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World Trader - August10
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Aug/Sept 2010
Volume 7 | Issue 5

World Trader

From the President

Upcoming Events

Emerging Market Perspective: A Series on South American Trade & Culture
by Paul Hanscom

Chilean Mining Company Strikes Gold (or Copper) in Possible Minnesota Partnership
by Jason Lloyd

President Obama Speaks on Export Control Reforms at BIS 2010 Update

State/DDTC Settles ITAR Charges Against Xe Services LLC for $42 Million

What Creates a Tax Presence in the UK?
from Blick Rothenberg

Registering an Establishment or Subsidiary
from Blick Rothenberg

U.S.–Latin America Trade: Recent Trends and Policy Issues
by J. F. Hornbeck

Centrallia 2010 Provides Access to Potential International Sales Opportunities
from Minnesota Chamber of Commerce

Member News

Who Said It?

The Grab Bag


From the President

by Mari McClafferty, MGTA President

Mari McClaffertyIt's time for the Minnesota State Fair – and the close of a busy summer for the Midwest Global Trade Association. In July, our host and MGTA Treasurer Mike Sanders, of C.H. Robinson, gathered leaders from the local agricultural community and the MGTA Board of Directors to provide input for President Obama’s National Export Initiative (NEI). The goal is to double exports in the next five years. Department of State Economic Officer Jennifer McAlpine-Dilem received feedback from our members asking about infrastructure improvements and CBP participation in the NEI. Keep connected to these topics on MGTA social networking sites.

Special thanks to John Novak, MGTA Board Director, and Sue Senger, MGTA Education Chair, for inviting Roy Becker to speak at General Mills on eliminating the mystique of letters of credit. Members from the audience won prizes by participating as the buyer, seller, freight forwarder, and banker. We all had some laughs while learning the secrets for getting paid. Roy really makes this challenging topic a joy to learn!

It was a beautiful August day at the Crystal Lake MGTA Golf event in Lakeville. I enjoyed greeting our members at the infamous MGTA margarita hole. Many of you reminded me how much fun I have had playing golf while networking over the years! (Check out the photos below.) Your donations with prizes and sponsorship really make this event fun! Thank you to everyone who contributed – especially the MGTA Events Committee! As always, Past President Sandy Taylor is active in supporting the event each year. This is the last year for two of our MGTA board members who have graciously volunteered their time over the years to make this golf event successful. We appreciate your efforts and time, Whitney Docken and Colleen Erickson!


The MGTA begins a new fall schedule of programs in the coming months, and we ask for your sponsorship. Click here for the various levels of recognition. We also invite you to give the gift of time, as our organization is an ALL-volunteer non-profit association. National Day of Service is September 11. Send us an email to sign up. Thank you in advance for your continued support!

I hear our next MGTA big event – September 28 at Cargill on the Incoterms changes with Frank Reynolds – is just about sold out. Register today at www.mgta.org.

I look forward to seeing you there!

Mari McClafferty, MGTA President

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Upcoming Events

Incoterms for Americans

September 28, 2010
Cargill, Wayzata, MN

Incoterms 2010 rules will come into force on January 1, 2011. This is the eighth Incoterms revision since their inception in 1936. During the 2 ½ year revision process, international business and legal experts considered more than two thousand recommendations from many of the 130+ countries with which the ICC has a relationship. The result is a vastly improved version, tailored specifically to the needs of users throughout the world.

Register now

October Seminar – Customs Audits

Focused Assessments and Common Problems Found & How Importers Can Avoid Audit Pitfalls

October 14, 2010

Speakers will address:

  • Focused Assessments (FAs) – background and scope
  • Common problems and areas of concern identified by regulatory audit in FAs
  • Other activities by CBP’s regulatory audit division
  • Steps importers should take before an FA to avoid problems and minimize potential exposure during an FA
  • Internal processes to manage critical elements of customs compliance in place
  • Audit war stories

Registration coming soon!

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Emerging Market Perspective: A Series on South American Trade & Culture

by Paul Hanscom

Paul Hanscom
MGTA Executive Director Paul Hanscom at the Chilean port city of Valparaiso

In March of 2010, Minnesota Governor Tim Pawlenty led a trade mission to Chile to extend post-earthquake assistance and to assess conditions in the heavily damaged region of Bio Bio. As recently as December of 2009, Pawlenty signed a partnership agreement with the Bio Bio region strengthening relations between the two and encouraging an expansion of education and trade opportunities.

I had the opportunity to visit Chile in May of this year during which time I assessed the state of recovery efforts in the capital city of Santiago as well as in the once-preeminent port city of Valparaiso. In 1536 the first European ship arrived in Valparaiso, Chile. From then until the opening of the Panama Canal in 1914, Valparaiso was a vital stop for all ocean-going traffic between the Pacific and Atlantic Oceans through the Straight of Magellan. When the Panama Canal opened it brought about an immediate and steep decline to the city’s role in global trade. Valparaiso remains an important port city to Chile and boasts some of the country's oldest and most interesting architectural and cultural attractions. In 2003 Valparaiso was dedicated as a World Heritage Site.

Minnesotans and Chileans have a long-standing, stable but often overlooked trade relationship. The University of Minnesota has been conducting agricultural research in Chile’s southern region since 1985. This partnership and others in the agriculture sector have blossomed due to the counter-season harvest seasons allowing for a more stable supply of agricultural products throughout the year.

If you find yourself in this corner of the world, I recommend a stop at Café Turri where you can get a view of the Valparaiso sea port, the rolling hills that will remind you of San Francisco, and a taste of traditional Chilean cuisine.

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Chilean Mining Company Strikes Gold (or Copper) in Possible Minnesota Partnership

by Jason Lloyd

Ely

Chilean Ambassador Arturo Fermandois recently visited Governor Tim Pawlenty at the governor’s mansion in Saint Paul. The visit was all business to discuss a possible copper nickel mine near Ely, Minnesota. The joint venture between Duluth Metals and Chilean mining company Antofagasta could create thousands of jobs in Minnesota. Pawlenty is very enthusiastic about this opportunity; he supports the positive job creation that it would provide within Minnesota as well as the new commercial relationship that would result with Chile.

Antofagasta has pledged $130 million over three years to study if the site is possible to build on the 3,000 acre site near Ely. Environmental concerns as well as long term impact of such a project have to be determined. Of greatest concern is the three mile proximity to the Boundary Waters and what implications the mine may have on this revered state landmark. The Chilean company Antofagasta has a reputation of meeting environmental standards in Chile; it will be years before the project would move forward after numerous studies and proposals.

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President Obama Speaks on Export Control Reforms at BIS 2010 Update

President Obama made videotaped remarks on U.S. export control reform to those attending the BIS 2010 Update Conference on August 31. Click here for a copy of his remarks and here for a White House press release relating to his remarks.

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State/DDTC Settles ITAR Charges Against Xe Services LLC for $42 Million

The U.S. Department of State's Directorate of Defense Trade Controls (State/DDTC) has announced that Xe Services LLC (formerly EP Investments, LLC a/k/a Blackwater) has entered into a civil settlement for alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). Per the Proposed Charging Letter, Xe allegedly committed 288 violations of the ITAR involving the unauthorized export of defense articles and provision of defense services to foreign end-users in multiple countries between 2003 and 2009. These violations did not involve sensitive technologies or cause a known harm to national security. The Department notes that many of the alleged ITAR violations occurred while Xe was providing services in support of U.S. Government programs and military operations abroad between 2003 and 2009. Under the four-year term Consent Agreement, Xe will pay in fines and in remedial compliance measures an aggregate civil penalty of $42 million to complete settlement of civil violations. $12 million of this amount will be suspended for pre-and post-Consent Agreement remedial compliance measures. The Department has determined that an administrative debarment is not appropriate. It is also rescinding the general policy of denial on license applications with respect to Xe (see 75 Fed. Reg. 52385) because the Department is satisfied that the company has taken the necessary steps to address the causes of its ITAR violations, identify compliance problems, and resolve these violations. Xe replaced senior management; established in October 2008, an independent Export Compliance Committee to oversee its remedial compliance efforts; improved ITAR compliance procedures; conducted various ITAR training; and conducted a targeted ITAR audit to confirm the effectiveness of its compliance measures. Also, Xe has entered into a civil settlement with the Department to resolve outstanding allegations, institute external compliance oversight, and continue to improve compliance measures. Based on these and other conditions imposed under the Consent Agreement, the Department has determined that the policy of denial is no longer necessary. Click here for copies of the draft Charging Letter, Consent Agreement, and Order.

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What Creates a Tax Presence in the UK?

from Blick Rothenberg, Establishing a Business in the UK

UK legislation provides that a UK corporate entity will be subject to UK tax. Furthermore, an overseas entity trading in the UK is likely to be subject to UK tax as well, but principally only on its activities in the UK.

The issue to be considered is whether an activity creates a UK tax liability and, if so, what type of entity the overseas company should establish.

The right entity – trading with, or in the UK

Where a company is trading with the UK (i.e. has customers in the country to whom goods or services are sold), there is unlikely to be a need to establish an entity and comply with various related regulations (there is one exception in relation to Value Added Tax).

Where a company is trading in the UK, there are a number of factors to be considered. In many instances, an overseas business will initially wish to research the market to see if it makes commercial sense to establish a presence in the UK. This may either involve making frequent visits to the UK (this booklet does not consider any work permit issues) or having someone based here on a more permanent basis. The role of this individual will be to research the market, maybe make initial contact with potential customers, send out marketing literature and other similar promotional activities. In tax terms, these are generally known as preparatory or auxiliary activities and commonly do not give rise to any corporate tax implications.There is a need to register as an establishment which is considered in the next section on page 06. Local tax advice should be sought to determine whether the activities of the establishment fall outside the scope of UK corporate tax. The activities outlined before may result in the conclusion that there is a market for the company’s goods/services in the UK and even the wider European market.

Alternatively, the overseas company may decide at the outset that there is an existing or potential market for it and would proceed to establish a presence in the UK, which would have a corporate tax presence. In such circumstances the overseas company needs to consider whether to register as a taxable establishment (formerly referred to as a ‘branch’) or a subsidiary.

Establishment or subsidiary

We consider the procedures for registering an establishment or subsidiary below. This section considers the issues overseas companies need to consider in choosing the correct entity. An establishment is not a separate legal entity from the parent company but merely an extension operating under the laws of another jurisdiction. As such, it does not provide the limited liability that a subsidiary company does. If the nature of the business is such that it is important to ring-fence liabilities arising in a specific jurisdiction, the subsidiary will afford the safer option.

The other issue to consider is whether it is important for the overseas company to be seen to have a UK presence. Although an establishment and a company provide a UK presence, the perception is that a UK company is a local business with a greater sense of permanence. If this is important from a commercial perspective, you may wish to establish a subsidiary.

The costs of maintaining an establishment or subsidiary need to be taken into account and these have a correlation to the level of filing requirements, which are considered in the following sections.

Finally, is the group sensitive to the type and level of information that is publicly available about its business in its own jurisdiction? If it is, the subsidiary will be the better option. This is also considered in greater detail in the following section.

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Registering an Establishment or Subsidiary

from Blick Rothenberg, Establishing a Business in the UK

Establishment

The process of registering an establishment involves the overseas company filing a form giving details of its shareholders and directors. It also needs to submit with the form a certified copy of its memorandum and articles of association (company bylaws or equivalent). If these are not in English, they need to be translated. The form needs to provide details of the UK address from which business is going to be conducted. The process of registering an establishment can take up to three weeks but can be less if the documents mentioned above are readily available.

Subsidiary

A subsidiary is also very easy to establish. There are no statutory consents that need to be obtained prior to setting up the company. A company can be formed by submitting a form providing the consent of at least one person who is prepared to act as a director. As of April 2008, there is no longer a requirement to formally appoint a company secretary, although there is still the requirement for the functions of a company secretary to be undertaken. This function is normally outsourced.

It is normal for a company to have at least two directors to allow for greater efficiency in managing the company, should one director be absent.

There is no requirement for an officer to be resident in the UK.

There is no requirement for the company to have a minimum amount of issued share capital.

Such a company is normally formed with one £1 issued ordinary share. Paid up capital can be increased at the time that the company is formed or later, depending on commercial requirements.

The name chosen for the company must not be the same as, or similar to, an existing company’s name. It therefore makes sense to register a company as soon as a decision is made to establish a UK presence.

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U.S.–Latin America Trade: Recent Trends and Policy Issues

by J. F. Hornbeck, International Trade blog

Trade is one of the more enduring issues in contemporary U.S.-Latin America relations. Latin America is far from the largest U.S. regional trade partner, but historically it is the fastest growing one. Between 1998 and 2009, total U.S. merchandise trade (exports plus imports) with Latin America grew by 82% compared to 72% for Asia (driven largely by China), 51% for the European Union, 21% for Africa, and 64% for the world. Mexico composed 11.7% of total U.S. merchandise trade in 2009 and is the largest Latin American trade partner, accounting for 58% of the region's trade with the United States. This trade relationship is a the result of a long history of economic integration between the two countries. By contrast, the rest of Latin America together makes up only 8.3% of U.S. trade, leaving significant room for growth.

Latin American countries have made noted progress in trade liberalization, reducing tariffs significantly and entering into their own regional agreements. This development presented an opportunity for the United States, which has supported deeper regional integration in part because it has been widely viewed as beneficial for both economic and foreign policy reasons. The United States has implemented comprehensive bilateral or plurilateral reciprocal trade agreements with most of its important trade partners in Latin America. These include the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), and bilateral FTAs with Chile and Peru. FTAs with Panama and Colombia have been signed but not implemented, pending congressional action.

Many of the largest economies in South America, however, are not part of U.S. FTAs and have resisted a region-wide agreement, the Free Trade Areas of the Americas (FTAA), in part because it represented an extension of the same trade model used by the United States in bilateral agreements. Countries south of the Caribbean Basin have been reluctant to enter into such a deal because it does not meet their primary negotiation objectives. Brazil, Argentina, and Venezuela are less compelled to capitulate to U.S. demands because they are far less dependent on the U.S. economy than countries in the Caribbean Basin, do not rely on previously existing unilateral preferential arrangements, and would have to redefine their subregional trade pacts.

The result in the Western Hemisphere has been an expansive system of disparate bilateral and plurilateral agreements, which are widely understood to be a second best solution for reaping the benefits of trade liberalization. Alternatives to a new round of currently unpopular FTAs are being debated. It has been suggested, for example, that FTAs be revised, enhancing controversial environment, labor, and other chapters. The response in Latin America, however, has been tepid. Another option is to move incrementally toward harmonization or convergence of the vast array of trade arrangements in the Western Hemisphere by adopting administrative solutions where possible, without renegotiation. One example is to expand rules of origin and cumulation provisions.

With respect to FTA implementation, another critical issue is the provision of trade capacity building and other technical assistance to address supply-side constraints in areas such as port and customs operations modernization, infrastructure investment, technology enhancement, and development of common standards in general. These are often major constraints to the more fluid movement of goods in Latin American countries. It is uncertain what the next step in Western Hemisphere economic integration may be, and these alternatives may be difficult to implement and monitor. However at the margin, they could provide benefits in light of the apparent hiatus in moving ahead with either a multilateral or hemispheric trade accord.

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Centrallia 2010 Provides Access to Potential International Sales Opportunities

from Minnesota Chamber of Commerce

Be a Part of the Minnesota Business Delegation

Would your company like to access 12 prequalified potential international customers in one central location? If your answer is "yes,” then be sure to register and attend Centrallia 2010 on October 20-22 in Winnipeg. The Minnesota Chamber, through its Grow Minnesota! program, is leading the Minnesota delegation.

ElyCentrallia 2010 is the opportunity to meet and pitch your company’s products and services to up to 12 prequalified potential customers/clients. The vast majority of these potential customers/clients will be from outside the United States. Since this meeting is being held in Winnipeg it provides a very affordable option for Minnesota companies that want to begin or expand their exporting. Your cost to make the pitches is $850, plus transportation and lodging. Centrallia 2010 is an efficient and cost-effective way to reach potentially 12 new customers/clients in a single swoop!

The Winnipeg Chamber in partnership with ANIM, Manitoba’s bilingual trade agency, will host Centrallia 2010. The distinctive business-to-business matchmaking forum will bring more than 500 small and medium-sized enterprises from around the world to Winnipeg. Check out the event details at www.centrallia.com.

To date, more than 70 world delegations have committed to attend including Belgium, France, Poland, Romania, Russia, India, Mexico, Argentina, Chile, Colombia, Algeria, Burkina Faso, Cameroon, Egypt, India, Ivory Coast, the United States and Canada.

Lodging in Winnipeg near the venue is limited. For early registrants, the Minnesota Chamber Grow Minnesota! has reserved a block of 20 rooms at the Radisson, walking distance from the event. These are available by contacting the Minnesota Chamber, and they are on a first come basis to registered members of the Minnesota delegation. The block of rooms will be held until September 10.

To register as a member of the Minnesota Chamber delegation, click here. Registration deadline is September 30.

For additional information, contact Bill Blazar, Minnesota Chamber senior vice president of public affairs and economic development, at (651) 292-4658 or bblazar@mnchamber.com.

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Member News

Do you know an MGTA member who was recently promoted or hired to an import/export company? Share the good news with your industry colleagues by emailing jonathanpixler@centurylink.net.

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Who Said It?

"Nearly all men can stand adversity; but if you want to test a man’s character, give him power.”
– Abraham Lincoln

"No amount of business school training or work experience can teach what is ultimately a matter of personal character.”
– Truett Cathy

"It matters not what a person is born, but (whom) they choose to be.”
– J.K. Rowling

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The Grab Bag

When working in an international context with college students, I was always coming across interesting articles or pieces of information. I began putting them in folders and one day I got the idea that it would be fun to provide all of these ideas for my students. In the same way, in international trade and business we all come across pieces of information that we find interesting and would like to share with others. We would love to hear from you our readers what kinds of interesting articles or ideas you have and then put them in our reader's "Grab Bag."

Russian Drought Sends Wheat Soaring

by Jameson Berkow, Financial Post

Russia’s worst drought in recorded history has sent wheat prices surging, providing some relief to Canadian farmers who have been dealing with weather issues of their own.

"The wheat market is blowing its lid off here,” said Louise Gartner, broker and owner of Ohio-based Spectrum Commodities. "Wherever it does stop in the very near term will most likely be the high for quite a while.”

U.S. wheat prices reached their highest levels since September 2008, rising as much as 7.5% to more than US$7 per bushel. Russia’s driest summer in 130 years has destroyed virtually all crops within an area larger than Nova Scotia and Prince Edward Island combined.

Russia’s government declared a state of emergency and a major Russian grain lobby warned the country’s grain exports could fall up to 50% as a result, possibly dropping as low as 11 million tonnes.

Increasingly dry weather and a severe plague of locusts in Australia, the world’s fourth-largest wheat exporter, also increased concerns of a falling global wheat supply. That helped drive Chicago Board of Trade wheat futures in July to their highest monthly gain in more than 50 years.

Ms. Gartner expects the wheat futures market to peak about US$7.50 per bushel.

"The market appears to be nearing the end of its rally, which is nothing less than astonishing,” she said.

That is good for Canadian wheat producers, having suffered earlier from an overly rainy spring planting season. "It’s unfortunate that a tragedy in another part of the world is to our benefit, but certainly if their crop is going to come up short this year, that would create a little more demand for what we produce,” said Kevin Bender, president of the Western Canadian Wheat Growers Association.

"We have our own issues at home, though, with a much higher percentage than normal of the Prairies still left unseeded because it was so wet this spring,” Mr. Bender said.

He managed to get his own farm outside of Red Deer, Alta., seeded, though some farmers in central Canada only managed to seed 10% to 50% of their land.

However Mr. Bender said even farmers who were unable to seed enough of their fields to turn a profit upon harvest stand to benefit from the fierce rally in grain prices.

"Some crop-insurance programs will sometimes pay based on the price of what the commodity is, so if the commodity price goes up they can sometimes be entitled to a higher insurance payment,” he said.

According to Ms. Gartner, the drought takes Russia, which has been the world’s top wheat exporter for the past three years, away from the export market, leaving the United States primed to reclaim the No. 1 spot. Russia, the United States, Canada and Australia are usually the top four wheat exporters.

"The buyers will go where they know they can get the supplies and right now that will certainly be the United States,” Ms. Gartner said, though she cautioned Russia will continue to be "fairly aggressive exporters.”

"Russia is still moving weight, they’ll want to retain at least the Egyptian market; that is a huge market for anybody and Russia worked very hard to get that market.”

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Thank you Newsletter Sponsor:

Port of Seattle

2010 Annual Sponsors:

 

ZepolCH RobinsonBremerUS Bank
HMMNeville Peterson LLP

© 2010 Midwest Global Trade Association. All Rights Reserved.
World Trader is distributed bi-monthly to MGTA members.
Articles submitted by our membership do not express the views of MGTA or the Board of Directors. If you would like to submit an article for publication in the World Trader, please contact the MGTA office at office@mgta.org.

Midwest Global Trade Association
1000 Westgate Drive, Ste. 252 | St. Paul, MN 55114
p 651.290.7482 | f 651.290.2266 | office@mgta.org |
www.mgta.org



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