Small Business Exporting

It’s been a long, hard-fought trip to the finish line, one wrought with political and labor interests, even though a free trade agreement FTA between the United States and South Korea was forged some five-years ago. But now, barring a threatened yet unlikely veto by South Korea opposition lawmakers, the FTA is set to go into effect in a few weeks.

U.S. Trade Representative Ron Kirk and South Korean Minister for Trade Park Tae confirmed that the US-South Korea FTA will be fully in play on March 15. The deal's value is estimated at nearly $90 billion. Domestic manufacturers, especially in the automotive and agricultural products industries, stand to gain levels of market access with the Asian trade partner never realized before within said industries.  Approval of the FTA with South Korea as well as Panama and Colombia had long been seen as important to boost business for U.S.-based companies feeling the pinch of lower domestic demand. The FTAs, in theory, will significantly expand U.S. exports in those markets, help small businesses and lower tariffs on American goods. The Korean FTA was widely regarded as the most significant of the three new U.S. pacts and will be the first to go into effect.

(Note: More extensive background on the fight to establish the U.S.-South Korean FTA will be featured in this week's NACM eNews, available Thursday afternoon at www.nacm.org).

Brian Shappell, NACM staff writer
 

In his fourth State of the Union speech last night, President Barack Obama laid out his blueprint for the nation’s economy, starting with manufacturing.

“We will not go back to an economy weakened by outsourcing, bad debt and phony financial profits,” he said. “Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that’s built to last—an economy built on American manufacturing, American energy, skills for American workers and a renewal of American values.”

The president also tipped his cap to a recent trend among businesses bringing jobs back from other countries historically thought of as sources of cheap labor. As previously reported, “insourcing” is now frequently taking the place of “outsourcing.” “We can’t bring every job back that’s left our shore. But right now, it’s getting more expensive to do business in places like China. Meanwhile, America is more productive,” said Obama. “A few weeks ago, the CEO of Master Lock told me that it now makes business sense for him to bring jobs back home. Today, for the first time in 15 years, Master Lock’s unionized plant in Milwaukee is running at full capacity.”

“So we have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed,” he added.

Obama went on to suggest tax reforms that would incentivize companies to bring jobs back to the U.S. and relocate to recession-hit communities. Exporting, which figured heavily into last year’s speech, also received a small amount of attention, mostly as the president burnished his credentials and highlighted the success of the past year’s free trade agreements (FTAs).

In essence, the speech focused on the idea of economic fairness. “The debate now will be over what constitutes fair,” said NACM Economist Chris Kuehl, PhD. “The speech had very little to do with the current condition of the U.S. and its economy, but that was expected in an election year. The overarching message is that the wealthy should be taxed more.”

“The fundamental issue driving the two sides remains how to deal with the debt at the same time the nation has to expand economic growth,” he added. “Without more revenue, the government can’t sustain current spending. Some would have that spending curtailed further while others assert that austerity is already compromising growth. The reality is that taxation and differing concepts of fairness will be at the heart of the election for the duration.”

Jacob Barron, CICP, NACM staff writer

The Export-Import Bank of the United States’ (Ex-Im’s) annual report unveiled this week backs up its claims based off of preliminary numbers in October that the group financed more projects, in dollar value, in 2011 than any previous year.

Ex-Im financed $32 billion in projects through the calendar year, marking the third consecutive campaign in which it broke a previous record. In addition, Ex-Im noted small business financing surged again in 2011 and is up by more than 70% over the last three years. Ex-Im’s activity in 2011 was highest in Mexico and India, and is gaining ground quickly thanks in part to massive needs in the energy sector, said Ex-Im sources.

 The organization, an independent federal agency pairing U.S. companies and product manufacturers with companies abroad, also considers the following nations as high-opportunity ares going forward for U.S. businesses: Colombia, Turkey, Vietnam, Indonesia, Brazil, Nigeria and South Africa.

During an NACM interview with Ex-Im President and Chairman Fred Hochberg in September, he said, “If you’re not exporting to places like these, you need to get in that game...there’s not a company that exports [properly] that isn’t doing well.”


Brian Shappell, NACM staff writer

Amid a surprisingly chaotic scene that puts the U.S. Congress’ bickering to shame, South Korea’s parliament voted overwhelmingly to approve a U.S.-South Korean free trade agreement (FTA) that has been in the works for some five years.

Though a significant portion of the voter base is against the measure in fear of job losses or economic hits, South Korea’s ruling party called a hasty, surprise Wednesday vote on the FTA, one started during the Bush Administration and signed by President Barack Obama about one month ago. One opposing politician even let off some form of tear gas or pepper spray in parliament’s chambers, reports indicate. The deal’s value is estimated at nearly $90 billion.

After years of languishing and political one-upmanship on both sides of the political aisle, the pact was among three Free Trade Agreement (FTAs) passed by Congress in October. Approval of the FTAs with South Korea, Panama and Colombia has long been seen as important to boost business for U.S.-based companies feeling the pinch of lower domestic demand. The FTAs, in theory, will significantly expand U.S. exports in those markets, help small businesses and lower tariffs on American goods.

Getting the measure through though saw U.S. supporters and opponents alike coming from both political parties as the idea of job protectionism divided lawmakers more on regional lines than the usual partisan ones. In South Korea, the divisions seemed to come from a two groups: big business versus the middle class and working poor. Some paint the deal as more beneficial to the United States and more of a move for the sake of appearances and posturing on the part of Seoul.

The Korean vote was seen as the last significant hurdle to implementation of the FTA, widely regarded as the most significant of the three new U.S. pacts.

Brian Shappell, NACM staff writer

The Export-Import Bank of the United States Reports authorized $32 billion in export financing in FY 2011 (Oct. 1, 2010-Sept. 30, 2011), which supported more than $40 billion worth of exports, according to statistics unveiled Thursday by the organization.

Fred Hochburg, Ex-Im Chairman/President, noted the particular growth in authorizations for small businesses to $6 billion for the year, about double the level posted just three years ago. He said small businesses were a key part of President Barack Obama’s loft goals for exporting through 2014.

“We’re not going to double exports unless we double small business exports,” he said. “We’re leveling the playing field and making sure small companies and large companies can go toe-to-toe with foreign companies, and we do it at no cost to the U.S. taxpayer.”

Hochburg said among other considerable increases in Ex-Im funding was one in the renewable energy sector, up from $30 million three years ago to $720 million in FY2011 for financing for foreign buyers to purchase from U.S. companies in the industry, largely on projects/partnerships in areas of Canada, India and Turkey. Mexico, however, remains the largest national market for Ex-Im authorizations. Columbia grew the most in 2011, a point not lost on Hochburg during a question-and-answer session Thursday, one day after Congress passed a free trade agreement between the Latin nation and the United States among a trio of pacts.

“Of the three, Columbia offers most promise where we [Ex-Im] can play a role,” he told NACM. “There’s a lot of promise, the business community leans forward and it’s right in our back yard.”

Ex-Im authorizations for 2010 of about $24.5 billion, a record until the latest statistics, supported $34.4 billion worth of exports and 227,000 American jobs at more 3,300 U.S. companies.

Brian Shappell, NACM staff writer

After years of languishing and political one-upmanship on both sides of the political aisle, three Free Trade Agreement (FTAs) were passed Wednesday by both houses of Congress and awaits what should be a rapid signature by President Barack Obama.

Approval of the FTAs with South Korea, Panama and Colombia has long been seen as important to boost business for U.S.-based companies feeling the pinch of lower domestic demand. The FTAs, in theory, will significantly expand U.S. exports in those markets, help small businesses and lower tariffs on American goods.

Getting the measure through though has seen supporters and opponents alike coming from both political parties as the idea of job protectionism divided lawmakers more on regional lines than the usual partisan ones.

Obama submitted the nation's three pending free trade agreements (FTAs) to Congress earlier last week amid growing support for the measures. Obama, branded by some in the past as anti-business, has become increasingly pro-exporting and is in the midst of a federal push to double exports within five years.

Congressional leaders have been quick to laud the FTAs’ passage while lamenting the lengthy delay between their creation and their submission for approval. Among reasons for disappointment is that other agreements that, despite being started at a later date, were enacted months before Wednesday’s eventual positive vote. Among them was a European Union deal with South Korea.

Submission of the FTAs by the president was previously contingent on Congress' renewal of the Trade Adjustment Assistance (TAA) program, which trade workers perceived to be negatively affected by international competition. After a pared-down version of the TAA was approved in the Senate, however, the president submitted the agreements to the House, which somewhat begrudgingly followed through on the TAA renewal in addition to the FTAs.

Brian Shappell and Jacob Barron, NACM staff writers

The big three U.S.-based credit ratings agencies have been slow, to say the least, in handing out upgrades of credit ratings or outlooks for anyone not included in the BRIC nations (Brazil, Russia, India, China) since they were universally lambasted for their poor analysis and risk assessment in the run-up to the global economic downturn. That what makes the late-week gushing over Panama by Moody’s Investment Services all the more noteworthy.

Though leaving the nation’s credit rating unchanged, Moody’s upgraded Panama’s outlook to positive from stable. Perhaps more significant was the agency’s statements lauding Panama’s economic evolution, centered largely on the $5.25 billion Panama Canal expansion project. Said Moody’s, “the Panamanian economy has continued to show remarkable and enduring dynamism, and is well positioned to grow at rates above its potential thanks to the expansion of the Panama Canal and the government's ambitious efforts to improve and modernize the country's infrastructure…Panama continues to be one of the fastest growing and diversified countries in the Baa rated category.”

As discussed in a Selected Topics story in the November/December edition of Business Credit Magazine, the expansion of what had become an antiquated pass-through will allow much larger cargo ships, among other vessels, to travel through canal, opening up much faster and more direct shipping options to and from many ports, especially in the United States. To wit, the biggest benefit to domestic exporters and those abroad is cheaper shipping costs for reasons including less fuel costs because of shorter routes from the biggest ships, the lessened needs for larger ships to stay in ports longer to get a full load and competition largely absent from the market at present. Additionally, the expansion should spur more choice and variety as far as ports that realistically can be used. With an open, expanded canal, ports such as Savannah, New Orleans and Houston become much more important.

Additionally, it expands capabilities of small business exporting efforts routed from the West Coast ports to access emerging economies on the eastern shores of Latin America. This includes the pearl of economies in that part of the world: Brazil. The nation was ranked 10th among nations receiving exports from U.S. companies, taking in $41 billion in products in 2008, according to the U.S. International Trade Commission and a July report from left-leaning Washington think tank the Brookings Institution. And that number is expected to rise among nearly all predictions as Brazil’s growing appetite for products emanating from the transportation equipment industry as well as consumer products aimed at its newly emerging local middle-class and tourists en route there for the 2014 FIFA World Cup (soccer) and the 2016 Summer Olympics.

Brian Shappell, NACM staff writer

Small businesses could face severe regulatory challenges as the U.S. continues its effort to converge its generally accepted accounting principles (GAAP) with International Financial Reporting Standards (IFRS).

The process of creating a singular global accounting standard has been ongoing for several years now, but at a recent roundtable hosted by the U.S. Securities and Exchange Commission (SEC), no matter how regulators choose to go about imposing the new standard on the nation’s public companies, the smaller of them will face technical and financial difficulty.

“I see no benefit to IFRS at all,” said Shannon Greene, a panelist at the roundtable and chief financial officer and treasurer of Tandy Leather Factory, Inc., a small leather and leatherworking supply company based in Fort Worth, Texas. “All it’s going to do is cost us money.”

Greene noted that while her company is looking to expand internationally, as many other small companies are in a time of booming export opportunities and low domestic demand, there will be no real way to escape the cost of implementing and abiding by the new standard. “I think it’s just going to be painful for a small company,” she noted, adding that while regulators often cite increased comparability as a benefit afforded to companies that switch to IFRS, Tandy Leather Factory’s unique position and industry renders this benefit largely non-existent. “For comparability purposes, we don’t really have any competitors,” said Greene. “I don’t even get the benefit of my financial statements being comparable to someone else’s financial statements for investment purposes, for banking purposes, for capital investment purposes, et cetera.”

“Anytime you ask us to spend money that doesn’t help us sell more product, you get a lot of flak from the senior management team,” she added. “I don’t have anything really positive to say from our company’s perspective. Personally, I get it, but I just can’t see how we get from where we are to where we want to be.”

Jacob Barron, NACM staff writer

With small business exporting becoming an increasing important element of the majority of U.S. commerce, attendees at NACM’s 2011 Credit Congress in Nashville flocked by the dozens to the first sessions in a series of five on “Doing Business in ___” series hosted by FCIB.

The first of which, “Doing Business in Canada” drew well in excess of 100 people and became one of the first standing room only, so to speak, sessions of Credit Congress this year. Hubert Sibre, of Davis LLP, described Canadian business terms as extremely varied depending on the province. For example, Alberta is considered very liberal from a pro-debtor standpoint, while Quebec is considered much more conservative on matters of business and credit.

Sibre suggested registering one’s business in every province is almost essential because it greatly improves their position to protect intellectual property in Canadian courts, among other things. It also helps to have a subsidiary based there because bankruptcy judgments made in the United States are unenforceable without a Canadian court officially recognizing it.

A subsequent session on South Korea was led by Kyle Choi, Esq. of Bluestone Law Ltd. Choi spoke the various aspects of why the nation’s stock is rising in the international business community, which includes a highly evolved infrastructure, a wealth of available credit information available on companies there and business-friendly law. Also helpful is its prestigious business quality rating by the World Bank and, according to Choi, that its free-trade agreements with the United States and the European Union will increase competitive fairness by reducing the gap in tariffs, estimated by some at 10%. Also, he contends it will force South Korean companies to produce better products, components and services across the board.

But there are many cultural differences and barriers that need to be taken into account, such as a desire for officials at companies to speak directly with employees on their level with your company (don't pawn her off on the secretary) and the need for formality even in e-mail correspondence.

(Note: Subsequent sessions on Doing Business in Chile, China and Brazil had not been completed at the time of this posting. More coverage is coming to NACM’s blog, eNews and the July/August edition of Business Credit Magazine in the coming days and weeks).

Brian Shappell, NACM staff writer, can be reached brians@nacm.org

U.S. trade activity went through its growingly common routine of another one leap forward, one leap backward in March, the latest U.S. Department of Commerce Statistics indicate. The sum of it all remains an ever-growing trade deficit.

U.S. Commerce Secretary Gary Locke announced that U.S. exports of goods and services in March 2011 increased 4.6% between February and March to a record $172.7 billion. Both the goods side ($124.9 billion) and services ($47.7 billion) hit high-water marks historically. Among other records were the surge in the export value ($7.7 billion) as well as value of trade routed to Canada and South and Central America. The U.S. even managed to shave its Chinese trade deficit down from $18.8 billion to $18.1 billion, thanks in part to small business exporting levels. Ignoring the elephant in the room, escalating demand and prices for oil products, Locke celebrated the news in a brief statement on the Commerce website.

Far less discussed by Commerce officials was that the trade deficit increased to $48.2 billion, about a 6% increase from February to March. Oil imports spiked by 18% in March to a dollar-value-level of $39.3 billion, the highest in nearly three years.

Brian Shappell, NACM staff writer

The Obama administration, U.S. businesses and domestic analysts alike have been pining for a narrowing of the domestic trade gap. And, although just that occurred in February, the news was overshadowed greatly by statistics indicating the first decline in exporting activity in six months and a worrisome price spike on both exports and imports.

Newly unveiled Commerce Department statistics indicate that the trade gap narrowed in February to $45.8 billion from $47 billion. However, both importing and exporting activity were down, by $3.6 billion and $2.4 billion, respectively. The drop in exporting activity despite a doubling-down by the Obama administration to make trade more of a priority in recent months than in any stretch of this presidency came as an unsettling surprise to analysts and economists. The knee-jerk response from markets has been one of renewed uncertainty regarding the continued strength, or lack thereof, of what has already been considered a lackluster and disappointing economic recovery over recent months and years.

Meanwhile, Bureau of Labor Statistics numbers on import and export price indexes, also announced Tuesday, show higher fuel prices causing a surge in the cost of various products and materials worldwide. Import prices increased by 2.7% between February and March. The index for the important fuel category alone jumped 9%, the largest advance since June 2009, the bureau noted.

Export prices also increased, by 1.5%, from February to March, similar to the previous month’s uptick. Of particular interest is the continued rise in agricultural exports. Those increased another 2.3%, with spikes coming within the corn (9.2%) and cotton (10.5%) commodities. The bureau noted Ag prices has surged by 34% over the last year. Much of this is attributable to draughts and wildfire catastrophes in places such as Russia as well as supply damage caused by out-of-season freezes in some key growing areas. While the high prices are helpful for those producers who evaded crop damage and saw quality yields, the price surge certainly is a double-edged sword that could cut those in the small business exporting game deeply.

Brian Shappell, NACM staff writer

Following a meeting of leaders at the White House April 7, the long-delayed free trade agreement (FTA) between the United State and Columbia looks to be on the way to completion, much like an agreement worked out with South Korea before it. The president believes it will be a boon for small business exporting efforts.

President Barack Obama and Columbian President Juan Manuel Santos reached to an agreement on labor improvements, such as rights of those who unionize and labor workers’ safety in once crime-plagued Columbia, long seen as a significant stumbling block to completing the FTA. Perhaps buoyed by China’s attempts to build trade inroads with the nation, it’s now the second of three trade agreements started during the Bush Administration. The framework of the Columbian FTA was forged in 2006. 

“The United States has an enormous interest in the development of Latin America and an enormous interest in progress in Colombia,” said Obama. “President Santos I think is at the forefront of a progressive and thoughtful agenda within Colombia. He’s obviously initiating a whole range of reforms…This [FTA] represents a potential $1 billion of exports, and it could mean thousands of jobs for workers here in the United States. And so I believe that we can structure a trade agreement that is a win-win for both our countries, and I’m looking forward to working with President Santos to ensure that both countries benefit. And this will help me meet my goal of making sure the United States has doubled exports over the coming years and that we’re as competitive as we can be in a global marketplace in the 21st century.”

(Note: To view the White House-approved details of the now imminent FTA, see the fact sheets by clicking the highlighted link).

Brian Shappell, NACM staff writer

The central banks and governments for a pair of key targets in small business exporting took very different paths this week in fighting growing inflation. China’s central bank, concerned with its economy getting significantly more overheated than it already has, tried again to pump the brakes this week by raising interest rates. It’s a decidedly different track than is being taken in Brazil.

The People’s Bank of China announced it would raise its rates by 25 basis points, the second time this year it has opted to make such a move. The move was perhaps more surprising in its timing, very close to the last rate hike, than its inevitable appearance. China is contending with, among other things, an inflated housing bubble not too different from the one that propped up and eventually destroyed U.S. economic growth during the middle of the last decade. 

Brazil, acknowledging inflation is a real issue within the growing economy, in essence said it will a take a sort of wait-until-next-year approach to addressing the problem. Officials in the administration of new President Dilma Rousseff, who has a history of being leftist and pro-labor, this expressed concern and/or disinterest in making more significant efforts toward slowing down booming economic growth there. The central bank predicted it will usher in monetary policy tightening sometime in 2012 to curb inflation though, if it is playing catch up, may have to tighten significantly more than it would if addressing the issue this year.

“In fairness to the Brazilians, they do at least recognize the problem and have taken action (albeit with limited results) by raising interest rates twice since late December...policymakers in Brazil are challenged on a variety of fronts,” said Economist Byron Shoulton, of FCIA Management Co., a speaker/panelist at FCIB’s I.C.E. Conference in Chicago.

(Note: More on the varied approaches to inflation-fighing by China, Brazil and the U.S. in this week's eNews, available Thursday afternoon. For more information on or to register for the I.C.E. Conference, visit www.fcibglobal.com).

Brian Shappell, NACM staff writer

In a move designed to increase opportunities for U.S.-based exporters, Ex-Im Bank of the United States is investing in a series of infrastructure projects in new economic hotbed Brazil. 

Ex-Im, the nation’s official export credit agency, authorized $1 billion this week to help grease the wheels, so to speak, for exporting of goods and service to be used in a serious of infrastructure projects around Rio de Janiero. Among them, will be stadiums and other venues related to Brazil’s sought-after status as host to both the FIFA World Cup (soccer) and the Olympics within the next decade. The $1 billion in financing will be available for the state of Rio de Janiero to borrow to finance purchasing supplies from U.S.-based companies to complete the work.

“Brazil is an emerging economy with extensive infrastructure needs, and this authorization will provide further opportunities for American exporters and small business owners…it is important that we encourage our businesses to compete globally,” said Ex-Im Chairman/President Fed Hochberg.

Note: In-depth sessions focused on doing business in Brazil will be featured both at NACM’s 2011 Credit Congress in Nashville in May and FCIB’s 2011 I.C.E. Conference in Chicago in April. Click the highlighted links for information on each event or to register. See more on Brazil in the upcoming edition of NACM eNews, available on the afternoon of March 31.

Brian Shappell, NACM staff writer

President Barack Obama delivered the annual State of the Union address with a bit less of a partisan, pep-rally atmosphere than has been present at the speech in recent years, and it certainly carried far from celebratory tone over achievements of the last year. Much of the speech read like jet another open love letter from the president to the business community, especially smaller operations, that White House is serious about improving conditions for U.S. industry. Though much of the speech revolved around looking forward, "doing better" and "reinventing ourselves, Obama quickly and decisively pointed out ways the administration was willing to extend the olive branch to businesses. Key among them was restating the plan unveiled in January to eliminate unnecessary regulatory overlap, such as 12 different agencies having a hand in certain business mandates or, in a somewhat joking aside, that two departments are responsible for salmon, pending on what part of the production process the industry is in. Additionally, Obama shined a light on an issue dear to the GOP: trade. He made no less than four references in the speech to South Korea, with whom the United States just signed a new free trade agreement. He also strongly reaffirmed the plan to step up exporting activity not just in the long-term, but right now. The president also all but promised a huge push to amend last year's health care legislation to remove 1099 provisions that would lead to a heap of unnecessary, unwanted paperwork by U.S. businesses. Brian Shappell, NACM staff writer