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Americas Trade and Investment Act

Americas Trade and Investment Act

by | May 19, 2024 | Podcast

Aidan McCartan
Corporate Intelligence Advisor
Intelligence Research
Miami, Florida
aidan.mccartan@intelligenceresearch.com

LATAM FDI: Hello. We’re very pleased to have Aidan McCartan with us. Aidan is a corporate intelligence advisor with a firm called International Research, where he concentrates on Latin America. Aidan, how are you today? Could you tell us a little bit about yourself and the company that you represent? Before we begin our conversation on the Americas Trade and Investment Act.

Aidan McCartan: Yes, great, Steve. Thanks for having me. It’s an Intelligence Research. Sorry, jI ust twanted o correct you on the name. However, we are a strategic advisory firm focused exclusively on Latin America. We predominantly work with law firms, private equity, and major companies with high-stakes interests in the region on an entire range of issues. This includes anything from M&A due diligence on major deals to asset tracing for disputes and arbitrations. We have a network of really well-placed sources across the region. These are from former DEA, MI6, and former government and businesspeople who are well-connected in the region and can gather hard-to-obtain information for high-stakes transactions.

LATAM FDI: Today, we will talk about pending legislation called the Americas Trade and Investment Act.

Aidan McCartan: Exactly.

LATAM FDI: The first thing I will ask you is, what is the Americas Trade and Investment Act? That’s what we’re going to talk about today. What is it?

Aidan McCartan: Sure. This is a piece of legislation that was first floated last year. I studied the bill when it was first announced as a government affairs manager for a major telecom operator with interests in Latin America. The bill has since been introduced into Congress this year, March very recently, so it’s starting to make some headway. It’s a bicameral and bipartisan piece of legislation, which is rare nowadays. It’s largely backed by US Representative Salazar from the Republican Party in Florida. And she’s joined by Adriano Espaillat out of New York on the Democrat side. Then, in the Senate, Bill Cassidy and Michael Bennett were sponsors. It has also received recent backing from the chairman, Chairman Gallagher, of the House Select Committee on the Chinese Communist Party. So, it’s fairly robust and supported cross the aisle. The premise of the Americas Trade and Investment Act is that it would extend US, Mexico, and Canada-style trade agreements with the region, better known as USMCA, which is the renegotiated NAFTA. It’s a major effort to offset China’s increasing influence in the hemisphere and to motivate the US private sector to try and redirect funding towards the region.

The US has made somewhat of a retreat from the region in recent years, which has coincided with aggressive inroads made by China. China is now in a dominant position in several key sectors in Latin America, be it telecoms infrastructure, critical mineral supply, and ports where trade is important. And so, this is a long-awaited effort, I would say, to influence countries that have gotten used to what’s been a bit more like a stick-focused approach from the US. The countries in the region have been increasingly wooed by Chinese investment. Now, the Americas Trade and Investment Act is a chance to flip the script slightly.

LATAM FDI: Well, you just made a very important statement concerning the purpose of this. China’s influence in the region is growing. And, in a practical sense, in a concrete manner, how does Americas Trade and Investment Act aim to counter this growing influence in the hemisphere?

Aidan McCartan: This is predominantly being done through real intangible benefits for countries that have long called for more trade and less aid from Washington. We’ve all seen how these aid cycles work. There’s a move towards funds given by the likes of USAID and organizations that predominantly end up, unfortunately, funds get channeled to US contractors and don’t reach the intended beneficiaries on the ground. This is going to be more of a trade-focused approach, which would provide a pathway to a USMCA-style agreement for countries in the region that are willing and prove capable of meeting the obligations of this trade agreement. The Western hemisphere has been long overlooked as a strategic partner for the US. I think we’ve seen that particularly strong during the pandemic when the Russians and the Chinese were very quick to act in supplying vaccines to the Western hemisphere countries. And the US was a little slow. It was hard to move the big bureaucratic machine. They eventually got there, and their products were much more superior than what the Chinese and the Russians were offering. But in that time frame where the US got stuck in its bureaucratic maze.

A lot of countries in the region started to question whether they were a strategic ally of the US or not. So, the Chinese have made a significant amount of progress in their relations on the ground in Latin America, not only during the pandemic but also in the wider context of the major investments that they have made over the past few decades. This is an attempt to increase trade and integration, drive investment, and bolster regional supply chains across the hemisphere with a US-led approach. The Americas Trade and Investment Act also has conditions around labor rights, environmental resilience, and combating corruption. All of the US State Department’s priorities are in there, too. This is being proposed in the hope that it will be enough to pull what have traditionally been allies of the US away from the sphere of influence that China has started to exert in recent years

LATAM FDI: Well, that’s something we hope comes to fruition and is successful because it’s very important. But what are the key components of the Americas Trade and Investment Act?

Aidan McCartan: As I said, it’s an exciting effort by Congress to amplify the economic potential of the region. It focuses on a few things. Those are the main, I would say, areas that would be trade incentives. These are aimed at enticing private industry to move operations away from what is increasingly a risky and complicated business environment in China. We’ve seen the Chinese government and the CCP Party coming after a lot of foreign investment in the country. The pandemic also was a bit of an eye-opener for firms that needed to think about long-term where their supply chains are situated globally and the risk-reward proposition that a lot of those decisions pose. So, this is an effort to rally countries across the Western hemisphere towards a more integrated regional trade and investment model that will stimulate growth and integration through valuable long-term private sector investments. Initially, the Americas Trade and Investment Act is aimed at what are called the APEP member states. This is another initiative from the US government called the America’s Partnership for Economic Prosperity. Those states are, just to name a few, Barbados, Canada, Chile, the Dominican Republic, Mexico, Panama, Uruguay, and there are a few more I’m missing.

These are the countries that would be grandfather entered into the Americas Trade and Investment Act on an initial wave upon completion of something called the Memorandum of Understanding. The act establishes a set of guiding principles on democratic governance, trade, and the rule of law. I guess the benefits for countries that are looking at this, right, are better access to the US market, access to loans and grants to nearshoring industries from China, and targeted programs to increase the competitiveness of strategic reach and supply chains. So, some of the industries we’ve seen move in this regard recently have been the EV industry and semiconductors. We see that Mexico has made some big gains there. The aim is to replicate this across multiple sectors and multiple countries in the region. So, it’s been called the most comprehensive US policy attempt to deepen relationships with the Western hemisphere in more than two decades. We’ve seen the failure of the Free Trade Area of the Americas Agreement back in 2003, and since that time US administrations have taken a step back from free trade deals, which have become a little bit politically sour. The trade deals that you’re seeing today are becoming less and less comprehensive.

This is quite an innovation in that sense. It marks a return to policies inspired by deeply rooted hemispheric values of regional integration, cooperation, trade, and democracy promotion.

LATAM FDI: Well, if we take a look at a specific instance of an industry, when we’re thinking in terms of the Americas Trade and Investment Act, what does the Act do to promote textile and apparel manufacturing in the United States and American partner countries?

Aidan McCartan: This is a major industry, particularly in Central America, right? A large part of the economies in that region, the GDP is massively held up by this industry. The Americas Trade and Investment Act seeks to establish a program that would help bring a lot of those textile and apparel investments that have gone to China in the last few decades back to the region, both in the US and as you mentioned, across the hemisphere. In particular, what the bill does is that it creates an account within the Department of Treasury, which will finance a lot of these reshoring or nearshoring activities and supply chains. There’s a trade pillar of the act, which establishes up to sixty billion dollars in loans and grants to be made available for companies that want to move their activities back to the region from China. And there’s also another ten billion dollars in tax credits for qualifying activities. So really what it’s trying to do is help combat the slave-based Chinese textile labor practices that we know of from the media. And it’s going to bring back textile and apparel investments to the US and its partner countries in the region. There’s also a focus on recycling and environmental impacts in this area and seeking to reduce the carbon footprint of that industry and improve environmental standards.

And then there’s this specific section, 241, that establishes a special enforcement unit within Customs and Border Protection to monitor the implementation of something called the Uighur Forced Labor Prevention Act, UFLPA. Cheating in that area has been a major problem for the industry. And not only the textile industry but also the solar panel and EV industries have had problem. This special unit is going to be made available for partner countries to be able to monitor their supply chains better and ensure that they’re slavery-free.

LATAM FDI: What are the requirements for participation in the Americas Trade and Investment Act, including a MOU or a Memorandum of Understanding Compliance?

Aidan McCartan: Yes, so the Americas Trade and Investment Act establishes this MOU compliance element, which sets up model standards for democracy, trade, rule of law. Countries have to agree on these principles before they receive the benefits from the Trade Agreement mechanisms. If they don’t, they’re liable to be suspended or expelled from the Act. So, violation of the MOU can be pretty serious in that regard. The partners must annually report to Congress on their progress, and that’s the oversight mechanism. It builds on what I mentioned earlier, the APEP program, as I said, those countries will be grandfathered into the Americas Trade and Investment Act program once they have completed their MOU process. And there is a specific exclusion of member states from ALBA, the Bolivarian Alliance. So that’s Cuba, Venezuela, Bolivia, and Nicaragua. There are specific prohibitions on trade benefits for those countries. And then on top of what I mentioned before, there are specific obligations and commitments that countries must meet to receive the benefits. So just a few examples: you have to commit to avoid purchasing Chinese telecom equipment. You have to be in a country that’s designated as free or partly free by the annual World Report of Freedom House.

You also have to be certified by the State Department in terms of your commitment to abide by the rule of law in the fight against illegal narcotics, human trafficking, and terrorism. You also have to comply with the terms of the Inter-American Democratic Charter of the OAS. One other interesting element, I think, is that countries can exceed the benefits of this agreement if they recognize Taiwan as a state, and those countries may be able to bypass all of those other obligations if they simply do that one thing. So, Paraguay and Guatemala might get a bit of a carte blanche, even if they fall short in some of those other requirements.

LATAM FDI: Well, that’s interesting, especially what’s going on with the US, China, and Taiwan. How does the Americas Trade and Investment Act propose to enhance investment opportunities that have to do with the infrastructure in the Western Hemisphere?

Aidan McCartan: Yes, so a lot of it is focused on some of the elements I mentioned previously regarding loans, grants, and tax credits, right? Those are the main elements. But what this also does is it modifies the Build Act of 2018, and it creates a Build Americas unit within what’s called the US International Development Finance Corporation, better known as the DFC. The idea behind that is to build more resilient supply chains and effectively meet the needs of the Americas partnership countries. So, the DFC has had its problems because in terms of its mandate, it is primarily focused on middle-income countries, right? So, a lot of the countries in the hemisphere have been excluded from its attempts. I was personally involved in some discussions with the DFC and ExIm Bank during my time at a major telecoms company that was seeking to drive funding mechanisms to move away from Chinese technology in the region. But a lot of the times we ran into roadblocks because of some of these requirements that the DFC and US agencies in this regard are handcuffed a little bit. So, what this act looks like to do is to remove some of those elements and allow the DFC to expand its mandate and be able to increase its borrowing authority.

It increases from sixty billion dollars to ninety billion dollars, the amount that it can deploy. Also, for the Exim Bank, it increases its borrowing authority. But more importantly, as I mentioned before, it allows it to deploy it in a much more effective and wide-reaching manner. There’s some other interest in part of the proposal, too, that focuses on allowing loans in local currency, which I think is a major game changer. This is because of the impact of currency fluctuations and changes in interest rates that can derail a lot of the financing mechanisms that are traditionally funded by the IMF and the likes. So, in short, the investment pillar is a really interesting new and innovative way of thinking about how we support these countries in the region. There have also been some extra mentions of the creation of National Infrastructure Plans, which would have support from the likes of the Inter-American Development Bank, and the World Bank. But I think we’ll see these things develop more as the Americas Trade and Investment Act moves through Congress. And you could see a bit more expansion in detail as it inevitably faces some amendments. And the proof will be in the pudding whenever you implement these things. A lot of it looks great on paper, but in practice can be a little bit vague. And then whenever you put it into practice, we’ll see how this develops in reality.

 

LATAM FDI: At the outset of our conversation, you made the point of the rarity of bipartisan support for this act. Given that being the case, what’s the outlook for the bill? Do you see any that may bring this to fruition? Do you think that the fact that we’re in a presidential election year will have any effect in terms of how fast something like this comes to fruition? If you had a crystal ball, what do you see in it?

You’re absolutely right. There are significant hurdles for the Americas Trade and Investment Act. It has staunch support, as I say, from across the aisles, and it also has dedicated support from countries in Latin America. That’s an essential element that they’re keen to access its advantages. But I do think even with backing from all these stakeholders and the Biden administration, there was a senior official who is an adviser for the Americas region, Chris Dodd, who has publicly backed the bill in recent days in a piece in the Financial Times. I still wouldn’t bet on seeing it approved this year because of some of those things you’ve mentioned, the presidential election being the main one. I think, as I touched on earlier, the success of administrations in the US, regardless of party affiliation, have been opposed to expanding international trade, choosing to focus more on America First initiatives. Now, that’s been largely because a lot of the Rust Belt states in the US have been disproportionately affected by the negative elements of what is a complex situation in the dynamic area of global trade. And so, the Biden administration followed the Trump administration’s lead on trade policy.

It’s worked as a standard policy, as the Biden administration calls it. It is by a large an inward-looking protectionist trade agenda, right? And on top of all of those elements, you have extreme political polarization amid an election year. I think the fact that we had this bill introduced into Congress with all of these caveats is a significant step forward. But I struggled to see many Congress people putting their necks out because it could be a little bit unpopular in certain states. One element that may help it is the fact that it’s meant to be, at least, fully funded and self-contained using no taxpayer funds. And I think what we’ve discussed before, signifies a step towards returning to trade liberalization as a tool to increase geopolitical influence at a time that is necessary with China’s advance, not only in the region but globally. The US has struggled to react the way that China can. It can quarterback its private sector whenever it needs to. The US just can’t move in that dynamic fashion. And although there’s been recent bipartisan efforts in Congress to address the Ukraine-Russia conflict, and also the movement against TikTok, those scenarios demonstrate a willingness to collaborate on critical issues for national security.

But still, passing the Americas Trade and Investment Act is going to be an uphill battle. And I think one piece of evidence that points towards this was the fact you’ve seen a dozen or, so USTR Trade Representative officials depart that organization earlier this year due to a stalled trade agenda that they just don’t see progressing in the context of an election year. So, although I’m cautiously optimistic about the potential of the Act and how it could eventually provide a really strong basis for fostering stronger ties within the region, I do feel that it is probably premature to think that we could see it in action this year, potentially next year. But I’m excited about it as a potential tool to re-imagine US foreign and economic policy towards Latin America and the Caribbean, and take a comprehensive approach to the hemisphere, and finally offer a real alternative to China’s Belt and Road initiative, which has made significant strides

LATAM FDI: Yes, I think that maybe in this case, and as somebody that is in favor of increased trade relationships, I think that possibly the fact that this is meant to be a countermeasure to some very significant inroads that China has made throughout Latin America, I think that this just may be a case in which international agreements that liberalize trade, trumps, pardon the pun, any thoughts regarding a negative effect on the US economically? I mean, from a global perspective, from a strategic global perspective, this seems like something that’s needed and something very intelligent to do. Do you think that would be the case?

Aidan McCartan: I think so. I think, as I said, the US has struggled to react to China’s increasing dominance in the region. And this is its best shot at reversing those advancements that China has made. It just is the case that China, as an authoritarian state, can marshal the investment wherever it needs and wants at any given moment. And the US can’t obligate the private sector to do what it wants. So, it needs to create incentives for the private sector to do it on its own. This framework is a wonderful opportunity to do that. Companies are open to the region. I think there’s an increasing appetite for investment in the region. There are going to be a lot of variables and things that will depend on interest rates and where people want to put their money. But I think the opportunity that the Americas Trade and Investment Act offers in terms of moving the US back into a position of strength in what it’s known to be its backyard, I think it’s really hard to look past this as something that’s, as you say, necessary, and its benefits outweigh a lot of the negatives that people have legitimate concerns around.

But I think if the US wants to maintain its dominant trading relationship, it needs to act because China is surpassing it in several countries, not only in Latin America but globally. This is a good shot to try and get back to where the US should be.

LATAM FDI: Beyond trade, Aidan, I think that it’s safe to say that this is fundamentally a national security issue as well.

For sure. I think some of those sectors that China has made inroads, in particular the sector that I’m most familiar with telecommunications. In the future of 5G, which is here now, but a lot of Latin American countries are only getting up to speed on it. And then 6G thereafter and every other G that follows. The sophistication of technology and the ability to have control over those elements of our lives is quite worrying from a perspective we spoke about previously, China’s model of universal… How did you call it? Universal credit or social credit scores? Yes. The fact that the Chinese have such a stronghold on telecom infrastructure in the Western hemisphere is quite a concern in that regard. The US was able to offer its telecom operators, domestically, the ability to rip and replace telecom infrastructure that was Chinese with a large funding mechanism, but it hasn’t been able to afford to do that in Latin America. To date, it’s just been asking countries strongly to not use that infrastructure. But at the end of the day, when China comes and offers these things for next to nothing, then it’s really difficult for some of these countries to say no.

And there’s not a lot of alternatives out there that are competitive. The only other major telecom infrastructures are European providers, and those guys can’t compete with the likes of Huawei on price. So, I think, again, the Americas Trade and Investment Act is a really good step forward to correcting some of those challenges and providing a pathway for the US private sector to create the incentives that will allow people to look towards alternative models that China is currently dominating.

LATAM FDI: Aidan, this was a very informative and very interesting conversation on a topic that is also of significant importance. I’m sure that some of the listeners will want to keep up to date with the progress of this legislation as it progresses in the two houses of the legislative branch of the US. That being the case, I’m sure there’ll be questions that arise from having listened to this discussion. How could people contact you, specifically and directly, to ask you questions that may arise as a result of having listened to this podcast?

Aidan McCartan: Yes, for sure. So happy to take any further questions. I mean, the easiest way to reach me is probably by email or LinkedIn. If you want, I’ll shout out a few of those. My email address is my full name, which is a little complicated because it’s Irish, so I’ll maybe spell it out. Aidan. Mccartan@intelligenceresearch.com. And then you’ll find me pretty easily on LinkedIn if you type in my name like that, too.

LATAM FDI: Okay. And what we’ll do is we’ll make it even easier for people. At the top of the transcript section on the page that hosts the audio. We’ll have Aiden’s name, and his name will be a link to his LinkedIn profile. We’ll have a link to the company that he represents, and we’ll provide his email. So, everything will be at the forefront. Those of you listening who do have questions can reach out to him and get a response.

Aidan McCartan: Perfect. Sounds great.

LATAM FDI: I want to thank you. I found this to be very interesting, and I’m sure that the rest of the people who have an opportunity to hear it will find the same to be the case. Thanks a lot.

Aidan McCartan: Thank you, Steve.

Investments in infrastructure in Peru are expected in 2024.

Investments in infrastructure in Peru are expected in 2024.

by | May 14, 2024 | FDI Latin America

Meeting financial commitments, recovering political stability, and complete legal trust and certainty are essential for attracting investments in infrastructure in Peru, indicated the global law firm DLA Piper.

Investment in infrastructure in Peru is crucial for the country’s progress because it improves citizens’ quality of life and strengthens the nation’s economy. For the present year, Peru expects to achieve 3% growth in its gross domestic product (GDP), according to the Ministry of Economy and Finance (MEF).

To meet this goal, investment in infrastructure in Peru is essential since several projects in the country’s portfolio are being promoted. One is the New San Juan de Marcona Port Terminal (US$ 405 million), and another is the Peripheral Road Ring (US$ 3.4 billion), significantly impacting Peru’s economic development.

In addition, it is anticipated that several important projects will be awarded this year: the Huancayo – Huancavelica Railway (US$ 394 million), the Longitudinal de la Sierra Section 4 (US$ 1,2 billion), 15 electricity sector projects valued at US$ 900 million, and the Puerto Maldonado Wastewater Treatment Plant (WWTP) with an investment of US$ 98 million, among others.

The Port of Chancay will be operational by year’s end

According to Cosco Shipping, the Chancay port mega-project will be inaugurated in November of 2024, driving the economy. Even Lima Airport Partners (LAP) commented that in December, the new infrastructure of the Jorge Chávez International Airport will be in operation.

Included among other recent investments in infrastructure in Peru are the following projects:

  • Lima Metro Expansion: The Lima Metro has been undergoing expansion to alleviate traffic congestion in the capital city. Additional lines and stations were being constructed to enhance public transportation.
  • Chavimochic Irrigation Project: This project aimed to expand irrigation infrastructure in the northern coastal region of Peru, facilitating agricultural development and water management.
  • Southern Peru Highway: Efforts were ongoing to improve the road network in southern Peru, connecting remote communities and enhancing transportation efficiency.
  • Renewable Energy Projects: Peru has been investing in renewable energy infrastructure, including wind and solar farms, to diversify its energy sources and reduce dependency on fossil fuels.
  • Ports and Airports: Upgrades to ports and airports, such as the expansion of the Port of Callao and improvements to Jorge Chávez International Airport in Lima, were also underway to accommodate increasing trade and tourism demands.

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Investments in infrastructure in Peru are of critical importance

According to Carlos Núñez, partner at DLA Piper, Peru is an attractive country to invest in infrastructure projects.

“In the last year, some prolonged public infrastructure projects have been gradually reactivated, and projects that were pending in the pipeline for a long time have been relaunched. Even this year, some important awards have already been made,” Núñez said.

However, he also pointed out that this trend must be sustained, not circumstantial. He highlighted that the Peruvian Government has fulfilled its long-term payment commitments in co-financed Public-Private Partnership (PPP) projects, which should make it possible to finance new public infrastructure works despite political uncertainties and, in some cases, the lack of a reliable legal framework in the country.

He added that continuing to meet the financial commitments made, recovering political stability, and complete legal trust are extremely important given the new investments in infrastructure in Peru that are necessary to make in the country.

In this context, DLA Piper, a global firm with a presence in more than 40 countries, was the organizer of Peru’s Investment Summit 2024. This event brought together various Peruvian and foreign organizations and individuals interested in the country’s economy to debate the topic of “Infrastructure for development: challenges and opportunities for investment in Peru.” The event was held on April 25th.

Peru is at a critical point in its development

In conclusion, Peru stands at a critical juncture in its journey toward economic advancement, with investments in infrastructure poised to play a pivotal role in shaping its trajectory. The commitment shown by the Peruvian government to meeting its financial obligations and fostering a conducive environment for investment underscores the nation’s determination to propel its infrastructure sector forward. As Carlos Núñez of DLA Piper highlighted, sustaining this momentum is imperative, ensuring that progress in infrastructure development remains robust and enduring. Against a backdrop of global uncertainties and evolving political landscapes, maintaining trust and stability within the legal framework becomes paramount to attracting the necessary investments in infrastructure in Peru. The recent Investment Summit 2024, organized by DLA Piper, serves as a testament to the collective efforts to unlock the full potential of Peru’s infrastructure landscape, offering a platform for dialogue and collaboration among stakeholders. With a diverse portfolio of projects spanning transportation, energy, and urban development, Peru is primed to harness the transformative power of infrastructure investments, driving inclusive growth and enhancing the quality of life for its citizens. As the nation looks ahead to a future of sustainable development and prosperity, investments in infrastructure will continue to serve as the bedrock upon which Peru’s economic success is built, cementing its position as an attractive destination for global investors seeking opportunities in Latin America.

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Investments in Chile translate economic potential into real growth

Investments in Chile translate economic potential into real growth

by | May 12, 2024 | FDI Latin America

Chile intends to energize investment processes in the South American country for international companies in the coming months. This effort to promote foreign direct investments in Chile  is being undertaken so that the country’s economic potential can be translated into a genuine offer to demonstrate the great value of the Andean nation as a reliable and lucrative “trading partner.”

Corfo is Chile’s industrial promotion agency

This is one of the tasks of the Production Promotion Corporation (Corfo), whose vice president, Claudio Maggi,  recently participated in the Chile Summit Europe 2024, organized at the Spanish Confederation of Business Organization’s (CEOE) headquarters in Madrid. The purpose of the meeting was to strengthen efforts to deepen the scope of economic and investment relations between Spain and Chile.

The mission of Corfo, the agency of the Government of Chile, is to promote national production and regional economic growth, which is why it is immersed in different activities such as the Chile Summit Europe 2024 to present investors with the offer of possibilities ” for investments in Chile that are quite unique.

“We need global companies to take note of opportunities in Chile and help us become a relevant actor in the task of ecological transition, to have a more sustainable industrial base,” he said in an interview with Europa Press.

In some sectors, such as natural resources such as lithium, green hydrogen, or copper, which are essential for the ecological transition, Chile aspires to achieve horizontal relationships with partners such as Spain, achieving “mutual benefit.”

Streamline project permits for investments in Chile

Chile has “a lot of legal certainty” and “robust” institutions in its favor, as highlighted by the vice president of Corfo. The country does have to, however, still resolve some issues regarding bureaucracy. The Ministry of Economy is “fully focused” on this effort.

“Altering, updating, and streamlining legislation is not easy since new requirements are added to the old ones, and there has not been a cleanup of what is redundant, among other things, due to the fragmented nature of the current bureaucracy,” commented Maggi.

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To advance in this circumstance and accelerate investments in Chile, the Government is developing new legislation to make progress related to sectoral and environmental permits. “Our great challenge now is to modernize and strengthen our public apparatus, and that with this muscle, we can accompany this increase in investments in Chile in a good way,” said the vice president of Corfo.

Another of Chile’s challenges is infrastructure, a fundamental issue to improve the country’s connectivity, with aspects such as the renewal of the maritime fleet, which is one of the sectors expected to adopt green hydrogen the earliest.

Lithium leadership

Investments in Chile, particularly in the lithium sector, can generate great prosperity for the country. The fact that this will not only benefit the investing companies is why Corfo and the Government are betting on opening the door to public and private collaboration through the National Lithium Strategy.

“We have the possibility of participating in the lithium revolution, taking global leadership,” asserted Maggi, who has encouraged companies “with knowledge in lithium operations and the lithium market” to form alliances to develop this industry and make investments in Chile.

In conclusion, Chile stands at a significant economic transformation threshold, poised to leverage its abundant natural resources and institutional robustness into a beacon of investment opportunity. The efforts to increase investments in Chile, spearheaded by entities like the Production Promotion Corporation (Corfo), reflect the Andean nation’s commitment to positioning itself as an attractive destination for foreign direct investment. By showcasing its potential across various sectors, from lithium to green hydrogen and copper, Chile aims to bolster its economy and play a pivotal role in global sustainability initiatives. Despite challenges such as bureaucratic hurdles and infrastructural needs, the Chilean Government’s proactive stance in modernizing legislation and infrastructure underscores its dedication to facilitating a conducive environment for investment. Moreover, the emphasis on public-private collaboration, exemplified by initiatives like the National Lithium Strategy, highlights Chile’s recognition of the importance of partnership in driving innovation and prosperity. As the nation continues to streamline processes and foster strategic alliances, it is well-positioned to harness the full spectrum of its economic potential, becoming not only a lucrative trading partner but also a leader in shaping the future of sustainable industry. With a clear vision and concerted efforts, Chile is poised to translate its economic aspirations into tangible growth and establish itself as a beacon of opportunity on the global stage.

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The IMMEX program in Mexico

The IMMEX program in Mexico

by | May 12, 2024 | FDI Latin America, Podcast

Porfirio Waters
CEO
The Trade Flex Group
McCallen, Texas
pilo@trade-flex.com

LATAM FDI: Today, we have Porfirio Waters with us. Porfirio is the CEO of a company based in McAllen, Texas. It’s called Trade Flex Shelter Services. Today, we will have a conversation about the IMMEX program in Mexico. Welcome, Porfirio. Please tell us about yourself and your company.

Porfirio Waters: Hi, Steven. Thank you for the introduction. My name is Pilo Waters, and I’m the CEO of Trade Flex Shelter Services, or better, the Trade-Flex Group. We specialize in business model analysis, manufacturing management strategies, duty tariff optimization, compliance management, and any regulatory consultation for businesses trying to do a soft landing in Mexico. That’s what our core competency is. We ensure that companies that utilize the IMMEX program in Mexico can succeed. Customer success is critical to us. We also make sure that their cross-border operations are efficient, compliant, and cost-effective,

LATAM FDI: Well, today, we’re going to concentrate on a particular issue, the IMMEX program in Mexico; it is particular to Mexico and its Maquiladora Industry. Porfirio, can you tell us what the IMMEX program in Mexico is? How does it function to promote foreign investment and export-oriented manufacturing?

Porfirio Waters: Well, thank you. The IMMEX program in Mexico is an acronym. It stands for the Manufacturing Industry, Maquiladora, and Export Service. The IMMEX program in Mexico was initially started as the maquiladoras in the old days. Everybody is familiar with the term maquiladora, which was initially established in 1964. Back then, it was called the Fomento a la Industria Maquiladora. It was changed to the IMMEX program in Mexico in 2006. They changed the scheme, making it more modern and more involved with the fiscal aspects of companies to make them more of a bonafide Mexican legal entity. The Maquiladoras, before 1964, were created because the Bracero program ended, and the Mexican government had to produce a way to attract foreign investment.

The primary purpose of the IMMEX Program in Mexico is to allow foreign-based manufacturers to import raw material components into Mexico and process them into manufactured goods for export. Under IMMEX, the benefit is that you can do this without paying any import duties and some of the taxes involved in Mexico. The IMMEX Program in Mexico helps companies with taxes, duties, and things like that, especially countervailing duties and value-added tax.

Mexico does have a value-added tax system, so you get the benefit of avoiding it.

LATAM FDI: As an expert in the IMMEX program in Mexico and dealing with companies that invest in the country to do export-oriented manufacturing, your business plays an active role in guiding companies through the process of getting the IMMEX designation. Is that correct?

Porfirio Waters: Yes, that is correct. We’re involved at the beginning with companies when they are engaged in doing their business planning, their cost models, and things like that. We also help them go through all the steps involved, which can become pretty complicated. They are dealing with a foreign country, so they must understand Mexican tax and business laws and how to structure the entity. We help clients from the very beginning to structure the entity, comply with all the regulatory requirements, and analyze their business model to ensure success. Not all projects are made for the IMMEX program in Mexico. We want to ensure that all clients are successful, and because of this, we want to participate in the due diligence process. Also, as a licensed federal customs broker, I can look at duty strategies, especially in a multinational environment, because many components come from Asia or other countries. We look at the business model to ensure that the goods companies make in Mexico meet substantial transformation requirements. With what’s going on with China in particular, this is very important.

So, we help customers analyze that. We file customers’ rulings on their behalf just so that when they begin operations under the IMMEX program in Mexico, they’re very secure in the decisions that they’ve made. This is because some of these decisions are very expensive and long-term decisions. We help them with all of that.

LATAM FDI: You made a distinction, and you mentioned that you look at a company that you look at, a company, and the IMMEX program makes sense for them and not for others. Can you tell which types of companies it makes sense for and which companies it doesn’t make sense for?

Porfirio Waters: Well, most importantly, the companies that it makes sense for are the ones that can benefit from the labor costs because the majority of savings in Mexico comes from labor. Most expenses are greater in Mexico than in the US. The actual savings is in labor. We see a lot of companies that may come to Mexico with only a 13-employee operation or 15-employee operation. They may already need help in the US to be profitable. They think that by coming into Mexico, they’re going to be profitable all of a sudden. They do not have the labor content required to benefit from being in Mexico. For example, the electricity, utilities, and rent might be more expensive than they’re used to paying in the US. They sometimes discover this after they’ve already launched their project. Then, once they decide to go to Mexico, it’s different from the US, where you can furlough and lay off people. Mexico has stringent laws that protect the workers, where companies have to indemnify them and liquidate them entirely off your payroll before they can let them go. Those are some of the factors that are involved.

Another common issue is that some customers may think they will bring a semi-knock-down product into Mexico, assemble it, or do the finishing operation in Mexico and then with Chinese components. For example, they intend to get it into the US but must pay duties because it is not considered a Mexican-made product.

We see a lot of companies that come in under the IMMEX program in Mexico that need to do their due diligence for the substantial transformation correctly. They come in, make the investment, and import all the components and raw materials. Then, when they export their product, they find out that, Oh, my gosh, I still have to pay the Chinese tariffs, or I have to pay extra duties or dumping duties. Those are the two main things that I see.

LATAM FDI: Are there any specific requirements or criteria for companies to qualify for the IMMEX program in Mexico?

Porfirio Waters: Yes, there are. The most important thing to cover is that to become certified as IMMEX or get approval for the IMMEX program in Mexico, you have to meet a lot of the tax requirements. The first requirement is to have a minimum of $500,000 of finished goods annually. That’s the first requirement. The second requirement to participate in the program is that you must comply with all the fiscal responsibilities that the government requires. Those could be very demanding. There’s a lot of them. Companies have to register with the IRS. They have to register their tax ID number. Also, they must register to import into the United States.

Additionally, they must incorporate their companies. Companies must have their incorporation issued by a notary public. They must also have a very specific contract about how they will operate, their customer, and the entities involved in the transaction. Then, of course, since under the IMMEX program in Mexico, companies are only allowed to import the goods temporarily, and they have to be returned, they have strict inventory guidelines that must be followed.

Everything that’s imported has to be returned within a certain period. It’s 18 months. Some operations, like textiles or sensitive goods, might take six months. Then, the government established a company as an authorized economic operator (OEA), so that’s important. You have to get an additional certification under the OEA to get some of these benefits.

LATAM FDI: What was that term you just mentioned, OEA? Tell us a bit about it.

Porfirio Waters: OEA is Mexico’s security program, which is similar to the Customs, Trade, and Partnership Program (C-TPAT) that we have in the United States. Companies have to comply with some security guidelines and criteria. They have to prepare their procedures manuals, et cetera, and submit them to the government, and then the government gives authorization and makes sure that they comply with it. It takes about a year to get it. Once you comply, you will receive a gold card that you can use for many other benefits that are available under the IMMEX Program in Mexico.

LATAM FDI: Can you elaborate on any incentives provided to companies under IMMEX to encourage them to participate? You just mentioned the… What is it again? OEA?

Porfirio Waters: Companies have fewer customs inspections under the Authorized Economic Operator program (known in Mexico as OEA). The Mexican government treats OEA companies better than those that are not OEA. OEA companies can keep goods in the country longer than ]]those organizations that are not OEA-certified. Also, regarding the IVA or VAT tax, if a company files for refunds or wishes to avoid payment, it facilitates the administration of your value-added tax, which is 16% in Mexico. Those are the main benefits of being an Authorized Economic Operator.

LATAM FDI: What evidence of data exists regarding the effectiveness of the IMMEX program in Mexico in attracting foreign direct investment to Mexico and promoting economic growth? Has IMMEX been a catalyst for a lot of foreign direct investment?

Porfirio Waters: Well, if you look at the numbers, they speak for themselves. From the program’s first inception in 1964, there were only twelve maquiladoras. Today, there are over six thousand. Employment is getting close to reaching three million employees. Those are huge results of the success of the program. The main success of it is that once you’re an IMMEX company, you’re given a lot of liberties that a typical Mexican company would not have from a tax point of view and also mainly from a customs duty point of view. The Mexican duty rates, on average, can be 15 %. They were lowered when Mexico participated in the GATT program. Last year, they increased their 15 % to 25%, and then just recently, they increased from 25 % to 55 % on some aluminum products. Some duties are higher than you are accustomed to in the US or other countries. The IMMEX program in Mexico helps manufacturers avoid all that. You can avoid the duties, you can avoid the IVA, and then you can avoid some of the other requirements that a Mexican national company may have regarding fiscal responsibilities.

Now, with the IMMEX in Mexico, the structure or the scheme was implemented in 2006. From 1965 to 2006, we worked under the strictly maquiladora regime. Then 2006, when it was changed to the IMMEX program in Mexico, they added many more fiscal responsibilities. There’s just a tremendous amount of benefit to using the IMMEX program itself. However, companies must comply and meet the program’s requirements to keep it in force and stay compliant.

LATAM FDI: Have there been any recent developments or changes that have impacted the relevance of the program that you just mentioned?

Porfirio Waters: Well, the biggest one I’ve seen is the friend shoring. Another way to call it is nearshoring, but I like to call it friend-shoring. Through this, companies can bring their supply chain closer. Often, they move it out of an Asian country and into Mexico, which is a friendly neighbor. It’s very beneficial. It’s helpful. The trend is that many companies are trying to move their supply chain, which is the reverse of what they did in 2005. They are trying to bring production back from Asia back to North America. That’s been the most significant catalyst that we’ve seen. The other thing that added a little bit of fuel to the fire was in 2018 when the Trump tariffs were levied on China, and companies had to pay a 25% duty on top of the regular duty they were already paying. This made it hard to do business. They looked to Mexico as a potential solution to that issue. Again, it is a solution, and it works great. Companies must do the due diligence required on the substantial transformation study.

LATAM FDI: Beyond the IMMEX program in Mexico, what other trends should companies considering setting up operations in Mexico be aware of?

Porfirio Waters: Mexico has thirteen free trade agreements with fifty countries besides the duty liabilities that are diminished or eliminated. Mexico has grown tremendously. We’ve seen it in their Peso, how it’s appreciated. It’s been like a shooting star here this last year. Companies have a tremendous opportunity to use it to export back into the United States and to Europe, Central America, South America, and other countries. Even some Asian countries have trade agreements with Mexico now. There’s a tremendous opportunity in Mexico. I mentioned the substantial transformation issue. Some benefits can be derived from manufacturing your product in Mexico versus being made in China or Vietnam. There’s a similarity between languages. Mexico is closer to the US. It’s easy to access. Mexican laws may differ, but they’re much more common to Western law than other countries. Those are the most significant benefits. One of the different things we saw, particularly during the COVID period, was that many companies moved into Mexico, not just because of the Chinese issue with the tariffs but also due to a lack of labor availability in the United States.

During that period, hiring people and keeping the factories running in the United States was difficult. We saw many countries keenly interested in looking into Mexico as a solution. And a lot of companies were able to do that, and they benefited greatly. As we saw the COVID surge in sales, everybody benefited from it.

LATAM FDI: We’ve gone over a pretty good amount of information.

Porfirio Waters: Yes.

LATAM FDI: We typically find that for people who listen to these podcasts, the information they’ve consumed generates further questions. That being the case, how would someone listening to this podcast contact you for assistance setting up operations in Mexico?

Porfirio Waters: Well, we have our website. Our website is www.trade-flex.com. Then we have Lula. Lula is our host. She will greet you as soon as you come to our website. She’ll ask you some questions, and those questions and those answers come directly to me. That mechanism will collect some information, including your email and phone numbers. We can reach out to those making inquiries immediately. And we also have a presence on LinkedIn. We hope that people can follow us there on Trade-Flex Shelter Services. We post many informative articles about what’s happening and the critical issues of interest. We note if we see any disruptors on the horizon. We try to post information about that to keep people informed as much as possible. We stress essential things to consider, avoiding any pitfalls or effects of business disruptions. We can do a thorough business case study. Performing a rigorous business case study ahead of time is essential and invaluable. When you negotiate any of your nearshoring agreements, if you can use someone like Trade-Flex, it’s beneficial.

When you come to Mexico, especially for the first time, having a good CPA is very important because you must be in excellent standing once in the IMMEX program in Mexico. You’re required to file all your tax declarations on time. Failure to do so could suspend some of your privileges. So, it’s essential to get a hold of a good CPA. Another thing that I suggest is to map out your inventory process beforehand. Sometimes, some people come in to make a quick decision. They need to map out their inventory process, and then they’re overwhelmed with all the customs requirements. We help with those things. The border is an invisible line, and it can be that, provided you do all the planning and the preparation ahead of time.

LATAM FDI: Well, you can take people through the process. What we’ll do so that they can contact you with great ease is in the transcript section on the podcast page; we’re going to have a link to your LinkedIn profile so people can contact you directly. We’ll include your email address, and we’ll include your website. So anybody with any questions that have to do with your expertise can contact you.

Porfirio Waters: Thank you very much, Steven. It’s a pleasure to be here with you today.

LATAM FDI: Yes, likewise. And I hope you have a wonderful day.

Porfirio Waters: Thank you.

Latam FDI: I wish you enormous success.

Porfirio Waters: Thank you so much.

Five companies will inject US$60 million of investments in Alto Paraná, Paraguay

Five companies will inject US$60 million of investments in Alto Paraná, Paraguay

by | May 11, 2024 | FDI Latin America

Five new companies will be established in Hernandarias, with an estimated investment of US$60 million. César Torres, governor of Alto Paraná, pointed out the importance of these companies in the economic and social growth of the area.

Hernandarias is a district and city of the Alto Paraná Department, Paraguay. It was named after Hernando Arias de Saavedra, the first South American governor born in the Americas. It is located across the highway from the Itaipu Dam.

The department of Alto Paraná, located in the eastern region of Paraguay, is one of the country’s economic drivers due to its industrial and commercial development.

What are some of the industries found in Alto Paraná

The region is home to companies in the construction, metallurgy, plastics production, and chemical manufacturing sectors.

Recently, the governor of Alto Paraná, César Landy Torres, visited five companies that are being established in the city of Hernandarias as new investments in Alto Paraná.

The companies anticipate an aggregate investment of approximately US$60 million, which will create approximately 500 new jobs.

“These companies are contributing significantly to the region’s economic growth and social development,” Torres highlighted.

The Secretary of Industry and Commerce, Esteban Wiens, organized the tour. As a result of this effort, the governor could meet those responsible for the new investments to learn about their progress and economic projections.

The plants visited are engaged in agricultural activities, construction, plastics manufacturing, and the textile sector.

Which are the companies that will make investments in Alto Paraná

Blend Agroscience: a leading firm in the agro-industrial sector, committed to innovation and sustainability in the production of high-quality agricultural inputs. According to a report by the Paraguayan Government, the investment is projected to be US$40 million. In its initial phase, it will provide 200 jobs.

ConstruFenix is a construction company that plays a fundamental role in developing critical infrastructure in the region, generating employment, and promoting local progress. The estimated investment by the construction company is reported to be US$ 2 million.

Plasticos Yguazú is in the process of constructing a new warehouse, which represents a significant investment in the industrial sector and a significant contribution to the area’s economic growth.

Star Plast: a new plastics maquiladora that promises to generate employment and promote the manufacturing industry in Hernandarias, consolidating its position as a critical regional production center.

América TNT: this textile company is expanding its operations by constructing new warehouses, boosting the local textile industry, and providing employment opportunities for the community.

Regarding the investments in Alto Paraná  that each company will make, Governor Torres pointed out: “Only one of them exceeds US$ 40 million; the exact figure has not yet been provided to us because it will depend on the moment in which they bring certain supplies to the state since one of them estimates to start its in Hernandarias  operations in 2026.”

“This motivates us to continue along the path we have set for ourselves over the years, to guarantee legal security for those who come to invest, and to give equal opportunity to everyone by maintaining clear rules in each sector,” Torres concluded.

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The investment environment in Alto Paraná, Paraguay

Investments in Alto Paraná, Paraguay benefit from a dynamic economic environment characterized by diverse industries, a plentiful labor pool, efficient connectivity, and competitive manufacturing wages.

Alto Paraná is located in the eastern part of Paraguay, relatively far from the capital city of Asunción. It is situated in the country’s eastern region, bordering the Paraná River to the east, serving as the natural border with Brazil. Asunción, on the other hand, is situated in the western part of Paraguay, closer to the country’s center. The distance between Asunción and Alto Paraná is approximately 300 kilometers (about 186 miles) by road.

Industries:

Alto Paraná hosts a range of industries, with a significant focus on manufacturing and agribusiness. The region is renowned for producing textiles, garments, electronics, and agricultural products like soybeans and beef. Additionally, it has seen growth in sectors such as automotive parts manufacturing and food processing. This diverse industrial landscape offers opportunities for investors across various sectors.

Labor Availability:

Labor availability in Alto Paraná is abundant, fueled by a growing population and government efforts to promote vocational training and education. The region benefits from a young workforce eager to participate in the expanding economy. Its proximity to urban centers like Ciudad del Este also ensures a steady influx of labor from neighboring areas.

Connectivity:

Alto Paraná enjoys excellent connectivity within Paraguay and other parts of South America. The region is served by a well-developed road network, including major highways connecting it to Asunción, the capital city, and other key urban centers. Furthermore, it has access to modern ports along the Paraná River, facilitating the transportation of goods to and from neighboring countries like Brazil and Argentina. The Guarani International Airport also enhances connectivity by offering air cargo services and passenger flights to regional destinations.

Typical Wages:

Wages for manufacturing workers in Alto Paraná are competitive within the Paraguayan context, offering an attractive balance between cost and quality. While specific wages vary based on skill level, experience, and industry, they generally remain lower than in more developed countries. Still, they are commensurate with living standards in Paraguay. Workers in the manufacturing sector typically earn wages that enable a decent standard of living in the region.

Paraguay has a national minimum wage that applies to all sectors, including manufacturing. As of March 2024, the minimum wage is set at 2,680.37 Paraguayan Guarani (PYG) per month [Trading Economics]. This translates to roughly USD 380 based on current exchange rates. This is the minimum, and some manufacturing workers will likely earn more.

Overall, Alto Paraná presents a favorable investment environment with a diverse industrial base, ample labor supply, efficient connectivity, and competitive manufacturing wages. These factors contribute to its appeal as a strategic location for businesses seeking to establish or expand operations in Paraguay and beyond.

Alto Paraná, Paraguay, is poised for significant economic growth with five new companies set to inject a total of US$60 million in investment and create 500 jobs in the region, particularly in the city of Hernandarias. Governor César Torres emphasized the importance of these investments for both economic and social development. The companies span diverse sectors including agro-industrial, construction, plastics manufacturing, and textiles, reflecting the region’s dynamic industrial landscape. With a focus on maintaining clear rules and legal security for investors, the government aims to foster an environment conducive to business growth. Alto Paraná’s advantages include a skilled labor pool, efficient connectivity via road and river networks, and competitive manufacturing wages. This combination of factors positions Alto Paraná as an attractive destination for investors looking to capitalize on Paraguay’s burgeoning economy.

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