I Can Sell Anything, Anywhere As An EMC

Export Trading Company, ETC

THE ROLE(S) OF AN EMC AND ETC

Shortly after her retirement as Chief Financial Officer of a small exporting company, Marilyn attended a workshop designed for training start-up Export Trading Companies (ETC) and Export Management Companies (EMC). Knowing she had recently retired, I asked her why she attended and what she hoped to learn. She said she planned to start her own EMC. In the United States, the terms “ETC” and “EMC,” familiar terms for some time, usually designate small companies that specialize in the international sale of goods. Large ETC and EMC companies exist in Japan and other countries. For purposes of this lesson, we will treat ETCs and EMCs as one and the same. Although technically different, the differences between the two have blurred and merged to the point where little or no distinction exists. A large manufacturing company may contract an ETC/EMC to function as their international department. Their level of involvement, agreed to in advance, could include marketing, sales, logistics, payment, servicing, etc., on a commission basis or they may take title to the goods and make a profit marking up the unit price.

"I CAN SELL ANYTHING, ANYWHERE!"

When I asked this former CFO what products she planned to export and to which markets, she hesitated, “I haven't decided – whatever comes along. I know I can sell anything, anywhere!” How successful can she become? Based on my personal observation, international traders become successful when they have developed an expertise in one or both of two areas: (a) knowledge of a product or service, or (b) experience in a market. With proficiency in at least one of the two, an entrepreneurial trader can develop know-how as needed in the other. With no expertise in either one, the ability to penetrate any foreign market virtually eliminates the possibility for success. Not surprisingly, several years have passed and I have not seen her again, so I assume she never started her business.

WHAT MAKES AN EMC OR ETC SUCCESSFUL?

On the other hand, a number of small ETC/EMC companies succeed because they stay focused in their area of specialty, either a country(ies) or a product(s). Wisely, they build on previous experience, usually gained while working for a manufacturing company. They have learned to stay away from chasing deals that may cost considerable time and money, and stick to what they do well. Some of them grow and provide employment for others, while others prefer to stay small and pursue opportunities they can manage within their well-established niche.

Oil Rises After Reaching 5-Year Low

Oil prices rose to reach levels above $72 a barrel, recovering from a five-year low reached last week. After a surprising decision from the Organization of Petroleum Exporting Countries (OPEC) to not cut production despite a global excess of supply, investors have been looking for a new price floor. Oil lost more than 12 percent since OPEC's decision last Thursday.

U.S. crude and Brent have also been falling over a wider period of time (five months in a row) marking oil's longest downward streak since 2008.

Brent hit a low of $67.53 a barrel, the lowest since October 2009, before rising to $72.98 a barrel Monday.

According to Reuters, "The market is still very much in panic mode," said Energy Aspects' chief oil analyst Amrita Sen. "Once we get over the panic, Brent prices will probably stabilise at around $65-80 a barrel in the short term."

"We can expect such volatility in the near future given the market had overshot to the downside," Sen said.

The supply growth has been mainly fueled by America's shale oil revolution, though other projects worldwide have also contributed to production growth.  Many of these projects were launched with high-oil prices in mind, so the important shakeout happening will have different impacts depending on producers' operating costs per barrel.

Bloomberg says Russia, the world's largest producer, can no longer rely on the same oil revenues to rescue an economy suffering from European and U.S. sanctions. Iran, also reeling from similar sanctions, will need to reduce subsidies that have partly insulated its growing population. Nigeria, fighting an Islamic insurgency, and Venezuela, crippled by failing political and economic policies, also rank among the biggest losers from the OPEC decision last week to let the force of the market determine what some experts say will be the first free-fall in decades.

Oil has dropped 37 percent this year and, in theory, production can continue to flow until prices fall below the day-to-day costs at existing wells. Stevens said some U.S. shale producers may break even at $40 a barrel or less. The International Energy Agency estimates most drilling in the Bakken formation -- the shale producers that OPEC seeks to drive out of business -- return cash at $42 a barrel.

"Right now we're seeing a price shock coming out of the meeting and it will be a couple of weeks until we see where the price really falls," said Yergin. Officials "have to figure out where the new price range is, and that's the drama that's going to play out in the weeks ahead."

To be sure, not all oil producers are suffering. The International Monetary Fund in October assessed the oil price different governments needed to balance their budgets. At one end were Kuwait, Qatar and the United Arab Emirates, which can break even with oil at about $70 a barrel. At the other extreme: Iran needs $136, and Venezuela and Nigeria $120. Russia can manage at $101 a barrel, the IMF said.

Only time will tell if today's rebound marks the reaching of a new price floor, or if it is merely a temporary stop on the way further down.

For some further reading that some technical traders are reading this week: http://www.zerohedge.com/news/2014-12-01/oil-price-decline-pictures

2015 Banff Mountain Film Festival World Tour

If you love outdoor adventure, ever-more-extreme sports, and that wonderful feeling of rushing adrenaline, Christmas has come early! The Banff Mountain World Film Festival has just released their new trailer for the 2014/2015 world tour. Every year, the submissions keep reaching higher levels as passionate filmmakers come together to share the stories of the world's top outdoor athletes perform in that almost-magical flow state. Check it out!

Schedule For Showings here in Colorado:

For information about venues, tickets and films to be shown, please contact the host organizations listed below.

Frequently Asked Questions

ASPEN

March 3, 4, 2015 Ute Mountaineer 970-925-2849

BOULDER

February 24, 25, 2015

The Access Fund 303-545-6772 info@accessfund.org

BRECKENRIDGE

February 21, 2015 Breckenridge Outdoor Education Center (BOEC) 970-453-6422 www.boec.org

COLORADO SPRINGS

February 28, 2015 Mountain Chalet 719-633-0732 info@mtnchalet.com

CRESTED BUTTE

March 6, 7, 2015 Crested Butte Search & Rescue 970-275-0691 paul@skylandlodge.com

DENVER

February 26, 27, 2015 Colorado Mountain Club

DURANGO

March 14, 2015 Rocky Mountain Wild & San Juan Citizens Alliance 970-259-3583

FORT COLLINS

February 20, 21, 2015 Colorado State University 970-491-7305 campusrec_op@mail.colostate.edu

Turning Old TV Frequencies into Free Super-WiFi

Old television frequencies are becoming increasingly available around the world as broadcasting continues switching from analog to digital transmission technologies. Governments are, for the most part, auctioning these spectrums off to mobile phone network operators. However, these frequency bands would be better utilized in creating publicly accessible, long-range WiFi networks --- according to a new study from Germany's Karlsruhe Institute of Technology (KIT). While this conclusion is contradictory to conventional thinking, it is certainly worth further consideration since one of the world's most prestigious research and educational institutions says it is

1.) technically achievable

&

2.) beneficial to economic growth.

---

Utilizing the lower frequency ranges would give this new “super WiFi” a much wider range than existing WiFi frequencies are capable of attaining.

“Implementation of our approach would have far-reaching consequences,” says Arnd Weber of the Institute for Technology Assessment and Systems Analysis (ITAS) at KIT.

“Individuals, institutions and companies would be far less dependent on expensive mobile communications networks in conducting their digital communication. This would be of great economic benefit.”

As internet service providers and wireless network operators fight for ever-increasing monopoly power over American consumers, maybe a surprising alternative such as this will start spreading. Suddenly, embracing net neutrality and even Title II classification might not sound so crazy to corporate industry incumbents like Comcast and Verizon.

Since U.S. mobile data rates are already among the most expensive in the world, why should we expect that to change if we sell the rights to these additional frequencies? The free-to-air television frequencies are currently considered a public good --- perhaps we can adapt them into a more modern and more valuable public good: free basic internet access.

What if America's interstate highways all became privately owned toll roads? Would the benefit to the toll operators charging for road access outweigh the economic burden imposed on individual citizens and businesses? Probably not, a great number of people would argue. While obviously not a perfect analogy, the picture might help illustrate the infrastructure system that powers and supports the American way of life.

While there are clearly compelling social arguments about why free internet access is an important factor in creating equal opportunities for citizens - education, employment, freedom of speech, etc. - those points, unfortunately, may be hard to measure and justify to people predisposed to the status quo.

Instead, let's stick with rational economic theory to conclude for now. Most modern growth models all seem to agree that economies are primarily powered by productivity growth - innovation and the spreading of new ideas. Unnecessary scarcity of internet access would be a costly mistake in the long run.

It's not a simple subject, though the outcomes are important, so it is certainly worth exploring all available options.

Congress Should Support Trade Authority

President Obama should be able to secure renewal of fast-track negotiating authority for trade agreements in spite of clashes over his immigration policy, says, Commerce Secretary Penny Pritzker.

• “I think they are two separate issues; the reason it will pass is because the trade agreements are really important” for “continued economic growth in the United States,” Pritzker says, speaking from Global Entrepreneur Summit in Marrakesh, Morocco
• “There is enormous support on the Hill”

U.S. Trade Representative Michael Froman also said this week that he still hopes for bipartisan support in Congress on granting the White House the authority to fast track trade deals but added the timing was up to lawmakers. Some experts say trading partners will not put up their best offers if Congress can later pick apart the deal and that the lack of TPA is slowing down Pacific trade talks. However, some trade negotiations with limited scopes are still taking place and major deals are being announced, such as the recent Information Technology Agreement.

---

What They’re Saying: Breakthrough in Negotiations of the WTO Information Technology Agreement (ITA)

11/14/2014 - 10:00am

“Last night, we reached a breakthrough in our ongoing efforts to expand the Information Technology Agreement. This is a WTO agreement that eliminates tariffs on high-tech products among 54 economies, including the U.S. and China… This is encouraging news not just for the U.S.-China trade relationship, it shows that the U.S. and China work together to both advance our bilateral economic agenda, but also to support the multilateral trading system.” -U.S. Trade Representative Michael Froman

Following the 2014 Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting, President Obama and United States Trade Representative Michael Froman announced a major breakthrough in negotiations with China to expand the scope of goods covered by the World Trade Organization (WTO) Information Technology Agreement (ITA). The ITA will eliminate tariffs on information technology products, and the bilateral agreement between the U.S. and China will allow for the resumption and swift conclusion of negotiations for the first major tariff-cutting deal at the WTO in 17 years. A successful ITA expansion would allow for an increase in Made-in-USA exports to growing markets without the imposition of burdensome tariffs, and would support tens of thousands of good-paying U.S. manufacturing and technology jobs. To learn more about how the ITA will support economic growth at home and abroad, please click here.

Below are reactions to the announcement:

• Senator Ron Wyden (D-OR), Senate Finance Committee Chairman: “The original Information Technology Agreement helped grow companies big and small in Oregon by eliminating overseas tariffs on high-tech products almost two decades ago,” Wyden said. "Today's news of an agreement with China will pave the way for a successful ITA expansion deal, which means more good-paying jobs by opening global markets to Oregon manufacturers and exporters of advanced semiconductors, high tech medical equipment and other products.” [11/11/2014]

• Senator Orrin Hatch (R-UT), Ranking Member of the Senate Finance Committee: “After more than a year of stalled negotiations, the Administration’s progress with China to zero-out tariffs on information technology products, like medical devices, is welcome news. Expansion of the Information Technology Agreement would be a big win for American manufacturers, including many in my home state of Utah, who would then be able to increase their global footprint on cutting-edge technologies. Given the recent progress achieved on international trade policy at APEC, it is imperative the President now work with Congress in a bipartisan way to help pass Trade Promotion Authority. Renewal of this job-creating initiative will empower our nation to negotiate a high-quality Trans-Pacific Partnership trade agreement that will grow the economy, benefit the American people and achieve the goals of Congress.” [11/11/2014]

• Linda Dempsey, Vice President of International Economic Affairs, National Association of Manufacturers (NAM): “Expanding the agreement to include ‘new technologies is critical not just for manufacturers of this equipment but for all the manufacturers that consume these technologies to make them more productive and globally competitive. The NAM applauds the administration's leadership and persistence in moving these negotiations forward and looks forward to the conclusion and implementation of an expanded ITA as quickly as possible’.” [11/11/2014]

• Myron Brilliant, Executive Vice President and Head of International Affairs, U.S. Chamber of Commerce: “With economic growth disappointing in many countries, news of a breakthrough in the ITA negotiations is more than welcome. The ITA has been one of the most successful trade pacts in history, spurring growth and innovation across a host of cutting-edge industries. With so many new products created since the ITA was concluded two decades ago, expanding the agreement’s coverage is imperative. With trade in tech goods surpassing $4 trillion annually, the commercial significance of these negotiations is obvious. As stated in our goals coming into Beijing, a deal on the ITA is key to the success of China’s APEC year. We congratulate the U.S. and Chinese officials who have pushed these negotiations through a difficult stage and, hopefully, brought success within reach.”  [11/10/2014]

• Gregory Gilligan, Chairman, American Chamber of Commerce in China: “This latest breakthrough – combined with the deal announced the previous day on extending the validity of visas for businesspeople, students and tourists – demonstrates how cooperation can create long-term benefits to the business interests of both countries.” [11/11/2014]

• John Frisbie: President, U.S.-China Business Council: “Making a positive breakthrough on the ITA this week sets the tone for more ambitious agreements that are in discussion.” [11/11/2014]

• Bruce Mehlman, Executive Director, Technology CEO Council (TCC): “This agreement represents a major breakthrough in global trade for the high tech sector. The information technology sector has changed dramatically in the 17 years since the ITA first went into effect. By updating the product scope and eliminating tariffs on more than 200 new products, a new and expanded ITA will support thousands of new manufacturing and technology jobs here in the U.S. and infuse billions of dollars in revenue to the global economy. We applaud the persistent efforts of President Obama and his Administration, including U.S. Trade Representative Michael Froman, as well as the Departments of Treasury and Commerce to move this agreement forward and keep ITA expansion as a top economic priority. We look forward to the swift completion of the final ITA agreement as soon as possible.”  [11/11/2014]

• Gary Shapiro, President and CEO, Consumer Electronics Association (CEA): “It took hard work, and compromise on all sides, but today's breakthrough announcement from Beijing on the ITA marks a major path forward. President Obama, Ambassadors Froman and Punke, and their team at USTR have worked tirelessly over the past week to find a way forward. We commend them, Chinese hosts of APEC and leadership in Beijing for reaching a mutually acceptable path forward to continuing, and swiftly concluding, ITA discussions in Geneva. Today's breakthrough offers not only a strong deliverable for APEC leaders, but also a chance to advance the success of the World Trade Organization itself." [11/11/2014]

• Gregg Melinson, Senior Vice President for Corporate Affairs, Hewlett Packard (HP): "The Information Technology Agreement (ITA) is an extremely significant trade pact for the high-tech sector, and we applaud the announcement of a deal which will expand product coverage and eliminate burdensome tariffs. This move will support and grow jobs throughout our industry, and we applaud the USTR and President Obama for driving this important trade expansion in Beijing this week." [11/11/2014]

• Fred Humphries, Vice President of U.S. Government Affairs, Microsoft: “Microsoft welcomes the news from the APEC Leader’s meeting on the expansion of the Information Technology Agreement (ITA).  This is a significant and important development for China and the United States.  Microsoft will continue to work in support of ITA expansion as final negotiations are concluded in Geneva.” [11/11/2014]

• Brian Toohey, President and CEO, The Semiconductor Industry Association (SIA): "The ITA has played a central role in helping the U.S. semiconductor industry drive innovation, create jobs, lower consumer prices and connect communities throughout the world. Today's agreement between the U.S. and China to expand the ITA is a hard-fought victory for the U.S. semiconductor industry and a big win for the U.S. economy and consumers around the world. We look forward to all ITA countries finalizing a deal as soon as possible."[11/11/2014]

• Rich Templeton, Chairman, President, and CEO, Texas Instruments (TI): “Lowering barriers to trade advances innovation and growth for our companies but more importantly can expand the global economy. We see this as a true win-win for the participating countries and a needed boost for rules-based trade under the WTO. President Obama and Ambassador Froman deserve a great deal of credit for achieving this important breakthrough.” [11/11/2014]

• Jeff Campbell, CISCO: “The agreement between the United States and China to expand the scope of the Information Technology Agreement represents a major breakthrough in the global trade agenda. This agreement is expected to eliminate duties on over 200 information and communications technology (ICT) product categories, representing approximately $1 trillion in annual global ICT sales. Now that the U.S. and China have reached agreement, we hope negotiators will resume talks early next month at the World Trade Organization in Geneva to expand the bilateral agreement to include more nations.  In doing so, this will help expand access to affordable technology, which will help improve standards of living and economic development around the world.”  [11/11/2014]

• Senator Chris Dodd, Chairman and CEO, Motion Picture Association of America (MPAA): “MPAA commends the United States and China for reaching a crucial agreement on expanded product coverage in the negotiations to update the Information Technology Agreement (ITA). Once concluded, this agreement will encourage the growth of the U.S. and global motion picture industries by eliminating costly tariffs -- some as high as 30% -- on a wide range of digital and optical media and storage devices used in worldwide motion picture production, editing, distribution, and exhibition. MPAA is grateful for the hard work and leadership of President Obama, U.S. Trade Representative Michael Froman and the USTR team, who have worked tirelessly to narrow the differences with China to reach an understanding which will lead to a commercially significant agreement. MPAA also applauds China for contributing to the resumption of negotiations. We encourage all ITA participants to seize the momentum created by this agreement to resume and rapidly conclude the negotiations." [11/11/2014]

• Steve Mollenkopf, CEO, Qualcomm: “I am very pleased that dialogue between the United States and China has resulted in a breakthrough understanding that will give a much needed boost to negotiations to expand the product coverage of the WTO Information Technology Agreement. Modernizing the list of products that will receive duty-free treatment under an expanded ITA will generate significant benefits for the information technology industries and consumers globally. In particular, the inclusion in the ITA product landscape of MCO semiconductors will catalyze new innovations, investment, jobs, global trade flows and consumer choice. Qualcomm encourages all WTO members to build upon this momentum and conclude ITA expansion negotiations at the earliest opportunity this year. I applaud United States Trade Representative Michael Froman and Chinese Minister of Commerce Gao Hucheng, and their teams, for their hard work and leadership.” [11/11/2014]

• Intel: “We applaud the work that the United States Trade Representative (USTR) has done at the Asia-Pacific Economic Cooperation (APEC) to support America’s technology industry. The breakthrough bilateral agreement between the United States and China to expand product coverage of the Information Technology Agreement (ITA) enables the swift conclusion of a deal at the WTO that will cut tariffs on an estimated $1 trillion in annual global sales of information and communications  technology (ICT) products.  An expanded ITA will be a major win for the global information economy and ICT consumers around the world.  Fair and open trade creates job growth, increases innovation and strengthens the global economy.” [11/11/2014]

• Telecommunications Industry Association (TIA): “The Telecommunications Industry Association (TIA), the leading association representing the manufacturers and suppliers of high-tech communications networks, today commended the White House and the Office of the U.S. Trade Representative for their leadership in breaking the impasse to resume the negotiations to expand the World Trade Organization (WTO) Information Technology Agreement (ITA)… The breakthrough to resume the negotiations to expand the Information Technology Agreement would not have been possible without the tremendous amount of hard work by the White House and the Office of the U.S. Trade Representative over the past year. It has been 17 years since the original ITA was concluded, and TIA is very pleased to see that the ITA expansion negotiations are back on track.” [11/11/2014]

• Advances Medical Technology Association (AdvaMed): "AdvaMed strongly supports expansion of the ITA and we are pleased to see the agreement reached by the leadership of China and the US.  We hope that this will lead to continuation of a robust negotiation and swift passage of an expanded agreement. The ITA has the potential to reduce tariffs for several innovative medical technologies, benefitting manufacturers in the US, China and other countries.  Even more importantly, the agreement will lower healthcare costs and increase patient access to life-saving and life-enhancing technologies." [11/11/2014]

• BSA / The Software Alliance: " ‘Updating the ITA to better account for these advances will remove tariffs on hundreds of billions of dollars’ worth of additional goods,’ BSA CEO Victoria Espinel said by email in response to a query.” Reuters: U.S. tech, software industry cheers China IT trade deal progress [11/11/2014]

• Information Technology & Innovation Foundation: "Among the likely winners would be U.S. makers of semiconductors, medical products such as MRI and CT machines, and software and video game developers, said Stephen Ezell, senior analyst at the Information Technology & Innovation Foundation think tank. ‘It’s a win-win trade agreement that will benefit information and communications technology manufacturers and services firms across the Americas, Europe, and Asia, while also benefiting all consumers globally and raising global GDP by as much as $190 billion annually,’ he said by email.” Reuters: U.S. tech, software industry cheers China IT trade deal progress [11/11/2014]

• Japan Electronics and Information Technology Industries Association: “The Japan Electronics and Information Technology Industries Association, an industry body whose 280 members include Sony Corp. , Panasonic Corp. , Sharp Corp. and Toshiba Corp. , welcomed the deal. “We were waiting for this since the discussion between China and the U.S. stopped last November,” the group said. ‘If the discussion reopens in Geneva and the tariff elimination is expanded, it would be positive for the JEITA and Japan’s IT and electronics industry.’” Wall Street Journal: Global tech firms stand to gain from tariff drop [11/11/2014]

• Information Technology Industry Council (ITIC): “‘This is particularly important for economies without credit cards,’ said John Neuffer, senior vice president for global policy at the Information Technology Industry Council in Washington. ‘They can go to the local kiosk and buy cards’ that let them download software.” Wall Street Journal: Global tech firms stand to gain from tariff drop [11/11/2014]

• Micron: “Mark Durcan, Micron’s chief executive, said the new agreement ‘will certainly benefit all of us who conduct business and manufacture on a global basis, and we commend all the parties involved in reaching this milestone.’” Wall Street Journal: Global tech firms stand to gain from tariff drop [11/11/2014]

• U.S. Chamber of Commerce: “The Chamber has worked over the past two years to build support for an ambitious expansion of the ITA. We’ve traveled to Geneva repeatedly to meet with negotiators from dozens of countries, and we’ve raised it as an issue in missions to foreign capitals (especially Beijing, as Chinese officials had been reluctant to eliminate many tariffs). The Chamber was one of 82 top business groups from dozens of developed and developing countries that in September issued a statement calling for action…The Chamber has said repeatedly that a deal on the ITA is key to the success of China’s APEC year, and so it is. It’s also a big win for the U.S.-China relationship, with benefits for consumers and industries worldwide. We congratulate U.S. Trade Representative Michael Froman, Deputy U.S. Trade Representative Michael Punke, as well as the Chinese officials who have pushed these negotiations through a difficult stage and, hopefully, brought success within reach.” U.S. Chamber of Commerce: Trade Pact to Slash Taxes on $1 Trillion in Goods [11/11/2014]

• Information Technology Industry Council (ITI): “ITI applauds the sustained effort by President Obama and his team at USTR for their unrelenting efforts to achieve this deal and break the logjam…With this bilateral deal to expand product scope, a number of important goods will now be included in the final round of talks, such as next-generation semiconductors called MCOs, a range of medical equipment, a wide array of sophisticated measuring devices, and point-of-sale cards to download software and games. These additional product lines will add significant commercial value to the overall agreement.” Information Technology Industry Council: Breakthrough Achieved on Information Technology Agreement: Next Stop, Geneva [11/11/2014]

Humanity Just Landed on Its First Comet

 

The European Space Agency's Rosetta mission has made successful contact with the 67P Comet. The lander itself is named after an Egyptian island, Philae, where a rare obelisk containing Greek was found that was used - in conjunction with the Rosetta Stone - to decipher ancient Egyptian hieroglyphics.

It now appears this scientific venture is living up to its namesake by helping humanity learn about a much older mystery: the composition of comets and the conditions of the early solar system.

Touchdown! My new address: 67P! #CometLanding

— Philae Lander (@Philae2014) November 12, 2014

While today's victory clearly belongs to the scientific community and to all of humanity, it is also big news for Planetary Resources, the asteroid mining company. Imagine the new economic and exploratory possibilities:

1.) Rocket fuel up could be extracted from asteroids, rather than shipped up from the surface of Earth.

2.) Mining asteroids could open access to vast quantities of precious metals such as platinum.

3.) Combining the first two concepts could open up manufacturing in space using both energy and raw materials sourced outside of Earth's gravitational field.

State Heads Meeting on Opening Up Global Trade

UPDATE: U.S. & China Reach Trade "Understanding." After a lengthy private meeting, presidents Barack Obama and Xi Jingping have found common ground on reducing tariffs on high-tech goods which backers say could cover $1 trillion in trade. The breakthrough will help bring talks on expansion of the global Information Technology Agreement to a "rapid conclusion."  U.S. officials told the Associated Press that the progress with China includes an agreement to eliminate tariffs on goods like medical devices, global positioning systems, and video game consoles.

Additional updates: Beijing has also announced a free-trade agreement with South Korea. The Chinese stock markets will become open wider to foreign investors following new regulatory approval of linking the exchanges in Hong Kong and Shanghai. All this is following an announcement over the weekend of a $40 billion fund to improve trade links between Asian economies, financed by China.

---

John Engler, President of the Business Round Table:

“I believe Congress has an immediate opportunity in the lame-duck session to pass Trade Promotion Authority legislation to give the President and U.S. negotiators the tools they need to conclude promising trade agreements with Asia-Pacific countries and the European Union."

Heads of State Meeting in Beijing for APEC Summit 

The leaders of the Trans-Pacific Partnership (TPP) member countries will be meeting around the Nov. 10-11 Asia-Pacific Economic Cooperation (APEC) summit in Beijing, U.S. National Security Adviser Susan Rice confirmed. APEC is hosting the Economic Leaders' Meeting in the capital city of China.

The TPP leaders meeting will be Nov. 10, following a planned Nov. 8 negotiating session of the 12 TPP trade ministers from Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam.

“We're working with our Asian partners to deepen our trade and investment ties through progress on agreements such as the WTO Information Technology Agreement and the environmental goods and services agreement[s], and we're working to bring China into the rules-based institutional structures in Asia,” Rice said, referring to the ongoing negotiations toward an Environmental Goods Agreement and toward a Trade in Services Agreement.

Regarding the president's Nov. 11-12 meetings with Chinese President Xi Jinping over the final day-and-a-half of the visit, Rice said that the meeting will present an opportunity to identify a forward-looking agenda for the next two years of the bilateral relationship.

She said that the president will seek to build a relationship with China that advances American economic and security interests and solves global problems in ways that reflect American values. She noted that the issue of cybersecurity will be prominent on the U.S.'s bilateral agenda.

“This is a source of grave concern to the United States,” Rice said. “We have reiterated on every occasion the fact that we oppose any efforts, official or unofficial, to engage in cyber-espionage for commercial gain or other purposes—and this has been and will remain a topic of discussion.”

UN Trade Urging G-20 to Resist New Restrictive Trade Actions

Group of 20 members should reduce restrictive trade measures as a means of stemming the world's stagnant growth trend, United Nations trade leaders said in a report released a week ahead of the G-20 conference in Brisbane, Australia.

“Prevailing global economic conditions mean that this is not a time for complacency in the international trading system,” according to a joint statement from the leaders of the World Trade Organization, the Organization for Economic Cooperation and Development and the UN Conference on Trade and Development.

The report, which evaluated trade and investment measures implemented from mid-May to mid-October 2014, noted that G-20 members have applied 93 new trade-restrictive measures during the last five months, which account for an estimated $118 billion in global merchandise value.

G-20 members have implemented 1,244 trade restrictions since the 2008 economic crisis and have removed 282 in the following years.

“The G-20 economies must take decisive action to reduce this stock of trade restrictions by showing restraint in the imposition of new measures and by effectively eliminating existing ones,” the report's authors wrote.

The report concluded that the overall trade policy response to the 2008 crisis was “significantly more muted” than had been expected.

“This shows that the multilateral trading system has acted as an effective backstop against protectionism,” the report said. “However, it is clear that the system can do more to drive economic growth, sustainable recovery and development.”

(See the full WTO news item)

NASA Missions for the Next 30 Years (an Infographic)

Not long from now, in a galaxy near and dear to our hearts, the National Aeronautics and Space Administration boldly plans to go where no human has gone before.   NASA announced their plans for the next 30 years of exploration in our solar system.  They plan to start by sending a robot on a 160-day mission to the moon in order to gather more information about the lunar atmosphere, and plan to finally, in the year 2030, achieve the ever-elusive goal of a manned mission to Mars.  For more information, check out this handy info graphic provided by Mashable.

U.N. Calling for Open Elections in Hong Kong

HONG KONG - The United Nations Human Rights Committee called on China today to ensure universal suffrage in Hong Kong. The panel met in Geneva and issued a statement emphasizing that officials need to do more to make certain that people both have the right to vote and also the right to run for office.

Focusing on the Aug. 31st decision by China’s Communist Party-run legislature, the committee finds that the guidelines for the 2017 election would practically block anyone not approved by Beijing from even appearing on the ballot. Hong Kong residents have been reacting to the legislature's decision through large-scale popular protests. Despite tensions with both the police and with opponents of the pro-democracy movement, the heart of the city is still occupied by peaceful protesters.

“I hope that Beijing will be persuaded to revisit the issue... We always have to live in hope.” -Emily Lau, head of the Democratic Party in Hong Kong.

Hong Kong and Macau, both former colonies, became parties to the International Covenant on Civil and Political Rights prior to their returning to Chinese sovereignty in the late 1990s. That treaty, enforced by the United Nations, is a commitment to respect civil rights including the freedom of speech, freedom of assembly and the right to free elections. While the Chinese government in Beijing never ratified the treaty itself, it did agree that the treaty would continue to apply in Hong Kong and Macau after it resumed control of the territories.

The Human Rights Committee is tasked with reviewing how states are complying with the treaty. The United Nations has now officially said Hong Kong’s performance is “not satisfactory.” The Hong Kong government has two months to reply.

Mexico is Reforming its Energy Industry

Next to the United States and Canada, Mexico is the largest oil-producing country in the Western Hemisphere.  Mexican President Enrique Peña Nieto recently enacted energy reforms granting companies access to large, untapped reserves in Mexico - estimated to be greater than 110 billion barrels. This is the first time since 1938 that Mexico's energy sector is inviting increased local competition and opening opportunities in foreign direct investment, ending the 75-year monopoly held by Pemex, the national oil company. Energy industry experts believe Mexico will be bringing in more than $1 trillion in new investments because of this action.

Adding international experience and expertise will boost energy production within the country. While other countries are expressing interest, U.S. firms are seeing opportunity because of close proximity and growing relationships between the two countries.

According to the U.S. Congressional Research Service,

"The United States, Mexico, and Canada have made efforts since 2005 to increase cooperation on economic and security issues through various endeavors, most notably by participating in the North American Leaders Summits. The most recent Summit was hosted by President Enrique Peña Nieto in Mexico on February 19, 2014. The three leaders discussed issues on the economic well-being, safety, and security of North America and issued a joint statement renewing their commitment to regulatory cooperation in key areas or interest."

Lockheed Continues Developing Compact Fusion

Lockheed Martin is developing a compact fusion reactor (CFR). First announced last year, Lockheed Martin recently reaffirmed that they believe small and scalable fusion systems are both possible and can be practical enough to power interplanetary space travel, commercial shipping vessels, and electrical generating stations for entire cities. They're aiming to have a prototype in five years and a production unit in ten. Fusion, the nuclear process by which the sun operates, is an attractive scientific concept to master. The technology has been "10 years away" since the 50's, though followers have reason to believe this endeavor might be different. Lockheed Martin's Skunk Works has a legendary history of advanced innovation - the [lightbox title="Title" href="http://www.icosa.co/magazine/wp-content/uploads/2013/02/88a28a8877aa538242258691346c017f.jpg"]SR-71 Blackbird[/lightbox] spy-plane instantly comes to mind.

Thomas McGuire, an aeronautical engineer in the Skunk Work’s Revolutionary Technology Programs unit, describes Lockheed Martin's approach:

Aviation Week was given exclusive access to the latest experiment. Read Guy Norris' piece for further information.

The Value of a Penny - Thanks to the HTSUS

Harmonized Tariff Schedules of the United States, HTSUS, duty rates

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Why the Importer Checked the HTSUS

A client recently asked his vendor to charge him one cent more for the glass bottles he imports. This rather odd request was actually a very astute business move.

The Harmonized Tariff Schedules of the United States (HTSUS) lists every product under the sun and states the rate of duty for each product. This very large book has its own rules for interpretation to aid in determining the proper classification for any given product. Duty rates, of course, can vary from zero to very high rates (38% to even 110% from certain countries).

Now to our client. The HTSUS reads as follows for certain glassware: “Glassware of a kind used for table, kitchen, toilet, office, indoor decoration or similar purposes” with the following subheadings:

1. of glass-ceramics (our bottles didn’t fit here)

2. drinking glasses (our bottles didn’t fit here)

3. glassware of a kind used for table or kitchen purposes (not here)

4. other glassware (here is where they go, but note more subheadings)

5. of lead crystal (our bottles didn’t fit here)

6. other (here is where they go, but again more subheadings)

7. glassware decorated with metal flecking, etc. (not here)

8. pressed and toughened (not here)

9. other (here we go, but still more subheadings)

10. smokers articles, etc. (not here)

11. votive-candle holders (not here)

12. other (this is it, but again more subheadings)

13. valued not over $0.30 each (duty = 38%)

14. valued over $0.30 each but not over $3.00 each (duty = 30%) - valued over $3.00 each (more subheadings)

15. cut or engraved (not here)

16. other (more subheadings)

17. valued over $3.00 each but not over $5.00 each (duty =11.3%) - valued over $5.00 each (duty = 7.2%)

Why the Importer Volunteered to Pay More for His Bottles!

It so happens that the importer paid $3.00 each for the imported bottles. That gave him a duty rate of 30%. When he realized that the duty rate would change to 11.3% if the cost of the bottles increased to $3.01, he promptly contacted his vendor and re-negotiated the price. So, by raising his cost by a penny (which equals one-third of a percent) he reduced his duty rate by 18.7% from 30% to 11.3%. Smart move!

Now the question is, "Was his action legal?" Of course! Every importer has the right to negotiate for the best price for his product. In this case it so happens that the best price was a penny higher! But was his action ethical? Again, yes of course! Just as with income taxes, there is nothing unethical about engineering your taxable income to achieve the most favorable tax rate; the same is true for importing.

What is both illegal and unethical is to declare a purchase price different than the amount actually paid. It would be fraudulent if the importer called his vendor and said, “I know I am paying you $3.00 per bottle, but would you state on your invoice that the price as $3.01?” That’s what people go to jail for! Be sure the documents presented to Customs accurately reflect the true transaction.

This illustration also shows how complex the HTSUS can be!

Contributed by Patrick Gallagher

Gallagher Transport Int'l, Inc.

(303) 335-1000

© 2006 Patrick Gallagher

www.gallaghertransport.com

Used by permission from "More Bankers' Insights on International Trade: 101 Practical Lessions."

International Space Station Upgrading Earth Observation Technologies

The International Space Station, or ISS, is recognized worldwide as a testament to the ingenuity and drive of the human spirit and an inspiration to future astronauts. Through 2014, NASA aims to give the floating observation station even more tools to monitor the Earth.  The additional hardware will give scientists much more data and a unique perspective from space.  Typical Earth-orbiting satellites fly at altitudes above 400 miles up while the ISS operates around 240 up, meaning that it will give observers a whole new look at Earth from space, providing scientists a cross-reference for satellite observed imagery. "We're seeing the space station come into its own as an Earth-observing platform," said Julie Robinson, chief scientist for the International Space Station Program at NASA's Johnson Space Center in Houston. "It has a different orbit than other Earth remote sensing platforms. It’s closer to Earth, and it sees Earth at different times of day with a different schedule. That offers opportunities that complement other Earth-sensing instruments in orbit today."

Started on September 19th, the first round of new equipment will be sent up with the Space X Commercial Resupply Services flights, adding the ISS-RapidScat, which will be used to better study ocean winds for climate research, weather predictions and hurricane monitoring.  In total, there will be 6 new additions to the station, all aimed at giving us a better understanding of what is going on on our planet.  

Banks Create Draft - y Situations

Documentary collection, sight draft, time draft, bill of lading, at sight, draft, demand for payment, drawer, drawee, payee, tenor, accept the draft, trade acceptance, bankers’ acceptance, sight, time, beneficiary, issuing bank, endorse, negotiable, letter of credit

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While Speeding on the Interstate Highway, He Asked about the Form of Draft

A client called from his cell phone as he drove to the bank with a set of documents to present for payment on a letter of credit, which expired at the end of the day. While speeding on the interstate, he asked about the format of a sight draft. As best I could with words, I tried to create an image in his mind of what a draft looks like. I also informed him he could purchase some from an office supply store, or we could give him one from our supply cabinet.

When he asked if he needed a printed draft, I said, “No, we will permit a hand-written form.”

Then he asked, “Can I design a form on any kind of paper?” I assured him those details had nothing to do with the legal purpose of a draft as long as it contained the correct criteria.

Approximately 30 minutes later he rushed into the bank with the documents and his hand-written, hand-designed form. Hastily sketched on a brown paper bag that earlier had carried his lunch, it had all the components and criteria for a proper draft and we found no reason to refuse it.

Many international transactions require a document referred to as a "draft.” While some people have an idea of what and when to use it, they often have questions about the technicalities and the form. While various financial transactions require a draft, we will limit our discussion here to the use of a draft in typical international transactions. (To request a sample copy of a draft, send an e-mail to Roy@RoyBeckerSeminars.com).

Definition of a Draft

A draft can simply be defined as a “demand for payment.” The major components of a draft include the drawer, who demands the payment; the drawee, who makes the payment; the payee, who receives the payment; the tenor, which indicates the date of payment, and the amount of the draft or the amount of the payment demanded. The tenor of the draft determines a sight or a time payment. The drawee honors a sight draft, identified with a tenor “at sight,” by paying it when “sighted.” A time draft indicates payment a certain number of days after a date or an event for the payment, for example, “30 days after the bill of lading date.” In summary, the drawer demands payment from the drawee and instructs the drawee to make payment to the payee of a certain amount on a certain date.

In a typical documentary collection payment, the exporter is the drawer, the buyer is the drawee, and the exporter is the payee. In a typical letter of credit transaction, the beneficiary is the drawer, the issuing bank is the drawee, and the beneficiary, or beneficiary’s bank is the payee. The payee endorses the draft, making it negotiable.

What is a "Time" Draft"

If the buyer successfully obtains extended payment terms, a “time draft” becomes the proper term to describe the payment. In this scenario the drawee accepts the draft after the documents arrive at his bank. The drawee signs a notation across the face of the draft, obligating himself to pay on the agreed upon maturity date, often tied to the bill of lading date, such as 30 days after the bill of lading date, or tied to the date of acceptance of the draft, or some other criteria.

When the drawee of a time draft is the buyer, the accepted draft becomes known as a “trade acceptance” to distinguish it from a “bankers’ acceptance,” a time draft drawn on and accepted by a bank. The accepted draft, similar to a promissory note, represents money owed by one party to another party. Because a bankers’ acceptance presumably carries less risk, the holder prefers it to a trade acceptance.

Used by permission from "More Bankers' Insights on International Trade: 101 Practical Lessions."

DAP: Door Delivery by the Steamship Line – A Good Idea? demurrage charges, VACIS exam

DAP (Delivered At Place) Incoterms® Rule

Sometimes our clients purchase goods with the DAP (Delivered At Place, replaced the former Duty Unpaid rule) Incoterm® where the shipper pays for the cost of delivery, and the shipper arranges for the steamship line to deliver the goods right to the consignee’s door. This sounds mighty convenient, but we don’t recommend it. From the following example I think you will see why.

Recently a client imported a full, refrigerated container of frozen food products from Europe. The security inspectors with Customs in Norfolk decided to schedule this container for a VACIS exam (a non-intrusive exam by gamma rays). In addition, an agricultural inspector with Customs in Norfolk decided to schedule a "tailgate" exam on this shipment. In other words, he wanted to open the doors and look inside.

Avoid Demurrage Charges

Steamship lines allow a limited number of days free time before they begin assessing demurrage (storage) charges. Typically, scheduled exam processes are slow. Knowing this and realizing that the last free day fell on Friday, we pressed the terminal to conduct the exams quickly. They were completed around 3 P.M. EST on Friday.

You’ll never guess the steamship line’s response when I told them the container was now ready for delivery! Their answer: “Sorry, we cannot dispatch a truck this late in the day. The container can’t be delivered until Monday. And oh, by the way, demurrage charges of $750 are due as of Monday!”

The steamship line had no incentive to expedite the container for Friday delivery. In fact, they had a $750 incentive NOT to have it delivered on Friday. If the buyer had used a more appropriate Incoterm® other than DAP, we would have been authorized to arrange the delivery. We would have phoned our trucker on Thursday to make sure he was able and prepared to deliver the container on Friday, even late in the day on Friday. If our regular trucker had been too busy, we would have called another company. Under the circumstances we had no leverage with the steamship line. They quite happily said, “No dice,” and collected the demurrage charges.

DAP Gives the Importer No Control

If the buyer had chosen to use any Incoterm® other than DAP (or the other D Term, DDP) we would have been authorized to arrange delivery. This goes back to the age old saying: The more control you exercise over your supply chain, the better off you are. When you lose control it can, and often does, cost you money.

Contributed by Patrick Gallagher

Gallagher Transport Int'l, Inc.

(303) 335-1000

© 2008 Patrick Gallagher

www.gallaghertransport.com

Used by permission from "More Bankers' Insights on International Trade: 101 Practical Lessions."

Why They Lost Their Shirts with a Documentary Collection Payment

Documentary collection, sight draft, documents against payment, D/P, time draft, bill of lading, invoice, packing slip, insurance certificate, inspection certificate, protest, documents against acceptance, D/A, at sight, draft, customs, maturity date, open account, notary public, acceptance of the draft, International Chamber of Commerce

The Buyer Refused Payment

A customer of a bank in Minnesota, for which I worked, imported shirts from a supplier in Greece. The buyer and seller agreed to payment terms on Documentary Collection with a payment 60 days after acceptance of the draft, easily calculated once the buyer accepts the draft. On the maturity date, the treasurer informed us he would not make the payment.

Protesting Non-Payment of the Collection

After we informed the bank in Greece that we could not collect the payment, the bank in Greece requested us to perform a rarely used technique. They asked us to protest non-payment of the draft – a formality sometimes used to provide material evidence, if needed, in a legal proceeding, or sometimes nothing more than a bluffing technique.

I asked a coworker, a notary public, to accompany me to the buyer’s business. The treasurer invited us into his office. We explained that the bank in Greece requested us to either collect payment or protest non-payment. We produced the draft with his signature on it and bluntly asked, “Will you pay this draft or not?”

Without hesitation he shouted, “No, I’m not going to pay that draft. We ordered large shirts and received small instead. Our customers primarily consist of big Norwegian men,” he emphasized, “and they can’t wear the small shirts.”

We thanked him and returned to the office where we prepared a notarized statement that we had witnessed non-payment by the buyer and sent the notarized statement with a letter to the bank in Greece along with an invoice for our services. When the Greek supplier finally realized they would not receive payment, they agreed to exchange the small shirts for large shirts and the buyer subsequently authorized payment.

The buyer and seller agreed to a “documentary collection,” one of the four methods of payment used internationally. When paid immediately, banks refer to the draft as a “sight draft,” “documents against payment” or simply, “D/P.” If the buyer and seller agree to a delay in payment, the transaction becomes a “time draft,” “documents against acceptance” or simply “D/A,” as illustrated in this lesson.

Understanding Risks of the Collection Payment

In a documentary collection method of payment, both the buyer and seller bear some risk, and, likewise, both have a measure of security. Therefore, I refer to this method of payment as a “compromise” payment. With a sight payment, the buyer has the protection that the seller can receive no funds until he has proved he has shipped the goods. This prevents the seller from using the money for a weekend ski trip or some other frivolous use. The seller, on the other hand, has the protection that the buyer cannot receive the goods without paying for them.

Logistically, the transaction begins when the seller delivers the goods into the hands of the transportation company, which issues a bill of lading as proof of shipment. The seller prepares a draft and attaches the bill of lading and other documents such as an invoice, packing slip, insurance certificate, inspection certificate, etc., and delivers all documents to his bank with the request that the bank attempt to collect the payment.

The seller’s bank then couriers the documents to the buyer’s bank with clear and precise instructions to: “collect payment from the buyer before releasing the documents.” Without the documents, the buyer cannot claim the goods and clear the goods through customs. When the buyer authorizes payment, the bank releases the documents and the buyer claims the goods.

Since the buyer pays on receipt of documents only, he will not see the goods until after payment. If the goods do not comply with the order, the buyer has little recourse. The buyer can mitigate the risk by arranging for inspection of the goods at the port of departure. (The buyer cannot inspect the goods at the port of arrival because he needs the documents to see the goods.)

The seller assumes the risk that the buyer may not pay. In that case the seller can exercise one of four options: (a) renegotiate with the buyer and try to induce him to make payment and accept the goods, (b) return the goods at the seller’s expense, (c) find another buyer, or (d) abandon the goods.

When the seller presents a time draft, as in the shirt story, the bank requires the buyer to indicate his acceptance of the draft by signing and dating a notation that reads “Accepted” across the face of the draft. The seller must consider the risk that the buyer may not accept the draft. In that case the above four options remain available to the seller.

After the buyer has accepted the draft, the bank will release the documents and the buyer can claim the goods. Ideally, the time period until maturity date will sufficiently allow for the buyer to liquidate the goods and collect payment before the maturity date. On the maturity date the buyer instructs the bank to remit the payment to the seller.

If, however, the buyer refuses to pay the accepted draft on the maturity date, the seller loses all of the previously mentioned options. Selling goods on a time draft basis falls only one degree short of open account. With open account terms the seller agrees to allow the buyer to receive the goods and pay for them at a future date.

Sellers have an advantage with a time draft because they hold the accepted draft which becomes tangible legal evidence as proof that the buyer owes the money. Once buyers accept a draft they have an obligation to pay at maturity. If buyers fails to pay, they risk facing legal action by the seller. In some countries, the buyer’s name may find its place on a “black list” which would effectively prevent them from further trade.

In a D/A transaction, the buyer's risk is accepting the draft before he sees the goods. If he wishes to mitigate this risk, he can arrange inspection of the goods prior to shipment.

The International Chamber of Commerce has published guidelines to promote uniform handling and to prevent misunderstandings when processing documentary collections. The publication # URC 522 is available from the ICC at 212-206-1150 or at www.iccbooksusa.com.

Used by permission from "More Bankers' Insights on International Trade: 101 Practical Lessions."

Why Doesn’t Everyone Use the Incoterms® Rule DDP? Incoterms®, EXW, DDP

The Choice of Incoterms® Determines the Seller's Responsibilities

U.S. exporters must prevent their products from entering into a counties or markets which are prohibited by U.S. laws, or into the wrong hands for use of the product in a detrimental way. Exporters need to know and have trust in the purchaser.

At a recent workshop on Incoterms®, I prepared my usual outline, using the technique of ranking the Incoterms® from least responsibility for the seller to most responsibility for the seller. Initially, exporters like the term with least responsibility for them, Ex Works. In laymen’s terms, the seller says, “The goods are at my back door, come and get them.” As the workshop develops, exporters learn that Ex Works has risks, one being diversion into the wrong hands..

The Transaction may Determine the Choice of the Incoterms® Rule

A company in Colorado sent two employees to my workshop at the Rocky Mountain World Trade Center Institute. They dutifully took notes but made very few, if any, comments during the course of the class, until we got to the last Incoterm®, DDP (Delivered Duty Paid). Then one of them made a simple statement, “I don’t understand why everyone doesn’t use DDP.”

I responded, “Sir, with that comment, I know you understand Incoterms®.”

The DDP term places full responsibility on the exporter and very little on the importer. The exporter must jump through all the hoops and over all the hurdles including transportation and insurance to the buyer’s facility. This Incoterm® requires the seller to arrange for customs clearance on the buyer’s side.

Why the Incoterms® Rule DDP Was the Exporter's Preference

Why was this important to this company? They manufacture computer products that have the potential for misuse if the goods find their way into the wrong hands. Exporters need assurance that their products arrive at the intended destination and are only used for the purpose intended. By using DDP, the seller has complete control of the shipment to its destination and can avoid the possibility of diversion to unwanted parties or countries.

Manufacturing Edge Returns to US & Mexico

The economics of global manufacturing are shifting. For decades, people have been saying that manufacturing costs are cheap in regions like Eastern Europe, Latin America, and most of Asia. On the other hand, the United States, Western Europe, and Japan have been viewed as having high costs. That worldview is out-of-date according to a new report released by The Boston Consulting Group. Costs have been shifting and the competitive edge now belongs to the U.S. and Mexico.   While the common narrative was still that American manufacturing was dead and done, heavy machinery manufacturer Caterpillar has been shifting production of construction equipment from Japan back to the U.S., creating hundreds of jobs.

Designed with executives of export manufacturing firms in mind, the BCG report describes how steady changes in a variety of factors, such as wages, productivity, energy costs and currency values, are redrawing the map of global manufacturing cost competitiveness. While seemingly subtle, these changes are dramatic.  Some of the shifts in relative costs are actually quite surprising. A decade ago, not many people would have predicted that Brazil would now be one of the highest-­cost countries for manufacturing— and that Mexico could be cheaper than China. Costs in Eastern Europe and Russia have risen to near equivalence with the U.S.

Key factors behind all these changes vary widely by economy. The BCG researchers say, "skyrocketing labor and energy costs have eroded the competitiveness of China and Russia. A decade ago, for example, manufacturing wages adjusted for productivity averaged an estimated $4.35 an hour in China and $6.76 in Russia, compared with $17.54 in the U.S. Again, adjusted for productivity differences, labor costs have roughly tripled in both countries, to an estimated $12.47 an hour in China and $21.90 in Russia. Average productivity-adjusted manufacturing labor costs in the U.S. have risen by only 27 percent since 2004, to $22.32. The cost of industrial electricity increased by an estimated 66 percent in China and 78 percent in Russia, while the cost of natural gas soared by an estimated 138 percent in China and 202 percent in Russia from 2004 to 2014."

As Forbes reports on the BCG study, the U.S. has emerged as the lowest-cost manufacturing location of the developed world, roughly on par with South Korea. The manufacturing-cost gap between the U.S. and other developed countries widened significantly between 2004 and 2014. Average U.S. costs are now estimated to be 9 percentage points lower than the UK, 11 points lower than Japan, 21 points lower than Germany, and 24 points lower than France.

According to the study, the U.S. is even approached cost-parity with some nations of Eastern Europe.  Our cost gap with China “has shrunk dramatically” and, BCG researchers said, “if the trend of the last ten years continues, will disappear before the end of the decade.” Labor is one key to the growing U.S. competitive advantage. The U.S. has one of the developed world’s most flexible labor markets, ranking as the most favorable economy in terms of labor regulation among the top 25 manufacturing exporters. The U.S. also has by far the highest worker productivity among the world’s 25 biggest manufactured-goods exporters. Adjusted for productivity, U.S. labor costs are an estimated 20% to 54% lower than those of Western Europe and Japan for many products.

Prices for natural gas have risen around the world, but have fallen in the U.S. by around 50% since 2005, when large-scale recovery from underground shale deposits began in earnest." Natural gas currently costs three times more in China, France, and Germany and four times more in energy strapped Japan. The energy component will be a hard one for competitors to tackle in the years ahead, BCG researchers said.

Forbes contributor Kenneth Rapoza continues by saying, "For Mexico, Latin America’s second largest economy has regained its status as a leading low-cost manufacturer, replacing China on many product lines."

In 2000, Mexican manufacturing labor was roughly twice as expensive as China’s. Since 2004, Chinese wages have risen four fold. Mexican wages also rose, but by much less in pesos and even less in dollar terms while the Chinese yuan has gotten stronger over the same period.  The report said that even though China has had higher productivity growth, the average Mexican productivity-adjusted labor costs are now estimated to be 13% lower China’s. Add attractive electricity and natural-gas costs, and Mexico’s total costs are estimated to be 5% below those of China, 9% below those of the U.S., and 25% below those of Brazil, Latin America’s largest economy.

“Many companies are beginning to see the world in a new light,” said Harold L. Sirkin, a BCG senior partner and co-author of the report. “They are finding that many old perceptions of low-cost and high-cost countries are out of date, and they are starting to realign their global sourcing and production networks accordingly.”

Bankers' Acceptances Used in The Great Salad Oil Swindle

Bankers' Acceptances, Federal Reserve Bank, Warehouse Receipts

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Federal Reserve Authorization for Bankers' Acceptances

Banks have many tools for financing international trade, but one of the lesser known ones is the Bankers’ Acceptances (B/A’s).  This financing arrangement, authorized by the Federal Reserve Bankin 1913, allows U.S. banks to compete with London banks in the international financing arena. B/A’s have several advantages. Considered short-term, each  180 days or less, each B/A ties to a specific self-liquidating transaction. Once the bank creates the B/A, they can sell it into the secondary market and thus maintain liquidity.

Bankers' Acceptances used for Financing Goods in a Warehouse

The Federal Reserve Bank specified certain transactions which qualify for B/A financing. The transactions must relate to a shipment of goods, or be secured with readily marketable staples stored in independent warehouses.

The Swindler

The warehouse receipt financing arrangement used by “Tino” DeAngelis in the early 1960s bilked banks and investors out of $219 million. DeAngelis falsified warehouse receipts for the alleged storage of salad oil in tanks. His tanks had false or hollow bottoms which allowed only a portion of the tank to be filled with oil. The swindler then used these receipts to pledge as collateral to borrow millions of dollars, which he used in an attempt to corner the cottonseed and soybean markets on the commodities exchange. Apparently, he intended to make a killing in those markets, and then use the profits to buy salad oil to legitimately fill the tanks.

DeAngelis made heavy margin purchases of soybean oil and cottonseed oil futures with the expectation that the USSR would buy vegetable oils in the U.S. However, the prices of the futures began to drop, and DeAngelis failed to come up with the money to cover the decline in the value of the contracts.

The Conviction

Officials discovered the truth when they examined his fake warehouse receipts. DeAngelis was charged with fraud in 1965, convicted, and given a twenty-year prison sentence. The Feds recovered all but $1 million from the so-called “Great Salad Oil Swindle.”

I'd Swim across the Pacific to Avoid Using a Letter of Credit

Letter of Credit, Open Account, Documentary Collection

As I found my seat on the plane in O’Hare Airport to return to Denver, I introduced myself to the passenger next to me. He introduced himself as the controller of a meat packing plant in Colorado. My international banking instincts caused me to ask, “Do you export your product?”

He replied, “Yes, we export boxed beef.”

I next probed, “How do you get paid?”

“Cash,” was his short answer.

Letters of Credit and Other Methods of Payment

In my experience, most exporters use all or most of the various payment methods: cash, letters of credit, documentary collections and open account. Industry and market conditions often dictate the choice. When asking the question, “How do you get paid?” I expect answers such as: “We get paid by cash when selling to countries A and B, Letters of Credit in country C, and open account to our established distributors in countries D and E.”

My fellow passenger’s short answer caught me off-guard because I expected a more elaborate response. “Cash?” I asked. “Don’t you ever ship on a letter of credit?”

“No way,” he said with conviction. “If I can’t collect payment on a letter of credit, I’m not swimming after the boat to get our goods back.”

Leniency with Payments Can Be a Competitive Advantage

He implemented a hard and fast credit policy. One has to admire the quality of his foreign receivables. He slept well at night and never had to inform his president of a slow paying customer overseas. However, one has to wonder if this policy didn’t limit their ability to expand their export markets. Certainly they had competitors who offered more lenient terms. Competing involves more than just pricing. Payment terms often dictate the success of an overseas sale.

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