2019 INVESTMENT POLICY AND REGULATORY REVIEW Mexico © 2020 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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Photo Credits: Shutterstock.com TABLE OF CONTENTS ACKNOWLEDGEMENTS 2 GLOSSARY 3 1. INTRODUCTION 5 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK 7 A. Domestic Legal Instruments Regulating Foreign Investment 7 B. International Legal Instruments Regulating Foreign Investment 8 C. Key Institutions for Investment Promotion 10 D. Foreign Investment Promotion Strategy 12 3. INVESTMENT ENTRY AND ESTABLISHMENT 13 4. INVESTMENT PROTECTION 17 5. INVESTMENT INCENTIVES 19 6. INVESTMENT LINKAGES 20 7. OUTWARD FOREIGN DIRECT INVESTMENT 21 8. RESPONSIBLE INVESTMENT 21 9. RECENT POLICIES ON NEW TECHNOLOGIES 22 10. CITY SPECIFIC REVIEW—MEXICO CITY 23 11. COMPETITION LAW & POLICY 24 A. Merger Control 24 B. Leniency Program 27 ENDNOTES 28 LIST OF REFERENCE MATERIALS 30 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |1 ACKNOWLEDGEMENTS A team led by Priyanka Kher and Peter Kusek The report benefited from the comments of these prepared this report. The team core members were World Bank Group colleagues: Pablo Saavedra, Maximilian Philip Eltgen and Azza Raslan. The Jasmin Chakeri, Fernando Blanco, Alejandro team would like to thank Caroline Freund (Global Espinosa-Wang, Daniela Gomez Altamirano, Tanja Director, Trade, Investment and Competitiveness), K. Goodwin, Sara Nyman, Mariana Iootty De Paiva Christine Zhenwei Qiang (Practice Manager, Dias, Guilherme De Aguiar Falco, Emma Verghese Investment Climate), Ivan Nimac (Global Lead, and Abhishek Saurav. The team would like to thank Investment Policy and Promotion), Georgiana Pop Nick Younes for editing, and Aichin Jones and Amy (Global Lead, Competition Policy) and Graciela Quach for providing design, layout, and production Miralles Murciego (Senior Economist, Competition services. Policy) for their guidance. The report was prepared under the Analyzing Legal research for the preparation of this report Barriers to Investment Competitiveness Project, was carried out by the international law firm Baker supported with funding from the Prosperity Fund McKenzie. of the United Kingdom. | 2 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO GLOSSARY BIT Bilateral Investment Treaty CDMX Mexico City COFECE Federal Economic Competition Commission CONACyT National Council of Science and Technology CONAMER Regulatory Improvement Commission CPC Central Product Classification CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Partnership CSR Corporate Social Responsibility DTAA Double Taxation Avoidance Agreements FDI Foreign Direct Investment FECL Federal Economic Competition Law FET Fair and Equitable Treatment FIE Foreign-Invested Enterprise FIL Foreign Investment Law FONDESO Trust for the Social Development of the City GATS General Agreement on Trade in Services GPGG General Principle of Good Governance HHI Herfindahl–Hirschman Index ICS Investment Court System ICSID International Centre for Settlement of Investment Disputes IIA International Investment Agreement IMF International Monetary Fund IPR Intellectual Property Rights IPRR Investment Policy and Regulatory Review ISDS Investor-State Dispute Settlement JDIH National Documentation Network and Legal Information L/C Letter(s) of Credit MFN Most-Favored Nation NAFTA North American Free Trade Agreement NMX Mexican Voluntary Standards 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |3 NOM Official Mexican Standards NRFI National Registry of Foreign Investment NT National Treatment OFDI Outward Foreign Direct Investment PEMEX Petróleos Mexicanos SCM Agreement on Subsidies and Countervailing Measures SEDECO Economic Development Ministry SOE State-Owned Enterprises TIP Treaty with Investment Provision TRIMs Agreement on Trade-Related Investment Measures TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights UMA Unit for Measure UNCTAD United Nations Conference on Trade and Development USMCA United-States-Mexico-Canada Agreement VAT Value-Added Tax WTO World Trade Organization | 4 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 1. INTRODUCTION This Investment Policy and Regulatory Review on a review of currently applicable policies, laws (IPRR) presents information on the legal and and regulations. In some cases, consultations with regulatory frameworks governing foreign direct regulators were conducted to collect up to date investment (FDI) and competition that affect information. businesses and foreign investors in Mexico. Since legal and regulatory frameworks are constantly The research was guided by a standardized evolving, a cut-off date was set for the research. questionnaire, covering a limited set of This country review therefore covers information topics, including foreign investment entry, available as of May 31, 2019, unless otherwise establishment, protection and select competition indicated in the review. IPRRs are available for related aspects. The questionnaire focused on the following middle-income countries (MICs): de jure frameworks as generally applicable to a Brazil, China, India, Indonesia, Malaysia, Mexico, foreign investor, not located in any specialized Nigeria, Thailand, Turkey, and Vietnam. or preferential regime (such as special economic zones). It primarily focused on national, economy- The research for preparing this IPRR was wide (rather than sector-specific) laws and undertaken by the international law firm Baker regulations. For the purpose of the research, it McKenzie, under the supervision of the World was assumed that the foreign investor is a private Bank Group. The research was primarily based multinational company with no equity interest or Figure 1. Overview of Topics Covered in IPRR Merger control Leniency ■ Key institutions for investment policy/rule ■ Remedies to limit ■ Extent of immunity on making, implemention and FDI promotion anticompetitive fines and damages ■ Key legal instruments effects of merger ■ Ease of admin ■ Transparency/consultation in laws and Main Policy & ■ Ease of admin in leniency regulations Legal Instruments procedures application and Institutions ■ Prohibited and Restricted Select Investment Entry Sectors ■ Equity ceiling Competition and ■ Minimum investment Policy Aspects Establishment requirement ■ FDI approval IPRR ■ R&D, local sourcing, ■ Schemes to increase Questionnaire employment, quantitative, local sourcing and geographic, export build capacity of local Other Areas suppliers (Linkages, OFDI, ■ Restrictions on OFDI Investment Responsible Protection ■ Measures on technology Investment, New Tech) ■ Expropriation ■ Transfer of currency Investment ■ Dispute Settlement Incentives ■ Fair administrative conduct ■ Source of tax and financial incentives ■ Accessibility of tax and financial incentives 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |5 management control by the government of its home promotion, as well as the country’s foreign country (that is, not state-owned enterprise). investment promotion strategy; it also delineates the country’s international investment legal There are aspects that this IPRR does not cover. framework, including the country’s commitments It is not a comprehensive review of the entire legal under the World Trade Organization (WTO) and regulatory framework affecting investment. and select international investment agreements Information presented is not exhaustive, but (IIAs); illustrative of the main topics and issues covered (for example, it does not exhaustively list all n Sections 3-6 cover the country’s policies and available tax and financial incentives in the domestic legal framework concerning different country). It does not present recommendations dimensions of the lifecycle of an investment: on reform areas. Notably, it does not capture de entry and establishment (Section 3), protection facto implementation of laws and regulations in (4), incentives (5) and linkages (6); the country. Given these limitations, information presented in this IPRR should be interpreted and n Sections 7-9 explore emerging investment policy used keeping in view the overall country context and regulatory areas — Section 7 considers and realities. Further, it contains information in outward FDI, Section 8 responsible investment, summary form and is therefore intended for general and Section 9 considers recent policies on new guidance only. It is not intended to be a substitute technologies; for detailed legal research. n Section 10 focuses on city-specific investment This IPRR is organized as follows: policy and regulatory measures in the largest commercial center; and n Section 2 provides an overview of the country’s investment policy framework, including the n Section 11 covers select aspects of competition legal instruments regulating foreign investment, law and policy, specifically merger control and key institutions involved in investment leniency frameworks. | 6 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK A. Domestic Legal Instruments capital of Mexican entities, (ii) investments by Regulating Foreign Investment Mexican companies controlled, in its majority, by foreign investors, or (iii) the participation Mexico has a foreign direct investment (FDI) by foreign investors in the activities and sectors law that governs foreign investment. In addition specified in the FIL. Regardless of the industry or to this law, sector specific laws and bilateral and sector, the FIL requires all foreign investment to be international agreements also regulate FDI in registered with the National Registry of Foreign the country (alongside the general legal framework Investment (NRFI) for statistical purposes. The FIL that applies to all businesses). embodies three main principles: i) most-favored nation treatment; ii) fair price and due process for FDI Law and Regulation expropriation; and iii) equal treatment for foreign and national citizens. The primary legislation governing FDI in Mexico is the Foreign Investment Law of 1993 The FIL superseded the prior Law to Promote as amended (Ley de Inversión Extranjera) (FIL) Mexican Investment and Regulate Foreign and its implementing regulation, the Regulation Investment of 1973 (Ley para Promover la of the Foreign Investment Law and the Foreign Inversión Mexicana y Regular la Inversión Investment National Registry of 1998 as amended Extranjera) (1973 Law) as the main law governing (Reglamento de la Ley de Inversión Extranjera y investment, shifting emphasis to the promotion del Registro Nacional de Inversiones Extranjeras). of foreign investment. The 1973 Law had been The FIL expressly states that a foreign investor focused on investments by the Mexican government may participate in any portion in the capital of and Mexican nationals rather than the promotion of Mexican companies, acquire fixed assets, enter foreign investment in Mexico. Thus, under that law, new fields of economic activity or manufacture new foreign investors faced several hurdles with respect product lines, open and operate establishments, and to investing in Mexico, such as a statutory limit of expand or relocate existing establishments, except 49% of participation in any Mexican company, and as otherwise provided in the FIL. Therefore, as a even lower thresholds in some industries, such as general rule the FIL permits foreign investors to the exploration of mines and quarries, secondary hold up to 100% of the capital stock of any Mexican products from the petrochemical industry, and corporation or partnership, except in the few areas fabrication of automobile components. In 1993, the expressly subject to limitations under the FIL Mexican Congress approved and enacted the FIL (discussed in sections below). Under the FIL, foreign to facilitate foreign investment in most sectors and investment is defined as (i) the participation in any target economic growth through the promotion of percentage by foreign investors in the corporate foreign investment in the country. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |7 Sector Specific Laws Regulatory Improvement (Ley General de Mejora Regulatoria) creates the Regulatory Improvement Foreign investors are also subject to sector-specific Commission (CONAMER) in charge of issuing laws and regulations depending on the sector in guidelines and tools that give access to bills, prior which the investment is contemplated. to their publication, to stakeholders who can then issue non-binding comments on the draft bills. Public Access to Foreign Investment Laws and Policies B. International Legal Instruments The Mexican Federal Constitution obligates the Regulating Foreign Investment Congress and the President of Mexico to publish all laws and regulations, and amendments Mexico has undertaken legally binding thereto, in the Official Federal Gazette (Diario international investment commitments through Oficial de la Federación). The official website of a variety of international investment agreements the Federal Gazette contains up-to-date information (IIAs) — signed at the bilateral, plurilateral and of the new laws and regulations, as well as reforms multilateral level. These commitments mainly to such laws and regulations. Every state has its cover entry and establishment conditions, protection, own Official Gazette in which new state laws and as well as the legality of specific types of incentives reforms to state laws are published. (see Table 1., below). It is important that Mexico reflect these commitments in its domestic legal framework to ensure consistency as well as to monitor compliance. Consultation with Stakeholders Having been a member of the World Trade Regulatory impact assessments, public Organization (WTO) since January 1, 1995, consultations and stakeholder engagement on Mexico has commitments under several WTO draft regulations are mandatory for all Agreements. Under the General Agreement on regulatory proposals and primary laws coming Trade in Services (GATS), Mexico grants rights from the executive. The 2018 General Law of Table 1. Mexico’s International Investment Framework Agreement(s) as Basis of Commitments Type of Agreement Investment Policy Dimensions Covered WTO GATS Agreements Multilateral Entry and Establishment WTO TRIMs Agreement Multilateral Entry and Establishment, Incentives WTO SCM Agreement Multilateral Incentives WTO TRIPS Agreement Multilateral Protection Treaties with Investment Provisions (TIPs) Plurilateral or Bilateral May cover Entry and Establishment, (17 signed, 15 in force) Protection, Incentives Bilateral Investment Treaties (BITs) Bilateral May cover Entry and Establishment, (32 signed, 30 in force) Protection, Incentives International Centre for Settlement of Multilateral Protection Investment Disputes (ICSID) Convention Convention on the Recognition and Multilateral Protection Enforcement of Foreign Arbitral Awards (New York Convention) IMF Articles of Agreement Multilateral Protection (Art. VIII Acceptance) Double Taxation Avoidance Agreements Bilateral Taxation (60 treaties in force) Source: World Bank Analysis | 8 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO to services suppliers from other WTO member requirements, foreign exchange restrictions and countries. This includes services supplied through export restrictions). These measures are prohibited commercial presence (defined as establishment of both when the obligation for the foreign investors a territorial presence), in other words through FDI. is mandatory and when it is tied to obtaining an These rights are granted through commitments advantage (that is, an incentive). Incentives are undertaken in “schedules”. The “schedules” list further regulated by the WTO Agreement on sectors being opened, the extent of market access Subsidies and Countervailing Measures (SCM), being given in those sectors (for example, whether which among others prohibits certain types of export there are any restrictions on foreign ownership), subsidies. Under the WTO Agreement on Trade- and any limitations on national treatment (whether Related Aspects of Intellectual Property Rights some rights granted to local companies will (TRIPS), foreign investors’ intellectual property not be granted to foreign companies). Mexico rights are protected. In case of a violation of any of has made commitments to market access and its WTO commitments, Mexico may be sued under national treatment in 10 out of 12 services the WTO dispute settlement mechanism. sectors that feature in the WTO Classification1: (i) Business services, (ii) Communication services, Mexico has further entered into obligations (iii) Construction and related engineering services, through international investment agreements (iv) Distribution services, (v) Educational services, (IIAs) — 30 Bilateral Investment Treaties and (vi) Financial services, (vii) Health related and 15 Treaties with Investment Provisions (TIPs) social services, (viii) Tourism and travel related are currently in force. The latter category is services, (ix) Transport services, and (x) Other composed of treaties that include obligations services not included elsewhere. In these 10 sectors commonly found in bilateral investment treaties Mexico has made partial commitments for specific BITs (for example, a preferential trade agreement services in 31 sub-sectors. “Partial” means that with an investment chapter). Table 2. below although commitments have been made, there are provides an overview of select Agreements: its still limitations/reservations, which may differ in IIA with the largest home country measured by their restrictiveness. For example, they may be that country’s share in Mexico’s total FDI stock more restrictive by limiting the equity contribution (North American Free Trade Agreement, NAFTA, of the foreign investor, or less restrictive by merely 1994), an IIA with expansive regional coverage requiring foreign service suppliers to become a (Comprehensive and Progressive Agreement for member of a union chamber. Across all sectors, Trans-Pacific Partnership, CPTPP, 2018) as well as Mexico has reserved the right to deviate from its second-latest IIA (Mexico-United Arab Emirates national treatment commitments to grant research BIT, 2018). The table shows that generally the main and development subsidies and incentives to protection guarantees are provided in the reviewed small enterprises owned by Mexican nationals. In agreements. CPTPP and NAFTA do not provide addition, under GATS every member is obligated national treatment or most-favored nation treatment to unconditionally extend to service suppliers of all for government procurement, subsidies or grants. other WTO members Most-Favored Nation (MFN) Some of Mexico’s reviewed IIAs contain Treatment. However, Mexico has made reservations commitments to liberalize. Both NAFTA and in that regard—it reserves differential treatment of CPTPP include such commitments, granting national service providers from the United States of America treatment and MFN in the pre-establishment phase. in specific tourism and travel related services as In both cases, the treaty partners make reservations: well as in road transport services. Annex I lists measures that do not comply with Under the WTO Agreement on Trade Related the commitments, and Annex II lists sectors and Investment Measures (TRIMs), Mexico has activities in which countries may maintain existing, committed not to apply certain investment or adopt new or more restrictive, measures. The two measures that restrict or distort trade agreements also contain a “ratchet mechanism”, (local content requirements, trade balancing which ensures that any future regulatory or legal 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |9 Table 2. Comparison of Mexico’s Select IIAs Largest Home Country Latest IIA (date of entry Expansive Regional IIA (% of total FDI stock): into force): Mexico-United Coverage IIA (highest North American Free Trade Arab Emirates BIT (2018) number of members): Agreement (NAFTA) (1994) (CPTPP entered into Comprehensive and (USA) force later, features as IIA Progressive Agreement with expansive regional for Trans-Pacific coverage) Partnership (CPTPP, 2018) Scope of Application Covers pre-establishment Yes No Yes Exclusions from scope Government procurement, No Government procurement, Subsidies or grants Subsidies or grants (both for NT, MFN) (both for NT, MFN) Standards of Treatment National Treatment (NT) Pre- and post-establishment Post-establishment Pre- and post- establishment Most-Favored-Nation Pre- and post-establishment Post-establishment Pre- and post- Treatment (MFN) establishment Fair and Equitable Yes Yes Yes Treatment (FET) Full Protection & Security Yes Yes Yes Expropriation Direct and indirect Direct and indirect Direct and indirect expropriation, payment of expropriation, payment of expropriation, payment of compensation compensation compensation Rights to Transfer Funds Yes Yes Yes Prohibition of TRIMs+ (Prohibiting a larger No TRIMs+ Performance number of performance Requirements requirements than in TRIMs) Dispute Resolution State-State Dispute Yes Yes Yes Settlement Investor-State Dispute Yes Yes Yes Settlement Source: World Bank Analysis based on IIAs obtained from United Nations Conference on Trade and Development (UNCTAD) Investment Policy Hub change that makes it easier for investors from In June 2019, Mexico became the first country one party to access the other party’s market will to ratify the United-States-Mexico-Canada automatically be locked-in under the Agreement Agreement (USMCA), which was signed by and therefore cannot subsequently be made more the three parties in November 2018 to replace restrictive. In addition, the two agreements further NAFTA. On December 10, 2019, the United include a prohibition on performance requirements. States, Canada, and Mexico agreed to a protocol The provision goes beyond TRIMs in scope of amendment to the USMCA. While there are and includes a higher number of performance no changes to the investment chapter, significant requirements that are prohibited (a so-called amendments concern labor and environmental TRIMs+ standard). provisions as well as intellectual property rights | 10 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO (IPR). As of January 2020, the amended USMCA convertibility, enabling investors to transfer has been ratified by Mexico and the US. certain payments related to their investments. Mexico is also party to 60 Double Taxation Compared to NAFTA, USMCA’s investment Avoidance Agreements (DTAA) that are in force, chapter curtails investor-state dispute settlement influencing its ability to tax foreign investors and (ISDS). Recourse to ISDS will not be available investments. between Canada and Mexico (although access to ISDS is available under CPTPP). Between Mexico and the United States the USMCA includes a C. Key Institutions for Investment 30-months local remedies requirement and strictly Promotion circumscribes the substantive provisions subject Prior to President Andrés Manuel López to ISDS. Access to ISDS is limited to a breach of Obrador coming into office, ProMéxico was the national treatment, most-favored-nation treatment, main foreign investment promotion agency to or for direct expropriation. Claims alleging a facilitate foreign investment into the country violation of national treatment with respect to the as well as outbound investments, including establishment or acquisition of an investment, Mexican exports. Formed in 2007 under the a violation of fair and equitable treatment, and government of Felipe Calderón, ProMéxico had indirect (or regulatory) expropriation, all of which offices in 31 countries. In April 2019, President made up the majority of ISDS claims made under Obrador officially disbanded ProMéxico and NAFTA, will no longer be covered. announced the opening of a new facilitation agency In April 2018, Mexico reached an “agreement to replace ProMéxico’s functions. in principle” with the European Union on a new trade agreement, including rules on investment. National Level Institutions This agreement includes a substantive procedural The National Foreign Investment Commission reform: instead of conventional investor-state (Commission) established under the FIL is a dispute settlement through investment arbitration, government body reporting to the Ministry a so-called investment court system (ICS) is of Economy. The Commission is comprised introduced. The investment court system consists of the Ministers of Government; Foreign of a first instance tribunal and an appeal tribunal. Affairs; following Treasury and Public Finance: Party-appointed arbitrators (selected by the Social Development; Environment and Natural disputing parties) are replaced by tribunal members Resources; Energy; Economy; Communications appointed by State Parties, assigned to specific and Transportation; Labor and Social Welfare; cases on a rotational basis. and Tourism, who may appoint a Sub-Secretary as Mexico is a member of treaties covering an alternate. The Commission may invite private investment arbitration. It is a member of the and social representatives, subject matter experts Convention on the Recognition and Enforcement and stakeholders to participate (but not vote) in of Foreign Arbitral Awards (New York Convention) its sessions. The Minister of Economy chairs the and the International Centre for Settlement of Commission and has an Executive Secretary and Investment Disputes Convention that facilitate a Committee of Representatives for its operation. the enforcement of arbitral awards. It has been a The Committee of Representatives is comprised respondent in thirty publicly known investor-State of the civil servants appointed by each of the arbitrations. Nine of these disputes have been Ministers who sit on the Commission, is mandated decided in favor of the investor, eight in favor of to meet at least once every four months and has the Mexico, three have been discontinued, one settled, authority delegated to it by the Commission. The and nine are currently pending. Commission is mandated to meet at least twice a year and decide upon the issues within its scope by Acceptance of Art. VIII of the International a majority vote. In case of a draw, the Chairman of Monetary Fund (IMF) Articles Agreement the Commission has a casting vote. requires Mexico to maintain current account 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 11 The FIL empowers the Commission with the not publicly accessible except for statistical data following authority: available through the Registry’s website portal. n To issue political guidelines on foreign investment matters and to design mechanisms to Sub-National Investment Promotion promote foreign investment in Mexico; Agencies Mexico has a number of sub-national agencies n To resolve, through the Ministry, issues on the (that is, state government agencies) engaged viability and, as the case may be, on the terms in investment policy making as well as some and conditions for the participation of foreign promotion activities, which are part of each investment in activities or acquisitions with state’s government, including, amongst others: specific regulation, pursuant to Articles 8 and 9 of the FIL (where FDI exceeds 49% or other n The Sustainable Economic Development Ministry specified thresholds); of the State of Guanajuato; n To be the mandatory consulting entity on foreign n The Economic Development Ministry of Jalisco; investment matters for governmental agencies and entities of the Federal Public Administration; n The Ministry of Competition, Labor and and, Economic Development of the State of Puebla; and, n To establish the criteria for the application of legal and regulatory provisions on foreign n The Ministry of Economic Development of investment, through the issuance of general Nuevo León. resolutions. These sub-national agencies have the objective of In addition to establishing guidelines and policies attracting business investments in the relevant state. regarding foreign investment, the Commission is also in charge of granting all authorizations for FDI D. Foreign Investment Promotion in Mexico, as further described in Section 3, below. Strategy The FIL also establishes the National Foreign The 2019-2024 National Development Plan Investment Registry (Registro Nacional de (Plan Nacional de Desarrollo) published on Inversion Extranjera) (Registry) and stipulates July 12, 2019 in the Federal Official Gazette the various subjects for registration with sets forth the national objectives, strategy, the Registry, including foreign investment and priorities for Mexico’s development. The in Mexico. The Registry is maintained by the Plan defines the country’s strategy on different Ministry of Economy. All foreign investors and economic matters. The National Plan is issued by Mexican companies with foreign participation are each new President at the beginning of his/her term subject to the registration and periodic reporting pursuant to Article 26 of the Federal Constitution. requirements. The main purpose of the Registry The President may amend the National Plan from is to account, track and pool the information it time to time during the presidential term. The main receives and prepare reliable, timely statistics economic objectives under the 2019-2024 National under international standards on FDI flows in Plan are to stimulate growth, maintain the stability Mexico. Specific information about investors of public finances, and boost national and foreign and investments registered with the Registry is private investment. | 12 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 3. INVESTMENT ENTRY AND ESTABLISHMENT Market Entry and Sectoral Limitations Prohibited and Restricted Sectors The FIL expressly prohibits foreign investment Table 3. lists the Prohibited and Restricted in certain sectors or business activities specifically Sectors based on the FIL. reserved for Mexican Government and for the participation of Mexican citizens or for Mexican In Restricted Sectors where less than 100% FDI is companies with a “foreigner exclusion” clause permitted, foreign investors are (by implication) in their bylaws, pursuant to Articles 5 and 6 required to form joint ventures with a local partner. of the FIL (Prohibited Sectors). The “foreigner A foreign investor may not bypass the foreign equity exclusion” clause defined in Article 2 of the FIL restrictions through mergers and acquisitions. is an express agreement or covenant forming an integral part of the corporate bylaws prohibiting Restrictions on Non-Equity Contract the corporation to admit directly or indirectly any Based Investments foreign investors as partners or stockholders. Generally, no special restrictions or conditions The FIL further restricts foreign equity are imposed on foreign investors with respect participation in certain sectors and business to domestic investors as regards non-equity activities set forth in Article 7 (Restricted contract-based investments such as franchising, Sectors). It also enumerates a handful of business outsourcing, licensing, and so on. activities set forth in Article 8 in which up to 100% FDI is permitted, but any FDI beyond 49% requires Forms of Establishment the Commission’s prior authorization. There is generally no special requirement or For sectors and business activities not included restriction on the type of local entity a foreign in the FIL, the general position is that foreign investor may invest in or establish provided the investors are accorded equal treatment as afforded necessary regulatory approvals are obtained. to domestic investors and FDI is permitted without Foreign investors can hold any type of shares in a restrictions, subject to applicable sector-specific Mexican company other than a company owning and other laws and regulations. land used for agriculture, livestock or forestry Table 3. List of Major Prohibited and Restricted Sectors Prohibited Sectors Scope Reserved for Mexican Government Petroleum and Gas Exploration and extraction of oil and other hydrocarbons Electricity generation and Planning and control of the national electric system, as well as the public services transmission of transmission and distribution of electricity Nuclear energy Generation of nuclear energy Mining and Quarrying Radioactive minerals Bank note issuing Bank note issuing Minting of Coins Minting of coins Ports Control, supervision and surveillance of ports, airports and heliports Telegraph n Telegraph n Radiotelegraphy 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 13 Reserved for Mexican Nationals and Mexican Companies Logistics, Transport and Tourism Domestic land transportation for passengers, tourism and freight, not including messenger or courier services Banking Development banking institutions Services Rendering of professional and technical services Restricted Sectors Scope and Foreign Equity Caps Cooperatives Up to 10% in cooperative companies for production Explosives and Firearms Up to 49% in manufacture and commercialization of explosives, firearms, cartridges, ammunitions and fireworks, not including acquisition and use of explosives for industrial and extraction activities nor the preparation of explosive compounds for use in said activities Printing and Publication Up to 49% in printing and publication of newspapers for circulation solely throughout Mexico Land Use Up to 49% in series “T” shares in companies owning land used for agriculture, livestock or forestry purposes Fishery Up to 49% in fresh water, coastal, and exclusive economic zone fishing not including fisheries Ports Up to 49% in integral port administration Port Services Up to 49% in port pilot services for inland navigation under the terms Shipping Up to 49% in shipping companies engaged in commercial exploitation of ships for inland and coastal navigation, excluding tourism cruises and exploitation of marine dredges and devices for port construction, conservation and operation Fuel Up to 49% in supply of fuel and lubricants for ships, airplanes, and railway equipment Broadcasting Up to 49%, subject to reciprocity with foreign investor country Air transport Up to 49% in scheduled and non-scheduled domestic air transport service; nonscheduled international air transport service in air taxi modality; and specialized air transport service. Sectors requiring Commission’s Scope — Foreign equity permitted up to 100% but above 49% requires approval Commission approval Port Services Port services to allow ships to conduct inland navigation operations, such as towing, mooring and barging Shipping Shipping companies engaged in exploitation of ships solely for high-seas traffic Public Air Transport Concessionaire or permissionaire companies of air fields for public service Education Private education services of pre-school, elementary, middle school, high school, college or any combination Services Legal services Railways Construction, operation and exploitation of general railways and public services of railway transportation Source: Analysis by Baker McKenzie based on country’s laws and regulations Note: The table provides information on the 32 specific sectors identified for the purpose of this research. The list of sectors is therefore not exhaustive.2 | 14 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO purposes, in which cases up to 49% foreign equity Mexican workers for such positions. In Article 154, is permitted. In such a type of company, foreign employers are required to select Mexicans over investors can only hold series “T” shares. The “T” non-Mexicans for positions and promotions when stands for “Tierra” (Land) which indicates that the they are similarly qualified. company was set up to hold farming/ranching land and the foreigners may acquire ownership of this Medical doctors working for companies must be series of stock (which Series does not exceed 49% Mexicans. These provisions do not apply to people of the total corporate ownership/capital). Series hired in the positions of directors, administrators “T” shares are equivalent in value to the capital and general managers and they do not count towards contributed in agriculture, livestock or forestry the prescribed percentage. land, or those funds destined for the acquisition of For a foreign national to work in Mexico, a work such land, depending on the value of the land at the permit and a visa must be obtained through moment of the contribution or acquisition. the National Migration Institute. The General Guidelines for the Issuance of Visas (Lineamientos Minimum Investment Requirements Generales para la Expedición de Visas) describe Under Mexican law, there is no minimum the rules to obtain work permits for foreign citizens investment requirement for FDI. to work in Mexico. Quantitative Limits Local Sourcing and R&D Requirements There are generally no mandatory quantitative There is no overarching national level legal limits on the number of foreign service providers, requirement that subjects foreign investors enterprises or market players that can operate to local sourcing requirements or local R&D in a given sector. investments in order to establish business in Mexico. Restrictions on Expatriate Appointments Foreign Investment Approval While there are no overarching limitations on the appointment of foreigners to the boards FDI approval is required from the National of local companies, there are limitations on Foreign Investment Commission in the following appointments to key managerial and technical cases: (i) if the contemplated foreign investment positions under sector specific laws. For example, exceeds 49% in a regulated sector pursuant to in the aviation sector, commercial pilots and flight Article 8 of the FIL (See Table 3), or if (ii) the crew of commercial planes registered in Mexico foreign investment exceeds 49% of the capital stock must be Mexican by birth. of a Mexican entity with an aggregate value of assets higher than the amount annually determined Further, the Federal Labor Law (Ley Federal by the Commission (which is currently set at del Trabajo) in Article 7 states that all companies $211 million) (per Article 9). in Mexico must employ at least 90% Mexican workers. In addition, for technical and professional The process to obtain FDI approval is listed positions, the workers should be Mexican. in the FIL and in its regulations. The “Manual If no Mexican candidates are available due to the of Procedures to Invest in Mexico” published by specialty of such positions, the employer company the Directorate of International Affairs and Public may temporarily hire foreign workers (but no more Policy provides clear guidelines on the process. than 10% of workers with that specialty) and the FDI applications must be submitted to the hiring company has the obligation of training Commission for approval with the necessary documentation and fees. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 15 In evaluating the proposals, the Commission those conditions or requirements that do not considers the following criteria (per Article 29): distort international trade. The Commission has 45 business days from the FDI approval submission n Impact on employment and training of workers date to respond to the request. If the Commission n Technological contribution fails to respond within the noted period, the FDI request is deemed approved as submitted. n Compliance with environmental provisions included in the ecological regulations governing Under the FIL, all foreign investments, the matter whether subject to prior approval or not, must be registered with the Registry within 40 n Its contribution to increase the competitiveness business days from the date of the respective of the country’s productive system. incorporation, branch registration, acquisition or execution of the relevant trust agreement. Further, in determining whether to grant Upon such registration, the Ministry of Economy approval, the Commission is empowered to will issue a registration certificate, which must prevent acquisitions by foreign investors for be renewed annually. Foreign investors that do reasons of national security. Notably under not register their investment with the Registry are Article 29, the Commission can impose only subject to administrative fines. | 16 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 4. INVESTMENT PROTECTION Protection Against Expropriation valid as public interest reasons for expropriation are listed in Box 1, below. Indemnification is required Expropriation is regulated by the Mexican to be paid in Mexican currency and at fair market Federal Constitution and the Expropriation Law price. The Mexican government can expropriate (Ley de Expropiación). The FIL does not contain any assets under Mexican law. any express protections for foreign investors against expropriation. The Constitution stipulates that Further, foreign investors from certain “private property shall not be expropriated except countries enjoy protection against (direct and/ for reasons of public use and subject to payment or indirect) expropriation under international of indemnity.” The Expropriation Law (Ley de investment treaties. A number of these agreements Expropiación) applies to both domestic and foreign include investor rights against direct and indirect investors and outlines the criteria for evaluating a expropriation, requiring that for an expropriation lawful expropriation. The causes that are deemed to be lawful, it must be for a public purpose, Box 1. Public Interest Criteria for Expropriation under Mexico’s Expropriation Law n The establishment, exploitation or conservation of a public service; n The opening, expansion or alignment of streets, the construction of roads, bridges, roads and tunnels to facilitate urban and suburban transit; n The beautification, expansion and rehabilitation of the towns and ports, the construction of hospitals, schools, parks, gardens, sports or landing fields, office buildings for the Federal Government and of any work destined to provide services of collective benefit; n The construction of public infrastructure works and the provision of public services, which require real estate and its improvements, derived from concession, contract or any act legally concluded in terms of the applicable legal provisions; n The conservation of places of panoramic beauty, of antiquities and objects of art, of archaeological or historical buildings and monuments, and the things that are considered as remarkable characteristics of [Mexican] national culture; n The satisfaction of collective needs in case of war or internal disorders; the supply of cities or centers of population, food or other consumer goods necessary, and the procedures used to combat or prevent the spread of epidemics, epizootics, fires, plagues, floods or other public calamities; n The means used for national defense or for the maintenance of public peace; n The defense, conservation, development or use of susceptible natural elements of exploitation; n The equitable distribution of monopolized or monopolized wealth with the exclusive advantage of a or several people and to the detriment of the community in general, or of a particular class; n The creation, promotion or conservation of a company for the benefit of the community; n The necessary measures to avoid the destruction of the natural elements and the damages that the property may suffer to the detriment of the community; n The creation or improvement of population centers and their own sources of life. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 17 following due process, non-discriminatory and for If the commercial bank (to ensure compliance the payment to be adequate, effective, and prompt with Credit Institutions Law) considers, pursuant compensation (see Section 2 — International Legal to the criteria established in the Rules, that any Framework). given operation is unusual, the bank may suspend the operation until the Ministry gives its clearance Restrictions on Inflow and Outflow or the customer gives due reasoning for such a of Funds movement or transfer. There are no specific limitations on foreign Dispute Settlement investors in terms of inflow and outflow of funds (net of applicable taxes and subject to Foreign investors have access to a broad range of other standard compliances). As such, a foreign dispute settlement mechanisms. Any individual or investor may freely transfer inward and outward entity may use any of the mechanisms provided under their capital contributions, profits, capital gains, Articles 14, 16 and 17 of the Federal Constitution, intracompany loans, income from asset disposal, including any of form of trial, arbitration or intellectual property rights (IPR) royalties, lawfully mediation (or any other alternate dispute resolution obtained compensation or indemnity, income mechanisms), which are regulated by the specific from liquidation and other similar proceeds in the procedural laws, either federal or local. Likewise, Mexican peso or a foreign currency. any foreign citizen or entity could also apply any applicable international treaty in connection with There are no exchange control restrictions dispute resolution mechanisms. (the Mexican peso is freely convertible), but the central bank, Banco de Mexico, can suspend a Due process must be followed by the transfer in the event of an “unusual transaction”. Mexican authorities, pursuant to the Federal Pursuant to the General Rules of Article 115 of the Constitution’s Articles 14 and 16. A foreign Credit Institutions Law, commercial banks have the investor is entitled to appeal or seek an administrative obligation of reporting unusual operations made revision with the federal administrative courts in by their customers to the Ministry of Treasury and the event of an administrative conflict. Public Finance. Under the Rules, the commercial bank and the Ministry may consider an operation unusual if it does not match the activities previously made by such customer. To evaluate the transaction, the following information is considered: n Origin or destination of resources; n Amount; n Frequency; n Type; or n Nature. | 18 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 5. INVESTMENT INCENTIVES Mexico’s investment incentives regime applies Standards (NOMs) and Mexican Voluntary equally to both domestic and foreign investors. Standards (NMXs) and grants incentives based No special tax or financial incentives or concessions on them; are granted to foreign investors only. n Value added tax (VAT) exemption and/or Investments in certain industries such as film remission: The Ministry of Treasury publishes and theatre projects, agriculture, livestock, the allowed exemptions, application of 0% VAT fishing and timber are eligible for special tax rate, or remissions on the VAT through the Value incentives. Mexican Income Tax Law sets forth Added Tax Law and the Tax Administrative the federal tax incentives that taxpayers may use Guidelines published each year; pursuant to their main economic activities. No non- tax incentives are granted at the federal level. Most n Customs duty exemption and/or remission: regional incentives have been gradually repealed. Exceptions to custom duties are included in State and local governments may grant certain the General Import and Export Taxes Law incentives within their jurisdictions. (Ley de los Impuestos Generales de Importación y Exportación) and the Customs Law (Ley FDI may be eligible for the following types of Aduanera). Additionally, Mexico has subscribed federal tax incentives depending on the nature to trade and investment agreements with over and scope of the investments: 50 countries, in many cases there are specific exceptions contained in such agreements. n Full or partial reduction in corporate income tax (that is Tax holiday or lower tax rate): All The incentives are generally linked to defined allowed deductions for income tax are provided policy objectives published each year through for in the Tax Administrative Guidelines the Miscellaneous Fiscal Rules. These Rules are published each year by the Ministry of Treasury part of the annually published Income Law (Ley de and Public Finance (Secretaria de Hacienda y Ingresos) and contain the Ministry of Treasury’s Credito Publico) (Ministry of Treasury) and in policies and objectives for collections and tax law the Income Tax Law (Ley del Impuesto Sobre la implementation for each fiscal year, with its models Renta). A reduction is allowed on the tax basis, and projections for collections. In addition, the but not on the rate. Likewise, administrative Ministry of Treasury annually publishes specific decrees include programs like IMMEX (export economic criteria, including economic forecasts services) contained in the “Decree for the for the said year, and how these forecasts affect the Promotion of the Manufacturing, Maquiladora growth and expenditure of the federal government and Exporting Services Industry”; (Criterios Generales de Política Económica para la Iniciativa de Ley de Ingresos y el Proyecto n Performance based incentives (for example, de Presupuesto de Egresos de la Federación allowances and accelerated depreciations): Correspondientes Al Ejercicio Fiscal 2019). The Ministry of Treasury issues the rules for accelerated depreciations and industry- All tax incentives and stimuli are provided on focused incentives based on policy objectives the Tax Administration Service (Servicio de through the Federal Revenue Law and the Tax Administración Tributaria) website. The portal Administrative Guidelines the Ministry publishes is updated periodically with modifications to each year. Similarly, the Ministry of Economy such incentives and is maintained by the Tax has different decrees regulating certification on Administration Service of the Ministry of Treasury. quality standards based on the Official Mexican 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 19 Eligibility Criteria and Approval Process to obtain tax incentives for different industries and sectors. Incentives do not automatically apply The tax incentives offered at the federal level to investments. They are generally contingent are based on objective eligibility criteria set upon the satisfaction of the relevant eligibility forth in the specific sector regulation and in criteria set out in the applicable laws and subject the Federal Tax Code and Income and Value to an approval process. A centralized registry of Added Tax laws. The Fiscal Tax Code and the firms and state owned enterprises receiving tax annually published Miscellaneous Fiscal Rules incentives is maintained on the Tax Administration (Resolución Miscelánea Fiscal) contain the rules Service website. 6. INVESTMENT LINKAGES For the purposes of this section, research was The Mexican Income Tax Law provides eligible focused on availability of incentive schemes companies with a 30% tax credit for R&D expenses to increase local sourcing, technology transfer incurred for R&D activities carried out in Mexico, and measures to improve information exchange including process and design. between foreign investors and domestic suppliers. The National Council of Science and Many states offer tax/financial incentives for Technology (CONACyT), a government agency, investors to establish/source their operations in is in charge of promoting R&D in Mexico and is the state such as: (i) tax reductions to local taxes operating several financial support schemes (such as including property tax and wages tax; (ii) donation INNOVAPYME, PROINNOVA, INNOVATEC) to of undeveloped land to certain productive projects; promote R&D projects focused on green ideas, job and (iii) payment of training programs for local creation, innovation and added value. Specific tax employees. Any foreign investor who wishes to credits may also be obtained from the government obtain local incentives may negotiate them directly if research and technical training is locally sourced. with local authorities on a case-by-case basis. | 20 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 7. OUTWARD FOREIGN DIRECT INVESTMENT For this section, research was focused on whether regulations that specifically regulate outward there are any legal instruments specifically foreign direct investment (OFDI). The Mexican covering outward investment and if there are, legal system does not include any limitation on whether they impose any restrictions on outward OFDI by state-owned or private sector companies. investment. Mexico does not have any laws or 8. RESPONSIBLE INVESTMENT For this section, research was focused on whether provides a general right for health protection that there are any measures within the country’s must be provided by the government. Moreover, investment legislation that are specifically the Ministry of Economy through the commercial targeted to ensure responsible investment. There normativity office constantly publishes the Official are responsible investment measures in other laws Mexican Standards, which are technical rules for and regulations of the country, but Mexico’s foreign the production of goods and provision of services investment law and policy do not include an explicit in Mexico. The Ministry of Economy drafts these reference. For example, the General Climate standards and incorporates them into the Mexican Change Law (Ley General de Cambio Climatico) legal system based on international and national enacted in 2012 outlines the objectives included in standards. These laws and regulations apply to the Paris Accord and includes them in domestic law. all domestic and foreign invested companies in Similarly, the General Health Law (Ley General Mexico, meaning there are no measures specific to de la Salud) along with the Federal Constitution foreign investment. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 21 9. RECENT POLICIES ON NEW TECHNOLOGIES This section considers Mexico’s recent policy of Mexico and the National Banking and Securities measures on new technologies (that may affect Commission (Comisión Nacional Bancaria y both domestic and foreign investors). Globally, de Valores) published subordinate regulations policy measures on new technologies tend to focus and administrative rules (for example, General on the enabling (sectoral) regulatory framework, Provisions applicable to Fintech Institutions, as well as on incentives, digital standards, and Mexican Central Bank Circular 12/2018 and clusters. At the same time, countries have taken General Provisions pursuant to Article 58 measures that highlight their changing approaches (Anti-Money Laundering) of the Fintech Law) to to national security. Other emerging policies that, give effect to the new Fintech Law. though not directly related to investment, as a matter of fact impact investments, are data localization Data Localization requirements as well as rules and regulations concerning the treatment and use of digital data. There is no express data localization requirement under Mexican law. The Federal Law for the Mexico has been particularly active in Protection of Personal Information Possessed regulating financial technology (Fintech). On by Private Parties (Ley Federal de Protección de March 6, 2018, the Mexican Congress approved Datos Personales en Posesión de los Particulares) and published modifications to Mexican laws effective as of July 6, 2010, and its subordinate on financial operations and credit institutions, regulations outline the obligations for private together with the new Law to Regulate Financial parties with access to personal information of data Technology Institutions, (Ley para Regular las subjects. The law regulates how companies must Instituciones de Tecnología Financiera) (Fintech collect, store, use, transfer and handle personal Law). This new Fintech Law contains the rules for information of data subjects, including notices Fintech companies having operations in Mexico that should be given to the user and how such and introduces a legal framework for financial information is to be treated, including transfer of technology institutions and concepts such as virtual data. The law permits cross-border transfers of assets/cryptocurrencies, crowdfunding platforms personal information, provided the data subject and electronic payments. Following the enactment gives informed, prior consent. of the Fintech Law, on September 10, 2018, the Bank | 22 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 10. CITY SPECIFIC REVIEW—MEXICO CITY Mexico City is the capital of Mexico and the la Ciudad de México). These incentives have seat of the federal government. On January 29, ranged from reduction on local taxes (that is, 2016, it ceased to be the Federal District and payroll, real estate acquisition taxes) and local is now officially known as Ciudad de México contributions (that is, registration with the public (or CDMX), an autonomous entity within Mexico registry of property). The city’s government directs with its own congress and a new constitution that incentives to industrial and maquila producers; came into effect on September 17, 2018. While nevertheless, there have also been specific sector- federal laws currently govern Mexico City, legislative focused incentives for companies who initiate their changes are anticipated given Mexico City’s new operations in high technology sectors, for example political status. reductions of 55% for payroll tax, 30% for land ownership tax and 80% for real estate acquisition Mexico City’s local government has established tax. Currently, different programs are in place, additional incentives in order to attract which include direct transfers to companies in investment into the city. The office in charge different sectors through micro credits or financing of handling such incentives is the SEDECO, or for entrepreneurs. These are directed to sectors that Economic Development Ministry (Secretaría de the government considers strategic or vulnerable, Desarrollo Económico), that has established the for instance cultural companies, women who are FONDESO, or Trust for the Social Development starting a business, or small businesses. of the City (Fondo para el Desarrollo Social de 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 23 11. COMPETITION LAW & POLICY For the purpose of this section, research combined assets or annual sales in Mexico exceed was focused on merger control and leniency 48 million MU (approximately US$213 million). frameworks in the country. The Unit for Measure (Unidad de Medida y The primary law governing competition in Actualización or UMA) is the economic reference Mexico is the Federal Economic Competition in pesos to determine the amount of payment from Law (FECL) effective as of July 7, 2014, and its obligations and alleged assumptions provided for in implementing regulations. the federal law, for the states and Mexico City, as well as in legal provisions emanating from all of the The Federal Economic Competition Commission above. In 2019 the UMA is equal to Mex$84.49 or (COFECE), established in 2013, is the main body approximately US$4.53. in charge of implementing competition law and policy in the country. If the target has no capital, assets or sales in Mexico, the transaction is exempted from A. Merger Control the notification requirement. The parties may voluntarily file a notification even if the transaction Mexico’s merger control regime is primarily does not meet or exceed the above thresholds or the governed by the FECL and its implementing parties may seek a non-binding opinion from the regulations, administered by the Federal Economic COFECE for planning purposes. There are special Competition Commission. merger control rules that apply to certain sectors such as broadcasting and telecommunications A pre-merger notification is required if the sectors. merger meets the definition of concentration and the applicable monetary threshold. Article The exceptions to the pre-merger notification 61 of the FECL broadly defines “concentration” requirement are set forth in Article 93, which as a merger, acquisition of control, or any other include the following types of transactions: act by means of which companies, associations, stock, partnership interest, trusts or assets in n Merger where the acquirer increases its equity general are consolidated, and which is carried out participation in the acquired entity and such among competitors, suppliers, customers or any acquirer holds the control of the acquired entity other Economic Agent. The applicable monetary since its incorporation or the acquisition of the thresholds are the following: control has been authorized by the COFECE in a prior merger-control proceeding; n Transactions with value in Mexico exceeding 18 million times the value of the Unit for Measure n Formation of trusts, where the principal purpose (UMA) (approximately US$80 million); or is not to transfer the ownership of the assets; n Transactions involving the accumulation of more n When the undertaking acquiring stock is an than 35% of the assets or shares of an undertaking investment fund; provided such participation with assets or sales in Mexico exceeding 18 does not grant “relevant influence” in the million MU (approximately US$80 million); or management of the target. “Relevant influence” is not defined under Mexican law; and n Transactions that (i) imply an accumulation of assets or capital stock in Mexico exceeding n Acquisition of stock of companies listed on 8.4 million MU (approximately US$37.3 a recognized stock exchange, provided the million), and (ii) involve undertakings whose participation in such company does not exceed | 24 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 10% and the acquirer of stock, even if its In practice, the “fast track” procedure is rarely participation does not exceed 10%, does not used. Decisions resulting from a fast track review have the power for: are similar to those issued under the regular merger control process. n Appointing or removing members of the board, directors or managers of the issuing Pursuant to Article 90 of FECL, the COFECE company; has the power to issue only two official requests for information with statutory deadlines n Imposing, directly or indirectly, decisions (10 and 15 business days respectively). The on the general meetings of stockholders, review procedure does not start until these two partners or equivalent bodies; first two requests for information are fulfilled. In n Holding ownership rights that allow, directly practice, COFECE might subsequently informally or indirectly, to exercise voting regarding ask merging parties for additional information ten percent or more of a legal entity’s capital during the merger review procedure. stock, or The COFECE may “stop the clock” by issuing an n Directing or influencing, directly or indirectly, official request for information. The parties must the management, operation, strategy or the then provide the requested information, at which main policies of a legal entity, by means of point the review period “resets” at 60 working days equity holdings, contractually or otherwise. (an additional 40 working days are available in complex cases). Informal information requests do not “stop the clock”. Pre-notification Meetings Pre-notification contacts with the COFECE are Remedies advisable but not mandatory. Rules governing communication with COFECE are detailed under The COFECE can approve a merger with the Merger Guidelines. One or two meetings, taking both structural and behavioral remedies. The place about one week prior to submitting the filing, conditions or remedies imposed by the COFECE or usually suffice. agreed to by the COFECE must be proportionate to the intended correction of a concentration’s effect. Notifying parties can submit a proposal of remedies Fast Track Procedure and Information either with or after the initial filing. In case the Requests remedies are submitted at a later stage, this resets A “fast track” procedure is provided under the review period at 60 working days (an additional Article 92 of the FECL for certain types 40 working days are available in complex cases). of transactions where it is clear that a concentration will not hinder, damage or impede File Access and Third-Party Intervention free market access and economic competition. In that procedure, COFECE is required to issue a Pursuant to Art. 83 of the FECL, notifying confirmation that the transaction qualifies for this parties have the right to access the merger procedure within 5 working days after the filing. control file during the whole process, except Following such confirmation, COFECE has to for confidential information. The confidential make its decision on the merger within 15 working information provided to the COFECE for the days. This fast track procedure can be used only merger review is protected under Articles 124, 125 in a few limited scenarios. This is the case when and 135, provided the parties clearly identify the the acquiring party is not active in markets related confidential information and justify the reasons for to the relevant market, does not compete with the confidentiality. In addition, the COFECE may the target and: (i) the transaction implies the first not explicitly reveal that a proposed transaction entrance to the market for the acquiring party; or involving particular parties within a given industry (ii) the incremental increase of the acquiring party’s is under review. But certain related facts may stake of a company without implying change be revealed through any contacts the COFECE of control. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 25 has with third parties. The corporate names of suppliers and so on) and the possibility that it would the notifying parties would be published on the result in an undertaking acquiring or increasing a COFECE’s website at the issuance of the first dominant position. request for information. Third parties are able to file a complaint against Penalties and Appeals a notified transaction, and the arguments Pursuant to Article 127, failure to report a contained in the complaint may be taken into transaction meeting the thresholds is subject consideration by the COFECE. Additionally, to a fine of up to 5% of the annual turnover of third parties may also hold informal meetings with the directly involved parties (buyer and seller) the relevant staff of the COFECE to express their in Mexico. Under Article 86, if a transaction is concerns on a particular transaction. In any case, implemented without approval, it will be considered under Article 81, third parties are not considered null and void and the COFECE may impose a fine to be parties to the notification process and are not as if the transaction was not reported. granted access to the file. The FECL does not establish any monetary sanction in the case of implementing a transaction Substantive Assessment prior to clearance. Nevertheless, if the transaction The main substantive assessment is whether is considered to be unlawful or illegal (that is to say, the transaction will reduce, impair or prevent a transaction that leads to the creation of a dominant competition in Mexico. The COFECE examines position, or damages the market) the parties can be whether a concentration will result in (a) an penalized with a fine of up to 8% of their annual acquisition of market power conferring the ability domestic turnover under Article 127. to determine price levels or restrict output in the relevant market; (b) restrict competitors’ ability to Non-compliance with remedies imposed in a enter the market; and (c) facilitate monopolistic merger control process may result in a fine of up practices by the merging parties. The COFECE to 10% of the annual turnover of the parties. In adopted safe harbors as follows: addition, the COFECE may order the unwinding of the concentration. n the increase of the Herfindahl–Hirschman Index (HHI) is less than 100 points; The COFECE decisions are final and therefore not subject to appeal at the administrative n the HHI post-transaction is below 2,000 points; level, but pursuant to Article 28 of the Mexican and Federal Constitution may be challenged before a Federal Specialized Court through an amparo n the HHI after the transaction is between 2,000 trial. The function of a writ of amparo is to give and 2,500 points, difference between 100 and persons (both individuals and juridical persons) an 150 points; and instrument to challenge acts of authorities (including n the parties post-transaction are not one of the administrative, judicial and legislative acts), for four largest economic agents in the relevant being contrary to the fundamental rights contained market. in the Constitution The amparo resolution may then be appealed before a Circuit Tribunal integrated by The COFECE must justify the reasons for not 3 judges. authorizing a transaction or in those cases when remedies are imposed in the final resolution. Publicity and Deadlines for Merger However, the COFECE does not develop a theory Decisions of harm when issuing the statement of objections. Under Article 63 of the FECL, the COFECE only Only redacted public versions of the COFECE’s considers the competitive effects of a transaction decisions are published on the COFECE’s (and not other effects—for example on jobs, website after officially being served to the parties. | 26 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO Published decisions do not include the analytical and may be through an informal meeting. It can be underpinnings motivating them, unless the decision requested via email or voicemail at any time prior to implied blocking or conditioning a transaction. the closing of the investigative phase of a procedure. COFECE will schedule the meeting at which Pursuant to Article 90, the COFECE must issue a the applicant will formally request the leniency decision within 60 working days after (i) the filing, protection and will provide all the information and or (ii) the submission of the basic information, documents in its possession on the anti-competitive or (iii) the submission of additional information. conduct. If it is deemed that the information and This term may be extended in complex cases for documentation thus provided are not sufficient to an additional 40 working days. In fast track cases initiate an investigation or to presume the existence under Article 92, the COFECE has 5 working of the cartel conduct, all the information and days after the filing to issue a confirmation that the documentation submitted by the applicant will be transaction qualifies for this procedure. Following returned. If the information and documentation are such confirmation, the COFECE has 15 working sufficient to initiate an investigation, the applicant days to issue its decision. will receive a conditional leniency resolution if the applicant is fully cooperative with the COFECE. B. Leniency Program COFECE’s leniency program is set out in Article Confidentiality 103 of the FECL, and in Immunity Program Under Article 103 of the FECL, the COFECE Guidelines issued by COFECE. It covers is obligated to keep the identity of the applicant immunity from and reduction of administrative for leniency confidential at all times and with monetary punishment, criminal fine and jail time. It no exceptions. There are no applicable precedents provides no immunity from or reduction in private indicating whether public prosecutors or courts damages that may be awarded as a result of the would have access to leniency statements in damage relevant conduct. The program can be applied to claims proceedings. several applicants on a sliding scale. While the first applicant receives a reduction up to zero of the fine, Cooperation with other competition the second applicant will have their fine reduced authorities by between 30% and 50%. The third applicant will have their fine reduced by 20%-30%, and the fourth The COFECE frequently cooperates with (or subsequent) applicant(s) will receive up to a other jurisdictions, in particular with the 20% reduction in their fine. The leniency program United States, but for confidentiality reasons, in Mexico is available for individuals, in addition to this cooperation does not focus on the leniency corporations and other legal entities. The COFECE program. Under the COFECE Leniency and Fines can revoke the leniency decision if full cooperation Reduction Guidelines, the applicant may submit a is not achieved by the parties. waiver authorizing COFECE to make exceptions regarding its confidentiality obligation. This Marker System may be simple waiver pertaining to the identity of the applicant or a full waiver covering both Per the Immunity Program Guidelines issued procedural and substantive information related to by COFECE, a leniency applicant will obtain a the application. In any case, an applicant is not marker after applying for the leniency program. compelled to provide one for its application to The first contact with the COFECE is often carried be accepted. out by an applicant’s counsel on a no-name basis, 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 27 ENDNOTES 1 The WTO services sectoral classification list Services are categorized into 12 sectors: (W/120) is a comprehensive list of services sectors and sub-sectors covered under the GATS. It was 1. Business services compiled by the WTO in July 1991 and its purpose 2. Communication services was to facilitate the Uruguay Round negotiations, ensuring cross-country comparability and 3. Construction and related engineering services consistency of the commitments undertaken. The 160 sub-sectors are defined as aggregate 4. Distribution services of the more detailed categories contained in 5. Educational services the United Nations provisional Central Product Classification (CPC). The list can be accessed 6. Environmental services under the following link: http://www.wto.org/ english/tratop_e/serv_e/mtn_gns_w_120_e.doc. 7. Financial services 8. Health related and social services 9. Tourism and travel related services 10. Recreational, cultural and sporting services 11. Transport services 12. Other services not included elsewhere | 28 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 2 For the purpose of this research, 32 sectors have been identified. The list of sectors is therefore not exhaustive. Primary: Services: 1. Agriculture, Hunting, Forestry, and Fishing 18. Electricity, Gas, and Water 2. Mining, Quarrying, and Petroleum 19. Alternative Energy 20. Construction Manufacturing: 21. Wholesale and Retail Trade 3. Agroprocessing, Food Products, and Beverages 22. Hotels and Restaurants 4. Textiles, Apparel, and Leather 23. Other Travel and Tourism-related Services 5. Chemicals and Chemical Products 24. Logistics, Transport, and Storage 6. Rubber 25. Telecommunications 7. Plastic Products 26. Computer and Software Services 8. Pharmaceuticals, Biotechnology, and Medical Devices 27. Financial Services including Insurance 9. Metals and metal products 28. Real Estate 10. Non-metal mineral products 29. Business Services 11. Wood and wood products (other than Furniture) 30. Professional, Scientific and Technical Services (Engineering, Architecture, and 12. Furniture so on) 13. Paper and paper products 31. Health Services 14. Printing and publishing 32. Media and Entertainment 15. Automobiles, Other Motor Vehicles, and Transport Equipment 16. Information Technology and Telecommunications Equipment 17. Machinery and Electrical and Electronic Equipment and Components 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 29 LIST OF REFERENCE MATERIALS Primary Sources 15. Ley de Expropiación, including its latest reform, dated January 27, 2012. 1. Foreign Investment Law published on December 27, 1993, as amended. 16. Ley de Hidrocarburos, including its latest reform, dated November 15, 2016. 2. Regulation of the Foreign Investment and the Foreign Investment National Registry 17. Ley para Regular las Instituciones de published on August 17, 2016 Tecnología Financiera, as amended dated March 9, 2018. 3. Manual of Procedures to Invest in Mexico, Directorate of International Affairs and Public 18. Ley Federal de Protección de Datos Policy dated 30 August, 2016 Personales en Posesión de los Particulares, as amended dated July 5, 2010. 4. Ley de Inversión Extranjera, as amended dated June 15, 2018. 19. Ley Minera, including its latest reform, dated August 11, 2014. 5. Reglamento de la Ley de Inversión Extranjera y del Registro Nacional de Inversiones 20. General Agreement on Trade in Services Extranjeras, as amended October 31, 2014. (GATS) 6. Constitución Politica de los Estados Unidos 21. Agreement on Trade-Related Aspects of Mexicanos, as amended dated January 27, Intellectual Property Rights (TRIPS) 2016. 22. Agreement on Trade-Related Investment 7. Ley del Impuesto al Valor Agregado, including Measures (TRIMs) its latest reform dated November 30, 2016. 23. Agreement on Subsidies and Countervailing 8. Ley del Impuesto sobre la Renta, including its Measures (SCM) latest reform dated November 30, 2016. 24. Convention on the Recognition and 9. Ley General de Sociedades Mercantiles, Enforcement of Foreign Arbitral Awards including its latest reform dated June 14, 2018. (New York Convention) 10. Ley General de Títulos y Operaciones de 25. International Centre for Settlement of Crédito, as amended dated June 22, 2018. Investment Disputes (ICSID) Convention) 11. Código Fiscal de la Federación, including its 26. Articles of Agreement of the International latest reform, dated June 25, 2018. Monetary Fund 12. United States Mexico Canada Agreement 27. North American Free Trade Agreement 2018. (NAFTA), 1994 13. Ley General de Mejora Regulatoria, including 28. Mexico-United Arab Emirates BIT, 2018 its latest reform, dated May 18, 2018. 29. Comprehensive and Progressive Agreement 14. Ley Federal del Trabajo, including its latest for Trans-Pacific Partnership (CPTPP), 2018 reform, dated May 1, 2018. | 30 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO Secondary Sources 38. Criterios Generales de Política Económica para la Iniciativa de Ley de Ingresos y el 30. “Mexico, Strategic Destination for Productive Proyecto de Presupuesto de Egresos de la Investment”, Promexico, 2016 Federación Correspondientes Al Ejercicio 31. “Doing Business in Mexico 2018”, Baker Fiscal 2019. McKenzie Abogados, S.C., 2018. 39. Plan Nacional de Desarrollo 2019-2024. 32. Resolución Miscelánea Fiscal para 2019, dated 40. Ley Federal sobre Metrología y April 29, 2019 Normalización, as amended dated June 15, 33. Ley Orgánica del Poder Ejecutivo para el 2018. Estado de Guanajuato, as amended dated 41. Reglamento de las Actividades a que se Refiere March 12, 2019. el Título Tercero de la Ley de Hidrocarburos, 34. Decreto para el Fomento de la Industria published on October 31, 2014. Manufacturera, Maquiladora y de Servicios de 42. UNCTAD Investment Policy Hub (https:// Exportación, as amended January 6, 2016. investmentpolicy.unctad.org/international- 35. Ley de Impuestos Generales de Importación y investment-agreements Exportación, as amended on June 18, 2007. 43. I-TIP Services database (https://i-tip.wto.org/ 36. Ley Aduanera, including its latest reform dated services/default.aspx) December 24, 2018. 44. Double Taxation Avoidance Agreements 37. Ley de Ingresos de la Federación para el (http://taxsummaries.pwc.com/ID/Mexico- Ejercicio Fiscal 2019, published on December Individual-Foreign-tax-relief-and-tax-treaties) 28, 2018. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 31 This Investment Policy and Regulatory Review presents information on the legal and regulatory frameworks governing foreign direct investment and competition that affect businesses and foreign investors. Since legal and regulatory frameworks are constantly evolving, a cut-off date was set for the research. This country review therefore covers information available as of May 31, 2019, unless otherwise indicated in the review. IPRRs are available for the following middle-income countries: Brazil, China, India, Indonesia, Malaysia, Mexico, Nigeria, Thailand, Turkey, and Vietnam.