Now, let's see, a $191 billion loss versus a $23 billion gain ...

Now that President Obama has finally sent the FTAs with Korea, Panama and Colombia to the Congress, I just thought you and your senators and representatives might want to ponder this. Which way would you vote?

Third Way also offers an 87-page guide to free trade agreements and what’s in them.

The initial workshop focused  on Japan and South Korea and played to a packed house at the Foreign Trade Zone at Honolulu’s Pier 2. The prime speakers were Yuri Arthur, a Japan specialist from Commerce in Washington, DC, and Mark O’Grady, commercial attaché at the American Embassy in Seoul. Local speakers included Gina Nakamura, v.p. – international for Central Pacific Bank and president of the Hawaii Korean Chamber of Commerce; Neal Arakaki, president of Hawaiian Candies & Nuts, exporting to Japan for more than 37 years; and Ray Tsuchiyama, just back in Hawaii after twenty years living and working in Tokyo for Google, AOL Time Warner, Analog Devices and Forbes magazine. These folks know what they are talking about, but the guy who chaired the session (me) was somewhat suspect.

Here are some of the points and ideas that surprised, interested or amused me (in no particular order):

Japan

• The earthquake/tsunami/nuclear disaster has, of course, had an impact, but Japan will back to 96-98% of its manufacturing capacity by the end of the summer.
• That said, power resources remain a problem and there are massive efforts to reduce electricity usage.
• Reconstruction is likely to cost some $184 billion, but that is dwarfed by the clean-up costs to remove more than 27 million tons of debris (about $235 billion). Naturally, there are opportunities for U.S. exporters who make or supply products that would be used in the clean-up effort. (I know of one Hawaii company that is getting involved in the nuclear plant clean-up.)
• U.S. food products will continue to sell well in Japan, especially if they can be labeled organic or naturally prepared. One impact of the nuclear accidents is that Japanese consumers are paying more attention than in the past to the origins of their food, and American food is considered safe to eat. Japan imports 60% of its caloric intake.
• A can of Spam retails for $14 in Tokyo!
• The disaster has hurt overall outbound tourism (people don’t want to be seen enjoying themselves while fellow Japanese are suffering), but has boosted wedding travel (for pretty much the same reason). Domestic wedding counts are down because couples and their families don’t see it as fitting to stage large, expensive weddings, but smaller weddings done overseas are more palatable right now. Hawaii’s wedding chapels are busy.
• There would be a market for American environmental goods and services in any event, but sales have been accelerated by the disasters. We are selling more solar power equipment, equipment and services for asbestos abatement, and U.S. companies have won contracts for soil and groundwater remediation at Fukushima.
• Japanese companies had relied on “secure” data centers in Tokyo and discovered during the earthquake that they weren’t so secure. They are now exploring building or using multiple data centers outside of Japan to spread their risk.
• Japan is a huge market for cosmetics, the second largest in the world after the United States. Hot items are anything having to do with skincare and whitening, mascara, men’s cosmetics (especially skincare) and stress-reducing fragrances.
• When preparing to enter the Japanese market, too many American firms assume that Tokyo is where they should go. No. The Tokyo market sees the greatest competition for anything. Try a second or third-tier city first, learn the eccentricities of the market out there, try your marketing experiments – then go to Tokyo.

South Korea

• Korea’s economy is dominated by exports. Up to 80% of the economy is considered trade-related.
• It is also a dynamic economy, recovering from the recession the fastest of any of the major economies.
• Korea is a huge market for U.S. educational services. More than 112,000 Korean students are spending money in the United States at any given time. That exceeds every other source for foreign students except for China and India.
• The advent of the visa waiver for South Korea has made a big, big difference for U.S. tourism, something we have seen in Waikiki’s stores, hotels and restaurants. The United States is now the #3 destination for Korean tourists, trailing only much closer and easier japan and China.
• It is only one month of data, but European sales in South Korea have spiked 17% in the first month after the EU-Korea free trade agreement came into effect. Meanwhile, the U.S.-Korea FTA languishes in Washington.

If you like the sound of this workshop, you won’t want to miss a chance to participate in our China program on August 11 in Honolulu. Register at www.hawaiiexportsupport.com. More info coming tomorrow!

South Korea is gearing up for the same sort of thing. With the South Korea-European Union free trade agreement coming into effect next month and the South Korea-US FTA potentially on the horizon (if the troglodytes at either end of Pennsylvania Avenue don’t kill it again), the Korean Customs Service (KCS) is wisely anticipating trouble. Not from coffee necessarily, but from most any product that would derive an advantage from appearing to be a Korean product heading for the EU or the United States when the tariffs come down. KCS will focus on companies with a history of transshipping products, rather than on trying to catch every possible individual shipment. Transshippers are well known through customs and shipping documentation and there are many legitimate reasons for transshipping products, such as consolidating shipments to a single consignee. The documentation provides a baseline for what is normal in their business activities, making it easier to spot shipments that don’t fit the norm. KCS will monitor transshipments in Korea at each step of the process: entry, unloading, transportation, shipping, and departure.

While I strongly favor any agreement that brings down trade restrictions, one has to recognize the downside of trade agreements whenever they create a situation in which trade conditions for all sources are not scrupulously the same.  Free trade agreements, by definition, create less-than-favorable competition for any party that is not in the agreement. That, in turn, leaves plenty of room for unintended consequences and provides incentives for some smooth operators to attempt fraud – such as intentionally mislabeling the origin of their products to gain an advantage. The preferred solution is to have trade agreements open to all, creating most-favored-nation conditions (i.e., every country is the most favored nation), but that is not always obtainable – witness the Doha Round. Then you go to bilateral or multilateral agreements while acknowledging that this is a “second-best” solution. At least Korea realizes what is coming and is taking steps to stop the fraud.

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Guam has a fine climate for coffee and it is a fairly common plant on the island. People roast it for home use, but there really isn’t any commercial production that I am aware of. Maybe some local coffee shops have Guam coffee.

Saipan, just to the north of Guam, does export coffee though I don’t think they have sufficient local supply to sell a purely Saipan coffee. Marianas Coffee Company imports beans from the world’s major coffee regions and then roasts them and packages them on Saipan. Since there is processing, this is not transshipment, but a genuine Saipan product. I have had their coffee and recommend you grab a cup if you ever have the chance.