EoW November 2008

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 th 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.

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EuroWire –November 2008 EuroWire – January 20 6