eNews October 25, 2012

October 25, 2012

News Briefs

  1. U.S.-Panama FTA to Enter into Force on October 31
  2. Outsourcing a Likely Hot Topic at November FCIB Event in Philadelphia
  3. Bernanke Defends Fed Stimulus, Takes Swipe at China on Currency Appreciation
  4. Japan in Trouble Over Export Freefall
  5. SBA Increases Stake in Export Financing
  6. Solyndra Update: Controversial Solar Cells Manufacturer Sees Bankruptcy Plan Confirmed


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U.S.-Panama FTA to Enter into Force on October 31

The free trade agreement (FTA) pending between the United States and Panama will enter into force on October 31.

Letters exchanged this week between U.S. Trade Representative Ron Kirk and Panamanian Minister of Commerce and Industry Ricardo Quijano officially established the date on which the FTA would go into effect, after officials in each country completed a review of laws and regulations related to the agreement's implementation.

When the FTA enters into force next week, Panama will immediately reduce or eliminate tariffs on U.S. industrial goods, which currently average 7% but can stretch as high as 81%. Furthermore, over 86% of U.S. exports of consumer and industrial products to Panama will become duty-free immediately, including information technology equipment, agricultural and construction equipment, aircraft and parts, medical and scientific equipment, environmental products, pharmaceuticals and fertilizers.

"This agreement also provides U.S. firms and workers improved access to customers in Panama's $22 billion services market, including in areas such as financial, telecommunications, computer, express delivery, energy, environmental and professional services," said Kirk after the FTA was finalized. "Panama is one of the fastest growing economies in Latin America, expanding 10.6% in 2011, with forecasts of between 5-8% annual growth through 2017. That adds up to support for more well-paying jobs across the United States."

The FTA is also expected to benefit the U.S. agricultural industry, as U.S. agricultural exports to Panama currently face an average tariff of 15%, with some tariffs as high as 260%. Upon entrance into force, the agreement will immediately make nearly half of U.S. exports of agricultural commodities to Panama duty-free, with most remaining tariffs being eliminated over the course of the next 15 years.

Panama is one of Latin America's hottest export markets right now, with Hans Belcsák, PhD of S.J. Rundt & Associates, Inc. describing it as "a rather remarkable place of opportunity these days." In addition to ambitious government investment in infrastructure, most notably an expansion of the Panama Canal, Panama offers a great deal of security to potential exporters. "Another major asset Panama can count on is the strength of its financial system, which has maintained brisk credit growth across all sectors," said Belcsák in the September/October issue of Business Credit. "The IMF in its most recent report praised the strength and resilience of the banks with their 'high levels of liquidity.' Worries to the contrary notwithstanding, there is as yet no evidence of credit and/or price bubbles, even though credit has been growing faster than deposits."

- Jacob Barron, CICP, NACM staff writer

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Outsourcing a Likely Hot Topic at November FCIB Event in Philadelphia

In down, or even underwhelming but growing economic times, the topic of outsourcing is bound to come up and draw emotional responses from both sides of the argument. The credit industry is not immune. As such, the topic is likely to inspire a hot debate at one of the session at FCIB's 23rd Annual Global Conference in Philadelphia next month.

Earlier this year, outsourcing leapt to the front of credit conversations, as some noted successes in areas like local collections, while others questioned how much value (as well as damage) comes from deciding to send portions of the credit and collections functions out of house. FCIB European Advisory Council's Martine Zimmermann, ICCE, who is based in Switzerland with Hoffmann-LaRoche LTD, noted the high number of negative views she heard from NACM and FCIB members who have tried outsourcing for credit functions.

"Many people have shared service centers in Eastern Bloc countries or in India," she said at an FCIB event in Hamburg this past spring that was highlighted in the September/October issue of Business Credit. "We all know that, at the beginning, it works well, but there can be difficulties thereafter with regard to salary increases and high staff turnover."

On November 12, a panel of experts at the Global Conference will present "Lessons in Outsourcing and Shared Services: The Real Costs." The panel is comprised of global credit managers with significant experience: Peter Holewinski (Alcatel-Lucent); John LaRocca, CICP (Hitachi Data Systems Corporation); Tim Graham (Oracle Corporation); and Mario Zinicola, CCE, CICP (Sharp Electronics Corp.).

An early draft of Holewinski's portion of the presentation shows he will talk about both the positives and negatives of outsourcing, including concerns such as time zone differences, core competency of staff and that small customers are much more likely than larger counterparts to have a higher percentage of past-due accounts in such a scenario.

- Brian Shappell, CBA, NACM staff writer

More information on FCIB's 23rd Annual Global Conference—which includes a keynote presentation from John Murphy, vice president of international affairs for the U.S. Chamber of Commerce, on international trade—is available here.

The Evolution of Order-To-Cash Metrics: Current and Future Models

Choosing the right metrics is vital. Tracking too many, failure to track certain key performance indicators (KPIs) or neglecting to adjust metrics as the business changes will likely have a significant negative impact.

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Bernanke Defends Fed Stimulus, Takes Swipe at China on Currency Appreciation

A speech delivered last week in Tokyo found Federal Reserve Chairman Ben Bernanke defending the Fed's most recent attempt to jumpstart the economy, while also taking a thinly-veiled jab at China's currency policy.

The Fed's announcement last month to buy $40 billion worth of bonds per month to boost the United States raised a number of eyebrows abroad, as the program could pose some general risks to less-developed economies. "Although the monetary accommodation we are providing is playing a critical role in supporting the U.S. economy, concerns have been raised about the spillover effects of our policies on our trading partners," said Bernanke at the seminar titled "Challenges of the Global Financial System: Risks and Governance under Evolving Globalization," cosponsored by the Bank of Japan and the International Monetary Fund (IMF). "In particular, some critics have argued that the Fed's asset purchases, and accommodative monetary policy more generally, encourage capital flows to emerging market economies."

Specifically, Bernanke said that critics argue that these capital inflows cause undesirable currency appreciation, "leading to asset bubbles or inflation, or economic disruptions as capital inflows quickly give way to outflows."

In his attempt to assuage these concerns, Bernanke noted that the effects of these capital inflows on an emerging market doesn't just depend on the Fed, but also on the monetary policy of the country in question. Though he never referred to China by name, his comments seemed aimed squarely at Asia's largest economy, whose name has become synonymous with currency manipulation in the United States.

"In some emerging markets, policymakers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth," said Bernanke. "However, the perceived benefits of currency management inevitably come with costs, including reduced monetary independence and the consequent susceptibility to imported inflation."

"In other words, the perceived advantages of undervaluation and the problem of unwanted capital inflows must be understood as a package—you can't have one without the other," he added.

- Jacob Barron, CICP, NACM staff writer

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Japan in Trouble Over Export Freefall

Japan, already in a tenuous position at best regarding economic growth, received alarming, even if unsurprising, trade numbers to start the week. And it could very well lead to only the second overall annual trade deficit for Japan in decades.

Japan's trade deficit problems accelerated this month as export levels dropped 14.1% in September compared to September 2011. Like many developed economies, Japan's growth is heavily tied to export levels and has been affected significantly by the European Union debt crisis and the recent Chinese consumption slowdown. However, complicating matters much more in Asia has been the increasingly heated row between officials in China and Japan over control of the disputed Senkaku Islands, among other issues. As such, the pullback of importing from China has been noticeable for companies based in Japan.

In particular, statistics for automotive exports from Japan to Brazil are down just a few points short of 50% in September. In fact, U.S. television news channels have regularly run images of anti-Japanese sentiment in China, showing itself in cases of mass vandalism at dealerships of Japanese-made vehicles, among other places. It's all having a negative impact on all-important business confidence, especially that of manufacturers. It has been reported that polls of manufacturer confidence levels have not been this low since April 2011, the first month after Japan was hit by the earthquake-related triple disaster.

Japan can ill-afford trade problems with China, especially amid an EU debt correction that could take years to get sorted out. Business Credit noted in its March issue that Japan faced many other problems: companies worldwide were more likely to diversify their supply lines (from a multi-location perspective) post-disaster; post-disaster rebuilding will start to wane in the near future; the deterioration of large manufacturers will have an impact on corporate profits in Japan, and an overvalued currency puts Japan at a trade disadvantage among nations with weak, sometimes artificially so, currency values.

- Brian Shappell, CBA, NACM staff writer

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SBA Increases Stake in Export Financing

While the Export-Import Bank of the United States (Ex-Im) is still the federal agency most closely associated with trade financing, over the last several years the Small Business Administration (SBA) has quietly increased its stake in helping companies export.

SBA-backed loans to exporters continued to grow in FY2012, reaching more than $923 million, which supported $1.7 billion in small business exports. Even more impressive, the SBA's recently revamped International Trade Loan has seen an upsurge of 106% in loans guaranteed and 207% in dollar volume. The trade loan allows smaller manufacturers to expand their own facilities or buy equipment to manufacture goods to be sold internationally, either directly or indirectly through an export trading or management company.

"Giving small businesses the tools they need to export their goods and services and create jobs is an important part of our core mission," said SBA Administrator Karen Mills. "Exporting is creating opportunities for small businesses to create good-paying jobs and provides economic benefits to local communities nationwide."

Since 2009, SBA has guaranteed 6,100 loans to small business exporters for over $3.1 billion and supported more than $6 billion in exports. Although slim compared to Ex-Im, which set another record in FY2012 with more than $35.8 billion in authorizations, the SBA's increases are exclusive to smaller companies, while Ex-Im works with businesses of all sizes.

Exports continue to be a remarkably resilient economic indicator. "By now it would seem obvious enough that the U.S. economy depends on the export business," said NACM Economist Chris Kuehl, PhD. "For the last four years of the recession and slow recovery, it has been the export sector that has kept the economy afloat. The Fed's loose monetary orientation has meant that the dollar is weak and that has allowed U.S. companies to become competitive in almost every global market."

- Jacob Barron, CICP, NACM staff writer

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Solyndra Update: Controversial Solar Cells Manufacturer Sees Bankruptcy Plan Confirmed

Though fought on a number of fronts by creditors, the Internal Revenue Service, the Department of Energy and local officials near its home base in California, Solyndra has seen its bankruptcy plan confirmed in the U.S. Bankruptcy Court for the Third Circuit.

U.S. Bankruptcy Court Judge Mary Walrath confirmed Solyndra's plan on October 24. The plan is one that will see private equity holders getting the overwhelming majority of the remaining assets and the firm itself no longer operating, even as Walrath intimated there would almost surely be a quickly filed appeal by detractors, including the federal government. Among other objections Walrath brushed aside, and perhaps the most significant, was the IRS complaint that groups of investors who bought into the company as it was failing would gain an unfair tax benefit of upwards of $341 million. She noted that investors were doing nothing illegal and that such tax benefits were not a significant factor driving the need for bankruptcy proceedings regarding Solyndra, which thoroughly documented its problems of remaining competitive against lower-cost Asian-based competitors and operating in an oversaturated U.S. solar products market that was suffering from lessening U.S. consumer demand.

Solyndra remains under federal investigation for fraud and under the political campaign spotlight because of its ties to key Obama Administration fundraisers. Before going bust, the firm garnered more than $500 million in federal alternative energy grants, the bulk of which will not be repaid to the federal government because of the bankruptcy. It is one of nearly a dozen alternative energy, mainly solar product manufacturing, companies that have filed for bankruptcy protection within the last year. The Romney Campaign continues to air the Solyndra issue, much like the Obama Administration has dogged the Republican candidate over the "Let Detroit Go Bankrupt" op-ed regarding automotive insolvency restructuring plans.

- Brian Shappell, CBA, NACM staff writer


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