Across the Border: Investment in Mexican transportation is stuck in neutral

An unexpected blowhas been landed against Mexican road cargo carriers in their 12-year-long battle against "neutral investment," and it's come from an unexpected source: the American Chamber of Commerce of Mexico (Am-Cham) (www.amcham.com.mx). The organization represents U.S. companies in Mexico and counts among its members some of America's most famous transnational companies as well as foreign investors from other nations.

The "neutral investment" clause in Mexico's Foreign Investment Law (FIL) was introduced in December 1993. It created a loophole in the previously restrictive FIL that allows foreign ownership of a maximum of 49% in a Mexican company, leaving the remaining controlling 51% to the country's nationals.

Under "neutral investment," a foreign entity is permitted to invest as much as 100% so long as the management and company control remain in the hands of a Mexican partner as the company owner.

Earlier this year, Mexico's top trucking association, the National Cargo Carriers Chamber (Canacar) (www.canacar.com.mx), managed to get a bill passed in the Mexican Senate that would limit foreign investment under the "neutral" clause solely to mutual and trust funds through the stock exchange, omitting companies not registered in the exchange. Direct foreign investors would be banned from establishing strategic partnerships. The bill was then sent to the Chamber of Deputies — Mexico's equivalent to the U.S. House of Representatives — where it was about to be approved.

Olaf Carrera, director of external relations for AmCham, led the lobbying effort against the bill. He says that only recently has AmCham become aware of the bill and its restrictions on foreign investment.

"AmCham companies are concerned not only because of the impact this law was going to have in their operations," says Carrera, "but also because of the negativity of the message being sent to Mexico's foreign investment community."

Carrera notes, "In effect, the bill would shut off financing for small-and medium-sized Mexican companies that need to find foreign partners. The law was detrimental in several ways. Also, in studying the language of the bill, we noticed it contravened NAFTA and other trade agreements because the Constitution does not allow discrimination based on national origin."

For its part, Canacar has led a war against U.S. investors since 1994, when several neutral investment permits were allowed in the carrier industry.

Based on the nationality discrimination law, AmCham filed a document with the Chamber of Deputies' Economics Committee headed by Deputy Manuel Lopez, charging that the legislation would impair business investment through all sectors of the economy.

Deputies listened to the arguments. Ironically, the final say came from an avowed enemy of the U.S.: Pablo Gomez, a member of the Chamber of Deputies and former head of the now-defunct Mexican Communist Party. Gomez said the bill as issued by the Senate had to be revised, which automatically sent it into the freezer. That's made AmCham and Deputy Gomez the unlikeliest of bedfellow.

The reaction from Canacar president Tirso Martinez was to write a letter to Committee president Deputy Lopez demanding the proposed changes on neutral investment be voted on and perhaps approved during this current session of Congress, which will end in June.

"The proposal to change the law correctly insists that neutral investment should come from trust funds, mutual funds or foreign investment funds," notes Martinez. "These are 'impersonal' resources in which investors seek a fair return on investment without having any type of control over the company in which they invest."

Martinez says this does not contravene NAFTA or other international free trade agreements Mexico has with the rest of the world.

A vote on this bill is considered most unlikely during this session of Congress, as this is an election year and a new cadre of deputies will take over in September.

Asked if he feels the law has been stalled, AmCham's Carrera says, "No, it's been killed."

If this proves to be true, it will be the second defeat Canacar has recently suffered at the hands of U.S. firms. Late last year FedEx dealt Canacar a legal blow when it won a suit allowing the carrier to handle its own cargo on Mexican roads instead of having to outsource it to private providers.

This, however, will not be the last we hear of the investment issue. Canacar vows to continue lobbying against neutral investment. It says that what happened in this round of the battle was not fair. "They listened," says Martinez, "but not to us."

The fact is that AmCham has finally exercised its political clout. It has remained aloof from the issue for the past 12 years. Now that it has joined the melee, it is a near certainty that a lobbying war will get underway in the next session of Congress.