LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Tuesday, August 15, 2017

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Tuesday, August 15, 2017

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Can Negotiators Maduro Calls for Cargill Military Exercises Joyce Chang Global Head of Research, Find Agreement in in Venezuela JPMorgan Chase & Co. Venezuelan President Nicolás W. Bowman Cutter Former Partner, the NAFTA Talks? Maduro called for the exercises E.M. Warburg Pincus following U.S. President Donald Dirk Donath Trump’s comments last Friday that Senior Partner, he wasn’t ruling out military action Catterton Aimara in the South American country. Barry Featherman Page 2 Senior Director, International Government Affairs, Gilead Sciences BUSINESS Marlene Fernández Corporate Vice President for Former Pemex Government Relations, Arcos Dorados CEO Denies Peter Hakim Taking Bribes President Emeritus, Inter-American Dialogue Emilio Lozoya, the former chief Donna Hrinak Mexican Economy Minister Ildefonso Guajardo said last week, ahead of NAFTA renegotiation executive offi cer of Mexican state President, Boeing Latin America talks beginning Wednesday, that new tariffs on Mexican exports to the United States would be oil company Pemex, denied re- Jon Huenemann unacceptable. // File Photo: Mexican Government. ceiving $10 million in bribes from Vice President, U.S. & Int’l Affairs, Brazilian construction conglomer- Mexico recently outlined its goals for the renegotiation Philip Morris International ate Odebrecht. James R. Jones of the North American Free Trade Agreement, or NAFTA, Page 3 Chairman, Monarch Global Strategies Q for which talks begin Wednesday in Washington. Mexico Craig A. Kelly is seeking retention of unimpeded access to goods and ECONOMIC Director, Americas International services in the NAFTA region, integration of the labor markets of Gov’t Relations, Exxon Mobil Peruvian Finance John Maisto Mexico, the United States and Canada, and clarifi cation of rules of Minister Lowers Director, U.S. Education origin in order to guarantee regional benefi ts. Another one of Mexico’s Finance Group Growth Forecast Nicolás Mariscal goals is strengthening NAFTA’s dispute resolutions and mechanisms, an Peruvian Finance Minister Fernan- Chairman, objective that confl icts with the United States’ stated goal of eliminat- Grupo Marhnos do Zavala cut his growth expecta- ing the so-called Chapter 19 tool. Under Chapter 19, binational panels Thomas F. McLarty III tions for the country’s GDP, saying Chairman, oversee complaints about illegal subsidies and dumping and make it is likely to expand between 3.8 McLarty Associates binding decisions on the issue. Now that the objectives of two of the percent and 4 percent next year. Carlos Paz-Soldan Flooding and a graft scandal have Partner, three member countries have been revealed, how likely does it appear crimped growth. DTB Associates, LLP that the negotiations will go smoothly? Where can the United States and Page 2 Beatrice Rangel Director, Mexico fi nd agreement during the negotiations, and what are the likely AMLA Consulting LLC sticking points? What will the proposals from the two countries mean for Gustavo Roosen Chairman of the Board, Canada? Envases Venezolanos Andrés Rozental President, Rozental & Frank Samolis, partner and co-chair of the International Asociados and Senior Policy Advisor, Chatham House Trade Group, and Milla Savelieff, associate, at Squire Patton Shelly Shetty Boggs: “Negotiators have set an ambitious timetable, with Head, Latin America reported plans to meet every three weeks—one week of nego- Sovereign Ratings, Fitch Inc. A Roberto Sifon-Arevalo tiations, followed by two weeks of preparations—with an aim to conclude Managing Director, Americas talks by the end of this year or early next. Whether this goal is perhaps Sovereign & Public Finance Ratings, Standard & Poor’s too ambitious will become clearer once talks formally commence. One area of common focus will be updating NAFTA to refl ect the digital econ- Zavala // File Photo: Peruvian Government. Continued on page 3

POLITICAL NEWS ECONOMIC NEWS NEWS BRIEFS

Maduro Calls for Peruvian Finance Netanyahu Planning Trips to Mexico, Military Exercises Minister Lowers Argentina Next Month in Venezuela Growth Forecast Benjamin Netanyahu is planning to visit Mexico and Argentina next month, trips that would Venezuelan President Nicolás Maduro on Peruvian Finance Minister Fernando Zavala on make him the fi rst Israeli prime minister to Monday called for military exercises after U.S. Monday revised down his growth expectations visit Latin America while in offi ce, the Jewish President Donald Trump said he wasn’t ruling for 2018, saying the country’s economy is likely Telegraphic Agency reported Monday. Netanya- out “a military option” to resolve the crises in to grow between only 3.8 and 4 percent next hu would fl y to the region after addressing the the South American nation, Reuters reported. year, down from his April estimate of 4.5 per- U.N. General Assembly in New York on Sept. Maduro told supporters in Caracas to prepare cent, due to effects from fl ooding earlier this 19. for an “imperialist” invasion as U.S. Vice Pres- year as well as the fallout from a graft scandal, ident Mike Pence sought to play down fears Reuters reported. He added that the govern- that the United States would invade Venezuela. ment will make “all possible efforts” to ensure Brazil’s JBS Posts Lower Pence said late Sunday that he was confi - that the country’s economy sees 2.8 percent dent that Venezuela’s crises could be solved growth by the end of this year. He projected Income Than Expected through peaceful means, but Maduro focused that private investment would grow by 3.5 for Second Quarter on Trump’s threat. “Everyone has to join the percent this year. In June, the economy likely Brazilian meatpacker JBS, the world’s largest, defense plan, millions of men and women, grew by 3.6 percent, Zavala said. June’s growth on Monday posted lower-than-expected income let’s see how the American imperialists like it,” likely helped GDP increase by 2.4 percent in the for the second quarter, at 309.8 million reais, Maduro told supporters as he called on them second quarter of this year, he added, Peruvian or $97.16 million, down 80 percent year-over- to participate in a two-day operation on Aug. state news agency Andina reported. Peru’s year and below the consensus estimate of 603 26 and 27, which is to involve both members of primary sector GDP increased by 8.6 percent in million reais, Reuters reported Monday. The re- the military and civilians. Thousands of Maduro June, whereas non-primary activities increased sults were due to an increase in the company’s supporters rallied in Caracas to denounce by 2 percent. Zavala attributed the GDP growth net fi nancial expenses, as well as struggling Trump’s statements last Friday. The previous to greater business and consumer confi dence. operations. The company said its revenues fell day, Maduro had said he wanted to meet or He added that if metal prices increase in the 4.6 percent year-over-year to 41.6 billion reais, speak with Trump, whose administration has near future as projected, mining exploration due to the weak performance of its Seara and slapped sanctions against Maduro and several and investment would likely increase, as a re- Mercosur divisions, as well as the strengthen- other top Venezuelan offi cials in the wake of sult. In related news, Peruvian President Pedro ing of the Brazilian real. Venezuela’s installation a powerful “constit- Pablo Kuczynski saw his approval rating fall uent assembly,” which has been denounced by fi ve points to a record low in August as the in the South American country and abroad as economy continues to lag and as labor strikes dictatorial. The White House rejected Maduro’s break out across the country, Reuters reported Chile’s Líder Signs request to meet with Trump, saying Venezuela Sunday. Kuczynski’s approval rating fell to 29 Deal With Workers, would fi rst have to return to democracy. During percent in August from 34 percent in July. Averting Strike his trip to Colombia, Pence said the United States would use diplomatic and political pow- Wal-Mart’s top supermarket chain in Chile, er to restore democracy in the South American BUSINESS NEWS Líder, has signed a new work contract with nation. “A failed state in Venezuela threatens its employees, staving off a possible strike, the security and prosperity of our entire the Líder Inter-Company Union said Monday, hemisphere and the people of the United States Ecopetrol to Focus Reuters reported. The 16,500-member union of America,” Pence said in Cartagena, Reuters on Unconventional voted to accept the company’s latest offer after reported. Earlier on Monday, Venezuelan weeks of negotiations. Workers had originally Defense Minister Vladimir Padrino appeared on Deposits in Colombia voted to walk off late last month, but contin- television at an army base and in front of doz- ued to work while union leaders negotiated ens of troops, including soldiers with missile Colombian state oil company Ecopetrol plans with company representatives. Walmart Chile launchers pointed toward the sky. to focus its exploration efforts on unconven- operates 380 stores in Chile, mostly under the Líder brand.

COPYRIGHT © 2017, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Tuesday, August 15, 2017 tional deposits in the central and northern FEATURED Q&A / Continued from page 1 regions of the country, Ecopetrol CEO Juan Carlos Echeverry said, Reuters reported Mon- omy. NAFTA entered into force more than 20 Antonio Ortiz-Mena, senior day. The plan is a bid to increase the country’s years ago, before the launch of the digital advisor at Albright Stonebridge reserves. Echeverry said the Magdalena Medio age, and new, high-standards ‘e-commerce’ Group and adjunct professor region appears to have signifi cant reserves of provisions will be a key point of discussion— A at Georgetown University and and potentially cooperation. All three parties the Center for Research and Teaching in are also likely to seek common ground Economics: “The United States and Mexico in updating NAFTA’s customs and trade aim to modernize NAFTA, not renegotiate facilitation provisions, to help businesses it. Timing incentives are aligned; neither country wants negotiations lingering until the Mexican presidential campaign begins One area of common next year. Updating energy, telecommunica- tions, fi nancial services, technical barriers to focus will be updating trade, investment, labor (except wage levels) NAFTA to refl ect and the environment, among other issues, is Echeverry // File Photo: Ecopetrol. the digital economy.” doable. Commitments on the digital econ- light crude. The company will also continue to — Frank Samolis omy and on small-and-medium enterprises develop its mature fi elds, and plans to explore can be expected. The TPP will be used as offshore in the Caribbean, the United States, a template, although the fi nal agreement Mexico and Brazil. Ecopetrol is also evaluating might be different. There are other issues companies for a possible purchase. Magdalena move goods across borders more effi ciently. where objectives need to be aligned. The Medio is an area in Colombia where the La However, the United States’ negotiating United States wants NAFTA benefi ts to go Luna and Tablazo geological formations con- objectives call for eliminating NAFTA’s Chap- to products ‘genuinely made in the U.S. verge, and it’s possible that there are 30 billion ter 19, which provides alternative dispute and North America.’ Rules of origin are set barrels of new oil in that region that have yet settlement procedures for antidumping and on a regional basis, and a U.S. attempt to to be discovered, Echeverry said. “After the countervailing duty matters. The Trump introduce local content requirements could United States and Vaca Muerta in Argentina administration is also facing calls from run afoul of its World Trade Organization our non-conventional play seems to be the some congressional Democrats and others commitments. The United States wants Mex- most substantial in terms of oil in the Western to eliminate NAFTA’s investor-state dispute ico to increase its de minimis level shipment Hemisphere,” he said. He added that experts settlement mechanism (ISDS), which allows value to $800. Mexico will be loath to do this estimate that there are between 2.5 billion and private companies to challenge government and focus on regulatory cooperation to up- 7 billion barrels of recoverable oil in the region. laws and regulations through international grade trade facilitation. Greater U.S. access At the end of last year, Ecopetrol had approxi- arbitration, as an alternative to domestic to the Mexican procurement market while mately 1.6 billion barrels of oil equivalent in its courts. A number of U.S. companies are retaining Buy American requirements and reserves, which is equivalent to approximately concerned that elimination of either NAFTA’s broad national security exceptions will be 6.8 years of consumption. Ecopetrol produces Chapter 19 or ISDS—without any new or untenable without U.S. reciprocity. The two more than 60 percent of Colombia’s oil, and updated mechanisms in their places—could countries are out of step on other issues. works in Brazil, Peru, the United States and affect their ability to trade with and invest in The U.S. obsession with its bilateral trade Mexico, as well. Mexico and Canada.” defi cit will be a sticking point if it attempts Continued on page 4 Former Pemex Head brecht, the Associated Press reported Monday. bo reported it had obtained statements made Lozoya on Sunday wrote on Twitter that he was by Odebrecht’s former Mexico director, alleging Denies Taking Bribes never corrupt, and seemed to suggest that the that from 2012 to 2014, Odebrecht paid allegations were being made by others under Lozoya $10 million in exchange for a contract The former head of Mexican state oil com- investigation in the corruption scandal in ex- to work on a refi nery in Mexico. In December pany Pemex and a key campaign advisor to change for lessening their own sentences. “We of last year, Odebrecht and another company, President Enrique Peña Nieto, Emilio Lozoya, will prove that Emilio Lozoya did not receive Braskem, both pleaded guilty in a federal court denied accusations that he had taken bribes a single cent of those supposed $10 million in New York to paying bribes in a number of from Brazilian construction conglomerate Ode- that they paid as a bribe,” Lozoya’s lawyer said countries, including $10.5 million in bribes to Monday. On Sunday, Brazilian newspaper O Glo- Pemex offi cials.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2017 to address it by engaging in managed trade. Arnulfo R. Gómez, professor at Eliminating Chapter 19 regarding binational Anáhuac University in Mexico: Erik Brand panel review for anti-dumping and counter- “Most of the Trump statements Publisher [email protected] vailing duty determinations, or the NAFTA related to NAFTA during the A Gene Kuleta global safeguard exclusion, will likely be presidential campaign have since changed, Editor rejected by Mexico (and Canada), and is and it’s certain that at the end of the day, [email protected] a puzzling U.S. ask: why would it want its the logical situation will emerge. NAFTA has Nicole Wasson two main export markets to have greater established a suitable framework for the Reporter, Assistant Editor development of commercial and productive [email protected] relations among the three countries; howev- A successful NAFTA er, the three partners have not taken advan- upgrade is possible tage of it. It’s certain that the renegotiation is an occasion for improving this situation, Michael Shifter, President if the United States Genaro Arriagada, Nonresident Senior Fellow does not push for and to really establish a regional policy that beneﬁ ts all three countries. There are Sergio Bitar, Nonresident Senior Fellow Joan Caivano, Director, Special Projects zero-sum deals in several elements that can be renegotiated sensitive topics...” Michael Camilleri, Director, Peter D. Bell Rule of Law to achieve a positive outcome, and the most Program — Antonio Ortiz-Mena important, without any doubt, is the one Kevin Casas-Zamora, Nonresident Senior Fellow concerning the rules of origin and foreign Ariel Fiszbein, Director, Education Program investment. A positive outcome on that front Alejandro Ganimian, Nonresident Fellow would add value in the region, above all, be- Peter Hakim, President Emeritus policy discretion when it seeks to increase cause the NAFTA economic bloc is the one Claudio Loser, Senior Fellow exports to create U.S. jobs and reduce its that has lost participation in the generation Nora Lustig, Nonresident Senior Fellow trade deﬁ cit? The bottom line is that Mexico of wealth worldwide, especially in the past Margaret Myers, Director, China and and Canada reset their relations under 15 years. The rules of origin, the added value Latin America Program the Trudeau government, will work closely and foreign investment are elements that Manuel Orozco, Director, Migration, Remittances & Development during the negotiations on issues such as are also important to Canada. It is important Jeffrey Puryear, Senior Fellow Chapter 19 and safeguards and will strive to to design a regional strategy to improve the Tamar Solnik, Director, Finance & Administration maintain a trilateral agreement. A successful three countries’ economic development.” Lisa Viscidi, Director, Energy Program NAFTA upgrade is possible if the United Denisse Yanovich, Director of Development and States does not push for zero-sum deals in The Advisor welcomes comments on its Q&A External Relations sensitive topics; its fate ultimately rests in section. Readers can write editor Gene Kuleta U.S. hands.” at [email protected]. Latin America Advisor is published every business day, except for major U.S. holidays, by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 Washington, DC 20005 www.thedialogue.org ISSN 2163-7962 Advisor Video Subscription inquiries are welcomed at [email protected]

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