December 13, 2013
World in brief
Brazilian multinationals get tax deal on profit
BRASILIA — Brazil's multinational companies will have up to eight years to pay taxes on their foreign profits, the country's top tax official said, in a rule that will encourage the growth of their investments abroad. Brazilian companies will be allowed to compensate profits and losses between their foreign subsidiaries for four years, Federal Revenue Secretary Carlos Alberto Barreto said. Companies based in tax havens will not benefit from the new rules, he told a press conference. The companies affected are some of Brazil's biggest including miner Vale SA, state oil company Petroleo Brasileiro SA and steelmaker Gerdau SA. The measure should give a boost to tax collection of several billion reais at a time when the government is struggling to meet its fiscal savings goal for 2013. In a deal reached this month, the companies will be allowed to pay back taxes on their foreign profits in installments, which should help resolve a dispute over taxes owed on their operations abroad, which Barreto estimated at between US$32 billion and US$46.25 billion. Firms that pay up front will not be charged fines and interest on the tax debts. Barreto said the tax rate applied to foreign profits and dividends will be maintained at 34 percent. President Dilma Rousseff will enact the rules in a provisional law that Congress will have 120 days to modify or approve. Brazil has one of the world's most complex taxation systems, according to the World Bank, and companies frequently dispute the government's accounting of what they owe.
How Mexico is upending the US auto sector
Starting in the 1980s, the US auto industry went through a major upheaval. Automakers and suppliers began opening up more and more plants in the South, taking advantage of that region's weaker unions and lower labour costs. That, in turn, undercut the historically dominant position of Detroit and the Midwest. Now, half a century later, the US auto industry is going through yet another major churn. And this time around, Mexico is the driving force. That's one upshot of an intriguing new report on the auto industry from the Brookings Institution. The report is ostensibly a case study focused on Tennessee's automotive sector, but it also offers a glimpse of the way the entire North American auto industry has shifted over the past 20 years. The big story here is Mexico, which has massively expanded its share of North American auto manufacturing since the North American Free Trade Agreement (NAFTA) in 1994. Automakers from General Motors to Nissan have been opening plants south of the border, attracted by Mexico's low wages and dense industrial clusters. In 2012, Mexico produced more than 3 million vehicles, compared with 10.8 million in the US. Automotive plants in Mexico assemble everything from GM Silverado pickups to Chrysler engines. Nissan, Mazda and Audi are all building plants in the country. And jobs have followed. Since 2000, overall auto industry employment in North America has fallen from 2 million to 1.5 million — partly because more and more positions have been automated. But Mexico actually added jobs in that time, going from 554,000 to 579,000. Today, nearly 40 percent of auto jobs on the continent are in Mexico.
Asia wants a piece of US shale gas boom
DAEGU, South Korea — Asia's large-scale gas importers, long saddled with premium prices, say a cheaper alternative lies several thousand feet below North American soil, where companies are unlocking enormous gas reserves from shale rock. The shale boom has already revolutionized the gas market in the US and Canada, giving both countries not only a reliable domestic supply but also the ability to sell overseas. Asian utility and gas company executives have said that North America's gas wealth could prove nearly as transformative across the world, leading to the first significant West-to-East gas trade and driving down prices in a region that consumes two-thirds of the world's liquefied natural gas (LNG). Lower gas prices would be particularly important for Japan, whose utility companies are bleeding money to import fossil fuels while their nuclear plants sit idle. Japan owed its record trade deficit in the first half of this year to the rising prices of fuel, including LNG coming from Australia and Malaysia. Japan and South Korea are the world's two largest importers of LNG, and both have cut deals in recent months to buy gas from US terminals, in some cases footing some of the development costs. For gas to be exported across the world, it must first be liquefied — essentially, turned into LNG — at facilities that cost several billion dollars.
EPA's greenhouse-gas rules draw US top court scrutiny
WASHINGTON — The US Supreme Court has said that it will scrutinize the Environmental Protection Agency's first-ever push to curb greenhouse-gas emissions, agreeing to hear appeals from industry trade groups and Republican-led states. The justices said they will decide whether the EPA was justified in setting up new permit requirements for stationary sources of pollution, including power plants and factories. The Obama administration is seeking to reduce carbon emissions it says threaten public health and contribute to climate change. Dozens of trade groups, companies, public policy organizations and states pressed nine separate Supreme Court appeals, six of which the court agreed to hear. The EPA is erecting “the costliest, farthest-reaching and most intrusive regulatory apparatus in the history of the American administrative state,” the US Chamber of Commerce argued in an appeal joined by Alaska and the American Farm Bureau Federation. The justices said they won't review the EPA's conclusion that carbon emissions endanger public health and the planet, as some of the appeals had urged. The court also refused to revisit its 2007 decision ordering the EPA to consider regulating greenhouse-gas emissions. The court rejected three appeals that raised those issues.
Italy's chocolate king faces succession questions
MILAN — Michele Ferrero, Italy's richest man and the owner of a global chocolate and confectionery empire, has always resisted the temptation to allow outsiders to buy into his company. In a statement, his son Giovanni, the Chief Executive of the Ferrero group, rejected suggestions the Italian company had been approached by larger Swiss competitor Nestle and said Ferrero was not for sale. But like other family-controlled Italian companies that flourished in the postwar boom, the ambassador of chocolate-hazelnut spread Nutella, now 88, may soon be discussing succession plans. His other son Pietro, the chosen heir to run the Piedmont-based empire, died of a heart attack in 2011 while riding a bicycle in South Africa. He was 47 and his death opened the way for the ascent of younger brother Giovanni, whom industry insiders consider less interested in running the business. “There is certainly an issue of succession,” said a financial source with knowledge of the situation. “Either the father opens up to an external management team, or he sells it.” However other sources said the family may decide to continue without making such changes. The Ferrero group is known for its Ferrero Rocher pralines and chocolate Kinder eggs.
Pirate attacks surge off Nigerian coast
LONDON — Pirate attacks off Nigeria's coast have jumped by a third this year with ships passing through West Africa's Gulf of Guinea, a major commodities hub, increasingly under threat from gangs wanting to snatch cargoes and crews. “Pirates, often heavily armed and violent, are targeting vessels and their crews along the (Nigerian) coast, rivers, anchorages, ports and surrounding waters. In many cases, they ransack the vessels and steal the cargo, usually gas oil,” the International Maritime Bureau reported. Countries on the Gulf of Guinea, including Nigeria, Ghana and Ivory Coast, are major sources of oil and cocoa and increasingly metals for world markets. Unlike the dangerous waters off Somalia and the Horn of Africa on the eastern coast of Africa, through which ships now speed with armed guards on board, many vessels have to anchor to do business off West African countries, with little protection. This makes them a soft target for criminals and jacks up insurance costs. Data from the IMB, which coordinates the fight against maritime crime and malpractice, showed Nigeria remained the main source of piracy in the region with 29 attacks on vessels recorded in the first nine months of 2013, up from 21 in the same period last year. There were four separate attacks around Ivory Coast this year versus three in the 2012. Analysts say while Somali gangs have focused on capturing vessels to extract ransom money, criminality in West Africa, including oil theft, poses more complex problems. In a separate report this month Denmark-based security firm Risk Intelligence estimated 117,000 tonnes of oil products worth around US$100 million had been stolen by pirate gangs in the Gulf of Guinea since 2010.
Google Internet Q3 revenue up 23 pct
SAN FRANCISCO — Google Inc beat Wall Street's revenue and profit expectations as its advertising business expanded, while losses deepened at its Motorola mobile phone business. The world's No.1 Web search engine said that its Internet business delivered net revenue, which excludes fees paid to partners, of US$10.8 billion in the third quarter, up 23 % from US$8.76 billion in the year-ago period. “They were able to grow their revenue pretty substantially, particularly in their own websites, in spite of having lower overall ad prices,” said JMP Securities analyst Ronald Josey. Google said that paid clicks increased 26 % year-on-year during the three months ended September 30, while the average cost-per-click — the price that marketers pay Google when consumers click on their ads — decreased 8 %. “That's the key story, their ad volume growth is outpacing the decline cost per clicks,” Josey said. Google said it earned US$2.97 billion, or US$8.75 per share in the three months ended September 30, compared to US$2.18 billion, or US$6.53 per share, last year.
‘UK review of energy efficiency scheme shows desperation’
LONDON — British government plans to review payments for making homes more energy-efficient are political posturing — an attempt to show concern over rising electricity bills, but sounding more like desperation. Efficiency should be the centrepiece of efforts to curb households' energy costs, not a victim. Prime Minister David Cameron was “reviewing” the country's main energy savings programme, under wider efforts to ease family budgets, the Financial Times reported. Centrica, one of the country's biggest suppliers, raised prices by an average 9.2 percent, following a similar increase by SSE this month. Opposition leader Ed Miliband's proposal to freeze energy bills if he wins the next general election in 2015 has presented a problem for a government whose hands are tied. Britain has among the highest wholesale power prices in Europe, but residential bills that are below the EU average. The high wholesale price reflects a dependence on gas-fired power and a recently introduced carbon tax. The most obvious tack to reduce bills is to lower or eliminate the tax. But the main purpose of the tax is to make nuclear power economic: the government is poised to announce a deal for a power purchase agreement with French state utility EDF to build Britain's first new nuclear plant in nearly 30 years.
US cancels October crop report, first miss in 147 years
WASHINGTON — The United States’ government canceled its monthly report on grain and cotton production for the first time since reporting began in 1866 and said it will not estimate US or world crop production until early November. Cancellation of the October report means the first harvest-time estimate of US crops will be November 8. The production report and companion data on crops worldwide are the United States’ Agriculture Department's premiere reports. They attract a worldwide audience and frequently move commodity prices — and with the gap of an additional month, potentially more so than usual. The widely followed Department of Agriculture reports were the biggest immediate casualties of the 17-day government shutdown. Officials were also deciding this month whether to issue an overdue report on the US inflation rate. “It's a great shame. We lose the continuity of the series, the course correction that it provides,” said Bill Nelson, analyst with Doane Advisory Services in St. Louis. With the cancellation, the November report will be USDA's first harvest-time estimate of US crops.