Mercosur Seeks to Expand Trade with Other Regions

On July 21, the presidents and other high-level officials of Mercosur’s member nations – Argentina, Brazil, Uruguay and Paraguay – met in Mendoza, Argentina to discuss the trade bloc’s next steps for increasing free trade with other regions. Top priorities on the agenda were the finalization of the trade negotiations with the European Union, as well as the continuation of trade talks with the Pacific Alliance, comprised of Chile, Colombia, Mexico and Peru. Mercosur is also aiming to establish strong trade relationships with Japan, India, Australia, and New Zealand.

The Mercosur region has suffered a number of political and economic challenges in recent years; however, the change in leadership in both Argentina and Brazil has opened the doors for rapid advancement of international trade deals and access to foreign markets. An important factor in Mercosur’s motivation to strengthen its trade ties with other countries is the economic recession in Brazil and its significant impact on neighboring countries and Latin America in general. Today, Brazil still faces a long road to recovery as it works through the high magnitude of corruption scandals and government mismanagement.

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Despite Protests, IMF Views Peru’s Labor Market Reforms As Strengthening Economic Growth

Peru FlagPeruvian miners recently took to the streets in a strike meant to protest proposed labor reforms. The labor reforms, proposed by President Pedro Pablo Kuczynski’s administration, aim to loosen restrictions on the termination of workers and generally relax regulations.[1] They have been perceived as hostile to workers’ interests by Peru’s mining unions, who claim that the reforms “would loosen safety rules, make it easier to fire workers and shift the burden of paying into an unemployment fund to workers from employers.”[2] Although Union officials called off the strike after the government’s promise to establish a task force creating dialogue regarding the labor laws,[3] some skepticism will remain.

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Trump Administration Unveils NAFTA Negotiating Objectives Ahead of First Round of Talks

NAFTA MembersThis week, the Trump Administration took a major step forward in laying the groundwork for the upcoming renegotiation of the North American Free Trade Agreement (NAFTA).  On July 17, the Office of the US Trade Representative (USTR) released a summary of the Administration’s negotiating objectives for the upcoming NAFTA talks.

Under Section 105 of Trade Promotion Authority (TPA) legislation passed into law in 2015, the Administration is required to publish a detailed and comprehensive summary of the specific objectives with respect to the negotiations, and a description of how the agreement, if successfully concluded, will further these objectives and benefit the United States at least 30 calendar days before initiating formal trade negotiations.

Most notably, USTR’s summary is framed as an overall renegotiation of NAFTA, and does not simply focus on those areas where the Administration is seeking changes to the existing deal.  The negotiating objectives covered a wide range of topics, including trade in goods and services, labor and environment, trade facilitation, trade remedies, and dispute settlement.  According to the summary, the Administration also plans to use upcoming NAFTA talks to address the United States’ trade deficit in goods with Canada and Mexico.

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Argentina Outlook: Optimism runs high

The flag of Argentina pinned on the map. Horizontal orientation. Macro photography.

Since President Mauricio Macri’s election in 2015, the global community has been closely watching South America’s second largest economy for signs of stability and economic growth.

Positive signs persist in this first half of 2017. The OECD June 2017 economic forecast indicates that Argentina has exited recession and points to wide-ranging structural reforms as a boost to inclusive growth.[1]  Additionally, Argentina recently received $9.75bn in bids from investors for a $2.74bn century bond placement with an 8% yield.[2]  The Macri government intends to continue to invest a great deal of time and effort in reintroducing Argentina to the world with a view to fomenting foreign investment having already visited the governments of China and US, and is scheduled to meet with German business leaders and politicians later this year.

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The Dominican Republic’s New Anti-Money Laundering and Terrorist Financing Act

Latin-american-currencies-hanging-from-clothespinIn an effort to bring the Dominican legal framework up to date with new international standards, on June 1, 2017, the Executive Power of the Dominican Republic promulgated the new Anti-money Laundering and Terrorist Financing Act 155-17 (“New Law”). The New Law overhauls the Anti-money Laundering Act 72-02 of June 7, 2002, to allow for a more adequate, coherent and contemporary legal framework.

The New Law aims to regulate more efficiently money laundering and terrorist financing activities according to the latest international guidelines and, to comply with international standards for transparency and transmission of available information regarding economic agents, their activities and their beneficial owners. The enactment of the New Law will likely help the Dominican Republic continue on a path of international cooperation, access to foreign credit and assistance by international organizations.

Some of the key provisions of the New Law introduce the following:

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President Trump Shifts the U.S. Policy Towards Cuba

A-USA-and-Cuba-flag-overlappingSquire Patton Boggs previously reported on the growing fear that the Trump Administration would roll back President Barack Obama’s plan to normalize relations with Cuba. Then-candidate Donald Trump was calling President Obama’s deals with Cuba “one-sided” and beneficial “only [to] the Castro regime.” Last week Friday, at an event at the Manuel Artime Theater in Miami, President Trump officially announced his Administration’s new public policy towards Cuba and fulfilled a campaign promise.

President Trump’s speech culminated in the issuance of a National Security Presidential Memorandum and an accompanying White House Fact Sheet on the U.S. Policy toward Cuba.  In sum, President Trump’s directive:

(a)    Ends economic practices that “benefit the Cuban government” by prohibiting most economic activities with the Cuban military conglomerate, Grupo de Administración Empresarial (“GAESA”). This change is most likely to affect the hotel and tourism industry sectors, since these are the industries said to be largely controlled by GAESA. A list of companies that will be on the “blacklist” will be issued by the State Department at a later date.

(b)    Adheres “to the statutory ban on tourism to Cuba,” by amending regulations related to educational travel (i.e., by ending individual people-to-people travel) and enforcing the strict record keeping requirements related to travel to Cuba.

(c)     Opposes any efforts in the United Nations or other international forums to lift the embargo on Cuba.

(d)    Supports the expansion of internet services and free press in Cuba by convening a task force that will work with non-governmental organizations and private sector entities to examine the challenges and opportunities in those areas.

(e)    Keeps in place the Obama Administration’s elimination of the “Wet Foot, Dry Foot” policy.

(f)      Ensures that engagement with Cuba in general is advancing the interests of the United States.

As explained in the new FAQs issued by the U.S. Department of the Treasury, the policy changes will not go into effect until the Treasury Department and the U.S. Department of Commerce have finalized their new regulations. Importantly, the new Cuba policy changes will not have retro-active effect. Those travel arrangements and commercial engagements that were in place prior to the issuance of the upcoming regulations will not be affected.

Al Cardenas, who heads the Latin America practice group at Squire Patton Boggs and previously served as the former Chairman of American Conservative Union and former Chairman of the Florida GOP, explains:  “Despite the emotional setting and rightful remembrance of the struggles of the Cuban people found in President Trump’s speech, which was focused on a Cuban exile audience, President Trump’s executive action preserves many of the changes made during President Obama’s Administration (some of which were outlined in President Obama’s 2014 Speech). For example, the respective embassies in Washington and Havana will remain open, the U.S. licenses issued to airlines and cruise line companies have been kept, efforts to expand direct telecommunications and internet access will continue, and the additional categories for travel to Cuba for the most part remain in place. While one-step back is the prohibition on U.S. travelers from staying at government-owed facilities, this should be a boon to the family-owned B&B’s and other rentals on the island. It remains to be seen whether there will be a significant drop off in tourist travel to the island.”

Viewed as a whole, President Trump is tightening some areas where improved economic relations with the United States could have benefitted some auspices of the Cuban Government.  Squire Patton Boggs’ Washington and Miami offices are closely monitoring the precise impact these policy changes and the forthcoming regulations may have on U.S. and foreign businesses investing in Cuba.

Colombian President Visits White House Days Before Trump Unveils New Budget – Now, Congress Reacts to Trump’s Budget Cuts

US and Colombia DealU.S. President Donald Trump welcomed Colombian President Juan Manuel Santos to the White House on Thursday, May 18, to discuss strengthening bilateral relations, including efforts to combat illegal narcotics. Entering the final year of his presidency with strong political headwinds, President Santos brought attention to this growing partnership, including in trade, saying during their joint press conference, “The number of Colombian businesses that are exporting to the United States has grown.  And we both believe that we can take greater advantage of those agreements in order to increase flows in both directions for the benefit both of the Colombian and American peoples.”

President Santos’ visit came just days before President Trump unveiled his Fiscal Year (FY) 2018 budget request calling for significant cuts to funding for the U.S. Department of State and other international agencies. The budget proposal called for $250 million in support for Colombia, a marked cut as compared to the $450 million President Obama pledged to help support Colombia’s efforts to implement the government’s peace accord with the Revolutionary Armed Forces of Colombia (“FARC”).

However, as the adage goes, “the President proposes, and Congress disposes.” While the President’s budget provides detailed information on his policy priorities, Congress is responsible for passing appropriations bills to fund government programs.

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President Trump Closes 100 Days in Office with Trade EOs, Debate of NAFTA Withdrawal

What's Next?Under pressure to make good on campaign promises as his first 100 days in office drew to a close, President Donald Trump considered a number of new trade-related actions last week, highlighting the importance of stakeholder engagement with his Administration on trade matters.

On Wednesday, April 26, reports emerged that President Trump was seriously considering withdrawing the US from NAFTA.  The action reportedly came as a surprise to many stakeholders, who were expecting trade developments ahead of President Trump 100th day in office but not NAFTA withdrawal.  President Trump ultimately decided to shelve the draft executive action following conversations with the leaders of Mexico and Canada, calls from Members of Congress, and outreach by private stakeholders, as well as meetings with his most senior advisors.

In remarks the following day, President Trump confirmed that he had been seriously considering withdrawing the US from NAFTA, reiterating his promise to pursue the strongest deal possible and pledging to terminate the agreement “if we do not reach a fair deal for all.”

On Saturday, April 29, President Trump went on to sign two trade-related Executive Orders (EO).

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The Future of the United States – Chile Bilateral Tax Treaty Remains Uncertain

Business HandshakeOn February 4, 2010, after more than a decade of negotiations, government officials from the United States and Chile executed the first bilateral income tax treaty (“Tax Treaty”) between the two countries. This event marked an important next step in economic cooperation; the United States-Chile Free Trade Agreement, which entered into force on January 1, 2004, had already significantly increased free trade by removing tariffs, reducing barriers, and providing necessary legal protections for investors from both countries. The Tax Treaty was designed to further encourage the stream of cross-border investments and widen the United States’ tax treaty network in Latin America beyond Mexico and Venezuela.

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Brazil: A Step Closer to Ending the Limitation on Foreign Capital Investments in Airlines

Business TravelBrazilian President Michel Temer will submit a bill to modify the Brazilian Aviation Code and allow foreign capital to own 100 percent of any Brazilian airline. If approved by Congress, the new ruling will end the existing 20 percent limitation. The measure comes as part of the Government’s strategy to boost tourism industry in the country. It is expected that removing the foreign capital restriction will allow more investments in aviation, thus increasing competitiveness and the availability of flights, which may reduce costs to the consumer.

The bill also purports to regulate the “electronic visa” for the United States, Canada, Australia and Japan, to facilitate entry of foreign visitors of those countries in Brazil.

When first announced, though, the executive government had intended to pass a provisional measure to effect these changes immediately upon publication. However, due to a previous settlement with Brazilian Senators in 2016, it was later decided by President Temer that a bill should be submitted for approval by Congress instead.