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Budapest Airport Connects Hungary and China with New Agreements

Budapest Airport Connects Hungary and China with New Agreements

Budapest Airport continues bridging the gap in aviation connectivity between China and Hungary through its most recent airport agreements signed during the Hungarian-Chinese Forum last week. The agreement involves two Chinese airports (Xi’an Xianyang and Zhengzhou Xinzheng International) that further support Budapest Airport’s goal for providing primary logistics and distribution support for China in the Central and Eastern European regions.

Péter Szijjártó, minister of foreign affairs and trade, represented Hungary at the forum and commented on the agreement at the signing ceremony:

“Between two countries ­like these – with quite a distance between them geographically – strong economic cooperation is only possible if they are well-connected, which is why aviation connections, direct flights between Hungary and China, are of key importance. For this reason, we are delighted that a cooperation agreement between the airport of Xi’an and Budapest Liszt Ferenc International Airport is signed, as this agreement may link additional Chinese cities to the network where direct flights are available from Hungary, from Budapest. In addition to economic ties, our connections in tourism can also be developed further. Last year, a record number of 256 thousand Chinese tourists visited Hungary, representing a growth rate of 14 percent.”

Budapest Airport reported that it doubled its weekly capacity in cargo flights between Budapest, Hong Kong and Zhengzhou as a result of support from Hungarian diplomats and trade promotion experts. Additionally, the recent agreement further enhances opportunities to develop freight flows between Chinese locations and Budapest.

“The foundation stone was laid with the direct connection to Zhengzhou, and now it is time to further intensify our cooperation with our new Chinese partners, and thus exploit the enormous potential in the freight business in particular. Zhengzhou, Xi’an and Budapest share a great dynamic of growth, and we are very confident that we can mutually benefit from this cooperation,” said Jost Lammers, the CEO of Budapest Airport.


Why is there so little expense report misconduct in China?

Recently, I wrote a data-driven piece revealing which countries are home to the most expensive report misconduct. Several of the results were extremely interesting, but the most fascinating piece of data was redacted because it needed to be looked into more thoroughly.

That data point was this: only 1% of expense report items flagged for review by leading automated expense report audits AI software, AppZen in China are ultimately rejected by the client company.

This 1% figure sits at the very bottom of the international list; no other country is even close. For example, Japan, only a few hundred nautical miles away across the East China Sea, ranks in the bottom half of flagged expense dollars rejected, with a much more robust 18%. Here’s the data from the last blog post, but with China put back in.

So what are the explanations for this oddly-low Chinese rejection rate? The answers are somewhat dubious and connect to transfers of wealth. 

Like most nations, China has its unique accounting complexities and one example is the country’s Fapiao system, in which receipts and invoices are actual official tax documents printed on the spot. The goal of Fapiao was to create a transparent system spitting out real-time tax documents at points of purchase across the country, but that hasn’t stopped enterprising folks from coming up with schemes to take advantage of it. 

For example, imagine taking 40 expo guests to dinner after a conference. In America, the hosting employee would simply receive a receipt for the pricey dinner which he would then expense for reimbursement upon returning from the trip. The company submits that receipt as part of its tax return at the end of the year.

Now let’s say some out-of-policy behavior takes place at this dinner; maybe the host employee decided to order several $200 bottles of wine, easily exceeding the $50 bottle company policy limit. AppZen would catch the out-of-policy misconduct on the expense report in this example. 

But in China, Fapiao are actual tax documents and business-related expenses are sometimes used to offset revenue, which allow companies to bring down their corporate income tax. Accordingly, managers subtly encourage their staff to collect Fapiao, and turn the other cheek instead of scrutinizing the documents.

In other words, Chinese corporations can lower their tax bills by indirectly transferring a fraction of those funds to employees via liberal unwritten expense report oversight thereby making them happier, at the expense of The Party’s tax revenue.

The less cynical explanation picks up the same thread of employee satisfaction without looping in Fapiao: the Chinese are, in general terms, lax in their enforcement around expenses; they turn a blind eye to most expense ambiguity to help incrementally raise employee take-home pay. In other words just as Silicon Valley companies are happy to supply their employees with millions of dollars in free meals and snacks at the office to supplement incomes, many Chinese companies are similarly, indirectly liberal outside the office, around expenses.

Either way, the title of this article is somewhat misleading. The Chinese have an average number of expense items flagged for potential conduct by AppZen relative to other countries. The difference is that Chinese companies are choosing to reject these flagged expenses at an unusually-low rate of 1%. The reasons for this are Fapiao loopholes and cultural norms around allowing employees liberties with their work expenses. 

Josh Anish is Senior Directing of Marketing at AppZen,the world’s leading solution for automated expense report audits that leverages artificial intelligence to audit 100% of expense reports, invoices and contacts in seconds.

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From June 11-14, more than 8,500 leading operators, suppliers, investors, and developers in the leisure and attractions industry will gather for the opportunity to network at this year’s conference and trade show. Attendees from more than 60 countries are anticipated.

The IAAPA Expo Asia will take place at the Shanghai New International Expo Center in Shanghai, China and will feature hundreds of companies showcasing new and innovative products and services.

To register, please visit: IAAPA.org

Tariffs Raise Concerns Among Business Leaders

In response to the U.S. – China trade deal meeting delay,  American business leaders continue expressing concerns, stating that the end of the tariff impact is far from over and continues to negatively impact business operations. Freedom Partners Executive Vice President Nathan Nascimento commented on the current situation, adding that damages brought on by the tariffs situation affects growth, job creation, and more.

“From lost sales to increased costs, higher tariffs give America’s job creators big headaches and endanger our prosperity. We urge the administration to work with other nations to drop the tariffs and eliminate all barriers to trade. The time is now because, the longer this standoff drags on, the markets and suppliers that closed overnight to U.S. producers may take years to re-open. Tariffs are destructive taxes that sow only fear and confusion, where free trade fosters job creation and gives American consumers more choices at affordable prices to stretch paychecks further.”

Additionally, Freedom Partners reported on information released by the Census Bureau back in February that stated an additional $2.7 billion was spent in tariffs by business in November compared to the $375 million spent in November 2017.

“Tariffs Hurt the Heartland, a nationwide campaign against recent tariffs on American businesses, farmers and consumers, today released new data that shows American businesses paid an additional $2.7 billion in tariffs in November 2018 — the most recent month data is available from the U.S. Census Bureau due to the government shutdown. This figure reflects the additional tariffs levied because of the administration’s actions and represents a $2.7 billion tax increase and a massive year-over-year increase from $375 million in tariffs on the same products in November 2017.” (Press Release, “New Data Shows Trump Administration Tariffs Cost U.S. Businesses $2.7 Billion In A Single Month, Exports of American Products Targeted For Retaliation Plummet 37 Percent,” Tariffs Hurt The Heartland, 2/14/19).

Other executives, such as Brown-Forman Corporation CEO, Lawson Whiting add that international sales are feeling the impacts from tariffs from the EU’s retaliation:

“Brown-Forman owns Jack Daniel’s, Woodford Reserve and numerous other spirits brands. While most of its products are made in the U.S., most of its sales (about 60 percent) are made in international markets. And the cost of tariffs on American whiskey implemented by the European Union in retaliation for new U.S. tariffs were a drag on earnings. A key part of Brown-Forman’s global strategy is to focus on building a market for its super-premium brands, such as Gentleman Jack and Woodford Reserve,” (David Mann, “Brown-Forman Shares Sink After Earnings Release,” Louisville Business First, 3/6/19).

Source: Freedom Partners

Dubai Customs Reports Free Zone Trade Growth

The latest reports released by Dubai Customs reveals an impressive 23 percent growth in free zone trade for 2018, reaching a total of AED532 billion. Total non-oil trade for 2018 was reported at AED1.3 trillion, confirming the strong position Dubai is steadily maintaining as an international and regional trade hub leader.

“The current growth of Dubai’s non-oil foreign trade is an indication that we are on the right path of revenue diversification in alignment with the values and standards outlined in the 50-Year Charter. The Dubai Silk Road Strategy supports decades of successful investment in developing the emirate’s infrastructure,” said His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of The Executive Council.

“In line with the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, we are committed to develop our government services so that we can become a world-class model for future governments based on knowledge, innovation and advanced AI applications. We are currently developing a virtual commercial zone, the first of its kind in the region, which will allow investors to open bank accounts and grant e-residencies according to the highest standards of international laws and regulations,” he added.

Additionally, airborne trade saw an increase of 3.2 percent, sea trade was reported with a 3.4 percent increase, and land trade was reported at AED205 billion. Advanced communication technologies, such as phones were reported as the top commodity in Dubai, and China and India remained the region’s largest trading partners.

Dubai’s non-oil foreign trade is flexible and agile enough to overcome different global economic crunches. Despite a number of challenges that world trade has been through in the last decade, Dubai’s trade grew 72% from 2009 and 2018, and the volume of goods in this period grew 44%. This again reflects Dubai’s ability to attract global trade and investments and to keep up with changes, especially the rise of Asia and China as a global export hub. Dubai is a very important link in this global activity. Our international network of ports and free zones in different countries coupled with Dubai’s leading airline network have helped the emirate in its journey towards more success and progress,” concluded Sultan bin Sulayem, DP World Group Chairman & CEO and Chairman of Ports, Customs and Free Zone Corporation.

ICT Trade Value Reports Show Substantial Growth

A recent report released from United Nations Conference on Trade and Development (UNCTAD) showed a significant increase in demand for IoT devices, ultimately boosting the value of information and communications technology (ICT) goods in 2017.

“This is the first time that global ICT goods imports have rebounded since 2014, showing a good 6% annual growth and bringing a reprieve to the past two years of decline,” Shamika N. Sirimanne, Director of the Technology and Logistics Division at UNCTAD, said.

Growth rates remained at a steady eight percent for trade in electronic components while computers and consumer electronics were reported at nine percent.

Countries actively leading imports of ICT goods include China as the largest importer,  and the United States as the top importer. The Republic of Korea leads with the highest growth rate, while Mexico had no growth reported out of all countries in the top 10 list.

“The expansion of electronic components, which are the basic building blocks of electronic circuits and semiconductors, reflects the fact that more and more products and activities are going digital worldwide. Much of this trend can be associated with the advent of the IoT, which has witnessed unprecedented growth since 2015. This trend may be further accentuated in the coming years.” Ms. Sirimanne said.

Source: UNCTAD 

DHL Supply Chain Recognized by Top Employers Institute

Contract logistics market leader DHL Supply Chain received multi-faceted recognition from the Top Employers Institute including praise for their outstanding human resources policy and taking the spot for Top Employer on the international stage in Spain, Portugal, the Netherlands, UK, Canada, USA, Brazil and China.

“We are delighted to be awarded as a Top Employer for the third year in a row. This certification demonstrates that our efforts to create a sustainable HR strategy at DHL Supply Chain are paying off,” said Rob Rosenberg, Global Head of Human Resources at DHL Supply Chain. “Especially in the field of contract logistics, a motivated and well-trained workforce is key to offering customers optimal solutions. Which is why we take a proactive and multi-layered approach to both attracting and retaining employees. And this approach is proving successful, as shown by this renewed certification from the Top Employers Institute.”

This year’s Top Employer certification established the third year in a row the company has been recognized. Additionally, the company received high recognition for Leadership Development, Career & Succession Management and Learning & Development.

“Talent is the most critical piece in meeting our customers’ ever-changing needs and exceeding their expectations,” said Tim Sprosty, Senior Vice President of Human Resources at DHL Supply Chain North America. “That is why we place such a strong emphasis on creating a quality work environment that enables our employees’ success and promotes operational excellence. It is central to our culture, and we’re proud to accept this recognition for our continued efforts.”

Source: DHL

2019 Technology Drivers Revealed in Dynamic EMS Report

A recent report from UK’s Dynamic EMS highlights the ups and downs within the supply chain and component manufacturing during 2018. From consistent acquisitions and mergers to an evergreen political environment and increased technology, the report confirms 2018 consisted of more positive than negative outcomes and predicts trends to look out for during 2019.

A key factor identified in 2018 that will impact 2019 is the  involvement with three Chinese companies, YMTC, Innotron (Hefei Chang Xin) and JHICC’s trial production of DRAMs and NAND flash. It’s reported mass production to China’s first domestic chip will occur well into the first half of the year.

EMS landscaping was confirmed with a 5 percent growth in the European regions, based on the 2017 numbers. Dynamic EMS confirmed a total of 6 percent growth in revenue paired with consistent development and customer market wins.

Technology such as Fintech, IOT, BIOT, Augmented Reality, AI, and other automation initiatives are predicted to continue demanding increased development and advancement for operations. Additionally, the company outlined 3D component printing and trade tariffs with China on the forefront for the future of 2019. More specifically, the company will carefully watch China’s involvement as a component supplier.

Source: Dynamic EMS

 

 

Trade for Creative Goods Shows Substantial Growth

In a recent report from UNCTAD highlighting recent trends in the global trade economy, key findings confirm the expansion of creative goods with export growth rates exceeding seven percent.

“The creative economy has both commercial and cultural worth,” UNCTAD’s trade division director, Pamela Coke-Hamilton said. “Acknowledging this dual value has led governments worldwide to expand and develop their creative economies as part of economic diversification strategies and efforts to stimulate economic growth, prosperity and well-being.”

Additionally, the report provides detailed, sector-specific profiles for 130 developed and developing countries. Of the key findings in the report, China’s substantial involvement in global trade – specifically for creative goods, verified that China accounts for more one-third of global art sales at auction.

“Although the downturn in global trade has impacted all industries, the report shows the creative economy is more resilient than most,”  Chief of UNCTAD’s creative economy programme, Marisa Henderson, said. “The performance of the creative economy is encouraging and shows it is thriving through the intersection of culture, technology, business and innovation.”

The United States, France, Italy, the United Kingdom, Germany, Switzerland, Netherlands, Poland, Belgium and Japan were the top 10 creative goods exporters among developed countries.

The top 10 developing economies cited for global trade in creative goods  includes: China, Hong Kong (China), India, Singapore, Taiwan Province of China, Turkey, Thailand, Malaysia, Mexico and Philippines were the top 10 performing developing economies stimulating global trade in creative goods.

“Creative services will grow,” Henderson said. “Although there is limited data on the trade in creative services, more countries are reporting on creative services trade as it becomes a more defining feature of local and regional economies.”

Source: UNCTAD

How U.S. Manufacturers Can Mitigate the Impact of Steel & Aluminum Tariffs

President Trump’s imposition of additional tariffs on imports of steel and aluminum dominated global trade news headlines for most of 2018 and caught many manufacturers off guard. Prior to the first announcement in March, many in the industry believed that the President’s tariff threats were merely a negotiating tactic and would likely never materialize.  By June 2018, the Trump administration left no doubts that it would follow through.

On the basis of protecting U.S. national security, the U.S. imposed additional tariffs of 25 percent and 10 percent on steel and aluminum imports for almost all countries under Section 232 of the Trade Expansion Act of 1962.  Specifically, the Section 232 action affects steel articles classified under HTSUS subheadings 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, and aluminum articles described as follows: (a) unwrought aluminum (heading 7601); (b) aluminum bars, rods, and profiles (heading 7604); (c) aluminum wire (heading 7605); (d) aluminum plate, sheet, strip, and foil (flat rolled products) (headings 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (headings 7608 and 7609); and (f) aluminum castings and forgings (HTSUS 7616.99.5160 and 7616.99.5170).

Since the administration’s initial announcement, the U.S. and its major trading partners, including the EU, South Korea, and China have traded a series of exemptions, extensions, and retaliatory tariffs.  Talks to deescalate trade tensions have had varying degrees of success. After imposing retaliatory duties on American-made goods, the European Union and the U.S. entered into talks to draw down to zero-tariff levels, but they haven’t yet reached a permanent agreement. Other countries, like South Korea, immediately sought and secured permanent exemptions from certain U.S.’ tariffs.

The U.S.’ trade relationship with China has been significantly more volatile. In the months following President Trump’s proclamations, the U.S. and China placed multiple rounds of tariffs on each other’s imports.  In 2018, the U.S. imposed tariffs on over $250 billion worth of imports from China under Section 301 of the Trade Act of 1974.  To date, nearly half of all Chinese goods brought into the U.S. are subject to additional tariffs, many at 10 percent and a significant portion at 25 percent if ongoing bilateral negotiations fail.

U.S. manufacturers have long relied on China as a source of affordable manufactured materials.  They had no need to explore alternative sources for decades.  Now, manufacturers are reexamining old assumptions.  At least for the duration of the current administration, tariffs will always be on the table—if not always in effect.  And there is no guarantee that future administrations will entirely remove existing tariffs or refrain from implementing new tariffs.

Tariffs are already disrupting manufacturers’ supply chains—increasing costs and eroding margins. Continued trade uncertainty is generally bad news for manufacturers, complicating business planning and hindering growth.

How, then, can manufacturers mitigate the impact of tariffs, and position their businesses for sustainable, long-term growth?

Submit Product Exclusion Requests

To avoid making major adjustments to supply chain—which may not be an option for manufacturers of specialty items or those that lack the significant time and capex allocations required—manufacturers affected by Section 301 tariffs submitted product exclusion requests to the Office of the U.S. Trade Representative (USTR) for goods described under Lists 1 and 2 (USTR is no longer accepting product exclusion requests for List 1 and 2 items and has yet to open a docket for List 3 requests).  Manufacturers affected by Section 232 tariffs may continue to submit product exclusion requests to the Department of Commerce.

In late December 2018, USTR announced the first set of products, all under List 1, that it approved for exclusion from its Section 301 action.  The exclusions are retroactive as of July 6, 2018.  Anyone that imports goods approved for exclusion under the Section 301 stand to benefit because approvals are not limited to specific requestors.  Manufacturers and importers should examine the Section 301 list of excluded products to see whether their imports qualify for relief.  Approved exclusions will remain in effect for one year.  USTR indicated it is still reviewing other Section 301 product exclusion requests and decisions will be forthcoming.

According to a recent Wall Street Journal report, the Department of Commerce granted about 75% of the 19,000 requests it received to exclude products subject to Section 232 tariffs on foreign steel in 2018.  The Steel Manufacturers Association received approvals for exclusion on 66 of 132 requested tariff lines—a significantly higher success percentage than other industries, The Wall Street Journal reported in October 2018. For comparison, the National Retail Federation and National Restaurant Association were granted less than 5 percent of their requested exclusions.

Successful requests involve significant investments of time and resources.  The Steel Manufacturers Association’s success was the result of a strategic, coordinated effort: a combination of data-driven exclusion requests and government relations efforts.  Manufacturers should keep track of their direct and indirect costs resulting from the tariff actions and model impacts on growth plans as part of internal strategy data analytics.  When preparing exclusion requests, manufacturers should seek to establish that there are either no feasible alternative suppliers of items in the U.S. or abroad and/or tariffs will have serious adverse economic impacts on their business’ operations, their downstream and upstream partners’ operations, as well as their industry as a whole.  To understand the full scope of tariffs’ impact on their business, manufacturers need to have open channels of communication with upstream and downstream business partners whose respective supply chains may also be impacted.  Additionally, manufacturers should maintain coordinated government relations efforts to ensure elected representatives are aware of how tariff actions are impacting their constituents’ bottom lines and job prospects.

Rethink the Supply Chain

Nevertheless, many requests for product exclusion are denied. As such, business owners should not assume that pending applications will receive a favorable outcome.  If a manufacturer is unable to secure an approval for exclusion, they may need to consider alternative sources for imports. If alternative sources exist, then businesses need to evaluate cost and quality across those options.

If no alternative sources exist, for example, for highly specialized and customized goods, manufacturers may need to redesign products in a manner that allows them to change countries of origin.  This endeavor may entail building entirely new supply sources. Rebuilding supply chains has inspired déjà vu among many manufacturers, who haven’t had to make these kinds of ground—up sourcing decisions since inception years ago.

Under the current administration, trade imbalances and national security are used as justification for additional tariffs. When evaluating alternative sources, manufacturers should consider whether the new source country’s overall trade posture and geopolitical sensitivities are likely to threaten the United States.  If so, the new source country may be a potential target for future tariffs.

Plan for the long term: Revaluate the Core Business

The safest route for long-term planning is to act as if tariffs are here to stay. Tariffs will likely always be on the table under the current administration, and there are no guarantees that a future administration will shift course if tariffs yield favorable geopolitical results.

As manufacturers assess their options, they may discover that locating or creating an entirely new supply source for certain may not be financially feasible. Business owners may need to reevaluate whether it makes fiscal sense to continue producing certain products at all, and whether they need to refocus or shift production to products less impacted by trade barriers.

 

About Johny Chaklader 

Johny Chaklader is Export Controls and International Trade Practice Lead within BDO’s Industry Specialty Services – Government Contracts Group.  He can be reached at jchaklader@bdo.com.