YCLOAK

German carmaker Mercedes-Benz has announced plans to invest $1 billion to start making electric vehicles at its manufacturing plant in the southern U.S. state of Alabama.

The luxury automaker said it will manufacture electric SUVs under Mercedes’ EQ subbrand at the plant in Tuscaloosa, Alabama in just more than three years. The expansion is expected to create 600 jobs.

Daimler-Benz, which has more than 30 plants worldwide, said the Tuscaloosa plant will become the first in the U.S. to produce electric vehicles, and only the sixth in the world to do so.

Construction is to begin next year on the 92,900-square-meter facility. Daimler also said it will build a new global logistics center and aftersales North American hub in Bibb County, Alabama, about 8 kilometers from the Tuscaloosa plant.
…

The United States will present new proposals and begin to weigh into thornier issues of the North American Free Trade Agreement in the third round of negotiations starting in Ottawa Saturday, U.S. chief negotiator John Melle said Thursday.

The stepped-up negotiations come with four more rounds of talks left after Ottawa and a self-imposed year-end deadline to finish the talks before Mexico launches campaigning for its July presidential election.

“With progress made in several issue areas in the first two NAFTA negotiation rounds, USTR (United States Trade Representative) looks to move forward with additional new text proposals in round three of the negotiations,” Melle said in comments emailed to Reuters.

“At this point in the negotiations, more challenging issues will start taking center stage,” he added, without elaborating.

Third round

The first two rounds of talks between the United States, Canada and Mexico focused on consolidating language on chapters covering small- and medium-sized enterprises, competitiveness, digital trade, services and the environment.

Now, negotiators will begin to weigh into more contentious issues such as rules of origin — how much of a product’s components must originate from within North America — labor standards aimed at increasing Mexican wages and mechanisms for resolving trade and investment disputes.

In its negotiating strategy for revising NAFTA ahead of the start of the talks in July, the United States said it would emphasize reducing the U.S. trade deficit as a priority.

It also said it wanted to eliminate an arbitration system for resolving trade disputes, known as Chapter 19, that has largely prohibited the United States from pursuing anti-dumping and anti-subsidy cases against Canadian and Mexican firms.

Canada has suggested it will walk away from the talks if Chapter 19 is tossed aside.

Dispute resolution, sunset clause

Politico reported Thursday that the United States was considering dropping a binding mechanism in NAFTA for resolving government-to-government disputes in favor of an advisory system.

The proposal would be a major shift away from a decades-old push by the United States to build an international system of enforceable trade rules, Politico reported.

Canada and Mexico have dismissed a proposal by the Trump administration to add a five-year sunset provision to NAFTA.

U.S. Commerce Secretary Wilbur Ross said last week such a provision was needed because forecasts for U.S. export and job growth when NAFTA took effect in 1994 were “wildly optimistic” and failed to live up to expectations.

Mexico’s Foreign Minister Luis Videgaray told Reuters Sept. 15 that the sunset clause was unnecessary because the pact’s members can trigger a renegotiation or leave it at any time.

Since U.S. President Donald Trump has repeatedly attacked NAFTA and threatened to tear up the agreement, Mexico has pushed to secure more access to the European Union, Brazil, Israel, Singapore, Australia and New Zealand.

Polls show support for NAFTA

A Reuters poll of economists Thursday found that Mexico and Canada will survive current talks with the United States on trade relatively unscathed.

Meanwhile, a separate poll by IPSOS published Thursday showed broad-based support among Americans, Canadians and Mexicans for NAFTA.
…

When officials from Myanmar’s commercial capital Yangon toured six European countries in June, they were hoping to drum up investment in transport, energy and education.

Instead, they were bombarded with questions about the country’s treatment of the Rohingya Muslim minority, who have long complained of persecution by the Buddhist majority in the oil-rich, ethnically divided, western state of Rakhine.

“In each of every country, that issue was always brought up,” Hlaing Maw Oo, secretary of Yangon City Development Committee, told Reuters after the 16-day trip.

The situation in Rakhine has worsened dramatically since then, with more than 400,000 Rohingya fleeing to Bangladesh to escape a military counterinsurgency offensive the United Nations has described as “ethnic cleansing.”

Western trade and investment in Myanmar is small, but there were hopes that a series of reforms this year would pry open an economy stunted by international sanctions and decades of mismanagement under military rule.

With most sanctions now lifted, an expected flood of Western money was seen as a key dividend from the transition to civilian rule under Nobel laureate Aung San Suu Kyi. Regional diplomats saw it balancing China’s growing influence over its neighbor.

But Aung San Suu Kyi has been beset by international criticism for saying little about human rights abuses against the Rohingya, and lawyers, consultants and lobbyists say the European and U.S. companies that had been circling are now wary of the reputational risks of investing in the country.

Louis Yeung, managing principal of Yangon-based investment firm Faircap Partners, said one of his business partners — a listed, U.S.-based food and beverage company — decided to hold off its plan to enter the Myanmar market for three to five years, citing factors including slower-than-expected reforms and the Rohingya crisis.

“Their conclusion is that it wasn’t the right time for them,” he said. “They want to see more traction from the government and Rakhine is not helpful.”

On hold

The pressure has been growing in recent months, even on existing investors, with rights group AFD International calling on foreign firms to stop investing in Myanmar.

A small group of investors in U.S. oil major Chevron filed an unsuccessful motion at its annual general meeting urging it to pull out of its production-sharing contract with a state-run firm to explore for oil and gas, while Norwegian telecoms firm Telenor, which runs a mobile network in Myanmar, issued a statement calling for human rights protection.

Chevron declined to comment on its investment in Myanmar, while Telenor did not respond to several requests for comment.

Bernd Lange, chair of the European Parliament Committee on International Trade, said last week his delegation postponed a visit to Myanmar indefinitely, saying the human rights situation “does not allow a fruitful discussion on a potential EU-Myanmar investment agreement.”

Khin Aung Tun, vice chairman of the Myanmar Tourism Federation, told Reuters that global firms planning to hold conferences in Myanmar were now considering other locations.

“People were just starting to see Myanmar as a ‘good news’ story,” said Dane Chamorro, head of South East Asia at Control Risks, a global risk consultancy.

“Now you can imagine a boardroom in which someone mentions Myanmar and someone else says ‘hold on, I’ve just seen something on Myanmar on TV: villages burned down, refugees, etc.'”

In an interview published in Nikkei Asia Review on Thursday, Aung San Suu Kyi acknowledged it was “natural” for foreign investors to be concerned, but repeated her view that economic development was the key to solving poor Rakhine’s long-standing problems.

“So, investments would actually help make the situation better,” she said.

In China’s orbit

Myanmar’s $70 billion economy should be a strong investment proposition for Western firms. It boasts large oil and gas reserves and natural resources such as rubies, jade and timber.

Wages are low and its youthful population of more than 50 million is eager for retail and manufacturing jobs.

In April, Myanmar passed a long-awaited investment law, simplifying procedures and granting foreign investors equal treatment to the locals. A game-changing law allowing foreigners to buy stakes in local firms is expected later this year.

“The investment conditions were improving,” said Dustin Daugherty, ASEAN lead for business intelligence at Dezan Shira & Associates, a consultancy for foreign investors in Asia.

Myanmar’s economy may not suffer much, however, if Western firms shun the country — or even if their governments were to reimpose some sanctions, although that appears unlikely for now.

Aung San Suu Kyi has sought to deepen relations with China at a time when Beijing is keen to push projects that fit with its Belt and Road initiative, which aims to stimulate trade by investment in infrastructure throughout Asia and beyond.

Myanmar trades with China as much as it does with its next four biggest partners: Singapore, Thailand, Japan and India.

None of that top five participated in previous sanctions.

Trade with the United States is only about $400 million and U.S. investment is just 0.5 percent of the total. Europe accounts for around a 10th of investment, while China and Hong Kong make up more than a third, and Singapore and Thailand another third.

Than Aung Kyaw, Deputy Director General of Myanmar’s Directorate of Investment and Company Administration, told Reuters that European investors might have “second thoughts,” but he expected Asian investors to stay put.

China is already in talks to sell electricity to energy-hungry Myanmar and pushing for preferential access to a strategic port on the Bay of Bengal. In April, the two countries reached an agreement on an oil pipeline that pumps oil across Myanmar to southwest China.

“It is going to feed Aung San Suu Kyi straight into the hands of [Chinese President] Xi Jinping,” said John Blaxland, director at the ANU Southeast Asia Institute and head of the Strategic and Defense Studies Center.
…

Thousands of small factories in China, making everything from steel to chemicals, are scrambling for access to the country’s clogged rail network as Beijing curbs the use of diesel trucks in an effort to tackle air pollution.

The Ministry of Environmental Protection (MEP) last month gave tens of thousands of companies in 28 cities until Nov. 1 to halve their use of diesel trucks over the winter months, when pollution is at its worst.

The ministry, in a policy document, also set more stringent, permanent targets for more than 20 power and steel companies, including Zhengzhou Xinli Power, Xingtai Iron & Steel and Hebei Risun Coke, directing them to send at least half their shipments by rail.

Trucking is a cheaper and preferred mode of transport for heavy industry in China, especially for inland companies moving goods over relatively short distances and those far from railways.

Some provinces have taken even tougher stances on trucks.

In Hebei and central Henan, some steel producers must deliver as much as 90 percent of their products via rail on a permanent basis, up from around 50 to 60 percent currently.

The moves are the latest in Beijing’s years-long battle to tackle the pollution that blankets the north as houses turn up the heat between November and March, drawing on the nation’s power plants, which are mainly fueled with coal.

China is also forcing steel mills and other factories to shut up to 50 percent of capacity across the north to try and prevent toxic air during the winter.

The truck restrictions follow bans earlier this year on transporting coal by diesel trucks in major port cities.

A shift to using more of the country’s 120,000 km of railroads, one of the world’s largest networks, is also a cornerstone of Beijing’s Belt and Road initiative, which aims to revive old trade routes linking Chinese companies with overseas markets.

The scale of the change under way is immense. Highways accounted for 77 percent of more than 43 billion tons of freight transported last year, compared with 8 percent for rail.

“It’s another indication of how seriously they’re taking the environmental impact, although it’s a blunt way of doing it and some trips won’t make sense by rail,” said Jonathan Beard, head of transportation and logistics in Asia for Arcadis, a design and consultancy company.

The Ministry of Rail declined to comment. The MEP and the state planner that oversees rail freight prices did not respond to requests for comment from Reuters.

‘Railway Armageddon’

Companies were already preparing for a grim winter, having been ordered to slash output as part of measures to clean up the air in Chinese cities.

Now, many are struggling to get space on the rail network by the Nov. 1 deadline.

Major state-owned companies like Sinopec and Aluminium Corp. of China have long-term access to the railroad, leaving little room for smaller companies. Many of the factories are also hundreds of miles away from any station.

There are also concerns that bottlenecks could create chaos, cutting off supplies of critical raw materials and hurting the ability of companies to get products to market, executives interviewed by Reuters said.

Rail is also more expensive and takes longer for some routes.

An executive from Xingtai Iron & Steel estimated that using rail will add as much as 40 yuan per ton, or 10 percent, to his costs. The executive and others interviewed by Reuters requested anonymity as they were not authorized to speak to the media.

“We might resort to reducing production in the winter if we cannot get enough supplies and have difficulties sending our products due to the railway Armageddon,” said a manager with Yanzhou Coal Mining Co’s coke plant in Shandong province, which produces two million tons per year.

In Shandong, the nation’s eastern industrial and agricultural heartland, the rail bureau proposed hiking freight rates by 1 cent per ton per kilometer at an internal meeting with key clients two weeks ago, according to the Yanzhou Coal manager.

That is equivalent to an almost 10 percent increase to move products to Jiangsu, about 100 miles to the south. It is not clear whether the plan has been submitted to the state planner for approval. The state planner sets freight prices.

“Some of our clients are only 40 miles away from us,” said a sales manager with Xingtai Iron & Steel’s steel wire subsidiary.

“Trucking is more flexible than rail and cheaper,” the manager said. “For our clients in Zhejiang and Jiangsu, about 500 miles away, rail takes almost a week but trucking takes one or two days.”

Under orders

Rail traffic has increased this year due to increased shipments of coal. Rail is the most popular mode of transport for coal, which accounted for a third of traffic last year. China’s rail network is mainly run by China Railway Corp.

State-owned companies such as China National Coal Group and coal miner China Shenhua Energy also own some specific routes, giving them lower transportation costs.

Many are bewildered by the enormity of the undertaking ahead. A manager with Longyu Chemical Co. in central Henan province said he had no access to rail.

“I honestly have no idea how we are going to deal with it this winter,” he said. “The trucking freight rate is also rising because of the crackdown on diesel trucks.”
…

More than a third of migrant fishermen in Thailand clearly were victims of trafficking over the past five years, and even more workers in the industry were possibly trafficked as well, according to a report published Thursday.

Routinely underpaid and physically abused, three-quarters of migrants working on Thai fishing vessels have been in debt bondage, working to pay off an obligation, said the study by the anti-trafficking group International Justice Mission (IJM).

Thailand’s multibillion-dollar seafood sector came under fire in recent years after investigations showed widespread slavery, trafficking and violence on fishing boats and in onshore food-processing factories.

The politically unstable country, which is under military rule, has vowed to crack down on trafficking and recently introduced reforms to its fisheries law.

The IJM study of 260 fishermen from Myanmar and Cambodia found 38 percent were clearly trafficked and another 49 percent possibly trafficked.

Only 13 percent reported fair labor conditions at sea and no exploitative recruitment, it said.

Three-quarters reported working at least 16 hours a day, and only 11 percent said they were paid more than 9,000 Baht ($272 U.S.) per month, the legal monthly minimum wage in Thailand.

One fisherman was quoted in the report as saying he was held in debt bondage, owing 20,000 Baht ($604) to his brother, who worked as a supervisor overseeing fishermen.

In debt to brother

“I fear for my life as he has killed in front of me before,” he was quoted as saying. “I don’t dare to run. He would kill my children.”

Field researchers surveyed the 260 fishermen in 20 Thai fishing localities in 2016, collecting information on fishing jobs they had held in the previous five years.

Thailand, the world’s third-largest seafood exporter, had more than 42,000 active fishing vessels as of 2014, and more than 172,000 people were employed as fishermen, the study said.

The study was funded by the Walmart Foundation, the charitable arm of giant U.S. retailer Walmart. With release of the study, the foundation announced a grant to help the IJM improve law enforcement efforts against human trafficking in the Thai fishing industry.

Neither Walmart nor the charity would specify the value of the grant.

Walmart spokeswoman Marilee McInnis told the Thomson Reuters Foundation by email that “combating forced labor remains a key challenge throughout the world.”

“Regardless of where it occurs in the global supply chain, Walmart is committed to help eliminate forced labor through transparency and collaboration,” she wrote.

Gary Haugen, the chief executive of IJM, said in a statement that “no person should have to live under the oppression or ownership of another.

“As consumers, we shouldn’t have to wonder if the products we’re purchasing are the result of violent injustice,” he said.
…

The Standard & Poor’s rating agency cut China’s credit rating Thursday due to its rising debts, highlighting challenges faced by Communist leaders as they cope with slowing economic growth.

The downgrade added to mounting warnings about the dangers of increasing Chinese debt, which has fueled fears of a banking crisis or a drag on economic growth. Moody’s Investors Service cut its own rating for China in May.

 

S&P lowered its rating on China’s sovereign debt by one notch from AA- to A+, still among its highest ratings. The agency had given a warning sign of a possible downgrade in March 2016 when it changed China’s outlook to negative.

 

“A prolonged period of strong credit growth has increased China’s economic and financial risks,” S&P said in a statement. “Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.”

 

The ratings cut, announced after Chinese financial markets closed for the day, could raise Beijing’s borrowing costs slightly, but the more significant impact is on investor sentiment.

 

Phone calls to the Chinese Finance Ministry were not answered. After the Moody’s downgrade in May, the ministry said the agency had used improper methods and misunderstood China’s economic difficulties and financial strength.

 

Communist leaders have cited reducing financial risk as a priority this year. They have launched initiatives to reduce debts owed by state companies, including by allowing banks to accept stock as repayment on loans. But private sector analysts say they are moving too slowly.

 

Beijing relied on repeated infusions of credit to prop up growth after the 2008 global crisis.

 

That helped propel total nongovernment debt to the equivalent of 257 percent of annual economic output by the end of last year, according to the Bank for International Settlements. That is unusually high for a developing country and up from 143 percent in 2008.

 

Chinese economic growth fell from 14.2 percent in 2007 to 6.7 percent last year, though that still was among the world’s strongest.

 

The government is trying to make the economy more productive by giving market forces a bigger role. It is trying to shrink bloated industries such as steel and cement in which supply exceeds demand, which has depressed prices and led to financial losses.

 

Beijing is trying to steer the economy to slower, more sustainable growth based on domestic consumption instead of investment and exports. But growth has dipped faster than planners wanted, raising the risk of politically dangerous job losses. Beijing has responded by flooding the economy with credit.

 

Official efforts to rein in debt “could stabilize the trend of financial risk in the medium term,” S&P said. “However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually.”

 

S&P kept its outlook for China stable. It said that reflected expectations the country will “maintain robust economic performance over the next three to four years.”

 

“We may raise our ratings on China if credit growth slows significantly and is sustained well below the current rates while maintaining real GDP growth at healthy levels,” S&P said. “A downgrade could ensue if we see a higher likelihood that China will ease its efforts to stem growing financial risk and allow credit growth to accelerate to support economic growth.”

 
…

On the sidelines of the United Nations General Assembly in New York on Wednesday, business and political leaders around the world met to urge cooperation on such issues as trade, investment and international technology to help boost globalization. Without integration between nations, such issues as the environment, economic development and the well-being of societies suffer. VOA’s Daniel Schearf reports from New York.
…

U.S. central bank officials will hold off on the third interest rate hike of the year. But the Federal Reserve says it will go ahead with plans to unload its massive portfolio of Treasuries and mortgage bonds. The decision to delay the rate hike and reduce (or normalize) the Fed’s $4.5 trillion balance sheet had been widely expected. The more pressing question is who will lead the central bank when Fed Chair Janet Yellen’s term ends next year. Mil Arcega has more
…

The Securities and Exchange Commission says a cyber breach of a filing system it uses may have provided the basis for some illegal trading in 2016.

In a statement posted Wednesday evening on the SEC’s website, Chairman Jay Clayton says a review of the agency’s cybersecurity risk profile determined that the previously detected incident was caused by a software vulnerability in its EDGAR filing system.

 

The SEC chairman says this breach did not result in exposing personally identifiable information.

 

The SEC files financial market disclosure documents through its EDGAR system, which processes more than 1.7 million electronic filings in any given year.

 

Clayton’s statement also mentioned that a 2014 internal review was unable to locate some agency laptops that may have contained nonpublic information. 
…

After a troubled youth himself, Phillip Cohen made it a practice to hire people at his woodworking business who have also struggled with addiction and mental health issues. But when an employee died from a drug overdose, he adopted a zero-tolerance policy.

“I think I have saved lives,” says the owner of Cohen Architectural Woodworking in St. James, Missouri — an area hit very hard by the nation’s growing opioid epidemic. Opioids range from prescription pain medicine like oxycodone to illegal drugs like heroin.

Cohen still hires former drug addicts, felons and people who have been traumatized in life. One person, now a top employee, was hired right after he finished drug rehabilitation. Another used to sell illegal drugs. Still, Cohen says, if a worker fails a periodic random drug or alcohol test, “we’ll fire them on the spot.”

The epidemic of drug use — a report from the surgeon general last year said that 20 million Americans have a substance use disorder — is forcing many small business owners to think about what they would do if they suspect an employee is abusing drugs or alcohol.

Between 1999 and 2015 the number of overdose deaths from opioids and heroin quadrupled, the National Institute on Drug Abuse says. The government also reported more than 15 million adults with what’s called alcohol use disorder in 2015.

Over 70 percent of employers with 50 or more workers have been affected by prescription drugs, according to a survey released this year by the National Safety Council. But more than 80 percent don’t have a comprehensive drug-free workplace policy.

Although Cohen understood the dangers of drugs and knew that some staffers had a history of substance abuse, he wasn’t prepared when a worker overdosed in 2010, three days after the staffer attended a leadership conference.

“I didn’t care what people did at first,” says Cohen, whose workers use saws and other potentially dangerous machinery to create reception desks, cabinets and furniture for businesses, schools and health care facilities. But the devastating death of an employee prompted him to hire an attorney to write a tough drug policy that workers must read and sign.

“You have to draw the line somewhere,” says Cohen, who also brings in counselors and people who run support groups to help staffers who are struggling with personal problems.

Many small business owners don’t think ahead and create a written policy on alcohol and substance abuse, says employment law attorney Shira Forman. That forces them to be reactive, trying to figure out what to do when presented with an employee who shows up drunk, high or hung over, whose work is suffering or who causes an accident.

“It’s often not something that an employer knows how to deal with until they’re confronted with a scenario,” says Forman, who works at Sheppard, Mullin, Richter & Hampton in New York.

Having a policy in place doesn’t make it easier for a boss to confront a staffer they believe to have a drug or alcohol problem. It’s hard on an emotional level, especially if the employee denies there’s an issue and gets angry. But there can also be legal questions that must be considered before an owner broaches the topic.

While a staffer’s behavior might seem to point to a substance abuse problem, it’s often not a clear-cut situation, says Michael Schmidt, an employment law attorney with Cozen O’Connor in New York. An employee may have a prescription for opioids, and therefore be protected by federal, state or local laws. A staffer might have shaking hands, a sign of possible alcohol withdrawal but also a symptom of anxiety or a condition like Parkinson’s disease.

Even when it’s clear that the problem is due to drugs or alcohol, many owners seek help from a lawyer or HR professional. David Grant was taken by surprise when an employee at his public relations company told him that a co-worker had gotten drunk at a lunch with a client.

Grant turned to his human resources provider and a consultant on dealing with alcoholics.

“It was a world I don’t know anything about,” says Grant, whose eponymous company is based in New York. “I was aware of how litigious everyone is, so I did it by the book.”

Grant’s HR provider had created a substance abuse policy that he followed. He told the staffer she had a choice: go into rehabilitation treatment for a month or be fired. She chose treatment, which Grant paid for. He also warned she’d be dismissed if it happened again. And it did; a few weeks after she returned to work she was again drunk at a client lunch.

“I fired her instantly,” Grant says. He had to follow some painful advice from his consultants: “You can’t back off. You can’t be a nice guy.”

At Abbey Research, a market research firm based in Philadelphia, the substance abuse policy calls for employees to be suspended if they fail a random drug test or tell management they have a drug problem.

Their jobs will be held until they pass a drug test, since the company wants to give people a second chance, says Kristen Donnelly, who is in charge of human resources. But if they fail a second time, they’ll be fired.

The company, which seeks to help people who are struggling economically and personally, is located in a neighborhood where drug use has taken a toll. Two staffers have been suspended and then fired for drug use in the 18 months since Donnelly has headed HR.

But even afterward, the company has helped them find resources aimed at getting them back on their feet. “First and foremost they’re human beings, and they’re human beings with a disease,” Donnelly says.
…

China has announced a crackdown on violations of patents and trade secrets in an effort to mollify foreign companies ahead of a visit to Beijing by U.S. President Donald Trump.

The crackdown might give Beijing diplomatic ammunition to respond to mounting U.S. and European trade complaints. But it fails to address what foreign companies say are bigger problems with intellectual property protection.

The four-month campaign will attack theft of foreign trade secrets and violations of patents, copyrights and trademarks, according to a Ministry of Commerce announcement this month. It says the goal is to “increase foreign investment.”

Investment into China fell in the first half of 2017 following two decades of regular double-digit annual increases. That reflects what business groups say is growing frustration with difficult operating conditions and regulatory and other hurdles.

Companies complained for years that China was the global center for unlicensed copying of goods ranging from Hollywood movies and designer clothes to drugs and computer software. More recently, companies complain that Chinese entities try to steal technology and other trade secrets, sometimes with government encouragement.

Beijing has increased some penalties, but business groups say the Communist government needs to go much further in developing its enforcement and court system to protect intellectual property rights on which its economy increasingly depends.

“As welcome as further public commitments to protecting IPR are, this cannot be achieved through a campaign-style approach,” said Lance Noble, policy director for the European Union Chamber of Commerce in China.

“It requires a sustained commitment to enforcing existing laws and applying protections equally to foreign and domestic companies,” Noble said in an email. “Doing so is in China’s own interest.”

In a survey this year, the American Chamber of Commerce in China said the share of its member companies that cited China as a global priority dropped to 56 percent from a peak of 78 percent in 2012.

The chamber said American companies were reconsidering investment plans in China due to “unfavorable regulations” and “uncertainty about intellectual property protection.” It said 72 percent considered positive U.S.-Chinese relations important to their business but 83 percent expected them to remain the same or deteriorate.

The two governments say Trump is likely to visit China this year, though no date has been announced.

The American president agreed in April to temporarily set aside trade disputes while Washington and Beijing cooperate over North Korea. But U.S. officials have criticized Chinese policy with increasing force in recent weeks.

On Monday, the U.S. trade representative, Robert Lighthizer, complained in a speech in Washington that Chinese efforts to create industrial champions and induce foreign companies to hand over technology threaten the world trading system.
…

Egypt’s economy has started to improve but has yet to recover from the country’s 2011 uprising and the years of unrest that followed, an international credit rating agency said.

Moody’s hailed recent economic and fiscal reforms in its annual report released Tuesday, saying they point to “improved government effectiveness and policy predictability.” Weak finances, however, remain a “key challenge” for the government, it added.

Egypt embarked on an ambitious economic reform plan shortly after President Abdel-Fattah el-Sissi took office in 2014. The government has slashed subsidies, imposed a value-added tax and allowed currency devaluation in order to qualify for a $12 billion bailout loan from the International Monetary Fund.

The austerity measures have hit the public hard, however, with inflation hovering around 30 percent for months, many import products unavailable, and soaring electricity and fuel costs.

Moody’s said reforms and financial support provided by international lenders have helped in restoring Egypt’s foreign reserves, which are currently above $36 billion, their highest level since December 2010.

“We also expect that Egypt’s high fiscal deficits and government debt levels will gradually reduce,” said Steffen Dyck, a Moody’s vice president.

Egypt’s Finance Minister Amr el-Garhy announced earlier this week that the country will face a $10-$12 billion budget deficit for the current fiscal year 2017-18, which started in July. He also said the government plans to plug the gap by increasing foreign debt issuance, and will announce future bond offerings in the coming weeks.

Egypt’s sovereign rating by Moody’s remains unchanged at B3, far below investment grade and subject to high credit risk, but the outlook remains stable.
…

A human rights organization says millions of workers in India’s brick kiln industry are trapped in a perpetual cycle of imposed debt and low wages, which forces them to bring their children to work alongside them in the hot, dusty kilns.

An estimated 23 million workers are employed in at least 100,000 brick kilns operating across the northern state of Punjab, according to a study released Wednesday by Anti-Slavery International. Nearly all the workers are provided loans from the kiln owners before the brick making season begins, immediately putting them into debt. The owners withhold their wages during the entire season, which lasts up to 10 months, and keep no records, allowing them to pay their workers far less than what is due.

Up to 80 percent of children under 14 years old working an average of nine hours a day during the hot weather months. Because workers are paid for each piece of brick they make, families are forced to put their children to work to increase their output.

The report also says living conditions at the kilns are dire, with the air filled with dust and other chemicals and no access to running water, and entire families living in cramped rooms of just under eight meters.

Volunteers for Social Justice, which partnered with Anti-Slavery International in the report, is urging India’s government to enact a minimum wage for the brick kiln workers, along with child labor laws to ensure that children get a proper education. “It is time that the government takes that responsibility and ends this exploitation that shouldn’t be taking place in the 21st century,” says Jai Singh, the director of Volunteers for Social Justice.
…

The deficit in the broadest measure of U.S. trade rose to the highest level in more than eight years this spring, reflecting in part a drop in fines and penalties paid by foreign companies.

The deficit in the current account increased to $123.1 billion, up 8.5 percent from an imbalance of $113.5 billion in the first quarter, the Commerce Department reported Tuesday. It was the biggest deficit since a gap of $150 billion in the fourth quarter of 2008.

 

The current account is the most complete measure of trade because it includes not only goods and services but investment flows and other payments between the United States and the world.

 

President Donald Trump has promised to reduce America’s trade deficit, contending it costs U.S. factory jobs.

 

One of the biggest contributing factors to the larger deficit in the April-June quarter was a decline in receipts from foreigners after they had risen sharply in the first quarter. The government attributed the $5.2 billion decrease in receipts of secondary income from foreigners to a decline in fines and penalties paid by foreign companies. That category had risen sharply in the first quarter.

 

Exports of goods and services increased $2.2 billion in the second quarter. Exports are getting a lift from a pickup in global growth and a drop in the value of the U.S. dollar against other currencies. A weaker dollar makes American products more competitive on foreign markets.

 

Imports of goods and services were also up in the second quarter, rising $11.8 billion, reflecting rising domestic demand from stronger U.S. growth.

 

The rise in the current account deficit put the imbalance in the second quarter at a level equivalent to 2.6 percent of the total economy, as measured by the gross domestic product, up from 2.4 percent in the first quarter. By comparison, the largest current account deficit in relation to GDP was in the fourth quarter of 2005 when the deficit totaled 6.3 percent of GDP.

 

Trump says America’s trade deficits have been caused by bad trade deals and abusive practices by China and other U.S. trading partners. He has pledged changes that he says will reduce the deficit and bring back American factory jobs.

 
…

Toys ‘R’ Us, an iconic United States toy store, has filed for bankruptcy after struggling to compete with online retailers and racking up about $5 billion worth of debt.

In a statement Monday, the company said it is voluntarily seeking relief through the U.S. bankruptcy process, but that its international holdings would not be affected.

“The company’s approximately 1,600 Toys ‘R’ Us and Babies ‘R’ Us stores around the world, the vast majority of which are profitable, are continuing to operate as usual,” the statement reads. “Customers can also continue to shop for the toy and baby products they are looking for online.”

The company said it has begun the process of working with creditors to restructure the debt that its stores will remain open as the bankruptcy plays itself out.

The bankruptcy filing, CEO Dave Brandon said in a statement, “will provide us with greater financial flexibility to invest in our business … and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide.”

The company said it is “well-stocked” for the upcoming holiday season, which has historically been a time when retailers can pad their bottom-line at the end of the year.

Toys ‘R’ Us has seen its popularity fall since the 1980s and ‘90s, when it began losing customers to big-box stores like Wal-Mart and Target, and more recently with the advent of online shopping giants like Amazon.
…

As many as three dozen domestic and international flights at New Zealand’s Auckland Airport have been canceled Tuesday as it struggles to deal with a weeklong fuel shortage.

New Zealand’s main airport has lost 70 percent of its jet fuel supplies since a digger ruptured the main pipeline that carries fuel to the facility, forcing many air carriers to refuel at other airports in the Pacific region. The accident has also cut off supplies of high-grade gasoline at Auckland gas stations, although fuel supplier Z Energy says stocks of regular gasoline are still plentiful.

The pipeline’s owner says the repairs will not be completed until sometime next week.

Prime Minister Bill English says a naval tanker and military trucks have been assigned to transport fuel to ease the shortage, and has ordered all lawmakers and public employees to avoid any unnecessary air travel until the situation is resolved.

The fuel disruption has placed enormous pressure on English with Saturday’s national elections on the horizon. Jacinda Ardern, the leader of the main opposition Labour Party, accused English of ignoring warnings about the pipeline’s vulnerability.

“One pipeline, one digger, and New Zealand grinds to a halt,” Ardern told reporters Tuesday. The 37-year-old politician has led the Labour Party from a certain electoral defeat to a tight race with English’s ruling National Party.
…

A multi-million-dollar banking flap being investigated in Vietnam this month casts light on a tough corruption problem that nips at the Southeast Asian country’s explosive economic growth.

The Vietnamese Ministry of Public Security last week began investigating three companies under state-owned gas and oil giant PetroVietnam on suspicion of trying to divert $5.2 million from OceanBank, a domestic financial institution.

Widespread corruption

The case, analysts say, points to widespread corruption Vietnam. They point to construction, land use contracts and government procurement as particular sore spots. People are also asked for side payments to process official paperwork or get out of traffic violations.

“In terms of corruption in Vietnam, I do think it’s a serious problem here and I think the government recognizes that,” said Frederick Burke, partner with the international law firm Baker McKenzie in Ho Chi Minh City.

Corruption, known to cause waste in business, could hobble economic growth.

Growth driven by export manufacturing makes Vietnam a darling in Asia among foreign investors. The economy grew between 5.2 percent and 6.68 percent each year from 2012 to 2016.

The nonprofit advocacy group Transparency International placed Vietnam at 113th out of 176 countries and regions that it evaluated in 2016 for perceptions of corruption.

“It doesn’t constrain growth. It’s just an added cost of business,” said Song Seng Wun, Southeast Asia-specialized economist with the private banking unit of CIMB in Singapore. “When it’s corrupt, that’s just wastage without any addition to capacity or contribution to productive economic activities.”

New York-based business compliance consultancy Gan Integrity calls corruption “pervasive” in Vietnam. It says companies are likely to face bribery, political interference and “facilitation payments” across industries. Land development and construction fall especially to corruption, the consultancy says.

Reasons for the corruption

Inadequate salaries for government workers, some of whom need extra money to provide for their families, causes a lot of the corruption, said Trung Nguyen, international relations dean at Ho Chih Minh University of Social Sciences and Humanities.

Complex regulations have also pushed companies to seek permitting shortcuts, another source of corruption.

People with capital sometimes hold back expansion to avoid getting enmeshed in graft, adding to a large underground economy, Nguyen said.

He added Vietnamese also face graft when they ask government offices for documents and if police stop them in traffic, eroding overall public confidence in government services.

“I think it’s very bad,” he said. “I have so many friends and they don’t want to open big businesses in Vietnam because they think that they will have to deal with the government and they have to bribe them, and it violates their ethics and their principles.”

PetroVietnam probe

The PetroVietnam probe, as described in Vietnam’s English-language media, fits into a bigger issue at OceanBank.

Reports say more than 50,000 people and 400 organizations benefited from what prosecutors call illegal interest payments worth $70.4 million.

From 2010 to 2014, bank executives offered loans and set deposit rates, above state-approved limits to key customers, including PetroVietnam, local media have reported.

The Vietnamese news website VnExpress calls this case one of the biggest bank fraud flaps ever brought to court in Vietnam.

Some legal cases start with allegations brought by unhappy company employees, Burke said. Only “squeaky clean” firms can build reputations strong enough to eliminate solicitations for graft, he said.

“We do see from time to time perfectly good businesses get disrupted completely by some allegation of corruption,” he said. “Often our employment disputes turn into compliance cases and they trigger full investigations. People lose their jobs. It’s quite traumatic.”

Multinationals get used to graft as a cost of business in emerging economies, Song said, but countries that try to stop corruption grab more sympathy.

Around Asia, investors face similar barriers in Indonesia, the Philippines and China.

Most countries around the Asia Pacific ranked in the lower half of the 2016 corruption perceptions index.

Anti-corruption efforts

Government attention to the issue has surfaced in Vietnam with the roll-out of the Anti-Corruption Law in 2005, a 2009 law on government procurement and the National Strategy on Anti-Corruption, which is due to run through 2020. Domestic media may be widely reporting the OceanBank case to discourage others from graft, Burke said.

In October 2016, the government gave an unusually candid report to the legislature, saying numerous officials had been “neglecting their duties and failing to uphold moral standards and political virtues,” VnExpress reported.

Gan Integrity says sentences for graft in Vietnam range from fines to capital punishment, but that enforcement is lacking.

Vietnam’s anti-graft work, Song believes, is a “work in progress.”

But Transparency International says it sees little public information about the outcomes of anti-corruption work.

“Vietnam’s “top leaders…are not united in stopping the problem,” Nguyen said. “I don’t think they have political will to end corruption.”
…

Two of Italy’s biggest coffee houses are reinforcing their brands with flagship cafes in Milan near the spot where U.S. rival Starbucks is set to begin operations next year.

Lavazza opens its first flagship cafe in the coffee-obsessed city on Tuesday, not far from the renovated 19th century palazzo where Starbucks will open its first Italian store, a ‘Reserve Roasteries’ outlet offering specialty blends and fine food.

Another top Italian brand, illycaffe, opened its own luxury cafe close to the Starbucks site in May, in a cozy courtyard in Milan’s most fashionable street.

Lavazza, which is opening near the city’s famous La Scala opera house, and illycaffe both deny their moves are a response to a global rival’s impending arrival, a first step in what may become a 200-store expansion.

Industry experts suspect it is no coincidence.

“Lavazza and illycaffe are the purists of coffee, they want to show they are there when Starbucks arrives,” says Jean-Paul Gaillard, who ran Nespresso for 10 years before founding the Ethical Coffee Company, a Swiss firm selling coffee pods.

Milan’s battle of the coffee palaces reflects global competition among major brands to capture a growing market for people who are prepared to pay a premium for quality espresso coffees in upmarket boutique cafes.

Nestle last week bought California-based Blue Bottle Coffee, one of the top boutique U.S. chains whose single-origin and cold-brewed coffees have proven popular with hipsters and have made inroads into the Starbucks franchise.

JAB Holdings, the investment vehicle of Germany’s Reimann family, has also been buying up independent start-ups selling premium brews around the world, from Europe to the Americas.

Starbucks Chief Executive Howard Schultz hopes his company’s arrival in Milan, which he calls the home of the “perfect espresso”, and the inspiration for his Starbucks vision, will show discerning Italian coffee-lovers that “we got it right.”

“We are happy to hear about Lavazza’s growth,” said a Starbucks spokesman when asked to comment on Lavazza’s opening.

The U.S. chain will open its 2,400-square-meter cafe in late 2018, seeking to attract tourists, young Italians and the business crowd. If the Milan experiment succeeds, Starbucks and its local partner, Antonio Percassi, could open more than 200 stores in Italy over six years, according to Percassi.

Some analysts are skeptical that Starbucks can crack a market where espresso typically sells for just one euro ($1.20), a fraction of the price of a Starbucks coffee.

But the local brands are also gambling Italians will spend much more than one euro for a restaurant-style experience: illycaffe charges around three times that for coffee brought to the table.

Nestle, JAB Holdings and Starbucks are the three largest players in the global coffee market, followed by several mid-tier players including Lavazza and illycaffe.

“As the biggest get bigger, mid-tier companies are in a position where they must either expand or risk being left behind or swallowed up by their massive rivals,” said Matthew Barry, an analyst at market research firm Euromonitor International.

Lavazza’s chief executive and some of its family owners will cut a ribbon to launch their cafe, where customers can sip a blend of coffee specifically crafted for the store, taste gourmet food and buy single-origin coffees.

“The opening of the new flagship store has nothing to do with Starbucks,” a Lavazza spokeswoman said, adding that it was solely aimed at giving people an exclusive Lavazza experience.

The group is primarily a roaster and supplier to independent cafes and restaurants rather than a retailer and its new store is a way of boosting brand visibility on the high street.

Lavazza went on an acquisition spree three years ago, buying up three coffee suppliers in Europe and Canada, boosting sales to nearly 2 billion euros last year. It has overtaken Starbucks in supermarket sales, Euromonitor International says.

Illycaffe sells its coffee both through independent cafes and 230 mono-brand stores, some of them directly owned, in 43 countries, and says it wants to develop the network further, though not via major acquisitions.

“The new store wants to be a landmark for the global nomad in search for the real Italian lifestyle experience,” illycaffe said, without commenting on the arrival of Starbucks.

Milanese coffee society is divided on whether Starbucks can make its name at the high-end of Italian market, the world’s fourth-largest coffee consumer.

“I am curious about Starbucks, I will give it a try when it arrives in Milan,” office worker Giuseppe Gaggiano, 55, said at a small, upmarket independent cafe close to the Starbucks site.

However, another customer there, Alberto Paparusso, 31, said he wouldn’t abandon his usual cafe: “I don’t like Starbucks coffee. It’s not worth going there.”

($1 = 0.8371 euros)
…

Mexico’s economy minister said on Monday a successful retool of the North American Free Trade Agreement (NAFTA) would hinge on two or three complex areas that he called “elephants in the room,” just days before the next round of treaty talks in Canada.

Speaking at an event in Mexico City, Ildefonso Guajardo said four chapters in the agreement could be renegotiated in the third round of talks, due to take place Sept. 23-27 in Ottawa.

The areas cover smaller companies, transparency and food safety.

The “elephants,” such as the U.S. trade deficit with Mexico and rules of origin, will determine the success of the trade treaty’s renegotiation, he said. Rules of origin specify the percentage of components in a product that must be from the three NAFTA nations for it to qualify as duty free.

“This challenge of resolving two or three un-traditional topics at the trade negotiation tables is what is going to determine if, at the end of the day, we’re going to have an agreement or not,” Guajardo said in a Forbes Mexico talk.

In addition, Guajardo added that as many as 13 other chapters would also be tough to negotiate.

Asked by journalists if Mexico would accept national content rules that would require a portion of products to be made in the United States, the minister said the topic had yet to reach the negotiating table.

“We would analyze it, but I believe as of today there is no trade agreement that contains this type of clause,” he said.

Guajardo reiterated that Mexico was ready to modernize the agreement, which U.S. President Donald Trump has threatened to scrap, and to find solutions with the United States and Canada.
…

The WTO dispute settlement system is “deficient” and has often ruled in favor of free trade that overlooks details of a trade agreement, U.S. trade envoy Robert Lighthizer said on Monday.

Speaking at the Center for Strategic and International Studies, Lighthizer, a trade lawyer, made clear that the administration was poised to push for major changes to the global trade system during upcoming meetings of the Geneva-based trade body. WTO member countries will meet in Buenos Aires on Dec 10.

U.S. President Donald Trump called the World Trade Organization a “disaster” during his presidential campaign and his administration has sought to unilaterally go after countries like China that it thinks is breaking trade rules.

“There are a number of issues on which there is pretty broad agreement that the WTO dispute settlement understanding is deficient,” said Lighthizer, highlighting problems with WTO staffing and transparency.

“The United States sees numerous examples where the dispute settlement process over the years has really diminished what we’ve bargained for or imposed obligations that we do not believe we agree to,” he said.

He added: “There have been a lot of cases in the trade remedies laws where in my opinion the decisions are really indefensible.”

Since its launch in 1995 the WTO has become the main venue for resolving trade disputes between countries. The Trump administration has begun to launch trade investigations under statutes seldom used in the WTO era, including a “Section 301” probe of China’s intellectual property practices.

Lighthizer did not threaten a U.S. withdrawal from the WTO, but emphasized his own dissatisfaction with some of its rulings.

In a letter in March, the Trump administration made clear that U.S. law supersedes WTO rules — a view that could be invoked should Congress adopt policies that are later challenged by other member countries as violating WTO rules.

“We’ve had tax laws struck down, we’ve had other provisions where the WTO has taken…the decision they were going to strike down something they thought shouldn’t happen, rather than

looking at the agreement as a contract,” he said.

Lighthizer emphasized that the Trump administration was reviewing all trade agreements and would seek to renegotiate those that did not benefit U.S. workers and businesses.

“I believe, and I think the president believes, that we must be proactive,” he said, “We must demand reciprocity in home and international markets. So expect change, expect new approaches and expect action.”
…

Peru’s prime minister said on Monday that the country’s new Cabinet will focus on reviving public investments as it seeks to mend fences with the opposition party that forced President Pedro Pablo Kuczynski to form a new government.

Congress ousted the former Cabinet last week following a dispute over education reforms, fueling fears that political fighting might hurt economic growth that has already slowed sharply this year due to floods and a graft scandal.

Mercedes Araoz, Peru’s new prime minister, said on local broadcaster RPP that she was optimistic about rebuilding a working relationship with the opposition. A key test will be efforts to rapidly rebuild parts of Peru hit by flooding, Araoz said.

Congress will likely vote on whether to give Araoz’ Cabinet a vote of confidence in the first week of October, she added.

Araoz is a ruling party lawmaker and former finance minister in the 2006-2011 term of former President Alan Garcia.

Forecasts for an economic recovery in Peru hinge on the government increasing public investments that fell 10.4 percent year-on-year in the first half of 2017.

“Now’s the time. We can’t fall behind in this process” of increasing public investments, Araoz said.

President Kuczynski, a center-right politician and former Wall Street banker, vowed to work to modernize Peru and strengthen the economy of the world’s second-biggest copper producer.

But his first year in office has been marked by slowing economic growth and clashes with Congress, where the right-wing populist party of his former rival Keiko Fujimori has a majority.

Fujimori welcomed the new Cabinet on Twitter after it was sworn in on Sunday and said Kuczynski’s government still has four years to “mend its ways and make progress.”

Similar remarks from opposition lawmakers signaled Congress would likely give the new Cabinet a vote of confidence. But after previous efforts to reset relations failed, it was unclear how long the new truce might last.

Verisk Maplecroft, a global risk analysis company, said Peru has a score of 4.44 out of 10 – a “high risk” ranking – on its government effectiveness index.

Despite Fujimori’s support for the new Cabinet, “the re-tooled team will remain hostage to the Fujimorista-controlled Congress, with Kuczynski’s political credibility continuing to ebb,” said Maplecroft analyst Eileen Gavin.

If Congress fails to approve of the new Cabinet, Kuczynski can summon new legislative elections.
…

U.S. central bank leaders are expected to hold the key interest rate steady this week, but they may begin trimming a huge bond-buying program that was intended to boost economic growth.

Federal Reserve Chair Janet Yellen is scheduled to speak with reporters about those decisions Wednesday afternoon, following a two-day strategy meeting in the U.S. capital. Surveys of economists show they do not expect the Fed to raise interest rates at this time.

During the 2008 financial crisis, Washington slashed the key interest rate nearly to zero in a bid to boost growth and jobs. Over the years, it has worked well enough to help cut the unemployment rate to its current low of 4.4 percent. As the jobless rate improved, interest rates have been raised, but remain below historic averages. 

An additional effort to boost growth involved purchasing trillions of dollars’ worth of bonds. The Fed is expected to gradually reduce this program over the next few years. 

Some experts worry that cutting back stimulus efforts too sharply or too soon could cause the economy to stumble back into recession. But continuing ultra-low interest rates or bond-purchase programs for too long could spark a sudden and sharp increase in prices. That inflation could also damage the economy.
…

The man tasked with overseeing Texas’ Hurricane Harvey rebuilding efforts sees his job as “future-proofing” before the next disaster, but he isn’t empowered on his own to reshape flood-prone Houston or the state’s vulnerable coastline, which has been walloped by three major hurricanes since 2006.

 

Texas A&M Chancellor John Sharp will face the same political and bureaucratic challenges that have long stalled meaningful improvements in storm protections, and some doubt that even Harvey’s record flooding and huge price tag will bring about real change.

 

“It doesn’t give me very much confidence at all,” Houston resident Steve Sacks said of the prospects that the government will get the recovery right. Sacks’s home has flooded four times since 2012, and even before Harvey’s floodwaters near the rooftops in his Meyerland neighborhood, he was frustrated by delays and what he believes is the mismanagement of a government project to elevate homes in the city.

 

“It’s all spur of the moment and not thought out. It’s just, ‘Let’s go ahead and react now to make it look good,”’ said the 46-year-old Sacks.

 

Sharp, who was appointed by Republican Gov. Greg Abbott, follows a line of fix-it men charged with picking up the pieces following major storms in recent years, including Hurricane Katrina in 2005 and Superstorm Sandy in 2012. He has won early bipartisan praise as a practical choice to preside over the efforts to recover from Harvey, which killed more than 70 people and damaged or destroyed more than 200,000 homes.

Sharp is the rare Democrat with sustained relevance in Republican-controlled Texas. He is former lawmaker and state comptroller who was U.S. Energy Secretary Rick Perry’s college roommate at Texas A&M, which Sharp has led since 2011 and will continue to lead while overseeing the rebuilding effort. Abbott joked that he’s now getting calls, texts and emails from Sharp “up to and sometimes well after midnight.”

 

Sharp hasn’t laid out a long-term rebuilding plan yet and most of his public comments so far have been aimed at reassuring hard-hit communities that he won’t be a bureaucratic cog. But he has indicated that he’s thinking about the next disaster, saying “one of the guiding principles will be to future-proof what is being rebuilt so as to mitigate future risks as much as possible.”

 

Abbott spokesman John Wittman said Sharp will be involved in developing a rebuilding plan to “minimize the impact” of future natural disasters and will advocate for funding.

 

But Sharp is constrained in how far he can go in reimagining a more resilient Texas coast. His mandate only pertains to public infrastructure, and not housing, which experts say is crucial to any comprehensive mitigation plan, including buying out particularly flood-prone neighborhoods.

Sharp’s mandate also doesn’t mention zoning changes — Houston is the largest U.S. city with no zoning laws — or how much money the state will put up to deliver on his eventual recommendations. Abbott, who has estimated that the recovery could cost more than $150 billion, has suggested the state will dip into its $10 billion rainy day fund, but not by how much.

 

“When you’re dealing with a limited amount of funds, there are always trade-offs that have to be made,” said Marc Williams, deputy executive director of the Texas Department of Transportation. His agency will work closely with Sharp’s commission, which could recommend elevating certain roads that flooded during Harvey.

 

All rebuilding czars are eventually tested by political and financial realities. Donald Powell, who left his role as chairman of the Federal Deposit Insurance Corporation to be the federal coordinator of Gulf Coast recovery efforts after Katrina, expressed frustration over not being able to speed up the rebuilding.

 

Marc Ferzan, who was appointed by Gov. Chris Christie to oversee New Jersey’s recovery after Sandy, said his biggest struggle was jumping from agency to agency to get funding.

 

“Whether it’s Katrina or Sandy or any major event you’re going to hear the same story. It’s just the way disaster aid is administered. It’s a slow, cumbersome process that is too bureaucratic to respond to the urgency of the situation,” he said.

 

After Hurricane Andrew caused $26 billion in damage to the Miami area in 1992, Florida installed the most stringent building codes in the country. Since 2001, structures throughout the state must be built to withstand winds of at least 111 mph (178 kph), and new codes also require shatterproof windows, fortified roofs and reinforced concrete pillars, among other things.

 

Sam Brody, an environmental planning expert and director of the Center for Texas Beaches and Shores at Texas A&M University, said drainage is among the “low-hanging fruit” that could be addressed immediately to begin future-proofing the coast for the next major storm. But he said the funds and the political determination must be solved.

 

“In terms of will, there hasn’t been the will in the past. Maybe this is a wake-up call, and maybe with his leadership and personality, he can change the way we can think and act,” Brody said of Sharp.

This week, Houston Mayor Sylvester Turner endorsed long-stalled plans for a sweeping reservoir project that might have spared parts of the city from Harvey’s flooding. He also has joined some top Texas Republicans in urging Congress to approve billions to build a coastal seawall that could protect Houston and other areas from deadly storm surges that Harvey didn’t unleash but that future storms could.

 

Turner said Houston “cannot talk about rebuilding” if “we do not build the coastal spine.”

 

How active the federal government will be in making the Texas coast more resilient is unclear. Following Sandy, the Obama administration commissioned a design competition that ultimately resulted in nearly $1 billion in federal funding to kickstart projects that include turning the low-lying Meadowlands into a flood-protected public park and installing bulkheads and seawalls along the Hudson River.

 

The project, known as Rebuild by Design, was just a one-time initiative. And even when things go right, such enormous undertakings are slow to materialize: the first projects aren’t scheduled to break ground until 2019, seven years after Sandy.

 

“You are receptive when you feel like something ripped the heart out of your city,” said Amy Chester, managing director of Rebuild by Design. “Everyone is going to need to say, ‘We’ve had enough.”’
…

Florida’s economy has long thrived on one import above all: People.

 

Until Irma struck this month, the state was adding nearly 1,000 residents a day – 333,471 in the past year, akin to absorbing a city the size of St. Louis or Pittsburgh. Every jobseeker, retiree or new birth, along with billions spent by tourists, helped fuel Florida’s propulsive growth and economic gains.

 

Yet Hurricane Irma’s destructive floodwaters renewed fears about how to manage the state’s population boom as the risks of climate change intensify. Rising sea levels and spreading flood plains have magnified the vulnerabilities for the legions of people who continue to move to Florida and the state economy they have sustained.

 

Florida faces an urgent need to adapt to the environmental changes, said Jesse Keenan, a lecturer at Harvard University who researches the effects of rising sea levels on cities.

“A lot is going to change in the next 30 years – this is just the beginning,” Keenan said.

 

People might need to live further inland, Keenan said, and employers might have to relocate to higher ground, with the resulting competition between offices and housing driving up land prices. It would become harder to adequately insure houses built along canals. Traffic delays could worsen across parts of Florida as more roads flood. Developers might shift away from sprawling suburban tracts toward denser urban pockets that are better equipped to manage floods.

 

At the same time, the belief remains firm among some developers and economists that for all the threats from rising water levels, the state’s population influx will continue with scarcely any interruption. The allure of lower taxes and easier living, the thinking goes, should keep drawing a flow of residents and vacationers.

 

“Irma doesn’t change the fact that there is no state income tax,” said Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness. “In a few months, when the first Alberta Clipper starts blowing down cold weather across the United States and it’s 80 degrees and sunny down here, the memories of Irma will be blown away.”

Certainly, the influx of people has been testament to that appeal. After slowing when the housing bubble burst in 2007, the population has marched steadily upward. The number of Floridians, now above 20 million, is projected to hit 24 million by 2030, with more than half the increase coming from retiring baby boomers. Many of them first experienced Florida as tourists. More than 112 million people visited the state last year – a 33 percent increase over the past decade.

 

All of which means that compared with Hurricane Andrew 25 years ago, Irma struck a far more densely packed state. It is also one marked by greater extremes of wealth and poverty. Luxury condo towers populated by the global elite now crowd the Miami skyline. But the metro area is also cursed by the worst rental housing affordability in the United States, according to Harvard University’s Joint Center for Housing Studies.

 

Flooding washed away mobile home parks in the Florida Keys where lower-income workers live. As a magnet for jobs at restaurants, hotels and other parts of the services sector, the state attracts workers with relatively low incomes who can’t pay higher rents if flooding eliminates a chunk of the housing stock.

 

Still, Citigroup estimated that damages were just $50 billion – well below initial estimates – in part because some homes were better equipped to weather the wind and rain than during Andrew.

Storms can cause population loss in the near term. A year after Andrew hit in 1992, Miami-Dade County lost 31,000 residents. Many appear to have moved to Broward and Palm Beach counties, where the risks of flooding were lower, a pattern that could be repeated after Irma.

Given the brisk pace of construction and population growth, Florida could endure a heavy economic blow in coming decades if it fails to reduce the risks from climate change. Homes that were too close to eroding beaches could become effectively worthless. Those along canals that flood could become too costly to rebuild. The state’s economic fuel – tourism and residential development – could dissipate.

 

Sean Becketti, chief economist at Freddie Mac, the mortgage giant, warned in an analysis last year that rising sea levels and widening flood plains “appear likely to destroy billions of dollars in property and to displace millions of people.”

 

“The economic losses and social disruption,” Becketti added, “may happen gradually, but they are likely to be greater in total than those experienced in the housing crisis and Great Recession.”

 

Federal taxpayers might oppose bailing out these homeowners, Becketti said, mortgage lenders could absorb heavy losses and employers might choose to move to safer parts of the country – and take their jobs with them.

 

Still, for now at least, the heads of several major Florida real estate companies say they expect people to keep flocking to Florida despite the increasing risks.

 

Budge Huskey, president of Premier Sotheby’s International Realty, drove around Naples, Florida, and said he observed “very little damage” to homes constructed under new building codes after Hurricane Andrew. These houses had wind-resistant hurricane windows and stronger roofs.

 

“Let’s face it, people work their whole lives to retire to Florida – that’s where they want to be,” Huskey said.

 

Jay Parker, CEO of Douglas Elliman’s Florida brokerage, monitored Irma from an Atlanta hotel. He was gratified that Florida escaped much of the expected destruction. And he said would-be buyers, sniffing out potential bargains, were approaching him at the hotel about cut-rate deals on condos in the storm’s wake.

 

“If anything,” Parker said, “this might create some short-term buying sprees.”
…