold to the United States.  To put this in perspective, total French exports of wine and spirits plunged 17% to $10.5 billion.  That makes vodka, quite literally, a drop in the bucket.  But how did Bacardi get the job done?  I don’t drink vodka, but I have never noticed a hint in Bacardi’s ads that Grey Goose is French.  Any of you readers have an idea of how they did it?

Pinot Noir - but what gets into your bottle?

U.S. imports of French wines tumbled 22.7% last year to a dispiriting $1.8 billion.  And their prospects aren’t helped by a court decision last week that convicted a dozen wine growers and merchants of defrauding American buyers.  A French court in Carcassonne (one of my favorite places) found that French firms had duped E. & J. Gallo Winery (and others, as yet unnamed) into buying cheap plonk, thinking it was good pinot noir from the Languedoc.  (I’ve had some great wines in the Languedoc, but this apparently was not the good stuff.)  The perpetrators succeeded in passing off cheaper merlot and syrah as pinot noir for two years, beginning early in 2006.  Gallo says it is no longer selling any of the fake pinot, but they can’t vouch for bottles still on retail shelves.  Look out for Gallo’s “Red Bicyclette” pinot noir.  It may not be what you think.

The incentive for the French companies was immense.  The judge said they made $9.8 million from the scam.  The big winners (now losers) were respected firms: Ducasse harvested $5 million and Gallo’s supplier, Sieur d’Arques, took them for a $1.8 million bicyclette ride.  A French fraud squad broke the case when they audited Ducasse’s books and found the firm had been buying “pinot noir” at about half the market price.

• W. Michael Cox, former chief economist with the Federal Reserve Bank of Dallas, published an op-ed piece in the New York Times Wednesday about the vast importance of services in U.S. export trade.  Drawing attention to President Obama’s gaffe of not mentioning services in his proposal for a National Export Initiative, Cox argues that the only way the United States can double exports in five years is by increasing exports of services.
• Fred Bergsten and Jeffrey Schott have released a paper giving strong support to the idea of the United States joining the Trans Pacific Partnership.
• ASEAN’s tariff cuts DO have an impact! Indonesia’s Sampoerna, a company that makes clove cigarettes, announced that it is closing a plant in Kuala Lumpur because the drop in duties makes it feasible to export their cigarettes directly from Indonesia to Malaysia.
• An Australian site, appropriately titled Import Export Made Easy, has a nice glossary of trade terms.
• I have posted several times about the lack of will, knowledge and interest in the Obama Administration and the U.S. Congress about the three already-negotiated free trade agreements with South Korea, Colombia and Panama.   These FTAs mean thousands of jobs for Americans – and yet they are ignored by politicians who say they want to create jobs.  Go figure.  Read the op-ed piece published in Friday’s Wall Street Journal touting the U.S.-Korea FTA.
• I’m happy to give credit to the Obama Administration for its new initiative to encourage U.S. clothing brands and apparel retailers to buy at least 1% of their total apparel requirements from Haiti.  Companies like Hanes and Gap are already on board.
• Enough of this serious stuff.  The New York Times tells you where to find a good brew in Vietnam.  It’s not just 888 anymore.

Everybody is talking about spats between the United States and China, but I am more worried about India’s reaction to China’s growth.  I have posted before about trade fights between the two, but things seem to be taking on more of an edge.

Several years ago India stepped up construction of new power plants, recognizing the needs of a growing economy and trying to alleviate tenuous electricity supplies.  The plan was to increase electricity production 60% between 2007 and 2012.  India did not have the domestic capacity to build all those power plants and, not liking the higher prices of other builders, they awarded many of the new contracts to Chinese firms.  As a result, China is building about 25% of India’s new power capacity.  Thousands of skilled Chinese workers and engineers have fanned out across the subcontinent and Indian imports of Chinese power generation equipment has surged.  So New Delhi is having second thoughts.

The Wall Street Journal reports that India’s Central Electricity Authority has decreed that Indian equipment will be purchased for all future power plants built by government-controlled utilities.  New Delhi is said to be considering new taxes on imports from China and has warned power companies to stock up on spare parts for their Chinese-origin equipment.  And India has tightened visa requirements for foreign workers, forcing some 3,000 workers back to China last fall.  That wasn’t enough, so in December 2009 it was decided that no more than 1% of the workers on a power project can be foreign nationals (or forty people, whichever is less).  Predictably, all these restrictions have drastically slowed progress on the new power plants and has caused consternation in Beijing.  The Indian government says it is only trying to give India’s power generation equipment manufacturers time to build up their own production capacity.  Hmmm … could this be protectionism?

China has given India something else to think about with its expansion into ports in South Asia, says the New York Times.  Not since the fleets of Zheng He has the Indian ocean seen so much Chinese maritime activity.  This time China is building ports, not just visiting them and trading.  New ports are  being built by Chinese companies at Hambantota in Sri Lanka, Chittagong in Bangladesh, Kyaukpyu in Myanmar and Gwadar in Pakistan.  China says the new ports are part of a strategy to pursue new business in a growing region, but India sees it as a potential threat to India’s security and economy, giving China bases to cover India’s shipping routes.  It’s an expensive strategy for China.  Hambantota alone is said to cost $1 billion.  Interestingly, Sri Lanka approached India first about taking on the project, but New Delhi turned them down.

Both China and India say their intentions are peaceful, but they keep getting in each others’ way as they grow.  China has downplayed conflict with India, but India has been more aggressive in taking trade actions against China and its own neighbors, driving the latter towards closer ties with China.  There is a price for ticking off one’s neighbors.

Coming between India and China?

The United States may be an unlikely beneficiary.  Sikorsky Aircraft may win up to $12 billion in Indian defense procurements in the next eight years.  They already have enough business to warrant investment in a plant in India to build Black Hawk helicopters on the spot.  The Indian military has ordered 16 Black Hawks and another twenty will be leased to the Indian coast guard.

Testing Eggplant (USDA photo)

Frankenfoods are back, and in a surprising place: India, one of the countries that has benefited the most from genetically-modified crops.  The Green Revolution, the forerunner of today’s genetic modification science, saved India from mass starvation fifty years back, but last week Jairam Ramesh, India’s Minister of Environment and Forestry, resurrected the Frankenfood arguments of a decade ago.  Mr. Ramesh has stopped commercial cultivation of a GMO eggplant that has been tested for ten years and approved by a commission of Indian scientists.

Mr. Ramesh says he wants to “build a broader consensus” so that India “can harness the full potential of GMO technology“.  India is already the world’s second largest producer of eggplant and could produce even more if farmers weren’t losing 40% of their crop to pests the new strain is designed to control.

It is hard to know what is actually happening.  Bucking the advice of his own scientists, there seems little evidence that Mr. Ramesh has scientific backing for his position.  I have seen politicians give in to populism and use “safety” as an argument to limit participation by foreign companies.  I think both are in play now in India.  You see, the new strain of eggplant was developed by Monsanto with its Indian partner, Mahyco.  Monsanto is the world’s top producer of GMO seeds and, as such, it automatically attracts suspicion.  It doesn’t help that Monsanto is a big American company.  Monsanto and the Indian scientists say that the new GMO eggplant is safe, and that increased production will lower prices on Indian markets where eggplant is often a food for the poor.

India’s Centre for Science and the Environment, an NGO in New Delhi, has rallied to Mr. Ramesh, announcing that this is “a question of public health, which can’t be compromised at any cost.“  Nice sentiment, but pity the Centre staff never took Econ 101.  Amazing how many people don’t realize that perfect public health (or security, or anything) requires infinite cost.  Even the BBC falls for such arguments; their radio report of the eggplant controversy included only one interview – with a British anti-GMO organization.  Talk about one-sided.  Now Greenpeace has jumped on board, calling for India to ban 41 other GMO crops.  Mr. Ramesh has expressed fears about “Monsanto controlling our food chain“.  I wonder if he would have said this if an Indian firm had developed the new seeds independently.  Doubt it.

There is another side of the story – and probably several sides I’m not aware of.   The Indian scientists who approved the GMO eggplant, the Genetically Engineered Approvals Committee, issued their approval last fall, an event that launched a coalition of consumers, farmers, state governments, medical groups, Hindu nationalists and Communist parties to stop the nefarious plant.  They say that India’s biosafety regulations are insufficient and that studies about the new eggplant’s long-term effects had been ignored.   That could be; I’m not in a position to know.  The Economist reports that Monsanto organized a farmers’ demonstration against banning the GMO eggplant – only they weren’t farmers.  They were landless workers who had been bussed in for the day, likely without a clue as to what they were protesting.  Foolish.

So where does that leave us?  Ten years of scientific research and testing down the tubes.  Opposition that may or may not have a scientific basis.  Foreign companies more reluctant than ever to invest in India.  Consumers suspicious of all new developments.  All due to a question that can never be answered.  Mr. Ramesh has set a standard that requires that developers of a new variety be able to prove absolutely that there is no potential for damage to human health or the environment.  Much as we might like to have such assurance, this is impossible to guarantee, because perfect (you fill in the blank) requires infinite cost.

Andy Xie published an analysis last week on Caixin Online about how the Obama Administration’s new export policy may heighten tensions with China.  Worth reading for his entire train of thought, I thought I would focus on the options Xie sees for increasing American exports.  In his State of the Union address, President Obama set a goal of doubling U.S. exports within five years.  Many pundits, including this one, have been skeptical, asking if such a feat is possible.  Xie lays out the options:

1. 

   Will U.S. Exports Bounce?

   Devaluation of the U.S. dollar.  Not highly likely.  The Fed has to begin tightening soon, which will put upward pressure on the dollar.  The dollar bottomed in May 2009, and has been steady or slightly rising since.

2. Exchange Rate Policy.  Xie argues that Obama will have to get more aggressive on China’s exchange rate, given the near unanimity of agreement that the yuan’s ties to the dollar have to be loosened, if not abandoned.  The assumption is that a rising yuan will make it easier to export U.S. goods and services, equivalent to a fall in the dollar.
3. Aggressive Trade Policy.  Obama has gotten a taste of the populist attractions of seeming to be tough on imports from China.  It started with tires, and has progressed to steel pipes, electric blankets and more.  More protectionist action will prove irresistible, especially since it can also be used to say the Administration is doing something about unemployment.

Like most macro thinkers, Xie ignores the less spectacular micro approaches of helping companies directly, educating and holding the hands of would-be exporters, taking firms that now sell to only one or a few foreign customers into new markets, introducing companies to international trade shows, and similar approaches.  The micro approaches won’t double exports in five years either, but they lay the groundwork for a permanent expansion of American exports.  Not just allowing exports to respond to exchange rate changes.

Some of Xie’s remedies are intriguing.  He advises China to open its capital markets to U.S. firms, taking some air out of China’s credit bubble and putting some into strained U.S. financial markets.  Allow big U.S. companies with China business to list on the Shanghai Stock Exchange.  Lower tariffs on U.S.-made goods to defuse opposition from American labor unions.  And open China’s agricultural markets to appease the politically-powerful American farm lobby.  Interesting stuff.