Last February 05th, 2024, a series of initiatives were presented by the Federal Executive of Mexico, with the purpose of amending the Political Constitution of the United Mexican States; one of these initiatives is the “Decree by which several provisions of the Political Constitution of the United Mexican States are reformed, regarding the right to food, healthy environment and right to water.”, in the initiative and the included “Diagnose”, the Executive mentions that “The residues produced by open pit mining, are not only solid residues, and are also composed of residual waters, which extend to farther areas”.
Likewise, it refers an investigation work entitled as “Enclave extractivism and open pit mining: impacts and socio-environmental consequences.”
It is important to note that the referred “Diagnose” and the investigation work in which the constitutional amendment is bases, only refer and take as example the extraction of gold, leaving aside the importance for Mexico of diverse minerals such as copper, which is mainly produced in open pit operations, which position our country as a world leader in production of such minerals, that are by the specifics of the mineral deposits produced precisely in open pit operations. This technical analysis has been omitted in the initiative.
The main amendments are aimed at:
- Prohibit granting of concessions for open-pit mining in minerals, metals and metalloids.
- Establish sanctions for those who carry out open-pit mining activities.
- Within the transitory provisions, it is proposed that contracts, concessions, permits and authorizations granted to individuals prior to the entry into force of the Decree, in terms of the law, are to be respected.
Thus, following the legislative procedure, on August 15, 2024, the Constitutional Points Commission of Congress endorsed this constitutional reform initiative that intends to prohibit open-pit mining.
However, in addition to the above, a reservation presented by Deputy César Agustín Hernández (Morena) was also approved so that open-pit mining may be authorized “in those cases exceptionally determined by the Federal Executive… due to its strategic nature for national development”.
In this sense, the reform initiative that prohibits open-pit mining generates great uncertainty in the mining industry, mainly in the area of investments and previously acquired rights.
On an international level, this reform initiative could generate potential conflicts under the CUSMA, to which Mexico is a party, derived from Chapter 14 on investment, which includes provisions on National Treatment, Most Favored Nation Treatment and Minimum Standard of Treatment that prohibit preferential treatment to public companies over private investors from other countries.
These types of clauses in the CUSMA protect investors against measures that could affect their operations and property, as well as rights acquired prior to the enactment of reforms.
In that sense, the intended reform could infringe the commitment to maintain the conditions of openness agreed to when signing the CUSMA, which could result in arbitration claims or trade sanctions by Canada or the United States.
Thus, although the prohibition in question is said not to affect existing concessions, it could infringe the commitment to maintain the conditions of openness agreed upon when signing the CUSMA agreement, to which it should be added that the negative effect will be determined until the harmonization of the legal framework referred in the transitory provisions of the decree is performed, as example, those concessions granted prior to the reform which do not have a valid environmental permit for construction of open pit mining projects.
Now, at the local level, the reform initiative could also be considered unconstitutional, for the following reasons:
a) Infringement of principles of competition and free concurrence, as provided in Article 28 of the Mexican Constitution, since it would be establishing a regime with monopolist practices that attempt against such principles; practices that are expressly prohibited by the aforementioned legal precept.
Thus, the commercial activities in which the Government actively participates and competes with the private sector must not generate a competitive advantage or disadvantage justified by its original ownership and direct control.
In this regard, the reservation made to the reform initiative, aimed at allowing the Federal Executive to exceptionally determine cases in which open-pit mining is allowed, clearly infringes the principles mentioned above as it allows arbitrary and discretional exceptions.
b) Transgression of the principle of legitimate trust. This principle compels the authorities not to vary the conditions of their acts, with the purpose of protecting the governed from arbitrary and unexpected decisions that could violate their legal security and cause legal uncertainty.
The purpose of this principle is to ensure the stability and preservation of rights of the governed in order to provide them with legal certainty regarding possible arbitrariness in which the authorities may incur and which may affect future acts.
Thus, although the Government has the capacity to modify its regulations when the needs or convenience so require, the fact is that these modifications must be duly justified.
Acting contrary to the aforementioned principle will affect business decisions, commercial strategies, financial planning and future business that had been designed in accordance with the previous mining legislation.
Therefore, the prohibition in question clearly affects the stability generated in mining companies, causing arbitrariness with repercussions in economic aspects, commercial strategies and financial planning.
Thus, the prohibition of open-pit mining is clearly an arbitrary and untimely measure that affects the confidence that investors had in our country and in turn affects their future business plans in Mexico.
c) Failure to pass the Proportionality Test, which establishes that legislative changes must comply with the following criteria:
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- Pursue an objective and constitutionally valid purpose;
- Be adequate or rational, as an apt and useful mean to lead to the end or objective as pursued; and,
- To be proportional, respecting a correspondence between the importance of the end sought by the prohibition and the detrimental effects it produces on other constitutional rights and interests.
Thus, from the reading of the motivation exposition of the reform initiative, it is not clear that it complies with such required criteria.
d) Infringement of the principle of non-retroactivity of the law, provided in Article 14 of the The foregoing, since the prohibition under study modifies and/or alters previously acquired rights, which arose under a previous law.
Notwithstanding the fact that there are mining projects that do not currently have the corresponding authorizations, since they have not been issued by the authorities, as long as the required applications and procedures had been filed under a law prior to the bill under study.
From the above, in the event that the constitutional reform is approved, the mining concession owners shall have several judicial recourse to defend their rights, as well as the dispute resolution mechanisms under CUSMA, which undoubtedly will be on the discussion topics in the nextr review stage of the CUSMA.
