Even if governments agree to suspend patent protections for vaccines, corporations can fight back with expensive lawsuits.
Mexican President Andrés Manuel López Obrador, 2021. Credit: Getty Images.
Mexico Should Follow Other Countries and Refuse Excessive Powers for Foreign Investors
Pakistan is the latest to start withdrawing from international treaties that give corporations the power to sue governments over environmental and public interest regulations.
Research & Commentary
April 22, 2021
Mexican President Andrés Manuel López Obrador, known as AMLO, has often criticized the neoliberal economic model centered on free trade, privatization, and deregulation. If his administration truly wishes to shake off the yoke of neoliberalism and reclaim national sovereignty, one step they should take is to follow other countries that are rejecting excessive powers for foreign investors.
Pakistan, for example, is about to repeal the majority of its bilateral investment treaties (BITs), agreements that restrict governments’ ability to design and create public policies and regulations favoring the public interest.
BITs, as well as the investment chapters in free trade agreements, define countries’ obligations to provide protections and privileges to foreign investors. Most controversial is the obligation to give these private investors the power to sue governments in supranational courts, such as the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).
This allows corporations to claim “compensation” when regulations or policies in favor of the national public interest reduce their expected earnings. The renegotiated NAFTA, now called the United States-Mexico-Canada Agreement, preserved this powerful neocolonial tool for disputes between the United States and Mexico.
Pakistan and Germany signed the world’s first BIT in 1959. Today, beleaguered by a lawsuit of more than $4 billion filed by an Australian mining company, Pakistan has decided to follow the path of many countries that are reforming their “protection” systems (a euphemism for privilege) for transnational investments. Argentina, Ecuador, India, Indonesia, and South Africa have also taken actions to free themselves from these anti-democratic dispute resolution systems.
Mexico is muzzled by rules protecting foreign investors under 29 BITs and 11 trade agreements, and it is one of the most-sued countries in the world. The full investor protections in NAFTA are still in effect for three years. Beyond that period, the current USMCA will still allow investor-state lawsuits between the United States and Mexico related to government contracts connected to the oil and gas, power generation, telecommunications, transportation, and infrastructure sectors. (Cases regarding other types of disputes must first go through domestic courts.)
Mexico is also bound by investor protection rules in the Trans-Pacific Partnership and very probably (because the texts being negotiated are secret) in the renewed Free Trade Agreement between Mexico and the European Union. That deal is expected to include a chapter on investment protection that would substitute for Mexico’s BITs with various European countries.
These treaties offer foreign investors immense privileges, including the possibility of protecting themselves in supranational courts when governments, such as the AMLO administration in this instance, demand “compensation” for “lost profits” of up to billions of dollars.
We are already seeing it happening with First Majestic Silver, which just announced it will sue Mexico in the ICSID under NAFTA. The company is retaliating against the Mexican government for claiming that the Canadian mining company owes more than $500 million in taxes.
First Majestic Silver, a Canadian mining company, just announced it will sue Mexico over claims by the government that it owes more than $500 million in taxes.
Far from being an isolated case, this is the third suit brought by a mining company against Mexico. In 2018, Legacy Vulcan LLC, a U.S. mining company, filed suit against Mexico on behalf of its Mexican subsidiary Calizas Industriales del Carmen (CALICA) in the amount of $500 million regarding an environmental dispute over the extraction of limestone near Playa del Carmen, Quintana Roo.
In 2019, Odyssey Mineral Exploration, another U.S. company, sued Mexico for not having approved the environmental permits for its seabed phosphate mining project near the coast of Baja California Sur for the enormous sum of “at least $3.54 billion.”
Mexico has already had to pay $242 million under these types of “investor-state” suits, plus millions more in legal costs and court fees, whether under NAFTA or BITs with European countries. However, it is currently being sued for much more than that. According to calculations based on information available from UNCTAD, Mexico faces investor claims totaling at least $8 billion — right when Mexico is attempting to revive an economy severely pummeled by the coronavirus pandemic.
And the outlook appears to be even worse. Legal and corporate experts have already warned Mexico that the AMLO administration’s counter-reforms in the energy sector will generate regulatory changes that could unleash an avalanche of investor-state lawsuits.
In 2016 we warned in “Unmasked: Corporate Rights in the Renewed Mexico-European Union FTA,” a publication by the Institute of Policy Studies and the Transnational Institute, that the trade deal being renegotiated between Mexico and the European Union could make Mexico the target of lawsuits by powerful European energy companies. Indeed, extractive enterprises (oil, gas, and mining) are the biggest exploiters of this anti-democratic system. To date, in just ICSID alone, extractives firms have lodged more than 200 suits worldwide, with Latin American and the Caribbean countries the most frequent targets.
Far from ending neoliberalism, the AMLO administration has enabled these types of suits against Mexico to proceed. His MORENA party — which largely dominates congress — virtually unanimously (except for two senators) voted in favor of the USMCA and they have failed to undertake an extensive review of existing investment rules. I hope they do not follow the same path with the renewed trade deal with the European Union.
In order for Mexico to awaken from its neoliberal nightmare and be able to guarantee national sovereignty, it must reform its trade and investment treaties. If other countries are able to do so, why can’t Mexico?