US-MEXICO GEOPOLITICAL ENVIRONMENT UNDER PRESIDENT TRUMP ECONOMIC, BUSINESS AND LEGAL ASPECTS

Transcription

1 US-MEXICO GEOPOLITICAL ENVIRONMENT UNDER PRESIDENT TRUMP ECONOMIC, BUSINESS AND LEGAL ASPECTS

2 MÉXICO AND THE U.S. GOOD FRIENDS? Mexico and the U.S. have enjoyed a mutually beneficial relationship for several decades, spanning across economic, social, cultural, environmental, political and military/law enforcement aspects.

3 TRADE AND INVESTMENT IS IT A ONE-SIDED RELATIONSHIP? The U.S. and Mexico are strategic trade partners with $1.5 billion worth of goods and services crossing the border every day. Mexico is the secondlargest export market (after Canada) and third-largest trading partner with the U.S. (after China and Canada). Mexican foreign direct investment in the U.S. has nearly doubled since Source: Forbes, U.S. Department of State

4 TRADE AND INVESTMENT IS IT A ONE-SIDED RELATIONSHIP? In 2013 Mexican tourists to the U.S. were over 14 million (vs. 20 million U.S. to Mexico). In 2015, the largest share of business travelers and tourists to the U.S. were Mexicans. The U.S. government issued 4,000 investor visas to Mexican citizens in the third most in the world (after Japan and Germany). Source: Forbes, U.S. Department of State

5 The economic relationship with Mexico, though not without its challenges, provides concrete benefits, strengthening the competitiveness of American Firms, creating jobs in the United States, and generating savings for the average American family. -Woodrow Wilson International Center for Scholars

6 INDUSTRY AND MARKET INTERDEPENDENCY VALUE CHAIN MANUFACTURING Mexico and the U.S. have developed an efficient regional system of production supply chains with materials and know-how flowing back and forth as products are built. This allows the two countries to effectively combine their individual advantages and have mutual benefits. Joint production: In 2011, Mexican industries consumed $140 billion in U.S. intermediate goods, and U.S. industries consumed $111 billion dollars worth of Mexican inputs. Source: Forbes

7 PROTECTIONISM VS. MAXIMIZING VALUE Cost effectiveness (foreign sourcing reduces costs as much as 80%) Decreased operating capital and cash flow More regulations (in foreign countries, government have implemented incentives to attract companies) Higher price for consumers, which would lead to less profits for the company. BORDER TAX IMPLICATIONS FOR U.S. CONSUMERS The companies that import would have to either bear the new tax (which is unlikely) or pass the cost onto consumers (higher prices). Section B, Article 302 of NAFTA. Tariff Elimination. Except as otherwise provided in this Agreement, no Party may increase any existing customs duty, or adopt any customs duty, on an originating good. Source: The Balance

8 ARE U.S. JOBS BEING SHIPPED ABROAD? Nearly 5 million U.S. jobs depend on trade with Mexico. Business supported by Mexican FDI in the U.S. employ more than 123,000 people. Source: The Athlantic and Forbes

9 ARE U.S. JOBS BEING SHIPPED ABROAD? Jobs outsourced abroad are mostly low skill labor. The average Mexican auto worker earns 10% of its U.S. counterpart. Trade pushes the structure toward higher-skilled service jobs : U.S. manufacturing job cuts were caused by productivity increases, only 13% were linked to trade. Source: The Atlantic, Forbes, Wilson Center and the Business Insider

10 US firms that have greater sales, hire more workers, spend more on R&D, export more goods, and invest more capital in Mexico also have greater sales, hire more workers, spend more on R&D, export more goods, and invest more capital in the United States. [Offshoring to Mexico] exerts a net positive force on the domestic operations of US firms. -Peterson Institute for International Economics

11 A 10% INCREASE IN MEXICAN EMPLOYMENT BY U.S. MNC S (131 JOBS) LEADS TO: Workforce The creation of 333 U.S. jobs Exports A 1.7% increase in exports from the U.S. Strategic Investment A 4.1% increase in U.S. R&D spending. The jobs created in the U.S. due to these, require higher skill levels, reinforcing the need for worker training to qualify for higher-paying positions. Source: Peterson Institute for International Economics

12 US INVESTMENT IN MEXICO Essential indicators Historically, the U.S. has been the main source of FDI in Mexico. Here are the main reasons why: It provides national treatment for most foreign investment Reduction of administrative bureaucracy Legal limits for foreign investments have been reduced Energy reform will open investment opportunities for American energy and service infrastructure companies that seek new energy markets Although most taxes in Mexico are federal, states have begun developing programs for attracting industry Nuevo Leon, Coahuila, Chihuahua and Tamaulipas have signed an agreement with the state of Texas to facilitate regional economic development and integration. Source: Forbes

13 NAFTA Still relevant? Changes needed Exit mechanisms

14 IS NAFTA STILL RELEVANT TO THE CURRENT INTERNATIONAL ENVIRONMENT? It links 450 million people, which is the population of all the members of NAFTA Its members generate $20.8 trillion, as measured by gross domestic product. U.S. With $18.8 trillion, Canada with $1.67 trillion and Mexico $2.3 trillion. U.S. foreign direct investment (FDI) in Mexico (stock) was $92.8 billion in 2015 and Mexico's FDI in the United States (stock) was $16.6 billion in Sales of services in Mexico by majority U.S.-owned affiliates were $45.9 billion in 2014 (latest data available), while sales of services in the United States by majority Mexico-owned firms were $8.5 billion Food imports totaled $39.4 billion in 2013, up from $28.9 billion in Between , the United States increased its exports of godos from $142 billion to $517 billion.

15 IS NAFTA STILL RELEVANT TO THE CURRENT INTERNATIONAL ENVIRONMENT? What do the numbers mean? Lowered food prices. Three industries benefited the most: agriculture, automotive, and services (health care and financial services). Foreign investment. Lowered costs and final price for consumers. Source: Forbes

16 WHAT CHANGES TO NAFTA WOULD BE MUTUALLY BENEFICIAL FOR THE REGION?

17 WHAT CHANGES TO NAFTA WOULD BE MUTUALLY BENEFICIAL FOR THE REGION? Rules of origin E-commerce, cybercrime and data protection Environmental issues Labor rights Border security Regulatory simplification

18 MECHANISMS TO EXIT OR AMEND NAFTA UNDER INTERNATIONAL AND U.S. DOMESTIC LAW? Article 2205: Withdrawal. A Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties. Section 125 of the Trade Act of 1974 NAFTA was approved by Congress (CEA). Congress implemented NAFTA s provisions by enacting various internal legislation

19 MECHANISMS TO EXIT OR AMEND NAFTA UNDER INTERNATIONAL AND U.S. DOMESTIC LAW? No clear rule requiring congressional approval means POTUS could terminate a Congressional Executive Agreement (CEA), BUT Political issues NAFTA was approved by the Congress, can/should Congress be ignored in terminating it? Even if NAFTA terminated, there would be internal laws that would remain in force and Mexico and Canada would not be obliged to grant preferential treatment to U.S. products. Constitutional Commerce Clause: only Congress can change tariff, tax and customs laws.

20 TRADE AND INVESTMENT IN THE TRUMP ERA

21 TRADE AND INVESTMENT IN THE TRUMP ERA Renegotiation of Trade Agreements Shift in trade decision-making to the White House Increase in Import Duties / BAT - Some researchers predict that BAT would cause the U.S. dollar to appreciate, which would reduce the value of the U.S. companies foreign currency denominated assets and earnings. Economic Sanctions and Embargos

22 TRADE AND INVESTMENT IN THE TRUMP ERA Corporate welfare strategy. Rising prices, diminishing competition and slowing innovation. Stock market risks. Taxing of remittances. Enforcement efforts may decline Corporate Governance Deregulation, board members and senior executives bear a heightened responsibility

23 CHANGES IN REGULATION Antitrust New balance in enforcement positions Trump is very unpredictable (based on his history and his campaign rhetoric) Traditional Republican caution in non-cartel cases with some potentially unpredictable aggressive enforcement decisions. Administrative Law Two possible prospects for administrative law under Trump: Bipartisan retrenchment: Liberals and conservatives in the Supreme Court could form a new coalition to limit executive powers. Liberals are likely to become critical of Trump, while conservative lawyers may now make peace with the president s powers.

24 LEGAL PRACTICES THAT MAY EXPERIENCE GROWTH Domestic Project finance market: Due to Trump campaign s statements objecting against the flow of funds and investment to other countries. Banking Groups: Trump s policies will deregulate the banking and finance sectors, sectors which, on the stock market, have already responded with a significant jump in value. Real Estate: The development of infrastructure is intimately tied to the development of other real estate FCPA: Trump has placed a strong emphasis both on rooting out corruption and the stifling of outbound investment Cybersecurity and Data Privacy Counseling and Litigation: High profile intrusions into both government and private networks compromising the personal information Healthcare: Replacement of Obamacare Antitrust, M&A: Trump has threatened to pause deals Immigration: Deportations, work visas

25 M&A - Record in Unpredictable but active in 2016 Dealmakers need to pay attention to: - Economic trends - Legal developments - How business community react to these events. Relevant factors: - Financing, Buy American, Antitrust Climate, Tax Reform What to expect for the 2017 M&A Market? - Signs are pointing toward continued robust levels of M&A activity - More deals for companies with $5 million to $100 million revenue

26 CLAUSES IN INTERNATIONAL CONTRACTS Changes in law Exchange rate mechanisms Cots-plus consideration structures Exit options Compliance with the law / FCPA ADR

27 THANK YOU!

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