Volterra Fietta Client Alert

On 11 January 2018, Mexico became the 162nd country to sign the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention” or the “Convention”).

The ICSID Convention is a multilateral treaty which entered into force in 1966. It is designed to facilitate investments between countries by providing an independent platform for the conciliation and arbitration of investment disputes. The International Centre for Settlement of Investment Disputes (“ICSID”) is recognised as one of the world’s leading institutions for the settlement of investment-related disputes.

What’s next?

The next step for Mexico is the ratification of the ICSID Convention which will require the approval of the Mexican Senate. Thirty days after the date of deposit of the instrument of ratification, the Convention will enter into force. Once Mexico ratifies the Convention, it will be the 154th country to do so.

Impact on investments in Mexico

For decades, Mexico has actively sought to attract foreign investments within its borders. It currently has 29 bilateral investment treaties (“BITs) in force and has ratified 15 treaties with investment provisions, including the North American Free Trade Agreement (“NAFTA”) and the Trans-Pacific Partnership (the “TPP”).

Until recently, because Mexico had neither signed nor ratified the ICSID Convention, investment disputes involving Mexico could not be arbitrated under the Convention. While some claims were heard at ICSID, they could only be brought under the Additional Facility Rules which are available to countries that have not signed the ICSID Convention. As a member of ICSID, not only will parties to claims involving Mexico be able to fully take advantage of the provisions of the ICSID Convention, the State itself will be able to actively participate in the decision-making process of the institution.

Mexico’s decision to sign the ICSID Convention has been viewed generally as confirming its commitment to welcome foreign investments. It will certainly foster an atmosphere of confidence among current and future Mexican investors and is likely to stimulate a larger flow of investments into the country. The timing of this development, given the context of apparently challenging NAFTA renegotiations, is an interesting signal to the world by Mexico.

Ad hoc arbitration

Mexico’s signature of the ICSID Convention clearly confirms the widespread preference and support by States around the world for the use of ad hoc arbitration to resolve BIT disputes. Mexico’s decision can also be seen as yet another blow at the European Commission’s longstanding opposition to investor-State arbitration and its repeated attempts to create a global investment court.