Coronavirus|COVID-19: Implications to Commercial and Financial Contracts Under the Brazilian Legal Framework

The coronavirus pandemic (also known as “COVID-19”) outbreak has challenged humanity to control the spread of the virus and save human lives. While the world is incredulous at the rising death toll, and more than a third of the global population is experiencing social distancing and self-isolation measures for the first time in history, country leaders have been negotiating stimulus aid packages to ease the economic impact of the coronavirus outbreak. At the same time, companies from all industries affected by the coronavirus pandemic have been seeking means to mitigate losses and legal grounds to validate the non-compliance with commercial and financial contracts.

In Brazil, the situation is undistinguishable from the rest of the world. Multinational and local companies that carry out commercial activities in Brazil have been strongly affected, due to the coronavirus pandemic.

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COVID–19 and Impacts in Latin America

The first quarter of 2020 is not ending on a positive note for most parts of the world, including Latin America. In the midst of the global COVID-19 pandemic outbreak caused by the novel coronavirus, the region is also facing the consequences of a historic dengue epidemic and feeling the impact of the oil pricing dispute between Russia, Saudi Arabia and other OPEC countries.

It is just a matter of time, as seen in Europe, until there are more widespread cases of COVID-19 among the estimated 629 million population in the Latin American region. From a trade perspective, the coronavirus outbreak has caused severe, but widely varying disruptions across the global economy, including increased consumer demand of particular goods and reduced production due to a lack of key inputs from abroad or quarantined employees.

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The Western Hemisphere | Recap of Early 2020 U.S. Engagement

In January, U.S. Secretary of State Michael Pompeo travelled overseas for a trip that included stops in Germany, Colombia, Costa Rica, and Jamaica.  This was the Secretary’s ninth trip to the Western Hemisphere since assuming office in 2018 and his first overseas trip for 2020, underscoring the Trump Administration’s renewed emphasis on the importance of the hemisphere to the United States.  This visit sought to build upon furthering shared priorities – combatting the spread of terrorism, strengthening democracy, expanding prosperity, and ensuring security in the hemisphere, including addressing the situation in Venezuela.

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Brazil announces it will adhere to the international agreement on government procurement

On January 21, Brazil’s Ministry of Economy, Paulo Guedes, announced at the World Economic Forum in Davos that Brazil will adhere to the plurilateral Agreement on Government Procurement (GPA). The GPA regulates the procurement of goods and services by the public authorities of the parties to the agreement, based on the principles of openness, transparency, and non-discrimination between national and foreign companies. The plurilateral agreement is an important mechanism for the international trading system and its membership has gradually broadened. Currently, 48 countries, including the US, Canada, Japan and China, are parties to the GPA.

By ratifying the GPA, the Brazilian government expects to increase foreign investments in the country by attracting foreign companies to public tenders. In addition, according to Mr. Guedes, the acceptance of the market access commitments set forth in the GPA aligns the Brazilian government’s purpose of improving the strategies and policies aimed at combating corruption in the Public Administration.

The date has not yet been confirmed of Brazil’s ratification of the GPA.

The Impact of Section 232 tariffs on Brazil and Argentina

South AmericaOn December 2, President Donald Trump announced Section 232 tariff exemptions previously granted to Argentina and Brazil would terminate “effective immediately.”  In his December 2 tweet, President Trump criticized the two countries for “presiding over a massive devaluation of their currencies, which is not good for [U.S.] farmers.”  The U.S. reached agreements with Brazil and Argentina in early 2018 that provided exemptions from the 25 percent tariffs on steel imports and 10 percent on aluminum imports to the United States.

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International Tax Policy: Newest Developments

The international tax policy landscape is in the process of some key changes that are important for Latin American businesses to monitor. In particular, businesses should pay attention to two key developments.

First, the Organization for Economic Cooperation and Development (OECD) is asking for input on a global minimum tax proposal, a key part of the organization’s effort to rewrite international tax rules by the end of 2020. On Nov. 8, 2019, the OECD asked for comments on the latest version of its minimum tax proposal, which would create a set of rules aimed at ensuring that companies pay a minimum rate even if they are operating in low-tax jurisdictions back home. For years, the OECD has sought to address concerns that multinational companies are not paying their fair share of taxes in some countries where they have a significant number of users. The OECD is trying to find agreement among over 130 countries on its global minimum tax, which is likely to change shape over the next several months.

Second, the U.S. Congress is considering tax legislation that could have an impact on multinational businesses. Congress is considering attaching extensions for dozens of expired tax incentives, among other provisions, to government spending legislation that must pass by November 21, which is when U.S. government funding lapses (and the government could shut down until a deal is reached). As relevant to multinational corporations, Capitol Hill tax-writers are considering fixing an error in the Tax Cuts and Jobs Act (TCJA) that has caused multinationals and private equity firms to report and pay taxes on some previously exempted overseas investments.

Any potential fixes to the U.S. tax code are linked to the government funding legislation, so it will be important to watch how those negotiations unfold during the remainder of the year. The bigger picture here.

Mexican Asset Forfeiture Redux

As a response to the increased violence of organized crime, Mexico passed its first forfeiture law in 2008. At the time, the law was seen as an agile tool for federal and state governments to reach the financial assets of drug cartels and organized crime within the limits of existing constitutional protections. In practice, however, the forfeiture procedure was slow and Mexican authorities were often unsuccessful in their efforts to secure the assets and proceeds of organized crime.

Following a political campaign focused on combating political impunity, corruption and organized crime, in March of 2019, the Morena Administration passed Constitutional amendments to articles 22 and 73, reducing certain constitutional restrictions. Congress then subsequently passed the National Asset Forfeiture Law (Ley de Extincion de Dominio) in August. This month, the Federal Attorney General created a Special Forfeiture Unit within the Fiscalia General de la Republica (Mexican equivalent of the Department of Justice) to investigate forfeitable assets and exercise the Federal Government’s rights under the law. The law was influenced by the laws and practices of the U.S., Guatemala, Colombia and Italy.

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Squire Patton Boggs Hosts Semana Dominicana Event | “Adapting to Global Supply Chain Disruption”

Dominican Republic and United States flagsIn September, Washington, DC welcomed a business delegation from the Dominican Republic (DR), as part of the annual Dominican Week (“SemDomUSA2019”). The trip allows for the dynamic Dominican private sector and Washington to exchange ideas toward strengthening economic ties between the United States and the Dominican Republic (DR).

Squire Patton Boggs hosted the distinguished delegation for a panel discussion titled, “Adapting to Global Supply Chain Disruption.” Participating panelists were former Congressman Joe Crowley, who currently serves as aSPB Senior Policy Advisor; Jerry Cook, Vice President, Government and Trade Relations of Hanesbrands; Leila Aridi Afas, Director of International Public Policy forToyota Motor North America, Inc.; Frank Samolis, SPB Partner and International Trade Practice Co-Chair; and Alex Pena-Prieto, SPB Santo Domingo Office Managing Partner and Latin America Practice Chairman.

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Developments in Tri-Border Area Post New Risk to Correspondent Banking

Money LaunderingIt is no secret that U.S. correspondent banking relationships are indispensable to global commerce.  Indeed, access to the U.S. financial system through correspondent banking is integral to foreign banks and to their customers, who often depend on the U.S. dollar as the anchor currency for their deals.  At the same time, U.S. banks are under intense pressure (more than ever before) by regulators and law enforcement to quickly detect and report suspicious activity, and ensure that they are not conduits for illicit funds originating in foreign jurisdictions, and passing through correspondent accounts held for foreign banks.

To that end, in what is certainly not a new phenomenon, U.S. banks are keeping a close watch over their correspondent banking relationships, and quickly moving to exit relationships at the hint of impropriety.  Moreover, it is well documented that some U.S. banks are “de-risking” not because of a specific event but because of the overall financial crime risk a foreign-located bank might pose.  U.S. banks in some instances may not be interested in managing that risk, and would rather avoid the risk altogether by exiting the relationship.  This process led some U.S. banks to terminate correspondent relationships with Latin and South American banks.  While there has been significant discussion around the negative impacts of de-risking by U.S. government officials, it is still prevalent.

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Section 301: Risk in Latin America?

US TradeWhen it comes to trade, President Donald Trump and U.S. Trade Representative Robert Lighthizer are not scared to chart an uncommon path.  The Trump Administration’s use of Section 301 of the Trade Act of 1974 demonstrates this fact.

Section 301 is a tool that grants the president the authority to impose tariffs and/or other trade-related remedies on countries whose trade practices (1) violate, or are inconsistent with, the provisions of, or otherwise deny benefits to the United States under, any trade agreement, or (2) are unjustifiable and burden or restrict United States commerce.  While Section 301 laid mostly dormant for almost two decades, President Trump utilized the authority to  initiate high-profile trade actions against China’s intellectual property (“IP”) practices his high-profile trade actions against China’s intellectual property (“IP”) practices (which has resulted in 25 percent tariffs on approximately $250 billion worth of Chinese products); he is using the statute to take action against India again to potentially take action against France for its digital services tax; and he is reportedly considering using the authority to take action against India.

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