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The 95th Anniversary of the United States-Mexico Chamber of Commerce Northeast Chapter

In the early 20’s of the last century, a group of visionary business people from Mexico and New York constituted what was then called the Mexican Chamber of Commerce of the United States (which in the late 80’s became the Northeast Chapter of the United States-Mexico Chamber of Commerce), as a bilateral and non-partisan organization with the mission to develop and strengthen the business ties between both countries and to foster mutual understanding and collaboration among their business communities.

Since its creation in a time of hesitation and haziness in which Mexico was still addressing internal challenges in the aftermath of the Revolution and the World was still recovering after World War I, the Chamber has lived during defying and bonanza times. Throughout more than 95 years it has transcended bringing together Mexico and New York in a sound and vivid business relation. 

Today, the U.S.-Mexico business relation is facing new challenges. In its 95th Anniversary, the Northeast Chapter of the United States-Mexico Chamber of Commerce (USMCOCNE) commemorates its history and at the same time upholds its commitment to continue as an engine and envoy for the success of the economic partnership between the United States -New York in particular- and Mexico.

The first office of the USMCOCNE was established in today’s New York City landmark: The Woolworth Building in Downtown Manhattan. At that time, The Woolworth Building was the tallest building in the World and was considered one of the most important centers of international business.  We are going back to The Woolworth Building, which is opening its doors for our celebration on Thursday, March 30 at 6:00 PM.

We hope you can join us for this celebration.

If you are interested in participating and sponsoring our commemoration event, please contact us at 

How the Trump Presidency May Affect Commercial Real Estate Investment in Mexico
Authored by: Malcolm Montgomery, Alex Rosenthal and Horton McKinney Huerta

As the United States’ neighbor and second-largest trading partner, no country has followed Donald Trump’s campaign rhetoric quite like Mexico.  While sometimes it seems that even soothsayers cannot predict what the President-elect will say or do next, below we summarize several themes that may impact the commercial real estate markets, Mexican REITs (FIBRAs) and cross-border commercial real estate investment from the U.S. to Mexico.

NAFTA – Although the U.S. president has the power to rescind trade agreements, any attempt to rescind NAFTA would be met with resistance by policymakers on both sides of the border.  The more likely scenario is a renegotiation of the 22-year-old trade agreement.  This would play out on a more even playing ground than initially expected.  U.S. and Mexico economic ties have never been stronger.  Mexico recently became the second-largest exporter to the U.S., and NAFTA has created five million jobs in the U.S.  Recently, manufacturers have accepted tax breaks to keep American jobs in the U.S.  While that strategy is effective in isolated cases, shifting the burden of a competitiveness gap to taxpayers is not a sustainable long-term strategy.  If NAFTA is in fact renegotiated, the outcome will directly impact real estate assets both north and south of the border, particularly with respect to industrial properties.

Interest Rates and Inflation – Facing a depreciating peso, the Bank of Mexico has increased interest rates—aiming to maintain its target inflation rate of 3%.  While conventional wisdom suggests interest rate increases negatively impact FIBRAs (due to the inverse relationship between cost of debt and the rate of return on equities), long-term inflation also leads to increased rents and capital gains.   Public-market investors will ultimately connect the dots and real estate equities, including FIBRAs, should rise.

Weakening Peso Retail and hospitality FIBRAs may also see asset appreciation due to the weaker peso.  Remittances from the U.S. to Mexico now have significantly increased purchasing power, driving up Mexican retail sales.  Indeed, some retailers have increased net profits by 30% in 2016 alone.  Moreover, the weak peso has made Mexican resorts more attractive to both national and international vacationers.  While many destination resorts hedge themselves by tying their pricing to U.S. dollars, unwitting international vacationers can be expected to flock to Mexico nonetheless.  These factors should make Mexican retail and hospitality assets increasingly attractive to real estate investors.

Tax Policies – Under the GOP’s most recently proposed tax plan, businesses would no longer be required to pay U.S. federal taxes on overseas profits and U.S. corporate taxes would be “border-adjusted”.  A border-adjusted tax is levied where goods are consumed, rather than where they are produced.  These changes could make cross-border transactions more appealing to real estate investors by both reducing the taxes associated with repatriation of capital to the U.S. and making U.S.-produced goods cheaper to Mexican consumers.
The U.S. election brings one certainty for real estate investors in Mexico—changing times lie ahead.  With change, shrewd market participants, paying close attention to fundamental market drivers, will find significant real estate investment opportunities.

Malcolm K. Montgomery leads the real estate finance practice at Shearman & Sterling LLP.  He handles financings involving assets and currencies in multiple countries and works regularly with REITs and FIBRAs. 

Alex H. Rosenthal is an associate in the Real Estate Group at Shearman & Sterling LLP. 
Horton McKinney Huerta is an associate in the Corporate Group at Shearman & Sterling LLP.

Mr. Trump won, what happens to Mexico now?

The election of Donald Trump as the next US President is a game changer for Mexico’s outlook. We revised down our growth forecast for 2017 from 2.6% to 1.2%. The most immediate channel of contagion is MXN weakness. While the first reaction was driven by panic, the defense of the peso will take time given the uncertainty surrounding NAFTA. Mexico will be obliged to hike rates, intervene on the FX market and implement a tight fiscal policy. Even if a soft renegotiation of NAFTA is our baseline scenario, exports, consumption and investment are all heading south in 2017. All in all, the outlook is gloomier but there is no need to panic.
Our main findings are:

  • The outlook of the Mexican economy was already deteriorating regardless of the result of the US election. The Mexican industry was indeed suffering from the plateau reached by US auto sales. The prospects for consumption were getting darker on the back of higher inflation, fiscal consolidation and monetary tightening.
  • Banxico will try to preserve some bullets by hiking moderately the key rate (50bps in December, after 50bps in November) to defend the currency. Mexico’s monetary policy will be tighter in 2017 limiting the prospects for investment and consumption.
  • Consumption will be affected by contradictory forces. Remittances will benefit from FX weakness which contrasts with the negative impact on purchasing power resulting from higher inflation and rates. Under our new baseline scenario in 2017, prices will reach 4.1% on average with MXN at 21 vs. USD.
  • Our baseline is a soft NAFTA renegotiation which includes a lower tariff (similar to Pre-NAFTA), targeting the auto sector and a rather long process of negotiations. Exports should therefore decline next year by a milder extent (-0.2% Y/Y) than in a full Trump program scenario (-5.2% Y/Y).
  • The confidence shock driven by policy uncertainty will lead to a reduction in Capex by US and foreign firms. The incentive to build new plants could be undermined by MXN swings and policy uncertainty. The US is by far the largest source of FDI in Mexico (53% of total inflows) and the manufacturing sector the main receiver (50% of total inflows).
  • While eventually freezing the remittances for compelling Mexico to pay for the wall seems unlikely, a stricter immigration policy could see light (higher visa fees, deportations of illegal immigrants with criminal records…). The freshly-elected President has somewhat moderated his rhetoric. The first 100 days will reveal the difference between the candidate and the new President.

By Juan Carlos Rodado
Dr. Juan Carlos Rodado is the Head of Natixis Latin America Research in New York since 2013. He has over 10 years of working experience on EM. He served as Senior Economist for EM Europe at Natixis’ headquarters in Paris. Juan Carlos has covered more than 30 countries including Brazil, Mexico, Russia, Turkey, Poland and Hungary. He earned a Master degree in International Economics from Paris-Dauphine and a Ph.D. in Financial Macroeconomics from Paris-Sorbonne.

Mexico: Senate Approves Initiative to Amend Labor Justice Provisions of Mexican Constitution
By Tania Terrazas Arnaldo on October 17, 2016

On October 13, 2016, the Senate of the Republic unanimously approved an initiative that amends several of the Labor Justice provisions of the Mexican Constitution regarding employment dispute hearings and union representation. If passed by the House and approved by the state legislatures, newly created tribunals and specialized authorities will adjudicate labor disputes and govern union relationships including collective bargaining, union registration, and employee representation verification.

These proposed amendments would replace the Conciliation and Arbitration Boards with federal and state labor courts.  These courts would be under the Judicial Power of the Federation or a part of federal entities, and they would be responsible for issuing rulings and judgments in order to resolve conflicts between workers and employers.

A pre-conciliation stage is also proposed, consisting of a single, mandatory hearing conducted by conciliation centers at the local level. At the federal level, the conciliation will be conducted by an independent agency also responsible for the registration of collective bargaining agreements and union organization.

Additionally, the amendments strengthen the rights of workers by ensuring a free, individual, and confidential vote to choose union leaders, request the execution of a collective bargaining agreement, and to resolve conflicts with unions. Under this amendment any union aiming to hold the collective bargaining agreement of a given establishment, shall demonstrate to the labor authority that it has the representation of the employees of that establishment.

This initiative includes amendments to Articles 107 and 123 of the Mexican Constitution, which were proposed by the President of Mexico in April of this year. It will be submitted to the House of Representatives for further discussions and may undergo additional modifications.

Tania Terrazas has experience advising national and international companies on daily labor issues, termination processes, employer substitutions, international assignments and immigration matters. Her experience includes drafting individual and collective agreements and negotiating with union leaders. She assists employers with preparing and revising bonus and incentive plans, internal policies and regulations, codes of conduct and employee handbooks, pension plans, written warnings and fact finding reports, among other labor documents. She also conducts investigation processes, due diligence, labor restructuring and employee transfers.

What’s next for the EB-5 investor visa program?

Lawmakers are turning their attention to the EB-5 investor visa program, which expired on Sept. 30, 2016. As the election heats up, the fate of this controversial program remains unknown. In late September, reform measures stalled in Congress, leaving no clear path for how the program will be reformed, or even where it is headed.

The EB-5 visa program, which offers permanent residency to foreigners who invest a minimum of $500,000, has received mixed reviews. While the program was launched as a way to incentivize foreign investors to create jobs in the U.S., it has led to certain instances of alleged fraud and has been accused of channeling funds to locations that already have healthy economies. On the other side of the debate, Julian Montero, a partner at Arnstein Lehr, says the program offers benefits that extend well beyond the $500,000 needed to participate, and that the initial investment is just the beginning of significant investments made by families participating in the program. The United States Citizen and Immigration Services (USCIS) agency, which administers the program, estimates the EB-5 Regional Center Program has created tens of thousands of jobs and attracted billions of dollars in investment.

The program, with a limit of 10,000 immigrant visas annually, was dominated by Chinese investors, who accounted for 85% of EB-5 visa applications in 2013. The program hit its 10,000 visa capacity for the first time in 2014. The popularity of the program also led to the creation of a multitude of EB-5 Regional Centers, where private firms marry projects with immigrant investors.

Roger Bernstein, principal and owner of the EB-5 for Florida Regional Center in Miami, said that in 2007 there were roughly a dozen of these centers nationwide; now, the U.S. boasts over 500 of them. The proliferation of these centers has generated criticism of the program for reportedly steering investment away from regions that need the investment.

In 2015, Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Patrick Leahy (D-Vt.) introduced a bill to reform the program, and this was followed by similar legislation introduced in the House by Judiciary Chairman Bob Goodlatte (R-Va.) and Ranking Member John Conyers (D-Mich.). All remain in favor of the program, which they believe creates jobs in the U.S., but would benefit from stronger oversight and transparency.
Some of the proposed changes for the program include:

  • Increasing the minimum threshold for investment to $800,000; and
  • Limiting the 10,000 EB-5s to certain zones (e.g., rural and urban), or particular industry sectors.

It’s unlikely that any decisions will be made ahead of the election in November, and any such reforms may be left up to the next Congress and President to work out. The program, for now, remains expired and in a holding pattern.

Uneven pace of international agreements creates FATCA uncertainty

A patchwork of completed, partially completed, and stalled intergovernmental agreements related to the Foreign Account Tax Compliance Act (FATCA) is becoming a headache for banks with a global footprint. Prolonged uncertainty may create difficulties for U.S. taxpayers holding – or seeking to open – accounts at these institutions.

Congress passed FATCA six years ago in the wake of the global financial crisis, with the intent of giving the IRS stronger tools to identify and bring into compliance U.S. taxpayers using overseas accounts to avoid paying taxes owed. Under FATCA, foreign financial institutions are compelled to report to the IRS information on accounts held by U.S. taxpayers – or by foreign entities substantially owned by U.S. taxpayers. Failing to meet this obligation can mean facing the substantial penalty of a 30% withholding tax.

Banks and other financial institutions have the option to report the information to the IRS directly, although in many countries, this could put them in conflict with national laws and regulations. In these jurisdictions, the U.S. Treasury Department has negotiated Intergovernmental Agreements (IGAs) that allow foreign financial institutions to comply with FATCA by reporting U.S. taxpayer information to their own national government, which then shares it with the IRS at a high level.

As of mid-November 2016, however, of the 113 countries with which the U.S. has negotiated a FATCA agreement, 44 have not brought that IGA into effect, including countries such as Belgium, China, Indonesia and Saudi Arabia. Further, while 19 of the 44 countries where implementation is lagging have signed an IGA, 25 have not even reached that stage in the process.

One factor complicating – and potentially delaying – progress on FATCA IGAs is the simultaneous work many countries are doing on the Organization for Economic Cooperation and Development’s common reporting standard (CRS). Like FATCA, the CRS is an international system for the cross-border reporting of financial data. With over 100 countries participating in the CRS, the parallel processes of implementation may be draining time and legislative resources away from work on FATCA.

Finally, legal challenges to these IGAs – including in some countries where they have taken effect – can create additional complications and uncertainties. Israel and Canada are just two examples of counties in which FATCA IGAs were challenged recently (although those challenges ultimately failed).

Meanwhile, the U.S. is increasing the pressure on those countries lagging in FATCA IGA implementation. Earlier this year, the IRS demanded that these countries report on their status and demonstrate they are committed to putting their IGAs into force.

The uncertainty surrounding the status of IGAs in many countries creates difficulties for financial institutions with operations in those jurisdictions. They are caught in a catch-22, where direct reporting to the IRS puts them in conflict with local laws, while the lack of a finalized IGA potentially puts them at risk of penalty from the IRS. In the meantime, U.S. taxpayers should make sure they understand the status of FATCA reporting in the countries in which they hold bank accounts, and its implication for them.

Why NY's New Pay Equity Law May Be a Game-Changer
By Bruce R. Millman on November 7, 2016

I remember the lawyer, half a generation older than I, describing how, as a recent law school graduate she struggled even to get an interview for a job as a lawyer. When an offer came, she eagerly accepted, even though the firm's senior partner told her that, "of course" she would be paid less than the male associates, because she was married and they "had families to support."

The Equal Pay Act, 29 U.S.C. §206(d), was enacted in 1963 "[t]o prohibit discrimination on account of sex in the payment of wages."1 But half a century later statistical disparities still exist between men and women's pay, although the reasons and size of the gap are often debated.2

New York is one of several states3 that have recently enacted legislation to address the lingering gender pay disparity. In October 2015, as part of the broader "Women's Equality Agenda" that expanded protections for women in several other respects, Gov. Andrew Cuomo signed the Achieve Pay Equity Law (S.1/A.6075), which makes significant changes to New York's own equal pay act, N.Y. Labor Law §194.

Effective Jan. 19, 2016, the law has received little attention even though its changes to New York's standards for determining whether women and men are receiving equal pay for equal work will likely require employers to modify or abandon many common compensation practices. And with 300 percent liquidated damages available to prevailing plaintiffs, the law presents a substantial risk to employers who fail to examine closely their existing pay scales and their compensation practices and policies (as well as presenting an incentive for employees to test the meaning and bounds of the new law).4

Under the state Equal Pay Act before the amendment, women and men were to receive equal pay for equal work unless the difference was attributable to a seniority system, a merit system, a system that measure earnings by quantity or quality of production, or any factor other than sex. Under the new statute, employers can no longer rely on "any factor other than sex" to justify a pay difference. Instead, unless one of the other justifications apply, the employer must demonstrate a "bona fide factor other than sex, such as education, training and experience."5

Further, the bona fide factor cannot be based on or derived from a sex-based differential in payment, must be job-related to the position in question, and must be consistent with "business necessity." Business necessity is "defined as a factor that bears a manifest relationship to the employment in question."6

However, even such a bona fide factor will not provide justification for the wage difference if an employee demonstrates that it has a disparate impact on the basis of sex, that an alternative employment practice exists that would serve the same business purpose, and that the employer has refused to adopt the alternative practice.

See complete news item here.

Bruce R. Millman has 40 years of experience counseling private and public sector employers on business and personnel strategies. He works with employers on Labor and employment aspects of mergers and acquisitions, sales, reorganizations, and reductions-in-force; Wage and hour compliance and compensation issues; Collective bargaining and other union matters; Disciplinary decisions and wrongful termination; Employment discrimination issues; Sexual harassment and other forms of harassment; Family leave and disability issues; and Personnel policies, executive employment contracts, and manager/employee training.

India cracks down on the cash economy and tax evasion

In an effort to crackdown on India’s shadow economy, India’s Prime Minister Narendra Modi made an unprecedented move in November by announcing that 500-rupee and 1,000-rupee notes would no longer be legal tender, effective immediately. His move is intended to spur greater depositing and taxation of much of the nation’s wealth, as these notes account for more than 85% of the country’s money supply.

India’s current economy is cash-dependant, with cash transactions accounting for roughly 25% of GDP, with much of the nation’s wealth transferred this way, even for high-ticket items like property and jewelry.

The goal of Modi’s demonetization strategy is clear: bring more of the nation’s cash into bank accounts so it can be reported and taxed. To encourage compliance, he is also limiting the tax and penalties for those individuals who opt to voluntary disclose wealth. For those who voluntarily disclose, there is a 30% tax, plus additional penalties and surcharge totalling another 20% of previously undisclosed wealth. For those who are unable to provide a satisfactory explanation of previously undisclosed wealth, or who fail to disclose by the December 30th deadline, a stiffer tax and penalty—upward of 85%--would apply.

Additionally, India passed an amendment to the country’s Income Tax Law, requiring a mandatory deposit of 25% of an individual’s previously undisclosed wealth, which is then held without interest and carries a four-year lock-in period. The money collected under this program will be used to fund programs for irrigation, housing, toilets, infrastructure, primary education and health.

Although Modi’s demonetization strategy could create a temporary setback for the Indian economy, according to Bank of America Merrill Lynch, bank deposits are expected to increase by as much as 2% and lenders have reportedly accumulated upwards of 6 trillion rupees since the announcement. 

Modi’s strategy has been met with criticism, however, as many believe that it won’t access the lion’s share of India’s “black money” (upwards of 5 trillion rupees are expected to go unredeemed as tax evaders accept losses over detection by tax officials). Further, it only singles out cash, and doesn’t address black money held in vehicles like gold, bitcoin and foreign bank accounts. India has recently signed a pact with Switzerland to begin the automatic exchange of information, enabling tax authorities to receive financial information regarding Swiss bank accounts held by Indian residents effective 2018 starting in September 2019, which should address a portion of foreign tax evasion.

It’s apparent that Modi has his sights set on eradicating tax evasion and is willing to go to significant lengths. These initiatives may be followed by additional measures aimed at improved reporting and compliance.

Chinese purchasing U.S. real estate at fast pace and beyond "usual" markets

Chinese citizens are buying real estate outside of China at a record pace, making an estimated $15 billion in purchases in the first half of 2016 alone. That’s equal to their total purchases for all of 2015, according to recent reports. This trend is driven by rising housing costs inside China, a weakening currency, and a desire to diversify assets outside of the country, and it has confounded the Chinese government’s attempts to restrict the outward flow of capital.

The investment climate inside China has become more challenging as the country’s topline rate of economic growth has slowed, the yuan has weakened, and assets like real estate in top domestic cities have increased in price. At the same time, real estate markets closer to home, such as Hong Kong, and other traditional targets for outside investment, like Vancouver, have recently passed measures adding additional taxes on foreign real estate buyers in response to local pressure to curb fast-rising housing prices.

The United States is a top destination for this type of investment. The U.S. alone has seen some $93 billion in Chinese residential real estate investments between 2010 and 2015, according to a report this year by the Asia Society and the Rosen Group. This level of demand and competition for properties in the country’s top real estate markets, including New York and San Francisco, has caused more Chinese investors to look for opportunities in other cities. Seattle has supplanted San Francisco as the most-viewed city on at least one major property search site this year, while Houston and Orlando are also attracting greater interest

Other U.S. markets are likely to see increased interest as long as this current trend continues. Cities with major universities could be high on the list, as Chinese parents seek a base for (or near to) their children who are studying overseas. If this results in price spikes in those markets, it is possible that there will be local political backlash against foreign buyers sometime in the future. Another wild card in the near term is what measures an incoming Trump administration may take that could affect trade and investment between the U.S. and China.

In the meantime, the pace of Chinese capital outflow remains brisk. Some experts estimate that it will continue to accelerate, and that the value of overseas real estate investments will have grown 130% in 2016. Total global real estate holdings by Chinese citizens and entities could nearly triple, according to forecasts by

This is a dynamic investment arena, with many moving parts, and it’s one we will continue to follow closely as events unfold.


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