Mexico Daily Post | 15 August 2023
Lawsuits by foreign investors against Mexico
The free trade agreements and the Agreements for the Promotion and Reciprocal Protection of Investments (APPRIs) to which Mexico is a party, have the objective of promoting foreign investment, guaranteeing treatment under certain standards, as well as the predictability and stability of the investment legal framework. In addition, they establish a dispute resolution mechanism where foreign investors can settle a dispute with the country of establishment, without the need of their own government to present the claim, thus preventing the case from becoming politicized. They can also access compensation if the country is convicted for failing to meet its commitments.
According to the Ministry of Economy, which is in charge of defending these disputes, from 1997 to 2022, 23 lawsuits were concluded against Mexico, where more than 3.362 million dollars were claimed as compensation, within the framework of NAFTA and various APPRIs.
Of these, nine were resolved in favor of foreign investors to whom Mexico paid more than 260 million dollars as compensation, without considering interest or other expenses. In the Cargill case, concluded in 2009, Mexico paid 79.3 million dollars, the highest amount paid to date. Likewise, 12 of them were resolved in favor of Mexico and two did not continue, so the country did not have to pay compensation, although it did have to allocate resources for its defense.
Additionally, the Ministry of Economy reports that there are 14 notices from foreign investors with the intention of submitting a claim to arbitration against Mexico; that is, they hope to reach a solution with the government before starting an international dispute, although in practice it is rare for this to happen. Of these, 13 were filed from 2018 to date, with 2020 being the year with the highest frequency, with five notifications.
In addition, said Secretariat lists 13 active cases that are being litigated from 2015 to date; of these, four began in 2023. In active cases, more than $8.594 million dollars in compensation are claimed, without considering the cases that do not disclose an amount. This figure is 33 times greater than the amount paid by Mexico in the cases it has lost in 25 years.
However, the numbers of notices and active cases contrast with those of the International Center for Settlement of Investment Disputes (ICSID), which administers arbitration proceedings, which reports nine arbitrations initiated against Mexico under NAFTA. and the TMEC in 2023; the largest number in a year. Of these, four from First Majestic Silver (food), Silver Bull Resources (mining), Arbor Confections (food) and Mario Noriega (transportation) were registered in July alone, presumably derived from policies of the current administration. The total claimed amount is unknown.
This exponential increase in claims will test the response capacity of the Mexican government to address investor concerns and prevent them from escalating into an international lawsuit; In addition, more resources will have to be allocated to its defense. Also, if Mexico is sentenced, it will have to pay compensation, stopping allocating the budget to other priority issues for the country, with the possibility of discouraging future investment.
If Mexico wants to avoid an increase in lawsuits, as well as promote the permanence and attraction of foreign investments -especially to take advantage of nearshoring opportunities-, the actions of the Mexican government must be compatible with its international obligations, guarantee the rule of law and promote a favorable business climate for investment.