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| Feature: A World Divided Pt. 2 |
Profiting from the Patchwork
John Ferry
02/01/2007
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Maybank Shipping, a Charleston, S.C.–based company that transports cargo
around the Caribbean, is one of regionalism’s winners. The Dominican
Republic-Central American Free Trade Agreement (CAFTA-DR), ratified in 2005,
has been a boon for the 18-year-old family business. “Since then, we’ve seen a large increase in
trade into the Dominican Republic, and it’s just expected to grow
exponentially,” says Jack Maybank Jr., who runs the company. “I wouldn’t say it
has happened overnight, but over the past year we have absolutely seen an
increase in business, and our forecast for next year is for an even greater
increase.”
 The proliferation of bilateral and regional trade agreements may
worry economists and ardent free-traders, but they do have one undeniable
benefit: They provide new investment and entrepreneurial opportunities for
businesses such as Maybank Shipping. But identifying and exploiting those
opportunities is often fiendishly difficult because of the many variables
involved. Politics is often the most volatile wild card, as the uncertain future
of new bilateral agreements with Peru and Colombia demonstrates.
A host of
U.S. industries stand to benefit from the Colombia Trade Promotion Agreement,
signed last November, which would eliminate duties on 80 percent of U.S.
exports to that country. But with Congress now in the hands of the Democrats,
few expect it to be ratified. The Democrats’ labor union constituency fears that
manufacturers will export blue-collar jobs to the low-wage country, which has
also been generally hostile to unions. The bilateral deal with Peru is also
expected to fail in Congress because of the Democrats’ concerns over labor
rights issues there.
Success From Scale
Although the Colombian and Peruvian deals are in
jeopardy, the Bush administration has signed and pushed eight others through
Congress (see “Bilateral and Regional Trade Agreements”). Investment
strategists seeking to capture the benefits of these agreements for their
clients take either a broad macro approach or hunt for well-positioned companies
like Maybank. Jack Caffrey, New York-based equity strategist with JPMorgan
Private Bank, is of the former ilk. “We’ve been emphasizing investments in
larger-cap companies with the belief that those larger companies are generally
able to have more diversified and more geographically diverse businesses,” he
says. “They could potentially be the beneficiaries of being able to locate
production in different regions, rather than a smaller company that may only
have one or two plants.”
TOP VIEW
Exporters, international service providers and firms seeking offshore
opportunities are extracting value from bilateral and regional trade
agreements, even as the World Trade Organization’s Doha Round
languishes.
These agree-ments open new markets and provide welcome stability to companies
considering significant, long-term investments. Other leading
firms, especially large, global outfits, are reengineering themselves to exploit
regional synergies. But investors looking to maximize the trend
toward regionalism have to con-tend with the risk that pending
accords will fail to find political support. |
Investors can also gain insight into a company’s
future by examining bilateral agreements now on the drawing board for clues
about how its overseas markets might be affected. For example, the proposed
U.S.-South Korea Free Trade Agreement could be a boon for companies doing
business there, while Congress’ rejection of a bill last November that would
have normalized trade relations with Vietnam signaled problems for those looking
for opportunities in Southeast Asia.
However, most large companies have
tacitly based their strategies around the multilateral trade regime—essentially,
the WTO process—largely ignoring the trend toward bilateral or regional regimes.
Only a few forward-thinking global companies are strategically exploiting the
trend toward regionalism.
One of these is Swiss engineering giant ABB. Dinesh
Paliwal, Norwalk, Conn.-based CEO for North America for ABB, says that the
company recently reorganized its global business based on trade within the
regions in which it operates. He believes that regional markets are often
self-sufficient in terms of manufacturing, raw materials, labor and expertise.
“I believe in regional synergies, and when a regional bloc becomes a good, solid
trading bloc, like ASEAN [the Association of South East Asian Nations], it can
take the next step with European business blocs or American business
blocs.”
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