EoW November 2008

EuroWire –November 2008

EuroWire – January 20 6

Transat lant ic

Cable

The shelters, known as LILO (Lease-In/Lease-Out) and SILO (Sale-In/Lease-Out),

enable corporations to lease infrastructure, often overseas, on paper only –

then lease the infrastructure (such as subways or bridges) back to the owners

or operators. Recently, lawmakers and regulators have been questioning the

purpose and legitimacy of these leveraged-lease transactions that essentially

transfer depreciation rights from tax-exempt entities to taxpaying corporations. As

explained by the financial research firm Moody’s, companies have used the timing

differences associated with claiming these accelerated tax deductions to reduce

income tax payments to the IRS in the early years of the transactions. They have

also benefited from the relatively high rates of return on the transactions during the

early period.

Manufacturing

China is set to top the US as world’s largest manufacturer

The rapidly weakening American economy has accelerated the timetable for China to

overtake the US as the world’s largest producer of manufactured goods, by four years.

In 2007 the US was still easily in the top slot, accounting for a fifth of the global total,

while China was second with 13.2%. But according to the economics consulting firm

Global Insight (Waltham, Massachusetts), China will in 2009 account for 17% of global

manufacturing value-added output of $11.8 billion; the US, 16%.

The estimates, prepared for the

Financial Times

(London), were made public in

midsummer. As recently as 2007, wrote FT’s Peter Marsh (10

August), Global Insight

economists saw the US retaining the top position until 2013. But a large down-

ward revision in likely output for 2007 and 2008 is expected to cause the US to slip

more quickly.

John Engler, president of the National Association of Manufacturers (Washington,

DC), appeared to take the projections in stride as an “inevitable” effect of China’s size.

He told FT.com, “This should be a wholesome development for the US, for it promises

both political stability for the world’s largest country and continuing opportunities

for the US to export to, and invest in, the world’s fastest-growing economy.” Mr Marsh

observed that the data underline the surge of China’s manufacturing-led economy

over the past 20 years. He noted that, in 1990, before the country’s economic reforms

began to work, the Chinese contribution accounted for a “meagre” 3% of global

manufacturing.

Putting the expected change in historical perspective, Mr Marsh pointed out that it

will end more than a hundred years of US dominance: “It returns China to a position

it occupied, according to economic historians, for some 1,800 years up to about 1840,

when Britain became the world’s biggest manufacturer after its Industrial Revolution.”

The value-added data compiled by Global Insight are arrived at by subtracting “inputs”

– such as purchases of materials, parts, and services – from raw “gross output” as

measured by the sales of individual companies. The

Financial Times

pointed out that the

projected American position improves if adjustments for inflation put the numbers in

constant prices, because inflation in the US is predicted to be lower than China’s over

the relevant period.

Steel

ArcelorMittal enlarges its footprint in the Americas

After three months of negotiations, ArcelorMittal, the world’s largest steel producer, and

the United Steelworkers agreed on a tentative four-year contract that would cover more

than 14,000 union workers and tens of thousands of retirees.