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BLACKLISTING DEPLOYED IN THE BATTLE OVER TECH TRADE

blacklisting

BLACKLISTING DEPLOYED IN THE BATTLE OVER TECH TRADE

National Security an Overriding Consideration

If there is one defining feature of current U.S. trade policy, it is that national security has become an overriding consideration in how the United States engages China. It is also a focal point of U.S. engagement with its main allied trading partners.

The Trump administration has added many tools to its arsenal in combatting what it refers to as “vectors of economic aggression” by China. Tariffs are only the most visible. The United States – and other countries – are increasingly turning to the practice of “blacklisting” persons and companies that pose a national security risk.

Through controls on exports of particular technologies, governments can either prohibit their sale to foreign entities, governments or individuals, or require the technologies be sold only upon issuance of a government license.

Not New, But Expanded

Controlling the export of commercial technologies that have “dual use” or military applications is a longstanding practice. The General Agreement on Tariffs and Trade 1994 includes a general prohibition on quantitative restrictions on both imports and exports, but contains built-in exceptions that allow for export control regimes.

In the United States, the Export Control Act requires the Secretary of Commerce to establish and maintain a list of controlled items, foreign persons, and end-uses determined to be a threat to U.S. national security and foreign policy for the purpose of regulating the export, reexport and in-country transfer of those technologies and to those entities.

countries turning to blacklisting

Futureproofing

At today’s blistering pace of tech innovation, the lines between technologies that are used commercially in the products we buy as private sector businesses and consumers are increasingly blurred with their potential applications in a military setting.

Under the 2018 Export Control Reform Act, Congress authorized the Commerce Department to review its list of controlled technologies to consider “emerging and foundational technologies” that should be added to its control list.

The technologies contemplated include a hit parade of Sci-Fi innovations such as neural networks and deep learning, swarming technology, self-assembling robots and smart dust (whatever that is), in addition to more recognizable technologies such as quantum computing, additive manufacturing and propulsion technologies.

Special Designations

In addition to technologies that may be controlled for export, the Commerce Department also maintains a Restricted Entity List. Entities designated are subject to a policy of presumed denial for all products, whether on the controlled technologies list or not. American companies may not export to entities on this list except through waivers and specific licenses.

Huawei Technologies, the Chinese telecommunications giant that is chasing global market share in 5G mobile technology, finds itself on the Restricted Entity List, along with all of its overseas affiliates. Other Chinese companies on the list include FiberHome Technologies Group, another 5G network equipment provider, as well as China’s leading artificial intelligence startups Megvii, SenseTime and Yitu Technologies.

The U.S. government is concerned with entities that could engage in industrial and electronic espionage and infiltrate critical U.S. military systems. But the Commerce Department also took the novel step recently of adding companies to its Restricted Entity List that furnish the Chinese state and its security bureaus with technologies used to surveil and repress civil society.

In October 2019, the United States blacklisted 28 Chinese governmental and commercial organizations, citing human rights violations and abuses in China’s campaign targeting Uighurs and other predominantly Muslim ethnic minorities in the Xinjiang Uighur Autonomous Region. The companies included Hangzhou Hikvision Digital Technology Co. and Zhejiang Dahua Technology Co. which are two of the world’s largest producers of surveillance products as well as several of China’s leading companies in facial and voice recognition.

A Chinese Finger Trap

Last month, as U.S.-China relations continued to deteriorate in very public ways, the U.S. government added two dozen more Chinese governmental and commercial organizations to the Restricted Entity List. The Department of Commerce said they have ties to weapons of mass destruction and military activities.

As with a Chinese finger trap, American companies are now ensnared at both ends. They must comply with U.S. export restrictions but doing so may land them on China’s newly created “Unreliable Entity List”. China created the list as a countermeasure and says it will go after American companies for causing “material damage to the legitimate interests of Chinese companies and relevant industrial sectors” and creating a potential threat to China’s national security.

American cos caught in trap

More Can Play at That Game

The global landscape is actively shifting as countries work to shore up and modernize their export control regimes.

In 2009, the European Union (EU) set up a community-wide regime for the control of exports, transfers, brokering and transit of dual-use items to ensure a common EU list of dual-use items, common criteria for assessments and authorizations throughout the EU.

Last year, Japan and Korea got into a major trade spat when the Japanese government removed South Korea from its so-called “white list” of preferred trading partners for strategic technologies, subjecting some Japanese exports to South Korea to new screening.

Japan’s placement of three chemicals used to make computer chips on the control list resulted in delayed shipments that affected the entire global semiconductor industry since South Korean companies account for nearly two-thirds of the world’s memory chips. South Korea retaliated by dropping Japan from its white list.

One Good Turn Deserves Another

For its part, China deemed its own “Unreliable Entity List” to be unreliable. In January this year (on the same date the U.S.-China Phase One deal was signed in Washington) the National People’s Congress in Beijing published a draft of China’s first comprehensive national Export Control Law, providing China with increased leverage to apply and counteract U.S. export control measures. Safe to say we’ll be reading a lot more about blacklisting in the coming years.

An interesting report to dive deeper:

2018 Report on Foreign Policy-Based Export Controls, U.S. Department of Commerce Bureau of Industry and Security

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.
chinese

From A to QI: The Global Rise of Traditional Chinese Medicine

Find Your Qi

Maintaining balanced Qi (many of us know it as “chi”) – the body’s vital energy level — is a bedrock of Traditional Chinese Medicine (TCM). To help your Qi flow, TCM offers herbal supplements and treatments like acupuncture and cupping.

Strongly promoted by the Chinese government, TCM has become a global industry and an economic driver for China. The sector grossed $130 billion in 2016. According to World Finance, China exported $526 million worth of TCM to the United States alone, making up 15 percent of China’s TCM exports in 2016, while China’s overall TCM exports grew 54 percent between 2016 and 2017.

Recalling the ancient spice routes, TCM is sprouting up as a traded item all along China’s modern Belt and Road routes. The Belt and Road initiative set a goal to register 100 TCM products and establish 30 TCM centers in Belt and Road countries by 2020.

Taking Root but Germinating Concerns

Meeting a goal of Chinese President Xi, TCM got a big boost in legitimacy in 2019 when the World Health Organization (WHO) included TCM for the first time in its global compendium of health conditions and treatments.

But many in the medical field have expressed concern over the move. TCM treatments may lack rigorous scientific study. Testing has revealed the presence of heavy metals, pesticides and toxins in plants grown and harvested in China, and standardization of natural ingredients is not well regulated.

Stats on Traditional Chinese Medicine

Chinese Ginseng in Wisconsin?

In part to remedy quality concerns, China’s TCM producers are partnering to establishing growing sites overseas. They include operations in Wisconsin, which produces over 90 percent of total U.S. cultivated ginseng. Global ginseng production is between 4.5 million and 5.9 million kilos per year. The United States produces roughly half a million kilos. Last year, U.S. ginseng exports were valued at about $30 million, with China the biggest buyer, though ginseng shipments were significantly dampened by 25 percent tariffs applied by China as part of the ongoing trade war.

As ginseng’s health benefits have become popularized in the United States, import demand for Asian ginseng has increased in recent years. The Asian variety is considered “hot,” versus American ginseng which has a “cooling” effect on the body, so trade may flow in accordance with the flow of consumers’ Qi.

Beyond ginseng, more small farms around the United States are producing a variety of Chinese herbs both for export and domestic use in response to concerns with the age and potency of imports, possible contamination, and over-harvesting of wild herbs in China.

The Side Effects of TCM

Africa has become the largest regional TCM export market for China. In 2015, Chinese researcher Tu Youyou won the Nobel Prize for Medicine for discovering the antimalarial properties of the Asian plant Artemisia annua. That validation increased confidence in the use of TCM, particularly in countries that suffer shortages of biomedical healthcare practitioners and in remote, rural areas that lack access to healthcare facilities. But many in the healthcare sector worry that the limitations or risks of TCM are not well understood and that patients turning to TCM may be less likely to seek proven treatments, causing a worsening of their conditions. Quality control and counterfeit medicines prevalent in Africa are also serious concerns.

WHO listing of TCM text

Another side effect is increased demand for African wildlife, already a serious problem. The plight of endangered species such as pangolins are well known, but common farm animals such as donkeys are now in high demand as well. Sought after for gelatin, TCM has driven demand to over four million donkeys per year and growing. Donkeys are being poached from small farmers and landowners and smuggled to such an extent that illegal donkey trade is being compared in severity to rhino poaching.

TCM is also spawning an increase in crocodile farming in Kenya, Zambia, Zimbabwe and South Africa. Eighty-five percent of African crocodile exports go to China, Hong Kong and Taiwan, which gives rise to yet another major concern. TCM can include the practice of eating of exotic wild animals. Wild animals can carry diseases transmitted to humans, as was the case with the SARS outbreak in 2002, traced to consumption of wild civet cat. Exotic species available in a wet market in China may also be the origin of the current strain of Coronavirus affecting thousands. Out of caution, China recently announced a temporary ban on wild animal trade.

Deep Trade Roots

It could be that the U.S.-China trade relationship is founded on traditional Chinese medicine. In February 1784, a cargo ship named Empress of China set sail for China loaded with nearly 30 tons of American ginseng. The profits from that trade prompted a congressional resolution encouraging further trade with China. President George Washington is said to have had Daniel Boone search forests for ginseng in an effort to help fund the fledgling U.S. government through trade with China.

Such is the storied history of TCM. But as TCM is traded globally in the modern age, the industry will need to find its own Qi for a balanced approach to quality, safety, and the sustainability of precious resources.

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Sarah Smiley

Sarah Smiley is a strategic communications and policy expert with over 20 years in international trade and government affairs, working in the U.S. Government, private sector and international organizations.

This article originally appeared on TradeVistas.org. Republished with permission.
shopping

American and Chinese Consumers are Shopping Like There’s No Trade War

What Trade War?

If shoppers are worried about the U.S.-China trade war, it’s not showing up yet in measures of their buying confidence or holiday retail sales.

We are more than a year into dueling tariffs between the United States and China, and we know that tariffs add costs to supply chains, but how much of those costs are passed on the consumer depends on decisions by manufacturers, buyers and retailers as well as the “import-intensity” of the products we buy.

So far, if prices have risen on consumer products, it’s not dampening American appetites to buy. And Chinese consumers don’t rely to a great degree on imports in general, so China’s retaliatory tariffs on U.S. imports don’t appear to be the biggest factor in their personal spending either.

Spending and the U.S. Economy

At the end of the third quarter, the Bureau of Economic Analysis reported that U.S. consumer spending was on track for $14.67 trillion this year, reaching an all-time high.

Personal expenditures make up 68 percent of the U.S. economy, and it’s consumer spending that’s keeping growth of our economy from slowing further. (By comparison, our “negative net exports” or total exports minus total imports, comprise five percent of U.S. GDP.)

Two-thirds of spending is on services such as housing and health care, which are largely impervious to the trade war. The remaining third is spent on non-durable goods such as clothing and groceries, and on durable goods such as cars and appliances.

Brimming with Confidence

The Conference Board’s Consumer Confidence Index is a monthly report on consumer attitudes and buying intentions. Despite analysts’ expectations that concerns related to trade disputes would cause U.S. consumers to become cautious, the index shows a trend of rising consumer confidence since 2009.

Breaking Records Online

Retail sales figures tell us whether that confidence is translating into spending. Indeed, American consumers are still filling their real and virtual shopping carts to the brim.

According to the National Retail Federation (NRF), more than 165 million people were expected to shop over the five-day Thanksgiving holiday weekend. Online sales for last holiday weekend are already being reported and appear to be breaking records.

Americans spent $7.4 billion online on Black Friday, up 19.6 percent from last year. We spent another $3.6 billion on Small Business Saturday, up 18 percent from last year. And while surfing from our desks at work, Americans spent $9.2 billon on Cyber Monday, up 16.9 percent from last year. More than half of Americans surveyed by NRF said they start their holiday shopping the first week of November. Online sales for November came in at a whopping $72.1 billion.

Chinese Consumers Outspent Us All

Cyber Monday is so successful in driving online sales in the United States that Canada, the UK and Germany have all adopted Cyber Monday to kick off their holiday shopping seasons. Australia launched “Click Frenzy” day. The Netherlands’ equivalent is linked to the December 5 Sinterklaas holiday.

But hands down, the world’s largest 24-hour online shopping day goes to China’s Singles Day held on November 11 annually. This year, Chinese online shoppers bought $38.3 billion on Singles Day alone. Think of it this way – that’s more than $1 billion every hour.

This is not a one-day phenomenon. If you were to overlay China’s consumer confidence index with that of the United States, they would look similar. Despite being slightly lower for China and with a dip in 2016 that we didn’t see in the United States, consumer confidence rose between 2014 and remained high in 2019, trade war notwithstanding. In mid-2019, retail spending in China surpassed retail spending in the United States for this first time.

Retail Spending in China Exceeds US

Beyond the Tariff Headlines

Financial analysts are watching China’s consumer spending carefully amidst the trade war. Many said this summer’s drop in car purchases was a harbinger that shoppers are growing wary, but the slowdown also coincided with the end of big discounts. Others say retail sales actually underestimate the strength of China’s overall consumer spending because those numbers offer just a partial picture of personal spending on goods and services, which include large expenditures on healthcare, education and leisure activities.

For this reason, some prominent Chinese investors are nonplussed by the Trump Administration’s tariffs. They look at a decline in certain manufacturing and exports as a structural shift in China’s economy – an “economic rebalancing” – that began long before the current trade war. In their view, household consumption will drive most of China’s future economic growth, and China’s consumer spending is not very dependent on imports.

According to World Bank data, consumer imports comprise just 13 percent of China’s overall imports. Most of the large multinational consumer goods companies now produce in China for the Chinese consumer. According to McKinsey analysis, across key consumer categories including personal digital devices and personal care products, Chinese brands have become credible competitors to foreign brands, acquiring greater market share – and shielding Chinese consumers from tariffs on U.S. imports.

Consumer Spending to Play Bigger Role in China’s Growth

Consumption is playing a much larger role in China’s economic growth than just a few years ago. In 2011, consumer spending accounted for less than 50 percent of China’s GDP growth. Last year, it accounted for 76 percent of GDP growth, outpacing both manufacturing investment and exports.

In fact, China’s total exports of goods and services as a percentage of GDP has dropped from a high of 36 percent in 2006 to 19.5 percent in 2018, with exports to the United States at just four percent.

That why China’s central bank is also monitoring consumer sentiment. In recently released results from its biennial survey of 18,600 residents in 31 provinces, nearly 80 percent of respondents expressed caution about spending and a preference for saving.

China’s politburo has directed the government to focus on turning up the tap of consumer spending by China’s growing urban middle class and to kick-start spending in rural areas. The government already cut personal income taxes and began offering subsidies for large ticket energy-saving home appliances and energy efficient vehicles. The government is expected to announce more measures in the coming months designed to goose household spending.

WB Chart Title China Exports as % of GDP

Business is Ill at Ease

Economists worry the trade war is causing a drag on economic growth, not just in the United States and China but globally. Businesses say the trade war with its escalating tariffs is a “wild card” in their planning. Uncertainty is causing them to hold back on capital expenditures.

It’s looking less likely the United States and China will agree to a “Phase 1” trade deal by the end of the year, but even if they do, the partial deal may not be enough to restore business confidence. If businesses continue to hold back on investments and reduce inventories, it could start to negatively impact jobs and incomes. This may be particularly true in China where a larger portion of the population is dependent on manufacturing jobs.

Consumers Keep Calm and Shop On

Meanwhile, holiday shopping is in full swing. Some holiday merchandise is already subject to tariffs on Chinese imports, but the tariffs the United States plans to impose on December 15 will affect many more consumer products. If imposed, buyers and retailers will have to decide how much cost to pass on to their suppliers and consumers in the coming year.

For now, shoppers are keeping calm and shopping on with resilience. But as a last line of defense against slowing growth, their confidence can be fragile. Where the trade war is concerned, buyer beware.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

sanitary paper

U.S. Sanitary Paper Product Market – Chinese Imports Rose 15% to $677M in 2018, Despite a Trade War

IndexBox has just published a new report: ‘U.S. Sanitary Paper Product Market. Analysis And Forecast to 2025’. Here is a summary of the report’s key findings.

In 2018, the revenue of the sanitary paper product market in the U.S. amounted to $12B. 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).

Overall, sanitary paper product consumption continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2014 when the market value increased by 2.3% y-o-y. Over the period under review, the sanitary paper product market attained its maximum level at $12.2B in 2015; however, from 2016 to 2018, consumption remained at a lower figure.

Sanitary Paper  Production in the U.S.

In value terms, sanitary paper production (disposable diapers and similar disposable products, and sanitary tissue) totaled $11.1B in 2018.

Exports from the U.S.

In 2018, the amount of sanitary paper product exported from the U.S. amounted to 128K tonnes, going up by 5.6% against the previous year. Over the period under review, sanitary paper product exports, however, continue to indicate a mild reduction. The growth pace was the most rapid in 2014 with an increase of 8.7% against the previous year. In that year, sanitary paper product exports reached their peak of 153K tonnes. From 2015 to 2018, the growth of sanitary paper product exports remained at a lower figure.

In value terms, sanitary paper product exports amounted to $373M (IndexBox estimates) in 2018. In general, sanitary paper product exports, however, continue to indicate a measured decrease. The growth pace was the most rapid in 2018 with an increase of 8.4% year-to-year. Exports peaked at $443M in 2014; however, from 2015 to 2018, exports remained at a lower figure.

Exports by Country

Japan (17K tonnes), Belgium (16K tonnes) and the Dominican Republic (10K tonnes) were the main destinations of sanitary paper product exports from the U.S., with a combined 34% share of total exports.

From 2013 to 2018, the most notable rate of growth in terms of exports, amongst the main countries of destination, was attained by Belgium (+77.9% per year), while the other leaders experienced more modest paces of growth.

In value terms, Japan ($50M), Belgium ($38M) and the Dominican Republic ($29M) appeared to be the largest markets for sanitary paper product exported from the U.S. worldwide, with a combined 31% share of total exports.

Belgium recorded the highest rates of growth with regard to exports, among the main countries of destination over the last five years, while the other leaders experienced more modest paces of growth.

Export Prices by Country

In 2018, the average sanitary paper product export price amounted to $2,904 per tonne, going up by 2.7% against the previous year. Overall, the sanitary paper product export price, however, continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2018 when the average export price increased by 2.7% year-to-year. The export price peaked at $2,943 per tonne in 2013; however, from 2014 to 2018, export prices failed to regain their momentum.

There were significant differences in the average prices for the major foreign markets. In 2018, the country with the highest price was South Korea ($3,747 per tonne), while the average price for exports to Belgium ($2,352 per tonne) was amongst the lowest.

From 2013 to 2018, the most notable rate of growth in terms of prices was recorded for supplies to Guatemala, while the prices for the other major destinations experienced more modest paces of growth.

Imports into the U.S.

In 2018, the sanitary paper product imports into the U.S. stood at 451K tonnes, going up by 10% against the previous year. In general, the total imports indicated a strong expansion from 2013 to 2018: its volume increased at an average annual rate of +10.6% over the last five-year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, sanitary paper product imports increased by +65.6% against 2013 indices. The most prominent rate of growth was recorded in 2014 with an increase of 15% y-o-y. Over the period under review, sanitary paper product imports attained their peak figure in 2018 and are expected to retain its growth in the immediate term.

In value terms, sanitary paper product imports amounted to $920M (IndexBox estimates) in 2018. The total import value increased at an average annual rate of +10.0% from 2013 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded over the period under review. The growth pace was the most rapid in 2014 when imports increased by 18% against the previous year. Imports peaked in 2018 and are expected to retain its growth in the immediate term.

Imports by Country

In 2018, China (367K tonnes) constituted the largest sanitary paper product supplier to the U.S., with a 82% share of total imports. Moreover, sanitary paper product imports from China exceeded the figures recorded by the second-largest supplier, Indonesia (17K tonnes), more than tenfold.

From 2013 to 2018, the average annual growth rate of volume from China amounted to +10.3%.

In value terms, China ($677M) constituted the largest supplier of sanitary paper product to the U.S., comprising 74% of total sanitary paper product imports. The second position in the ranking was occupied by Indonesia ($25M), with a 2.7% share of total imports.

From 2013 to 2018, the average annual growth rate of value from China stood at +11.3%.

Import Prices by Country

In 2018, the average sanitary paper product import price amounted to $2,041 per tonne, surging by 4.7% against the previous year. Over the period under review, the sanitary paper product import price, however, continues to indicate a relatively flat trend pattern. The pace of growth appeared the most rapid in 2018 an increase of 4.7% y-o-y. The import price peaked at $2,171 per tonne in 2014; however, from 2015 to 2018, import prices failed to regain their momentum.

Average prices varied somewhat amongst the major supplying countries. In 2018, the country with the highest price was China ($1,842 per tonne), while the price for Indonesia totaled $1,454 per tonne.

From 2013 to 2018, the most notable rate of growth in terms of prices was attained by China.

Companies Mentioned in the Report

Johnson & Johnson, Georgia-Pacific, Marcal Manufacturing, Hoffmaster Group, Professional Disposables, Cascades Tissue Group – North Carolina, Attends Healthcare Products, Principle Business Enterprises, Royal Paper Converting, First Quality Baby Products, Orchids Paper Products Company, U.S. Alliance Paper, Associated Hygienic Products, Allied West Paper Corp., Cascades Tissue Group – Pennsylvania, Playtex Products, Leaf River Cellulose, Rose’s Southwest Papers, Playtex Manufacturing, Tambrands Sales Corp., The Procter & Gamble Paper Products Company, The Tranzonic Companies, Tz Acquisition Corp., First Quality Products, Marcal Paper Mills, Soundview Paper Mills, Soundview Paper Holdings, Omganics

Source: IndexBox AI Platform