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World Trader - September/October
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An update from MGTA

Midwest Global Trade Association

World Trader

From the President

By Kylle Jordan, MGTA President

Greetings MGTA community! 
I hope you’re having a productive and stress-free summer!  I want to start by saying a huge THANK YOU to all of the volunteers, sponsors and golfers at our Golf Tournament last week!  We could not have put together such a great event without your help. The tournament was a smashing success – sold out, rain-free, and a ton of fun!  I am always impressed by the number of folks who fly in for the event, as well as the outstanding turnout from our local members each year.  As for me, this event is why I learned to golf, and after a few years I might actually give Jeanne Heilman some competition on that longest put!

I also hope you’ve had a chance to read about our fall line-up of events, our professional development committee is trying a handful of new ideas.  First, we’ll host an event in Red Wing on Sept. 13 on CBP’s Trade Transformation Initiatives.  Then in October, we’ll host our first 2-day event; focused on INCOTERMS and letters of credit.  Throughout the fall our membership committee has planned educational lunches on a variety of timely topics.  Our events are not only a great place to learn about issues in international trade, but also a great place to connect with industry peers.  Please check out our full line-up on our calendar of events!

Finally, in two weeks, the MGTA Board will have our annual strategic planning retreat.  We will be discussing goals for the organization and challenges to overcome – generally seeking to improve the organization.  Member input is always welcome, and I encourage you to contact me with any suggestions for improving the member experience.

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Upcoming Events

CBP’s Trade Transformation Initiatives

Tuesday, September 13, 2016
10:00 am to 2:00 pm

Red Wing Shoes
127 Main St
Red Wing, Minnesota 55066

View Details and Register Online


Global Trade Education Lunch

Tuesday, September 20, 2016
11:30 am to 1:00 pm

Cooper Irish Pub
1607 Park Place Boulevard
St. Louis Park, Minnesota  55416

View Details and Register Online


Exploring INCOTERMS and Eliminating the Mystique of Letters of Credit Do Other Options Exist?

October 12 and 13, 2016

C.H. Robinson
14800 Charlson Road,
Eden Prairie, Minnesota  55437

View Details and Register Online

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Ex-Im Bank Still Dealing with Political Opposition

By Todd Vollmers, JUX Law Firm

Many U.S. exporters are familiar with the Export-Import Bank of the United States (“EXIM Bank”), an independent federal agency that facilitates U.S. exports through private export financing (such as export credit insurance, working capital guarantees, and guarantees of commercial loans to foreign buyers). 

However, operation of the EXIM Bank continues to be a political issue.  Denounced by critics as a prime example of “corporate welfare”, there was a concerted effort by some factions in Congress to block renewal when the bank’s charter expired in July 2015.  Consequently, the EXIM Bank was unable to accept new business for five months until bipartisan support resulted in reauthorization being included in legislation signed into law in December 2015.

Since then, the EXIM Bank has been processing suspended and new applications, but a new issue has limited the bank’s operations.  The Board of Directors of the bank, composed of five members, must have at least three members to make a quorum.  In the absence of a quorum, the Board of Directors is unable to conduct any business, including consideration for applications of transactions exceeding $10 million.

Currently there are only two members serving on the Board of Directors of the bank, the president of the bank Fred Hochberg who serves as chairman of the board, and the First Vice-President Wanda Felton, who serves as Vice Chairman of the board.  The other three members of the Board of Directors are appointed by the President of the United States, by and with the advice and consent of the U.S. Senate. 

Senator Richard Shelby, chairman of the Senate Banking Committee, has so far refused to act on President Obama’s nomination of Mark McWatters to be a third member of the Board of Directors of the Bank, and allow it to make a quorum.  Although approximately 98 percent of the applications for help to the EXIM Bank have been for loans under $10 million, in dollar terms two-thirds of the bank’s export financing has been used for deals greater than $10 million. 

The lack of a quorum on the bank’s Board of Directors to approve assistance over $10 million has created issues, primarily for the customers of large-item manufacturers such as John Deere, Boeing, G.E., Westinghouse, and Caterpillar.  Currently, some 30 transactions worth more than $20 billion are on backlog and stalled until the EXIM Bank regains its quorum.

There has been a bipartisan effort in both the U.S. House of Representatives and U.S. Senate to bypass Sen. Shelby by allowing, for the next three years, that a quorum may consist of only two members on the Board of Directors.  In any case, political opposition continues to be a problem for the EXIM Bank and deals involving U.S. companies that rely on it.

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India Withdraws Barriers to Foreign Direct Investment

By Chris Broveleit, Navegate

On June 20th India’s ruling government withdrew many barriers and restrictions that had been limiting foreign direct investment into the Country’s economy.  The liberalization of the market and step away from India’s protectionist past was made most importantly in the areas of defense, retail, civil-aviation sectors, and media.  Unsurprisingly this has drawn the attention of many western corporations who see the possibility of things such as Apple and Ikea stores but also a new market for both growth and manufacturing for many of the aerospace and defense industries of the US, China, Russia, and Western Europe.  The move was made by Modi’s government in hopes to spur job growth and expansion of infrastructure in one of the world’s fastest growing economies. 

Single-Brand retailers now have been granted a three year grace period to meet the requirement of the government to source at least 30% of their manufacturing materials from Indian vendors.  Those vendors who are leaders in the tech realm will even be granted an addition 2 years, or 5 years total, to achieve the required minimum.  This is of course on the heels of Apple appealing directly to Modi’s government as recently as just January of this year.  The ability for tech brands such as apple to run their own stores in the world’s second biggest smart phone economy gives the brand the power to control its own story and image in such an important market.  These benefits are of course seen across the tech industry and have other smart phone and electronic manufacturers eyeing the Indian market with renewed interest.

While the retail rules will change the immediate face of the consumer world in India, perhaps the most long lasting effects will be felt from the countries decision to allow complete, or close to complete ownership of foreign ventures in key industries previously limited by the government’s protectionism policies.  Now foreign ventures can own up to 100% of defense industries, once given government approval, as well as 100% of broadcast services such as mobile television, networks, and subscription services.  

With the changes Prime Minister Modi is campaigning around the world “Make in India” and can boost that under his time in office foreign direct investment rose $40 billion or 29% in just one fiscal year.  The official press release from the government is proudly declaring India “the most open economy in the world”.

The change in India’s stance on foreign investment is sure to change the global economy and disrupt and birth new trade lanes for many industries.  In 2014 investment in electronic manufacturing in India from FDI was just above the 1 billion mark.   The 2015 fiscal year saw it end more than 10x the previous year at 13.5 Billion.  Exports from India unsurprisingly rose for the first time in 19 months in June, the same month of the liberalization of FDI, to $22.6 billion. 

With India actively working to attract direct investment in the high employing industries of engineering, electronics, retail, pharmaceutical and defense industries- it is no doubt that the effect will be felt and the opportunity be taken by global players across all geographies.  For the US in particular it is a chance for established brands, high tech industry, and the well-established American defense industry to expand to new markets where they will find a government desperate to provide labor for its growing economy and people. 

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First flights to Cuba to launch in August

By Thierry Ajas, Randstad Professionals

The United States has approved flights on six U.S. airlines to Cuban cities other than Havana, linking the former Cold War foes closer together, the U.S. Transportation Department said in a statement on Friday, June 10, 2016.

The green light lets airlines schedule flights to the communist-ruled island for the first time in decades. Until now, air travel to Cuba has been limited to charter services.

American will have nonstop service from Miami, the largest Cuban community in the United States; Southwest,  JetBlue and Silver Airways will fly from nearby Fort Lauderdale; Frontier will add flights from Chicago and Philadelphia; and Sun Country will serve Minneapolis.

A ban on tourism to Cuba remains part of U.S. law. However, President Barack Obama has authorized exceptions since the countries began restoring relations in December 2014. U.S. travelers must meet one of 12 criteria such as being Cuban-American or taking part in educational tours or journalistic activity.

Airlines expect a gradual, though potentially bigger payout from the flights than is typical for Caribbean destinations.

Strong demand will come from Cuban-Americans visiting relatives, leisure travelers desiring a once off-limits experience, and executives paying for business-class fares to evaluate commercial opportunities, experts said.

JetBlue announced that it will start flying to Cuba commercially on Aug. 31 — before competitors American Airlines and Silver Airways, which have also announced their departure dates.

Pending Cuban government approval, JetBlue would — so far — be the first U.S. commercial airline to fly to Cuba in more than half a century.

One-way flights will be $99, with round-trip from $210, including Cuba-required health insurance coverage and taxes, making it the lowest Cuba fare announced so far by a commercial airline.

Airlines have applied for nearly triple the 20 daily round-trips that Cuba and the United States agreed to permit to Havana. In extensive filings, each argued why it is suited for the coveted routes and why others would offer inconvenient connections or higher fares.

JetBlue has also tentatively been awarded four daily flights between Havana and Fort Lauderdale, New York City and Orlando. Neither JetBlue nor American, which was awarded five daily flights to Havana, have announced what dates they will fly to the Cuban capital.

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Why Now's (Still) the Right Time to Go Global

By Morgan McGrath, Head of International Banking, Commercial Banking, J.P. Morgan

Results from the 2016 JPMorgan Chase Business Leaders Outlook report revealed that executives are more pessimistic about the global economy than they have been since the survey began, in 2011. Only 10 percent of executives said they were optimistic about the global economy in 2016, and 49 percent said they were pessimistic about it.
To some, this sharp hike in pessimism might feel distressing—what are the implications of executives' increased negativity toward the world economy?

However, this isn't really much of a surprise, especially considering that the time period in which respondents took this survey, in early January, was marked by turmoil in the equities, commodities and foreign markets. For example, currency markets were still rumbling from the repercussions of the Chinese renminbi's drop-off last August, and the energy market is still trying to navigate through the consequences of low oil prices.

What's really worth paying attention to is that despite the rise in global pessimism, companies are increasingly expanding into overseas markets, and this is a trend that we see year after year. In 2016, 60 percent of the midsize businesses surveyed have operations or sales outside the US, compared to 57 percent in 2015. This year's survey results also showed that 70 percent of executives believe their overseas sales will increase over the next five years—which is very encouraging.

In 2016, 56 percent of businesses that have operations overseas expect the number of countries they operate in to increase over the next five years. Midsize companies are not only committed to expanding overseas, but they're also increasing the number of offices they have outside the US, with plans to increase even more, particularly in Europe, Asia and Latin America.

It’s typical for midsize companies to accelerate their global expansion once they set up overseas, reaching an inflection point when entering their fourth or fifth country. This trend is not just limited to large companies either, seeing demand for companies with revenue under $100 million, as well as for those over $250 million.

Considering the dim outlook toward the global environment, it begs the question: Why are businesses still choosing to expand internationally? There are usually three main drivers for going global:

  1. They Want to Grow

    Growth may be an obvious answer, but it's a relevant one. To compete in an increasingly global marketplace, midsize businesses know that they need to engage overseas. When surveyed about the main objectives for their international activities, 73 percent said that access to new customers and/or markets was at the top of their list. The third most-cited response was to better serve domestic customers with global operations.

  2. They Want to Support Their Supply Chain

    If your suppliers are operating abroad, or if you're the supplier for a business that operates abroad, effective supply chain management and support can be a key reason why it's beneficial to cross borders. The executives surveyed agree: Access to suppliers and/or materials was the second-most-cited reason they gave for their international objectives.

  3. They Want to Better Manage Costs and Get Closer to Their Market(s)

    There are true cost savings to expanding into a country or region where operational costs—like logistics, labor and manufacturing—are cheaper. With 95 percent of the world’s consumers living outside the US, companies also find that expanding into markets where they sell or buy can have positive implications on their bottom line.

Although executives expressed concerns about challenges overseas, they project positive international growth over the next few years. The pessimistic outlook towards the global economy is not translating into reduced overseas business, recognizing that growing globally can provide access new customers, suppliers and materials—and help firms stay close to customers with global operations.

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Canada-Ukraine Free Trade Agreement

By Jakub Kowalczyk, Purolator

On July 11, 2016, the Government of Canada and Ukraine signed the Canada-Ukraine Free Trade Agreement (CUFTA). This represents an important milestone in the Canada–Ukraine bilateral relationship and will create new opportunities for businesses in both countries.
The provisions of the Agreement on free trade between Ukraine and Canada provide, in particular, the deepening of trade and economic cooperation, including trade in industrial and agricultural goods, intellectual property protection and regulation of public procurement

What is CUFTA
The CUFTA is a trade in goods agreement.  It does not cover services or investment.  The Ukraine will immediately eliminate tariffs on 86% of Canada’s current exports, with the balance to be phased out or subject to tariff reductions over seven years.
In turn, Canada will immediately eliminate tariffs on 99.9% of current imports from Ukraine. This includes elimination by Canada of tariffs on all industrial products, fish and seafood, and 99.9 percent of agricultural imports from Ukraine

What is the impact of CUFTA
In 2015, bilateral trade between Canada and Ukraine increased by 13.9 per cent over 2014, totaling almost $278 million.

  • Canada’s exports to Ukraine totaled over $210 million in 2015. Examples of products imported by Ukraine include pharmaceuticals, fish and seafood, and coking coal.
  • Canada’s merchandise imports from Ukraine totaled more than $67 million in 2015. Major imports included fertilizers, iron and steel, and anthracite coal.

The Canadian government projects that the deal could boost bilateral trade between the two countries as much as 19 percent.

  • Canadian exports to the Ukraine should jump by around $32 million USD
  • Ukrainian  exports are expected to increase by about $23.7 million USD
  • Canada and Ukraine will now proceed with their respective domestic implementation processes in order to bring CUFTA into force.

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Country of the Month: India

By Euler Hermes

The English name “India” derives from the Indus River, a country of 29 states and 7 union territories.  English enjoys the status of subsidiary official language but is the most important language for national, political, and commercial communication; Hindi is the most widely spoken language and primary tongue of 41% of the people; there are 14 other official languages.  Despite pressing problems such as significant overpopulation, environmental degradation, extensive poverty, and widespread corruption, economic growth following the launch of economic reforms in 1991 and a massive youthful population are driving India's emergence as a regional and global power.

 GDP

USD2066.9bn (World ranking 9, World Bank 2014)

Population

1267.4bn (World ranking 2, World Bank 2014)

Form of state

Federal Republic

Head of government

Narendra Modi (Prime Minister)

Next elections

2017, Presidential

Strengths:

  • Stable democracy, with peaceful changes of government
  • Large internal market, providing some insulation from global business cycle
  • Successful diversification into manufacturing (motor vehicles) and services (including call centers, IT and biotechnology)
  • High annual GDP growth
  • External debt is low relative to earnings and repayment capacity
  • Strong foreign exchange reserves

Weaknesses

  • Vulnerable to natural disasters (including tsunami, droughts, floods and earthquakes)
  • The Kashmir region remains volatile and a source of potential conflict
  • The political system tends to engender coalition governments that lack the ability to push through economic reforms
  • Poverty remains pervasive and income distribution uneven
  • Structural weaknesses include inadequate infrastructure, current and fiscal account deficits and state involvement crowds out private sector initiatives in some sectors
  • Weak structural business environment

 

For more information on Euler Hermes Country Risk Reports:
http://www.eulerhermes.com/economic-research/country-risks/Pages/country-reports-risk-map.aspx

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Do you know an MGTA member who was recently promoted or hired to an import/export company? Know of a member who recently got married or had a new addition to the family? Share the good news with your industry colleagues by emailing Kylle Jordan.

September –
October 2016

From the President

Upcoming Events

Ex-Im Bank Still Dealing with Political Opposition
By Todd Vollmers, JUX Law Firm

India Withdraws Barriers to Foreign Direct Investment
By Chris Broveleit, Navegate

First flights to Cuba to launch in August
By Thierry Ajas, Randstad Professionals

Why Now's (Still) the Right Time to Go Global
By Morgan McGrath, Head of International Banking, Commercial Banking, J.P. Morgan

Canada-Ukraine Free Trade Agreement
By Jakub Kowalczyk, Purolator

Country of the Month: India
By Euler Hermes

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