NACM's Credit Managers' Index for August Improves


Statistics for the latest Credit Managers’ Index (CMI) for August, which will be unveiled at www.nacm.org Friday afternoon, point to a return to the growth patterns of earlier this summer.

Numbers will show a significant bump in the overall index. Look for particular strength in the sales and dollar collections categories as favorable factors are showing improvement not seen in a couple of years.

However, there are also unfavorable trends to watch, such as slow progress in categories like rejections of credit applications. NACM Economist Chris Kuehl, PhD suggested that “troubled companies are trying to access credit in the hopes they will see a turnaround sooner than later.” That’s not to say there wasn’t improvement, just that it remains lackluster.

Among the rest of the unfavorable factors, disputes moved slightly closer to the 50s, while dollar amount beyond terms made a solid leap. “This is a good sign and means that companies seeking additional credit are now moving to catch up on current debt,” said Kuehl. “This action has been a precursor to growth in the past.”

Manufacturing’s rebound appears to be tracking hotter than that of the service sector in the August index, though such a situation isn't surprising considering the time of year. Either way, service categories are still importantly trending in the right direction.

“The fact is the service sector still drives the bulk of economic growth in the United States, and it certainly drives hiring. If there is still trouble in this sector, the overall pace of economic growth will be slower than preferred. It is good news to see the trend that started in May start a recovery in August,” said Kuehl.

-NACM

Industries to Watch: Problems in Retail Not Just Hype


Sears, JCPenney, Kmart, Radio Shack, Best Buy and countless smaller retailers have had all manners of difficulties in recent times. Their respective financial problems are not just a case of hype once the battles retail businesses have to fight on multiple fronts is considered. It’s why the industry in general has earned a dubious place among NACM’s “Industries to Watch.”

“There are so many factors to deal with in retail,” said Bruce Nathan, Esq., partner with Lowenstein Sandler LLP. “If credit people are being kept up a night, retail may be their biggest industry of concern. The bottom line is you are going to see a shakeout in the retail area in the next few years.”

The list of reasons cited by Nathan, among others who put retail of at the top of the list of industries creditors should be watching, includes a high number of financially overleveraged retailers, those where the size or number of stores is unsustainable, an inadequate response to e-commerce and, often, notoriously poor management decisions. While not all retail businesses are contenting with these problems, multiple issues are often in play for those that are struggling. It creates a potentially toxic mix that creditors should be monitoring closely.

“People are watching JCPenney, and should be,” Nathan said. “People are concerned about Sears, Radio Shack. Best Buy seemed to stabilize for now, but there was a lot of concern about them for a long time.” Nathan stressed that these are mostly bigger retailers, and that segment of the industry likely faces the most significant challenges. However, he noted smaller businesses also are quite challenged, especially by e-commerce competition.

Faulting businesses of all sizes was their inability to react quickly or seriously enough to institute change when online retail first started eating up market share. That resulted in something akin to the sports adage of “playing from behind.” The infamous Borders implosion was one example of a failure many blamed on the rise of e-commerce.

The problem should a retailer of any size head toward insolvency or a Chapter 11 is the potential for a domino effect, the result of which would likely include retailer consolidation. With fewer players in the market, that will only lead to higher accounts receivables concentration for suppliers, something creditors typically shy away from, or want to, as much as possible. A limiting of choices may leave some suppliers with little choice though.

- Brian Shappell, CBA, CICP, NACM staff writer

Study: Small business Credit Quality at Highest Point of the Rebound Years


A dual-firm report on small business credit quality found that results in the second quarter reached the highest level since their study was launched in 2010.

The Experian/Moody’s Analytics Small Business Credit Index rose to a level of 111.7, up from the first quarter’s 108.9. It appears heightened consumer confidence is having a downstream impact on small business’ bottom lines and, thus, their collective credit quality. Experian/Moody’s noted that credit quality strengthened in every business size category, and that balance volumes declined in significant fashion over a three-month stretch.

“During this period of modest growth, small businesses have improved their credit profile by decreasing delinquent debt and meeting financial obligations in a more timely fashion," said Joel Pruis, Experian senior business consultant. Top performing states where businesses’ delinquency rates were well below the national average were Idaho, Wyoming, Arizona and Utah.

That’s not to say there aren’t challenges ahead for small businesses, including the rebirth of the debt ceiling battle in Congress and its ability to distort predictions of conditions going forward. But optimism exists among those behind the latest study that small business is as ready as it has been in a long time to sidestep it with minimal damage.

-Brian Shappell, CBA, CICP, NACM staff writer
See the extended version of this story and more analysis in the upcoming edition of eNews, available late Thursday afternoon at www.nacm.org. 

The Latest PMI Numbers are Encouraging


Statistics from the various PMI studies around the world suggest that economic conditions are improving. But it is not happening so fast that anybody should be compelled to go dancing in the streets or forget about the imminent arrival of an inflation threat.

These numbers are generally accurate as far as trending is concerned, although the final numbers may be different from the ones released thus far. Still, at the top of the list of good news reports is that China’s PMI is now above 50 again. There remains some doubt on this number as China is subject to more than one PMI interpretation. The official PMI conducted by the government statisticians has always been more confident than those that have been conducted by Markit or HSBC. Everybody now seems to be on the same page as far as Chinese growth and that the slump in output from the Chinese industrial sector may have finally come to an end. This is important to a great many nations, directly and indirectly.

It is helpful to remember that China has not altered the policy that it started to pursue earlier in the year. There remains a focus on inflation and shifting slightly away from the export sector. This will likely mean slow growth in China for a while longer but at least the PMI indicates that China is not drifting towards deeper recession.

The data that is coming from Europe are equally encouraging, but there are caveats here as well. Germany is now headed for a growth rate this year that is very close to the average they have sported for the last several years. The August number for the euro zone is the best in two years (51.7). Still, the fact is that growth is too slow to really address the grinding economic issues in Europe, so the overall euphoria has been tempered by knowledge of very high unemployment rates and slow growth. The expectations for the year have improved just a little, but there are few illusions of a rapid recovery. After all, though the power nations are doing better, the southern states are still in crisis. There is nothing to suggest that they will be emerging from the morass anytime soon. The surprise has been France, as they had been predicted to join the southern states in crisis but have made some positive strides to start catching up with Germany.

-Armada Corporate Intelligence

Multilateral Trade Pact May Pivot on U.S.-Japan Battles


Representatives from nations involved in the proposed Trans-Pacific Partnership (TPP) free trade agreement (FTA) are scheduled to begin talks in Brunei by week’s end to advance the initiative. But Japanese practices labeled as protectionist by the United States may provide the first significant speed bump for the TPP, something several members feared prior to Japan’s involvement in negotiations.

Officials from several nations involved in the TPP publicly set a goal to finalize an agreement by the end of this year. It would be an understatement to call the goal optimistic given concerns of the two biggest economies involved. Two of the key areas where the U.S. and Japan continue to disagree, including during a bilateral pre-TPP meeting between the two parties earlier this week, are access to the automotive and, especially, agriculture industries. The latter’s lobby in Japan is among the strongest, and professes that its farmers would be decimated if they had to compete with American farmers with newfound open access. Granted, some believe the agriculture issue might be a fight the U.S. doesn’t even want. Rather, it could be a bargaining chip and an effort to garner deeper concessions in other areas like automotive, insurance or retail.

Either way, few experts expect the talks to be smooth due to these issues, which is why some original TPP members objected to including Japan at all, despite the value and perceived opportunity of its economy.

The TPP represents a greater interest from developed economies in the "Pivot to Asia" in the southeast part of the continent. The pact would also include emerging economies like Vietnam, Singapore and Malaysia, as well as Peru, Chile, New Zealand and Australia. Mexico and Canada also have been invited to take part in the negotiations.

- Brian Shappell, CBA, CICP, NACM staff writer

Emerging Market Currencies Plummet as World Waits for New Fed Chairman


The Federal Reserve has been nothing if not accommodative in its monetary policy since the beginning of the late-2000s recession. And as the U.S. labor market has recovered more slowly than other corners of the economy, the Fed has seen fit to keep interest rates low for an extended period of time, risking inflation while hoping for an increase in hiring.

One of the side effects of the U.S. Federal Reserve's decision to maintain rock-bottom interest rates has been an exodus of investors to other currencies, specifically those in emerging markets that offered an opportunity for greater returns. Now, however, the investment community has collectively decided that the Fed is on the brink of shifting its focus toward mitigating inflation, by either dialing back its $85 billion-a-month quantitative easing plan or by raising interest rates. Investors have therefore begun to take their money out of emerging markets like Indonesia, Brazil, South Africa, Turkey and India in order to put it back into the U.S.

India's currency, in particular, is crashing at an alarming rate, according to NACM Economist Chris Kuehl, PhD. "The currency crisis in India is deepening faster than the government can cope," he said. "For all intents and purposes, the rupee is in total freefall as it sets new records against the dollar and other major currencies every day."

Still, the reason for the investment community's sudden certainty that the Fed will raise interest rates is something of a mystery. "Investors are changing their minds and have concluded that the U.S. Federal Reserve is on the edge of shifting its policy and hiking interest rates. There has been nothing to suggest that this is the plan, but enough investors have decided that there will be a shift to cause many to pull out of the emerging markets so that they can buy into the U.S. while prices are still low," Kuehl said. "At some point, the logic holds that these assets will be priced higher and those that invest now can reap a reward."

Part of this new-found belief in an imminent policy change at the Fed stems from the controversy surrounding who will lead the Fed after current chairman Ben Bernanke's term ends on January 31, 2014. The two apparent choices are former Treasury Secretary Larry Summers and current Fed Vice Chair Janet Yellen. "If Larry Summers is chosen there is a belief that he will be more hawkish and more likely to raise interest rates sometime in 2014," said Kuehl. "The selection of Janet Yellen would be reassuring to those who want to see an extension of the loose policy that has defined the Fed since Bernanke started to react to the recession."

Meanwhile, as this drama plays out in the U.S., the financial turmoil in emerging markets will continue and the situation facing India and other similarly situated countries will become increasingly dire.

- Jacob Barron, CICP, NACM staff writer

Early NACM Survey Results Suggest Cash Issues Dominant Cause of Late Payments


The preliminary results of an NACM survey about what's to blame for customers' late payments suggest that cash issues, rather than technical errors, are the dominant cause for delays. With two more weeks left before the survey closes, 36% of respondents have said that only 0-10% of the customers' late payments are caused by billing, invoicing or other technical errors, while 90-100% of them were caused by cash issues.

The second most popular response so far still leans heavily toward cash being the culprit for most delays, with 17.5% of participants saying that only 10-20% of their customers' late payments are caused by errors, and 80-90% of them caused by cash issues.

In the comments, respondents acknowledged that "cash issues" weren't necessarily just tied to the customer's inability to pay. Many of them reported that their customers are fully capable of making payment according to terms, but simply don't for various reasons. "The majority of our late payments occur as a result of a customer cash management decision," said one participant. "These decisions have more to do with financial metrics than cash availability."

Other respondents blamed a "built-in slow-pay culture" for some customers' late payments. A number of participants from the construction industry also argued that poorly-written contracts with "pay-when-paid" clauses led to cash issues for their customers, which then trickled down to delay payments to companies further down the ladder of supply.

Of the smaller group of respondents that had a greater percentage of late payments due to errors, specific problems with shipping, pricing and invoicing were the primary causes. Many also noted that their bigger customers were more likely than their smaller buyers to cite errors when making past-due payments.

The two-part survey, which also asks which company department is responsible for resolving errors, will remain open until the end of the month. Click here to participate now! Respondents will receive .1 Roadmap points toward an NACM designation and be entered into a drawing for a free teleconference registration.

- Jacob Barron, CICP, NACM staff writer

EU Emerges from Historic Recession with First Growth Quarter Since 2011


In a bit of a surprise, the longest post-World War II recession in European history ended in the second quarter on the strength of growth from a mix of usual suspects and unexpected rebounders. However, cautious optimism is likely more appropriate than celebration.

Eurostat, the statistical office of the European Union, reported a 0.3% increase in the euro zone’s gross domestic product (GDP) in the second quarter. The EU experienced negative growth in each of the previous six quarters as debt crises in several nations took their toll on the economic bloc.

Germany and France helped lead the way, as did a surprising quarter-over-quarter improvement by former bailout recipient Portugal. Other gainers, both by quarter and annually, were Latvia, Lithuania, Poland, Slovakia, the United Kingdom and, to a slightly lesser extent, Estonia and Hungary. Although some market watchers reacted with near hubris, NACM Economist Chris Kuehl, PhD said some of the reactions felt like “a little bit of grasping at straws.”

“The expected result was that there would be further decline and, at best, a steady state of mild recession,” Kuehl said. “Instead, there was a growth rate of 0.3%. This should hardly motivate some wild dancing in the streets, but the fact is that Europe has been in full recession for almost a year and this marks the first sign of emergence. The next trick will be sustaining that progress.” He noted it will largely be up to Germany and France to carry that weight.

Even EU Vice President Olli Rehn’s similar sentiment fell short of optimistic. “This slightly more positive data is welcome, but there is no room for any complacency,” Rehn said. “Self-congratulatory statements suggesting ‘the crisis is over’ are not for today. There are still substantial obstacles to overcome: growth figures remain low and the tentative signs for growth are still fragile.” The vice president added that statistical averages also hid massive differences between the stronger performing states and the weaker ones (Greece, Spain, Italy and Cyprus).

- Brian Shappell, CBA, CICP, NACM staff writer

June Exports Set Monthly Record, Could Signal Better Q2 GDP Growth


In addition to breaking records on a state-by-state basis, figures for U.S. exports reached a single month high of $191.2 billion in June. The previous record, set in December 2012, was $188.7 billion.

June's exports were also 2.2% higher than May's. Over the last 12 months, exports of goods and services have totaled $2.2 trillion, which is 41.5% over the level of exports in 2009, the last full year before the Obama Administration launched its National Export Initiative (NEI), the goal of which was to double exports in five years, meaning essentially an annual total of $3 trillion by the end of 2014.

While that level of activity might be too far out of reach in such a short period of time, progress in export growth has remained steady, particularly to countries with which the United States has negotiated free trade agreements (FTAs). Panama and Colombia have developed into increasingly ravenous consumers of U.S. products since the negotiation of their FTAs, and both Latin American countries are regular residents on the list of major export markets with the largest annualized increases in U.S. goods purchases. Certain sectors have also driven U.S. export growth, particularly industrial and agricultural products, both of which contributed to the increase between May and June 2013.

Imports also declined in June by 2.2% which, coupled with the record-setting export figures, shrank the U.S. trade deficit by 22% to a three-year monthly low of $34.2 billion. This drop in the trade gap and increase in exporting activity could mean that the 1.7% second quarter GDP growth figure, released by the U.S. Commerce Department at the end of July, was too low and will need to be revised upward next quarter.

- Jacob Barron, CICP, NACM staff writer

More Than a Dozen States Set Exporting Records


U.S. merchandise exports for the first six months of 2013 increased by $8 billion from the same period last year, hitting a record of $781 billion, according to International Trade Administration (ITA)/U.S. Commerce Department data. Therein, 17 states set record highs for such exports during the period.

Texas served as the pace-setter, reaching a record of its own while also logging the largest growth in dollar terms when comparing the first halves of 2012 and 2013 (+$4.3 billion). The state’s electronic products industry drove the hot performance. Other big gainers included Washington, on the strength of transportation equipment, and New York, thanks to a boost from the primary metals industry.  ITA statistics indicate that other states exceeding previous records during the first six months of 2013 included Georgia, Tennessee, Ohio, Pennsylvania and Wisconsin.

-Brian Shappell, CBA, CICP, NACM staff writer

Chinese Slump Appears to Be Easing


The latest numbers from China would indicate that there is less to worry about than assumed. Exports and imports both jumped in July and are back on track towards providing the Chinese a better growth outlook for the year.

The export expansion took China from a decline of 3.1% in June to an expansion of 5.1% in the month of July. The import numbers were equally encouraging, as Chinese imports increased 10.9% year-over-year. That contrasts 0.7% decline the previous month. Imports are also the kind of commodities and items that feed further expansion of the industrial sector.

This is not to say that all of China’s issues are in the past, but there is now less fear that the country was heading for a meltdown that would drag many other regional states down with them. The import news is very good for the nations that rely on what had once been an insatiable market for their goods.

-Armada Corporate Intelligence

Obama Administration Starting Push to Advance U.S.-Africa Trade


Though a trade pact between the United States and several Sub-Saharan African nations does not expire until 2015, the Obama Administration started the push to renew and expand trade in the region this week amid growing competition.

The Administration began to lobby for a renewal of the African Growth and Opportunity Act, originally passed in 2000. This would include some expansion and improvement to the Act, particularly in light of the fact that the U.S. has slipped to the second largest trading partner in this increasingly important region. The latest statements came on the heels of a program spearheaded by the U.S. Commerce Department, “Doing Business in Africa,” in late July. There, Under Secretary of Commerce for International Trade Francisco Sanchez said that U.S. companies that seize existing and growing opportunities in Africa would increase exports and employment opportunities, perhaps significantly. Commerce statistics indicate that Sub-Saharan Africa is home to seven of the 10 fastest-growing markets in the world and that growth for the region is expected to exceed 6% by 2014.  U.S. trade in the region tripled in the past decade, and $23 billion in goods and services were exported to Sub-Saharan Africa in 2012 alone.

“The next great economic battleground is clearly Africa,” said NACM Economist Chris Kuehl, PhD. “Even if all the encouraging predictions fail to come true, the sense is that Africa is the last great economic expansion frontier, and the competition is already in evidence." And while competition exists, especially from China, the U.S. may have some advantages that could put it in the pole position in the near future.

- Brian Shappell, CBA, CICP, NACM staff writer

See extended version of this story with more analysis from Kuehl in this week's eNews, available late Thursday afternoon (EST).

Commercial Chapter 11s Jump in July, but Remain at Historic Lows


Commercial Chapter 11 filings jumped in July, as last month's 536 filings marked an 8% increase over June's figures. Other categories notched smaller increases, including total commercial bankruptcy filings, which leapt 3% from 3,468 in June to 3,581 in July, and total bankruptcy filings overall, which moved to 87,684 in July, up 5% from June's total of 83,603.

Despite the month-to-month increase, however, bankruptcies on a year-over-year basis continued their seemingly endless decline. Total filings in the U.S. for July were 10% lower this year than they were last year, and commercial filings in particular have continued to register huge year-over-year declines. Total commercial cases for July 2013 decreased by 23% from July 2012's total, and Chapter 11 filings fell by 24% last month when compared to the same period last year.

While the reasons for the jump from June to July is harder to pinpoint, the blame for the regular declines in year-over-year figures lies squarely on the shoulders of low interest rates, which continue to make it easier for companies to refinance their debt than to file bankruptcy, and easier for lenders to allow businesses to scrape by without creating too great of a burden on their balance sheet.

According to American Bankruptcy Institute (ABI) Executive Director Samuel Gerdano, should the decline in bankruptcies continue, as it's expected to, 2013 could have the lowest total new bankruptcies since before the financial crisis in 2008.

- Jacob Barron, CICP, NACM staff writer
 

Lawmakers Target India's Trade Barriers


Congressional trade leaders called on the U.S. International Trade Commission (ITC) last week to investigate India for unfair and discriminatory trade policies.

In a letter to ITC Chairman Irving Williamson, Senators Max Baucus (D-MT) and Orrin Hatch (R-UT) and Representatives Dave Camp (R-MI) and Sander Levin (D-MI) requested a full report on Indian industrial policies that discriminate against U.S. investment in the interest of supporting domestic Indian companies, as well as on the effects these potential barriers have on the U.S. economy and employment market.

India, the world's second largest country by population, has been an important U.S. regional ally, but goods and services exports from the U.S. to the south Asian nation have remained disproportionately low. In 2011, U.S. goods exports to India topped out at $22.3 billion, and total exports, including services, only reached about $33 billion. For comparison's sake, total U.S. exports to South Korea in 2011, before the U.S.-South Korea Free Trade Agreement (FTA) had even taken effect, were nearly twice as high, at $60 billion, despite the fact that South Korea's population is less than 10% of India's.

Granted, India and South Korea are two very different countries, but officials in Washington still want to address than disparity, which they believe is caused in part by India's "complex, non-transparent tariff and fee system and byzantine and overburdensome customs procedures," among other policies.

"India maintains and continues to put in place measures that appear to contradict its stated domestic growth objectives," said the letter. "More recently, India has introduced new localization-forcing measures such as local content and technology transfer requirements in the green technology and information and communications technology sectors.  And India has not yet taken action to fully and effectively protect and enforce copyrights, including in the digital environment, and has applied its patent law in a discriminatory manner, particularly against innovative U.S. pharmaceutical companies, so as to advantage its domestic industries."

On broader terms, the Indian government has focused on developing and supporting Indian industries by forcing foreign firms to use local facilities and suppliers, and to transfer their intellectual property to Indian entities. The letter alleges that India is likely to adopt additional measures to these ends, and raises the issue of the example that India's setting as an influential regional economic powerhouse, and the ramifications that could have on U.S. exports to other countries down the road. "We are very concerned about the broader impact that India’s trade policy may be having on the global trading system, both in terms of the model it is setting for other countries and the drag it is exerting on multilateral trade negotiations," they added.

The ITC will have until late 2014 to cobble together the report using existing sources and a forthcoming survey of U.S. firms.

- Jacob Barron, CICP, NACM staff writer
 

Ex-Im, Facing Conservative Coup, Highlights its Role in U.S. Export Market


Export-Import Bank (Ex-Im) Chairman Fred Hochberg highlighted the important role his agency plays in supporting U.S. exporters in a speech to the Center for American Progress (CAP) this week. In the process, he also rebutted the philosophical arguments against renewing the Bank's charter, which have become newly resurgent among conservatives in Congress.

On its surface, Ex-Im would seem to be an agency that lawmakers from both sides of the aisle could support. The bank operates independently, fills in gaps in private export financing, breaking records for both total authorizations and small-business export sales in Fiscal Year 2012, and, most importantly, turns a profit for the American taxpayer, generating $1.6 billion since Fiscal Year 2008.

But free market advocates have long argued that Ex-Im should be shuttered, and their case against the bank has recently entered the political mainstream. For example, in a May hearing, Senate Committee on Banking, Housing and Urban Affairs Ranking Member Mike Crapo (R-ID) voiced concerns that Ex-Im exists only to provide "welfare to some of America's largest corporations."

Crapo was also one of 19 republicans to vote against the reauthorization of Ex-Im's charter in 2012, an ongoing effort driven by fiscally conservative groups like the Club for Growth that most recently manifested itself in a push to block Hochberg's approval for another term as Ex-Im chairman. Hochberg was saved by an 11th hour Senate deal on filibuster reform, but had he not been approved by July 20, Ex-Im wouldn't have had the three-board-member quorum its charter requires to approve transactions, and therefore would've been forced to shut down.

In his remarks to CAP, delivered in conjunction with Ex-Im's release of its annual Competitiveness Report, Hochberg focused on the threats facing U.S. exporters abroad, particularly from the increasingly aggressive policies of some of the United States' biggest competitors. "In this year’s competitiveness report, we found that China, Korea, Japan and others are ramping up government export support," Hochberg said. "Yet, here at home, Congress has required the Treasury Department to begin negotiations with our competitors to end export credits. To end export credits when our competitors are playing by a completely different set of rules…this would be a self-inflicted wound our economy cannot sustain."

Ex-Im's Competitiveness Report found that U.S. exporters often compete in markets and sectors that other countries have targeted as a "national interest," making them the focus of policies designed to maximize the flow of benefits to the state and making it harder for U.S. exporters to compete with foreign companies receiving state-backed sweetheart export financing deals. Moreover, the Report argued that financing is increasingly being offered outside of Organization of Economic Cooperation and Development (OECD) guidelines, expanding beyond low interest rates to include loan arrangements aimed at attracting buyers.

Exporters worldwide have also been forced to contend with a decline in commercial bank capacity and appetite for trade financing, placing a greater burden on state-affiliated export credit agencies like Ex-Im. "Make no mistake, foreign governments would love to see Ex-Im go out of business and swoop in and snatch the $50 billion worth of exports we financed last year. They would love to have those 255,000 American jobs for themselves," Hochberg warned. "Failing to reauthorize our charter next year is a particularly bad idea in light of the growth of the global middle class and the unprecedented competition America faces from Asia and Russia, among many others."

A full copy of Ex-Im's Competitiveness Report is available here.

- Jacob Barron, CICP, NACM staff writer

Canada, EU Take on Credit Card Interchange Reform


While the fight over credit card interchange fees continues to work its way through courts in the United States, Canada and the European Union have also waded into the battle, both focusing more on new regulations than on legal rulings.

Canada's Competition Tribunal ruled against the Commissioner of Competition last week in a case brought against the Canadian arms of Visa and MasterCard over the card networks' surcharging and acceptance requirements. The Commissioner, which serves as Canada's consumer watchdog, alleged that Visa and MasterCard rules that bar merchants from levying surcharges on card users and force merchants to accept all of each company's credit cards, including those with higher interchange fees, have "an adverse effect on competition."

Although the Tribunal dismissed the case, it acknowledged that these rules were anti-competitive, but also said that the solution to the problem lay in a change in Canada's regulatory framework, leaving the door open for future challenges, according to the Canadian Federation of Independent Business (CFIB). "While the decision is disappointing, CFIB is pleased the Competition Tribunal recognized the adverse effect Visa and MasterCard policies have had on competition," said CFIB President Dan Kelly. "The Tribunal has also suggested a regulatory solution."

A new regulatory solution in Canada could closely resemble the proposal put forth by the European Commission last week. To learn more about that proposal, check out this week's edition of NACM's eNews.

- Jacob Barron, CICP, NACM staff writer