The Old Silk Road and the New Economic Silk Belt
Supply Chain Management Review - March 16, 2016
This is China's attempt to step up its role in global affairs, and to export China's production capacity in industries such as construction materials, transportation equipment, roads and rails. The first article I wrote for Supply Chain Management Review in April, 2012 was about the first global supply chain, otherwise known as the Silk Road. Starting around 200 BC and extending 4,000 miles, the Silk Road got its name from the lucrative Chinese silk trade and tea trade in exchange for spices, nuts and jewels from Europe and the Middle East.
In addition, various science and technology innovations were traded along with religious ideas and the bubonic plague. The Silk Road was a significant factor in the development of modern civilizations. A new Silk Road is now being built in China. The One Belt and One Road Initiative is a development strategy and framework that focuses on connecting countries primarily in Eurasia. There are two main components: the land-based "Silk Road Economic Belt" (SREB) and oceangoing "Maritime Silk Road" (MSR).
The details released so far by China's official media outlets show the "Belt" as a planned network of overland road and rail routes, oil and natural gas pipelines, and other infrastructure projects that will stretch from Xi'an in central China, through Central Asia, and ultimately reach as far as Moscow, Rotterdam, and Venice. The Maritime Silk Road is a complementary initiative aimed at investing and fostering collaboration in Southeast Asia, Oceania, and North Africa, through several contiguous bodies of water - the South China Sea, the South Pacific, and the Indian Ocean.
The construction of the belt will also relieve China's industrial overcapacity and ease the entry of Chinese goods into regional markets. This will help China with its projected industrial growth rates and improve unemployment. This is China's attempt to step up its role in global affairs, and to export China's production capacity in industries such as construction materials, transportation equipment, roads and rails. Chinese President Xi Jinping, has made the program a centerpiece of both his foreign policy and domestic economic strategy. The initiatives are expected to be highlighted in China's 13th Five-Year Plan, which will go through 2020 and guide national investment strategy throughout that period.
So what does this mean for Supply Chain professionals? There is no doubt that improving transportation infrastructure helps to facilitate trade and in turn, that will help companies to improve getting their products to market. As we see more and more cooperative and physical trade initiatives such as ASEAN, NAFTA, the EC and now the Silk Belt, we can expect to see global trade continue to flourish. There will be more need for global manufacturing strategies, international transportation companies and professionals as well as trade compliance management.
Eastern Europe's Road to Trade - Polish Companies Are Keen to Capitalize on the Belt and Road Initiative to Boost and Balance Trade with China
Hong Kong Trade Development Council - 08 March 2016
Polish President Andrzej Duda courts Chinese investment at a recent mission to China in 2015. With the Belt and Road Initiative in the international spotlight, Poland is among the countries looking to capitalize on the array of opportunities from the Chinese mainland's huge trade and development program. Addressing the Poland-China Trade Investment Forum in Shanghai late last year, Polish President Andrzej Duda said: "I am convinced that the directors of Chinese firms looking to invest in Europe will consider Poland as one of the first candidates." Poland was among 16 European countries that took part in the China-Central and Eastern Europe Summit in Suzhou last year. The event saw President Duda lead an 80-member Polish business delegation to highlight its commitment to the Belt and Road Initiative. Poland's closer cooperation with China has been in motion even before the Initiative's official launch in 2014. The previous year saw the opening of a new railway line linking the Polish city of Lodz with Chengdu in the mainland, which has cut the freight rail time between the two cities to 14 days.
Many Polish companies, however, remain concerned about the trade imbalance between the two countries; the majority of the trains returning to China from Poland carry far lighter loads compared to those in the opposite direction. Principally, the rail route has only attracted a limited number of Polish export categories, notably fast-moving consumer goods, luxury goods and advanced electronic products. Exporters of the more durable goods inevitably still favor the slower, but cheaper, sea freight options.
Despite export growth to China, many businesses in Poland believe the country has yet to fully explore its export potential. At present, in value terms, Poland still imports 10 times as much from China as it exports. In 2014, Poland's exports to the mainland were headed by copper products (valued at US$830 million) and mechanical appliances (US$563 million). The country is now looking to nurture industries that have the potential to successfully export to the mainland.
Among those accompanying President Duda to Shanghai were representatives from the construction chemicals group Selena FM, which has grown its mainland business by more than 40 per cent. "We've gained a lot of experience by being present on the Chinese market over the last few years, but we still have a long way to go," said Jaroslaw Michniuk, a Director of the company, which is based in Wroclaw, Poland?s largest western city. "Our priority now is to increase our market presence and nurture a higher demand for our products."
Poland's food industry also has high hopes of success in the mainland, as well as in other key export markets. The country has been participating in the Tastes of Europe campaign, an initiative to boost the global sales of EU agriproducts. With the program set to run for three years, the promotion of Poland's food sector is backed by a US$6 million investment, with half of it coming from EU coffers.
As a key means of accessing the mainland - and the wider Asia market - many Polish food companies have looked to Hong Kong as the ideal platform to promote their produce. As a result, there has been a dramatic increase in the number of Polish companies exhibiting at the Hong Kong HKTDC Food Expo. "For years now, Hong Kong has been the gateway to the Chinese market for our food industry," said Lucjan Zwolak, Deputy President of Poland's Agricultural Market Agency. "Currently, our food exports to the mainland are valued at around US$76 million per annum, but we believe that our potential sales could be significantly higher."
But Radoslaw Pyffel, Director of the Centre for Poland-Asia studies, believes Poland needs to also develop a long-term strategic agenda if it is to find true success on the mainland, rather than relying on the momentum created by occasional trade visits. There are signs that this is being addressed, with several Polish government agencies now actively promoting and facilitating trade with the mainland. The country's Translation Bureau is also working with Polish businesses to produce promotional documents in Putonghua.
Ultimately, though, many Polish businesses are on the lookout for investors and partners who understand the demands of the Chinese market and its ways of doing business. Such developments are likely to be boosted by funding from the Asian Infrastructure Investment Bank (AIIB). As part of the Belt and Road Initiative, Poland is eligible for a share of the AIIB's US$100 billion initial funding, with the Polish government already lobbying for support for several key projects.
US Takes More Steps to Open Trade, Travel with Cuba
American Shipper - March 16, 2016
One week before President Obama's historic visit to Havana, the US government announced several regulatory changes to make it easier for Americans to travel to Cuba and engage in trade with the island nation. The changes come on the heels of recent agreement to reestablish scheduled air serve between the United States and Cuba with up to 110 non-stop flights daily, part of the ongoing effort to normalize relations between countries that have been estranged for 60 years over Cold War politics and human rights. Shipping and banking provisions are among key changes to the Cuban Assets Control Regulations announced by the Office of Foreign Assets Control in the Treasury Department and the Commerce Department's Bureau of Industry and Security.
BIS said it will generally authorize vessels to transport authorized cargo from the United States to Cuba and then sail to other countries with any remaining cargo that was loaded in the United States. A year ago, the US government changed sanctions policy to allow foreign vessels to enter the United States after transporting certain permissible goods from Cuba. Previously, vessels that called Cuban ports were prevented from entering US ports for six months. BIS said it will adopt a licensing policy of case-by-case review for exports and re-exports of items that would enable or facilitate exports from Cuba of items produced by the Cuban private sector.
OFAC said will expand the existing authorization for "physical presence" (such as an office, retail outlet, or warehouse) to include entities that engage in authorized humanitarian projects, entities that engage in authorized non-commercial activities intended to provide support for the Cuban people, and private foundations or research or educational institutes engaging in certain authorized activities. OFAC will also expand the existing authorization for "business presence" (such as a joint venture) to include exporters of goods that are authorized for export or re-export to Cuba or that are exempt, entities providing mail or parcel transmission services or cargo transportation services, and providers of carrier and travel services to facilitate authorized transactions.
The revised regulations will also clarify that the physical and business presence authorizations permit exporters and re-exporters of authorized or exempt goods to assemble such goods in Cuba. BIS will make conforming changes to the Export Administration Regulations to generally authorize exports and re-exports of eligible items to establish and maintain a physical or business presence that is authorized by OFAC. Last September, the US allowed companies to establish and maintain offices, retail outlets or warehouses in Cuba. Authorized exporters are now able to ship agricultural products and materials for renovating privately owned buildings. Provisions were also made to set up operations in Cuba to provide certain parcel and general cargo transportation services.
Although tourism is technically still banned under the US embargo of Cuba, the Obama administration said individuals are now authorized to travel to Cuba for educational purposes and won't need to travel under the auspices of a sponsoring organization subject to US jurisdiction. Individuals will also be able to buy Cuban products, such as cigars, in third countries as part of normal tourist purchases. The changes also expand Cuba and Cuban national's access to US financial institutions and the US dollar from Cuba, and expand the ability for Cubans legally present in the United States to earn stipends and salaries beyond living expenses.
The US Chamber of Commerce and other business groups welcomed the Obama administration announcement on Cuba. "By lifting restrictions in a number of areas - from allowing dollar transactions to putting in place measures to facilitate commerce, including new shipping and importation rules - the administration is taking important steps to move the US-Cuba relationship forward," Richard Sawaya, vice president of USA*Engage, a coalition of business groups, said in a statement.
"The new trade and travel rules announced today will go a long way in helping to remove unnecessary roadblocks to the flow of commerce and people between Cuba and the United States. We have long advocated for lifting the US embargo, and the new rules address some of its most onerous restrictions," Jake Colvin, vice president for global trade at the National Foreign Trade Council, said.
In the past year, the US and Cuba have opened embassies in their respective capitals, established direct postal service and relaxed other commercial restrictions. Full-blown trade between the nations cannot take place until Congress decides to lift the trade embargo with Cuba. Minnesota Sen. Amy Klobuchar's Freedom to Export to Cuba Act, which has 23 cosponsors, would lift the current embargo. Last week, Klobuchar called on the Treasury and Commerce departments to allow American hotels to operate in Cuba.
Political Rhetoric Unfairly Pins Job Losses on Trade
American Shipper - March 18, 2016
Free trade is getting a bad rap in the presidential campaigns and being unfairly blamed for all job losses in the manufacturing sector, panelists said at an event hosted by the National Association of Manufacturers (NAM). Voters, instead, need to understand that trade has produced a net benefit for the United States for the past 20 years, they argued. In fact, the US tends to benefit more from free trade deals because its economy is mostly open to foreign competition, while overseas markets are often closed to American firms, according to the panel.
The average import tariff in the US is 2 percent compared to much higher tariffs in the 11 other countries that are signatories to the Trans-Pacific Partnership. Some TPP members have duties of up to 59 percent, according to Carla Hills, the USTR under President Bush and now head of her own international consulting company. "It's very tough to be competitive when you have a 59 percent tax on your products," she said during the discussion.
US manufacturing output is at its highest level ever, contributing $2.17 billion to the US economy, and world trade in manufactured goods provides huge opportunities for US companies to grow and has increased to $12.3 trillion from $1.1 trillion in 1980 and the US quadrupled exports in that sector to $1.4 trillion as of 2013. Overall, the US has about a 9 percent share of the global market in manufactured goods trade.
The US has 14 free trade agreements covering 20 countries, Mexico has 44 free trade agreements. The EU has almost three dozen bilateral and regional FTAs, and recently inked a new deal with Vietnam. By contrast, China, which has trade agreements with several of those Pacific Rim countries, increased its market share during that time from under 15 percent to over 30 percent. "They are outselling us in that market and a big piece of it seems to be those FTAs," Dempsey said. The 20 nations engaged in trade reciprocity with the United States represent 6 percent of the global population and 10 percent of global GDP. In the manufacturing sector, 50 percent of sales go to those 20 countries.
tradeinfocus is a summary of news and events on the trade policy front for clients, trade & legislative colleagues, and professional friends of W.J. Byrnes & Co.