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How to Increase Exports
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January 16, 2009, 04:08 AM
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Our gigantic trade deficit must, obviously, fall. It would be a lot nicer if part of the decrease consisted of America exporting more rather than just importing less. How can the government help? Well, one way is for the U.S. to stop being the Dudley Do-Right of international business. From an article by Don Lee in the Los Angeles Times:

When Pasadena-based Avery Dennison wanted to build its road and traffic business in China a few years ago, it hired people like Lily Tang. The Beijing homemaker had an asset the company craved: political connections.

Tang`s husband, Chen Qi, is a senior official at the China Communications and Transportation Assn., a quasi-governmental group led by former ministers. That connection, said current and former Avery managers in China, helped the company win contracts for thousands of dollars` worth of government projects.

In one case, according to interviews and a copy of a signed contract reviewed by The Times, Avery received an order to supply $375,000 worth of reflective safety products for highway jobs in Tianjin, east of Beijing, and paid a commission of about 8% to an enterprise operated by a friend of Chen`s.

Chen`s friend, Guo Longjun of Beijing, said he had passed the money on to "experts," whom he wouldn`t identify.

Such payments may be part of an ongoing federal investigation into whether Avery violated the Foreign Corrupt Practices Act, which prohibits U.S. businesses from bribing foreign officials.

Avery reported possible violations on its own in 2005. It characterized them as relatively minor and said it had taken corrective measures. Though it is by no means the only U.S. company involved in a corruption investigation of its business dealings in China, its experience provides a case study of the pitfalls American firms face as they try to capture a piece of the Chinese market.

Justice Department officials say enforcement of the FCPA is second only to fighting terrorism in terms of priority. Currently, at least 91 cases are open, triple the number four years ago, according to a report issued last month by Shearman & Sterling, a New York-based law firm that tracks FCPA cases.

China is getting more attention. Of 25 criminal prosecutions under the law in the last two years, six involved activities in China — the largest number after Iraq and Nigeria. Among the companies involved were Lucent Technologies, which agreed to pay a $1-million penalty for supplying about 315 trips to the U.S. by Chinese officials.The company recorded some of them as "factory inspections," but they were in fact visits to places such as Disneyland, Las Vegas and the Grand Canyon, the Justice Department said.

The trips, plus educational expenses for a Chinese government employee, were valued in the millions of dollars, federal officials said. At stake were contracts worth at least $2 billion.

I`m sorry, but this kind of nit-picky stuff should be up to the Chinese to police. If they want to shoot minor Chinese officials for going to Disneyland on an American vendor`s dime, that`s fine with me, but I think it`s counter-productive for the FBI to worry about whether a trip to Disneyland was a bribe or a legitimate business entertainment expense. It should be up to the customer to regulate its purchasing officials behavior in the manner it sees fit.

The two most impressive companies I called upon in my corporate career were Wal-Mart and Procter & Gamble. Wal-Mart had a fanatical policy about never letting anybody trying to sell anything to Wal-Mart spend a dime on a Wal-Mart employee. Wal-Mart felt that most retailers had been corrupted by vendors with NFL skyboxes and the like. So, you were not allowed to see Wal-Mart employees in restaurants (which is why the finest restaurant in Bentonville in 1991 was a Ponderosa steakhouse filled with world-class salesmen in $1500 suits and great haircuts, sitting alone, morosely chewing their $3.95 chicken-fried steaks). All negotiations were conducted in windowless interrogation cells. After a few hours of relentlessly being hammered by Wal-Mart employees, not only would you be willing to lower your price to Wal-Mart by 20 percent, but you`d leap at a chance to sign a confession that you were part of a Trotskyite wrecker cell attempting to assassinate Comrade Stalin if only they`d promised to make it all stop.

In contrast, dealing with P&G was civilized. You took them out to nice restaurants. But, much as you tried to ply them with Italian cuisine and fine wine, they never took their eye off the ball.

... U.S. firms are widely considered to operate with higher ethics than Chinese and Western competitors — in large part because of stringent laws such as the FCPA, which took effect in 1977, and the Sarbanes-Oxley Act of 2002.

Still, in the last couple of years, Chinese state-run media and court records have identified such U.S. business icons as IBM, McDonald`s and Whirlpool as companies connected to bribery cases in China.

Like Avery, more American companies are reporting possible FCPA violations by their own employees. In October, cosmetics company Avon Products Inc. said it had begun an internal investigation to determine whether its China operations had incurred illegal travel, entertainment and other expenses.

Intermediaries

Faced with the choice between bribing officials and losing business, some U.S. firms have turned to middlemen, often from Hong Kong or Taiwan, to grease the wheels for them. And they often set aggressive targets for their Chinese employees without making it clear that certain behavior is prohibited in reaching those goals, said Amy Sommers, a Shanghai-based attorney for Squire, Sanders & Dempsey who has advised clients and conducted workshops on the FCPA. ...

In China, it isn`t unusual for a government agency to own profit-generating companies to raise money for research and other efforts. But their legal structures, finances and relationship with government officials are murky. "They are in a gray area and very likely breed corruption," said Hu Xingdou, an economics professor at the Beijing Institute of Technology.

And the fact that much of Chinese business is organized in such a way that incentives aren`t aligned with proper behavior is the U.S. Justice Department`s problem ... how?

The U.S. needs to export more, especially to China. The Chinese like doing business based on "relationships" forged over a lot of expensive food, drink, and whatever. The U.S. government could get out of the way of American business reducing the trade deficit just by cutting the funding for investigating Federal Corrupt Practices Act violations.