FATCA, Tax Havens & the New American Imperialism

Once upon a time there was an offshore, where we'd hide a multimillion dollar account or two...

The wheels of financial history are spinning once more. Whereas offshore financial centres were all the rage just a few years ago, the world's most powerful countries are now causing them much discomfort as they seek to recover "lost" tax revenues. Interestingly enough, it was not always like this. Consider:

1. Many G-8 nations were complicit in the creation of these offshore banking centres in the first place since they did not raise much of a fuss about their banks setting up shop in paradis fiscaux all those years ago;
2. However, those things were allowed to happen during happier times when rich countries did not run habitual budget deficits;
3. With there being no fiscal cushion to speak of in any number of wealthy countries, their mood towards tax cheats has unsurprisingly soured;
4. Especially after the global financial crisis wiped out their tax bases, the political mood in developed nations has soured, the now-common refrain being one of "tax justice": why should us proletariats pay out a higher percentage in taxes than these wealthy folks who can shift their tax burdens elsewhere alike, say, Mitt "Bain Capital" Romney?

Even more unsurprisingly, the charge to collect more revenue is led by that most bankrupt of nations, the United States. In 2010 the Foreign Account Tax Compliance Act (FATCA)[maybe it should be "FATCAT"] was passed which allows the US Treasury to go after any offshore centre financial services provider it suspects of harbouring American tax cheats. On one hand, the "tax justice" folks whose sites I link to on the blogroll were understandably elated. On the other hand, bankers and offshore domiciles cried foul, saying the global application of American law constituted the new American imperialism.

But, this issue appears to be approaching a non-debate. With the ever-so-subservient UK appearing to bow to American wishes on this issue, it appears the famous Caribbean offshores' days of milk and honey are numbered:

Given that UBS and other Swiss banks had their vaunted bank secrecy gutted by the IRS, anything seems possible. And FATCA has a global reach with what some are calling a new American Imperialism. All in all, the world is smaller and more transparent than ever before. And it may get smaller still.

In the current milieu, the UK may be feeling some parental misgivings. After all, it spawned some of the most notorious tax havens. Many of its self-governing regions turned out to be enablers. Perhaps Britain now feels a sense of obligation to make the largely island nations join the tax haven attack.

That’s one conclusion to draw from the UK Prime Minister David Cameron asking 10 territories and self-governing regions to join hands. Just execute the Multilateral Convention on Mutual Assistance in Tax Matters, Mr. Cameron urged. It’s a creature of the OECD, the Organization for Economic Cooperation and Development. The treaty has been signed by more than 50 countries.

One of its key features—you guessed it—is information sharing. That means these countries will all share information on individuals who hold bank accounts in their jurisdictions. The 10 include Bermuda, British Virgin Island, Cayman Islands, Gibraltar, Anguilla, Montserrat, Turks and Caicos, Jersey, Guernsey and the Isle of Man. Mr. Cameron’s announcement of the 10 crown dependencies and territories tied nicely with the G-8 Summit days later.

I remain conflicted over this issue: Small island nations have few development strategies available to them, and financial services have sustained many for years and years. At the same time, it's kind of dismaying for tax cheats to get away with fiscal tomfoolery on such a vast scale. All I can say is that it's going to become much more difficult to escape American fiscal dragnets in the near future.

Crackpot Conspiracies: Bilderberg Group Circa 2013

I think it's Hollywood's fault: In any number of action/spy/suspense/thriller movies, there is a good chance that they will depict some kind of shadowy secret organization that really runs the world--usually to fulfil nefarious ends. (You can't sell movies if they were a bunch of do-gooders, can you?) One version of this storyline is that little-known but powerful masterminds get together to plot the global future to suit their purposes. Another version is that well-known public figures in politics and business are ultimately networked to an organization that decides the fate of the world that put them in places of power.

During the years of Bush the Younger, the evil organization du jour was of course the Carlyle Group. With the ebbing of American military adventurism, however, it has receded from the public eye (for now). Bereft of that military-industrial complex, conspiracy theorists have been left with more traditional bogeymen to ponder when their minds naturally wander into evil machinations being hatched.

Given that we now have a Democratic presidency, it's about time the conspiracy theorists revived the Carter-era Trilateral Commission [TLC] whose American component of a North America-Europe-Asia triad was composed mostly of Democratic instead of GOP operatives. Given Obama's seeming penchant for mounting drone attacks, engineering computer viruses, and invading Internet privacy, it's about time someone asked on whose behalf be did all of those things. I was rather amused by the Straight Dope's take on the subject matter:

The TLC's first executive director was Zbigniew Brzezinski, and such well-known figures as Walter Mondale, Caspar Weinberger, and Paul Volcker have been members. Also on the rolls at one time, mainly because the commission needed some representation from the South, was the then-governor of Georgia, Jimmy Carter. The prospect of spending hours cooped up with the likes of Walter Mondale would probably send most of us screaming for the exits. But Carter was an impressionable sort who found both the commission's meetings and its members deeply fascinating. He got chummy with many of the latter and appointed more than a dozen to posts in his administration, including Cyrus Vance, Michael Blumenthal, and of course the redoubtable Brzezinski.

This short guided tour of shadowy organizations thus brings us to the eponymous Bilderberg Group. Just as the Carlyle Group is named after the hotel its members prefer to meet at, this one is named after the venue of their first gathering. In terms of membership, however, Bilderberg resembles an older Trilateral Commission. Whereas the TLC is an North American-European-Asian gathering, a more apt name for Bilderberg would be the "Bilateral Commission" since its was intended to be an American-European gathering. But hey, it bears mentioning that the Bilderberg Group was formed in 1954--the world's powers were rather more Western then.

No matter, though. Recently, the Bilderberg Group meeting in London became an occasion for the crackpot conspracists to have a jamboree. Yes, they were partying like it was 1954 as they pondered what sort of dark machinations were being plotted in sequestered grounds...

More than 100 of the world's most powerful people are at the former manor house near London for a secretive annual gathering that has attained legendary status in the eyes of anti-capitalist protesters and conspiracy theorists. The guest list for the Bilderberg meeting includes Google executive chairman Eric Schmidt, Amazon CEO Jeff Bezos, International Monetary Fund chief Christine Lagarde and former U.S. Secretary of State Henry Kissinger. British Prime Minister David Cameron is due to drop by Friday.

 

The Bilderberg Group was set up in 1954 to support military and economic co-operation between Europe and North America during the Cold War. Named for the site of its first meeting — the Bilderberg Hotel in Oosterbeek, Holland — the forum for prominent politicians, thinkers and business leaders has been held annually at a series of secluded venues in Europe and North America.

I honestly doubt whether the Bilderberg Group is anything but a slightly less transparent World Economic Forum-style gathering where self-important VIPs are willing to spend top dollar to feel ever-so-important hobnobbing with other poo-bahs. While protesters at WEF events are of course ubiquitous, I believe that conspiracy theorists are less prone to ascribing dark, romantic connotations to what is ostensibly an "economic" meeting that videotapes most of its events. Let's just say that the reality of a bunch of guys talking about non-tariff barriers and other dry topics doesn't quite capture the fancy of the conspiracy set used to a steady diet of faceless characters known to viewers only by the plumes of smoke emanating from their tobacco pipes. Lemme put it this way: Do you think a runt like Paul Krugman could be cast in a Tom Clancy film adaptation? I didn't think so.

And so the "mystique" continues. Actually, the delusion is mutually reinforcing: On one hand, the erstwhile secret society members delude themselves into thinking they actually have a hand in shaping the global agenda while gathering with fellow Masters of the Universe. On the other hand, the conspiracy nutters actually buy into the idea that that's what really happens at these gatherings.

In the end, that's probably all the truth out there to be found.

Did US Ask Philippines to Kill KAT.ph?

News site Torrent Freak, "[t]he place where breaking news, BitTorrent and copyright collide" believes so, at least. Coming from the Philippines, I've always wondered whether to be proud or ashamed that the world's top torrent sites have had .ph top-level domains [TLDs] at one time or another. I recall the now-defunct private tracker site Demonoid being "located" in the Philippines. Sometime later, the world's second largest torrent site, Kick Ass Torrents also "moved" to the Philippines [KAT.ph].

As someone with--ahem--professional interest in the operation of torrent sites as working examples of the underground economy, the recent disappearance of KAT.ph intrigued me. Despite the Philippine passage of the Data Privacy Act in the middle of last year, it was curious to me how KAT.ph continued to operate with impunity after adopting its Philippine domain in April of 2011. But lo and behold, Philippine music industry figures supposedly argued that they were being hurt by KAT.ph's nefarious activities and the government was compelled to shut down the URL only yesterday...

Yesterday the torrent site ran into trouble with its KAT.ph domain, and there were signs suggesting the domain was no longer in control of the original owners. Over the past few hours more details have emerged, and the Government of the Philippines has now confirmed that the domain name has been seized on copyright grounds.

The seizure is the result of a complaint filed by the Philippine Association of the Recording Industry and several individual music labels. The complaint stated that KickassTorrents was causing “irreparable damages” to the music industry, and a local court agreed to suspend the site’s domain. “The complaint alleges that the registrant of KAT.ph is violating intellectual property rights by making copyrighted music available for download to its users,” the dotPH registry informed TorrentFreak. 

To be clear, the Philippine industry complaint was filed in December 2011, but Philippine authorities were only able to act after a court order was issued to do so...

Early this week the Philippine Intellectual Property Office issued a temporary restraining Order directing the dotPH registry to suspend the KAT.ph domain for 72 hours. The order, signed by the IPO Bureau of Legal Affairs, will become final if the domain owners don’t appeal. According to dotPH, the company that maintains the database of PH domain names, the music industry first complained about KickassTorrents in 2011.

However, the company said at the time that it would only take action following a court order. “dotPH was initially contacted by the complainants’ lawyers in December of 2011 with a demand to take down the domain, and dotPH agreed to cooperate if provided with an order from a court or appropriate authority,” TorrentFreak was informed. “dotPH received the restraining order earlier this week and subsequently suspended kat.ph in compliance with IPO’s directive,” the registry adds. 

As with most of these things where "Internet," "intellectual property" and "enforcement" are mentioned, there is natural suspicion that the United States is involved in pressuring the Philippines via inclusion in the US Trade Representative's watch list. To be clear, the Philippines has long been on this list, but more for the piracy of fake DVDs as opposed to "hosting" a rogue site (KAT.ph). There were earlier hopes that the Philippines would be struck off the 2013 edition after cracking down on physical distribution of pirated media, but officials were disappointed when it was not. See here:

The government expressed surprise and disappointment over the decision of the United States Trade Representative (USTR) to retain the Philippines on its watch list of countries that violate intellectual-property rights (IPR) due to concerns over Internet piracy.

[Intellectual Property Office of the Philippines (IPOPHIL) Director General] Blancaflor noted the “changing requirements” of the USTR for removal from the watch list of IPR violators. “The USTR has no intention of removing the Philippines from the watch list. Every year the requirements change and vary. How can we be removed if the requirements keep changing?” he asked. “Two years ago it was massive counterfeits. We addressed that with record-breaking volume of seizures. We were not removed then. Last year the US complained that we did not pass the Internet treaty law. We passed it on March 22,” Blancaflor said.

Anyway, back to TorrentFreak on US pressure for Philippine action against KAT.ph:

While the case is presented as a local action aimed at preventing piracy of original Filipino music, it wouldn’t be much of a surprise if U.S. forces have also been applying pressure. In its latest Special 301 Report the U.S. Government listed the Philippines on its copyright “watch list,” demanding further action against so-called rogue sites.

“The United States looks to the Philippines to take important steps to address piracy over the Internet, in particular with respect to notorious online markets,” the Office of the United States Trade Representative wrote in its report.

I suspect the Philippine authorities are still keen on having the country removed from the watch list given the efforts it has undertaken in passing the aforementioned law and continually raiding vendors of pirated DVDs. With legal backing through a court ruling to seize KAT.ph, its fate was pretty much sealed given the changing nature of American IP requests..

In the broader scheme of things, however, does it really matter? KAT is now operating with another TLD, business as usual. So, the US may have successfully bullied Philippine authorities, but the piracy goes on unabated as most users will eventually find the new site. And if that's taken down eventually, well, the game just moves on and on across even more TLDs. Montenegro, perhaps?

Will France's "Culture" Concerns Delay US-EU FTA?

I have already dubbed the proposed " Transatlantic Trade and Investment Partnership" AKA the US-EU FTA a non-event on the grounds that (a) the counterparties are slow-growing economies (b) which already have few barriers on each other's products [around 2% tariff rates on average]. Also, (c) they face several obstacles to further liberalization on products with tariff peaks that will at best result in a watered-down agreement --especially in agriculture. While this FTA bores me already, I have nonetheless found France's intransigence somewhat intriguing given the run-ins they've had with the United States over various issues. Remember those "freedom fries"? I surely do.

A few weeks ago I discussed how the French were likely to raise a stink about "cultural imperialism" insofar as their "superior" culture was to be overwhelmed by Hollywood's brand of lowbrow tinselled trash. Call it the cultural special safeguard mechanism. While agreeing that much US video entertainment is garbage, it is not my place or that of anyone else's to question the questionable taste of French consumers. That is, if they prefer Hollywood fare to France's own productions, well, tough. Obstinate French officials are pressing this point, though. They will surely ask for exceptions in agriculture--just you wait since they will come just as night follows day--but possibly delaying the start of FTA negotiations over exceptions to entertainment is exceptional:

France is "extremely determined" to keep movies and digital media out of free trade talks between the EU and the United States, a government minister said on Wednesday, a stance that could block the start of negotiations. Two days before EU countries are supposed to give the go-ahead for negotiations, the EU is struggling to find a compromise that satisfies France's "cultural" concerns without exempting the audiovisual sector from the wide-reaching talks.

"France defends and will defend the cultural exception to the end - that's a red line," French Culture Minister Aurelie Filippetti told Reuters TV, referring to current EU rules that allow governments to preserve "cultural diversity" by setting subsidies and quotas that might otherwise be considered contrary to free trade. Asked if Paris would go as far as blocking the opening of talks on what would be the world's largest free-trade agreement, she replied: "France is extremely determined."

The first round of talks has been tentatively scheduled for July, but both sides must first agree the scope of the negotiations, something EU trade ministers should finalize at talks on Friday.

Later today the eurocrats will discuss the coverage of FTA negotiations. Expect more drama from the French. Mas oui!

UPDATE 1: The French will not block the start of the negotiations after winning an exemption on media products after hours and hours of negotiations (albeit with some qualifiers):

Paris had refused to join the 26 other EU governments unless television, movies and developing online media were left out.

The final mandate given to EU trade chief Karel De Gucht, who will lead negotiations, does not include the audiovisual sector. However, it does give the Commission the right to ask member states for a broader mandate at a later stage. "I can live with this," De Gucht told a news conference.

French Trade Minister Nicole Bricq said it was "written clearly in black and white" that culture was excluded.

UPDATE 2: A number of top European directors are elated about "victory" in a culture trade war.  

Come to Where the Energy Is: Myanmar Country

With apologies to the Philip Morris Co.'s iconic figure, let's draw some analogies here: Both Marlboro and Myanmar are not exactly the most politically correct of figures, one representing the hazards of cigarette smoking and the other decades of political oppression. That said, both are irresistible draws in certain, undeniable respects. Marlboro is instantly recognizable worldwide for its cowboy, go-it-alone romantic imagery of the "American West." Myanmar, meanwhile, epitomizes the exoticism of the "Far East" to many Westerners. Despite their less-than-perfect reputations, they remain top-drawer economic attractions. Marlboro remains a Top 20 global brand, while Mynamar's considerable natural resources will always have its takers. [Photo c/o Process Design Engineering blog.]

So it is with the recent normalization of Myanmar's relations with the rest of the world (best illustrated by it hosting a World Economic Forum event) that it's sought energy sector investment from MNCs whose countries previously barred them from doing business with the military junta. It's like a land grab out there as its "frozen in time" oil and gas fields are going to be up for auction soon. And, unlike the oil and gas fields of Southeast Asian neighbours the Philippines and Vietnam, China is not disputing ownership over them. (Call it an accident of geography since China has this habit of claiming everything within, alas, striking distance.) Indeed, prior to the recent wave of liberalization, China was next to the only foreign investor of note in Myanmar after India. But anyway, back to the story...

[Australia's] Roc, [France's] Total SA (FP), [Italy's] Eni SpA (ENI) and [India's] Oil & Natural Gas Corp. are among 59 companies that qualified earlier this year to bid for onshore fields in Myanmar, according to the nation’s energy ministry. Myanmar is also offering 30 offshore blocks. Myanmar’s potential gas resources are estimated at as much as 45 trillion cubic feet, Roc said in February, citing a U.S. Geological Survey report. Myanmar has 7.8 trillion cubic feet of proven gas reserves, according to BP Plc data.“That’s quite a significant prize, and clearly the industry feels that as well given the appetite,” Eliet said. 

Due to having fewer geopolitical tussles with China alone, Myanmar's prospects for energy recovery may be said to be better than those of the Philippines and Vietnam irrespective of their reserves. It's certainly indicative of the lure of the "resource curse" that a country such as Myanmar stands to fill its coffers so much just by practicing rudimentary improvements in governance, but I guess that shows you how fierce competition is worldwide for fossil fuels even at this time when energy costs have receded somewhat.

World Economic Forum in Myanmar: Isolated No More

In the retail space, there are certain token signs of global integration: McDonalds, KFC and Starbucks. In the realm of economic summitry, there too are certain "franchises" one can have: Think of hosting IMF/World Bank meetings...or, in this case, a World Economic Forum event. What brought Myanmar to mind is the country hosting that most neoliberal of talk shops, the World Economic Forum, from 5-7 June. If you had told me as late as 2010 that this nation would soon be hosting Klaus Schwab's schmooze-a-thon of global movers and shakers, I'd have probably chuckled heartily in dismissing it. Klaus Schwab and Thein Sein sharing the same stage; what an idea!

Well, dismiss it no more since it's actually happened. More remarkable yet, the WEF East Asia event was held in Nay Pyi Daw--the capital created by the generals from virtually scratch starting in 2002. To escape scrutiny of their less-than-proletarian lifestyles, it was thought that Southeast Asian equivalents of McMansions were better shielded out in the boondocks. Again, who would have thought that the hermit-generals would open up to the world once more, or that a marquee WEF event would be held in Nay Pyi Daw of all places.

At any rate, the presence of Tony Fernandes (head of AirAsia--the region's largest budget carrier) and Indra Nooyi (global head of PepsiCo) and other movers and shakers in the worlds of business and politics guaranteed attention. Indeed, that few remarked on how exceptional it was that such an event was held there indicates how far Myanmar has gone towards mainstreaming itself into global affairs. Given how marginalized Myanmar has been in ASEAN in the past few years largely through its own actions, the rapid transformation of the country augurs well for the group moving forward:

John Riady, director of [multinational conglomerate] Lippo Group, said: "I think the opening up of Myanmar over the last 12-18 months is nothing short of amazing. And we should all seize this opportunity as a moment to come together and try to work out our differences and achieve a breakthrough for the integration of the region." Now that Myanmar is facing fewer sanctions and easing controls on its governing style, it'll be able to contribute as a more active member within ASEAN.

The message has been served, then: Myanmar may not remain the "weakest link" in Southeast Asia for long. Besides, with more cooperation and less fear in store for ASEAN, who's complaining?

Why World Bank Doesn't Get 'Doing Business'

The World Bank's Doing Business report has garnered much attention in purportedly comparing the ease of doing business in different countries. That is, how is easy is it to start up or close a business? Oftentimes, it's not only how easy it is to set up a business that determines entrepreneurship but also closing one down if it proves unviable. Seen from this perspective, the likes of Hong Kong and Singapore which are recognized as incubators of entrepreneurship may not really have a concentration of business geniuses but instead make possible trial-and-error until a satisfactory proposition is found.

That said, the Doing Business report I've always found curious in certain respects. Importantly, they are based on the inputs of those familiar with fairly large businesses alike those conducting international commerce and may thus not reflect conditions faced by SMEs. As it so happens, Seth Kaplan over at Policy Innovations expands on this line of argument that perhaps the title of the report ought to be "Doing Business for Multinationals" or "Doing Business for Conglomerates" as opposed to referring to the minimally capitalized who actually do most of the business in developing countries in numerical terms. He points out how incomplete the indicators are for such entities...

The easier it is to start a company, the likelier it is people will do so. The easier it is to register property, the more likely it will be registered, potentially providing a spur to investment in housing, spending on household goods, and capital formation. The easier it is to get a construction permit, the likelier it is companies will invest in new projects that involve construction. But there are many more serious obstacles to doing business in less developed countries that are not addressed in these reports—namely those related to transaction costs. As such, the narrow focus and wide influence of Doing Business distorts priorities and leads reformers to ignore key problems.

A better approach would be to actually consider the typical challenges a small-to-medium sized enterprise (containing, say, 5 to 50 employees) faces in a less developed country. This is what DB is supposed to be doing, but its focus on the formal procedures of government ignores how most companies operate: If they are large, firms use "workarounds;" if they are small, firms operate in the informal economy.

Especially problematic is the report's reliance on the opinions of folks accustomed to handling businesses with economies of scale that are not necessarily typical of the sort of fledgling firms originally envisioned. Startups and mom-and-pop, anyone?

The dependence of Doing Business on "local experts, including lawyers, business consultants, accountants, freight forwarders, government officials and other professionals routinely administering or advising on legal and regulatory requirements" means that results reflect the needs and perspectives of these respondents, not that of a SME owner, especially in less developed countries where these "local experts" rarely work for SMEs. Limiting data collection to the single, largest city—which may contain only a small proportion of a country's businesses—further reduces the usefulness of the data.

Operating in the informal economy, generally avoiding contact with goverment bodies that are not trusted, confronting myriad infrastructure problems, regularly struggling to get paid for services rendered, SMEs in less developed countries have many more important things to worry about than "resolving insolvency" and "protecting investors," which combine to make up one-fifth of the DB aggregate score. Such issues are more important to foreign investors than local retail stores, trading companies, manufacturers, and trucking firms.

Good stuff; and I think the overall criticism that this report is geared towards larger-scale enterprises is essentially correct.

IMF Agrees w/Cheney: Deficits Don't Matter for US

Here we go again: for everyone else--especially the likes of Egypt, Pakistan and so forth, deficits do matter. But for the United States which (they say) has little funding its current account deficit, it's not really a problem. In essence it's the IMF approving of American deficits as per Dick Cheney's famous dictum that "deficits don't matter." To be exact, there's always the qualified economistic wording about how short-term fiscal consolidation is not required but rather stimulative policies to get the economy unstuck or suchlike. Instead, the real fiscal challenge for the United States is in the medium- to long-term when it must deal with its health care and pensions unfunded liabilities as baby boomers retire en masse:

Here is the IMF head honcho on the subject matter:

The U.S. economy would be faring much better were it not for the "self-inflicted" wound of tighter fiscal policy, the head of the International Monetary Fund said on Tuesday. "The U.S. is not doing as well as it could be, because of self-inflicted fiscal wounds. This year alone, fiscal adjustment will constitute an enormous 2.5 percent of GDP," IMF Managing Director Christine Lagarde said at the Brookings Institution.

She said the challenge was not the near-term fiscal outlook for the longer-term one, given the pressures of healthcare and Social Security spending. "The next couple of years are going to be quite positive looking. But if nothing is done about the medium and long-term horizon ... then the picture is a lot bleaker," Lagarde said. "This is the major challenge facing the U.S. economy today, and it must be met."

I am beginning to wonder when the medium- and long-term will arrive since they never seem to come when the IMF speaks about the US. It's in essence a free pass. Actually, the Yanks have a term for delaying the inevitable time and again in plain English: "kicking the can down the road."

Money Printing Plus: Japan's Other Growth Strategies

Everyone knows of Japanese PM Shinzo Abe's money-printing strategies for combating Japan's seemingly unconquerable deflation. However, it is but one tactic in a multi-pronged strategy to get the world's third largest economy growing again in a noticeable fashion. Tomorrow Abe unveils a raft of other initiatives for doing so. Reuters has a list of expected steps in the so-called "Third Arrow of Abenomics" compiled from various news sources (don't ask me why it's called that).

Of particular interest to me are those concerning free trade agreements and migration. First, let's begin with FTAs. Belatedly keen on not losing its competitive advantage alongside those FTA-crazy South Koreans, it too is supposedly going to embark on an FTA frenzy:

Hit a target of 70 percent of exports covered by free trade deals by 2018, compared with around 19 percent, by pushing the U.S.-led Trans-Pacific Economic Partnership (TPP) and other trade deals with the European Union, China and South Korea, and aim to create an Asia-Pacific free trade area. 

Insofar as Japan has virtually zero multilateral FTAs at present (only partially implemented Japan-ASEAN FTA aside) but a whole host of bilatereal FTAs, let's say it has a lot of work to do if it truly intends to compete with Korea in this respect. With Japan's strong agricultural lobby complicating matters, expect tense negotiations when these products are discussed. That said, it's interesting how Japan is not playing geopolitics if this were truly the case in being willing to join any sort of FTA negotiation whether it be led by the US (TPP), China or whomever.

Another point of interest is opening up Japan to migration. Its population is shrinking, yet it remains easier for a camel to enter the eye of a needle than to be an economic migrant to Japan. Or is that assertion about to be shattered?

Shorten the duration of stay in Japan required for approval of permanent residency to three years from five years to encourage high-skilled foreigners to keep working in the country.

Let's just say that Japan's come up with all sorts of plans to generate growth since 1990 that have since been shelved or have borne little fruit. 

Endangered Species: SMEs in Italy, Spain

Make no mistake: there are giant companies in Italy and Spain. However, many of the specialist products these countries are known for are from small- and medium-sized enterprises (SMEs) which also provide the bulk of employment. Unfortunately for them, the credit crisis has made their existences rather difficult. Especially since they are not very large, they find it hard to raise capital via stock or bond issuances. In other words, their modest size makes them reliant on bank loans for finance.

It's too bad that the European crisis has made many banks doubly wary of lending to these SMEs at a time when their needs for credit are the greatest. Hence the sob stories in these troubled times in troubled Latin economies. Let us begin with Italy, whose leaders haven't been especially keen on lending them a helping hand:

With an estimated 5 million enterprises accounting for 80 percent of Italy's gross domestic product, SMEs have long been the main driver of Italy's export-led economy.The crisis for the SME sector is prompting widespread calls for the government to help small businesses and save the 'Made in Italy' brand from collapse...

Italy's SMEs are also notoriously inefficient. There are approximately 65 SMEs per 1000 inhabitants in Italy, substantially above the European Union average of 40 per 1000 inhabitants, according to data from the European Commission (EC). But while Italy has some 1.7 million more SMEs than Germany, they provide 3 million fewer jobs (12.2 million persons employed as opposed to 15.2 million in Germany) and produce only 56 percent of the total value-added of their German counterparts.

Such inefficiency, the EC noted in its 'Small Business" report on Italy in 2012, is part of the reason why, despite the attraction of the "Made in Italy" brand, Italy's SMEs "trailed their EU peers in recovering from the crisis."

Ah yes, Germany again. This excerpt is interesting in noting that not all SMEs are created equal. For all its monster firms, Germany also has a world-renowned Mittelstand doing what the Italians do by and large--make specialist low-volume products. However, on average, German SMEs provide more jobs and have more remunerative value-added content due to their knowledge-intensive, precision manufacturing orientation. As the Paymasters of Europe, it's Germany's inevitable lot though to find solutions for their miserable European neighbours' largely self-inflicted woes: Yes, the Chinese have wiped out their firms making me-too products alike affordable clothing by making, well, even more affordable clothing.

The cure, as in the case of that other sob story, Spain, may be for the Germans to provide the credit so clearly lacking in the private financial sectors of these troubled economies. Is it "European finance"? Well, no--it's "financial aid":

Germany will provide about 1 billion euros to Spanish small and medium enterprises (SMEs) in a bilateral aid programme, Germany's finance ministry said in a draft outline of the plan obtained by Reuters on Monday. Germany's development bank KfW will provide 800 million euros in global loans and take stakes in funds to boost the expansion and employment potential of Spanish SMEs, the ministry said in a draft to the Bundestag's budget committee.

In other words, it's "We'll sort out the developing world as soon as we're done sorted out these EuroBrokes." Lest you think Germany not favouring SMEs or lending to them is a source of their global advantage, take note that lending to the Mittelstand is not only quite profitable but their business is also very much sought after by major financial services providers.

I get tired of saying this, but Germany's example is so much better than that of the rest. It's a pity then that the rest have a hard time emulating Germany's example--which may not be directly transferable in any case. In the meantime, does anyone really doubt why Missus Merkel literally and figuratively wears the pants in Europe?