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Mexico & Cuba Increase Economic Cooperation
Authored by: Alexander Trueba

Mexico and Cuba recently announced several new agreements in an effort to strengthen ties and improve relations. While the countries had a strained relationship under Mexico’s two previous administrations (2000 – 2012), a recent formal state visit by Cuban President Raul Castro to Mérida, Yucatán marked the rapprochement of ties between the countries.  Both Castro and Mexican President Enrique Peña Nieto welcome the prospect of initiatives to strengthen the investment climate as Cuba attempts to modernize its economic model.

During Castro’s three-day visit in early November, Mexico and Cuba signed five cooperation agreements.  Under the first, both nations agreed to jointly combat human trafficking and re-establish the tools needed to guarantee legal, safe and orderly migration between them.  Recently, there has been a marked increase in the number of Cuban migrants arriving in Mexico driven by fears that the normalization of U.S. – Cuba relations will change laws that currently allow Cubans who reach U.S. soil to get automatic residency permits.  Many are now choosing land routes through Latin America, rather than the trip across the Florida Straits, to enter the U.S. The remaining Mexico – Cuba accords will promote education (primarily in literacy), diplomacy, tourism and fishing.

Also planned are joint efforts to increase investment from Mexico to Cuba. Total trade between Mexico (Cuba’s third most important trade partner in Latin America) and Cuba in 2014 was approximately US $374 million, a small sum compared to the US $500 billion in two-way business last year between Mexico and the U.S.  Analysts believe Mexico’s geographical proximity and its historically close ties with Cuba put the country in prime position to capitalize on a market of roughly 11 million people.  In September, leading Mexican beverage and retail company Femsa announced it was considering expanding its business to Cuba and cement maker Cemex is following suit.

Additionally, Mexican construction firm Grupo Tradeco sees significant room for growth in Cuba’s infrastructure sector.  The island’s infrastructure issues present an enticing opportunity for companies interested in developing highway, communications, and hydraulic infrastructure.  Mexico already has several investment projects in Cuba’s port of Mariel (located in the northwestern region of the country).  Of the seven companies that received approval to develop the mega-port, two are Mexican.

Despite these areas of optimism, Mexican companies must manage their expectations accordingly.  The Cuban government’s control of the island’s economic and political life, as well as human rights concerns, raise questions regarding Cuba’s overall investment climate.  That being said, Mexico sees an opportunity to increase trade and strengthen its bilateral relationship with the Caribbean nation, eager to stake its claim as Cuba’s principal bridge to Latin America.

Author’s Biography:  Alexander Trueba is an analyst at Frontera Capital Advisors, LLC where he brings significant financial and analytical skills to each client engagement. Mr. Trueba contributes to all aspects of the firm’s M&A, Turnaround and Restructuring and Forensic and Litigation services.

Mr. Trueba has provided financial analyses, including but not limited to, financial due diligence, valuations, litigation services and forensic reviews on multiple client matters related to the real estate, hospitality and manufacturing sectors. He has developed cash flow models and has assisted in interim management oversight to several business operations throughout the Latin American region.

Prior to joining Frontera, Mr. Trueba's relevant experience included work at national accounting and tax advisory firms where he served clients in various audit and tax support functions. Mr. Trueba also worked for City Year Miami, a non-profit organization, as a mentor and a teacher to underprivileged elementary school children. He currently serves as the chairman for the City Year Miami Alumni Board. In addition to his contributions to City Year, he is active in other local charities and community organizations such as the YMCA, Boys Town, Best Buddies and Leadership Florida.

Mr. Trueba graduated from Boston College’s Carroll School of Management with a B.S. double major in Accounting and Marketing and minor in History. He is fluent in Spanish.

Grupo Cuprum: Implementing an innovative early payment program

To continue delivering top quality aluminum products to their global customers at competitive prices, Grupo Cuprum began looking outside their local market to source raw materials – turning to HSBC to help customize a solution that would meet their own working capital needs while mitigating potential trade risk for their new suppliers

About Grupo Cuprum:  Founded in 1948 in Monterrey, Mexico, Grupo Cuprum is a vertically integrated conglomerate that extrudes and manufactures aluminum profiles, ladders, windows, rolled aluminum and other aluminum-based products. The company is the leading aluminum extruder for Mexico and the Caribbean, and also exports to customers in the U.S, Europe and Asia. Cuprum is also the number one manufacturer of Aluminum, Fibre Glass and Attic ladders in Mexico and in Canada. Today Cuprum employs 4500 people across three extruder plants, three finishing plants, two foundry plants, 80 stores, nine warehouses and four service centers in Mexico Canada and the U.S.

The Business Challenge:  Cuprum considers its primary business objective to source the highest quality raw material at the best price in order to provide their customers with superior, cost effective aluminum products.
Initially, Cuprum purchased all its aluminum locally on an open account basis. In 2010, HSBC joined the company’s Trade Finance team to help them maximize liquidity and free up working capital with a supply finance program for domestic suppliers. With this, Cuprum was able to successfully extend their own payment terms without negatively impacting their suppliers’ working capital.

Over time, it became clear to Cuprum that in order to meet their business objective they would need to also source aluminum internationally. As they began exploring foreign suppliers in China, India and the U.S., they found many were reluctant to work with an unfamiliar business partner requesting longer payment terms on an open account basis.

Cuprum turned to HSBC to deliver a tailored solution that would protect both their own working capital, as well as that of their new global suppliers.

HSBC’s Solution:
  With a global presence that includes local franchises in Mexico, China and India as well as banking relationships with Cuprum’s key prospective suppliers, HSBC was able to design a custom solution that:

Mitigated currency risk for Chinese and Indian suppliers using Import Letters of Credit (LCs) issued by HSBC in both RMB and USD

Refinanced and discounted the LCs in order to provide payments to suppliers upon shipment of goods while also extending payment terms for Cuprum
The Result for Grupo Cuprum:  With HSBC as their core bank for Trade Finance, Cuprum was able to successfully grow and diversify their supplier base by extending their reach outside of Mexico.

According to Edgardo González, CFO of Grupo Cuprum, “We appreciate HSBC’s insight in terms of Trade Finance and facilities. Their personalized service translated into a solution that helped us meet our own working capital objectives while also bringing a benefit to our suppliers, which is invaluable to us.”

This is particularly true in the case of their Chinese suppliers. “HSBC was one of the first foreign banks to be recognized as an RMB agency bank in mainland China, so we were confident in their ability to help us offer our Chinese suppliers payments in their own currency. This gives our suppliers access to savings since FX rates can be unfavorable for RMB. As a result, we receive discounts of up to 3% on invoices on top of the cost savings we realize by sourcing aluminum internationally.” Mr. González goes on to say that this market remains challenging as the regulatory environment in China continues to evolve. “It will be critical for us to stay informed so we are always in compliance and taking full advantage of the benefits of doing business in RMB.”

Based on the success of the Import LC Discounting structures being used in China and India, Cuprum plans to continue exploring new markets and leveraging HSBC’s global network and trade knowledge to develop solutions that further manage risk within the supply chain and also support the working capital needs of all parties involved. This includes setting up a supply chain finance facility booked through HSBC USA, which will facilitate Curprum’s compliance with the requirements of their US-based suppliers.
Read the full article here: https://globalconnections.hsbc.com/us/en/articles/grupo-cuprum-early-payment-program#

Changes to Third Phase of Round One Oil Bidding Process
Authored by: Carlos Chavez

The first two phases of Mexico’s Round One oil bidding process are now behind with mixed results, going from the perceived failure of the first phase to the second phase’s success.  The third auction will be held in December 2015 and lessons have been learned by the Mexican Ministry of Energy, the National Hydrocarbons Commission and the Ministry of Finance and Public Credit with respect to the bidders’ and other potential investor’s expectations.
Much of the success in the second phase was attributed to the series of revisions that the authorities performed in advance of the auction, to the production-sharing agreements and to the bidding documents of the five auctioned contractual areas.  Revisions to the security and corporate guarantees, bids by consortiums, administrative rescission and prior publication of the minimum economic values, were applied by the Mexican authorities to the Third Phase’s documents in mid-September. 
In such Third Phase, 60 pre-qualified companies may bid for 25 contractual areas of mature conventional onshore fields, with new amendments approved on November 9, 2015 further trying to improve the attractiveness of the bidding process to national and foreign companies.
The most relevant changes between the Second and Third Phase are listed below:
I.- Bidding Documents

  1. Cost of Access to Data Room:
    1. Before: Around USD $320M
    2. Now: Around USD $150M
  2. Categories of Contractual Areas:
    1. Before: One type.
    2. Now: Two types: (i) Type 1 for areas with a volume of remaining recoverable hydrocarbons of less than 100 million barrels; and (ii) Type 2 for areas with such volume equal to or higher than 100 million barrels.  Type 2 contractual areas will be auctioned first and winner’s equity will be reduced accordingly before auctioning Type 1 areas.

II.- Agreements

  1. Type of Contract:
    1. Before: Production-Sharing Agreements.
    2. Now: License Agreements, similar to concessions.
  2. Performance Guarantee:
    1. Before: Letter of credit.
    2. Now: Letter of credit or guarantee bond (fianza).
  3. Corporate Guarantee:
    1. Before: Required stockholder equity of 18-times the value of the “Minimum Work Program” of the PSA.
    2. Now: Requires stockholder equity of: (i) USD $300M for each Type 2 awarded contract; and/or (ii) USD $7.5M for each Type 1 awarded contract.
  4. Appraisal Plan Submission:
    1. Before: 90 days following execution of the Agreement.
    2. Now: 120 days following execution of the Agreement.
  5. Civil Liability and Well Control Insurance Coverage:
    1. Before: USD $1B
    2. Now: USD $250M
  6. Provisional and Development Plans Submission Obligation:
    1. Before: Development Plan following submission of a Continuation of Activities Notice.
    2. Now: Provisional Plan before execution of Agreement and Development Plan 120 days after execution.

JATA is a Mexican law firm with offices at Monterrey, Mexico and Houston, Texas. Please do not hesitate to contact us with any comments or concerns regarding Mexico’s energy reform and its implementation in practice.

Author’s Biography:  Carlos A. Chávez Pereda is a Senior Associate at JATA (www.jata.mx).  He obtained a law degree from the Universidad de Monterrey and a LL.M. from Duke University.  He is experienced in M&A, energy, joint ventures, financings and cross-border transactions. 


FIBRA E: New Way to Invest in Energy in Mexico
Authored by: Jorge Caballero

In recent years, the authorities have taken upon themselves to create investment vehicles for encouraging different industry sectors in our country. As an example, in 2011 the first real estate investment trust (Fibra) was placed among the general investing public. Fibras are regulated under the Mexican Income Tax Law (Ley del Impuesto Sobre la Renta, LISR) as part of the tax incentives to promote the real estate sector in Mexico.

According to Mexican Stock Exchange (BMV) data, there are currently 10 Mexican Fibras, with a securitization value of over Mx$235,000 million. Furthermore, there are close to 50 Capital Development Certificates (CKDs) for investing in real estate and infrastructure projects.

Whereas the market has been characterized by the favorable response of investors currently using the aforementioned vehicles, the Mexican government, setting out to encourage the investment in energy and infrastructure projects recently introduced the rules for creating energy and infrastructure investment trust (Fibra E).

The main purpose of a Fibra E is to grant total transparency to the entire vehicle structure, from the issuer trust to the qualified entities, in order that the tax effects cascade are triggered on an individual investor level, depending on their capacity as taxpayers. It is important to stress that as with real estate Fibras, Fibras E are required to distribute at least 95% of their tax profit at least once every year. Their tax scheme prevents double taxation of investors.

A challenge that faces the introduction of Fibras E is how to value the different permitted investment asset classes. Asset classes in which Fibras E are permitted to invest are quite diverse and different from one another, with varying durations and ways of determining future cash flows.

At least 70% of the trust should be invested in Mexican entities ("Qualified Entities") while the remainder, in federal government securities. Activities in which qualified entities may be engaged include: oil, natural gas, petroleum products, petrochemicals, and electricity and infrastructure projects.

In any case, qualified entities should be Mexican entities. In this sense, rules are in place for the segregation of assets in existing concerns (spin-offs) to avoid counterproductive tax effects.

Tax advantages include the following:
 Efficient and transparent scheme that allows for the free flow of profits and dividends
 No obligation to make estimated tax payments by the qualified entities or the Fibra E
 15% accelerated depreciation on the difference between the carrying value of shares and the cost of assets
 The sale of Fibra E certificates is tax exempt

This is undoubtedly an attractive investment vehicle that seeks to boost the energy and infrastructure sectors. Particular rules are expected to be published over the following weeks and the placement of the first Fibras E issue is projected for the first half of 2016.

Author’s Biography:  Jorge Caballero is a Tax Partner and Real Estate Sector Leader at KPMG in Mexico.  He has over 11 years of experience providing advisory and tax consultancy to multinational companies. He has also advised on tax obligation compliance through the implementation of integrated models for the analysis and management of strategic and operational performance of domestic and foreign customers, giving support in the increase of profitability, resource orientation and processes of decision making. His experience relies on the real estate industry, including construction and hospitality services. He has advised companies in various industries in real estate fibers, including CKD, and Foreign Retirement Pension Funds and Private Capital Funds.

What you Need to Know Before Moving to the U.S.A.

La Rosa Del Monte is one of the leading moving companies in the Americas providing excellent worldwide services to satisfied and repeating customers. We understand the challenges of an international move can be and we have the experience to make the process smooth and stress free.

Here are some useful tips to prepare for your international move to the USA:
Finding a Home in the USA renting a new home can be very overwhelming, La Rosa Del Monte recommends hiring a real estate broker which can help you find a house in the neighborhood you desire and within your budget. Their standard commission is 15% for rentals.

• Finding a Home in the U.S.A. - Renting a new home can be very overwhelming, La Rosa Del Monte recommends hiring a real estate broker which can help you find a house in the neighborhood you desire and within your budget. Their standard commission is 15% for rentals.

• Social Security Number A social security is an identification number needed for employment, building credit and official documentations as well as opening a bank account. You can get one from the local social security office.

• Driving in the U.S.A. - You will be required to obtain a U.S. driver's license and depending on where you will be residing, it will dictate how long you will be allowed to drive with an international driving permit. To obtain a U.S. driver's license you will be required to take a driving test, which will involve a multiple choice test, driving, parking and stopping a car. A U.S. driver license also acts as your ID in the States.

• Medical Services/Health Insurance - Health insurance is mandatory in the USA. It is advised to get your medical health insurance sorted out as soon as possible and register with a local doctor, dentist, and any other specialist you may require.

• Bank Account - If you are moving to a major city you can transfer your bank account and set up a new account or maintain the same account if your bank has offices here in the U.S. If however you are moving to a not so major city then you will have to open an account with a local bank. It is also worth noting that it is very difficult to open a bank account without a social security number so this must be obtained from the local social security office first.

• Business Culture - The United States business culture is fast paced and it is based on results. Deadlines are taken very seriously and everyone is expected to get things done on time to gain trust and respect within the company.

Throughout our entire 48-year history, we have remained focused and dedicated to growing, diversifying and investing in the required resources to meet the changing needs of our customers and the marketplace. Let us guide you through your international move process!
La Rosa Del Monte - We deliver moving experiences

When Transferring Employees to the U.S., Foreign Employers Should Consider Impact if Proposed Changes to Overtime Exemption Are Approved
Authored by: Hector Galeano

On July 6, 2015, the Department of Labor (“DOL”) proposed a revision to the “white collar” overtime exemption rule.  As explained by Littler when it testified before the House Subcommittee, “the proposed white collar exemptions are unprecedented in the [Federal Labor Standards Act’s] 77-year history.”  Even after this week's hearing, it is unclear whether the rule will be implemented in its current version or whether additional changes will be made.  The proposed rule has been published for more than 60 days and therefore DOL has authority to move forward to implement the rule.  If implemented in 2016, the minimum salary for overtime exemption would jump from $23,660 a year to $50,440.

The overtime exemption rule is applicable to executive, administrative, professional, computer-related occupation employees, and other narrowly defined personnel. Under the current rule, employees falling within the above-mentioned category are exempt from overtime pay if their salary is above $455 per week.  This proposed rule change, effectively increasing the salary to $970 per week, has the potential to impact numerous international corporations who rely on employees from their offices abroad to fill critical roles within U.S. offices.

Many employers fill critical roles via the use of numerous non-immigrant visas, which may include the H-1B, L-1, and E-1/E-2 visa categories.  The categories that will likely be impacted are the L-1 and E-1/E-2 visas.

The L-1 visa, allows multi-national corporations to transfers employees from a related foreign entity into the U.S. if these employees will be employed as Executive/Managers (L-1A) or in positions that required specialized or advanced knowledge (L-1B). The E-1/E-2 visa, allows corporations that are owned by nationals of a treaty country to bring over executive, supervisory and essential employees.

Although the overtime exemption is not likely to impact the higher level executive or managers transferred under the L-1A or E-1/E-2 visa categories, it may impact those employees being transferred under the L-1B category or as E-1/E-2 essential employees. Many of the L-1B/E-1/E-2 visa applicants are in the computer or engineering fields, originating from countries, such as India, where the base pay is significantly lower than that of their counterparts in the United States.

Both the L-1B and E-1/E-2 visa categories permit the employers the option of either maintaining the transferee on foreign payroll or switching them to U.S. payroll.  The problem likely will arise with employees who may be earning a substantial salary, by local standards, however, when transferred to the U.S., that pay may not translate to an amount that exceeds the proposed new minimum salary. If the proposed rule changes are adopted, transferees earning a salary that is at or below the proposed new minimum salary will be entitled to overtime pay.

See complete article here.

Author’s Biography:  http://www.littler.com/people/hector-galeano

USCIS Issues New Procedures for Determining Time for Filing Green Card Application
Authored by: Kristin A. Meister and Jorge R. Lopez

On September 9, 2015, the U.S. Citizenship and Immigration Services (USCIS) promulgated new procedures for determining the visa availability date for individuals waiting to file employment- and family-based applications for permanent residence (also known as "green cards") in the United States.1  The U.S. Department of State (DOS) is responsible for the administration of the Immigration and Nationality Act's laws pertaining to immigrant visa issuance and the annual numerical limits, or quotas, on visa issuance.

Each month the DOS issues a Visa Bulletin announcing the availability of immigrant visas to intending immigrants based upon their priority date.  In general, a priority date is the date on which a foreign labor certification application is filed with the U.S. Department of Labor in the case of an employment-based application, or the date on which the family-sponsored immigrant visa petition is filed with USCIS in the case of a family-sponsored petition.  A visa may be issued to an intending immigrant if his priority date is earlier than the date appearing in the Visa Bulletin table for the applicable visa category.

Previously, a green card applicant had to wait to file his application until his priority date was current, meaning that a visa was available for issuance by the DOS.  The recent changes announced by the USCIS implement President Obama's November 20, 2014, executive action on immigration accountability. 2 The procedural change will permit intending immigrants to file their green card applications earlier.

The Visa Bulletin will now comprise two charts per visa preference category.  (See, for example, employment-based preference charts below from the October 2015 Visa Bulletin).3 The first table applies to applications with "Final Action Dates."  This table determines when the immigrant visa is available for issuance.  When a priority date is current pursuant to the Final Action Date chart, a final decision may be rendered on the green card application.  The second table in the newly revised Visa Bulletin lists the "Dates for Filing Applications."  As the name suggests, green card applicants will now be able to file their applications when their priority dates are current.  The practical effect of these changes is not to shorten or eliminate the length of time an individual must wait to receive his green card, but rather to shorten the amount of time an individual must wait to file his application.

See complete article here.

Author’s Biographies:  Kristin A. Meister http://www.littler.com/people/kristin-meister 
Jorge R. Lopez http://www.littler.com/people/jorge-r-lopez 

In Canada, Foreign Workers Seek to Use International Norms as the Standard of Care in Negligence Claims Against Multinationals Operating Overseas
Authored by: John Kloosterman, Trent Sutton, Sari Springer and Lavanga Wijekoon

Non-Canadian workers are increasingly suing their employers in Canadian courts for human rights violations allegedly committed outside Canada by the companies themselves or by other entities in their supply chains. This development seems to be spurred by recent U.S. cases limiting the rights of workers and their representatives from bringing these claims in the United States. 

These claims rest on a theory that international norms such as the UN Guiding Principles on Business and Human Rights form a standard of care that, when violated, constitutes actionable negligence.  These "norms" were previously regarded as nonbinding “soft law,” but the Canadian developments could transform them into binding “hard law” enforceable through awards of civil damages.  The practical effects of this trend include a growing effort to use Canada as a forum for redressing alleged human rights violations committed overseas, and an emphatic need for employers to consider developing and implementing effective codes of conduct for their supply chains.

2014 and 2013: Groundbreaking Decisions:  Recent cases illustrate the trend. In 2013, members of an indigenous Mayan community in Guatemala brought three suits in Toronto against Canadian company Hudbay Minerals for alleged abuses committed by security personnel at a nickel mining project.1   The plaintiffs argued that the company violated its duty of care by failing to prevent these harms.

The alleged duty of care arose from, inter alia, international norms, including the International Finance Corporation Performance Standards and the Voluntary Principles on Security and Human Rights, which the company had publicly committed to follow.  Amnesty International, as an intervenor, filed a submission arguing that these international norms, as well as the UN Guiding Principles on Business and Human Rights (the “UN Guiding Principles”) and the Organization for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, formed the applicable duty of care.

The court, having applied a multi-factor test, recognized that the negligence claim was “novel” and denied a preliminary motion to strike the allegations, finding, among other things, that plaintiffs had properly pled the duty of care.  It noted that the company had made public statements that it had adopted certain “international norms,” and, therefore, there was a “proximate” relationship between the plaintiffs and the company.  As the court stated, “these public statements alleged to have been made by the parent company are one factor to be considered … [that] are indicative of a relationship of proximity,” which creates the company’s obligation “to be mindful of the plaintiffs’ legitimate interests.”

See complete article here.

Author’s Biographies: 

John C. Kloosterman http://www.littler.com/people/john-c-kloosterman
Trent M. Sutton http://www.littler.com/people/trent-m-sutton
Sari L. Springer http://www.littler.com/people/sari-l-springer
Lavanga V. Wijekoon http://www.littler.com/people/lavanga-v-wijekoon

 

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