Olympia Business Watch

Good News for Washington Cattlemen and Beef Processors---South Korean Markets are Open Again

Two years ago, those of us on Gov. Gregoire’s trade mission to South Korea and Taiwan lobbied government leaders in Seoul to open markets to Washington beef.  Korea’s market had been closed to most U.S. beef since December 2003, when a single case of Bovine Spongiform Encephalopathy (BSE), more commonly called  “Mad Cow Disease,” was detected in eastern Washington.  Before the South Korean ban, U.S. exports of beef to Korea had reached $815 million in 2003, making Korea the third largest market for U.S. beef products.

The good news is on April 18, 2008, the United States and Korea agreed to a protocol to fully reopen Korea’s market to all U.S. beef, regardless of age or cut. The announcement was made during Korean President Lee Myung-bak’s visit to the United States last week.

Among the main provisions of the market opening protocol include:

·         The protocol is consistent with the World Organization for Animal Health’s (OIE) guidelines and international scientific standards.

·         The protocol immediately opens Korea’s market to all U.S. beef from cattle 30 months and under, and to older cattle upon the United States’ publication of the enhanced feed ban rule.

·         Korea will not close its markets in response to individual U.S. plant violations of the protocol, only the violating plant will be impacted.

·         Korea recognizes the “equivalency” of the U.S. meat inspection system, easing the regulatory burden for U.S. meatpackers exporting to Korea.

During the 2006 trade mission, we pointed out that Washington agriculture exports to South Korea were $350 million in 2005 and would have been larger if markets were reopened for sale of Washington beef.  At the time, the only place we saw beef readily available for sale was in the Seoul Costco stores.

On top of the market access afforded by the protocol, U.S. cattle ranchers stand to save over $500 million (based on 2003 trade volume) in tariff costs after full implementation of the U.S.-Korea FTA by the Congress and Korean National Assembly.  AWB continues to support the U.S.-Korea Free Trade Agreement and recently I sent another round of letters to Gov. Gregoire and Washington’s Congressional delegation asking them to expedite approval of the agreement.

Don C. Brunell, President (DonB@awb.org)

U.S. Chamber Endorses Hastings, McMorris-Rodgers and Reichert for Re-Election

The U.S. Chamber of Commerce Board voted to endorse Doc Hastings (4th), Cathy McMorris-Rodgers (5th) and Dave Reichert (8th) for re-election.  All are incumbent Republican members and seeking re-election to the U.S. House of Representatives.

On the Chamber's Congressional scorecard, Hastings has a cumulative 96% voting record while McMorris-Rodgers has 89% and Reichert comes in at 82%.   

The trio not only have strong voting records for the U.S. Chamber, but also on the Association of Washington Business (AWB) congressional scorecard.  While AWB, the state's chamber of commerce, does not endorse in congressional races, it does compile a voting record and compares its record with other organizations. Hastings and McMorris-Rodgers scored 92% with AWB while Reichert logged in at 84%.

Our State's Legal Climate Ranked Below Average Again

The Institute for Legal Reform, the legal policy affiliate of the US Chamber of Commerce, has released its 2008 lawsuit climate report.  Where does Washington rank?  27th in the nation, down from 25th last year but up from 28th in 2006; holding steady just below average.  The report is based upon a survey by Harris Interactive of "a national sample of in-house general counsel or other senior corporate litigators to explore how reasonable and balanced the tort liability system is perceived to be by U.S. business. "

This follows last month's note here on the findings of the Pacific Research Institute's 2008 Lawsuit Climate report that Washington State, by virtue of our weak legal and institutional checks on lawsuit abuse, ranks 37th in the country and earns the dubious recognition as a "sinner" in the report's humorous nomenclature of "saints," "sinners," "salvageables" and "suckers". 

Why care?  Although the federal government operates as a legal system and potent source of laws and rules, in our federal system the states are the primary sources of laws and rules affecting day to day commerce, and those laws are enforced in state court systems.  The fairness of those systems, the extent to which they promote enterprise and prosperity or detract from it, is a mark on the spectrum of competitiveness concerns businesses make when determining whether to locate or grow operations in a state.

Weighing our state down in these kinds of rankings is a perceived lack of laws on the books and institutional structures in place to curb lawsuit abuse as well as a legislative balance of power that makes efforts at comprehensive liability reform at best quixotic.  Coupled with a state judiciary that is often viewed as plaintiff-friendly in civil suits, this creates poor showings on state-by-state rankings. 

And yet the state's legal climate is leavened by factors like its general aversion to punitive damages and an Attorney General who is not viewed as an activist aggressor against job providers, attempting to regulate through state-sponsored litigation outcomes that the legislative or executive branches refuse to entertain.   

On the one hand, on the other hand.  That's what keeps us in the middle of the pack. 

Washington's Single-Stream Recycling Can Be A Costly Pain

In talking with some of my friends in the pulp and paper industry, today most every mill in the Pacific Northwest depends upon recycled paper for a portion of its raw materials.  Recycled cardboard, office paper and newspaper has replaced the need to pulp as many wood chips. Over the years, those pulp plants customarily received wood chips from sawmills, plywood plants and pulpwood chipping operations to make paper. 

Relying more on recycled paper is good because it takes less energy and fewer chemicals to create pulp.  The added benefit is less air and water contaminants to clean up.  Finally, less solid waste is sent to the landfills or garbage incinerators.  Sounds like a "win win" and for the most part, it is.

So what's the problem?   Washington's "single stream recycling!" 

Under single stream recycling ALL recyclables are collected together. Unfortunately, according to industry sources, that is creating allot more garbage because some recyclables contaminate others and render them unacceptable and unhealthy to reprocess. In some operations from 15% to 30% of the recycled paper coming to the pulp mills is now garbage. That is a costly problem especially for mills struggling with high energy costs, volatile markets and strong foreign competition.

Last month, Washington State University initiated a "single-stream recycling" pilot program.  Hopefully, it will help find ways to reduce the amount of recyclables now going to landfills.

While it may be convenient for us to toss our empty cans, plastics, metals, bottles and papers into the same bin for collection, it presents some problems for those making an effort to take those recycled materials and convert them into usable products.

Don C. Brunell, President (DonB@awb.org)

Michigan Businesses Not Ready for State-run Health Care

Crain's Detroit Business reports that a poll of Southeast Michigan business shows widespread opposition to a proposed amendment to the state constitution that would establish universal health care coverage. The survey findings mirror what we often hear from AWB members: they are concerned about rising health insurance costs, but they don't want a state-run plan.

Here's how the Detroit chamber explains it to the business paper:

We're interpreting that to mean that cost is a real concern, but they're not ready to let the government decide what the cost is,” said Sarah Hubbard, the chamber's vice president of government relations.

Given the overruns and high cost estimates of various universal coverage plans, that's just good sense.

The predictable response from amendment backers:

Former state Rep. John Freeman, D-Madison Heights, who is chairing the Health Care for Michigan campaign to place the proposal on the November ballot, said poll results indicate the need for “more education of the chamber members” on a proposal that he said benefits business and addresses their health care concerns.

I doubt that lack of education is the problem. More likely, business owners in Michigan, like business owners across the country, understand too well the risks associated with state-run health plans. They "get it," they just don't want it.

Tax Freedom Day ... Here and Coming Soon

Earlier today Don Brunell discussed the recent COST study of business taxes. Also on the tax theme, I used the Tax Foundation announcement that today is Tax Freedom Day to discuss a couple of recent tax reports in my column in the Everett Herald.

Tim Eyman had some things to say about taxes in the Seattle Times. He thinks voters don't want to see them go up.

Probably right.

Over Half of Washington State and Local Taxes Paid by Business---New COST Report Released

The Council of State Taxation (COST) just released its annual report on the impact of state and local taxes on business across America.  COST found businesses paid $577 billion in 2007 which is a 6% increase over 2006 and a 44% increase from 2002, the trough of the last economic slowdown.

On average nationally, business taxes represented 44.1% of all state and local taxes collected last year.  Washington was higher than the national average with 51%.  Businesses accounted for 53.4% of local taxes and 46.3% of state taxes in our state.

IUnemployment insurance premiums, which are paid solely by employers. are included in the COST analysis. According to 2006 data reported in the 2008 Washington Alliance for a Competitive Economy (WashACE) Redbook (latest publication), Washington's yearly unemployment costs per employee are second highest in the nation. In Alaska, the cost is $831 where as Washington comes in at $803.  Oregon is third at $672.  The national average is $315 and in South Carolina, where major portions of the Boeing 787 fuselage are manufactured, unemployment tax payments per employee are $154 each year.

With Washington lawmakers expecting to see a $2.5 billion revenue shortfall when they come to Olympia next January, they need to be mindful that state and local taxes and associated fees have a dampening impact on our state's economy, the ability of employers to stay in Washington and expand job opportunities, and maintain our competitiveness globally. 

As COST's new report illustrates, costs of doing business in Washington and in our cities and counties, make a difference.

Don C. Brunell, President (DonB@awb.org)    

When People Are Hungry, They Need Food---Will There Be Enough?

World hunger is now front and center.  It is all over the news and the situation is so serious that World Bank President Robert Zoellick appealed to governments around the world to provide the U.N. World Food Program with $500 million in emergency aid by May 1. President Bush immediately responded with $200 million from the United States.

The cover story in The Economist magazine this week addresses the consequences of food inflation on the world's poor calling it "The Silent Tsunami."  The problem is growing and threatens to destabilize countries. Soaring corn prices are already responsible for riots in Mexico City, rising flour prices threaten to destablize Pakistan, and people caught hoarding rice in the Phillipines face the possiblity of life imprisonment. Hunger even prompted Haiti's prime minister to resign. 

So what's the problem?  One paragraph in The Economist caught my attention.

"The prices mainly reflect changes in demand--not problems with supply, such as harvest failure.  The changes include the gentle upward pressure from China and India eating more grain and meat as they grow rich and the sudden, voracious appetites for western biofuels programmmes, which convert cereal into fuel."

Time magazine estimates that corn from one in five acres in the United States is now going to ethanol refineries.  That is causing American family grocery bills to climb. Combine increasing fuel prices (gasoline, home-heating oil and diesel) with higher food prices and we are feeling the pinch at home.

In my column which appeared in today's The Columbian, there is reference to another problem which could have the same impact as the Irish Potato Famine in 1845-50 which killed 750,000 people.  That is the potential of a global pandemic of Ug99, a new strain of wheat rust which has hit Kenya and Ethiopia. Ug99 drew the attention of the Bill and Melinda Gates Foundation which awarded Cornell University a $26.8 million grant to develop a rust-resistent strain. 

While some oppose genetic modification, it has worked for years.  It allows research universities, such as Washington State and Cornell, to develop disease and insect resistent plants which in turn provide enough food for the world.

The point is there are tradeoffs when crops are converted from food for people to gas and diesel for cars, trucks and buses.  Those tradeoffs need to be carefully considered and thought out.  Research must to continue to insure that diseases, such as Ug99, do not spread across the world. 

When people are hungry and thirsty, everything else is irrelevant.  Hopefully, our legislators and elected officials will look at the big picture and not just focus on alternative fuels and invest in research, as have the Gates.

Don C. Brunell, President (DonB@awb.org)

Another $100 Million Added to Coming Budget Shortfall

Or close to that anyway.

The Senate Ways and Means Committee updated its six year budget outlook earlier this month. While the numbers haven't changed much, they added the 2008 supplemental budget, bumping 2009-2011 spending by $608 million.

Going into the next biennium, lawmakers face a $2.5 billion shortfall, with just $783 million in the hard-to-tap budget stabilization account. There are a few more revenue forecasts between now and the first of the year, but there's little reason to suspect dramatic changes. Good news most likely looks like a shortfall of only $2 billion. And then there's the education lawsuit, working family tax credit, and all that other stuff folks want to spend money on.

Ought to be an interesting budget session.

The Evergreen Freedom Foundation has more on the outlook here and on the 601 lawsuit, which has implications for tax increases, here.

New Study Pegs Wasteful Health Care Spending at $1.2 TRILLION

Before we even think about whether government should take over more responsibility for health care and calculate the associated costs, there is much work to be done with the current system.  That work could render billions in savings and lessen the physical and financial pain on patients and families.

For example, a new PricewaterhouseCoopers study found that wasteful spending in the health system is calculated at up to $1.2 trillion of the $2.2 trillion spent in the United States, more than half of all health spending. Defensive medicine, such as redundant, inappropriate or unnecessary tests and procedures, are the biggest area of excess, followed by inefficient healthcare administration and the cost of care necessitated by conditions such as obesity, which can be considered preventable by lifestyle changes.

PricewaterhouseCoopers’ paper classified health system inefficiencies into three “wastebaskets” that are driving up costs:

• Behavioral where individual behaviors are shown to lead to health problems, and have potential opportunities for earlier, non-medical interventions.
• Clinical where medical care itself is considered inappropriate, entailing overuse, misuse or under-use of particular interventions, missed opportunities for earlier interventions, and overt errors leading to quality problems for the patient, plus cost and rework.
• Operational where administrative or other business processes appear to add costs without creating value.

When added together, the opportunities for eliminating wasteful spending add up to as much as $1.2 trillion. The impact of issues such as non-adherence to medical advice and prescriptions, alcohol abuse, smoking and obesity are exponential, and fall into all three baskets.

Don C. Brunell, President (DonB@awb.org)