SWFs: Euro-Protectionism Rears Its Ugly Head

♠ Posted by Emmanuel in at 2/29/2008 01:15:00 AM
Just out is the European Community paper on A Common European Approach to Sovereign Wealth Funds. In the coming months, the EC will likely try and persuade SWFs to comply with its provisions...or else. It is a nasty read on several levels, and you can see why for yourselves. Among other things I would like to ask the EC are:
- Why aren't hedge funds operating in Europe subject to the same "transparency" provisions?
- Can't foreign investment more readily be expropriated if relations go awry with SWFs' home nations?
- In what historical cases have SWFs used their investments in the EU in a "political" way?

I doubt whether any answers are forthcoming. In any event, here are the recommendations by the EC on improved SWF "transparency":

Transparency practices that could be considered would include:
• Annual disclosure of investment positions and asset allocation, in particular for investments for which there is majority ownership;
• Exercise of ownership rights;
• Disclosure of the use of leverage and of the currency composition [this is largely a non-sequitur; SWFs hardly use any leverage but use reserve proceeds in most cases];
• Size and source of an entity's resources;
• Disclosure of the home country regulation and oversight governing the SWF.

Yuck...and here are the punitive measures the EC has in mind for potential SWF transgressors:

The free movement of capital is not absolute. As a fundamental principle of the Treaty, it may be regulated in two respects at the European level under Article 57 (2) EC: first, the Community may adopt by qualified majority measures on the movement of capital from third countries involving direct investment Second, it is not excluded that the Community can introduce – by a unanimous decision - measures that restrict direct investments.

The Merger Regulation allows Member States to take appropriate measures to protect legitimate interests other than competition. Such measures must be necessary, nondiscriminatory and proportionate as well as compatible with other provisions of Community law. Public security, plurality of the media and prudential rules are regarded as legitimate interests, whilst other interests can be considered legitimate on a case by case basis on notification to the Commission [my emphasis].

Turning to national legislation, Member States have national instruments which could be used to control and condition SWF investments or any other investors and they can also develop new measures suitable to tackle specific needs if these arise, as long as those measures are compatible with the Treaty, are proportionate and non-discriminatory, and do not contradict international obligations.

The European Court of Justice has provided further guidance on how Member States can take these national measures in full compatibility with the Treaty, stressing that purely economic grounds can never justify obstacles prohibited by the Treaty. The Court has also provided criteria to assess the proportionality of authorisation systems: these must aim at the protection of a legitimate general interest and foresee strict time limits for the exercise of opposition powers, assets or management decisions targeted must be specifically listed, and the system’s objective and stable criteria must be subject to an effective review by the courts.

Lastly, there is scope to monitor and control the behaviour of SWFs as investors on an ongoing basis via the regulatory framework, which offers an effective tool to protect public interests irrespective of ownership. This is particularly the case in network industries.

The Problem with Wind Power (No Wind)

♠ Posted by Emmanuel in at 2/28/2008 10:17:00 PM
Allocating more power production to wind makes you more vulnerable to power losses when there's little or no wind for a prolonged period of time, 'nuff said. From Reuters:
A drop in wind generation late on Tuesday, coupled with colder weather, triggered an electric emergency that caused the Texas grid operator to cut service to some large customers, the grid agency said on Wednesday.

Electric Reliability Council of Texas (ERCOT) said a decline in wind energy production in west Texas occurred at the same time evening electric demand was building as colder temperatures moved into the state.

The grid operator went directly to the second stage of an emergency plan at 6:41 PM CST (0041 GMT), ERCOT said in a statement.

System operators curtailed power to interruptible customers to shave 1,100 megawatts of demand within 10 minutes, ERCOT said. Interruptible customers are generally large industrial customers who are paid to reduce power use when emergencies occur.

No other customers lost power during the emergency, ERCOT said. Interruptible customers were restored in about 90 minutes and the emergency was over in three hours.

ERCOT said the grid's frequency dropped suddenly when wind production fell from more than 1,700 megawatts, before the event, to 300 MW when the emergency was declared.

In addition, ERCOT said multiple power suppliers fell below the amount of power they were scheduled to produce on Tuesday. That, coupled with the loss of wind generated in West Texas, created problems moving power to the west from North Texas.

ERCOT declares a stage 1 emergency when power reserves fall below 2,300 MW. A stage 2 emergency is called when reserves fall below 1,750 MW.

At the time of the emergency, ERCOT demand increased from 31,200 MW to a peak of 35,612 MW, about half the total generating capacity in the region, according to the agency's Web site.

Texas produces the most wind power of any state and the number of wind farms is expected to increase dramatically as new transmission lines are built to transfer power from the western half of the state to more populated areas in the north.

Top Ten Things the Dollar is Still Useful For

♠ Posted by Emmanuel in at 2/28/2008 08:57:00 PM
According to Iranian President Mahmoud Ahmadinejad--a blogger just like me--"the dollar has no economic value." Ol' Mahmoud wasn't quite right, but surely it's getting near that point as B-B-B-Bennie of the Feds keeps cutting rates Stateside. Inflation? What's that? Let me be perfectly honest and explain the source of my pique: since late last year, I have been trying to change my remaining dollars into something more useful, namely Euros. However, there has been no buying opportunity as dips in the EUR/USD rate have been hard to come by. And things are getting worse for dollar holders (suckers, patsies, dupes) as the Euro is now trading above $1.52. While I wait in my pumpkin patch for a buying opportunity, I've decided to vent some of my anger. I'm sure none of you who have the misfortune of holding dollars are happy, either. What a piece of junk...

Top Ten Things the Dollar is Still Useful For

10. Confetti when “President Obama” brings the troops home from Iraq
9. Styrofoam substitute when sending packages via eBay
8. Semi-flightworthy paper airplanes
7. Exceedingly narrow paper boats
6. Wrap for homemade cigarettes
5. Wrap for reefers (“Don’t Fear the Reefer” for you Blue Oyster Cult fans)
4. Replacement for Saran wrap for that smoky flavoring (tape bills together)
3. Substitute for children's play money (ooh, the irony)
2. Kitchen wipes
1. Toilet wipes (that ain’t too Charmin)

Shipbreaking: The Dirtiest Job

♠ Posted by Emmanuel in at 2/28/2008 01:46:00 AM

Journalist William Langewiesche wrote a notable article sometime ago in the Atlantic on the shipbreaking "industry"--if you can call it that. Taking apart ships to reuse the raw materials contained in them is nasty and brutish business, for sure. However, it does provide livelihoods for thousands of folks in South Asia, no matter how meager. The Atlantic article is well worth reading if you haven't seen it yet. Meanwhile, Foreign Policy offers a photo essay on shipbreaking. What jogged my memory, actually, is this 60 Minutes excerpt about the topic at hand. For more, there is also another video clip on YouTube about Chittagong in Bangladesh which may be considered as the capital of shipbreaking. It's harrowing stuff, but with commodity prices so high, scrap metal and other salvageable materials command a pretty good price nowadays. Greenpeace has an entire section on the industry and its associated ills.

Getting to Know Islamic Banking

♠ Posted by Emmanuel in , at 2/27/2008 05:18:00 AM
I am fascinated by this race among financial centers and major banks to create Islamic banking products [1, 2]. With the oil windfall set this year to hit an amount unimaginable to your humble correspondent who takes public transportation and cuts out store coupons, Islamic banking has become all the rage. As you know, Shar'ia law prohibits the charging of interest. However, many observers and I myself have observed that these Islamic banking instruments basically emulate the concept of interest without actually calling it so. Is there anything fundamentally different to it, or am I correct?

In any event, one of the banner ads in the Financial Times brought me to this HSBC site hawking Islamic banking products. Here's a sample; figure out for yourselves what the difference is from regular banking. As I've said, it's beyond me...


Mudaraba [="venture capital"?]
A mudaraba transaction is an investment partnership. In a mudarab arrangement, the contract is between an investor (or financier) and an entrepreneur or investment manager known as the mudarib. Risk and rewards are shared. In the case of a profit, both parties receive their agreed-upon share of the profit. In the case of a loss, the investor bears any loss of capital while the mudarib loses his time and effort.

Transaction Process
A generic mudaraba process could take the following basic form:

  • Step 1: The investor and the mudarib agree on the nature of the venture and the terms of profit sharing.
  • Step 2: The investor provides capital to the mudarib.
  • Step 3: The mudarib undertakes the venture agreed upon between the parties
  • Step 4: Profits from the investment are shared between the investor and the mudarib

Ijara [="lease"?]
An ijara is an Islamic lease. The bank purchases an asset and leases it to a client for fixed monthly payments. An ijarah may include an option for the lessee to buy the asset at the end of the lease, though such a provision is not required.

Transaction Process
A generic ijarah process could take the following basic form:

  • Step 1: The bank and the client agree on the terms of the lease.
  • Step 2: The bank purchases the asset from the seller.
  • Step 3: The client leases the asset from the bank, paying a fixed monthly rental
  • Step 4: The client purchases the asset from the bank at the end of the lease period.

Murabaha [="installment purchase"?]
A murabahah transaction is a sale at a stated profit. In a murabahah transaction, the bank purchases something from a third party and sells it to the client at a stated profit on a deferred payment basis. In this way, the client can buy something without taking an interest-based loan.

Transaction Process
A generic murabahah process could take the following basic form:

  • Step 1: The client expresses intent to engage in a murabahah transaction facilitated by the bank and, subject to bank approval, signs a "Promise to Buy".
  • Step 2: The bank purchases the item from the seller.
  • Step 3: The client purchases the item, in instalments, at the purchase price plus a stated profit.

Goh Chok Tong to West: R-E-S-P-E-C-T Asia's Rise

♠ Posted by Emmanuel in ,, at 2/27/2008 05:06:00 AM
Singapore's former PM and current Senior Minister Goh Chok Tong recently made a noteworthy speech at the Second Annual Asian Leadership Conference in South Korea. In the speech, he asked the Western powers that be to consider a greater role for Asia in global governance. This is the introduction:

For more than 200 years, the West has dominated the international system both politically and economically. But Asia is now growing rapidly, shifting the balance back towards the East. It began with Japan, and was followed by Korea and the Newly Industrialised Countries, and now China and India. Asia’s continued economic growth will compel political and strategic adjustments to the established international order. Such adjustments are best brought about through win-win global cooperation rather than a winner-takes-all competition. Therefore, it is in the interest of the West to give the emerging Asian powers a stake in the existing international order and accommodate its legitimate interests. In turn, Asia must play a greater role, as a partner and not a rival of the West, in maintaining international order and preserving global stability. This requires an adjustment to relationships, based on respect on the part of both the West and Asia of each other’s aspirations. This is common sense but is easier said than done for it involves a change of mindsets and redefinition of interests by both sides. How this process is managed is a basic strategic challenge.

As you would expect, Goh has lots of meaningful things to say. He is also critical of the notion of the West imploring the developing world to become "responsible stakeholders" without having much of a stake in institutions of global governance such as the UN Security Council, the World Bank, and the IMF:

Former US Deputy Secretary of State, now World Bank President, Robert Zoellick, made the case for China to become a “responsible stakeholder” in the international system. China would then be responsible for strengthening the international system from which it has benefited and enabled it to grow and prosper. What Bob Zoellick said applies equally to the other major economies in Asia, and ultimately, to all stakeholders in the world.

But to be a “responsible stakeholder” requires a stake. And it is not unreasonable for Asia to expect some say in determining what that stake should be and not just accept the existing order or norms. Whether the West likes it or not, Asia will seek economic, political and even cultural influence commensurate with its growing economies. The awkward truth is that current international political norms, practices and institutions, as they have evolved after World War II, were driven by the West, and no longer accurately reflect the real distribution of power in the world. They are therefore unable to fully meet key global challenges or the aspirations of rising powers.

At the apex of the post-World War II institutions is the UN Security Council (UNSC). The current Permanent Members of the UNSC need to accept the fact that the inclusion of the rising powers, particularly those from regions that are currently unrepresented, would help enhance international stability and the relevance of the UN. Similarly, why, to take another example, should international financial institutions like the IMF and World Bank only be run by European and American appointees?

To be sure, this is not the first time that calls have been made for reform at the UNSC, IMF or World Bank. But we need to go beyond words to real action. The World Bank, under Bob Zoellick, has taken small steps in this direction, such as appointing Justin Lin as its Chief Economist. Lin, an eminently qualified Chinese, will be the first to occupy the position from an emerging economy. But more needs to be done, at a faster pace, to increase the representation of not just China but other emerging players from key regions.

Read the entire speech. It has several more sensible ideas.

Sarko's Latest Guise: Doha Round Fiend

♠ Posted by Emmanuel in ,, at 2/26/2008 12:12:00 AM
One thing you cannot accuse French President Nicolas Sarkozy of being is staid. His extroverted character has taken a number of turns, many of which are in conflict with each other: tabloid fodder, potty mouth, free market skeptic, union buster, defender of French national champions..and now this. It is known by every third world campaigner and NGO from Afghanistan to Zaire that France is the European state whose farmers rely the most on farm subsidies. Furthermore, "the farm" still has a mystique (mistake?) among the French electorate that keeps it lathered in subsidies which hurt farmers in the developing world. Well, here's something that will give the Oxfam crowd fits. According to Sarkozy, Peter Mandelson is going overboard with offers to cut EU farm subsidies already. Not that they have been successful in gaining the assent of developing countries, but whatever subsidies are already on offer are too much according to Sarkozy. Somehow, I don't think this will play very well in the developing world. From Reuters:
French President Nicolas Sarkozy said on Saturday the European Union was making too many concessions in current World Trade Organisation (WTO) talks and called for emerging countries to show more goodwill. He said the EU needed to defend its interests more vigorously and France would oppose any deal that went against its interests and those of the EU bloc. "I regret that Europe is making more and more important concessions without anything in exchange. This attitude is an impasse," Sarkozy said at the inauguration of the Paris annual farm show. "The government of the French Republic will firmly oppose any agreement that would sacrifice the interests of French and EU agriculture," he added.

France is the single biggest beneficiary of the EU's farm subsidies, worth more than 40 billion euros ($58.5 billion) a year in total. Negotiations on the Doha round have ground almost to a halt in Geneva this week as diplomats pored over the revised texts issued this month to pave the way for a ministerial meeting...

"The emerging countries think that they have only rights and no obligations," Sarkozy said.

The talks, often declared dead, were revived last year, and trade ministers meeting at the World Economic Forum in Davos last month declared their determination to meet in March or April with a view to completing the deal by the end of the year [we can all dream, no?]

Showdown: US Treasury v. Iran's Central Bank

♠ Posted by Emmanuel in at 2/26/2008 12:06:00 AM
Here's more conflict escalation, American style. The US Treasury Department is in the process of gathering dirt on Iran's central bank, accusing it of facilitating the transactions of Iranian banks that have been sanctioned against by the US of A. Isolating Iran's central bank would be a major move by the US to choke off one of Iran's key remaining financial links to the rest of the world, though the US needs to gain the support of its allies. The US hopes to do so by linking Iranian financial activity to terrorist financing. This showdown will be an interesting one to watch. Unlike the US, most European countries are not as harsh in their treatment of the Islamic republic. From the Wall Street Journal:

The Treasury Department is gathering evidence it says shows that the central bank of Iran is helping other Iranian institutions elude U.S. economic sanctions, in what could be a prelude to penalties against the central bank.

The investigation, described by financial-intelligence officials in three countries, signals a potential escalation in the financial battle Washington is waging against Tehran. Beginning in 2006, the U.S. imposed sanctions against several of Iran's major private-sector banks, blacklisting them for allegedly supporting terrorism and Iran's nuclear-weapons program.

Now, financial-intelligence officials say the Iranian central bank, also known as Bank Markazi, is handling U.S.-dollar transactions for the blacklisted private banks, and is also helping them by backing their existing dollar-denominated letters of credit.

The impact of any American move to sanction the central bank would depend in large measure on the extent to which U.S. allies joined in the effort. To enlist such support, the U.S. would have to make a strong public case for action...

The central bank is the keystone of Iran's financial system and its principal remaining lifeline to the international banking system. U.S. sanctions against it could have a severe impact on Iranian trade if other nations in Europe and Asia choose to go along with them. That would intensify the economic pressures already facing Iran...

U.S. officials have begun trying to lay the groundwork for a move against the central bank in public statements and meetings with key allies. In a Feb. 8 speech, U.S. Deputy Treasury Secretary Robert Kimmitt asserted that Iranian banks are attempting to remove their names from transaction records when conducting business internationally.

"This practice, which makes it difficult, if not impossible, to determine the true parties in the transaction, is even used by Bank Markazi, Iran's central bank," Mr. Kimmitt alleged...

The U.S. has rarely sanctioned a foreign central bank, though the central bank of Iraq was included in sanctions it imposed on that country in the 1990s as it ratcheted up pressure on then Iraqi leader Saddam Hussein.

Unlike the independent Federal Reserve in the U.S., Iran's central bank is an arm of the Iranian regime and subject to political influence. Its Money and Credit Council includes the country's minister of intelligence.

Also unlike the Fed and many other central banks, Bank Markazi handles letters of credit and foreign-exchange transactions for private and state-owned companies. Because it isn't included in current American and U.N. sanctions, and has accounts with many of the major European banks, it is able to tap those banks' services on behalf of the banks the U.S. has punished with sanctions...

Under American laws, any institution that aids an entity covered by American financial sanctions is itself liable to penalties. In practice, however, officials acknowledge that getting international support for action may require them to make a more powerful case that the Iranian central bank actually aids sinister activity, such as funding terrorism.

Officials are aiming to lay that foundation as well. Between 2001 and 2006, Mr. Kimmitt alleged in his speech, Bank Saderat, an Iranian bank, "moved $50 million from the central bank of Iran through its subsidiary in London to its branch in Beirut to the benefit of Hezbollah front organizations in Lebanon that support acts of violence." Those remarks reiterated an allegation the U.S. Treasury first leveled in 2006.

Euro-Protectionism Has Fits Over SWFs

♠ Posted by Emmanuel in , at 2/25/2008 12:11:00 AM
Photobucket
Uh-oh, here we go again. Just after I made a largely positive write-up of Peter Mandelson being interviewed in the Wall Street Journal, he springs some nasty SWF-bashing rhetoric on us. The above table from the SWF blog illustrates that the EU isn't really the largest of SWF investment destinations, so it's kind of puzzling why the EU is gearing up to protect itself from an invasion of purported SWF-body snatchers. I had been aware that the EU was becoming increasingly wary of sovereign wealth funds, but I didn't know that Mandelson was the ringleader of the whole affair. The Financial Times writes on the emerging sordid story:

The world’s sovereign wealth funds will be asked to accept a voluntary code of conduct governing their investment activities under proposals poised for approval next week by the European Commission. Peter Mandelson, the European trade commissioner, said the code would set out basic standards of governance and transparency for the funds.

“The emphasis in their investments should be on commercial motivations, not national or strategic considerations. I think such a code is possible to draw up and would get acceptance from the wealth funds,” he told the Financial Times.

Similar voluntary guidelines are being prepared by the International Monetary Fund, which estimates there are more than 20 big state-backed funds that control between $1,900bn and $2,900bn in global assets.

Sovereign wealth funds from Abu Dhabi, China, Saudi Arabia and Singapore have injected billions of dollars into some of the world’s biggest investment banks since November. The funds provided vital liquidity for world financial markets but many politicians and elements of public opinion in the US and Europe remain worried about the implications of letting the funds acquire stakes in powerful companies and business sectors.

EU officials said the Commission’s proposals, which are due to be approved on Wednesday, would contribute to international efforts to set a framework for improving the openness and accountability of the funds. The proposals represent the 27-nation European Union’s first attempt at addressing the funds’ activities at EU level. They aim to balance concerns over the alleged lack of transparency and political motivations of certain funds with a message about Europe’s openness to foreign investment.

“We should be positive, not paranoid, about the operations of sovereign wealth funds,” Mr Mandelson said. “A voluntary approach is preferable to a statutory one. Otherwise we get into a divisive debate about enforcement and sanctions.” EU finance ministers are expected to discuss the Commission’s proposals on March 4. If the funds refuse to accept a voluntary code of conduct, pressure may grow for laws obliging them, at the least, to disclose their investments.

Well of course SWFs have political interests as well as economic ones in mind. How could it be otherwise for state-owned entities? Their whole existence is a policy choice. I have always though the need for SWF disclosure overblown. This may be the only time that I agree with one Richard Posner, but it's indeed true that foreign investment may be a welcome way to ensure that the governments behind these investments do not undertake monkey business because it's so much easier to expropriate their investments when they are on home soil. Yes, the context is the EU not the US, but the idea remains the same:

...the purchase of assets by foreign nations, even when they are hostile or potentially hostile to us, does not threaten [our] welfare or security. The purchase of a company from its owners places money in the hands of those owners that they can invest for a higher return--if they did not think they could do this, they would not sell the company. So such a purchase is wealth-enhancing. It does not undermine our national security just because the purchaser is a foreign government, but on the contrary enhances our security because the investment is a hostage...

By doing this they are giving hostages to the nations in which they invest. We should welcome the fact that these investments are less liquid than the short-term securities in which governments conventionally invest their reserves. The less liquid an asset, the better a hostage it is; it can't be withdrawn as rapidly.

So again with the EU as with the US, to hell and back with this protectionist tomfoolery. Free trade is free trade is free trade: If the West wants to gain buy-in from the rest of the world for the free trade agenda, preventing SWF investment over dubious "transparency" provisos is, well, quite unfree. Bad show, Mandelson.

World's Busiest Port in 2007: The Rematch

♠ Posted by Emmanuel in , at 2/24/2008 12:42:00 AM
Sometime ago I made a post regarding the world's busiest ports. Out of curiosity, I decided to look whether the status quo was preserved in 2007 of Shanghai having the world's busiest cargo port and Singapore the world's busiest container port. To understand the nature of this difference, let's go back to my earlier post's definitions. Cargo tonnage refers to the total weight of goods that are loaded and discharged at a port, whereas container throughput refers to the number of twenty-foot equivalent units (TEUs) which go through a port. For example, a forty-foot container would count as 2 TEUs.

Let us begin with cargo tonnage. In 2007, Shanghai handled 560 million tons of cargo to Singapore's 483.4M tons. In 2006, Shanghai handled 537M to Singapore's 449M tons, so Singapore is closing the gap somewhat with respect to cargo tonnage. They are in first and second place, respectively, with Rotterdam coming in third with 406M tons.

Meanwhile, Shanghai is closing in fast on Singapore's lead with respect to container throughput. In 2007, Singapore held on to its lead with 27.9M TEUs handled compared to 26.15M for Shanghai. In 2006, the difference was 24.8M TEUs in Singapore compared to 21.7M TEUs for Shanghai. Don't expect this situation to last; even the head honcho of Singapore's port authority expects Shanghai to take both crowns--cargo tonnage and container throughput--sooner or later. There are also tidbits from Portworld on Shanghai's expansion plans that aim to raise its container throughput to 34M TEUs by 2010:
The chief executive for PSA in Singapore, the world's busiest, recently admitted that Shanghai could overtake Singapore in a year or two.

The past five years has seen cargo handling at Shanghai more than double. Rapid development of the Chinese economy and the large industrial and trade base of the Yangtze River Delta region have propelled growth.

Supporting this growth has been the construction and development of the $2.3 billion Yangshan deep-water facility, which has been developed to allow deep water access at Shanghai to accommodate the world's largest vessels.

Shanghai International Port (Group) Co. Ltd. vice president Huang Xin was reported saying that the port will have a container handling capacity of 34 million TEUs by 2010, due largely to the construction of Yangshan.

The first two phases of the project with nine berths and an annual designed capacity of 4.3 million TEUs have been completed. Phase III, which will add seven new berths, is designed to bring throughput capacity to 15 million TEUs at Yangshan alone.

Perhaps not to be outdone, Singapore is doing some one-upmanship in expanding its facilities as well to be able to handle 35 million TEUs by 2009. Call it the "container wars":

Several industry players, questioned by Portworld, pointed to major expansion projects that are already currently underway to boost Singapore's capacity.

Some $1.4 billion is being spent to boost the port's annual capacity by some 40%. This expansion is slated to add 16 berths at Singapore's Pasir Panjang terminal, increasing the terminal's annual handling capacity by 14 million TEUs.

These new 16 berths, due for completion in 2013, is in additon to 13 berths currently already being built by PSA in another project due for completion in 2009.

Completion of the earlier project by 2009 will already boost PSA's total handling capacity in Singapore to 35 million TEUs.

Why does Shanghai decisively beat Singapore on cargo tonnage while lagging slightly behind on container throughput? The commonsense answer is that the goods coming into Shanghai may include more heavy commodities such as iron and copper which are much in demand to help feed China's industrial machine. Meanwhile, there is no comparable boom necessitating such an influx in Singapore. Wait until next year for the rematch, then. [Ladeez and gentlemen...in the Red(s) corner, weighing in at 560 million tons, the heavyweight shipping champion of the world...Shanghai!]

Liechtenstein und der German Pastime, Tax Evasion

♠ Posted by Emmanuel in , at 2/24/2008 12:15:00 AM
It is always a sign of more difficult times when governments start cracking down harder on perceived tax cheats. The whole non-dom brouhaha here in the UK attests to this, but there's another quarrel going on in Germany that has attracted less attention. The recent free-for-all began when the former head of Germany's largest mail carrier Deutsche Post, Klaus Zimwinkel, came under fire from the government for using the tiny nearby country of Lichtenstein to help avoid taxes to the tune of Eur 1M. The Principality of Liechtenstein has fallen afoul of the OECD in recent times for being one of three non-cooperative tax havens which allegedly do not disclose information on tax cheats. In particular, the royalty-owned bank LGT is said to have facilitated the evasive maneuvers of Herr Zimwinkel and a host of other wealthy Germans. From the Financial Times:

Germany plans to “tighten the screws” on Europe’s tax havens, the country’s finance minister vowed on Friday amid a growing global government backlash against financial centres with bank secrecy rules that foster tax evasion.

The warning from Peer Steinbr├╝ck marks another escalation of the tensions with Liechtenstein that have flared over a mammoth tax investigation into bank accounts of Germans held at the principality.

Mr Steinbr├╝ck said Berlin was considering bilateral measures against Liechtenstein, such as levies on wire transfers to the principality or an obligation for German banks to declare such transfers...

Ms Merkel’s diplomatic push comes as a tax investigation of at least 750 suspected tax evaders enters its second week. The probe sprang from documents about German accounts at Liechtenstein’s LGT bank, which the BND intelligence agency bought for €4.2m ($6.2m) in 2006.

Other countries including the US, Finland and Sweden have opened, or are considering opening, investigations.

The leverage that the EU currently has over Liechtenstein is the latter's wish to enter the Schengen visa zone which facilitates easier travel across various European countries. The principality is likely keen to join to promote tourism. With the US looking into LGT as well [no, it's not a bank catering to the lesbian, gay, and transsexual market as far as I can tell], Crown Prince Alois is firing back at critics using that standard retort, "if you didn't have such a messed-up tax system, then maybe your citizens wouldn't want to evade taxes in the first place":

After days of sniping from German politicians, enraged about a domestic tax-fraud scandal involving accounts in the Alpine tax haven, the 39-year-old prince on Tuesday accused Germany of running a “campaign” against little Liechtenstein.

Germans had discovered that prosecutors bought stolen bank data from a whistleblower and were targeting hundreds of residents for owning trusts in Liechtenstein, including members of the corporate elite, such as Klaus Zumwinkel, chief executive of Deutsche Post . The Germans lashed out at Liechtenstein .

Although a quiet, reflective man, the prince decided to take a rare public stand. Accused of aiding and abetting tax fraud – the banking principality does not recognise it as a criminal offence – he shot back that Germany had “trafficked in stolen goods.”

In an apparent allusion to Germany’s belligerent history last century, he added it “still” did not know how to treat friendly nations and obviously placed “fiscal interests above the rule of law”. If it were a more direct democracy with a better tax system perhaps its citizens would not cheat, he suggested.

Last, the prince alluded to something interesting: with tax rates that are quite high, most Germans have been understandably keen on lessening the take of the tax man. The Germans are stereotyped as very thorough people in presumed contrast to their American and British counterparts. There are good reasons why Homer Simpson and Basil Fawlty caricatures do not have German equivalents. Why, just look at this bestselling German book "1000 Legal Tax Tricks" from the Amazon Germany site. It's not just 99, 100, or 101 tax tricks, it's 1000 of them. The tome clocks in at 816 pages, can you believe! That's much longer than even The Canterbury Tales. Even when they're up to mischief, our German friends do not leave much to chance. As I said, they're thorough. It seems that tax reform has a long way to go in Deutschland. Until then, taxpayers large and small will Lie-cheat-en-stealin' [just kidding; I hope I don't get hate mail from Prince Alois] the German way--with characteristic guile and persistence. From Bloomberg:

When Andreas bought a new hard drive at a Munich computer shop the clerk offered it for 127 euros with a receipt or 80 euros without. He took the lower price.

Most Germans make similar deals to avoid high taxes, the film production manager said. Klaus Zumwinkel, the former Deutsche Post AG chief executive officer being investigated for using Liechtenstein foundations to evade 1 million euros ($1.5 million) in taxes, is no different, said Andreas, who asked not to use his full name because he's breaking the law.

``Zumwinkel did nothing wrong if you take into account the fact that everyone is doing it,'' said Andreas, 22. ``The guys who make millions every year aren't going to be able to hide it without someone to help them.''

Chancellor Angela Merkel has failed to fulfill a campaign promise to simplify the tax code and reduce tax avoidance. Germans evade about 30 billion euros in taxes every year, estimated Dieter Ondracek, head of the German tax collectors' union DStG. That's more than 6 percent of the 495.3 billion euros of taxes collected at all levels of government last year.

``Unfortunately, tax evasion has become a popular sport in Germany,'' Ondracek said Feb. 19 in an interview with Bloomberg Television in Berlin.

Germany last year increased its top income tax rate to 45 percent, ranking it eighth among the 27 European Union nations. Capital gains taxes of as much as 50 percent are also among the highest in Europe.

YaHadTaBeThere: Houston's Demise as Oil's Capital?

♠ Posted by Emmanuel in at 2/24/2008 12:03:00 AM
A big ruckus was made when the Houston-based oil services firm Halliburton, once headed by US veep Dick Cheney, decided to move to Dubai. It makes some sense: with oil production in the US going down--especially in Texas and the Gulf of Mexico--major firms will shift more of their activity to other parts of the world. The exodus of, ah, "al-Halliburtoni" may be the shape of things to come as more and more exploration activity moves to the Middle East and elsewhere from unproductive US sites. The Financial Times Weekend has a nice feature from which I excerpt a bit. Do read it if you've got the scratch. Hopefully those Texans will think of something better than Enron Reloaded to juice Houston's somewhat waning fortunes:

Houston, the centre of Texas’s energy industry, recognises that it has a problem. The Greater Houston Partnership, the region’s business advocacy organisation, has appointed a committee, the Energy Collaborative, with the express purpose of sustaining Houston’s status as the energy capital of the world. Lane Sloan, director of the University of Houston’s Strategic Energy Alliance, was its second chairman.

“We’re in the middle of a phase change,” he said, just before stepping down at the beginning of this year. “Before the industrial revolution, wood was the main source of energy. Then came coal. Hydrocarbons have dominated for the past 100 years, but they now comprise only about 55 per cent of the overall energy supply. Energy demand is expected to double by 2050, and yet oil and gas are becoming increasingly harder to come by.”

Alternative sources of energy are needed to meet demand and, concurrently, to hold on to the city’s reputation. “The idea behind perpetuating Houston as the energy capital has been perpetuating its technological development,” Sloan says. So Texas has become the biggest producer of wind energy in the US, and is building a portfolio of other technologies involving solar, biofuels, coal and carbon dioxide capture. Its rush into technology has been made easier by the energy infrastructure already here. There are more than a half dozen top-notch universities, each of which features energy courses in its curriculum. But, says Sloan: “There is no one, single answer.”

Almost 50 per cent of the Houston region’s $325bn economy is energy related. To put that in perspective, Houston has what amounts to the world’s 21st largest economy – one so big it was the only US city invited to the World Economic Forum to represent its business community at a summit last year in China. On Thusday, Houston is due to host a summit on energy at which the US presidential candidates will discuss energy issues.

“We can slice the data a lot of different ways,” says Jeff Moseley, president and chief executive of the Greater Houston Partnership. “The bottom line seems to be that while the number of billionaires from Texas may be shrinking, companies here are doing very well and can contribute to its future.” Look no further than “Opportunity Houston”, a marketing effort to raise $40m over the next five years to create 600,000 jobs, $60bn in capital investment and $120bn in foreign trade, increasing to $225bn during the next 10 years. There are more than 3,600 energy companies in Houston to help meet these targets.

Yet the clock is ticking at all energy companies in the US, where the average worker is 54 and approaching retirement. Houston is desperate to attract more young people into the sector, dispatching oil executives to speak to school children and, in a more aggressive push, opening the Academy of Petroleum Exploration and Production Technology at Milby High School this year. It is the first of four public high-school learning centres focusing on the petroleum industry. At the inauguration, Mayor Bill White said: “Investing in minds is the way Houston will continue to be one of America’s great cities for opportunity and growth, especially in the petroleum industry.”

Even as some companies, or their bosses, leave Houston, others continue to be drawn to it for the businesses – and the people – who are here. “There is certainly an historic tie to doing business on a handshake that goes back to the wildcatter days,” says Moseley from the Greater Houston Partnership. Kenneth Mackie, president of Rotech Subsea, an exploration company, says that establishing headquarters in Houston is integral to international success. “You have to be here. Houston is at the heart of the world’s oil industry.”

UPDATE: The New York Times has a feature on Texas becoming America's largest wind power generating state, with even T. Boone Pickens looking to put up the world's largest wind farm there.

Coal, the Future of Clean Energy?

♠ Posted by Emmanuel in ,, at 2/23/2008 09:15:00 PM
Wind power, biofuels, and even nukes seem to be dominating the talk about energy sources that should help reduce greenhouse gas emissions. Lost in the discussion is the possibility that ol' coal can go some way towards providing clean power using the process of underground coal gasification (UCG). This technology is particularly salient here in the UK with its large, untapped coal supplies. With the high costs of importing fuel from abroad--both economic and political--UCG is gaining a serious look. Consulting firms, energy industry, and academic institutions have already teamed up to form a UCG partnership. A whole raft of advantages are touted below that obtain from coal being utilized in situ (on site), such as avoiding transportation and storage as well as possible mining disasters [have you seen my wife, Mr. Jones?] Coupled with carbon sequestration technologies that store carbon dioxide emissions underground, the future may once more belong to the fuel that has been a large factor behind global warming. The redemption of coal, coming to an energy station near you, perhaps:

· Lower fugitive dust, noise and visual impact on the surface
· Lower water consumption
· Low risk of surface water pollution
· Reduced methane emissions
· No dirt handling and disposal at mine sites
· No coal washing and fines disposal at mine sites
· No ash handling and disposal at power station sites
· No coal stocking and transport
· Smaller surface footprints at power stations
· No minewater recovery and significant surface hazard liabilities on abandonment.

Additional benefits are:
· Health and safety
· Potentially lower overall capital and operating costs
· Flexibility of access to mineral
· Larger coal resource exploitable

The Times of London has more on the potential rebirth of coal and its possible uses:
Coal. The very same filthy fossil fuel, dirtiest of them all, that powered the industrial revolution and let global warming out of its cage. The very same that rotted miners’ lungs, blotted out the sun and choked London with smog. The very same that still generates a third of the UK’s electricity and which David Kerr describes, for all the above reasons, as an “undesirable trend”. And yet coal has a lot going for it. The domestic industry may have been Thatchered into the ground, and 80% of our supplies may now be imported, but coal worldwide is plentiful and can be sourced from countries in Europe and the Americas which are far better disposed towards us than the gas merchants of the East.

But nobody wants to fill the air with smoke. Atmospheric pollution was a public enemy long before climate change became an issue, and there can be no going back to it. If coal is to resume its historic role, then it will have to clean up its act. And this is exactly what Golby and others propose. “Clean coal technology” (CCT) is not an oxymoron. Various processes that can be summarised as “carbon capture and storage” (CCS) have been designed to do exactly what the name suggests – remove or intercept CO2 from coal and store it deep underground. It can be done before combustion by a gasification process, or afterwards by stripping carbon from flue gas. The efficacy of the technique has been shown in small-scale trials, but high development costs are holding it back commercially and it’s not something “the market” can afford to deliver.

Yet Golby, head of Britain’s biggest gas and electricity company, is unequivocal: “I believe that this is one of the really critical technologies,” he says. “Unless we can solve the problem of coal, we are going to lose the climate-change battle.” It is a problem that extends far beyond the UK’s ability to power itself sustainably. China and India are going to burn coal – more and more of it – come what may, and unless a way can be found to cut their carbon emissions, and those of every other coal-burning economy, nothing we do in Britain is going significantly to impede humanity’s march to self-immolation. “It will require an international effort not dissimilar to the US putting a man on the moon,” says Golby. “It will take tens of billions of pounds. Some of it will come from industry. Some will have to come from governments...”

For many others, the principal lunacy of the UK’s position is not that it ignores the potential for clean energy from imported coal, but rather that it ignores the wealth under its own feet. Accounts vary. One expert tells me that 75% of the coal that ever existed in the UK still lies undisturbed – a buried mountain of pent-up energy that could fuel the country for centuries. Another says the likelier figure is 98%. Either way, it’s a lot of coal. The problem, of course, is getting at it. If it was easily accessible, then the whole energy equation might look rather different. Coal would still be king, and CCS would be a no-brainer.

But there is a powerful body of opinion that says not only that much of it is accessible, but that it can be extracted with minimum environmental impact – ie, without open-cast mining – and with great benefit to national security and the carbon economy. The key to it is “underground coal gasification” (UCG), a technique devised by the Scottish chemist Sir William Ramsay. The Coal Authority thumbnails it as “a method of converting unworked coal deep underground into a combustible gas”, which, through CCS, contains no CO2. The result is “clean energy with minimal greenhouse emissions”...

This seems no less extraordinary to energy professionals than it does to laymen. “The government should be putting a big push at getting gasification technology on the road,” says the ICE’s David Kerr. “It’s the most promising technology currently available,” says Graham Chapman, managing director of the energy consultant Energy Edge. Since 2005, the campaign to promote UCG, both in the UK and worldwide, has been led by the UCG Partnership, an independent organisation in Woking, Surrey, whose members include oil and gas companies, banks, regional development agencies, universities and governments.

One of its two founding directors, Rohan Courtney, quotes the British Geological Survey, which concluded that UCG could unlock an extra 17 billion tonnes of indigenous coal – enough for another 300 years at current rates of consumption. (Compare this with the range of 200m to 2,000m tonnes estimated for “mineable” reserves). Like a schoolmaster delivering a favourite lesson, Courtney runs through the advantages at dictation speed. UCG does not suffer from the same negative public image as coal mining. It does not endanger lives underground; does not ruin the countryside; does not involve high transport and labour costs. Production, too, would cost less than either mining coal or buying oil and gas from elsewhere. We would have security of supply.

“We own the coal,” says Courtney. “We would not be subject to market forces on the price of importing energy, high transport costs and the political risks of purchasing oil, gas or coal from a country with a different agenda.” Instead of importing, we could export the technology. Best of all, with directional drilling, UCG can be used under the sea. Rich seams lie under the Firth of Forth and southern North Sea – at least five billion tonnes, and possibly much more.

Russia Plays Nice to Gain WTO Accession

♠ Posted by Emmanuel in , at 2/22/2008 07:05:00 PM
This is interesting if somewhat predictable: Russia's general disdain for former Soviet republics cottoning up to the West has been set aside--for now at least--as it attempts to gain WTO accession. It needs to gain the assent of other WTO members if its long-delayed bid is to push through, and these include the Ukraine and Georgia, both of which have fallen afoul of Russia in recent times. From our second-favorite official news agency Tass (Xinhua is still tops) comes this report on the Ukraine and Russia playing nice. After (in)famously cutting gas supplies to the Ukraine in 2006, Russia is now contemplating the establishment of a free trade area with the Ukraine [aww, ain't that sweet?]:
Ukraine and Russia are going to establish a free trade zone on the basis of norms and procedures of the World Trade Organization (WTO), Ukrainian Prime Minister Yulia Timoshenko said at the government’s meeting on Friday, commenting results of her February 20-21 visit to Moscow.

She ordered the Economics Ministry to prepare respective directives.

“Ukraine has become a WTO member, but we proposed Russia during the talks before its joining the WTO our beginning to create conditions in the trade relations of Ukraine and Russia that act in the WTO, Timoshenko said.

“We can do that, and this can be made one of our priorities. We should painstakingly work on the free trade zone between Ukraine and Russia that would begin working without wavers and restrictions. This is our goal, to which we must dedicate a certain part of our work,” Timoshenko said.

Meanwhile, Georgia and Russia also seem to be getting along better by tackling "technical" issues that pertain to trade instead of "political" ones (it's always the fault of politics):

The regular round of the Russian-Georgian bilateral consultations within the framework of the process of Russia’s admission to the World Trade Organisation (WTO) has passed constructively and successfully, head of the Russian delegation at the talks, chief of the trade talks department of the Ministry of Economic Development and Trade Maxim Medvedkov told.

“The meeting with the Georgian delegation held with the participation of the WTO Secretariat that perform the functions of moderator, was effective, we considerably advanced in finding joint approaches to the settlement of questions our Georgian colleagues still have, in particular, on the activity of border checkpoints and control in the issue of trade between Russia and Georgia,” Medvevkov noted. “We agreed that our experts will work with the Georgian colleagues and corresponding ministries so that to coordinate the remaining separate questions,” the official added.

The next round of the consultations will be held in late March – early April also in Geneva. “We will look at the results, but I think that they will be positive,” according to Medvedkov. “So far our dialogue is developing rather constructively and within the framework of existing agreements we will be able to continue it successfully,” the Russian trade representative said.

He recalled that at the very beginning of the work with the Georgian colleagues the sides reached an agreement that “we sit at the table of trade talks on Russia’s admission to the WTO, that issues raised by the Georgian side are of technical nature and we should find just a technical solution.”

“We don’t want to raise at the WTO venue the political problems that exist or may emerge in relations between the two countries,” Medvedkov stressed.

The latter article also hints at the timetable Russia is looking at, with a goal for August 2008. Is it just me or did Ukranian membership spur Russian action on the matter of WTO accession?

Medvedkov said as well, “Russia has yet to coordinate five sections of the keynote report on the terms of accession to the WTO.” He also said informal multilateral consultations in Geneva on the section of the report “on intellectual property,” “technological regulation” and “phytosanitary measures” will enable Russia clearly to see the timeframe of the conclusion of the negotiating process of Russia’s accession to the WTO.

There is a technical possibility to conclude the negotiations on Russia’s accession to the WTO in August 2008, Medvedkov said on Wednesday.

Asked when Russia might join the WTO, Medvedkov said “different forecasts have been made” but “there is a technical possibility to conclude the negotiations in August.” “We are strongly determined to achieve a positive result and are interested in joining the organisation at the earliest opportunity,” Medvedkov said.

Meanwhile, Tass also reports that Russia's multilateral consultations back at Geneva are proceeding smoothly:

Consultations in a multilateral format on Russia’s accession to the World Trade Organisation (WTO) progress successfully, claimed head of the Russian delegation and chief of the trade talks department of the Russian Ministry for Economic Development and Trade Maxim Medvedkov, speaking in an interview with Itar-Tass.

He noted that consultations with the European Union were held in Geneva over the past two days. “They were a follow-up of meetings that had been staged in Moscow last week between Russian Deputy Prime Minister Alexei Kudrin as well as Minister for Economic Development and Trade Elvira Nabiullina and European trade commissioner Peter Mendelson.

“We specified some understandings that had been reached, and agreed an action plan for the near future so as to resolve remaining questions,” Medvedkov said.

He added that consultations were also held with chairman of the Working Group on Russia’s Accession to the WTO Stephan Johannesson of Iceland on some outstanding problems at the talks. “The main result was that WTO member countries agreed without a long discussion with Russia-brokered text of the report’s section on intellectual property, which is basically important, since that was one of the most difficult questions, and we worked on them with many delegations,” the head of the Russian delegation noted.

“The first multilateral discussion showed that many questions had been removed.” “This does not mean that the talks are over, but the first response is very encouraging: there are no serious remarks on the text proposed by us,” he continued.

Lies, Damned Lies, and World Poverty Statistics

♠ Posted by Emmanuel in at 2/22/2008 12:58:00 AM
Global poverty and inequality numbers are among the most controversial of statistics. Sometime ago I featured the work of Branko Milanovic on global inequality. Until now, I consider his work the most authoritative on the subject. That he is quoted a lot by both the "globalization is deepening poverty and inequality" and "globalization is reducing poverty and inequality" camps shows the respect he is accorded by the partisans. Just when you thought we had safely escaped from this controversy for a while, the World Bank completed the results of its International Comparison Program (ICP) to accurately estimate price levels across various countries. It is especially important because Chinese and Indian price levels have not been subject to price basket comparisons since the mid Eighties, causing distortions when measuring purchasing power parity (PPP) incomes in these two huge emerging countries with a combined population of 2.4B persons. PPP concerns what folks living in these countries can actually buy domestically as opposed to their international buying power based on prevailing market exchange rates.

If you will recall, I noted that the World Bank "shrunk" the Chinese and Indian economies by about 40% on a PPP basis in light of the ICP's results. In other words, goods and services that Chinese and Indians buy on a regular basis were more expensive than previously thought. Hence, estimates of their purchasing power were revised downwards and together with it their PPP outputs. In light of these changes, our good man Branko Milanovic weighs in on the implications of these new findings. One which many should find dispiriting is his belief that global inequality is higher now than ever before. I suggest that you read the whole article from Yale Global Online--it's not that long and it's very informative. Needless to say, there are many changes in store for the dark art of poverty statistics. Here are some excerpts:

These new estimates will have far-ranging consequences. Literally hundreds of scholarly papers on convergence or divergence of countries’ incomes have been published in the last decade based on what we know now were faulty numbers. With the new data, economists will revise calculations and possibly reach new conclusions.

With the study’s release, our view of the world has changed. While economists previously thought that US GDP per capita was 6 or 12 times higher than that of China and India, respectively, these numbers have been revised to 10 and 20 times. Until last month, economists thought that China accounted for 15 percent of world economy; it’s now revealed to represent less than 10 percent...

Implications for the estimates of global inequality and poverty are enormous. The new numbers show global inequality to be significantly greater than even the most pessimistic authors had thought. Until the last month, global inequality, or difference in real incomes between all individuals of the world, was estimated at around 65 Gini points – with 100 denoting complete inequality and 0 denoting total equality, with everybody’s income the same – a level of inequality somewhat higher than that of South Africa. But the new numbers show global inequality to be 70 Gini points – a level of inequality never recorded anywhere.

Similarly, until last month, the number of people living at less than $1 PPP per day was estimated at just under one billion. The call to action issued at the Davos World Economic Forum still speaks of “980 million people who live on less than 1 dollar a day.” But this was based on old estimates of price levels. Now, we know that the price levels in these and many other poor countries are higher, and the measured number of the poor will jump...

The most famous set of estimates of countries’ historical PPP-adjusted GDP, made by Angus Maddison, is based on the old data. Maddison’s numbers, the only data series of GDP per capita that include practically all the countries in the world, providing estimates for most as far back as 1820, is extensively used by econometricians and economic historians. Its revision will be massive. Much of what we think we know about comparative economic history will be reexamined.

London Mayor "Red Ken" Livingstone v. Porsche

♠ Posted by Emmanuel in at 2/21/2008 02:01:00 AM
Ladies and gentlemen, let me assure you that nearly everything humanly possible has been done to discourage automobile use here in the UK. From sky-high gas prices, cars that are nearly the same price in £ as in $ given that the prevailing exchange rate is £1.00 = $1.94, to carbon dioxide emissions duties, it simply amazes me that there are so many people who still bother to own cars here. If nothing else, the British are attached to "motoring" despite the government's efforts to tax motorists until kingdom come. Talk about cash cows (moo). Now, London is famous for its so-called congestion charge to reduce traffic on that global capital's roads especially during peak hours. Now, though, the nefarious London Mayor "Red Ken" Livingstone as he is known for his communistic stylings (but there are caveats) plans to include stricter emissions regimes into congestion charging schemes. Our favorite socialist public official plans to levy a £25 daily congestion charge for high emission (read: luxury) vehicles that enter London. Rupert Murdoch's Times of London is unsurprisingly apoplectic:
Livingstone’s latest manoeuvre in his war on motorists is a daily charge of £25 for cars with emissions over 225g/km (road tax band G), which would mean drivers entering the zone every working day facing an annual bill of about £6,000.
Can you imagine New York Mayor Michael Bloomberg levying a $50 charge on luxury cars and SUVs for the privilege of entering New York? Impossible! Interestingly, legendary German automaker Porsche is now getting into the ring to fight for the right of Londoners to enjoy powerful German machinery. If anything else, British poseurs are a large customer base for Porsche. Good with words as usual, Livingstone calls these automobiles "Chelsea Tractor[s]." It's an interesting battle and Red Ken's record so far is sterling in beating down challenges to his authori-ta: From the Daily Telegraph:
Car company Porsche is to launch a legal challenge over the decision by London mayor Ken Livingstone to hike the congestion charge in the capital from £8 to £25 for gas-guzzling vehicles.

Porsche said the decision, which affects 33,000 cars in London, was simply "unjust", representing a big increase for owners of sports cars and 4x4 vehicles. Residents in the zone who own such vehicles face a 3,025pc leap in charges against the 80p per day they currently pay.

Porsche plans to apply for a judicial review of the decision, due to take effect from October 27. "Thousands of car owners driving a huge range of cars will be hit by a disproportionate tax which is clear will have a very limited effect on CO2 emissions," said Andy Moss, managing director of Porsche Cars GB.

Mr Livingstone announced the planned charge hike earlier this month in a move to drive Band G vehicles and those that have engines over 3,000cc off the capital's roads. "Nobody needs to damage the environment by driving a gas-guzzling Chelsea Tractor in central London," he said. The move is part of the mayor's drive to reduce London's CO2 emissions by 60pc by 2025.

A spokesman for the mayor said: "No one is allowed to throw their rubbish in the street and Porsche should not be allowed to impose gas-guzzling polluting cars on Londoners who do not want them."

Brian Paddick, the Liberal Democrat mayoral candidate, countered: "Porsche have a point." He added: "This has become an emissions charge, not a congestion charge and an ineffective one at that."

Huawei & 3Com: Stupid Protectionist Tricks

♠ Posted by Emmanuel in , at 2/21/2008 12:27:00 AM
Oh man, does this make my stomach churn: I thought it wouldn't end like this, but Huawei and Bain Capital's bid for US telecoms gear maker 3Com has fallen through in the same way that the CNOOC bid for Unocal did. Still, I am 100% on board with the manager at Huawei who characterized the CFIUS "national security" rigmarole as "bullsh--t." To spare itself the trouble of invasive investigations, it appears Huawei has scuppered its bid. Worse, the prospective buyers already signaled that they were willing to get rid of the sensitive bits of 3Com that sold security gear to Uncle Sam (see below).

If I were the Chinese, I'd demand much better treatment in the US over these shenanigans. The operative principle is "beggars can't be choosers" as the US keeps handing out the begging bowl to China and Co. to get a fix on its debt addiction. There are so many ways China can hurt the US and I don't think the latter fully understands the range of possible consequences for offending the real owners of America as I phrased it in an earlier post which outlines this story in more detail. Then again, few junkies understand the bind they're in and there is no reason to think debt-addled America would know better. This is ridiculous, but don't expect it to go unnoticed in Beijing. Those folks do not take slights very well. From the Financial Times:

Bain Capital and its minority Chinese partner, Huawei Technologies, have shelved their $2.2bn deal to acquire 3Com, a US computer networking company, saying a key Washington committee charged with vetting foreign investments in sensitive sectors had told Bain it would not approve the purchase.

The setback to the deal highlights rising protectionist sentiment in the US as both Democrats and Republicans seek to woo an American electorate suspicious of foreign investment and the effects of globalisation on domestic jobs.

Huawei was set to own 16.5 per cent of 3Com and get board seats, but in an effort to limit possible political objections it was to have no management control.

Bain, a US private equity firm, was prepared to divest 3Com’s Tipping Point unit, which sells security software to the government. But these offers could not overcome opposition by the Committee on Foreign Investment in the US (Cfius), according to people familiar with the matter.

Bain declined to comment. But the news comes as executives at private equity firms worry about what they see as rising US xenophobia and how their deals can become political footballs.

At the same time, Beijing has invoked national security to limit or bar foreign investments in Chinese companies.

The failure to win Cfius approval for the deal is likely to anger officials in China who already believe that Washington has repeatedly proved ready to reject Chinese investment in US companies on spurious national security grounds.

Many regard Cfius as the face of growing US financial protectionism. Jesse Wang, a senior official at China Investment Corp, the sovereign wealth fund, said at a conference in San Francisco last year, that his organisation would not even consider an investment in the US if it seemed headed for Cfius review.

US security concerns scuppered a 2005 bid by Cnooc, China’s third-ranked oil firm, for American oil group Unocal. The latest setback could complicate talks between Beijing and Washington on a bilateral investment treaty.

Huawei, a fast-growing Chinese telecoms equipment manufacturer, had trumpeted its independent status as a private company, in contrast to state-owned Cnooc. But its case was weakened by its corporate secrecy.

Ren Zhengfei, its founder and chief executive, a former People’s Liberation Army major, never gives interviews. Huawei, which is not publicly listed, also refuses to explain its shareholding structure, other than to say that it is fully owned by its employees and that Mr Ren has a stake of about 1 per cent.

In a 2005 report for the US Air Force, the Rand research organisation said Huawei had “deep ties” with the PLA. Huawei strongly disputes such suggestions, saying it has supplied the PLA with equipment but has no “special links” with the Chinese military.

China: Rips Off CDs, DVDs...and Olympic Slogans?

♠ Posted by Emmanuel in ,, at 2/21/2008 12:00:00 AM
I am often delighted by the range of stories that the Financial Times puts out. When it comes to genuine "scoops," the FT is hard to beat. Here's another case in point: the apparatchiks were touting the slogan for the 2008 Olympic Games in Beijing ("One World, One Dream") as a homegrown creation reflecting the aspirations of the Chinese people, yadda-yadda. Actually, it turns out that an American advertising exec came up with the slogan. Knockoff CDs, DVDs, and now Olympic slogans? If imitation is the sincerest form of flattery, the PRC is an absolute slave to Western culture. No wonder it's so upset that Spielberg has pulled out from the Olympics. A week after Spielberg's action, state media is still bellyaching over the matter. Anyway, back to today's feature...

The “One World, One Dream” slogan of August’s Beijing Olympic Games was created by a US brand strategist on the basis of a phrase proposed by the honorary chairman of the organising committee, a local court has been told.

The Beijing Olympic Organising committee (Bocog) has publicly portrayed the official catchphrase as a “crystallisation of collective wisdom” based on a global appeal for ideas in 2005 that it says resulted in 210,000 suggestions.

The stress on collective credit reflected Beijing's determination to encourage public participation in Olympic campaigns as well as Bocog's general approach of limiting scrutiny of its preparations for what will be China's biggest-ever international event.

However, faced with a lawsuit from a participant in the campaign who says he suggested “One World, One Dream” first, Bocog was forced to reveal details of the personal contributions of George Hirthler, a veteran Olympic brand expert, and He Zhenliang, former sports vice-minister.

Mr He had proposed “One World, One Future” but Mr Hirthler argued that this option “lacked the power of dreams”, Bocog witnesses said during a court hearing late last week, according to a lawyer familiar with the proceedings.

“They weren’t satisfied with anything they had, which is why they were asking me if I would help them,” Mr Hirthler said in a telephone interview.

A Beijing court on Monday dismissed the lawsuit from Fang Shouwei, a city resident, in part because he could not prove that Bocog received the e-mails he said he had sent to it suggesting the slogan, and because the committee showed it came up with the phrase independently.

A Bocog spokesman said on Tuesday that Mr Hirthler had been one of a number of experts that “contributed creativity” as part of the “collective wisdom”, but he declined to comment further.

Mr Hirthler said he had first come up with “One World, One Dream” as a possible theme for the 1996 Atlanta Games, but that, given the “iterative process” involved in selecting the slogan, he had been happy for it to be considered the fruit of collective wisdom.

Mr Fang’s lawsuit threatened to embarrass Bocog, which has repeatedly stressed its commitment to protecting intellectual property and says its slogan symbolises an “Olympic spirit of unity”.

However, China’s tightly controlled state media have not reported details of the lawsuit and discussion of it on the internet has been muted, prompting a complaint from one local blogger that online search engines were censoring news of the case.

US Survey on Medical Tourism Says...

♠ Posted by Emmanuel in at 2/20/2008 05:59:00 PM
I featured a lengthier post on medical tourism sometime ago and thought this new Financial Times story complements it. Recently, the consulting firm Deloitte conducted a survey regarding Americans' willingness to try medical tourism. The answers are informative...

Two in five Americans would consider travelling abroad for a medical procedure if it cost half the US price and quality was at least equal, according to a Deloitte consumer health report published on Wednesday.

The data highlight the exploding interest in so-called medical tourism, where patients seek treatment for elective surgeries such as hip replacements available more cheaply overseas.

Medical tourism has surged into the healthcare debate as costs rise and consumers are asked to share a growing proportion of up-front expenses. The practice was once seen as a desperate move to seek care that was unavailable, unapproved or dangerously cheaper than procedures in the US. But healthcare experts have noted increasing interest in the practice from consumers, hospitals and even employers. Some researchers are looking at whether US employers would be willing to pay for a covered employee’s medical procedure of equivalent quality abroad so as to lower overall healthcare costs...

In the survey, 39 per cent said they would consider an elective procedure abroad, if it was half the cost and of equal quality, while 27 per cent might travel abroad for healthcare in the future.

The survey, part of a larger study on consumerism in American healthcare by the consultancy Deloitte Centre for Health Solutions, found that 3 per cent have already travelled outside the US for treatment. The results show that Americans are shopping for healthcare procedures across the US.

The survey found that 38 per cent might travel outside the community for care in the future, and 12 per cent have travelled beyond their local areas, while 88 per cent would consider getting medical treatment outside their community if the treatment outcomes were better and the costs equivalent.

The data also showed that people with commercial health insurance were more likely to consider travelling to another country for treatment than those on Medicare and Medicaid. More than 40 per cent with insurance said they would consider it, versus 28 and 30 per cent on Medicare and Medicaid, federal programmes for the elderly and poor, respectively.

Younger people, as well as Hispanics and Asians in the US, were more likely to consider medical tourism. Providers, such as large research hospitals, have also been monitoring the trend. Countries seen as destinations for medical tourism, include: Argentina, Brazil, Costa Rica, India, Malaysia, Mexico, Panama, Philippines, South Africa, Thailand and Turkey.

Nope, FDI Ain't Behind China's Rampant Pollution

♠ Posted by Emmanuel in ,, at 2/19/2008 08:46:00 PM
I was browsing through the well-regarded journal International Studies Quarterly while looking for something entirely unrelated when I came across this most intriguing study by Ka Zeng and Josh Eastin. As you probably know, the "pollution haven hypothesis" concerns firms locating away from developed countries to developing countries to take advantage of laxer environmental regimes in the latter. By doing so, firms are supposedly able to manufacture their wares more cheaply by dodging higher environmental standards in the West.

What better place is there to observe a putative "pollution haven hypothesis" than China, the world's largest carbon emitter and workshop to the world? Zeng and Eastin use regression models to determine the relationship between FDI / trade openness in various Chinese provinces and sulfur dioxide emission (Model 1), industrial soot emission (Model 2), and solid waste emission (Model 3). Their findings:
In all of the model specifications, our key independent variables (e.g., fdi, openness, impgdp, and expgdp) have consistently demonstrated a negative and statistically significant relationship with our alternative measures of environmental pollution and the relationships are highly significant as well.
So much for the "pollution haven hypothesis" in China according to these researchers. Yes, there is a lot of pollution in China, but it's likely to be homegrown instead of imported from elsewhere. It seems those danged foreign investors do care about their contributions to local pollution. Let's see the anti-globalization types deal with this one:
Our empirical analysis of the effects of provincial trade openness and FDI on industrial pollution levels has yielded the somewhat surprising conclusion that increased trade openness and FDI is positively associated with environmental protection in China. It challenges the conventional view of the ‘‘impact of free trade’’ on the environment, suggesting that far from creating a ‘‘race to the bottom,’’ trade openness encourages environmental protection via firm self-regulation, and an improvement in firm-level environmental regulatory and production standards in order to ensure global export market accessibility. Additionally, FDI has the potential to introduce newer and more environmentally sustainable technologies and management practices via MNC-subsidiary linkages, and provides encouragement for local technological development through heightened competition. When taken in concert, the dynamics of economic integration through FDI and trade openness combined with a ratcheting up of developed-world environmental regulatory policies, suggests that as the world shifts toward a more globalized market, environmental standards will rise.

Will Basketball Overtake Soccer Worldwide?

♠ Posted by Emmanuel in at 2/18/2008 05:58:00 PM
After a very self-serving article on why football (soccer) is the global sport according to a British Financial Times commentator, what we have here is a return of serve on why basketball may be poised to overtake football by, er, The American. Journalistic jingoism--don't leave home without it:

Now Heidi Ueberroth has one of the most daring jobs in all sports—to make basketball the most popular game in the world, surpassing soccer, and to make the NBA the most powerful global athletic league.

Beat soccer? To most experts, the idea sounds quixotic. Soccer is more popular than basketball practically everywhere in the world outside the United States. According to the Gaskins Company, in any given year three billion fans view soccer games on TV or in person. But soccer’s capacity for growth may not be as broad as basketball’s.

Sitting in a conference room sur­rounded by huge wall posters of the biggest names in basketball—Yao Ming, Dwyane Wade, and LeBron James of the NBA, and Diana Taurasi and Swin Cash of the Women’s NBA—Heidi Ueberroth uses corporate jargon to explain her strategy.

The key, says the NBA’s 42-year-old president for International Business Operations, is “touch points.”

To supplant soccer as the top global sport, the NBA needs to “touch” fans wherever they go in the world—from the rural communities of China to the urban playgrounds of London, from the bar­rios of Latin America to the suburban schools of the Midwest. There must be constant promotion of the NBA’s stamp, its corporate partners, and its larger-than-life players. The NBA brand must become as recognizable as Coca-Cola or McDonald’s.

“The goal is to be in every point where our fans can interact with the game,” she says. “Sure, you want them playing the game. But if they’re going to watch TV, you want them watching an NBA game. If they’re going to be playing a video game after watching the game, we want them playing [an NBA game]. Then if they’re going out and buy­ing apparel, you want it to be our apparel. It’s an integrated approach.” Add to that list cell phones beeping with game updates and iPods with video highlights, restaurants and bars beaming NBA games, hundreds of clinics and tournaments for rising and established stars, Coke cans and McDonald’s restaurants celebrating NBA stars, training camps staged all over the world, and an NBA “Jam Van” hitting the road for 25,000 miles. Like fast food, PCs, mutual funds, hip-hop, and Hollywood movies, basketball—the quintessential American sport, invented by a phys-ed instructor at a YMCA training school in Springfield, Massachusetts—is going global.

Peter Mandelson, a Free Trader Till the Last

♠ Posted by Emmanuel in ,, at 2/16/2008 09:44:00 PM
With New Labour being buffeted here in the UK over all sorts of things--lost confidential data, Northern Rock, non doms, and I don't know what else--it's somewhat comforting to know that New Labour stalwart Peter Mandelson is still sticking to his free trade stance (schtick?), no matter what. Despite being hit left and right for his stance, Mandelson has stuck by his convictions, and that is worth admiring regardless of whether you are pro- or anti-free trade (or somewhere in between) in this age of the opinion poll manufactured politician. If the Doha Round is going down, he's going down swingin', baby. Carted off to Brussels to serve as the EU trade commissioner, Mandelson is still very much the champion of free trade, however quixotic that may appear to some. The Wall Street Journal recently interviewed the venerable Mr. Mandelson, and while his thoughts are very much in line with what you would expect, it's somewhat surprising that he has not softened his approach. First, here is Mandelson stating that the US is now the #1 threat to the free trade cause:

Yet more than France, Mr. Mandelson argues on a recent afternoon -- more so than any of the EU's 27 member states -- it is America that threatens the cause of free trade today.

"You can see it in the politics of the country," he says from his armchair in an EU office in the shadow of the Eiffel Tower. "You can see it in the Congress, you can see it in the primaries, you can see it in the town-hall meetings, you can see it in the candidates who, in order to appeal to the public, articulate these arguments" of protectionism.

"I don't see anywhere in Europe similar sentiments being expressed. I hear reservations about agriculture, or . . . about whether [trade] talks are balanced." But, he adds, "You'll not find anyone running for election in Europe and questioning whether we should complete the Doha round [of world trade talks]. You hear that from some of the candidates in the U.S., some of them from the Republican and the Democrat side."

Mandelson has this to note regarding the US and the deadlocked Doha round of WTO negotiations:

On this score, the Doha talks are critical. And, Mr. Mandelson argues, they are at a critical stage. Those who follow trade talks are used to hearing about deadline after deadline after deadline being missed. But American electoral politics may mean it's true this time.

"I was very struck during the ministerial meetings I held in Davos" last month, Mr. Mandelson says, "that nobody, actually, pushed back against the argument . . . that if we do not get a breakthrough and conclude the negotiations this year that they will go nowhere in 2009 with the change of the administration in the United States, and we'll be firmly in the long grass by 2010."

It's not just a matter of momentum but, again, of the potential successors to George W. Bush. Hillary Clinton, to name one leading contender, has called for a "timeout" on free-trade deals.

"The caveat is that we're in the primary season," Mr. Mandelson observes. "That's not necessarily a position she would take into the general election, and if she did it's not necessarily one she would take into the White House if she won. But you can't ignore it.

"I've known the Clintons for over a decade, and I've always seen them as free traders. But most of the Democrat free traders seem to have taken to the hills," he laments. "I wish there was more pushback within the Democrat Party, because they know this is right, they know this is responsible, and for a long time now you've seen politicians on both sides of the aisle using trade as a wedge issue. And it's a very dangerous wedge to play with, because it's short-term, it's counterproductive, it leads you nowhere."

If there's a reason for optimism, Mr. Mandelson says, it's that "amongst the Democrat candidates, the person who's been questioning free trade most loudly and showing support for protectionism has been forced out of the race -- John Edwards. And the Republican candidate who is most strongly in favor of free trade seems to be leading the field at the moment -- John McCain."

Meanwhile, he also has this to say on the chances of the Doha round being completed while Bush is still around and the EU side of the equation:

Still, counting on a Doha deal after the 2008 campaign is risky at best. So can the Bush administration deliver?

Mr. Mandelson pauses. Then he says, slowly, "I think the verbal commitment is strong. I think the presidential will is strong." Another pause. "But we've got to see some final offers from the United States . . . [that] show more flexibility, and more generosity" -- chiefly on trade-distorting subsidies to cotton, corn, sugar and other producers -- "in return for what I hope will be reciprocal moves by others where the U.S. has legitimate interests" -- i.e., industrial goods and services.

Farming has been at the heart of Doha disagreements from the start. Emerging nations such as Brazil and India refuse to open their markets further to industrial goods and services until they see movement from the U.S. on ag subsidies and Europe on farm-product tariffs. But it's time for these fast-growing economies to liberalize, he says, both for their own good and so that they can "pick up the slack . . . when the international economy is going through difficult times," as it is now.

During our discussion, Mr. Mandelson indicates that the EU may be able to move closer to a deal if it can gain greater recognition of its trademarks for specialized goods such as wines, meats and cheeses. Known in trade lingo as "geographic indications," these trademarks usually mean that a good cannot be sold with a certain name -- say, Manchego cheese from Spain, or Parma ham from Italy -- unless it comes from the area indicated in its name.

Free traders consider this a form of protectionism; more than 160 European cheeses are sheltered in this way, including 45 from France alone. Mr. Mandelson counters that Europe is already yielding on subsidies, tariffs and export refunds, and can't come out of these talks empty-handed. "When we're lose-lose-losing like that across the agricultural board, it's necessary to bring something back," he says. "I don't think that's too much to ask."

Last, Mandelson warns that if Doha goes into the abyss, the chances for other multilateral talks such as those on climate change being completed will dim significantly. Call it a bad climate for international cooperation:

The cost of failure in the talks would be staggering. "We will have failed to put a ratchet in place to stop the global economic machine's slipping backwards under protectionist pressures," Mr. Mandelson says. "I think that the confidence in the WTO amongst developing countries and emerging economies would be damaged. . . . But beyond that, I think the cause of multilateralism will be set back."

He then makes a prediction: "I can assure you, it will be harder to find agreement in the post-Kyoto negotiations [on climate change] if we've failed to do so in the multilateral trade talks." He says the weakening of multilateralism in general would mean "we'll virtually all be losers."

Not that there aren't losers and winners from liberalization, at least in the short term. Dealing with the problems that arise from any dislocations is part of what motivates this life-long Labourite now that he directs trade policy for the world's largest free-trade zone.

"I'm not a pure market liberal. I'm a social democrat," Mr. Mandelson says. "I believe in the power of the market, I believe in free trade, but I also believe in modern social and labor-market policies that maintain the dynamism which is indispensable to our economy but which also eases adjustment and manages that change in a way that is responsive to individuals and communities."