Reform to Mining Law Would Violate USMCA
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Reform to Mining Law Would Violate USMCA

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Karin Dilge By Karin Dilge | Journalist and Industry Analyst - Mon, 04/18/2022 - 18:00

Reforming the Mining Law to nationalize lithium and declare it as a strategic mineral exclusive to the state would violate the United States-Mexico-Canada Agreement (USMCA), said Kenneth Smith, a key negotiator for the treaty.

The ex-Director General for the North America Department at the Mexican Ministry of Economy warned that if lithium was not initially considered to be a strategic mineral in the USMCA, it would violate the treaty. The reform of President Andrés Manuel López Obrador aims to add lithium to the list of strategic minerals in the 28th article of the treaty. It will establish that no new concessions will be granted to private enterprises and that only the ones previously granted by the Ministry of Economy will be respected. Moreover, the reform will include the creation of a company for the exploration and exploitation of the key mineral.

“Lithium cannot be reserved as a strategic mineral, exclusive to the state, if it was not previously stipulated in the treaty as an exclusive resource. And this is not the case,” explained Smith. The USMCA specifies that only radioactive minerals are considered as state-exclusive activities. By adding lithium to the North American commercial treaty, the legal modification would violate its chapters 14 and 22. Chapter 14 concerns investment and chapter 22 state-owned enterprises.

Now that the government’s energy reform failed to pass through Congress, López Obrador said he would issue a reform to the Mining Law. The constitutional energy reform has been criticized for violating international treaties as well. Nevertheless, Smith explained that any restrictive measure, not only in the constitutional framework but also regarding secondary law, infringes Mexico’s commitments made in the USMCA.  

Experts have said that if the Mining Law is to include the lithium issue, many investors would leave the country as Mexico would further deteriorate its political and investment certainty. "There may be a flight of investments and some cases will even end up in international arbitration," said Juan Pablo Gudiño Gual, Founding Partner and General Director, IGUAL Consultores. In addition, experts highlighted that although the law cannot be applied retroactively, mining companies with lithium concessions will be affected, so there will be an increase in legal protection cases for the Supreme Court to review.

This morning, the vote of 498 legislators rejected the new energy reform: the proposal received 275 votes in favor, whereas at least 332 were necessary for its approval. Among other key points, the reform sought to modify the sixth paragraph of Art. 27 of the Constitution to stop granting concessions for strategic minerals, such as lithium, giving the state the exclusive right to produce these resources.

President López Obrador said he has signed the initiative to reform the Mining Law. He already sent it to the Chamber of Deputies. López Obrador has repeatedly told foreign companies and governments that they will not be able to exploit Mexico’s lithium.

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