A MEXICAN OUTLOOK ON NAFTA, TPP AND THEIR RENEGOTIATION: INVESTMENT ARBITRATION'S TRANSPARENCY AND INTERNATIONAL SUPERVISION AT PERIL?

Author:Crespo, Camilo Soto
Position:Trans-Pacific Partnership
 
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ABSTRACT

In the advent of the renegotiation (and possible termination) of the North American Free Trade Agreement, this article tries to shed light on the stakes raised by the states' objectives for the negotiation from a Mexican perspective by analyzing the trade and foreign direct investment strategy pursued by Mexico since the mid-1980s, including recent developments such as the Trans-Pacific Partnership (TPP) and the Comprehensive and Progressive Agreement for TPP. The article forewarns that, from a Mexican outlook, the greatest risk of a bad outcome in the renegotiation would be a departure from the current pro economic liberalization and openness to international supervision that the Mexican state has had since the mid-1980s. Taking this as a backdrop, the article then tries to map Mexico's conduct towards the international investment system of dispute settlement (ISDS) through a two-variable approach: the struggle to cope both with full economic liberalization, on the one hand, and with international supervision, on the other hand. Accordingly, Mexico's apparent Manichean attitude towards ISDS, as seen in the international non-arbitrability of the upstream hydrocarbons' sector and secrecy in ISDS, can be explained because of what Mexico's President Enrique Pena (2012-2018) described as the two Mexicos: the globalized (opened) and the lagging (closed).

Keywords: Mexico; International Investment Arbitration; NAFTA; TPP; Trump.

  1. INTRODUCTION II. FROM ISI TO NAFTA'S RENEGOTIATION (AND BACK AGAIN?) A. ISI B. NAFTA and Subsequent FTAs and BITs C. TPP D. Trumping NAFTA? III. ON-GOING LIBERALIZATION PROJECT? A. Upstream Hydrocarbons Sector International Non Arbitrability B. Secrecy in ISDS 1. Transparency in ISD 2. Non-adherence to ICSID(?) IV. CONCLUSION I. INTRODUCTION

    Amid a global sluggish trade and foreign direct investment (FDI) growth, (1) the forces of globalization seem to fade away, whilst the winds of change seem to signal a return to an inward looking and protectionist stance towards free trade and economic liberalization. Calls for a return to a pre-globalization era have pervaded recent domestic elections and may unravel the trade and FDI agreements struck at both the multilateral and bilateral levels, wreaking havoc in the current international legal economic order. In a way, the world is witnessing a clash between the winners and losers of globalization, or in other words, between the ideals and realities of different generations. Unfortunately, much of the debate has not been focused on information about economic liberalization's costs and benefits, but rather it has fallen on sectarian fault lines that may put in jeopardy the international status quo. (2)

    It is in this highly, politically driven global environment that on January 20th, 2017, Donald J. Trump's inauguration as the 45th President of the United States took place. President Trump began his term outlaying protectionist policies, in accordance to the promises made in the presidential campaign trail. In the international economic legal arena, second to none is more important than his current stance on America's trade deficit and his vision of a zero-sum game in international trade, which has led the incoming President to reverse his predecessor's legal policies by exiting the Trans-Pacific Partnership Agreement (TPP); (3) threatening to use tariffs to reverse its trade deficit with certain nations, particularly in its illegal border tax form with Mexico; (4) and most recently, to begin a bumpy renegotiation process for the North American Free Trade Agreement (NAFTA), which has been coupled with threats to leave the negotiation table and exit the treaty if the document doesn't benefit the United States, such as failing to reach a trilateral consensus that focuses on reducing America's trade deficit. (5)

    From a Mexican outlook, the Trump Presidency's threat to repeal NAFTA may not only unravel the supply chains at both sides of the border and wreak havoc in the Mexican economy--at least in the short and medium terms--it could also trump the economic liberalization and opening to international supervision and scrutiny that the Mexican state has tried to follow since the mid-1980s, and which was greatly enhanced and crystallized in NAFTA. In a nutshell, considering Mexico's bumpy road from a closed country that denied the international legal economic order and did not accept international arbitration to an opened, more transparent and globalized one, President Trump's continued anti-Mexican rhetoric could have the unintended consequence of tilting Mexico's current free-trade and pro-FDI stance to the other spectrum again. Conversely, being a NAFTA party has made Mexico more aligned with the American and Canadian positions in the international economic legal system, including advocating for transparency and stakeholder participation in the international investment system of dispute settlement (ISDS). (6) To understand the danger of losing the opened, globalized positions of Mexico to the closed, statist ones, the duality in the Manichean attitude towards international economic law that the "two Mexicos" have had in the state's policies has to be understood.

    In this regard, on November 27, 2014, Mexican President Enrique Pena (2012-2018) addressed the nation after the disappearance, in still unknown circumstances, of 43 students from the rural college of education in Ayotzinapa, Guerrero. (7) In his discourse, the President depicted a comprehensive set of policies intended to strengthen the rule of law, as well as to help overcome the poverty of the Mexican southern, low-developed states of Chiapas, Guerrero and Oaxaca:

    Today there are two Mexicos: [On the one hand,] one inserted in the global economy, with rising rates of income, development and welfare; and on the other hand, there is a poorer Mexico, with ancient remnants that have not been solved for generations. (8) That depiction appears as a contradiction: within the same economy there are two very different levels of development. Although the same economic national policy has been pursued-economic liberalization and free trade since the mid-1980's--two different outcomes have occurred because of many factors, including geographical, historical and structural. (9) Life after NAFTA, under this purview, has helped the globalized Mexico, but its effects have not been equally spread in the southern, poorer Mexico. (10)

    This apparent contradiction in the Mexican economy also seems to exist in the state's attitude towards FDI and free trade: sometimes more open to economic liberalization--even to unilateral actions--yet others more reticent to liberalizing certain sectors. Likewise, it can be fathomed out of its stance towards ISDS: at times keen to international supervision, but at others closed, secretive and non-transparent. This apparent bipolar conduct can be seen in Mexico's most recent commitments in the TPP, particularly regarding the hydrocarbons sector, one which historically has epitomized the closeness in the Mexican economy--although it was liberalized and opened to FDI, the second-guessing by international arbitration was "closed" to international supervision through procedural hurdles. (11) Likewise, it is reflected in Mexico's non-accession to the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention), (12) and the non-adherence to the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) that occurred for decades. (13)

    This paper analyzes Mexico's attitude towards ISDS against this backdrop. In sum, the article tries to map out Mexico's conduct on ISDS through a two-variable approach: the struggle to cope with full economic liberalization and international supervision. Mexico's liberalization policy, which began in the mid-1980's, and was implemented by neoliberal and technocratic governments, transcended different administrations. After a full departure from the import-substitution industrialization model (ISI), and thus of the state-controlled economy, the country set its path towards an internationally-supervised open economy. Under this account, the move from ISI until today can be understood as a continuing process that departed from an absence of international supervision and aversion to international arbitration, as well as a state-controlled economy that tried to forestall FDI, towards a more liberalized and internationally, supervised economy whose foreign policy now includes incorporating ISDS into its Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) with investment chapters. However, the struggle to cope with the goals of opening both the economy to FDI and its legal system to ISDS have met domestic backlashes that could be well regarded as part of the old, averted view on FDI and foreign competition that pervaded during the ISI years, on the one hand, and of the authoritarianism and secrecy in the state's proceedings, on the other. Accordingly, Mexico's apparent Manichean attitude towards ISDS can be explained on account of what President Pena described as the two Mexicos: the globalized (opened) and the lagging (closed).

    In the first part of the paper, the two variables will be introduced through a brief historical account of the road taken from ISI to NAFTA's renegotiation; the reasons the Mexican government espoused for joining TPP; and the current renegotiation of NAFTA that, at the moment this article was written, is still ongoing, as well as the objectives advanced by the three countries. The second section will map out Mexico's stance towards ISDS by depicting two situations where the confrontation between the opened and the closed Mexicos meet: the ISDS in the hydrocarbons sector and the secrecy in ISDS proceedings. Finally, a conclusion will be offered, conjecturing on Mexico's political...

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