Entries from March 2012 ↓

TEPCO is dramatically raising electricity rates on April 1 and companies in the Tokyo area are outraged.  Japan’s electricity-hungry data centers will be among the hardest hit.  As the Japan Times points out 70 to 80 percent of Japan’s data centers are concentrated in Tepco’s service area.  Already data center providers from low-cost China have been promoting their services to Japan’s corporations but for obvious reasons many are reluctant to place any portion of their corporate data in China – no matter the low cost.  This is an opportunity for U.S. West Coast data centers.   American data center service providers can offer both lower costs and reasonable protection from industrial espionage.  As Terrie’s Take points out this hot market extends to data center equipment suppliers.

Earlier this month the Obama Administration teamed up with Japan and the European Union to file a case against China at the WTO over that country’s export controls on rare earth metals.  You’ve probably read about it but what you might not have read was China’s reaction.

Minister of Industry and Information Technology, Miao Wei told Xinhua that China had been preparing for the WTO filing for quite a while and would “actively respond” to the filing.  Wei told Xinhua that China’s rare earth export policy was not designed as trade protectionism but to protect resources and the environment.  Wei said that if exports were uncontrolled that China’s supply would be exhausted within 20 years.  He also said the state policy to consolidate the industry and better control it would be carried out.  The Ministry convened a meeting of the industry in March to discuss China’s response to the WTO.  Attendees reported that the Ministry told the industry that even if China loses the case the government will take “other measures” to thwart the rare earth importers.

While cutbacks in rare earth exports put foreign manufacturers in a bind Western governments main concern is that China’s export controls may force more Western companies to move manufacturing to China to gain access to the rare earths.  That is certainly the outcome China is hoping for.  If the West wants to thwart China’s plan it will have to utilize its own rare earth resources to a greater extent – and may need subsidies to get the extraction industry restarted.

A number of contacts in both the business sector and the diplomatic world have been commenting on what they see as an encroachment by the State Department on trade promotion responsibilities held by the Commerce Department.  The rumblings had been noticeable for some months but grew to a near roar when Secretary Clinton and the State Department held what was billed as the “Global Business Conference” in Washington on February 21-22.  Secretary Clinton outlined her vision for “Jobs Diplomacy” which included promoting U.S. businesses overseas, leveling the playing field for fair competition and attracting foreign investment into the U.S.  – all primary functions of Commerce’s International Trade Administration.

The Conference in question was billed by State as “two days of dialogue and brainstorming on the U.S. Government’s role in supporting American competitiveness and creating American jobs.”  After the conference concluded State reported that it “showcased the State Department’s renewed commitment to being the most responsive and effective force multiplier for U.S businesses abroad.”  The State Public Affairs machinery cranked out a ton of promotion around the Conference and got some pretty good mileage out of it in the business media.

Several attendees noted that while Commerce Secretary Bryson spoke at the conference that the Commerce role and presence was otherwise subdued.   The same attendees reported that the Agriculture Department’s Foreign Agricultural Service was completely absent from the event.  What’s behind this grab by State to venture beyond its mandate and into other agencies territory?   There are two theories; 1) it is part of the pre-election ramp-up on high-profiling job creation or 2) job creation and the National Export Initiative (NEI) have become so sexy that State wants a piece of the show – and the money.   I think #1 is a driver of #2 but there is no denying that when homeland security started drawing the money after 911 that State got in on that largesse to the extent possible.  NEI hasn’t been nearly as sexy as homeland security nor has it attracted nearly the money that the Bush Administration literally threw at anything that sounded anti-terroristy but in these days a few million dollars attracts a lot of attention.

Reflecting State’s tendency to let policy rather than business opportunity drive the agenda breakout sessions on investing in Central Asia, Pakistan and Afghanistan urged U.S. companies to consider investing in these risky areas. It’s unlikely that had this been Commerce’s show that time and money would have been wasted trying to talk U.S. companies into investing money in war-torn and highly risky territories.  Word from the Conference is that these sessions were lightly attended by businesses.  But this just illustrates why the Foreign Commercial Service (part of the U.S. Foreign Service) was pulled out of State in 1982 and given to Commerce.  Commerce is business-focused and State is, well, diplomacy-focused.

How much money was spent by State in putting on this show?  Whatever the amount was, it should have been simply allocated to Commerce’s diplomats and export promotion programs.  That would be smart government.

Stan at China Hearsay has an interesting analysis of Clyde Prestowitz’ recent call for the U.S. to go for a tit for tat strategy with China, adopting a policy of reciprocity.  But Stan is only willing to go part of the way with Mr. Prestowitz, pointing out that in some cases reciprocity would be inconsistent with WTO rules.   The disadvantage that America’s principle of playing by the international rules and using the WTO mechanisms is that China has cynically used an unprincipled approach to take advantage of the slow process of the rules playing out.  Take the car industry as an example.  Knowing that its market was highly attractive to the world’s auto manufacturers China erected barriers to foreign imports and foreign investment – unless the foreigners established a joint venture with China’s state-owned auto companies and transferred technology to the Chinese side.  As Toyota, GM and VW trained their joint venture partner’s staff and transferred more and more technology to the Chinese the Chinese partners began to go their own way.  In addition to forcing the foreign auto companies to move their manufacturing to China and give away their technology, the Chinese worked through the joint ventures to require American, European and Japanese suppliers to follow their auto companies to China.  Sure, many of the WTO rules were broken in the process of siphoning off jobs and technology from America but China knew that by the time U.S. complaints made it through the WTO process the theft would be a fait accompli.  And that’s exactly what happened.

And the process is being repeated in strategic industry after strategic industry.  Clean energy, solar panels, aircraft, chemicals, etc etc.  China also has the smart advantage of an industrial policy. It is already too late to get reciprocal for many industries.  But Prestowitz’ strategy should be tried out vigorously.