The Custom-House

How to get quality products from China

Paul Midler, at Knowledge@Wharton, introduces the expression "quality fade" to describe,

the deliberate and secret habit of widening profit margins through a reduction in the quality of materials. Importers usually never notice what's happening; downward changes are subtle but progressive. The initial production sample is fine, but with each successive production run, a bit more of the necessary inputs are missing.

('Quality Fade': China's Great Business Challenge, July 25) .   Chinese suppliers can pull this off because the fading is done in slow, incremental steps.  Buyers may be slow to see it, and once they do, they may be reluctant to make major investments in developing relationships with new suppliers in response to what appear - at any point in time - to be small changes in quality.  They may look for less radical fixes.  They may engage in wishful thinking.

Dan Harris, a lawyer working in China, agrees that quality fade is common: China Quality Control Darkness Before the Dawn  (July 27).   Harris always warns his clients about the "fourth shipment":

In our experience, quality fade tends to happen disproportionally on the fourth shipment, probably because it is at this point that the Western importer is feeling comfortable enough with its Chinese manufacturer to place a large order and the Chinese manufacturer is feeling comfortable enough to cut corners.

Review of CFIUS Process Changes

Christopher Wall, of Pillsbury, Winthrop, Shaw and Pittman, explains the changes in the CFIUS process: United States: Congress Approves CFIUS Reform Legislation Clearing The Way For Less Political Foreign Investment Reviews (July 25). 

This is a very helpful review of the changes and their implications.  The bottom line for foreign investors:

Conference Papers: International Law and Economics

The International Law Reporter weblog has run a series of posts on a December 2006 conference on international law and economics:

Last December, the Max Planck Institute for Research on Collective Goods hosted a conference on Public International Law and Economics: The Power of Rational Choice Methodology in Guiding the Analysis and the Design of Public International Law Institutions. A number of the conference papers will be published in a forthcoming issue of the University of Illinois Law Review. (Other papers have been and will be published elsewhere.)...

Here are links to the four posts:

• (a) Symposium: Public International Law and Economics (July 13);
• (b) Kontorovich: The Inefficiency of Universal Jurisdiction (July 17);
• (c) Symposium on Public International Law and Economics: Additional Papers (July 19); and
• (d) Symposium on Public International Law and Economics: Still More Papers (July 24).

Each post has abstracts and links to one or more papers.  There's a lot of good stuff here: public good expert Todd Sandler with a "rationalist approach to treaty formation and adherence," a paper with an economic analysis of the spread of bilateral investment treaties (BITs), "Precommitment Theory Applied to International Law: Between Sovereignty and Triviality," "The Case Against Reforming the WTO's Enforcement Mechanism," and more.

CFIUS Reform and the Savvy Foreign Firm

What do the recent changes in the U.S. process for security reviews of foreign investments mean for foreign firms? 

Here's what the trade lawyers say (CFIUS and Latin American Firms, Latin Business Chronicle, July 23; for a refresher on the existing process, go to the Treasury's web site: Committee on Foreign Investment in the United States):

Vodafone, Verizon, and the CFIUS

U.K.'s Vodafone, the largest mobile phone operator in the world, is trying to think through what it wants to do with its stake in U.S. Verizon Wireless, and with its relationship to its U.S. partner Verizon Communications.  Vodafone owns 45% of Verizon Wireless, and Verizon Communications owns 55%.  Does Vodafone want to sell its 45%, sit tight... or buy Verizon Communications. 

Since Vodafone is a foreign company, its purchase of Verizon Communications would raise national security issues that would be vetted through the interagency Committee on Foreign Investmetns in the United States (CFIUS).  For details on the CFIUS process, see the U.S. Treasury site, Committee on Foreign Investments in the United States (CFIUS). 

The first article below the fold discusses the Vodafone-Verizon relationship, the second looks at some of the potential CFIUS issues:

How Well Will the New CFIUS Process Work?

Harold Furchtgott-Roth, once an FCC commissioner, and now a consultant and New York Sun columnist, raises some issues (Blocking Foreign Investment, July 16):

What would happen if the U.S. withdrew from Iraq?

Karen DeYoung and Thomas E. Ricks describe the results of recent "wargaming" of U.S. withdrawal from Iraq: Exit Strategies (Washington Post, July 17):

"Our recent research shows that children are less likely to work in countries with more international trade."

Eric Edmonds and Nina Pavcnik find a negative association between a country's openness to trade, and the extent of child labor: Trade and child labour (VoxEU, July 19):

...The negative association between trade and child labour holds even when considering only poor countries’ trade with high-income countries. It also holds up for trade in unskilled-labour intensive products. Quite simply, child labour is less prevalent in countries that trade more because countries that trade more are richer, and children work less in richer countries....

Our findings from India mirror the findings from a recent study of ours in Vietnam. For a number of years, Vietnam used an export quota to suppress rice exports out of a concern for domestic food security. In the 1990s, Vietnam liberalised its rice trade and allowed rice farmers to take advantage of higher international prices. The rice sector boomed and living standards of rice producing households improved substantively. Despite greater employment opportunities, children in households that benefited from higher rice prices became much less likely to work. Altogether, it appears that roughly 1 million fewer children worked as a result of rising rice prices in Vietnam despite potentially more lucrative employment opportunities....

"Beef noodles are no less important than water and electricity and its price level should comply with people's livelihood."

Price controls on beef noodles in the town of Lanzhou in China have a predictable result: Free market Believers in China, Even When it Comes to Beef Noodles (Heritage Tidbits, July 17) - but elicit expressions of disapproval at the national level. 

h/t: China Law Blog: Noodles in China, New York City Rent Control, Legal Fees in Poland, And Zimbabwe.  I Have A "Beef' With All That (July 18).

Measuring Trade Restrictiveness: "Tips, Tricks, and Traps"

The World Bank has supported the preparation of a new, theoretically sound, set of indices of trade restrictiveness.  Descriptions of the methodology, and the data sets, are here: Overall Trade Restrictiveness Indices.  Here is the abstract of the 2006 methodological description: