Holding America Hostage – part 2 (as standoff continues, casualties rise)

It’s impossible to get somewhere taking one step forward and two steps back. Strike that, it’s impossible to get somewhere forward and constructive.  Yet, more and more it seems like that is what we are doing when on one hand our country is pushing National Export Initiative to double exports and help stimulate the economy yet on the other hand, certain interests in Washington are not only slowing down some key pieces of trade legislation, that would stimulate sales,  but through Washington’s inaction they are allowing foreign competition to usurp key markets and cripple the ability of American companies to compete long-term in those markets.

On May 29th in my post ” Holding America Hostage” I expressed outrage at the unwillingness and inability of our lawmakers to pass three critically important Free Trade Agreements, which would unlock tremendous economic benefits to our country’s producers and exporters.  Since that date, while very little took place in Washington, mostly more hostage holding over a relatively minor retraining TAA amendment renewal.  While there has been some small positive steps (the USTR.gov post below describes some very anemic movement of the trade legislature through Congress) nothing constructive has happened since 2006!!!! when one of the Trade Agreements in question has been negotiated.  Meanwhile, in the last 30 days both the European Union ratified the Free Trade Agreements and their firms have been swiftly moving into the markets leaving American companies saddled with high tariffs and rapidly losing sales, market share and weakening their competitive positions.

It boggles my mind that at a time when our country faces massive economic issues such as a real estate crisis, record federal and state budget deficits, high unemployment, skyrocketing healthcare and education costs to name just a few, our lawmakers manage to squash even those initiatives, which can deliver immediate, clear, measurable and highly tangible benefits to the U.S. economy.  The article below provides a very good synopsis of the ongoing situation. As always, I hope you enjoy and welcome your comments.

While Washington Dithers, Rivals of U.S. Firms Pounce

By John Bussey  The Wall Street Journal. July 8th, 2011

In the competitive world of international business, today’s dawdlers are tomorrow’s roadkill. It’s a lesson the U.S. is learning all over again.

A long list of U.S. businesses—from farmers in Montana to machinery makers in Illinois to service providers in New York—have been waiting for Congress to ratify trade deals that would reduce big tariffs in South Korea, Colombia and Panama. The agreements were negotiated with the nations years ago and would give U.S. exporters considerable relief.

There was some light at the end of the tunnel in Congress yesterday. But the delays—including a spate of recent ones –—have already taken a toll and could get costlier still.


ASSOCIATED PRESSThe U.S. sells wheat to Colombia; above, a farmer near Norwich, Kan.

While the U.S. continues to debate the agreements, other nations are speeding ahead with their own free-trade pacts with these countries. Last Friday, the European Union’s deal with South Korea went into effect. Next month, Canada’s accord starts with Colombia.

That means the competition just got more intense for U.S. companies. Freed from paying tariffs, firms exporting from Canada and the EU can lower the price of their products and grab more market share.

U.S. wheat growers, already feeling the pressure, say flour millers in Colombia like U.S. grain but may switch to Canadian suppliers because of new, favorable prices brought about by the Canada trade deal.

Volkswagen of Germany is busy expanding its showrooms in Seoul, South Korea. Boeing is assessing Airbus’s new tariff advantage in South Korea and the coming one in Colombia for Bombardier. Boeing CEO Jim McNerney worries about getting “a level playing field with competitors who already have such agreements.”

From the farm, “we envision $2.5 to $3 billion of additional U.S. agricultural exports, including soybeans, as a result of the three agreements,” says Lorena Alfaro of the American Soybean Association. That’s if they’re ratified. “As long as we delay, we’ll continue to lose market share, especially in Colombia,” she says.

Colombia is a good example of what happens when rivals get a tariff advantage.

The U.S. and Colombia reached their trade pact in 2006. Colombia is America’s 13th largest export market (if the EU is considered as a bloc), and the Obama administration believes the pact will generate several thousand jobs at home.

Since 2006, without ratification, nothing has happened. But competitors moved ahead. The previous year, Mercosur, the South American trading bloc, made its own deal with Colombia and agreed to relax tariffs. Argentina, a big soybean producer, belongs to Mercosur. It has since been savaging U.S. market share in Colombia.

Total U.S. soybean exports to Colombia dropped 51% in 2009 from the year before. In 2010, share dropped another 27%. U.S. corn and wheat farmers have been in a similar free fall.

Colombia has big coal mines, and Caterpillar sells its large bulldozers and other earth-moving machinery into that market. The current head wind: a tariff of roughly $100,000 on each of the big D-11 bulldozers it makes in East Peoria, Ill., and ships to Colombia. Tariffs on its excavators can range up to $300,000.

Caterpillar is dominant in Colombia and is eager to keep that lead, particularly against competitors from Asia— Komatsu of Japan and Chinese companies elbowing into global markets. It believes the trade pact would help cement its position. After the U.S. ratified accords with Chile, Peru and Australia, Caterpillar’s U.S. exports to those countries jumped 300%, 60% and 200% respectively, partly because of the boom in commodity prices but also because tariffs were cut.

Caterpillar, CitigroupWalMartInternational Business MachinesOracle and General Electriclead a group of 1,200 U.S. companies and business organizations pressing for passage of the Colombia pact. The group has posted a “Tariff Ticker” on the U.S. Chamber of Commerce website, tracking the cost since 2006 of not ratifying the agreement: $3.65 billion in tariffs paid to Colombia, and counting.

Last week, there were new hitches. Talks broke down in Congress over funding for a retraining program for workers displaced by trade pacts. Some legislators say they won’t vote to ratify the accords without the retraining program in place.

Whether the three pacts will fuel or drain jobs in the U.S. has been a point of contention since they were signed. “Such trade deals have contributed to the loss of more than three million manufacturing jobs in the U.S. since 2001,” the AFL-CIO says.

Opponents in Congress and elsewhere argue that even though exports from the U.S. may rise, an increase in cheaper imports could hurt businesses and kill jobs at home. Some are concerned that opening more markets abroad will encourage U.S. companies to move operations overseas and outsource more work. And others believe there are inadequate worker protections in Colombia.

It’s been a lengthy debate.

“It just demonstrates the disconnect between business and government,” says William Lane, who handles trade issues for Caterpillar. “In business, if you somehow get ahead of your competitors, you never let them catch up. The U.S. government had a four-year lead on these policies.”

Yesterday, the machinery clicked forward a notch: Congress made headway in considering draft bills for implementing the three agreements. There’s still no compromise on funding the retraining program, and it’s unclear whether that will further delay a ratification vote.

Princeton Council’s “Is Your Business Fluent In Foreign?” event at the University Club of Washington – a great success

Washington, D.C. July 8th.

On Thursday, at the University Club of Washington, Princeton Council on World Affairs (www.princetoncouncil.org) hosted second event of its “Is Your Business Fluent In Foreign?” series.  The event included a comprehensive presentation by panel of distinguished international experts from the U.S. Government and private sector.  Topics covered subjects of Political Risk Insurance (PRI), International Dispute Resolution, Foreign Corrupt Practices Act (FCPA), financing international trade and investment using U.S. Ex-Im, or Overseas Private Investment Corporation (OPIC) programs, working with the U.S. Trade and Development Agency (USTDA) and Private Public Collaborative Alliances in sports and education.

Over 60 guests attended the seminar and networking reception, which followed. Guests included high ranking officials from several Embassies, representatives of OPIC, U.S. Ex-Im, USTDA, State Department and IMF.  For more information on the upcoming events, or to obtain a copy of the program and seminar presentation materials please contact Ruth Sigalus at rsigalus@princetoncouncil.org


About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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