China Exports in 2009

On December 27, 2009 at the China Open Economy High Level Forum organized by the University of International Business and Economics, Zhong Shan, China's Vice Minister of Commerce stated that China likely to surpass Germany as the largest exporter or global goods for 2009.

U.S. House Bill Would Increase Federal Government's Power over Financial Markets

On December 11, 2009, The U.S. House of Representative passed a bill that is now before the Senate for its Constitutional bicameral review of proposed legislation before it is sent to the U.S. president.

In his weekly message, president Obama voiced his support of the House bill's increased federal regulations of large financial institutions and oversight over the Federal Reserve, including removing the U.S. Central Bank's power, as a non-governmental entity, from creating consumer protection laws regulating the banking industry.

Dubbed the "the most dramatic overhaul of U.S. financial regulations since the Great Depression" by The Boston Globe, the passage of the House bill is seen as a victory for President Obama, whose central domestic policy agenda is to increase oversight and accountability over U.S. financial institutions in response to the global financial crisis.

Among other provisions, the House bill would strip the Federal Reserve of its power to issue consumer protection rules and regulation over banks. The bill passed 223-to-210 and no House Republican support. It was opposed by 27 House Democrats.

Senate Republican opposition is anticipated as they have already announced opposition to the House bill's establishment of the Consumer Financial Protection Agency, with audit powers over the Federal Reserve.

Passage is needed. To weigh in on the debate, U.S. citizens can contact their state senators (find your senator's email at Directory of United States Governors, Senators, and Representatives).

Read more on this subject at my article "U.S. House Bill Increases Financial Regulations: Government to Expand Bank Regs and Federal Reserve Oversight."

DISCLAIMER: Because of the generality of this update, the information provided here may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. This profile may constitute attorney advertising. Prior results do not guarantee a similar outcome. Any correspondence with this blog does not constitute a client/attorney relationship. Neither the content on this blog nor transmissions between you and the blogger through this blog are intended to provide legal or other advice or to create an attorney-client relationship.

Wal-Mart and Amazon.com Wars: U.S. Print Book Market Race to the Bottom?

Wal-Mart.com triggered an online price war for its 10 hotly anticipated hardcovers from big named authors by posting them on their website for $10. All of the books have November release dates, and the pre-order is already creating bestsellers.

Hours later Amazon.com Inc. (AMZN, Fortune 500) marked the same booklist on their online website for $10. Wal-mart's price fell to $9. Amazon's fell accordingly. Last Friday, Wal-mart tipped its hat with a one cent slash to $8.99.

Patterson's "I, Alex Cross" dropped from $27.99 to $8.99. Stephen King's "Under the Dome: A Novel" dropped from $35.00 to $8.99. The discounted booklist includes John Grisham's "Ford County" and Sarah Palin's "Going Rogue" at more than a 60% discount from the cover price. This means that both online competitors are selling titles at a loss. Publishers have started commenting on the potential effects on the supply side effect on publishers, authors, agents, and the brick & mortar retail booksellers.

A Wal-Mart spokeswoman e-mailed a press release stating the company will “continue to adjust our pricing so that Walmart.com offers the lowest prices on these top pre-sellers in books.” Amazon declined to comment.

This Wal-Mart/Amazon competition has brought about a race to the bottom with the customer benefiting tremendously. At the same time, it is important for a society to take note of strategic planning announced by its oligopolists. Oligopolistic competition can give rise to a wide range of different outcomes, such as creating real market entry barriers from artificial price reductions. Should U.S. antitrust law care about protecting new market entrants? Why or why not?

DISCLAIMER: Because of the generality of this update, the information provided here may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. This profile may constitute attorney advertising. Prior results do not guarantee a similar outcome. Any correspondence with this blog does not constitute a client/attorney relationship. Neither the content on this blog nor transmissions between you and the blogger through this blog are intended to provide legal or other advice or to create an attorney-client relationship.

A WTO Case on China's Screws and Bolts?

International trade in nuts and screws

It has been reported that China plans a World Trade Organisation (WTO) challenge to the anti-dumping duties of the European Union (EU) imposed in January on screws and bolts imported into EU countries from China. According to a source reporting to Reuters, China's commerce ministry seeks WTO dispute settlement consultation over the legal process used by Brussels.

News of the screws and bolts dispute came on the eve of the U.S.'s Obama administration announcement of its trade strategy that will emphasize enforcing trade agreements and countervailing duty and anti-dumping laws. China's posture in the WTO may ring with irony in light of the recent criticism herald by U.S. Steel Corp (X.N.) Chairman and CEO John Surma against China for allegedly undermining the global steel industry through tax benefits, calling on China to play by the world trade rules.

If the requested settlement consultation fails, China could request a WTO panel to hear the screws and bolts case. It would mark the first case taken by China against the EU at the WTO. The EU duties impact as many as 200 Chinese companies selling components widely used for cars and machinery in the EU. The import duties, of up to 85 percent, could amount to an annual lost by China-based importers into the EU of some €575 million (US$811 million).

DISCLAIMER: Because of the generality of this update, the information provided here may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. This profile may constitute attorney advertising. Prior results do not guarantee a similar outcome. Any correspondence with this blog does not constitute a client/attorney relationship. Neither the content on this blog nor transmissions between you and the blogger through this blog are intended to provide legal or other advice or to create an attorney-client relationship.

WTO, TRIPS and Pharmaceutical Demand Growth and Safety Issues

Global trade in pharmaceuticals

The World Intellectual Property Organization (WIPO) and World Health Organization (WHO) met recently to seek amendment to the WTO's  Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which governs WTO Members. The organizations seek to address issues such as how to maintain the market for generic medicines but stop the flow of counterfeit medicines. The former is fake medicine that may contain the wrong or no active ingredients or may even be contaminated. This issue is being addressed as the H1N1 Swine Flu confirmed cases rise to 8,451 globally, with a death toll of 72, according to the most recent WHO tally.

On April 29, the WHO raised its pandemic alert to 5 on a 6-level scale. As rich nations lock in flu vaccine and poor nations fret on being left out in a antiviral vaccine production, the problem of counterfeit medicines may certainly become a very real one if a global shortage of antiviral medicines face increased market demand among nations in both small and large economies.

One WTO problem is seen under TRIPS' Article 31(f), which requires that 50 percent or more of sales of compulsorily licensed products be in the domestic market. This means, for example, that a compulsory licensed product exporter, such as a generic pharmaceutical manufacturer from the U.S.A., can not export an amount that is more than its domestic sales of its product. At least one of the underlying reasons in this rule is to curtail large economy manufacturers from developing export monopolies. However, for smaller economies, who have little choice but to rely on imports of manufactured medicines, this Article 31(f) import inhibition needed addressing.

In 2003, the so called "Paragraph Six Solution" in the Doha Declaration promised to resolve this TRIPS export problem. Since that time, no developing nation has used it, which is either telling of its complexity or its flaw in being the needed solution. Hopefully the current H1N1 Swine flu health problem will not grow to a proportion that would test the effectiveness of the so-called "Paragraph Six Solution".

DISCLAIMER: Because of the generality of this update, the information provided here may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. This profile may constitute attorney advertising. Prior results do not guarantee a similar outcome. Any correspondence with this blog does not constitute a client/attorney relationship. Neither the content on this blog nor transmissions between you and the blogger through this blog are intended to provide legal or other advice or to create an attorney-client relationship.

Commentator's Quote: "hurricane sweeps through a forest"

Brett Arends' commentary in the WSJ today:

"Historians note that many of the stocks which did best during the Great Depression were actually so-called "growth" companies, because they were the ones conquering the future. When a hurricane sweeps through a forest it knocks down a lot of the older, weaker trees. The younger ones survive and prosper. And so it may be in the economy."

Your comments on this commentator's quote are welcome. Also, you can write to Brett Arends at brett.arends@wsj.com.

DISCLAIMER: Because of the generality of this update, the information provided here may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. This profile may constitute attorney advertising. Prior results do not guarantee a similar outcome. Any correspondence with this blog does not constitute a client/attorney relationship. Neither the content on this blog nor transmissions between you and the blogger through this blog are intended to provide legal or other advice or to create an attorney-client relationship.

Antitrust: Too Big to Fail. The Case against AIG.

Mississippi 4th District U.S. Rep. Gene Taylor and fellow Democratic Rep. Peter DeFazio of Oregon filed a bill Thursday to remove the federal antitrust exemption from the insurance industry. The introduction of H.R. 1583, the Insurance Industry Competition Act, would repeal the 1945 McCarron-Ferguson Act that provides federal antitrust exemptions to insurance companies. If the Taylor and DeFazio Bill is passed it would grant the U.S. Department of Justice and the Federal Trade Commission the legal authority to apply antitrust laws to insurers’ anticompetitive behavior.
"AIG was gambling with people’s life savings," said DeFazion, "and lost it all to speculative and shady transactions and contributed to the current crisis. We must insure this never happens again."

According to a news release from Taylor's office, the insurance exemption from antitrust laws gave AIG a free pass to become "too big to fail," leaving taxpayers to bail them out or risk further damage to the U.S. economy.

Marliss McManus, senior federal affairs director in the Washington office of the National Assn. of Mutual Insurance Cos., said in a statement: "To assert that the insurance industry is exempt from federal antitrust laws is completely inaccurate. The McCarran-Ferguson Act allows for a very narrow and limited exemption for certain activities such as standardized policy language."

Is this a time for increased antitrust regulation of both financial and insurance markets that have created gigantic global market actors with the potential to wipe out large amounts of accumulated market wealth? I would say yeah.

The McCarran-Ferguson Act was passed by Congress in 1945 in response to the U.S. Supreme Court Case of U.S. v. South-Eastern Underwriters, 332 U.S. 533 (1944) which held that the federal government could regulate insurance via the Commerce Clause as interstate commerce. The Act empowered Congress to pass laws in the future regulating the insurance business but limited the South-Eastern Underwriters case by providing that federal antitrust laws will not apply to insurance companies if state antitrust law applies, except where cases of intimidation, coercion, and boycott arise. Accordingly, Ms. McManus' recent statement describing the the exemption as "very narrow and limited" for "certain activities such as standardized policy language" is an understatement of exemption.

What are the aims of antitrust laws?

The aims of antitrust laws are to: (1) prohibit agreements or practices that restrict free trading and competition between business entities, such as collusion and the development of cartels. (2) regulate anti-competitive and abusive practices that lead to market dominances, such as predatory pricing, refusal to deal, price gouging, and typing. (3) supervise the mergers and acquisitions of large companies, including some joint ventures, to guard against unhealthy market dominance.

But what is the fundmental goal of antitrust law?

It is to protect consumers. Economists will argue that economic efficiency alone is the fundamental goal of antitrust and competition laws in society. Often the two -- consumer protection and promoting the increase of total wealth -- are on the same team. The current example provided by the financial and insurance sectors indicate that consumers have been greatly impacted financially by the operations of dominate corporate actors. The result has been a dramatic lost of total wealth, as can be seen in the steady decrease in the value of the global stock markets that represent a great part of consumer wealth in modern societies. The decrease in total wealth coincides quite precisely with violations of consumer trust in the operation of both financial and insurance markets.

Should there be an exemption, even narrowly, as characterized by McManus, for sectors such as insurance companies who are operating beyond U.S. state borders and even beyond national borders? The rigors of maintaining the trust of the markets as envisioned by antitrust laws require national oversight of huge market participants such as AIG. The idea that state laws could adequately regulate such a global actor is ridiculously niave. The "too big to fail" language that now dominates market discussions is one of the main concerns of antitrust law, namely, to protect consumers from behavior that deprives them of the benefits of competition. "Too big to fail" means that there has existed a fundamental lack of competition in a sector of the market that has resulted in an unhealthy dominance by a company. Diversification is healthy and recommended in investments and the same underlying principal applies to the need for diversifying the concentration of wealth in the hands of companies now dominating the market for financial and insurance products.

Diversification is good. Dominance is bad. It is unhealthy for the failure of one entity to have such a huge impact on the wealth of a nation. The goal of government is to protect consumers from behavior that deprive them of the benefits of competition. In the U.S., now is the time to revisit any antitrust exemption to insurance companies that 1) hold previously unimaginable amounts of consumer wealth, 2) operate nationally and internationally, and 3) would potentially paralyze the financial markets upon dissolution.

DISCLAIMER: Because of the generality of this update, the information provided here may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. This profile may constitute attorney advertising. Prior results do not guarantee a similar outcome. Any correspondence with this blog does not constitute a client/attorney relationship. Neither the content on this blog nor transmissions between you and the blogger through this blog are intended to provide legal or other advice or to create an attorney-client relationship.

Is Protectionism an Inevitable Response to Contracting Resources?

Global demand for imported goods and services are impacted by the global economic recession. Protectionism, in turn, is not always produced from the policies of national governments, but from national market-demands becoming more selective and more frugal in an economic downturn. Albert Einstein said, "Reality is merely an illusion, albeit a very persistent one." I would argue that high rates of lay-offs and pay-cuts makes frugality and preference for local fare a rational response to a reduction in available resources. Increased productivity, resourcefulness, innovation, and efficiency in the operation of households and businesses will mark those who will weather the 2009 global economic storm.






The World Bank projected that global trade would decline by 2.1% this year. A global trade contraction last occurred of this magnitude in 1982. The trade decline in the U.S. has effectively cut its trade deficit to $40.4 billion from $56.7 billion as of October 2008. This was a five-year low. If the reduction continues in the next three quarters at this rate, it will in effect greatly support the predicted fourth-quarter economic rebound.

DISCLAIMER: Because of the generality of this update, the information provided here may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. This profile may constitute attorney advertising. Prior results do not guarantee a similar outcome. Any correspondence with this blog does not constitute a client/attorney relationship. Neither the content on this blog nor transmissions between you and the blogger through this blog are intended to provide legal or other advice or to create an attorney-client relationship.

Lesson in 2008 from the Art Markets

It’s daunting to face a blank page at the beginning of a new year that calls for you to summarize some type of important reflective lesson in about 300 words. Well, world stock markets lost almost $30 trillion in value. Oil, real property, non-governmental bonds, and even the art market took notable downturns. The impact of the financial markets in 2008 on the fine art market may offer the greatest insights.

Art is sometimes called “emotional assets” by economists as it is not typically linked to the economic cycles. This year Christie’s and Sotheby’s counted notable slumps in their November sales. Not-for-profit art institutions are also members of the markets. Some of the art rich but cash poor among them have sold valuable works in 2008 against deflated global currencies to cover operational expenses.

In 2008, the National Museum in New York sold two Hudson River School paintings for around $15 million and gripped itself for the immediate punitive response from its membership. This included a carefully drafted letter from its members calling for the withdrawal of “loans of works of art to and any collaboration on exhibitions with the academy.” Ironically, membership donations never were an alternative funding option for the academy to cover needed operational costs. Not-for-profit art organizations felt the financial crunch as investors gave pause to cash donations to art organizations.

On an up beat, in 2008 a sculpture depicting a 1375 B.C. pharaoh that was smuggled into Britain out of Egypt was returned. Removed in 1990 in violation of Egyptian laws banning the export of antiques more than 100 years old, Britain officials recovered the national treasure and returned it to Egyptian authorities in 2008.

One will not be hard pressed to point to both ups and downs in the art markets. We can look at the “soft” art securities-like market that has grown out of much of Christie’s and Sotheby’s (and its global counterparts) trade in art. We can also look at Britain and Egypt’s transaction that involved a return of a priceless Egyptian national art treasure under the operation of the rule of international law. The so-called emotional asset of the art market provides an anecdotal lesson in 2008. In any given year there will be ups and downs. In some years there will be more ups than downs, while in others there will be more downs than ups. On the eve of 2009, here is a wish for more upswings ahead.

DISCLAIMER: Because of the generality of this update, the information provided here may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. This profile may constitute attorney advertising. Prior results do not guarantee a similar outcome. Any correspondence with this blog does not constitute a client/attorney relationship. Neither the content on this blog nor transmissions between you and the blogger through this blog are intended to provide legal or other advice or to create an attorney-client relationship.