Mexico has been a long-time player in the investment arbitration system. At this writing, Mexico is party to 30 bilateral investment treaties (BITs) in force and is signatory to three other BITs that are not yet in force. It is also party to a number of treaties with investment provisions, of which the best-known example is the North America Free Trade Agreement (NAFTA). (SEE BELOW FOR SPANISH AND FRENCH VERSIONS).

As a consequence of its participation in these treaties, Mexico is known to have participated as a respondent state in about two dozen investment arbitrations, mostly under the ICSID Additional Facility Rules. Unsurprisingly, many Mexican arbitration practitioners have already worked on investment arbitration cases – for example, according to the Leicester Law School survey Arbitration in the Americas, 85 percent of respondents had worked on international commercial arbitration cases, whereas only 70 percent of respondents had worked on investment arbitration cases.[1]

Joining ICSID, Mexico commits to investment arbitration

At a time where investment arbitration is suffering a severe backlash, Mexico has sent trong signals supporting this mechanism of dispute resolution, signing the Trans-Pacific Partnership (TPP), signing and ratifying the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and joining the International Centre for the Settlement of Investment Disputes (ICSID).

Earlier this year, Mexico became the 162nd country to sign the ICSID Convention. On April 26, 2018, the Mexican Senate ratified the treaty. Pursuant to article 68 of the ICSID Convention, the treaty will enter into force 30 days after the date of deposit of the instrument of ratification. As mentioned in an earlier post, Mexico’s ratification of the ICSID Convention will provide investors with greater confidence, improving the likelihood of enforcing arbitration awards issued under the ICSID Convention. This will also allow Mexico to participate in the governance of the ICSID system, by appointing potential arbitrators and conciliators to the panels – thus participating in, and in some ways influencing, the development of investment arbitration.

Mexico’s recent decision to sign and ratify the ICSID Convention should be placed into the context of its signature to the CPTPP on March 8, 2018, which was ratified only two days before the ICSID Convention by the Mexican Senate. Following President Trump’s decision to withdraw from the treaty,[2] the TPP suffered a setback. However, the signatory states decided to almost completely incorporate the text of the TPP by reference , thereby creating the CPTPP.[3] Furthermore, the signatory states showed their intention to pursue the original objectives of the TPP, and Mexico became the first country to ratify the CPTPP on April 24.[4] The CPTPP contains an investment chapter, which has barely been modified from the original TPP text. As such, while the new text excludes protection for certain investments that were previously protected,[5] the CPTPP still provides for investment arbitration in case of investor-state disputes and expressly considers ICSID arbitration (article 9.19.4).

This commitment to investment arbitration from Mexico is all the more striking in the current context of NAFTA’s ongoing negotiations, during which, last November, Mexico suggested the creation of a permanent dispute resolution body to resolve investor-state disputes under NAFTA.[6] This suggestion was inspired by the European Union’s proposal in its own free trade agreements – a proposal with which Mexico has come to an agreement in principle with the EU.

Reaching a deal with the EU, Mexico shows commits to investment protection in general

In an effort to modernize the 1997 Economic Partnership, Political Coordination and Cooperation Agreement between the EU and Mexico, the parties commenced negotiations on a novel trade agreement between the EU and Mexico (the EU-Mexico FTA) in June 2016. Ten negotiations rounds were held during the past two years, leading to a formal press announcement by Mexico and the EU on April 21, 2018, where the EU indicated that “the agreement improves investment conditions and includes the EU’s new Investment Court System, ensuring transparency and the right of governments to regulate in the public interest, and will also ensure that Mexico and the EU work towards the setting up of a Multilateral Investment Court.”

The modernized and novel trade agreement, also incorporates investment protection and dispute settlement mechanisms. Mexico has once again reaffirmed its commitment to investment protection and autonomous dispute settlement mechanisms. The renegotiation of the EU-Mexico FTA remains subject to discussions, as the parties have so far reached a deal on the preliminary text.

As mentioned in another previous post, in common with the EU’s recent trade agreements with Canada, Singapore and Vietnam, the EU-Mexico FTA incorporates the EU’s new approach to investment dispute resolution, namely via a multilateral investment court (yet to be established) rather than international arbitration. Pending the creation of this court, the current draft of the EU-Mexico FTA provides that disputes shall be heard by a tribunal, whose decisions may be challenged before a permanent appeal tribunal.

While the EU-Mexico FTA is only an agreement in principle at this point, both Mexico and the EU have shown they are willing to agree upon the existence of a permanent dispute resolution body. The ensuing negotiations will provide further details on the way this new system will work.

Closing perspectives

By joining ICSID, signing and ratifying the CPTPP and opening up to other means of dispute resolution mechanisms, Mexico is showcasing its strong commitment to investment protection in general. Along with its strong economy, in which it has opened key sectors over the past few years – not least of which its oil industry – this illustrates Mexico’s will to create a favourable climate for foreign investors beyond the US, which today represents over 45 percent of the incoming FDI.

Interestingly, although investment dispute settlement mechanisms may change in the future, the substantive protections provided by the new texts remain sensibly identical to those of investment treaties. The already available investment arbitration awards wil likely have a profound influence on future decisions, whether these are rendered by a permanent dispute resolution body or by arbitrators.