Business Without Borders – International Business and Tax Planning Blog

Archive for December, 2010

• A transitory future may exist for the current tariffs being imposed on goods shipped between South Korea and the United States. The Chubb Group of Insurance (Warren, New Jersey) which provides property and casualty insurance, is eager to see the speedy implementation of the current trade agreement before Congress. Following 18 years of commercial activity with South Korea, The Chubb Group of Insurance view this as key in the course of increasing commerce between the U.S. and South Korea. Furthermore, it is predicted that a favourable outcome will have a ripple effect in other industries, namely, in the car manufacturing industry. Companies, large and small are seeing South Korea as a niche market, identifying the massive trade imbalance between exported and imported cars. Within the last few weeks, Obama has signed the trade agreement which incrementally seeks to eliminate almost all of the tariffs imposed on consumer and industrial goods.
• Further developments were made regarding the free trade pact between the U.S. and South Korea, following a contentious ruling in Washington DC by the World Trade Organisation (WTO), which upheld the U.S. tax imposed on Chinese-made tires. These tariffs have been in force since China entered the WTO in 2001, to safeguard the U.S. market against a rise in imports. China has rallied back imposing numerous taxes on U.S. exported goods. The decision came amid the annual trade gathering between the two countries. The ruling is viewed as a very favorable result in light of the free trade agreement between the U.S and South Korea before Congress. The acceptance by the WTO was vital for US business and confidence.
• No reprieve from the Securities Exchange Commission (SEC) as it filed complaints in the Federal District Court of Manhattan against recent investors in Wimm-Bill-Dann Foods (Russia) mere days before PepsiCo (U.S.) became a 66 percent (%) holder in the Russian beverage company. Significantly, this highlights the reach the SEC is maintaining over worldwide regulation. The spin-off from the SEC’s extensive supervision has clearly influenced the European Commission, who recently proposed mandatory prison terms on those indicted with insider trading, to protect and maintain market confidence. The large and suspicious share purchases in Wimm-Bill-Dann Foods, particularly on the eve of PepsiCo’s takeover, failed to go unnoticed by the watchful eye of the SEC.
• Private equity firms are experiencing an increase in market activity despite the instability of the Initial Public Offerings market. This year to date private equity firms have sold 254 companies compared with last years figures which were significantly lower totaling 114. Turbulent market conditions have posed many problems for companies seeking to divest companies previously bought for sky-high prices. Most recently, General Nutrition Centers (GNC) a Pittsburgh, Pennsylvania based company has caught the attention of Blackstone Group (New York) in partnership with the Bright Food Group (China). It is projected the nutrition group could attract bids of up to $2 billion.
• Lastly, 2011 will see the beginning of the Government’s plan to sell its substantial stake in American Insurance Group (A.I.G). It is rumoured up to one fifth of the Government’s current ownership in the group will be sold. These negotiations will kick start A.I.G’s $130 billion bailout repayment as a result of its infamous fall during the financial crisis. This is viewed as a positive start to the Government’s lengthy process of offloading it’s investment in private companies. Nonetheless, the stability of the stock market remains a vital factor in these plans materializing over the next few months.

^{Compiled and summarized by Muireann O’Keeffe.}

• Apple Inc. is forced to lawyer up yet again.  Apple Inc. (California) has been involved in endless litigation since the introduction of its iPhone to the market in 2008. The latest suit, to be heard by the International Trade Commission (ITC) is between Apple Inc., the front runner in the Smartphone market and Nokia Oyj (Finland) the world’s largest mobile phone maker. In addition, Apple Inc. is wrapped in lawsuits over patent rights against Motorola (Illinois) and HTC (Taiwan). Google Inc.’ Android operating system, the world’s most advanced software for the Smartphone (currently adopted by HTC and Motorola) is seen as Apple’s biggest competitor. Lawyers for Apple believe that the company’s phenomenal success has caused rivals to go down the litigation route, in an effort to curb their continued growth. The spiraling legal action, between the world’s leading phone companies remains prevalent in the technology market.
• In an attempt to re-gain control of its consumer business, Starbucks (Washington) face up against Kraft Foods (headquartered in Chicago and Switzerland) in a rumored takeover battle. Pursuant to a partnership agreement by and between the parties in 1998, the two have worked in close collaboration until the recent turmoil. Kraft Foods is now seeking to stop the company, which currently operates in over 50 countries worldwide, from selling their pre-packaged goods under the Starbucks name. In retaliation, Starbucks are alleging that Kraft Foods had previously breached various terms of their agreement. However, the joint venture grants Starbucks the right to buy back the property rights depending on market rates. Starbucks, in a constant struggle to return to profitability, has greater incentive to regain control of these rights. 
• United States federal court have forced 82 websites to close in the wake of Cyber Monday, notoriously known as the highest day for cyber crime in the year. Authorities have found a substantial surge in the presence of websites selling counterfeit goods, using falsely branded names and violating other property rights. Significantly, seventy seven of the websites were China-based. Not surprisingly, it has been pinpointed as a major player in creative theft abuse. The federal authorities have been focusing their resources to prevent the spread of these illegal websites, in an effort to stop the loss of billions of dollars to the government and the legitimate business market. This particular rise in cyber crime and intellectual property infringement has been on the authorities’ radar since last June.
• Credit default swaps have fallen 40-60 percent (%) in anticipation of new regulatory measures soon to  be imposed. The severe decline is the result of reduced financial activity, uncertainty and sweeping financial reform. Firms, which previously reaped the benefits of these financial markets, are now faced with harsh cuts in profits and job positions. The Depository Trust & Clearing Corp. (DTCC), has announced that credit swaps have fallen a considerable 20% worldwide within the past two years. The Dodd Frank Reform Act seeks to act as a protective measure by reducing the risk these swaps carry, requiring the trades to go through clearinghouses, funded by the banks. Furthermore, the Act demands the presence of collateral to support such trades, resulting in greater transparency and efficiency of over the counter (OTC) derivates. Recently, Congress failed to implement its proposal which sought to ensure that investors could only buy swaps if they owned the underlying debt there were insuring. Consequently, this has spurred anxiety in the market as the extent of the rules and regulations to be imposed next year remain unknown. 
• Rise in hedge fund consolidations lifts market spirits. In the hope of taking shelter from harsh conditions ravaging the markets since 2008, smaller hedge funds are taking advantage of the capabilities, resources, and finance available in larger firms. MAN Group (London) bought GLG Partners (London) for $1.6 billion, while Credit Suisse is projected to buy a minority stake in York Capital (New York) for $425 million.  Although hedge funds and asset management are merely small facets of the much larger merger market, it is nonetheless grasping the attention of bankers as an area of expected future growth. Despite the effects of the financial crisis, this sector of the market has seen an increase in global mergers of more than six percent (%) over the past two years. Furthermore, it is anticipated that these mergers will continue to grow over the next few years.

^{Compiled and summarized by Muireann O’Keeffe.}