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Wisconsin Worldwide

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Volume 4, Issue 4: July 2003
E-Newsletter of the Division of International and Export Development
Wisconsin Department of Commerce
http://www.commerce.state.wi.us

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#ff00005In This Issue:

Lead Article –

Export Markets
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Export News

-SARS and the Global Community
-China: Exchange Rates
-China: White-Collar Salaries
-Building Materials Exports
-UK Again Delays Euro Decision
-Patents
-Port of Milwaukee
-Trade Disputes: U.S.–EU Problems Broadening and Intensifying.

Export Events, Seminars & Conferences

International Business Information on the Web

Contact Us

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Lead Article – Our New European Office in The Hague

Taskforce Europe Services BV became Wisconsin's trade representative in Europe effective July 1, 2003. Taskforce Europe is headquartered in The Hague and has affiliated offices through its partner company, the York Group, in the United Kingdom, Germany, France, Norway, Spain, Italy, and Switzerland. The firm is part of the York Group, an international business development firm with 27 offices in 20 countries around the world. Our primary contact is founding partner Ms. Kara Hordlow Smith who many of you met during her visit to Wisconsin this spring. We expect those of you who have not yet met Kara will share our enthusiasm once you have had the opportunity to do business with her. Given the incredible fall in the value of the dollar versus the Euro, this is an exceptional moment to seek out new business in Europe or to attempt to recapture business lost to European rivals for price reasons during the past years of a high dollar. Call one of our outreach consultants to find out how Kara can help your company increase sales in Europe.

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Export Markets

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Wisconsin Exports At Record Pace

If we continue at our present pace, Wisconsin will set a new export record in 2003 and exceed $11 billion in annual exports for the first time. In our May issue, we noted that Wisconsin exports were up 11.1% for the first two months of 2003 over the same period in 2002. The April figures are now available and exports for the first trimester of 2003 show exports up 12.86% over the same four months in 2002. This was well above the nationwide average of 3.7%. Ohio (+13.09%) was the only state in the Midwest that outperformed Wisconsin.
Wisconsin industrial machinery exports are up 25.6%, vehicle exports are up 29.2% and paper and plastics are both up 9%. However, medical instruments - which are predominantly purchased by governmental and institutions - were off 6.6%. Meat exports showed a sharp rebound of 49.2%. Meat exports had fallen sharply in 2001-2002 in the wake of the outbreak of foot and mouth disease in Europe (See our March article "Mad Cow Disease and the Global Economy" for more on why this outbreak in Europe affected our sales to Asia).
Wisconsin exports are up despite slow economic growth worldwide. On June 16, World Trade Organization Director- General Dr. Supachai Panitchpakdi summed up the state of the global economy as follows: "All regions of the world are now experiencing economic uncertainty and slow economic growth. After an average rate of trade growth in the 1990s of 6.7%, global trade experienced a 1% decline in 2001 and grew by just 2.5% in 2002. Early indications suggest growth in trade volume for 2003 will be little or no better than 2002. It has become increasingly evident to political and business leaders around the world that the weak global economy urgently needs the stimulus that significant further liberalization of world trade can bring. A successful conclusion of the (Doha) Round is thus key to reviving the world economy. Failure is not an alternative. It will send a very damaging signal around the world about prospects for economic recovery".
NAFTA
Sales to Canada – our largest export market - are up 13.2% led by strong sales of industrial machinery and transportation equipment. Canada had a rough entry into 2003. The SARS outbreak in Toronto has hurt the tourism and hospitality sectors and the discovery of hoof and mouth disease in Alberta will hit Canada’s $5 billion meat export industry hard. Almost all of Canada’s international customers have temporarily banned meat imports. The industry had been projected to see double-digit growth in 2003 and 2004.
Despite these difficulties, Canada continues to be a strong growth market for Wisconsin exporters. The fall in the value of the U.S. dollar to a seven year low has made our goods much cheaper in Canada and made it an excellent moment to push sales – particularly capital goods sales in the Canadian market.
Sales to Mexico, our third largest market, posted a 13.9% gain with very good increases in paper products and pulp, vehicle parts, and plastics.
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#ff00004LATIN AMERICA
Sales to the Latin American region excluding Mexico were off 0.2% for the first trimester. Exports to Brazil were off 34.9%, but the decline was almost entirely attributable to a sharp fall in medical instrument sales. Almost every Brazilian sector showed either a sharp rise or a sharp decline. The good news is that to date, the new da Silva government has taken a pragmatic approach to governing and after three months in office most of the fears about debt default and economic mismanagement have evaporated. The real has strengthened 31.4% since mid-October, greatly reducing the country’s debt load. The "leftist" government has raised interest rates to 26.5%, raised the primary surplus target to 4.25% of GDP, and frozen nearly $4 billion in public spending. These developments are good news for all of Brazil’s neighbors.
Our exports to Chile are up 23.6%. The U.S.- Chile Free Trade Agreement was signed on June 6 and will most likely come into force on January 1, 2004. At that time, 85% of all U.S. products will enter Chile duty-free. Duties are presently at 6%.
Exports to democratic and stable Costa Rica are up 262.7% led by medical instruments, paper making machinery and electrical machinery parts and apparel. Costa Rica is presently our fourth largest trading partner in Latin America.
Wisconsin exports to Argentina are up 62.1%, but are still only about 40% of pre-crisis levels. There has been a sharp rise in shipments of industrial spare parts. The new Government is in place and the policies of new President Kirchner are expected to emphasize social welfare needs. The economy expanded in the first quarter of 2003 and on May 6 the Central Bank abolished the last of the controls limiting the ability of Argentine companies to remit foreign exchange abroad. Companies can again freely pay for imports of goods and services and prepayment for imports is again allowed. That being said, many Argentine companies will find it difficult to find domestic credit.
Venezuela
Sales to Ecuador fell from $8 to $2.9 million, a fall of 63.8%. The fall is attributable to a sharp drop in exports of parts for electric motors, generators and sets and a one-time sale of fire fighting vehicles in early 2002.
PACIFIC RIM
Export growth has been lead by exceptional increases in exports to China (+59.8%) and Japan (+57.2%). Exports to China are up double digits in all major categories except vehicles, which are not a significant Wisconsin export to China. A measure of the growth of the China market is that our exports to China for the first trimester of 2003 exceeded our total exports to China in 1999. China just might pass Germany and the UK and become our fourth largest export market by year’s end. By contrast, Wisconsin exporters should understand the sharp increase in exports to Japan over 2002-2003 is almost entirely related to motor vehicle parts sales for a new U.S. military regional facility rather than any significant improvement in the Japanese economy.
Elsewhere in Asia, exports to Singapore were up a surprising 36.3%, primarily on increased sales of industrial machinery. We expect that SARS will dampen these numbers given the sharp cutbacks in sales travel to Singapore. The newly signed U.S. - Singapore Free Trade Agreement will help in the mid-term.
Exports to Korea, Taiwan and Hong Kong held at roughly the same levels as the first trimester of 2002. Exports to Thailand (-20.6%) and the Philippines (-40.0%) were off sharply. The declines in Thailand are due to lower industrial machinery sales while the fall in the Philippines is attributable almost entirely to a fall in exports of Automatic Data Processing equipment parts.
Exports to Australia were up 18.9% based on strong vehicle and vehicle parts sales with tractors and motorcycles particularly strong. The Australian economy remains sound and consumer confidence is high. After two years of decline, sales to the smaller New Zealand market are up 21.2%. Sales of industrial machinery (-35.5%) are still down considerably, but other areas such as instruments (+95.0%), electrical machinery (+99.2%), vehicles (+462.4%), aircraft parts (+208.6%), and chemicals (+197.8%) are doing exceptionally well.
SOUTH ASIA
Wisconsin exports to India have grown by 287% over the past five years to almost $125 million a year. Exports for the first four months of 2003 fell by 40.3%. Note, however, half of this decline results from lower medical instrument sales, the other half in insecticide sales. By contrast, sales of plastic plates and sheets have skyrocketed and now account for about a quarter of our exports to India. We remain bullish on the Indian market. The Indian economy is booming, inflation and prices are falling, and foreign exchange reserves are at record levels.
EUROPEAN UNION
The economies of Western Europe remain stagnant with growth expected to be about 0.4% overall in 2003. Wisconsin exports to the European Union are up by only 0.5% despite the sharp fall in the value of the dollar against Western European currencies. Exports to the UK are up 14.7% and to Italy by 23.8%. Exports to Germany, France, Belgium, Spain and Ireland are all up from 5.7% to 9.9%. Exports to the Netherlands declined 51.9% with almost all the decline coming in automatic data processing equipment and office machinery. Exports to Sweden were off 15.4%, primarily due to lower sales of medical instruments and specific organic chemicals. Smaller markets such as Denmark, Austria, Portugal and Greece showed gains in the 40% to 70% range. Exports to Finland, however, were up only 4.3%.
EASTERN AND CENTRAL EUROPE
Wisconsin exports to Eastern Europe, while still small, are up 78% to $46.7 million. Sales in the first trimester of 2003 exceeded total sales in 1999.
Wisconsin exports to Russia are up 269% for the first trimester of this year and already exceed total sales for 2002. Medical instruments, machinery, and meat sales have all skyrocketed. Russia’s economy is expected to grow by 5.5% this year, the best since the post-communist transition. We expect to see a large increase in imports given a strong ruble, growing consumer consumption, a strong balance of payments and long standing pent-up demand.
Exports to the: MIDDLE EAST & AFRICA; Exports to the Middle East region were up 7.6% based primarily on war related shipments to Kuwait and Qatar. Exports to Saudi Arabia were up 3.1% on mixed sales, but the Saudi Government announcement that it was calling off a proposed $15 billion deal with a group of companies lead by Exxon to develop new gas fields in the eastern region of the Kingdom cast a shadow over the future. Exports to Oman, Jordan, Lebanon, Bahrain, Syria, Egypt, Tunisia, Algeria and Morocco were down between 19.1% and 78%.; Exports to Israel were down 29.5%. However, if a delivery of $7.7 million in armored vehicles in early 2002 is excluded, other exports were up slightly. The war with the Palestinians has resulted in the longest recession in the country’s history.
After a three-year decline, exports to South Africa are up 47.9% on the basis of strong sales of parts for mining and industrial handling equipment and sales of agricultural machinery. However, the RSA economy seems to be slowing.

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Export News

#ff00004SARS & the Global Community
As of July 2, all World Health Organization SARS travel advisories have been cancelled. As of July 2 there had been 8,442 reported cases worldwide with 812 deaths and 7,424 victims have recovered. No new cases have been reported and it appears that the chain of transmission has been effectively broken.

Looking back, there has been a remarkable level of global cooperation since the WHO issued the first alert on March 12. We sent that alert to all of our readers by special bulletin. Most of the success in controlling SARS boiled down to old fashioned public health practices such as quarantine and controlling exit from suspect areas. The World Health Organization, public health officials and the medical personnel who helped control this menace –often at great personal risk deserve our thanks.

Incidentally, the outbreak of SARS in China served as a major increase in demand for computer products in order to improve non face-to-face communication such as office networking, negotiating of business over the Internet, teaching over the Internet and the provision of e-government services. Sales of PCs and monitors grew by 60.1% and 53% respectively over equivalent periods in 2002 which, in turn, had been 20% and 10.2% higher than in 2001.

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China – Exchange Rates

On June 16 U.S. Treasury Secretary Snow said that the United States would back any plan by China to move towards a more flexible exchange rate. His comments followed an earlier Goldman Sachs report that China recognized the benefits of a stronger yuan and will widen the band in which it allows its currency to be traded. Given present conditions, this would mean that Chinese goods would become somewhat more expensive in the United States and U.S. goods would become cheaper in China. There has been growing criticism of the low price of Chinese exports worldwide and most U.S. manufacturers will see Snow’s comments as positive. Lest we forget, China did resist the temptation to devalue the yuan during the Asian financial crisis of 1997-98 (which would have made its prices today still lower) while all of its neighboring competitors were effectively lowering their prices on the global market.

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China: White Collar Salaries

Much has been said recently about wages in China. The most recent survey we have seen indicates that the annual salary for the average white-collar worker is $4,632 ($2.23 per hour) with Shanghai having the highest compensation levels. Those with a college degree average $5,160 while employees with a strong command of a foreign language average $6,516. White-collar workers in the production and manufacturing industries average $4,511 while white-collar workers in the medical equipment sector command $5,856. If the yuan is allowed to strengthen, these wage costs will rise in dollar terms.

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Building Materials Exports

If you haven’t noticed,

#ff0000the Chinese market for building materials is red, red hot

. Wood product exports, particularly building materials (non-coniferous lumber, veneer sheets, and other building lumber) increased by 671% in 2002 and are up a staggering 2,574% for the first four months of this year! Get in touch with our Asian Consultant, Beng Yeap for some good new ideas on how to enter this market.

We recommend to all our readers a May 29^th Survey in The Economist on world property markets. The survey notes that since the mid-1990s, house prices in Australia, Britain, the Netherlands, Spain and Sweden have all risen by more than 50% in real terms while American house prices are up a more modest 30%, which is still the sharpest rise over any comparable period in U.S. history. The survey concludes, "the latest housing boom has inflated bubbles in several countries, notably America, Australia, Britain, Ireland, the Netherlands and Spain. Within the next year or so those bubbles are likely to lead to falls in average real house prices of 15-20% in America and 30% elsewhere over the next several years." Over the years, we have found the Economist a pretty conservative publication.

Given the report and the good news out of China, perhaps it is time for companies in this sector to put more marketing dollars into the China basket. In this regard, manufacturers of certain wood products including doors, windows, blinds, shutters, pallets and certain other wood products may be eligible for reimbursements from the federal government for certain international marketing expenses up to a maximum of $250,000. Contact Stanley Pfrang in our Madison office at (608) 267-0639 for detailed information.

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UK Again Delays a Decision on the Euro

On June 9 the British Government declared that economic conditions were not suitable for the UK to join the Euro zone but indicated that the government would again consider the matter in 2004. Swedish voters address the question in September.

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Patents

The number of patents issued in the past decade is truly staggering. The U.S. granted its 5millionth patent in 1992 and the figure is now about 6.5 million. Worldwide, there are about 7 million patent requests pending as opposed to about 2 million a decade ago. Almost half the requests for U.S. patents come from outside the United States. Why should this be of any importance to you? First and foremost is the need for almost every company to invest in new technology to compete in the global economy. Second is the recognition that continuous change and product improvement are essential to competing successfully in the global market. Finally, remember that companies that market around the world tend to identify challenges to their product niches at early stages when they can better meet competitive challenges.

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Port of Milwaukee – New Options

Last year, the U.S. Coast Guard regulations were changed to allow barge traffic between Milwaukee and Chicago. This allows exporters another option - using the Port of Milwaukee to access the U.S. Gulf Coast ports via the U.S. inland waterway network. For detailed information on the port including services to Europe and Asia (including the new intermodal container service to Asia via Vancouver) contact Betty Palkowski at (414 286-8131 or by e-mail at bpalko@port.mil.wi.us.

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Trade Disputes: US-EU Problems Broadening and Intensifying

In past issues, we have discussed the ongoing dispute between the U.S. and Europe over U.S. Foreign Sales Corporation legislation that allows U.S. exporters tax benefits. EU Trade commissioner Pascal Lamy said the EU would review the matter this fall and that "if there is no sign that compliance is on the way at that time would then start the legislative procedure for the adoption of countermeasures by January 1, 2004". The WTO had ruled earlier that the EU is entitled to charge up to $4.04 billion in punitive duties on imports from the United States.

On June 19, talks between the U.S. and the EU over opening up the EU to genetically modified foods broke down in Geneva. Subsequently, U.S. officials indicated that they would request the WTO hear its case, noting that the EU ban deprives U.S. and other non-European agricultural businesses of hundreds of billions of dollars in sales each year. Argentina, Canada and Egypt are expected to join the U.S. in the complaint and Australia, Chile, Colombia, El Salvador, Honduras, Mexico, New Zealand, Peru and Uruguay have expressed their intent to join the complaint as third parties.

European officials, in turn, have reminded the U.S. that it has refused to join the 100+ countries which are signatories to the Cartagena Protocol on Biosafety that established rules for exporters and importers of genetically modified crops. On July 1, the European Union parliament passed laws that would end the ban. However the EU legislation requires strict labeling all foods with a genetically modified content greater than 0.9%. This means that all U.S. grains will have to be labeled as genetically modified. The new rules also requires that any product derived from genetically modified ingredients but whose presence is undetectable (e.g.; cooking oil) should be labeled as genetically modified. The new laws should go into effect this fall.

In May, the U.S. condemned an EU plan that required testing of all chemicals in Europe. Under the European proposal, companies would be responsible for the testing. Estimates are that the tests could cost European companies about $3 billion over 20 years. In the United States, testing is centered in the Environmental Protection Agency, which has reviewed some 39,000 new chemicals to date. U.S. concerns include:

-Testing would be required of all chemicals (estimated $250,000 per chemical), even those on the market for decades.

- Chemicals that have not been tested could be blocked from entering the EU.

- The burden of testing is placed on the manufacturer as opposed to the existing system in which governmental authorities normally perform risk assessments.

- As in the case of genetically modified foods, the EU proposals incorporate the "Precautionary Principle". This places the burden of proof on the producer to demonstrate the product is "safe" rather that a regulatory authority to determine if a product is "unsafe".

Both the European Chemical Industry Council and the American Chemistry Council have expressed concerns over the EU plans and instead called for the development of a regime consistent with approaches used by other regions of the world. Most individuals and groups, regardless of their position on this issue, agree that Europe needs a chemical regulatory regime. The EU is the world’s largest chemical producer with about 28% of world production. US - European chemical trade is in excess of $70 billion per annum. In 2002, Wisconsin exported $64.1 million dollars in organic and inorganic chemicals which was 32.5% of chemical exports of $196.7 million.

When you add in steel, pasta, and U.S. – EU disputes on how dumping penalties are calculated the Trans-Atlantic trade dispute menu has never been longer. Unfortunately, the disputes also represent widely different philosophical approaches to regulation. At this point, about all we can do is say sophomorically that the world’s two largest trading partners seem to be accelerating towards a head on collision which will be to the mutual harm of the Trans-Atlantic trading community.

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Export Events

Export Compliance, Wisconsin International Credit Executives Group, July 23, 2003, Country Inn Waukesha

A full day program, $95 for non-members. Contact Diana Rowinski at (262) 827-0880 ext. 225 or at diannar@nacmwi.org.

Midwest U.S. - Japan Conference, Chicago, September 7-9.

Please join Governor Doyle at the 35th Annual Joint Meeting of the Midwest U.S. - Japan Association and the Japan-Midwest U.S. Association in Chicago, September 7-9. Governor Doyle will address the conference attendees on the morning of Sept. 8^th.

Japan has the world’s second largest economy and is Wisconsin's second largest export destination. Last year, our firms exported $958 million of products to Japan. The Conference is a significant gathering of executives from Japanese and Midwest firms, and provides an opportunity to develop the links and personal contacts so essential to do business in Japan. For more information, please contact: Beng Yeap, Asia Trade Consultant, at 608/266-1480.

Dancing with the Dragon: Penetrating the Chinese Market - 18^th Annual Wisconsin Export Trade Conference, September 26, 2003 Marriott Conference Center, Middleton

Cosponsored with Congresswoman Tammy Baldwin and the University of Wisconsin- Whitewater. For cost, details, and information about exhibiting at the conference, contact Carla Lenk at (262) 472-3217 or at lenkc@uww.edu.

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#ff0000Incredible Savings! Trade Mission to Aqua-Tech Asia, October 2-4, 2003,

#ff0000Bangkok Thailand

We are applying for a grant to bring Wisconsin environmental/water technology firms to exhibit at the U.S. Pavilion during Aqua Tech Asia, Bangkok, Thailand, October 2-4, 2003. We expect to know if the grant has been approved by July 28. Aqua Tech is the leading show in Asia for water technology, products and services. It provides an excellent entry into the water, industrial water and wastewater markets of South East Asia.

#ff0000Assuming our grant request is approved, cost of participating in the mission will be $1,850. This covers airfare, booth space in the US Pavilion, lodging, meals and prearranged meetings with potential customers. This package is worth over $5,600! Contact our Asian Consultant

Beng Yeap
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KAMBI Mission to Osaka, Japan, October 18-25

The Japanese External Trade Organization (JETRO) is leading a Midwest biotechnology mission to Osaka, Japan to meet with the Osaka-Kansai life science community from October 18 - 25. Cost for the one-week mission to Japan is only $1,450 including roundtrip airfare and six nights accommodation with breakfast. The mission is under JETRO's KAMBI (Kansai Midwest Biotechnology Initiative) program developed to create stronger linkages in the areas of business, investment, research and development, and the commercialization of research for the biotechnology sectors of the U.S. Midwest and the Osaka- Kansai regions of Japan. For more information, please contact David Peterson of JETRO-Chicago (email

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phone: 312-832-6000) or visit JETRO-Chicago website http://www.jetrocgo.org/

Canadian Manufacturers Technology Show, October 20-23, 2003 - Toronto, Ontario
Take advantage of Canada's strong economy and meet potential agents, distributors, and dealers at this matchmaking event. For further information go to http://www.cglg-canada.com/.

GLOBE 2004 8th Biennial Conference & Trade Fair on Developing the Business of the Environment, March 31 - April 2, 2004 - Vancouver, BC, Canada
9000 participants, more than 350 exhibitors, and 70 countries represented in 2002. Be a part of the Wisconsin pavilion for your company's access to global environmental markets and senior-level corporate and government executives. For further information contact Christine Stamm,
ph: (608) 264-7824.

For a list of 2003 events sponsored by the Department of Agriculture, Trade and Consumer Protection go to: http://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 .

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