• Bill likely to pass; implementation requires further rules
• Critics concerned about vague thresholds and unclear procedure
• Commission, along with armed forces, security agency representatives will review deals

Mexico’s presidential bill to create a national security merger control regime will likely become law this autumn, opening the door for potential discretionary government interventions, two competition lawyers, an academic, and a legislative consultant said.

The bill submitted to the Congress on 30 August, which would amend the Foreign Investment Law (LIE) and create a merger review procedure driven by the National Commission of Foreign Investment (CNIE), is expected to be voted on after the second half of October, when the federal expenditure budget is addressed by the Congress, Israel Tello, founding partner at Analítica Parlamentaria, a local legislative consultancy, told this news service.

Tello added that the government alliance of the Morena, PT and PVEM parties enjoy majorities in both Congressional chambers necessary to pass the bill, even if opposition parties decide to vote against it. After its approval, the full enactment of the law will require further amendments to regulations like the LIE’s ordinance, a procedure that could take another six months, Miguel Flores, a competition law partner at law firm Greenberg Traurig, told this news service.

Regulatory concerns

The bill proposes that the CNIE will review transactions that surpass an MXN 28.6bn (USD 1.6bn) threshold, Miguel Flores said. The bill text adds four wide areas in which transactions would need a review: strategic infrastructure, critical and dual-use technologies, activities related with fundamental raw materials and food security, and activities that deal with sensitive information.

The range of activities covered by the bill is concerning due to its vagueness, Turenna Ramírez, international trade law partner at Holland & Knight, told this news service. She said that these four areas comprise widely different economic activities like artificial intelligence, biotech products, and semiconductors, but could include mining activities, the telecommunications industry, and many others.

In addition, the CNIE can modify and expand those areas at will, Ramírez said. She added that a provision in the bill establishes that M&A deals in which the stake acquired by a foreign party is less than 49% in the aforementioned areas could also be reviewed even if they do not reach the threshold. However, the government officials who have talked with Miguel Flores told him that the threshold could be modified later and expect to review about 10 transactions a year, Flores said.

The bill proposes a 60-day term to resolve the review procedure, but enables a legal tenant known as negativa ficta, wherein if the authority does not respond after the term expires, the procedure can be considered rejected, José Carlos Rodríguez Pueblita, economy professor at local IPADE Business Schol and cofounder of Quantor Advisors, an investment consultancy, told this news service.

Other worrisome provisions in the law, Rodríguez Pueblita said, are the CNIE legal powers to seek remedies or to object to transactions, and the addition to the commission’s board of representatives from the secretariats of Defense, of the Navy, of Security and Citizen Protection, the local tax authority, and the financial intelligence unit. He added that the concept of national security is more akin to safeguarding the integrity of the country against violent threats, but it may be used to justify economic policy.

National security was used in the past by the Morena government as a legal basis to shield various infrastructure projects from legal challenges, while other little-known provisions have been used to take control of a rail section and of a hydrogen plant.

In the meantime, some left-wing lawmakers have in private expressed concerns about the bill timing, as it could be considered a gift to appease the US during the review of the USMCA, Tello said. Others have said that the proposal lacks clarity about transactions such as acquisitions driven by sovereign funds, and because it brings aboard the perspective of the armed forces, which now manages civil airlines, passenger railways, hotels, customs, and could find incentives to disqualify deals to prevent the entry of competitors.

Rodríguez Pueblita, who in March cowrote an article about Mexico’s need to create a China-containment policy, said that the bill represents a blunt tool to solve a problem that requires a very delicate approach, and broadcasts a message where the open trade policy that drove past governments is now being replaced by a model where foreign investors are seen as potentially threatening agents.