Cyprus: The Island of Business Opportunities in the Mediterranean

Francisco A. Laguna & Wojciech Kornacki

Cyprus is a rising regional transport hub in the Mediterranean.  The island’s economy has recently been rated one of the top 10 fastest improving economies with great potential in 2016, and thereafter. What is unique about Cyprus is that it is located near the Middle East but is also member of the European Union, and its official currency is Euro.

Cyprus (dark green) is a member of the European Union (EU members are in light green) that is located in the Southeastern Mediterranean. With its brand new multi-million private main port for trade, Cyprus it set to become a major transport and logistics hub in the Mediterranean. Courtesy of http://en.wikipedia.org.

Cyprus: Business Intelligence Summary

Cyprus is the largest island in the eastern Mediterranean, and although it is divided between Turkey and Cyprus, the whole island is considered to be European Union territory.  It population is approximately 800,000.  In 2015, country’s GDP was 17,421 billion Euros (~ US$ 19 billion), and it is expected to grow rapidly in the future. After significant reforms in business regulations, Cyprus is showing significantly improved economic performance. In addition, Cyprus is pushing hard to re-unify the entire island which would most likely create many new investment opportunities on the Turkish side of the island.

Currently, transport, trade and accommodation are some of the most important sectors of Cypriot economy.

Regional Transportation Hub

Cyprus’s commercial fleet is third largest in the European Union. Recently, the European Union has invested millions of euros to make Cyprus one of its main sea transport and logistics hubs.  In the last 2 years, that investment has transformed Cyprus’s main port, Limassol, into one of the most efficient and modern ports in the southern Mediterranean. The estimated economic benefit to the island approaches 2 billion Euros. In 2015, the port was privatized, and since then, it has breathed new life into Cyprus. Additional construction projects for oil and gas offshore bases and terminals are in progress. The port is expected to be fully operational in early 2017. Since the European Union is seeking to make Limassol a critical logistics hub in the region, and many European and international companies have already invested in it, this offers a great opportunity for additional business prospects in Cyprus.

Cyprus’s tourism and accommodation sectors are very well developed and continue to attract new investors. In addition to many very favorable tax and investment incentives, Cyprus is engaged in re-unification discussions which will create additional business opportunities in the areas of gas exploration, banking, and tourism on both sides of the island. Courtesy of http://en.wikipedia.org.

Opportunities in a Re-Unified Cyprus

While Cyprus has experienced significant economic growth, the Turkish Cyprus remains less developed, and its economy is much smaller. It is estimated that by 2035, a reunified Cyprus could generate 45 billion Euros or (~ US$ 50.5 billion) in economic output – more than double than what it is now. Re-unification would make it very easy for many companies to start developing the recently discovered gas fields on the Turkish Cyprus side. It would also lift the Turkish embargo on Cyprus-flagged ships which would dramatically increase shipping and transshipment of containers through Cyprus to Asia and the Middle East. Since the re-unification appears almost imminent, and both sides are aware that it makes economic sense, the time to consider Cyprus for investment and business opportunities is now.

Contact TransLegal with your questions concerning business opportunities in Cyprus.

India’s Latest Foreign Direct Investment Rules

Francisco A. Laguna

Last month, India further relaxed its laws governing foreign direct investment in various sectors.  This article summarizes the more significant amendments to the FDI Policy.

Broadcast Carriage Services & Cable Networks

Foreign investment in Broadcast Carriage Services and Cable Networks is now permitted up to 100% under the automatic route.  Previously, FDI above 49% required Government approval. However, change of control of the Indian company will require prior approval from the Government unless the same is subject to approval by the relevant sectoral regulator.

By http://flickr.com/photos/mitrebuad/ – http://flickr.com/photos/mitrebuad/2095927094/, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=4010131

Civil Aviation

100% FDI is now permitted in existing airports and air transport services. Government approval is required for FDI above 74% in existing airports and 49% in air transport services. There is some debate as to whether airlines operated by Indian companies which are majority foreign owned will be permitted to fly international routes, but this should be resolved in a short while.

Defense

Until now, Foreign direct investment in the defense industry has be permitted up to 49% under the automatic route and above 49% with Government approval if such higher investment was likely to result in access to technology within India. The Press Note clarifies that defense products include small arms and ammunition and confers discretion on the Government to consider any other reasons deemed relevant for granting approval for FDI above 49%. All other conditions continue as before.

Hong Kong Kinder Joy – Made in India. By Okstartnow (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)%5D, via Wikimedia Commons

Foods “Made in India”

With government approval, 100% FDI is now permitted for companies selling food products wholly manufactured or produced in India, including sales through e-commerce.  This should allow for in-store cafés or shops in food courts and will add to the overall retail experience for Indian consumers.  Note, however, that the 100% FDI is only for foods manufactured or produced in India.  Foreign investors are hopeful that this liberalization will soon be applied to other food products.

Pharmaceuticals

While foreign investment in brownfield projects has been permitted up to 74% under the automatic route (it was earlier capped at 49% for the automatic route), the following new conditions are applicable to any investment in brownfield projects. These projects involve the purchase or lease by a company or government entity of existing production facilities to launch a new production activity.

• Maintenance of production level of items falling within the National List of Essential Medicines for 5 years post investment at an absolute quantifiable level (bench marked to the highest production in the 3 financial years preceding the FDI);
• Maintenance of R&D expenditure for 5 years post investment at an absolute quantifiable level (bench marked to the highest production in the 3 financial years preceding the FDI); and
• Complete information on technology transfer, if any, must be provided to the relevant Ministry.

Private Security Agencies

The cap on FDI has been increased to 74%; FDI between 49% & 74% requires Government approval.

By Nazrila – Originally from en.wikipedia; description page is/was here, Public Domain, https://commons.wikimedia.org/w/index.php?curid=5843058

Technology Products

The new rules allow the Government discretion to relax sourcing norms for single-brand retailers that sell products using “state-of-art” or “cutting-edge” technology, in cases where local sourcing is not possible (Technology Products). The Department of Industrial Policy and Promotion (DIPP) issued Press Note 5 of 2016 Series on 24 June 2016 that states that sourcing norms will not apply for 3 years as of the commencement of business for such Technology Products. The Government’s approach of relaxing the norms, rather than providing a waiver, promotes its “Make in India” program.  It will be interesting to track whether FDI increases as a consequence of this provision, and, specifically, whether Apple and other tech companies will make FDIs in the country as a result.

All of the reforms discussed in this post are important and underline the incremental policy change which has long been hoped for. There is also a fair case to be made for the proposition that the FDI Policy is now fairly liberal and that the Government is open to considering proposals for FDI even more favorably where investment is coupled with capacity development and manufacturing.

TransLegal represents companies doing business in India in the biotechnology, foods and industrial sectors.  Call us with your questions related to doing business in India and how these new FDI rules may affect your business.

US Customs Reauthorization Bill Signed into Law

Francisco A. Laguna

On February 24, 2016, President Obama signed the Trade Facilitation and Trade Enforcement Act of 2015, H.R. 644 (Customs Reauthorization Bill), into law.

The law, which we summarized over the past two weeks, contains the most far reaching set of changes since the Customs Modernization (MOD) Act, including significant changes to the operations and programs of US Customs and Border Protection (CBP), new provisions for combating evasion of the antidumping (AD) and countervailing duty (CVD) laws, and the inclusion of brand new measures to protect intellectual property rights (IPR).

A CBP Officer directs a truck with a seaport container to an inspection area at a port. http://www.cbp.gov

CBP officials have indicated the agency will be busy developing and implementing regulations for the law. Some key dates laid out in the law include:

Section 901 – De Minimis Level

This section amends 19 U.S.C. § 1321(a)(2)(C) to raise the de minimis threshold from $200 to $800. This amendment shall apply to merchandise imported or withdrawn from the warehouse for consumption on or after March 10, 2016.

Section 304 – Copyright Enforcement while Application Pending

Section 304 calls for a process to enforce copyright protection for marks after the filing of a registration application, but before the application has been approved and the registration is in full force and effect. These steps are to take effect by August 2016.

Section 421 – Enforcement of AD/CVD Orders

The Department of Commerce has been authorized to administratively investigate AD/CVD evasion and requires CBP to collect or preserve for collection AD/CVD duties owed on evading imports. These amendments are effective August 2016. Regulations to put the changes into effect are also called for by August 2016.

Section 303 – IPR Enforcement – Circumvention Devices

Section 303(a) expands CBP’s seizure and forfeiture authority to explicitly include unlawful circumvention devices, as defined under 17 U.S.C. § 1201(a)(2) or (b)(1).  CBP has to prescribe regulations implementing this process by February 2017.

Section 116 – Importer of Record (“Known Importer”) Program

Section 116(b) requires the Commissioner to submit a report to Congress no later than August 2016 containing recommendations for determining the most timely and effective way to require foreign nationals to provide customs brokers with appropriate and accurate information (comparable to that which is required of United States nationals concerning the identity, address and other related information), and for establishing a system for customs brokers to review information maintained by relevant Federal agencies for purposes of verifying the identities of importers, including nonresident importers, seeking to import merchandise into the United States.

As with all landmark legislation, the regulatory process is where the details will be provided.  While regulations may not be issued immediately, importers may still feel the effects of this law sooner rather than later. For example, CBP has been taking steps to increase enforcement of AD/CVD and IPR provisions in anticipation of the passage of the law using existing processes. Importers are likely to see the effects of CBP enforcement under current processes.

Contact TransLegal with your questions concerning the Trade Facilitation and Enforcement Act of 2015 / Customs Reorganization Bill.

US Passes Trade Facilitation and Enforcement Act

Francisco A. Laguna

 This week, we continue our summary of the changes to US trade law to be implemented by Trade Facilitation and Enforcement Act of 2015 (2015 Trade Enforcement Act) which passed earlier this month by the Senate.

Small Business and State Trade Promotion Programs (Title V)

Title V contains various provisions aimed at aiding small businesses in export promotion activities. For example, it requires further outreach to small businesses on the potential impact of new trade agreements. It also establishes a grant program to states to carry out programs such as foreign trade missions, trade shows, and other forms of marketing and training for small businesses. States will undoubtedly take advantage of this program, and smaller companies should look into it if interested in international sales.

Other Enforcement Measures (Title VI)

Title VI establishes a Trade Enforcement Trust Fund to be used by the United States Trade Representative (USTR) and other agencies to enforce US trade agreements and trade rights under the World Trade Organization (WTO) and US free trade agreements (FTAs). The trust fund could also be used for trade capacity building efforts.

By Kevin McCoy, CC BY-SA 2.0

Title VI also requires US Customs and Border Protection (CBP) and Immigration and Citizenship Enforcement (ICE) to institute certain measures to stop illegal honey transshipment; and requires that the two agencies train and employ sufficient personnel to detect, identify, and seize cultural property, archeological or ethnological materials, and other fish, wildlife or plants that violate US laws. Title VI also codifies the establishment of the Interagency Trade Enforcement Center (ITEC).

Currency Manipulation (Title VII)

Title VII addresses issues regarding currency undervaluation, a main thorn in the recent trade promotion efforts. Among other things, Title VII:

• requires the International Trade Administration (ITA) to investigate alleged currency undervaluation in countervailing and antidumping duty investigations and provides a method for calculating the amount of undervaluation;
• requires the administration to actively engage with those countries found to manipulate exchange rates in order to urge implementation of monetary policies that would address the issue;
• sets criteria on what constitutes currency manipulation similar to existing International Monetary Fund standards;
• creates an advisory committee for the US Treasury Department on currency issues; and
• directs Treasury to take certain steps if it believes currency manipulation has occurred.

By Project Manhattan – Own work, CC BY-SA 3.0

The most contentious dispute involved competing proposals on currency manipulation that were not enacted in the final legislation, with the original Senate bill including a strict provision that would have enabled the US Department of Commerce to treat undervalued foreign currency as a prohibited government subsidy in countervailing duty investigations.

 

 

Renewal and Expansion of CBP Operations/Programs (Title VIII)

Title VIII of the Act consists of two parts. First is the US Customs and Border Protection Authorization Act, which formally establishes the US Customs and Border Protection, along with operational offices within CBP and the positions of the Commissioner and Deputy Commissioner. Although the Act provides for a number of name changes to the internal offices within CBP and structure of their leadership, it is largely a formal codification of the existing structure and role of the agency. In fact, Section 802 specifically affirms that CBP shall continue to carry out the functions, missions, duties, and authorities previously vested within CBP prior to the passage of this legislation, and all rules regulations and policies issued by CBP remain in effect.

The second part of Title VIII is the Preclearance Authorization Act of 2015, which authorizes CBP to operate preclearance locations in foreign countries, provided an aviation security preclearance agreement is in effect. The provisions of Preclearance Authorization Act of 2015:

• set forth various reporting requirements to Congress prior to entering into a preclearance agreement with a foreign country to enable Congress to comprehensively assess the appropriateness of commencing the preclearance operations and monitor the resources allocated to preclearance locations;
• incorporate certain security measures, including requiring Transportation Safety Administration (TSA) to prescreen passengers and their baggage if the foreign government has not maintained security standards comparable to the US, and prohibiting preclearance locations in foreign countries that do not routinely provide stolen passport information to INTERPOL or the United States; and
• allow CBP to enter into cost-sharing agreements with the airport authorities (where preclearance locations are established) in foreign countries for preclearance operations costs, immigration services, and agricultural inspection services, enabling CBP to receive payments in advance of the incurrence of the costs or on a reimbursable basis.

Miscellaneous (Title IX)

Title IX covers a broad array of miscellaneous provisions, though “miscellaneous” may be a misleading description as some of the provisions were the most sought after changes advocated by the trade community. Among the changes provided for in this Title are the following:

• 

  By Henryvb at German Wikipedia, CC BY-SA 3.0

  raises the amount allowed to be entered on a “manifest entry” as de minimis from $200 – $800 (Sec. 901);

• increases the time required for consultations with Congress on certain administrative actions involving international trade and requiring certain minimum time periods for consulting with business on such actions (Sec. 902);
• enhances certain provisions of Chapter 98 regarding goods returned to the United States to both enlarge the scope and make them more user friendly (Sec. 904);
• removes the entry requirement for certain bulk cargo residue returning to the United States in Instruments of International Traffic after export from the US (Sec. 905);
• provides for numerous changes to the current duty drawback statute, including requiring certain substitution drawback determinations to be based on classification in the same 8-digit tariff heading, amending the requirements for establishing “proof of export” and certain time periods for filing claims, and providing for joint liability for the claimant and the importer (Sec. 906);
• makes technical corrections to certain tariff classifications for recreational performance outerwear and to Additional US Note for Chapter 64 relating to certain protective active footwear (Sec. 912 and 913);
• creates a trade preference for Nepal similar to African Growth and Opportunity Act (Sec. 915);
• Allows for the implementation of Aisa-Pacific Economic Cooperation Agreement providing for duty reductions on certain environmental goods (Sec. 916);
• adopts specific country of origin marking requirement for certain steel castings (Sec. 917);
• extends the period for which certain customs fees may be charged and the rate charged (Sec. 920);
• increases the penalty for the failure to file certain tax returns (Sec. 921); and
• imposes a moratorium on certain internet taxes being imposed by the States or other localities (Sec. 922).

Contact TransLegal with your questions concerning the Trade Facilitation and Enforcement Act of 2015.

US Passes Trade Facilitation and Enforcement Act

Francisco A. Laguna

After more than two years of debate, last week, the United States Senate passed the Trade Facilitation and Enforcement Act of 2015 (2015 Trade Enforcement Act). The legislation contains the most far reaching set of changes since the Customs Modernization (MOD) Act. Of particular significance is the inclusion of brand new measures to protect intellectual property rights and to combat antidumping and countervailing duty violations, including a mandate that Customs and Border Protection (CBP) establish its own program for these purposes.

By U.S. Customs and Border Patrol

Surprisingly, the major provisions of the Act received almost universal support from the trade community. The House had passed the bill last year, but it got bogged down in the Senate because of an unrelated internet sales tax provision. While the provision remains in the final version of the law passed by the Senate, the Senate leadership in return has agreed to take up new Internet sales tax legislation this year. President Obama is anticipated to sign the legislation into law this week.

The 2015 Trade Enforcement Act makes some significant changes to the operations and programs of CBP, adds new provisions to the antidumping and countervailing duty laws, including new procedures to combat evasion of AD/CVD orders, and revamps the drawback laws.

This week, we begin a short summary of the more significant changes. We will continue our summary next week.

Trade Facilitation and Trade Enforcement (Title I)

Title I establishes a various trade facilitation and enforcement programs. It:

By WestportWiki – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=34507625

• requires CBP to work with the private sector and other federal agencies to ensure that all CBP partnership programs provide meaningful trade benefits to program participants;
• authorizes CBP programs, including customs modernization efforts such as the Automated Commercial Environment (ACE) and the International Trade Data System (ITDS), also known as the “Single Window” approach to collecting trade data;
• formalizes the Commercial Customs Advisory Committee (COAC) and the Centers of Excellence and Expertise (CEEs);
• creates a National Targeting Center (NTC) within the Office of Field Operations that will gather data and assess risk on each of CBP’s Priority Trade Issues (PTIs): 1) agricultural programs; 2) antidumping and countervailing duties; 3) import safety; 4) intellectual property rights; 5) revenue; 6) textiles and wearing apparel; and 7) trade agreements and preference programs;
• requires CBP to develop criteria for assigning importer-of-record identification numbers; and
• establishes a new importer program that directs CBP to adjust bond amounts for new importers based on the level of risk assessed by CBP for revenue protection. CBP is required to develop risk-based guidelines and procedures to ensure increased oversight of imported products of new importers, including new non-resident importers.

Import Health and Safety (Title II)

Title II creates an interagency import safety working group, chaired by the Secretary of Homeland Security. The group is responsible for developing a joint import safety rapid response plan to establish protocols and practices that CBP, in conjunction with other federal, state and local authorities, must use when responding to cargo that poses a threat to the health or safety of US consumers. Title II also requires joint exercises with these entities and training for CBP port personnel in enforcement of import health and safety laws.

Import-Related Protection of Intellectual Property Rights (Title III)

Enforcement of intellectual property rights remains one of CBP’s highest priorities. Accordingly, the provisions of Title III will be one of the most scrutinized areas of the 2015 Trade Enforcement Act. Specifically, Title III:

• authorizes and directs CBP to share information with rights holders so that they could help to quickly identify whether a product entering the United States is in violation of a copyright or trademark. Rights holders could even examine and test the merchandise;
• authorizes CBP to seize merchandise if it is found to be in circumvention of IPR laws;
• requires CBP to notify an injured right holder if they are included on an annually revised, CBP-maintained list (i.e., if rights are recorded with CBP);
• establishes a National Intellectual Property Rights Coordination Center within CBP to coordinate actions with other agencies and conduct outreach to importers; and
• calls for an increase in IPR enforcement personnel.

Enforcement of Trade Remedy Laws (Title IV)

The Act adds significant new provisions to deter evasion of antidumping (AD) and countervailing duty (CVD) orders. Directed largely at steel imports, the new provisions, called the “Enforce and Protect Act of 2015” are likely to be invoked frequently by US producers combating imports under an AD or CVD order.

U.S. Customhouse, 555 Battery St, San Francisco

In particular, the new law establishes a whole new procedure within CBP which allows US producers or wholesalers, unions, foreign manufacturers or exporters, or trade associations of a covered product to file an allegation that a party has entered covered merchandise through evasion. Importers beware!  As soon as CBP can get this procedure up and running, it is likely to be very active.

Once a complaint is filed and accepted, CBP is required to conduct a formal investigationwith specific deadlines.

CBP can issue questionnaires just like in a trade remedy cases to importers and foreign producers.

Failure to respond will result in “adverse inferences” regarding the alleged evasion.

If evasion is found, CBP can suspend liquidation, order payment of duties owed, and pursue an enforcement action.

The new anti-evasion measures of Title IV also include various directives for CBP to target and investigate potential evasion of AD and CVD orders, including setting up a new Trade Remedy Law Enforcement Division to more aggressively investigate possible evasion cases, and conducting aggressive auditing of firms at high risk. Failure to cooperate in an investigation by an importer or foreign exporter may result in a finding of evasion.

Contact TransLegal with your questions concerning the Trade Facilitation and Enforcement Act of 2015.

Investing in Jamaica

Francisco A. Laguna & Rolanzo White

After rebounding form the financial crisis of 2008, Jamaica is now welcoming foreign investors. The government has turned its attention to bolstering the economy and continuing impressive performance in tourism, logistics, and manufacturing.

The Jamaican Government, led by the Jamaica Promotions Corporation (JAMPRO), is creating an environment conducive to foreign direct investment. JAMPRO is an Agency of the Ministry of Industry, Investment and Commerce that promotes business opportunities in export and investment to the local and international private sector. With the debt to GDP ratio declining as a result of debt restructuring and fiscal contraction (estimated 140% at the end of fiscal year 2014/15), Jamaica is ripe with opportunity.

“Karibik Jamaika Position” by Raymond de – Raimond Spekking – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

The Jamaican economy is driven by foreign direct investment (FDI). Jamaica received an estimated US$ 551 million in FDI inflows for 2014. The country has a strong relationship with the United States and the United Kingdom, and the levels of FDI can be partly attributed to these relationships. The World Bank has also been extending credit and development assistance to Jamaica through several projects in various sectors.

In May 2013, the Jamaican Government implemented the Growth Agenda Reform Program, supported by a four-year loan arrangement under the International Monetary Fund’s Extended Fund Facility (EFF), which provided Jamaica with Special Drawing Rights (SDR) of US$ 932.3 million. The program’s goal is to improve the business environment and facilitate strategic investments.

The Jamaican Government has made a point to create a legal atmosphere that supports private enterprise. Jamaica has an independent judicial system that is based in English Common Law which upholds the sanctity of contracts. Jamaica gives “National Treatment” to the profits foreign investors make on the island, and they do not put limits on the foreign control of companies nor do they restrict non-residents from buying real estate. Under the Omnibus Tax Incentive Framework, all investors benefit from a non-discriminatory and consistent tax incentive regime that seeks to catalyze foreign direct investment. As a result, Jamaica has jumped 27 places to achieve an overall ranking of 58 out of 189 economies, according to the 2015 Doing Business Report: the highest ranking in the Caribbean.

The most dynamic sectors in Jamaica have been tourism, logistics, and manufacturing.

TOURISM

“Doctors Cave Beach” Licensed under Public Domain via Commons

Jamaica received just over 2.08 million stay-over tourist arrivals in 2014, according to newly-released data from the Ministry of Tourism. That represented a 3.6 % increase over 2013, when the country topped 2 million visitors for the first time and added US$ 2 billion to the local economy. Potential investors are invited to explore the opportunities that exist for the development of boutique, large scale and city hotels. The government is also working to complete Casino Gaming and Timeshare legislation, which will add new dimensions to Jamaica’s dynamic tourism industry.

LOGISTICS

“Kingston Harbour (cmakin) 2004-09-19” by Carey Akin (cmakin) from Manvel, Texas, USA Licensed under CC BY-SA 2.0 via Wikimedia Commons

Jamaica is home to the Kingston Harbor, the world’s seventh largest natural harbor. With the expansion of the Panama Canal, Jamaica is set to benefit from innovative and advanced commercial ventures in logistics. Jamaica will look to offer better logistic efficiencies to markets in the region by leveraging their existing infrastructure. The island enjoys a prime location in proximity to major East-West shipping lanes and direct connections to all regional ports, which has impressed other countries, including China. According to Prime Minister Portia Simpson Miller, China Harbor Engineering Company Limited and its parent company will invest between US$ 1.2 and 1.5 billion in the development of a transshipment port in Jamaica.

MANUFACTURING

Jamaica’s manufacturing sector is important to the national economy, accounting for 8.4 % of GDP and generating export earnings of US$ 772.5 million in 2013. The country boasts over 300 companies in the sector engaged in a varied range of manufacturing enterprise that include agro-processing, bedding, leather, stone and clay products.  Jamaica is also showing growth in mining, agriculture, and business process outsourcing (BPO).

Jamaica has shown resiliency and impressive growth to become an investor paradise. Investors may want to take a second look at the land of wood and water. They will be surprised by their economic growth.

With offices in Jamaica and throughout the Caribbean, contact TransLegal to learn more about FDI in Jamaica and the region.

New High Speed Silk Road from China to European Union

Francisco A. Laguna & Wojciech Kornacki

This week, we continue our discussion of China’s One Belt – One Road project to establish a 21^st Century Silk Road over land and by sea, focusing on the development of high speed rail connections between China and the European Union.

China is creating a network of new high speed train rail links connecting it to the European Union via Central Asia.  As more and more factories move deeper into the Western parts of China, Chinese officials and businessmen alike realize that it is very expensive and time consuming to move their products to the international markets by air or water.  To remedy this, China is spending billions of dollars to build new rail links across Central Asia.

US$ 242 Billion in Investments over the Next 8 Years

Currently, China plans to build two rail links to Europe. One going directly through the Russian Federation (marked in light blue). The second one going through Kazakhstan and Ukraine to Poland and beyond. (marked in green). Both rail links will dramatically reduce the time and costs for all businesses using the rail system to connect the European Union with China, and offer countless business and investment opportunities. Courtesy of http:// http://en.wikipedia.org

China envisions two major train rail links.  The first one will go through the Russian Federation and Belarus to Poland and the rest of Europe.  The second one will travel through Kazakhstan and Ukraine to Southern Europe.  It is expected that China will spend approximately US$ 242 billion over the next 8 years on a 7,000 km high speed rail link from China to Moscow alone.  This will mean massive Chinese investment and spending across Central Asia.  It will also mean thousands of new jobs, major growth potential for many cities, and the need for supporting infrastructure.  When finished, this will be the longest rail network in the world moving trillions of dollars in goods.

The Benefits of Shipping Goods by Train

Shipping goods by train is cheaper, faster and more environmentally friendly.  According to the Eurasia Express Bridge, transporting goods from China to and from Europe takes approximately 14 days.  This also includes customs clearance for many different countries.  The delivery of the same products by sea takes almost twice or three times as long, and is more expensive.

Typically, China transports its manufactured goods to its coast, and then uses maritime shipping companies to ship it to Europe or elsewhere via the Suez Canal. To mitigate time and expense, China is currently looking to utilize train links to transport it directly to Europe, in essence creating the 21st century version of the Silk Road.

Chongqing, People’s Republic of China. It is located in central China. This city is expected to be the starting point for the high speed iron silk road. Courtesy of http:// http://en.wikipedia.org

Several European businesses have been sending products to China by train for years.  This includes BMW and other major manufacturers.  It is similarly cheaper for European businesses to transport goods to China by rail than by sea or air.

In 2013, one of the first trains from China loaded with electrical supplies arrived in Łódź, Poland.  Since then, the number of connections and the volume of products have grown rapidly, and they expected to grow even more.  These trains also travel to other parts of Europe, including France and Spain.  Beijing estimates that the annual trade between Europe and China is expected to exceed $ 2.5 trillion in a decade once the rail links are completed.

If you are interested in learning more about future business opportunities involving the new high speed silk road, TransLegal or call 1.703-566-9427.

The Goals and Benefits of the Trans-Pacific Partnership & Transatlantic Trade & Investment Partnership

Francisco A. Laguna & Amy Turner

Today, we continue with our series on the Trans-Pacific Partnership (TPP) and Transatlantic Trade & Investment Partnership (TTIP) by discussing the goals of the partnerships and whether the trade agreements will truly benefit US businesses.

The Goals of the TPP and TTIP

Singapore Cargo Terminal
© CEphoto, Uwe Aranas / , via Wikimedia Commons

The principal goals of the TPP are to promote and grow trade and investment among the partner countries, to stimulate innovation, general economic growth and development, and to encourage job creation and training programs. Although the actual text of the treaty is classified, general outlines and summaries of the agreement have been provided. The United States Trade Representative (USTR) informs that the TPP seeks to address issues that promote: 1) regulatory coherence; 2) competitiveness and business facilitation; 3) Small and Medium-Sized Enterprises (SMEs); and 4) Development.  The TPP seeks to achieve these goals through comprehensive market access by eliminating barriers to goods, services, trade and investment.  Such access would create new opportunities for workers and businesses in the member states and immediately benefit consumers. In addition to tariff elimination, the TPP would adopt common guidelines and standards for intellectual property, enforcement of labor and environmental laws the establishment of an investor-state dispute settlement mechanism.

Port of Hamburg
By Franzfoto (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)%5D, via Wikimedia Commons

The Obama Administration considers the TTIP a companion agreement to the TPP.   According to the USTR, the TTIP is intended to be an ambitious and comprehensive trade agreement that significantly expands trade and investment between the United States and the EU, increases economic growth, jobs, and international competitiveness and addresses global issues of common concern.  The European Commission categorizes the topics under discussion into three broad areas: market access; specific regulations; and broader rules and principles, and modes of co-operation.  The TTIP goal is to liberalize 1/3 of global trade”, which, proponents argue, will create millions of new paid jobs. The true economic gains from the TTIP, however, will depend on how the US and EU contend with their oftentimes duplicative and conflicting rules related trade and other regulatory issues.  TransLegal routinely assists companies comply with regulatory requirements overseas.  Uniform regulations greatly help expand trade among nations simply by making it easier for businesses to understand their obligations.

The Bottom-Line Issue: Will the TPP and TTIP benefit American Businesses?

Wish we could answer that one!  Not surprisingly, and as in all things economic and political, the experts disagree how the TPP and TTIP will affect American businesses.

With regard to the TPP, estimates predict that it would generate $5 billion in economic benefits to the US in 2015, and $14 billion in 2025. Proponents state that if the impact of investment liberalization were taken into consideration, the economic benefits would likely be larger.

Port of Miami, Florida
“Port of Miami Florida”. Licensed under Public Domain via Wikimedia Commons

Proponents also argue that small businesses may actually benefit from the trade liberalization because they are less likely than large businesses to establish overseas subsidiaries to overcome existing trade and non-trade barriers.  Critics, however, state that the winners of the TPP agreement would be larger US businesses in the agriculture, insurance, manufacturing, pharmaceutical, technology sectors that can be poised to expand exports as nations ratify the treaty.

The European Commission says that the TTIP has the potential of increasing overall trade between the two parties as much as 50%.  It also claims that the TTIP would contribute €120 billion to the EU economy, €90 billion to the US economy and €100 billion to the economies of other countries.  If the TTIP were only to focus on tariffs, it is estimated that the partnership would result in an annual EU GDP growth of €24 billion by 2027 and annual growth of €9 billion in the United States. If shared equally among the affected people, the Commission notes that the most optimistic GDP growth estimates would translate into additional annual disposable income for a family of four of €545 euros in the EU and €655 euros in the US.

Critics on this side of the pond note that long–standing membership in the World Trade Organization, work by the Transatlantic Economic Council and other trade agreements like U.S. Open Skies Agreement have already resulted in low trade barriers between the US and the EU. Therefore, the deal should focus on non-conventional barriers such as overriding national regulations regarding fracking, GMOs, finance and copyright.  This may prove a challenge especially in those areas of agriculture, food and environmental law where the the parties are particularly far apart.

We will continue this series in mid-Autumn. TransLegal assists US and EU companies understand and comply with regulatory laws and regulations through our network of 51 correspondent offices in 51 countries.  Contact us with your questions concerning regulatory requirements in the country that interests you.

The Impact the Grand Interoceanic Canal Could Have on Your Wallet

Francisco A. Laguna & Wojciech Kornacki

This third and final article of our series on the Grand Interoceanic Canal examines the financial impact on the canal may have on consumers.

Many experts predict that the new interoceanic canal will significantly reduce the time and costs of shipping goods between Asia and Europe, Asia and the U.S. East coast, and Asia and Brazil, all of which should result in lower prices to consumers. However, lower prices come with numerous environmental and construction challenges which may be difficult to overcome.

The Benefits:

Maersk triple E class ships are the largest ships ever built by cargo volume. This class of ships is longer than the maximum length of the American aircraft carrier Enterprise and not every sea port is equipped to handle them. They are designed to carry 2,500 containers. These ships are too big for the Panama Canal, but once completed, the Interoceanic Canal in Nicaragua should be able to handle them. Courtesy of http:// http://en.wikipedia.org

Lower Prices: Prices for some products may drop once the interoceanic canal is operational in Nicaragua. Recall that the Panama Canal cannot accommodate many of today’s super transport ships. Thus, with specific regard to the United States, currently, many goods coming from Asia are shipped to the West Coast of the US, and then have to be transported by train or truck to eastern locations, all of which creates additional expenses. The Interoceanic Canal will accommodate super tankers, allowing for the direct shipment of goods and commodities without the need for the middleman on the West Coast of the US.

More Choices: Shippers are also stating that another benefit of the Interoceanic Canal is that it will create choices for international shipping companies. Currently, the only two choices are either the Suez Canal or the Panama Canal. However, the Panama Canal cannot handle the largest triple E cargo ships, even after $5 Billion in improvements. In addition, shipments through the Panama Canal are sometimes delayed by 20 to 30 hours, simply due to volume. Currently ships from Asia using the Panama Canal arrive in New York within 26 days, which is 2 days quicker than through Suez Canal. Once the Interoceanic Canal in Nicaragua is operational, the shipping companies will have another option for shipping goods.

Less Time: The Interoceanic Canal is expected to eliminate approximately 500 miles of travel to get through the Panama Canal. Since shipping is a very competitive industry, shipping companies constantly look for ways of improving their profitability, and the shortened distance should improve the shippers’ bottom line.

The Risks:

 

The Interoceanic Canal is expected to increase the trade between Asia and the U.S. East Coast, Europe and Brazil. Currently many goods from China are transported through the United States or Canada. By having an interoceanic canal capable of handling the biggest cargo ships in the world, this may no longer be necessary. Courtesy of http:// http://en.wikipedia.org

Actual Costs: While consumer prices for some goods may experience a decline, it is important to keep in mind that the parties financing the project are expecting to make a profit. The project is estimated to cost over $45 Billion, and that Hong Kong-based developer, HKND Group, will have a 50-year lease. While prices may drop, shipping goods and commodities through Nicaragua will not be free. The President of Nicaragua, Daniel Ortega, hopes that this project will make his country rich or at least end extreme poverty.

Environmental Costs: The environmental impact could result in significant financial hardships for Nicaragua and the region. Critics argue that the Interoceanic Canal and all the mega triple E cargo ships traveling through Nicaragua, and through Lake Nicaragua (Lake Cocibolca), the largest fresh water reserve in Central America, could have very serious environmental consequences. In addition, the project will also cut through 4 nature reserves. According to Nicaraguan officials, the project also involves building seaports, free trade zones, bridges and an airport, among others – all resulting in additional environmental issues. Some proponents point out that some of the proceeds from the canal could be used to protect the Nicaraguan environment, but no definitive approach has been adopted.

International Issues: Nicaragua’s neighbor, Costa Rica, has expressed concern over The Interoceanic Canal. Costa Rican officials are concerned with how little information about the actual project has been made public, and with the fact that there has been no environmental assessment.

Major environmental, financing and construction challenges have to be resolved before the interoceanic canal is declared a success. Once built, it is likely to have positive economic impacts around the world, and it will result in greater flow of commerce from Asia to the East Coast of the United States, Brazil and Europe. The success of this project will not only be measured by the flow of commerce, but it will also depend in part on how it deals with its challenges. TransLegal will continue to monitor as the project progresses.

The Grand Interoceanic Canal and the Economic Future of Nicaragua

Francisco A. Laguna & Wojciech Kornacki

 Today, we continue our discussion of the Grand Interoceanic Canal being built through Nicaragua by examining key facts about the project and its expected economic impact on Nicaragua.

The project is several times greater than the annual gross domestic product of Nicaragua. The Nicaraguan government estimates that it will create double-digit growth once completed in 2019.

The Project

Lake Nicaragua is expected to bear the main ecological brunt of the canal. The lake which serves as the main source of water for Nicaragua, is already under threat by poorly treated waste water, global warming, agrochemicals, and spread of algae, among others. Some have expressed concerns about the environmental impact study that has been rushed through the Nicaraguan legislature within 24 hours. Courtesy of http:// http://en.wikipedia.org

The Idea: The idea behind the project is over 100 years old. In early 1900s, the United States was considering building an interoceanic canal in Nicaragua. However, in the end, the United States opted for Panama because of the concerns over the volcanic activity in the area of the proposed canal in Nicaragua. Currently, the canal is expected to be twice the depth and three times the length of the Panama Canal. We did not uncover any information of how the concerns over volcanic activity and potential earthquakes have been resolved presently. In addition, TransLegal represented a client in the early 2000s interested in raising funds for a canal through Guatemala.

The Costs: The project is estimated to cost approximately $50 billion over the next 5 years, but financing is unclear. The HKND Group plans on 6 sub-projects which will include 2 ports, an international airport, roads, a power station, a cement factory, a steel factory and several other facilities. In addition, a major railroad line will be connected to this project. Other costs may include massive population resettlement and unknown environmental costs.

The Country: This cost of this project is several times bigger than the annual gross domestic product of Nicaragua, which the World Bank estimates at $11.2 Billion (2013). While Nicaragua has been making steady economic progress in the recent years, past decades included political and para-military violence. Currently, Nicaragua is one of the poorest countries in the region. Nicaragua is unable to finance the project by itself.

The Builder: According to its own website, the HKND Group is a privately-held international infrastructure development firm headquartered in Hong Kong, PRC, with its offices around the world. Its Chief Executive Officer, Wang Jing, has over 20 years of successful experience in management and investment. However, concerns have been expressed that the company has no experience in canal building as well as the transparency of the project. Major partners of the HKND Group include the China Railway Construction Corporation, an Australian mining company MEC Mining, and Chinese construction equipment company XCMG.

Lake Nicaragua: Lake Nicaragua, also known as Lake Cocibolca, is a major source of water for Nicaraguans. A 2013 World Bank study indicates that the lake is already threatened by eutrophication, agrochemicals and poorly treated waste water, among others. Eutrophication essentially means the spread of algae blooms which deteriorates water quality. Thus, establishing an interoceanic trade route through the lake may cause additional concerns, and the displacement of tens of thousands of people.

The Potential Economic Benefits for Nicaragua

In early 1900s, the United States considered building the interoceanic canal in Nicaragua, but it was later decided that Panama was the best place for it. Over one hundred years later, major concerns still exist over the project, including economic feasibility, environmental impact, earthquakes, and funding, among others. Courtesy of http:// http://en.wikipedia.org

Annual Growth: The Nicaraguan government estimates that its GDP will increase by 11 annually as a result of the canal, which would dramatically improve its economic outlook. This would in turn help the Nicaraguan economy grow, create more and permanent jobs and increase revenue. If successful, this project could contribute to making Nicaragua one of the richest countries in the region. The cost of such success remains to be seen.

250,000 Future Jobs: Francisco Telemaco Talavera, president of the National Council of Universities and project spokesman, strongly believes in the benefits of this canal. The project and its sub-projects are expected to generate 50,000 jobs in the construction industry and another 200,000 permanent jobs once completed. These are significant numbers for a country that has experienced an unemployment rate of ~ 10 percent between 2010 and 2014. The potential of incorporating 250,000 individuals into the market economy would be tremendously beneficial to Nicaragua, a nation of 6 million.

Source of Revenue: The Suez Canal and the Panama Canal are major sources of revenue for Egypt and Panama respectively. With its enormous size and depth, the Grand Interoceanic Canal is expected to be able to handle the biggest ships in the world. Currently, the Panama Canal is too narrow to accommodate such big ships. Thus, if successful, the canal may prove highly profitable to Nicaragua. However, before the people of Nicaragua start benefitting from it, the Nicaraguan government, the HKND Group and its partners will have to overcome major financing, design, environmental and social obstacles.

In the next and last article of this series of articles examining the Grand Interoceanic Canal, we will examine how this project is expected to impact Panama with its own interoceanic canal, other countries in the region, and international seaborne shipping companies.

TransLegal assists clients in with trade issues throughout the region. Call us with your questions.