From Left to Right: Nawaf Alfaouri, Economic Development Specialist, Greenfield Advisors; the Honorable Lieutenant Governor Cyrus Habib; His Excellency Ambassador Weiss of Malta; Pedro Costa, Consular of Brazil)

Nawaf Alfaouri, Economic Development Specialist at Greenfield Advisors, was invited as a local economic leader to meet with foreign consulates and the Legislative Committee on Economic Development and International Relations on June 20, 2017. The meeting was held as a response to falling state exports and seemingly unfavorable recent economic trends. The Legislative Committee on Economic Development and International Relations (LCEDIR) is a bipartisan, bicameral committee of the legislature, which is authorized under Washington state law (Title 43.15.060 RCW) to study and review economic development issues. The committee’s duties include special emphasis on international trade, tourism, investment and industrial development, and assisting the legislature in developing a comprehensive and consistent economic development policy. The lieutenant governor serves as the committee’s chair. The committee consists of six state senators and six state representatives, with three Democratic members and three Republican members appointed from each legislative body.

To establish fruitful negotiations, Lieutenant Governor Cyrus Habib invited state economic leaders and foreign consulates from the Consular Association of Washington to attend the meeting and contribute to the discussion. The Consular Association is a multifunctional organization created in 1997 to embrace the importance of consular, economic, and international cultural affairs in the State of Washington. Alfaouri was among the local economic leaders involved in the discussion.

Among the issues discussed, the most crucial were the renegotiation of NAFTA, the status of Washington as a port state, and the decline in state exports.

The Issue of NAFTA renegotiation

On the cusp of the Mexican presidential elections and mid-term U.S. elections, the issue of a NAFTA renegotiation has been difficult to avoid. The Trump administration intends to move very quickly on launching NAFTA talks, which can begin as soon as Aug. 16, right after the conclusion of a 90-day consultation period in the U.S. President Trump has noted the U.S. is still discussing the specific start date with its partners. The next steps in the U.S. consultation process include public hearings scheduled for June 27-29 and the release of a detailed summary of NAFTA negotiating objectives on July 17.

Lawrence MacAulay, Canada’s agriculture minister, indicated that Ottawa was waiting for the Americans to set the table for the NAFTA negotiations. One high-priority issue for the U.S. will be seeking stronger intellectual property protection across the board within NAFTA, so that it covers patents, copyrights, and trademarks. According to the Trump Administration, the current NAFTA agreement is somewhat deficient in this area, and the U.S. has issues with both Canada and Mexico when it comes to the protection of its intellectual property.

Robert Lighthizer, Trump’s U.S. Trade Representative, stated that the U.S. promises tougher enforcement on the NAFTA deal. The U.S. would push for Canada and Mexico to increase their duty-free levels, known as “de minimis,” which would liberalize cross-border online shopping. Canada was noted to have one of the lowest de-minimis allowances in the world for online duty-free shopping. Canadian consumers can purchase $20 worth of goods online from retailers like Amazon and eBay before duties kick in, compared to an $800 threshold in the U.S.

In another area, U.S. officials — including Treasury Secretary Steve Mnuchin and several committee members — are debating whether to press for a provision in NAFTA on currency manipulation, even though the issue is “generally not a problem” with respect to Canada and Mexico, Lighthizer said.

A key sector for US NAFTA renegotiation is agriculture, a sector deemed by President Trump as a “disaster.” Canadian Agriculture Minister Lawrence MacAulay and Mexican Agriculture Secretary Jose Calzada met with U.S. Agriculture Secretary Sonny Perdue to negotiate new rules on Canada’s dairy-supply system and how Mexico plans to enforce a recently concluded agreement limiting its sugar exports to the U.S. Trump’s talk of pulling the U.S. from NAFTA spooked markets this year, pushing the Mexican peso to a record low in January. But the prospect of a major upheaval in North American trade eased in recent weeks after Trump backtracked on his threats and started the process of renegotiating the terms of the deal. Those talks, which will be led by Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer, are set to begin as soon as August.

Lieutenant Governor Cyrus Habib delivers his speech during a meeting among Senators, House Representatives, Consulars and Economic Leaders.

After China, Canada and Mexico are the second- and third-biggest buyers of U.S. farm goods, respectively. The three nations sold $91.6 billion of farm goods to one another last year, according to United Nations data. Mexico buys more U.S. corn and dairy products than any other country. The U.S. is the biggest export market for Canadian beef and pork, and the U.S. buys about two-thirds of Canada’s canolaoil.

Since its adoption, NAFTA has knit the three agricultural economies more tightly, with effects ranging from cattle being raised and processed across borders to U.S. dependence on Mexican avocados for guacamole at Super Bowl watch parties. A withdrawal from NAFTA would be “devastating” to rural America, a point Perdue said he’s impressed upon Trump, who won election to the White House in part due to wide victory margins in small towns and farming communities.

Canada’s Response: As recent U.S. talks of a NAFTA re-negotiation loom over its certainty, Canada does not seem content to sit idle, and instead the country seeks to determine its own global trade future.  In an interview with Business News Network, Canada’s Minister of International Trade, Francois-Philippe Champage, said that it’s time for the nation to diversify and look beyond its neighbors to bolster its options. As Canada eyes non-NAFTA options, prospective investors and globalizing companies are eyeing a place in Canada to ride this wave of change and trade expansion, which seems exclusionary of the U.S.

Mexico’s Response: During a meeting between Mr. Paz Pous, ProMexico Director of the Trade and Investment Commission for the US Northwest Region and Alfaouri, key sectors for foreign investments and Free Trade Agreements between Mexico and other nations were discussed as relations between the U.S. and Mexico diminished.

According to Paz Pous and ProMexico, México has signed 32 Reciprocal Promotion and Protection of Investments Agreements with 33 countries, 10 free trade agreements spanning 45 countries, nine partial scope and economic complementation agreements within the framework of the Latin-American Integration Association (ALADI), and it is a member of the Trans-Pacific Partnership Agreement (TPP) ‍, an agreement that the U.S. pulled out of recently.

México actively participates in multilateral and regional organizations and forums like the World Trade Organization (WTO), the Asia-Pacific Economic Cooperation (APEC), the Organization for Economic Cooperation and Development (OECD), and the aforementioned ALADI. Mexico, like Canada, is seeking non-NAFTA trading options in light of renegotiations.

Issue of Shipping Consolidation

For Washington State, the ever-increasing sizes of ship containers is limiting access to the only ports that can handle such large ship vessels. This has caused a rift in local port competition and is further pressuring shipping agencies into consolidation. An overly optimistic outlook of trade recovery following the 2008-2009 global financial crisis prompted shipping companies to order ever-larger vessels, with some stretching longer than the Eiffel Tower. As capacity piled up, the companies tried to under-bid each other on freight rates to lure clients, causing levies to drop to unprofitable levels and sinking the global container-shipping industry into loss territory.

Faced with a prolonged trade slowdown and depressed freight rates, the region’s container lines are set for further consolidation after a year that’s seen the collapse of South Korea’s Hanjin Shipping Co., a mega merger among Japanese rivals, and the sale of Singapore’s shipping flagship. With capacity in excess, firms will continue joining forces to cut costs and improve efficiency, according to the heads of A.P. Moller-Maersk A/S and Hyundai Merchant Marine Co.

Source: Alphaliner. (accessed June 24, 2017)

 

According to Alphaliner, the top three shipping firms in the world are currently A.P. Moller-Maersk Group, Mediterranean Shipping Company (MSC), and CMA CGM Group.

Comparisons of these global freight companies are measured in TEUs (Twenty-foot Equivalent Units) which is the number of 20-foot shipping containers (or the equivalent) an international shipping company has the capacity to carry at one time.

Many of the world’s biggest shipping companies belong to one of the three top shipping alliances, which represent over 77% of global container movement and 96% of East-West trade. As of April 1, 2017, Maersk and MSC make up the 2M Alliance, while CMA CGM is part of the Ocean Alliance, along with Evergreen, OOCL, and COSCO.

Although shipping consolidation offers solutions to cost reduction in the interim, this ultimately strikes global ports as a regional shipping monopoly issue. Regional shipping monopolies make ports vulnerable to increased shipping costs on a TEU basis due to a consolidated firm’s total influence on a particular region. Regional shipping is subject to the nuances of trade agreements and sanctions, creating a high-risk future for shipping guarantees.

 

Washington State Annual Growth 2017-19

According to the Washington State Economic and Revenue Forecast Council (ERFC), employment in Washington State will grow faster than the national rate over the next several years. The ERFC 2017 forecast details Washington State as growing more than .7% above the average total non-farm growth between the years of 2017 and 2019.  Although Washington State faces job growth, international trade has decreased due to several factors.

Marketing Washington State in the Current Climate

Lieutenant Governor Habib highlighted the issue of current NAFTA renegotiation rhetoric and the Trump administration’s effect on international trade. With U.S. withdrawal from the Trans-Pacific Partnership and threats to place higher taxes on imports, economic leaders attending the meeting were skeptical of a rebound. Prior to the Trump Administration’s first days in office, Washington State has seen a decline in imports/exports.

With falling international trade trends, economic leaders were asked to contribute to the state’s rebound. Greenfield Advisors has answered this call and is offering its capital raising expertise to stimulate more investments in the Cascadia Innovation Corridor. Greenfield is situated in the heart of downtown Seattle, where Seattle’s economy is high-tech, innovative, and diverse, home to nine Fortune 500 companies, and where over 40 percent of jobs are tied to international trade and business.

Washington, and Seattle alone, offer competitive opportunities for business and innovation. Greater Seattle’s economy is driven by innovations that consistently transform the world. The aerospace industry is the global standard: Seattle builds more than 90 percent of Boeing’s planes, and the city has 650 other aerospace companies in the region. Seattle is a world leader in cloud computing and software development and home to industry pioneers such as Microsoft, Amazon, and Tableau. The region’s largest university, the University of Washington, is the top recipient of federal research dollars among all U.S. public universities, and it launched 18 start-up companies in FY 2014.  Seattle has more than 480 life sciences and global health organizations that are revolutionizing healthcare all over the world. Not to mention, Seattle was voted the nation’s most sustainable city in 2014 and is home to the world’s greenest commercial building. Greater Seattle is where new ideas and products are cultivated every day.

In addition to Seattle’s tech sector, Greenfield is globally connected. Being next door to Canada and equidistant by air between Europe and Asia, Greenfield’s location is ideal for connecting to international markets. Combined, Seattle’s ports make up the third-largest container complex in the United States, and the Seattle-Tacoma International airport offers non-stop routes to 21 international locations. Thanks to these global connections, Greater Seattle’s economy is steeped in international trade: Seattle is ranked as the fifth-largest metropolitan export region in the U.S with over $57 billion in transactions.

All of these factors contribute to the city’s success: in July 2013, it was the fastest-growing major city in the United States and remained in the top five in May 2015 with an annual growth rate of 2.1 percent.

Seattle is a hotbed for start-ups, especially in green building and clean technologies: it was ranked as America’s No. 1 “Smarter City” based on its government policies and green economy. In February 2010, the city government committed Seattle to becoming North America’s first “climate neutral” city, with a goal of reaching a net zero-per-capita greenhouse gas emissions by 2030.

Still, very large companies dominate the business landscape. Four companies on the 2013 Fortune 500 list of the United States’ largest companies, based on total revenue, are headquartered in Seattle: Internet retailer Amazon.com (#49), coffee chain Starbucks (#208), department store Nordstrom (#227), and freight forwarder Expeditors International of Washington (#428). Other Fortune 500 companies popularly associated with Seattle are based in nearby Puget Sound cities. Warehouse club chain Costco (#22), the largest retail company in Washington, is based in Issaquah. Microsoft (#35) is located in Redmond. Weyerhaeuser, the forest products company (#363), is based in Federal Way. Finally, Bellevue is home to truck manufacturer Paccar (#168).

Other major companies in the area include Nintendo of America in Redmond, T-Mobile US in Bellevue, Expedia Inc. in Bellevue, and Providence Health & Services — the state’s largest health care system and fifth largest employer — in Renton. The city has a reputation for heavy coffee consumption; coffee companies founded or based in Seattle include Starbucks, Seattle’s Best Coffee, and Tully’s. There are also many successful independent, artisanal espresso roasters and cafés.