Business Beyond the Reef

• U.S. Defense Secretary Robert Gates may have taken the point on free trade agreements in the Obama Administration, surprisingly backing the U.S.-Colombia FTA.  You remember – one of the three FTAs that Obama has so far refused to ask Congress to pass, despite much polite rhetoric.
• While we’re talking about free trade agreements, Democrats in Congress are pushing for an expansion of the U.S.-Israel trade agreement.  I have no objection to that, but shouldn’t we hold the interests of the pro-Israel lobby hostage to passing the three stillborn FTAs with Colombia, Panama and South Korea?  Or are we saying that Israel is more important than those three?  I just glanced at the list of America’s top trading partners in 2009.  South Korea comes in at #7, behind the U.K. and ahead of France.  Israel doesn’t make the list.  Which one do you think should get priority attention from the U.S. Congress?
• Many companies need to check patents in foreign markets and, of course, the most well developed patent institutions on the globe or those of the United States, Japan and the European Union.  I recently heard about a site called SumoBrain (gotta love it) that does free searches of all three.  Might save you a bit of time, though it might cost your patent attorney a little revenue (from you).  I haven’t used, so let me know how it works for you.
• Our friends at FITA’s Really Useful Sites recommend using GlobalSources if you are looking to source products from China.  They claim that these are “verified” suppliers.  May work for you, but – as always – caveat emptor.  And let us know if it works – or doesn’t.
• I last posted about the travel industry and Cuba back on March 31.  A coalition of U.S. business organizations sent a joint letter to all Members of Congress on Tuesday, asking for immediate removal of travel restrictions to Cuba.  Unfortunately, they did not also ask for an easing of U.S. restrictions on investment in Cuba.  Opening up travel makes political and ideological sense, but there is no point in just giving the economic benefits to our competitors in the travel industry.
• U.S. Secretary of Commerce Gary Locke was pressing major American companies this week to get involved in rebuilding Chile.  Not only is it a good thing to do, it is likely to prove profitable, too.

Where are the Americans? (photo: José Porras)

I have long held, and so have my friends in the travel industry, that the biggest tourism boom in history will be touched off when the United States ends its embargo on trade and investment with Cuba.  Notice I said “when”.  Normalization will happen, but that’s like saying that the stock market rises in the long term.  We can’t know when it is going to happen.

In a New York Times article on Monday, those of us who see this coming are described as “dreamers”.  And the article itself is headlined “Dreaming of Cuban Profits In A Post-Embargo World”.  The big dreamers attended a conference last week in Cancún that attracted both Cuban tourism officials and potential U.S. investors, among many others.  Part of the message is that everybody is in Cuba except the Americans, with one speaker saying that 500 international companies have offices in Havana.  I’m not sure that means that business is being done, however, reflecting on the conference I attended last November where a figure of 150 foreign firms was used.

Cuba’s tourism minister, Manuel Marrero Cruz, told the attendees in Cancún, “We are not waiting for the Americans. We’re developing tourism for others around the world.”  Like Cuba doesn’t need a market of millions of people only an hour or so away.

And some Americans are getting to see Cuba for themselves.  the Obama Administration loosened travel restrictions for Cuban-Americans, a quarter a million of whom visited Cuba last year.  This is an increase of 80,000 from the previous year.  One wonders when it will dawn on both sides of the Florida Straits that other Americans might be interested, too.

What concerns me is that Congress could open up travel to Cuba without also opening up investment.  That will provide huge tourism revenue to Cuba, but will exclude U.S. travel and tourism companies, other than airlines and tour packagers, from participating.  What’s the sense of opening things up if we only guarantee profits for non-U.S. hotels and others who will be on the ground in Cuba to service the  avalanche of Americans?

• 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.

I suppose it is appropriate that I am posting from south Florida where I revel in Cuban food.  (I was scarfing down arroz con pollo within an hour of getting off the plane.)  When I was in Washington last week, I heard a presentation by Dr. Teo Babun, Jr. about trading trends in Cuba – a subject about which I know nothing.  Dr. Babun is CEO of Cuba-Caribbean Development and Babun Consulting Group, located in Miami.

Chinese-Owned Property in Havana

What caught my ear was China’s growing presence and the apparent paucity of international firms represented in Cuba.  Dr. Babun said that only about 150 foreign companies are operating in Cuba.  If true, this is a sad commentary on Cuba’s perceived economic potential, and certainly shows doubts far beyond the impact of the U.S. embargo on doing business in Cuba.  Babun commented further that the economic crisis in Cuba has led the Castro government to freeze the foreign exchange accounts of most of these few foreign companies.

I was surprised to learn that China is now Cuba’s #3 trading partner, trailing only Venezuela and Spain.  Venezuela ships oil and Spain has historic ties to the island country, but China?  Babun says that China’s trade with Cuba is worth about $2.5 billion annually.  The Chinese are selling buses, locomotives, refrigerators and other consumer goods.  They are investing in nickel production, port development and operations, biotech, hotels and oil refining.  Who knew?