Explainer: How ending Hong Kong’s ‘special status’ could affect U.S. companies

WASHINGTON (Reuters) – New Chinese national security restrictions imposed on Hong Kong could draw a U.S. revocation of the former British colony’s “special status” under U.S. law, a move that would have far-reaching trade and investment implications.

U.S. businesses oppose any change in Washington’s recognition of Hong Kong as a sufficiently autonomous city, where major U.S. companies enjoy access to China and Southeast Asia, and where bilateral trade flourishes across various parts of the economy, from wine to financial services.

A new U.S. law requires the State Department to certify at least annually that Hong Kong, which experienced widespread protests last year over China’s extradition plans, retains enough autonomy to justify favorable U.S. trading terms. President Donald Trump warned on Thursday that Washington could react “very strongly” to China’s new restrictions.

Here is a look at some of the consequences of a change in that status.

CORPORATE HEADACHES

A revocation of the special status would cause problems for the more than 1,300 American companies with business operations in Hong Kong, including nearly every major U.S. financial firm. The State Department said 85,000 U.S. citizens lived in Hong Kong in 2018.

Visa-free travel access to Hong Kong could revert to strict Chinese visa rules, impeding business travel and work visa approvals.

As of 2018, the stock of U.S. foreign direct investment in Hong Kong stood at $82.5 billion, an increase of $1.2 billion that year, according to U.S. Commerce Department data. Hong Kong’s investment in the United States rose $3.5 billion in 2018 to $16.9 billion.

Hong Kong’s autonomy, civil liberties, rule of law and access to China make it attractive to international companies, and a change in that status could push some U.S. firms into costly moves elsewhere in the region.

“Numerous American companies invest in Hong Kong because of its special status, its geographic location and market-based economic system,” the U.S.-China Business Council said in a statement. “Any change to this status quo would irreparably damage American global business interests.”

TRADE

Some $67 billion in annual Hong Kong-U.S. trade of goods and services could be put at risk as Hong Kong would lose its preferential lower U.S. tariff rate.

Hong Kong is treated separately from mainland China’s more managed economy, and its exports to the United States are treated differently. Hong Kong has a zero tariff rate on imports of U.S. goods, which also could be at risk.

Hong Kong was the source of the largest bilateral U.S. goods trade surplus last year, at $26.1 billion, based on U.S. Census Bureau data.

According to Hong Kong’s Trade and Industry Department, the former British colony in 2018 was the United States’ third-largest export market for wine, its fourth-largest for beef and seventh-largest for all agricultural products.

BROADER U.S.-CHINA RELATIONS

A U.S. revocation of Hong Kong’s special status would be viewed by Beijing as interfering with its sovereignty, and China has previously threatened to “take strong countermeasures.”

Eswar Prasad, a trade professor at Cornell University and a former head of the International Monetary Fund’s China department, said Hong Kong is a “hot-button” economic and political issue for China, much like U.S. sanctions on Chinese telecoms giant Huawei Technologies Co Ltd.

A precarious U.S.-China trade truce, already strained by Trump’s anger at China over the coronavirus pandemic and a slow start to Beijing’s purchases under the Phase 1 trade deal between the two countries could collapse into new tariffs and counter-sanctions, he said.

The United States also maintains export control offices and academic exchanges in Hong Kong separate from mainland China.

(Reporting by David Lawder; Editing by Paul Simao)

U.S. companies discover the dark side of a COVID-19 business boom

By Timothy Aeppel

(Reuters) – Kevin Kelly has discovered the many ways a deadly pandemic can be both a boom and a burden on some U.S. businesses.

As the nation clamped down with stay-at-home orders, Kelly said his company, Emerald Packaging Inc. in Union City, Calif, saw demand for the factory’s output explode. Emerald churns out plastic bags for produce, like baby carrots and iceberg lettuce, and Kelly attributed the growth, in part, to the perception that packaged produce is a safer alternative to unwrapped items.

Emerald represents the other side of the current novel coronavirus crisis, which has seen unemployment surge to levels not seen since the Great Depression. The jobless rate hit 14.7% in April. While many companies face a slump, some are rushing to add workers, including delivery services like Instacart. A recent survey by the Atlanta Fed concluded there have been three jobs added to the U.S. economy for every 10 layoffs.

Eric Schnur, CEO of specialty chemical maker Lubrizol Corp., owned by Warren Buffett’s Berkshire Hathaway Corp, said he anticipates “many millions in extra costs associated with responding to COVID-19.” Lubrizol’s business boom includes a three-fold increase in its output of the gelling agent used to make hand sanitizer.

Schnur said the extra costs go beyond stepped up cleaning and safety equipment and includes “significant increases in supply chain and logistics costs as we work to get our materials to those who have the greatest need.”

Another company facing added costs is Calumet Electronics Corp., in Calumet, Mich., which said it has spent $80,000 on everything from soap to mobile desks to keep workers safe through the crisis. For more on Calumet, click here:

For Emerald, orders surged 150% in March and were up another 7% in April. But there’s a dark side to that surge, both in terms of cost and complexity.

All the steps the company has taken — both to boost output and keep workers safe — are expected to add at least $350,000 to costs by the end of the year. This doesn’t include the lost production time, which adds up to at least an hour each day, that machines have to be shut down for cleaning. Kelly, Emerald’s chief executive officer, said he hasn’t figured out what this will do to his profits, but he expects a big hit to his margins. Emerald is a family-owned business with annual sales of about $85 million.

One of the biggest costs for Emerald was $50,000 Kelly spent on an automated temperature scanner. When the crisis first hit, Emerald implemented a regimen that included workers getting their temperature taken at the start and end of each shift.

But Kelly soon realized there was a problem having 40 people at the start of each shift waiting to be checked, one by one, by someone standing close to each employee as they were screened.

“It also just isn’t comfortable,” he said. “You know it’s a temperature gun, but you basically are holding a gun up to someone else’s head. It just made everyone uncomfortable.”

The new system will be a scanner that flashes a red warning signal if someone walks by with a body temperature over 100.4 degrees.

COVID-RELATED COSTS

Another big-ticket item is the cleaning, which accounts for $75,000 of the added costs. This includes assigning six workers — two on each shift — to constantly scrub and sanitize surfaces and $10,000 for six backpacks that these workers now use to hose floors with cleanser. The company, which was founded in 1963 by Kelly’s father, has added 10 workers to its staff of 240 and is heaping on overtime as well to get the orders out the door.

Even the company’s rag bill exploded. They used to buy 2,000 rags a week. Now it’s 7,000. The cost of that one item has jumped from $300 a month to $1,000, while disposable glove use has tripled.

Michael Rincon, Emerald’s director of operations, says each week brings new twists. For instance, they’ve discovered that having workers constantly wiping surfaces with isopropyl alcohol erodes signs and buttons — but they only realized that after it was too late. On one machine in the factory, the word “danger” printed in bright red has blurred.

Rincon said the faded labels will be repainted. But he’s also had to replace buttons on machines that have had the lettering rubbed away. The cost of a new button isn’t much, but the repairs mean costly shutdowns on lines that run around the clock. Some buttons can be replaced in a few minutes, but others take longer, said Rincon.

Kelly said he even thought about trying to put through a price increase to offset some of these expenses. But a few weeks ago, his biggest customer let him know that was a non-starter. The customer told Kelly he was going to see who else might be able to supply him with produce bags, presumably at a better price.

Besides the costs, there are also plenty of unpredictable management challenges. The company made masks mandatory eight weeks ago, at the very beginning of the crisis, but Kelly and other managers still find workers in the plant who aren’t wearing them or are wearing them incorrectly.

One problem is the nature of their factory, which is dominated by large, noisy machines. The only way to communicate in many parts of the factory is to lean your head right next to your coworker. “I’m constantly walking through the factory — throwing my arms apart — to remind people,” said Kelly.

Emerald has had three false alarms, with workers either calling in sick or falling sick at work and being sent home. However, none tested positive for COVID-19, the illness caused by the novel coronavirus.

Kelly said that in a country that regulates so many things, there’s still no good government guidance beyond general guidelines.

“The toughest thing is that there isn’t much direction from the state or the federal government,” Pallavi Joyappa, Emerald’s chief operating officer, said. “You are kind of making it up as you go along.”

(Reporting by Timothy Aeppel; editing by Diane Craft)

U.S. job openings, hiring fall in May

FILE PHOTO: Job seekers line up at TechFair in Los Angeles, California, U.S. March 8, 2018. REUTERS/Monica Almeida

WASHINGTON (Reuters) – U.S. job openings fell in May, pulled down by declines in the construction and transportation industries, potentially flagging a slowdown in employment growth in the months ahead.

Job openings, a measure of labor demand, slipped by 49,000 to a seasonally adjusted 7.3 million in May, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS on Tuesday. The job openings rate dipped to 4.6% from 4.7% in April.

Hiring dropped by 266,000 to 5.7 million in May, with the biggest decrease in the professional and business services industry. The hiring rate fell to 3.8% from 4.0% in April.

Nonfarm payrolls surged by 224,000 jobs in June after increasing only by 72,000 in May, the government reported last Friday. The unemployment rate rose one-tenth of a percentage point to 3.7% as more people entered the labor market, a sign of confidence in their employment prospects.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)

U.S. seeks funds for Middle East peace plan but details are vague and Palestinians unhappy

Palestinians burn a picture of U.S. President Donald Trump and Israeli Prime Minister Benjamin Netanyahu, and representations of Israeli flags during a protest against Bahrain's workshop for U.S. Middle East peace plan, in Gaza City, June 25, 2019. REUTERS/Mohammed Salem

By Matt Spetalnick

MANAMA (Reuters) – The Trump administration prepared to launch its $50 billion economic formula for Israeli-Palestinian peace in Bahrain on Tuesday but the Palestinian leadership reiterated its disdain for the plan and Saudi Arabia, envisaged as one of its main bank-rollers, also indicated some reservations.

Bahraini armoured vehicle takes up position on bridge leading to Manama’s Four Seasons hotel for first day of U.S.-hosted “Peace to Prosperity” conference, in Manama, Bahrain, June 25, 2019. REUTERS/Matt Spetalnick

Bahraini armoured vehicle takes up position on bridge leading to Manama’s Four Seasons hotel for first day of U.S.-hosted “Peace to Prosperity” conference, in Manama, Bahrain, June 25, 2019. REUTERS/Matt Spetalnick

The two-day international meeting, led by Trump’s son-in-law and senior advisor Jared Kushner, has been billed as the first part of Washington’s broader political blueprint to resolve the Israeli-Palestinian conflict.

But the political details of the plan, which has been almost two years in the making, remain a secret. Neither the Israeli nor Palestinian governments will attend the curtain-raising event in Manama, which Lebanon and Iraq are staying away from.

Palestinian President Mahmoud Abbas, whose Palestinian Authority exercises limited self-rule in the Israeli-occupied West Bank, was scathing about its prospects of success.

“Money is important. The economy is important. But politics are more important. The political solution is more important.”

Washington will be hoping that attendees in Manama such as wealthy Gulf states will show a concrete interest in the plan, which expects donor nations and investors to contribute $50 billion to Palestinian territories, Jordan, Egypt and Lebanon.

Saudi Arabia – a close U.S. ally which shares a common foe with Israel in Iran – voiced support on Tuesday for “international efforts aimed at improving prosperity, investment and economic growth in the region”.

But Riyadh reiterated that any peace deal should be based on the Saudi-led Arab peace initiative that has been the Arab consensus on the necessary elements for a deal since 2002.

That plan calls for a Palestinian state drawn along borders which predate Israel’s capture of territory in the 1967 Middle East war, as well as a capital in East Jerusalem and refugees’ right of return – points rejected by Israel.

Kushner said the plan would not adhere to the Arab initiative. “It will be somewhere between the Arab Peace Initiative and between the Israeli position,” he told Al Jazeera TV in an interview to air on Tuesday.

Chief Palestinian negotiator Saeb Erekat said Kushner is “committed to the initiatives of Israel’s colonial settlement councils.”

Israeli Prime Minister Benjamin Netanyahu, a close Trump ally, said Israel was open to the plan. “We’ll hear the American proposition, hear it fairly and with openness,” he said on Sunday.

White House senior adviser Jared Kushner and Treasury Secretary Steven Mnuchin arrive at Manama's Four Seasons hotel, the venue for the U.S.-hosted "Peace to Prosperity" conference, in Manama, Bahrain, June 25, 2019. REUTERS/Matt Spetalnick

White House senior adviser Jared Kushner and Treasury Secretary Steven Mnuchin arrive at Manama’s Four Seasons hotel, the venue for the U.S.-hosted “Peace to Prosperity” conference, in Manama, Bahrain, June 25, 2019. REUTERS/Matt Spetalnick

Expectations for success are low. The Trump team concedes the economic plan – billed “Peace to Prosperity” – will be implemented only if a political solution to one of the world’s most intractable conflicts is reached.

Jordan and Egypt, the only Arab states to have reached peace with Israel, are sending deputy finance ministers. Kushner’s plan has hit a political nerve in Jordan, home to millions of citizens of Palestinian refugee origin.

Saudi Arabia and the United Arab Emirates want to move on from a Palestinian conflict they believe has held back the Arab world. Other Gulf states such as Kuwait, Qatar and Oman have not said who they are sending to the conference.

“If there is a one percent chance we do something good here, we should get together and try,” billionaire Mohamed Alabbar, one of Dubai’s most prominent businessmen, said after arriving at the venue in Manama and embracing two American rabbis.

POLITICAL PLAN?

It is not clear whether the Trump team plans to abandon the “two-state solution,” which involves creation of an independent Palestinian state living side by side with Israel.

The United Nations and most nations back the two-state solution and it has underpinned every peace plan for decades.

But Trump’s team has consistently refused to commit to it, keeping the political stage of the plan a secret.

U.N. Secretary-General Antonio Guterres urged the pursuit of “peace efforts to realize the vision of two States, Israel and Palestine, living side by side in peace and security”.

Any such solution would have to settle long-standing issues such as the status of Jerusalem, mutually agreed borders, satisfying Israel’s security concerns and Palestinian demands for statehood, and the fate of Israel’s settlements and military presence in territory in Palestinians want to build that state.

In Gaza, businesses closed doors in a general strike called by the ruling Islamist Hamas group and other factions.

In the West Bank on the outskirts of Ramallah, where a small crowd of protesters was dispersed by Israeli troops firing tear gas, Palestinian lawmaker Mustafa Barghouti said: “There can be no economic solution as a substitute for our freedom.”

The workshop is being held in Bahrain, home of the U.S. Navy’s Fifth Fleet, at a time of heightened tension between Tehran and Washington and its Gulf allies. Trump on Monday imposed sanctions on Iran’s Supreme Leader and other officials after Iran downed an U.S. drone last week.

Palestinian leaders have boycotted the conference, and are refusing to engage with the White House – accusing it of pro-Israel bias. Breaking with international convention, Trump in 2017 recognized disputed Jerusalem as Israel’s capital – a move that infuriated the Palestinians and other Arabs.

Seven Palestinian businessmen gathered in the lobby of the Four Seasons hotel, the conference venue. They estimated that 15 to 20 Palestinian business representatives would be present.

“The politicians will not bring us anywhere,” said conference attendee Shlomi Fogel, an Israeli entrepreneur. “We, the business people, should be able to show them there might be another way.”

(Reporting by Matt Spetalnick and Stephen Farrell; Additional reporting by Nidal al-Mughrabi in Gaza and Rami Ayyub in Ramallah; Writing by Ghaida Ghantous; Editing by Angus MacSwan)

Trump support for Saudi prince leaves Turkey with tough choices

FILE PHOTO: Saudi Arabia's Crown Prince Mohammed bin Salman arrives at Ministro Pistarini in Buenos Aires, Argentina, November 28, 2018. Argentine G20/Handout via REUTERS

By Orhan Coskun and Dominic Evans

ISTANBUL (Reuters) – Eight weeks since the killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul, U.S. President Donald Trump’s unwavering support for the kingdom’s powerful crown prince has left Turkey in a bind.

The longer it confronts Saudi Arabia over who exactly ordered the operation, the more it risks looking isolated as other countries put aside their misgivings and return to business with the world’s biggest oil exporter.

A prolonged standoff with Riyadh could also jeopardize Turkey’s own fragile rapprochement with Washington if it forces Trump to choose sides between the rival regional powers.

Turkey’s dilemma comes to a head this week at the G20 summit of the world’s main economies, where President Tayyip Erdogan and Saudi Arabia’s Crown Prince Mohammed bin Salman could meet, according to Turkish officials.

Without naming him, Erdogan has repeatedly suggested the prince has questions to answer over the killing, while one of his advisers has said bluntly that Saudi Arabia’s de facto ruler has Khashoggi’s blood on his hands.

But Erdogan has avoided talking about Khashoggi’s death in recent speeches, raising questions about whether he may soften his stance towards the 33-year-old heir to the throne who could be running Saudi Arabia for several decades to come.

“A meeting may take place. A final decision has not been made yet,” a senior political source said, shortly before Erdogan’s departure for the summit in Argentina.

“Saudi Arabia is an important country for Turkey … Nobody wants relations to sour because of the Khashoggi murder.”

Erdogan has good relations with the Saudi monarch, King Salman, but ties have been strained by recent Saudi moves including the blockade of Qatar, championed by Salman’s son.

Analysts say Erdogan sees Saudi assertiveness under the prince as challenging Turkey’s influence in the Middle East.

FILE PHOTO: A woman takes part in a protest opposing the visit of Saudi Arabia's Crown Prince Mohammed bin Salman in Tunis, Tunisia, November 27, 2018. REUTERS/Zoubeir Souissi/File Photo

FILE PHOTO: A woman takes part in a protest opposing the visit of Saudi Arabia’s Crown Prince Mohammed bin Salman in Tunis, Tunisia, November 27, 2018. REUTERS/Zoubeir Souissi/File Photo

It was the steady drip of evidence from Turkish officials – furious over what they said was a gruesome and carefully planned assassination in their country – which fuelled global outrage at Saudi Arabia and Prince Mohammed.

Erdogan said the hit was ordered at the highest levels of Saudi leadership, and the CIA assessed the prince was directly behind it, despite vehement Saudi denials.

But nearly two months since Khashoggi was killed and his body dismembered by a team of 15 Saudi agents, Western powers have taken little action against Saudi Arabia, a big buyer of Western arms and a strategic ally of Washington.

The most concrete U.S. step so far was a decision in mid-November to impose economic sanctions on 17 Saudi officials, including the prince’s senior aide, Saud al-Qahtani.

Meanwhile, Trump has stood by the crown prince, saying he does not want to jeopardize U.S. business and defying intense pressure from lawmakers to impose broader sanctions on Saudi Arabia.

SECOND THOUGHTS?

On Wednesday, U.S. Secretary of State Mike Pompeo and Defense Secretary Jim Mattis said there was no direct evidence connecting Prince Mohammed to Khashoggi’s murder, and that any downgrading of U.S.-Saudi ties in response would hurt U.S. security.

That clear message from the Trump administration may be forcing Turkey to think again.

“Initially the objective was to pressure Trump to drop his relationship with MbS,” said Sinan Ulgen, a former Turkish diplomat and analyst at the Carnegie Europe think tank, referring to the crown prince.

“On the contrary, Trump seems to have decided to consolidate that relationship, and that’s why there had to be a reassessment in Ankara about how to manage this,” he said.

Ulgen said Erdogan’s priority was to safeguard the modest recovery in relations with Washington since a Turkish court last month freed a U.S. pastor who had been detained for two years on terrorism charges.

“Turkey doesn’t want to endanger the political capital that it earned in Washington by pushing too far (on Khashoggi). That’s the main motivation,” he said.

Bolstered by Trump’s support, Saudi officials have insisted that Prince Mohammed did not know in advance about the operation, and Foreign Minister Adel Jubeir said last week Turkish authorities had told Saudi officials that they were not accusing the crown prince of involvement.

Saudi Arabia’s official news agency said trade ministers from the two countries met in Istanbul on Wednesday and would encourage Saudi investment in Turkey, and Turkish companies to take part in projects in Saudi Arabia.

Any change in Turkey’s approach would likely be gradual. Erdogan made no mention of Saudi Arabia when he spoke to reporters as he left Istanbul airport on Wednesday night, but he may still choose not to meet the prince in Argentina.

“Saudi Arabia has yet to make a satisfactory statement regarding the murder in Istanbul,” said Ilter Turan, a professor of political science at Turkey’s Bilgi University.

“The Turkish government is still working on the investigation … It’s possible to say that it’s a little too early for a meeting.”

Another Turkish official said the government was still assessing the Saudi request for a meeting. If the two men do hold talks in Buenos Aires, the conversation would be broadly the same as the phone call they held a month ago, he said.

“Turkey will repeat its current position at the meeting if there is one,” the official said. “Turkey wants all those responsible for the murder to be brought to justice, and it’s not asking for a punishment for Saudi Arabia.”

“It’s not realistic to expect a major improvement from that meeting, but a contact will have been made”

(Additional reporting by Tulay Karadeniz; Editing by Giles Elgood)

Companies need older workers: here is why

FILE PHOTO: Office workers take their lunch at a food court in Sydney, Australia May 4, 2018. REUTERS/Edgar Su/File Photo

By Mark Miller

CHICAGO (Reuters) – The demographic trend is no secret: the populations of the United States and other major industrial countries are getting older, and fast. That means workforces are aging too, but employers are doing surprisingly little to prepare to meet the challenges or adapt to employees’ needs.

In the United States, the 65-and-over population will nearly double over the next three decades to 88 million by 2050 from 48 million, according to the U.S. Census Bureau.

By 2024, one in four U.S. workers will be 55 or older, according to the U.S. Department of Labor, more than double the rate in 1994 when 55-plus workers accounted for just 12 percent of the workforce.

Many workers will face a financial need to keep working past traditional retirement ages, while others will want to work in order to stay engaged, notes Jonathan Rauch, a senior fellow at the Brookings Institute and author of “The Happiness Curve: Why Life Gets Better After 50.”

“People are getting to their sixties with another 15 years of productive life ahead, and this is turning out to be the most emotionally-rewarding part of life,” Rauch said. “They don’t want to just hang it up and just play golf. That model is wrong.”

A survey of human resource professionals by the Society for Human Resource Management in 2016 revealed a short-term mindset along with a lack of urgency among employers in assessing and planning for aging workforce.

Just 35 percent of U.S. companies have analyzed the near-term impact of the departure of older workers and just 17 percent have considered longer-term impactions over the next decade, according to the survey.

Most employers do not have a process for assessing the impact beyond one or two years, and the majority said they do not actively recruit older workers at all.

Alex Alonso, senior vice president of knowledge development at Society for Human Resource Management, thinks employers have sharpened their focus in this area since the survey was conducted.

“In most boardrooms, there is urgency around the topic these days, but the conversation is around how to sustain the enterprise, with a focus on how to manage a multi-generational workforce,” Alonso said.

Age discrimination, while difficult to prove, persists. Yet research over the past decade has gone a long way toward debunking stereotypes about older workers – that they are less productive and energetic, and less able to learn or solve problems.

But the bias continues.

Forty-one percent of companies around the world surveyed by Deloitte Consulting said they considered aging of their workforces a competitive disadvantage. The finding varied by country.

“It’s somewhat of a cultural issue,” said Josh Bersin, a principal at the consulting firm.

Employers such as Deloitte Consulting are starting to wake up to the issues as the labor market tightens, Bersin said. “I spend a lot of time with human resource departments around the world, and they are starting to realize that one of best talent pools they can recruit from are the people they already have.”

ALTERNATIVE CAREER ROUTES

Leading-edge employers are starting to think about creating alternative career routes for older workers that feature more flexible assignments and schedules, creating opportunities for them to mentor younger workers and offering phased retirement.

Deloitte, for example, now has a new set of professional career paths available for employees who are not on the track to become partners but have important specialized knowledge.

Among major manufacturers, automaker BMW is often cited as an innovator in valuing the skills and experience of older workers. The company has implemented changes to its production lines aimed at improving ergonomics of its work environment and promoting age-neutral language in the workplace.

The Columbia Aging Center at the Mailman School of Public Health in New York City has been honoring “age smart” employers for the past three years. Winning companies actively recruit and promote older workers, provide flexible work schedules and mentorship opportunities.

For example, one company honored this year, accounting firm PKF O’Connor Davies, actively hires older accountants when other firms compel them to retire. Of the firm’s 700 workers, more than 250 are over age 50. The firm offers flexible work options, including shorter work weeks.

“We’re definitely seeing growing concern about the drain of human capital among larger companies, and interest in new models for older workers that retain them longer,” said Linda Fried, dean of the Mailman School and head of the school’s Aging Center.

Fried acknowledges that some employers worry about the higher compensation and healthcare costs associated with older workers. She has proposed changing Medicare’s rules to accept older workers, allowing them to shift away from employer health plans. Other researchers have proposed incentivizing employers by creating a 40-year cap on the total years of work requiring payroll tax contributions to Social Security.

Changing attitudes also will be important.

“There is a lot more talk in business circles about the human capital value of older workers, but we’re still in early innings,” said Paul Irving, chairman of the Center for the Future of Aging at the Milken Institute. “It takes time for things to percolate.”

(Reporting by Mark Miller; Editing by Lauren Young and Matthew Lewis)

Russian companies will feel severe effect from U.S. sanctions: Fitch

National flags of Russia and the U.S. fly at Vnukovo International Airport in Moscow, Russia April 11, 2017. REUTERS/Maxim Shemetov

MOSCOW (Reuters) – The new round of U.S. sanctions against Russia will have a “severe effect” on targeted companies and will limit Russia’s potential economic growth, Fitch Ratings said on Friday.

The U.S. Treasury on April 6 announced sanctions on seven Russian oligarchs and 12 companies they own or control, saying they were profiting from a Russian state engaged in “malign activities” around the world.

“The sanctions are likely to have a profound effect on the designated companies, which would be unable to transact in U.S. dollars – the standard denomination currency in commodities trading and the main currency in counterparty transactions in international trading,” Fitch said.

The sanctions hit Russian markets hard, denting the rouble and sending shares in four publicly listed companies with links to those sanctioned plummeting both in Russia and elsewhere: Rusal , EN+ Group, GAZ group, GAZA. and Polyus.

Fitch said it stopped rating Rusal and EN+ Group, describing the latest round of sanctions as “the most significant affecting Russian corporates” since 2014 when the West first imposed sanctions against Russia for the annexation of Crimea and Moscow’s role in the Ukrainian crisis.

According to Reuters calculations, three Russian tycoons targeted by a new list of U.S. sanctions may have lost a combined $7.5 billion in less than a week since the list was announced.

Fitch noted Russia’s strong external balance sheet, saying it means Russia is well positioned to meet forex needs from other parts of the economy, while the free-floating rouble provides a shock absorber, something that was not available in 2014.

“However, uncertainty stemming from the sanctions and their possible extension could deter investment and thereby undermine potential economic growth,” Fitch said.

This year, the economy is on track to grow by up to two percent, the central bank forecast, after expanding by 1.5 percent in 2017.

Fitch revised Russia’s sovereign rating outlook to positive from stable in September and said the rating itself would be one notch higher than its current BBB- level if not the U.S. sanctions.

(Reporting by Andrey Ostroukh; Editing by Richard Balmforth)

Long-awaited U.S. Republican legislation calls for deep tax cuts

A congressional aide places a placard on a podium for the House Republican's legislation to overhaul the tax code on Capitol Hill.

By David Morgan and Amanda Becker

WASHINGTON (Reuters) – President Donald Trump’s drive for the deep tax cuts that he promised as a candidate reached a major milestone on Thursday, with his fellow Republicans in the House of Representatives unveiling long-awaited legislation to overhaul the tax code.

The bill called for slashing the corporate tax rate to 20 percent from 35 percent and cutting tax rates on individuals and families by consolidating the current number of tax brackets to four from seven: 12 percent, 25 percent, 35 percent and 39.6 percent, which is now the top rate and would be retained.

Largely in line with expectations for the tax-cut plan they have been developing behind closed doors for weeks, the House tax-writing Ways and Means Committee proposed roughly doubling the standard deduction for individuals and families.

It also called for preserving the home mortgage interest deduction for existing mortgages and for newly purchased homes up to $500,000, as well as continuing the deduction for state and local property taxes, capped at $10,000. It would retain the tax benefits of popular retirement savings programs including 401(k) and IRA.

The bill is the starting gun for a frantic race toward what Trump and Republicans in the House and Senate hope will be their first major legislative victory since he took office in January: the enactment this year of a package of deep tax cuts.

“This is the beginning of the end of this horrible tax code,” House Ways and Means Committee Chairman Brady told reporters on Thursday as he entered a meeting with Republican lawmakers ahead of the bill’s release.

The bill would create a new family tax credit, double exemptions for estate taxes on inherited assets and repeal the estate tax over six years, while also allowing small businesses to write off loan interest, according to the document.

The bill would cap the maximum tax rate on small businesses and other non-corporate enterprises at 25 percent, down from the present maximum rate on “pass-through” income of 39.6 percent. It would also set standards for distinguishing between individual wage income and actual pass-through business income to prevent tax-avoidance abuse of the new, lower tax level.

It would create a new 10-percent tax on U.S. companies’ high-profit foreign subsidiaries, calculated on a global basis, in a move to prevent companies from moving profits overseas, the Wall Street Journal reported.

Foreign businesses operating in the United States would face a tax of up to 20 percent on payments they make overseas from their American operations, the Journal added.

 

MARKET REACTION

U.S. equities have rallied in 2017 to a series of record highs, partly on expectations of deep corporate tax cuts. They were down slightly on Thursday as initial details of the Republican plan emerged. Housing stocks fell; bank stocks initially fell but then cut their losses.

Investors cautioned the tax plan was preliminary and it was too soon to gauge the effect on specific industries and asset classes. Long-dated bond yields and the U.S. dollar were down.

“This was what the market has been waiting for,” said Sean Simko, head of fixed-income management at Sei Investments Co in Pennsylvania. “It’s pretty much what the market has heard and priced in for. We are also waiting for the Fed chair nominee announcement and the payrolls number (Friday). Until then, the markets are going to be pretty contained.”

Congress has not succeeded with comprehensive tax changes since 1986, when Republican Ronald Reagan was in the White House and Democrats controlled the House. Bipartisan cooperation led to the passage of that plan, but Republicans have frozen Democrats out of the process of developing this legislation and passed a budget plan that would enable them to pass it with no Democratic votes.

Independent analysts have said that, based on an outline of the plan previously made public, corporations and the wealthiest Americans would benefit the most, and the federal deficit would be greatly expanded over the next decade because of a loss of tax revenue.

Trump said at the White House this week that he wanted Congress to pass the tax overhaul by the U.S. Thanksgiving holiday on Nov. 23.

Trump, House Republican leaders and Republican members of Brady’s panel will then meet at the White House on Thursday afternoon. Trump is also meeting separately with Republican senators, who must also unite to pass the tax plan.

“We’re going to get it done,” added House Republican leader Kevin McCarthy.

Brady himself predicts the initial legislation will change next week, when his panel is due to begin preparing it for an eventual House vote.

While Republicans control the White House and both chambers of Congress, intra-party differences have prevented them from passing major legislation sought by Trump, as exemplified by the collapse of their effort to dismantle the Obamacare law. Any failure to pass tax cuts legislation would call into question Republicans’ basic ability to deliver on promises.

The bill must also pass the Senate, where Republicans hold a slimmer 52-48 majority and earlier this year failed to garner enough votes to pass a major healthcare overhaul. Senate Republican leaders have said they aim to finish their work on taxes by year-end.

Democrats have criticized the proposed tax cuts as a giveaway to corporations and the wealthy that would harm workers and middle-class Americans.

 

 

(Reporting by Amanda Becker and David Morgan; Additional reporting by Richard Leong, Susan Heavey and Susan Cornwell; Writing by Will Dunham; Editing by Lisa Von Ahn and Nick Zieminski)

 

As sanctions bite, North Korean workers leave Chinese border hub

: A North Korean waitress cleans the floor of a North Korean restaurant in Dandong, Liaoning province, China, September 12, 2016. REUTERS/Thomas Peter/File Photo

By Philip Wen

DANDONG, China (Reuters) – North Korean workers have begun to leave the Chinese border city of Dandong, following the latest round of sanctions seeking to restrict Pyongyang’s ability to earn foreign currency income, local businesses and traders say.

Almost 100,000 overseas workers, based predominantly in China and Russia, funnel some $500 million in wages a year to help finance the North Korean regime, the U.S. government says.

Dandong, a city of 800,000 along the Yalu river that defines the border with North Korea, is home to many restaurants and hotels that hire North Korean waitresses and musicians. Their colorful song and dance performances are a tourist attraction.

Thousands of predominantly female workers are also employed by Chinese-owned garment and electronics factories in Dandong, with a significant proportion of their wages going straight to the North Korean state.

The Wing Cafe used to advertise its “beautiful North Korean” waitresses on its shopfront by the Yalu. The sign is now gone, and cafe staff said the waitresses had returned home in recent weeks after their visas expired.

“There have been changes in government policy,” the manager of another restaurant said. “It’s not convenient to say more.”

Recent videos circulating on Chinese social media appear to show hundreds of North Korean women waiting in line to clear immigration at Dandong’s border gate. A Reuters reporter saw a group of around 50 North Korean women waiting to cross the border on Friday morning.

 

HARDER TO SMUGGLE, TOO

Four traders, who deal in goods ranging from iron ore and seafood to ginseng and alcohol, told Reuters the sanctions had all but crippled the usual trade.

More stringent customs checks and patrols by Chinese border police have also made it harder to smuggle goods across the border, according to the traders, who declined to be named due to the subject’s sensitivity.

“The impact has been huge. Dandong’s economy has always counted on border trade,” said one Chinese trader.

In response to Pyongyang’s sixth and largest nuclear test last month, the U.N. Security Council on Sept. 11 passed a resolution prohibiting the use of North Korean workers, strengthening an Aug. 5 resolution that put a cap on the number of workers allowed overseas.

Successive rounds of U.N. trade sanctions have now banned 90 percent of the North’s $2.7 billion of publicly reported exports.

The Sept. 11 sanctions also ordered the closure of all joint business ventures with North Korea and added textiles to a list of banned exports, which already included coal, iron ore and seafood.

In a statement on Thursday, China’s Ministry of Commerce ordered the implementation of the new sanctions across the country within 120 days.

 

FORCED TO LEAVE

The sanctions allow workers to serve out existing contracts. Business people in Dandong, through which most of trade between the two countries flows, said contracts could not be renewed and new visas were not being approved.

A Chinese supervisor at a factory making electronic wiring for automobiles said while most of its 300 North Korean workers were on multi-year contracts expiring at different times, those who arrived in Dandong after Aug. 5 had already been forced to leave. He did not say how many.

The sanctions have come as a rude jolt to Dandong businesses and traders who had long rolled with North Korea’s unpredictability but believed their neighbor’s economic reliance on China would keep its belligerence in check.

Dandong is one of the larger cities in Liaoning province, whose rustbelt economy has struggled under national campaigns to curb industrial overcapacity and ease pollution. Liaoning was China’s worst performer in the first half of 2017, registering GDP growth of 2.1 percent, compared with the national rate of 6.9 per cent, according to official statistics.

“The economy hasn’t been doing well here for the past two years,” said one trader. “This is making a bad situation worse.”

 

(Reporting by Philip Wen; Editing by Bill Tarrant)

 

Turkey takes control of nearly 1,000 companies since failed coup: deputy PM

Supporters of Turkish President Tayyip Erdogan wave national flags during a trial of soldiers accused of attempting to assassinate Erdogan on the night of the failed July 15 coup, in Mugla, Turkey, March 8, 2017. REUTERS/Kenan Gurbuz

ISTANBUL (Reuters) – Turkish authorities have seized or appointed an administrator to 965 companies with total annual sales of some 21.9 billion lira ($6 billion) in the year since an attempted coup in July 2016, Deputy Prime Minister Nurettin Canikli said on Friday.

Under the emergency rule imposed after the coup, Turkish authorities took control of companies suspected of having links to followers of Fethullah Gulen, the U.S.-based Muslim cleric blamed by Ankara for the failed military takeover.

The 965 companies under state management control, based in 43 provinces across Turkey, have assets totaling some 41 billion lira ($11.3 billion) and employ 46,357 people, Canikli said in a written statement.

Turkey took control of a bank, industrial companies and media firms as part of the crackdown on companies accused of links to Gulen. He has denied involvement in the putsch.

Apart from the business crackdown, Turkey has jailed more than 50,000 people pending trial and suspended or dismissed some 150,000, including soldiers, police officers, teachers and civil servants, over alleged links with terrorist groups.

The purge has alarmed Turkey’s Western allies and human rights groups, who say President Tayyip Eroding is using the coup as a pretext to muzzle dissent, a charge he denies.

Ten people including Amnesty International’s Turkey director and other rights activists were detained this week on suspicion of membership of a terrorist organization, Amnesty said on Thursday, in what it called a “grotesque abuse of power”.

The government has said the security measures are necessary because of the gravity of the threats facing Turkey, which is also battling Kurdish and Islamist militants. More than 240 people were killed in last year’s coup attempt.

(Reporting by Ebru Tuncay; Writing by Daren Butler; Editing by Gareth Jones)