MEXICAN LAW



As a result of the North American Free Trade Agreement (NAFTA) that took effect on January 1, 1994, U.S. businesspeople began trading with Mexico's businesspeople, investing in business opportunities in Mexico, and establishing business facilities in Mexico in unprecedented numbers and ways. As a result, as of 1998, Mexico and the United States achieved a level of trade that makes Mexico the United States' s second-largest trade partner, second only to Canada. On a daily basis U.S. businesses are involved with Mexico's legal system, which, like most legal systems, is inextricably linked with its economic system and its history. Failure to understand at least the basic elements of Mexico's legal system can pose a significant barrier to U.S. businesspeople trading with or investing in Mexico, because Mexico's legal system is significantly different from that of the United States. Mexico's legal system is a civil law system, which can be traced to 16th century law brought by the Spaniards to the land that later was named Mexico. But, it is not the same civil law as exists in other civil law countries, because various aspects of Mexico's legal system can be traced to pre-Colombian indigenous law as well as to its unique history, social institutions, and economy.

In fact, use of the term "civil law" represents a generalization, because the legal system of each civil law system in the world varies according to the unique social, economic, political, and historical background of the individual country. A civil law system is a system in which, in general, laws are "codified," i.e., society relies on a legislative body (or bodies) to pass statutes spelling out their law. Those statutes are then organized, topic by topic, into codes. The codes become the primary resource (research tool) for lawyers and their clients in such a system. In Mexico, the hierarchy of laws is as follows: (1) the federal constitution, (2) legislation (found in the "Codes" or "Códigos," in Spanish), and (3) regulations interpreting the statutes. Provisions of the constitution supersede any legislation or regulations, and legislation supersedes any regulations. A final source of law in Mexico, which is least compelling in terms of hierarchy of laws, is "custom."

An important consideration for businesses dealing with Mexico is that, unlike Mexico's civil law system, the U.S. legal system is a "common law" system. In this system, the roots of which can be traced to England, the federal constitution as well as legislation and regulations are recognized as being law just as such documents set down law in a civil law system. A crucial difference between the two systems, however, is that a common law system recognizes the decisions of courts as creating "law." Thus, in the United States, our courts create rules of law to fill in the gray areas not clearly covered by legislation or regulations, and they create law where no statutes or regulations exist. For example, entire bodies of law such as tort law (which includes the law of negligence and strict liability for defective products) and contract law (other than contracts for the sale of goods) have been covered in the United States as rules of law established through courts' decisions. Thus, U.S. businesspeople are dealing with a very different way of doing things when dealing with the Mexican legal system.

ATTORNEYS

To do business in Mexico, U.S. businesspeople nearly always need to hire a Mexican attorney. Reciprocity that would allow U.S. licensed attorneys to practice law in Mexico and vice versa is not a part of NAFTA. This is not surprising in view of the significant differences between the two legal systems and their laws. Further, it is helpful to remember that even in the United States, licensing of attorneys is done by the individual states. Thus, most attorneys in the United States take a bar exam and seek admission to practice law in only one state; only a small percentage of U.S. attorneys go through the extensive efforts necessary to become licensed to practice law in two or more states.

U.S. businesses usually use their own U.S. attorneys for matters related to U.S. law and hire Mexican attorneys to work with their U.S. attorneys and to handle legal practice in Mexico. While U.S. attorneys are not allowed to practice law before Mexican courts, they are permitted to register as legal consultants and establish offices in Mexico from which they can advise their clients. Beyond the need for a licensed attorney who is knowledgeable about Mexican law and legal practice, working with Mexican attorneys makes good practical sense. Mexicans place great value on contacts and relationships with people they know and trust as they do business. Thus, working with a Mexican attorney can facilitate business transactions in informal, yet important, ways going beyond legal requirements.

Mexican legal education and licensing are different from those processes in the United States. In Mexico, there are two levels of attorneys. At the first level, a student of law obtains a five-year degree in law. (This is roughly equivalent to the four-year undergraduate programs in the United States.) After passing courses and oral exams at his or her university, the prospective attorney becomes a licenciado and abogado (attorney). (The term licenciado is applied to graduates of various programs of study at that level in Mexico, not just law. Mexican abogados do not take a bar exam such as the exam required of U.S. attorneys in most states.) The abogado can practice law in any part of Mexico. The abogado 's powers are limited, however, and many kinds of significant legal transactions, such as transfers of real property, can be handled only by a notario público. Although the words notario público translate literally to "notary public" in English, the notario público is not at all the equivalent of the notary public in the United States. The notario público has received advanced education and training beyond that of an abogado and has been appointed to serve in a specific geographical area within one of Mexico's states. He or she can move to another part of that state or to another state in Mexico only by applying and competing for another opening in that new location.

THE MEXICAN POLITICAL AND LEGAL
SYSTEMS

Mexico has a federal system of government with a national government and 31 states. Mexico's national government, however, is far more powerful than those of the United States and Canada.

Mexico's president plays an extremely important role in its legal system. Nearly all federal laws in Mexico are initiated by the president, and his powers (there has been no woman president in Mexico) are such that most laws he proposes are passed with little or no alteration. Further, the president, as the leader of the powerful PRI (the political party of every Mexican president elected since 1928), plays a strong role with respect to policy and enactment of law in the various Mexican states. (PRI stands for the Partido Revolucionario Institucional, or Revolutionary, Institutional Party.)

The structure of Mexico's court system is similar to that in the United States. In each state there are trial and appellate courts. The federal level includes trial courts, circuit courts of appeal, and a Supreme Court. The Supreme Court is divided into four "chambers" with five justices each. Each chamber handles one of four areas of law: criminal, administrative, civil, or labor. It is important to note, however, that the role of the courts in a civil law system such as Mexico's differs from the role of courts in a common law system. In a civil law system, attorneys and judges look to sets of codes in which statutes are set down as their primary source of law. In contrast, in a common law system, attorneys and judge rely on statutes and rules of law and their interpretation as they are set down in prior-written court opinions.

OVERVIEW OF MEXICAN LAW

The most important legal document in Mexico is its federal constitution, which is the basis for all of Mexican law. The current constitution is the 1917 Political Constitution of the United Mexican States (Constitución Política de los Estados Unidos Mexicanos). Although the constitution contains many provisions that parallel guarantees found in the U.S. Constitution, such as the right to due process, there are important philosophical differences underlying the two documents. The Mexican Constitution is far longer than that of the United States. It includes economic, social, and cultural rights of the Mexican people and calls for a federal government that takes an active role in promoting those rights. Many of the specific provisions of Mexico's constitution are so detailed that in the United States they would be covered through legislation rather than in the constitution itself.

Mexico's current constitution, which was adopted in 1917, was a product of the Mexican Revolution of 1910-17. The Mexican Revolution followed a period of history from 1877 to 1911 known as the Porfiriato for the ruler of Mexico at that time, Porfirio Díaz. During the Porfiriato , Díaz and very few other Mexican people lived in wealth at the expense of the poor, attempting to emulate the lifestyles of the rich in France and the United States. Díaz encouraged and facilitated extensive foreign investment and involvement in Mexico's economy, and he governed the country with an iron hand. There was little or no social or political mobility. Mexican citizens resented foreign ownership of Mexico's railroads and extensive foreign control over Mexico's mining and oil industries.

The revolution ended these social inequities, and led to sweeping changes. Various crucial sections of the constitution of 1917 were written in reaction to the Díaz era. Among such provisions were Article 27, dealing with agrarian reform and the use and ownership of land, and Article 123, dealing with labor and social reform. Both articles have maintained their importance as Mexico moves into a new era and new economy pursuant to NAFTA.

Article 27 gives the Mexican government the power to expropriate private property for public use, and gives all subterranean land—including all minerals, gases, and hydrocarbons—to the Mexican government. It also prohibits foreign ownership of any land within 100 kilometers of Mexico's border and within 50 kilometers of Mexico's shoreline. Further, the Mexican nation itself has control over the transfer of land to private persons. The objective of Article 27 was to break up the monopolies on land, water, and natural resources held by a privileged few.

As a result of Article 27, large parcels of land formerly owned by rich individuals, companies, and religious organizations were taken over by the Mexican government. Many of the lands were converted to use as ejidos. Ejidos are blocks of land that are operated and farmed by Mexican families who have resided on those lands since the implementation of the 1917 constitution.

Prior to the early 1990s, ejidos were viewed as a major block to investment in Mexico because, pursuant to Mexican law, such land could not be sold or leased to others. In addition, economists argued that small parcels of land farmed by people on ejidos contributed to low productivity. Therefore, in 1992, the Mexican government amended the 1917 constitution to permit the sale or lease of ejido lands. Use of this new legal option, however, has not been a simple process. In general, titles to the land do not exist; the land has simply been used by peasant families since the 1920s. This has resulted in several kinds of problems. It is difficult to transfer land because officials are unable to establish ownership. In other cases, land parcels have been transferred and payments made to those who must leave as a result of the transfer. Unfortunately, payments are minimal and are usually insufficient for peasant farmers and their families to establish themselves elsewhere. Further, it is reported that many peasant farmers are simply being pushed from the land, unable to establish sufficient claim to share in payments being made. Thus, acquisition of land by investors can be a difficult, politically controversial project.

Article 123 of the 1917 constitution places nearly all labor matters under federal jurisdiction. Article 123 will be discussed below in conjunction with discussion of Mexico's labor laws.

The remainder of this essay will review three areas of Mexican law that are of particular importance to businesses: (1) investment law, (2) labor law, (3) and environmental law.

MEXICO'S INVESTMENT LAWS

HISTORICAL DEVELOPMENT.

In reaction to the regime of Porfirio Díaz, the Mexican Constitution of 1917 reserved control of land ownership and the exclusive rights to petroleum and other minerals to the Mexican federal government. Thus, throughout most of the 20th century, Mexico has been functioning under a constitution that severely restricts foreign investment. Restrictions have been loosened in the 1990s, however, in preparation for and as a part of NAFTA.

In 1973 the Law to Promote Mexican Investment and Regulate Foreign Investment (also known as the Foreign Investment Law) was passed. It mandated that Mexican enterprises could have a maximum of 49 percent foreign ownership. Thus, the rule became known as the "51-49 percent rule." In 1984 the law was changed to allow majority foreign ownership of Mexican corporations in certain industrial and tourism-related industries. Such investment, however, was slow and cumbersome and was permitted only with the approval, on a case-by-case basis, of the Mexican Foreign Investment Commission (FIC).

Moving into the 21st century, the FIC continues to oversee and regulate foreign investment in Mexico, but restrictions on investment have been eased considerably. Under new regulations established in 1989, with the exception of specified industries, foreign investment in Mexico in amounts less than US$100 million could proceed without prior approval from the FIC, and those limits are being raised gradually.

THE MAQUILADORA PROGRAM.

The maquiladora program represented a major step by Mexico toward opening its borders to foreign investment. The program was started in 1966, but was not officially authorized by Mexican law until 1983. Under the program, a foreign company may establish a manufacturing facility in northern Mexico and can import equipment, components, and materials to Mexico duty-free, provided that a substantial percentage of the goods produced are exported from Mexico. A plant that operates under the program is called a maquila, and the legal structure for the manufacturing program is the maquiladora. Most maquilas in Mexico are operated in conjunction with a twin plant across the U.S. border. Thus, labor intensive production is done in the Mexican plant, while other aspects of production, marketing, and distribution are handled by the plant in the United States. The 1983 Mexican law required that maquilas export at least 80 percent of their production, but new regulations in 1989 allowed up to 50 percent to be sold in Mexico under certain conditions. Beginning in 1994, maquiladoras are allowed to sell all or part of their production directly into the Mexican market. This is being accomplished with a phase-in period. Starting in 1994, a plant was allowed to sell 55 percent of its previous year's production directly into the Mexican market. The phase-in ends in 2001, when 100 percent of the production of the year 2000 can be sold directly into the Mexican market. (It should also be noted that maquilas are also required to export their hazardous wastes generated in the production process to the home country of the investor or business. This requirement is set down in a bilateral agreement between the United States and Mexico.)

For Mexico, the maquiladora program has generated much needed employment. As of 1990, there were approximately 1,500 maquilas operating in Mexico; as of 1999 there were at least 3,000 maquiladoras. U.S. businesses benefit from low labor costs in Mexico and duty-free export of the product from Mexico. Special U.S. tariff schedules place a duty only on the value added by Mexican components and labor. This reduction in tariff costs was a major benefit to U.S. companies operating maquiladoras prior to 1994. It has decreased in significance, however, as the United States, Mexico, and Canada phase out tariffs among themselves pursuant to NAFTA.

NEW POLICIES, LAWS, AND
REGULATIONS

Under the leadership of Carlos Salinas de Gortari, who served as president of Mexico from 1988 to 1994, Mexico negotiated and approved NAFTA with the United States and Canada. During the Salinas administration, several provisions of the Mexican Constitution were amended and new statutes and regulations were passed to facilitate Mexico's move from a protectionist economy to a global one. President Ernesto Zedillo Ponce de León took office in January 1994 and has continued the economic policies instituted under former President Salinas de Gortari.

Under President Salinas, major changes facilitating foreign investment were made in at least four areas. First, Mexico's new agrarian laws included provisions allowing for foreign ownership of land that was formerly communally owned. Second, amendments to Mexico's copyright law and a new industrial property law were passed in order to promote investment and prevent unfair competition . The changes also permit joint ventures between landowners and private investors to develop the land for industry or for farming. Third, hundreds of businesses owned by the Mexican government were "privatized," that is, they were sold to private investors. Privatization of those businesses raised funds that were used to help stabilize Mexico's economy. Fourth, foreign investment regulations issued in 1989 amended the 51-49 percent rule that limited foreign investment in an enterprise to 49 percent, allowing up to 100 percent foreign ownership in specified areas. Restrictions were further loosened in the 1993 Foreign Investment Law and in a decree published in 1996. (A decree in Mexico is similar to a set of regulations promulgated by an administrative agency in the United States. The decree creates law.)

Under the 1993 law and the decree of 1996, foreign investments are classified as: (1) reserved to the State of Mexico; or (2) open to foreign investment in amounts up to 10 percent, 25 percent, 30 percent, 49 percent, or more than 49 percent. More than 49 percent ownership by the foreign company, however, requires prior FIC approval. Areas in which investment is still reserved exclusively for the Mexican government include, but are not limited to, the following: petroleum and other hydrocarbons; generation of nuclear energy; mail service; railways; issuance of banknotes; minting of coins; and control and supervision of ports, airports, and heliports. Up to 10 percent foreign investment is allowed in production cooperatives. Up to 25 percent foreign investment is allowed in firms providing domestic air transportation and air-taxi transportation. Up to 30 percent foreign investment is allowed in areas including, but not limited to: nationwide banking institutions; securities firms, and stock exchange services. Areas open to up to 49 percent foreign investment include, but are not limited to: insurance companies; bonding companies; factoring companies; firms that print and publish periodicals for national distribution; and ancillary railway services including operation of terminals, engine and car repairs, and loading and uploading services.

NAFTA'S LIBERALIZING EFFECT.

NAFTA eliminates or lessens restrictions on many kinds of investment by U.S. and Canadian citizens and businesses in Mexico. (U.S. or Canadian investors in Mexico are referred to as "NAFTA investors.") Areas where increased opportunities for investment have been created include automotive goods, energy-related services and goods, transportation services, and financial institutions.

When NAFTA became effective on January 1, 1994, Mexico immediately removed investment restrictions to allow "NAFTA investors" to invest up to 100 percent in Mexican "national suppliers" of parts. Up to 100 percent foreign ownership of other auto-parts businesses was allowed as of 1999.

Pursuant to NAFTA, the Mexican state reserves to itself exclusive control of investments in oil, gas, refining, basic petrochemicals, electricity, and nuclear energy. But NAFTA creates opportunities for NAFTA investors in "nonbasic" petrochemical goods and in cogeneration and independent power production.

New opportunities for investment in bus and trucking services were created under NAFTA, also. As of 1997, Mexico allowed NAFTA investors to hold up to a 49 percent investment in bus companies and truck companies that provide international cargo services. That percentage is being increased gradually until 2004, when Mexico will permit 100 percent ownership of such companies by NAFTA investors. As of January 1, 1994, Mexico began to allow NAFTA investors to own 100 percent of port facilities such as cranes, piers, and terminals for their own cargo. For businesses handling other companies' cargo, 100 percent ownership by NAFTA investors is allowed contingent upon approval by the FIC.

Under NAFTA, Mexico allows financial institutions organized according to the laws of the United States or Canada to establish such institutions in Mexico. Certain market share limitations were applied initially, but they were phased out by the year 2000. Mexico is increasing its limits on foreign investment in banking (based on an aggregate market share) to 15 percent by 2004. For securities firms, the limit will increase to 20 percent by 2004. NAFTA investors will be permitted to invest in Mexico in two ways. First, they may participate in joint ventures with Mexican insurers, with a phase-in period that reached 100 percent by the year 2000. Second, insurers from the United States or Mexico may establish subsidiaries , which will be subject to limits on market share that will be phased out gradually. Those limits were eliminated as of January 1, 2000.

MEXICO'S LABOR LAWS

Mexico's labor laws include extensive rights for workers, and, in theory, are designed to provide a mechanism promoting a "just" society. Some of the constitutional provisions do give workers rights and protections that U.S. businesses are not required to provide to their employees in the United States. Actual application and operation of Mexico's guarantees, however, does not always live up to the words of the Mexican Constitution and its statutes. Thus, a description of Mexico's labor laws, such as is given in the paragraphs below, does not provide an accurate picture of actual working conditions for most Mexican workers. Most of Mexico's workers receive insufficient incomes to support their families comfortably, and many work under conditions that threaten their health or safety on a daily or long-term basis. Further, certain guarantees can be circumvented. For example, it is said that Mexican employers avoid hiring women in many cases in order to avoid paying maternity and child-care benefits.

The cornerstone of Mexico's labor laws is Article 123 of the constitution of 1917. Article 123, entitled "Labor and Social Security," was written in response to conditions under the regime of Porfirio Díaz, during which working conditions were abysmal and unions and strikes by workers were suppressed with violence. Article 123 states that every person "is entitled to suitable work that is socially useful. Toward this end, the creation of jobs and social organizations for labor shall be promoted in conformance with the law." Article 123 provides various protections and guarantees to workers, including an eight-hour work day, a maximum workweek of six days, equal pay for equal work, and mandatory childbirth and maternity leave. Mexico's Congress is authorized to enact laws to implement these guarantees and protections and is directed to establish a minimum wage with the authority to consider occupation and geographical areas. According to Article 123, workers are entitled to double pay for overtime work. Also, employers are required to provide employees with a safe workplace and disability pay for work-related injuries. Further, workers are guaranteed the right to form unions and bargain collectively. Workers' rights to organize strikes are recognized, and the rights of employers to impose a lockout, under certain conditions, are recognized. A provision that is unexpected by most U.S. businesspeople is that workers are legally entitled to an 8 percent share of the taxable income of their employers. A second section of Article 123 guarantees the rights of government employees, giving them most of the same rights given to other Mexican workers, although there is no right for them to join unions.

Pursuant to Article 123, all Mexican workers are protected from arbitrary dismissal (unjustifiable discharge). Thus, to some extent, job security is constitutionally guaranteed to the Mexican people. If a business is sold, the new owner must adhere to any existing contract with the workers. These provisions and others in Article 123 illustrate that Mexico's 1917 Constitution is far more detailed than that of the United States, and, for its time, it set forth remarkably progressive social goals and policies.

Various federal labor "decrees" supplement the provisions of Article 123 of Mexico's constitution. The most extensive of these is the Mexican Federal Labor Act of 1970 (FLA), which is a lengthy, detailed statute strengthening the constitutional rights of Mexican workers and placing additional restrictions and duties on employers. Collective bargaining agreements are enforced with the same force as if they were law. A collective bargaining agreement may contain a "closed shop" clause, so long as it is not applied against nonunion workers who were employed prior to the adoption of the agreement.

There are more than 20 million workers in Mexico. Observers say that between 30 and 70 percent of Mexico's workers are unionized. The FLA provides that upon a showing of a minimum of 20 workers, workers can form a union that must be recognized by the employer. Unionization is more prevalent in manufacturing than in service-related work. Most Mexican unions are affiliated with regional or national federations, the largest of which is the Mexican Workers Confederation (Confederacion de Trabajadores Mexicanos, or CTM). It is estimated that up to 70 percent of all unionized workers in Mexico are affiliated with the CTM.

Although unions are prohibited by statute from "interfering in political matters," in practice that prohibition is ignored. Most trade unions in Mexico work closely with the dominant PRI political party. The PRI has won all presidential elections since 1928, and it has won most Mexican state elections since then also. The CTM rallies labor support for the PRI and is viewed as a significant factor in the PRI's steady record in maintaining political control in Mexico.

Through legal and political mechanisms, Mexico's government maintains a significant degree of control over union operations and affairs. Mexican law requires that labor unions and their leaders be recognized by the government. Thus, independent labor unions can exist, but they are at a disadvantage in dealing with government because often they are not recognized by the Ministry of Labor. On the other hand, a union that is recognized by the PRI and that has leaders who support the PRI has distinct advantages. The CTM was formed in the 1930s by Fidel Vásquez, who led the union until his death in 1997 at the age of 97. Under the leadership of Vásquez, the CTM has worked closely with the PRI political. Various pactos (agreements) between the CTM and the Mexican government have, over the years, promoted the stability of Mexico's government and ensured the success of CTM's initiatives, such as NAFTA.

A labor leader can maintain his or her position and power in the union by maintaining close ties with the PRI. Leaders of the CTM who cooperate with the PRI are often offered positions within the federal government as well as in state and local government. Further, there are many reports regarding union leaders who have received substantial bribes from managers, contractors, and others as a result of their public positions.

Collective bargaining agreements generally include provisions on grievance procedures and job security, and they set wages and fringe benefits. Although most agreements set wages that are somewhat higher than the minimums set by Mexican law, even wages agreed upon through collective bargaining are generally only 20 percent (or less) of the amounts typically paid for similar work in the United States. As of 1949 minimum wages set by the Mexican government equaled only about US$2.60 per day, although rates are higher in the U.S.-Mexican border region. During the 1980s and early 1990s, wage agreements were consistently negotiated at levels significantly below the rate of inflation in Mexico. (Mexico experienced severe inflation in the late 1980s, which peaked at a rate of about 150 percent around 1986-87.) Those inflation rates have slowed in the late 1990s to rates averaging between 10 and 15 percent annually, but wages remain very low in Mexico as compared to in the United States. Therefore, U.S. businesses are attracted to Mexico to take advantage of low labor costs.

In theory, a U.S. business establishing a manufacturing facility within Mexico can choose its own workers. In practice, however, at least in some cities, political pressures will be such that the U.S. business is compelled to work with the local union and the PRI and to hire workers chosen by the union.

OVERVIEW OF MEXICO'S
ENVIRONMENTAL LAW AND
ENFORCEMENT

In recent decades, Mexico has been considered a "pollution haven" for companies wishing to avoid the more stringent federal and state environmental laws and enforcement in the United States. The worst offenders appear to be the maquiladora factories located along the U.S.-Mexican border. Pursuant to the maquiladora program, raw materials are brought from the United States and assembled in the Mexican plant, with the final product shipped back to the United States. Cancer and birth defect rates are notoriously high in both northern Mexico and in U.S. cities across the border from the plants as a result of air and water pollution.

U.S. companies contemplating doing business in Mexico should be aware that enforcement of Mexican environmental laws and regulations has become more vigorous since 1988, and that trend is expected to continue. From 1988 to 1993, Mexico's environmental enforcement budget increased from US$6.6 billion to US$77 billion, and the number of Mexican environmental inspectors in the border area was increased from 50 to 200. During the six years preceding 1993, environmental compliance inspections resulted in orders closing about 2,000 facilities temporarily for noncompliance. Between June 1992 and early 1994, Mexican officials conducted more than 16,000 inspections of industrial facilities, 2,400 of them in the area of Mexico's border with the United States. Over 100 facilities have been closed permanently, including a large PEMEX plant near Mexico City. (PEMEX is the Mexican government-owned business that controls the production and sale of petroleum products throughout Mexico.)

In 1992 the United States and Mexico agreed to a comprehensive plan to clean up environmental contamination along the 2,000 mile U.S.-Mexican border. They committed a total of about $700 billion to programs to improve pollution control, strengthen environmental enforcement, and increase planning and education. In 1993 Mexico obtained a $1.8 billion loan from the World Bank to strengthen its enforcement of environmental laws in the border area.

In response to concerns about the massive environmental problems in the U.S.-Mexican border area, the United States and Mexico entered into two additional agreements that were approved in conjunction with NAFTA. The agreements establish a North American Development Bank (NAD Bank) and a Border Environmental Cooperation Commission (BECC). The NAD Bank provides financing for environmental infrastructure in the border area. The United States and Mexico are each contributed US$56 million in paid in capital for each of the first four years of operations. The BECC works with states, local governments, and nongovernmental organizations to provide technical and financial planning.

PROVISIONS OF MEXICO'S
ENVIRONMENTAL LAWS

Mexico's Código Ecológico, known in English as the "General Ecology Law," was adopted in 1988. It is a comprehensive environmental statute addressing water, air, and ground pollution; resource conservation; and environmental enforcement. The General Ecology Law was modeled on U.S. environmental laws, and its provisions closely parallel those of the Clean Air Act, Clean Water Act, and Resource Conservation and Recovery Act (which regulates handling and storage of wastes). For example, in the area of waste disposal, Mexico's regulations require that generators of waste register with the Registry of Hazardous Waste Generators. They must also store, handle, and label hazardous waste in accordance with government standards. Mexican law requires that polluters pay for cleanup of industrial waste sites, although that requirement, to date, is not actively enforced. Mexico, however, does not have community right to know and emergency planning and response provisions such as those included in the 1986 amendments to the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, also known as Superfund).

It must be noted, however, that Mexico is in its infancy in terms of environmental enforcement as compared to the United States. As of 2000, the General Ecology Law is only 12 years old, and there has been a lot of restructuring over those years. On the positive side, the General Ecology Law was amended in 1992 and its accompanying 83 sets of environmental standards (that function like regulations promulgated by the U.S. Environmental Protection Agency [EPA]) were reevaluated and reissued. One hundred or more additional standards are being issued. In addition, the 31 Mexican states have been directed to establish "delegations" to establish regional environmental policies. Most of the states had done so as of 1999.

During its short history the General Ecology Law has been administered by various agencies. The law and regulations implementing it were placed under the jurisdiction of the Secretary of Urban Development and Ecology (SEDUE) in 1988. In 1992 SEDUE was abolished and enforcement and administration of the General Ecology Law were also restructured and placed under the Secretariat of Social Development (Secretar-a de Desarrollo Social). Also in 1992, the Procurarduria Federal De Proteccion al Ambiente (Federal Attorney General for Environmental Protection) was created. Further restructuring followed in 1997 with the creation of the Secretariat of the Environment, Natural Resources and Fisheries (SEMARNAP), a new agency charged with enforcement of the General Ecology Law. At the present, the Instituto Nacional de Ecología (INE, known in English as the National Institute for Ecology), an arm of SEMARNAP, is responsible for formulating environmental policy and setting regulations implementing the General Ecology Law. It also issues standards, known in English as "NOMS," which stands for "Normas Oficiales Mexicanos." The Federal Attorney General for Environmental Protection is responsible for enforcement of the law and regulations implementing it.

All industrial facilities, including maquiladoras, must comply with Mexico's environmental registration, licensing, and reporting requirements. The Mexican attorney general's office carries out inspections and works with the INE to decide how to handle cases in which a company is not in compliance with environmental laws.

It should be noted that Mexico's environmental laws are becoming more accessible to U.S. businesspeople due to the efforts of the Commission for Environmental Cooperation (CEC). That commission, which was established by the United States, Mexico, and Canada pursuant to the Environmental Side Agreement to NAFTA, is in the process of compiling the environmental laws of the three countries. That information is becoming available to businesspeople and their attorneys through the Internet, first in English, and later in Spanish and French.

All industrial facilities, including maquiladoras, must comply with Mexico's environmental registration, licensing, and reporting requirements. In order to operate legally, each facility must obtain an environmental operating license. The application for such a license must be accompanied by a statement describing the facility's potential impact on the environment. The attorney general has the authority, based on information in that statement, to require that a full environmental impact study be conducted as a precondition to issuing the license.

The General Ecology Law regulates air pollution from both stationary sources (such as industrial facilities) and mobile sources (such as automobiles and buses). For industrial facilities, the General Ecology Law establishes ambient air quality standards called Maximum Permanent Levels that are identical to those in the U.S. EPA's National Ambient Air Quality Standards. Mexico uses a source permitting system that is administered by the federal SEMARNAP. This regulatory structure differs from that used in the United States where, under the Clean Air Act, air quality attainment is administered pursuant to State Implementation Plans. Mexico's standards for many chemical emissions, such as sulphur dioxide, are much lower than those set by the EPA. It is in the process, however, of developing higher standards.

The General Ecology Law regulates water pollution resulting from a wide range of activities including: (1) releases from municipalities and industrial, agricultural, and livestock activities; (2) use of pesticides and fertilizers; (3) use of toxic substances at industrial facilities; (4) solid waste dumping; and (5) discharges seeping into aquifers. It should be noted that unlike U.S. federal environmental law, Mexico's law also applies to discharges into groundwater. SEMARNAP is in the process of developing regulations covering wastewater treatment facilities. (A lack of such facilities is a major problem throughout Mexico at present.)

Mexico's regulation of hazardous wastes is similar to regulation in the United States pursuant to RCRA. Hazardous wastes and even raw materials must be stored according to the INE's regulations. Any plant generating wastes considered to be "hazardous" must obtain a generator's license and number from the attorney general. Mexico regulates the handling and transportation of hazardous materials, products, or wastes in a manner that is similar to the "Manifest" system used in the United States pursuant to RCRA. In Mexico, each shipment of hazardous materials must be accompanied by an "Ecological Waybill" that is used to document the shipment's contents, its handling, and its destination. Each industrial facility must keep a permanent record of all hazardous materials on its premises. Companies generating hazardous waste must file a report every two years with Mexican officials. As of 1999, however, Mexico's hazardous waste disposal system is in complete disarray. As of 1999, there was only one licensed hazardous waste disposal facility in all of Mexico. The site, located in Nuevo Len, is located 12 hours (by truck) north of Mexico City. Tens of millions of dollars have been spent by U.S. companies trying to develop and obtain licenses for seven major waste-treatment facilities at various locations in Mexico, all have been canceled or delayed indefinitely.

CONCLUSION

As U.S. businesses increase their trade with Mexico and locate their facilities within Mexico, an understanding of Mexican law and Mexico's legal system is crucial. Further, as the economies of the two countries become increasingly intertwined thanks to NAFTA, changes in Mexico's laws and more stringent enforcement of Mexico's existing laws are becoming the norm.

SEE ALSO : Mexico, Doing Business in

[ Paulette L. Stenzel ]

FURTHER READING:

Avalos, Francisco A. The Mexican Legal System. New York: Greenwood Press, 1992.

Bartow, Ann M. "The Rights of Workers in Mexico." Comparative Labor Law Journal 11 (1990): 182-202.

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