Mexico Border Tax: Dubious Legality

Planned US border tax could face WTO challenge, EIU warns.

BY LATINVEX STAFF

The legality of the proposed US border-adjustment tax (BAT) of 20 percent is dubious and could face a WTO challenge, the Economist Intelligence Unit says in a new report, Good neighbour gone bad: policy risks to Mexico and Latin America under Trump.

“Although Mr Trump would be able to apply protectionist legislation through executive order, this is likely to be challenged by Mexico either through NAFTA’s or the WTO’s dispute-resolution mechanisms,” the EIU says. “Mexico has a good track record of winning disputes through NAFTA, including major decisions on crossborder trucking and tuna. Its punitive tariffs (US$2 billion alone in response to the truck ban) were also carefully chosen to target those industries that were most sensitive to select US legislators. Depending on the scale of US protectionist measures, Mexico could inflict significant damage to vital US export sectors, like agriculture, that are supportive of Mr Trump and the Republican Party. Nevertheless, challenging US trade barriers could result in the Trump administration fighting back and expanding protectionist measures, leading to an all-out “trade war”.

The new EIU report points out that although Mexico is most exposed on trade with the United States  --   its exports to the US accountfor over a quarter of the country’s GDP --  Central America and the Caribbean are the two most vulnerable subregions in Latin America when factors like remittances, immigration and aid are also taken into consideration.

"Donald Trump has significant powers to undermine the trade relationship that has existed between the US and Mexico since NAFTA, but on other issues like remittances, immigration, and aid Mexico is considerably less exposed than some of the smaller countries in the region,” Rodrigo Aguilera, the editor of the report, said. “Dealing with the Trump administration will not be easy for many countries in Latin America, but the silver lining in the longer run is that Trump's policies may end up fostering economic diversification away from the US, promoting intra-regional ties and supporting a push to strengthen domestic economies."

MINING: LATIN AMERICA LESS ATTRACTIVE

Latin America is becoming less attractive for mining companies, according to the latest annual global survey of mining executives released by the Fraser Institute, a Canadian think tank.

Chile tumbled in the rankings this year from 11th to 39th, and now ranks below Peru at 28th. Argentina continues to fall in the eyes of mining investors, with five Argentinian provinces placing in the bottom 10 jurisdictions worldwide. Near the bottom of the rankings, Venezuela is the 3rd least attractive jurisdiction for mining investment globally, Fraser says.

BRANDS: PETROBRAS RETURNS; SKOL BEATS CORONA

Brazilian oil giant Petrobras, which was ranked the most valuable brand in Latin America in 2012 and was knocked off the list in 2015, is now back among the top 50 brands, but at a dismal 49^th place, according to the fifth annual BrandZ Top 50 Most Valuable Latin American Brands announced by WPP and Kantar Millward Brown.

The Petrobras brand has suffered from its corruption scandal – the largest ever in Latin America. According to the new brand ranking, Petrobras now has a brand value of $681 million – a far cry from the $10.6 billion it had five years ago.

Brazilian beer Skol is the most valuable brand in Latin America for the second year running

“Skol retains its position as Latin America's most valuable brand, having demonstrated clear purpose to its audience with participation at events such as music festivals, and innovation in communications, packaging and products,” Doreen Wang, Global Head of BranzZ at Kantar Millward Brown says.

Mexican beer Corona came in second. Rounding out the top ten brands are Mexican telecom Telcel, Chilean retailer Falabella, Mexican media giant Televisa, Brazilian beer brand Brahma, Mexican retailer Bode Aurrera, Colombian beer brand Aguila, Mexican brewer Modelo and Mexican retailer Liverpool.

Mexico also dominates the top 50 brands, with a market share of 43 percent, up from 37 percent last year. Despite being the largest economy in Latin America, continued instability in Brazil has meant that its brands contribute 23 percent of the total value, down 1 percent from 2015. Chile has a 17 percent share and Colombia an 8 percent share.

"Purpose-oriented brands generate higher shareholder value than their competitors,” Eduardo Tomiya, CEO Kantar Vermeer, Latin America, said in a statement. “This is where beer brands, such as Skol and Corona for example, as well as retail and communication brands excel - combining local strength with attributes such as innovation, a superior customer experience and a clear value proposition."

ECONOMIC FREEDOM: VENEZUELA WORSE THAN CUBA

Chile remains the freest economy in Latin America and 10th-freest worldwide, while Venezuela is the second-most repressed economy in the world after North Korea, according to the latest Index of Economic Freedom from the Heritage Foundation. 

TRUMP: LATIN AMERICA CAUDILLO

The Economist magazine points out that Donald Trump is increasingly behaving like a typical Latin American strongman.

“A PRESIDENT is swept into office after whipping up a wave of grievance and resentment. He claims to represent “the people” against internal exploiters and external threats. He purports to “refound” the nation, and damns those who preceded him. He governs though confrontation and polarisation. His language is aggressive—opponents are branded as enemies or traitors. He uses the media to cement his connection with the masses, while bridling at critical journalism and at rebuffs to executive power. His policies focus on bringing short-term benefits to his political base—hang the long-term cost to the country’s economic stability. Donald Trump? Yes, but these traits come straight from the manual of Latin American populist nationalism, a tradition that stretches from Argentina’s Juan Perón to Venezuela’s Hugo Chávez and beyond.”

SERVITJE GETS YALE AWARD

Daniel Servitje, chairman and chief executive officer of Mexican breadmaker Grupo Bimbo has received the “Legend in Leadership” award from the Yale School of Management Chief Executive Leadership Institute. The award was presented on Feb. 21 as part of the first Yale Mexico CEO Forum.

With 2015 revenues of $12.7 billion, Bimbo ranks as the 8^th-largest company in Mexico and the 20^th-largest company overall in Latin America on the latest Latinvex 500.  

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