Mexico amends several federal provisions on administrative matters

Mexican President Andrés Manuel López Obrador has presented a draft decree which, by amending, adding and repealing various provisions aims to strengthen and safeguard the general, public and social interest, as well as to protect national security and the state’s sovereignty.

The foundation for the reforms is the National Development Plan 2019-2024. Implicit in the draft decree is criticism of the concept of Mexican developmentalism, since, as explained by President López Obrador, this economic theory reduces the state’s participation and limits it to "residual" functions.

To achieve the decree’s purpose, three objectives need to be met:

1. Reversing acts of corruption
2. Preventing acts detrimental to the public interest or that may cause damage to the national treasury
3. Strengthening the Federal Public Administration.

In light of the foregoing, the following is a brief summary of some of the potential coming reforms to federal laws:

Nullity proceedings

The amendments to the federal administrative nullity procedure aim to establish that it is applicable when an administrative act is issued without meeting the elements of validity set forth in the Federal Law of Administrative Procedure (LFPA) and the scope of the effects of the declaration of nullity, considering them invalid and irremediable acts.

Administrative revocation

The LFPA is being amended to establish grounds for the revocation of concessions, permits, authorizations or licenses, those supervening events that affect the public, general or social interest, or cause some type of economic, social, environmental or any other type of imbalance. This amendment also provides for the possibility of modifying the administrative act establishing new conditions that the holder of the concession, permit, authorization or license must comply with. A very broad enabling clause is granted to the executive power to invoke these grounds to revoke an enabling title.

The potential effect of this reform is a significant extension of the revocation power.

Exorbitant clause

Because rhe exorbitant clause has been omitted in several public contracts, it is proposed to amend the Public Sector Procurement, Leasing and Services Law (LAASSP) to establish an obligation to include an early termination clause for reasons of public interest in contracts entered into by agencies and entities of the Federal Public Administration at the national and international level.

The justification for the reintroduction in practice of the clausula exorbitante is based on the premise that the state will at all times ensure the general welfare, without considering such cncerns as efficiency, administration of resources, legal certainty and security. This could potentially create grounds for unilateral early termination in favor of the state to the detriment of the legal security of the tate's contracting counterparty.

Judgment of nullity

The use of trial of lesivity[1] is foreseen as a necessity to combat illegal acts carried out by previous public administrations.

Trial of lesivity has already been contemplated in federal administrative and tax procedural legislation.  This reform introduces a specific definition of trial of lesivity and clearly establishes that any authority of the federal public administration has active standing to resort to it to combat acts that are deemed to be illegal.

Indemnifications

The government’s position is that the current administration inherited jurisdictional procedures promoted in Mexican and foreign instances in which counterparties demanded or claimed the compliance of contracts, concessions, permits, authorizations or goods granted in "appearance of good right", or the payment of disproportionate compensations.

In the international context, the exponential growth of international arbitration proceedings against the Mexican state is noted.  Between 2011 and 2019, the amounts paid for indemnities increased by 500 percent.

Therefore, the draft decree established limits in the General Law of National Property (LGBN), the Federal Law of Patrimonial Responsibility of the State (LFRPE), the Expropriation Law (LE) and the LFPA in relation to the amount of compensation to be paid by the Mexican state.

It should be noted that the Mexican state has acquired international commitments in various treaties that cannot be modified unilaterally through internal legislative changes. Therefore, if such limits were to be included in the legislation, they could violate the international obligations of the Mexican state already set out in existing bilateral or multilateral investment or trade treaties. 

Public bids

The draft decree assumes that national companies have allegedly manipulated entire commercial sectors, forcing the state to acquire goods at disproportionate prices on the national market. Therefore, the Public Sector Procurement, Leasing and Services Law LAASSP is amended to allow the acquisition of goods through international public bids.

Public officials transitioning to the private sector

The draft decree addresses what happens when persons who were public officials leave their position to enter into a working relationship with private individuals with whom they have had a direct relationship during their public service.  is the draft decree definitively concludes that such former public officials are acting for the benefit of the private individuals and for their own personal benefit, and not in compliance with the duty of loyalty and honesty as a public official required by law.

Therefore, the General Law of Administrative Responsibilities (LGRA) is amended to establish terms that limit contracting between specific subjects: former public servants who have separated from their public employment, position or commission and the private parties they supervised, regulated or in favor of which contracts and administrative acts were issued or authorized. These limitations also apply when the experience/knowledge of the private servant would benefit the private party in the market or would give that private party an advantage compared to its competitors.

Such limitation is intended to be proportional to the degree of responsibility acquired by the public servants during the performance of their employment, position or commission. Thus, the greater the degree of responsibility, the greater the time that he/she would be prevented from working in such private-sector organizations.

In support of the foregoing, the amendment to Article 72 of the aforementioned law proposes the following terms to limit the hiring of former public servants:

Position	General directorate, management equivalent	Equivalent legal administrative unit	Equivalent undersecretariat		Equivalent secretariat	Presidency
Years	4	6	8	9		10

 

Limits to the remuneration of public servants

In order to consolidate the obligation to apply constitutional limits to the remuneration of public servants, it is proposed to amend several provisions of various laws that regulate the judiciary and the autonomous constitutional bodies.

The subject matter of the reform has already been the object of a pronouncement by the Mexican Supreme Court of Justice.  If the reform becomes law, it will certainly be challenged on the same legal grounds and factual reasoning.

Strengthening of the Federal Public Administration and sectorization of parastatal entities

At this point, it is important to highlight that the logic of the reform is to limit the creation of decentralized agencies, with technical and management autonomy, which in fact seeks to interrupt the development of the regulatory state model, strengthening verticality in decision making and the possible return to the double window,[2] which would affect the development of highly specialized bodies and agencies.

The reform proposes to modify the Organic Law of the Federal Public Administration (LOAPF) to broaden the possibilities of sectorization of parastatal entities, in order to ensure that they obey the public interest.

Administrative recovery of real estate

It is highlighted that the procedure for the recovery of property subject to the public domain regime by administrative means lacks agility for the Federal Public Administration to obtain its immediate possession when it is derived from a procedure related to the termination of an administrative act by which its legitimate occupation was held, as well as when an illegal use is made by private parties. Therefore, it is proposed to amend the General Law of National Assets (LGBN), to create an expeditious procedure for the recovery of the aforementioned assets.

The aforementioned administrative recovery is intended to be a much more agile procedure compared to the traditional judicial process, since the administrative procedure contemplates:

1. Agreements, such as conciliatory agreements, which may be entered into at any time by the state, with private parties, the authorization of provisional use of real estate while the procedure is being concluded, and
2. A final delivery term which cannot be longer than 72 hours.

Advance payments

To guarantee the right to health, it is proposed to include the possibility of granting advance payments in excess of 50 percent in the acquisition of medical equipment, equipment for national security or public safety, as well as machinery for the development and maintenance of infrastructure required for the provision of public services, in order to expedite such acquisitions, on an exceptional basis, provided they are duly justified by immediate delivery at a lower price.

Assignment to parastatal entities in railroad matters

The reform proposes that assignments to public entities in railroad matters be for an indefinite period of time.

This amendment could involve differential and potential discriminatory treatment between public and private entities (and/or foreign entities) in connection with the violation of Mexico's international obligations. For example, Mexico has included provisions in its bilateral and multilateral investment and trade treaties that grant national treatment to foreign investors and protect them against discriminatory actions by the state.

Principle of trust in the Federal Public Administration

The draft decree contemplates incorporating the concept of "trust" that the decisions of the state will always be with the purpose of guaranteeing human rights and the social interest; in practical terms, for prioritized infrastructure projects (as qualified by the federal executive) will be exempt from "formalities"; this could refer to regulations surrounding such areas as environmental matters, economic competition, or urban development, allowing such projects to be developed without regulatory lags.

introducing this concept of trust in this particular sector raises a red flag in light of potential judicial and other complaints which have been raised in the construction of some mayor public infrastructure projects (still ongoing).  This could also potentially increase the likelihood pf litigation.

Relevant considerations

Should the Initiative be approved by Congress, it is possible that it, as well as subsequently issued administrative acts and regulations, may be challenged through the following actions:

(i) Actions of unconstitutionality (these could be filed by a qualified minority of the Senate)

(ii) Constitutional controversies (these could be filed by autonomous constitutional bodies such as the Bank of Mexico, the Federal Economic Competition Commission, pr the Federal Telecommunications Institute) and/or amparo proceedings (which could be filed by individuals whose legal sphere is affected directly or indirectly).

Additionally, the Initiative and the administrative acts that may eventually derive from it could give rise to international arbitration proceedings against the Mexican state under bilateral and multilateral investment and trade treaties. Such treaties contain several protections for foreign investors that could be significantly violated if this Initiative is approved.

Going forward

By virtue of the foregoing, we suggest analyzing the effects that this Initiative could have on investments made in Mexico to determine the suitability of initiating any defense proceedings against its eventual approval, as well as the impact it will have on future investments.

Learn more about these proposed reforms by contacting any of the authors.

The authors wish to thank law clerks José Roberto García, Alberto Calvo and Natalia Torres for their contributions to this alert.

Read this article in Spanish.