ICSID Convention Now in Force in Mexico
As Holland & Knight reported earlier, Mexico's Secretary of Economy Ildefonso Guajardo signed Mexico's accession to the International Centre for Settlement of Investment Disputes (ICSID) Convention. (See Holland & Knight's alert, "Consequences for Mexico After Subscribing to the ICSID Convention," January 11, 2018.)
Following the approval by the Mexican Senate on April 26, 2018, Mexico's outgoing President Enrique Peña Nieto promulgated the agreement on Aug. 21, 2018, which took effect on Aug. 26, 2018, making Mexico the 154th member State of the ICSID Convention.
Joining the ICSID Convention is in line with Mexico's longstanding policies to promote and encourage foreign investment in the country's economic activities, and remedies Mexico's outsider role as one of the last remaining countries that were not members of the Convention (Canada also took a long time to join ICSID, not becoming a member until 2013).1
ICSID is an intergovernmental organization of the World Bank Group, created through an international treaty called "The Convention on the Settlement of Investment Disputes between States and Nationals of Other States" (the ICSID Convention). The ICSID Convention provides support services and procedural rules for the conciliation and arbitration of investment-related differences, among others.
With Mexico becoming a member, virtually all international investment disputes that are initiated against the country may now be subject to the ICSID Convention and Conciliation and Arbitration Rules.2 This is particularly important for foreign investors who may now benefit from the ICSID Convention's enforcement mechanism, which facilitates the execution of awards. In that sense, Mexico's joining the ICSID Convention should also be considered a watershed event for Mexican companies investing abroad.
It is important to note, however, that being a member of the ICSID Convention does not translate into the possibility for foreign investors in Mexico to have direct access to investor-State arbitration (ISDS). Arbitrating under the ICSID system is an option provided for by bilateral investment or free trade agreements, or by investment contracts subscribed by a country. For example, if the U.S. were to denounce the North American Free Trade Agreement (NAFTA), U.S. investors and their investments would no longer have access to ISDS against Mexico (and vice versa), in spite of Mexico's ICSID membership. (See Holland & Knight's alert, "U.S. Investors Face Possible Loss of Investment Treaty Arbitration Under NAFTA," April 6, 2018.)
1 Other countries that are not members of the ICSID Convention are Venezuela, Ecuador, Bolivia (all three countries withdrew from the Convention), Poland, North Korea, Iran and Iraq, as well as the BRIC countries (except China) among others. See map of contracting and signatory member States of the Convention.
2 The United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, already available to foreign investors suing Mexico as well as for Mexican investors abroad, are another prominent choice of foreign investors pursuing arbitration proceedings against host States. The UNCITRAL Rules arguably allow for a broader definition of what constitutes an investment. Other than awards rendered under the ICSID Rules, however, they do not provide for an independent enforcement mechanism. Awards rendered under the UNCITRAL Rules have to be enforced under the New York Convention. Available statistics, even though not completely reliable as some UNCITRAL awards may be confidential, suggest that ICSID is the preferred forum of foreign investors (262 cases vs 567).
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.