#ff00006Wisconsin Worldwide

#0000ffVolume 4, Issue 1: January 2003
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 –
2003 Forecast: Partly Cloudy and Unclear
• Export Markets

• Export News

• Export Lead: Graphics Industry & Europe
• Export Events
• International Business Information on the Web
• Contact Us
• Subscribe/Unsubscribe

Forecasting is at best an uncertain business and, as we start 2003, there are a larger than usual number of uncontrollable variables looming near the horizon. Despite an end-of-year eight-week rally, the Dow was down 16.8%, the S&P was off 23.4% and the Nasdaq composite was off 31.5% for the year. Since March 2000, the Wilshire 5000, the broadest based of American stock indexes has lost 43%. That results in a loss of $7.4 trillion or $26,000 for every person in the United States.

Losses in most foreign stock exchanges were even higher. The German DAX was off 42% for the year with the French Cac-40 off 33%. The Italian Mib-30 and the London Exchange’s FTSE 100 were both off 25% while the Japanese stock market fell to a 20-year low, losing 19% of its value over the year.

Given the three-year global bear market, it is not surprising that the major downturn in international investment continues. Investment in developing countries is down 25% since 1997. Global growth was exceptionally low in both 2001 and 2002 and, although projected to rise to 2.5% in 2003, the chances of the world economy slipping into recession remain very real.

Growth looks to be strongest in China and East Asia other than Japan. That being said, Wisconsin exports to Japan were up 9.4% over the first three quarters of 2002 while U.S. exports to Japan declined by 13.1% during the same period. South Asia should be well above average while Canada and Mexico should be above average.

Western European growth is expected to be below average, but the fall in the value of the U.S. dollar vis-a-vis European currencies over the past year has made our exports much cheaper in European markets. Central Europe and Russia look good, perhaps the best since the fall of the Berlin Wall. South America and Africa should be well below average. Successfully predicting what will happen in the Middle East requires one to be able to answer unanswerable questions about terrorism, war, peace and the price of oil.

As the West Coast dock strike demonstrated last fall, one of the realities of global interdependence is that local actions can have worldwide repercussions. What are some of the local wild cards?

If political chaos continues in Venezuela, the world’s fifth largest oil producer, it will have a major impact on world prices. Oil prices were at a two-year high of $33.17 a barrel in late December and if oil prices rise to $40 a barrel, the overall impact would probably be about a 1% decline in world growth.

War in the Middle East could further complicate the world energy situation as could major acts of international terrorism. Already troubled airlines and tourist economies and industries would be badly hurt.

What will be the impact of new and less friendly governments in Brazil, South Korea and Turkey? What happens if the major strike threatened for mid-January by 3 million public service workers in Germany comes to pass? A prolonged strike would have serious negative impacts on the world’s third largest and near-recessionary economy and on the EU as well.

At the moment, the single key factor around the world appears to be consumer behavior. Despite the massive drops in equity prices around the world last year, consumer spending remained high. In the U.S., a key factor will be continued high levels of foreign investment in order to cover our record merchandise trade deficits (nearing $40 billion a month!). A significant decline in foreign investment in the U.S., therefore, would have important negative repercussions on the U.S. and the world economy. Perhaps the caveats listed above explain the logic behind the old Chinese curse of "May you live in interesting times."

The Canadian economy continues to be strong and has been leading the G-7 group of developed nations in growth. It will probably do so again in 2003. New automobile and truck sales were very high throughout the first 10 months of 2002 and broke monthly sales records in October. Housing remains robust and, as a result, furniture and appliance sales continue to grow steadily. Wisconsin exports to this, our largest export market, are up $65 million over the first three quarters of 2002. Don’t hesitate to contact our office in Toronto if you think they can be of assistance.

Please take note that Canada Customs is cracking down on infractions such as incorrect declarations of origin, value or tariff classification. In cases of non-compliance, your importer will be fined. If you are registered as a non-resident importer, you will be fined. First offense – 5% of value. Second offense – 10%. Subsequent infractions – 20%. For further information, go to: http://www.ccra-adrc.gc.ca/customs/general/amps/menu-e.html.

China continues to be the major engine of economic growth in the world today. China is now Wisconsin’s 6^th largest export market and our exports to China are up 10.4% over the first nine months of 2002.

According to official Chinese estimates, foreign direct investment continues to flow into the country at a record pace. For the first eleven months of 2002, Chinese exports were up 21.6% to $293.7 billion while imports were up 20.5% to $266.5 billion. In December, Volkswagen announced that it expected to sell more cars in China in 2002 than in the United States. That being said, Volkswagen’s sales were only up 40% as opposed to the 55% overall increase in car sales within China.

The Chinese government hopes to quadruple China’s per capita income by 2020. This would require continued growth in the 7-8% range per annum. China now produces 50% of the world’s cameras, 30% of the world’s air conditioners, 25% of the world’s washing machines, 20% of the world’s refrigerators, 37% of the world’s disk drives and 10% of its computer monitors. In December, China announced that it was ending the restriction on private citizens holding gold and, as a consequence, Chinese demand for gold is expected to double to about 400 tons a year. World gold prices are now at a 6-year high.

In a December 16 briefing, Hong Kong Financial Secretary Anthony Leung indicated that high unemployment and falling retail sales had called into question the March 2002 forecast of 4.4% economic growth from 2003 to 2006. In October, consumer prices in Hong Kong fell for the 48^th straight month. Consumer prices have fallen by 3.1% since the first of the year and 30% since 1997. In November, the Hong Kong Government announced that it would halt land sales until the end of 2003 in an attempt to stop a slide in property values. Since the 1997 Asian financial crisis, Hong Kong real estate prices, once among the world’s most expensive have fallen 65%.

The recently issued Indian Government mid-year report forecasts continued economic growth in the 5 to 5.5% range despite a major drought. The Indian Ministry of Finance, however, has noted that war in Iraq could greatly impact this forecast (India is a major importer of oil). Wisconsin exports to India, our 16^th largest market, are up 52.5% over the first three quarters of 2002.

On a less positive note, the continued rise of Hindu fundamentalism in India is disturbing. The ruling Hindu BJP party recently won a landslide victory in the Indian State of Gujarat, the site last year of the largest communal rioting in recent Indian history. The BJP campaigned in Gujarat on a new, aggressive platform of chauvinist Hindu supremacy as opposed to India’s long-standing secular and pluralist traditions. India is home to over 125 million Muslims (Pakistan, by comparison, has 143 million Muslims), 24 million Christians, 20 million Sikhs and 26 million adherents to other religions such as Janism and Bhuddism.

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Take a Look at Hungary

Hungary continues to be a good market for U.S. goods and services. It has demonstrated economic growth of higher than four percent in every year since 1997. In 2000, gross domestic product (GDP) grew at 5.2 percent -- the highest in the Central and Eastern Europe region and well exceeding the average of the EU. It has been rated as the world’s most stable emerging economy ahead of countries such as Poland, Mexico and Thailand.

Hungary is a crossroads for trade in Europe. With the prosperous EU to the west and economically developing nations to the south and east, Hungary offers not only an export market itself, but a central distribution point for the region. The United States is Hungary’s sixth largest trading partner and Hungary is the United States' 59th largest trading partner. In the first nine months of 2002, Wisconsin’s exports to Hungary increased to $25.6 million, a jump of 335%. Major exports during that period included printed circuits, tractors, pumps, and medical instruments. Hungary is now our 32^nd largest export market surpassing such well-established customers as New Zealand, Colombia, Norway and Switzerland.

The threat of a nation-wide strike by Germany’s 4 million public sector employees looms in mid-January. Airports and public transport have already been targets for disruption and would be a primary target in an actual strike. Plan your travel accordingly.

The German government is seeking a complete freeze on public sector wages while unions are asking for a 3% increase. Ironically, it was the German government that was the driving force behind the European Union’s Growth and Stability Pact which levies EU sanctions on countries which do not contain budget deficits to 3%.

A strike could add to the problems already facing the slow German and Western European economies. Estimates of German growth in 2002 have again been cut and now stand at 0.2%. A recent Union Bank Suisse and Gallup survey found 58% of investors pessimistic about European economic growth over the next year with 45% indicating that they thought it was either very or somewhat likely that Europe would be stuck in a long period of stagnation similar to Japan.

#ff00004An "Uglier" American?

The Pew Research Center on Global Public Opinion 2002 Survey was released on December 4, 2002. The report is probably the most in-depth survey of world public opinion and reflects the views of 38,000 people in 44 countries. The questionnaire used

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was translated into 63 languages and dialects and most interviews were conducted face-to-face in the respondent’s home. The complete report is available at http://people-press.org/.

The report’s primary finding was that despite an initial outpouring of sympathy for the United States following the September 11, 2001 terrorist attacks, discontent with the United States and its policies has grown in all parts of the world. Suspicions over the "real" U.S. motives in Iraq are very high. Since 2000, favorable ratings for the U.S. have fallen in 19 of the 27 countries where trend benchmarks exist. Unsurprisingly, attitudes towards the U.S. were most negative in the Middle East. Ironically, critical assessments of the U.S. were more prevalent in countries such as Canada, Germany and France than in the developing nations of Africa and Asia.

Of real importance is that the American public is strikingly at odds with people around the world in its views about the U.S. role in the world and the global impact of American actions. In contrast to people in most other countries, a solid majority of Americans think the U.S. takes into account the interests of other countries when making international policy.

The survey found widespread discontent with the overall status of the world. The spread of disease, primarily HIV, is judged the top threat in most countries, with religious and ethnic violence rated second. Dissatisfaction with the state of one’s own country was a common global point of view with the economy, crime and political corruption seen as top problems. Canada was the only country in the West in which a majority of those surveyed expressed satisfaction with national conditions.

#ff00004Korea: Trouble in the Relationship

The December election of liberal Roh Moo Hyun is, in part, a message of the unhappiness of much of Korea’s younger electorate of what it sees as an overly harsh U.S. approach towards North Korea and U.S. unwillingness to support South Korea’s "Sunshine Policy" of engagement towards the North. During the election campaigns, both the Korean president-elect and his conservative opponent called for changes in the status-of -forces agreements covering the 37,000 U.S. troops in Korea.

Many analysts are saying that the US - Korea relationship – long one of the closest of trans-Pacific relationships - is presently at its lowest point in over 25 years. There have been protests at the U.S. Embassy and U.S. military facilities and invitations for the U.S. Ambassador to speak have been withdrawn. In short, if you’re going to Korea on business in the near future, you might want to keep a lower profile.

#ff00004Chile: Free Trade Agreement Concluded

The United States and Chile agreed on the terms of a free trade agreement this December. The President must now give the Congress a 90-day notice of intent to sign the agreement following which the administration has 60 days to submit implementing legislation. The Congress then has 90 days to vote. Our best guess at this time is that the agreement will come into force on January 1, 2004.

#ff00004Exports and the Value of the U.S. Dollar

The ability of our exporters to compete worldwide is based in large part on price. Our prices, in turn are in large part determined by the exchange rate of the U.S. dollar. Between January 1, 2002 and the end of November, the trade weighted value of the US$ fell 7.4%. Much to the delight of most U.S. exporters to Europe, the U.S. dollar fell to a three year low against the Euro in December. The British pound paralleled the Euro’s climb and was at a 34- month high against the U.S. dollar. Similarly, the Swiss franc appreciated 15% against the U.S. dollar in 2002 and was at a 4 year high in December. The dollar’s value on the world’s gold market was at its lowest point since March 1997.

In the Americas, the converse was true.

The Canadian dollar continues to be very weak, but has improved marginally since its all-time historic low of 1.6003 in January 2002. The value of the Mexican peso has dropped steadily since March of 2002 and has lost 13.5% in value against the dollar in 2002. It is now nearing the lows of the peso crisis of September 1998 when the rate fell to 10.1971. Should the peso fall below the September 1998 exchange rate, it will be its lowest point in over a decade. During 2002, the Brazilian real fell 53.8% versus the dollar while the Argentine peso fell 341.5%. The Chilean peso fell only 9.4% against the dollar in 2002, no mean feat given the situations in its Mercosur trading partners.

 

Japan would like to see the dollar strengthen against the yen to increase Japanese export competitiveness. The yen opened 2002 with highs up to 134.8, fell to 115.7 by mid-year and, with considerable help from the Bank of Japan, kept just over 120 for almost all of Q4. In early December Japanese Finance Minister Masajuro Shiokawa said that a level of 150-160 yen to the dollar seemed about right. The yen has not been over 150 to the dollar since 1990. If the yen should fall in value to that level, it would obviously have very major consequences on the ability of our products to compete in the Japanese market.

#ff00004Venezuela: Travel Warning!

 

The political and economic situation in Venezuela continues to spiral downward with growing political polarization along class lines. On December 20 the U.S. State Department issued a

Arial

The general strike called by the opponents of leftist President Chavez on December 2 has crippled the operations of the Venezuelan state oil company, and caused shortages and outages of gasoline and other fuels. Delivery of key goods and services has been dramatically affected both by the strike and related transportation difficulties. Fuel and basic food supplies are critically low, and ground transportation throughout the country is operating on a very limited basis. Local airline services have been suspended, and international flights have been scaled back. Major employers such as Sidor, Venezuela’s largest steelmaker, and Corporacion Venezolana de Guyaya, the country’s producer of Alumina, have suspended production. During the first nine months of 2002, the Venezuelan economy contracted by 6.4%. Unemployment is at 17% and rising. Wisconsin exports are off 33.5% for the first three quarters of the year.

The U.S. State Department issued a travel warning for East Africa on December 24 over concern of possible terrorist attacks in the region. Particular concern exists for Kenya and Djibouti. Remember that traveler’s insurance policies are frequently invalid for countries where the U. S. Government has issued a travel warning. For a complete list of existing U.S. travel warnings, go to: http://travel.state.gov/travel_warnings.html.

Major shipping companies are seeking to raise trans-Pacific rates by $700 per 40-foot container starting in May. They also plan to raise rates by a total of $650 per 20-foot container on Asia-Europe routes in three stages from January to July.

The U.N. Trade and Development Agency has announced that in 2001, global seaborne freight declined by 1% while airfreight shipments dropped almost 8%. This was the first decline in seaborne trade in 15 years. The fall is attributable to economic problems in the U.S., Japan and Western Europe.

On December 2 U.S. Customs imposed a new regulation which requires all carriers or automated NVOCC’s (Non Vessel Operating Common Carriers) to submit a cargo declaration 24 hours before cargo is laden aboard the vessel in a foreign port. If the information is not provided, the shipment can be rejected. All resulting charges fall on the shipper. The changes are designed to enhance security at all air, marine and land points of entry into the United States. Please note that this regulation also applies to vessels that are transiting the United States. So, if you are shipping product from a Canadian port and the vessel will call on a U.S. port before proceeding to another non-U.S. destination the requirement still holds. The same is true for incoming shipments.

Canada Customs now has available on-line estimated wait times for crossing the U.S. Canadian border. Go to: http://www.ccra-adrc.gc.ca/customs/general/times/menu-e.html. A good compilation of other sites listing border wait times is also available at that location.

Sweden will hold a national referendum on adopting the Euro as its national currency on September 14, 2003. The most recent polls show 43% for, 43% against and 14% undecided. Denmark and the UK are also considering referendums with respect to joining the Euro Zone.

Moody’s Investor Service has downgraded Fiat’s debt to junk status citing the company’s weak performance and heavy debt burden and rated the outlook for Fiat as "Negative". The downgrade affects about 15 billion Euros in Fiat bonds and will make it more difficult for the company to raise funds. Fiat has seen its share of the Italian automobile market fall from 60% to 30% in the past decade and 2002 sales are projected to be off 10%. The company – a national institution in Italy- has been forced to lay off thousands of workers and recently sold off its 5% share in General Motors in order to pay some of its debts.

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Profile: U.S. Exporting Companies

In October 2002, the U.S. Department of Commerce issued its year 2000 "Profile of U.S. Exporting Companies". The report indicated that there were 246,452 exporting companies of which 69,253 were manufacturers. While only 28% of total exporters, manufacturers accounted for over 70% of total export value. Wholesalers numbered 72,323 and "other" companies (which would include freight forwarders and other transportation companies) totaled 90,392. Of the manufacturers, 55,231 are listed as small (having fewer than 100 employees) while there were 10,502 mid-sized (100 to 500 employees) exporters. These two groups were responsible for $66.8 billion in exports in 2000. By contrast, the 3,520 large manufacturers were responsible for $404.8 billion in exports.

Echo Graphic, a privately owned manufacturer of mechanical and electronic products for the graphic industry located in Hadsund, Denmark is looking for industrial products produced in the United States that can be marketed, warehoused, sold, distributed and serviced through its existing network of distributors in Europe. For further information go to http://www.echographic.dk/ or contact Managing Director Mr. Frank Oaestergaard at foe@echographic.dk or Brian Bates at 703.271.2705, batesbf@davidbowie.com. The Wisconsin Department of Commerce can assume no liability for the accuracy of the information provided or the bona fides of the company in question.

#ff00005Export Events

For a list of 2003 events sponsored by the Department of Agriculture, Trade and Consumer Protection go to: datcp.state.wi.us/mktg/business/marketing/international/services/pdf/calendar.pdf

To request a list of major international events in Wisconsin click here to e-mail the Wisconsin World Trade Center.

#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

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at http://www.commerce.state.wi.us/IE/IE-Int'lGuideForBusiness.html . The guide is in its fifth edition after being expanded and updated this summer.

#ff0000Contact the International Division

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