Business Beyond the Reef

• Hawaii Congressman Charles Djou has reiterated his support for the U.S.-South Korea free trade agreement.  Djou is Hawaii’s only Republican in Congress.  The rest of the Hawaii delegation continues to tow the line drawn by the White House and those unions that oppose the FTA.
• You win some and you lose some.  This time, it appears that China has won a WTO dispute with the United States.  China challenged Washington’s rules that appeared to limit Chinese exports of poultry products to the U.S. market.  Details of the WTO finding are not yet available.
• Sometimes the Congress does things that make sense.  The Senate has approved the Miscellaneous Tariff Bill, which allows temporary duty-free entry for several hundred products that are important inputs for U.S. industry, but do not compete with American-made products.  The Republican leadership opposed the MTB as being too much like an earmark package, but the Republican rank and file decided that the bill was healthy for American workers who might want their jobs back.  Keeping my fingers crossed that the President will see it the same way and sign the bill into law.
• I sat in on a webinar yesterday that took a look at the National Export Initiative and the President’s goal of doubling American exports in five years.  Everybody is saying we are on pace to do it, but few seem to be aware that the rise in U.S. exports is the result of recovering economies elsewhere.  There simply hasn’t been time for any of Obama’s export proposals to find traction yet.  I’ll give him credit for proposing an increased export promotion budget, but a proposal is all it is until Congress passes the FY 2011 budgets.
• Another U.S. – China spat.  The Congressional Steel Caucus is doing its best to block a Chinese investment in a new American steel company.  Steel Development Company (SDCO) is being established to build up to five small steel plants in the United States to manufacture reinforcing bar.  China’s Anshan Iron & Steel Group would own 20% of the new company.  Rebar is hardly a sophisticated, high tech product, but the Steel Caucus wants to block the deal on “national security” grounds.  What are these people thinking?  Shouldn’t we be welcoming new investment in a struggling industry?
• It isn’t trade, but there are times when it could be useful.  Check out Prieur du Plessis’ “When Insults Had Class”.  Here’s a sample:

An exchange between Churchill & Lady Astor:

She said, “If you were my husband I’d poison your tea.”

He said, “If you were my wife, I’d drink it.”

Grand Theft China?

The U.S. Chamber of Commerce released Tuesday a report about the rise and implications of China’s “indigenous innovation” policies.  This is a think piece by long-time China watcher and journalist James McGregor of APCO Worldwide.  I urge any of you working in China, or thinking about doing business there, to take a look at “China’s Drive For Indigenous Innovation: A Web of Industrial Policies”.  Though the current debate focuses on tech industries, it has far broader implications.

Beijing has realized for several years that its industries soon will not be able to depend on being the world’s low labor cost supplier.  This wasn’t a startling insight, but an inevitable progression as other countries begin their own march to development and seek to attract the industries that gave China its launch as an export powerhouse for cheap goods.  Ergo, China must move into higher value-added industries.  Domestic considerations are at play, too, reflected in recent labor unrest and sudden decisions to increase factory worker pay scales.  China is, whether Beijing wants it or not, becoming more of a consumer market and needs to up its game in the quality of production.  Beijing saw this several years back, culminating in the 2006 issuance of the “National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)”. Given the catchy title, I’m not surprised I missed it at the time.  The plan has become known by the acronym MLP, less of a mouthful.

The MLP is a blueprint for China’s scientific development – and for applying new technologies to Chinese industry.  All sorts of policies have grown from the plan, such as determined schemes to build a modern Chinese-designed airliner.  But the policy that really caught the business world’s attention was last fall’s announcement of the “indigenous innovation” policy, which seemed a pretty blatant attempt to force non-Chinese firms to hand over their technical know-how and secrets free-of-charge.  Reactions from companies worldwide and the world capitals that support them have been predictably negative.  Indigenous innovation has become the collision point between China’s necessary development of science and technology, and a form of protectionism Beijing deems necessary to foster industrial applications of this technology.  It crosses the line when it becomes an excuse for wholesale theft of other people’s technology.

The MLP is a curious document.  It says the expected things about developing science and talks about new labs, science centers, that sort of thing.  But when it comes to innovation, it becomes protectionist and xenophobic in tone.  “Indigenous innovation” is defined as “enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies.” This doesn’t sound particularly indigenous, but seems an exhortation to copy or somehow obtain non-Chinese technology, but then camouflage it somehow in Chinese decorations.  The MLP gives this advice to Chinese tech developers: “One should be clearly aware that the importation of technologies without emphasizing the assimilation, absorption and re-innovation is bound to weaken the nation’s indigenous research and development capacity.” While embellishment on someone else’s inventions can be productive, and is common around the world, where is the emphasis on developing new and original ideas?  Has the nation that has brought the world so many inventions over the ages lost its nerve, or its belief in its own people and systems to create something new?  One wonders.

The U.S. Chamber report sums this up neatly: the MLP “… is considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before.” The emphasis is mine.

Sharks are revered in Hawaii.  Rarely seen, Hawaii is known to have one of the world’s largest hammerhead populations.  The marina I live next to is known as a shark nursery, though we see more rays than sharks.  The shark is a revered feature of Hawaiian culture, a respected aumakua, a family god, often protective.  I have seen sharks when paddling outriggers (we even hit one once, to our mutual astonishment) and my Hawaiian paddling buddies regard it as good luck to have a shark nearby.

Whale shark waiting for the pot in Bangkok (photo: Rob Stewart)

These benevolent attitudes run head long into the love for shark fin soup brought to our islands by Chinese immigrants, but it is now official in Hawaii: the shark has won and shark fin soup lovers have lost.  As evidence mounted that sharks are being fished to extinction, and videos emerged of still living sharks having their fins cut off, public opinion turned heavily in favor of the shark (despite some hangovers from “Jaws”).  Hawaii has long had a ban on finning in Hawaii waters, but the Hawaii Legislature this year voted to ban all possession of shark fins, including by restaurants.  You won’t find shark fin soup in Hawaii’s restaurants any more.  I believe this is the first such ban anywhere in the world.

I have been waiting for a backlash from Hong Kong, Taiwan or China, but it hasn’t materialized.  Indeed, last week, the South China Morning Post ran an article that mentions Hawaii’s shark fin ban, but said there is growing opposition to the shark fin trade within Hong Kong itself.  Why is Hong Kong important?  The entrepreneurial city buys half of the world’s total trade in shark fins. Most of the rest is purchased by China.  But the tide may be turning in favor of the sharks.

According to the article, there is growing recognition in Hong Kong that many shark populations, not just those on endangered species lists, are over-fished and sliding towards oblivion.  Indeed, there is even a Facebook group, launched by Hong Kongers, called the “Cut gift money for shark fin banquets” campaign.  That’s a reference to the Chinese practice of presenting money to new brides in red envelopes, and the 8,000 strong group is advocating that the amount in those envelopes should be cut by 30% if the wedding banquet includes shark fin.  The documentary film Sharkwater is apparently a blockbuster hit in Hong Kong and is building opposition to the shark trade.

A friend, who is an ardent devotee of shark fin soup, argues that if we ban finning and trade in shark fins, then we should also ban fishing of blue fin tuna.  I think he is right.  I trained as a fisheries economist and, if humans want to taste such species again someday, they need a rest now.  Hawaiians have a word for this.  Whenever a particular area seemed fished out, the chiefs would declare that area to be kapu until the fish became more abundant.  We recognize kapu in English today as taboo (from the Tahitian form of the word).  Perhaps we need to declare shark and blue fin and whale kapu for a while.  In trade terms, I believe that means embargo.