Feb-18 24, 2002

US pleads for trade sanction limits

The United States has urged the World Trade Organisation (WTO) to limit to less than $1bn (£700m) a set of trade sanctions due to be imposed by the European Union (EU).

That would be less than a quarter of the $4bn sanctions the EU wants to impose in retaliation for US tax breaks which were deemed by the WTO as illegal export subsidies.

This amount would be excessive since the US tax breaks would not have caused such severe damage to EU trade interests, the US said in a filing to the WTO.

"The United States believes that this amount is no more than $956m per annum," the filing said.

The US filing kicks off what is expected to be a lengthy political wrangle over the size of the sanctions.

The EU has stressed that retaliation is not its preferred option.

Not least since any trade war is likely to hit the economies of both sides — with the United States in the throes of a recession and the European Union suffering a sharp economic slowdown.

The hope is that the 'horse-trading' will lead to an alternative solution.

The WTO last month found that massive tax breaks for firms like GE, Boeing and Microsoft amounted to illegal export subsidies.

It was the fourth time in five years that the WTO ruled the tax breaks illegal.

The ruling paved the way for the EU to impose punitive tariffs on imports from the US.

This is just the latest in a host of transatlantic trade disputes.

In previous quarrels — over beef and bananas the WTO had found in favour of the United States, resulting in sanctions on EU exports.

US targets African trade talks

Mr Zoellick met Kenya's president Daniel Moi US trade representative Robert Zoellick has embarked on a three-nation tour of Africa to discuss trade between the two continents.

It is the first tour to Sub-Saharan Africa by a US trade chief in a decade, and comes hot on the heels of a trip by UK prime minister Tony Blair.

There are high hopes that a meeting between Mr Zoellick and South Africa's trade minister, Alec Erwin, will result in a free trade agreement.

Mr Erwin has expressed interest in the US proposals, but stresses that South Africa's priority is settling a long-running trade dispute over poultry and steel.

South Africa is Africa's largest economy and concluded a free trade agreement with the European Union in 1999.

Japan urges central bank to fight deflation

Japan wants its central bank to raise monthly purchases of Japanese government bonds (JGBs) by 25 per cent to help fight deflation in the country, Finance Minister Masajuro Shiokawa said on Tuesday.

A second minister called on the Bank of Japan (BoJ) to take bold and flexible action when considering fresh monetary policy to help the Japanese economy out of its worst post-war recession.

We know the BoJ's efforts to provide ample liquidity helps to prevent deflation, Shiokawa said.

The government wants the bank to increase its outright purchases of government bonds to one trillion yen from 800 billion yen, he told a budget committee meeting in parliament.

Deflation has attacked the Japanese economy since the mid-1990s, eating into corporate profits and raising the burden of debt in real terms.

Slack demand amid a deep recession coupled with cheap imports has ensured prices have continued to weaken, forcing firms to slash payrolls in a bid to survive the slump. This has further pressured consumer spending, prompting further price cuts in a vicious cycle.

In December, consumer prices fell for the 28th straight month, down 1.2 per cent from a year earlier.

The government is considering several measures to prevent deflation, including necessary bold and flexible action by the BoJ to further ease monetary policy and to regulate excess margin selling in the stockmarket, State Minister for Economic and Fiscal Policy Heizo Takenaka told parliament. But central bank governor Masaru Hayami denied he had received direct instructions from the government on how to tackle the nationwide price slide.

Japan mobile phone sales plummet

Sales of mobile phones in Japan plummeted 34% in December 2001 compared to shipment levels in the last month of the previous year.

It was the seventh month in a row that shipments have declined, according to figures from the Japan Electronics and Information Technology Industries Association (JEITA).

Furthermore, the slowdown in sales is gathering pace: The 34% drop in shipments in December compares with a 16% decline in September.

Japanese handset makers shipped 3.12 million units in December.

Berlin averts EU reprimand: Budget deficit

European Union finance ministers formally ended rebuke procedures on Germany's widening budget deficit on Tuesday saying their skilfully-forged political deal would not hurt the euro.

Allegations that the single European currency was in for more trouble on forex markets were "pure nonsense," said triumphant German Finance Minister Hans Eichel.

A unanimous decision by the 15 EU ministers against sending Berlin an early warning letter had helped "preserve the credibility" of the bloc's 1997 growth and stability pact, Eichel insisted. But the face-saving deal allowing Berlin to wriggle out of an official EU reprimand was immediately thrashed by German opposition leaders and European monetary experts as a sign of European governments' failure to stand up to Berlin's bullying.

Ex-German finance minister Theo Waigel slammed the German government for putting pressure on the European Union, saying Berlin had sent a "disastrous signal for the future."

Waigel, an architect of the stability pact which prevents eurozone governments from overspending, said German Chancellor Gerhard Schroeder's tough-arm tactics had endangered future use of the pact's early warning procedure.

The measure is intended to prevent nations overshooting the stability pact's budget deficit ceiling of 3 per cent of gross domestic product.

European Parliamentarians also lashed out at EU governments for caving in to German pressure. "This is a bad and damaging decision for Europe and the Euro. It will not contribute to a strengthening of the European Union and its common currency," said European People's Party economic spokesman Othmar Karas.

Bank plays down inflation rise

The Bank of England has moved to dampen inflation fears following Tuesday's announcement of a rise by saying it expects the level to remain under control.

UK inflation, excluding mortgage fees, unexpectedly jumped to 2.6% in January, up sharply from 1.9% in December.

The rise has fuelled speculation of an imminent rise in interest rates.

The Bank of England's monetary policy committee has cut interest rates by two percentage points to a 37-year low of 4% since February last year in an effort to stimulate the flagging economy.

But many economists believe that the bank is now seriously considering raising the cost of borrowing in order to reduce inflationary pressures stemming from strong consumer spending.

On Wednesday, Mervyn King, deputy governor of the Bank of England, played down that scenario, saying the inflation rate was likely to be erratic in the short term.

Venezuela's currency in freefall

Venezuela's currency has plummeted 25% against the US dollar after the government scrapped five-year-old exchange rate controls.

President Hugo Chavez made the surprise decision to scrap the bolivar's trading band on Tuesday.

The bolivar weakened to as low as 1,001 to the dollar on Wednesday before closing at 981 compared with 795 on Friday, the Central Bank of Venezuela reported.

Industry giants in legal battle

Two of the world's biggest engineering firms are gearing up for a 1bn-euro (£610m; $871m) legal tussle, after failing to resolve a dispute over the sale of rail subsidiary.

Bombardier, the Canadian maker of transportation equipment, said it would be filing a claim for damages against German car maker DaimlerChrysler.

Congress passes campaign fund bill

The United States Congress has voted to pass a bill which will radically change the way election campaigns are funded.

The House of Representatives voted 240-189 in favour of the legislation after a marathon debate which stretched late into Wednesday night.

The bill proposed banning unlimited donations of "soft-money" — funds given to political parties by businesses, unions and non-governmental organisations. It also prohibits using this money to buy adverts.

The bill will now go back to the Senate and on to President Bush — who has not threatened to veto it — to be signed into law.

UK unemployment falls

UK has fallen by 10,600 in January to 951,300, according to the Office for National Statistics.

However, using a wider measure, the so-called ILO count, unemployment rose by 34,000 to 1,546,000 in the last three months of 2001.

US retail sales beat forecasts

A smaller than expected decline in US retail sales last month has boosted hopes that the world's largest economy is on the road to recovery.

Total retail sales fell back by 0.2% in January from December, pressured by a 4.3% slump in car purchases, the US Department of Commerce said.

New US stock market rules unveiled

The US stock market regulator has proposed new rules for faster corporate disclosures, in the first reform taken in the wake of the Enron scandal.

The Securities and Exchange Commission (SEC) chairman Harvey Pitt promised reforms after the collapse of Enron led to calls for faster and more comprehensive corporate disclosure to investors.

The rules, if approved, would accelerated reporting of trades in company shares by senior executives and faster filing of quarterly and annual reports.

Storm bill could reach £75m

The insurance industry has said the damage caused by January's storms could lead to claims totalling £75m.

Severe gales across northern England, Scotland and Northern Ireland during January killed seven people and caused widespread damage to property.

A spokesperson for the Association of British Insurers (ABI) said that while the figure was "incredibly difficult to estimate" the total could rise even further as more people send in their insurance claims.

The estimate does not include the value of claims expected to arise from flooding in the UK over the past week

Europe's push for mobile workers

The European Commission has proposed an action plan to make it easier for Europe's workers to find and move to jobs anywhere around the continent.

Economists agree that lack of labour mobility is one of the biggest barriers to Europe becoming a truly single and efficient market.

The Commission is proposing to make the tax, pension and social security systems across the EU more compatible and to increase immigration from outside the EU.

But these proposals, which should remove barriers to trade and work across Europe and therefore make the EU more competitive, are likely to face some tough opposition.

These changes will be debated at the Barcelona summit in March.

Nuclear row mars Czech power sale

The ongoing row over the future of nuclear plant Temelin could have serious economic implications for the Czech government.

Already, some Austrian politicians question whether the Czech Republic should be allowed to join the European Union, given the existence of the power plant.

The row over safety is not just political — it could jeopardise the government's plans to sell a stake in power company Cez, also the owner of Temelin.

The Czech government, which owns 68% of Cez, is trying to sell its stake for $5.5bn.

VAT fraud costs treasury £7.3bn

About £7bn of Treasury revenue is being lost each year because of VAT and excise duty fraud, a Whitehall watchdog has said.

The National Audit Office (NAO) says that between £6.4bn and £7.3bn of indirect taxes were evaded last year.

Succession scramble at ECB

Jean-Claude Trichet, head of the Banque de France, has gone from being called "the next president of the European Central Bank" to now just being "the leading candidate for the ECB presidency".

Two years ago, Mr Trichet appeared the inevitable successor to Wim Duisenberg, who announced his resignation last week.

Meagre harvest in Zimbabwe

After a year in which farms have stopped planting, yields have shrunk, and the land reassignment programme has left thousands of families facing hunger, Zimbabweans could be forgiven for thinking the agricultural outlook could not get much worse.

But new statistics from the Grain Producers' Association suggest that this year's harvest could be even more meagre than expected.

CSCE sugar ends at fresh 4-months low

CSCE sugar futures sagged to finish on Friday at a four-month low on a late burst of fund and local selling, with operators betting spot March will be testing the October 2001 trough of 6.11 cents by next week.

It's still negative, Mike McDougall, vice-president of the Brazil desk at FIMAT USA Inc., said, adding the market's outlook is glum because it has not been able to muster any sort of recovery the past few sessions.

Dow Jones closes above 10,000

The Dow Jones industrial average index of leading US shares closed above 10,000 points. During Thursday, the index gained 13.36 points to close at 10,003.03. In January 2001, the Dow started trading around 10,600.

Bush offers plan to curb emissions

US President George W Bush has outlined his own plan to combat global warming — instead of the Kyoto treaty which he rejected last year.

Mr Bush said his plan focused on giving companies tax incentives to reduce emissions of heat-trapping "greenhouse" gases voluntarily and gradually without hindering US economic growth.

Kenya's flower farms flourish

Flower growing has overtaken coffee and tourism as a source of foreign exchange for Kenya and ranks second only to tea, according to the Kenya Flower Council (KFC).

And Kenyan growers have developed a factory-style business that can deliver wrapped bunches to UK supermarkets, where staff need to do nothing more than stand them in water.

Russia's retail growth

Saturday morning in Moscow, and like families all over the world, Julia and Boris are out shopping.

Together they earn over $1,000 a month: not a fortune by western standards but a great deal of money in Russia, and they have just bought a new video machine from Japan.

Results

HP: HP posted a net profit of $484m for the November-to-January quarter, an almost fourfold rise on the same period a year earlier.

Dell: US computer giant Dell Computer reported net earnings of $456m, compared with $434m last year, the company said in a statement.

Unlilever: The company said its widely watched underlying net profit rose 12% to 3.6bn ($3.1bn, £2.2bn) euros for 2001.

Glaxo: Drugs giant GlaxoSmithKline has reported a 12% rise in pre-tax profits during 2001 to £6.17bn ($8.8bn).

UBS: Switzerland's largest bank USB earned 1.1bn Swiss francs ($652.1m, £453m), down 24% on the figures from a year earlier.

Argentine peso strengthens

It is now three days since Argentina allowed its currency, the peso, to float freely for the first time in more than a decade and so far the peso has held its own, contrary to many experts' predictions.

One Argentine newspaper says this is happening because the government has reached a secret deal with the commercial banks to prop up the currency.