Monday, November 7, 2016

Why American Voters Have Difficulty With Free Trade Agreements

Americans feel locked out of the system.

The National Interest
November 7, 2016

As a member of Congress for twenty years, I supported every measure to open more overseas markets to U.S. goods and services. While I’m a strong free trade advocate, my goal is to present the sentiments of American voters as they enter the final weeks of an extraordinary election.

Free trade agreements (FTAs) are under fire from both the Democratic and Republican nominees for president and their respective political parties. Hillary Clinton’s views on the Trans Pacific Partnership (TPP) have shifted, but Donald Trump has always been opposed. Clinton’s running mate has changed from cautiously supporting to opposing TPP. Trump’s running mate has always been an ardent supporter of free trade agreements and TPP, but now he “questions their wisdom.”

The Republican Party platform differs dramatically from the 2012 document, using more cautious language in describing the benefits of free trade. In fact, the platform states that the Trans Pacific Partnership (TPP) should not be voted on in an after-election “lame duck” Congress. The Democratic Party platform for 2016 likewise reflects a more protectionist position than the 2012 document. Though the platform does not specifically mention opposition to TPP, the emphasis in the 2016 document is now on trade enforcement.

Since the 1980s, trade has departed from being a bipartisan issue to being primarily supported by most Republicans and opposed by most Democrats. What is different this year is that several Republican candidates have backed down from their classical free trade position, reflected in the pending TPP trade deal, partially in response to the rhetoric coming from the leaders of both political parties. Note that the incumbent candidates voted for TPA for the President.

I served with most of these legislators and know their sensitivity to their constituents. The purpose of this article is not to criticize them for changing, but to illustrate how their constituents shifted their views on trade.

As a general rule, Members of the House and Senate vote for or against FTAs based upon the impact of the agreement on the state or congressional district they represent. The difficulty legislators have on these votes is when the effect is unclear on a particular state or congressional district. When I was a freshman in Congress, I was confronted with how to present NAFTA to my constituents. I favored it, so I took the initiative to organize a trade education event in my district and helped to turn the tide of public opinion around to support NAFTA.

Now, public views have shifted. A recent poll conducted by Politico Pro-Harvard “shows an across-the-board skepticism toward international trade, with 65 percent of Americans believing that trade policies have led to a loss of U.S. jobs. Just 13 percent believe trade policies created jobs and 15 percent said it had no effect.”

According to the Pew Research Center, Republicans have shown the biggest shift. In June 2015 (before Trump announced his candidacy for President), Republicans supported free trade by a margin of 51 to 39 percent. But in August, when asked if past free trade agreements are a bad thing, the margin flipped to 61 to 32 percent. Also, Pew found that people with a high school education or less said that trade agreements had hurt their family’s finances by a ratio of nearly two to one. Plus, people who are opposed to free trade are more motivated to vote, similar to other single-issue voters.

Positioned at the intersection of dramatically shifting demographics and technology, Americans are relating to institutions in a fundamentally different way than before. Gallup reports that the public’s trust in institutions (including Congress, the Presidency, the Supreme Court, religions, the press, and military, among others) is exceedingly low. Moises Naim, the former editor of Foreign Policy, wrote, “Most people look at the world, their neighbors, employers, clergy, politicians and governments with different eyes than their parents did.” People’s views of all institutions – companies, governments, religions – are changing so rapidly that predictability and stability can no longer be assumed.

People are getting much of their information from the Internet, particularly millennials, and not even taking the time to fully read a newspaper article. The constant shifting from one site to another, just looking at the headline and the first sentence or two, destroys our powers of concentration and critical thinking. In this age of instant communications, people are talking more but communicating less; they are exposed to so much information that they are on overload. Ironically, when we should be “coming together” more and easier than ever before, information is becoming white noise, resulting in us becoming more isolated from each other, insular, lonely, and, obviously, less trusting.

It is through this lens that Americans view important issues, including trade. For voters, trade is symbolized by: (1) publicity of plant closures and movement of production overseas; (2) a feeling of being left behind while “elites” get ahead; (3) the failure of free trade proponents to effectively communicate its benefits; (4) the failure of government programs to assist displaced workers; and (5) overall distrust of the political system, especially of Congress.

Plant Closures

United Technologies decided in February 2016 to close its Carrier plant in Indiana and move production to Monterrey, Mexico, directly idling 1,400 workers. In a radio interview on July 28, 2016, Republican vice-presidential candidate and governor of Indiana Mike Pence said the move was a “jarring experience. I was stunned by that. They said, all the people we compete with are already manufacturing in Mexico, and we’re just going to go there. That tells me something’s wrong and we’ve got to change it.” A Carrier representative announced the closure to employees saying, “This is purely a business decision.” Afterwards, voters saw the dramatic footage in a cell-phone video of the announcement, which has been viewed nearly 4 million times.

Ford also announced it was moving all of its small car production to Mexico. Even though the CEO of Ford said that no American jobs would be lost, many Americans do not trust big business leaders and perceive these closures as the sliding slope to destruction of manufacturing in America even though over the past five years, car makers have invested nearly three times as much in building new or upgrading plants in the United States than in Mexico. Initially, NAFTA was supposed to raise the standard of living in Mexico so it would become competitive with U.S. wages, incentivizing American companies not to shift production there. Instead, both the Ford and Carrier representatives said the reason for the move was to seek a less expensive labor environment.

Unfortunately, foreign companies starting, saving or increasing production in America don’t get the publicity of plant closures. This is because people in suits break ground for a new facility is good news while a plant closure is bad news that focuses on individual hardships. I have been to several plant groundbreakings, including a $3 billion investment by Lotte Chemical that will employ 2,100 workers in Louisiana. There is no lingering images of a groundbreaking ceremonies, but only one with padlocked gates and distressed workers. That’s what moves voters at the polls.

Common Man Vs. The “Elites”

Americans feel locked out of the system. Many believe that their problems are caused by an “elite” class who do not understand them, but control their lives.

Heather Conley is the Director of Europe Programs at the Center for Strategic and International Studies (CSIS). In a recent blog for Carnegie Europe, she criticizes people in positions of authority, the “elites” – elected and high ranking appointed officials, academics, and think-tank operatives, including herself – for not connecting with the American people in making, explaining, and promoting foreign affairs and trade policy.

The American middle class feels under siege because of stagnant wages, especially at a time when CEO pay has increased. If Americans’ dreams are shrinking, then political turmoil becomes the new norm.

The Difficulty Of Explaining Benefits Of Free Trade Agreements

Arizona Senator Jeff Flake commented why free trade agreements are falling in disfavor with the American public: “On the campaign trail, it’s just too difficult to quantify the gains from free trade and too easy to point at a plant that closes and scapegoat trade.”

Free trade agreement successes have become increasingly more difficult to explain, in spite of overall advantages to America as a whole. For example, facially, the Korea-U.S. Free Trade Agreement (KORUS-FTA), shows a growing trade surplus in favor of Korea since 2011. However, the independent, bipartisan U.S. International Trade Commission estimated that KORUS FTA improved the bilateral U.S.-Korea merchandise trade balance by $15.8 billion. Total exports of U.S. goods and services to South Korea have increased by nearly five percent between 2011 and 2015. Nevertheless, these statistics do not make for a rousing campaign speech.

The Failure Of Government Programs To Assist Dislocated Workers

Even the most ardent advocates of open markets trade acknowledge that free trade does not work for all people at all times. These are the individuals who are left behind, particularly among older adults with limited or dated skills. There are existing federally-supported Trade Adjustment Assistance (TAA), programs that are designed to assist workers and companies transition into non-import sensitive industries. However, according to the Government Accountability Office, some of the training does not result in employment. Some workers think this training program is a joke. This has to change – individuals should be trained for jobs that exist and work more in partnership with local employers.

Distrust Of Congress

Finally, Americans’ distrust in “the system” is reflected in the movement to bring up TPP in a lame duck session. To the average American, this smacks of another effort to “slip something through,” or a “midnight vote” to have Washington ignore their interests by bringing important legislation to the House and Senate floors after an election and look to retiring and defeated legislators to cast key votes without being accountable to their constituents, or look to newly re-elected senators and representatives, who can vote without the pressure of an election for at least another two years. No wonder Congress continues to suffer from a 14 percent approval rating.

I was involved in several lame duck sessions and despised them because they always gave the impression that difficult and presumably unpopular bills should be kicked down the road. It is time to further accelerate the commencement date of terms of office for Members of Congress in order to prevent future lame duck sessions.


What can be done to turn the perception of trade around in the United States?

1) Free trade advocates need to get the facts out about trade and show how trade benefits individual Americans.

2) Companies need to actively promote new plant openings and jobs created by trade

3) There should be more transparency in how trade agreements are passed in the legislature.

4) More resources and assistance should be directed to help displaced workers.

Article Link To The National Interest:

Clinton’s For-Profit Chancellorship

Laureate, Bill and a case study in modern crony capitalism.

By Review & Outlook
The Wall Street Journal
November 7, 2016

No matter who wins on Tuesday, political reformers should focus on the lucrative ties between big business and big government. Consider the $17.6 million that Laureate International Universities paid Bill Clinton to be its “honorary chancellor” from 2010-2015.

We wrote about this in “The Clinton For-Profit Standard” (Sept. 7), and Laureate CEO Doug Becker criticized us in a letter for suggesting that Mr. Clinton may have been hired to provide political protection. Recently released emails via WikiLeaks provide a little more, er, color on the Clinton-Laureate relationship.

Clinton factotum Doug Band wrote a memo in 2011 to lawyers at Simpson, Thacher & Bartlett showcasing Laureate as one of the relationships that his company Teneo cultivated for the Clinton Foundation. “Laureate is a Foundation relationship that evolved into a personal advisory services business relationship for President Clinton,” the memo says. “I have managed this relations and, since 2011, Teneo partners have helped this relationship, which is very time-consuming.”

We can only imagine. The memo says Laureate donated $1.35 million in 2009 and 2010 to the Clinton Global Initiative, plus another $50,000 for CGI University in 2011.

As the Washington Post reported, Laureate was invited to a State Department dinner related to higher education with academic leaders world-wide in August 2009. Another email that was released in a public records request last year shows that then Secretary of State Hillary Clinton said Laureate should be invited to that dinner because it is “the fastest growing college network in the world.” Oh, and Mr. Becker is someone “who Bill likes a lot.”

The State Department redacted Mr. Clinton’s consulting duties from his publicly released Laureate contract, which the agency’s ethics office had to approve. However, part of Mr. Clinton’s honorary job involved giving speeches, schmoozing with foreign leaders, and lending his imprimatur to the for-profit.

The Baltimore-based company operates 87 campuses in 28 countries, most of which are in the developing world. Since 2007 Laureate’s enrollment has swelled to more than one million students from about 300,000 as it has expanded even in countries that in the past have been hostile to for-profit operators. In 2011 Laureate became the first private university approved in Australia in 25 years. According to a company SEC filing in October 2015, Laureate was awarded eight of the 37 contracts to operate technical institutions in the Kingdom of Saudi Arabia, more than any other provider.

Laureate is also a rare major for-profit college in the U.S. that has been spared from President Obama’s war on the industry. Laureate may have an impeccable compliance record and provide a world-class education. But it’s hard to know since the Obama Administration’s College Scorecard doesn’t include a graduation rate for Laureate’s largest U.S. college, the online Walden University, which makes up the majority of its U.S. enrollment.

Walden’s accreditor also doesn’t require colleges to disclose job-placement rates, which is what the Administration used to drive Corinthian Colleges out of business. An Education Department spokesperson says the Scorecard doesn’t report a graduation rate for Walden because the students who were measured didn’t include full-time, first-time undergraduates receiving federal aid.

To sum up, Laureate helped make Bill Clinton richer and donated big bucks to the Clinton Foundation that promoted the Clinton political brand. Meantime, the company avoided regulatory assault and received political access that helped promote the Laureate brand. Readers can decide if all of this was a coincidence.

Article Link To The Wall Street Journal:

The Political Mr. Comey

The FBI director gives Democrats the conclusion they demanded.

By Review & Outlook
The Wall Street Journal
November 7, 2016

It looks like our contributor, former Attorney General Michael Mukasey, was right last week. FBI Director James Comey’s review of newly discovered Hillary Clinton-related emails was never going to change his legal judgment because the FBI and Justice Department handling of the case was never serious in the first place.

The Justice Department never went to a grand jury in the case, which was needed to gather all appropriate evidence and vet the legal charges. Judge Mukasey’s judgment was vindicated on Sunday when Mr. Comey sent a letter to Congress saying that the FBI had reviewed the new emails and “we have not changed our conclusion that we expressed in July with respect to Secretary Clinton.”

To rehearse Mr. Comey’s actions: In July he publicly exonerates Mrs. Clinton in an extraordinary press event, two weeks before she is to be nominated for President, though that is not his responsibility. He thus liberates Attorney General Loretta Lynch from her decision-making obligations as the nation’s chief prosecuting official. Later we learn Justice cut needless and generous immunity deals with Mrs. Clinton’s advisers.

Then 11 days before Election Day Mr. Comey sends a letter to Congress saying the FBI has found new email evidence. He comes under ferocious Democratic assault for meddling in the final days of the campaign. His boss, President Obama, joins the criticism and says Mrs. Clinton has already been exonerated. Then two days before the election Mr. Comey sends another letter exonerating Mrs. Clinton again. And Washington’s political class wonders why Americans don’t trust government?

It’s hard to avoid the conclusion that the main point of Mr. Comey’s many political interventions has always been to protect Mr. Comey’s job and political standing. Certainly Mrs. Clinton will have cause to be grateful to Mr. Comey if she wins on Tuesday. The price to the country is the damage he has done to the reputation of the FBI as an apolitical law-enforcement agency.

In better news for the cause of justice related to Mr. Comey, the D.C. Court of Appeals last week reinstated Lewis “Scooter” Libby’s law license. Readers will recall that as Deputy Attorney General in the Bush Administration, Mr. Comey named his buddy Patrick Fitzgerald as a special prosecutor in connection with the leak of Valerie Plame’s CIA identity. Mr. Comey then stood by as Mr. Fitzgerald pursued Mr. Libby, who was Vice President Dick Cheney’s chief of staff, even after he knew that someone else had leaked Ms. Plame’s name.

Mr. Fitzgerald won the conviction based on testimony that a key witness, journalist Judith Miller, has since recanted. The office of the D.C. disciplinary counsel recommended that Mr. Libby’s law license be reinstated in part due to Ms. Miller’s recantation. The hyperpolitical Mr. Comey has left a trail of legal messes wherever he has worked, but at least Mr. Libby can earn a living at his chosen profession again.

Article Link To The Wall Street Journal:

Elite Cities Are Pushing Out The Working Class

By Nicole Gelinas
The New York Post
November 7, 2016

Donald Trump probably won’t poll well tomorrow in his hometown of New York City, or in San Francisco or Washington, DC. But these cities, too, are filled with America’s economically precarious working class and middle class.

So precarious, in fact, that they’re leaving.

Global-city residents are struggling not because factories closed and jobs vanished. Nor are they leaving because they’re fed up with crime and other “inner city” woes Trump talks about.

They’re leaving because the new economy where they live has been too good, pricing them out.

The stark numbers come from Trulia, the real-estate information firm. In a study highlighted last week by The Wall Street Journal, Trulia analyzed who moves away from the country’s 10 most expensive cities, all on the east coast or in California.

Answer: disproportionately, the poorest — those making $30,000 or less. But they weren’t exclusively poor: People earning $30,000 to $60,000 also left in numbers that exceed their share of the population.

People making more money left, too. But they left in smaller numbers, far less than their share of the population. (The cities continued to grow because of immigration, including high-earning immigrants.)

The result? The cities got richer, and fast. From 2010 to 2014, “the share of households in these cities making more than $100,000 . . . has risen 3.6 percentage points,” says the study’s author, Mark Uh.

One big culprit is, obviously, house prices. Rents in these cities went up by 13 percent on average, while home values rose by 12.5 percent.

And some mild good news for New York: Of the 10 cities studied, Gotham had “the smallest move-away rate” among people earning less than $30,000, although, as Uh notes, it was “still very high.”

Not everyone leaves because they have to. Some leave The Bronx for Atlanta because they think it’s nicer — and because, though they can afford to live here, they can get a lot more house for their money there.

Still, economics tells the harsh truth. Dense global cities are more expensive because the richest people in the world — the people with the most choices — think they’re better.

And certainly they score higher on measures from public health to crime to transportation. Indeed, in another study, economist Raj Chetty and his colleagues found that many of these same cities — New York, San Francisco and Washington among them — are the best places for poor people to become not-poor: that is, for economic mobility.

Cheaper cities — Cleveland, Atlanta, Milwaukee — were the worst on economic mobility. And many poor suburbs, which have little money to deal with gang crime and homelessness, are even more miserable places for kids to grow up.

Places like New York and San Francisco aren’t dealing with growth very well. “Build more houses” is a rather obvious solution. But people who already live in a neighborhood have a say. They moved to Greenwich Village or the Upper West Side because they liked those neighborhoods, and don’t want them changed by high-rise towers.

And when we build more houses for middle class and wealthy people in less-expensive neighborhoods, their presence makes that neighborhood more expensive.

One solution is to build subsidized housing. But our best practical efforts yield us 20,000 apartments a year, and the subsidies they require push housing costs up for the people who aren’t lucky enough to win the literal affordable-housing lottery.

And more apartments mean we need more subway stops and more trains — something else that we’re not good at doing. In fact, for all the population growth New York has seen since 1980 — about 20 percent, or 1.4 million more people — we’re only 8 percent above our postwar peak.

We can fit 8.5 million people here today — barely — because the subway and other infrastructure building we did a century ago left room for growth. Now, we’ve used it up.

One crazy idea: Maybe cities and suburbs that aren’t on the East and West coasts should look to what we do that makes us so expensive, and copy the good parts. That would include neighborhood density, which often means small-scale apartment buildings not far from stores, plus transit, parks and libraries, and low crime.

That way, even if we can’t do enough to keep poorer residents here, they’ll have some of what creates opportunity wherever they end up.

Article Link To The New York Post:

China's Gift For The Next President

By Tom Orlik
The Bloomberg View
November 7, 2016

Back in 2008, incoming President Barack Obama inherited a U.S. financial crisis that was to some degree made in China. The next U.S. president may well confront a Chinese financial crunch with its origins in the U.S., as China unwinds the credit imbalances built up over the last eight years to defend against that global slump.

The causes of the 2008 crisis were many and varied. U.S. policymakers and regulators, as well as rule-bending behavior in real estate and banking, are largely to blame. But China’s mercantile trade strategy played a crucial role, too. Maintaining the yuan's peg to the dollar -- which kept its value artificially low in a deliberate effort to supercharge exports -- created a giant Chinese trade surplus that had to be recycled into U.S. Treasuries. That in turn contributed to keeping U.S. rates too low for too long -- fertile ground in which the seeds of the real estate crisis were planted.

The crisis, of course, plunged the U.S. into recession and pushed the global financial system to the brink of collapse. Since then, as policymakers in Beijing have loosened the currency's unofficial peg and U.S. consumers chopped up their credit cards, China’s external imbalances have dissipated. The current account surplus has shrunk from a peak of more than 10 percent of GDP in 2007 to about 2.5 percent in 2016. The People’s Bank of China is spending down its foreign exchange reserves in an effort to fend off yuan depreciation pressures.

What hasn't changed is the remarkably high savings rates that lie behind those imbalances. China continues to stash away some 47 percent of national income. As any economist will tell you, the risk with such a high savings rate is that it leaves a gap in demand.

Now though, instead of relying on U.S. consumers to fill the gap, China is leaning more heavily on domestic investment. The share of net exports in GDP has fallen to 2.7 percent in 2014 from 8.7 percent in 2007. Meanwhile, the share of investment has risen to 47 percent from 41.5 percent over the same period.

Growth has held steady, but with bulging investment paid for with ever-increasing borrowing, outstanding credit has now swelled to around 250 percent of GDP. Voices from the Bank for International Settlements to the PBOC's own advisers have sounded alarm bells. On its current trajectory, by the end of the next U.S. president’s term in early 2021, China’s credit-to-GDP ratio could be well above 300 percent. In other countries that have seen such a rapid build-up of credit, the result hasn't been pretty.

To be clear, a credit crisis for China in the next four years isn't inevitable. The country benefits from countervailing forces for stability -- including that high domestic savings rate, which provides a continued flow of funding to banks. The government’s tight grip on both lenders and borrowers helps prevent disturbances escalating. Policy has started to shift to address the risks.

Even so, the next president will face a strikingly wide range of possible China scenarios. If reforms are successful and credit risks are contained, growth in 2021 might not be far off the current 6.7 percent level. If that doesn't happen and credit imbalances unwind rapidly, pessimistic analysts see a drop to low single digits. Those different outcomes would have very different implications across Sino-U.S. relations, affecting everything from the earnings of U.S. multinationals in China to the battle for influence in the South China Sea.

If it did occur, a rapid unwinding of China’s domestic imbalances would risk a global shock. Smaller disruptions, along the lines of 2015’s stock market bust, will continue to send ripples across the Pacific.

In one sense, Obama had it easier than his successor. In 2007, China’s bulging current account surplus and burgeoning FX reserves were an easy target -- strong evidence of currency manipulation. Successive U.S. Treasury secretaries kept delivering a simple message: Allow the yuan to float in order to level the playing field.

Now that China’s current account surplus has disappeared, however, and economic pressures are pushing the yuan downward, attention has shifted to the underlying cause of China’s imbalance -- its outsize savings rate. Solving that problem will require a host of difficult domestic reforms, from expanding social services so that Chinese don't have to sock away money for illness and old age, to reforming the state-owned enterprises that continue to soak up an outsize share of income.

It was hard enough for the U.S. administration to make headway on the exchange rate, which at least was clearly a bilateral issue. Gaining diplomatic traction on policies that have international implications but fall squarely within the category of China's internal affairs could be well-nigh impossible.

Article Link To The Wall Street Journal:

The Coming Clash With China Over North Korea

By Josh Rogin
The Washington Post
November 7, 2016

If Hillary Clinton is elected, her national security team plans to urgently address the growing North Korean nuclear and missile threat. That would surely raise tensions on the Korean peninsula — and it could also lead to an early and acrimonious confrontation between a Clinton administration and the Chinese government of Xi Jinping.

Xi is staunchly opposed to Clinton’s plan to drastically increase sanctions on the regime of Kim Jong Un. At the Munich Security Conference Core Group meeting here last week, Chinese officials and experts delivered a clear and unequivocal message to the visiting Westerners: China will not take any steps against Pyongyang that might increase the chance of a confrontation with the North Korean regime or encourage regime change on China’s border.

Chinese Vice Foreign Minister Zhang Yesui said that although China might endorse a limited U.N. Security Council resolution in response to North Korea’s recent provocations, there’s no Chinese appetite for further pressure. The Chinese rationale is simple: Beijing values stability on the Korean peninsula more than it fears the growing prospect that North Korea will succeed in its goal of becoming a full-fledged nuclear power capable of striking the West.

“China will never allow war or chaos on the peninsula, and if that occurs that will help no one,” Zhang said. “We need to bring the issue back to the track of dialogue and consultation.”

In Washington, there’s bipartisan consensus that returning to the negotiating table without significantly more leverage against the Kim regime would be a futile and perhaps even dangerous misstep. At best, it would only repeat a failed pattern of bribing the North Korean government into a short-term pause in its mischief.

Top Clinton foreign policy advisers have been open about their intention to apply to North Korea a version of the playbook the Obama administration used with Iran. They are promising to drastically increase sanctions on Pyongyang before sitting down at the table. They are also considering secondary sanctions on foreign firms that enable North Korea’s illicit industries, which means punishing Chinese companies keeping Kim’s nuclear and missile industries afloat.

For the Chinese government, both of those ideas are seen as direct assaults on China’s primacy over an issue it considers a core interest. Rather than respond to the threat of sanctions by leaning on its client state, Beijing is more likely to buck Washington and fight back against the new policy.

“If the assumption of any new American administration is that China is the one to blame and we need to put pressure on or even punish China, that would be a big mistake,” said Dong Wang, professor at the School of International Studies at Peking University. China may retaliate with punitive measures against the United States in other areas of the bilateral relationship, he said.

Chinese officials at the conference warned that the proposed Clinton policy carries a risk of sparking a war on the Korean peninsula, and they expressed the suspicion that the unstated U.S. motivation was to spur regime change in Pyongyang.

The Clinton team has a plan to allay Chinese fears about regime change. Her advisers intend to push for a new dialogue with Beijing to discuss what would happen if the sanctions inadvertently cause the regime to collapse or if the regime implodes on its own due to mounting internal tensions.

“We are not talking about creating a regime change, but should something happen, China needs to know its interests are going to be protected,” Wendy Sherman, a former undersecretary of state for political affairs and a top Clinton campaign foreign policy adviser, said last month at the Meridian Global Leadership Summit. “The South Koreans believe in tightening the noose around North Korea. . . . We believe in that as well.”

But the Chinese government has no intention of entering a dialogue with the United States about planning for the day after the Kim regime falls. For Beijing, preventing the fall of the regime is a must, and therefore coordinating plans for its collapse is off-limits.

David Shambaugh, director of the China Policy Program at George Washington University, said that addressing the North Korean nuclear threat will be the first serious test of the strategic relationship between the United States and China in the next administration, regardless of who wins.

“China is really crucial to this and we’d like to get a paradigm shift in the thinking of the Chinese leadership,” he said. “But if they continue to refuse to move into these discussions, the temptation for the American side is just to move unilaterally.”

Clinton’s advisers are threatening to do just that, but they should have no expectation that China is going to comply. In fact, the North Korea issue could mean that the first foreign crisis of a potential Clinton presidency will come not in the Middle East or with Russia, but in northeast Asia.

Article Link To The Washington Post:

Obama Unlikely To See Assault On Islamic State's Syria Stronghold

By Jonathan Landay and Phil Stewart 
November 7, 2016

A U.S.-backed assault on Raqqa, Islamic State's de facto capital in Syria, is unlikely to pierce the city itself before President Barack Obama leaves office in January, denying him the chance to claim the end of the group's "caliphate" as part of his legacy.

Although a U.S.-backed alliance of Syrian armed groups announced the kickoff of the offensive on Sunday, U.S. officials caution the fighters will first try to seal off and isolate the Islamic State stronghold, a process that could take two months or longer.

As a result, the victor of Tuesday's U.S. presidential election almost certainly will inherit the job of routing the militants from the city from which they have run their shrinking territories in Syria and Iraq, overseen branches from West Africa to South Asia and plotted attacks in Western Europe and elsewhere.

"There is no available force capable of taking Raqqa in the near future," said one U.S. official. Another said some of the needed Arab forces were still in training. Like seven other officials interviewed for this report, they requested anonymity to discuss the issue.

U.S. Marine General Joseph Dunford, the top U.S. military officer, played down the idea that seizing Raqqa would be quick or easy, saying the first job was sealing off the city.

"We always advertised that the isolation phase is going to take months," Dunford was quoted as saying on Sunday by a U.S. defense department reporter traveling with him in Turkey.

Dunford's visit to Ankara came as the Obama administration is enmeshed in a delicate balancing act between NATO ally Turkey and rival Syrian Kurdish forces trained and equipped by the United States.

The U.S. plan for Raqqa calls for an assault force of thousands of fighters from the Kurdish Peoples Defense Units, known as the YPG, and Arabs whose job it would be to take and hold the city itself, U.S. officials said.

However, U.S. special operations forces in northern Syria have yet to recruit enough Arabs to take and hold the Arab-dominated city, they said. Some U.S. officials and experts doubt that the United States will be able to soon field an Arab force large and strong to defeat thousands of Islamic State militants who have had months to prepare a final stand.

They pointed out that some 25,000 Iraqi troops, militiamen and Kurdish peshmerga fighters are involved in the offensive to wrest Mosul from an estimated 3,000 to 5,000 militants.

"Raqqa is every bit as infested as Mosul, perhaps even more so," said Thomas Lynch, a National Defense University fellow and retired Army officer. "But there is an enormous investment by this administration in terms of going after Raqqa before it leaves office."

Administration advocates of a rapid assault on Raqqa think YPG units will participate and enough Arabs will be enlisted and trained as the noose around the city tightens.

Another problem is fighting that pits the YPG against U.S.-backed Syrian Arab rebels supported by air power, artillery, armor and special forces from neighboring NATO ally Turkey.

"Hand-Holding Exercise"

The YPG is one of America's best allies in the fight against Islamic State. But Turkey denounces the YPG as an appendage of the PKK, a group that has fought for decades for independence for Turkey's Kurdish minority and is on the U.S. terrorism list.

The sides are embroiled in a race to capture al Bab, a non-descript town held by Islamic State. Its fall to the Turkish-backed force could prompt the YPG to reject a role in the Raqqa offensive and alter the course of the conflict in northern Syria.

"That would be the outcome we least desire," a second U.S. official said.

Obama spent more than two hours on the telephone in late October with Turkish President Tayyip Erdogan as part of an intense U.S. diplomatic drive to overcome Erdogan's objections to YPG participation in the Raqqa offensive, U.S. officials said.

"For us, the linchpin here is for the Turks to exercise enough restraint (and) get them to resist the temptation to do anything that would spark a conflict that might get out of control," said the second U.S. official. "It's a hand-holding exercise on both sides of the aisle."

But he and other U.S. officials acknowledged that crushing Islamic State is not as high a priority for Erdogan as ensuring that the YPG cannot knit Kurdish enclaves in northern Syria into a de facto state that could strengthen the PKK.

Russian Implications

The situation is further complicated by Russia, which intervened last year in Syria's civil war to shore up President Bashar al-Assad. With aircraft and advisers deployed around Syria, Russia has warned Turkey against advancing more than 25 kilometers (15.5 miles) into Syria, said the second U.S. official.

For now, the Turkey-backed force has stopped short of al Bab, which is about 30 kilometers from the Turkish border, U.S. officials said.

Taking al Bab would expand a buffer zone that Turkey is establishing inside Syria to seal its border from Islamic State infiltration. Turkey's incursion also has prevented the YPG from unifying the northern Kurdish enclaves.

Moreover, al Bab's fall to the Turkish-backed force would expand a potential Turkish-protected "safe zone" for moderate Syrian rebels, who could base their internationally recognized government-in-exile in the area.

The rebels also could use such a zone to re-establish supply corridors from the Turkish border and open a new front aimed at relieving the Syrian regime's siege of opposition-held eastern Aleppo, experts said.

"An eventual reopening of the Aleppo city front is an inevitability," said Charles Lister, an expert with the Middle East Institute in Washington. "The opposition will go whether the Turks want it or not."

Article Link To Reuters:

Clinton Gets Boost From FBI As Tight White House Race Hits Final Day

By John Whitesides
November 7, 2016

Democrat Hillary Clinton heads into the final day of a tight White House race against Republican Donald Trump on Monday with new momentum after the FBI's announcement that no criminal charges were forthcoming in the probe of her email practices.

Both Clinton and Trump will spend the day racing across a handful of key battleground states that could swing Tuesday's election, which polls show is extremely close but tilting toward Clinton.

FBI Director James Comey sent shockwaves through the race by telling Congress on Sunday that investigators had worked "around the clock" to complete a review of newly discovered emails and found no reason to change their July finding that Clinton was not guilty of criminal wrongdoing in her use of a private email server while secretary of state.

Whether the announcement came in time to change minds or undo any damage from days of Republican attacks on Clinton as corrupt was uncertain. Tens of millions of Americans had cast early votes in the 10 days since Comey first told Congress of the newly discovered emails.

Clinton's Democratic allies hoped the FBI finding would be enough to push her over the finish line and end the uncertainty and Republican attacks on her character that dogged her campaign for the last 10 days.

"The FBI's swift and thorough review should finally close the door on this Republican sideshow," House Democratic leader Nancy Pelosi said, adding the election would now be decided "on the merits of the candidates" rather than innuendo.

But Republicans kept up their criticism of Clinton despite Comey's announcement.

"She simply believes she's above the law and always plays by her own rules," House of Representatives Speaker Paul Ryan said in a statement, arguing that Clinton's use of a private email server "compromised our national security."

U.S. stock index futures rose more than 1 percent after the FBI announcement and the U.S. dollar also strengthened in Asian trading against major currencies.

Markets have tended to see Clinton as the status quo candidate, and news favoring her bid often boosts investors' risk appetite. Global financial markets slipped last week as opinion polls showed the presidential race tightening.

Clinton did not mention the FBI finding during her last two campaign events on Sunday, but Trump was blunt in questioning the thoroughness of the renewed probe and saying the issue would not go away.

"The investigation will go on, the rank-and-file special agents won't let her get away with her terrible crimes," he told supporters in Sterling Heights, Michigan, on Sunday night.

On Monday, Trump will hit five battleground states - Florida, North Carolina, Pennsylvania, New Hampshire and Michigan - and closes with a late-night rally in Grand Rapids, Michigan.

Clinton will make two stops in Pennsylvania and visit Michigan before wrapping up with a midnight rally in Raleigh, North Carolina. Earlier, she will appear at an evening rally at Philadelphia's Independence Hall with President Barack Obama and first lady Michelle Obama, as well as rock star Bruce Springsteen.

News of the renewed probe had appeared to fuel a recent slide in Clinton's poll numbers. The latest Reuters/Ipsos poll showed Clinton with a 5 percentage point lead over the New York businessman nationally - 44 percent to 39 percent support - while races in the swing states of Florida and North Carolina shifted from favoring Clinton to being too close to call.

Article Link To Reuters:

Monday, November 7, Morning Global Market Roundup: Asia Stocks Bounce As Optimism Over Clinton Grows; Dollar Strong

By Saikat Chatterjee
November 7, 2016

Asian stocks bounced and the dollar strengthened on Monday after the FBI said it stood by its earlier recommendation that no criminal charges were warranted against Democrat Hillary Clinton.

The news lifted a cloud over Clinton's presidential campaign two days before the U.S. election, and boosted S&P 500 Index futures by 1.2 percent, a gain that is likely to snap a nine-day losing streak in the U.S. stock index - its longest in more than 35 years.

European stock indexes were expected to follow Asia higher. But volumes were thin, indicating many investors had already taken to the sidelines ahead of the vote.

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.8 percent. Leading regional gainers were Australian stocks and Japanese shares with gains of 1.3 percent and 1.2 percent, respectively.

“This will surely boost the chance of Clinton’s victory. Barring another unexpected scandal on her side, it looks likely that she will win the race," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

“Given that the market had been slipping for nine days, there will be short-covering.”

The biggest winner was the Mexican peso, which has acted as something of a bellwether of sentiment as Republican Donald Trump's proposed policies are considered to be deeply negative for the country. It rose to a 1-1/2 week high earlier.

Investors had been unnerved by signs of a tightening presidential race between Clinton and Trump, whose stance on foreign policy, trade and immigration has rippled through financial markets.

Clinton is seen as a candidate of the status quo and her policies are viewed as more predictable than her Republican rival, a political novice.

The FBI said on Sunday it stood by its earlier finding that no criminal charges were warranted against Clinton for using a private email server for government work, lifting a cloud over her presidential campaign two days before the U.S. election.

However, despite giving a boost to Clinton's prospects, investors are unlikely to make big bets given Trump's gains in polls recently may not be entirely due to the FBI probe.

Initial results of the Tuesday vote are expected to begin rolling out by Wednesday morning Asia time.

Indeed, despite the early bounce in risky assets, the market undertone was noticeably cautious before the outcome with a key gauge for market volatility, the popular VIX index at its highest levels in nearly six months.

"When the dust settles, the focus will be shifted to the long-term impact of the vote, whoever wins," said Wei Jianfei, analyst at Zhongcheng Securities.

Markets are also expecting a U.S. Federal Reserve rate increase next month after a government report on Friday showed solid jobs gains and a rise in wages in October.

Elsewhere, Hong Kong property stocks tumbled after authorities unveiled a fresh round of policy tightening measures late on Friday to curb rising prices. A sub-index of property-related shares was down nearly 5 percent.

In the currency market, the standout performer was the Mexican peso, rallying 2 percent to 18.63 to the dollar, hitting its highest level since Oct 26.

Another notable outperformer in early Asian trades was the Australian dollar which jumped more than 1.3 percent against the Japanese yen to 80.14.

The dollar rose more than 1 percent against the yen and last stood at 104.44 yen, while the euro dropped 0.5 percent to $1.10750.

"The dollar is being bought back on lessened prospects of a Trump presidency. But so far it is not active buying, as Clinton is likely to maintain a policy that prevents a strong dollar if she is elected, and as economic prospects remain unclear," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

Bond prices retreated with both U.S. and Japanese bond futures falling as risk appetite surged across the board. U.S. 10-year Treasury futures were last down about 0.3 percent Sunday evening in electronic trading.

Gold and silver prices, safe-haven assets which are inversely correlated to risk, fell 1 percent each.

Oil prices rose, with traders citing opportunistic buying following sharp declines in the previous week on the back of weak fundamentals.

Brent crude oil futures were trading at $46.08 per barrel, up 1.1 percent. U.S. West Texas Intermediate (WTI) crude futures was up 1.3 percent at $44.63 a barrel.

Article Link To Reuters:

Oil Prices Bounce Back After Week Of Sharp Falls

By Henning Gloystein 
November 7, 2016

Oil prices rose by over 1 percent on Monday, with traders citing opportunistic buying after sharp declines in the previous week that brought prices to their lowest since early August because of ongoing weak fundamentals.

International Brent crude oil futures LCOc1 were trading at $46.20 per barrel at 0543 GMT, up 62 cents, or 1.36 percent, from their previous close. The global benchmark on Friday had fallen as low as $45.08, its weakest since Aug. 11.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were up 65 cents, or 1.5 percent, at $44.72 a barrel. WTI hit $43.57 on Friday, its lowest since Sept. 20.

Last week's losses were the steepest since January, and took nearly 15 percent off a one-year high for Brent at $53.73 a barrel that was hit in the first-half of October.

Overall market fundamentals remain weak.

Analysts said a planned output cut to be decided during a meeting on Nov. 30 by countries from the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers like Russia was encountering hurdles.

"Individual country details still remain challenging to agree upon," Barclays bank said in a note to clients.

"Iraq boosted production while Saudi Arabia asked for exceptions. Russia is still sitting on the sidelines, and none of the non-OPEC members consulted thus far has expressed any intention of a cut," Barclays said.

There are also risks that the oil supply overhang, which has dogged markets for the last two years, could continue as OPEC's de-facto leader Saudi Arabia has threatened to increase production again should the upcoming meeting between producers lead to no result.

Even if Saudi Arabia does not follow through on that threat, its exports could rise.

"Saudi local oil demand is falling, and just maintaining current output could imply higher exports," Barclays said.

In the United States there were also signs of rising future output as the number of drilling rigs looking for new oil to produce rose by 9 to 450 in the week to Nov. 4, the highest level since February.

"Since its trough on May 27, 2016, producers have added 134 oil rigs (+40 percent) in the U.S.," Goldman Sachs said in a note.

Article Link To Reuters:

Toyota, In About-Face, May Mass-Produce Long-Range Electric Cars

By Naomi Tajitsu and Chang-Ran Kim 
November 7, 2016

Toyota Motor Corp (7203.T) is looking at mass-producing long-range electric vehicles (EVs) that would hit the market around 2020, the Nikkei newspaper reported on Monday, in what would be a dramatic reversal of strategy for the world's top-selling automaker.

Even as rivals such as Nissan Motor Co (7201.T), Volkswagen AG (VOWG_p.DE) and Tesla Motors (TSLA.O) have touted pure electric cars as the most viable zero-emission vehicles for the future, Toyota has said it would reserve EVs for short-distance commuting given the high price of rechargeable batteries and lengthy charging times.

By adding longer-range EVs to its product range, Toyota would be changing its tune from promoting plug-in petrol-electric hybrid cars and hydrogen fuel-cell vehicles (FCVs) as the most promising alternative to conventional cars.

The Nikkei business daily, without citing sources, said Toyota would set up a team in early 2017 dedicated to developing electric cars that can travel more than 300 km (186 miles) on a single charge.

The paper added that Toyota aims to begin selling its first long-range EV in 2020 in Japan as well as other markets such as California, and China - the world's biggest car market - which is promoting a switch to battery EVs.

Toyota neither confirmed nor denied the report, saying it does not comment on product development plans. In an emailed response, it said it continued to develop various fuel-efficient technologies, including EVs, with the best application for each in mind.

Toyota has pledged to make all of its vehicles essentially emissions-free by 2050.

Industry experts said emissions regulations in California, widely considered a benchmark in global vehicle emissions standards, and China's push to increase electric car usage could be behind a possible change of heart at Toyota.

"Toyota has been a major hold-out on EVs, but it appears that it now realizes that without them it may be difficult to satisfy tightening regulations," said Takeshi Miyao, managing director of consultancy Carnorama.

"Not (including EVs as an option) would run the risk that it could face sales restrictions in some areas."

From 2018, California and a growing number of U.S. states will require automakers to produce a much larger number of zero-emissions vehicles as a proportion of total sales.

Toyota has promoted FCVs such as its Mirai sedan as the most sensible next-generation option to hybrids, a category it dominates with the Prius, since they have a similar driving range and refueling time to conventional cars. But the lack of hydrogen fuelling stations poses a major hurdle for mass consumption.

Toyota will launch a plug-in hybrid version of the Prius in the coming months. Engineers have told Reuters that in developing a safe and powerful lithium-ion battery for the model, Toyota would be able to produce batteries for EVs in future.

Article Link To Reuters:

Whoever Wins, Capitalism Will Survive

Don’t despair. Trump or Clinton may be a dismal choice. But the U.S. economy is resilient.

By George Melloan 
The Wall Street Journal
November 7, 2016

As Americans prepare to make what many see as a depressing choice between presidential candidates, they shouldn’t despair. Yes, Donald Trump and Hillary Clinton don’t sound like wise stewards of economic policy. And yes, we have some problems that need serious attention, such as a badly distorted credit market and an unworkable Affordable Care Act. But the American capitalist economy has become extremely powerful and can most likely withstand further abuse, however unwelcome.

It was not always thus. In the 1930s, a much smaller, heavily agrarian American economy was in danger of falling victim to statism. The “Great Depression” began in 1929 with a downturn in the business-credit cycle that precipitated a stock-market crash. The market was recovering in 1930 but the real economy didn’t rebound as it had after a similar crash in 1920.

New Deal historians called what happened a “crisis of capitalism.” In fact, capitalism was doing great in the 1920s. Henry Ford was cranking out Model Ts that almost anyone could afford. Housewives were buying labor-saving tools like electric vacuums and washing machines on the installment plan. Fat Sears and Montgomery Ward catalogs offered the bounty of capitalism to dwellers in even the remotest farm houses.

It was public policy that deepened an ordinary recession and prolonged it for a decade. The Depression was a demonstration of what happens when the government responds to a downturn with excessive interference with market forces.

The seeds of the Depression were planted with the Federal Farm Loan Act of 1916, in a two-year interval in which President Woodrow Wilson had a compliant Democratic Congress. The act set up 12 regional government banks to make preferential loans to farmers. Farmers had done well earlier, so much so that years later they would ask the government to support prices on a parity with the year 1912. But the 1916 government venture damaged country banks with unfair competition and encouraged farmers to overproduce. That lowered prices.

Calvin Coolidge fended off their demands for relief from low prices but Herbert Hoover refinanced the FFLA, suggesting that he was an easier mark than Coolidge. After the 1929 crash, farmers again pressured the Republican Congress for relief, prompting Sen. Reed Smoot of Utah and Rep. Willis C. Hawley of Oregon to draft a bill raising tariffs on farm products. Had Congress stopped there the damage would have been limited. But lobbyists for industry and labor demanded protection as well. The final Smoot-Hawley bill doubled already-high tariffs on 20,000 dutiable items to an average of 50% of value.

Ignoring his own better instincts and a petition signed by more than 1,000 economists, Hoover signed Smoot-Hawley into law. The sharp drop-off in trade that resulted sent prices plummeting, worsening what was already a deflationary cycle caused by the loss of liquidity in the crash. Europeans were inhibited from selling goods in the U.S. to earn dollars to buy U.S. products and pay their war debts. The reduced flow of funds worsened deflation. Europe’s retaliation with tariff increases made matters worse. A global money shortage ensued.

U.S. exports nose-dived to $1.7 billion in 1933 from $5.2 billion in 1929, with farmers—big exporters even then—hit the hardest. Democrats swept the 1932 elections but instead of giving the country less market interference they gave it more.

The most egregious was the 1933 National Industrial Recovery Act, which required businesses to adopt 557 “codes” to prevent price cutting. These cartels violated the key principle that market competition is the guarantor of a vigorous, efficient economy. The NIRA veered the U.S. close to European-style fascism, which had many admirers at that time. Fortunately, the Supreme Court put it out of its misery in 1935, declaring it an unconstitutional extension of government power.

Despite Smoot-Hawley, the New Deal’s revolutionary farm production quotas, the NIRA and FDR’s attacks on capitalism, the business cycle turned upward in 1933. Unemployment fell from nearly a quarter of the labor force that year to 17% in 1936. But then the “second New Deal” Congress slapped a tax on “surplus” business profits, the equivalent of a tax on job-creating investment. The market crashed again in 1937 and took the economy with it.

In 1940 FDR, to his credit, realized that to rearm a militarily weak America he badly needed the capitalists he had spurned and often reviled. He made peace with them and they responded magnificently, especially after Japan’s December 1941 attack, quickly mobilizing their factories to perform amazing feats of weapons production.

That performance, plus the defeat and discrediting of fascists Hitler and Mussolini and the outset of the Cold War with ultra-statist Stalin gave Americans a new appreciation for market capitalism. Largely unfettered in the postwar era, privately owned corporations produced the technological marvels and high living standards we enjoy today.

The system is under threat again. But it is far stronger now than it was in the 1930s. History is not on the side of the statists.

Cheer up, if you can.

Article Link To The Wall Street Journal:

De Beers Tries to Counter A Growing Threat: Man-Made Diamonds

Increasing amounts of synthetic stones could upend a market that depends on a perception of relative scarcity.

By Scott Patterson and Alex MacDonald
The Wall Street Journal
November 7, 2016

A small team of scientists working for De Beers is scrambling to stave off a looming threat that could tarnish the luster of natural-mined diamonds: high-quality man-made stones.

In the past few years, lab-grown diamonds have become indistinguishable from natural diamonds to the naked eye and are growing in sales. While still a small fraction of the market, synthetic gems could account for nearly one-tenth of rough-diamond sales within five years, according to Morgan Stanley estimates.

Made by a small group of private companies as well as giants such as De Beers itself, man-made diamonds could undermine the value of the entire diamond industry, some experts say. These diamonds have the same chemical and physical properties as their natural counterparts. They sparkle like mined stones, are hard and durable enough for intense industrial purposes and—perhaps most important—can be marketed without any hint at their provenance.

Infinite quantities of man-made diamonds could be theoretically produced, upending a market that depends on a perception of relative scarcity to secure premium prices.

De Beers has created an array of devices that diamond wholesalers and jewelry makers can use to detect them.

“A concern is the risk that you buy the necklace that your wife wanted and discover it’s not the real thing,” De Beers strategy chief Gareth Mostyn said.

Containing the risk of lab-grown diamonds is crucial for De Beers owner Anglo American PLC. The London mining giant is getting rid of assets in its coal and iron-ore units to focus on more profitable businesses, such as diamonds. De Beers accounted for 42% of Anglo’s earnings before interest, taxes and exceptional items in the first half of 2016.

For now, lab-grown-diamond production remains tiny compared with stones dug from the ground. Synthetic producers can make 250,000 carats to 350,000 carats of rough diamonds annually, according to industry estimates, compared with about 135 million rough carats mined every year.

Martin Roscheisen, chief executive of Diamond Foundry Inc., a San Francisco synthetic-diamond producer with a capacity of 24,000 carats, said he believes nearly all diamonds consumers purchase will be man-made in a few decades.

Swarovski Group, the closely held Austrian luxury-products seller, launched its own man-made diamond jewelry line in April.

Morgan Stanley analyst Menno Sanderse doesn’t expect synthetic diamonds to ever displace a big chunk of global output, but he wrote in July that lab-grown gems had become “a serious potential disrupter.”

Des Kilalea, a mining analyst at RBC Capital Markets, said consumers might gravitate toward the synthetic stones, which are currently about 20% to 30% cheaper than natural diamonds on average. The capital costs involved in producing a lab-grown diamond are only slightly lower than mining a diamond.

At a plant about 30 miles west of London, De Beers scientists have been working to detect synthetic diamonds for years. The company has its own synthetic-diamond facility, called Element Six, which produces synthetic diamonds for industrial purposes, such as drilling, and helps De Beers keep up with technological developments.

The man-made stones are developed using a diamond from the ground or another synthetic diamond that acts as a seed to grow more gems. Gases of carbon material are employed at extremely high temperatures to grow new crystals over several weeks.

Simon Lawson, head of De Beers’ U.K. technologies division, said his biggest concern is tiny diamonds—less than one-fifth of a carat—which are too costly to screen in an effective manner given their size and value.

That makes it easier for the lab-grown variety to get into the supply chain and possibly end up in jewelry marketed as natural.

In 2015, a package containing 110 man-made diamonds being passed off as natural stones was intercepted in India, according to the Times of India, citing the Surat Diamond Association.

To counter the threat, last year De Beers helped launch a trade association with other producers to market the attraction of natural diamonds. It also started marketing a new, cheap detector that quickly screens tiny synthetic diamonds.

The device, called PhosView, costs $4,500—far less than the $35,000 it charges for its DiamondView instrument, which uses ultraviolet light to detect lab-grown stones. With the flip of a switch, the PhosView device illuminates a batch of diamonds in a pan. Stones are revealed as synthetic when they show a strong phosphorescent glow—a reaction rarely seen in natural diamonds.

De Beers made 50 of the machines for jewelry makers, and they sold out quickly, the company said.

Ferreting out synthetic diamonds will be important for the industry, as an attraction of a mined diamond remains “that it comes from deep from Mother Earth,” said Russell Shor, a senior analyst at the Gemological Institute for America.

“They’re billions of years old,” he said. “It’s probably the oldest thing we can buy.”

Article Link To The Wall Street Journal:

'Prince' Of Baidu, Tipped For Top Role, Resigns After Probe

By Catherine Cadell
November 7, 2016

A top Baidu Inc executive, widely seen as a potential successor to chief executive Robin Li, has resigned after an internal company probe found conflicts of interest involving another firm acquired by the Chinese search engine giant.

Li Mingyuan, 32, known as the "prince" of Baidu within China's tech community, stepped down following the investigation, according to an internal email seen by Reuters and independently confirmed by two people at the firm.

The memo, sent to Baidu employees on Friday evening, said Li had engaged in "huge" economic dealings with a person in charge of a separate company acquired by Baidu. The note did not reveal further details of the transaction or the company involved.

A Baidu spokeswoman declined to comment on the matter.

In a statement posted on his WeChat social networking account, Li said the dealings in question were not "dishonest." Baidu's system for rooting out corruption was fierce, Li said, and he was taking full responsibility for what he called a "misunderstanding."

"Baidu is the company that trained me and the house I grew up in," Li said the posting. "(I) never ever thought of doing anything immoral."

Li, who headed the firm's mobile products and operations, also had private dealings with other firms Baidu had partnered with, the memo said, and had not divulged his shareholding in an external company that had close business dealings with Baidu.

The behavior violated Baidu's rules against conflict of interest, the memo said, adding that Baidu had accepted Li's resignation which would come into immediate effect.

The high-profile departure is the latest in a series of setbacks for Baidu this year. The firm has seen advertising revenues shrink in the wake of new regulations on paid advertisements and real-name identification introduced this year.

Nasdaq-listed Baidu posted its first-ever quarterly sales drop last month and warned that revenues in the fourth quarter of the year could slide further.

The company was the subject of a government investigation in May after the death of a student who had criticized Baidu's system of paid search results for leading him to an unapproved, and ultimately unsuccessful, treatment.

Friday's memo thanked Li, the company's youngest vice president, saying he had made important contributions during his time at the company, but that the conflicts uncovered by the investigation were too egregious to overlook.

Article Link To Reuters:

Potential Bidders For Takata May Balk At GM Bankruptcy Precedent

By Tom Hals 
November 7, 2016

As auto supplier Takata Corp (7312.T) prepares for a possible U.S. bankruptcy filing, potential bidders are poring over a recent U.S. court ruling that could expose a buyer to liability for the company's defective air bags, sources have told Reuters.

Takata faces potentially billions of dollars in costs from the world's largest automotive recall, stemming from millions of its air bags that were equipped with malfunctioning inflators.

The Japanese company has said it is seeking a financial backer. But interested bidders, if the parts maker goes up for sale, want Takata to put its U.S. business into bankruptcy first, the sources said.

Generally, U.S. bankruptcy law allows a bidder to buy assets free and clear of lawsuits and other liabilities, and the selling company uses the money to repay its creditors.

General Motors used the strategy when it filed for Chapter 11 bankruptcy in 2009. The automaker quickly sold its best assets to a so-called "new GM," scrubbed free of billions of dollars of debt, which enabled the company to withstand an economic crisis.

In July, the 2nd U.S. Circuit Court of Appeals in Manhattan held that General Motors Co (GM.N), the "new GM," could be sued over faulty ignition switches made by "old GM."

The ruling set what some see as a troubling precedent.

"What that says to me: buyer beware," said Henry Jaffe, a bankruptcy lawyer with Pepper Hamilton in Wilmington, Delaware who represents debtors and creditors. Jaffe said the ruling could undercut what bidders are willing to pay for Takata.

Takata's air bags use a chemical compound that can explode with excessive force after prolonged exposure to hot conditions and have been linked to at least 16 deaths globally, mainly in the United States. About 100 million Takata air bag inflators have been classified as defective, leading to continuing safety recalls.

Last month, the company received proposals from five bidders, all of whom have presented plans that require Takata to file for a GM-style bankruptcy protection.

Takata's creditors include automakers who want to be reimbursed for millions of dollars spent on recalls. They may also demand that any buyer of Takata's assets share in some of those costs. The automakers could also try to use the tools of bankruptcy to protect themselves from lawsuits by car owners for the faulty air bags, according to bankruptcy attorneys.

The U.S. government is also likely to play a role. Takata is operating under a five-year, $200 million consent decree with the U.S. National Highway Traffic Safety Administration.

Given the uncertainties, bidders could propose using "holdback," bankruptcy lawyers said. Some sale money would remain in escrow and be used to settle any unanticipated legal claims against the buyer. Over time, unused money would be released to the Takata bankruptcy estate.

Takata and its creditors would likely resist a holdback, lawyers said.

In Japan, Takata Chief Financial Officer Yoichiro Nomura told reporters on Friday that the company hoped to reach an agreement with its automaker customers on a restructuring by year end. He said the company preferred to avoid bankruptcy.

Takata has posted a net loss in three of the past four financial years, but it remains one of the auto industry’s biggest suppliers of air bag systems. The company is also one of the world's top seatbelt producers, and makes steering wheels, electronic control units and child safety seats.

'Give A Buyer Heartburn'

To get a sale approved quickly, a Takata buyer may have to assume some legal obligations, an approach used by "new GM" which took on 15 categories of liabilities.

"That will give a buyer heartburn," said Bill Weintraub at Goodwin Procter in New York, who worked with ignition switch plaintiffs on the GM appeals court case.

GM has said it plans to ask the U.S. Supreme Court to review the July ruling, which it said wrongly punishes it, the buyer, for mistakes made by "old GM," the seller. The company and business groups have argued that the ruling, if allowed to stand, will depress the value of assets that are sold in bankruptcy.

Those who are close to GM and Takata are quick to point out the situations of the two companies differ in key ways.

Takata's air bags have been subject to headline-grabbing recalls for years. By contrast, GM knew its ignition switches were faulty when it introduced them in 2002 but concealed the problem until 2014, five years after its bankruptcy sale.

Because of the concealment, the court of appeals reasoned that GM's customers had been denied the opportunity to object or file a claim over the ignition switch defects as part of GM's bankruptcy and sale. To remedy the lack of notice, the court said car owners could pursue a class action against the buyer of GM rather than the bankruptcy estate.

Takata's notoriety could work to the advantage of bidders, ensuring potential claims have been identified.

"You have a known problem," said bankruptcy lawyer Ed Weisfelner, who also represented some ignition switch plaintiffs in the GM appeal case.

The GM ruling only binds U.S. Bankruptcy Courts in one of 11 U.S. judicial circuits, and Takata may look to other courts.

In its appeals case, GM cited precedent in the 3rd U.S. Circuit, which it said is more protective of buyers in bankruptcy sales.

Takata's main U.S. subsidiary, Michigan-based TK Holdings Inc, is incorporated in Delaware, giving the company access to the state’s prominent bankruptcy court and 3rd U.S. Circuit precedent.

"Any bankruptcy judge will be really nervous about this one," said John Pottow, a professor at University of Michigan Law School who specializes in bankruptcy.

Article Link To Reuters:

South Korea Scandal Shines Light On Corporate, Government Nexus

By Ju-min Park and Hyunjoo Jin
November 7, 2016

Returning from a board meeting of South Korean steel giant POSCO last November, director Bahk Byong-won said he was "dumbfounded" at a decision made there to donate 3 billion won ($2.61 million) to a recently set up non-profit foundation.

Bahk said he did not vote against the proposal because he "was told" it had to be approved, according to a transcript of comments he made at a separate closed-door meeting later that day at the Arts Council Korea. He did not specify who told him.

"I was not able to vote against it," Bahk was quoted as saying in the transcript, which was read out by an opposition lawmaker in parliament last month, and was confirmed to be accurate by the Arts Council Korea.

Prosecutors are now investigating people close to President Park Geun-hye in an influence-peddling case that has transfixed South Korea. An old friend of the president has been charged with abuse of power and fraud while a former aide has been charged with abuse of power and extortion after they helped raise 77.4 billion won ($67.75 million) from dozens of the country's biggest corporate groups on behalf of the two foundations.

Park has said she has not personally benefited but tens of thousands of people marched through Seoul on Saturday, demanding she quit.

Bahk's comments also shed light on the cozy ties between the government and South Korean conglomerates, known as "chaebol", that have dominated the country's economy for decades.

Bahk, who heads the Korea Employers Federation, a major business lobby group, said the government appeared to have "twisted the ankles" of the chaebol, pressuring them to provide large sums of money for the Mir foundation, set up to promote cultural exchanges with other countries.

Asked by Reuters if the transcript of his remarks was accurate, Bahk did not answer directly, and declined further comment.

The Federation of Korean Industries (FKI), which represents the country's biggest businesses and runs Mir, declined comment on Bahk's remarks. POSCO also declined comment.

In the 1980s, the Kukje Group, a conglomerate, refused to make charitable contributions to then-president Chun Doo-hwan's Ilhae Foundation, according to several media reports at the time.

Chun subsequently ordered the country's main bank to deny loans to the group, forcing it into bankruptcy, which the country's highest court later ruled was an infringement of Kukje's rights.

Government Support

The two foundations that figure in the current case, Mir, or "dragon", and K-Sports, involved in sports-related projects, are both run by the FKI business grouping. They have been given a vote of confidence by Park.

"My understanding is the nature of the two foundations is that companies have agreed to set them up to support the area of culture and sports," Park said last month. She said she had asked business leaders in February last year to expand investments in culture and sports and was grateful they had responded.

Mir was set up in October last year and K-Sports in January.

A prosecution source said that when the former presidential aide An was raising funds, he made clear that a "VIP" was interested in the projects and that the fundraising was for a good cause.

The source, who declined to be identified because the matter is under investigation, said the VIP was Park.

In remarks to senior advisers that her office later released to media, Park said: "The foundations are said to have been set up for my post-retirement but it is not true. If suspicions about such meaningful projects spread and personal attacks keep happening, it will throw cold water over the companies' pure will to contribute."

Officials from several chaebol that include the country's biggest corporates have been questioned in the case although none of the groups have been accused of any wrongdoing.

Among those questioned were an executive at Samsung, which donated a total of 20.4 billion won to the two foundations, the most of any conglomerate, as well as executives from the SK and Lotte groups, the senior prosecution official said.

The investigators plan to summon executives from other groups that contributed to the foundations, said the official, declining to be identified because the investigation was ongoing.

A Samsung Group spokeswoman could not confirm whether the official was questioned by prosecutors but said Samsung will fully cooperate with the investigation. Lotte Group said two group executives were questioned last weekend but declined to provide further comment as the prosecutors' probe is still underway.

An SK Group official said a group executive was questioned as a witness regarding allegations that the conglomerate was forced to give donations but declined to provide further details.

Chung Sun-sup, CEO of research firm, said the latest scandal suggests that South Korea still had an "imperial" presidential system.

"We still live in an era where if a president says a word, the chaebol line up," Chung said.

Article Link To Reuters:

China Intervenes In Hong Kong Legal System In Boldest Move Yet

By Michael Martina, Greg Torode and Venus Wu
November 7, 2016

China's parliament passed an interpretation of Hong Kong's Basic Law on Monday that says lawmakers must swear allegiance to the city as part of China, Beijing's most direct intervention in the territory’s legal and political system since the 1997 handover.

The ruling is expected to bar two activist lawmakers from taking office in Hong Kong. The prospect of the ruling had sparked protests in the former British territory that returned to Chinese rule in 1997.

The official Xinhua news agency reported that China's parliament ruled at the end of a regular bimonthly session that the pair of pro-independence lawmakers could not assume their positions in Hong Kong's Legislative Council if they refused legal procedures when taking oath of office.

The intervention relates to Article 104 of the city's mini-constitution, which states that lawmakers must swear allegiance to Hong Kong as part of China when they take office.

It came even before a Hong Kong court had ruled, representing some of the worst privately held fears of senior judges and some government officials in Hong Kong, according to sources close to them.

The move was expected to enrage Hong Kong democracy activists further, a day after hundreds of demonstrators clashed with police in running battles around China's representative office in Hong Kong.

The scenes on Sunday night were reminiscent of pro-democracy protests in late 2014 that paralyzed parts of the Asian financial center and posed one of the greatest political challenges to the central government in Beijing in decades.

Britain returned Hong Kong to Chinese control in 1997 under a "one country, two systems" formula that gave the territory wide-ranging autonomy, including judicial freedom guided by a mini-constitution called the Basic Law.

The rift between Hong Kong and Beijing has deepened since Yau Wai-ching, 25, and Baggio Leung, 30, pledged allegiance to the "Hong Kong nation" and displayed a "Hong Kong is not China" banner during a swearing-in ceremony for the city's legislative council in October.

Leading members of China's parliament said on Saturday the two Hong Kong lawmakers-elect had damaged the territory's rule of law and posed a grave threat to China's sovereignty and security.

The Hong Kong Bar Association has said an intervention by Beijing now, while a local court was hearing the case, would deal a severe blow to the city's judicial independence and undermine international confidence in Hong Kong's autonomy.

The oath-taking controversy made waves in the former colony, where the topic of independence from China was once regarded as taboo but has come to the fore since the pro-democracy protests in 2014 that failed to secure any concessions from Beijing.

Article Link To Reuters:

After $195 Million In Talc Verdicts, J&J Strives To Change Court

By Brendan Pierson
November 7, 2016

After a $67.5 million jury verdict against Johnson & Johnson (JNJ.N) on Oct. 27 marked its third straight trial defeat in an onslaught of lawsuits claiming its talc-based products cause ovarian cancer, the company is hoping to reverse the trend by having the cases heard in a different court.

All three awards, totaling around $195 million, were handed down in state court in St. Louis, Missouri, with the same judge presiding. Women or their families have filed 2,500 similar claims, the vast majority in the same court, which is one of several in the United States that attracts consumer lawsuits.

The plaintiffs claim studies show J&J's Baby Powder and Shower to Shower products, when used in the vaginal area, increase the risk of ovarian cancer. The company counters that larger, more comprehensive studies show no such link.

In a court filing in August, J&J argued the case should be dismissed because plaintiffs’ lawyers tainted the St. Louis jury pool. The company said the other side spent almost $10 million on national and local television commercials in the previous year, with a disproportionate share of them running in St. Louis. The women's lawyers have denied J&J's claim.

The company also contended that, because most of them are not from St. Louis and the New Jersey-based company has no strong ties to the area, the cases should not have been heard there. The judge rejected both arguments.

John Beisner, one of the top lawyers representing J&J, said the company plans to make the same arguments to the Missouri Court of Appeals. If the St. Louis court is found not to have jurisdiction, the cases would have to be refiled elsewhere.

Beisner compared the St. Louis verdicts to a favorable ruling in September from a state court judge in New Jersey. That judge, who is presiding over some 200 talc cases, disqualified the plaintiffs' experts on the grounds that their scientific testimony was too speculative.

In the same decision, he dismissed the first two cases set for trial and the ruling is being appealed.

J&J unsuccessfully tried to block the testimony of the experts in St. Louis on similar grounds. The company will make the same challenge on appeal, Beisner said.

Last week's $70 million verdict followed Missouri jury awards of $72 million in February and $55 million in May.

The first big talc verdict in February was won by the family of Jacqueline Fox, who died in October 2015. Their lawyers said she used J&J Baby Powder and Shower to Shower Powder daily for 35 years for genital hygiene before she was diagnosed with ovarian cancer in 2013.

Jere Beasley, whose firm has filed hundreds of talc cases, including the three Missouri wins and two New Jersey dismissals, said the verdicts should prompt J&J to make a deal.

"If I were representing them, I would say, folks, we need to sit down and regroup and start trying to settle these cases," he said.

Large Verdicts

Large verdicts are relatively common in major product liability cases, and they are often reduced or overturned on appeal. One lawsuit against Merck & Co over its recalled painkiller Vioxx produced a $253 million verdict in 2005, which was thrown out three years later. Merck eventually settled most Vioxx cases for $4.85 billion in 2007.

Shareholders in J&J, which had sales of $70 billion last year, have so far shrugged off the three talc verdicts, the first of the cases to go to trial. But if the trend continues, liability could mount. The company has not reported setting aside any litigation reserve to deal with talc cases, as it has with previous claims over antipsychotic drug Rispardal and recalled hip implants.

J&J no longer sells Shower to Shower, which was acquired by Valeant Pharmaceuticals in 2012. Though not a major seller on its own, Baby Powder is a recognized symbol of J&J’s baby care line, which brought in $2 billion in revenue in 2015.

Some legal experts said it made sense for J&J to fight on.

"Ordinarily I would say three verdicts like that would prompt you to think about settlement," said University of Georgia Law School professor Elizabeth Burch, who researches product liability cases, but she said J&J's case is somewhat different.

A settlement would not necessarily cap J&J's liability, Burch said, because its talc products are still on the market, unlike companies whose products have been recalled.

Howard Erichson, a professor at Fordham School of Law, said the company also had valid concerns about the impact of a settlement on its position in the market.

"This is not Vioxx. This is not asbestos," Erichson said. "This is a case where the company wants to defend its brand, and is not going to be anxious to announce a big settlement that appears to concede that the product is harmful.

Article Link To Reuters: