International News - July 2006

U.S. Politicians Oppose Normalizing Trade Relations with Vietnam

June 15, 2006 (Emerging Textiles) - The establishment of a law normalizing trade relations with the U.S. would bring Vietnam one step closer to WTO membership and consecutive end of U.S. quotas. Such a proposal was this week introduced in the US Congress but has been bitterly opposed by a group of elected politicians. They claim the bilateral deal negotiated with Vietnam carries risks for the U.S. industry and threaten withdrawing support for the Bush Administration's trade agenda as a result.

The PNTR - Permanent Normal Trading Relations - if voted, would replace a previous law that established trade restrictions during an era of hostility between the two countries. Vietnam's bid to join the World Trade Organization (WTO) before the end of the year would effectively be sealed should Congress vote in favor of PNTR.

But the issue has proved a decisive one, ever since the U.S. Trade Representative's team of negotiators ended negotiating the controversial bilateral deal last month.

The agreement essentially will leave the U.S. domestic textile and apparel industry without the protection of the current system of quotas placed on several categories of sensitive imports from Vietnam.

And, unlike with China, Washington has not negotiated a specific textile safety clause that would allow U.S. companies to apply for quotas should imports start to threaten domestic production.

This is a situation that many lawmakers have reacted angrily to and have written to the new U.S. Trade Representative, Susan Schwab, expressing their concerns.

The group of 44 Republican and Democrat Congress members has warned of the consequences that would affect the U.S. industry resulting from the agreement with Vietnam.

They state that Vietnam is heavily subsidizing its textile sector which they say is giving it an unfair price advantage against other competitors. Their letter calls on the U.S. to insist that either the current quota system stays in place until all subsidies are removed or to allow a China-style textile safeguard mechanism.

While it seems too late for the U.S. to make such a request, the group has brought into question the Bush administration's Trade Promotion Authority (TPA).

The TPA was voted for by Congress at the request of President Bush in order to boost negotiations for trade deals with other countries.

This requires that when a trade deal is finalized and presented to Congress, lawmakers have to either accept it in its entirety, or to reject it as they are not able to make any amendments.

With the TPA coming to a close in 2007, the group of 44 have said in the letter that the failure to address their concerns will substantially impact their view of the Administration's legislative trade agenda.

But the deal is not entirely without any reference to protectionist measures.

It suggests that U.S. domestic producers have the right to go apply for a one-off annual quota should a complaint be accepted that Vietnam is guilty of unfairly subsidizing its industry in a given category or categories of imports.

Should this be the case, it would seem likely that a mutually-appointed arbitrator at the WTO would investigate before giving his or her decision.

But this has not gone down well with groups defending the interests of the U.S. industry, such as the National Council of Textile Organizations (NCTO) and the American Manufacturing Trade Action Coalition (AMTAC).

Both the NCTO and AMTAC say that two things would prevent this from being effective.

Firstly, the U.S. textile industry is prevented from putting forward measures such as anti-dumping duty requests due to practical and legal reasons.

Secondly, Vietnam is in the sixth year of a ten-year subsidy program which, the groups claim, will be allowed to remain in place.

This has added to the pressure now put on the USTR and the Bush Administration and could indicate that the U.S. textile industry still manages to carry some political strength.

Poverty, Job Issues Heat Up the Presidential Race in Mexico

Mexico, June 18 (San Francisco Chronicle) -- Six computers in this town's two-room high school may be the last best hope to give local residents a future that does not involve emigrating to the United States.

"You know, this is a really small place, and most of my friends just want to go far away," said Azucena Contreras, an 18-year-old who graduated just last week with 17 other students.

Contreras, who is the sole student in her class headed for university this fall, credits her work on computers, which were installed only a year ago, for "helping me get ahead."

The story is the same all around El Timbinal, a hamlet of 1,200 people on the high rolling plateau of Guanajuato state, northwest of Mexico City, an area where passing thunderclouds leave little rain and more than one-third of the young men migrate to the United States.

These towns are proving grounds for an initiative by President Vicente Fox and his conservative National Action Party, or PAN, to use technological education to help pull the country out of poverty. The program, called E-Mexico, has placed computers in thousands of schoolrooms around the nation, and government officials claim that every school will be wired by the end of this year.

This effort is seen as important not just for poor towns like El Timbinal, but also for the national economy as it struggles against increasingly tough competition from China.

The success or failure of Fox's emphasis on technology will determine much of his legacy as Mexico approaches the July 2 presidential election. Candidates have made little mention of technology or economic competitiveness and instead have emphasized U.S.-style personal attacks. But much of the support for Felipe Calderon, the PAN party candidate, depends on his promise to continue Fox's business-friendly policies. Left-of-center challenger Andres Lopez Obrador of the Democratic Revolution Party, who has grabbed a narrow lead in recent polls, says Fox's policies have failed to produce jobs or reduce poverty.

Much of the undercurrent to the election debate revolves around one important question: After six years of Fox's free-market policies, is Mexico on its way to becoming a first-world economy, or is it stuck in a rut that gives millions of its people little choice but to look for work in the United States?

While U.S. companies such as Microsoft, Intel, General Electric and General Motors have set up large research and development centers in major Mexican cities in recent years, most Mexicans have yet to benefit from Fox's technological push.

"Places like El Timbinal need technology not just to do well, but to survive," said Jose Ramirez, director of the Technological Institute of Southern Guanajuato, a fledgling university about 20 miles away in the town of Uriangato. "Learning to use computers, and to apply them, will determine whether or not this area and this country have a viable economy 20 years from now."

In fact, it's not even El Timbinal's first time as a test case. In the late 1990s, the town was held up as a shining example of an earlier program initiated by Fox when he was state governor of Guanajuato state. Under that program, "My Community," the government matched investments sent back home by migrants working in the United States.

The remittances created a clothing factory that employed some 20 local women hunched over sewing machines. Each earned about $50 a week -- a mediocre wage by local standards. Jorge Calderon, who was factory manager at the time, recalls the moment when they won a contract making Halloween costumes for Wal-Mart. "We thought we were in the big leagues," he said.

Soon, however, Calderon realized that the factory couldn't make any profit at Wal-Mart's rate of only 25 U.S. cents per garment.

"We couldn't make a profit," he said. "We couldn't pay the girls any more," he said. "One by one, they left for the north," he added, explaining: "Napa, almost all of them."

The factory went bankrupt in 2000, soon after Fox won the presidential election.

Jorge Calderon's uncle, Angel Calderon, raised most of the money for the plant from the hundreds of El Timbinal emigrants living in Napa County, Vallejo and the Kern County town of Arvin.

"A lot of people up here in California wanted to help their hometown, and now we don't know what to do," said Angel Calderon, now manager of a county-funded migrant labor camp in St. Helena.

After appearing in public ceremonies with Fox and the current Guanajuato governor, Juan Romero Hicks, Jorge Calderon says he feels used.

"I won't do that again," he said. "The government said they would help us find contracts. They said they would help us work out the business. But they left us hanging."

Jorge Calderon now runs a small sewing shop in his father's house, with four of the seamstresses from the failed factory who opted not to leave town. He also teaches computer science in an adult-education center in a nearby town. "I think computing has more future than anything else," he said.

Susana Guerra, director of Services to Guanajuato Communities Abroad, a state agency, called the El Timbinal case "a tremendous shame."

Guerra conceded that attempts to start apparel manufacturing plants in Guanajuato state with migrant funds have been "basically a failure." Of the 13 factories opened in recent years, only three remain. Currently, the state government is involved in co-financing 136 migrant projects this year, but "almost all" are hometown church restoration projects, said Guerra.

Ramirez, the institute director, says the region has no choice but to make the apparel industry more high-tech. He notes that the Guanajuato economy, like much of central Mexico's, is dominated by small-business industrial clusters. In the Uriangato region, an estimated 200 small apparel factories employ about 2,500 people, producing clothing and sweaters, most of which is sold in Mexico.

But in the past few years, a surge of cheap Chinese imports has devastated the local industry, throwing dozens of factories into bankruptcy.

"China is a huge problem for us," said Luis Martinez, the owner of Andrea Design, which manufactures women's and girls' sweaters in the nearby town of Moroleon. "The sweaters that I make for $8 to $12 each, you can find Chinese ones wholesale in Mexico City for $2 to $3 each."

Some experts say Mexico's failure to compete against China is largely the fault of local business owners who failed to take advantage of NAFTA, the 1994 North American Free Trade Agreement.

After trade with the United States boomed in the mid-to-late 1990s, many entrepreneurs spent their profits by adopting luxury lifestyles rather than investing in technology, said Pedro Lopez de Alba, director of the Guanajuato state Science and Technology Council.

Andrea Design may be one such case. The company is now under the wing of Ramirez's institute, which provides technical assistance free of charge. All patterns and cutting programs are computer generated by the institute's professors and students. "This is what the Chinese do -- everything on computer -- and it helps reduce costs," said Ramirez.

Martinez says he appreciates the help but would prefer cash instead. "What we really need is support from the government, programs for easy credit," he said.

What's missing is a "real entrepreneurial culture," said Lopez de Alba. "The Mexican entrepreneur waits for the government and puts his hand out. There needs to be a cultural change in companies. If we don't change that mentality of business owners, we never will become a developed country."

Almost none of Ramirez's students have been hired by the local apparel industry after graduation, a sign that companies "don't really value" technology, he says. What's more, the overall unemployment rate for his recent graduates is 41 percent -- an amount that he calls "pretty good" in comparison to the 50-plus percent unemployed for university graduates nationwide.

Mexico ranked 55th in technological competitiveness in a 2005-2006 report by the World Economic Forum, down from 44th place in 2001. China ranked 50th in the report, up from 64th place in 2001.

After overtaking Mexico two years ago as the second-largest exporter to the United States after Canada, China now accounts for almost 15 percent of U.S. imports, while Mexican exports account for only 13 percent. In the apparel industry, Mexico's exports to the United States have declined by $1.5 billion since 2000.

Yet if high-tech education doesn't have much effect in the apparel industry, it seems to be benefiting the students in El Timbinal.

The school's computers are programmed with Enciclomedia, a multimedia program joining online textbooks with a sort of Mexico-centric, Spanish-language Encarta. Enciclomedia has been developed by government and Microsoft experts and is being distributed to the nation's schools. The program is widely praised by teachers and students.

In fact, most of E-Mexico -- and nearly all programming throughout federal and state government agencies -- is based on Microsoft software, the result of an early decision by Fox to make a strategic alliance with the Seattle-based company. While other Latin American nations such as Brazil and Venezuela are embracing open-source software, Fox has bound Mexico to Microsoft.

The Mexico-Microsoft alliance has prompted criticism from some experts who say that by embracing the use of patented software, rather than a free software infrastructure such as Linux, the government is paying too much and stifling innovation.

Ruben Illoldi, director of social responsibility for Microsoft Mexico, replies that his company donates about $2 million worth of software to the Mexican government each year.

However, he noted the nation's digital gap between rich and poor is "very, very important," and said government spending on technology may be inadequate. "Mexico still has only one computer for every 97 students, and that is very low compared with other developing countries."

In the meantime, Azucena Contreras, the recent high school graduate, says she often thinks sadly of her boyfriend of three years, who left for California earlier this year. Most of her friends are busy scheming to join their relatives in the United States.

And for friends like Ana Veronica Montoya, a high-tech education doesn't offer a viable future -- at least, not yet.

"There's no Internet here, there's nothing," she said.

Johnson Smart With Uniforms

United Kingdom, June 4, 2006 (thisismoney.com) - Supplying and cleaning overalls, staff uniforms and the like is scarcely the most glamorous of businesses.

But for Johnson Service Group, such work is the company's bread and butter.

Johnson is not a high-profile company. Until now it has perhaps been best known for its dry cleaning operations, which operate under the Sketchley, Johnsons and Jeeves names.

Certainly, dry cleaning has historically been important for the company. Last year, it accounted for almost a quarter of operating profits.

But in Marc h, Johnson announced that it had received an approach to buy the dry cleaning operations. And even if that bid fails to crystallize, there is every reason to expect that there will be other takers.

Analyst Shai Hill from broker Arbuthnot Securities expects a sale to bring in about £85m.

That will leave Johnson with three main parts to its business - renting out work garments and then having them regularly laundered; the rather spooky-sounding 'corporate wear' division, which sells uniforms to companies as diverse as Boots, Tesco, Lloyds TSB and the ambulance service; and 'facilities management', which helps to design and manage offices, shops and banks.

The balance of Johnson's operations has changed drastically - particularly since the appointment of Stuart Graham as chief executive four years ago.

In part, this is due to the decline of the 'textile rental' business. Three years ago, it accounted for 60% of group operating profits. This year, if dry cleaning is sold, its share is likely to be little more than a third.

The market has been in decline, exacerbated by the shrinking of the UK's manufacturing base on which Johnson has historically relied.

But the sales performance of Johnson's business has shown signs of stabilizing and that intense price competition is abating. And within the past couple of months, a major rival, Rentokil, has announced that it is pulling out of this area.

More exciting are the prospects for Johnson's corporate wear division. More than a third of UK employees already wear uniforms.

That is likely to rise towards the 50%-plus seen in America. Johnson has recently secured a deal with Virgin Atlantic and contracts across Europe for UPS and Compass. This a growth business.

Similarly, facilities management is a promising area in which to be involved. Johnson has already won contracts with Mitchells & Butlers, Fujitsu, Cable & Wireless and St George's NHS Trust in south-west London.

Some of the money that Johnson is likely to receive from selling dry cleaning will be used to plug the £34m gap in its pension fund. But there should be cash left over for acquisitions to bolster the growing parts of the group.

Uniform Company Clinches Pet Store Contract

Blackburn, England, June 9, 2006 (This is Lancashire) - Altham firm Simon Jersey has won a lucrative contract to supply uniforms to animal shop Pets at Home.

The firm, which supplies uniforms to firms across the world, will supply 3,500 employees with branded clothing, including a polo shirt, fleece, and combat-style trousers.

The uniforms were created by Simon Jersey's in-house design team, and are branded with Pets at Home logos.

John Gunton, buyer for Chester-based Pets at Home, said: "We tried a number of uniforms in store and had great feedback from our staff on the Simon Jersey designs. They were practical and stylish and we're sure our staff will be pleased with the results."

Simon Jersey has an annual turnover of more than £20million and serves around 50,000 customers each year. The uniform industry is thought to be worth about £430million a year.

Helen Harker, head of design at Simon Jersey, said: "Customers want to deal with people they can trust, who are knowledgeable when it comes to the care and welfare of their pets and who are polite, and can interact with them as well as their animals.

"A professional uniform helps to reinforce this friendly atmosphere, while also contributing towards achieving commercial business objectives."