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.

• 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.

I’m experimenting with titles for this space.  “Weekend Hits” never excited me – and I’m not sure today’s title does it.  The idea is that each Saturday morning I put up a few items that catch my eye (and might interest you), but haven’t blogged about.  Building on our overall “Business Beyond the Reef” them, how about something like “Breaking Waves”?  “Flotsam & Jetsam”?  Anybody have an idea for a catchy title?

Anyway, here are this weekend’s waves:

• We love pork in Hawaii, grinding on our favorite kalua pig, manapua and pork laulau.  So, a Wall Street Journal article about a battle over pork rinds grabbed my attention.  The U.S. Department of Agriculture (unusually) is making a unilateral change to loosen U.S. import restrictions on pork skins, opening up a market for Brazilian suppliers.  This was done at the request of an Ohio producer of fried pork rinds (I like ‘em spicy) who finds U.S. pork skins in short supply.  They are being opposed by some state agriculture departments and by competing pork rind producers, who argue to keep the imports out for fear of health problems.  We’ve got chicharrones here in Hawaii, too, going back more than 100 years to our first Filipino immigrants.  Yum.
• Spare a thought for poor foreign investors in Cuba.  Cuba lured investors in, but then put a moratorium on sending any of their profits back out.  Here’s an article in the Huffington Post about a European businessman in Havana reduced to trading Cuban food vouchers for convertible currency.
• This may take a few years, but Pakistan agreed this week with Turkey to invest $20 billion in a rail line between Istanbul and Islamabad could be big news for business in the Middle East.  It currently takes at least eleven days to send a container by rail on that route, but the new line promises to cut this to as little as three days, making rail shipments from Europe as as Pakistan feasible.  Now, if the Pakistanis can tie this line into the Indian rail system, we’d really have something going.
• It is encouraging that airlines are now competing for landing rights in Iraq.  The Wall Street Journal reports that Iraqi Airlines now has enough traffic to justify ordering new aircraft from Boeing, despite an influx of foreign carriers into Iraqi airspace.  An Iraqi Airlines spokesman takes an enlightened view: “Anything that connects Iraq to the rest of the world is good for the carrier and the country …”. Iraq’s international airports are seeing scheduled flights by Turkish Airlines, Gulf Air, Middle East Airlines, Bahrain Air and Austrian Airlines.  Austrian was a stalking horse for Lufthansa, which now plans to enter the Iraqi market this summer.
• Just Monday I posted about the “Communist Capitalists” in North Korea.  The Wall Street Journal ran an article yesterday about another money-maker for Pyongyang: monument-builder Mansudae.  Seems they are going after and winning contracts to build huge statues and monuments for cheap – based on all the practice they have had at home.  The WSJ piece details work they are doing in Senegal, and mentions contracts in China and Malaysia.  Libya is getting interested.
• The European Union and India resumed talks this week to negotiate a free trade agreement during 2010.  India did an FTA in 2009 with South Korea.
• That didn’t take long.  The United Steelworkers union and four steelmaking companies in Texas and Illinois have brought the first antidumping case of the year against China.  Chinese companies stand accused of selling oil well drill pipe at unfair prices.  These cases take months to investigate and the mere fact that there is an investigation does not mean that the Obama Administration has taken a stand on the issue – a fine point that will predictably be lost on Beijing.  Anybody can bring a case (given sufficient money for lawyers and a little evidence), but it is the decision that matters.  We aren’t there yet.

$35 billion in export sales. That’s how much we are hurting ourselves.

Seems Like There's Business

The U.S.-Korea Free Trade Agreement is still waiting for implementation by the Obama Administration and the Congress, a refusal to act that I have posted about several times.  Trade Partnership Worldwide has released a study for the U.S. Chamber of Commerce that quantifies how much Washington’s inaction hurts the United States when faced with competition from Korea’s new FTA with the European Union and the prospect that there will soon be a Korea-Canada FTA.  The study was done by Laura Baughman of Trade Partnership and Joseph Francois of the University of Linz.

The bottom line, say Baughman and Francois, is that America’s failure to implement the U.S.-Korea FTA will cost the United States $35.1 billion in exports, which will reduce GDP by $40.4 billion and cause a net reduction in the welfare of U.S. citizens of $25.2 billion.  What’s that mean in jobs?  More than 345,000 jobs lost.  Any way you look at it, we are losing big money.

For an administration and a Congress that claim they are concerned about jobs, failure to put this agreement in place reveals a curious lack of interest in putting Americans to work.  It must be more important to put Europeans and Canadians to work.  Am I missing something here?

I have been reluctant to post about President Obama’s trip to Asia because I haven’t seen much of a concrete nature on trade issues.  The President and the heads of state he met with all seem to be playing nicey-nice on trade, but as Gertrude Stein famously said about Oakland, “There’s no there there.”  Maybe I’m just in a sour mood.

U.S.-Korea FTA

Finally, in Seoul, we may see the glimmerings of something solid, though I have my doubts.  President Obama and South Korea’s President Lee Myung-bak said on Thursday that a free trade agreement “could” be reached between the two countries.  That’s confusing.  Agreement on an FTA was reached 2 1/2 years ago, but the FTA is still waiting to be ratified.  It sounds like Obama and Lee may have decided to re-open the existing agreement to mollify U.S. auto exporters and Korean farmers, but I haven’t seen a clear statement of this.  Any re-opening will delay the FTA for months, perhaps years.

President Lee made the point that Korea’s new FTA with the European Union will bring in more competition for American exporters, but time will tell if President Obama was listening.  In view of the Korea-EU agreement, wouldn’t it make sense to implement the Korea-U.S. FTA and agree to tinker with it after the overall agreement is in place?

Mr. Obama did say that he will “challenge” the U.S. Congress to display more sophistication on trade issues, something on which I wish him the best of luck.

The U.S.-Korea FTA could have huge positive impact for U.S. exporters and jobs (see The Kim Chee Gets Deeper).  Pity our politicians can’t see it.

You read it here first.  I posted a month ago (Is Congress in Deep Kim Chee?) about the dangers for U.S. exporters of the free trade agreement negotiated between South Korea and the European Union, then followed up a week ago knocking the Obama Administration’s decision to delay U.S. ratification of our own FTA with South Korea (The Kim Chee Gets Deeper?).  Now, you get a chance to chime in if you are a U.S. company that fears European competition in the Korean market.

Take the Survey!

The U.S.-Korea Business Council is surveying companies about the impact they foresee if the Europeans get their Korea FTA in place before the U.S.-Korea FTA becomes operative.  (For new readers, the hold up in the U.S.-Korea FTA is that the Obama Administration is not pushing it and, without a push from the White House, the Senate is unlikely to ever ratify the agreement.)  U.S. companies should complete the very short survey and submit it by November 30.

FYI, Korea ratified a new FTA with India on November 6.

I have been posting a lot about trade policy, but visits to Washington always bring this out.  Regular readers know that I support approval of the free trade agreements with South Korea, Colombia and Panama.  At the National Conference of District Export Councils (I chair the council for Hawaii and the American Pacific territories), I heard an expert panel conclude last Wednesday that the FTAs will not move unless President Obama tells the Congress that he wants them passed.  Korea’s ambassador to the United States told us that the Korea FTA is expected to generate 240,000 American jobs, so one would think that the Administration would have at least a mild interest.  The panel felt that the U.S.-Korea FTA had the best chance of moving quickly and could pass by mid-2010.  Good news considering the competing EU-Korea FTA seems on a fast-track for approval in Europe.

Clunkers for Korea?

Those hopes were dashed the next day.  U.S. Trade Representative Ron Kirk announced that the Obama Administration wants to re-open the U.S.-Korea agreement to get a better deal for U.S.-produced autos to enter the Korean market.  The current FTA draft is not perfect (have you ever seen a perfect agreement of any sort?), but it promises one of the largest openings of trade ever across the Pacific.  U.S. industries, workers and consumers stand to benefit immensely from this FTA, but we are now going to hold it up, and perhaps kill it, to support one of our country’s dying and least competitive industries.  Now, let’s suppose that Amb. Kirk succeeds in re-negotiating the agreement to do wonders for U.S. automobiles.  Who is likely to benefit?  Are we likely to see Korean streets filled with Detroit iron?  Or are we more likely to see Mercedes and BMWs built in non-union plants in the South heading for the Korean market?  I think so.  And I think the Administration knows this.  That means the sole reason to re-open the FTA is to pander for UAW votes in the next election.  This apparently trumps 240,000 jobs.

And it gives our European competitors, including EU car companies, an edge in the Korean market because their FTA with Korea will beat us to the market.

The European Union and South Korea initialed their new Free Trade Agreement, launching the race for ratification.  The United States and South Korea did their agreement 2 1/2 years ago, but the U.S.-Korea FTA is held up by the failure of the U.S. Congress to act.  The European Union needs ratification from 27 parliaments, but there is every chance they will get it done before our Congress moves.  I hope I’m wrong about that, but I have every confidence that our politicians will screw it up.  I expect the EU-Korea FTA will be operating by January 1, 2011, with the U.S.-Korea FTA following later.  That means lost opportunities and jobs for American exporters and great profits for our European competitors.

EU-Korea FTA

It is hard to measure, but some are saying that the EU-Korea agreement is the largest FTA ever, except for NAFTA.  To make that statement, you have to exclude the creation of the European Union itself, but – anyway you measure it – this agreement is huge and great for world trade.  According to initial reports, up to 99% of trade moving between Europe and South Korea will be duty free and many nontariff hindrances to trade will be dropped.  Word from Korea is that the FTA will pump their GNP by 3% and raise employment by 3.5%.

Of course, there are nay-sayers.  We can expect the European auto industry to oppose the FTA, but they will likely be more than offset by food and consumer products sectors, healthcare companies and financial services, all of which stand to be big winners.

So, when will the U.S. Congress get off the dime?  Hopefully, while the dime is still worth something.