Legislative Framework
The foreign direct investment (FDI) regime in Mexico is principally governed by the Foreign Investment Law and its Regulations (FIL). Mexico is a party to several Agreements for the Encouragement and Reciprocal Protection of Investments, which are designed to promote and protect capital cashflow invested in productive sectors. These Agreements, which Mexico has subscribed to with 33 countries, are recognised as generating trust for foreign investors, as they promote a favourable environment for investment and promote economic development.
Additionally, the United States Mexico Canada Agreement (USMCA) came into force on 1 July 2020 and negotiations on the renewed Free Trade Agreement between the European Union and Mexico (TLCUEM) were finalised in April 2020.
Regulatory Bodies
The entity in charge of regulating FDI is the National Commission of Foreign Investment (NCFI), which is a cross-sector body and a dependent of the Ministry of the Economy (Ministry). It is responsible for decision-making regarding FDI and the corresponding political guidelines. The NCFI is also responsible for the creation and application of mechanisms to promote FDI in accordance with the FIL and the political guidelines established by the NCFI to increase economic growth and development in Mexico.
As the NCFI is a cross-sector organization, the Ministry presides over it and its members include, amongst others, the heads of the Interior Ministry; Finance and Public Credit Ministry; Ministry for Wellbeing; Ministry of Environment and Natural Resources; and, the Ministry of Energy. The NCFI also includes experts from different industry sectors, such as automotive, electronics, medical and aerospace manufacturing.
Foreign Investment Principles and Restrictions
As a general rule, Mexican FDI legislation follows an exclusion method for foreign investment, meaning that foreigners can freely participate and invest without a limitation on the percentage of capital or economic participation, with the exception of particular reserved sectors.
Some of those reserved sectors, considered strategic and of vital national importance, include: (i) exploration and extraction of petroleum and other hydrocarbons, excluding the transportation, storage, and distribution of gas other than LPG; (ii) planning and control of the National Electricity System (Sistema Eléctrico Nacional), as well as all transmission and distribution of electricity; (iii) generation of nuclear energy; and (iv) any other sector stipulated in any other law. By way of example for (iv), the Federal Telecommunications Law stipulates that concessions for spectrum use are granted subject to the FIL.
Where restrictions apply, foreign capital cannot exceed either 10% or 49% of the total share capital, depending on the industry. The NCFI’s authority is limited to certain guidelines provided by the FIL and regulations whenever it comes to analyse and approve / reject a transaction. Additionally, the NCFI may refer to and make decisions based on sector-specific regulations that may apply to the corresponding transaction. The NCFI may block acquisitions with foreign investment for reasons of national security.
María Inés Provencio is a contributing author.
