WISCONSIN WORLDWIDE

Vol. 5 #1, September 2005

Wisconsin Worldwide's mission is to provide you with news and insights on international trade and export opportunities that will help you compete in the global marketplace. If you have comments, critiques or questions please e-mail Lou Janowski.

  Governor's Mission To Central Europe

Governor Jim Doyle will lead a trade mission to Poland and the Czech Republic from November 8 - 16, 2005. Both of these countries hold promise for Wisconsin companies seeking to expand export sales. For the first quarter of 2005, Wisconsin exports were up 100% to Poland and 112% to the Czech Republic. Poland is the largest economy of the new European Union member states and the Czech Republic is number two. Both markets have strong potential for manufacturers of industrial machinery, environmental and pollution-control equipment, medical devices and transportation equipment.

The mission will travel to Prague and Warsaw. Businesses will have the opportunity to meet with pre-qualified agents, distributors, and potential customers; set expansion strategies; and meet with key government officials. Participants will also take part in briefings and business receptions with the respective US Ambassadors, as well as other events with government and business leaders. For details please contact Jennifer Winner in our Madison office or follow the link.

  Wisconsin Export up 18.4%

Wisconsin exports for the first half of 2005 were over $7.2 billion, up 18.4% over the same period in 2004. By contrast, total U.S. exports grew by only 9.7%. Exports to our NAFTA partners and two largest export markets Canada (+9.4%) and Mexico (+42.5%) have been strong. The fall in the value of the dollar has meant a sharp growth in sales to European markets. Exports to the UK (+30.8%), Germany (+24.3%), France (+38.1%), Spain (60.1%) and Italy (+46.1%) have led this resurgence.

In Asia, exports to China, which had grown by 573% in the period 1998-2003, cooled to 6.4% in 2004 and to 5.4% in the half of 2005. If 2005 trends continue, the UK will become our  third largest export market,  passing China and Japan with China slipping from third to fifth. Elsewhere in Asia, exports are up to Korea  (+ 24.7%), Singapore (+47%), Malaysia (+54.8%).

In Latin America, the biggest news is the resurgence of the Brazilian market (+107.6%) from the slump following the global financial crisis of the late nineties. If sales continue at present levels, we will shatter the 1998 record of $197.4 million in sales to Brazil by $35 million. If you haven't taken a look at Brazil in the past few years, it is time to take another look. That said, high interest rates (at the consumer level, 65.7% in May) mean that extending favorable credit terms can be a strong incentive to prospective buyers. Elsewhere, exports to Mexico (+42.5%) and to Colombia are up (+119.9%) with strong across the board increases.

Export growth to Australia has slowed to 8.6% so far this year, about half of last year's 16.3%.

  China Director Injured

Paul Swenson, Director of our China Office, suffered whiplash injuries when a container truck struck the back of his automobile on August 26.  The full extent of his injuries is as yet unclear.  Paul's wife Courtney was also in the car but was not seriously hurt.  Our China office remains in operation, but we ask  for your patience in the coming weeks.  Those wishing to send Paul their  wishes for a prompt recovery can  e-mail him at: paul.swenson@thechinahand.com.

  Commodity Markets: Oil and Minerals

Oil exporters have seen a large increase in hard currency earnings in the past two years. Saudi oil revenues since 2002 have equaled oil revenues for the entire decade of the 90s!  Russia, the world's second largest exporter has had 5 years of successive trade surpluses and saw its revenues from oil exports grow over 55% last year.  And that was before the price hikes of the past two months!  The reverse side of this coin is that countries that are net importers of oil find themselves facing rising production costs and thinning margins.  Good examples are Japan and Korea.  

Oil exporters have major new streams of hard currency available to purchase imports.  That means its time to take a fresh look at the Middle East (don't forget Libya!!) and Russia.  Outside of the Middle East, one can think of Canada, Mexico, Venezuela, Nigeria, Algeria, Angola, Brunei, the Congo, Gabon, Equatorial Guinea, and Trinidad and Tobago.  Granted, some of these countries are far from the easiest markets in which to do business.

Mineral prices have also soared due to high demand worldwide but especially demand from China.  Beneficiaries of these higher prices have been countries like Canada, Chile, Peru, Australia, South Africa, Indonesia, and Russia as well as a variety of smaller and more difficult markets.

  Secretary Burke at MWTA October Meeting

Secretary Burke will share her vision of Wisconsin's economic future and the steps being taken by the State to help Wisconsin firms increase exports and meet foreign competition at the October 6 Milwaukee World Trade Association's dinner meeting at the Wisconsin club on October 6, 2005.  Full details and reservations can be found at http://mwta.com.

  China Revalues the RMB

Since 1995 and despite currency crises and fluctuations, the value of the Chinese RMB remained fixed at 8.28 to the U.S. dollar.  In July, the Chinese government announced about a 2% upward evaluation of the RMB to 8.11 to the U.S. dollar and said the RMB would be "moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies". The Chinese basket appears to be closely related to Chinese trade, but it appears clear that the Chinese are operating a managed float rather than letting market forces set the value of the RMB.  China's revaluation will have a ripple effect on other Asian currencies, particularly the Hong Kong dollar.  The Chinese decision not to specifically define the contents of their currency basket appears designed to  reduce currency speculation.  China's revaluation does not radically change the global competitiveness of Chinese products.  Even if it did, the strongest probability is that imports of other low-cost offshore producers would replace Chinese imports to the U.S. market.  More than 70% of the U.S. trade deficit can be explained by strong U.S. consumption of imports, not weak currencies overseas.

  Free Market Research Delivered to your Desktop

On a monthly basis, the U.S. Commercial Service’s e-Market Express offers valuable information to U.S. exporters in the following industries: Aerospace and Defense, Agribusiness, Automotive, Architecture/Engineering Services and Building/Construction Projects, Cosmetics and Toiletries, Energy, Environmental, Health Care, ICT, Safety and Security, Textiles and Apparel, and Travel and Tourism. You can access the latest market research, trade events, trade leads, and best market reports for your industry. To register for this free service, visit the e-Market Express website at http://www.buyusa.gov/eme.

  China: #1 Hardwood Market

China has become the largest export market for American hardwoods.  In 2004, China, Hong Kong and Taiwan imported $500 million in hardwoods from the U.S., a 29.2% increase over 2003.  Present forecasts foresee a demand for 2.5 billion square meters of flooring and 500 million sets of doors and windows by 2008.

  The Dollar

As the US dollar - Euro chart below demonstrates, the rapid rise in the value of the U.S. dollar between 1995 and 2001 made it very difficult for U.S. exports to remain price competitive during that period.  However, between 2002 to 2004 the value of the U.S. dollar dropped sharply.  The same timeline holds for the U.S. dollar against the Canadian dollar, the British pound, the Australian dollar, the South African rand and the Swiss franc.  The Brazilian real has followed the same pattern, but lags about a year.  In short, the present value of the dollar makes Wisconsin goods far more competitive internationally then the were just a few years ago.

  Trade Agreements

The U.S. Senate gave its approval to the Central American Free Trade Agreement (CAFTA) in June and the House narrowly approved the agreement in late July.

The agreement is important for its political rather that economic significance. Nearly 90% of products from Central America and the Dominican Republic already enter the U.S. duty-free, partly because of unilateral preference programs such as the Caribbean Basin Initiative and the Generalized System of Preferences. In addition, one should note that the economies of the CAFTA countries combined are equivalent in size to Sacramento, California. In 2004, Wisconsin exports to the member countries (Guatemala, El Salvador, Costa Rica, Honduras, Nicaragua and the Dominican Republic) totaled only $116,536,261. This is nine-tenths of one percent of all Wisconsin exports.  Of that total, about 30% is to assembly operations located in these countries ($24.4 million in items of apparel that will be sewn and re-exported and another $11.9 million are electrical parts for assembly and re-export).  In sum, the net present and future impact of this agreement on Wisconsin jobs and Wisconsin's exports is very small.

CAFTA's importance is not in its substance, but rather in its potential impact on the broader Free Trade Area of the Americas and the global Doha Round.  The success of these two negotiations will hinge on some sort of agreement between the US, the EU and Japan on reducing agricultural subsidies, particularly subsidies on sugar and cotton. If the developed countries can reach a common position, it bodes well for the success of the Doha round. Developed countries will be meeting to see if they can agree on a common position in December.

Turning to the FTAA, note that co-chair Brazil is a key exporter of agricultural products.  If the U.S. already has a common position with the Europeans and Japan on global agricultural issues, then our hand will be greatly strengthened in dealing with Brazil on agricultural issues in the FTAA.

  CAFTA Research in Wisconsin

Through the U.S. Partners of the Americas program (www.partners.net), Commerce will be hosting Sara Midence, a Foreign Policy Assistant from the Honduran Foreign Ministry.  During her two month visit (September 15-November 15), Ms. Midence will research export opportunities for Wisconsin manufacturers in the CAFTA markets of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.

In order to conduct this research, Ms. Midence will be reviewing Wisconsin’s primary export products and services, and determining where they will have potential within this trading bloc.  She will also meet with individual Wisconsin companies to discuss opportunities in the region.

If you would like to meet with Ms. Midence during her visit, or learn more about this project, please contact Susan Dragotta, the Commerce outreach consultant for the Milwaukee area, at 262-691-5147, or sdragotta@commerce.state.wi.us.

  Cost of Federal Export Assistance to Skyrocket

Wisconsin and 27 other states have jointly written to the federal Office of Management and Budget expressing concern about an impending major increase in the cost for export related services (agent/distributor searches, background checks on companies, etc.) provided by U.S. Commercial Attaches worldwide.   We believe this approach makes no sense at a time when the U.S. is running the largest trade deficits in history.  The increases will have the strongest impact on small to mid-size companies.  Take time and write your representatives in Washington and express your concerns.  The changes will take effect on October 1.  Costs of a federal agent distributor search will vary by market, but will be in excess of 200% while the cost of  "Gold Key"  services will jump by 250%+.  The cost of State of Wisconsin international trade services will be unchanged.

  India: Next Major Market?

On November 1, Continental Airlines will begin non-stop service between New York and New Delhi with flying time just under 15 hours.

In August, the World Bank pledged loans of more than $9 billion to India.  Senior Indian government officials have said that India needs to invest $100 billion over the next seven years on infrastructure projects such as power, highways, airports, ports and railways.  India has one of the world's highest economic growth rates and major global transportation service providers have been making significant new investments in India.

In conjunction with most of the major international trade organizations in the state, we will be co-hosting three programs on November 16-17. Key speakers for the programs will be Asha Nath, President of  Asha Nath Ltd, an importer, warehouser and distributor with offices in New Delhi, Goa and Belgaum  and Anand Desai, managing partner of  DSK Legal, formerly Arthur Anderson India.  The first will be an all day program on November 16 in Waukesha on doing business in India hosted by the International Credit Executives Group and the Milwaukee World Trade Association.  The second will be an executive breakfast in Milwaukee hosted by the Metropolitan Milwaukee Association of Commerce on November 17.  The third will be a late afternoon briefing in Madison hosted  by the UW-Madison, the Madison International Trade Association and the South Central Wisconsin World Trade Association.  For further information, contact Lou Janowski.

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