Mexico's Foreign Investment Regulations of 1998

Article excerpt

FREQUENTLY ASKED QUESTIONS

1. Why should U.S. legal practitioners and international investors become familiar with Mexico's 1998 Foreign Investment Regulations?

Familiarity with Mexico's Foreign Investment Regulations is important because the 1998 Foreign Investment Regulations (Reglamento de la Ley de Inversion Extranjera y del Registro Nacional de Inversiones Extranjeras or 1998 Regulations) are a necessary tool for implementing the Foreign Investment Act of 1993 (Ley de Inversion Extranjera or L.I.E.) which establishes the current legal regime that governs all foreign investment activities in Mexico. No implementation of the 1993 L.I.E. can take place without the 1998 Regulations. The Regulations interpret, detail, expand and complement the L.I.E. provisions. The 1998 Regulations are very similar to U.S. regulations. The 1998 Regulations may not oppose or contradict in any manner the substantive provisions of the 1993 L.I.E. without running the risk of being declared unconstitutional.(1) Consequently, the 1998 Regulations must be in complete symmetry with the content of the 1993 L.I.E. The Regulations establish rules and principles designed to limit the discretion of Mexican federal authorities in interpreting the provisions of the 1993 L.I.E.(2) Thus, the 1998 Regulations are designed to set clear and precise administrative rules which must be complied with by federal authorities in the process of interpreting the Foreign Investment Act of 1993, as amended in 1996. The 1998 Regulations explicitly carve out specific exceptions to the different types of investment statutorily established by the 1993 L.I.E., as amended in 1996.(3) All of these exceptions were created by the 1998 Regulations to liberalize foreign investment requirements to favor foreign investors.(4) The Regulations have opened up more areas of the Mexican economy to foreign investment. This represents a positive development.

2. Who is subject to the application of these L.I.E. Regulations?

The Regulations apply, on one hand, to the government officials of the Secretariat of Commerce and Industrial Development (Secretaria de Comercio y Fomento Industrial or SECOFI), who are in charge of enforcing the regulations.(5) These rules are intended to limit and curb the ample discretion these authorities previously had.(6) On the other hand, the 1998 Regulations apply to foreign investors in Mexico, whether major transnational corporations, such as Apple Computer, Inc., Coca-Cola Company, Deere & Company (John Deere), IBM Corporation, DaimlerChrysler, Ford Motor Company, McDonald's Corporation, PepsiCo, Inc., Tricon Global Restaurants, Inc. (Taco Bell, KFC, and Pizza Hut) or a modest U.S. retiree.(7) It should be mentioned that, in addition, the Regulations govern in detail the rendering of professional services by public notaries (notarios publicos) and public brokers (fedatarios publicos).(8) When these semi-officials incur any irregularities in rendering their professional services, the 1998 Regulations, as well as the L.I.E., impose severe penalties, independent of other sanctions that may also apply under other applicable laws.(9)

3. Article 27, paragraph I, of Mexico's Federal Constitution expressly provides: "Under no circumstances may foreigners acquire ownership of lands and waters within a strip of one hundred kilometers along the borders and fifty kilometers along the coastline."(10) However, Article 10A of the Foreign Investment Act, as amended in 1995, allows foreign investors and foreign legal entities established under Mexican Law "to acquire the ownership of immovable assets located in this Restricted Zone." Isn't this provision contrary to the constitutional mandate? How can this inconsistency be explained?

No federal authority has given a formal or official explanation to clarify this apparent inconsistency. However, it seems that the government of Mexico, pursuant to the L.I.E. and principally for practical reasons, authorizes foreign investors to have direct ownership of immovable assets located in the Restricted Zone subject to two conditions: 1) that the asset in question be destined to a "Nonresidential use"; and 2) that the foreign investor formally enters into the Convenio referred to in Article 29, paragraph I of the Constitution (Calvo Clause). …