Oct 31

Mind the Gap: the G20’s Constant Quest for Success

It’s that time of year again. Fall foliage, Halloween trick-or-treating, and the next G20 Summit. As the chair and host, Australia, like others before it, want their Summit to be relevant and meaningful. According to the G20 Studies Director for Australia’s Lowy Institute Mike Callaghan what’s needed is “…a headline outcome, engaged leaders, a minimum of rhetoric, a focus on implementation, and clear evidence of cooperation between members.” He is right. However, his further emphasis on the need for increased involvement of G20 leaders in order to have meaningful outcomes is part of the problem, not the cure.

The problem can perhaps be summed up in the London subway’s recorded admonition to “mind the gap” – referring to the slightly too large space between the platform and the subway door. In the case of the G20, the gap lies between the lofty joint statements issued by G20 leaders and the reality of multiple global crises and domestic political priorities.

This year, the lofty goals include a recommitment to lift global growth by an additional 2 percent over five years; increased infrastructure investment; support for trade liberalization; combating tax evasion and avoidance through a new international tax code; and delivering further financial regulatory reforms. All are worthy issues that deserve the attention and support of G20 leaders.

But let’s face it, Mr. Obama is not likely to spend his last years as president of the United States trying to implement OECD recommendations on international tax principles, all of which would require changes to domestic laws. Likewise, Mr. Cameron is not likely to push for new financial industry regulations nor China’s premier for increased trade liberalization when they return to their own countries. Even if they wanted to expend the political capital to champion these causes back home, they would not be successful.

The top-down approach of relying on the cooperation and full engagement of G20 leaders to achieve tangible results is further hampered by the fact that some G20 members (the U.S., EU, Japan, Australia and Canada) have imposed economic sanctions against another G20 member (Russia). Yet another G20 member, Argentina, is in default; India vetoed the Bali agreement on trade facilitation; and the U.S. Congress continues to block an earlier G20 commitment to reform the IMF governance structure. Add to this the fact that many G20 leaders simply don’t like each other does not bode well for the Brisbane Summit.

What needs to change? Perhaps the model for the G20 should be turned on its head. Currently, the G20 has several side shows: Business 20, Civil Society 20, Labor 20, Think 20, and Youth 20. Officially, these groups serve to “inform” the G20 leaders. Some, such as the B20 hold their own summits and issue their own set of priorities and communiques. For example, the B20 infrastructure and investment task force notes that “by 2030, it is estimated that  ̴̴$60-70 trillion additional infrastructure capacity will be needed globally.” They highlight that “the greatest barrier to more private involvement in public infrastructure is the absence of a credible pipeline of productive, bankable, investment-ready infrastructure projects….” They go on to offer 6 steps that G20 governments should take in order to better engage business resources. However, while they note that “the business community is ready, willing and able to ‘step up’ and play its part,” it may be time for the private sector to take the reins and move ahead in areas it can tackle itself without the need for new national legislation or global treaties. If B20 members wait for new, healthy government budgets and the cooperation and full engagement of G20 leaders to bring about infrastructure initiatives, it will be a very long wait indeed.

In addition, many of the B-C-L-T and Y-20 groups either represent, or have the ability to reach out to, powerful domestic constituencies in the G20 countries. Business, labor or youth 20s can do more to develop grass-roots support for G20 economic priorities. As Callaghan points out, G20 leaders have failed “…to convince their own citizens of the forum’s relevance to their personal economic well-being.” A greater bottom-up role for the other “20s” could help when making the case that “transforming international taxation while driving financial innovation” is important to them and for their future. Perhaps then, when G20 leaders return home, they would have the political support and personal desire to make G20 goals a reality.

A common understanding and roadmap of the priorities of and challenges facing the 21st century global economy is important both at the top and from the bottom. Without change, the gap between top-down political statements and on-the-ground implementation will remain.

 

Permanent link to this article: http://www.alleyglobaladvantage.com/mind-the-gap-the-g20s-constant-quest-for-success/

Aug 28

From Détente to Distrust: G20 in the Crosshairs?

IMG_0407On September 5-6, Russian President Vladimir Putin will sit down with other G20 leaders in St. Petersburg.  The Summit will be held against an economic backdrop of mixed progress and great uncertainty and a geopolitical backdrop of increasing distrust.

Russia has organized its G20 presidency around three overarching economic priorities: growth through quality jobs and investment, growth through effective regulation, and growth through trust and transparency.  It’s the last of these three growth imperatives that stands to suffer most with Russia at the helm.

According to the G20 Research Group at the University of Toronto, trust is already the group’s central challenge.   Trust in the economy so business will invest and generate jobs, trust in the financial system, and trust in citizens, companies and politicians to behave in a fair and law-abiding way.  I would add trust among the leaders themselves.  Without this, there is no reason to believe that G20 promises made are promises kept.

This is where things get sticky for President Putin.  Since assuming the Presidency of the G20 the list of issues where Russia and the United States are on distinctly opposite sides has grown.  From Syria to Snowden and from banning Americans from adopting Russian children to criminalizing ‘homosexual propaganda’, Putin’s increasing hostility to the West and human rights abuses in his own country could undermine the success of the G20 Summit.

Why is this important?  To the extent the G20 can be credited for containing the crisis, it has been decidedly effective in addressing global economic issues.  And while the crisis that galvanized the G20’s creation has abated, the world economy remains fragile. There is still work to be done.

Another of Russia’s overarching themes – growth through quality jobs and investment – is a case in point.  According to the UN International Labor Organization (ILO), unemployment in the G20 countries remains at ‘unacceptably’ high levels.  Over the past 12 months, while unemployment has dropped marginally in about half the G20 economies, it has risen in the other half.  From a high of 25% in Spain and South Africa to a low of 3% in South Korea, unemployment across the G20 countries averages about 9%.  Further, the ILO points out that among the 93 million unemployed in early 2013, about a third were jobless for over a year.

Effective regulation is the other overarching theme.  This primarily refers to the G20’s efforts to strengthen the global financial architecture and change the behavior of financial sector participants.  With respect to financial regulations, the U.S. is moving faster than the rest of the world.  Even ‘regulation ready’ Europe is opting for less vigorous banking reforms as it continues to struggle with its currency and sovereign debt crisis.  According to an August 2013 PwC regulatory brief, “U.S. regulators have indicated that they would sacrifice coordinated efforts and a level playing field for more robust approaches, even if that means going it alone.” A key uncertainty is whether the rest of the world will follow the U.S.’s regulatory drive and how this will impact the G20’s efforts.

Mr. Putin has his job cut out for him.  Whether he and the other leaders are able to make decisions in an environment of fundamental personal distrust, agree on policies to battle intransigent joblessness, and manage a go-it-alone attitude by the group’s largest member will certainly impact G20 credibility. At the end of day, we should hope that leaders of the world’s 20 largest economies will remember that while their worst fears may have receded, there is still much to be done.

Permanent link to this article: http://www.alleyglobaladvantage.com/from-detente-to-distrust-g20-in-the-crosshairs/

May 20

Data – the New Four-letter Word

After watching the movie “Enemy of the State’ on Netflix last night, I woke up thinking about “Data”.  While admittedly an odd thing to wake up to, a quick read of the news stories of the day only reinforced the subject.  Data – usually accompanied by the word ‘big’ is indeed a trending topic of the 21st century.

What exactly are we talking about when we talk about big data?  Big data is essentially the collection, collation, and assumed use of information about almost anything you can imagine.  It’s a central feature for financial institutions, cell phone companies, retail businesses, and defense and intelligence agencies.  New smart city initiatives collect data on neighborhood and individual water and electricity usage in hopes of changing user behavior by providing real-time feedback.  It ranges from cameras in the eyes of department store mannequins (to assess customer reaction to them) to cameras in unmanned drone aircraft flying over Iraq and Afghanistan.

And just how big is big?  Walmart, for examplbig-datae collects the equivalent of about 60 million five-drawer file cabinets worth of data every hour.  The unmanned drones flying over Iraq and Afghanistan sent back more than 24 years worth of video (if watched simultaneously) in 2009.  All-in-all, an estimated 1,200 exabytes (billion gigabytes) of data was created by mankind in 2010 and the amount grows exponentially each year.

Setting aside the obvious question of what, if anything can actually be done with this much information, a more important issue is at stake.  How is it being protected?  Indeed, for every story about big data there are an equal number of stories about privacy breaches, hacking and cyber attacks.

Companies and governments around the world are entering what has been termed a new IT-arms race.  The U.S., UK, China and Japan are reportedly spending on average more than US$ 1 million per day on securing their IT and other sensitive information.  In addition to guarding against data theft by cyber attacks, governments also realize that privacy and data protection are now major requirements in order to establish the necessary level of certainty that is essential for investment and trade to flourish. Companies now must put government dedication to high data protection standards and the institutions that ensure their enforcement high on the top of their list when they decide when, where and how to do business.

Thinking back to “Enemy of the State” and the ease with which the bad guys were able to obtain and misuse data – while it’s only a movie – learning to cope with and protect the deluge of data is assuredly essential.

Permanent link to this article: http://www.alleyglobaladvantage.com/data-the-new-four-letter-word/

May 08

Is Mexico (finally) Serious about Tackling Corruption?

204498-plusieurs-coupures-de-pesos-l-39-argent-du-mexique-de-la-monnaie-mexicaine-banco-de-mexico--macro-14

Mexico’s new President Enrique Peña Nieto has started his six-year presidency with a bang.  Not only has he struck a ‘grand bargain’ with the two opposition parties, but only months after inauguration the most powerful and most corrupt woman in Mexico, former head of the National Education Workers Union, Elba Esther Gordillo was arrested.  Warning shots are now being fired across the bow of the leader of the Oil Workers’ Union, Carlos Romero Deschamps.

Peña Nieto’s grand bargain – or what in Mexico is referred to as the “Pact for Mexico” — was signed by all three major political parties, Peña Nieto’s Institutional Revolutionary Party, the more conservative National Action Party which governed for the past 12 years, and most surprisingly the left-wing Party of the Democratic Revolution, and was unveiled on his first day in office.  This Pact lays the ground work for much needed reforms in areas previously considered untouchable by Mexico’s politicians including education, energy and telecommunications.  These reforms are arguably more politically and socially divisive than the U.S.’s need for entitlement and tax reform.

Step one appears to be neutralizing the leaders of the powerful workers’ unions that have controlled purse strings and political fortunes for decades.  In late February, within 24 hours, an education reform bill was signed into law and Elba Esther Gordillo, known as The Teacher, was arrested when her private jet landed near Mexico City after visiting one of her mansions in California.  As leader of the 1.5 million strong teachers union since 1989, she is accused of stratospheric amounts of embezzlement, corruption and organized crime.  The new education reform law strips the education workers’ union of the power to hire, fire and promote teachers and aims to improve teaching standards across the board.  In a country where only about 45 percent of students finish high school, this is no simple challenge.

Less than two months later, reports are starting to surface that the Secretary General of the powerful Mexican Oil Workers’ Union, Carlos Romero Deschamps, is again under scrutiny. Although claiming he has “nothing to hide”, one has to wonder how someone who officially makes approximately US $1,900 per month can afford to own a number of properties including a French castle and a collection of cars according to an article published in Vanguardia.  And Mexico’s top newspaper, Reforma, alleged on the front page of its Sunday edition that Deschamps has created his own little family business within Mexico’s state-owned oil company, PEMEX.  According to the article, his sisters, brothers-in-law, and numerous cousins hold jobs and draw large salaries and benefits for positions that don’t actually exist.  These fictional positions can be passed down to their heirs and are allegedly secure under contract until 2999.  Now that’s job security.

At the same time, lawmakers are formulating reform proposals and public relations campaigns that will allow some private investment in Mexico’s state-owned oil industry.  While no one is suggesting full on privatization, without new private-sector investment in exploration and exploitation technologies, infrastructure and production chain efficiencies, Mexico, with all its energy potential and oil reserves, will become a net fuel importer in less than 15 years.  While few deny that changes need to be made, 30 percent of the government’s budget is paid for with oil profits and the idea that national sovereignty depends on national monopoly over oil is engrained in every Mexican.  Needless to say there is little room for error.

If these two major initiatives weren’t enough, Peña Nieto has also vowed to dismantle Mexico’s telecommunications monopoly.  In which case, step two could include taking on the world’s richest man – Carlos Slim.

Make no mistake, these reforms are vital to Mexico’s future and will not be easy to implement. Although Mexico is the world’s 14th largest economy, it has the potential to become the world’s 8th largest by 2050.  However, pervasive poverty combined with one of the world’s largest gaps between rich and poor (according to the OECD, the differential between the top and bottom 10 percent is 27 to 1 in Mexico) is obstructing this goal.  Energy reform that brings greater economic growth and education reform that brings equality of opportunity is indeed a vision for the future.

 

Permanent link to this article: http://www.alleyglobaladvantage.com/is-mexico-finally-serious-about-tackling-corruption/

Mar 21

Ky. Voices: Mexicans staying home as economy improves, reforms

lady-libertyIt’s a great time for the U.S. to address immigration. Not only because it makes good political theater against a backdrop of changing electoral demographics, but because Mexicans are staying home.

Of the estimated 11 million illegal immigrants currently in the United States, well over half are from Mexico. By and large, they came to the U.S. pulled by the prospect of providing a better life for themselves and their children. One only has to read the inscription on the Statue of Liberty — “Give me your tired, your poor, your huddled masses yearning to breathe free” — to remember that the U.S. has always been a magnet for immigrants.

As former British Prime Minister Tony Blair once said: “A simple way to take measure of a country is to look at how many want in… And how many want out.” According to a 2009 global Gallup survey, roughly 700 million adults worldwide would like to move to another country if given the opportunity, and 165 million of these picked the U.S. as their top choice.

Yes, despite our dysfunctional politicians and lackadaisical economic performance, we’ve still got it.

However, what is changing is the motivation for migrating from Mexico to the United States. Despite the constant pull of the U.S. magnet, according to studies by the Pew Hispanic Center, migration from Mexico to the U.S. has been net zero since 2007, and this trend shows no signs of abating. While the reason for the fall in net Mexican migration is perhaps largely due to the impact of the financial and economic crisis on the U.S. economy, things are also changing south of the border.

According to the Heritage Foundation’s 2013 Index of Economic Freedom, Mexico’s economic freedom score is 67 (out of 100) making it the 50th freest economy among the 185 countries ranked. Its score is 1.7 points better than last year, reflecting notable improvements in investment freedom, trade freedom, and monetary freedom.

While this is good window dressing, more importantly, the unemployment rate in Mexico fluctuated between 4.5 percent and 5.4 percent in 2012, and GDP continues to expand at about 4 percent per year — numbers the U.S. would be thrilled to boast.

Of particular interest for the future of the business and economic climate are reforms enacted as 2012 drew to a close. In December 2012, Mexico enacted a new federal labor law, the first major update in 40 years. It purports to provide stronger protections to workers and wider flexibility for companies to adjust to changes in demand. The law establishes provisions that allow companies to dismiss employees more easily and employees can now be promoted on the basis of merit instead of only seniority.

At the same time, Mexico became the 89th member and only third Latin American country to join the Madrid Protocol. The Madrid Protocol makes protecting trademarks easier for foreign companies doing business in Mexico and Mexican companies expanding abroad. For example, if an American company applies to WIPO (World Intellectual Property Organization) and receives approval, its brand will automatically be protected in Mexico.

Ultimately, these and other measures aim to support the creation of new and better-paying jobs and increase Mexico’s global competitiveness. Reinforcing economic growth in Mexico will do more than walls, more razor wire or guns at the border will ever do. And, in the end, help put a win in America’s bipartisan political column.

Read more here: http://www.kentucky.com/2013/02/03/2501303/ky-voices-mexicans-staying-home.html#storylink=cpy

 

Permanent link to this article: http://www.alleyglobaladvantage.com/ky-voices-mexicans-staying-home-as-economy-improves-reforms/

Jan 23

New Year’s Resolution #1: Increase Business Overseas – 5 things to know before expanding south of the border

If your company has been sitting on the sidelines waiting for some semblance of certainty to return to the U.S. economy it could be a long wait.  Instead of yet another ‘wait and see’ year, now might be the time to grasp new opportunities and expand into overseas markets.  World trade is expected to grow approximately 5% in 2013 and then continue to pick up to about 6-7% a year in 2014-16.

 

 

Growing annually at well over 3%, Mexico’s economy is in the trillion dollar class.  It’s the United States’ 3rd largest trading partner and with 11 FTAs covering 44 markets, including with the US and Canada via the North American Free Trade Agreement (NAFTA), it has loudly embraced the free trade trend.

That said, big decisions should not be taken blindly.  Below are 5 things to know before expanding south of the border.

#1:  NAFTA is not a Customs Union

While all tariffs and quotas have been eliminated on U.S. exports to Mexico and Canada under NAFTA, NAFTA is not a customs union.   What’s the difference?  A free trade area is a group of states which have eliminated most or all tariffs and quotas on their trade.  A customs union, like the European Union, involves internal free trade (no border checks), but has a common external tariff. Its members surrender their separate commercial policies and give up the right to sign individual trade agreements. Instead, this must be done by the bloc as a whole.

In practice, this means that when doing business with Mexico, the goods are stopped at the border, inspected, documentation and required certificates are checked and verified. The process can be complicated and exporters should plan to hire an experienced freight forwarder and customs broker.  Also, it’s still necessary to check the tariff treatment of each product and understand that “NAFTA treatment” applies only to the U.S. content in a given product, not to any product shipping from the United States.

#2:  Think through Payment Options Carefully

Exporters often lose sales because of the payment terms they demand of Mexican buyers.  In Mexico, interest rates are high and there is a lack of financial options available for small- and medium-sized Mexican buyers.  Because financing is an important factor when these companies choose a supplier, firms that offer the most flexible credit terms often win the sale.  While securing payment is important, demanding a confirmed Letter of Credit or Cash in Advance may be a deal breaker.  Given this reality, exporters should consider the wide variety of payment terms available to them in order to be as competitive as possible.

#3:  Compare Wage Rates – Mexico vs. China

Investing in Mexico is also an option.  While low wages have never been the sole determining factor when companies decide where to site manufacturing facilities, combine wage factors with location and Mexico’s star starts shining even brighter.  The cost for an average factory worker in a Chinese industrial zone is more or less equal to a Mexican working in a maquiladora near the U.S. border with the average wage of a manufacturing employee in China between $1.65 and $1.85 per hour and Mexico ranging from $1.85 to $2.25.  Mexican workers typically produce more per hour than Chinese workers and work 4 hours more per work week.  Mexico also recognizes the need to improve its skills base and now graduates 55,000 engineers a year.

#4:  Access other Markets via Mexico’s many FTAs

Mexico has more trade agreements in place than any other country in the world.  It’s possible to take advantage of Mexico’s FTAs to gain preferential access to other markets.   Its FTAs give manufacturers access to 66% of the world’s GDP from a single place.  Some U.S. companies are already taking advantage of this by doing their R&D and design in the United States and their fabrication in Mexico in order to sell their product to Brazil. Of course, certain rules apply.  In order for your product to qualify it must meet ‘preferential rules of origin’ standards. In other words, the finished product must have a minimum percentage of local/regional content, which means, in most cases, having a local manufacturing or value-added partner.

#5:  Security is Important – but not a Make or Break Factor

Despite headlines to the contrary, Mexico can be described as a predominantly peaceful country with pockets of extreme violence.  For those exporting to Mexico, security is largely a non-issue.  For companies with FDI, or considering FDI, it is important for companies to be aware of these pockets of violence and manage business security risks (these include cargo theft, extortion, kidnap for ransom, etc) through developing and implementing effective security practices and policies.

Permanent link to this article: http://www.alleyglobaladvantage.com/new-years-resolution-1-increase-business-overseas-5-things-to-know-before-expanding-south-of-the-border/

Nov 26

In Greece, It’s the Culture, Stupid

As Greek debt approaches 200 percent of GDP, unemployment and social unrest continue to rise and the possibility of another round of defaults hangs in the balance, it becomes more and more apparent that underneath the tax evasion, corruption and uncompetitive business climate lies a culture that is perpetuating the economic crisis. That is not to say that Greeks are not hard working, or that most of them spend time marching in the streets and burning down the Christmas tree in Syntagma Square. However, in countless business and personal interactions with Greeks, some common themes emerge.

First, and perhaps most importantly, is the lack of a ‘win-win’ philosophy. The belief that someone is continually taking advantage of you permeates personal and business relationships in Greece, effectively stopping any win-win scenario in its tracks. In line with that thinking, in order not to be taken advantage of, your goal must first be to take advantage of the other person, or business partner. In Greece, life is a zero-sum game.

For the full text of this article see November 15, 2012 RealClearWorld.

 

Permanent link to this article: http://www.alleyglobaladvantage.com/in-greece-its-the-culture-stupid/

Sep 20

G-20 and the Real Economy: Bridging the Divide

In response to a question regarding whether anyone has studied the cumulative effect of the financial reforms and the impact of these reforms on credit availability and economic recovery– U.S. Federal Reserve Chairman Ben Bernanke stated, “I can’t pretend that anybody really has. It’s just too complicated.”

“The financial crisis that first rocked advanced economies in 2007, and whose aftershocks continue to reverberate around the world, mobilized G-20 policy makers to devise new rules aimed at mitigating risk in the global economy. It also led many businesses to seek new business models and recalibrate investment decisions in light of the expected shifts in the policy environment in all major markets. While each new policy tries to address specific risks and perceived market vulnerabilities, the convergence of the new regulations on the non-banking sector is akin to experiencing a very long and drawn out earthquake, where the familiar ground of running a business is constantly shifting.”

So begins a booklet released by the U.S. Chamber of Commerce together with the B20 business federations.  The booklet —  G-20 and the Real Economy:Bridging the Divide (pdf) brings together short stories from businesses in the United States, Germany, the Netherlands, Turkey and India as well as quotes from South Africa, Denmark and the United Kingdom.  It attempts to bridge the gap between the world as envisioned by shell-shocked regulators and that experienced by companies in major markets.

Overall, the booklet explores the following questions while at the same time providing a brief overview of a new global financial architecture that is evolving in response to the financial and economic crisis.

• Are there differences in the way the regulations are perceived by business in various G-20 markets?
• Could the new regulations add to economic volatility by limiting the way companies manage risk?
• Could the regulations create new business opportunities?
• Could they force companies to set aside cash that would otherwise be used for productive investments?
• Could the regulations create incentives for companies to move their business operations to new locations?

 

Permanent link to this article: http://www.alleyglobaladvantage.com/g-20-and-the-real-economy-bridging-the-divide/

Aug 31

Trade Tip Snapshot #2: What’s The Deal?

“Most human beings have an almost infinite capacity for taking things for granted.”  Aldous Huxley

One characteristic the best exporters have in common is a commitment to meeting all the agreed upon expectations of the buyer.  While this may sound obvious, the devil is in the details.  Best intentions aside, an exporter’s (or importer’s) downfall could lie in assuming that they both understand and agree on the terms of sale – these details are simply taken for granted.

For example, your goods are damaged during transport – where does the risk of loss transfer?  Who’s responsible for loading and unloading the goods?  Who’s responsible for paying the import duties?

These and other aspects of the agreement are considered the terms of sale and should clearly be set forth in the written contract using Incoterms®.  Dating from 1936, Incoterms® are pre-defined, globally accepted commercial terms which clearly communicate the tasks, costs and risks associated with commercial transportation and delivery of goods between the buyer and seller.   A veritable alphabet soup of transport acronyms, they help traders avoid costly misunderstandings.  The latest version, “Incoterms® 2010”, sets forth 11 terms of trade.  Some apply to all types of international sales and some are designed specifically for goods shipped by sea or another body of water.

Note, when you are quoting internationally, international and domestic terms of sale can have different meanings.  Also, in global trade, “delivery” refers to the seller fulfilling the obligation of the terms of sale or to completing a contractual obligation. “Delivery” can occur while the merchandise is on a vessel on the high seas and the parties involved are thousands of miles from the goods.

 Incoterms® 2010:  Who’s Responsible for What?*

 

Acronyms Unlocked:

EXW: EX-Works  // FOB: Free On Board  // FCA: Free Carrier // CIF: Cost, Insurance & Freight

CPT: Carriage Paid To // CIP: Carriage & Insurance Paid To // DDP: Delivered Duty Paid

FAS: Free Alongside Ship // CFR: Cost & Freight // DAT: Delivered At Terminal // DAP: Delivered At Place

* This table by no means spells out all the obligations under each term.

Incoterms® and Incoterms® 2010 are registered trademarks of the International Chamber of Commerce.

Permanent link to this article: http://www.alleyglobaladvantage.com/trade-tip-snapshot-2-whats-the-deal/

Aug 14

Trade Tip Snapshots – “Can I Have Your Number?”

You know the old saying ‘no news is good news’ – unfortunately, these days the news is plentiful.  While the panic of 2008 has subsided, it has left behind disheartened workers, anxious consumers as well as companies stuck in a murky bog of uncertain regulation.  That doesn’t mean there are not bright spots deserving of some attention.

United States exports of both goods and services were worth $185 billion in June of 2012.   In fact, June exports of goods ($131.4 billion) were the highest on record.  So, despite the lingering malaise, America’s private sector has not packed its bags and gone home.  Instead, small and medium-sized businesses are exploring ways to increase sales by ramping up their export opportunities.  To help companies achieve success in their new export endeavors, below is the first in a series of ‘trade tip snapshots’ designed to help companies focus their efforts.

Snapshot #1: “Can I Have Your Number?”

Once you decide to export your product overseas – one of the first things you need to know is what, if any, tariffs are applied to imports of your product in the foreign market(s) you are exploring.  In other words, what duty rate will your customer have to pay?  To answer this question, you need to know your “Schedule B” number.

“Schedule B” numbers are the 10-digit codes assigned to an exported product.  They are based on the international Harmonized Schedule (HS) and the first 6 digits are international numbers (these numbers should be the same in every country) and the final 4 digits are country-specific.

You need this number to:

  • Know the tariff rate applicable to your product.
  • Know whether your product is eligible for a preferential import tariff under a Free Trade Agreement.
  • Know whether your customer will have to pay additional duties because your product is subject to an anti-dumping or countervailing duty order.
  • Complete your shipping documents.

To find your Schedule B number, you can look it up on line at http://www.census.gov/foreign-trade/schedules/b/.

As an exporter it is also your responsibility to know whether or not your product has an ECCN (Export Control Classification Number).  An ECCN is different from your Schedule B and is used to identify items for export control purposes.  All ECCNs will have 5 characters, for example, 1A001, 4B994, or 8D001. The first number corresponds to 1 of the 10 categories on the Commerce Control List (CCL).

The vast majority (about 90%) of all exported products do not have an ECCN and therefore, do not need an export license.  To determine whether your product needs an export license, review the CCL and consider the following questions.

  • What are you exporting?
  • Where are you exporting?
  • Who will receive your item?
  • What will your item be used for?

If your product does not have an ECCN it is designated as “EAR99”.  However, even if your product falls into this basket category you still need to consider where you are exporting to determine if you need a license.  Exports to embargoed countries and those designated as supporting terrorist activities such as Cuba, Iran, North Korea, Northern Sudan, and Syria are more restricted.

If you determine that your product does not need an export license (the most likely outcome), enter “NLR” (No License Required) on your export documents.

To wrap up, Tip #1 – be organized and prepared to answer the question – “can I have your number?”

Permanent link to this article: http://www.alleyglobaladvantage.com/trade-tip-snapshots-%e2%80%9ccan-i-have-your-number%e2%80%9d/

Older posts «