Plastic Aloha

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The price is rising

International trade is raising the price of graduations in Hawaii! It happens every year about this time, but 2012 is worse than most. Demand for lei rises in April for prom season and peaks in May due to high school and college graduations, not to mention Mothers Day. We love lei at any time of year, but demand totally outstrips our ability to grow enough flowers in Hawaii. Truth be told, most of the flowers and leaves used for lei in Hawaii have been imported for years. Initial sources were other Pacific islands, but now the primary suppliers include Thailand and the Philippines.

Demand for lei has risen, too. You see more and more lei at graduations on the U.S. mainland. Especially in California, where many Hawaiians now live, but lei are moving further east. (Full disclosure: We made sure to have Hawaii lei at our daughter’s college graduation in Florida several years ago.) Other cultures have something similar to Hawaii’s lei and the popularity of lei has been boosted worldwide by movies and Hawaii 5-O.

... even higher

According to Hawaii Business magazine, The Hawaiian Lei Company – Hawaii’s largest retail lei shipper – ships 75,000 lei a year, growing at 10% annually. That means this one company needs up to 30,000 orchids every week, but that shoots up to 150,000/week in April and May. And there is the problem. Hawaii’s flower growers cannot possibly supply that many orchids, or other flowers, to the entire local lei industry.

Hawaii’s lei makers have to go overseas for their flower supplies, but that makes them subject to the same kinds of commodity trade issues that afflict many other industries. This year, the really big problem is the floods over the winter in Thailand. The rising waters destroyed up to 80% of Thailand’s orchid crop. Orchid prices have risen accordingly as global supplies tightened, so the price you pay for lei in Honolulu or New York is going to be higher than last year. The Thais probably won’t be back into full orchid production until 2014, so expect higher lei prices for a while. Watanabe Floral says that orchids that used to cost 2¢ per flower now cost them 12¢ or more.

And the lei makers are getting desperate. Some are adding plastic spacers to fill their lei, while others are even adulterating their lei with plastic crown flowers (which naturally have a plastic sheen).

To me they are using plastic flowers in the middle of real live flowers that’s cheating. It’s cheating using plastic to confuse customers with the real flowers. I think the aloha has got to be real flowers, the live flowers, of course. That’s where you get the fragrance and the beauty, not the plastic.
~ Kay Kadooka, owner, Flower Field 2 Shop

“Oh God, you’re paying $17 bucks for 10 wilted orchids,” said Nadine Lagaso, as she inspected the lei with plastic. “It says a lot about the person giving the lei to, yeah. You don’t really want to give someone a plastic lei, plastic aloha.”

China, Procurement & Corrupt Practices

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Ken Chan (陈乃强) is our author today. He is a senior analyst with Beijing Orient Business Investigation Company, and offers his views on the intersection of selling to Chinese government agencies, China’s anticipated accession to the WTO Government Procurement Agreement, and the U.S. Foreign Corrupt Practices Act. Mr. Chan lives and works in Beijing.

Domestic Preference & China’s Accession To The WTO’s GPA: Implications For FCPA Enforcement

Bought for a Fujian factory

Given the major role played by the government in Chinese economy, it comes as no surprise that some multinational companies, with inadequate internal control, might fall foul of the Foreign Corrupt Practices Act (“FCPA”) when doing businesses in China. Less understood is the exposure under PRC Government Procurement Law for dealing with local government entities. China’s eventual accession to the WTO’s Agreement on Government Procurement (“GPA”), where the US and EU are current signatories, will also have implication for FCPA enforcement in the region.

Enforcement statistics indicate that most FCPA actions concerning conduct in China occur during the course of securing sales contracts from state-owned companies, as well as government entities like hospitals. It should be noted that in the latter case, the PRC Government Procurement Law (promulgated in 2002) is applicable. According to Article 10 of the law, government entities must use domestic goods and services, unless they are not available or cannot be acquired on reasonable commercial terms.

For example, in 2008 Siemens and AGA Medical were subject to FCPA enforcement actions for paying bribes in connection with the sale of medical devices to hospitals in China. And yet, while both companies ran afoul of the US anti-corruption law, they and their peers regularly evade enforcement under the local procurement law. It is unlikely that medical devices supplied by Siemens or AGA Medical fell into the exception categories of Article 10, since suppliers of competitive items are less prone to use bribery means to win contracts.

In fact, it is widely known that Article 10 of PRC Government Procurement Law is not strictly enforced. The reasons for this are threefold:

1. The absence of a legal or authoritative definition of the term “domestic”; 2. The absence of penalties for non-compliance; and 3. The absence of implementing regulations to support the statute.

As a result, today foreign companies effectively participate in the government procurement market in China without restrictions. US multinationals, with their well-known brands and superior products, are among the strongest competitors in the information technology, pharmaceutical and industrial equipment sectors.

However, in recent years there has been mounting pressure from local entrepreneurs in China, requesting the government to impose a genuine domestic preference practice in public procurement. It is argued that the same domestic preference practices are currently adopted by other developing countries (e.g. Buy Brazilian Act) and developed countries (e.g. Buy American Act and EU Utilities Directive). As a result, the Chinese government is enacting the Implementing Regulations of PRC Government Procurement Law, with a draft version issued on 11 January 2010.

Domestic forces are not the only ones shaping the government procurement market in China. International pressures are also at work. On 19 June 1997 China began the accession process for the WTO’s Agreement on Government Procurement, a multilateral agreement that today has over 40 signatories. Signatories are obligated to open their government procurement markets to companies from other signatories. China’s third accession offer, submitted on 30 November 2011, places the procurement activities of its central government agencies, as well as selected provincial and municipal agencies, within the GPA’s ambit. Once China becomes a party of GPA, foreign companies from signatory countries will enjoy treatment no less favorable than domestic companies when contracting with specified government agencies.

These developments in government procurement practices present important implications for FCPA enforcement in China. First, if the “buy local” movement has its way, then an increased preference for domestic sources would limit foreign firms’ access to the government procurement market. With fewer multinationals (and, by extension, companies with US anti-corruption law exposure) competing for government business, FCPA violations could fall as a result.

Since GPA accession would allow foreign bidders to take part in some PRC government contracts, it may provide more rooms for FCPA violations. Nonetheless, on the other hand, GPA would impose an obligation on China to implement fair and transparent tendering processes for government contracts. The attendant increase in public scrutiny may reduce the instances of bribe giving, bribe taking and other corruption practices.

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Mr. Chan’s article was also published on FCPAProfessor and his own company website.

Can We End The War On Tourists?

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It was an interesting juxtaposition. On May 9, Slate published a commentary about America’s War On Tourists, a lament about how our over-response to 9-11 hamstrings one of the country’s major export industries – persuading foreign travelers to see America’s wonders and spend lots of money doing so.

Vegas has more than casinos

The next day, President Obama’s task force on tourism published its National Travel & Tourism Strategy. I am so relieved we have one. That isn’t my usual snarkiness. We really do need a strategy. Attracting foreign travelers has been left up to states, cities or individual destinations, hotels or airlines. What they do is generally good, but in overseas markets, we need to sell prospective visitors on the entire United States. We should not assume that foreign tourists know anything more about what to see in the United States than the average American knows about what to visit in other countries. Most foreigners know something about New York, California, Las Vegas and Orlando – and that is about it. Many aren’t aware that Hawaii or Alaska are parts of the United States, much less that the vineyards of Colorado’s Western Slope might be worth a call. So why should places like Newark or LA be interested in national marketing? Because it is very likely they will pick up transit trade from someone who, for instance, is headed for the annual Harley festival in Sturgis.

… the United States leads the world in revenues from international travel and 
tourism and ranks second in the number of international visitors. In 2011, 62 million 
international visitors came to the United States and spent a record $153 billion 
on U.S. travel­ and tourism-related goods and services, which are 
counted as U.S. exports.

Cutting through the hyperbole, how would the proposed strategy change things? While much is still at the 30,000 foot level, a key element is to add more federal resources to the promotion work of Brand USA. Brand USA is one of those vaunted public-private partnerships, but the accent here is on the private side. Take a look at their website and I think it will impress you. Brand USA is accelerating U.S. promotions in Canada and Mexico, the visa waiver countries (here’s the current list of 36 countries), and emerging travel markets such as Brazil, China and India.

The strategy has all the usual stuff about improved coordination within the federal government (like Homeland Security is really going to listen to anybody else), and with states, cities, tribes and many other groups. I see a serious commitment to put muscle behind publicizing our National Parks, museums and other federal properties to attract visitors both to our natural wonders and our historical sites. One of the big knocks against U.S. travel in some markets is that we have no history or culture. Tell that to the Pueblos. Most of what potential visitors currently see publicized is theme parks and casinos. Let’s get something else out there.

Much of what is in the strategy isn’t new, but it does do things like add to our commitment to expand open skies policies for the aviation industry, and it gives thrust to the earlier announced improvements to the visa process. Lip service is paid to improving the user-friendliness of entry processing and airport screening, but I am not holding my breath. The nice people who handle such things have an enforcement mentality that won’t easily translate to customer service. They are paid to be paranoid. Still, if national leaders tell them to play nice often enough, it will sink in with some and those are the people you want to put up front to deal with the customers. There also seems to be a commitment to invest in infrastructure at border crossings, airports and ease of access at National Parks. Much of this is security-related, but I hope they realize that too many U.S. airports look like badly run warehouses. We can do better.

The task force seems serious about making it easier for foreign tourists to see lesser-known sites. Here is just one example that is already being piloted:

Las Vegas is one of the top destinations in the United States for 
international travelers. By working with tour companies and other vendors, we 
can market itineraries that entice visitors to venture out of the city and explore 
the spectacular surrounding natural areas such as Red Rock Canyon National 
Conservation Area, Spring Mountains National Recreation Area, Grand 
Canyon National Park, Lake Mead National Recreation Area, Death Valley 
National Park, and Zion National Park.

The Summer Jobs+ Initiative could be used to provide a quarter million youth with experience in the hospitality industry, helping them and creating a reservoir of potential workers familiar with the business. One odd thing I spotted was a proposal to create a national travel and tourism office within the Commerce Department. Odd, because Commerce already has such an outfit, the Office of Travel & Tourism Industries, but it escaped the task force’s notice. I could see expanding it or upgrading it to a higher status, but – unlike the saying about Oakland – it is there.

And so is a whole lot more. It will be interesting to see if anybody at the White House or in the Congress pays attention. The ideas are generally good, but I’m not holding my breath on implementation.