Dividends
Set to Make a Comeback in China
Officials
are examining new steps to cool off China's sizzling economy
as its top planning agency called for tighter bank credit
and curbs on construction, state media reported. The reports
today suggested Beijing believes earlier measures, including
an interest rate rise in April, are failing to contain runaway
growth in spending on factories and other assets that Chinese
leaders worry could ignite a financial crisis. More than 100
economic officials were at the five-day meeting that began
Tuesday in the seaside resort of Beidaihe, the Xinhua News
Agency and newspapers reported.
The
officials were looking at "how to slow down economic growth
when some economists say it is already overheating," improve
energy efficiency and narrow a growing gap between rich and
poor, the reports said. They didn't identify any of the participants
or say what possible measures they were considering. A report
by the Cabinet's National Development and Reform Commission
called for "stricter controls on the number of new projects,
more stringent land management (and) tighter bank lending,"
according to Xinhua. China's economic growth surged to 11.3
percent in the second quarter, driven by fixed-asset investment
that rose by 29.8 percent during the first six months, according
to the government.
Investment
in some industries grew even faster, reaching 44.5 percent
in auto manufacturing and 40.6 percent in textiles, according
to the NDRC report issued Tuesday. It blamed "local governments'
blind pursuit of rapid economic development, excessively driven
by growth in fixed assets investment," the China Daily
newspaper said. "Rampant illegal land use exacerbated
the problem." President Hu Jintao's government wants
rapid growth to spread prosperity to the hundreds of millions
of people who have been left behind by China's economic boom.
But Chinese leaders worry that runaway spending on factories,
luxury apartments and other unneeded new assets could ignite
inflation or leave companies and banks with dangerously high
debt.
U.S.
and Korea to Hold Fifth Round of FTA Talks in Montana This Week
The
U.S. and Korea are holding a fifth round of free trade agreement
talks in Big Sky, Mont., the week of Dec. 4. In advance of the
round, U.S. Trade Representative Susan Schwab traveled to Montana
to meet with South Korean Ambassador to the United States Lee
Tae Sik, representatives of the state's agricultural and business
groups and Sen. Max Baucus, D-Mont., a long-time advocate for
an FTA with Korea.
One
topic that is likely to come up during the talks is Korea's
recent decision to deny entry to a nine-ton shipment of U.S.
beef after the discovery of a small bone fragment in that shipment.
Under the terms of an agreement under which Korea had recently
reopened its market to U.S. beef, Korea agreed to allow U.S.
boneless beef from cattle less than 30 months of age to enter
the country. The rejection of the shipment has prompted a negative
response from the Department of Agriculture and several U.S.
lawmakers from beef-producing states, including Sens. Baucus
and Pat Roberts, R-Kan., who asserted that the move was based
not on scientific international standards but on a continued
effort to build barriers to trade.
The
negotiations on the KORUS FTA were launched in February 2006.
When completed, this agreement will be the most commercially
significant FTA the U.S. has concluded in 15 years. Korea is
the world's tenth-largest economy, with an annual GDP rapidly
approaching $1 trillion, and the United States' seventh-largest
export market.
World
Trade/Interactive
top
Cracking
the Code
You're
a typical importer, handling thousands or even tens of thousands
of SKUs on a regular basis. You already know that a large number
of the product units will need to be reclassified starting in
January because the Harmonized Tariff Schedule of the U.S. changes
every five years, and the last changes were made in 2002. And,
thanks to an April 2006 publication of the U.S. International
Trade Commission, you have already identified many of the SKUs
that will be subject to reclassification under the new rules.
You're
a typical importer, handling thousands or even tens of thousands
of SKUs on a regular basis. You already know that a large number
of the product units will need to be reclassified starting in
January because the Harmonized Tariff Schedule of the U.S. changes
every five years, and the last changes were made in 2002. And,
thanks to an April 2006 publication of the U.S. International
Trade Commission, you have already identified many of the SKUs
that will be subject to reclassification under the new rules.
So
much for the good news. Although you can identify some of your
SKUs that might be reclassified, you can't be sure that your
list of such SKUs is comprehensive. That's because the ITC table
only identifies SKUs down to the eight-digit level and you will
need to accurately classify your products at the 10-digit level,
the details of which won't be announced until late this year,
or maybe even January. Once the official proclamation is made,
you'll have only 15 days to do those reclassifications. And,
although the new classifications are slated to take effect in
January, you still don't know exactly when they will be issued.
These
uncertainties put U.S. importers and exporters in a precarious
position as the New Year approaches, said David Newman, an attorney
who belongs to the executive committee of the American Association
of Exporters and Importers. "This is a looming crisis that
is not evolutionary, but revolutionary," he said. Newman
worries that many traders will make unavoidable errors that
hold up shipments or result in penalties unless the trade community
is given more time to implement the new classifications after
they are published.
Although
the changes are supposed to be implemented on Jan. 1, they may
be delayed for at least two weeks. "My guess is that it
won't take place on Jan. 1," said Peter Quinter, who heads
the customs law department at Becker & Poliakoff P.A. in
Fort Lauderdale, Fla. Importers
and exporters use the Harmonized Tariff Schedule to determine
tariff rates and to provide statistical information about trade
to various agencies worldwide. The proposed changes were recommended
by the World Customs Organization, investigated by the International
Trade Commission and reviewed by the U.S. Trade Representative.
Other
customs agencies around the world will be implementing parallel
changes in their harmonized tariff schedules that reflect the
WCO recommendations, but their codes will not be entirely the
same as the codes in the United States. In some cases, for example,
the codes have a different number of digits. That means U.S.
importers and exporters will need to know about changes made
by other customs agencies. Newman predicted that the process
of implementing the new codes "will be ugly." He added,
"People will have their backs up against the wall, changing
their classifications." A great deal of work will need
to be done, and there is a shortage of the people specifically
trained to do it, he explained. "Customs
will be bombarded," he said. "We don't think that
they will be ready, and I have no indication that they are very
far along." "Customs
has not issued guidance about the logistical problems"
that will result from the new code, said Deborah Stern, a former
delegate to the Harmonized Systems Review Subcommittee of the
WCO. "There have been no instructions about the transition
period. There is fear wherever there is silence," Stern
said.
Newman
added, "Will the government give us more time, even though
they do not give us much advance notice" about the implementation
date? Companies that have prefiled their paperwork, and have
goods in transit when the new rules take effect, will face "a
lot of rejections," Newman said. That will put particular
pressure on maritime shipments, which are in transit for weeks
before delivery. U.S. Customs did not return phone calls seeking
input for this report. Although many classification changes
will affect the high-tech sector, they will cover a wide range
of sectors. In some cases, the new classifications will probably
make things easier for shippers and customs brokers because
they will consolidate SKUs from more than one product area.
For
example, the classification for "sound recording apparatus"
is being combined with the classification for "sound reproductive
apparatus" in response to the emergence of MP3 players
that record and reproduce. In other cases, however, the new
classifications make things more difficult and more open to
interpretation, Stern said.
Misclassification
will carry a cost, even if the products that are misclassified
are not subject to customs duties, Quinter said. "It is
a common misconception that if a product is misclassified and
both (the old and new) classifications are duty-free, that there
is no penalty. But that is wrong; there are consequences"
because a mistake has been made.
Don't
look for much help from electronic tools that manage the flow
of international trade documents. Take, for example, Management
Dynamics, which provides companies with the latest updates about
tariff schedules in 118 countries. Ty Bordner, the company's
vice president of solution consulting, said Management Dynamics
will provide a tool that analyzes a company's product database
and figures out which products are subject to changes in classifications.
However, this kind of tool cannot actually apply the changes
and determine what the new classifications and tariffs are,
Bordner said. "This is inherently a human task, because
you have to know your product to make a decision about what
harmonized code it fits into," he said.
Making
harmonized code decisions is "sort of an art form,"
said Andrew Bullen, president of IES Ltd., a provider of transportation
and logistics management software. "The reality is that
the new numbers provide flexibility, and there is not much benefit
if a computer does it. Brokers are like artists. They will get
you a better classification than you thought." Stern
added, "Customs brokers are trained in getting the right
classification." Like human translators of languages, the
service they provide will always have a high value.
A
key problem with technology is that some products that were
in an old classification will change their classification, while
other products from the same classification will not change
under the new code. Even if there were a technology without
enough intelligence to automate such decisions, importers and
exporters would lose the benefit of carefully prepared legal
notes that instruct them about what products are included and
what are excluded from a classification. "You look at the
legal rules to see what it is allowed to be classified in the
heading," Stern said. Lists of exclusions specify items
that are excluded, often because they could fit into more than
one category. "Some things will obviously go into one category,
but with other products, you have to look at a plethora of laws
to determine whether they can be considered in that category."
Many
importers are disturbed that they have not had time to comment
on the new classifications, Newman said. "The government
gives us an opportunity to comment on eight-digit level classification,
but it never gives us an option on the 10-digit level,"
he said. Newman
urged companies that belong to the AAEI and other trade groups
to "engage and support" the AAEI in its efforts to
pressure the ITC to give importers "as much lead time"
as possible. "Consider joining and getting involved. We
have to tell the ITC what your problems are," he said.
During
the troublesome phase-in period, Quinter hopes U.S. Customs
does not impose any penalties on importers. Further down the
pike, Newman said, "We should not be penalized for errors
that are not due to fraud or to gross errors in misjudgment."
When a mistake is made, Customs should give importers and exporters
the benefit of the doubt.
Newman
said the AAEI is trying to buy time for the trade community
so that it does not have to implement the new classifications
within a mere 15 days of the official proclamation. "We
are saying that the 15-day period should be extended as far
out into the future as possible." "If
we have our way, we'll get 30 days to implement (the new classifications)
after the presidential proclamation" makes it all official,
Quinter said. Stay
glued to the Federal Register for further details.
Journal
of Commerce
top
'10+2'
Hits the Fast Track
After
more than two years of discussions with the trade community,
Customs and Border Protection is moving forward on a plan to
collect additional data on imports to improve the identification
of shipments that pose a high risk of tampering by terrorists.
In 2002, Customs initiated the 24-Hour Rule, which obligates
ocean carriers to report container manifests 24 hours before
they are loaded aboard a U.S.-bound ship at a foreign port.
The new rule would require 10 additional elements from importers,
and two more from carriers. Together they have been given the
shorthand reference, "10+2."
The
information that Customs is seeking seems relatively straightforward,
comprising the names and addresses for all parties in the supply
chain, from the manufacturer, to the party that stuffed the
container, to the ultimate consignee for the goods. In addition
to manifest data they already report, carriers would provide
the vessel stow plan and container status messages. But shippers
say the intricacies of international trade complicate what seems
like simple information. In the agency's effort to create rules
that require importers and carriers to report the 10+2 data,
shippers are concerned that the details will be lost in a rush
to finish the process.
Customs
officials announced their intention to begin the rule-making
process for the 10+2 data at the Nov. 9 meeting of the Depart-mental
Advisory Committee for Commercial Operations of Customs and
Border Protection and Related Agencies, known as COAC. A COAC
subcommittee will be the conduit for industry comments, which
COAC will report at its next quarterly meeting in February.
Customs expects to issue proposed rules in mid-2007. Kevin Smith,
general director of global customs for General Motors and a
COAC member, said his impression was that Customs had a new
sense of urgency to get the job done. "Before the commissioner
has to talk to Congress, he wants to say 'this is done,' "
Smith said. "Well, is that sense of urgency to say 'it's
done' going to overtake the need to have it done correctly?"
A
committee of the Trade Support Network has held inconclusive
discussions with Customs about additional data elements for
security screening for at least two years. The TSN is an industry
group that works with Customs to develop the new Automated Commercial
Environment. Smith wondered if the proposal has been held up
because Customs officials internally had to reach consensus
on the 10+2 proposal. Customs officials were not available to
comment for this article. COAC
has been regularly up-dated on the TSN meetings, but Congress
put the issue squarely in COAC's lap when it passed the Security
and Accountability for Every (SAFE) Port Act in October. The
law requires Customs to "consult with stakeholders, including
the Commercial Operations Advisory Committee, and identify to
them the need for such information, and the appropriate timing
of its submission."
Chris
Koch, president of the World Shipping Council and also a COAC
member, said the 10+2 proposal was different from and more aggressive
than the Framework for Security and Trade Facilitation adopted
by the World Customs Organization, "but they were proceeding
anyhow. They cited the SAFE Port legislative language, which
directs them to do this. Their message was that they are marching
forward. I think everybody recognizes that is a very ambitious
schedule." To
report the 10+2 elements, Customs proposes using components
of its legacy Automated Commercial System, including the Automated
Broker Interface, which customs brokers use to file entry data,
coupled with the Automated Manifest System, which carriers use
to report data under the 24-Hour Rule. The data elements also
would be reported 24 hours in advance of vessel loading.
The
importer or its designated agent will be responsible for complying
with the 10+2 rule. Under the Trade Act of 2002, the party "most
likely to have direct knowledge of that information" is
required to provide it. Based on internal and external discussions,
Customs concludes that party is the importer. Maybe,
maybe not, members of the trade say. "What does it mean,
ultimate consignee? There's a definition when you complete an
entry, a different definition when you complete an entry summary.
Which one do you want?" Smith said. "Not every good
that's shipped in the world is something that's manufactured,
put in a box and sent to a retailer to sell on a shelf. What
if it's used machinery or spare parts or something in which
the name of the manufacturer has been lost?"
Ken
Bargteil, vice president for corporate customs management at
Kuehne & Nagel and a member of the TSN data committee, said
that for reasons of business confidentiality, sellers or buyers
don't always want the supply chain to be perfectly transparent.
"If
the information is going to be transmitted from the origin,
the origin people will not necessarily know, nor will the destination
people want them to know the ultimate consignee," Bargteil
said. "If the information is going to be transmitted at
destination, the origin people don't want them to know the source
in all cases. "The
proprietary nature of some of the data elements makes it improbable,
if not impossible, that in a large number of cases any one party
is going to be able to provide all of the information that Customs
is looking for," Bargteil said. If foreign companies were
allowed to transmit some of the data elements, Customs would
have to be willing to accept data from unknown sources, or find
a way to verify the information.
Bargteil
said 10+2 also would require ocean carriers to broaden their
range of communication with the rest of the trade. "There's
a whole world of people out there that all of a sudden may have
a role to play. That's going to require a very close communication
with steamship lines. That's going to put tremendous pressure
on the steamship lines. We've already seen in the U.S., steamship
lines have centralized their customer service, and there have
been tremendous problems by the import community, just to get
information like ETAs." Bargteil
said he hoped the TSN discussions would yield workable solutions
before Customs formally issued proposed rules. "At this
point, I'm beginning to sense that they really do need to call
an end to the discussion, and put something out there and see
if it works." If the rules end up creating a trade bottleneck,
major retailers won't hesitate to take the issue to Congress.
"When the shelves of Wal-Mart start to get empty, the Legislature
will change its mind in a hurry."
What
happens if the importer is unable to provide Customs with a
complete set of data? Customs has not discussed sanctions, but
Smith said it's inevitable that Customs will impose fines or
penalties. "There's an assumption in the trade community
that CBP will avail themselves of any opportunity to issue penalties.
It's logical to assume that CBP will have penalties associated
with filing information wrong, based on past practices at CBP.
"Let's
be realistic," Smith said. "On the other side, if
there are no consequences to file the information wrong, some
people will never file it right." Smith
said the trade should look at the 10+2 proposal the way it has
done with other security measures: Do they enhance security
without burdensome additional costs? "People are willing
to do whatever they can for supply-chain security, but it should
add tangible value that someone can articulate, not just verbal
generalizations that 'we will be more secure.' "
Journal
of Commerce
top
Chinese
Trade Surplus Falls Just Short of Record
Level
Could Bolster Case for Faster Rise In Value of the Yuan
BEIJING
-- China's trade surplus in November reached $23.37 billion,
just short of October's record but high enough to keep critics
clamoring for a quicker appreciation of the yuan. China's official
Xinhua news agency put out the figure late yesterday in a brief
item that didn't detail the growth in exports and imports in
November. Economists had expected imports, which this year have
been coming in 15% to 20% higher than last year, to suffer somewhat
from recent government measures to curb investment. The seasonal
rush to fill export orders for Christmas, however, likely propped
up exports, which have been rising by about 30% so far this
year. China released the trade-surplus figure earlier than usual,
getting the news out well ahead of a visit next week by a high-ranking
team of U.S. officials led by Treasury Secretary Henry Paulson,
who is expected to discuss the trade gap and the value of the
yuan.
The
November surplus was China's second biggest in history, after
October's $23.83 billion, and comes after a run of record surpluses
this year. The monthly trade surplus has made five new records
in the six months since May. Economists said the fast export
growth this year, which has come as the yuan has continued to
gradually rise against the U.S. dollar, suggests that a stronger
currency hasn't hurt the competitiveness of Chinese exporters.
That could bolster the case for a faster rise in the currency's
value.
Even
continued gains in the Chinese currency are unlikely to completely
erase the country's trade surplus. Companies world-wide have
been relocating their manufacturing operations to China, a type
of long-term investment decision unlikely to be affected by
currency fluctuations, noted Stephen Green, an economist at
Standard Chartered. Mr. Paulson will hold two days of meetings
next week with ranking Chinese economic officials led by Vice
Premier Wu Yi. The discussions are intended to focus on the
overall U.S.-China economic relationship, but thorny issues
such as the trade surplus, the currency, and China's poor protection
of intellectual-property rights are certain to be on the agenda.
Both
sides say they would prefer to see the trade imbalance between
the two nations addressed by having China buy more from the
U.S., rather than restricting Chinese exports to the U.S. A
stronger currency would help that happen by making imported
goods cheaper for Chinese consumers; policy makers are also
discussing measures that could give a broader boost to consumer
demand.
Wall
Street Journal
top
Europe
Is Giving Global Economy A Surprise Boost Amid U.S. Lull
BERLIN
-- Europe's economy is firing on all cylinders after years of
feeble growth, helping to sustain global expansion as the U.S.
economy slows and surprising many economists who doubted the
Continent could muster enough demand to break its reliance on
exports. Europe's economic recovery was ignited by rising exports,
but it is now spreading to investment, job creation and consumer
spending. While some countries around Europe's edges have performed
well for years, including the United Kingdom and the Nordic
countries, prolonged stagnation in its heartland -- the 12-nation
euro currency area dominated by Germany, France and Italy --
earned Europe a reputation rivaling Japan's as the world's economic
laggard.
Euro-zone
gross domestic product is on course to grow by 2.7% this year,
unspectacular by recent U.S. standards but a big improvement
on the 1.4% growth the euro zone averaged the previous five
years. Even though a U.S. slowdown, a strengthening euro and
looming tax increases in Germany could brake euro-zone growth
next year, most forecasters still expect an expansion of around
2%. By Europe's lackluster standards, that's nothing short of
a comeback -- and is good news for exporters and investors from
the U.S. and Asia. "There is no new miracle in Europe.
This recovery is overdue," says Jean-Philippe Cotis, chief
economist at the Organization for Economic Cooperation and Development,
a Paris-based think tank. The long slowdown led anxious Europeans
to save their incomes, Mr. Cotis says, creating pent-up demand
that is now being unleashed as confidence gradually returns.
Europe's
rebound still has flaws, which bolster arguments that structural
changes are needed to realize any lasting gains. Much of the
improvement this year has occurred in Germany, which is helping
to buoy its neighbors after taking some painful steps, while
many companies in France and Italy still struggle to cope with
fierce global competition. Changes to labor laws and welfare
systems prescribed by economists are low on government agendas
because free-market measures remain unpopular.
But governments, companies and unions have made enough organic
change to restore some of the Continent's lost dynamism. And
better growth in the $10 trillion euro-zone economy means better
growth in the 25-nation European Union, whose $14 trillion economy
is about the same size as the U.S.'s and accounts for 30% of
world GDP. (Twelve of the 25 EU nations use the euro.)
Europe's
revival is reflected in the rising value of its currency, the
euro, which at $1.33 is close to its highest level ever against
the dollar -- $1.36 -- touched at the end of 2004. That partly
reflects dollar weakness against many other currencies, but
it is also because currency markets believe the European Central
Bank in Frankfurt will continue raising interest rates against
a backdrop of solid growth. Germany, for years the sick man
of Europe, has led the revival, reclaiming its place as the
region's growth engine. Painful measures to boost efficiency
and productivity put German companies -- especially makers of
machine tools and other industrial equipment -- in a strong
position to exploit the recent boom in global trade. While other
euro-zone industries haven't restructured in the same way, they
have also enjoyed rising exports amid the fastest pace of global
growth in more than 30 years.
Rising
corporate profits and a new optimism have led European companies
to invest at home again, especially in Germany, where strenuous
cost cutting has done much to compensate for high labor costs
and stiff payroll taxes. "It's fun to be an industrial
entrepreneur in Germany at this time," says Jurgen Grossmann,
owner of steel group Georgsmarienhutte. "The world wants
our products. We have record order intakes. There is a renaissance
in tangible goods." Many German companies have found leeway
in Germany's labor laws to improve productivity, and have been
rewarded with rising profits. Machine-tool maker Trumpf Group,
near Stuttgart, is typical of the thousands of midsize family-owned
companies that make up the backbone of the world's third-largest
national economy. After stagnant or falling sales earlier in
the decade, Trumpf negotiated deals with its work force that
allowed an extension of the workweek to near 40 hours from 35,
with extra pay partly dependent on company profits, in exchange
for job guarantees.
At
the same time, Trumpf's export sales to fast-growing economies
in Asia and Eastern Europe have rocketed. The firm is adding
450 workers to its 6,500 staff this year. Trumpf's investment
spending is up 75% this year -- most of it in Germany, including
a new laser factory. "Our decision to invest in Germany
rather than abroad hinged on the agreements with our workers.
A 35-hour week is a joke. You can't compete internationally
with that," says Nicola Leibinger-Kammüller, Trumpf's
chief executive. Total investment in Germany is set to grow
by 5.8% this year, according to the OECD, up from 1% last year
and declines in the four previous years. Revived investment
has helped bring Germany's chronic unemployment below four million
in November, from more than five million in January.
Germany
still has a high jobless rate of 9.6%, and many formerly jobless
people have found only low-paid, temporary or part-time work.
But rising employment has allowed a modest recovery in consumer
spending, which is expected to grow by around 0.8% this year
after stagnating or shrinking since 2001. Across the euro area,
unemployment has fallen to 7.7%, according to the European Commission's
standardized measure, from a peak exceeding 9% in 2004. Surveys
show consumer confidence is increasing as fear of unemployment
recedes. The winners from higher investment in German industry
include services providers with customers in the booming manufacturing
sector. Frankfurt-based Commerzbank AG has recovered from years
of heavy losses, bad loans and asset writedowns. After losing
2.3 billion ($3.06 billion) in 2003, it posted net profit
of 1.2 billion in the first nine months of this year,
and is even hiring 700 new customer advisers after laying off
more than 7,000 employees in recent years.
SAP
AG, Germany's largest software company, is also hiring. But
it's doing so cautiously because German labor laws make it expensive
to cut the work force when the business cycle dips. "Whenever
you hire in an inflexible environment, you want to make sure
you can keep these people for 10 or 20 years," says Chief
Executive Henning Kagermann. Investment is also improving in
other European countries, but less markedly than in Germany.
Companies in Italy, France and Spain haven't cut costs or jobs
or raised productivity as aggressively as their German counterparts.
Labor costs in Germany have fallen by nearly 1% a year on average
since 2000, but have risen by nearly 4% a year in Italy in the
same period, according to the European Commission, the EU's
executive arm.
In
Germany, the severity of the downturn and joblessness led to
far-reaching concessions by unions on work rules. But unions
in other euro-zone nations have resisted similar demands from
employers. "Some of the changes German industry has made
-- for example, longer working periods -- are not realistic
in Italy" in light of stiff union opposition, says Ernesto
Greco, chief executive of Italian furniture maker Natuzzi SpA.
It has built factories in Brazil, China and Romania recently,
while trimming costs in Italy to cope with rising global competition.
Yet
companies from other euro-zone nations are also exporting more,
in part because Germany's $2.8 trillion economy is buying more
goods from the rest of Europe as it grows. "The recovery
in Germany is lifting Italy and helping France," says Mr.
Cotis, the OECD economist. In both countries, stronger exports
are helping companies to raise investment. Rising trade among
European countries has helped to compensate for slower growth
in exports to the rest of the world this year, allowing the
euro zone to sustain its recovery even though the U.S. economy
is slowing. "It's looking increasingly like Europe hasn't
caught a cold from the U.S. sneezing," says Neville Hill,
European economist at Credit Suisse in London. That's a break
with the past when, if the U.S. economy caught a cold, Europe
usually caught something worse.
Consumer
spending hasn't improved as strongly as investment, but even
here there are signs of improvement. Euro-zone consumption rose
by 0.6% during the third quarter, helped by strong spending
in Germany. In a sign of the retail market's gradual recovery,
Europe's biggest retailer, Carrefour SA of France, recently
announced a 7% rise in third-quarter sales, including more than
5% growth in France, where its megastores have struggled against
fierce competition from discount chains in recent years.
But
the robust outlook could still crumble if the euro rises further
against the dollar into next year. The currency's appreciation
is beginning to revive bad memories of 2003 and 2004, when a
surging euro snuffed out embryonic upturns in the euro-zone
economy. "The impact was very bad in all industries competing
with products made in the dollar area. My feeling is we will
have a hard time in front of us," says Andrea Tomat, president
of Italian sport-shoe maker Lotto Sport Italia SpA.
Other
risks to Europe's revival include planned tax increases in Germany
and Italy, whose governments are trying to rein in budget deficits
to comply with EU fiscal rules. Germany's plan to raise its
value-added tax -- equivalent to U.S. sales tax -- by three
percentage points to 19% in January is causing particular worry,
given the fragile confidence of German consumers. Most economists
believe the increase will cause only a temporary drop in spending,
but some point to the case of Japan, where a VAT rise in 1997
prolonged its economic stagnation.
Many
economists caution against euphoria about Europe's improved
growth. "It's an OK
performance compared with the past few years, but nothing is
firing tremendously," says Jean-Francois Mercier, an economist
at Citigroup in London. "The problems haven't gone away,
including structural rigidities and caution by many businesses
which prefer to invest offshore rather than at home." Europe's
recovery is also uneven. While German industry is looking strong,
consumer spending is still only growing weakly. In France, consumer
spending has helped underpin GDP growth, but companies have
been losing global market share while investment is growing
more slowly than in past upturns. Thanks to its continuing structural
problems, the euro zone is able to sustain a growth rate of
only around 2% a year without stoking inflation, the OECD estimates.
The U.S. economy can sustain closer to 3%. More-flexible labor
rules, more competition in markets for goods and services, and
an overhaul of pension and health-care systems would help the
euro zone to sustain faster growth, making it easier to cope
with the future strains of an aging and eventually shrinking
population. "The case for structural reforms in Europe
remains strong," says Mr. Cotis.
Wall
Street Journal
top
Policy
Makers In China Discuss Economic Tactics
BEIJING
-- China convened a key meeting of top economic policy makers
yesterday to map out strategies to confront a range of problems
in its economy including surging growth and a bulging trade
surplus. The meeting comes as China tries to move away from
its decades-old reliance on export- and investment-driven growth
and toward greater focus on domestic demand. That comes even
as economic growth hit 10.7% in the first three quarter of the
year, near its highest level in 10 years.
The
annual economic work meeting gathers top officials from the
State Council, China's highest administrative body, and the
provinces to decide the country's economic plans for the coming
year. China's Xinhua news agency carried a report on the meeting,
but the government didn't disclose what was decided. But tackling
the country's bulging trade surplus, which is set to exceed
$160 billion, is likely near the top of their agenda after making
progress this year on taming investment growth and building
the foundations of a stronger domestic-currency market.
The
trade surplus, which has continued to widen in 2006, has strained
relations with the U.S. and other key trading partners, while
bumping up growth rates and pumping liquidity into China that
in turn increases domestic investment. China wants to boost
domestic demand to increase imports and close the trade gap
rather than allow its currency, the yuan, to rapidly appreciate.
Beijing fears a sharp rise in its currency could cost jobs in
the export sector. However, the government has made little progress
on developing concrete measures to boost imports, and data point
to a slowdown in imports in recent months. U.S. Treasury Secretary
Henry Paulson is scheduled to hold two days of meetings with
Chinese economic policy makers, led by Vice Premier Wu Yi, next
week in which China's trade surplus and the yuan's value are
likely to be key topics of discussion.
Wall
Street Journal
top
Currency
Marketing Opening (Traders on Edge Ahead of Market Open)
Currency
markets will open on edge on Monday after last week's sharp
decline in the dollar, with traders looking to new economic
data and the tone from the European Central Bank for fresh reasons
to trade on the dollar. The latest bout of dollar weakness has
occurred as currency markets have developed a growing belief
that the US economy is in worse shape than the Federal Reserve
claims. They have also been encouraged to buy the euro by the
lack of concern expressed so far by ECB officials about the
rise of the single currency. On a trade-weighted basis, the
dollar has declined nearly 4 per cent since the middle of October,
with more than half that fall being recorded since November
20. The ECB will this week be watched closely for clues about
future eurozone interest rates.
Financial
markets will scrutinise carefully the words of Jean-Claude Trichet,
ECB president, for signals on the pace of increases in 2007
and any signs of concern on the currency. Some analysts think
Mr Trichet may seek to create more room for manoeuvre on the
timing of future moves, increasing the risks for traders purchasing
euros. The most important release of economic data will be the
US employment report on Friday. The US labour market has held
up strongly despite declines in the housing market and in survey
data, and has helped to underpin officials belief that the US
economy is still set for a soft landing.
On
Friday Don Kohn, the Fed vice-chairman, repeated the Fed view
that while the inflation trend "seemed to be shifting"
and the Fed's base case was for a "gradual decrease"
in price pressures, "the risks around that expectation
are still tilted to the upside". Fed officials have long
been puzzled by the market's confidence that the next move in
rates will be down, that rates will be cut soon, and that this
rate cut will be the first in a series. Fed policymakers see
this as a plausible scenario, but are more minded than the market
to put weight on other possible scenarios.
Some
traders are sticking to the view that the Fed sets rates and
so should be listened to more closely. Marc Chandler, global
head of currency strategy at Brown Brothers Harriman, said the
currency markets were too fickle. "In the battle for control
of US monetary policy, we suggest betting on the Fed."
But many investors are showing a growing desire to ignore Fed
comments. Adrian Schmidt, senior forex strategist at Royal Bank
of Scotland, said: "Under normal circumstances, hawkish
comments from the Fed would have helped the dollar?.?.?.? Until
financial markets start to pay more attention to the idea the
Fed is unlikely to cut rates next year, the dollar is likely
to remain under pressure." There is no indication that
the most recent data have changed the Fed's basic sense that
the US economy is heading for a broadly soft landing.
Financial
Times
top
China
Overtakes Japan on R&D
China
has overtaken Japan to become the second biggest spender on
research and development behind the US, a report from the Organisation
for Economic Co-operation and Development revealed. The country
is expected to invest $136bn in research and development this
year after growing by more than 20 per cent in the past year,
ahead of the the $130bn from Japan but still well behind the
$330bn the US will invest, the OECD said.
The
report is the latest indication of the dramatic rise in research
spending in China, which is beginning to cause concerns among
western governments. Dirk Pilat, head of the OECD's science
and technology division, said the surge in Chinese research
was "stunning". He added: "Chinese investment
has been growing rapidly for some time, but it is still a surprise
that it has overtaken Japan so quickly." Mr Pilat said
that the bulk of the spending in China was on development work,
to alter products for the fast-growing Chinese market, rather
than basic scientific research.
The
number of patents coming from China that were registered with
the patent office in the US, Europe and Japan is still low and
a string of recent scandals over academic fraud have also raised
questions about how well the money is spent. But Mr Pilat added
that some multinationals were beginning to move genuine research
to China because of the high numbers of skilled scientists they
could recruit in Shanghai or Beijing. "There are some signs
that they are starting to do fundamental or breakthrough work
in China," he said. As well as increasing spending on university
science departments, the government has also been eager to attract
multinational companies to open research centres in the country.
Financial
Times
top
India's
Blossoming Economy
But
there are fears of tough times ahead
The
acceleration of economic growth in India recently has generated
upbeat assessments that Asia's other giant is finally becoming
as dynamic as China, but also warnings that the economy is overheating.
With GDP growth in the July-September quarter rising to 9.2%
year on year, the headline news is encouraging. But there are
crucial differences to the picture in China. Inflation has nearly
doubled over the past 12 months. Equity and housing markets
look overbought and the current account has moved sharply into
deficit. Besides interest-rate hikes by the Reserve Bank of
India (RBI, the central bank), little is being done by the government
to orchestrate a soft landing.
GDP
growth has been above 8% in six of the last seven quarters,
and in the first half of the current fiscal year (April-March)
it reached 9.1%, the fastest pace since economic liberalisation
was begun in 1991. The second-quarter growth figure is better
than the Economist Intelligence Unit had expected; consequently
we are going to revise our full-year growth forecast (which
currently stands at 8.4%) upwards. That said, the economy is
increasingly at risk to overheating, as a number of indicators
suggest. The stockmarket has spiked, with the benchmark Bombay
Sensex index rising more than 50% in the past year (and fourfold
in the past three years). Property prices have soared in a number
of cities. And-unlike in China, where inflation remains subdued-the
cost of living has been rising at a worrying rate. The rate
of headline inflation has nearly doubled in the past year as
strong consumer demand, itself buoyed by wage inflation, is
putting upward pressure on prices. The wholesale price index
showed inflation running at 5.3% in early November, only just
off the upper limit for the year specified by the RBI of 5.5%.
We expect this limit to be broken, with inflation averaging
5.6% this year.
The
RBI has acknowledged the risk of overheating and has been tightening
monetary policy steadily, raising its benchmark repo rate (the
rate at which the RBI adds funds to the banking system) 100
basis points in the past year, to 7.25%, and the reverse repo
rate (the rate at which the RBI drains money from the banking
system) 75 basis points to 6%. The RBI's next move will probably
be a 25-basis-point increase in the reverse repo rate, to 6.25%,
possibly before the central bank's next scheduled official policy
announcement on January 30th 2007.
It
is debateable whether this alone will be sufficient to ease
inflationary pressures, however. The economy is running near
or above capacity, and the RBI has noted that production must
rise at a pace sufficient to match overall GDP growth if further
inflationary pressures are to be avoided. Capacity is rising
swiftly-we expect industrial production growth to exceed GDP
growth this year and rise by 9.6%-but it is not certain that
this can meet soaring domestic demand.
This
highlights another difference from China, namely that in India
domestic demand, not exports, is driving growth, fuelled by
steady wage inflation. This (helped by a fair amount of trade
liberalisation) has led to a surge in imports, turning a current-account
surplus only three years ago into a substantial deficit in 2006,
a swing equivalent to about 4% of GDP. In October the trade
deficit hit a record US$6.2bn for the month, more than double
the US$2.9bn seen in the same month in 2005. This has exacerbated
imported inflation, as have high oil prices (although surging
portfolio and direct investment, and high levels of remittances,
have mitigated any downwards pressure on the rupee).
There
is a case to be made that concerns about overheating are themselves
overcooked. Much of the rise in inflation recently can be attributed
to short-term supply constraints, such as a shortage of key
foodstuffs thanks to an erratic summer monsoon. The government
has said as much, claiming that future harvests will ease inflationary
pressures (although a lack of investment in the agricultural
sector is a long-term problem; in the second quarter agricultural
output rose only by 1.7%, year on year, the slowest pace in
one and a half years). The soundness of India's banking system
means it does not share Chinese-style concerns about the future
viability of loans being extended to finance soaring investment
(and high credit growth has not had a direct impact on inflation).
However,
lured by the prospect of finally catching up with China's growth
performance, the government and the RBI are in danger of persisting
with an accommodative, growth-oriented strategy that could be
storing up problems for the future. Besides the RBI's rate hikes,
little is being done to orchestrate a soft landing. The government
has tried to ameliorate the rising cost of living by cutting
domestic fuel prices (on November 29th), but this has more to
do with the need to keep the electorate happy ahead of upcoming
elections in four key states than with addressing the underlying
causes of inflation.
Future
policy is likely to stay accommodative, although a variety of
measures-including steps to ease supply-side pressures, moral
suasion, or prudential regulations to tame specific sectors-could
be employed to lead the economy towards a soft landing. The
danger is that if the RBI decides to act more aggressively in
future it could trigger a sharp slowdown. Nonetheless, the government
is unlikely to do much to jeopardise what Palaniappan Chidambaram,
the finance minister, has called "a moment to savour"
in India's modern economic history.
The
Economist
top
Textile
Importers Have Important Opportunity to Comment on Vietnam AD
Monitoring Program
Dec.
27 is the deadline for importers of textile and apparel products
from Vietnam to file comments with the Department of Commerce
regarding its proposed monitoring program for such imports.
The Bush administration pledged to implement this monitoring
program, and to self-initiate antidumping cases against textiles
and apparel from Vietnam if the program reveals evidence that
those goods are being dumped in the U.S. market, as part of
its effort to secure congressional approval of permanent normal
trade relations status for Vietnam in connection with that country's
pending accession to the World Trade Organization. The monitoring
program will begin when Vietnam officially joins the WTO, which
is expected to take place in late December.
The
DOC has now published on its Web site a notice that represents
a very important opportunity for companies importing from Vietnam
to help shape the way in which the DOC will implement its textile
and apparel monitoring program and evaluate information to determine
whether to self-initiate AD cases. This notice, which will also
be published in the Dec. 4 Federal Register, seeks comments
on a variety of issues concerning the program, including how
the DOC should establish a consultative process, what products
should be monitored, production templates, information on the
domestic industry, program evaluations and public dissemination
of information. The notice does not contain any final decisions
on how this program will be implemented.
The
DOC plans to hold hearings in Washington, D.C., before making
a final decision on the content of the monitoring program. Field
hearings may be held as well.
For
further information, please contact Tom Vakerics or Jennifer
Mulveny in our Washington, D.C., office at (202) 216-9307.
Sandler,
Travis & Rosenberg, P.A., is a customs and international
trade law firm concentrating in assisting clients with the global
movement of goods, ideas and personnel. Our affiliated consulting
company, Sandler & Travis Trade Advisory Services Inc.,
is a leading provider of trade-related management and consulting
services to government and industry. Together, ST&R and
STTAS have offices in North America, South America and Asia.
World
Trade\Interactive
top
Business
Groups Express Opposition to China Export Control Rule
Twenty-four
prominent business associations, including the National Foreign
Trade Council, the U.S.-China Business Council and the Business
Software Alliance, have called on the Department of Commerce
to withdraw and reconsider moving ahead with a proposed export
control regulation for China. In a letter sent to the Bureau
of Industry and Security Nov. 30, the business groups raised
concerns about the proposed rule, stating that it is unilateral
and out of step with diplomatic efforts, imposes excessive compliance
burdens on U.S. businesses and does not advance national security
interests.
"The
key problem with the proposed regulation is that it undercuts
the United States' efforts, both long-term and those stated
recently, to ensure that China is a 'responsible stakeholder'
in the global community," said NFTC President Bill Reinsch.
"The reality is that we can't have a U.S. policy where
we both seek to engage China on a broad number of issues ranging
from diplomacy to the value of currency to trade, and at the
same time impose unilateral, broad-based regulations on U.S.
exports to China."
The
letter references a number of key concerns about the proposed
regulation, including the list of items defined as subject to
the military end-use license requirement. The groups argue that
this list and the rule itself are ineffective strategies if
the end goal is to deny the Chinese military access to these
items, as many of them are already produced in China or widely
available in the international marketplace and the U.S. controls
are not being implemented in coordination with allied countries.
Also
at issue are concerns about the cumbersome compliance burdens
for U.S. businesses that would result from the rule's implementation.
"It remains unclear what benefits and positive outcomes
are intended to result from this regulation. What is clear,
however, are the costs to U.S. businesses," said Robert
Holleyman, president and CEO of the Business Software Alliance.
"If implemented as drafted, the rule would impose increased
liability risks as well as stifling financial costs on American
companies seeking to comply."
The
letter states that the regulation's application to re-exports
would require U.S. firms to obtain information from their customers
about their intentions for purchased goods downstream. The regulation
would also impose additional certification burdens on the Chinese
government. The business groups estimate that these kinds of
compliance requirements and other provisions included in the
rule could result in an adverse effect on the U.S. economy of
more than $100 million annually.
Another
major concern is a requirement that exporters obtain an end-user
certificate issued by China's Ministry of Commerce for all items
that both require a license for export to China for any reason
and exceed a total value of $5,000. "Requiring China to
issue end-user certificates of Chinese customers for any licensed
sale over $5,000 goes far beyond anything being required by
our allies. We need to protect our legitimate security concerns,
but not unnecessarily undermine our competitiveness," said
John Frisbie, president of the U.S.-China Business Council.
The
closing date for comments on the proposed rule is Dec. 4. The
BIS has said that after reviewing industry comments it hopes
to publish either a final rule or a new proposed rule in early
2007.
World
Trade\Interactive
top
Business
Urges Passage of Trade and Tax Extenders Bill in Lame Duck Session
With
Congress making a final push to end its legislative session
during the week of Dec. 4, business groups are urging House
and Senate leadership to approve this year a tax and trade package
that would enact, renew or extend a number of important trade
preference programs. In a Dec. 1 letter, the American Apparel
and Footwear Association, the Business Roundtable, the U.S.
Chamber of Commerce and others said Congress should (1) renew
the Generalized System of Preferences, (2) renew the Andean
Trade Preference Act, (3) extend the third-country fabric provision
under the African Growth and Opportunity Act, (4) extend certain
new trade preferences to Haiti, (5) enact the miscellaneous
tariff bill, and (6) grant permanent normal trade relations
status to Vietnam.
Various
reports differ on the chances for the passage of trade legislation
next week. Although it is widely expected that some sort of
trade and tax extenders bill will be considered, it remains
to be seen what exactly will be included in the bill. Vietnam
PNTR and trade preferences for Haiti are thought to be the most
contentious of the six issues. Textile groups have threatened
to derail the entire trade package if Haiti is included in the
bill. Regarding Vietnam, objections by Sens. Dianne Feinstein,
D-Calif., and Gordon Smith, R-Ore., to the administration's
commitment to monitor and possibly self-initiate antidumping
investigations against apparel imports from Vietnam once it
joins the WTO continue to be an obstacle.
World
Trade\Interactive
top
Democrats
Want Changes to Peru Trade Promotion Agreement
A
joint group of House Ways and Means and Senate Finance Committee
Democrats and other leaders sent a letter to U.S. Trade Representative
Susan Schwab Nov. 28 regarding the pending trade promotion agreement
with Peru. The Democrats' letter follows earlier communications
in which they outlined serious problems with Peru's labor laws
identified by the State Department and labor law experts. The
letter urges the administration to reconsider former Peruvian
President Toledo's offer to include in the TPA an enforceable
obligation to comply with basic International Labor Organization
standards. It also asserts that placing the language in the
agreement would ensure broad, bipartisan support for implementing
legislation in the House and Senate.
World
Trade\Interactive
top
U.S.
and Lebanon Sign Trade and Investment Framework Agreement
Assistant
USTR for Europe and the Middle East Shaun Donnelly and Lebanese
Minister of Economy and Trade Sami Haddad signed Nov. 30 a Trade
and Investment Framework Agreement to provide a forum for expanding
and strengthening trade and investment relations between the
two countries. Specifically, the TIFA creates a joint council
that will consider a wide range of commercial issues and sets
out basic principles underlying the bilateral trade and investment
relationship.
Donnelly
noted that the TIFA with Lebanon "demonstrates the continued
progress being made under the President's Middle East Free Trade
Area Initiative." This initiative seeks to promote free
trade throughout the region and between it and the United States.
According to the USTR, the U.S. will take a graduated, step-by-step
approach to creating a free trade area with countries interested
and willing to open their economies and liberalize their trade
regimes. Since President Bush announced the MEFTA in May 2003,
the U.S. has completed FTAs with Bahrain, Morocco and Oman;
initiated FTA talks with the United Arab Emirates; and assisted
in the accession of Saudi Arabia to the WTO. The U.S. also has
TIFAs with Algeria, Egypt, Kuwait, Qatar, Saudi Arabia, Tunisia,
the UAE and Yemen.
According
to a USTR press release, U.S. goods exports to Lebanon in 2005
were valued at $466 million and included machinery, vehicles
and electrical machinery. U.S. exports of agricultural products
to Lebanon were valued at $63 million, including course grains
and tree nuts. U.S. goods imports from Lebanon in 2005 were
valued at $92 million, including precious stones, furniture
and bedding, and inorganic chemicals. U.S. imports of agricultural
products from Lebanon in 2005 were valued at $17 million.
World
Trade\Interactive
top
China
and Pakistan Sign Free Trade Agreement
China
and Pakistan signed a free trade agreement Nov. 24 and will
begin eliminating or reducing tariffs on products in two phases
starting July 1, 2007. In addition to liberalizing trade in
goods, the agreement covers investment and includes chapters
on rules of origin, technical barriers to trade and sanitary
and phytosanitary measures. The two countries plan to launch
negotiations on trade in services shortly. During phase one,
or within five years of the agreement's entry into force, both
sides have pledged to reduce or eliminate tariffs on 85 percent
of tariff lines. Tariffs on 36 percent of products will be eliminated
within three years. Phase two will start from the sixth year.
The two countries will further reduce tariffs on products following
a review of the implementation of the agreement. The aim is
to eliminate duties on no less than 90 percent of products,
both in terms of tariff lines and trade volume.
World
Trade\Interactive
top
Security
on Steroids: How Do You Balance Shipment Speed with A Secure
Supply Chain?
Cooperation
is imperative among participants along the global supply chain
as security risks continue evolving. Start discussing how realistically
to secure the U.S. global supply chain and you are quickly confronted
with the magnitude of the components involved and the extraordinary
number of participants along the route. On the one hand, global
supply chain experts stress the need for worldwide security
standards regarding technology, equipment and best practices;
on the other hand, developing such standards (to say nothing
about actually implementing them) requires an unprecedented
amount of cooperation among the world's different governments
and corporations.
The
experts we interviewed, highly astute participants with real-world
expertise, well appreciate this dilemma. Their key message:
in the near-term don't obsess about perfection and zero-tolerance;
do what you can and keep improving. "Focus on what your
real vulnerabilities are and have in place a safety-and-preparedness
plan for all hazards," suggests James G. Liddy, CEO of
Liddy International (Alexandria, Virgina), an all-hazard mitigation
firm. "When you enhance your safety procedures and integrate
them into your security you create efficiencies," he adds.
"With this approach, you don't have to invest a lot of
money. This approach to security is what I refer to as safety
on steroids."
A
delicate balance
"Focus
on real vulnerabilities and have in place a safety-and-preparedness
plan. Response and recovery is as important as deterrent defense."
-James Liddy
If
experts agree that searching every piece of cargo is unrealistic
and that excessive focus on security can slow the cogs of global
commerce, what should be done? "The alternative is embodied
in the World Customs Organization (169 countries including the
U.S. accounting for 99 percent of global trade) standards (out
last year), which state security begins at the origin of the
global supply chain and ends at the point of destination,"
says James Giermanski, PhD, director of the Center for Global
Commerce at Belmont Abbey College, Charlotte, North Carolina.
"Comprehensive end-to-end supply chain security like this
automatically takes care of port security."
Mike
Mitre, director of port security for the International Longshore
and Warehouse Union-a division of the AFL-CIO-headquartered
in San Francisco, wishes things were that easy. He and his colleagues
remain anxious; concerned that port security is just not happening.
"Of course no one wants to slow down the supply chain-but
we can't sacrifice security for commercial concerns either."
Mitre
is a player in Washington, a frequently consulted authority
on Capitol Hill where he has the ear of many in Congress. He
understands the problem he confronts. "Congress is heavily
lobbied by large terminal operators and shippers who say anything
that slows commerce or cargo delivery is not acceptable,"
he notes. One possible source of the problem: some 80 percent
of U.S. terminals are owned and operated by foreign entities,
primarily shipping lines. Within the 15 major U.S. ports, only
eight of approximately 100 terminals are operated by U.S. companies.
RILA-Retail
Industry Leaders Association-lobbies on security policy with
the goal of ensuring the efficient flow of commerce. As the
largest group of users in the maritime supply chain, its members
have a foot on either side of the fence as they monitor security
and speed. "Our members invested millions of dollars into
supply chain security," notes Paul Kelly, senior vice president
of government affairs for the Arlington, Virgina-based organization
whose members include large retailers.
Home
Depot is an example. The company is the third-largest importer
of containerized volume into the U.S., with about 160,000 40-foot
equivalent units annually and revenues of over $80 billion (2005).
According to Benjamin Cook, senior manager for global trade
service for the Atlanta-headquartered corporation, the company
struggles with the question of how to balance commercial velocity
with secure ports and global supply chains.
Follow
your nodes
Compounding
the inherent difficulty in multi-national collaboration is the
enormity of the chain itself. Security is dependent upon trustworthiness
beginning at the factory where goods are loaded, to the drayage
companies carrying goods to ports, to ports and customs workers,
to ocean carriers, to destination ports and customs workers,
to destination drayage companies, to D/C and warehouse workers,
to the final drayage companies. Experts call each of these interconnecting
points critical nodes.
Securing
those critical nodes, or at least enhancing their resiliency,
can often seem overwhelming. The cascading effects caused by
a catastrophic event, however, serve to stimulate the search
for solutions. "Response and recovery is as important as
your deterrent defense," Liddy emphasizes. In working with
clients he engineers events as would a terrorist to suggest
necessary precautions. "I could exploit critical operational
nodes to embarrass a corporation or destroy it," Liddy
explains. "Or I could create a liability issue and cause
enormous public embarrassment."
"Drop
me in the middle of any country, show me a factory and in many
cases I can tell you in as little as 30 minutes on the site
what and where its vulnerabilities are. Then we can take the
probability of a threat, convolve it with the vulnerability
and provide solutions as to how the factory can protect itself.
It is a reverse-engineering approach using my expertise in systems
analysis and targeting," he explains. "The point is,
if you create layers in your safety and security plans and procedures,
you can stop someone like me-and therefore you can stop just
about anybody."
The
reflex response among most of those charged with security operations
is to turn to new technology and equipment for protection. While
not a mistake in itself, excessive reliance on hardware can
have negative consequences. "You don't want to enclave
an entire corporation against WMDs," cautions Liddy. He
suggests first determining what, statistically, are the most
likely threats and then determine where the vulnerable areas
are in order to mitigate them. "We do what's called 'critical
nodes mapping' to discover where those single points of failure
are that can initiate cascading effects." They could be
as innocuous-seeming as the computer program a company uses,
or contract guards. "You take a threat versus a vulnerability
and determine how to respond, based on the critical operational
functions. If it's a huge vulnerability or has the potential
for cascading, then you plug those gaps to create a deterrent."
Home
Depot follows this approach with risk-modeling techniques it
developed. "We look at 35 global risk elements and one
of those is threat of terrorism," Cook says. "We use
that technique to help us roll out a strategy that is most appropriate
to the country we are sourcing from. When it's from a high-risk
country, I step up my security procedures. There really are
not a whole lot of high-risk countries."
Joint
ventures
Cooperation and understanding among all participants, including
governments, is requisite to firm up the security landscape.
But at present, warns Liddy, "Not enough is happening.
We're in a new era where people are beginning to understand
what the threats are and that they continue to evolve."
That's the first step, recognition. It's the second that is
lagging according to Liddy. "There needs to be a new approach
to prevent those cascading effects."
RILA
members, on the other hand, tend to endorse the current risk-assessment-based,
multi-layered approach in place, through which the U.S. government
assesses cargo information before containers are loaded onto
ships heading to our shores. "This approach has worked,
but it can be strengthened," says RILA's Paul Kelly. "We
support policies like the SAFE (Security and Accountability
for Every) Ports Act that improves this approach. It would also
strengthen C-TPAT, in which our members participate."
They
resist across-the-board mandated standards. Each RILA member
experiments with technologies and security measures that work
best for them, Kelly points out. "This is why we continue
to work with Congress to educate them on why a one-size-fits-all
approach is not the best approach." RILA
continues to urge Congress against rushing into mandating any
of the various 'technological silver bullets' out there. He
cites the example of ISIS (Image and Scanner Interface Specification)
scanning technology used in Hong Kong, which does radiation
and density scans. "That process adds six or seven minutes
to the movement of each container, according to testimony given
in Congress this year," Kelly says.
With
11 million to 12 million containers entering the country each
year, lawmakers need to think about the implications this will
have on the movement of goods and of the overall economy, cautions
Kelly. Compounding this problem is the absence of a plan to
handle or review such gathered information. "Mandates don't
produce any greater security than the current risk-based approach,
which pulls and inspects any container that doesn't appear to
have enough information," Kelly adds.
Ideally,
the combined efforts of private and public sectors each working
in their own domains would dovetail to provide a layered approach
to global trade security. "Let the policy makers do the
policy, but they shouldn't run the operational ground-level
operations, because that just never works," says Liddy.
It's
the various layers of security that provide strength, continues
Liddy. These layers include physical security; intelligence
and communications; an understanding of how to follow the money
and financial transfers; and data storage.
The
southern U.S.-Mexico border offers a prime example of the need
for such expanded public-private and inter-governmental partnerships.
Mexico continues to present security challenges in over-the-road
freight into the U.S. For instance, a container might be opened
as many as 10 times along multiple checkpoints, not always being
properly resealed according to Cook. "Often, the Mexican
military will not sign off on the paperwork to validate they've
opened the container," he says. "This underscores
how much we need global standards so foreign governments abide
by the rules."
On
the waterfront
Serious
students of global supply chain security advocate multiple 'eyes
and ears' along the way to detect anomalies-kind of a lean manufacturing
approach to security in which everyone in a corporation is charged
with identifying potential problems before they become serious
problems. "Anomalies are something we were always on the
lookout for in my old business," explains Liddy.
Ironically,
it can be technological 'innovations' themselves that get in
the way of this collective approach. "In the past when
we saw a padlock instead of a seal on a container, we called
Customs and opened it with them," explains Mitre. "The
things we used to do were just a way of doing business every
day, and those things we did automatically took care of security.
Now, every can is an anonymous steel box." A
staunch advocate of established security practices which have
evolved over time, Mitre is wary of the flood of new, untested
solutions washing upon the landscape. "You will always
need technology and a small percentage is valid," he states.
"However, some of the best practices we created over the
years have been abandoned. Yet they are logical, they work and
they are cheap approaches to port security."
Such
best practices include something as seemingly routine as having
a receiving clerk on the ground checking to assure seals have
not been tampered with; or that every seal is numbered and matches
with manifest documentation. About 20 different seals are used
internationally, says Mitre, and often the destination port
does not know what kind was put on at the port of origin. If
particular seals were used by particular ports, it would expedite
incoming cargo at U.S. ports. "But people refuse to do
this," he says.
As
for technology, Mitre has a hands-on perspective through thirty
years' experience. "I have a problem with security loopholes
they create that were never there in the first place,"
he states. He cites a case involving the shipment of a container
of 95 bottles of camping propane and a small car (with an empty
fuel tank) with a leaking battery. "There used to be a
marine clerk at the gate who inspected the manifest and would
placard such a container with a 'hazardous' sign," he explains.
"With automated systems now, all you have is a guy in a
remote location watching a screen with what I call a 'dumbed-down'
version of information. My point is the new technical gating
systems inadvertently exclude some of the best-practices security
measures we had adopted over years and years of experience."
Empty
containers pose another security concern. They return to the
terminals with no seal to indicate they are empty and they are
not opened to verify they are empty. "Someone could easily
load an empty container with anything and know that it will
be put onto a ship without being inspected. That is not acceptable
to me," Mitre says.
It's
not the silver bullet…nevertheless
"Many
people out there think security is as easy as putting a piece
of technology on a container," cautions Home Depot's Cook.
But in light of the fact that the average international transaction
involves 25 parties and 30 documents, the intent of the technology
must be clarified at the outset. "The big question concerning
technology is: 'What is the end goal?' Is it to determine if
something is inside the container-or is it to determine whether
the door of the container has been opened? That makes a difference."
And
door devices, even when installed, don't alert you if a hole
is welded in one of the sides (a common technique with garden-variety
thieves). "So technology still has a way to go," says
Cook. "The best thing companies can do is to visit their
factories and talk about C-TPAT and encourage their suppliers
to comply using contractual measures as incentives. It makes
a huge difference when you are actually on the ground asking
