Business and Finance

SHANGHAI

Europe’s sovereign debt crisis and the aftershocks of events such as the Japan earthquake and Arab Spring are expected to slow the growth in global exports to just 3.7 percent in 2012, the World Trade Organization said Thursday.

That comes after a slowdown to 5 percent in 2011 and 13.8 percent in 2010, the global trade body said in its annual report. The figures represent the total volume of merchandise exported across borders, accounting for changes in prices and exchange rates.

“More than three years have passed since the trade collapse of 2008-09, but the world economy and trade remain fragile,” WTO chief Pascal Lamy said. “The further slowing of trade expected in 2012 shows that the downside risks remain high. We are not yet out of the woods.”

The global forecasts are remain uncertain due to potential volatility caused by the eurozone crisis, U.S. debt concerns, economic aftershocks of the Japan earthquake and nuclear crisis, flooding in Thailand and the impact of continuing political unrest in the oil-rich Middle East.

The slowdown in 2012 would bring trade growth below the world average rate of 5.4 percent over the last 20 years, the WTO said. Developing economies are expected to lead the growth in goods traded this year with a forecast 5.6 percent increase in exports, compared to 2 percent for industrialized nations.

The forecast assumes a global output growth of 2.1 percent, down from 2.4 percent last year.

Lamy warned that protectionism could rise among governments grappling with the slow trade growth.

“The WTO has so far deterred economic nationalism, but the sluggish pace of recovery raises concerns that a steady trickle of restrictive trade measures could gradually undermine the benefits of trade openness,” he said.

In 2013, the growth rate is expected to recover slightly again to 5.6 percent, the organization forecast. This was the first time the WTO predicted a growth rate more than a year in advance.

Last year, developed countries did a bit better than expected, while the U.S. became a net exporter of fuels in large part because of coal exports to Japan, WTO officials said.

The U.S. saw exports grow 7.2 percent in 2011 after a rise of 15.4 percent the year before. The European Union saw exports grow 5.2 percent in 2011 after a rise of 11.5 percent the year before.

Japan’s exports contracted by 0.5 percent, a sharp turnaround from its 27.5 percent rise in exports the year before, which had made up for the sharp 24.9 percent decline in 2009.

China, the world’s biggest exporter, saw its growth in exports slow to 9.3 percent in 2011 after a surge of 28.4 percent the year before.

Measured in dollar terms, the total value of merchandise traded in 2011 was $18.2 trillion, a jump of 19 percent and an all-time global record driven by rising prices for fuels and other commodities.

The WTO, however, bases it forecast for growth rates on the volume of merchandise, since prices are difficult to predict.

The 2010 rate of 13.8 percent represented a slight downward revision to last year’s reported figure of 14.5 percent _ the biggest rise recorded since 1950 _ based on more recent and complete data showing how economies rebounded from the global downturn.

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A potential $4.3 billion deal between the Boeing’s defense unit and the Brazilian government that has bounced on and off the table for years is back in play.

And a Boeing Co. official said this week that the company expects to learn by June if it finished atop the process that has pitted aerospace makers from three nations in a bid to supply state-of-the-art fighter jets to the Brazilian Air Force.

Tom DeWald, the regional director for Latin American business development is optimistic that Boeing will prevail.

“There’s no question the Air Force down there loves our product,” he said.

Missouri Gov. Jay Nixon is expected to remind Brazilian officials of that fact when he visits the country on a trade mission later this month.

Should Boeing capture the bid, Brazil would eventually take possession of 36 F/A-18 Super Hornets along with a wealth of spare parts and other materials.

The Super Hornets would be designated “FX-2” fighter jets by the Brazilian Air Force.

The French aircraft manufacturer Dassault Aviation and Sweden’s Saab Defence and Security are the other two bidders.

DeWald said Brazil initially broached the prospect of replacing an already aging fleet of Dassault Mirage fighters in the mid-1990s.

An initial request for bids wasn’t floated until shortly after the turn of the 21st century.

After years of political wrangling, the arms sale competition re-surfaced in 2009 with Boeing, Dassault and Saab as the finalists.

For a country that last engaged in meaningful conflict on its own soil over a century ago, the move to bolster its Air Force has more to do with acquiring technology than adding firepower.

“The end game is for Brazil to develop their own abilities to produce, train, and maintain defensive aircraft systems from what they learn by purchasing these foreign aircraft. In essence, they want to create a South American defense industry base,” Michael Blades, senior aerospace industrial analyst with Frost & Sullivan in San Antonio, wrote in an email response to questions about the Boeing deal.

In a 2010 white paper prepared for the Brookings Institution, foreign policy analyst Kevin Casas-Zamora criticized the uptick in the purchases of military hardware by Brazil and other South American nations.

“The absolute increase in military expenditure, and of acquisitions in particular, hinders the region’s economic and political development. Even the security benefits of such expenditures are debatable at best,” Casas-Zamora wrote.

A deal would, however, bode well for the thousands of local employees of the Boeing Defense, Space and Security unit who build that fighter jet, not to mention countless suppliers here and throughout the U.S.

The company’s 2010 contract to supply 124 fighters to the U.S. Navy is expected to wind down around mid-decade. Likewise, the clock is ticking on a 2011 pact to provide 84 military aircraft to Saudi Arabia. Production on the Saudi contract could run through 2020 if not beyond.

But looming Pentagon budget cuts and the Pentagon’s shift toward unmanned aircraft darken the long-term prospects for continued fighter production in Hazelwood.

For those reasons alone, Blades says much rests on Boeing’s ability to wrest the contract with Brazil.

“If they don’t take advantage of foreign military sales avenues that are open to them they are facing limited growth,” he said. “And if they let other companies like Dassault or Saab (in the case of the Super Hornet) make sales to countries like Brazil not only do they lose growth prospects they strengthen those foreign competitors.”

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Less than two years after tightening some financial regulations in the Dodd-Frank Act, Congress appears ready to loosen others in the name of job creation.

The Jumpstart Our Business Startups bill – known as JOBS, of course – would reduce the red tape involved in making an initial public stock offering, and make it legal for businesses to solicit investors over social media, a process known as crowdfunding.

The bill also would roll back some longstanding investor protections. The Securities and Exchange Commission, AARP, the AFL-CIO and the Consumer Federation of America have all expressed concerns that the bill will lead to a surge in investment fraud.

The North American Securities Administrators Association, a group of state regulators, calls the bill “an investor protection disaster waiting to happen.” The group’s president, Nebraska official Jack Herstein, said in a statement that the JOBS bill creates “new jobs for promoters of Internet investment scams.”

Tossing such warnings aside, Senate passed JOBS Thursday on a 73-26 vote, following an even more lopsided approval in the House. (The bills differ slightly, so another House vote is necessary. President Barack Obama has said he’ll sign the legislation.)

The hope is that, freed of red tape, entrepreneurs will find it much easier to raise money and hire people. It’s tough to be against a jobs bill in an election year.

What happens, though, if the critics are right and there’s an increase in fraud? If investors lose faith in the capital markets, companies will find it harder, not easier, to raise money.

“Investors won’t return to the IPO market if they don’t believe they can trust it,” SEC Commissioner Luis Aguilar says in a statement on the agency’s website. He also calls the legislation “a boon to boiler room operators, Ponzi schemers, bucket shops, and garden variety fraudsters.”

The bill would create a new class of “emerging growth companies” that wouldn’t have to follow certain rules. They’d get a five-year reprieve, for example, from the need to have an audit of their internal controls.

The most eagerly anticipated part of the bill involves crowdfunding, a concept that sites like Kickstarter have used to raise money for art projects and other nonprofit causes.

Advocates say crowdfunding could be a big new source of capital for new businesses.

“The majority of Americans have been excluded from the opportunity to participate in the startup community,” says Clifford Holekamp, a lecturer in entrepreneurship at Washington University’s Olin School of Business. “It really democratizes the process of equity investing. This is a cultural shift that’s really exciting.”

Those novice mini-angel investors will be operating, however, with only a thin layer of protection. The Senate version of JOBS requires crowdfunding platforms to register with the SEC, but no regulator would vet the offerings themselves.

They’d be exempt from states’ registration requirements, and that’s what bothers Robin Carnahan, the Missouri Secretary of State.

“I’m a fan of crowdfunding,” she said. “It’s important to give small businesses access to new funding opportunities, but we need to do it in a measured and responsible way.”

Her office will watch crowdfunding deals for signs of fraud, she says, but unfortunately, it’s hard to get your money back from a scam artist. A wiser course would have been to combine this new form of investing with the upfront protection that people have come to expect in America’s financial markets.

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The price of oil is lower Wednesday, after the government reported that supplies rose last week, as analysts expected.

Gasoline pump prices continued to climb, rising to a national average of $3.811 per gallon.

Benchmark crude fell by 61 cents to $106.10 per barrel in New York. Brent crude, used to price oil imported by U.S. refineries, fell 6 cents to $126.16 per barrel in London.

The Energy Department said that supplies increased by 1.8 million barrels last week payday advance lenders. Gasoline supplies fell by 1.4 million barrels as refineries sold off remaining stockpiles of winter gasoline blends. Supply levels were near analysts’ estimates.

The government also says energy demand remains weak. Demand dropped 5.4 percent for oil and 7.2 percent for gasoline compared with the same week last year.

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WASHINGTON • U.S. service companies expanded in February at the fastest pace in a year, helped by a rise in new orders and job growth.

The Institute for Supply Management said Monday that its index of nonmanufacturing activity rose to 57.3, up from January’s 56.8 and the third straight increase. Any reading above 50 indicates expansion.

Expansion in the service sector coincides with the lowest unemployment in three years, five straight months of solid to strong job growth and rising consumer confidence.

The trade group of purchasing managers surveys roughly 90 percent of U.S. companies in all sectors outside of manufacturing. That includes retail, construction, financial services, health care and hotels.

Fourteen of the 18 industries that the survey tracks expanded in February. Real estate, rental and leasing, transportation and warehousing, construction, hotels and restaurants, and information technology firms were among those that reported growth.

Anthony Nieves, chairman of the ISM’s survey committee, said that most of the comments from the group’s members “reflect a growing level of optimism about business conditions and the overall economy.”

Companies expressed concerns about inflation and rising gas prices, Nieves said. A measure of prices paid by service firms jumped to the highest level in 11 months.

Still, the overall reading for the sector was the best since February 2011.

“February seems to be off to a strong start for the economy,” John Ryding, an economist at RDQ Economics, said in a note to clients. “The pickup in order growth was particularly encouraging,” he added, because it indicates that growth will likely continue.

A separate report showed factory orders fell 1 percent in January, the biggest decline in 15 months. Businesses sharply reduced orders for machinery, equipment and other so-called core capital goods, the Commerce Department said.

The decrease was largely expected after a tax cut expired at the end of last year. Even with the decline, orders have gradually been climbing back to near pre-recession levels.

Demand for services should continue to rise, according to the ISM report. A measure of new orders reached its highest point in a year.

The group’s employment index declined from its highest reading in six years. Still, it stayed at a level that suggests many service companies are adding workers.

That confirms other data that show service companies have stepped up hiring. The government said last month that service firms added 176,000 jobs in January, the most in four months.

On Friday the government issues its February jobs report. Economists expect another big month of job gains; the latest forecast predicts 210,000 total net jobs were added last month, according to a survey by FactSet.

Big job gains at service firms are necessary to reduce unemployment. Factories are creating a lot of new jobs, but the sector isn’t large enough to employ that many people.

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Congress is getting ready for another round of sparring over whether to extend the 2 percentage point payroll tax cut past its Feb. 29 expiration. Consider it a warm-up for the main event later this year, likely after the November election.

The Bush tax cuts are set to expire at the end of 2012. If Congress does nothing, most people who work and lots of people who don’t will see higher taxes starting Jan. 1.

The fight to come has sky-high stakes - a possible tax increase of over $200 billion a year imposed on an economy that may still be struggling for traction. Come November, voters will have their chance to swing the outcome.

The wealthy have the most at risk. For instance, the estate tax will be much higher for people who die after New Years Eve.

Now, estates up to $5 million are exempt from the estate tax, also known as the death tax. That exemption drops to $1 million next year. The top tax rate on estates would jump to 55 percent from 35 percent.

“This is insanity. There are 70 tax code items that expired last Dec. 31 and 38 more that expire at the end of this year. The future of all these items is up to the lame duck Congress and it’s anybody’s guess what will happen,” said Dan Connors, an enrolled agent at the Buenger Doyle Tax Service in Granite City.

President George W. Bush and Congress gave the vast majority of wage-earners a break when they trimmed tax rates across the board in 2001 and 2003.

Everybody who actually pays income taxes benefited when the bottom tax bracket was cut to 10 percent from 15 percent. But higher brackets were cut as well. As a result, the higher a person’s income, and the more they gain from investments, the more dollars they saved on taxes. The top bracket, for couples earning more than $388,000, fell to 35 percent from 39.6 percent.

Taxes on dividends and capital gains were cut too, to a maximum of 15 percent. If the cuts expire, the rate on capital gains will go to 20 percent, while dividends will be taxed as ordinary income.

A couple with a child earning $60,000 from wages saves about $1,000 under the Bush tax cuts, according to a calculator supplied by the Tax Foundation. A couple earning $300,000, with $20,000 of that in investment income, saves $6,800. A couple earning $1 million, with $200,000 from investments, saves about $71,000.

But the poor will also lose if all the tax cuts expire. The earned income tax credit for the working poor will become less generous. The $1,000 child tax credit would be cut in half, and people who owe no taxes would no longer get a refund check because of it.

If the deadline draws close with no action, expect some churning in the financial markets. Dividend stocks have been the most popular investments on Wall Street for most of the past year as investors yearn for yield. Higher dividend taxes would subtract some appeal.

People with big capital gains on stocks would be tempted to sell them late this year to avoid the tax hike.

For now, tax advisers are telling their clients to sit tight and watch closely.

“Both parties know that the worst possible outcome would be for the Bush tax cuts to completely go away,” said Bob Jones, CEO of Central Trust in Clayton.

Taxes will be a campaign issue, but the betting is that serious bargaining will wait until after the election.

The major Republican presidential candidates would generally extend the Bush cuts, and then some. Mitt Romney would kill the estate tax and eliminate taxes on investment income for most investors.

Newt Gingrich would give taxpayers a choice of paying under the current system or at a new 15 percent tax rate. Rick Santorum would lower income tax rates further and triple the exemption for children.

President Barack Obama would preserve the Bush tax cuts only for families earning less than $250,000, while adding new taxes on people earning $1 million or more.

The debate will feel like “groundhog day all over again,” says Mark Luscombe, principal analyst at CCH, a tax analysis and software company. The Bush cuts were originally to expire in January of last year, when the recession was biting deeper, but Congress and Obama agreed to extend the cuts for two years.

If re-elected, Obama won’t agree to another punt, Luscombe predicts. After all, he doesn’t have to run again. If there is no agreement, all the Bush tax cuts would disappear on Jan. 1.

“This could be the last year of relatively low tax rates,” says Luscombe.

Todd Sivia, an estate planning attorney in Edwardsville, thinks heirs to large estates are at risk, given the government’s projected $1.1 trillion deficit this year.

“History shows that, when we’re deep in debt, we always re-establish the estate tax and it comes back with a vengeance,” Sivia says.

Lawyers have long experience in avoiding or delaying the estate tax. Tactics include gifts and establishing trusts to move assets between generations.

Sivia notes that higher estate taxes could turn grandparents more generous, as they try to pass on more of their wealth through gifts while living.

The prospect of higher income tax rates could motivate people who have been thinking of converting a regular IRA into a Roth IRA. Such conversions mean paying taxes on the IRA now, in trade for tax-free growth in a Roth. They can be a good move for people with many years to retirement.

Upper income people are due for a tax hike anyway, regardless of whether the Bush cuts are extended. The health care reform law of 2010 established a “Medicare surtax” that takes effect next year, notes Bert Schweizer, principal at Buckingham Asset Management in Clayton.

The complex tax applies to singles earning over $200,000 and $250,000 for married couples.

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European financial chiefs are trying to soothe global CEOs and political leaders, insisting they have a handle on the eurozone’s troubles.

Germany’s Finance Minister Wolfgang Schaeuble says he’s “quite optimistic” about a Greek debt restructuring deal, despite recent strains in the complex talks. He says he doesn’t expect Greece to default.

He stressed that recent developments in markets have been “positive” for Italy and Spain.

France’s Finance Minister Francois Baroin welcomed actions by the European Central Bank that he says have helped “reduce tensions in the European banking system payday loans.”

Both spoke Friday at the World Economic Forum in the Swiss ski resort of Davos, where many business and political VIPs fear that Europe’s debt crisis will drag the global economy into a new recession.

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OPEC’s acting president said the producer group should stay out of political battles, Iran’s official IRNA news agency reported Sunday, an apparent bid by the bloc to steer clear of a potential showdown between Tehran and the U.S. over threats to close the vital Strait of Hormuz.

Iraqi Oil Minister Abdul-Karim Elaibi said that while Iran’s “enemies” have imposed various sanctions on the Islamic Republic, the 12-nation Organization of the Petroleum Exporting Countries’ main focus should be protecting its members’ interest and not being dragged into a political struggle over oil.

Elaibi, who is also OPEC’s current president, last week said he was going to Tehran to warn against closing the strait, through which about a sixth of the world’s crude flows daily. IRNA did not say whether the tension over the waterway was raised during the oil minister’s meetings with officials.

Instead, the language reflected the warmer relations between Iran and Iraq since a U.S.-led coalition had ousted former strongman Saddam Hussein in 2003. The Shiite government in Baghdad is seen as increasingly close to Tehran, and Iran is investing heavily in Iraq.

Iran has warned repeatedly it would choke off the strait if sanctions affect its oil sales. The U.S. has enacted, but not yet put into force, sanctions targeting Iran’s central bank and, by extension, the country’s ability to be paid for its oil. The European Union, a major buyer of Iranian oil, is considering sanctions on Iranian crude.

The tension over the strait and the potential impact it would have not only on global oil supplies, but also the price of crude and the economies of the countries that buy Iranian oil, have weighed heavily on consumers and traders credit reports free.

Gulf nations have offered assurances that they would step in and provide any additional crude needed by the global market. Iran interpreted the offer as an attempt to undercut it and issued a quick warning to the Gulf Arab producers to not try to offset its exports with their own.

Elaibi’s remarks appear to be an attempt to pull the producer bloc out of the political fray, but they also reflect the uneasy balance Iraq faces.

Iraq exports most of its crude through the strait, and any attempt to shut the waterway could be a severe blow to its economy. At the same time, it appears reluctant to come across as being too harsh on its neighbor, in part because of the investments Iran provides and its ideological weight as the region’s strongest Shiite government.

His visit to Tehran came just days before Iraq inaugurates a new oil export outlet in the Gulf with a capacity of up to 900,000 barrels a day. It would be the first of five floating facilities that would eventually handle about 5 million barrels a day.

The new outlet will help Iraq, limited now by infrastructure bottlenecks, to export more oil.

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The European Central Bank