In the News

January 30, 2020

 

A new trade deal between the U.S., Mexico and Canada was approved by the U.S. Senate in mid-January. The Senate passed the U.S.-Mexico-Canada Agreement (USMCA) to replace NAFTA 89-10, with both Democrats and Republicans approving the deal. U.S. President Donald Trump signed the deal on Jan. 29.

The 1600 Daily, a newsletter from the White House, cited then-presidential candidate Barack Obama, saying, “NAFTA’s shortcomings were evident when signed and we must now amend the agreement to fix them.” And, according to the 1600 Daily, USMCA will do just that, adding up to $235 billion in new economic growth as well as nearly 600,000 jobs to the U.S. economy.

“The two biggest areas of change were imposition of rules and regulations mostly on Mexico and, to a certain extent, on Canada that revolve around labor rights and environmental concerns,” said NACM Economist Chris Kuehl, Ph.D. “In order to get the agreement through Congress, Democrats demanded both those things. As a result, it will now allow U.S. inspectors to go into Mexico and make sure labor situations are OK. A little bit of that will affect Canada but not much.”

The other change in USMCA was the approach to the domestic content laws in the automotive sector. This is not as big of a deal as people are making it out to be, Kuehl said, because domestic means any of the three countries—U.S., Mexico or Canada. “It’ll make it more difficult for Japan, Korea and Germany, but mostly for the European countries because Japan produces stuff here to get around restrictions—the Germans don’t do as much. Volkswagen and BMW are a little worried; they have plants here but bring parts from Germany,” Kuehl added.

The new agreement likely won’t have a huge impact on credit professionals and credit departments, but it should make life a little easier when using financials from Mexican businesses. “One of the challenges for credit people is trying to make sense of financials out of Mexico,” Kuehl continued. “It’s difficult to track down who knows what—Mexican credit information will be more reliable because companies have to submit to U.S. inspections.”

Kuehl believes the new agreement takes a little bit of mystery out of dealing with the automotive sector. “This kind of settles the issue. I don’t think there will be much of a change with textiles and food, but those really weren’t important parts of the agreement.”

Mexico has already approved the pact, but Canada must still ratify the deal.

 

 

Near the end of 2019, Georgia’s Court of Appeals made an immediate and retroactive ruling that affected the role of affidavits of nonpayment when filing a lien. Now, if an affidavit of nonpayment is not filed after a lien waiver document is signed, the supplier’s claim against the owner is invalid, and so is the supplier’s claim against its own customer.

With this change, creditors working with customers in Georgia need to be more diligent about filing affidavits of nonpayment. The consequences of failing to file an affidavit of nonpayment go beyond just lien rights, and creditors will not only have to be scrupulous but also creative moving forward.

“Now that this has been put into place, I think the issue is what can we do and what can claimants do to somehow minimize the damage if they’ve already executed the waivers?” said David Merbaum, an attorney with Merbaum and Becker in Alpharetta, Georgia. “You’ve got to be a little creative and think outside of the box and come up with some arguments.”

Merbaum first suggests filing the affidavit of nonpayment before anything goes awry. Should the creditor forget to file or should the case demand more creative thinking, Merbaum has methods creditors can use to approach this situation.

Often, the waivers are emailed or faxed over to each party, and no original copies are mailed. Should creditors be relying on these copies, they should state in the email or fax that the copies are “held in trust,” making the waivers ineffective until an original one is circulated. Should this waiver be a sticking point in the future, creditors can argue an original waiver was never sent, which will not give up their lien rights.

In Georgia, prospective lien rights are not enforceable, giving creditors another means to recover lien rights. The lien waivers subcontractors give are typically dated through the end of the month, but they are usually not executed until the middle of the month. This gives creditors roughly a two-week window where work has not been completed and materials have not been furnished, and yet, the waiver goes until the end of the month. Merbaum said creditors can argue this two-week period falls into the category of a prospective lien waiver, making this new ruling ineffective.

Lastly, Merbaum suggests creditors not fill out forms themselves. If the subcontractor asked the creditor to fill it out, the creditor should refuse and have the other party fill it out instead. If the subcontractor makes a mistake on the form or leaves something blank, the creditor can send the form back without notarizing it. That way, if the subcontractor tries to use the form, the creditor can argue it’s invalid because something on the form was incorrect.

If a creditor does not file an affidavit of nonpayment in Georgia, there still remains a bit of hope—should the creditor get a little inventive.

“I hope there’s enough information out there that if they really get burned you don’t throw your hands up,” Merbaum said. “Give it a shot: What do you have to lose?”

 

 

The coronavirus is spreading throughout China and into other countries, but it is the former that is beginning to see the economic impacts of the new and dangerous disease. Many news outlets are reporting a decline in China’s economic growth for 2020, a mere three weeks after the coronavirus started.

First reported to the World Health Organization as several cases of pneumonia on Dec. 31, Al Jazeera reported, it was only a week later when the country identified the coronavirus. As of Jan. 28, nearly 6,000 cases were confirmed in China and more than 50 were identified in 15 other countries, including five cases in the U.S. Chinese officials said 132 people have died.

Among the economists weighing in is Wells Fargo, who released a report on Jan. 29. According to Wells Fargo’s analysis, there is “a high probability” China’s economic growth will drop from 5.9% to 5.8% following the outbreak. The virus has “rattled” investors across Asia, where equity indices are dropping. Economists said they predict—with 70% to 80% probability—that the outbreak will get “mildly worse in the near-term” as the Chinese government takes the necessary precautions to stabilize the economy.

“With the outbreak occurring during the Chinese Lunar New Year—a peak time for travel and consumer spending—we expect the virus to have a slight impact on China’s growth prospects,” Wells Fargo reported. “As far as the Chinese currency, we believe the renminbi will eventually strengthen and are comfortable with an outlook for modest CNY strength over the medium-term. We also believe emerging Asian currencies will begin to strengthen.”

Wells Fargo anticipates the euro will modestly strengthen from current levels; however, the U.S. dollar is expected to weaken when “demand for the safe haven qualities of the greenback dissipate.”

NACM Economist Chris Kuehl, Ph.D., said there are four elements whose combination could threaten global economic activity: the unknown factor of the disease; the limited alternatives to isolation and inspection; government responses; and the cost of reacting to and treating the disease.

“The initial response has been to radically curtail travel to China, affecting export and import activity right away. The level of investment in China had been dwindling in the last few years due to the trade war, adding to recent concerns,” Kuehl said. “There will be millions spent on dealing with the potential outbreak in other parts of the world. Travel will be affected as people will not want to risk exposure.”

Furthermore, he said, the medical community will have to address the issue, which is difficult considering they weren’t prepared for the virus—there are few who are familiar with it.

New York City-based insurance company Marsh states organizations with a high employee count are especially at risk due to ongoing “travel restrictions, supply chain disruptions and employee absenteeism within vendors, suppliers and other partners in-country,” therefore, impacting productivity and efficiency for its businesses in other areas. Marsh recommends companies pay attention to travel policies, employee wellbeing and supply chains, while educating themselves on their insurance coverage.

“Multinational organizations should review, test and potentially update critical plans related to business continuity, crisis management and crisis communications,” the insurance company announced. “While examining existing plans, consider the potential effects a worsening outbreak could have on employees, revenue, suppliers, reputations and more, and work with other stakeholders to prepare accordingly.”