LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Friday, January 6, 2017

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Friday, January 6, 2017

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Will Mexico and Corporate VP, Global Corporate Affairs U.S. Taxpayers Cargill May Initially Pay Joyce Chang Global Head of Research, Canada Be Willing for Trump’s Wall JPMorgan Chase & Co. Republican lawmakers are W. Bowman Cutter Former Partner, to Reform NAFTA? exploring ways that would have E.M. Warburg Pincus the U.S. government pay for Pres- Dirk Donath ident-elect Donald Trump’s pro- Senior Partner, posed wall along the U.S.-Mexico Catterton Aimara border. Trump vowed that Mexico Marlene Fernández will reimburse the United States. Corporate Vice President for Page 2 Government Relations, Arcos Dorados

Peter Hakim POLITICAL President Emeritus, Inter-American Dialogue At Least 33 Donna Hrinak President, Boeing Latin America Killed in New Jon Huenemann Brazil Prison Riot Vice President, U.S. & Int’l Affairs, The inmates were killed in a pris- Philip Morris International U.S. President-elect Donald Trump has vowed to renegotiate the North American Free Trade on riot in Roraima state. The inci- James R. Jones Agreement or pull the United States out of the pact. // File Photo: Trump Campaign. Chairman, ManattJones dent happened less than a week Global Strategies after 56 were killed in a prison riot During his campaign, U.S. President-elect Donald Trump Craig A. Kelly in Brazil’s Amazonas state. Director, Americas International vowed to renegotiate or withdraw the United States from Page 2 Gov’t Relations, Exxon Mobil the North American Free Trade Agreement, which he called John Maisto Q Director, U.S. Education “probably the worst trade deal ever agreed to, signed, in POLITICAL Finance Group the history of the world.” However, in a Dec. 5 speech, Trump advisor Leader of 2004 Nicolás Mariscal Anthony Scaramucci said Trump simply wants to “right-size” [NAFTA] Chairman, Haiti Coup Grupo Marhnos and “make it fairer.” Is Trump likely to seek a renegotiation of NAFTA, Extradited to U.S. Thomas F. McLarty III and would he succeed in doing so? Is the U.S. Congress likely to accede Chairman, Guy Phillipe, who led the 2004 McLarty Associates to such a renegotiation or withdrawal? What would a U.S. withdrawal coup that ousted President Carlos Paz-Soldan from the accord mean to the economies of the United States, Mexico jean-Bertrand Aristide from Haiti’s Partner, DTB Associates, LLP and Canada? presidency in 2004, was extradit- Beatrice Rangel ed to the United States on drug Director, traffi cking and money laundering AMLA Consulting LLC James R. Jones, member of the Advisor board, chairman of charges. José Antonio Ríos ManattJones Global Strategies and former U.S. ambassador Page 2 Chief Executive Offi cer, Vadium Technology Inc. to Mexico: “Election campaign bombast has given way to a Gustavo Roosen more balanced post-election assessment of NAFTA as full Chairman of the Board, A Envases Venezolanos information from the U.S. business community on the benefi ts of the Andrés Rozental trade agreement have been disclosed to President-elect Trump and his President, Rozental & Asociados and Senior top advisors. Additionally, most of the cabinet-level appointees in a Trump Policy Advisor, Chatham House government know that scrapping NAFTA would be very harmful to the Shelly Shetty Head, Latin America U.S. economy and would disrupt a very effi cient and globally competitive Sovereign Ratings, Fitch Inc. supply chain integration for much of America’s manufacturing base. So I Roberto Sifon-Arevalo don’t expect the Trump administration will tear up NAFTA and start over. Managing Director, Americas Sovereign & Public Finance Ratings, But I do expect some negotiations to improve NAFTA. Strengthening Standard & Poor’s labor and environmental provisions and making them a part of the treaty is likely. Improving the process for adjudicating trade complaints is also Philippe // File Photo: Juda S. Engelmayer via Creative Commons. Continued on page 3

POLITICAL NEWS inforced fencing” along the border, along with NEWS BRIEFS enhanced surveillance systems. However, the U.S. Taxpayers May project was never completed. Then-President At Least 33 Inmates Killed George W. Bush supported the measure, as did in New Brazil Prison Riot Initially Pay for prominent Democrats, including then-Senator Barack Obama and current Senate Minority At least 33 Brazilian inmates were killed in a Trump’s Mexico Wall Leader Chuck Schumer. The law could allow new prison riot in Roraima state in the Amazon Congress to begin funding the wall through its region of the country, offi cials said Friday, fi ve In an effort to quickly begin building a wall normal process of appropriating money. “It’s days after a prison riot in Amazonas state along the United States’ border with Mexico, an existing law that hasn’t been implemented, resulted in the deaths of 56 inmates—the coun- congressional Republicans said Thursday that in part based on the ideology and philosophy try’s worst prison massacre in more than two they are looking at ways that would have the of the outgoing president,” Rep. Luke Messer decades, Reuters reported. A fi ght last broke U.S. government, at least initially, pay for the (R-Ind.) told the Post. “I see nothing partisan out at Roraima state’s largest penitentiary in barrier, which could cost billions of dollars, The about trying to comply with existing laws.” October, leaving 10 dead. Washington Post reported. A wall along the At Least Two Killed The dishonest Leader of 2004 Haiti Coup media does not in Mexico Protests Extradited to United States report that any money Over Gasoline Prices Guy Philippe, a Haitian politician and the spent on building former leader of the 2004 coup that drove the Great Wall (for At least two people have been killed and more Jean-Bertrand Aristide from the presiden- sake of speed), will than 600 have been arrested amid widespread cy, was extradited to the United States on be paid back by protests over the Mexican government’s Thursday, where he is wanted on charges of Mexico later! decision to raise the maximum prices of gas- drug traffi cking and money laundering, Reuters oline by as much as 20 percent on Jan. 1, the reported. Philippe was due to take his seat in — Donald Trump Associated Press reported Thursday. Mexican the Senate on Monday, which would have given offi cials said the unrest resulted in the deaths him immunity from some criminal proceedings. countries’ shared border was among the key of a policeman and a bystander, and that some Police reportedly acted on an international campaign promises of President-elect Donald 300 stores had been looted. Highway, port and drug warrant when arresting Philippe. Trump, who takes offi ce Jan. 20. During the campaign, Trump repeatedly vowed to build the wall and force Mexico to pay for it. “I said PDVSA Facing Legal Mexico is paying for the wall, with the full understanding that the country of Mexico will Action From Crystallex, be reimbursing the United States for the full ConocoPhillips cost of such a wall, okay?” he said Oct. 22 in Venezuela’s PDVSA is facing new legal action Gettysburg, Pa. “We’re going to have the wall. from North American multinational oil com- Mexico is going to pay for the wall.” Mexican panies, which say that the state oil company offi cials have repeatedly said they will not pay took steps to mortgage the assets of its U.S. for a new border wall, but in a tweet this morn- Peña Nieto // File Photo: Mexican Government. subsidiary Citgo and repatriate the proceeds ing, Trump reiterated his vow to force Mexico to Venezuela, The Wall Street Journal reported to pay. “The dishonest media does not report terminal blockades erected by protesters over Thursday. Canadian miner Crystallex Interna- that any money spent on building the Great the course of this week, as well as looting, tional and U.S. oil producer ConocoPhillips Wall (for sake of speed), will be paid back by have forced businesses across Mexico to close originally sought awards from Venezuela over Mexico later!” Trump said in the posting on and have threatened access to basic goods the nationalizations of their operations under Twitter. Several Republican legislators believe and fuel, Mexico’s business chambers said. late President Hugo Chávez. They expanded Trump’s administration can begin building a The Communications and Transport Depart- their lawsuit after learning that PDVSA had al- wall through authority granted by the Secure ment said it would cancel the permits for any legedly taken steps to repatriate the proceeds Fence Act of 2006, The Washington Post truckers who block roads, as truck and taxi of a mortgage of Citgo’s assets, which would reported. That law called for 700 miles of “re- drivers are among those most affected by the put them beyond the reach of U.S. courts.

increase in the price of gasoline. The decision FEATURED Q&A / Continued from page 1 to increase the maximum fuel price is part of the government’s deregulation of the energy likely. Interestingly, both U.S. and Mexican and that North America would record large sector. The government ended regulated prices business leadership know and support welfare gains. This 22-year experience for gasoline and diesel, arguing it represent- efforts to improve NAFTA. By negotiating makes the U.S. Congress more receptive to ed subsidies that unduly benefi ted wealthier similar changes, Trump can both claim fulfi ll- a renegotiation or a withdrawal, especially Mexicans. However, the change increased the ment of campaign promises to his electoral price of premium gasoline to 17.79 pesos, or base and show organized labor that he is about 90 cents, per liter, making the price of sympathetic to some of their complaints. In the case of Mexico, gasoline per gallon almost as much as Mexi- Trump is a master salesman who has a NAFTA has been co’s minimum wage for a day’s work—80 pesos, totally Republican-controlled Congress. a pillar on which or about $4. On Wednesday, President Enrique So whatever a President Trump proclaims other policies have Peña Nieto defended the unpopular deregula- as a successful negotiation will likely be been adopted and tion measure, saying said he would try to help approved by Congress. China, not Mexico, foreign investment those most affected by the increases, such as is the bigger target for U.S. policymakers expanded.” bus, truck and taxi drivers. “I understand the trying to correct perceived trade unfairness. — Rogelio Ramírez de la O anger and irritation felt by the general public,” Perhaps from all of this will come the real Peña Nieto said, saying that “this is an action story of how NAFTA has benefi ted the U.S. that nobody would want to take.” economy.” when political change has such strong popular backing. Renegotiation of a few Rogelio Ramírez de la O, bilateral sectoral agreements is still feasible BUSINESS NEWS president of Ecanal in Mexi- and much easier than a whole renegotiation co City: “President Trump is of NAFTA, provided that Mexico assures A likely to change NAFTA, either its partner that it has more than low wages Odebrecht to Pay by renegotiation or by withdrawal. He knows or lower-than-Chinese wages to make it Peru Initial $8.9 Mn that withdrawal would only put bilateral trade attractive for U.S. manufacturing invest- back on WTO rules, so there is no major ment. A withdrawal of the United States in Settlement loss to the United States. He also knows from NAFTA would be a serious setback to that he would gain additional fl exibility to the present Mexican economic policy, more Brazilian construction conglomerate Odebrecht apply countervailing duties case-by-case as than to Canada. This is because, in the case has agreed to pay Peru’s government an initial needed and justifi ed and negotiate entirely of Mexico, NAFTA has been a pillar on which 30 million soles ($8.9 million) as part of a new bilateral agreements with Mexico that other policies have been adopted and for- settlement with prosecutors in connection with address his main concern: the loss of U.S. eign investment expanded, rather than just a the company’s bribery of Peruvian offi cials jobs due entirely to the arbitrage of wages. trade agreement.” spanning three presidential administrations, With Mexican manufacturing wages one- Reuters reported Thursday, citing Peru’s attor- sixth to one-seventh of U.S. wages, the same G. Philip Hughes, senior as before NAFTA, it is plain that Mexico’s director of the White House wages and standard of living failed to Writers Group: “President-elect converge to U.S. levels in the past 22 years. A Trump has been relentlessly NAFTA was acceptable to the U.S. Congress critical of NAFTA from the beginning of his and small businesses on the expectations candidacy. After almost a quarter century, that Mexican wages would rise and converge it is perfectly plausible that the tripartite Continued on page 4

of cash was “unprecedented” in the country. American and South American countries. Peru Odebrecht last month acknowledged in an was the fi rst country outside Brazil into which Kuczynski // File Photo: Peruvian Government. international plea agreement signed in the Odebrecht expanded nearly 40 years ago. Last United States that it made $29 million in illicit month, the government of Peruvian President ney general’s offi ce. “This amount should in payments in Peru between 2005 and 2014 in or- Pedro Pablo Kuczynski said Odebrecht would no way be understood to be the fi nal amount,” der to win contracts for public works projects. be prohibited from submitting bids on public the offi ce said in a statement, adding that the The money was part of hundreds of millions of contracts due to new anti-corruption rules. government’s demand for an upfront payment dollars in bribes it paid to offi cials in Central

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2017 NAFTA agreement could use a review—up- concessions from Mexico and replicate his dating and improvement. President Trump success with keeping Carrier in the United Erik Brand will certainly have the power and authority to States, then the need to renegotiate should Publisher [email protected] propose—and, if necessary, insist on—re-ne- be lessened if not obviated, all potentially gotiating NAFTA with Mexico and Canada. without any signifi cant impact on Canada. Gene Kuleta Editor It is hard to see how or why Congress would But interestingly, in terms of one country [email protected] try to stop him. But if they don’t already Nicole Wasson know, USTR-designate Richard Lighthizer, Reporter, Assistant Editor and Commerce Secretary-designate Wilbur In terms of one [email protected] Ross will soon discover that Mexico and country stealing jobs Canada will have their own lists of grievanc- from its neighbor, es, frustrations, demands and ambitions Canada has much for a re-opened NAFTA negotiation. The more about which Michael Shifter, President Genaro Arriagada, Nonresident Senior Fellow result will be a product of give-and-take to complain....” horse-trading—just as NAFTA is. Only better, Sergio Bitar, Nonresident Senior Fellow — Carlo Dade the administration will explain. It would have Joan Caivano, Director, Special Projects to be. Where can you go but up from what Kevin Casas-Zamora, Director, Peter D. Bell Rule of Law Program Mr. Trump calls ‘the worst trade deal … in the Ramón Espinasa, Nonresident Senior Fellow history of the world’? Re-negotiating NAFTA, stealing jobs from its neighbor, Canada has Ariel Fiszbein, Director, Education Program in whole or part, is plausible and probably much more about which to complain, with Alejandro Ganimian, Nonresident Fellow do-able. Abrogating NAFTA is not. While the U.S. states aggressively courting (some Peter Hakim, President Emeritus ability to ‘walk away’ is a hallmark of ‘The would say bribing) Canadian companies, Claudio Loser, Senior Fellow Art of the Deal,’ the new Trump trade team especially in sectors like food processing, Nora Lustig, Nonresident Senior Fellow must know that, over the last two decades, to move south. This becomes even more of Margaret Myers, Director, China and the production base of most of the U.S. an issue when Canada imposes a price on Latin America Program economy’s real sector has become quite carbon and the United States does not. If Manuel Orozco, Director, Migration, Remittances & Development thoroughly integrated across the Canadian NAFTA is re-opened then reigning in, or at Jeffrey Puryear, Senior Fellow and Mexican borders. Disrupting that would least mandating transparency in, U.S. states’ Tamar Solnik, Director, Finance & Administration play havoc with supply chains, prices and use of specifi c company incentives to get Lisa Viscidi, Director, Energy Program employment on a continental scale—proba- existing fi rms to move will be a major issue bly not a sure-fi re vote-getting strategy.” from Canada. But, the ‘threat’ to renegotiate Latin America Advisor is published every NAFTA is less a threat to Canada than it is to business day, except for major U.S. holidays, by the Inter-American Dialogue at Carlo Dade, director of the Mexico. Should the United States with- 1155 15th Street NW, Suite 800 Centre for Trade and Invest- draw from NAFTA, the Canada-U.S. Trade Washington, DC 20005 ment Policy at the Canada West Agreement would come back into force www.thedialogue.org A Foundation and non-resident while NAFTA would remain in effect between ISSN 2163-7962 senior associate in the Americas Program Canada and Mexico. Canada would have two Subscription inquiries are welcomed at [email protected] at CSIS: “Trump has been fi xated on NAFTA separate treaties covering all of North Amer-

as a problem in U.S.-Mexico relations, but ica but the United States and Mexico would The opinions expressed by the members of the Board of not as a U.S.-Canada issue. So far, he is have just one treaty each covering only Advisors and by guest commentators do not necessarily using the threat of renegotiation to extract two-thirds of the continent. As with so many represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily concessions from Mexico but not, or not yet, things, the largest repercussions for Canada represent the views of their respective employers or ﬁ rms. from Canada. Most Americans, and certainly would come as collateral damage from the The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, those voting for Trump, could not care less United States shooting itself in the foot.” nor the opinions based thereon, are guaranteed. If you have about NAFTA itself; they care about losing any questions relating to the contents of this publication, contact the editorial ofﬁ ces of the Inter-American Dialogue. jobs to Mexico, and no one worries about The Advisor welcomes comments on its Q&A Contents of this report may not be reproduced, stored in a losing jobs to Canada. In a least worst section. Readers can write editor Gene Kuleta retrieval system, or transmitted without prior written permis- sion from the publisher. case scenario, if Trump can exact enough at [email protected].