Foreign investment control measures in Mexico have been in place for decades and have been amended on multiple occasions. As described by the Organisation for Economic Co-operation and Development (OECD), such provisions allow governments to analyse and evaluate investment proposals based on their potential impact on essential security or other public policy considerations.[2] The Mexican Foreign direct investment (FDI) regime has decisively leaned towards an open and flexible approach with few restrictions on foreign investors. Our jurisdiction has a straightforward procedure based on generally allowing all foreign investment to operate in Mexico, with some exceptions in specific sectors as established in our Foreign Investment Law (LIE).
Mexico should not yet be considered as part of the global trends on restricting FDI due to national security or other concerns. There are no plans to amend the FDI framework at present and Mexico has not introduced any additional screening mechanism or initiated discussions on topics related to geopolitical trends, technology and privacy issues, or the changes introduced by other countries as a result of the covid-19 pandemic. However, in this chapter we explain that policy changes potentially affecting foreign investors are present in our jurisdiction and may signal a more cautious approach to FDI in our country in future.
The first section briefly explains the general approach of Mexico’s FDI regime and a summary of the historical context that led to this legal arrangement. The second section describes Mexico’s FDI regime in more detail, with particular attention to investment exceptions in our jurisdiction. Additional procedural aspects of the Mexican FDI regime are described in the third section, and the final section outlines some prospective trends for Mexico in the context of a global paradigm shift in FDI.
The Mexican context on foreign investment
As in many other developing countries, the approach to FDI in Mexico has dramatically changed over time. During the first half of the twentieth century, the Mexican government was sceptical of foreign investment and legislation was enacted to control national resources and ‘strategic assets’. A strong industrial policy based on import substations, state-owned companies and promotion of local enterprises resulted in an initial FDI regime that aimed to control and regulate several sectors with regard to international exposure.[3] However, during the late 1980s and the early 1990s the government switched gears towards an open economy and a radical shift in attitude towards FDI materialised into a new open and flexible regime that has lasted to this day.
Foreign investment in strategic sectors was fiercely targeted by the Mexican revolutionary regime in the first decades of the past century. During the 1930s, the government expropriated entire strategic sectors such as railroads in 1937, and, of course, oil and gas in 1938. The economic control in critical extractive industries during the twentieth century was ever-present in the mind of foreign investors when investing in other sectors in Mexico. In the decades that followed, the Mexican government intended to develop capabilities by ‘picking local winners’. With mixed results in economic development, the government used a wide array of policy tools such as import licences, quotas, tax breaks, direct subsidies and FDI limitations.[4]
By the late 1970s the lack of competitiveness in the local industry, rising double-digit inflation, a huge sovereign debt together with the volatility in commodities made it impossible for the government to sustain a protectionist approach to investment policy. While the enactment in 1973 of the first formal instrument of FDI screening known as the Law to Promote Mexican Investment and Regulate Foreign Investment (LPIMRIE) seemed to strongly encourage local investment over FDI, the government was internally divided in its views as became clear in the years that followed.[5]
After the tremendous sovereign debt crisis of the 1980s, the Mexican government decisively turned to an open free market economy. The executive branch promoted the arrival of foreign capital to Mexico and in 1989 issued the Regulation of the Law to Promote Mexican Investment and Regulate Foreign Investment (RLPIMRIE), which, instead of continuing the protectionist narrative of the initial FDI legislation, included several foreign-friendly provisions.[6] This framework, although legally imperfect, gave a sufficient degree of certainty to foreign investors at a critical moment in Mexico’s history.[7]
The FDI-friendly policy shift was intensified in the 1990s. On 17 December 1992, Canada, the United States and Mexico signed the North American Free Trade Agreement (NAFTA), which entered into force in 1994. NAFTA ‘forced [the Mexican government] to carry out multiple amendments, reforms and even issue new laws for sectors that were affected’.[8] As part of said measures, with the purpose of carrying out an organised commercial opening that would provide legal stability to investors, on 23 December 1993, the Foreign Investment Law (LIE, as previously defined) was published.