Wisconsin Worldwide

Volume 3, Issue 2: March 2002
E-Newsletter of the Division of International and Export Development
Wisconsin Department of Commerce
http://www.commerce.state.wi.us

#ff00005In This Issue:

• Lead Article -
Wisconsin's Export Economy

• Export Markets

• Export News

• International Business Information on the Web

• Upcoming Trade Shows
• Seminars & Meetings

• Contact Us
• Subscribe/Unsubscribe4

In the wake of the U.S. and global recession, Wisconsin's exporters have stood up well. Wisconsin exports declined only 0.19% from the record year of 2001, a fall of about $20 million of a total of $10.5 billion. What was even more satisfactory was a 5.7% rise overall outside our NAFTA neighbors Canada and Mexico. Wisconsin sales to Canada were down $365 million, a clear indication of how closely the U.S. and Canadian economies are linked. We have every reason to believe that, as the U.S. economy gets back on track, exports to Canada will return to past levels and resume growth.

Exports to China in 2001 grew $142 million, an increase of 80.2%. China is now our 7th largest customer. If the dollar value of export growth to China is matched in 2002 (this would be a drop to 44% growth) China would become our fourth largest market after Canada, Japan and Mexico and surpass the UK, Germany and France.

Wisconsin exports of machinery (-4.86%) and transportation equipment (-9.65%) were both down in 2001, but exports of instruments (+10.2%) and electrical machinery (4.49%) were up. These four sectors represent 63.3% of all exports. Declines in machinery primarily reflect important falls in exports of engines, trucks and trailers to Canada and office machinery to Europe.

Paper and paper products (-5.3%) were also down, but plastics (+6.9%) continued its steady rise. Plastics exports have risen steadily each year from $245 million in 1996 to $427.6 million in 2001 - an increase of 74.5%. These two sectors comprise 9.1% of our 2001 exports.

We are always happy to provide you with export data on U.S. and Wisconsin exports. We have data readily available for the past six years up to the six-digit harmonized tariff level. Just get in touch with your outreach consultant.

#ff00005Export Markets#ff0000

Our Seoul office reports that industrial production in Korea grew by over 10% in the three month period between November 2001 and January 2002. The Korean business sentiment index was at a record 141.9 in March, up 31.9 points from February. Machinery orders (up 27.9% last month), factory utilization rates, wholesale and retail sales, construction orders are all up. Production of automobiles, telecommunications equipment including cellular phones, computers, machinery and chemical products have all shown double digit increases. Semiconductor production and imports of capital equipment and raw materials have not yet recovered. Consumer goods imports are up sharply. In short, this looks like the best news we've seen out of any of the Asian tigers in recent years. Now might be a good time to contact Beng Yeap, our Asian specialist or our Korean office to evaluate your potential in the Korean market.

The situation in Argentina is clearer, but the situation has not completely stabilized. After formally defaulting on $166 billion in federal and provincial debt in January, Argentina floated the peso in late January. The Peso promptly rose to about 2 pesos to the U.S. dollar from its formerly fixed rate of one to one to the U.S. dollar.

Argentine's economy shrunk by 5% in 2001 and in January the Deputy Economy Minister indicated that the new government budget was based on the assumption of another 5% fall in 2002. On February 26 the Government announced that it would not be able to pay fully the monthly salaries of more than a half-million government employees in view of a sharp drop in tax revenues. Street demonstrations by government workers and unions are expected.

If you are looking for up to date information on exporting to Argentina, we recommend you go to http://www.comerciousa.org/argentina , the very detailed site of the U.S. Commercial Attaché in Buenos Aires. Please remember that foreign exchange controls are in effect, which means that Argentine exporters have to have government approval to change their pesos into dollars and that the government has also imposed waiting periods on foreign exchange. Needless to say, credit is in very short supply in Argentina and the effective doubling in price of imports will further reduce our export opportunities.

#ff00004Venezuela - Devaluation & Political Unrest

The overvalued Venezuelan Bolivar has fallen sharply in the wake of the Government's elimination of five-year-old exchange rate controls. The Bolivar, which had been trading at about 760 to the dollar at the beginning of the year (a fall of about 7% over the previous year), promptly fell over 30% and was trading at about 1000 to the dollar as of March 1. This will result in a marked increase in inflation.

President Chavez's popularity has nose dived, and polls now showing approval ratings of 18% to 30%. Four different military officers have called for his resignation and a new opposition alliance has been formed by the Venezuela's Workers' Confederation and the Fedecamaras Business Association. The Catholic Church backs the alliance.

President Chavez recently changed the leadership at Venezuela's state oil company to insure the loyalty of its leadership; several thousand managers from the state oil company marched in protest on March 4 and threatened to go on strike unless the new board was replaced. The company is responsible for 40% of government revenues. We would not expect the situation in Venezuela to improve unless there was a major (and unlikely) rise in world oil prices. For additional information, see our comments in our January 2001 issue and our November 2000 issue.

Our office in Mexico City has called our attention to http://www.maquilaportal.com/ the site of the Mexican National Maquila Association. The site is in English. The Association produces arguably the best directories of firms operating in the Maquidoras. You can get a list of the top 100 maquila employers (who employ over 400,000 employees) for free as a come-on for the association's specialized directories which contain most of the information necessary to contact prospective customers in the various maquila sectors.

A sharp decline in industrial output caused Brazil's economy to shrink in the 4^th quarter of 2001 lowering annual growth to 1.5%. Growth in 2000 had been 4.4%; predictions for 2002 are in the 2-2.9% range.

Russia's economy has improved markedly since the difficulties of summer 1998 and the four-fold devaluation of the ruble. Growth has averaged 6% over the past three years and unemployment has fallen to 8%. Real incomes have increased significantly in each of the past two years and U.S. exports to Russia were up 25% last year. Russia is a fully diversified economy with a highly educated workforce, and can be a ready market for a wide range of technologically sophisticated American products.

Despite its massive potential for trade and investment in the medium- to long-term, Russia has been of limited interest for most American exporters due to negative market perceptions -many of them born in the over optimism of the early years after the collapse of Communism. For the past decade, there has been a risk in entering the Russian market. That risk still exists, but, at present, there is a growing risk of staying out of the Russian market.

Japan is the world's second largest national economy and our second largest customer. Export sales to Japan were $733 million in 2001, down $15 million from 2000's record high of $748 million. Our Japanese customers are noted as religiously prompt payers and steady customers once a relationship is firmly established. Japan's economic health, therefore is very important to Wisconsin exporters.

Japan is now in its third and deepest recession in the past decade. Japanese consumer prices have fallen for 28 straight months (deflation), unemployment is at record highs and retail sales have fallen for 10 straight months. There is widespread skepticism that the government's new anti-deflation package will be effective or that the government has the will to face Japan's banking problems head on. Both Moody's and Standard and Poors have cut their ratings on major Japanese banks and brokerages, siting massive bad loans, poor earnings and dwindling capital. Japan's second and third largest brokerages have been downgraded to junk bond status and Daiwa, Japan's largest brokerage is one grade above junk bond status.

Japanese unemployment is at 5.6%, the highest since the Second World War. Sanyo recently announced that its 10,000 manufacturing employees will accept pay cuts of up to 20% and in return will work about 60 days less this year. Sanyo cut about 10% of its workforce last year.

Effective May 1, 2002, the correct 10-digit Canadian HS code will be required on your export documents before commercial shipments valued at CAD$1,600 or more will be released by Canadian customs. Where more than one commodity is included in the shipment, the 10-digit HS code must reflect either the highest value invoice line of the shipment, or a reasonable representation of the goods within the shipment (the commodity line that reflects the true nature of the goods contained in the shipment). Release of goods will be delayed if the 10-digit HS code is not provided. For details, see the Canada Customs and Revenue Agency#0000ff. You can find the Canadian 10 digit HS code for your products (they are harmonized with the U.S. tariff codes only to the 6 digit level) at the Canadian Customs and Revenue Agency, or by calling the Client Services Office of the Canada Customs and Revenue Agency at 800 661-6121. A third alternative is to consult your Customs Broker. We are adding the Canadian HS 10 digit site to the links page of our website.

3Waukesha County Technical College in Pewaukee will be the site of one of five business opportunity seminars conducted by the Asian Development Bank (ADB) in the United States this year. This event is designed to educate equipment suppliers, engineers, consultants, subcontractors, and commercial banks about how to compete successfully for contracts worth billions of dollars that result from ADB financing throughout the Asia/Pacific region. After attending this seminar you will know how to obtain information on ADB procurement opportunities, register your firm, prepare letters of interest and bid proposals and negotiate contracts. ADB experts will also cover key questions such as how to prepare "responsive" bids to maximize success, how bids are evaluated, and what procedures are used to resolve bidding problems. ADB officials and the U.S. Commercial Liaison to the Bank will be available for one-on-one consultations. For additional information and registration materials, click here3.

3The ADB is a non-profit, multilateral development bank based in Manila, the Philippines. Capitalized at $43 billion, the ADB lends $5-6 billion annually to governments of 33 member countries in the Asia/Pacific region. ADB projects typically address educational, energy, environmental (including water and wastewater treatment), agricultural, healthcare, and transportation issues. ADB-financed consulting and supply contracts are awarded by borrowing governments according to international competitive bidding rules. U.S. firms won $196 million worth of ADB contracts in 2000 and the United States leads in the number of ADB consulting contracts awarded.

We know what happens to private sector budgets in times of declining sales. As you are no doubt aware, the economic recession has resulted in a major fall in state tax revenues and the State of Wisconsin has a projected shortfall of $1.1 billion. How will that affect our international operations?

We have postponed the annual visit to Wisconsin of our overseas office directors this May. At the moment, we do not have a clear view of how the budget deliberations will affect our current and upcoming budgets. We have cancelled some overseas trade promotions and travel as well as non-essential domestic travel. That being said, our Wisconsin-based staff and our overseas offices are still working actively with Wisconsin exporters. We will be conducting a statewide series of seminars with the US Department of Commerce, the US Small Business Administration, the U.W.'s Small Business Development Centers and others this spring. The seminars are designed to give you an up-to-date picture of export markets and allow you to identify and learn more about assistance and low-cost programs available to exporters.

The Chinese Government has announced that it is introducing a new China Compulsory Certification system which will replace the existing CCIB or Great Wall Marking System. A one year transition period will be in place and products that have not been stamped with the China Compulsory Certification (CCC) mark will not be allowed to enter or depart China.

Product areas include electrical wires and cables, electrical switches, low-voltage electrical apparatus, small motors, electric tools, welding machines household and similar electric appliances, consumer electronics, IT equipment including computers, servers and electric office machinery, lighting apparatus, telecommunications terminal equipment, motor vehicles, tires, safety glass, crop sprayers, latex condoms, medical devices, fire fighting equipment and security alarms. Contact Beng Yeap or our Hong Kong Office for more information.

On March 1, the European Union completed its conversion of national currencies to the Euro. The two-month transition was remarkably smooth despite some fears (including us) that there could be significant problems. The cost of the transition to retailers alone has been estimated at $10 billion. The Euro will aid price transparency through out the EU and have forced many companies to switch from national to EU wide pricing strategies since the Euro has made it realitively easy for European consumers to identify price differences which exist for reasons other than differing tax rates.

The U.S. National Center for Standards and Certification Information has a new online service through which you can obtain up-to-date information about changes in regulatory standards around the world. Export Alert is a free web-based service which provides U.S. industry with the opportunity to review and comment on proposed foreign technical regulations that can affect their businesses. Members of the World Trade Organization (WTO) are required under the Agreement on Technical Barriers to Trade (TBT Agreement) to report proposed technical regulations that may affect trade to the WTO Secretariat, who in turn distributes them to all WTO Members.

By registering for the Export Alert! service U.S. companies receive, via e-mail, notifications of drafts or changes to foreign regulations for a specific industry sector and/or country. The industry sectors are defined by the International Classification for Standards (ICS) designation developed by the International Organization for Standardization (ISO). Notifications of the proposed foreign regulation contain a description of the regulation, the country issuing the regulation, and a final date for comments.

We recommend highly the NCSCI site for its wide range of information. We tried out the Export Alert system and it works fine. Don't check more items than you need, however, unless you want to be inundated with changes!

If a trip to Brazil is in the offing, please note that there is an epidemic of dengue fever in the State of Rio de Janeiro. The most serious situation is in Rio de Janeiro, but the disease has also spread to Sao Paulo. Almost 10% of the workforce have been struck in Rio de Janeiro and the total number of victims to date nationwide is estimated at 430,000 with 1,600 new cases being reported daily. Dengue is a mosquito borne virus with high fever and severe head and muscle pain. If you are going to the Rio/Sao Paulo area, you might want to pack an aerosol insecticide and your mosquito repellant and to avoid the likely locations for mosquitoes, particularly at dusk. If you've been to Brazil and come down sick with the symptoms noted above within three weeks, you might want to mention to your doctor that you have been in a dengue epidemic area.

Most companies we know and work with take U.S. trade embargoes seriously. Our experience has always been that those responsible for enforcement take their work very seriously. It was a bit surprising, therefore, when Iran's first International Police and Security Equipment fair opened in Iran in late February and a variety of U.S. products -including Hewlett-Packard printers and Motorola communications equipment were on display. The companies in question have made clear that they were not involved and have procedures in place to prevent diversion.

Let us remind you that the U.S. Government's viewpoint is that you and your company have the responsibility to insure that your agents, distributors and representatives are not buying product for resale into embargoed markets. If, for example, you suddenly found a sharp rise in sales to a rep or a new client in the Persian Gulf area, you might wish to do your due diligence. Take it from us, the government lawyers who handle these matters are less than pleasant under the best of circumstances.

In February, Barclay's bank fired five investment bankers after they attempted to pass off a $62,000 dinner for six at Petrus in London as client entertainment expenses. The $62,000 bill only covered the cost of wine and other alcoholic beverages - the restaurant owner (properly in our mind) did not charge for the food in view of the size of the bar bill. Included in the bar tab were bottles of a 1946 and 1947 Chateau Petrus, a 1984 Montrachet, and a hundred-year-old bottle of Chateau d'Yquem and two bottles of Kronenbourg beer (Come, come. Who was the Philistine in the crowd?)

#ff00005International Business Information on the Web

We do our best to provide you with free international trade information available in our International Business Internet Guide#ff0000 at http://www.commerce.state.wi.us/IE/IE-Int'lGuideForBusiness.html

June 9-12, 2002 (Bio 2002 - Toronto, Canada)

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