US-MEXICO GEOPOLITICALENVIRONMENT UNDER PRESIDENT TRUMP

ECONOMIC, BUSINESS AND LEGALASPECTS

MÉXICO AND THE U.S. GOOD FRIENDS?

• Mexico and the U.S. have enjoyed a mutually beneficial relationship for several decades, spanning across economic, social, cultural, environmental, political and military/law enforcement aspects.

TRADE AND INVESTMENTIS IT A ONE-SIDED RELATIONSHIP?

The U.S. and Mexico are strategic trade partners with $1.5 billion worth of goods and services crossing the border every day.

01Mexico is the second-largest export market (after Canada) and third-largest trading partner with the U.S. (after China and Canada).

02Mexican foreign direct investment in the U.S. has nearly doubled since 2007.

03

Source: Forbes, U.S. Department of State

TRADE AND INVESTMENTIS IT A ONE-SIDED RELATIONSHIP?

In 2013 Mexican tourists to the U.S. were over 14 million (vs. 20 million U.S. to Mexico).

04In 2015, the largest share of business travelers and tourists to the U.S. were Mexicans.

05The U.S. government issued 4,000 investor visas to Mexican citizens in 2012--the third most in the world (after Japan and Germany).

06

Source: Forbes, U.S. Department of State

“The economic relationship with Mexico, though not without its challenges, provides concrete benefits,

strengthening the competitiveness of American Firms, creating jobs in the United States, and generating

savings for the average American family.”

-Woodrow Wilson International Center for Scholars

INDUSTRY AND MARKETINTERDEPENDENCY

VALUE CHAIN MANUFACTURING

• Mexico and the U.S. have developed an efficient regional system of production supply chains with materials and know-how flowing back and forth as products are built.

• This allows the two countries to effectively combine their individual advantages and have mutual benefits.

• Joint production: In 2011, Mexican industries consumed $140 billion in U.S. intermediate goods, and U.S. industries consumed $111 billion dollars’ worth of Mexican inputs.

Source: Forbes

PROTECTIONISM VS. MAXIMIZING VALUE

• Cost effectiveness (foreign sourcing reduces costs as much as 80%)• Decreased operating capital and cash flow• More regulations (in foreign countries, government have implemented incentives to

attract companies)• Higher price for consumers, which would lead to less profits for the company.

BORDER TAX – IMPLICATIONS FOR U.S. CONSUMERS

• The companies that import would have to either bear the new tax (which isunlikely) or pass the cost onto consumers (higher prices).

• Section B, Article 302 of NAFTA. Tariff Elimination. Except as otherwiseprovided in this Agreement, no Party may increase any existing customs duty, oradopt any customs duty, on an originating good.

Source: The Balance

ARE U.S. JOBS BEING SHIPPED ABROAD?

Nearly 5 million U.S. jobs depend on trade with

Mexico.

Business supported by Mexican FDI

in the U.S. employ more than 123,000

people.

Source: The Athlantic and Forbes

ARE U.S. JOBS BEING SHIPPED ABROAD?

Source: The Atlantic, Forbes, Wilson Center and theBusiness Insider

• Jobs outsourced abroad are mostlylow skill labor. The average Mexicanauto worker earns 10% of its U.S.counterpart.

• Trade pushes the structure towardhigher-skilled service jobs.

• 2000-2010: U.S. manufacturing jobcuts were caused by productivityincreases, only 13% were linked totrade.

“US firms that have greater sales, hire more workers, spend more on R&D, export more goods, and invest more capital in

Mexico also have greater sales, hire more workers, spend more on R&D, export more goods, and invest more capital in the United States. [Offshoring to Mexico] exerts a net positive

force on the domestic operations of US firms.”

-Peterson Institute for International Economics

Workforce • The creation of 333 U.S. jobs

Exports• A 1.7% increase in exports from the

U.S.

StrategicInvestment

• A 4.1% increase in U.S. R&Dspending.

The jobs created in the U.S. due to these, require higher skill levels, reinforcing the

need for worker training to qualify for higher-paying positions.

A 10% INCREASE IN MEXICAN EMPLOYMENT BY U.S. MNC’S (131 JOBS) LEADS TO:

Source: Peterson Institute for International Economics

US INVESTMENT IN MEXICO

Essential indicators• Historically, the U.S. has been the main source of FDI in Mexico. Here are the main

reasons why:• It provides national treatment for most foreign investment• Reduction of administrative bureaucracy• Legal limits for foreign investments have been reduced• Energy reform will open investment opportunities for American energy and service

infrastructure companies that seek new energy markets• Although most taxes in Mexico are federal, states have begun developing programs for

attracting industry • Nuevo Leon, Coahuila, Chihuahua and Tamaulipas have signed an agreement with the

state of Texas to facilitate regional economic development and integration.

Source: Forbes

NAFTA• Still relevant?• Changes needed• Exit mechanisms

IS NAFTA STILL RELEVANT TO THE CURRENTINTERNATIONAL ENVIRONMENT?

• It links 450 million people, which is the population of all the members of NAFTA• Its members generate $20.8 trillion , as measured by gross domestic product. U.S. With

$18.8 trillion, Canada with $1.67 trillion and Mexico $2.3 trillion.

• U.S. foreign direct investment (FDI) in Mexico (stock) was $92.8 billion in 2015 and Mexico's FDI in the United States (stock) was $16.6 billion in 2015.

• Sales of services in Mexico by majority U.S.-owned affiliates were $45.9 billion in 2014 (latest data available), while sales of services in the United States by majority Mexico-owned firms were $8.5 billion

• Food imports totaled $39.4 billion in 2013, up from $28.9 billion in 2009. • Between 1993-2015, the United States increased its exports of godos from $142 billion to $517 billion.

IS NAFTA STILL RELEVANT TO THE CURRENTINTERNATIONAL ENVIRONMENT?

What do the numbers mean?• Lowered food prices.• Three industries benefited the most: agriculture,

automotive, and services (health care and financial services).

• Foreign investment. • Lowered costs and final price for consumers.

Source: Forbes

WHAT CHANGES TO NAFTA WOULD BEMUTUALLY BENEFICIAL FOR THE REGION?

WHAT CHANGES TO NAFTA WOULD BE MUTUALLYBENEFICIAL FOR THE REGION?

Rules of origin

E-commerce, cybercrime and data protection

Environmental issues

Labor rights

Border security

Regulatory simplification

MECHANISMS TO EXIT OR AMEND NAFTA UNDERINTERNATIONAL AND U.S. DOMESTIC LAW?

Article 2205: Withdrawal. A Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other

Parties.Section 125 of the Trade Act of 1974

NAFTA was approved by Congress (CEA).

Congress implemented NAFTA’s provisions by enacting various

internal legislation

• No clear rule requiring congressional approval means POTUS couldterminate a Congressional Executive Agreement (CEA), BUT

• Political issues• NAFTA was approved by the Congress, can/should Congress be ignored in

terminating it?• Even if NAFTA terminated, there would be internal laws that would

remain in force and Mexico and Canada would not be obliged to grantpreferential treatment to U.S. products.

• Constitutional Commerce Clause: only Congress can change tariff, taxand customs laws.

MECHANISMS TO EXIT OR AMEND NAFTA UNDERINTERNATIONAL AND U.S. DOMESTIC LAW?

TRADE AND INVESTMENT IN THETRUMP ERA

TRADE AND INVESTMENT IN THE TRUMP ERA

• Renegotiation of Trade Agreements• Shift in trade decision-making to

the White House• Increase in Import Duties / BAT -

Some researchers predict that BAT would cause the U.S. dollar to appreciate, which would reduce the value of the U.S. companies’ foreign currency denominated assets and earnings.

• Economic Sanctions and Embargos

TRADE AND INVESTMENT IN THE TRUMP ERA

• “Corporate welfare” strategy.• Rising prices, diminishing

competition and slowing innovation.

• Stock market risks.• Taxing of remittances.• Enforcement efforts may decline• Corporate Governance –

Deregulation, board members andsenior executives bear a heightenedresponsibility

CHANGES IN REGULATIONAntitrust Administrative Law

• New balance inenforcement positions

• Trump is veryunpredictable (basedon his history and hiscampaign rhetoric)

• Traditional Republicancaution in non-cartelcases with somepotentiallyunpredictableaggressiveenforcement decisions.

Two possible prospects foradministrative law underTrump:• Bipartisan

retrenchment: Liberalsand conservatives in theSupreme Court couldform a new coalition tolimit executive powers.

• Liberals are likely tobecome critical ofTrump, whileconservative lawyersmay now make peacewith the president’spowers.

LEGAL PRACTICES THAT MAY EXPERIENCE GROWTH

• Domestic Project finance market: Due to Trump campaign’s statements objectingagainst the flow of funds and investment to other countries.

• Banking Groups: Trump’s policies will deregulate the banking and finance sectors,sectors which, on the stock market, have already responded with a significant jump invalue.

• Real Estate: The development of infrastructure is intimately tied to the development ofother real estate

• FCPA: Trump has placed a strong emphasis both on rooting out “corruption” and thestifling of outbound investment

• Cybersecurity and Data Privacy Counseling and Litigation: High profile intrusionsinto both government and private networks compromising the personal information

• Healthcare: Replacement of Obamacare• Antitrust, M&A: Trump has threatened to pause deals• Immigration: Deportations, work visas

M&A

- Record in 2015- Unpredictablebut active in2016

Dealmakersneed to payattention to:- Economictrends- Legaldevelopments- How businesscommunity reactto these events.

Relevant factors:- Financing, BuyAmerican, Anti-trust Climate,Tax Reform

What to expectfor the 2017M&A Market?- Signs arepointing towardcontinued robustlevels of M&Aactivity- More deals forcompanies with$5 million to$100 millionrevenue

CLAUSES IN INTERNATIONAL CONTRACTS

• Changes in law• Exchange rate mechanisms• Cots-plus consideration structures• Exit options• Compliance with the law / FCPA• ADR

THANKYOU!