Industry trade

Mexico closes its lithium sector to private investment | Clark Hill PLC

On April 18, Mexican President Andres Manuel Lopez-Obrador (AMLO) sent a bill to the country’s congress to amend the mining law to restrict private investment in the lithium industry and ensure that the Mexican government has exclusive control of the sector. In an expedited process, congress passed the bill without any amendments or public hearings, and on April 21, the amendments went into effect.

This was not the first time AMLO had tried to restrict the lithium industry. In September 2021, the President sent a bill to amend the Mexican Constitution and alter the electricity and lithium industries (please see Clark Hill’s previous alert here). The bill was voted on on April 17, but it did not pass (two-thirds of the votes are needed to amend the Constitution, and the political party of AMLO did not obtain enough votes). However, AMLO has sent a new, more limited bill to only change the mining law and permanently close the lithium sector to private investment.

In general, the amendments to the mining law provide that:

  • No lithium exploration and exploitation concession will be granted;
  • The exploration, exploitation and use of lithium will be activities reserved for the Mexican State, and
  • A public entity will be created to carry out these activities on behalf of the Mexican State.

The restrictions on the lithium sector raise questions about the bill’s consistency with Mexico’s international commitments. Moreover, it creates uncertainty regarding the concessions already granted to private investment to explore and exploit lithium.

The establishment of foreign investment in the Mexican lithium sector is permitted under international trade agreements

Mexico is a party to several international trade agreements which, among other things, grant access to the establishment of foreign investments in the country. Accordingly, foreign investors may invest in Mexico in all sectors subject to the limitations and reservations expressly included in international trade agreements, such as the United States-Canada-Mexico Agreement (USCMA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This approach consolidates the Mexican legal regime for foreign investment, providing legal certainty.

Since the North American Free Trade Agreement (NAFTA), Mexico has reserved certain activities where private investment is not permitted. For example, under the USCMA, telegraph, radiotelegraph, and postal services are expressly reserved for the Mexican state and therefore private investment is limited (USMCA, Annex II-Mexico-9). However, Mexico has not included reservations for investment in the lithium sector in any negotiated international trade agreement, including the USMCA and the CPTPP.

Thus, US and Canadian investors, for example, are entitled to non-discriminatory treatment regarding the establishment, acquisition and expansion of, inter alia, investments in Mexico. Non-discriminatory treatment of US and Canadian investors and their investments is a core obligation under the USMCA. The same can be said of other treaties to which Mexico is a contracting party (eg the CPTPP).

Under recent amendments to the mining law, the government of Mexico will no longer grant lithium concessions. However, it should be noted that other companies have already obtained concessions and that a Mexican public entity will be created to carry out these activities. These are relevant elements that could support a claim of discriminatory treatment for companies attempting to invest in the lithium sector.

Lithium companies already present in Mexico could be protected by international agreements

It was reported that eight lithium mining concessions had been granted before the amendments to the mining law. Despite official statements about the nationalization of lithium, the amendments to the mining law do not appear to expressly interfere with previously granted lithium concessions. However, this remains unclear and raises uncertainties.

First, AMLO has consistently called amendments to the mining law a “nationalization of lithium,” claiming that the government would finally regain control of the sector. Governors and politicians across the country have also hailed the so-called “nationalization of lithium.”

Second, the 2021 constitutional reform of the energy sector included a provision on previously granted lithium concessions. He said the concessions would be honored if the Economy Ministry obtained satisfactory evidence that the companies had started exploration activities. However, the latest amendments to the mining law do not include this provision. This omission could imply that prior concessions will be honored, but AMLO has indicated that prior concessions will be subject to review.

Legal measures challenging government measures affecting investments are available under Mexican law. Investors may also consider challenging illegal government actions under international trade agreements, such as the USMCA and CPTPP.