Trivial Pursuit, Global Capital Markets Edition

♠ Posted by Emmanuel in Economic History at 5/21/2008 12:54:00 AM

One of the more striking phenomena to emerge in this age of financial globalization has been the ability of sovereigns and corporations to strategically issue debt in international capital markets. This is usually done for tax purposes, although interest rate differentials between home and issuing countries also play a part, as do foreign exchange considerations. In the good ol' days before ol' devil globalization came along, they had little choice but to issue bonds in their home countries. However, the arrival of Eurobonds in the sixties heralded the arrival of more debt instruments not denominated in the home currency of the issuer. Since then, the Eurobond market has given birth to a plethora of variants which differ according to (a) the nationality of the issuer; (b) the currency of the bond; (c) the place of issuance; and even (d) the place of settlement. It gets pretty complicated pretty fast.

Given Japan's huge pool of savings and the low interest rates on yen-denominated instruments, it is of little surprise that many Eurobond variants have something to do with the land of the rising sun. Unless you are a bond trader, the differences among the various Japan-related bonds are difficult to spot--getting 6 or more right would be quite an achievement. The others are pretty obvious; see if you can match the ff:

(1) A bond denominated in U.S. dollars and is publicly issued in the United States by foreign banks and corporations.
(2) A Eurobond that is issued by a Japanese issuer and does not count against a Japanese institution's limits on the holdings of foreign securities.
(3) A yen-denominated bond issued in Japan aimed at a domestic investor, but settled in Europe.
(4) A type of foreign bond that is issued in the Australian market by non- Australian firms and is denominated in Australian currency .
(5) A Canadian dollar denominated bond that is sold in Canada by foreign financial institutions and companies.
(6) A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations
(7) A sterling denominated bond that is issued in London by a company that is not British.
(8) A type of foreign-currency denominated bond that is issued in Japan by foreign entities.

a. Samurai Bond
b. Shogun Bond
c. Sushi Bond
d. Daimyo Bond
e. Yankee Bond
f. Maple Bond
g. Bulldog Bond
h. Matilda Bond

UPDATE: Now there are also dim sum bonds which are Chinese RMB-denominated bonds issued in Hong Kong.

Answer Key:

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House Passes NOPEC: Will US Sue OPEC States?

♠ Posted by Emmanuel in Energy,Middle East at 5/20/2008 09:48:00 PM

The US House has just passed HR 6074, colourfully titled the No Oil Producing and Exporting Cartels Act of 2008 (NOPEC) allowing the Department of Justice to pursue cases against OPEC member states on antitrust grounds via amendments to the Sherman Act. Although the Senate has yet to approve the bill, it will be interesting to see what will happen if this bill passes into law and is implemented. Like the folly that is the farm bill, this too has the capacity to really rile any number of LDCs, particularly OPEC members. From the Congressional Report Service, here are it main provisions:

Gas Price Relief for Consumers Act of 2008 - No Oil Producing and Exporting Cartels Act of 2008 or NOPEC - Amends the Sherman Act to make it illegal for any foreign state or instrumentality thereof to act collectively or in combination with any other foreign state or any other person, when such action has a direct, substantial, and reasonably foreseeable effect on the market, supply, price, or distribution of petroleum in the United States, to: (1) limit the production or distribution of oil, natural gas, or any other petroleum product (petroleum); (2) set or maintain the price of petroleum; or (3) otherwise take any action in restraint of trade for petroleum.

Denies a foreign state engaged in such conduct sovereign immunity from the jurisdiction or judgements of U.S. courts in any action brought to enforce this Act;

States that no U.S. court shall decline, based on the act of state doctrine, to make a determination on the merits in an action brought under this Act;

Authorizes the Attorney General to bring an action in U.S. district court to enforce this Act;

Makes an exception to the jurisdictional immunity of a foreign state in an action brought under this Act;

Directs the Attorney General to establish in the Department of Justice (DOJ) a Petroleum Industry Antitrust Task Force to, among other things, develop, coordinate, and facilitate the implementation of DOJ investigative and enforcement policies related to petroleum industry antitrust issues under federal law.

Directs the Comptroller General to conduct a study evaluating the effects of mergers addressed in covered petroleum merger consent decrees on competition in the markets involved, including the effectiveness of divestitures required in such decrees in preserving competition in those markets.

I am of two minds about this bill. Having stayed in oil importing countries my entire life, the idea of producer cartels does not appeal to me or my pocketbook. The Heritage Foundation unsurprisingly supports this legislation; here is a historically informative snippet:

The cartel's operations ensure that its members' oil and gas economies remain insulated from foreign investment flows. Members of OPEC have not worked to enhance the rule of law and property rights and have imposed severe restrictions to prevent foreign investors from owning upstream production assets (oil fields and pipelines). This is a testament to the cartel's de facto monopoly over the petroleum market. Indeed, the only serious challenge to the organization came in 1978 when a U.S. non-profit labor association, the International Association of Machinists and Aerospace Workers (IAM), sued OPEC under the Sherman Antitrust Act, in IAM v. OPEC. But the case was rejected in 1981 by the U.S. Court of Appeals for the Ninth Circuit. OPEC, the court affirmed, could not be prosecuted under the Sherman Act due to the foreign sovereign immunity protection it claimed for its member states.

In practice, however, I do think this bill is more trouble than it is worth. First, I doubt whether OPEC member countries can significantly increase their output at this point in time. Yes, MNCs armed with better extractive technologies can probably eke more output given the chance, but the prospects of allowing MNCs to do so are hardly favourable in petroleum exporting states. Second, and more pointedly, I am convinced that suing a member of OPEC will have the opposite effect of actually slowing OPEC shipments to the US instead of promoting less collusion as intended. As with the farm bill, President Bush plans a veto, but veto-proof majorities appear to exist in both houses of Congress. It's game on although I am firmly convinced that the US would come out on the losing end over any spat with OPEC. Here is a summary from Reuters:

The House of Representatives overwhelmingly approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure.

The bill would subject OPEC oil producers, including Saudi Arabia, Iran and Venezuela, to the same antitrust laws that U.S. companies must follow. The measure passed in a 324-84 vote, a big enough margin to override a presidential veto. The legislation also creates a Justice Department task force to aggressively investigate gasoline price gouging and energy market manipulation.

"This bill guarantees that oil prices will reflect supply and demand economic rules, instead of wildly speculative and perhaps illegal activities," said Democratic Rep. Steve Kagen of Wisconsin, who sponsored the legislation. The lawmaker said Americans "are at the mercy" of OPEC for how much they pay for gasoline, which this week hit a record average of $3.79 a gallon.

The White House opposes the bill, saying that targeting OPEC investment in the United States as a source for damage awards "would likely spur retaliatory action against American interests in those countries and lead to a reduction in oil available to U.S. refiners." The administration said less oil going to refineries would limit available gasoline supplies and raise fuel prices.

Foreign investment in U.S. oil infrastructure has declined in the last decade. But the state-owned oil companies of several OPEC nations are owners of U.S. refineries, and those investments could be affected if the legislation becomes law, said Arlington, Virginia-based FBR Capital Markets Corp.

The bill also requires the Government Accountability Office to carry out a study on the effects of prior oil company mergers on energy prices.

The Senate would still have to approve the House measure. The Senate previously approved similar legislation as part of a broad energy bill. However, the OPEC-suing provision was removed after White House opposition in order to get the underlying energy legislation signed into law.

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s TXTing Kiling Nglish? MB tis Nu Lnguag nsted

♠ Posted by Emmanuel in Education at 5/20/2008 02:06:00 AM

As an instructor by trade, I sometimes lament the poor spelling and grammar of the work submitted at the undergraduate and even at the postgraduate level. My pet peeve is the substitution of "loosing" for "losing" in written work. This, of course, is just one of my minor irritations. You can probably tell that I am a curmudgeon of the first wafer by having something to moan about on a daily basis on a thing called a "weblog." It boggles the mind that your non-native English speaking correspondent needs to correct the work of English students on a regular basis. In economist-speak, writing conventions exist in order for there to be mutual comprehensibility by reducing transaction costs in understanding each other. However, the pair of articles below which have caught my attention suggest that I have things all wrong: What if the new means of communication we have--short-messaging systems (text messaging), instant messengers, and the like--are giving birth to new languages? Perhaps the conventions of English writing that instructors taught me in my younger days will give way to even newer forms of English. Just as archaic English doth maketh for difficult reading noweth to thine, perchance the text generation will feel the same way about Standard Written English as it is taught in the future.

The first of these articles is entitled "SMS Language is Gr8!" ;-( Here, results of a study which purport the emergence of a new IM language are recounted:

Typed out feverishly with a calloused thumb in the most inhospitable of places, SMSs may appear to be a garbled, lazy substitute for Real English, but one study seems to show that those compressed blocks of seemingly random letters may be the beginnings of a new kind of language.

The study was conducted by Dr Pamela Takayoshi, associate professor of English at the Kent State University in the US, along with fellow associate professor Dr Christina Haas and a group of graduate and undergraduate researchers.

The team collected student instant-messaging (IM) conversations over a period of two years, then analysed the differences between those conversations and Standard Written English. They discovered that the areas in which IM chatter differed from the norms of the Standard weren't mere deviations, but actually conformed to a written standard local to the IM phenomenon.

"IM is not just bad grammar or a bunch of mistakes. IM is a separate language form from formal English and has a common set of language features and standards," says Takayoshi. The study found that the structure of an instant message has little regard for appearance (no surprise), opting instead to concentrate on meaning - and in terms of meaning, foremost is the expression of social relationships.

Separate to the study, Dr Nicola Döring, professor of Media Design and Media Psychology at the Ilmenau University of Technology, says that IM language has developed into its current abbreviated state due to limited character space and the small size of cellphone screens.

On the subject of IM and the expression of relationships, she says that teenagers tend to find it easier to tackle flirting and intimate conversations via the technology, which renders the sometimes uncomfortable aspect of direct conversation unnecessary. IM also allows fledgling couples to "map out common areas of interest and the contours of the relationship at a slower pace", according to Döring.

The team at Kent is now casting a thorough glance at the social website, Facebook, in order to determine possible similarities between IM speak and other forms of electronic language. Says Christina Haas: "When we look at the kinds of technology young people are using today, we see that many of those technologies - IM, blogs and Facebook - are writing technologies. Even the phone is used for writing now." So next time you have your eyes clawed out by the alien glyphs on the screen of your phone, take heart in the knowledge that language isn't being degraded; it's merely being squashed.

But wait, it gets even worse with this Economic Times article, "SMS Not Bad Grammar But Linguistic Renaissance" :-(

Parents need not worry - a new study contends that SMSes and online chats actually help teens hone their linguistic abilities, rather than degrade them. Parental worry has stemmed from the lack of grammar and the extensive use of often unintelligible abbreviations like LOL, OMG and TTYL in SMSes - also known as instant messaging (IM).

But the study has concluded that IM represents "an expansive new linguistic renaissance" being evolved by GenNext kids. Researchers at the University of Toronto have pointed out that teenagers risk familial censure and ridicule of friends if they use slang. But IM allows them to deploy a "robust mix" of colloquial and formal language.

They based their conclusions on an analysis of more than a million words of IM communications and a quarter of a million spoken words produced by 72 people aged between 15 and 20. The researchers have argued that far from ruining teenagers' ability to communicate, IM lets teenagers show off what they can do with language.

"IM is interactive discourse among friends that is conducive to informal language," said Derek Denis, co-author of the study, "but at the same time, it is a written interface which tends to be more formal than speech". They found that although IM shared some of the patterns used in speech, its vocabulary and grammar tended to be relatively conservative.

For example, when speaking, teenagers are more likely to use the phrase "He was like, 'What's up?'" than "He said, 'What's up?'" - but the opposite is true when they are instant-messaging. This supports the idea that IM represents a hybrid form of communication.

Nor do teens use abbreviations as much as the stereotype suggests: LOL (laugh out loud), OMG (oh my god) and TTYL (talk to you later) made up just 2.4 percent of the vocabulary of IM conversations - an "infinitesimally small" proportion, say the researchers. And rumours of the demise of the word "you" would appear to have been greatly exaggerated: it was preferred to "u" a whopping 9 times out of 10. In fact, the study suggests that the use of such short forms is confined mostly to the youngest users of IM.

The findings of the study has been published in the spring issue of the journal American Speech.

Bottom line: What matter is not so much that English is being mangled by IM and SMS users, but that it is being mangled in the same way. As Martha Stewart would say, perhaps that's a good thing, hard as it may be for the likes of me to accept. And, as more people understand "mangled" language better than ol' Standard English, then tz up t us g-zers t chng and nt th othr wy rnd. In the meantime, I have more term papers with mangled English to correct, OMG.

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Can Business Help Meet the Millennium Dev't Goals?

♠ Posted by Emmanuel in CSR,Development at 5/20/2008 01:24:00 AM

The Hippocratic oath is said to embody the idea "First, do no harm." In recent years, corporate social responsibility (CSR) has become all the rage as large corporations of all sorts attempt to deal with the social and environmental challenges of today. Notable attempts to create global standards for CSR practice include the United Nations Global Compact for all corporations as well as the Equator Principles which apply specifically to financial firms' investing practices. As with the Hippocratic oath, they are guided more by the negative principle of doing no harm. Being large, visible entities with considerable economic clout, checks on abuses of corporate power are certainly welcome, even if these attempts are largely voluntary and lack enforcement mechanisms to punish transgressors.

Recently, the UN Development Programme (UNDP) unveiled another initiative entitled the "Business Call to Action" that may be more on the proactive end than the reactive one. Instead of emphasizing not doing harm, the UNDP, the British government, and various multinationals are envisioning corporations doing good. That is, can the efforts of firms be instrumental in achieving the Millennium Development Goals (MDGs)? Although I am no big fan of how the MDGs are written--William Easterly has explained their faults--the objective of enlisting the support of MNCs in helping alleviate poverty is certainly timely. I have long listed pioneering works by CK Prahalad ("The Fortune at the Bottom of the Pyramid") and Stuart Hart ("Capitalism at the Crossroads") on my virtual bookshelf, and the ideas here are similar. What follows are some excerpts. First, here is the main idea:

In July 2007 Prime Minister Gordon Brown, speaking alongside UN Secretary General Ban Ki–moon, called for a new global partnership to address a growing development emergency: the shortfall in progress towards delivering the Millennium Development Goals (MDGs), particularly in sub-Saharan Africa. This is a global Call to Action that cannot be achieved by governments alone, and where the private sector has a unique transformational role.

The Business Call to Action is the focal point for mobilising the efforts of big business to support growth in developing countries and contribute to the MDGs. Businesses are an engine of growth and development with the potential to have a huge impact on improving the lives of people in developing countries through increasing investment and skills, creating jobs and developing goods, technologies and innovations.

This is not about philanthropy. The Business Call to Action challenges companies to find new business opportunities for the 21st century – using company’s core business in a way that both contributes to the MDGs and contributes to their success. The Business Call to Action is not a one off event. It is part of a major campaign to speed up progress on the MDGs during 2008 – drawing on the power of businesses, governments, NGOs, faith groups, and citizens.

Next, here are what the Business Call to Action intends to pursue:

• Generate significant new employment opportunities in developing countries;
  
• Improve the quality of supply chains, helping local businesses to diversify, and/or become internationally competitive;
• Include innovations and/or technologies which make it easier for individuals and businesses to make a living.

I will have more to say about the third point in the near future. Meanwhile, here is the declaration itself:

At the Millennium Summit in 2000 the world declared it would spare no effort to achieve the seven key Millennium Development Goals. There has been some progress. But seven years later and half way to 2015, the world is not on track to meet that commitment. We have just seven years to go – a few short years to make the difference for millions of people on our planet between grinding poverty and the opportunity to learn, be healthy and make enough to support their families. We need urgent action to meet this development emergency if the world is to get back on track.

With will we know we can make the difference. We can build on the progress that has been made on every continent when the right policies have been combined with sufficient resources.

But we need to go further. We need to mobilise all our efforts. The eighth Millennium pledge was that we would “develop a global partnership for development”. The time has come for us all to live up to that promise. We believe we now need an international effort that harnesses the power of everyone: the private sector, individuals, consumers, faith groups, cities, civil society organisations, as well as governments, north and south, to work together to achieve the Millennium Development Goals.

We believe now is the time to act, not talk. We know what needs to be done and the urgency of doing it. So today, as leaders from the private sector, we declare our commitment to meet this development emergency. We commit to action and because the scale of the challenge means no one acting alone can achieve the difference we need, we call on all parties, including the private sector, governments, civil society and faith groups to play their part. It is only by acting together in a genuine partnership that we can succeed.

We urge the convening of a UN meeting in 2008 that brings together heads of government with leaders from the private sector, civil society and faith, to review progress made in the preceding 12 months and accelerate action.

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History in the Making: Doha, Dubai, and Abu Dhabi

♠ Posted by Emmanuel in Middle East,Travel at 5/19/2008 01:58:00 AM

Forgive me for not being able to resist cheap shots at Francis Fukuyama who predicted the End of History with the collapse of the Iron Curtain, which was supposed to result in the global triumph of capitalist liberal democracy. It appears that only George W. Bush appears to maintain that hackneyed and harebrained notion. A recent events that made the headlines is of Dubya lecturing various Middle Eastern leaders at Egypt's Sharm-el-Sheikh resort about the values of freedom, democracy, and the rest of that Fukuyamaesque stuff. Somehow, I don't think his message got through. In contrast to the distinctly subprime American economy where families are breaking piggy banks to help stay afloat, political repression and energy revenues are fuelling a rather better situation on the shores of Araby. Contrary to Fukuyama, Middle Eastern countries are attempting to make politico-architectural history via their recent construction efforts.

I have written reams of text about the attempts of countries in the Middle East to create world capitals and financial centres by funnelling their oil and gas revenues into construction projects of mind-boggling scale and scope [1, 2, 3, 4, 5, 6, 7]. The world's tallest building, ritziest "shopping resort," most ambitious eco-city, largest cultural centre, most expensive hotel...it's one superlative after the other, a non-stop cavalcade of architectural whimsy. Earlier, I asked the question of what these countries did with their energy revenues, which are expected to amount to $435B this year. Well, look no further. The weekend edition of the Financial Times features an audio slideshow of these mega-projects in the budding world capitals of Doha (Qatar), Dubai and Abu Dhabi (United Arab Emirates). Although an accident of geography ensured that these places would be rolling in petrodollars for a long time, that time is not forever. The question becomes, can these places reinvent themselves as centres of finance, culture, education, and even sports before the oil wells run dry? Certainly, they are sparing no expense.

It's definitely required IPE viewing and I hope you have the time to see these unprecedented gambles Middle Eastern entities have put into the future. If they build it, will they (we) come?

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Georgia Blocks Russian WTO Accession; Not Ukraine

♠ Posted by Emmanuel in Europe,Trade at 5/19/2008 01:25:00 AM

As a semi-pointless aside, I am firmly convinced that Hillary Clinton would have walloped that Obama chap in the Democratic primaries if she looked like the otherworldly beautiful Ukrainian Prime Minister Yulia Tymoshenko. If politics is showbiz for ugly people, she is definitely in the wrong business. Somehow, I think that there is no need to pander to cheap populism when you look like, well, Yulia Tymoshenko. It has been demonstrated in the evolutionary psychology literature that beautiful women tend to get what they want. Freer capital flows? Sure thing, Missus T. Liberalize trade? Whatever you want, Missus T. Anyway, back to the matter at hand. Having just acceded to the WTO, the Ukraine is purportedly not against Russia entering the world body despite past disputes over gas supplies. According to the Ukraine's calculus of consent, it will be able to wheedle more favourable trade terms with its sometimes menacing neighbour if it doesn't hinder the latter's path to WTO accession. From the article that follows, Missus T does indeed see better trade ties as a leverage point in Russia's WTO negotiations. You got it, Missus T. From RBC News:

Having entered the WTO, Ukraine will not hinder Russia's accession to the organization, Alexander Babakov, Deputy Speaker of the Russian State Duma responsible for parliamentary relations between the lower chamber of the country's parliament with Ukraine, told journalists today. He reiterated that Ukraine's Prime Minister Yulia Timoshenko named the creation of trade space between the two countries in line with WTO's policies and regulations as Ukraine's priority. Babakov also expressed hope that Russia was getting a new ally that would support the country in its attempt to join the WTO.

The official also pointed out that cheap Ukrainian products could appear on the Russian market, if they could not compete with products of other WTO member states. However, Babkov noted that this had already happened in the past and that negotiations on the mater would be purely economic rather than political.

On the other hand, Russia's other neighbour and former satellite, Georgia, is going berserk over Russia's perceived interference over the would-be breakaway provinces of Abkhazia and South Ossetia. I've posted more extensively about this issue earlier, though it's worthwhile to hear the same idea repeated by Georgian officials. From Reuters:

Georgia said Friday that it would block negotiations on Russian entry to the World Trade Organization until Moscow reverses a decision last month to step up ties with two breakaway Georgian provinces. "Until this document that undermines Georgia's right is revoked, it will be an obstacle for Russia's WTO entry," Georgian Reintegration Minister Temur Iakobashvili told a news conference in Moscow. "I know it is a very tough statement to make, but it is a fact," Iakobashvili added.

Russia, the largest economy still outside the global trade body, is due to hold a next round of talks with the WTO accession working group on May 26, and Georgia said it would seek a bilateral meeting with Russia on the same day. Under WTO rules, candidate countries have to reach agreement with a working party, in which any existing member can take part, as well as agree on a bilateral deal with any member that seeks it.

Moscow's support for separatists in Abkhazia and South Ossetia is the most difficult problem in relations between Russia and Georgia, which is seeking to join NATO and the European Union. Tbilisi has condemned as a breach of international law Moscow's decision to establish legal links with the provinces, controlled since the early 1990s by separatist governments.

"The Georgian side will not change its opinion. We cannot talk about trade regimes when there are sanctions against Georgia in place, when an attempt to annex Georgian territory is going on," Iakobashvili said.

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The Global Value Chain of Motorsports

♠ Posted by Emmanuel in Sports,Supply Chain,Travel at 5/19/2008 12:49:00 AM

Anyone who hasn't been hiding in a cave for the past quarter century or so knows racing is big business. Formula One (road cars), World Rally Championship, Moto GP and other series are household names which attract international media coverage, big sponsorship bucks, tourists, and other manifestations of late modern capitalism. With F1 top teams like Ferrari and McLaren having annual budgets in the vicinity of $500 million each, it cannot be otherwise. That is, there is also a vast "global value chain" (GVN) behind motorsport. Unbeknownst to me for the longest time, the library here at the University of Birmingham had a copy of this book entitled "Motorsport Going Global." Certainly, it's worth a look if you are interested in the topic. There are some excerpts of the book posted online from which I've taken the illustration above of the sport's global value chain from and the description of the different participants below. The book even boasts a foreword from the powerful and influential if ever-so-kinky FIA President Max Mosley whose hijinks have hijacked the pages of tabloids here in Blighty for weeks on end.

Constructors
A constructor is a firm that creates a motorsport vehicle of some sort. In this sense it is the “OEM” of the motorsport sector. This would be typified by the Formula One and World Rally Championship (WRC) constructors, such as Ferrari, Honda, Prodrive and Mitsubishi Ralliart. In the USA, examples of constructors would be Panoz in Champcar and Roush in NASCAR. In South America, Berta is a constructor of touring cars, while in Italy, both Tatuus and Dallara are well known single-seat constructors. In the UK, Lola typifies this group.

Constructor Suppliers
These represent the specialized suppliers to the constructors, which allow them to create the final vehicle (in automotive terms the Tier 1 and Tier 2 companies). They include suppliers of engines (Cosworth, Hendrick Motorsports); aerodynamic components (Fondmetal Technologies, B3 Technologies); gearboxes (Xtrac, SADEV); tires (Goodyear, Pirelli) and fuel and lubricants (Shell, BP and Castrol). Similarly, there are the specialist services, for example, the technical consultancy provided by organizations such as MIRA, Ricardo and ORECA.

Entrants
An entrant is the organization that enters and is responsible for racing or rallying the vehicle. It includes individuals and racing teams. In some cases, the entrant is the same organization as the constructor, but this allows for the identification of this distinct area of activity with examples of firms that are purely entrants, including Manor Motorsport of the UK, DAMS of France and Andretti Green in the USA.

Events
This category covers those organizations that manage and operate racing events, either as a series or individually. It includes racing clubs, such as the BRSCC in the UK; operations within manufacturers, such as Renault UK motorsport; and specialists such as Formula Palmer Audi. Commercial promoters include NASCAR in the USA or companies such as BMP or SRO, which may promote many series.

Event Suppliers
These include all the components necessary for an event to take place, including circuits (for example, Silverstone or Goodwood in the UK, Hockenheim in Germany and Daytona and Indianapolis in the USA) and specialist suppliers in, for example, construction, catering and related hospitality.

Distribution
These include all media, specialist and general, concerned with dissemination of events, through radio, TV, Internet and press coverage more generally. In the UK Haymarket is a leading print media specialist, while in the USA Fox and NBC/Turner televise NASCAR. RTL in Germany is the leading TV distributor of F1 on TV, while RAI and TF1 perform the same role in Italy and France respectively.

Consumption
This identifies the groups involved in consumption of the events, either as spectators, participants, viewers, listeners or readers of the various media. All of the above groups represent a simplified yet relevant supply chain, which extends from car components to the motorsport event itself. Additionally, there are a number of other groups that influence and provide input to all of the aforementioned organizations.

Supporting Service Industries
These firms provide critical services across the industry in specialized areas such as insurance (THB Clowes, UK), personnel management (IMG, USA, or CSS Stellar, UK), market research (MRA and Sports Marketing Surveys), freight, logistics, legal, marketing, finance, sponsorship recruitment and other areas, like racing schools (Henry Morogh Racing School, Italy; Richard Petty Driving Experience, USA).

Regulation
Regulatory and sanctioning bodies such as the FIA, CIK, CSAI, ACCUS, SCCA, FIM or ACO are influential at all levels in the sport and thereby the industry. They define the “manufacturing” specification of the vehicles and also influence the nature of the delivery and format of events. Similarly, their safety regulations influence manufacturers, component suppliers and circuits.

Regulatory and Fiscal Environment for Business
In addition to the specific regulatory environment of motorsport, organizations operate within the broader regulatory environment that affects all businesses. An obvious example from Formula One would be the differing legal framework for tobacco sponsorship across different nations.

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The US Farm Bill is a Big "KICK ME" Trade Sign

♠ Posted by Emmanuel in Agriculture,Trade at 5/16/2008 01:36:00 AM

Given the current fashion for S&M, I suppose it shouldn't surprise us that the US Congress has set up America for a real good whupping. Whoever thought that America's public officials were such gluttons for punishment? The US farm bill (warning: massive "condensed" file) is a monumental folly that not only lowers already poor world opinion of the US, but also opens the country up to further losses on the trade litigation front. If matters were already iffy before, what more now when the country lards up on even more farm subsidies? Now that both the US House and Senate have passed the pork-laden bill [oink, oink] by overwhelming majorities--318-106 and 81-15 respectively--here are what I bet will happen:

• President Bush will veto the bill when it lands on his desk;
• Bush's veto will have been for nought as votes in both houses comfortably meet override (2/3s) margins;
• The Doha round, already stalling in large part because of developed country recalcitrance over agricultural subsidies and tariffs, will be further negatively affected;
• Accordingly, it doesn't matter one whit if Obama, Clinton, or McCain (who is opposed to the farm bill) becomes the next US President as Congress will not likely become less pro-pork [snort, snort] anytime soon;
• Implementation of this bill will make the US even more vulnerable in the WTO dispute settlement mechanism (DSM) to trade complaints by various countries;
• Doha will become the longest-running trade round / running gag in GATT/WTO history.
  

It is striking that Barack Obama, who claims that he will improve American relations with the rest of the world, is a big supporter of the farm bill. As with the response he gave supporting his constituents' interests over those of impoverished Kenyan farmers', this is not going to bode well for obtaining trade cooperation with any number of LDCs exporting agricultural commodities.

I am not a supporter of the passage of Doha by any means. If it means a raw deal for LDCs, then they would be better off without it. Nevertheless, the comeuppance of the US will not be long in coming if it continues with these shenanigans. The "KICK ME" sign Uncle Sam has placed on his back is not something LDCs will pass up in various trade fora. In what follows, the Economic Times of India explains why Uncle Sam is just begging to be whupped:

The $285-billion farm bill unveiled by Congressional leaders last week after months of negotiations may set the United States up for a hornet’s nest of problems at the World Trade Organization. If the plan for a massive new US agriculture law is passed this week as expected, lawmakers face a promised veto from President George W Bush.

The White House says the bill does not sufficiently cut subsidies to wealthy farmers and ignores other reforms proposed by the administration. If Congress can override a veto, administration officials and other critics warn the farm law will inflame relations with trading partners and spark challenges at the world trade court.

“This farm bill heads in the wrong direction in terms of our international obligations,” deputy agriculture secretary Chuck Conner said in a briefing on the bill. The administration’s problems with the bill go beyond crop subsidies to wealthy farmers. Agriculture officials say measures that could bring problems at the World Trade Organization include: rules benefiting US sugar producers, a $4-billion standby disaster fund and a new cotton incentive similar to one the world trade court already has ruled illegal.

“It’s no secret our current farm programmes under current law have come under enormous fire,” Conner said. “How does this bill respond? This bill responds by increasing trade-distorting supports on 17 out of 25 of the commodities that we provide.”

Trade partners “are going to be incensed, and we would expect them to protest in every way they can,” he added. The United States already has lost one major agriculture case at the WTO, filed by Brazil over cotton supports. Washington now faces new challenges from Brazil and Canada, who believe the United States has roared past WTO subsidy limits in recent years and violated other trade rules.

Gary Blumenthal, a trade analyst at World Perspectives, believes the bill “fails to fix previously adjudicated problems — let alone new areas such as the crop revenue programme.” “One can anticipate future trade cases related to this legislation,” he said.

Congress takes up the bill at a time of sky-high US crop prices and roaring export demand. High prices mean some US subsidies linked to prices are going unpaid, a convenient plus for lawmakers averse to large cuts in the programmes. US farmers get about $5.2 billion a year in direct subsidies, which some countries contend the US government improperly classifies as minimally trade distorting.

Some trade experts believe high crop prices ensure that subsidy payments, even with proposed farm bill changes, will stay safely within WTO spending limits for the time being. “But of course, if the prices don’t stay up, we’re going to run into some problems again,” said David Blandford, an agricultural economist at Penn State University.

“What I am concerned about is the signal this sends,” said Sallie James, an agriculture and trade expert at libertarian think tank the CATO Institute, “that the US is not serious about really reforming its agriculture programmes.” That may or may not be a problem in the Doha round of world trade talks, now in a critical stage as negotiators seek to iron out stubborn agriculture issues and lay the groundwork for a deal before Bush leaves office.

Both the administration and diplomats in Geneva acknowledge that Congress would have to alter farm policy if a deal is to be had, especially since lower US subsidy limits are a priority for developing countries. Farm leaders in Congress paid little attention to the WTO negotiations while writing the farm bill, saying they will revise it if the Doha round succeeds.

But the bill also could fan trade partners’ fears that a Congress so protective of farm programmes might try to obstruct or dismantle a deal if sent to Capitol Hill for approval. Earlier this year, House Democrats derailed a bilateral trade deal with Colombia, a key Latin American ally.

The move, which set the traditional procedure for voting trade agreements on its head, infuriated free-traders and raised fears about growing iciness to trade deals in the Democratic-controlled Congress. Blandford believes a Doha deal would require some painful concessions for certain sectors such as cotton, but says it should garner support because it will open new markets.

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A Surefire Doha Show-Stopper: Mode 4, Cont'd.

♠ Posted by Emmanuel in Migration,Trade at 5/16/2008 01:04:00 AM

Here we go again: With regard to old-fashioned trade in goods, developed countries want non-agricultural market access (NAMA) in less-developed countries (LDCs). Meanwhile, LDCs are adamant on not moving unless agricultural market access becomes more of a reality in heavily protected and subsidized Western countries.

When it comes to services, we have something similar going on. Developed countries want greater access to service areas such as banking and telecoms in LDCs, yet are unwilling to move on the main demand of LDCs when it comes to services which is better access to developed markets by temporary workers in line with Mode 4 of the GATS. I recently posted on this matter, noting that developed country concessions on Mode 4 migration are unlikely to come to pass anytime soon as it is regarded more as an "immigration" matter than a "trade" matter. Reuters has more on this issue but makes the same comment that a deal on temporary migration is not forthcoming in the WTO's Doha round:

Global trade negotiations on the services sector are likely to make little progress on a core demand of developing countries -- greater freedom of movement for temporary workers, an expert said on Thursday. The forecast, if confirmed, suggests rich countries will struggle to crack open new markets for services from banking to telecoms, in return for which poor nations want to see rules on temporary workers liberalised.

Rupa Chanda, an economics professor at Bangalore's Indian Institute of Management, said countries preferred to negotiate temporary labour movement bilaterally, rather than in the global Doha round talks at the World Trade Organisation (WTO). "Some of these issues are so complex to discuss multilaterally that bilaterally you would expect much more progress," she told a news conference.

Chanda said there was some chance of liberalisation for temporary workers at the executive or management level in a WTO deal, but little prospect for low-skilled workers. She was speaking at the launch of a report she compiled for the United Nations Development Programme (UNDP) on temporary cross-border movement of service providers, known in trade jargon as Mode 4.

"WTO member countries have shown little interest in liberalising market access to labour flows for the low-skilled workers on a multilateral basis, and they are reluctant to make binding commitments since migration has a bearing on sensitive issues such as national security, integration and unemployment," the UNDP said in a statement.

National security concerns are a particular problem for the United States in letting in more temporary workers from developing countries.

European officials say they are willing to negotiate Mode 4 at the WTO, but need to clarify issues such as defining "temporary" and looking at the impact on domestic wages of an influx of low-skilled workers from poor countries.

David Luke, UNDP coordinator for trade and human development, said developing country representatives at a workshop on the report on Wednesday had not been optimistic about a WTO deal on Mode 4. "Their message to the workshop was their disappointment over the limited progress," he said.

Chanda said WTO negotiators could learn from aspects of the more successful bilateral deals on temporary labour movement. Such deals specify which sectors and type of workers they cover, the duration of their stay and its conditions. They also define the agencies in both the source and host countries that will be involved and coordinate with each other.

Successful arrangements involve the source country handling recruitment, rather than intermediaries or agents who can end up exploiting or abusing temporary workers. They also manage financial remittances sent home, sometimes involving forced savings, to encourage workers to return home.

Schemes to move low-skilled workers from South or Southeast Asia to the Gulf often lacked these institutional arrangements, leaving workers open to exploitation, Chanda said. Women were particularly at risk, with those working outside the visible labour force, such as maids in the Gulf or Singapore, vulnerable to abuse, she said.

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Rio Tinto and China: A Love-Hate Relationship

♠ Posted by Emmanuel in China,Mining,Trade at 5/16/2008 12:21:00 AM

In addition to Chinalco's stake in Rio Tinto, the relationship between the Australian mining giant and China's steelmakers is definitely a many-sided one that mirrors Australia's mixed relationship with China. While Australia's current bout of prosperity owes a lot to China's emergence in the world economy, Oz is wary of becoming too dependent on the PRC for its fortunes. Indeed, Australia may not take too kindly to large-scale purchases of its firms by the Chinese like other developed countries fear. Let us start with the sunnier of two articles on this relationship. First, Rio Tinto is seeing Chinese investment as a potential source of funding in its Simandou project in Guinea. Although the African mine is much closer to Europe, Chinese demand may become the deciding factor in the future for this project which is partially funded by the IFC. From the Financial Times:

Rio Tinto is seeking partnerships with Chinese steel and construction companies to help develop a $6bn (£3.08bn) West African iron ore mine, in what would be the mining group’s largest deal with China, its biggest customer. Sam Walsh, head of Rio’s iron ore division, said in an interview with the Financial Times that the Simandou project in Guinea could eventually supply steelmakers in Europe and Asia with up to 170m tonnes of iron ore a year. The first phase of the mine’s development targets 70m tonnes a year by 2018.

“Europe is the natural market (for the Simandou ore), but there’s a lot of interest from Asia. One option would be to bring a Chinese partner into the project. Our preference would be to have a steel company that is allied to a construction company,” said Mr Walsh. The Chinese steelmaker would agree to buy a portion of Simandou’s output on a long-term “off-take” contract while a Chinese construction group would be valuable in making sure the mine is built on schedule and on budget, at a time of rising costs.

Rio Tinto is the world’s second largest producer of iron ore after Vale of Brazil, and plans to expand its output significantly in the next decade to take advantage of strong Chinese demand. The bulk of its production comes from its huge mines in Western Australia’s iron-rich Pilbara region, but Rio is also looking for new sources of iron ore worldwide. The Simandou deposit was large and high-grade, said Mr Walsh, and Guinea had the potential to be “the third largest precinct for iron ore in the world” after Brazil and Australia. “The Simandou ore body is stunning.” But Simandou lies 750km from the sea and the lack of infrastructure in the area will be a challenge. Rio will have to build a railway from scratch to transport the ore to the coast for export.

Mr Walsh said Rio had spent $300m on Simandou so far, out of a projected total cost of $6bn, and would make a final decision on whether to go ahead with the mine in 2009. He added that he hoped to make progress in finding Chinese partners for the project “this year”, so they could be involved in the design of the mine and the infrastructure.

China is Rio’s biggest customer and this year Chinalco, the Chinese metals group, shocked the market by buying a 9 per cent stake in Rio. Since then Rio has been increasingly talking about how it could co-operate with Chinese companies on new mining projects.

Rio has been emphasising the strength of its growth prospects – such as Simandou and the Oyu Tolgoi copper project in Mongolia – as part of its defence against a hostile takeover bid from rival BHP Billiton. It argues that BHP’s offer of 3.4 BHP shares for each Rio share does not reflect the strength of its project pipeline. But BHP recently hit out at this.

As for the hate side of the relationship, there remains no conclusive deal for Australian miners to provide Chinese steel producers with iron ore after the last one expired earlier in the year. China had hoped that it could negotiate a deal similar to the one it concluded with the world's largest iron ore concern, Brazil's Vale. (If you are familiar with the term "pattern bargaining" in union negotiation jargon, what Chinese steelmakers seek would be similar.) However, Australian firms have been holding out for higher prices for a number of reasons identified below. In the meantime, the rhetoric emanating from both Australian firms and the Chinese steelmaker's association is becoming increasingly combative. From the FT once more:

Rio Tinto on Thursday night slammed Chinese steelmakers over increasingly aggressive negotiating tactics, after the China Iron & Steel Association called for its members to boycott the Anglo-Australian mining group’s spot sales of iron ore.

The steelmakers have failed to agree a 2008-2009 annual contract price with Rio and BHP Billiton despite months of talks. Earlier this year, the Chinese authorities delayed issuing permits needed to import some shipments of Australian iron ore, a move that was also considered a negotiating ploy.

Rio has demanded a price for the annual contracts in excess of the 65-71 per cent rise agreed between Vale, the Brazilian miner, and Chinese steelmakers. The Chinese pay less to ship Rio’s ore from Australia. Rio, which is fighting a hostile takeover bid from BHP worth at least $160bn, has also provoked the Chinese by threatening to move away from traditional long-term contracts by selling more ore into the spot market, where prices are higher.

In a statement published on its website on Thursday, CISA said: “We appeal to domestic mills and traders not to support or take part in Rio Tinto’s spot iron ore sales activities in China.” Rio said it was entitled to sell into the spot market. “For CISA to suggest joint action by the Chinese steel industry to prevent this is a very concerning development.”

Spot iron ore prices of $180-$190 a tonne are markedly higher than the $108 a tonne agreed by Vale and its Chinese customers.

CISA, whose members are China’s large steel mills, accused Rio Tinto of acting in bad faith, telling customers it lacked supply to completely fulfil long-term contracts while at the same time offering iron ore on the spot market to capture higher prices.

CISA said Rio had only supplied 86 per cent of iron ore specified under contracts in 2007 with Chinese clients while in 2006 it only supplied 88 per cent of the agreed amount. Around 20 Chinese steelmakers have long-term supply contracts with Rio Tinto.

Rio said the comments should be considered in the “context of our ongoing price negotiations”. It rejected the CISA’s claims and added it had “rights under a number of contracts that include options to reduce volumes. Rio will continue to negotiate in good faith for a pricing outcome that reflects the continuing strong market fundamentals.”

Sam Walsh, chief executive of Rio’s iron ore division, said that when the iron ore market was tight, it was understandable that mills wanted to maximise their iron ore volumes. “However, Rio Tinto remains determined to achieve a fair pricing outcome for its shareholders,” Mr Walsh said.

Rio also pointed out that the Baltic Index for freight rates from Brazil to China is at a record differential compared to freight rates from Australian ports. Iron ore exported from Western Australia’s Pilbara region is nearly three times closer to China than ore shipped from Brazil. Rio and BHP want to share the Chinese steelmakers’ savings from cheaper freight costs.

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