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By Jorge A. Vargas 33 I.L.M. 207 (1994)

As of December 28, 1993, the official date of its entering into force Mexico has a new federal statute applicable to foreign investments in that country. The Foreign Investment Act appears twenty years after Mexico's enactment of its very first formal statute to regulate, systematize and codify the rules and legal principles on this matter: the "Act to Promote Mexican Investment and Regulate Foreign Investment" of 1973, now repealed by the new statute.

Composed of 39 articles and 11 transitories, the new Foreign Investment Act provides that until the regulations to this Act are promulgated a legislative effort which is expected to take about a year the Regulations to the 1973 Act "shall continue to be in force in everything not opposing" the new Act. From a legal perspective, the new Act maintains a very close symmetry both in format and content with the 1989 Regulations.

The new Foreign Investment Act does not constitute an isolated legal phenomenon. It should be placed within the context of the overall modernization policies advanced in that nation by the current administration of President Carlos Salinas de Gortari, in particular in the economic, legal and international trade areas. The reader should be informed, for instance, that the legislative bill of the new Act was sent to Congress as part of a package containing some fifteen domestic laws including, inter alia, a decree revising the provisions of several federal statutes to put them in accordance with the North American Free Trade Agreement.

In the official statement that President Salinas sent to the Federal Congress accompanying his legislative bill, he expressed:

The purpose of this bill for a Foreign Investment Act is to establish a new legal framework which, in full compliance with the Constitution, promotes competitiveness in the country, provides legal certainty to foreign investment in Mexico and establishes clear rules to channel international capital to productive activities.

This Presidential statement underscored the fact that during his administration the accrued foreign investment was higher than 34 billion dollars, clearly exceeding the goal of 24 billion dollars originally proposed for his entire constitutionally established six-year term. Having received about ten billion dollars during the first ten months of 1993, President Salinas reported to Congress that the historic balance of foreign investment in Mexico amounted to some sixty billion dollars. Out of this total, he stated, the United States and Canada participated with 65 percent, the EEC with 19 percent, Latin America with 8 percent and Asia with over 2 percent. Foreign investment in Mexico has been channeled to the manufacturing sector (30%), transportation and communications (24%) and financial services (16%).

Furthermore, in his statement President Salinas indicated that according to the International Monetary Fund, Mexico in 1991 was positioned as the eighth nation receiving foreign investment at the global level and the first among developing countries. He also mentioned that, according to the U.S. Department of Commerce, Mexico climbed from the seventh to the second position in the general table of countries receiving investment from the United States.

Contrary to the 1973 Act, the new statute embraces a number of innovative features, such as: (a) it liberalizes the access to and the participation of foreign investment to Mexico, streamlining and expediting the corresponding administrative procedures; (b) rather than erecting obstacles to foreign investment, the new Act adopts a clear promotional attitude aimed at attracting foreign capital to that country; (c) it eliminates the imposition of "performance requirements" upon foreign investors, thus reducing to a minimum the exercise of discretionary powers from Mexican authorities; (d) given the benefits created in favor of foreign investors, the new Act preserves the so- called "neutral investment", an elastic notion created by the 1989 Regulations; and (e) the new statute details the functions of the National Registry of Foreign Investments, in an attempt to avoid the numerous difficulties and confusions introduced in this area by the preceding 1973 Act.

The new Foreign Investment Act of 1993 formally codifies in a federal statute the novel legal r gime created in this area by the 1989 Regulations. It appears that the ultimate objective of the government of Mexico was to dispel the serious concerns raised some time ago by certain countries, in particular Japan, regarding the fact that the novel legal r gime established by the 1989 Regulations clearly favoring the attraction of foreign investments may be unconstitutional for being in violation of the 1973 Act or legally questionable for not having the force of a federal statute. Furthermore, the new Act is considered to be in legal symmetry with the North American Free Trade Agreement in according national treatment to most areas of foreign investment, save the specific reservations made in its recently enacted text.

The major legal components of Mexico's new Foreign Investment Act of 1993 may be summarized as follows:

1. A number of "strategic areas" (e.g., petroleum, electricity, railroads, radioactive minerals, etc.) continue to be exclusively reserved to the government of Mexico, while other important economic activities (e.g., national ground transportation services, retail gasoline sales, non-cable T.V. and radio, development banks, credit unions, etc.) continue to be reserved to Mexican nationals only or to Mexican corporations with an Exclusion of Foreigners Clause.

2. Minority foreign ownership, ranging from 10% up to 49%, is allowed in certain economic activities subject to "specific regulations", without having to obtain a favorable resolution of the National Commission of Foreign Investments. Previously reserved to Mexican nationals, some of these activities include domestic air transportation, cable TV, fishing, insurance, money exchange houses, shipping, railroad related services, etc.

3. The new Act requires a favorable resolution of the National Commission of Foreign Investments for foreign investment to participate in a larger percentage than 49% in certain economic activities (e.g., port and shipping services, air traffic terminals, cellular telephones, etc.).

4. The new Act establishes more precise regulations (i) for the acquisition of immovable assets in the national territory by Mexican corporations with an Exclusion of Foreigners Clause and (2) for the creation of trusts in the Restricted Zone for the benefit of Mexican corporations with an Exclusion of Foreigners Clause, foreign natural persons or foreign legal entities with the Calvo Clause, for residential and non-residential uses. Unlike the 1989 Regulations which established a thirty-year period for the duration of these trusts, the new Act provides a maximum of fifty years for the beneficiary use of these trusts, to be extended at the request of the interested party.

5. The new Act enlarged the membership of the National Commission of Foreign Investments from seven to nine members of the Cabinet, detailing its functions and operations. It is expected that this Commission through its "General Resolutions", is likely to continue to play a decisive role on key aspects of foreign investment matters.

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