ABA Section of International Law Mexico Law Committee · PDF fileRojina Villegas and Manuel Borja Soriano are also cited for Private Law. Felipe Tena Ramírez, Gabino Fraga, Ignacio

© 2012 ABA all rights reserved.

MEXICO UPDATE ABA ● Section of International Law ● Mexico Law Committee

Message from the Mexico Committee Co-Chairs

Contents

Opportunities for competition: Developments in Mexico’s interconnection regulation

4

Amendments to Mexico’s General Law of Commercial Companies

10

Wal-Mart de Mexico and implications in Mexican law: an uncertain path

11

National Law Center for Inter-American Free Trade

13

Certification of cleanliness on facility closure and cessation of activities generating hazardous wastes: Absence of LGPGIR regulation mechanism to certify that a site is not contaminated

21

Review of 2012 Spring Meeting Panel on Use of IPOs in emerging markets to finance projects

27

Review of 2012 Spring Meeting Panel on Employees in dangerous places: legal and practical issues around earthquakes, revolutions and crime on international assignments

28

Mexican Legal Authors 3

Issue 37, July 2012

Our committee flourishes, with events at the New York 2012 spring meeting, including a dinner at the Harvard Club hosted by former Mexico Committee co-chair John Rogers and member Stuart Shroff, and programs forthcoming at the Miami 2012 fall meeting on environmental lender liability, distressed hospitality sector workouts, and electoral justice.

Look for the next issue of this newsletter on the success of the Mexico Committee’s June 2012 standalone program in Mexico City, in collaboration with the Barra Mexicana. In addition to outstanding panels on competition law, distressed mergers and acquisitions, NAFTA, secured lending, dispute resolution, criminal justice reform, environmental law, and real estate finance, Justice Olga Sanchez Cordero of Mexico’s Supreme Court (on the internationalization of law), Magistrate Manuel Gonzalez Oropeza of the Upper Chamber of Mexico’s Federal Electoral Court (on the contributions of Mexican lawyers as authors of books on law), and former Cabinet Secretary Jaime Serra (on the competitive prospects of China and North America) honored the Committee with lectures, and the leaders of the Barra Mexicana, Anade, the Universidad Panamericana law faculty-Guadalajara campus, the Section of Science and Technology, and the leadership of our own Section (Marcelo Bombau joining us from Buenos Aires) brought us greetings.

The Mexico City meeting promises to invigorate our work on several fronts, including exploration of a women’s initiative (stimulated by the response to comments of Justice Sanchez Cordero) and various policy matters addressed by the panels and other speakers.

Congratulations as well to the Committee members responsible for the excellent contribution to the just published Year in Review issue of THE INTERNATIONAL LAWYER, our Section’s flagship publication, as well as to all the organizers of the Mexico City program.

Explore volunteer and leadership opportunities through our monthly steering calls. Join us!

Patrick Del Duca and Juan Carlos Velázquez de Leon, Mexico Committee Co-Chairs

This issue of the MEXICO UPDATE leads with remarks of Magistrado Gonzalez Oropeza that trace an essential reading list for any serious student of Mexican law and the writings of Mexican lawyers. Rafael DeAquino Villar addresses recent developments of competition law pertinent to telecommunications. Jesús Antonio Pérez Palazuelos addresses amendments to the Mexican General Law of Commercial Companies. Gabriel Arévalo critiques Mexican law relevant to the Walmex matter. The National Law Center for Inter-American Free Trade, directed by Boris Kozolchyk, shares a report of its law reform work. Sergio B. Bustamante and José Luis Rendón analyze a gap in hazardous waste law. MEXICO UPDATE reporters José Sánchez-Gil and Ana P. Esquer review presentations at the New York 2012 spring meeting by Mexico Committee members, respectively, Eduardo Ramos-Gómez (employees in dangerous places) and Francisco Velazquez (emerging market IPOs).

Alejandro Suárez ([email protected]), Ana Patricia Esquer Machado and Rodrigo Soto Morales, Editors

A Note from the Editors

Issue 37 Page 2


About the Mexico Law Committee

Anchored by coordinators in nine cities in Mexico and the United States, the Mexico Committee seeks to grow its

members’ involvement in dialog on current and potential developments of Mexican, United States and other law

relevant to their practice of law and to the establishment of sound policy. Current substantive focuses of the

committee’s work include arbitration, antitrust law, criminal procedure reform, data privacy, environmental law,

legal education, secured lending, and trade law. The Committee contributes to the annual Year in Review publication, publishes its newsletter in partnership with a leading Mexican law faculty, maintains its website, and

actively organizes programs at the spring and fall meetings of the International Law Section.

The Mexico Committee’s membership is its most important asset. We encourage all Committee members to be

involved in Committee activities and to communicate freely suggestions and ideas.

Upcoming Events — Save the Date experience and suggest possible solutions to remedy the

situation .

Real Estate Workouts in Brazil and Mexico:

Opportunities in Distress

Brazil and Mexico present distinct opportunities for investment

in resort and hospitality assets. Practitioners from the

relevant jurisdictions seasoned in the representation of cross-

border and local developers and investors, and a senior

advisor to one the world’s most active distressed asset funds,

will illustrate how deals are financed, leveraged, structured,

closed, worked-out, turned-around, re-structured and/or re-

organized. Discussion will compare foreclosure laws and

approaches to structuring the transaction, establishing

security interests, and conducting due diligence.

Environmental lender liability, Equator Principles and

pathbreaking approaches

in Brazil, Colombia and Mexico

The world’s leading lenders embrace the Equator Principles as

best practices for management of environmental liabilities,

but each of Brazil, Colombia and Mexico present emerging

approaches to lender liability, potentially counterproductive to

their application. Brazil threatens judicial imposition of lender

liability on constitutional grounds as a backstop to weakness

of public administration environmental reviews. Colombia and

Brazil are experimenting “Green Protocols”, sectoral

agreements on management of lender liabilities. Mexico,

pursuant to 2011 constitutional amendment expands its

signature amparo proceeding to public interest groups

bringing environmental actions in the nature of class actions.

Lawyers at the heart of financial practice in these jurisdictions,

plus US colleagues seasoned in cross-border lending, will

illustrate the creativity of financial lawyers, prosecutors,

judges, regulators and bankers in navigating environmental

lender liability issues to good end.

Section of International Law Leadership Retreat

August 1-3, 2012 Chicago

Mexico Committee members aspiring

to leadership roles in the Committee and Section are

warmly invited.

Miami Fall 2012 Meeting October 16 - 20

Mexico Committee sponsors the panels:

Election Crime and Punishment: The Search for

International Standards for Investigations,

Prosecution, and Remedies in Election Cases.

Experiences around the world have led the International

Foundation for Electoral Systems (IFES) to provide guidelines

for effective investigative processes and to develop tools to

strengthen effectiveness of remedies and prosecution in

election cases. This panel will present these findings, and

engage a dynamic discussion about best practices in

investigations and challenges of meeting established

standards. The discussion will specifically highlight IFES

experiences in Afghanistan, Kosovo, and the Philippines, as

well as the 2012 elections in the United States and Mexico.

Beyond the Drug Wars: economic fallout and cross-

border impact of a modern-day human drama .

Seasoned Canadian, Mexican and US practitioners whose

clients conduct business in environments affected by fallout

from the “wars on drugs” will discuss concerns and strategic

responses of their clients to issues such as privacy, security,

human resources management, immigration, financial

management, and corporate legal strategy. From their

hands on experience in a variety of practice contexts, they

will offer insights into implications for local economies and

international trade, particularly with respect to international

investment and trade on one hand, and on cross-border

issues and multilateral relations on the other hand. The

experts will draw examples based on their expertise and

Committee Leadership 2011-2012

Patrick Del Duca Carlos Velázquez de Leon Co-Chairs

Alejandro Suárez, Senior Advisor

Juliana Victoria Campagna Vice-Chair

Francisco J. Cortina Vice-Chair

Ana Patricia Esquer Vice-Chair

Leslie Alan Glick Vice-Chair

Carlos A. Sugich Vice-Chair

Eddie J Varon Levy Vice-Chair

Steering Group Ana Luisa Derenusson Jorge E Fragoso Alonso Gonzalez-Villalobos Thomas S Heather Marco Montanes-Rumayor Klaus von Wobeser

MEXICO UPDATE

DISCLAIMER The materials

and information in this newsletter

do not constitute legal advice.

MEXICO UPDATE is a publication

that is made available solely for

informational purposes and

should not be considered legal

advice. The opinions and

comments in MEXICO UPDATE

are responsibility solely of each

author/contributor and do not

necessarily reflect the view of the

ABA, its Section of International

Law, the Mexico Law Committee

or the Universidad Panamericana.

Issue 37 Page 3


proceedings (Lecciones de Práctica Forense Mexicana 1835-1839). Ignacio Luis Vallarta, the prestigious Chief Justice of the Supreme Court (1878-1882), published his dissenting opinions that were taken subsequently as a correct interpretation of the Constitution. Emilio Rabasa’s book, Articulo 14 (1904), has been the Bible for understanding due process of law in Mexico, notwithstanding his being a conservative politician, excluded from the Revolution at the outset

of the twentieth century.

Despite the restrained labor of judicial creativity that judges have in a Civil Law country, above all in comparison with the longstanding activism of Common Law countries, the new judicial body is increasingly writing articles and contributing with books in order to convey arguments beyond the walls of the courts to publicize the rationale and/or respond to the growing criticism that sometimes arises from the media. In this respect this attitude is similar to that undertaken by John Marshall in his essays (A friend of the Union, 1819) to reply to the antifederalist critics against the McCulloch v. Maryland resolution. Probably the first example we had in Mexico was José María Iglesias’ essay (Estudio Constitucional sobre facultades de la Corte de Justicia, 1874) that answered the protests against the Amparo resolution of Morelos that for a time avoided the adoption of the political

questions doctrine.

Finally, I would like to mention works by practitioners on the field of literature. Ignacio Manuel Altamirano wrote a novel in 1869 (El Zarco) that depicts the drama of rural Mexico when a wrangler abducts a young girl and ultimately is captured and executed despite his influence by

corruption, justice prevailing over violence.

Alfonso Reyes, lawyer and humanist, wrote a short piece in 1944 (La Cartilla Moral) with a high content of morality and ethics, neutralizing the positivistic approaches of Mexican Law. Taking Morality as an unwritten Constitution, Reyes concludes that “equality under Law” is one of the most

valuable achievements of human nature.

For a day and a half you have heard expert practitioners discuss updates on Mexican Law pertaining to mergers, economic analysis of law, antitrust, free trade and all the issues concerning the muscles of modern day life. Now I would like to address you some words on the heart of

Mexican Law.

Our legal system is under the Civil Law tradition, that deepens its legal sources into doctrine and professors’ works on Law. The modern conception of Civil Law comes from Continental Europe at the end of eighteenth and nineteenth centuries when the formation of the great Civil Codes, the Prussian Civil Code and the French Civil Code, was completed. Precedents are not accorded the same importance unless they are regulated by statute. In Mexico, jurisprudencia became binding only if it fits certain formalities and requirements following its 1882

recognition by a specific statute.

The books by Jean Domat and Robert Joseph Pothier were a main source for interpretation of the Civil Codes of France, Lower Canada and Louisiana, among many other countries. In Mexico, certain authors are considered with enough authority to be cited in pleadings and judicial resolutions all the way up to the Supreme

Court.

Let me review some examples: Raul Cervantes Ahumada, Jorge Barrera Graff and Roberto Mantilla Molina are commonly cited for Corporate Law. Rafael Rojina Villegas and Manuel Borja Soriano are also cited for Private Law. Felipe Tena Ramírez, Gabino Fraga, Ignacio Burgoa and Andrés Serra Rojas for Constitutional and Administrative Law are reliable

sources.

Some of the aforementioned authors were also justices of the Supreme Court in addition to being well-respected law professors. In the area of Public Law many authors

are influential because of their specialized articles:

• Antonio Carrillo Flores, founder of the Administrative Court system (1938) and promoter of the Commission of Human Rights (1971) was a fine dean of the Law

School of the National University.

• Antonio Martinez Baez, promoter of comprehensive judicial review and the proper hierarchy of international treaties, was during his long life (1901-2001) a

dedicated law professor.

• Mario de la Cueva, main author of the Labor Law in

México, was President of the National University.

The books that influence the legal interpretation in our Country come not only from academics, but also judges and practitioners. Manuel de la Peña y Peña, the first justice of the Supreme Court to become President of Mexico, authored a three volume work on judicial

Salvador Novo, the Lord Byron of Mexico, also undertook law studies and wrote a literary criticism against consumerism (En defensa de lo usado, 1938), among many other famous works. I also would like to remember the Nobel prize-winning author Octavio Paz, who in his social criticism depicted the exploitation of the peasants in Yucatán (Entre la piedra y la flor,

1941).

Finally, a month ago, we lost one of the finest quills of the Country, also a lawyer, Carlos Fuentes. In the words of the Federal District’s governor, Fuentes is the Country’s lawyer for hope, because he constantly expressed his indignation for

social inequality.

Contributors Contributors Contributors

for this edition:for this edition:for this edition:

DISCLAIMER: The materials and information

in this newsletter do not constitute legal advice.

MEXICO UPDATE is a publication made available

solely for informational purposes and should not

be considered legal advice. The opinions and

comments in MEXICO UPDATE are those of its

contributors and do not necessarily reflect any

opinion of the ABA, their respective firms or the

editors.

MEXICO UPDATE Remarks of Magistrado Manuel González Oropeza

on occasion of the June 15, 2012 reception at the Mexico City program of the

Section of International Law—Mexican legal authors

Manuel González Oropeza Magistrado Tribunal Electoral del Poder Judicial de la Federación, México Rafael DeAquino Villar JD Candidate, UCLA Law School Jesús Antonio Pérez Palazuelos Universidad Panamericana Guadalajara, Jalisco Gabriel Arévalo Mascareño. Universidad Panamericana Guadalajara, Jalisco Sergio B. Bustamante José Luis Rendón Lexcorp Abogados Ciudad Juarez José Sánchez-Gil. Universidad Panamericana Guadalajara, Jalisco Ana P. Esquer. Universidad Panamericana Guadalajara, Jalisco

Issue 37 Page 4


MEXICO UPDATE

Opportunities for competition: Developments in Mexico’s interconnection

regulation by Rafael DeAquino Villar

Despite a dynamic economy, with rapidly increasing disposable incomes, Mexico’s rate of mobile phone penetration is low relative to countries of comparable development–notably, most of Latin America.(1) Because of its concentrated telecommunications sector, with Telmex/Telcel controlling 79% and 70% of the fixed and wireless markets, respectively, Mexico has higher PPP (Purchasing Powe r Pa r i t y ) -adjusted telephone service fees than those of any other member of the Organization for Economic Cooperation and Development (OECD). The OECD estimates that Telmex/Telcel’s market dominance costs Mexico about US$25 billion, or 1.8% of GDP, per year–accounting for direct overcharging, and opportunity costs of under-consuming telecom services.(2) Allocated over Mexico’s population of 113 million, this yields an annual welfare loss of US$220 per capita. This indicates a tremendous unmet need and an important opportunity for investment. Not only is there substantial room for growth of telecommunications in Mexico, but, crucially, a large margin exists for profitably undercutting the incumbent firms’ prices. However, this assessment depends on the availability of effective interconnection–the framework for enabling data-exchange over discrete, separately administered information networks.

Interconnection bottlenecks exacerbate demand-side network “lock-in” Any new market entrant without established subscribers in Mexico must interconnect with Telmex’s network–mainly for call termination, but also to

provide service to outlying regions where it cannot feasibly duplicate Telmex’s physical infrastructure. Without reliable and affordable interconnection, a new entrant’s subscribers cannot interact effectively with Telmex subscribers, who are the vast majority of Mexican telephone users, i.e., most of the value of having a phone in Mexico. By selectively hindering interconnection–through outright refusals to deal, discriminatory pricing, proprietary data protocols, bundled services, or service quality degradation–observers assert that Telmex has historically raised

rivals’ costs, thereby thwarting competition.(3) This reduces the usefulness of service on each network, but d i sproport iona te ly affects a new entrant’s

subscribers, because of the startup’s much smaller user base. Even the newest 4G gadgetry cannot transform potential customers’ inability to call whoever they want into an attractive service.

Mexico’s regulatory framework now offers the legal tools to achieve interconnection. Mexico’s Ley Federal de Telecomunicaciones (LFT)(4) and the Ley Federal de Competencia Económica (LFCE) provide the relevant regulatory framework.(5) This inquiry focuses on the scope and enforceability of Telmex’s obligations as a private party subject to these Mexican statutes and the associated regulations. But, it is worth noting that the Mexico has undertaken, pursuant to general and specific commitments under NAFTA and GATS (as well as a 2004 WTO dispute settlement with the United States over Mexico’s failure to effectively regulate anticompetitive practices by Telmex),(6) to bring its regulatory framework into

DISCLAIMER: The materials and information in this newsletter do not

constitute legal advice. MEXICO UPDATE is a publication made available solely

for informational purposes and should not be considered legal advice. The

opinions and comments in MEXICO UPDATE are those of its contributors and do

not necessarily reflect any opinion of the ABA, their respective firms or the

editors.

Any new market entrant without established

subscribers in Mexico must interconnect with Telmex’s

network–mainly for call termination, but also to

provide service to outlying regions where it cannot

feasibly duplicate Telmex’s physical infrastructure.

Issue 37 Page 5


MEXICO UPDATE

conformance with minimum standards of market access and investor protection set forth by those international agreements.(7) In addition to any positive influence these agreements may have had on the content of Mexican law, they also constitute sovereign obligations of Mexico.

Recent developments in antitrust law, and COFETEL’s growing independent authority COFETEL’s regulatory jurisdiction The LFT, in art. 7, cites various policy goals, and generally attempts to balance private rights, as the right of a service provider to contract and dispose of property freely, or to not have that property expropr ia ted–through regulation or otherwise–without compensation; against societal interests in, inter alia, expanding access to information, maintaining a competitive marketplace, protecting national sovereignty, managing the scarce commonly-owned electromagnetic spectrum, and ensuring the quality of telecommunications service. LFT art. 9-A grants to the Comisión Federal de Telecomunicaciones (COFETEL)–a “decentralized administrative organ” established under the Secretaría de Comunicaciones y Transporte (SCT) by a separate presidential decree–regulatory and advisory powers to pursue these goals. The principal subjects of regulation are “telecommunications networks,” which art. 3 frac.VIII defines as all integrated systems for information transmission through any media, including the e l e c t r o m a g n e t i c s p e c t r u m , a n d encompassing all equipment necessary t o e f f e c t t h e transmission. Art. 3. frac. X, in turn, designates as “public” any telecommunication network used for commercial purposes, irrespective of ownership. Per art. 11 frac. I-II, “installation, operation, or exploitation” of a public telecommunications network (PTN) using the electromagnetic spectrum (EMS)

requires two separate “titles of concession,” or government licenses, from the SCT.

Concession-based duties Specific requirements for obtaining concessions are enumerated in detail in cap. 3 (for PTNs) and 2 (for EMS), respectively. For a PTN, these requirements include filing: 1) a business plan; 2) the network’s technical specifications; and 3) a description of services the operator intends to provide. When the concession issues, much of this information is codified into specific obligations and conditions–a prescriptive and proscriptive rule set–intended to govern the PTN’s

operation. Besides evaluating applications for PTN and EMS concessions, LFT art. 9-A frac. IV, VIII, and XIII,

charge COFETEL with ensuring licensees comply with titular rights, obligations, and conditions. In egregious noncompliance, LFT cap. 3. secc. VII. empowers the COFETEL to recommend that the SCT revoke PTN concessions. Theoretically, this would give the commission enforcement leverage. In practice, revocation is so drastic a sanction that it has never been used. Since COFETEL also cannot even impose noncompliance fines without the SCT’s approval, concession rules are difficult to enforce. Perhaps the most concrete effect of titular concession rules is that the obligations imposed on Telmex after its privatization, but prior to the drafting of the LFT, served as a working model for the generally-applicable

obligations contained in cap. 4. They were inspiration for what has become the primary statutory basis for

COFETEL’s power to promulgate affirmative regulations, and for the duty of PTNs licensed under the LFT to abide by those regulations.(8)

By contrast to direct enforcement of titular concession obligations, informal conditioning of concession

revocation is so drastic a sanction

that it has never been used.

In addition to any positive influence these agreements

may have had on the content of Mexican law, they

also constitute sovereign obligations of Mexico.

Issue 37 Page 6


MEXICO UPDATE

applications or modification requests does confer some leverage, but to the SCT. Modifications for purposes, among others, of dissolving the PTN’s business, or offering a new service, require prior notice to–and approval by–the secretariat. The amendment procedure is set forth in cap. 3 secc. VI. Before the SCT can take action on certain amendments (e.g., a request for assignment of an existing concession by a seller licensee to a buyer licensee authorized by her own concession to operate in a region authorized by the seller’s concession), Mexico’s antitrust authority, the Comisión Federal de Competencia (CFC), must find that there is no market dominance. For routine amendments, however, the SCT has broad discretion. COFETEL’s role is purely advisory. The SCT can condition concession modifications on factors external to the requests’ merits–for instance, prior performance of a stipulated act. Though potentially useful, this tool carries great risk of corruption. Generally, regulations relying on specific concession obligations have more potential to disrupt reliance interests of the telecom network’s end users. Further, lack of uniformity in these obligations makes them hard to administer; and, as enforcement mechanisms, susceptible to uneven application. Finally, using concession-based regulation keeps the SCT deeply enmeshed in the approval of day-to-day business decisions. This is problematic for a new market entrant because the SCT (a cabinet-level ministry) is more directly exposed to political currents than COFETEL.

Statutory duty to interconnect under LFT art. 42 Given the limitations of concession-based regulation, it is not a coincidence that almost all the recent telecom regulatory progress stems from the LFT and LFCE–

especially LFT art. 42. This article creates a specific duty that requires PTN operators to respond to solicitations for interconnection and negotiate terms, in good faith, within 60 days. But, unlike other provisions LFT, if negotiations deadlock, LFT art. 42 has an actual enforcement mechanism: COFETEL’s authority to set the interconnection price directly. This is one of COFETEL’s most concrete powers, and the foundation of its gradual accrual of independence.

Any new market entrant m u s t s o l i c i t a n interconnection agreement from Telmex. The ensuing negotiation will occur in the shadow of severa l high court d e c i s i o n s a n d admini s t ra t ive ac t s ,

discussed below, aimed at curbing any Telmex/Telcel abuse of market power. To avoid negative public or regulatory attention, Telmex should offer a workable agreement, with terms comparable to those that other companies have received. Should no agreement be reached by the end of a 60 day period, COFETEL would likely mandate interconnection at Telmex’s incremental cost, i.e., its increased expenses from the interconnection with the new market entry. If necessary, the venture would probably be able to prove the unreasonableness of specific terms, as well as any bad conduct by Telmex, by reference to documents from the negotiations and other publicly-available interconnection contracts, many of which were imposed on Telmex through regulatory channels. In seeking redress for breaches of the agreement–for instance, degraded quality of service–the new market entrant would presumably have typical arbitral and judicial contract remedies under the contract and Mexican law, respectively; and it could also bring anticompetitive patterns of conduct to the attention of COFETEL or the CFC.

Given the limitations of concession-based

regulation, it is not a coincidence that almost all the

recent telecom regulatory progress stems from the

LFT and LFCE–especially LFT art. 42. This article

creates a specific duty that requires PTN operators

to respond to solicitations for interconnection and

negotiate terms, in good faith, within 60 days.

Issue 37 Page 7


MEXICO UPDATE

Trend of judicial support for COFETEL Since the LFT’s inception, Telmex and other incumbent PTNs have fought to dilute LFT art. 42 and the provisions of its cap.4. Until recently, the Mexican federal courts had provided a hospitable battlefield. The writ of amparo, or “protection,” allows an aggrieved party to challenge governmental acts. An amparo challenge can allege irreparable harm in the specific manner that a regulatory action or decision was taken, or it can attack the general sufficiency of the statutory or c o n s t i t u t i o n a l authority on which it was grounded. For mos t o f these controversies, there is no binding precedent as a corollary of the limited notion of precedent in Mexican law. Statutes are generally consulted as the primary source for legal rules. By implication, under this strong Mexican statutory supremacy, the standard of appellate review for an administrative ruling is unavoidably substantive. Rather than asking whether the challenged decision lies outside the discretion of the official issuing it, the court asks, essentially de novo, whether the legal rule was correctly applied to the facts. When the facts and rules are highly technical, as is frequently the case with telecom interconnection, the court may lack expertise to make proper determinations. Moreover, if a court grants amparo, the statute is not overturned in all instances, but only nullified with respect to the individual litigant. As such, each party must seek relief individually, with the predictable consequence of extremely crowded federal court dockets.

To compound matters, administrative rulings were, until recently, suspended during the pendency of an amparo proceeding. This created a powerful incentive for well-resourced telecom providers to file lawsuits and appeal unfavorable judgments regardless of the

underlying merits, simply to delay their adverse effect. Gridlock ensued. Delayed judgments concerning mandated interconnection rates allowed incumbents like Telmex to systematically retain fees higher than those ultimately determined, sometimes for several years. Even if a new entrant somehow managed to pay for its ongoing operations–despite the lost time-value of the overpayments, and a reduction of its already limited startup cash-flow–it could end up too

undercapita l ized to fund expansion. The industry’s dilation-by-amparo tactics sapped momentum from COFETEL’s push to implement the Plan Fundamental de Interconexión y Interoperabilidad (PFII), a crucial

regulatory initiative that sought to coordinate the adoption of open standards for data exchange and interoperability. Exploitation of amparo proceedings thus acted as another layer in the multi-walled barrier to real competition.

On May 3, 2011, this began to change. The Suprema Corte de Justicia de la Nación (SCJN), Mexico’s highest judicial body, ruled en banc, by a vote of 6 to 4, with one recusal, that mandatory interconnection rates set by COFETEL cannot be suspended during an amparo review by federal judges, but will instead remain in effect until final disposition. And on February 27, 2012, the SCJN held, by the same margin, citing LFT art. 9-A, that COFETEL’s authority to set mandatory interconnection rates is exclusive, and not reviewable by COFETEL’S parent secretariat, the SCT.

This created a powerful incentive for well-

resourced telecom providers to file lawsuits

and appeal unfavorable judgments

regardless of the underlying merits, simply to

delay their adverse effect. Gridlock ensued.

On May 3, 2011, this began to change. The Suprema

Corte de Justicia de la Nación (SCJN), Mexico’s

highest judicial body, ruled en banc, by a vote of 6 to

4, with one recusal, that mandatory interconnection

rates set by COFETEL cannot be suspended during an

amparo review by federal judges, but will instead

remain in effect until final disposition.

Issue 37 Page 8


MEXICO UPDATE

Notwithstanding the persuasive power of these opinions’ reasoning, strictly, neither controls the actions of lower judicial bodies. Nonetheless, the SCJN rulings are likely to be followed, and any divergences are subject to its review. In practice, the rulings carve significant de facto space for COFETEL to act exclusively and autonomously on interconnection pricing disputes–and possibly in other areas.

Likely judicial endorsement of prospective industry-wide regulations promulgated by COFETEL, such as the CMI, plus CFC’s more active enforcement of antitrust law By ruling in COFETEL’s favor in its two recent en banc decisions, the SCJN ratified progress that COFETEL had achieved using its existing powers; and the court implied COFETEL’s authority to continue. The trend continues: April 18, 2012, the SCNJ’s First Chamber rejected Telefonica’s long-pending challenge of the PFII, holding that COFETEL has authority to promulgate ex ante technical regulatory plans. This ruling is consistent with the court’s discernible desire in this line of proper-agency-authority cases to close the regulatory “double window.”(9)

And, this ruling bodes well for the upcoming Convenio Marco de Interconexión (CMI), a comprehensive framework for interconnection regulation developed over the last year with extensive stakeholder participation. The CMI builds on the PFII and on an earlier paper, issued in 2006, which aimed to consolidate the land-line telephony and cable TV markets. It seeks to establish itself as the master regulatory document for interconnection, not just interconnection pricing disputes.(10) COFETEL’s pleno approved it on June 6, 2012, after several postponements of the vote, and it will now be submitted to the Comisión Federal de Mejora Regulatoria (COFEMER) through the SCT. Some important provisions of the CMI reportedly include: industry-wide adoption of internet-protocol-based interconnection; mandated peering(11) (i.e., no-cost

transport) of data traffic passing through Telmex’s fixed network infrastructure en route to another PTN; and a form of metered “Bill and Keep,” wherein PTNs will be entitled to collect revenues from calls originating on their own networks regardless of termination point, with standardized compensation to be paid retrospectively on the basis of aggregate net traffic volumes.(12)

The CMI builds on previously developed models for pricing based on long-run incremental costs.(13) The commission has already applied this methodology in cases where parties have failed to reach agreement within art. 42’s compulsory 60-day negotiation period. It has also incorporated its cost models into a resolution proposing new guidelines, which it submitted to COFEMER, for the creation of asymmetric ex ante obligations concerning service quality and interconnection rates for providers deemed by the CFC to possess substantial market power. These draft regulations completed two full rounds of public comment and impact analysis, and were referred back to COFETEL on March 9, 2012, for eventual publication in the Diario Oficial.(14)

Developments in respect of Telmex Telmex has been subject since 2009 to a CFC finding of market dominance in fixed call termination.(15) On March 26, 2012, the CFC supplemented this with a finding of Telcel’s dominant position in mobile call termination.(16) This follows a record US$ 1 billion fine (pending amparo review) that the CFC imposed on the company in 2011 for exclusionary interconnection practices, invoking powers newly-acquired from a reform of the competition law enacted the same year.(17) The dominance findings expose Telmex/Telcel to

April 18, 2012, the First Chamber of the SCJN

rejected Telefonica’s long-pending challenge

against the PFII, holding that COFETEL has authority

to promulgate ex ante technical regulatory plans.

Issue 37 Page 9


MEXICO UPDATE

asymmetric price regulation by COFETEL, which, through application of the foregoing incremental cost model, forced Telmex to cut its interconnection rates from 95 Mexican cents per minute in 2011 to 39 cents in 2012, with a further reduction to 31 cents required by 2014.(18) Telmex has signaled repeatedly–through actions and public pronouncements–that it will fight attempts to impose prices which it insists will subsidize rivals while failing to cover its own expenses.(19) The company recused itself from the public consultation

process for the CMI–asserting that it will evaluate the proposal’s substance upon publication, but implicitly rejecting the legitimacy of the process that produced it.(20)

Development and approval of the CMI Mexican telecommunication regulation has made significant strides. Pre-privatization, a simple landline installation required over six months. Today, it takes less than a week, and one can obtain the full range of telecommunications services available throughout the world–albeit at too high a price, and with some cutting edge technologies lagging in availability.(21) COFETEL is an imperfect vehicle to push the reforms the industry needs. But, it has started to produce tangible results. Despite lacking an ideal set of rules, the issue now, and throughout the telecom industry’s

transition from state ownership, has been the dearth of political will, abetted by legal maneuvering, to implement even what was on the books. Now, the will finally seems to be there. Indeed, the SCJN has on three recent occasions ruled in ways that back COFETEL’s decisions. It would be premature to conclude that COFETEL’s current regulatory thrust–especially the CMI–is assured of success. But, success is conceivable.

1.See World Bank Development Indicators – Mobile cellular subscriptions (per 100 people), THE WORLD BANK, http://data.worldbank.org/indicator/IT.CEL.SETS.P2.

2.See ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT, OECD REVIEW OF TELECOMMUNICATION POLICY AND REGULATION IN MEXICO 19, 137-40 (2012) [hereinafter OECD REPORT], (noting figure and explaining methodology).

3.See OECD REPORT 63, 66-69. 4.See Ley Federal de Telecomunicaciones [LFT] [Federal

Telecommunications Law], as amended Jan. 16, 2012, DIARIO OFICIAL DE LA FEDERACIÓN [DO], June 7, 1995.

5.See Ley Federal de Competencia Económica [LFCE] [Federal Antitrust Law], as amended Aug. 30, 2011, DO, December 24, 1992.

6.See Dispute DS204: Mexico – Measures Affecting Telecommunications Services, WORLD TRADE ORGANIZATION

7.See GATS: General Agreement on Trade in Services, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, 1869 U.N.T.S. 183 (1994), and North American Free Trade Agreement, Chapter Eleven: Investment, Chapter Twelve: Cross-Border Trade in Services, Chapter Thirteen: Telecommunications, 1993 WL 561159-61 (N.A.F.T.A.), 1993.

8.See OECD REPORT 66 (discussing evolution of concession obligations into those in the LFT).

9.See OECD REPORT 47-49, 53-54 (discussing overlap between SCT and COFETEL regulatory responsibilities and how such overlap contributes to ineffective regulation).

10.See La Cofetel recibe anteproyecto de Convenio Marco de Interconexión, EL INFORMADOR, Mar. 7, 2012; and José Yuste, Apuestan a solucionar interconexión, EXCELSIOR, Mar. 14, 2012, http://www.excelsior.com.mx/index.php?m=nota&seccion=opinion&cat=11&id_nota=818277.

11.See discussion infra of “peering” versus “transit” interconnection; see also, infra, for Telmex’s less-than-

Telmex . . . subject since 2009 to a CFC finding

of market dominance in fixed call termination.

March 26, 2012, the CFC . . . finding of Telcel’s

dominant position in mobile call termination. .

. follows a record US$ 1 billion fine . . . for

exclusionary interconnection practices . . .

Indeed, the SCJN has on three recent occasions

ruled in ways that back COFETEL’s decisions.

It would be premature to conclude that

COFETEL’s current regulatory thrust–especially

the CMI–is assured of success.

Issue 37 Page 10


MEXICO UPDATE

enthusiastic preliminary reaction to this aspect of the proposal.

12.See Ernesto Piedras, Convenio Marco de Interconexión, pero ya!, EL ECONOMISTA, Apr. 11, 2012.

13.See Resolución mediante la cual el Pleno de la Comisión Federal de Telecomunicaciones emite los lineamientos para desarrollar los modelos de costos que aplicará para resolver, en términos del artículo 42 de la Ley Federal de Telecomunicaciones, desacuerdos en materia de tarifas aplicables a la prestación de los servicios de interconexión entre concesionarios de redes públicas de telecomunicaciones [Resolution pursuant to which the en banc COFETEL committee issues guidelines for the development of the cost model to be applied in interconnection price disputes], Diario Oficial de la Federación [DO], 12 de Abril de 2011 (Mex.); http://www.cofetel.gob.mx/es_mx/Cofetel_2008/ Lineamientos_Modelos_de_Costos. The model developed is obtainable via email from http://sicet.cft.gob.mx/ modelocostos/, along with COFEMER’s impact analysis and COFETEL’s response to the analysis.

14.COFETEL’s submission of the draft regulations imposing specific ex ante obligations for PTNs with substantial market power is available at http://207.248.177.30/mir/formatos/defaultView.aspx?SubmitID=280631; COFEMER’s comments on the regulations are are available at http://207.248.177.30/mir/uploadtests/24326.131.59.1.Resolucion%20OE-ED.PDF.

15.See Antitrust Commission Declares Telmex Dominant in Fixed Line Termination, BUSINESS NEWS AMERICAS, Nov. 9, 2009.

16.See Anthony Harrup, Regulator Confirms Dominance of Slim's Telcel, WALL STREET JOURNAL, Mar. 27, 2012.

17.See Patrick Del Duca & Juan Carlos Velázquez de Leon, Antitrust Update, ABA MEXICO UPDATE, Issue 33, Aug. 2011, at 3.

18.See Anthony Harrup, Telcel to cut Interconnection Rates, TOTAL TELECOM (via DOW JONES NEWSWIRES), Nov. 18, 2011.

19.See, e.g., Cofetel notificó a Telmex resoluciones que van en agravio de los derechos fundamentales de la Empresa y respecto de las cuales hará valer los medios de defensa procedentes, TELMEX BLOG (June 9, 2011).

Amendments to Mexico’s General Law of Com-mercial Companies

by Jesús Antonio Pérez Palazuelos

The General Law of Commercial Companies regulates, among other matters, incorporation, operation and liq-uidation of Mexican commercial companies. Amend-ments, published December 15, 2011 in the DIARIO OFICIAL, took effect January 1, 2012. One generally modifies the law, and another addresses specific provi-sions on the Sociedad Anónima (stock company) and So-ciedad de Responsabilidad Limitada (limited liability com-pany).

Previously, the law mandated that articles of incorpora-tion declare a specific corporate life. Because of the uncertain validity of establishing a commercial entity of indefinite life, Mexican lawyers and notaries public commonly specified a 99 year life. The amendment obviates recourse to this practice. This is an instance of adaptation of the law to practices and needs of daily operations. It works to avoid the common scenario, that, notwithstanding the obligation under the General Law of Commercial Companies to liquidate a commer-cial company when its duration has expired, a company is not so liquidated. The validity of acts performed by or on behalf of a company thereafter may be subject to legal challenge.

The second amendment concerns minimum capital stock of the Sociedad Anónima and the Sociedad de Respon-sabilidad Limitada. Previously, the law contemplated a minimum capital of 50,000 pesos for incorporation of a Sociedad Anónima and of 3,000 pesos for a Sociedad de Responsabilidad Limitada. Now, the shareholders and partners, respectively of the Sociedad Anonima and of the Sociedad de Responsabilidad Limitada are free to set the minimum capital stock of the entity.

This amendment encourages incorporation of entities, by both Mexicans and foreigners, as even the modest capital previously required to establish an entity to open a business is no longer required.






editors.

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Wal-Mart de Mexico and implications in Mexican law: an uncertain path

by Gabriel Arévalo Mascareño Partner, Arévalo, Ferrer & López Lucano, and

Professor, law faculty of Universidad Panamericana, Guadalajara campus

In April 2012 the NEW YORK TIMES published an investigation into alleged payments–bribes, in the amount of US$24 million that Wal-Mart de Mexico made to various Mexican government officials, to obtain building permits, reduce fees for environmental impact authorizations and expedite other federal, state and municipal permits required for operation of its supermarkets. Wal-Mart’s sole purpose was to position itself in the Mexican market, incrementally displacing the competition, through the creation of thousands of stores across the country.

But, what are the legal effects in Mexico if Wal-Mart executives are found guilty of bribing Mexican government officials? Will this case have a clear, specific and precise conclusion under Mexican law? Or, will it be merely one more case of corruption that slips through gaps in Mexico’s legal system that catches scapegoats, but allows the big fish to escape despite corporate transgressions?

One thing is clear: the United States government has begun investigations under the aegis of the Foreign Corrupt Practices Act (FCPA), a law that among other things, seeks to punish individuals and companies that bribe foreign officials to achieve a competitive benefit. Mexico has no law analogous to the FCPA, and the FCPA as a US law of extraterritorial application is per se irrelevant to Mexican law. So, what institutions address the bribery allegedly committed by Wal-Mart

de Mexico?

In principle, Federal Penal Code Article 208 establishes the figure of cohecho, manifested in two ways. The first is when a public servant, alone or through another person, requests or receives improperly for himself or another, money or any other gift, or accepts a promise to do or not do something, right or wrong, related to his functions. In this first case, the public servant “requests the gift”, either

himself or through a third party. The second case is the commission of the crime of bribery by spontaneously giving or offering money or any

gift to any of the persons contemplated in the first instance, so that any public servant might take or fail to take an act, right or wrong, related his functions. In this case, the individual or company proposes the gift, without being solicited by the official. The penalty for

the crime of b r i b e r y i s variable, but the m a x i m u m penalties are impr i sonmen t for two to

fourteen years, a financial penalty up to one thousand days of fine, on the order of US$5,000, and dismissal and disqualification for three months to two years from performing another public job, position or commission in government. The limited consequences are truly ridiculous amounts, based on the millions that can be received through bribes.

But criminal law does not end there, as Federal Criminal Code Article 220 also contemplates the






editors.

Or, will it be merely one more case of corruption

that slips through gaps in Mexico’s legal system

that catches scapegoats, but allows the big fish

to escape despite corporate transgressions?

what are the legal effects in Mexico if Wal-Mart

executives are found guilty of bribing Mexican

government officials? Will this case have a clear,

specific and precise conclusion under Mexican law?

Issue 37 Page 12


MEXICO UPDATE

offense of abuse of functions, which is when a public servant improperly grants, directly or through another person, contracts, concessions, permits, licenses, authorizations, franchises, or exemptions, accomplishes purchases or sales, or performs any l e g a l a c t t h a t economically benefits the public servant. Economic sanctions on one who commits this crime, when the benefit is under approximately US$2,500, including the fine, run between US$1,500 and US$2,500. Thus, pursuant to Mexican criminal law, the penalty may be less than the base amount of the economic benefit of the illicit activity, something patently incredible. If the offense yields benefits in excess of about US$2,500, penalties include imprisonment ranging from two to twelve years, and dismissal and disqualification of the public servant from two to twelve years to serve in other public employment.

As administrative law, the Federal Law of Administrative Responsibilities of Public Servants establishes anti-corruption norms through obligations it imposes on public servants. Examples are the law’s Article 8, fractions XII and XIII, that mandate all public servants to refrain, during the course of their duties, to seek, accept or receive, either directly or through another person, money, real or personal property by sale at a price patently b e l o w t h e ordinary market, gifts, services, jobs, positions, or commissions for themselves or for another person, from any physical or legal person whose professional, commercial or industrial activities are directly linked, regulated or supervised by the public servants concerned, in the course of their employment, office or commission, which involve conflicting interests. This

prohibition applies through the year following the public servant’s retirement from the employment, commission or office. It also mandates that public servants in the course of their employment, position or commission not obtain or seek benefits additional

to the verifiable cons ide ra t ion that the State provides for performance of

their duties. What are the sanctions for breach of these obligations? Penalties are varied and include: private or public reprimand, suspension of employment, position or commission for a period not less than three days nor more than a year, discharge, economic sanctions, and temporary disqualification from jobs, positions or commissions in public service. In the case of economic sanctions, they may not be less than the benefit a public servant derived from the third party.

Recently, Mexico’s President, Felipe Calderon, decreed the Federal Anti-Corruption Law in Public Procurement, punishing in an amount up to about 124 million pesos (just over US$9 million) any one who offers tips or bribes to public officials so that they grant contracts to those participating in public tenders. However, the scope of this law terminates when the bribes are outside the scope of federal procurement

and international trade transactions, the sole niche of applicability of this law. That is, the law does not apply

to permits or licenses or any type of authorization not derived from federal procurement, such as most building permits granted to companies. Moreover, not only are such permits unrelated to public procurement, they are beyond federal jurisdiction as they are part of the municipal sphere of government. All this leads to a failed state in this regard.

the so-called Federal Anti-Corruption Law in Public

Procurement, . . . terminates [its scope] when the bribes are

outside the scope of federal procurement and international

trade transactions, the sole niche of applicability of this law.

Thus, pursuant to Mexican criminal law, the penalty may

be less than the base amount of the economic benefit of

the illicit activity, something patently incredible.

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MEXICO UPDATE

On this context, if the Mexican public administration with good evidence establishes collusion between government officials and Wal-Mart de Mexico in improper permitting, in accord with proof evidenced by the NEW YORK TIMES this past April and with further evidence established by the Mexican government, and so reveals a fraud of which it has been the victim, it may find oneself in the presence of “asystemic” sanctioning legislation, fruit of the unfortunate overlap between criminal a n d a dm i n i s t r a t i v e doctrines, that renders n u m e r o u s a c t s concomitantly punishable by criminal and administrative sanctions. This could lead to finding of violation of the principle non bis in idem, resulting in absolute impunity. Such a result would arise in the absence of laws that punish acts of corruption. That is, Mexico needs laws that mandate revocation of a building permit granted in violation of law and hence the close of trading. Absent sanctions such as these, that truly would eradicate the corruption endemic in Mexico, such corruption remains a cancer for the legal system and for economic growth.

Legal effects applicable to the case of Wal-Mart de Mexico bifurcate into criminal and administrative poles, neither likely to have a serious implication for the supermarket chain. The bottom line of application of Mexican law to this case is uncertain. Will it be one more case of corruption permitted by gaps in Mexico’s legal system? The chances are high. Nonetheless all candidates for presidency of the Republic are speaking to the issues of corruption and impunity, asserting that we must not distort justice, be partial or take bribes, because bribes blind the eyes of the wise and pervert the words of the righteous and, I add, . . . bankrupt a country completely.

National Law Center for Inter-American Free Trade Reproduced with permission

The National Law Center for Inter-American Free Trade (the “Center”) is a legal think tank and consulting and training organization specializing in creating new, global, cost-effective and fair standards for the modernization of commercial law and using them as tools for economic growth. Twenty years ago, Dr. Boris Kozolchyk, Evo DeConcini Professor of Law at the James E. Rogers College of Law at the University of Arizona founded the non-profit research center that has developed a unique and state-of-the-art approach to law reform. In contrast to other think tanks that leave the implementation of their ideas to others, the Center delivers change. Working with commercial organizations and governments, the Center helps them design and draft legal reforms that drive economic growth by enabling the transition of micro business to small and medium-sized businesses.

Unique Methodology What distinguishes this organization from other centers of legal scholarship is its “applied legal science” and contextual approach to commercial law. It conducts normative comparative studies but insists on examining the norms (official as well as “living”) in their socio-economic context. Thus, while studying the laws, the Center also studies their underlying as well as proposed new practices and distinguishes among sub-standard (mostly bad faith practices), standard (good faith and reasonable market practices), and above standard (“brotherly”, or highest good faith) practices. It has been the Center’s experience that only the latter two practices instill trust in their practitioners and in the resulting legal institutions. It is also the Center’s experience that without such a

the principle non bis in

idem, resulting in

absolute impunity. . .

c r i m i n a l a n d

administrative poles,

neither likely to have a

serious implication for

the supermarket chain.






editors.

Issue 37 Page 14


MEXICO UPDATE

trust, no viable legal institutions or marketplaces can develop anywhere.

Hence, the Center’s method of research and drafting of laws, treaties and compilations of standard and best practices is both “top down” and “bottom up.” Top down refers to the drafting of uniform statutes or treaty law carried out in conjunc t ion wi th individual governments and inte rnat iona l agencies and results from the careful incorporation of standard and best industrial, commercial and professional practices into legal language that is often mandatory and is best suited to facilitate a country or region’s development goals. This methodology is employed with the Center’s research and drafting work at the United Nations Commission on International Trade Law (UNCITRAL), Organization of American States (OAS) and in conjunction with governmental drafting groups in Colombia, Chile, Ghana, Guatemala, Honduras, Malawi, Mexico and Peru.

The Center’s bottom-up methodology refers to the collection and selection of standard and best practices that regular participants in those practices deem the most cost effective and fair. Some of these practices become statutes or administrative regulations; others are binding only among those merchants and customers who choose to be so bound. Among the sets of practices drafted by the Center as part of sectoral working groups are those for the collection and clearing of checks within the NAFTA region, for truck transportation among NAFTA countries and for the checking of letter of credit documents, handling of real estate transactions and escrow agreements between the United States and Mexico

The mastery of the bottom-up and top-down methods of drafting and implementing the promulgated law has proven to be a prerequisite for sustainable economic development. By creating standards that ensure

practicality, transparency and fairness of dealing, the Center has influenced commercial law around the world, whether by creating uniform documents ranging from powers of attorney and commercial invoices to letters of credit and real estate escrows, improving banking standards of transparency and

disc losure or making it easier for m i c r o , small and m e d i u m -

sized businesses to access commercial or asset based credit at reasonable rates of interest.

Roadmap Studies The Center conducts “Roadmap studies” to learn about existing law and market practices and catalogue them on the basis of their contribution to or detraction from developmental goals. It then looks at those “official” or “positive” and “living laws” and finds which are incompatible with development goals and which can be adjusted to introduce cost effectiveness and fairness to the commercial transaction in question.

The Center’s Mission – Law Reform to Promote Free Trade and Economic Growth and Development From its inception, the work of the Center has been built around three pillars: Research and Publications, Law Reform and Training and Education. Each of these supports and promotes the others. The publication of its research is essential to ensure that the Center is always contributing not only to legal education at the University of Arizona James E Rogers College of Law, but also to the global exchange of ideas on how to create commercial law

that benefits people by being fair and cost effective. The law reform involved in facilitating trade and fostering economic growth is where the ideas are put into practice. Real change can only come about when

The mastery of the bottom-up and top-down methods of

drafting and implementing the promulgated law has proven

to be a prerequisite for sustainable economic development.

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MEXICO UPDATE

laws are passed and implemented. Education and training ensures that those responsible for interpreting and enforcing the law truly understand how it works and the reason for the reform of the law. It also helps to create new generations of lawyers who share the vision of using commercial law as a tool for economic development.

Details of past and present projects can be found on the Center’s website at www.natlaw.com.

One of the distinguishing characteristics of the Center is that it delivers tangible and effective results. This chart shows the result of the Center’s participation as a principal drafter or as a participant in the drafting of treaties, uniform laws and compilations of customs and practices.

Sample of Key Center Projects. When the Center was founded, its principal focus was the legal implementation of NAFTA. The early projects of the Center found practical solutions to potential road blocks to free trade.

Standardized Licensing for Real Estate Brokers on Both Sides of the Border

The Center prepared a draft proposal of statutes and regulations in line with the best practices for the examination and qualification of Arizona real estate brokers.

Uniform Power of Attorney and Uniform Commercial Invoice for NAFTA Countries

The Center developed and published a uniformly accepted power of attorney throughout the NAFTA region. This reform provided law firms, realtors, buyers, sellers, insurance companies and the general business community with the uniformity necessary to

facilitate the purchase, sale and lease of real estate within the NAFTA region

The Roadmap for Secured Transaction Law Reform in Mexico

As a result of the first Roadmap study by the Center in the mid-1990s, a series of secured transactions legal reforms and a state-of-the-art online registry for security interests in Mexico were finished from 2000-2012. As part of those reforms, Mexico also created a

state-of-the-art online Secured transactions law reform has given better access to capital for micro, small and medium-sized businesses in Mexico which, in turn, has expanded Mexico’s potential as a trading partner in NAFTA.

Standardized Check Collection & Clearing Processes in the NAFTA Countries

The Center co-drafted the Guidelines for the Clearing and Return of Checks and Notification of Dishonor among Canada, the United States, and Mexico, a voluntary set of rules pertaining to the clearing and return of checks across NAFTA borders. The guidelines helped minimize the risk of fraud and maximize the efficiency of cross-border check processing that reflected the global standard for commercial letters of credit.

Uniform Legal Standards for Cross-Border Trucking and a Uniform Truck Bill of Lading

The Center brought together the North American Committee on Surface Transportation Law & Practice (NACST) which created a standardized legal infrastructure for cross-border transportation of goods and related services, including a uniform truck bill of lading. The Center also developed the North American Standard Transportation Practices (NASTRAPS) which reflect the best practices among transportation industry participants in the NAFTA region.

Tightened Intellectual Property Protection by the

It also helps to create new generations of lawyers

who share the vision of using commercial law as

a tool for economic development.

Issue 37 Page 16


MEXICO UPDATE

Mexican Customs Authorities

The Center completed a study entitled “Transshipment and Other Threats to the Enforcement of Intellectual Property Rights in Canada and Mexico” that examined threats to the enforcement of intellectual property rights (IPRs) in the NAFTA region. The work resulted in the creation of an administrative injunction that enables the Mexican Institute of Intellectual Property (IMPI) to enjoin the importation of IP contraband.

Customs and Maquiladoras

The Center began its customs work by analyzing the impact on customs operations resulting from major changes in the NAFTA-mandated Mexican maquiladora system implemented in 2001

Promoting Alternative Dispute Resolution (ADR) & Sectoral ADR

As part of its contract with the U.S. Department of State’s Office of the Legal Adviser on Private International Law, the Center participates as a member of the NAFTA 2022 Committee. ADR represents a faster, more cost effective option to dispute resolution. This is especially true for small and medium-sized businesses.

Sectoral ADR is dispute resolution tailored to the specific customs and practices of a particular sector. For example, the Center is working with Mexican and Canadian counterparts to create the guidelines and training so that cross-border trucking disputes are resolved by arbitrators and mediators who have a deep understanding of the trucking industry and will apply standard guidelines whether the dispute is resolved in Mexico, the U.S. or Canada. The Center also continues to deliver programs designed to educate business people, lawyers and judges on the advantages of sectoral ADR in order to promote its use and accessibility.

OAS Convention on Choice of Law on Contractual

Disputes: Harmonizing Solutions to International Trade Issues

In 1993, the Center co-hosted with the OAS the Meeting of Experts of the Inter-American Convention on the Law Applicable to International Contract (CIDIP-V). This convention regulates matters involving international contracts in the Western Hemisphere. If adopted, the convention will facilitate commerce within the Americas by providing a clear set of guidelines for cross-border contracts on essential issues such as how to determine the law applicable to a particular contract. The convention is set to be submitted to the U.S. Congress in 2012 for possible ratification into law.

OAS Model Inter-American Law on Secured Transactions

In 2002, after a number of Latin American countries expressed interest in modernizing their secured financing and commercial registry laws, the Center helped to draft a Model Inter-American Law for Secured Transactions. This model law formed the

basis for new secured transactions laws passed in Mexico, Peru, and Honduras. The impact of the combination of

legal reform, regulations and registry is to facilitate access to credit for micro, small and medium-sized businesses, to stimulate economic growth and to fuel expansion of the middle class.

Inter-American Rules for Electronic Documents and Signatures (IAREDS)

Also in 2002, the Center finished drafting an appendix to the Model Secured Transactions laws known as the IAREDS. The IAREDS further facilitated inter-American commerce by providing clear rules regarding the validity of electronic documents and signatures. This project is a significant example of collaboration and cooperation between governments

This model law formed the basis for

new secured transactions laws passed

in Mexico, Peru, and Honduras.

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MEXICO UPDATE

and the affected industries, all of whom had an interest in a uniform set of rules. The Center worked with representatives of various Latin American

Model Registry Regulations under the Model Inter-American Law on Secured Transactions

In 2010, under its contract with the U.S. State Department, the Center helped to create a set of model registry regulations for the OAS. They contain features found in modern secured transactions registry systems and have been designed to provide guidance to OAS member states that have implemented or contemplate adoption of a local version of the Model Inter-American Law on Secured Transactions. These regulations were adopted first in Honduras, were partially adopted in Mexico, and are now being considered by Colombia, Chile, and Peru.

UCP 500: Reducing the Volume of Letter of Credit Litigation

In 1993, Dr. Kozolchyk, representing the United States Council on International Banking (USCIB) and subsequently the Center, served as lead drafter of UCP 500. The UCP is the world standard for issuing, confirming, negotiating, paying, transferring, assigning of proceeds and examining documents associated with commercial and standby letters of credit. It introduced the critical concept of international best practices in the context of documentary credits, essentially enacting reliance on the archetypal behavior of a “prudent, reasonable banker” acting in accordance with standard international banking practice.

Dr. Kozolchyk, on behalf of the USCIB and subsequently the Center, also helped draft Article 5 of the Uniform Commercial Code (UCC), based on the UCP 500.

UN Convention on Independent Guarantees and

Stand-by Letters of Credit

Boris Kozolchyk was a member of the U.S. Delegation to UNCITRAL when it adopted the Convention on Independent Guarantees and Stand-by Letters of Credit in December 1995. This Convention is a clear example of top-down law-making as supported by standard and best banking practices. This convention was designed to facilitate the use of independent guarantees and standby letters of credit

where only one or the other of those instruments is traditionally in use. It also established a harmonized set

of rules for these two types of instruments in order to provide greater legal certainty in their use for day-to-day commercial transactions.

The International Standard Banking Practices & The International Stand-by Practices

In 2002, the Center led the drafting of the first set of international standards for the examination of letter of credit documents. By detailing the specifics of the examination of letter of credit documents, the ISBP has filled a gap between the more general rules found in UCP 500 and 600 and everyday documentary checking practices.

The Center also participated in drafting the International Stand-by Practices (ISP 98), published by the Institute for Banking Law and Practice and then approved by the ICC. The ISP 98 created bottom-up standards designed specifically for standby letters of credit.

UNCITRAL Working Group VI

From 2002 to the present, the Center has participated in the UNCITRAL meetings of Working Group VI on Security Interests that prepared the UNCITRAL Legislative Guide on Secured Transactions. The purpose of the Guide was to promote economic

The UCP is the world standard for issuing, confirming,

negotiating, paying, transferring, assigning of

proceeds and examining documents associated with

commercial and standby letters of credit.

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MEXICO UPDATE

development by helping countries pass legislation that makes low-cost credit available to micro, small and medium-sized businesses. It was adopted by the United Nations General Assembly in 2008.

Banking Transparency & Disclosure

At the request of the Chilean government and the U.S. Department of the Treasury in 1997, the Center conducted research in five countries – Argentina, Brazil, Chile, Mexico and Venezuela – to help promote transparency and disclosure in the banking industry. The s tud i e s d e t e r m i n e d where there was compliance or lack of it with existing local law and with international standards of transparency and disclosure. The Center’s research group drafted recommendations on how to increase compliance with the best practices on transparency and disclosure that helped alleviate the impact of an impending financial crisis in the region.

UNIDROIT

In 2009, the Center participated in the development of a set of rules to harmonize and modernize laws governing the ownership, transfer and pledge of investment securities. The Center was part of the U.S. group of experts to support UNIDROIT's diplomatic conference in the adoption of the UNIDROIT Convention on Substantive Rules for Intermediated Securities of 2009 (also known as the Geneva Securities Convention). When adopted by member states, the Geneva Securities Convention will increase liquidity by facilitating electronic trading and the creation of security interests in investment securities that are held in accounts with intermediaries.

The Center’s Work for Honduras and the Millennium

Challenge Account: Making Honduras a Showcase for Secured Transactions Law Reform

In 2007, the Center worked with Honduran officials and businesses to develop and implement a modern secured lending law, registry of security interests and lending practices. The Center team worked closely with Honduran government officials and congressional deputies to address issues and to promote smooth passage of the law through the Honduran Congress. After the law was passed, the

Center wrote the registry regulations and designed an online registry for security interests. This effort resulted in a world-class secured t ransac t ions l aw , regulations and electronic registry. T h e H o n d u r a n s e c u r e d transactions registry became operational on January 28, 2011.

Ghana Secured Transactions Project

Acting as a consultant for the IFC Secured Transactions Reform Project in Ghana, the Center

helped to draft amendments to the Borrowers & Lenders Act and Registry Regulations in Ghana. The Center will also provide training for judges regarding the proposed amendments and the new registry and regulations.

Malawi Secured Transactions Project

In the summer of 2010, the IFC requested assistance from the Center to review a draft secured transactions law prepared by the Malawian drafting commission. The work resulted in the final version of the Personal Property Security Act (PPSA) that was sent to the Malawian Parliament for passage into law. In addition to the review of the draft law, the Center team met

The Center was part of the U.S. group of

experts to support UNIDROIT's diplomatic

conference in the adoption of the UNIDROIT

Convention on Substantive Rules for

Intermediated Securities of 2009 (also known

as the Geneva Securities Convention).

The Honduran secured transactions registry

became operational on January 28, 2011.

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MEXICO UPDATE

with groups of local stakeholders and discussed the necessary changes to the existing Malawian legal framework to improve secured transactions and to coordinate with an ongoing insolvency reform project.

Colombian Secured Transactions Reform Project

The Center, acting as a consultant for the IFC, is working to assess Colombia’s secured lending environment, including the credit structure, laws, practices and policies. The Center assisted the Colombians in drafting a new secured transactions law which was sent to the Colombian Congress in March 2012.

Judicial Training in Mexico

Since 2006, the Center, under its Global Development Alliance Partnership with USAID, has been supporting Mexico’s judiciary in the enhancement of the administration of justice by commercial courts. Since reforms to the Mexican Commercial Code were made in 2011, the Center has been providing training to Mexico’s Federal and State trial and appellate level judges, court clerks and other court staff using a “learn-from-practice” methodology and providing a comparative perspective to the reforms. To date, the Center has provided training to over 1,200 members of the judiciary, including to the Federal Judiciary as well as to the Federal District Judiciary, the State Court of Tabasco and the State Court of Yucatan, and will continue to support other Mexican State Courts through training as they prepare for the new oral trial procedure.

Secured Transactions Law Reform in Mexico

The Center has been working with Mexican officials to

reform Mexico’s secured transactions legal framework since 1994. With the support of USAID, the Center has assisted the Mexican government by providing objective expertise by helping the Mexican Ministry of

Economy submit to the Mexican Congress one set of amendments to t h e S e c u r e d Transactions Law the Delivery of Public Services.

Future Work The Center wi l l continue to build on its

momentum and its excellent reputation to foster economic development through commercial law reform around the world. It will continue to use its unique methodology of bottom-up law reform designed to accommodate local customs and culture as well as global best practices. The three pillars of practice: Research & Publications, Law Reform, and Education & Training, will continue to be the platform for the work of the Center.

The Center will also expand its work in other areas of commercial law such as intellectual property, banking, bankruptcy, transparency in government procurement and alternative dispute resolution.

Building on one success after another, the Center has earned a reputation for impeccable scholarship and practical solutions. It stands for the proposition that

law is ultimately about people, their values, expectations and idiosyncrasies. By adopting an

evolutionary approach to the building of legal institutions, the Center has helped countries to enact laws that enhance fairness and efficiency in a way that is consistent with local culture and practice.

To date, the Center has provided training to over

1,200 members of the judiciary, including to the

Federal Judiciary as well as to the Federal District

Judiciary, the State Court of Tabasco and the State

Court of Yucatan, and will continue to support

other Mexican State Courts through training as

they prepare for the new oral trial procedure.

The Center has been working with Mexican

officials to reform Mexico’s secured

transactions legal framework since 1994.

Issue 37 Page 20


MEXICO UPDATE

National Law Center for InterAmerican Free Trade Accomplished Projects

Treaties Compilations of Customs and Practices

Model Laws and Regulations

Secured Transactions Laws

Implemented (Consistent with OAS Model Law)

Secured Transactions Registries in Operation

OAS Convention on

Choice of Law on

Contractual Disputes

Uniform Customs and P r a c t i c e s f o r Documentary Credits

500

OAS Model Inter-American Law for

Secured Transactions

Mexico – 2000, 2003, 2 0 1 2 ( p e n d i n g C o n g r e s s i o n a l

enactment)

Honduras – 2009

UN Convention on I n d e p e n d e n t Guarantees & Stand-

by Letters of Credit

U S C I B S t a n d a r d Banking Practices for the Examination of Le t t e r o f C red i t Documents (U.S. &

Mexico)

OAS Model Registry Regulations under the Model Inter-American Law for Secured

Transactions

Honduras – 2010 Ghana – 2011

NASTRAPS – North American Standard Transportation Practice

(NAFTA region)

Guatemala 2007 Malawi – 2011

Guidelines for the Clearing and Return of Checks and Notification of Dishonor (NAFTA

Region)

Peru 2006 Mexico – 2009

Standards for Real Estate Brokers (States

of Arizona and Sonora)

Ghana – 2011

Rules for Banking Transparency and Disclosure (Argentina, Brazil, Chile, Mexico,

Venezuela)

Malawi – 2011

IAREDS – Inter-American Rules for Electronic Documents

and Signatures

Colombia (pending C o n g r e s s i o n a l

enactment)

Issue 37 Page 21


MEXICO UPDATE

Certification of cleanliness on facility closure and cessation of activities generating hazardous wastes: Absence of LGPGIR regulation mechanism to certify that a site is not

contaminated by Sergio B. Bustamante and José Luis Rendón

Lexcorp Abogados

I. Introduction The General Law on the Prevention and Comprehensive Management of Wastes (“LGPGIR”) recognizes that prevention is easier and less costly than cure, and accordingly contemplates various provisions designed to prevent contamination of sites. This article focuses on the obligation of a generator of hazardous waste to prove that its activities generating such waste have not contaminated its facilities.

LGPGIR Article 46 contemplates that a generator purchase an environmental insurance policy to assure compliance with this obligation, but this guarantee is relevant only when the site is already contaminated and the generator must demonstrate its financial ability to address the damage caused.

Although the Regulation of the General Law on the Prevention and Comprehensive Management of Wastes (the “LGPGIR Regulation”) establishes a procedure to be followed for the closing of facilities that generate hazardous wastes, it does not provide any mechanism for certification that a site is not contaminated.

The absence of such a mechanism violates the principles of sustainable development relative to prevention and shared responsibility, which together with the principles of remediation-recovery, “polluter pays,” and of equity and coordination-cooperation, ground the policy framework for the prevention of pollution of soils that the Ministry of Environment and

Natural Resources has developed through the years.

II. Suspension of Hazardous Waste Generating Activities and Facility Closure: Two Distinct Things The legal framework that currently regulates the comprehensive management of hazardous waste does not place the action of establishing that a site in suspending operation of the generation or handling of hazardous waste is not contaminated with such wastes on the same situation as the action to certify the same result when a facility is closed.

The relevant legal texts are as follows:

“Article 45. – In any case generators must leave free of hazardous wastes and contamination

that might represent a risk to health and the environment, the facilities in which they have generated them, when they are closed or they cease to accomplish in them the activities generating such wastes.

The article quoted contemplates two scenarios:

1. A generator must leave free of hazardous wastes and contamination the facilities in which they have been generated, when such facilities are closed;

and / or

2. A generator must leave free of hazardous wastes and contamination the facilities in which such have been generated, when they cease to accomplish in them the activities generating such wastes.

The foregoing obligations are detailed in Articles 46 Section VIII and 68 of the LGPGIR Regulation:

According to the body of international law, a

crime against humanity is itself a grave violation

of human rights and affects all humanity.






editors.

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MEXICO UPDATE

LGPGIR Regulation “Article 46. - large and small generators of hazardous wastes shall: ...

VIII. Prepare and submit to the Ministry notices of closing their facilities when they cease to operate or when the same is no longer engaging in the activities of generation of hazardous wastes ... ”.

“Article 68. - Generators that for any reason cease to generate hazardous waste must submit to the Ministry a written notice containing the name, corporate name, registration number or authorization, as applicable, and the corresponding explanation.

In the case of closure of the facility, the generators shall present the notice indicated in the previous paragraph, also providing the following information:

...

II. Small and large generators of hazardous wastes shall provide:

a) The expected date of closure or suspension of the activity generating hazardous waste;

b) The list of hazardous wastes generated and raw materials, products and byproducts stored for the cessations of production, cleaning and decommissioning of the facility;

c) The program of cleaning and decommissioning, including the report of the materials used in cleaning of piping and equipment;

d) The diagram of process piping, plant instrumentation and drains of the facility, and

e) The registration and description of accidents, spills or other hazards that occurred within the premises during the period of operation, as well as the results of the actions undertaken. This

requirement applies only to large generators.

Generators of hazardous waste shall declare in the notice, under penalty of perjury, that the information provided is correct.”

The first paragraph of Article 68 provides that when a generator (micro, small or large) intends to undertake a suspension of activities in which hazardous wastes are generated or handled, it shall submit to the Ministry of Environment and Natural Resources (“SEMARNAT”), a written notice containing: (i) the name or corporate name, (ii) registration number or authorization as a generator of hazardous wastes, and (iii) the corresponding explanation concerning the suspension of activities generating hazardous wastes.

The same Article 68 provides that in case of plant closures, in addition to the foregoing, the notice must provide specific information depending on the category of generator.

The suspension of activities that generate hazardous waste need not involve the closure of facilities. From analysis of the provisions of Rule 68 of the LGPGIR, a generator appears obligated only to notify SEMARNAT of the suspension of activities, and the authority has no legal provisions on which to rely that empower it to require more than the presentation of such notice. Thus, when a small or large generator of hazardous waste intends to suspend the activities that generate hazardous waste, as would a change of shift or industrial activity, or the elimination of hazardous materials in the production process, it need only give written notice to SEMARNAT, providing the information indicated in the referenced article.

To better understand the scope of this approach, here is an example:

FICTITIOUS COMPANY, S.A. DE CV (“FICTITIOUS COMPANY”), began operations in 2007 in an industrial plant located in Ciudad Juarez, Chihuahua, in which it conducted as industrial activity the production

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MEXICO UPDATE

of circuit boards. Its production process generates hazardous waste such as solder, flux, solvents, etc.

In 2009, the FICTITIOUS COMPANY changed its industrial activity to the assembly of appliances and ceased to generate hazardous waste. In compliance with LGPGIR Article 45 as well as Articles 46 Section VII and 68 of the LGPGIR Rules, it presented to SEMARNAT its notice of suspension of activities that generate hazardous waste, as well as handling the downgrade as generator of such wastes and the corresponding registration of the management plan for hazardous wastes.

In January 2011, the FICTITIOUS COMPANY, merged with “LA GOLONDRINA”, S. DE R.L. DE C.V. (“LA GOLONDRINA”), which also assembles appliances, and acquired all the assets of FICTITIOUS COMPANY, including the industrial facility located in Ciudad Juarez.

In September 2011, the Federal Attorney for Environmental Protection (“PROFEPA”) receives a citizen complaint concerning contamination of soil with hazardous waste in the facilities that once belonged to FICTITIOUS COMPANY and undertook an inspection of the facilities that now belong to “LA GOLONDRINA”. The inspection confirmed the complaint, finding solvent-filled drums buried beneath a concrete slab.

In exercise of its powers, the authority initiated the procedures to establish the relevant administrative and criminal responsibilities against “LA GOLONDRINA”.

In the foregoing example, there would be a liability before the relevant authority for environmental damages, that would include the obligation to pay fines, to pay for remediation of the contaminated site and perhaps even a corporal punishment of

imprisonment, but most certainly the liability would not pertain to those who actually committed such violations of environmental norms.

In the authors’ view, also in the case of suspension of activities that generate hazardous waste, there should be a requirement to establish that the site is clean and free of contamination from hazardous wastes, since a simple notice does not guarantee the absence of contamination.

This would provide legal certainty to purchasers of real property, this being a mechanism that contributes to resolution of liabilities for contamination.

III. The Problem of Not Having a Preventive Legal Mechanism to Establish the Absence of Contamination in Facilities To certify that a site in which hazardous wastes are generated or handled is clean and free of contamination, is relatively new in Mexico, since it had not been contemplated in law until the entry into force of the LGPGIR and ultimately the LGPGIR Regulation, except as provided in paragraph II of Article 45 of the Regulation of the General Law of Ecological Balance and Environmental Protection in the Field of Environmental Impact, which provides the possibility that SEMARNAT regulate an abandonment of site through conditions imposed in a Resolution of Environmental Impact Assessment.

Currently in Mexico, within the legal framework applicable to hazardous wastes, there exist techniques to assure the remediation of sites contaminated with hazardous wastes. However, there is no legal mechanism to establish in advance that a site is not contaminated with hazardous wastes.

In real estate transactions, it is essential to demonstrate that potentially contaminated sites are clean. Accordingly, entrepreneurs of the maquiladora sector of Ciudad Juarez, Chihuahua, long before the entry into force of the LGPGIR, relied on certifications of cleanliness based on the results of a

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MEXICO UPDATE

study conducted according to the standards of practice of the American Society for Testing and Materials (“ASTM”), a non-governmental association with roots in the United States of America that has evolved to become an international leader in the definition of voluntary consensus compliance standards.

The ASTM elaborated its Norms of Practice E 1527-05 and E 1903-119 which serve to ascertain the presence or perceived presence of hazardous substances on a property or facility, including built structures, and soil and water on the surface of the property evaluated. The effectiveness of these standards of practice has been supported by the Environmental Protection Agency of the Government of the United States of America, which incorporates the referenced norms in respect of its legal definitions of the requirements to satisfy environmental rules relative to real estate in that country.

A report based on the norms of practice of the ASTM is called a “Site Closure Assessment” and is performed by technical experts in environmental matters whose results are supported in conjunction with a testing laboratory accredited by the Entidad Mexicana de Acreditación, A.C., which analyzes soil samples and / or materials from the facilities, to assess the presence or absence of contamination.

To provide legal certainty concerning the absence of contamination in properties object of a transaction, individuals agree to submit the reports of the Site Closure Assessment to PROFEPA requesting its acknowledgement of the study and a site visit to verify the results. Previously, PROFEPA would make a visit to the facility, and provided the results of the study indicate that there was no contamination on the site, and nothing otherwise would have been evident during the inspection visit, it would issue a Certificate of Site Closure, noting the absence of contamination in the facilities visited.

Currently PROFEPA has determined not to issue

such certificates, apologizing that the methods used to perform the Site Closure Assessment (i.e., the ASTM Standards) are not part of national law, adding that the Procuraduría likewise cannot certify the presence or absence of contamination of the relevant site, because there is no law, regulation, norm or other legal provision that establishes the procedure to issue such a certification.

Such a stance is paradoxical because, while it is true that Mexico lacks legal texts that contemplate procedures for conducting studies of Site Closure, and the creation of standards is not a right of private parties, Article 45 of the LGPGIR and Articles 46 and 68 of the Rules of the LGPGIR clearly establish the imposition of obligations on generators of hazardous waste, and compliance with mechanisms such as the ASTM Standards of Practice would conform with the such obligations.

If today PROFEPA were to require compliance with the obligation under the second paragraph of Article 45 of the LGPGIR, how would the absence of contamination on the site be established?

IV. Complexity of the Procedure Set Forth in the LGPGIR Regulation As noted, generators of hazardous waste must satisfy their obligation to prove the absence of contamination at a facility in conformity with the provisions of the LGPGIR Regulation, and specifically the requirements of notification of closure of facilities. SEMARNAT reviews such information, reserving itself the right to order the inspection of the premises closed and to start administrative procedures in case of irregularities in the information provided. All this is in accord with LGPGIR Article 70 , that reads as follows:

“Article 70.-The information referenced in the two preceding articles will be reviewed by SEMARNAT, which may order, within a period not exceeding one year, physical inspection of facilities and the site where they

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MEXICO UPDATE

are located, to confirm respect of the applicable provisions.

Where there are irregularities in the information provided relative to the physical inspection of SEMARNAT, it shall initiate the administrative procedure.”

Mindful of this, there is the dilemma that 1) the LGPGIR Regulation provides that SEMARNAT must acknowledge notices of facility closures and eventually that authority may order an inspection, and 2) in practice such facility closures “site abandonments” - are performed with the sole intervention of PROFEPA.

The Internal Regulation of SEMARNAT provides that for the study, planning and conduct of its business, SEMARNAT has various public servants and administrative units, such as the Directorate General of Comprehensive Management of Hazardous Materials and Activities, which is responsible to implement general policy on hazardous materials, substances and wastes, and the Legal Affairs Coordination Unit, whose mandate includes to establish, organize, unify and diffuse, for administrative purposes, the guidelines and criteria of interpretation and application of laws and other legal provisions that regulate the operation and activities of SEMARNAT and its decentralized bodies, except for those that the applicable legislation reserves to them.

Similarly, SEMARNAT has PROFEPA which is a decentralized body whose powers include to oversee and evaluate the compliance of the legal provisions applicable to the prevention and control of environmental pollution and to establish administrative policies and guidelines this effect.

Given that the LGPGIR Regulation clearly states that information relating to the notice of plant closures will be reviewed by SEMARNAT, and considering the SEMARNAT provisions, the procedure meant be followed is as follows:

a) The applicant presents the notice of plant closures to SEMARNAT.

b) SEMARNAT evaluates the notice, and if it considers necessary, would request PROFEPA that it inspect the facilities being closed.

c) PROFEPA would accomplish the inspection to corroborate the information presented through the notice and would also verify compliance with norms applicable to the management of hazardous wastes. SEMARNAT would be responsible for oversight of the inspection and would have the right to (i) initiate the relevant administrative proceeding in case of irregularities and (ii) make the denunciation to the Procuraduría General de la República in the case of possible commission of environmental crimes.

d) SEMARNAT would issue a determination setting forth its position, on the basis of evaluation of the information presented in the notice of closing and PROFEPA’s report.

As commented, this situation would generate unnecessary prolongation in the handling of closures of facilities/site abandonments, with high probabilities of burdening or preventing the realization of real property transactions concerning ownership or possession of sites in which activities of generation or management hazardous wastes have been accomplished.

The idea would be that site closures continue to be overseen by PROFEPA, as has been the case in practice through the years. However, the process should be determined by SEMARNAT through modifications of the legal framework.

Considering the provisions of the LGPGIR Regulation, the management of the procedure of notification of the closure of facilities/abandonment of the site could be accomplished by interested parties, the generators for example, in the following manner:

a) The applicant presents the notice of closure of

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MEXICO UPDATE

facilities / abandonment of the site, both to SEMARNAT and PROFEPA.

b) The applicant manages before PROFEPA, the inspection of the facilities (ten working days after notification would be a reasonable period).

c) Once PROFEPA issues its concurrence based on the relevant inspection, the interested party would seek the issuance of a certified copy of the concurrence for presentation to SEMARNAT for its evaluation.

d) SEMARNAT would issue a certificate of closure of facilities (“Certificate of Site Closure”)

This procedure could be established in detail and with legal force, if SEMARNAT makes it public by issuing, for example, a regulatory accord, which might be called “agreement through which one makes known the procedure of steps to which refers the legislation in the matter of hazardous wastes, to accomplish the suspension of activities or the closure of facilities in which hazardous wastes are generated.” SEMARNAT has proceeded in this fashion in similar cases, for example the agreement published in the DIARIO OFICIAL of the Federation of November 4, 1998, making known the procedure to accomplish the return of hazardous wastes.

V. Conclusions I. The legal framework that currently regulates the activities relative to the comprehensive management of hazardous wastes only requires that the suspension of activities of generation or management of hazardous wastes be notified in writing to SEMARNAT. It does not require certification that the site has not been contaminated with such wastes.

The suspension of activities that generate hazardous waste does not necessarily imply the closure of the facilities.

There should be established, as an obligation, the requirement to certify the absence of contamination in a site where activities are suspended. This would offer legal certainty, through which responsibilities for

potential environmental damages could be defined.

II. The LGPGIR Regulation contains a very complete compendium of provisions concerning the remediation of sites contaminated with hazardous wastes (“Corrective Measures”), but it establishes no mechanism or proceeding on the basis of which the absence of contamination of a site with hazardous materials can be certified (“Preventive Measures”).

It is necessary promptly to establish a legal procedure through which can be certified the absence of contamination by hazardous materials, as to a site regarding which the authorities have been notified of the suspension of activities or the closure of facilities. Such a procedure could be established in an addition to the regulation, the publication of an agreement, or through the issuance of a norma oficial mexicana, a Mexican Official Standard.

III. The procedure established by the LGPGIR Regulation to accomplish the closure of facilities is burdensome and slow, which could convert it into a burden on commerce. It would be such a burden by virtue of slowing and preventing the prompt consummation of transactions relative to change of ownership and/or of possession of sites in which hazardous wastes have been generated or managed.

The ultimate solution to this problem is that national legislation establish the mechanisms to certify the cleanliness of a site in which activities of generation or management of hazardous wastes have occurred. In the meantime, PROFEPA could take action to accomplish such certifications, without compromising its interests or facilitating the orphaning of a site, by limiting the certification of cleanliness to the information provided by the interested parties through the study of abandonment of a site presented to PROFEPA and leaving the responsibility with those who participated in the study, including the interested party, those who prepared the study, and the laboratory that analyzed the samples of materials and soils.

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MEXICO UPDATE

Review of 2012 Spring Meeting Panel on Use of IPOs in emerging markets

to finance projects by José Sánchez-Gil

Mexico Committee member Francisco Javier Velázquez Osuna, of Goodrich, Riquelme y Asociados spoke at the International Law Section’s 2012 New York City Spring meeting on the initial public offerings (IPOs) in emerging markets.

Mr. Velazquez explained the process of how a foreign company may list its securities in the Mexican Stock Market and pointed the following r e l e van t i s sue s to t a ke i n consideration for such purposes:

a) Foreign companies may register their securities exclusively under two schemes: public offerings of common, secondary or mixed shares, or through the International Quotation System;

b) Prior to any listing foreign companies must engage a brokerage firm to assist with the listing process, including to obtain the authorization from the National Securities Register (Registro Nacional de Valores) and the Mexican Stock Market (Bolsa Mexicana de Valores) and filing the enrollment application known as “EMISNET” through an electronic system known as “SECAP”.

c) The applicant company must provide to the Mexican Stock Exchange and the National Banking and Securities Commission its operating history and audited financial statements for the past three years, a notice of public offering and a prospectus with the company’s relevant legal, financial and corporate information.

d) When disclosing risk factors affecting the company two factors to be taken into account are the economic benefits and the company’s legal obligations.

e) Currently only five foreign companies are directly listed on the Mexican Stock Exchange: Banco Bilbao Vizcaya Argentaria, S.A., Citigroup, Inc., Fresnillo, PLC, Banco Santander, S.A. and Tenaris, S.A.

In addition, Mr. Velazquez reviewed relevant aspects

of the Mexican Stock Exchange, notably that it has become the world’s third stock market in terms of profits.






editors.

Francisco Javier Velázquez Osuna, of Goodrich,

Riquelme y Asociados (left) and José Sánchez-Gil (right)

with speakers at the IPO in Emerging Markets program at

the New York City 2012 Spring Meeting

Issue 37 Page 28


MEXICO UPDATE

Review of 2012 Spring Meeting Panel on Employees in dangerous places: legal and

practical issues around earthquakes, revolutions and crime on international assignments

by Ana P. Esquer

Mexico Committee member Eduardo Ramos-Gómez, of Duane Morris LLP spoke at the International Law Section’s 2012 New York City Spring meeting on employees in dangerous places

The panel touched on war zones such as Afghanistan for which expatriate employees require preparation prior to taking up residence, but also on other locations that might on occasion be deemed dangerous by some, such as for example the German government considered New York City following the 9/11 attacks.

The panel addressed a tendency in the civil law jurisdictions to be protective of employees, especially when the employee is sent abroad. The protectiveness extends to the obligation to take steps to prevent risk and its consequences for an employee. As a consequence, for example, Germany companies, tend to seek to hire local employees (Mexicans for example) and to prepare them in Germany.

The panel discussed the advisability of an employer entering into specific agreements with expatriate employees in which the employee acknowledges warning made about the dangerous location and the provision of employer resources. The panel further discussed the obligations of an employer to compensate an injured employee, a topic often addressed in the United States through insurance.

The panel discussed the severe consequences to employees in Southeast Asia, for example, of selling, transporting or consuming drugs and the advisability of counseling employees. Even embassies and consulates have limited ability to intervene on behalf of their citizens.

The panel addressed the liability of an employer in the event a family member of an employee becomes involved in a situation abroad, and discussed the advisability of an employer providing social context to the employee and dependants as well as information about how to respond to an emergency situation.

What an employer does should be tailored to the country and the risks that it presents. The panel discussed the steps of an employer: 1) getting to know the country, 2) choosing the right candidate; 3) arranging appropriate insurance coverage; 4) training the employee about the working environment 5) arranging for security; and 6) establishing crisis policies.






editors.

Mexico Committee member Eduardo

Ramos-Gómez with Ana P. Esquer at the

New York City 2012 Spring Meeting

Issue 37 Page 29


Mexico Committee

Patrick Del Duca

Alejandro Suárez

Juan Carlos Velázquez de León Obregón

Facultad de Derecho, Universidad

Panamericana, Guadalajara Campus

Ana Patricia Esquer Machado

Rodrigo Soto Morales

Editorial Committee:

American Bar Association

MEXICO UPDATE ABA ● Section of International Law ● Mexico Committee

Mexico Committee WEBSITE:

http://apps.americanbar.org/dch/

committee.cfm?com=IC845000

Read all our newsletters on the

website!

The Mexico Committee continuously seeks

qualified professionals prepared to contribute

their time and talents to continue developing a

more active Committee. This is a prime

opportunity to become involved with a

community of lawyers that share an interest in

Mexico and Mexican law, who are fellow American

Bar Association members.

The Mexico Committee welcomes any suggestions,

ideas or contributions to enhance this quarterly

publication. The current submittal deadline

for contributions to the fall issue is July 15,

2012.

Editorial Team: Facultad de Derecho, Universidad Panamericana, Guadalajara Campus

Ricardo Mitchel Valencia Camarena, Ana Patricia Esquer Machado, Carlos Padilla de Alba, Silvia Medina Zannie, Lorena Martinez León

Section of International Law,

Mexico Committee©

MEXICO UPDATE