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Winter 2019 U.S.- China Cybersecurity Update

cybersecurity

Winter 2019 U.S.- China Cybersecurity Update

It is difficult to accurately speculate on the progress of U.S.-China trade negotiations, as media reports on the status of key policy proposals seemingly differ each day depending on the transparency and messaging agenda of the sources involved. However, what has been certain during the winter of 2019 is that major updates to U.S. and Chinese cybersecurity regulations are in the process of being implemented, and these developments stand to set key precedents for the intersection of applicable foreign investment and cybersecurity regulations in the U.S. and China.  

Building on our previous two articles regarding U.S. economic espionage concerns and updated U.S. foreign investment restrictions, this article will provide an overview of notable cybersecurity legislative and investigative developments that will likely dictate the near future of critical facets of U.S.-China relations in the 21st century, including (1) the implementation of China’s revised cybersecurity legislation known as the Multi-Level Protection Scheme (“MLPS 2.0”); (2) the Committee on Foreign Investment in the United States (“CFIUS”) reported investigation into the popular social media app TikTok; and (3) the race to implement 5G infrastructure and ongoing speculation regarding Huawei’s licensing status.

1. Implementation of China’s Multi-Level Protection Scheme (MLPS 2.0)

In 2017, China implemented comprehensive cybersecurity legislation commonly referred to as China’s Cybersecurity Law (“CCL”) in efforts to consolidate authority over and standardize regulation of the internet and cyberspace. The CCL includes strict prohibitions on how companies, particularly U.S. and other foreign companies, can store data and interact online.  For example, the CCL requires that network operators in China cooperate with and provide support to government agencies in support of safeguarding national security, and additional provisions have been passed in recent years under the CCL that provide broad authorizations for law enforcement agencies to inspect and monitor internet service providers and computer network data centers. Foreign companies and human rights organizations have criticized the CCL as regressive legislation that fosters state censorship and surveillance and lacks sufficient privacy protections.

Article 21 of the CCL codified China’s requirements for network operators to implement a cybersecurity “multi-level protection system” that includes mandates to implement and adopt certain technical measures and security protocols to monitor and record network activity. Article 37 imposes certain data localization requirements and requires “critical information infrastructure” operators to store personal information and important data gathered or produced within the mainland territory of China.

On December 1, 2019, MLPS 2.0 will take effect, and will impact how U.S. companies and other foreign companies can do business online and store electronic data in China. A draft of the new regulations was first released in June 2018, and the revised MLPS 2.0 incorporates three information security technology standards that in effect will broaden the Chinese government’s authority, particularly that of the Ministry of Public Security, to proactively supervise, manage, and enforce cybersecurity regulations and restrictions on companies operating in China.

The expanded monitoring and enforcement authorities that MLPS 2.0 provides the Chinese government has provoked increasing privacy concerns for foreign firms, particularly those handling sensitive data. The regulations provide stringent mandates on how foreign companies must secure their networks, utilize local sever systems, and cooperate with government authorities. As the new law enters into effect on December 1, 2019, it will be critical for U.S. companies operating in China to understand how the new laws will impact their operations. Companies that store and utilize sensitive personal data, U.S.-regulated technology or technological data, or proprietary intellectual property and trade secrets will have to ensure compliance with both U.S. and Chinese regulations governing privacy, export controls, and cybersecurity regulations. 

2. CFIUS Takes on TikTok

We previously provided an overview of the updated CFIUS regulations concerning foreign investment restrictions scheduled to take effect in the U.S. in February 2020. However, that does not mean that CFIUS, the inter-agency committee tasked with the authority to review, modify and reject certain types of foreign investment that could adversely impact U.S. national security, is dormant in terms of its current investigations. In fact, on November 1, 2019, Reuters reported that CFIUS has launched a national security review of the popular social media and video-streaming app TikTok, related to the acquisition of social media app Musical.ly (since rebranded as “TikTok”) by Beijing ByteDance Technology Co. in 2017 for $1 billion. TikTok earlier this year said that approximately 60% of its 26.5 million monthly active users are located in the United States.

U.S. lawmakers first raised national security concerns related to the TikTok platform, particularly its Chinese parent company’s collection of user data and purported censorship of user content.  For example, Senators Chuck Schumer and Tom Cotton sent a bi-partisan letter to the Acting Director of National Intelligence in October voicing concerns over TikTok’s data collection practices, highlighting Chinese laws that “compel Chinese companies to support and cooperate with intelligence work controlled by the Chinese Communist Party.” While it is unclear what the outcome of this particular review will be, it puts a spotlight on the types of industries and practices that CFIUS is currently scrutinizing and provides a useful case study for what types of mitigating measures we may see imposed by the Committee down the road.

The updated CFIUS regulations set to take effect in February 2020 expressly expand the jurisdiction of CFIUS to include reviews of non-controlling foreign investments in companies that store and have access to sensitive personal data of U.S. citizens. But the CFIUS review into TikTok is only the latest investigation by the Committee into burgeoning technology apps that store sensitive personal data. CFIUS has previously targeted the proposed acquisition by the Chinese Kunlun Group of the U.S. dating application “Grindr” for data privacy concerns regarding its individual users, and similarly forced the Chinese digital healthcare company iCarbonX to divest from it its investment in the U.S. healthcare startup “PatientsLikeMe.” 

These recent cases ultimately show that CFIUS is increasingly focused on the protection of the sensitive personal data of U.S. citizens in emerging technological applications, particularly when Chinese investment is involved.  All U.S. companies considering foreign investment will have to take heed of the current and soon-to-be updated CFIUS regulations and increase their due diligence efforts, particularly where Chinese investment is concerned.

3. 5G Supremacy: Timeline on Huawei Restrictions and Licensing Still Unclear

Finally, a critical ongoing area of U.S.-China cybersecurity relations is the debate over the role that China’s telecommunications leader Huawei will have in developing and implementing global 5G technology and data networks. Huawei was placed on the U.S. Department of Commerce “Entity List” over national security concerns in May 2019, which restricts U.S. companies from doing business with it, and a licensing regime was put into place for U.S. companies that seek to engage with Huawei and certain of its subsidiaries. While no such licenses have been issued to date, U.S. Secretary of Commerce Wilbur Ross recently indicated that at least some of the 260 license applications their office has received will be granted and issued shortly.  

U.S. critics believe that allowing Huawei to take the lead on 5G and similar data network equipment will potentially give the Chinese government the ability to collect data of the users of Huawei products. However, Huawei is a global leader in 5G technology, and despite pressure from the U.S. government, countries like Germany, Hungary, and Norway have decided against banning Huawei from their 5G networks. The inherent difficulties and concerns in having the global leader in 5G technology also be closely connected to the Chinese government is an issue that every country seeking to develop 5G infrastructure will have to address, and will likely be a focal point in the U.S.-China trade war as well as in global cybersecurity relations for years to come. 

If you have any questions about U.S.-China trade relations as it relates to CFIUS, cybersecurity regulatory compliance, or U.S.-imposed licensing restrictions, please contact a member of Baker Donelson’s Global Business Team below.

____________________________________________________________________
Joe D. Whitley is a shareholder at Baker Donelson and chairs the Firm’s Government Enforcement and Investigations Group. He can be reached at jwhitley@bakerdonelson.com. 

Alan Enslen is a shareholder with Baker Donelson and leads the International Trade and National Security Practice and is a member of the Global Business Team. He can be reached at aenslen@bakerdonelson.com. 

Julius Bodie is an associate with Baker Donelson who assists U.S. and foreign companies across multiple industries with international trade regulatory issues. He can be reached at jbodie@bakerdonelson.com. 

Frank Xue is an associate with Baker Donelson who assists Chinese clients with matters in the U.S. related to foreign direct investments, mergers and acquisitions, and private equity/venture capital. He can be reached at fxue@bakerdonelson.com. 

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1. CCL Translation: “Cyber-security Law of the People’s Republic of China,” Dezan Shira and Associates. https://www.dezshira.com/library/legal/cyber-security-law-china-8013.html.

2. CCL Article 9; see also Laney Zhang, China: New Regulation on Police Cybersecurity Supervision and Inspection Powers Issued, Library of Congress (November 13, 2018) (discussing Measures of Internet Security Supervision and Inspection by the Public Security Organs, (Sept. 15, 2018, effective Nov. 1, 2018)) https://www.loc.gov/law/foreign-news/article/china-new-regulation-on-police-cybersecurity-supervision-and-inspection-powers-issued/.

3. See, e.g., China: Abusive Cybersecurity Law Set to be Passed, Human Rights Watch (November 6, 2016) https://www.hrw.org/news/2016/11/06/china-abusive-cybersecurity-law-set-be-passed; China adopts cyber security law in face of overseas opposition, Reuters (November 6, 2016) https://www.reuters.com/article/us-china-parliament-cyber-idUSKBN132049.

4. Draft Cybersecurity Classified Protection Regulations, China Ministry of Public Security (June 27, 2018) http://www.mps.gov.cn/n2254536/n4904355/c6159136/content.html?from=timeline&isappinstalled=0.

5. See, e.g. Simone McCarthy, Will China’s revised cybersecurity rules put foreign firms at risk of losing their secrets?, South China Morning Post (October 13, 2019) https://www.scmp.com/news/china/diplomacy/article/3032649/will-chinas-revised-cybersecurity-law-put-foreign-firms-risk.

6. Greg Roumeliotis, Yingzhi Yang, Echo Wang, Alexandra Alper, Exclusive: U.S. opens national security investigation into TikTok, Reuters (November 1, 2019) https://www.reuters.com/article/us-tiktok-cfius-exclusive/exclusive-u-s-opens-national-security-investigation-into-tiktok-sources-idUSKBN1XB4IL.

7. Reuters,  How TikTok, Caught in U.S. Regulatory Crossfire, Rose to Global Video Stardom, The New York Times (November 4, 2019) https://www.nytimes.com/reuters/2019/11/04/business/04reuters-tiktok-cfius-factbox.html.

8. See, e.g. Senator Marco Rubio Letter to Secretary of Treasury Steven Mnuchin https://www.rubio.senate.gov/public/_cache/files/9ba023e4-2f4b-404a-a8c0 e87ea784f440/FCEFFE1F54F3899795B4E5F1F1804630.20191009-letter-to-secretary-mnuchin-re-tiktok.pdf

9. Senators Charles E. Schumer and Tom Cotton Senate Letter (October 23, 2019) https://www.democrats.senate.gov/imo/media/doc/10232019%20TikTok%20Letter%20-%20FINAL%20PDF.pdf.

10. See, e.g., Christiana Farr and Ari Levy, The Trump administration is forcing this health start-up that took Chinese money into a fire sale, CNBC (April 4,  2019) https://www.cnbc.com/2019/04/04/cfius-forces-patientslikeme-into-fire-sale-booting-chinese-investor.html; Echo Wang, China’s Kunlun Tech agrees to U.S. demand to sell Grindr gay dating app, Reuters (May 13, 2019) https://www.reuters.com/article/us-grindr-m-a-beijingkunlun/chinas-kunlun-tech-agrees-to-u-s-demand-to-sell-grindr-gay-dating-app-idUSKCN1SJ28N.

11. Huawei Entity List and Temporary General License Frequently Asked Questions, Department of Commerce (September 18, 2019) https://www.bis.doc.gov/index.php/documents/pdfs/2447-huawei-entity-listing-faqs/file

12. Philip Heijmans and Haslinda Amin, Ross Optimistic on China Deal, Trump Wants It Signed in U.S., Bloomberg (November 3, 2019) https://www.bloomberg.com/news/articles/2019-11-03/ross-optimistic-on-china-trade-deal-says-huawei-licenses-coming?srnd=premium.

13. See, e.g., Associated Press, Hungary Says Huawei to Help Build Its 5G Wireless Network, New York Times (November 5, 2019) https://www.nytimes.com/aponline/2019/11/05/business/bc-eu-hungary-huawei.html; Chloe Taylor, Germany set to allow Huawei into 5G networks, defying pressure from the US, CNBC (October 16, 2019) https://www.cnbc.com/2019/10/16/germany-to-allow-huawei-into-5g-networks-defying-pressure-from-the-us.html.

grapefruit

Grapefruit Market in Asia – Japan Halved Grapefruit Imports Over the Last Decade

IndexBox has just published a new report: ‘Asia – Grapefruits (Inc. Pomelos) – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The revenue of the grapefruit market in Asia amounted to $6.4B in 2018, picking up by 6.1% against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). In general, grapefruit consumption continues to indicate strong growth. The pace of growth appeared the most rapid in 2015 when the market value increased by 18% y-o-y. Over the period under review, the grapefruit market reached its maximum level in 2018 and is expected to retain its growth in the near future.

Consumption By Country in Asia

China (4.8M tonnes) remains the largest grapefruit consuming country in Asia, comprising approx. 72% of total consumption. Moreover, grapefruit consumption in China exceeded the figures recorded by the region’s second-largest consumer, Viet Nam (611K tonnes), eightfold. India (377K tonnes) ranked third in terms of total consumption with a 5.6% share.

In China, grapefruit consumption increased at an average annual rate of +7.5% over the period from 2007-2018. In the other countries, the average annual rates were as follows: Viet Nam (+5.5% per year) and India (+7.1% per year).

In value terms, China ($4.5B) led the market, alone. The second position in the ranking was occupied by Viet Nam ($707M). It was followed by Thailand.

The countries with the highest levels of grapefruit per capita consumption in 2018 were Viet Nam (6,331 kg per 1000 persons), China (3,340 kg per 1000 persons) and Thailand (3,267 kg per 1000 persons).

From 2007 to 2018, the most notable rate of growth in terms of grapefruit per capita consumption, amongst the main consuming countries, was attained by China, while the other leaders experienced more modest paces of growth.

Market Forecast 2019-2025 in Asia

Driven by increasing demand for grapefruit in Asia, the market is expected to continue an upward consumption trend over the next seven years. Market performance is forecast to decelerate, expanding with an anticipated CAGR of +3.7% for the seven-year period from 2018 to 2025, which is projected to bring the market volume to 8.7M tonnes by the end of 2025.

Production in Asia

The grapefruit production stood at 7M tonnes in 2018, growing by 6.4% against the previous year. The total output indicated a remarkable increase from 2007 to 2018: its volume increased at an average annual rate of +5.6% over the last eleven-year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, grapefruit production increased by +81.9% against 2007 indices. The pace of growth appeared the most rapid in 2015 when production volume increased by 12% y-o-y. Over the period under review, grapefruit production reached its maximum volume in 2018 and is expected to retain its growth in the immediate term. The general positive trend in terms of grapefruit output was largely conditioned by a resilient increase of the harvested area and temperate growth in yield figures.

In value terms, grapefruit production stood at $6.9B in 2018 estimated in export prices. Overall, grapefruit production continues to indicate a strong increase. The growth pace was the most rapid in 2015 when production volume increased by 18% against the previous year. The level of grapefruit production peaked in 2018 and is expected to retain its growth in the immediate term.

Production By Country in Asia

The country with the largest volume of grapefruit production was China (5M tonnes), accounting for 71% of total production. Moreover, grapefruit production in China exceeded the figures recorded by the region’s second-largest producer, Viet Nam (598K tonnes), eightfold. The third position in this ranking was occupied by India (377K tonnes), with a 5.4% share.

From 2007 to 2018, the average annual rate of growth in terms of volume in China amounted to +7.5%. In the other countries, the average annual rates were as follows: Viet Nam (+5.3% per year) and India (+7.1% per year).

Harvested Area in Asia

In 2018, the total area harvested in terms of grapefruits production in Asia stood at 220K ha, going up by 3.7% against the previous year. The harvested area increased at an average annual rate of +2.8% from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded in certain years. The most prominent rate of growth was recorded in 2015 with an increase of 18% year-to-year. The level of grapefruit harvested area peaked at 226K ha in 2016; however, from 2017 to 2018, harvested area stood at a somewhat lower figure.

Yield in Asia

The average grapefruit yield amounted to 32 tonne per ha in 2018, jumping by 2.6% against the previous year. The yield figure increased at an average annual rate of +2.7% over the period from 2007 to 2018; the trend pattern remained consistent, with somewhat noticeable fluctuations in certain years. The most prominent rate of growth was recorded in 2017 when yield increased by 9.6% against the previous year. The level of grapefruit yield peaked in 2018 and is expected to retain its growth in the immediate term.

Exports in Asia

In 2018, the amount of grapefruits exported in Asia amounted to 525K tonnes, jumping by 21% against the previous year. The total export volume increased at an average annual rate of +5.6% over the period from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded in certain years. The most prominent rate of growth was recorded in 2008 when exports increased by 23% year-to-year. Over the period under review, grapefruit exports reached their maximum in 2018 and are likely to see steady growth in the near future.

In value terms, grapefruit exports totaled $449M (IndexBox estimates) in 2018. The total exports indicated a strong expansion from 2007 to 2018: its value increased at an average annual rate of +5.6% over the last eleven-year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, grapefruit exports increased by +15.7% against 2014 indices. The pace of growth was the most pronounced in 2008 with an increase of 21% y-o-y. Over the period under review, grapefruit exports reached their maximum in 2018 and are likely to continue its growth in the immediate term.

Exports by Country

In 2018, China (211K tonnes) and Turkey (182K tonnes) were the major exporters of grapefruits in Asia, together recording near 75% of total exports. It was distantly followed by Israel (88K tonnes), achieving a 17% share of total exports. China, Hong Kong SAR (16K tonnes) and Cyprus (8.3K tonnes) followed a long way behind the leaders.

From 2007 to 2018, the most notable rate of growth in terms of exports, amongst the main exporting countries, was attained by China, Hong Kong SAR, while the other leaders experienced more modest paces of growth.

In value terms, the largest grapefruit markets in Asia were China ($200M), Turkey ($119M) and Israel ($87M), with a combined 91% share of total exports. These countries were followed by China, Hong Kong SAR and Cyprus, which together accounted for a further 4%.

Among the main exporting countries, China, Hong Kong SAR recorded the highest rates of growth with regard to exports, over the last eleven years, while the other leaders experienced more modest paces of growth.

Export Prices by Country

The grapefruit export price in Asia stood at $855 per tonne in 2018, waning by -3.7% against the previous year. Over the last eleven years, it increased at an average annual rate of +1.2%. The most prominent rate of growth was recorded in 2017 when the export price increased by 10% y-o-y. In that year, the export prices for grapefruits attained their peak level of $888 per tonne, and then declined slightly in the following year.

Prices varied noticeably by the country of origin; the country with the highest price was Israel ($995 per tonne), while Cyprus ($585 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by China, Hong Kong SAR, while the other leaders experienced more modest paces of growth.

Imports in Asia

In 2018, the amount of grapefruits imported in Asia totaled 272K tonnes, surging by 24% against the previous year. In general, grapefruit imports, however, continue to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2018 when imports increased by 24% y-o-y. Over the period under review, grapefruit imports reached their maximum at 280K tonnes in 2010; however, from 2011 to 2018, imports failed to regain their momentum.

In value terms, grapefruit imports amounted to $232M (IndexBox estimates) in 2018. Over the period under review, grapefruit imports, however, continue to indicate a relatively flat trend pattern. The pace of growth was the most pronounced in 2014 when imports increased by 15% y-o-y. The level of imports peaked at $236M in 2007; however, from 2008 to 2018, imports remained at a lower figure.

Imports by Country

In 2018, Japan (85K tonnes), distantly followed by China (45K tonnes), Saudi Arabia (34K tonnes), South Korea (23K tonnes), China, Hong Kong SAR (23K tonnes) and Viet Nam (15K tonnes) were the largest importers of grapefruits, together comprising 83% of total imports. Iraq (11K tonnes) followed a long way behind the leaders.

From 2007 to 2018, the most notable rate of growth in terms of imports, amongst the main importing countries, was attained by Viet Nam (+115.4% per year), while the other leaders experienced more modest paces of growth.

In value terms, Japan ($64M), China ($60M) and South Korea ($32M) were the countries with the highest levels of imports in 2018, with a combined 67% share of total imports. China, Hong Kong SAR, Saudi Arabia, Viet Nam and Iraq lagged somewhat behind, together accounting for a further 21%.

Viet Nam (+99.6% per year) experienced the highest rates of growth with regard to imports, in terms of the main importing countries over the last eleven-year period, while the other leaders experienced more modest paces of growth.

Import Prices by Country

The grapefruit import price in Asia stood at $853 per tonne in 2018, dropping by -8.6% against the previous year. Overall, the grapefruit import price, however, continues to indicate a relatively flat trend pattern. The pace of growth was the most pronounced in 2017 when the import price increased by 12% against the previous year. In that year, the import prices for grapefruits reached their peak level of $933 per tonne, and then declined slightly in the following year.

Prices varied noticeably by the country of destination; the country with the highest price was South Korea ($1,420 per tonne), while Iraq ($323 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by China, while the other leaders experienced more modest paces of growth.

Source: IndexBox AI Platform

USMCA

Has Move to Impeach President Trump Pushed Aside the USMCA?

The momentum to impeach in Washington, D.C., is not only hurtling Congress and President Donald Trump toward a potential constitutional crisis, but the prospect of reaching a solution to the ongoing trade standoffs has dimmed considerably.

That’s the opinion of leading international trade lawyer Clifford Sosnow, who notes the time frame for passing the U.S.-Mexico-Canada Agreement (USMCA)—and thereby revamping the North America Free Trade Agreement (NAFTA)—is growing shorter by the day, denting plans for global companies that rely heavily on exports.

“With impeachment officially on the table and the hyper-partisan climate in the lead-up to next year’s elections, there is serious concern whether the USMCA is dead in the water,” says Sosnow, an Ottawa-based partner with Canadian law firm Fasken.

“It’s unclear how much of a window is even left for approval of the USMCA. There are also high odds of failure post-election, especially if the Democrats win. The party has not shown any enthusiasm for the USMCA in its current form.”

Sosnow is not shooting from the hip in an easy chair. He has appeared before NAFTA and WTO panels and the Canadian International Trade Tribunal, and he has numerous clients affected by tariffs as well as any decisions on NAFTA, including automobile manufacturers, banks, service companies, IT companies, large retailers, manufacturers, agriculture business, aerospace firms, and transportation companies.

Global Cinnamon Market 2019 – Imports to India Grow Robustly

IndexBox has just published a new report: ‘World – Cinnamon (Canella) – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The global cinnamon market revenue amounted to $1.1B in 2018, dropping by -9% against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). In general, the total market indicated a remarkable expansion from 2007 to 2018: its value increased at an average annual rate of +2.0% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, the cinnamon consumption decreased by -19.8% against 2014 indices. The pace of growth appeared the most rapid in 2010, when the market value increased by 36% y-o-y. Global cinnamon consumption peaked at $1.3B in 2014; however, from 2015 to 2018, consumption failed to regain its momentum.

Production 2007-2018

Global cinnamon production totaled 237K tonnes in 2018, going up by 4% against the previous year. The total output volume increased at an average annual rate of +1.7% from 2007 to 2018; the trend pattern remained relatively stable, with only minor fluctuations being recorded throughout the analyzed period.

Exports 2007-2018

In 2018, approx. 145K tonnes of cinnamon (canella) were exported worldwide; declining by -18.1% against the previous year. In general, the total exports indicated a moderate increase from 2007 to 2018: its volume increased at an average annual rate of +2.2% over the last eleven year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. In value terms, cinnamon exports totaled $580M (IndexBox estimates) in 2018. Over the period under review, cinnamon exports, however, continue to indicate a remarkable expansion. The pace of growth was the most pronounced in 2011, when exports increased by 33% against the previous year. Over the period under review, global cinnamon exports reached their peak figure at $605M in 2017, and then declined slightly in the following year.

Exports by Country

In 2018, Viet Nam (44K tonnes) and Indonesia (41K tonnes) were the major exporters of cinnamon (canella) around the world, together accounting for near 59% of total exports. It was distantly followed by China (25K tonnes) and Sri Lanka (17K tonnes), together creating 29% share of total exports. The Netherlands (5.2K tonnes), Madagascar (2.7K tonnes) and the U.S. (2.3K tonnes) followed a long way behind the leaders.

From 2007 to 2018, the most notable rate of growth in terms of exports, amongst the main exporting countries, was attained by Madagascar, while the other global leaders experienced more modest paces of growth.

In value terms, the largest cinnamon markets worldwide were Sri Lanka ($191M), Indonesia ($141M) and Viet Nam ($118M), together accounting for 78% of global exports. These countries were followed by China, the Netherlands, the U.S. and Madagascar, which together accounted for a further 15%.

Export Prices by Country

The average cinnamon export price stood at $4,003 per tonne in 2018, surging by 17% against the previous year. Over the period under review, the export price indicated a remarkable increase from 2007 to 2018: its price increased at an average annual rate of +7.7% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, the cinnamon export price increased by +104.6% against 2010 indices. There were significant differences in the average export prices amongst the major exporting countries. In 2018, the country with the highest export price was Sri Lanka ($11,358 per tonne), while China ($1,843 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of export prices was attained by Indonesia, while the other global leaders experienced more modest paces of growth.

Imports 2007-2018

In 2018, the global cinnamon imports stood at 167K tonnes, lowering by -4.7% against the previous year.In value terms, cinnamon imports stood at $587M (IndexBox estimates) in 2018.

Imports by Country

In 2018, India (39K tonnes), distantly followed by the U.S. (20K tonnes), Mexico (11K tonnes) and the Netherlands (7.7K tonnes) were the key importers of cinnamon (canella), together making up 47% of total imports. Bangladesh (7K tonnes), Saudi Arabia (5.5K tonnes), the United Arab Emirates (4.6K tonnes), Pakistan (4.4K tonnes), Iran (3.9K tonnes), Brazil (3.2K tonnes), Germany (3K tonnes) and Viet Nam (3K tonnes) held a relatively small share of total imports.

From 2007 to 2018, the most notable rate of growth in terms of imports, amongst the main importing countries, was attained by Viet Nam, while the other global leaders experienced more modest paces of growth.

In value terms, the largest cinnamon importing markets worldwide were Mexico ($97M), India ($84M) and the U.S. ($72M), together accounting for 43% of global imports. The Netherlands, Bangladesh, Germany, Brazil, Saudi Arabia, the United Arab Emirates, Viet Nam, Pakistan and Iran lagged somewhat behind, together accounting for a further 17%.

Import Prices by Country

The average cinnamon import price stood at $3,510 per tonne in 2018, surging by 3.6% against the previous year. Over the period under review, the import price indicated a remarkable increase from 2007 to 2018: its price increased at an average annual rate of +6.8% over the last eleven year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, the cinnamon import price increased by +39.1% against 2013 indices. Import prices varied noticeably by the country of destination; the country with the highest import price was Mexico ($8,610 per tonne), while Bangladesh ($1,717 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of import prices was attained by Brazil, while the other global leaders experienced more modest paces of growth.

Source: IndexBox AI Platform

Espionage

Economic Espionage and the U.S.-China Trade War

Combatting Chinese theft of U.S. intellectual property (IP) has been a principal policy focus of the Trump Administration, including through the utilization of the Section 301 investigation process, the subsequent imposition of tariffs on Chinese-origin goods, via challenges in international regulatory bodies such as the World Trade Organization, updated foreign investment restrictions and through targeted legal designations of entities such as the leading Chinese telecommunications and consumer electronics company Huawei. IP and trade secret theft are to this day some of the largest economic and national security threats facing the U.S. and American businesses. Apart from the international trade remedies implemented by the Administration, the U.S. legal system has been another critical theatre for countering theft of IP and trade secrets from American businesses, and prosecutions have ramped up over the last half decade using civil and criminal enforcement mechanisms. 

The Economic Espionage Act of 1996 (“EEA”), 18 U.S.C. § 1831 et seq., is an act that makes theft or the misappropriation of trade secrets, especially through acts of industrial espionage, a federal crime. Such trade secret theft can lead to both civil and criminal enforcement actions. The EEA currently defines “trade secrets” broadly to include “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes.”1

Penalties under the EEA can be severe. In 2012, Congress revised the EEA to increase the penalties for organizations and individuals, and sentencing guidelines were increased for trade secret theft that seeks to benefit a foreign government or agent. A violation of the EEA can result in an individual being fined up to $500,000 and facing up to 10 years in prison, and a corporation found guilty can be fined up to $5,000,000. These penalties increase greatly if the trade secret theft or misappropriation benefits a foreign country or foreign agent. 

In 2016, the EEA was again amended when Congress passed the Defend Trade Secrets Act (“DTSA”). The DTSA established for the first time a private cause of action for the theft or misappropriation of trade secrets, which prior to its enactment had largely been addressed under individual state laws. 

The EEA and DTSA have been critical enforcement mechanisms for the U.S. government and private businesses in recent years to combat theft of corporate IP and trade secrets, in particular that of Chinese origin. A 2017 report from the independent Commission on the Theft of American Intellectual Property found that the annual cost to the U.S. economy from Chinese IP theft could be as high as $600 billion. More recently, a March 2019 survey found that one in five North American-based corporations on the CNBC Global CFO Council says Chinese companies have stolen their IP within the last year.2 And in April, the Department of Justice proclaimed that since 2011, more than 90 percent of the Department’s economic espionage prosecutions involve China, and more than two-thirds of all federal trade secret theft cases during that period have had at least a geographical nexus to China.3

The largest companies in the U.S. are not immune to such theft, and the EEA has been utilized in several recent high-profile prosecutions, including against a former Chinese national software engineer of IBM for the theft of proprietary source code4, a former Chinese national employee of Apple for the theft of a confidential circuit board schematic drawing designed for autonomous vehicles5 and a Chinese Ministry of State Security intelligence officer for his attempt to steal trade secrets from multiple U.S. aviation and aerospace companies, including GE Aviation.6

Beyond the government’s use of the EEA, the broad reach of the DTSA makes it important for every U.S. business to understand its nuances. The DTSA protects trade secrets if a company has taken reasonable measures to keep such information secret and “the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”7 Trade secret misappropriation and the implications of the DTSA are therefore also prevalent in everyday business matters, including employment contracts and areas such as non-disclosures, non-compete, or confidentiality contractual provisions. The DTSA further provides important civil remedies for victims of trade secret theft, including the possibility of injunctive relief and even seizure of the allegedly stolen trade secrets. 

The EEA and DTSA are significant enforcement mechanisms for both the U.S. government and private businesses, which has been further underscored in recent years in light of ongoing malevolent Chinese industrial espionage activity. Conducting robust due diligence on new employees, foreign investors, and supply chain entities is more important than ever for U.S. businesses and their research and development entities. The effects of the U.S.-China trade war are a global concern, and problems such as securing future U.S. telecommunications networks from supply chain threats, eliminating foreign direct investment calculated to obtain proprietary U.S. trade secrets and technology,  and continuing to fight industrial cyberespionage must remain a top priority for the U.S. moving forward. 

Julius Bodie is an associate with Baker Donelson who assists U.S. and foreign companies across multiple industries with international trade regulatory issues, including identifying import/export licensing strategies, advising on global anti-corruption compliance, and counseling on Office of Foreign Assets Control (OFAC) economic sanctions programs.

Joe Whitley is a shareholder with Baker Donelson who represents national and international clients in various white-collar criminal matters including regulatory enforcement, corporate internal investigations and the Foreign Corrupt Practices Act (FCPA). During the Ronald Reagan and George H.W. Bush administrations, he served as Acting Associate Attorney General, the third-ranking position at Main Justice.

Alan Enslen is a shareholder with Baker Donelson who works with clients in international trade and national security matters, as well as government enforcement and investigations and trade remedy disputes. Enslen represents clients in numerous areas of international trade including economic/trade sanctions programs and global anti-corruption laws.

This article includes the following references:

118 U.S.C. § 1839(3).

2Eric Rosenbaum, 1 in 5 corporations say China has stolen their IP within the last year: CNBC CFO survey, CNBC (March 1, 2019) https://www.cnbc.com/2019/02/28/1-in-5-companies-say-china-stole-their-ip-within-the-last-year-cnbc.html.

3Deputy Assistant Attorney General Adam S. Hickey of the National Security Division Delivers Remarks at the Fifth National Conference on CFIUS and Team Telecom, Department of Justice (April 24, 2019) https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-adam-s-hickey-national-security-division-delivers-0.

4Chinese National Sentenced for Economic Espionage and Theft of a Trade Secret From U.S. Company, Department of Justice Press Release (January 18, 2018)  https://www.justice.gov/opa/pr/chinese-national-sentenced-economic-espionage-and-theft-trade-secret-us-company

5Former Apple Employee Indicted On Theft Of Trade Secrets, Department of Justice Press Release (July 16, 2018) https://www.justice.gov/usao-ndca/pr/former-apple-employee-indicted-theft-trade-secrets.

6Chinese Intelligence Officer Charged with Economic Espionage Involving Theft of Trade Secrets from Leading U.S. Aviation Companies, Department of Justice Press Release (October 10, 2018) https://www.justice.gov/opa/pr/chinese-intelligence-officer-charged-economic-espionage-involving-theft-trade-secrets-leading.

718 U.S.C. § 1839.  

2019 China-California Business Forum Focuses on Sub-National Cooperation

California’s trade and investment involvement with Chinese provinces will take the spotlight at the third annual 2019 China-California Business Forum scheduled for June 5th in Los Angeles. An estimated 150 top Chinese business leaders are expected to attend with the goal of developing
business opportunities between California and Chinese business leaders.

“As the Chinese Secretariat of the China Provinces and U.S. California Joint Working Group on Trade and Investment Cooperation, CCCME together the seven member provinces all attach great importance to the China-California Business Forum and will actively participate in it as always. Over the past few years, as it has become an important platform of facilitating more exchanges and cooperation between Chinese and Californian businesses, the Forum has been fully recognized by Chinese enterprises and has become an annual focus of China-U.S. sub-national cooperation,” said Liu Chun, Vice President of CCCME.

The forum will take place in downtown at the Millennium Biltmore Hotel and dedicate a full day of various sessions discussing trade and investment, clean-tech, cross-border e-commerce, advanced manufacturing, and more.

“Sub-national cooperation is the foundation of China-U.S. economic and trade relations. The China-California Business Forum plays an important role in promoting this cooperation. The Forum is a joint effort by both sides. It not only brings business opportunities, but also enhances China-U.S. sub-national exchanges and cooperation. I look forward to welcoming more Chinese and California business leaders at the event,” said Amb. Zhang Ping, Chinese Consul General in Los Angeles.

Despite previous trade tensions between the two economy’s, business executives are displaying optimism for both sides to reach an agreement through bilateral trade discussions. This year’s Business Forum will ultimately support efforts to strengthen ties and develop mutually beneficial business initiatives.

“California was the number one recipient of foreign direct investment from China, totaling more than $16 Billion in 2017. We are also home to a vibrant Chinese American community. This forum will build on our strong business and cultural ties, strengthen our international partnerships, and grow our economy.” Said Lt. Governor Eleni Kounalakis.


Port Manatee Continues Global Expansion

Two new promotional offices representing Port Manatee’s International Trade Hub have been opened in the Latin America and European regions, according to a release from the company this week. The additional offices further advance the Port’s goals to penetrate global markets while sustaining global commerce.  MedellínColombia and BarcelonaSpain are the latest locations.
“The opening of these two offices is a momentous step in connecting world markets and the dynamic business community of greater Manatee County and Southwest Florida,” said Iván Mutis, coordinator of the International Trade Hub at Port Manatee since its inception in 2014. “The Latin American and European office presences perfectly complement the successful initiatives the trade hub has been advancing over the past five years.”
“The offices provide soft landing platforms in major global markets for leaders of businesses of Manatee County and all of Southwest Florida exploring opportunities in Latin America and Europe, respectively,” said Carlos Buqueras, executive director of Port Manatee. “We already are making plans to further expand the global office presence of the International Trade Hub at Port Manatee.”
“The proactive efforts of the International Trade Hub at Port Manatee, including through foreign offices, furnish advantageous opportunities for expanding the already impressive socioeconomic contributions of Port Manatee throughout our region,” said Vanessa Baugh, chairwoman of the Manatee County Port Authority.
Source: Port of Manatee 

Global Connectedness Reached All-Time High in 2017

Global connectedness reached all-time high numbers in 2017 as a direct result of a substantial increase in, “flows of trade, capital, information and people across national borders” in a decade, according to DHL’s newly released Global Connectedness Index. Additionally, the delay of implementing key policy changes contributed to the increase of international economic growth.

“Even as the world continues to globalize, there is still tremendous untapped potential around the world. The GCI shows that currently, most of the movements and exchanges we’re seeing are domestic rather than international, yet we know that globalization is a decisive factor in growth and prosperity,” explains John Pearson, CEO of DHL Express. “Increasing international cooperation continues to contribute to stability so companies and countries that embrace globalization benefit tremendously.”

Among the countries that topped the list of “Most Globally Connected,” the Netherlands, Singapore, Switzerland, Belgium and the United Arab Emirates took the spot for top five in the world.
North America, the Middle East and North Africa ranked as the top three regions for capital and information flows.
“Surprisingly, even after globalization’s recent gains, the world is still less connected than most people think it is,” commented GCI co-author Steven A. Altman, Senior Research Scholar at the NYU Stern School of Business and Executive Director of NYU Stern’s Center for the Globalization of Education and Management. “This is important because, when people overestimate international flows, they tend to worry more about them.  The facts in our report can help calm such fears and focus attention on real solutions to societal concerns about globalization.”
To read the full report, click here.
Source: DHL 

USMCA Coalition Formed During 116th Congress

In an effort to support fastidious implementation of the United States-Mexico-Canada Agreement, a group consisting of trade associations, businesses, and other advocacy groups joined forces to create what is now known as the “Pass USMCA Coalition.”
The bipartisan group is led by Democrat Gary Locke, known for his previous role as a former ambassador for China between 2011-2014 and his former role as Washington’s governor.
“The USMCA sets a modern precedent for freer and fairer trade not only in North America, but throughout the world,” said chairman Gary Locke. “Ratifying the agreement quickly will improve our trading relationships with Canada and Mexico, create more jobs for American workers, and propel international trade into the 21st century.”
“The USMCA is a win for America,” said Rick Dearborn, executive director of Pass USMCA. “It will launch the nation into a new era of economic and creative prosperity. Congress must seize this opportunity to strengthen our North American trading partnerships.”
For more information visit http://www.PassUSMCA.org.

Intra-African Trade Fair Provides Hope for Region

This year’s Intra-African Trade Fair proved hopeful for the future of the African trade sector, according to feedback from the South African companies that participated in the seven-day event. The event took place from December 11-17 at the Egypt International Exhibition Center and consisted of various businesses showing their products.

Managing Director of Conax Manufacturing in Spring, Gauteng, Mr Freddy Mugeri commented on the success of the event, noting that it ultimately paves the way for integration and positive results.

“Even though there are many challenges to overcome including infrastructure and trade finance solutions in Africa, IATF created a platform for us business people to meet with African countries like Angola and South Sudan which are not so easy to reach outside forums like this one,” said Mugeri

Others, such as The South African Ambassador to Egypt, Mr Vusi Mavimbela, noted that this event was needed in the continent to support the diversity in economic resources.

“If we want to integrate the African continent and grow the economies in the continent we have to start by promoting trade among ourselves. It is much more powerful to trade as a united continent, because once you strengthened trading amongst ourselves we are able to create a bigger economy, and when you create a bigger economy, you create a bigger voice that will make it possible able to compete with our regional blocs on a more equal footing,” said Mavimbela.

Source: EIN Presswire, IATF