eNews November 17, 2011

November 17, 2011

eNews will take a break next week for the holiday and resume on December 1, 2011. To keep current, visit NACM's blog. Have a happy and safe Thanksgiving!



News Briefs

  1. 3% Repeal Saga Ends as House Approves Amended Bill
  2. FCIB Global: 'Change' a Recurring Theme among International Credit Managers
  3. Bankruptcy Filings Fall in Fiscal Year 2011
  4. Russia Clears Final Hurdle to WTO Membership
  5. Economist: Chinese Consumption Just Fine
  6. U.S. Politics Playing Part in New Asian Trade Pact

 

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3% Repeal Saga Ends as House Approves Amended Bill

Since 2006, NACM and other business organizations have lobbied for the full repeal of a 3% withholding tax that would apply to most local, state and federal contracts. The provision was enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005, and originally set to take effect this year.

Two delays, one from the American Recovery and Reinvestment Act of 2009 and another from the Internal Revenue Service (IRS), pushed the tax's implementation back to 2013. While the delays were welcomed by the business community, the political will for a full repeal remained scarce, at least, until now.

Last night the House voted unanimously in favor of H.R.674, putting an end to the 3% withholding tax and sending the repeal to the president's desk for signature into law.

The House had already approved H.R. 674, but the bill was amended in the Senate, where a separate piece of legislation granting tax breaks to companies that hire recently discharged veterans was attached to the 3% repeal. After the Senate approved this amended version, it was returned to the House this week and approved in a 422-0 vote yesterday evening.

Had the repeal not been approved, a 3% withholding requirement would have been levied on the gross value of most local, state and federal contracts, falling hardest on small businesses and hurting the nation's job creators when they need it least. Although the tax is technically supposed to only be paid by the prime contractor on a project, the negative effect that the 3% tax would've had on their cash flow would have easily trickled down to other parties, including subcontractors, materials suppliers and any other party involved with a government project. Furthermore, to soften the blow of this withholding requirement, contractors would've padded their cash flow by increasing their prices, ultimately driving up costs to taxpayers.

"At best, the 3% withholding tax is an unwanted nuisance to the nation's contractors and trade creditors that distracts them from more important work," said NACM President Robin Schauseil, CAE in a recent press release. "At worst, it's a potentially devastating hit to cash flow that would keep businesses from creating jobs while increasing the cost of government projects, and ultimately the cost to the American taxpayer."

Now, however, the 3% tax has been repealed, and a presidential signature is expected soon, safeguarding contractors' cash flow and allowing them to get back to the important work of creating jobs.

NACM, which has opposed the 3% withholding tax since its enactment, congratulates Congress for finally approving this common sense legislation.

Jacob Barron, CICP, NACM staff writer

Do You Know Someone Worthy of Recognition?

It's time to nominate your distinguished CBA, CBF and CCE colleagues, your favorite instructor or mentor, among others, whose professional life displays unquestioned integrity, outstanding and meritorious service in the field, and ongoing dedication to the highest standards of the credit management profession.

Find out more on NACM's Honors and Awards Program web page. Deadline for nominations is January 20, 2012.

Read the profile of a 2011 award recipient in the November/December issue of Business Credit, which features the first O.D. Glaus Credit Executive of Distinction. If your copy has not yet arrived, as an NACM member, you can login here to view the online version of this article and the entire November/December issue now!

FCIB Global: 'Change' a Recurring Theme among International Credit Managers

Despite divergent topics discussed during the opening trio of sessions at the FCIB Global Conference at the Ritz-Carlton Palm Beach, one theme seemed to beam out of the sessions: change (and being able to adapt the large amount of it going on in business and credit at present).

Sanjiv Sanghvi, of Wells Fargo Bank, noted in the opening session that a few changes in leadership in Europe (Italy, Greece) doesn't automatically equate to a stabilized Europe and that credit professionals need to be wary going forward.

"It's tough to believe that putting technocrats in power will mean that things will be run in a fundamentally different way," he said.

Sanghvi also noted that the coming Basel III changes will require businesses worldwide, and notably their credit departments, to stand up and take notice. All told, the Basel III changes and what seem to be some almost hidden requirements could force financial institutions to literally double their capital holdings. As such, he believes banks forced to change their ratios will simply handle the equation on one side or another: raise the costs to borrow or reduce assets in the game.

"That's a huge difference in capital requirements," he said. "There's going to be less credit available, not just in trade finance, but finance in general."

Meanwhile, Marsh USA's Angela Duca's speech about global political risk suggested companies either need to be quick on their feet and flexible when granting terms into emerging, somewhat stable economies or they need some type of insurance.

"How do you forecast political risk [terrorism, regime changes, etc.]? You can't," Duca said. "It's hard to predict the spark that will cause a major change in a country. And, in the real world, political risk exists all the time."

Michael Sauter, of Guardean GmbH, used his presentation to promote the idea of willingness to be flexible as well, noting that holding firm to principles and strategies that worked four to five years ago simply may be the most "dangerous" strategy a credit department can employ.

"Adapting to change is the most important thing to our profession," Sauter said.

However, a couple of things aren't likely to change, said JP Morgan's Kevin Hebner during a well-received presentation: the dollar's dominance internationally as well China's long-term prospects and policies. On the dollar, Hebner noted that the U.S. is doing well and will continue to do so because it is considered a safe haven. Proof is in the fact that international investors are abandoning the third largest "safe haven" nation, Italy, for obvious reasons and because the bond markets simply are too small in others. Granted, that's not to say the U.S. economy, itself, is unshakable. Rather, Hebner noted that U.S. leadership is going to have to take a serious look at long-term austerity starting as soon as 2013 to get GDP-to-debt ratios in line.

As for China, despite some concerns of a slowdown and/or inflation "is not the next Dubai times 1,000; they are going to come through just fine."

More coverage can be found at NACM's blog as well as at the newly launched FCIB Twitter feed. Follow them for international news and information at the handle "FCIB_Global."

Brian Shappell, NACM staff writer

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Bankruptcy Filings Fall in Fiscal Year 2011

Bankruptcy filings fell by 8% in the federal government's fiscal year 2011. Overall, a total of 1,467,221 cases were filed between October 1, 2010 and September 30, 2011, as opposed to 1,596,355 in the same period the year prior.

For businesses, the difference between this fiscal year and last was even greater. According to the Administrative Office of the U.S. Courts, the agency that keeps track of filing behavior, business bankruptcy filings fell by 14%, from 58,322 in the 12-month period ending September 30, 2010, to 49,895 in FY11.

When only considering the 2011 calendar year, rather than the fiscal year, business filings are already down 18% for the first nine months of this year, according to the American Bankruptcy Institute (ABI), which noted that Chapter 7 business liquidations had also already fallen by 18% in 2011, when compared to the same period in 2010. Chapter 11 filings for businesses are showing the sharpest decrease when the figures are divided by chapter, as only 7,417 cases have been filed in 2011 so far, representing a 22% drop from the 9,058 cases that were filed in the same period last year.

More than a quarter of all business bankruptcy cases (12,716) were filed in the 9th Circuit Court, covering Alaska, Guam, Hawaii, Washington, Oregon, California, Arizona, Montana, Idaho and, most notably, Nevada, which retained its title as the state with the highest per capita filing rate in the country. A total of 9.66 residents per thousand filed in Nevada in FY11, whereas the nationwide total is 4.85 per thousand residents.

Districts with the highest percentage increases in total filings for FY11 were the District of Utah, which saw a 6.5% increase in cases, the Middle District of Louisiana and the Central District of California, both of which saw much smaller increases of 1.3% and 0.9%, respectively. The largest decreases were found in the District of Guam (-30.8%), the District of Vermont (-28.5%), the Southern District of West Virginia (-24.4%), the Western District of New York (-19.6%) and the Southern District of Iowa (-19.2%).

Jacob Barron, CICP, NACM staff writer

As we approach the season of giving and thanks...

NACM deeply appreciates your contributions to the NACM Scholarship Foundation—an investment in the future of business credit.

"Being awarded the NACM Scholarship afforded me the chance to benefit from an enormous amount of educational resources...I have been able to broaden my perspective on my everyday credit responsibilities and have become more involved in company wide processes." Wendy Edsall, credit manager, Mayer Electric Supply/Jones & Lee Supply

For more information on giving to or receiving from the Scholarship Foundation, visit www.nacm.org or call 800-955-8815.

Russia Clears Final Hurdle to WTO Membership

Following 18 years of negotiations, Russia will finally become a card-carrying member of the World Trade Organization (WTO) starting in December. The news came after Russian President Dmitri Medvedev, Minister of Economic Development Elvira Nabiullina and the rest of Russia's WTO negotiating team agreed to the terms and conditions for the country's accession.

The WTO is expected to approve the terms and formally invite Russia to join the economic collective at a ministerial conference in Geneva next month.

Membership in the WTO is expected to lower tariffs on exports to its newest member, while also improving foreign access to Russia's services markets, and holding the country accountable to a system of trade rules. "Russia's membership in the WTO will generate more exports for American manufacturers and farmers, which in turn will support well-paying jobs in the United States," said President Barack Obama, following the accession agreement. "Russia is also opening its services market in sectors that are priorities to American companies, including audio-visual, telecommunications, financial services, computer and retail services."

From day one of its membership, Russia will have to comply with WTO rules on the protection and enforcement of intellectual property rights, along with rules governing legal transparency and general trade behavior. "Upon Russia's accession, the United States will be able to use WTO mechanisms, including dispute settlement, to challenge Russia's actions that are inconsistent with WTO rules," said Obama.

"This step marks a win for both the Russian people and the American people," said U.S. Trade Representative Ron Kirk. "It will spur trade and support significant job growth in both countries as a result of lower tariffs and increased market access. It also brings Russia into a rules-based system, increasing transparency and predictability to the benefit of all businesses in Russia and ensuring that the Russian government is held accountable to a system of international trading rules governed by the WTO."

Jacob Barron, CICP, NACM staff writer

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Economist: Chinese Consumption Just Fine

While many in the mainstream media increasingly predict a massive slowdown in the Chinese economy in the not-too-distant future, at least one economist with a decade of experience there characterizes such notions as ludicrous and unfounded.

Greg Fager, an expert on Asian-Pacific economics at the Institute of International Finance, told members of the National Economists Club that Chinese production and consumption is still continually ready to grow. Fager mocked recent mainstream media's negative assertions such as "China's consumption is not as strong as data shows" (Reuters) and "Rising wages will bust China's bubble" (Financial Times).

"It's phenomenal the production going on there. That's why I laugh at quotes like ‘workshop [of the world] on the wane,'" said Fager. "China is always pushing up, always ready to grow. It's policy that is keeping a lid on that growth."

He noted that China's version of a recession meant GDP dipped to +7%. Additionally, projections show the Chinese middle-class population, about 56 million or 4% of total population in 2000, will surge to 361 million or 25% of the population by 2030. And, said Fager, these upward-moving consumers care about better quality food, cosmetics, electronics and on down the line.

"The Chinese middle class is going to be influencing products made all around the world," he argued. "You can already see it now with car sales around the top 20 cities in China, and they haven't even dented potential Chinese auto demand. If you think they're consuming too little, just wait for it."

That said, there still are areas where improvement is necessary. One glaring example is in the banking system and the emerging use of risky "shadow" banking. But Fager believes other problems, such as concerns about inflation and competitiveness amid rising wages, won't hold China back. More importantly, rising wages will help fuel domestic consumerism.

On the much-discussed topic of currency undervaluation, while there seemingly have been some signs they were letting things appreciate, Fager dismisses the notion that the Chinese government is ready to deal with it in any real, significant way. Recent comments coming out of Beijing suggest the officials consider exchange rate policy as "basically stable at a reasonable level," in their minds.

"They see this as a tool that can be very handy in managing their economy," Fager said.

Brian Shappell, NACM staff writer

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For more information on NACM's MLBS, click here.

U.S. Politics Playing Part in New Asian Trade Pact

Trade is politics, and at no point has this been more evident than in the evolution of the Trans-Pacific Partnership that includes the United States.

The Obama administration is trying to claw back into some initiative when it comes to trade in part because of the five-year delay in getting free trade agreements (FTAs) signed with Korea, Colombia and Panama. It was embarrassing, and the forum is a platform for some redemption.

The Trans-Pacific Partnership has evolved into something far beyond a trade pact between some of the major nations in Asia. It has become a true political battleground for the new prime minister of Japan, U.S. President Barack Obama and the leadership of China. The pact right now includes Australia, New Zealand, Brunei, Malaysia, Singapore, Vietnam, Chile, Peru and the United States. It is pretty obvious that some of the region's big dogs (China, South Korea) are not in this group as of yet. China has not been invited, and there is no desire on the part of the United States and Vietnam to change that situation.

It appears that the administration is using the forum to push a new Asian agenda. This plot is one that seems to be squarely aimed at China and at exposing the trade barriers it imposes one way or another. The sense within the trade community is that the United States is more likely to get support from this group than from other Asia-focused trade groups like the Association of Southeast Asian Nations (ASEAN). Obama has already lashed out at the Chinese for their currency policy, and it is expected that this will continue to be a theme throughout the conference. Shots already were taken at China over its policies of subsidizing domestic industry. It has also been noted that the U.S. counter intelligence community chose this moment to overtly reference the Chinese as active in industrial and economic espionage, something only vaguely touched upon prior.

The Chinese see this organization as a threat to their regional position. Thus far, there have been only veiled warnings that members should be careful about their demands on China, but analysts assert that there may be more action in the future as the Chinese could start trying to restrict access to the Chinese market. Much of the enmity that exists at the moment is reserved for the United States, and the Chinese leadership has been quick to try to fend off the attacks by Obama. At the same time, the Chinese are doing their best to get a few licks in at the president's expense.

Source: Chris Kuehl, NACM economist

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