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To Counter Currency Manipulation: Rally Some Allies

8:09 am in Uncategorized by Leo W. Gerard

Japan, no economic small fry, challenged China last month. The conclusion of the dispute is a cautionary tale for countries confronting China about currency manipulation.

In September, Japan seized a Chinese trawler captain after his boat collided with two Japanese Coast Guard ships near some East China Sea islands claimed by both countries.

Immediately afterward, China “coincidentally” detained four Japanese employees of Fujita Corp., charging them with filming in a restricted military area. When Japan proposed a prisoner swap, China upped the ante instead — halting shipments of rare earth minerals to Japan. China controls 93 percent of the world’s rare earths, which are minerals essential for manufacturing high-tech and energy-efficient products, from cell phones to wind turbines.

Japan caved, releasing the Chinese captain unconditionally. Suddenly, China rescinded its restriction on rare earth exports to Japan and released three of the four imprisoned Japanese nationals, ending the dispute one captive ahead of Japan.

This incident confirmed China as a burly international tyrant. The caution for countries attempting to negotiate with China is to avoid Japan’s mistake, which was single-handedly contesting the giant. For America, that means seeking an end to China’s currency manipulation by simultaneously pursuing every option the United States has, including formally naming China a currency manipulator, imposing tariffs on imports from countries that undervalue currency and creating a community of allies to campaign together to combat the illegal trade practice.

Rallying partners should be reasonably easy, as Japan, Brazil and the European Union all have exhorted China in recent weeks to allow the value of its currency to freely float on international markets.

Like the United States, each has acted unilaterally. Last week, EU finance ministers confronted Chinese Premier Wen Jiabao at a European-Asian economic summit in Brussels. Wen rejected their demands for China to speed appreciation of the yuan in relationship to the euro.

Also last week, Brazil doubled a tax it charges foreigners who purchase Brazilian bonds. This was an attempt to slow speculation that has increased the value of its currency, the real, by 39 percent against the dollar over the past 22 months.

A day later, Japan announced it would lower its benchmark interest rate and purchase $60 billion in government bonds and securities, both actions designed to lower the value of the yen, which would cheapen its exports.

The Swiss tried intervening in the market in 2009 to hold down the value of its currency, the franc, but failed. Singapore, Thailand, India and Canada have considered it.

So far, America has just attempted to persuade China to stop undervaluing the yuan – a practice that artificially suppresses the price of Chinese exports while at the same time artificially raising the price of imports into China from America and other nations. China’s deliberate currency undervaluation accounts for a significant part of America’s massive trade deficit with China.

Last spring, the United States asked China politely to allow the value of its currency to float up. As the United States awaited China’s answer, the U.S. Treasury delayed issuing its semi-annual foreign exchange report in which it could name China as a currency manipulator, then initiate a formal response.

China replied June 19 that it would allow the yuan to float on international currency markets. Treasury then released its report – which, no surprise, failed to list China as a currency manipulator. Since China’s announcement, the yuan has increased in value less than two percent – this for a currency believed by many economists, including the conservative C. Fred Bergsten, director of the Peterson Institute for International Economics, to be undervalued between 25 and 40 percent.

Annoyed with China’s failure to keep its pledge and angry over unfair trade gutting 2 million jobs from the body of the American economy over the past decade, Congress reacted just before its recess. With massive bi-partisan support, the House passed a bill that would allow the Commerce Department to impose tariffs on imports to counter the effects of currency manipulation. If passed by the Senate and signed by President Obama, it would expand the definition of improper government subsidies to include manipulation of currency to gain trade advantages.

Afterward, just nine days before the next Treasury report on currency manipulation is due on Oct. 15, Treasury Secretary Timothy Geithner, in a speech at the Brookings Institution, offered thinly veiled criticism of China’s persistent manipulation:

“When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same. . . This sets off a dangerous dynamic.”

In rebuffing the European Union’s request for revaluing, the Chinese prime minister claimed allowing the yuan to appreciate too quickly would bankrupt Chinese factories as their prices rose to uncompetitive levels, and the resulting exodus of unemployed workers to the countryside would provoke social unrest.

No one wants that. Workers everywhere applaud the rise of millions of Chinese citizens out of abject poverty. But increasing the value of the yuan will benefit Chinese workers at the same time as it begins to balance currencies worldwide. An appreciated yuan effectively increases Chinese workers’ wages.

By deliberately undervaluing its currency, the government of China is waging a stealth trade war against the rest of the world. Independently, the United States must protect its economy, but to reign in this international outlaw, America also must secure the help of a posse.

Business Council Honors Vale CEO for Clipping Workers, Wacking Towns

11:44 am in Uncategorized by Leo W. Gerard

A business group is honoring Roger Agnelli, the CEO of Vale, one of the largest mining companies in the world, which, coincidentally, is in the midst of its longest ever labor dispute. The award is for exceptional accomplishments in corporate social responsibility.

The Business Council for International Understanding will give Agnelli the Dwight D. Eisenhower Global Citizenship Award, feting him for his corporate behavior five months after he provoked the strike by more than 3,000 miners, mill workers and smelters in my hometown of Sudbury and neighboring Port Colborne, Canada.

The strikers now include 450 Vale nickel and copper workers from Voisey’s Bay, also represented by my union, the United Steelworkers (USW).

Vale is the Brazilian-based corporation that boasted $13.2 billion in profits last year and reported third-quarter, after-tax earnings of $1.7 billion this year, more than double its second quarter haul. Vale is a highly-profitable corporation demanding workers take concessions. For example, it wants deep cuts to pay supplements workers get only when nickel prices are high.

Cash flush even during the worldwide recession, Vale has engaged in a buying spree for mines and properties worldwide. In 2008, it announced it would spend $2 billion on electrical projects, mostly coal-fired, and by year end reached agreement to spend $300 million on Colombian coal assets. It got permission from the Brazilian government this year to buy iron ore mines for $750 million. It spent $17.8 billion in 2006 for Inco’s nickel mines and smelters in Canada, and as metal prices rose, earned nearly as much from them over the next two years as Inco had in the previous 10. Still, Agnelli insisted the very Canadian workers whose labor helped Vale make that money take cuts to their income – causing the strike.

Workers and their families have struggled since the strike. The towns in Ontario and Newfoundland have suffered as well because many mining supply and service companies temporarily closed, idling untold additional workers. Kari Cusack, a member of Families Supporting the Strikers, talked about it early in November before a family day on the picket line in Sudbury. She told a local newspaper reporter:

“We see Vale’s attack on Local 6500 as an attack on our entire community, and we want to do our part to fight back against corporate greed.”

The Business Council for International Understanding chose that corporate social responsibility to reward.

In Brazil, Agnelli has shown off some of that corporate social responsibility as well. In September, the government fined Vale $20 million for failing to comply with an antitrust order. Last year, Agnelli secured a court injunction in an attempt to block protestors from the country’s largest social activist group, the Landless Rural Workers Movement, rather than negotiate with those complaining that the company’s iron furnaces were polluting their village and that a hydroelectric dam in which Vale is a partner was flooding their homes. Also last year, Brazil’s Office of the Environment fined Vale $3 million for illegal sale of wood.

Workers from Canada and Vale Brazil demonstrated together in August in front of the multi-national’s Rio de Janeiro headquarters. They served pieces of a giant cake commemorating the 30th day of the USW strike in Ontario. There the Canadian workers learned that Agnelli had forced its Brazilian workers to accept a defined contribution pension plan. Now Agnelli is trying to force the Canadians take the same inferior plan.

The International Metalworkers’ Federation (IMF), the National Union of Metalworkers of South Africa (NUMSA), the Botswana Power Corporation Workers Union (BCPWU) and others from around the world have written Agnelli expressing outrage about the strike. Bohithetswe Lentswe, BCPWU General Secretary, wrote:

“We have every reason to believe that Vale is trying to destroy its strongest collective bargaining agreement for the purpose of setting a precedent to weaken other collective bargaining agreements throughout the world. Vale is also attempting to export its anti-worker, anti-union practices in Brazil to the rest of the world.”

Of course. That’s what great CEOs do, as the Business Council for International Understanding will proclaim at its Dec. 3 dinner in the Waldorf=Astoria, New York City. With the cheapest tickets going for $1,000, it’s likely none of those $29-an-hour Vale workers will get a seat. But Agnelli, who is one of six Vale executives who together pulled down $33 million last year, could effortlessly drop $100,000 for an “underwriting level” table of 10 at his award dinner.

Perhaps there the Business Council for International Understanding will detail its reasons for selecting Agnelli for the Dwight D. Eisenhower Global Citizenship Award. It only profiles Vale and Agnelli on its web page, without, for example, providing the kind of insight into Agnelli’s personality that Antonio Regalado did for the Wall Street Journal in 2008 in a story:

“Current and former Vale executives say Mr. Agnelli can be hard on subordinates. Some of them cite what they say is an autocratic style and a table-pounding temper. . . . In internal company surveys, employees complain frequently that they are under too much pressure . . . Marco Dalpozzo, Vale’s head of human resources, doesn’t deny that Mr. Agnelli can be rough on people, “He’s a tough guy,” he says.”

Again: of course. That’s what business groups prize – executives with table-pounding tempers.

The Business Council is, however, a group that claims it was started by the late President Dwight D. Eisenhower and named its prize for him. It’s not clear, though, that the business values of the current council and Agnelli resemble those of President Eisenhower. For example, here’s what the President wrote in November, 1954:

“Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt. . ., a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid.”

To let the Business Council know the ways in which you think this award for Agnelli will increase its goal of International Understanding, call 212-490-0460 in New York, 202-595-2668 in Washington or 44-207-225-3561 in London.

LabourStart has created a web page so you can easily write a personal note directly to Agnelli. It’s here. It enables you to quickly drop Agnelli a little note telling him just how much you think he deserves this honor.