Week in Review

September 10, 2018

Global Roundup

Brazil presidential election thrown into chaos after front-runner stabbed. Brazil’s presidential campaign was thrown into chaos on Sept. 7 as the far-right front-runner was in serious condition after he was stabbed at a rally, just a month before the vote, raising fears of increased violence in the wide-open race. (Reuters)

Trump poised to tax an additional $200 billion in Chinese imports. The Trump administration may be about to slap tariffs of up to 25% on an additional $200 billion in Chinese goods, escalating a confrontation between the world’s two-biggest economies and likely squeezing U.S. companies that import everything from handbags to bicycle tires. (Business Mirror)

Sweden's center left in slim lead as uncertain election nears. The Swedish centre-left bloc held a slim lead over the center right ahead of Sept. 6’s national election, a survey showed, but both were short of a majority and the anti-immigration Sweden Democrats could yet emerge as the largest-single party. (Reuters)

The end of NAFTA? Perspectives from Mexico, Canada and the U.S. Fourteen years ago, on Jan. 1, 1994,  the North American Free Trade Agreement (NAFTA) between Mexico, the United States and Canada came into force superseding the former Trade Agreement between Canada and the United States. Comprising an area of over 21 million square meters and a population of over 500 million people, the NAFTA became the world’s largest free-trade area formed. (Global Risk Insights)

Expert analysis: How trading companies can circumvent protectionist policies. At a time of rising protectionism, there are ways in which companies engaged in global trade can legally bypass increasingly restrictive policies. In fact, for over 100 years, international traders have been following legitimate rules to obtain favorable tariff treatment. (Global Trade Review)

Italy, Spain see economic growth falter to multi-year lows. A closely watched survey is showing that the 19-country euro zone economy continued to grow at a solid tick during August despite sharp slowdowns in Italy and Spain. (Business Mirror)

Why a stronger Indonesia is still Asia’s most fragile market. Notwithstanding solid economic growth, low inflation and a proactive central bank, Indonesia finds itself in the same uncomfortable position it had during the 2013 emerging markets sell-off—Asia’s worst-hit market. (HSN)

Africa prepares to drive a hard trade bargain with EU. Increasing trade between the EU and the ACP (African-Caribbean-Pacific), particularly African countries, lay at the heart of the ambition of the Cotonou Agreement. It was supposed to be embodied by regional Economic Partnership Agreements (EPA) with the EU. (EurActiv)

Proposed tariffs on Chinese goods = headwinds for U.S. economy. During six days of public and interagency hearings held by the U.S. Trade Representative in late August, the recreational boating industry joined hundreds of other industries and businesses to express deep concern about the harmful effects of the escalating trade war, including Section 301 tariffs targeting $200 billion in Chinese imports. (Global Trade Magazine)

Germany and U.K. drop key Brexit demands, easing path to deal. The British and German governments have abandoned key Brexit demands, potentially easing the path for the U.K. to strike a deal with the European Union, people familiar with the matter said. The pound rose. (HSN)

Peru’s democracy is at stake in Vizcarra’s anti-corruption crusade. As yet another corruption scandal reverberates through Peru, polling shows that citizens are disappointed with their government and doubting democracy itself. If new president Martín Vizcarra fails to lead Peru past the wrongdoing that has plagued its government for decades, Peru could fall into a democratic crisis. (Global Risk Insights)

Russia ready to buy own debt if sanctions spark market crash. Russia is ready to take the emergency step of buying its own ruble debt if a new wave of U.S. sanctions threatens to upend the market. (HSN)

Tipping point: These charts show some of the worst currencies of 2018. Foreign currencies—especially the emerging markets—are having one of their worst years on record. Last week, Palisade Research looked at some of the worst-performing currencies of 2018. (Palisade)

Emerging Market Crisis Expands

Chris Kuehl, Ph.D.

For most of this year, there has been keen interest in the mood of the investor. The fact is that much in the world of investment and finance feels tenuous. The markets in the U.S. have been surging all year; but throughout this period, there has been a lot of hand wringing as far as how long it will last. The analysis is full of comments regarding the length of this boom and the fact that something will have to give at some point. Yet it keeps going. The European and Asian markets have not been quite as volatile, but they have had their boom and bust periods. One sector doing at least as well as that in the U.S. was the whole emerging market arena. It was assumed that as long as there was demand from the developed world, there would be corresponding growth in these nations as well. For the most part, this has been true. Now there seems to be a collective attitude shift with many of these emerging nations experiencing some serious challenges. A few weeks ago, it was just a handful of nationa

For most of this year, there has been keen interest in the mood of the investor. The fact is that much in the world of investment and finance feels tenuous. The markets in the U.S. have been surging all year; but throughout this period, there has been a lot of hand wringing as far as how long it will last.

The analysis is full of comments regarding the length of this boom and the fact that something will have to give at some point. Yet it keeps going. The European and Asian markets have not been quite as volatile, but they have had their boom and bust periods.

One sector doing at least as well as that in the U.S. was the whole emerging market arena. It was assumed that as long as there was demand from the developed world, there would be corresponding growth in these nations as well. For the most part, this has been true. Now there seems to be a collective attitude shift with many of these emerging nations experiencing some serious challenges.

 A few weeks ago, it was just a handful of nations having serious issues, and they seemed to be self-inflicted wounds. Turkey has been in crisis for months; the country has been watching the value of its currency fall through the floor. That was attributed to the incompetent financial management of the autocratic Reccip Tayyip Erdogan. Then, the mess in Argentina occurred, but at first that was attributed to the inopportune timing of an International Monetary Fund (IMF) request for funds and the history of the country as a place that repudiates its debts when the situation gets tough.

It seemed at this point, there would be no real global reaction; the meltdown could be contained. This assumption has been thrown off by the activity of the last few days. Now, there seems to be an exodus from these emerging markets throughout the world.

South Africa has slipped back into recession as the second quarter numbers remained in the negative zone. The decline was not as bad as it was in the first quarter, but the hoped-for bounce-back did not take place. The Mexican peso has been dropping, and there are deeper concerns about the state of that economy as investors become more dubious about the future of NAFTA and what Mexico will be like under the leadership of AMLO (Andrés Manuel López Obrador). His term begins in a few weeks, and there are signs of his hostility to the U.S. emerging already. Indonesia is getting hit as analysts predict a slowdown in China due to trade sanctions. This is their largest market by far. There has been negative reaction to Brazil in part due to the issues in Argentina where there is more than enough angst to justify caution. Even the oil states of the Middle East are suffering some investor issues.

Not only has there been a lack of confidence in the performance of these emerging markets, but there have been plenty of safer alternatives now that the developed world’s central banks are all starting to gear up for life with a serious inflation threat. This will inevitably lead to higher rates. That is music to the ears of investors who will be looking for safer environments at some point in the not distant future.

s having serious issues, and they seemed to be self-inflicted wounds. Turkey has been in crisis for months; the country has been watching the value of its currency fall through the floor. That was attributed to the incompetent financial management of the autocratic Reccip Tayyip Erdogan. Then, the mess in Argentina occurred, but at first that was attributed to the inopportune timing of an International Monetary Fund (IMF) request for funds and the history of the country as a place that repudiates its debts when the situation gets tough. It seemed at this point, there would be no real global reaction; the meltdown could be contained. This assumption has been thrown off by the activity of the last few days. Now, there seems to be an exodus from these emerging markets throughout the world. South Africa has slipped back into recession as the second quarter numbers remained in the negative zone. The decline was not as bad as it was in the first quarter, but the hoped-for bounce-back did not take place. The Mexican peso has been dropping, and there are deeper concerns about the state of that economy as investors become more dubious about the future of NAFTA and what Mexico will be like under the leadership of AMLO (Andrés Manuel López Obrador). His term begins in a few weeks, and there are signs of his hostility to the U.S. emerging already. Indonesia is getting hit as analysts predict a slowdown in China due to trade sanctions. This is their largest market by far. There has been negative reaction to Brazil in part due to the issues in Argentina where there is more than enough angst to justify caution. Even the oil states of the Middle East are suffering some investor issues. Not only has there been a lack of confidence in the performance of these emerging markets, but there have been plenty of safer alternatives now that the developed world’s central banks are all starting to gear up for life with a serious inflation threat. This will inevitably lead to higher rates. That is music to the ears of investors who will be looking for safer environments at some point in the not distant future.

GDPR Noncompliance Nearly 80% Between US, UK, EU

Even before the General Data Protection Regulation (GDPR) was implemented in the United Kingdom, a vast majority of companies around the globe were not optimistic about meeting the May 25 deadline. Today, three months since GDPR took effect, new research shows a mere 21% of U.K. and U.S. companies are currently compliant, while the remaining 79% claim they are held back by the regulation’s high costs and complexity.

GDPR gives European citizens complete control of their businesses’ personal storage and processing data, impacting businesses all over the world that have customers in the U.K. The GDPR Compliance Status: A Comparison of U.S., U.K. and EU Companies report, released in July, received input from 600 respondents, with many in the retail, finance, technology and manufacturing sectors. The study was completed by TrustArc technology and security company in collaboration with Dimensional Research.

The results indicate compliance is worse than anticipated when compared to an April survey by international law firm McDermott Will & Emery and independent data protection researcher Ponemon Institute. The Ponemon survey found more than half of U.S. and U.K. businesses would not be compliant by the initial May deadline. Noncompliant companies run the risk of hefty fines, including fines of up to 10 million euros or 2% of the worldwide annual revenue of the prior financial year (whichever is higher) at the lower levels and up to 20 million euros or 4% of the worldwide annual revenue of the prior financial year at the higher level.

However, there was some improvement over research conducted in August 2017. According to the TrustArc survey, more than half of respondents are in the process of becoming compliant.

“The number of companies whose GDPR implementation is underway or completed increased from 38% to 66% in the U.S. and from 37% to 73% in the U.K.,” the study states. “Comparing U.S. against U.K. companies in terms of being fully compliant, U.K. companies have made greater progress.”

Getting the highest mark is the EU, where twice as many companies are compliant compared to the U.S. Various challenges plagued respondents, ranging from insufficient budgets to limited knowledge and understanding. The complexity of the regulation was the top challenge, more so in the EU (72%), followed by the U.S. and U.K.

Meanwhile, many respondents claimed they were behind because compliance was a costly endeavor—nearly 70% of respondents spent more than six figures and roughly the same number of respondents plan to spend another six figures before the year is out.

“It’s still a process and [is] impacting my job in terms of external communications,” said a credit professional. “We’re working strictly with a [data protection officer] in order to understand the content [that’s] allowed to be shared externally. Of course, a lot of the job was done in updating the website, contracts and other marketing material to be compliant with GDPR.”

Although the regulation still raises questions within their company, the professional agreed with GDPR’s objectives; however, it will take time to see if it has any positive or negative impacts.

—Andrew Michaels, NACM editorial associate

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The Hidden Expiration Date on Every Export Letter of Credit

Roy Becker

The International rules for letters of credit, known as the Uniform Customs and Practice for Documentary Credits (UCP), state, “A credit must state an expiry date for presentation” (Article 6d). It is relatively easy to find the expiry date in the letter of credit.

However, another date equal in importance is referred to as the last date for presentation. The presentation period—the window of time in which the exporter must present documents—is tied to the ship date as indicated in the original transport document.

Letter of Credit Presentation Period

A letter of credit includes terminology similar to “documents must be presented within 10 days after the bill of lading date but within the validity of the letter of credit.” For example, if the shipment took place on Jan. 1, documents must be presented no later than Jan. 11 or the expiration date, if earlier. If the expiration date is Jan. 5, documents must be presented by Jan. 5, not the 11th.

Some letters of credit require a presentation period of seven days, some 15, etc. If the letter of credit does not state a presentation date, the exporter has 21 days according to UCP Article 14c. Exporters should be aware of this requirement and feel confident they can work within the stated time period. If not, they should request an amendment.

Why does a letter of credit include these time requirements? The importer stipulates them because a delay in presentation can create problems. When the goods arrive at the customs entry point, the importer needs the documents to clear the goods. If not cleared in a timely manner, the goods will go into storage and incur daily charges.

With a short presentation period, the importer can force the exporter to deliver the documents to the bank quickly. Once the documents enter banking channels, they will find their way to the importer in due time for customs clearance.

An alert exporter, however, must ask several key questions:

• How quickly after shipment can the documents be assembled and presented to the bank?
• Can unusual situations cause delays?
• Can the consular’s signature be obtained (for a specific country) within the time limit?

Some consulates are located in distant cities and only sign documents once a week. If the appointed day for signing documents falls on a holiday, in either country involved in the transaction, then one more week must be added to the timeframe. While 10, 15 or even 21 days may seem like adequate time, it can slip away quickly.

Reprinted with the permission of ShippingSolutions.com.

Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations