Topic Category: World

The financial crisis that crippled much of Asia in 1997 destabilized financial markets in both developed and developing countries. As a result, Latin American growth, measured in real gross domestic product (GDP), fell from 5.4% in 1997 to 2.3% in 1998. The region’s difficulties were compounded by natural disasters that struck with unprecedented strength. However, given Latin America’s macroeconomic stability and commitment to free market policies, economic projections for the year 2000 are favorable — generating new opportunity for U.S. exporters and investors.

Topic: World
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The founding countries of the Mercado Comun del Cono Sur (MERCOSUR) — Argentina, Brazil, Paraguay, and Uruguay — have suffered from the economic slowdown in Latin America that began last year.

Nevertheless, U.S. exports to the trade bloc have increased 245%, from $6.5 billion in 1990 to $22.5 billion in 1998. And as we enter the new millennium, Mercosur imports are expected to continue to rise.

A History of Economic Liberalization

Formed in 1991, Mercosur was designed to stimulate members’ economies. To achieve this, the trade bloc proceeded to emulate the Chilean growth model, which was based on unilateral tariff reductions, privatization of publicly owned industries and services, and openness to foreign investment.

On January 1, 1995, Mercosur established a customs union, introducing a system of common external tariffs. As members opened their markets to greater competition and reduced inflation, production levels and demand for imports, especially capital goods, rose. By 1996, imports from member countries increased by 314%, compared with 185% from non-member countries.

Strained Internal Relations

Primarily because of Asian economic problems, recent economic growth in Brazil and Argentina decreased from 1997 levels. And the surprise 30% devaluation of Brazil’s real and abandonment of the fixed exchange rate in January 1999 boosted its exports. This, combined with poor regional growth, strained Brazil’s relations with the other Mercosur countries, especially Argentina.

During periods of economic decline, countries sometimes erect trade barriers to protect their industries from imports. Brazil and Argentina took that step. Consequently, trade between the two Mercosur members dropped 20% during the first six months of 1999.

Enter the European Union

During this time of fragile recovery, the leaders of the 15-nation European Union (EU) and Mercosur met in August to discuss a possible free-trade agreement. A significant impediment, however, is the highly subsidized EU farm sector, which effectively limits South American agricultural exports to the EU.

Nevertheless, EU-Mercosur negotiations may prompt the U.S. to renew talks to create a Free Trade Area of the Americas, creating a hemispheric free trade zone. Thus, a budding relationship between the EU and Mercosur sends a clear message that Europe could pose real competition for the U.S. in South America.

Franchising in Brazil

Brazil’s economy, the largest in South America, is rapidly expanding its presence in world markets. And franchising is becoming big business. With strong annual sales, the Brazilian franchise industry reached about $11.5 billion in 1997. Currently, two-thirds of the foreign franchises (66 companies) are headquartered in the United States.

The best franchising prospects include training courses, construction, and personal fitness. Other major non-franchise imports include crude oil, capital goods, chemical products, foodstuffs, and coal.

Argentine Privatization under Way

Argentina recently completed one of the world’s most ambitious airport privatization programs. And between 1999 and 2004, investment in airport infrastructure is expected to exceed $1.7 billion. Consequently, airport ground support equipment is anticipated to become a prime U.S. export to Argentina over the next decade. Other major projected imports from the U.S. include vehicles and parts, chemicals, telecommunications equipment, and plastics.

Calling Paraguay

Paraguay’s economy is largely service oriented. The need for improved communications has resulted in a significant demand for telephone and computer equipment. And the need for better transportation has brought about investment in road construction.

The country also has a large underground market, which involves thousands of micro-enterprises and urban street vendors, as well as the re-export of imported consumer goods and office equipment to Brazil and Argentina.

Geriatric Equipment for Uruguay

Uruguay’s proportionally large elderly population should be an attractive market for geriatric equipment and services in the near future.

Other favorable prospects for U.S. exporters include chemicals, manufactured goods, machinery, transport equipment, food processing equipment, and computer hardware and software.

Positive Economic Growth Ahead

With a population of more than 200 million people, a growing middle class, and positive economic growth predicted in 2000, trade among members of Mercosur and with the United States is anticipated to increase, offering U.S. exporters greater opportunities.

This article appeared in October 1999. (BA)
Topic: World
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China offers U.S. companies an expanding export market for high value-added goods, such as aircraft and computers. In turn, China typically provides U.S. importers with inexpensive, lower technology goods that often displace other Asian exports to the United States.

As bilateral trade expands, the annual review process of whether or not to grant China Normal Trade Relations (NTR), formerly called Most Favored Nation (MFN) trade status, has made planning difficult for U.S. companies. And whether or not China is admitted into the World Trade Organization (WTO) could significantly impact your business.

The Impact of Normal Trade Relations

On July 27, Congress, again, voted to extend NTR to China. When a country has this status, its products enter the United States at a normal duty rate. Without NTR, goods are assessed duty rates exceeding 50%, making them noncompetitive here.

Under the U.S.’ Jackson-Vanik amendment to the Trade Act of 1974, a measure originally directed against the former Soviet Union, NTR may not be granted to any non-market economy determined by the President to restrict free emigration. Today, the U.S. does not grant NTR to Afghanistan, Cuba, Laos, North Korea, Serbia/Montenegro, and Vietnam.

The Annual NTR Debate

The denial of NTR for China would result in the U.S. imposing such high tariffs on Chinese goods that trade likely would be severed. In retaliation, China would probably curtail imports of U.S. goods.

Trade analysts believe this would not curb the U.S. trade deficit. Instead, the import gap quickly would be filled by other Asian suppliers. Additionally, denying China NTR could lead to deteriorated U.S.-Chinese relations, fostering an environment of alienation and suspicion. Any future U.S.-Chinese cooperation on sensitive issues, such as human rights, environmental and intellectual property protection, nuclear proliferation, China’s currency stability, and India-Pakistan tensions, would be unlikely.

What China’s WTO Membership May Mean

If China is admitted to the WTO, it will receive permanent NTR status from the U.S. Consequently, the annual review process will cease. But the real benefits of China’s WTO membership include greatly improved access to Chinese markets for U.S. and other WTO member goods, services and investment. Plus, China must also adhere to WTO rules.

China Will Reduce Trade Barriers

With regard to industrial products, if accepted into the WTO, China agrees to allow U.S. firms to import, export and distribute their goods within its borders. China also agrees to significantly reduce tariff levels to rates comparable with major trading partners and to below those of most developing countries, to bind all tariff concessions, and to phase-out all quantitative restrictions on imports.

According to the U.S. Trade Representative, China will reduce average industrial product tariffs from 24.6% in 1997 to 9.44%, and further down to 7.1% on what the U.S. considers “priority” products. Importantly, Chinese duties will gradually decline from 100% to 0% on autos, and from 13.3% to 0% on semiconductors, computers, telecommunications equipment, and other information technology.

China’s agricultural imports will be subject to new measures that address trading rights, distribution, high tariffs, quotas, the application of unscientific standards, reliance on state trading companies, and export subsidies.

China will reduce its average agricultural product tariff to 17%, and down to 14.5% for “priority” products. Thus, duties will drop from 45% to 12% on beef, and from 40% to 12% on citrus goods.

China is among the most closed markets to service imports. For WTO membership, China has agreed to improve access to certain service sectors, including telecommunications and financial services.

U.S. Exports to China Continue to Rise

In 1990, U.S. exports to the People’s Republic of China and Hong Kong were $11.6 billion. Last year, U.S. exports to China, which included Hong Kong, exceeded $27 billion. This represented an increase of 134%.

This emerging powerhouse of almost 1.3 billion consumers is one of the world’s largest economies, and represents one of the United States’ fastest growing export markets. As China’s economy continues to expand, U.S. exporters will benefit — and to an even greater extent if China is admitted to the WTO.

Be Informed and Prepared

U.S.-China policy is delicate. Therefore, as events unwind, your access to China’s market may improve, remain the same, or possibly decrease should unforeseen events occur. Consequently, it’s essential to have a flexible plan that allows you to seize opportunities and mitigate risks.

This article appeared in October 1999. (BA)
Topic: World
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With more than $50 billion in trade with the United States, Taiwan is both America’s seventh-largest trading partner and seventh-largest foreign market. The small island nation buys half as much from the United States as all of Latin America, less Mexico. Its annual U.S. purchases are twice as much as all of Africa, five to seven times those of Russia or India, almost double China’s, and more than France, Korea, or Italy.

From 1996 to 1997, Taiwan’s gross domestic product (GDP) grew 6.8%, and 4.6% in 1998. It is projected to increase 5.3% in 1999, and forecast to grow 5.6% in 2000. The island’s 21 million people have an average income of $12,500.

Asian Flu Had Little Effect

U.S. exports to Taiwan – and via Taiwan to China and Southeast Asia – are growing. Taiwan is among the largest investors in China and most countries in Southeast Asia. The Asian financial crisis little affected the country’s economy, and Taiwan is now assisting other countries in that region to recover.

Taiwan’s Imports Are Vast

With few natural resources, Taiwan imports nearly all of its energy needs and agricultural goods (it is the fifth-largest importer of U.S. agricultural products), and most of its raw materials used by its industrial and manufacturing sectors. Its government is pro-business and strongly encourages foreign investment and technology. The country’s workforce is well educated, and the island’s proximity to mainland China offers unusual opportunity.

The top U.S. exports to Taiwan include machinery, transportation equipment, chemicals and related products, food and live animals, and crude materials, except fuels. Through September 1999, Taiwan had imported U.S. goods and services worth $13.7 billion and had exports to the U.S. of $25.8 billion.

Daley Asks Taiwan to Increase U.S. Imports

U. S. Commerce Secretary William M. Daley spoke before the 23rd Republic of China (Taiwan) and U.S. annual Joint Business Conference in San Antonio, Texas, in November. He said that trade relations with Taiwan haven taken off, and “we are looking forward to Taiwan’s entry into the World Trade Organization.

“We take in about one-fourth of all the goods Taiwan exports,” Daley added, “and we need Taiwan to take in more of our goods. That includes high-tech areas, such as biotech, and services, like banking and finance. I know many American companies also have their eye on the $150 billion in infrastructure projects anticipated over the next decade.”

Commenting on the earthquake that struck Taiwan in September, he congratulated the business community on how quickly its semi-conductor factories were back on line.

According to Taiwanese government figures, losses caused by the earthquake reached $4.1 billion. Stated earlier, authorities predict the island’s 1999 GDP growth to reach 5.3%. This is below their stronger forecasts of 5.7% and 5.5% announced in August and September, respectively, after a more accurate assessment of the earthquake damage had been concluded.

Competition Is Fierce, but Rewards Are High

The competition in the Taiwanese market is fierce. Japanese firms are well entrenched and European companies are moving rapidly to capture market share. Nonetheless, Taiwanese consumers typically have strong feelings of goodwill toward the U.S. and tend to favor American goods and services. As a result, U.S. firms with quality products and services at competitive prices have found and will continue to find Taiwan a rewarding market.

This article appeared in October 1999. (CB)
Topic: World
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On July 27, 1999, the U.S. House of Representatives voted to extend Normal Trade Relations (NTR) status to China for another year. This signaled good will to China.

But, next on the agenda are two more issues that could further improve or harm U.S.-China relations. These include: granting China permanent NTR status, and allowing it to join the World Trade Organization (WTO). Both issues could have a major impact on the United States and your business.

Permanent NTR Status

By granting China NTR (formerly known as Most Favored Nation trade status), Chinese products will enter the U.S. at the same normal duty rates offered to most other trade partners, except for Afghanistan, Cuba, Laos, North Korea, Serbia/Montenegro, and Vietnam. In turn, U.S. products will continue to be allowed access to the Chinese market.

However, Congress soon will decide whether or not to grant China permanent NTR status. If approved, this will eliminate the current annual vote for NTR which has made planning difficult for U.S. companies.

China and the WTO

In order to be admitted to the WTO, China must agree to abide by a broad set of WTO rules. As of July, the office of the U.S. Trade Representative (USTR) indicated that China agreed to reduce its average tariff from 35% to 10%. In addition, the USTR said China appears to be willing to improve transparency, eliminate discriminatory taxes and regulations, and abolish export subsidies, as well as phase out protectionist quotas and import substitution requirements.

According to the USTR, China also agreed to eliminate unscientific food safety barriers, plus adopt judicial review procedures for administrative decisions. If accepted into the WTO, China will be subject to trade sanctions under the WTO’s dispute settlement procedures if these commitments are not carried out.

Chinese Agricultural Markets to Open

China’s commitments regarding agricultural market access address trading rights, distribution, high tariffs, quotas, the application of unscientific standards, reliance on state trading companies, and export subsidies.

As a result, China will move toward a system based almost entirely on tariffs. And on most bulk commodities, tariffs will fall to 1%-3%, reducing China’s duties to levels below most American trading partners.

Industrial Product Commitments

Under the WTO, China has agreed to allow U.S. firms to import, export and distribute industrial products within its borders. Additionally, China will reduce tariffs on industrial products to levels comparable with major U.S. trading partners and below those of most developing countries. And, China will bind all tariff concessions and phase out all quantitative restrictions on imports.

Chinese tariffs on high technology products, including semiconductors, computers and equipment, telecommunications equipment, and other information technology, will drop from present levels averaging 13.3% to 0% over a period of several years.

Tariffs on U.S. automobiles will decrease from 80% and 100% to 25% in 2005. Auto parts tariffs will fall to an average of 10%. Furthermore, China’s commitments in the chemical sectors will result in duty reductions to levels similar to other WTO members.

Service Sector Commitments

Chinese commitments on services are comparable to those of most WTO members. Nevertheless, according to the USTR, further negotiations are required. Services included in the agreement cover distribution, telecommunications, insurance, banking, securities, professional services, audiovisual, and travel and tourism.

In China today, foreign firms have no rights to distribute products other than those made in China, or to own or manage distribution networks. China also frequently issues business licenses which limit the ability of American firms to conduct marketing, after-sales service, maintenance and repair, and transportation. China’s commitment significantly liberalizes these restrictions.

Telecommunications and Banking Services

China severely restricts sales of telecommunications services and bars foreign investment. Under the WTO agreement, China will, to a large extent, lift these restrictions. In the insurance sector, China limits foreign participation to Shanghai and Guangzhou. This, too, will be lifted.

In the banking sector, China imposes severe geographical restrictions. For example, only nine foreign banks can conduct business in local currency and are limited to the Shanghai Pudong area. WTO negotiations seek full rights for foreign banks to handle both local and foreign currency business transactions, to serve Chinese as well as foreign customers, and to liberalize investment.

However, as of this writing, no WTO agreement has been signed. And with additional negotiations ahead, China’s commitments to reduce its trade barriers may change.

Importance of U.S.-China Trade

The United States, which accounts for only 4 percent of the world’s population, needs to sell to the other 96 percent. Passing permanent NTR legislation and admitting China to the WTO will help to achieve this. And since the United States is already a WTO member, with a few exceptions, China must make all the concessions. This is good for U.S. exporters, importers and investors.

In 1998, U.S. exports to China, which now include Hong Kong, were $27 billion. If China is admitted to the WTO and anticipated trade concessions are implemented, U.S. exports likely will rise at a faster rate than in the past.

However, if the United States denies China permanent NTR status and prevents it from becoming a WTO member, this could lead to deteriorated U.S.-Chinese relations. In turn, trade relations could be weakened.

Follow U.S.-China Negotiations

In July 1999, China concluded favorable bilateral WTO negotiations with Japan and Australia. During the upcoming Asia-Pacific Economic Cooperation meeting in September, President Clinton and Chinese President Jiang Zemin are expected to meet. What will come of their meeting is speculative. As a result, it’s important to incorporate a great deal of flexibility in your China strategy.

This article appeared in July 1999. (CB)
Topic: World
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Many analysts believe the current events shaping Asia are the most significant developments in the world today. John Naisbitt, a leading trend forecaster and author of Megatrends Asia, wholeheartedly agrees.

As we move toward the year 2000, “Asia will become the dominant region of the world: economically, politically and culturally,” he writes. This trend presents exciting and profitable opportunities for you.

Topic: World
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The Brazilian economy entered the 1990s with declining growth, runaway inflation, and an unserviceable debt of $122 billion. As the largest Latin American economy with 162 million consumers, it had one of the most highly regulated economies in the world.

In 1990, Brazil’s first democratically elected government in nearly three decades initiated broad reforms designed to open the economy, curb inflation and attract investment. Additional measures promoting economic stability and the establishment of a new currency, the “Real,” in July 1994 were successful.

President Fernando Henrique Cardoso (former Finance Minister) took office on January 1, 1995. His reforms continue to build on previous ones.

Topic: World
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The world is quickly becoming economically integrated, forcing unprecedented changes at every level of industry. Foreign companies are becoming more competitive and gaining greater U.S. and global market share.

Whether you’re small or large, manufacture products or provide services, or even have interests limited to the domestic market, fast moving global developments will impact your business.

Topic: World
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The Caribbean offers a wide range of opportunities. The Dominican Republic, one of the region’s most flourishing performers, has experienced accelerated modernization and now boasts world-class resorts, industrial parks, and export-processing zones.

And with the recent election of President Leonel Fernandez, new policies embracing trade and investment are having a positive impact—creating new opportunities ... and risks.

Topic: World
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During the week of October 9, Mexican President Ernesto Zedillo Ponce de Leon met with several organizations in the United States. Following a meeting with U.S. business leaders, several key U.S. participants announced direct investment plans for approximately $12 billion in Mexico over the next five years. This is a sign of continued growing confidence in the Mexican economy.

The Mexican manufacturing sector has continually attracted the most foreign direct investment, 40.5%; followed by the service sector, 31%; transportation and telecommunications, 8.5%; and financial services, 8.5%.

Industries expected to receive the $12 billion include some of these sectors, such as manufacturing, financial services, and telecommunications. Other industries receiving this investment -- not considered major destinations in the past -- include energy, transportation and distribution of natural gas; environmental services; agriculture and food processing; and real estate. Some of these had been announced earlier.

The Mexican telecommunications sector has attracted the interests and capital of both large and small U.S. telecommunication service providers. Plans indicate that the Mexican sector will receive $3 billion over the next several years from well known companies such as AT&T and MCI.

An investment of almost $1 billion is anticipated to launch a joint venture between AT&T and the Mexican company, Grupo Alfa, to provide long distance services to Mexican customers. AT&T also confirmed a $40 million investment in cellular telephone manufacturing at the company's Guadalajara plant.

Avantel, a new communications services company forged by MCI and the Mexican bank, Banamex, is to receive an investment of $1.3 billion from MCI. Additionally, a group of smaller U.S. companies, including Nextel, LCC, Associated Communications, and the Carlyle Group, have teamed up with the Mexican firm Grupo Communications of San Luis Potosi. Together, they have invested over $110 million in Grupo Tricom of Mexico to provide wireless communications services in Mexico.

Other investments in the Mexican telecommunications sector include more than $325 million in digital wireless infrastructure by Tricom. GTE, in a three-way partnership with the Mexican bank, Bancomer, and Mexican firm of Grupo Visa, will invest a total of $320 million.

The Mexican energy sector and transportation and distribution of natural gasis expected to attract nearly $2 billion over the next five years. Amoco Corporation announced a $250 million investment with Mexico's Grupo Femsa. Dupont's Conoco division has established an office in Mexico and is expected to invest in the petrochemical sector as the regulatory and legal framework evolves. The firm also plans to continue with an additional $100 million in nylon over the next few years with its Mexican partner, Grupo Alfa.

In the manufacturing sector, General Electric announced the company is reinvesting about $100 million annually in its Mexican operations over the next four years. Eastman Kodak revealed additional investments in the company's CD media production facility at its Guadalajara plant and an already-completed water treatment recycling plant.

An investment of $75 million was announced by International Paper for the construction of a non-woven textile plant near Guanajuato, in addition to new projects in forestry and paperboard. In the apparel sector, Warnco, which currently has six facilities in Mexico, plans to invest over $10 million in the state of Puebla. And Guilford Mills, Inc. unveiled its strategy to establish a major apparel production facility with its partners, American Textile and Mexico's Grupo Alfa, in the state of Morelos.

Some U.S. companies plan to invest in several sectors. For example, a $1 billion infrastructure investment fund was announced by American International Group, a leading global insurance and financial services company, and General Electric. Areas to receive the capital include energy, telecom, transportation and environmental services. American International Group also announced the purchase of 51% of Seguros Interamericana for $35 million, and as a result will control a greater portion of its Mexican insurance and financial service interests.

Mexico's agribusiness industry has also been on the minds of U.S. investors. Pilgrim's Pride announced a $40 million poultry-breeding project in the states of Queretaro and Puebla. The U.S. giant, Philip Morris, announced an investment of $200 million in its Kraft Foods de Mexico plants. This is expected to double their production capacity.

Reichmann International Mexico plans to continue with three major real estate projects in Mexico. These projects represent a total investment of $1.1 billion. Additionally, Journey's End announced plans to build ten executive hotels there representing an investment of $35 million.

On October 11, President Zedillo met with President Clinton at the White House. Mr. Zedillo brought with him the first $700 million installment to begin repaying the United States with interest. This early repayment of a portion of the $12.5 billion that Mexico borrowed from the United States is yet another indication that the Mexican economy is bouncing back.

Stated by President Clinton, "Today's decision sends a positive signal to the financial markets that the tough financial measures Mexico has taken are succeeding and the American taxpayer is being paid ahead of schedule."

The latest figures indicate that Mexican inflation is expected to reach 45% - 50% this year and taper down to about 20% next year. Mexico's inflation for August was already down to 1.66% -- having continuously dropped from 8% in April. Its gross domestic product for this year is expected to fall by 4.5%, but rise to about 3% in 1996 -- indicating a short-lived crisis.

From January through July of this year, Mexico ran a $3.7 billion trade surplus with the rest of the world and a surplus with the United States. However, mid-year figures indicate that U.S. exports to Mexico are down by only 10% -- much less than had been projected.

As the situation in Mexico continues to stabilize and investor confidence grows, Mexican consumption will rise commensurably -- increasing the demand for U.S. exports. This is good news for U.S. companies.

This article appeared in The Exporter, December 1995.
Topic: World
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