Mexico Closes Its Lithium Sector To Private Investments | Clark Hill PLC

On April 18, Mexico’s President Andres Manuel Lopez-Obrador (AMLO) sent a bill to the country’s congress to amend the Mining Law to restrict private investment in the lithium industry and ensure that the Mexican government has exclusive control in the sector. In a fast-track process, the congress passed the bill without any modification or public hearings, and on April 21, the amendments entered into force.

This was not the first time that AMLO attempted to restrict the lithium industry. In September 2021, the President sent a bill to amend Mexico’s Constitution and modify the electricity and lithium industries (please see Clark Hill’s previous alert here). The bill was voted upon on April 17, but it did not pass (two-thirds of votes are required to amend the Constitution, and AMLO’s political party failed to obtain enough votes). However, AMLO sent a new, more limited bill to amend just the Mining Law and finally close the lithium sector to private investment.

In general, the amendments to the Mining Law provide that:

  • No concessions to explore and exploit lithium will be granted;
  • Exploration, exploitation, and use of lithium will be activities reserved for the Mexican State, and
  • A public entity will be created to carry out those activities on behalf of the Mexican State.

The restrictions on the lithium sector raise questions about the bill’s consistency with Mexico’s international commitments. Furthermore, it creates uncertainty concerning concessions already granted to private investments to explore and exploit lithium.

Establishment of Foreign Investment in Mexico’s Lithium Sector is Permitted Under International Trade Agreements

Mexico is a party to multiple international trade agreements that, among other things, grant access to the establishment of foreign investments in the country. Accordingly, foreign investors may invest in Mexico in all sectors subject to the limitations and reservations expressly included in international trade agreements, such as the United States, Canada, and Mexico Agreement (USCMA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This approach consolidates Mexico’s legal regime for foreign investment, providing legal certainty.

Since the North America Free Trade Agreement (NAFTA), Mexico has reserved certain activities where private investment is not permitted. For instance, under the USCMA, telegraph, radiotelegraph, and postal services are expressly reserved for the Mexican State, and thus, private investment is constrained (USMCA, Annex II- Mexico-9). However, Mexico has not included reservations for investments in the lithium sector in any international trade agreement negotiated, including the USMCA and the CPTPP.

Thus, US and Canadian investors, for instance, are entitled to a non-discriminatory treatment concerning the establishment, acquisition, and expansion, among others of investments in Mexico. Non-discriminatory treatment of US and Canadian investors and their investments is an essential obligation provided in the USMCA. The same can be said about other treaties Mexico is a contracting party (e.g., CPTPP).

Under the recent amendments to the Mining Law, the Government of Mexico will not grant more lithium concessions. However, it should be noted that other companies have already obtained concessions and that a public Mexican entity will be created to carry out those activities. These are relevant elements that could support a claim for discriminatory treatment for companies attempting to invest in the lithium sector.

Lithium Companies Already Present in Mexico May be Protected by International Agreements

It has been reported that eight lithium mining concessions had been granted prior to the amendments to the Mining Law. Despite official statements about the nationalization of lithium, the amendments to the Mining Law do not appear to expressly interfere with the previously granted lithium concessions. However, this remains unclear and raises uncertainty.

First, AMLO has regularly referred to the amendments to the Mining Law as a “nationalization of lithium,” claiming that the government will finally retake control of the sector. Governors and politicians across the country have also praised the so-called “nationalization of lithium.”

Second, the 2021 constitutional reform to the energy sector included a provision on lithium concessions previously granted. It stated that concessions would be honored if the Ministry of Economy obtains satisfactory evidence that companies have started exploration activities. However, the latest amendments to the Mining Law do not include this provision. This omission could suggest that prior concessions will be respected, but AMLO has expressed that prior concessions will be subject to review.

Legal measures challenging governmental measures affecting investments are available under Mexican law. Investors may also consider challenges to unlawful government actions under international trade agreements, such as the USMCA and CPTPP.

https://www.jdsupra.com/legalnews/mexico-closes-its-lithium-sector-to-2804795/

Zubair Q Britania

Next Post

Should government be run like a business? | State Journal Opinion

Tue May 24 , 2022
Country United States of AmericaUS Virgin IslandsUnited States Minor Outlying IslandsCanadaMexico, United Mexican StatesBahamas, Commonwealth of theCuba, Republic ofDominican RepublicHaiti, Republic ofJamaicaAfghanistanAlbania, People’s Socialist Republic ofAlgeria, People’s Democratic Republic ofAmerican SamoaAndorra, Principality ofAngola, Republic ofAnguillaAntarctica (the territory South of 60 deg S)Antigua and BarbudaArgentina, Argentine RepublicArmeniaArubaAustralia, Commonwealth ofAustria, Republic ofAzerbaijan, […]