September 18, 2014


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News Briefs

  1. Auto Stymies American Manufacturing in Rare Turn of Events, Still No Reason to Pump Brakes
  2. Pending US Trade Issues
  3. MasterCard Dealt a Blow in Europe over Interchange Fees
  4. Possible Fallout for Contractors Following Arizona Supreme Court Decision
  5. Have the Currency Wars Started Up Again?


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Auto Stymies American Manufacturing in Rare Turn of Events, Still No Reason to Pump Brakes

The Federal Reserve's index that tracks industrial production dipped 0.1 % in August and the index for manufacturing output fell 0.4%, marking the first declines in these indicators since January. Related automotive production and industries acted as a drag even though they have typically driven manufacturing growth in recent years, and notably so as recently as in July. But it is a rarity that is not expected to continue even as competition from its southern neighbor grows.

US auto companies slowed production by 7.6% in August in what has become an annual and somewhat unsurprising move during at least one of the summer months, though last year it happened earlier. Optimism remained high following the announcement among most market analysts that auto is in no way facing a downward trend in the United States. It echoes the confidence and optimism Fed contacts reported in the latest Beige Book economic roundup released earlier this month. In the report, manufacturers in the Philadelphia and Cleveland districts noted as strong a demand within auto as in nearly any other industry. Even the Atlanta Fed District, which showed an overall weakness in new orders and shipments, noted that motor vehicle producers and related industries represented a glaring exception within manufacturing in the region.

The US isn't the only market enjoying high demand and feeding it accordingly. Mexico continued to demonstrate its newfound auto manufacturing prowess amid widespread reports that Toyota is well into investigations of possible manufacturing sites in the country. With more than a half-dozen internationally based auto companies, including Kia and BMW, announcing this year their plans to build there, an entrance into Mexico by Toyota means virtually every major auto producer in the world will have operations there. And why not? Mexico's reputation as a production destination has been gaining significant steam in recent years for a host of reasons: solid infrastructure, business-friendly policies, strong trade pacts, auto production experience, cheap labor and a close proximity to the US' enormous consumer market and growing natural gas energy holdings.

- Brian Shappell, CBA, CICP, NACM staff writer

NACM's 2015 Credit Congress Call for Speaking Proposals - Last Chance!

NACM's annual Credit Congress & Exposition features impressive keynote speakers, informative sessions and immeasurable opportunities to build relationships.

Share your knowledge and insight with our delegates and invite your knowledgeable and expert peers to do the same by speaking at this venerable event.

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Pending US Trade Issues

In two prior eNews stories, the current proposals for reauthorizing Ex-Im Bank and the status of the TPA were reviewed. This issue will cover the Trans-Pacific Partnership (TPP). As noted previously, each has a direct impact on US businesses and their ability to compete in the global marketplace, which comprises 95% of all consumers and 80% of the world's purchasing power.

The Trans-Pacific Partnership (TPP) is a landmark, 21st-century trade agreement that could set a new standard for global trade and incorporate next-generation issues that could boost the global economic competitiveness of the countries involved. Its features include:

  • Comprehensive market access that will eliminate tariffs and other barriers to goods and services trade and investment;
  • A fully regional agreement that will facilitate the development of production and supply chains among the TPP countries; and
  • A focus on cross-cutting trade issues such as regulatory coherence, competitiveness and business facilitation, market access and trade benefits for small and medium enterprises (SMEs), trade in services, intellectual property protection and economic development.

The TPP is being negotiated as a single undertaking that covers all key trade and trade-related areas. In addition to updating traditional approaches to issues covered by previous free trade agreements, the TPP includes new and emerging trade issues. More than 20 negotiating groups have met to develop the legal texts of the agreement and the specific market access commitments the TPP countries will make to open their markets to each other's goods, services and government procurement.

History: The US is currently negotiating the TPP with 11 other countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam). It is hoped that over time, the TPP will include additional countries in the this region. If finalized, TPP would be the most comprehensive trade agreement in the Asia-Pacific region.

Benefits: The Asia-Pacific region accounts for half of the world's population and boasts many of its fastest-growing economies. Two billion Asians joined the middle class in the last 20 years. The IMF estimates that nearly half of the world's economic growth over the next five years will occur in Asia. The TPP countries are the largest goods and services export market for the United States. US goods exports to the broader Asia-Pacific totaled $942 billion in 2012, representing 61% of total US goods exported.

Status: After 19 rounds, the 12 TPP countries have made significant progress and the negotiations are moving toward the conclusion of a comprehensive agreement, but some doubt that it will be adopted before the next presidential election in 2016.

- Robert L. Brown, Bingham Greenebaum Doll LLP

FCIB Now Surveying: Western Europe

FCIB's International Credit and Collections Survey is the only monthly survey of its kind. The unique survey results, in conjunction with invaluable archived data, give participants critical insight into current and past global credit practices. Participation* enters you into a raffle for a chance to win a complimentary live or recorded one-day webinar of your choice from FCIB's Webinar Training Series.

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MasterCard Dealt a Blow in Europe over Interchange Fees

The highest court in Europe, in a review of a dispute that started with a European Commission mandate made nearly seven years ago, has ruled that multilateral interchange fees (MIFs) are contrary to competition law and, thus, are prohibited in the European Union.

The Court of Justice of the European Union on September 11 confirmed the Commission's December 2007 declaration that MIFs were to be banned as anti-competitive and a May 2012 General Court ruling dismissing MasterCard's appeal of the Commission mandates. The original Commission declaration found that MIFs set a floor under the costs charged to merchants, which amounted to restriction of price competition, and that those charging MIFs were unable to prove their presence would generate efficiencies or benefits for all parties that would justify such a practice.

The Court of Justice sided with the General Court’s finding that MasterCard was capable of functioning without MIFs. The Court of Justice chided the General Court for failing to analyze some situational effects the fees would have on competition as much as it should have, but noted that there was enough done to prove that MIFs "limit the pressure which merchants can exert on acquiring banks when negotiating the costs charge by those banks" and the lower court "correctly concluded that the MIFs had restrictive effects on competition."

There has been an ongoing fight pitting MasterCard and fellow card networks like Visa versus merchants in the United States over interchange, or "swipe," fees as well. US District Judge John Gleeson approved a controversial settlement late last year designed to end an eight-year antitrust case against MasterCard, Visa and other financial institutions by granting merchants a $5.7 billion cash settlement and the right to surcharge. The ruling also sought to bar merchants that did not opt out of the deal from suing the card networks in the future for similar activity. Several large retailers—including Wal-Mart, who sued and were sued by Visa directly—opted out in order to pursue their own, ongoing lawsuits.

- Brian Shappell, CBA, CICP, NACM staff writer

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Need information that's current and correct? NACM Industry Credit Groups are one of the best sources available to the credit professional to help form sound judgments on their customers. You'll enjoy the benefits of open communication lines for the exchange of credit information and discover new networking opportunities. The cumulative experience and expertise of many is power indeed!

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Possible Fallout for Contractors Following Arizona Supreme Court Decision

The Arizona Supreme Court's reversal in a case involving use of equitable subrogation in a mechanic's lien situation may embolden more primary lenders to use the tactic, at the potential peril of contractors and subcontractors. 

As covered in the September 4 issue of eNews, the Arizona Supreme Court ruled in The Weitz Company, LCC v. Nicholas Heth, et al that a lien filed by a contractor does not automatically take priority over other liens recorded before construction began on a project. Chris Ring from NACM's Secured Transaction Services, believes this rejection of a lower court ruling that upheld mechanic's lien rights will only open the door for more attempts to sidestep protections long considered to be strong and safe. Ring warned that "as a subcontractor or material supplier, be mindful that the primary lender of the developer may attempt to use subrogation as a way for the mortgage lien to trump your previously-recorded mechanic’s lien."

The American Subcontractors Association (ASA) criticized the Arizona Supreme Court since the ruling for failing to side with the "bright line" rule designed to prevent the use of subrogation. ASA, which filed an amicus brief in the case, noted last week that "bright line" mandates already exist in states including Alabama, Indiana, Minnesota, Nevada, Oregon and Utah. The Arizona ruling makes paying attention to the specifics of a project, especially the reputation of the players involved, and preparing for worst-case scenarios so much more important.

ASA agreed that third parties may be more likely to try to use the doctrine, making it critical for subcontractors and suggested that contractors be increasingly "vigilant in attempting to protect payment rights."

- Brian Shappell, CBA, CICP, NACM staff writer

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Have the Currency Wars Started Up Again?

There are many ways that an economy can be boosted—at least according to theory. The time-honored techniques include lowering interest rates (check), increasing government spending (not so much), lowering taxes (not this time) and then there is lowering the value of one’s currency. This latter approach means that exports benefit as they are essentially on sale. Other nations have to spend less to buy your products and as a bonus, the products that one’s consumers buy from overseas are more expensive and that shoves them back toward domestic options. This is effective to a point, but desperately unpopular in the global context. Some blame the severity of the 1930s recession on this "beggar thy neighbor" policy and most nations treat this as a last resort.

It would appear that more of the larger economies are starting to pull this tactic out as an option. In previous years, it was the developing and emerging markets that opted for this approach, but now it is the more advanced states that seem bent on reducing the value of their currency. Japan has forced the yen down to six-year lows in order to boost the moribund export economy and now Europe seems to be pushing the value of the euro down. This is all coming at the expense of the US dollar as it has been gaining against the world’s basket of currencies for the past year. Since the start of the year, the dollar has tracked higher than it has since the recession started and that has begun to take a bite out of the US export market. At the start of the year, the US saw a drop of almost 10% in terms of exports and now the dollar is even stronger. That does not bode well as far as exports are concerned. The rest of the world is broke and US goods are more expensive than ever in the global market.

- Armada Corporate Intelligence

These Jobs and More are Listed Right Now on NACM's Credit Career Center

Account Receivable Deduction Manager at The Sherwin-Williams Company in Cleveland, OH
Credit Manager at Beacon Roofing Supply Inc. in McKinney, TX
Credit Recovery Representative at Irving Oil in Portsmouth, NH
Financial Services Supervisor at WESCO International in Phoenix, AZ
Assistant Corporate Credit Manager at Brenntag North America, Inc. in Reading, PA

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