100 days of blood: Mexico murder rate increases in 2019

According to official reports, Mexico’s murder rates increased to historic figures in the first three months of 2019. Authorities confirmed the death of 8,493 people from January 1st to March 31st which is a 9.6% rise compared to the same period in 2018.

This contradicts the publicly expressed aims of newly elected Mexican president Andres Manuel Lopez Obrador, who promised to decrease violence in Mexico during his presidential campaign and the creation of a new security force: The National Guard; a 80,000 person strong security force to be implemented by the end of 2019.

In 1997 homicide records began to be kept by the National System for Public Security (NSPS). Since this time, Mexico’s deadliest year was in 2018 when 33,369 people were killed. President Lopez Obrador has expressed that he has inherited a violent country from his predecessor who also targeted violence during his term and was responsible for the arrest of drug lord: Joaquin “El Chapo” Guzman.

Experts have expressed that even with successive Mexican presidents declaring a war on drugs in an attempt to defeat Mexico’s powerful drug cartels and even with the arrest of many high-profile cartel bosses, violence has not stopped. In fact, it has led to the number of victims rising with smaller cartels fighting for control in disputed areas. According to the NSPS, the state with the highest murder rate in 2019 was Guanajuato in central Mexico, where 947 people have been killed since the start of the year. This is the location of where two powerful cartel’s dispute control.

The weekend massacre of 2019

Thirteen people were killed in a club in Minatitlan, Veracruz. Investigations have revealed that rival cartels: Jalisco New Generation and Cartel dos Zetas are responsible for the act. Witnesses have confirmed that six masked men, heavily armed, approached the bar around 9pm local time, killing the bar’s owner and twelve others that were nearby, including a one-year old baby. Local police believe this type of crime is related to rival cartels controlling businesses around the region.

Kidnapping, extortion and oil theft are a few of the other activities local cartels practice in Veracruz.

Regulatory barriers to digital trade

What is being done by multilaterals and in free trade agreements to reduce the increase?

As technology promoting digital trade progressed, a regulatory sandbox was called for loudly by industry so industry could trial ideas without an overly heavy regulatory burden but now the biggest policy measure that impedes digital trade is data localisation. Some governments see data localisation as a way to keep their national businesses strong as companies that would see the benefit of a cloud are commonly foreign, trading across borders.

Some governments are requiring that foreign or multinational firms not use a cloud to house their data, which, as a result would require them to build local server infrastructure. Governments state that this is because they are concerned about privacy and security of their citizens.

In China, foreign companies need a Chinese partner to obtain a licence to use cloud services. Last year the Reserve Bank of India issued a directive that data from electronic payment systems needed to be stored locally. This limits data flows and impacts business.

To try to prevent this rush of regulation the APEC Cross Border Privacy Rules system (endorsed by APEC leaders in 2011) was created to address privacy concerns. The system includes voluntary principles for industry that can guide data protection practices and procedures. It also includes pre-packaged legal and privacy documents and a process for certification. In APEC style or voluntary participation, it prioritises harmonization and has been designed to interoperate with existing European frameworks.

There are other strategies and regulatory measures that governments can take to guide companies to protect the data of their customers. This includes binding corporate rules, contractual clauses and requirements on obtaining consent from customers. 

There is also progress happening in digital trade in the World Trade Organisation (WTO). In December 2017, during the WTO 11th Ministerial Conference (MC11), 70 WTO members signed a Joint Statement on e-commerce. This development sets the foundation for a future negotiation round on e-commerce to update international trade rules to keep pace with technological change. It was also agreed during the meeting to extend the moratorium on customs duties on electronic transmissions for another 2 years.

Australia uses clauses in free trade agreements (FTAs) to overcome data localisation regulations by our trading partners as seen in our newest FTA, the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), signed on 4 March 2019. Under IA-CEPA, Indonesia will not be able to make its laws more restrictive on the local storage of data.

The resuscitated Trans-Pacific Partnership (TPP), now called the Comprehensive and Progressive Agreement for TPP (CPTTP) entered into force on 30 December 2018 for Australia, Canada, Japan, Mexico, New Zealand and Singapore. In January 2019 Vietnam also signed on. This altered agreement went ahead without original negotiators: the USA, Chile, Peru, Brunei Darussalam and Malaysia. CPTPP delivered breakthroughs for participating economies to promote the free flow of data across borders for service suppliers and investors as part of business activities. CPTPP countries have committed not to impose ‘localisation requirements’ that would force businesses to build data storage centres or use local computing facilities in CPTPP markets.

Is a Latin American dictatorship close to collapse?

2019 has only just began and the World has turned its eyes to Venezuela.

Tensions have escalated after tens of thousands protesters streamed on to the street of Caracas to what has been described as the final push to force Nicolas Maduro from power.

The once stable South American country is stuck in a downward spiral of inflation, general shortages and political discontent, with many Venezuelans placing blame for the crisis directly at Maduro’s government.

Tensions rose in the Latin America country when many of Venezuela’s neighbours did not recognize the re-election of Nicolas Maduro, for another 6 years mandate. Instead, Maduro’s opposition leader, Juan Guaido, is recognised as the legitimate president by many South American nations, including: Argentina, Brazil, Chile, Peru and Columbia. The USA has publicly recognized Guaido as the country’s legitimate President.

To intensify its support, The USA has implemented sanctions preventing state oil company, PDVSA, from taking profits on crude exports to American refineries, cutting off the main source of Venezuelan government revenue, placing Maduro under pressure to step aside in favour of Guaido’s leadership.

Australia, the UK and European Union support Guaido, while Russia and China have demonstrated their support to Nicolas Maduro or focus on stability and social order, demonstrating their deep financial ties to Venezuela. Both Nations are against a potential American intervention and praise a Venezuelan response from political crisis.

How Venezuela’s political crisis unfolded?

March 2013 - Vice president Nicolas Maduro took office after Hugo Chavez died of cancer

February 2014 – Venezuelan forces arrest opposition leader Leopoldo Lopez on charges which led to a wave of protests against the government

December 2015 – Oil prices collapsed, there was prolonged recession and rising inflation

July 2017 – Venezuela calls a referendum which is a process usually held for rewriting the constitution, leading to accusations that Maduro is undermining democracy

May 2018 – Maduro gets re-elected with allegations of vote-buying by the government. United States and Lima group do not recognize the results

January 2019 – Maduro initiates his second six-year term, ignoring the advice of several Latin American governments. Unknown opposition lawmaker, Juan Guaido, swears himself in as interim president. Getting recognised by the United States and many of Venezuela’s neighbours

February 2019 – General Francisco Yanez calls on armed forces to rebel against Maduro and his government. Nicolas Maduro refuses humanitarian help coming from Columbia and Brazil, closing both boarders with armed militia.

Author: Yuri Maia is a Geopolitical Analyst at Informed Australia

This article can be republished with attribution under a Creative Commons Licence. 

Global Oil

World Oil Prices and the Weapon of Economic Ruin

The price of crude oil has always fluctuated in accordance with geopolitical events. Historically, gluts in supply, the introduction of alternative fuel sources, economic downturns and unexpectedly mild winters have reduced demand, pushing prices down. Social unrest in oil-exporting economies and investor speculation, overvaluing the commodity have played their part in pushing prices up. An assortment of these factors caused price crashes or extended declines in 1986, 1998/1999, 2008/9 and 2014-2016.

The Organisation of the Petroleum Exporting Countries (OPEC) is an intergovernmental union of oil-exporting economies aligned with the goal to control the price of world oil. In reaction to the above factors, OPEC’s ability to control the price using production levels is only partly effective. OPEC's founding objective was to unite oil policies between member economies to “secure fair and stable prices” for the benefit of oil producing economies and their investors, as well as to maintain a stable supply to consumers. This cooperation intended to cease harmful fluctuations in the supply of this highly sought after commodity. However, the altruism of its members’ underlying desires remains questionable.

OPEC member economies who first joined the cartel during a 1960 Baghdadi conference include Iran, Iraq, Kuwait Saudi Arabia and Venezuela. Their 2013 oil rent levels - the difference between the value of crude oil production at world prices and total costs of production as a percentage of GDP, measuring a country’s economic dependence on oil exports – are 22.8 (Iran), 42.9 (Iraq), 57.5 (Kuwait), 43.6 (Saudi Arabia) and 23.6 (Venezuela).

Since 1960, OPEC has been joined by Algeria (21.6), Angola, (34.6), Ecuador (16.2), Gabon (42.4) (terminated membership in 1995), Indonesia (2.3), Libya (44.2), Nigeria (13.6), Qatar (23.4) and the United Arab Emirates (21.6).

The 8 producers not in OPEC with the highest oil rents as a percentage of GDP, and thus a high reliance on oil exports, are Azerbaijan (33.9), Brunei Darussalam (23.6), Chad (23.3), the Republic of Congo (56.8), Equatorial Guinea (53.3), Kazakhstan (23.8), Oman (34.5) and South Sudan (25.8). These countries are at risk because “the larger a country’s reliance on oil exports, the smaller its chances of weathering deleterious changes in the market”. This list, which contains many developing economies, all have a high reliance on earnings from crude oil. They will not fare well in a world economy with a prolonged period of cheap oil with little reserves to weather the low prices. They are particularly vulnerable right now because, since 2012, there has been a “stunning fall in price, from a peak of $115 per barrel in June 2014 to under $35 at the end of February 2016.”

Currently, Saudi Arabia as the producer with the largest market share has the loudest voice in OPEC. OPEC has been slow to reduce production levels as suggested. This makes a mockery of the first Summit of Heads of State and Government in 1975 convened to tackle the struggles of the poorer oil-producing nations.

There have been many “conflicting statements” about what will happen to OPEC oil production levels. In February 2016, oil ministers from Venezuela, Saudi Arabia, Russia and Qatar signed a deal in Doha “coordinating actions to freeze oil production in a bid to stabilise global oil prices and ensure continued profits from the industry.” It will be interesting to see if this deal holds with Russia, the USA, Iran and Saudi Arabia reported as not slowing their production “since the price of oil started to fall in 2014.” Some analysts are calling the production freeze a “meaningless gesture”. Another round of talks with OPEC and major non-OPEC producers is planned to take place in Doha on 17 April “to widen the production freeze deal.”

Saudi Arabia has acted swiftly in the past to demand global cooperation regarding oil price strategy. In 1986, the Saudis increased their oil output dramatically to force non-OPEC oil producers to cooperate with OPEC in order to stabilise global output. Now, they seem reluctant to cut production so that they can keep prices low to drive out overinvestment in the current world market.

There are other possibilities as to why the Saudis are failing to reduce production levels swiftly. These include a possibility of pushing out smaller producers which would increase market share in the future, stalling newly sanction-free Iran from retooling its oil industry and undermining America's fracking production which would reduce reliance on Saudi political and trade cooperation.

Saudi Arabia’s actions in Syria are also provoking questions about their connection to oil. But what has oil got to do with Saudi Arabia’s actions in Syria?

Syria controls access to gas pipelines spanning from the Middle East to Europe. Religiously opposed to the Shiite Assad Government in Sunni Muslim majority Syria, Saudi Arabia would not be happy about the new deal that Syria has proposed. With support from Russia, Syria has elected to give preference to Shiite majority economies in the Iran-Iraq-Syria-Europe gas pipeline, supporting this over the Sunni majority Qatar-Saudi-Jordan-Syria-Europe pipeline.

The Saudis may also want to fiscally hurt Russia, as the Assad Government and Shiite dominated pipeline’s chief ally. This is at the expense of other OPEC member states who want to stabilise oil prices. Moreover “countries that are heavily dependent on remittances from citizens working in oil economies are also at risk.”

For survival, oil-exporting economies are devaluing their currencies and undertaking fiscal stimuli in their economies. However for economies like Venezuela, already facing a serious currency and balance-of-payment crisis, this decrease in exporting abilities only amplifies the problem and exaggerates inflation.

The depreciated price of world oil is causing severe hardship across many economies. The failure of those who have the ability to rectify this problem to make any significant changes amounts to them using oil as a tool or weapon to force political gains – a weapon of economic ruin.

Originally posted in 'Insights' by Young Australians in International Affairs by Cassandra Oaten, International Trade and Economy Fellow. 

 This article can be republished with attribution under a Creative Commons Licence. Please email publications@youngausint.org.au with any questions or for more information.

Image credit: Laura Pontiggia (Flickr: Creative Com

Financial Cooperation Across the Asia-Pacific

Envious of the success arising from Europe’s regulatory convergence – which is allowing Asian investors the mobility to invest in European collective investment schemes (CIS) – Asian governments are working to construct the Asian Regional Funds Passport (ARFP). This initiative will woo back some Asian investors to use locally-based funds instead.

Fund operators in participating economies of the Passport scheme will be able to market approved funds to other member economies with minimal regulatory hurdles. Not only will this keep capital in the region, but it will also provide an additional choice to investors, giving them the ability to better diversify their portfolio to reach their investment objectives.

The ARFP will lead to huge gains for the funds management industry through leveraging the benefits of economies of scale. The internationalisation will mean access to new customers. Therefore, it is expected that the ARFP will lead to a reduction in costs due to the simplification and streamlining of administrative structures. The scope that the funds in the ARFP should achieve throughout Asia will benefit Asia when competing globally due to lowered fees and costs – making funds highly competitive to those outside the region. The Passport will improve liquidity and is also hoped to raise capital to finance the highly needed long-term infrastructure projects that require large-scale investment.

It is not the first initiative to utilise the idea of marketing a designated set of permitted investment funds across borders. The Undertakings for Collective Investment in Transferable Securities (UCITS) vehicle is the investment scheme for funds domiciled in the European Union (EU). UCITS have further matured Europe’s funds management industry and its reputation for predictability and stability.

As a result, the EU has been cashing-in on marketing and selling its UCITS funds to many economies in Asia. “Over the past three years, 40% of all net sales into UCITS funds came from Asia.” In 2011, total net assets in UCITS vehicles stood at €5.63 trillion. In comparison, the capital flow into mutual funds domiciled in Asia was only €6.27 million. UCITS have also grown to be listed in 2012 as the  “most popular offshore fund product” in Hong Kong, Japan, Malaysia, Singapore, South Korea, and Chinese Taipei. Whilst UCITS are very popular, the ARFP will “reduce potential settlement risk” for Asian investors which was a problem in the past with the UCITS due to the time zone in which the fund is priced.

Asia, with its fragmented market, is not at all similar to the EU. In comparison, Asia has very low rates of convergence and integration making it "easier to sell UCITS funds in Asia than to sell Hong Kong or Singapore funds". With no overarching body like the EU, APEC is stepping up to champion this harmonisation alongside other economic integration and growth initiatives in the region.

The demographics of Asian markets are diverse. Many are characterised by “a growing middle class and aging population in need of retirement savings products”. Thus, it is timely and necessary that Australia, Japan, Korea, New Zealand, the Philippines, Singapore and Thailand are pushing this opportunity as pilot member countries. Japan’s participation is a particular boost to the ARFP due to the consumer access it will provide with "the estimated $14,000 billion in savings held by Japanese households”.

Progress now depends on these seven economies. They have all signed the Memorandum of Cooperation to ratify the agreement, and have now set aside 18 months to implement domestic legislation and regulation changes to “give effect to the Passport arrangements”. The Passport will be enacted when at least two economies commit to the arrangement.

Expansion of the ARFP initiative is likely. Chinese Taipei, Hong Kong, Indonesia, Malaysia and Vietnam have met with the pilot economies on a biannual basis since 2010 in order “to explore options”. It is an exciting development in regional integration that Indonesia is in the mix because currently “full distribution of offshore funds is not permissible” in Indonesia. This is also the case in China and India. Now that the consultation phase is complete, additional eligible economies can approach to become members. They are also able to propose revisions to the Passport arrangements, making them more likely to join the ARFP in the future.

The ARFP will deepen the capital markets of member economies whose participants will be able to attract finance for growth between each other and, later, possibly further afield. According to APEC, the Passport “could also facilitate funds from the Asia region being marketed in Europe through an Asian/European mutual recognition agreement.”

China and Hong Kong also have further integration plans. Launched on 1 July 2015, the China Hong Kong Mutual Recognition Scheme (CHKMRS) complements China’s 13th Five Year Plan (5YP) and lays “a foundation for the strengthening of financial and regulatory ties towards greater integration of the Asian asset management industry.” Same as the ARFP, the scheme will allow capital mobility and investment in managed funds in respective economies once the funds are qualified. Thus, it remains a question whether Hong Kong and the mainland will want to be officially involved in the ARFP in the future. Or perhaps the plan would be for Hong Kong to join as this would allow Chinese funds international market access, using Hong Kong as a pathway.

There is also the ASEAN Funds Passport. However, the drivers and initial participants of this initiative are already involved in the ARFP (Singapore, Thailand and Malaysia) so it is doubtful that the work will be duplicated.

Originally posted in 'Insights' by Young Australians in International Affairs by Cassandra Oaten, International Trade and Economy Fellow. 

This article can be republished with attribution under a Creative Commons Licence. Please email publications@youngausint.org.au with any questions or for more information.

Image credit: Nicolas Lannuzel (Flickr: Creative Commons)  

Expectations for the Trans-Pacific Partnership

To stimulate cross-border trade and economic growth, free-trade agreements (FTAs) are state-negotiated tools that can be pressed upon trading partners, enticing them to reduce protectionism. Utilising a unified and cooperative approach, trade liberalisation can achieve mutual gains, albeit for some economies more than others.

After seven years of negotiation, the Trans-Pacific Partnership (TPP) – an agreement between 12 APEC member economies (5 from the Americas - Canada, Chile, Mexico, Peru and the USA and 7 from Australasia - Australia, Brunei Darussalam, Japan, Malaysia, New Zealand, Singapore, and Vietnam) – has been finalised. Its content has been released to the public here, thanks to New Zealand. The agreement seeks to reduce trade barriers between member economies. Economic modeling has indicated varied estimated projections of GDP growth as a result of the deal for the economies involved. In 2012, the gains were valued at $26.6 trillion although, more recently, researchers have projected estimates down to nearly $300 billion in a decade or $285 billion by 2025, amongst others.

To protect investors and drive foreign direct investment through this opportunity, the TPP includes investor-state dispute settlement (ISDS) clauses. Investment is defined broadly under the TPP to include every asset, whether tangible or intangible, that an investor controls either “directly or indirectly, that has the characteristics of an investment”.

ISDS clauses provide foreign investors the right to sue states if the government adversely affects existing corporate investment through regulatory policy change. These clauses also safeguard investors from discrimination that they may receive in a foreign court, protecting them against bias and “insufficient legal remedies”.

To diminish taxpayer apprehension about these clauses, national foreign affair agencies have released summary documents which explain the “suite of mechanisms” included in the TPP to safeguard the state’s ability to regulate policy to protect the public and common good. It contains specific mention of the areas of health and the environment. But questions still remain if these safeguards will be strong enough to protect states from loophole-seeking corporations wanting compensation, or regulatory static, as states strengthen regulations in their established markets.

The aptitude of these safeguard provisions as witnessed in past agreements have had mixed results. The US-Central America Free Trade Agreement (CAFTA) and Peru-US Free Trade Agreement (PTPA) contained clauses with environmental safeguards. Even so, American firm Renco, a lead mining company, was still able to sue the Peruvian government when Peru introduced stricter standards to companies, requiring them to reduce their lead pollution during their production.

ISDS cases have not just taken place in emerging nations with weak legal institutions, but also in economies with robust systems. Argentina has faced 98 ISDS claims and, as a result of the North American Free Trade Agreement (NAFTA), Canada has faced 22 and the USA 15. It is likely that the strength of TPP ISDS provision safeguards to states will not be known until tested in the market - a highly expensive trial.

Although they are very expensive to prosecute against, safeguards have been successful in the past. These will hopefully deter future cases. Last month, Australia won an investor-state arbitration case between the state and tobacco company Phillip Morrison Asia (although with a $50 million taxpayer price tag for the proceedings). This case followed after Australia brought in plain packaging regulation to strengthen its tobacco control measures. Proceedings were initiated under an ISDS clause of a 1993 Hong Kong-Australia Bilateral Investment Treaty (BIT). The case has finally been dismissed as Australian prosecutors were able to prove that Philip Morris acquired “shares in Philip Morris Australia in early 2011 ‘in the full knowledge’ of the government’s decision in 2010 to introduce plain packaging.”

Public calls for government policy responses will continue to morph with changing public apprehensions, which may menace market environments for investors. Political change is now occurring at a rapid rate. One can see this astonishing pace - driven by a mix of political will and public pressure - in the rapid achievements of Uruguay. This South American country has been able to shift its high levels of imported oil (27% of energy needs in 2000) to produce 95% of its electricity needs from clean energy sources. With strong political leadership and policy stability, governments are able to change policy rapidly. Thus, there will be new areas of importance to public welfare that are not included in ISDS provision clauses in the current negotiated arrangement.

With these matters in mind, it is trusted that the current TPP has struck an appropriate balance between the government’s ability to legislate in the public interest, and investor protections to adequately promote investment and to increase international trade. It is hoped that the protections and safeguards put in place in the TPP will be able to disenfranchise companies from suing the state if acting unethically, solely their own economic interests. Time will tell.

Originally posted in 'Insights' by Young Australians in International Affairs by Cassandra Oaten, International Trade and Economy Fellow. 

This article can be republished with attribution under a Creative Commons Licence. Please email publications@youngausint.org.au with any questions or for more information.

Image: Leaders of TPP member states

Image Creidt: Gobierno de Chile (Wikimedia: Creative Commons).