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Posted on on September 12th, 2010
by Pincas Jawetz (

The week before Labor Day we were traveling along the coast of Upper New England along the stretch from Lynn and Marblehead North of Boston in Massachusetts, through Cape Ann, Plum Island, the shores of New Hampshire and up to Kennebunkport in Maine. That was the route that Hurricane Earl was expected to take – but Earl the Good did us no harm.
I intend to write about stops on that trip, and the rather good conditions in the States we visited, but this posting deals instead with global issues – what I found going over the papers upon return to New York.


What surprised me was the fact that though mentioned as details in the papers, the underlying reality that struck me seemed to be an issue with¬† a common link that no paper mentioned – something we feel is the start of the demise of the WTO construct – that colossus of World Trade Organization that is being hailed as the epitome of global international structure that everyone was supposed to strive to get in through its doors – an achievement that was going to reward States for good behavior. But first what struck me was The Financial Times note that gave away the reality –¬† seemingly Russia has decided that it just makes no sense to them to allow the outside world to dictate to them rules of behavior.

Russia has suffered because of the climate change effects from severe drought and decreased yield of wheat – so Russia simply closed its doors to those that want to buy its wheat as Mr. Putin does not want riots because of shortages of buckwheat. He knows that we will call this interference with free trade, but he decided that the chaff of free trade is rubbish if it causes foreseeable difficulties yo his leadership.

But that was just the beginning. Russia also closed the door to imports of cars by way of tariffs – a clear no-no with WTO. And why did they do that? Simple enough – they want investments in Russia for manufacturing cars inside Russia and eventually they will get their way.

China is even more important – it clearly does what it wants with impunity and the WTO label is plainly superfluous. Yes or no – Hugo Boss – the German fashion house has announced that it will open 100 stores in China to add to the 450 stores it owns globally now, and the further 150 stores it will open by 2015 outside China. This is a neat increase and clear vote of confidence in the growing Chinese middle class.

The US talks tough to China in public but sent high level delegations to China to reach all sorts of agreements so it will not be outplayed in business terms by others. Lawrence Summers, the Director of the National Economic Council and Thomas Donilon the Deputy National Security Adviser came to Beijing to fashion “new pacts” – a nice combination of the tough and the economic. We will clearly not know exactly what they talked about, but we assume that it finally doomed on Washington that wage increases in China so the Middle Class becomes faster a buying class – is more of a win-win situation then pushing the Chinese to increase the exchange rate in order to become less competitive with their exports. In the end, we trust that the Chinese, like the Russians, will do what is best for them according to their own internal calculations. WTO is not part of these calculations and it will be the US that will have to adjust when talking to the Chinese bankers – China having become the lender that allows the US to live above its means while still keeping some control over the money-printing presses. To top this – Bill Gates and Warren Buffet also went to China – this seemingly to suggest to the Chinese tycoons to recycle some of their gains as philanthropies and this then becomes a second route on the same road to help the earning power of the lower classes in China.

Similarly, India has restricted its exports of cotton and other raw materials, provided incentives for inflow of investments and watched its stockmarkets out perform those of the other fast developing markets.

Proof to this booming – non WTO related Asian growth – Julius Baer, the Swiss private bank, has moved to double its Asian assets to 20-25% of its total in the next 5 years as it recruits new staff and opens more offices in the region. The bank has identified Asia as its second “home market” after Europe. They will have offices in Hong Konk, Shanghai, and Singapore – the latter with a new office space for 700 people.

And if all of the above is not enough – here comes Brazil – the champion of them all that used to fight the US at WTO on ethanol fuel issues and agricultural produce. Now they do not bother with this way of time waste. They have it too good to need it.

Petrobras, the Brazilian energy champion is making a global offering of shares in the $32 Billion range with investment plans of $224 Billion. The Wall Street Journal’s BUZZ mentions even Share Sales of $65 Billion! – The above is the highest issue of shares ever – period. This week I participated at two events of the Brazilian-American Chamber of Commerce, one of them a Day of Independence reception, and the other an evaluation of the capital markets and Brazilian tax laws for US investments in Brazil – and both events were gang-ho.

Further, a trio of Brazilian billionaires, the folks that took the Brahma beer company and built InBev that eventually bought Anheuser-Busch to become a global beverage Brazilian-run power house – they just announced that they are buying the Burger King US corporation to get a taste of the US fast-food business. And what does this mean to Brazilian beef imports to the US?
In any case – later this year, Brazilian-born Bernardo Hees, a railroad executive, will go from managing shippments of grain to bringing burgers to new markets around the world as the new CEO of Burger King Holdings Inc. once 3G Capital Management Inc. completes the $3.3 Billion leveraged buyout of the chain.

Let us see – with the WTO Brazil achieved nothing because the US cattlemen were able to hide behind sanitary issues, and I understand that only specialty meets like corn beef were allowed into the US. Not like the ethanol case where doors were closed with tariffs. You go to a Brazilian Churrascaria, or an Argentinian place in New York, and you get Australian grass-fed beef because the Latin variety is not allowed. What will the new Burger King owners say to this? Watch out – we predict some interesting protracted new actions and eventual political give and take!

OK, so will there be any loss if the WTO is allowed to disintegrate? After all – it was established as a tool by the industrialized countries to control commerce with the commodity countries – to the detriment of the latter and the net result that it interfered with the industrialization process as well as with the development of indigenous agriculture to feed the developing country.

What kind of “Free Trade” was it anyway – when banana producers were not free to export to the banana consumers they would have loved to reach?

Now, with such powerhouses like China, Brazil, India, and still reluctance to allow for their full participation in the system of preferences in mutual trade, more of these countries will return to write their own laws, and those that did not become members of the club will simply lose interest in it.

I think this was the real Earl I felt following last week.

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