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US Push for Freer NAFTA e-commerce Meets Growing Resistance

A U.S. proposal for Mexico and Canada to vastly raise the value of online purchases that can be imported duty-free from stores like Amazon.com and eBay is emerging as a flashpoint in an upcoming renegotiation of the NAFTA trade deal.

Vulnerable industries like footwear, textiles and bricks and mortar retail in Mexico and Canada are pushing back hard against the proposal by the U.S. trade representative to raise Mexican and Canadian duty-free import limits for e-commerce to the U.S. level of $800, from current thresholds of $50 and C$20, respectively.

For the Mexicans, the main worry is that such a move could open a back door for cheap imports from Asia and beyond. For Canadian retailers, the fear is that e-commerce companies will undercut their prices.

The U.S. plan was unveiled in July as part of the Trump administration’s goals to renegotiate the 25-year-old treaty.

While Mexico and Canada are still formulating their responses, Mexico City is leaning strongly against the proposal in its current form, and Ottawa may not be far behind.

The proposed $800 level “opens a completely unnecessary door” to imports from outside the NAFTA trading bloc, Mexican Economy Minister Ildefonso Guajardo said on Thursday on the sidelines of a NAFTA-related event, calling it “a very sensitive topic.”

The growing controversy over how to account for a burgeoning regional e-commerce sector dominated by the United States highlights a rare area where the Trump administration is pushing to liberalize trade rules rather than tightening them.

Much of Trump’s criticism of NAFTA stems from his belief it has decimated U.S. manufacturing as companies shifted production to Mexican factories with cheaper labor, creating a U.S. trade deficit with Mexico worth more than $60 billion.

Top priority

But Mexican and Canadian business leaders fear the rule change could make their industries vulnerable, arguing that unless online retailers can show products are made in North America, they should not be exempted from duties levied on other imports.

“We can’t open the door to inputs from outside the region coming in tax-free when we’re talking about the need to reduce the deficit and create jobs,” said Moises Kalach, who fronts the international negotiating arm of Mexico’s CCE business lobby. “It goes completely against that.”

Guajardo said Mexico’s retail group the National Self-service and Department Store Association, which includes powerful members such as Wal-Mart de Mexico , had visited him last week to express concerns about the proposal.

He said the group’s representative brought to the meeting a $250 jacket bought on the internet as evidence that violations to the existing limit were already threatening members’ businesses.

“Suppose there was an $800 free limit. Can you imagine how many shirts Vietnam could send to Mexico in a packet below that price? They could easily flood us with packets of 100,” he said, while recognizing the need to smooth customs processes.

Complicating efforts to agree on a common set of rules is a tangle of diverging regulations on tax and how the restrictions on imports differ in the region depending on whether they enter by air, sea or land.

Amazon.com Inc. and eBay Inc. declined to comment for this story.

eBay has previously said it supports an increase to Canada’s low-value customs “de minimis” threshold for ecommerce to promote seamless access to the global marketplace.

Increasing the threshold “absolutely” is eBay’s top priority in the NAFTA renegotiation, a person familiar with the matter said.

Canadian opposition is being led by retailers, whose industry association said it was concerned about “the behavioral shift that would inevitably result if shoppers can buy a far wider range and higher value of goods tax-free and duty-free.”

The Retail Council of Canada said in a submission to the government that clothes, books, toys, sporting goods and consumer electronics would be among the items most affected, and expressed confidence Ottawa would fend off such requests.

Not from other nations

“eBay in particular has lead this charge to three different finance ministers in a row — Jim Flaherty, Joe Oliver, and Bill Morneau — and in each case they have failed,” said Karl Littler, a spokesman for the Retail Council of Canada.

“The U.S. raised this quite frequently in the TPP [Trans-Pacific-Partnership trade] round and they also failed to secure this concession,” he added.

There have been hints from Canada’s government about a compromise under which a higher limit would exempt products ordered from e-commerce from duties but not sales taxes.

“When it comes to waiving duties and taxes, we need to carefully consider the impact that would have on Canadians and on Canadian businesses,” said Chloe Luciani-Girouard, a spokeswoman for Morneau.

Mexican firms could accept a higher import limit for goods produced in the NAFTA region — but not from other nations, said Alejandro Gomez Tamez, executive president of the Chamber of Commerce for the footwear industry in the central Mexican state of Guanajuato, a hub of textile manufacturing.

“When a product comes in, even if it’s packaged and sent from the United States, if it’s from a third country, it should pay duties,” he said.

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In Croatia, Harvesting Salt the Centuries-old Way

Dozens of glistening pools in a small village on Croatia’s Adriatic coast stand testament to its annual salt harvests from seawater, which use a method largely unchanged for centuries.

The salt works facility in Ston, which says it is the oldest in Europe, consists of 58 pools and covers about 430,000 square meters where the waters of the Adriatic are allowed to seep in and then evaporate, leaving salt behind.

The first of two salt harvests this year kicked off on Tuesday, with around 35 tourists, friends and family of workers raking salt across the pans into gleaming white piles, before transferring to a nearby warehouse by wooden carts.

They expect to harvest some 200 tons of salt in the harvest, with most of it used for industrial purposes while the rest is sold in local markets for use in cooking.

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Tesla Seeks $1.5B Junk Bond Issue to Fund Model 3 Production

Tesla said on Monday it would raise about $1.5 billion through its first-ever offering of junk bonds as the U.S. luxury electric carmaker seeks fresh sources of cash to ramp up production of its new Model 3 sedan.

The move to issue junk bonds — lower-quality investments that offer higher yields — represents a bet by Tesla Chief Executive Elon Musk that bond investors will be as hungry as stock investors to back the company on expectations that its Model 3 will be a hit.

Tesla shares are up 67 percent this year, pushing the company’s market value to about $60 billion, above that of top U.S. automakers General Motors and Ford Motor Co., even though Tesla has yet to make an annual profit.

“Bond investors, who typically don’t love companies that don’t make money, will be far more forgiving when it comes to Tesla,” said bond expert Robbie Goffin, managing director of FTI Consulting, citing the company’s stellar stock market value.

Automaker draws a ‘B-‘ 

Tesla was to start pitching potential investors on Monday, IFR reported, citing lead bankers on the deal.

So far, Tesla has been raising money to pay its bills with a combination of equity offerings and convertible bonds, which eventually convert into shares. In March, the company raised $1.4 billion through a convertible debt offering.

Following the announcement, Standard & Poor’s reaffirmed its negative outlook for the automaker and assigned a “B-” rating for the bond issue — deep into junk credit territory. S&P also maintained its “B-” long-term corporate credit rating on Tesla.

“We could lower our ratings on Tesla if execution issues related to the Model 3 launch later this year or the ongoing expansion of its Models S and X production lead to significant cost overruns,” S&P said in a statement on the bonds.

Rating outlook is stable

Moody’s assigned a junk “B3” rating to the bond issue and said the company’s rating outlook was stable.

The rating agency said the overall company’s “B2” rating was supported by the fact that if Tesla ends up in serious financial trouble, its brand name, products and physical assets would be of “considerable value” to other automakers.

The automaker’s debt load increased significantly last year when it bought solar panel maker SolarCity.

CFRA equity analyst Efraim Levy said the bonds provide Tesla with funds “at least into mid-2018.”

“There is a risk they could still run out of money,” he said. “Then you’d go back to the equity markets and hope it’s not too late” to raise more money.

Burning cash

The latest effective yield on single-B rated bonds maturing in seven to eight years, the class for a Tesla issue, is around 5.5 percent, according to Bank of America/Merrill Lynch Fixed Income Index data.

Tesla’s bond will price later this week after several days of meetings with credit investors, who will weigh factors including the absence of a borrowing history, its lack of profit and its high cash-burn rate against its growth potential and its attractiveness as an environmentally friendly “green” issuer.

Ultimately, the depth of investor interest will determine the bond’s interest rate.

Tesla is counting on the Model 3, its least pricey car, to become a profitable, high-volume manufacturer of electric cars.

Tesla said last week that it had 455,000 net pre-orders for the Model 3, which has a $35,000 base price, and that the sedan was averaging 1,800 reservations per day since it launched late last month.

At the launch, Musk, however, warned that Tesla would face months of “manufacturing hell” as it increases production of the sedan.

Tesla had over $3 billion in cash on hand at the end of the June quarter, compared with $4 billion on March 31.

The company has said it expects capital expenditures of $2 billion in the second half of this year to boost production at its Fremont, California assembly plant and a battery plant in Reno, Nevada.

Tesla’s cash burn has prompted short-sellers like Greenlight Capital’s David Einhorn to bet against the Palo Alto, California company.

Goldman Sachs, Morgan Stanley, Barclays, Bank of America Merrill Lynch, Citigroup, Deutsche Bank and RBC are the book-runners on the bond offering, IFR reported.

Shares of Tesla closed down 0.5 percent at $355.17 on Monday.

 

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China’s Ethnic Yi Struggle Against Poverty

For Jisi Lazuo, the torch festival in her village in southwest China should be a celebration involving colorful ethnic clothes and eating freshly slaughtered pig.

Instead, it’s a time of stress.

“In my heart I always get worried when the torch festival comes along,” said Jisi, 37, who supports a family of two grandparents and four children.

“Traditional clothes are quite expensive, but for my own kids I can only buy whatever I can get,” she said.

Jisi belongs to the isolated Yi ethnic community. They have a distinct language and culture, and are among the poorest in China.

Most live in Liangshan, a mountainous district in the southwestern province of Sichuan and one of 14 areas of “concentrated poverty” identified by the central government.

Average incomes in Liangshan are just 27 percent of the national average, official data shows.

An ambitious poverty reduction campaign is seeking to change this, ensuring by 2020 that no one is living in poverty — defined by the government as less than 2,300 yuan a year.

China has lifted hundreds of millions of its citizens out of poverty over the past few decades, but doing the same for groups like the Yi poses a different set of challenges.

“A lot of that poverty is not as easily accessible for the government,” said Ben Westmore, a senior economist at the Organization for Economic Co-operation and Development (OECD).

“It’s people who live in mountainous areas who are not very well connected, or they’re more dispersed at the provincial level across the prefectures,” he said.

From road building to subsidies, the central government has spent large amounts of money on poverty relief in places like Liangshan.

In 2016, the Liangshan government distributed 940 million yuan ($139 million) in basic income assistance for the poorest in the region, according to the government website.

Officials in charge of Liangshan’s anti-poverty campaign declined to comment on the programs. The State Council poverty alleviation office in Beijing also declined to comment.

While many Yi welcome the state’s help, some question whether cash handouts are sustainable.

“Just giving out money is useless because one day the money will eventually run out,” said Emu Zhiji, one of the few people in his village to receive a university education.

Emu said he hopes to become a sports teacher, something that would be impossible for many Yi. Thirty percent are illiterate, compared to 4 percent nationally, and many do not speak Mandarin, the main language in China. As a result, they have limited options for earning a living beyond farming.

The government has tried to improve access to education for the Yi, but it struggles to recruit teachers to work in such a remote area. Many students battle to keep up with lessons taught in Mandarin.

Emu said more needs to be done to allow the Yi to develop within their own culture if they are to alleviate the poverty and a dependency on government programs.

“If we had better jobs we’d be able to feed and clothe ourselves on our own, but for that we need to be able to use our own language,” he said.

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Keystone XL Pipeline Fate in Balance as Nebraska Opens Hearings

Nebraska regulators opened a final hearing on TransCanada Corp’s proposed Keystone XL pipeline on Monday, a week-long proceeding that marks the last big hurdle for the long-delayed project after President Donald Trump approved it in March.

The proposed 1,179-mile (1,897-km) pipeline linking Canada’s Alberta oil sands to U.S. refineries has been a lightning rod of controversy for nearly a decade, pitting environmentalists worried about spills and global warming against business advocates who say the project will lower fuel prices, shore up national security and bring jobs.

Nebraska has last word

Trump’s administration handed TransCanada a federal permit for the pipeline in March, reversing a decision by former President Barack Obama to reject the project on environmental grounds. But the line still needs a nod from regulators in Nebraska — which would be the last of three states to approve its proposed path into the heartland.

A lawyer for opponents of the line opened the hearing in front of the five-member Nebraska Public Service Commission on Monday morning by grilling an executive for the Canadian company about how the pipeline will be disposed of after its anticipated 50-year lifetime.

“Do we have to clean up TransCanada’s abandoned pipeline?” attorney David Domina asked TransCanada executive Tony Palmer.

On Sunday, hundreds of pipeline opponents, including members or Indian tribes, marched through downtown Lincoln under police escort, following a rally at the Nebraska Capitol.

Decision expected in November

Nebraska’s Public Service Commission is meant to weigh whether the project is in the state’s public interest, and will announce a decision by November. The arguments of opponents are constrained by the rules of the commission, however: the commission is not permitted to consider the risk of spills because the route already has an environmental permit.

Opponents — including scores of landowners on the proposed route — will instead argue the jobs are temporary and the risks of the pipeline to local industries like cattle ranching too great. They will also note that if the commission approves the line, TransCanada could seek to seize property along the route using eminent domain law — a politically unpalatable option in the conservative state.

Proponents, meanwhile, will argue the project will bring in hundreds of jobs and millions of dollars in revenue.

Job numbers different

Trump has said the project would create 28,000 jobs nationwide, but a 2014 State Department study predicted just 3,900 construction jobs and 35 permanent jobs.

The 830,000 barrel-per-day Keystone XL would link Alberta to an existing pipeline network feeding U.S. refineries and ports along the Gulf of Mexico.

The project could be a boon for Canada, which has struggled to bring its reserves to market. But demand for the line has declined since it was first proposed, due to surging U.S. production, lower prices, and other Canadian pipeline projects.

 

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Balkan Trade War Brews Over Huge Croatian Import Fee Rise

The Balkans have become embroiled in a trade war over agricultural health checks after Croatia raised import fees on some farm products by around 220 percent, triggering countermeasures by Serbia and threats from others.

Last month European Union-member Croatia raised its fees for phytosanitary controls — agricultural checks for pests and viruses — on fruits and vegetables at its borders to 2,000 kuna ($319) from 90 kuna.

It cited compliance with EU standards and protection of its consumers.

But ministers from EU candidates Serbia, Macedonia and Montenegro, as well as from fellow EU aspirant Bosnia, said the move violated their respective pre-accession agreements with the bloc under which they were guaranteed equal access to markets.

“These measures are absolutely protectionist in an economic sense. They are populist in political sense and cannot be justified, They are [not] in the spirit of good neighborly relations,” Serbian Economy Minister Rasim Ljajic told reporters after meeting his Balkan counterparts in Sarajevo.

The ministers from the four countries called on Croatia to withdraw its decision and invited the European Commission to get involved to solve an issue they said violated the free trade principles.

They also asked for an urgent meeting with the Croatian agriculture minister. However, until the issue has been resolved, each country will take counter-measures it considered adequate to protect its own economic interests, they said.

Economic War in Sight?

Ljajic said that Serbia has already stepped up phytosanitary controls on all organic produce from Croatia and will increase them further. This means that goods, including meat and dairy products, could be held up at borders from 15-30 days.

“Our goal is not to wage any kind of economic war but to protect our economic interests and the free flow of goods,” he said.

Macedonia and Montenegro said they would file complaints to the World Trade Organization, of which they are members, and seek mechanisms through the body for compensation from Croatia, which raised import fees at a peak of the high season for export of fruits and vegetables from their countries.

Besides discriminating against importers on its own market, Croatia is also making exports to the EU more difficult and expensive because it is vital entry point for imports to the EU from the Balkans, the ministers said.

Commenting on the explanation from Croatia that their move was not aimed against the neighbors but against all non-EU members, Bosnia’s Foreign Trade Minister Mirko Sarovic said: “Croatia does not import raspberries from Trinidad and Tobago but from Serbia and Bosnia.” He said that Bosnia was considering an “adequate response” but declined to elaborate.

Most countries in the region import more than they export to Croatia. Only Serbia operates a trade surplus with its neighbor, with exports in  2016 reaching 116 million euros ($137 million) versus imports worth 79 million euros.

Relations remain strained between the two former Yugoslav countries and bitter foes during the Balkan wars of the 1990s, despite improvements in investments, the flow of people and capital.

($1 = 6.2688 kuna)

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Interior Department Scraps Obama-era Rule on Coal Royalties

The Interior Department on Monday scrapped an Obama-era rule on coal royalties that mining companies had criticized as burdensome and costly.

The Trump administration put the royalty valuation rule on hold in February after mining companies challenged it in federal court. Officials later announced plans to repeal the rule entirely. The final repeal notice was published Monday in the Federal Register and takes effect Sept. 6.

Repealing the rule “provides a clean slate to create workable valuation regulations,” said Interior Secretary Ryan Zinke, adding that the repeal will reduce costs that energy companies would otherwise pass on to consumers.

Still, he said Interior remains committed to collecting every dollar due, noting that public lands are assets belonging to taxpayers and Native American tribes.

The valuation rule, crafted under the administration of Democratic President Barack Obama, was aimed at ensuring that coal companies don’t shortchange taxpayers on coal sales to Asia and other markets. Coal exports surged over the past decade even as domestic sales declined.

Federal lawmakers and watchdog groups have long complained that taxpayers were losing hundreds of millions of dollars annually because royalties on coal from public lands were being improperly calculated.

Interior disputed that, saying in the Federal Register notice that the soon-to-be-reinstated regulations “have been in place for more than 20 years and serve as a reasonable, reliable and consistent method for valuing federal and Indian minerals for royalty purposes.” As evidence, the agency noted that the Obama-era rule would have increased royalty payments by less than 1 percent a year.

Rules in place since the 1980s have allowed coal companies to sell their fuel to affiliates and pay royalties to the government on that price, then turn around and sell the coal at a higher price, often overseas. Under the now-repealed rule, the royalty rate would have been determined at the time the coal is leased, with revenue based on the price paid by an outside entity, rather than an interim sale to an affiliated company.

House Natural Resources Committee Chairman Rob Bishop, R-Utah, hailed the repeal, saying it would encourage more responsible energy development and spur investment in federal and Indian lands.

But conservation groups criticized the action, calling it a “sweetheart deal” for the industry that will deprive states of much-needed revenues. About half the coal royalties collected by the federal government is disbursed to states including Wyoming, Montana, Colorado, Utah and New Mexico.

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Tanzania, Uganda Launch Oil Pipeline Construction Project

The presidents of Tanzania and Uganda have laid the foundation stone for a crude oil pipeline project linking their two countries. The project materialized after Uganda abandoned an earlier plan to have the line go through Kenya to the port of Lamu. The pipeline is likely to bring big economic changes for the two countries. Mohammed Yusuf files from VOA’s Nairobi bureau with contributions from northern Tanzania by reporter Khaleed Abubakar Famau.

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Cuba to Shut Down Fast-growing Accounting Cooperative

Cuban authorities have ordered the closure of one of the island’s fastest-growing cooperatives, days after announcing that they would stop issuing new permits for some private enterprise.

Scenius, which provides accounting and business consulting services, will have until December 31 to liquidate, the cooperative’s founder and director, Luis Duenas, told The Associated Press on Saturday.

Duenas said the Ministry of Finances and Prices told him the decision to close Scenius was “based on an analysis of our social purpose, or of the activities that we have approved.”

Duenas called the decision an “error” that has no place in the policy of economic opening announced by Cuban officials.

On Tuesday, Cuba’s government said it would suspend the issuance of permits for a range of occupations and ventures, including restaurants and renting out rooms in private homes.

The suspension included the growing field of private teachers as well as street vendors of agricultural products, dressmakers and the relatively recent profession of real estate broker. The announcement did not say when the issuing of permits would resume and said that enterprises already in operation could continue.

Expansion in 2010

President Raul Castro expanded an opening of the economy to private-sector employment in 200 categories of business in 2010. The government says nearly 570,000 people are employed in the enterprises, including hundreds of restaurants and guest houses. It later also legalized nonagricultural cooperatives.

Both recent moves have created fears that Cuba is putting the brakes on plans to reform its centrally planned economy, though officials say the country is not going back on its economic opening.

Duenas regretted that Scenius’ closing occurred days after the package of restrictions on independent work.

“There are many ways to do things, timing is very important, and the country is greatly affected by these things,” Duenas said.

Scenius began in January 2015 with two or three partners and in two years had more than 200. All its 70 clients are state-owned enterprises or business groups in agriculture, industry and communications.

According to official figures, there are more than 400 nonagricultural cooperatives in Cuba.

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UK Ready to Pay Up to 40B Euros to Leave EU, Newspaper Reports

Britain is prepared to pay up to 40 billion euros ($47 billion) as part of a deal to leave the European Union, the Sunday Telegraph newspaper reported, citing three unnamed sources familiar with Britain’s negotiating strategy.

The European Union has floated a figure of 60 billion euros and wants significant progress on settling Britain’s liabilities before talks can start on complex issues such as future trading arrangements.

The government department responsible for Brexit talks declined to comment on the Sunday Telegraph article. So far, Britain has given no official indication of how much it would be willing to pay.

The newspaper said British officials were likely to offer to pay 10 billion euros a year for three years after leaving the EU in March 2019, then finalize the total alongside detailed trade talks.

Payments would be made only as part of a deal that included a trade agreement, the newspaper added.

“We know ([the EU’s] position is 60 billion euros, but the actual bottom line is 50 billion euros. Ours is closer to 30 billion euros but the actual landing zone is 40 billion euros, even if the public and politicians are not all there yet,” the newspaper quoted one “senior Whitehall source” as saying.

Whitehall is the London district where British civil servants and ministers are based.

‘Go whistle’

A second Whitehall source said Britain’s bottom line was “30 billion euros to 40 billion euros,” and a third source said Prime Minister Theresa May was willing to pay “north of 30 billion euros,” the Sunday Telegraph reported.

David Davis, the British minister in charge of Brexit talks, said on July 20 that Britain would honor its obligations to the EU but declined to confirm that Brexit would require net payments.

British Foreign Secretary Boris Johnson, a leading Brexit advocate, said last month that the EU could “go whistle” if it made “extortionate” demands for payment.

Last week, the Bank of England said Brexit uncertainty was weighing on the economy. Finance Minister Philip Hammond wants to avoid unsettling businesses further.

If Britain cannot conclude an exit deal, trade relations would be governed by World Trade Organization rules, which would allow both parties to impose tariffs and customs checks and leave many other issues unsettled.

The EU also wants agreement by October on rights of EU citizens already in Britain, and on border controls between the Irish Republic and the British province of Northern Ireland, before trade and other issues are discussed.