March 21, 2013
Acting U.S. Trade Representative Demetrios Marantis testified before the Senate Finance Committee with good news for U.S.-based companies exporting to foreign markets: manufacturing exports increased 47% and agricultural exports were up 44% among gains since the Obama Administration rolled out the National Export Initiative three years ago. However, this and continued pursuit of multilateral trade pacts in Asia and Europe were overshadowed by Marantis' declaration that ongoing budget battles will hurt the ability to forge new trade pacts or enforce existing ones in proper fashion.
Marantis confirmed that U.S. trade officials and the administration remain focused on advancing negotiations within the Trans-Pacific Partnership (TPP) and starting them imminently with the European Union in the form of the Transatlantic Trade and Investment Partnership (TTIP). However, Marantis threatened that these priority matters, among others, face increasing obstacles the longer sequestration and the Congressional budget war rage on.
"Under these circumstances, the Office of the U.S. Trade Representative (USTR) may have reduced capacity to initiate new legal disputes resulting in reduced enforcement of trade agreements," Marantis testified. "USTR is also currently conducting or preparing to launch three major trade negotiations; budget cuts due to sequestration may significantly hamper these and other efforts to open global markets and support American jobs by reducing staffing and impeding USTR's ability to engage with trading partners." He added that a continuing resolution moving through Congress at present would result in another $1 million cut to the USTR's budget on top of the $2.6 million already lost as a result of the controversial sequester. Marantis estimated that such additional cuts could undermine the ability to pursue multiple negotiations at the same time.
The TPP represents an escalated interest in the "Pivot to Asia," specifically the emerging economies of Vietnam, Singapore and Malaysia. Experts estimate that nearly half of the $22 trillion in global economic growth between now and 2020 will take place in this region. The TTIP would be designed to eliminate already low barriers between the U.S. and the EU. Commerce between the two leads the world in goods, services and income receipts. Removing even low barriers could boast a significant economic impact and render such a deal the biggest on record.
Whether or not the sequester/budget cuts represent a true threat to forging such deals or is, rather, a political football designed to give the Obama Administration another weapon in its fight with conservatives, remains to be seen and likely will be a point of debate for some time to come.
- Brian Shappell, CBA, NACM staff writer
Be the First
Be among the first to take Financial Statement Analysis, Interpretation and Credit Risk Assessment, an updated version of, and replacement for, the Financial Statement Analysis 2 certificate session.
When: May 18-22
Why: It's the cornerstone of NACM's new Certified Credit and Risk Analyst (CCRA) designation!
Where: NACM's 117th Credit Congress & Exposition
The world's biggest banks are adding to their reserve capital, but still falling short of the Basel III capital requirements, according to regulators.
As of June 30, 2012, Group 1 banks, comprised of those that have more than â‚¬3 billion in Tier 1 capital (CET1) and are internationally active, had a median CET1 capital ratio of 8.5%, well over the 4.5% minimum and 7.0% target Basel III reserve requirements. However, bringing every Group 1 bank up to the bare 4.5% minimum would require an additional â‚¬3.7 billion. The kicker is that taking all Group 1 banks to the Basel III targeted CET1 capital ratio of 7.0% would require an additional â‚¬208.2 billion, which includes a surcharge for globally systemic banks, where applicable.
This suggests that many banks in Group 1 have still found it hard to comply with Basel III's risk-weighted reserve requirements.
As staggering as the â‚¬208.2 billion shortfall for the 7.0% target level might seem, it's actually â‚¬175.9 billion lower than it was when the Basel Committee for Banking Supervision (BCBS) conducted its last assessment in December 2011. Nonetheless, had Basel III entered into worldwide effect on June 30, 2012, a number of banks would be in violation of the capital requirements, which were designed to prevent banks from becoming overleveraged and preclude another global financial crisis.
Inconsistent application of the Basel III rules, across bank size and across different jurisdictions, raised the interest of International Monetary Fund Managing Director Christine Lagarde, who in a recent speech warned against too much divergence in when the standards are applied. "Different rates of implementation could contribute to dilution of overall minimum standards. These delays affect longer-term business decisions, straining credit markets and spilling over to the real economy," Lagarde said. "The IMF is also worried about national differences in the calculation of the riskiness of assetsâ€”the very basis for determining the capital needs of all banks, and the success of the new rules. Recent studies by the U.K. authorities, the Basel Committee and the European Banking Authority have found a wide variation in bank risk weights with similar risk profiles."
"In an interconnected world, the lowest common denominator is connected to all," she added.
Basel III establishes a risk weight to aspects of a bank's balance sheet, meaning that banks must allot a greater amount of reserve capital for riskier loans than they must for safer transactions. The reserve requirements have received criticism for potentially forcing many banks out of fields that the BCBS considers risky, which include trade finance, a loan type that requires a great deal more in reserve capital under Basel III than it did in previous versions of the Basel Accords.
- Jacob Barron, CICP, NACM staff writer
FCIB Annual International Credit & Risk Management Summit in Prague
Register now for the Early Bird rate!
May 12-14, 2013
The Corinthia Hotel Prague, Prague, Czech Republic
Join us on May 12-14 at FCIB's Annual International Credit & Risk Management Summit to discover insight from distinguished speakers, participate in thought-provoking sessions and network with leading experts and your peers in an educational environment.
â€˘ Basel III and the Impact on Working Capital Requirements, Letters of Credit and Guarantees
â€˘ Different Security Methods across Europe and Best Practices
â€˘ Risk Awareness in Today's Global Trading Conditions
â€˘ Early Warning Signals: Keeping a Pulse on Your Counterparties
â€˘ The Effects of Global Instability on the Treasury Department
The Early Bird rate deadline has been extended! Click here to register and save!
To view the entire program, click here.
We look forward to seeing you in Prague!
There are varying opinions and often-heated debates on the value (or damage) of outsourcing, use of shared service centers and the like. While not necessarily perfect for every credit department, businesses in both domestic and international trade have opted to use shared service centers. What is harder to debate is the importance of communication and being engaged with those in a shared service center if your credit department is already involved with, or considering using, these services.
Upcoming Credit Congress presenter and panelist Norman Taylor, CCE, credit consultant for NIIT Media Technologies LLC, told NACM that there are problems regarding the use of shared service centers. "Too many businesses have a lack of 110% commitment to carry through and get things ironed out," said Taylor. "Where internal shared services are involved, there's so often a change in direction. People get started, but end up having to divert two-thirds of the way through; they never finish what they set out to do. Therefore, you talk to some people who have tried to invoke it with their companies internally, and you find they ultimately bailed out."
Taylor, who wrote about shared services in the April issue of Business Credit, noted that part of NIIT's strategy has been to get involved with the shared service center as a true extension of the credit departments that hired them. Multi-way collaboration from the start, rather than just a quick, top-down approach from the client (credit department), helps smooth the operations, in his experience. "You have to spend time with the client and learn what he wants. You have to truly understand the philosophies as if he were running the shared service center, himself," Taylor noted. "At NIIT, they train us, and we train them. There is cross-training both ways on things like how to operate the systems used for input of data. It's about as buddy-buddy as it gets."
Taylor believes it's somewhat akin to the practice of cross-training the credit and sales staff and having representatives of each department going to one another's meetings. It keeps professionals educated and aware of what their important counterparts within the business are doing or might be thinking.
- Brian Shappell, CBA, NACM staff writer
Can't wait for your print edition of Business Credit's April issue to reach you? It's available online now for NACM members.
Cross Training for Professional Fitness
Cross training is not only essential in a shared services environment, but for many business matters as well.
Build your expertise at Credit Congress in sessions such as:
- The Compleat Financial Analyst, as presented by the Norman Taylor, CCE, who is featured in the above story.
- Understanding Insolvency's Effects on the U.S. and Canadian Supply Chain as co-presented by recent American College of Bankruptcy Fellow inductee Deborah Thorne, Esq.
Stretch that expertise with B2B relationship skills, as featured in the April issue of Business Credit, which contains articles by communication experts presenting at Credit Congress.
Transportation, chemicals and services sectors have reaped the biggest benefits from the U.S.-South Korea Free Trade Agreement (FTA) according to U.S. officials. Acting Trade Representative Demetrios Marantis marked the agreement's first anniversary last week, touting the export increases yielded from the FTA's relaxation of tariffs on U.S. companies shipping into South Korea.
The transportation sector has experienced a 24% increase in exports since the FTA entered into force, as sales of cars made by the "Detroit three" increased by 18% and overall U.S. passenger vehicle exports to South Korea increased 48%. Chemical exports, exports of private services, such as legal and travel services, and exports of American agricultural products, including fruits, nuts, juices and wine, also saw significant increases under the agreement.
"One year in, I am pleased to see that the U.S.-Korea trade agreement is already producing promising results for U.S. businesses and workers in America's factories, farms and firms," Marantis said. "As both of our economies improve, we look forward to seeing America's growing exports to Korea support even more jobs here at home."
Overall, exports of U.S. manufactured goods to South Korea increased by 1.3%, from $34.3 billion in 2011 to $34.8 billion in 2012. That growth figure jumps to 2.5% when American corn and mineral fuelâ€”most notably coalâ€”are disregarded.
Almost 80% of U.S. consumer and industrial exports to South Korea, along with more than two-thirds of American agricultural exports, are already duty free. Under the provisions of the FTA, Korean tariffs on more than 95% of U.S. industrial and consumer goods exports to South Korea will be eliminated by the end of 2015. The U.S. International Trade Commission estimates that when the agreement is fully implemented, the tariff cuts alone will boost U.S. goods exports to South Korea by $10 billion above where they would have been without the agreement.
- Jacob Barron, CICP, NACM staff writer
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Debate over how the European Central Bank (ECB) has handled bailouts in debt-hobbled countries like Greece, Portugal and Ireland, and the policies it has charted out to survive the massive recession in the European Union (EU) have raged on for a couple of years now. But even the ECB's staunchest supporters were hard pressed to defend the almost universally-panned terms it proposed for a Cyprus bank rescue this past week, and the aftermath of the ham-handed move is being felt around the world.
Markets saw a mass sell-off and banks experienced a run on deposits as the ECB's terms sought to tax deposits within Cypriot banks. Though intended to punish and raise money from rich Russian tax-dodgers keeping money there, the average Cypriot would soon find their own formerly unassailable savings coming under a tax, something legally in a gray area, at best, in the EU.
"It would be very hard to overestimate the damage caused by the weekend decisions by the ECB, Cypriot leaders and leaders of the euro zone," penned NACM Economist Chris Kuehl, PhD in his daily column for FCIB members. "The decision to rescue the banks of Cyprus on the backs of depositors may have triggered the biggest bank meltdown Europe has yet seen, and it is simply beyond comprehension that the authorities involved in this decision could not have foreseen the reaction. Prior to this decision, there was a sense that the powers that be in the ECB, IMF and euro zone at least knew what they were doing, even if their course of action was unpopular. That veneer of confidence has taken some very significant hits. The reaction was swift and seemed to take the planners by surprise. That is the part that shocks most observers. How could the powers that be not realize what anger this would provoke?"
The resulting bank sell-off didn't stop at only rattling deposit holders in Cyprus, but also depositors from other nations appeared to wonder where the buck would stop. "What was to stop the ECB and its own governments from doing the same thing? In the space of three days, the whole foundation of the European banking system has been shaken, and the faith of the European population as a whole has eroded," Kuehl said.
Now, markets and depositors wait to see if the ECB will reverse course as part of its damage-control measures. It is widely feared that a failure to do so will escalate levels of distrust in the ECB's general plan, if not competence, which could have catastrophic effects on debt-control and growth-recovery efforts. A prolonged recession or dip into depression would not be a contained issue for the region either. Such an event would greatly impact manufacturing and exporting demand out of nations from the United States to Brazil to China, among others.
- Brian Shappell, CBA, NACM staff writer
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Despite continually strong export figures, the U.S. trade deficit widened more than expected in January, driven by an uptick in oil imports.
According to the U.S. Commerce Department, the monthly gap between goods and services imported and goods and services exported hit $44.4 billion in January, which was about $2 billion higher than analysts had expected. December's figures were also revised downward, with Commerce lowering the trade deficit from $38.5 billion to $38.1 billion.
The $6.3 billion jump between December and January was the largest increase in the trade deficit since last March, as exports, although still hitting historically high levels, fell by 1.2%. Imports also rose 1.8% to $228.9 billion in January, driven primarily by industrial supplies and materials, the imports of which increased by $4 billion.
Exports of cars, capital goods, consumer goods and food, feeds and beverages marked slight gains, but not enough to offset the slump in exports of industrial supplies and materials. Imports of crude oil increased by more than 13%, from about $22 billion in December to more than $25 billion in January, as the price for a barrel of imported oil dropped to its lowest level since July ($94.08).
On a country-by-country basis, the U.S. ran trade surpluses in January with Hong Kong ($2.7 billion), Australia ($1.2 billion), Brazil ($900 billion) and Singapore ($700 million), while its goods trade deficit with China continued to grow, hitting $27.8 billion. At this pace, the U.S. could break its record annual deficit with China, which hit $315 billion in 2012.
- Jacob Barron, CICP, NACM staff writer
Manual of Credit and Commercial Laws, Volume III: Construction Issuesâ€”Get your Update Now!
New for 2013, language and state laws have been updated throughout the entire volume including:
- Chapter on Personal Property Liens thoroughly rewritten
- Chapter on Trust Funds updated
- Chapters on Liens and Bonds updated
Entire volume updated to reference liens, bonds and trust funds applicable to the 21st century.
NACM's Manual of Credit and Commercial Laws continues to provide essential information for credit professionals, but now in a highly flexible and more affordable formatâ€”four volumes that may be purchased separately or as a comprehensive set.
Watch for future updates of volumes I, II and IV.
Click here to get your copy of volume III and for more information about Manual updates and the wide array of resources available to today's credit professionals.
To view past eNews issues or to visit the NACM Archives, click here.