Transparency of the Regulatory System
Generally speaking, the Mexican government has established legal, regulatory, and accounting systems that are transparent and consistent with international norms. However, corruption continues to affect equal enforcement of some regulations.
The Federal Commission on Regulatory Improvement (COFEMER), within the Secretariat of Economy, is the agency responsible for streamlining federal and sub-national regulation and reducing the regulatory burden on business. Mexican law requires Secretariats and regulatory agencies to conduct impact assessments of proposed regulations. Assessments are made available for public comment via COFEMER’s website: www.cofemer.gob.mx . The official gazette of state and federal laws currently in force in Mexico is publically available via: http://www.ordenjuridico.gob.mx/ .
Mexico’s antitrust agency, the Federal Commission for Economic Competition (COFECE), plays a key role protecting, promoting, and ensuring a competitive free market in Mexico. COFECE is responsible for eliminating barriers both to competition and free market entry across the economy (except for the telecommunications sector, which is governed by its own competition authority) and for identifying and regulating access to essential production inputs.
In addition to COFECE, the Energy Regulatory Commission (CRE) and National Hydrocarbon Commission (CNH) are both technically-oriented independent agencies that play important roles in regulating the energy and hydrocarbons sectors. CRE regulates national electricity generation, coverage, distribution, and commercialization, as well as the transportation, distribution, and storage of oil, gas, and biofuels. CNH supervises and regulates oil and gas exploration and production and issues oil and gas upstream (exploration/production) concessions.
The Secretariat of Public Administration has made considerable strides in improving transparency in government, including government contracting and involvement of the private sector in enhancing transparency and fighting corruption. The Mexican government has established four internet sites to increase transparency of government processes and to establish guidelines for the conduct of government officials: (1) Normateca (http://normatecainterna.sep.gob.mx ) provides information on government regulations; (2) Compranet (https://compranet.funcionpublica.gob.mx ) displays federal government procurement actions on-line; (3) Tramitanet (www.tramitanetmexico.com ) permits electronic processing of transactions within the bureaucracy; and (4) Declaranet (https://declaranet.gob.mx/ ) allows for online filing of income taxes for federal employees.
International Regulatory Considerations
As a member of NAFTA, Mexico aims to harmonize regulations with the United States and Canada where possible while maintaining its sovereign right to maintain domestic regulations and standards. While Mexican regulations would appear familiar to U.S. financial services investors, there is significant potential for further harmonization in the energy, electricity, automotive, and agriculture sectors.
Mexico is an active member of the WTO and works with the WTO Committee on Technical Barriers to Trade (TBT) regarding domestic technical regulations. According to the WTO’s April 2017 TBT implementation review, Mexico raised five new Specific Trade Concerns (STC) and made 41 new notifications and 16 addenda or corrigenda in 2016. Mexico was the seventh most frequent raiser of STCs in 2016 and was the fourth most frequent raiser of STCs from 1995-2016, behind the European Union, United States, and Canada.
Legal System and Judicial Independence
Since the Spanish conquest in the 1500s, Mexico has had an inquisitorial system adopted from Europe in which proceedings were largely carried out in writing and sealed from public view. While its constitution is the fundamental legal document, in 2014 Mexico passed a National Code of Criminal Procedure, which is applicable to all 32 states. This code provides the legal framework for the new accusatory system, which involves open oral trials with cross examination of witnesses. The new accusatory system, fully implemented in June 2016, intends to combat corruption and increase transparency and efficiency, while ensuring that fundamental rights of both the victim and the accused are respected.
Mexico’s Commercial Code, which dates back to 1889, was most recently updated in 2014. All commercial activities must abide by this code and other applicable mercantile laws, including commercial contracts and commercial dispute settlement measures. Mexico has multiple specialized courts regarding fiscal, labor, economic competition, broadcasting, telecommunications, and agrarian law.
The judicial branch is nominally independent from the executive. Following a reform passed in February 2014, the Attorney General’s Office (Procuraduria General de la Republica or PGR) will become independent of the executive branch, as a fully autonomous agency called the Independent Prosecutor’s Office (Fiscalia General de la Republica or FGR). The legislation that will implement the transition was approved by the Chamber of Deputies in 2014 and has been pending in the Senate since December 2014. The future Independent Prosecutor General (Fiscal) will serve a 9-year term, intended to insulate his or her office from the executive branch, whose members serve 6-year terms. However, the major political parties have thus far been unable to agree on a suitable candidate for the position, and it is now expected that the future Fiscal will not be named until after the July 1, 2018 presidential election, and possibly not even before the December 1 inauguration.
Despite efforts to reform Mexico’s judicial system, impunity is rife in Mexico. The 2018 Global Impunity Index ranks Mexico as the fourth worst nation in the world on various measures of impunity. According to the study, 95 percent of crimes go unpunished in Mexico. In 2017, only 17 percent of murder investigations resulted in conviction and incarceration—a fall from 27.5 percent in 2016. On a national level, impunity in Mexico worsened slightly in 2017, however this figure hides large increases in impunity in Mexican states with significant U.S. investment—Aguascalientes, Puebla, Guanajuato, Tamaulipas, and Coahuila. Mexico State recorded the highest levels of impunity of all 32 Mexican federal entities.
Laws and Regulations on Foreign Direct Investment
Mexico’s Foreign Investment Law sets the rules governing foreign investment into the country. The National Commission for Foreign Investments, formed by several cabinet-level ministries including Interior (SEGOB), Foreign Relations (SRE), Finance (Hacienda), Economy (SE), and Social Development (SEDESOL), establishes the criteria for administering investment rules.
Competition and Anti-Trust Laws
Mexico has two constitutionally autonomous regulators to govern matters of competition—the Federal Telecommunications Institute (IFT) and the Federal Commission for Economic Competition (COFECE). Both were created under reforms in 2013. IFT governs broadcasting and telecommunications, while COFECE regulates all other sectors. For more information on competition issues in Mexico, please visit COFECE’s bilingual website at: www.cofece.mx .
In November 2017, IFT ruled to allow predominant telecommunications firm America Movil to charge interconnection fees to competitors for connecting calls into America Movil’s networks. The ruling, based on a cost model analysis, provides an asymmetric fee structure with America Movil paying four times more per minute for connecting into its competitors’ networks than its competitors pay per minute for connecting into its own network. Competitors still see this IFT ruling favoring the local, predominant provider over foreign telecom firms and plan to file injunctions to block IFT from implementing these charges.
Expropriation and Compensation
Mexico may not expropriate property under NAFTA, except for public purpose and on a non-discriminatory basis. Expropriations are governed by international law and require rapid fair market value compensation, including accrued interest. Investors have the right to international arbitration for violations of this or any other rights included in the investment chapter of NAFTA.
ICSID Convention and New York Convention
Mexico ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) in 1971 and has codified this into domestic law. Mexico is also a signatory to the Inter-American Convention on International Commercial Arbitration (1975 Panama Convention) and the 1933 Montevideo Convention on the Rights and Duties of States. Mexico is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention), even though many of the investment agreements signed by Mexico include ICSID arbitration as a dispute settlement option.
Investor-State Dispute Settlement
Investor-State Dispute Settlement is a topic of the current NAFTA renegotiations. Chapters 11, 19, and 20 of the existing NAFTA cover international dispute resolution. Chapter 11 allows a NAFTA Party investor to seek monetary damages for violations of its provisions. Investors may initiate arbitration against the NAFTA Party under the rules of the United Nations Commission on International Trade Law (UNCITRAL Model Law) or through the ICSID Convention. A NAFTA investor may also choose to use the domestic court system to litigate their case.
Since NAFTA’s inception, there have been 17 cases filed against Mexico by U.S. and Canadian investors who allege expropriation and/or other violations of Mexico’s NAFTA obligations. Details of the cases can be found at: https://www.state.gov/s/l/c3742.htm.
International Commercial Arbitration and Foreign Courts
The Arbitration Center of Mexico (CAM) is a specialized, private institution administering commercial arbitration as an alternative dispute resolution mechanism. The average duration of an arbitration process conducted by CAM is 14 months. The Commercial Code dictates an arbitral award, regardless of the country where it originated, must be recognized as binding. The award must be enforced after a formal written petition is presented to a judge.
The internal laws of both Pemex and CFE state all national disputes of any nature will have to be resolved by federal courts. State-owned Enterprises (SOEs) and their productive subsidiaries may opt for alternative dispute settlement mechanisms under applicable commercial legislation and international treaties of which Mexico is a signatory. When contracts are executed in a foreign country, Pemex and CFE have the option to follow procedures governed by non-Mexican law, to use foreign courts, or to participate in arbitration.
Mexico’s Reorganization and Bankruptcy Law (Ley de Concursos Mercantiles) governs bankruptcy and insolvency. Congress approved modifications in 2014 in order to shorten procedural filing times and convey greater juridical certainty to all parties, including creditors. Declaring bankruptcy is legal in Mexico and it may be granted to a private citizen, a business, or an individual business partner. Debtors, creditors, or the Attorney General can file a bankruptcy claim. Mexico ranked 31 out of 190 countries for resolving insolvency in the World Bank’s 2018 Doing Business report. The average bankruptcy filing takes 1.8 years to be resolved and recovers 67.6 cents per USD, which compares favorably to average recovery in Latin America and the Caribbean of just 30.8 cents per USD. “Buró de Credito” is Mexico’s main credit bureau. More information on credit reports and ratings can be found at: http://www.burodecredito.com.mx/ .