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Mexico: policy and regulatory framework for mining
Resources Policy. Vol. 23, No. 1/2, pp. 71-77. 1997
Pergamon
PII: S0301-4207(97)00015-9
© 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain 0301-4207/97 $17.00 + 0.00
Mexico: policy and regulatory framework for mining Abdon Hernandez Law & Relations, lndustrias Pe~oles, S A de C V, Rio de la Plata 48, 15th Floor, 06500 Mexico D F, Mexico
Mexico, a mining tradition Mexico has a long standing tradition as a mining country since the pre-Columbian days. As a matter of fact, the search for gold was a driving force behind the Spanish conquest of what are now Mexico and Peru. The conquest of Mexico cannot be fully understood without the courageous, constant endeavors of the miners, who moved along, side by side with the armed forces, priests and missionaries, locating ore deposits, creating wealth, opening roads and making significant contributions to the creation of new cities, towns and villages. Their wealth was a key element in the construction of architectural jewels such as schools, cathedrals, hospitals and other civic monuments. Today, mining continues to be an important element in Mexico's economy. In 1994 the mining sector's share of GNP grew by 2.9% in metals and 3.8% in non-metallic minerals, which represented 4.0% of the industrial sector's contribution to the GNP, and its exports increased by 28.2%, providing direct employment to 175 000 individuals (Informe Anual, 1994). Investment in mining in Mexico increased from $327 million dollars in 1991 to $628 million dollars in 1995 (Escudero, 1996), thereby allowing the country to continue playing a leading role in the worldwide mining sector. This is evidenced by the fact that in 1995, Mexico was among the top 10 of the world's producers of 19 minerals and metals: first in silver and celestite; the second largest producer of bismuth, fluorspar and sodium sulfate; the fourth in arsenic and graphite; the fifth in lead, barite and lime; the sixth in zinc, antimony and molybdenum; the seventh in salt and cadmium; the ninth in manganese, sulphur and gypsum and the tenth in cop-
per (Programa de Polffica Industrial y Comercio Exterior).
Framework for the Mexico of the nineties and the twenty-first century After 12 years of increasingly serious economic problems including severe inflation rates, President Miguel de la Madrid took the first steps towards a profound transformation of Mexico's economic structures in order to make the transit from a highly protected, closed economy to an open economy linked with the rest of the world. Joining the General Agreement on Trade and Tariffs ('GATT') was one of the most significant steps in that direction. During the electoral campaign of the winning candidate for the 1988-94 presidency, the basic principles of the economic policies were established in light of the challenges faced by the Mexico. More specifically it was emphasized that: (i) the public sector would be redefined, accelerating the privatization of non-strategic government-owned enterprises; (ii) the opening of the economy to international trade was an irreversible fact of life; (iii) the country could absorb greater inflows of foreign capital; (iv) excessive regulatory activity would be eliminated, thereby facilitating private enterprise's role in the economy; and (v) private investment would be the driving force of the Mexican economy (Salinas, 1988). As a result, Mexico has undergone profound changes in its economy through sound fiscal policies; strict budgetary control and the structural change of the economy. Accordingly, new policies were adopted in the areas of foreign trade and foreign investment, among others. As to foreign trade, the traditional approach of 'substituting imports' via protective legislation was 71
Mexico: policy and framework: A Hernandez replaced with the commercial opening of our borders, which came hand in hand with Mexico's entry to GATT, and the promotion of exports of manufactured goods through reduced import tariffs and the permitfree inflow of inputs readily obtained in the international markets. This resulted in greater productivity margins which allow our products to be competitive worldwide in price and quality. This policy has proven to be fruitful as evidenced by the fact that out of total exports, the share of exports of manufactured goods, including 'maquiladoras' (excluding oil), increased to 82.8% in 1994 (Informe Anual, 1994, p 167). In addition, Mexico undertook an aggressive program to negotiate free trade agreements with Chile; Canada and the US; Colombia and Venezuela, Costa Rica and Bolivia. As to foreign investment, a new Foreign Investment Law (Diario Oficial, 1993) in effect since December 1993 simplified the entry of foreign investment which generates new employment, contributes to the technological development of the country, promotes tourism and exports and induces decentralization to new regional poles of economic development. In the field of mining, it allows 100% foreign capital participation through subsidiaries incorporated in Mexico. In 1995, direct foreign investment in mining amounted to $19.152 million US dollars (Indicadores Oportunos de los Flujos de IED durante, 1995), although it represented only 0.34% of all direct foreign investment in Mexico during the year; since the enactment of the new Mining and Foreign Investment Laws, more than 298 new mining companies incorporated in Mexico have been recorded in the Pablic Mining Registry, of which 43% have foreign investors (Informe Anual, 1994, p 3), mainly Canadian and US companies.
National mining policy The basic premise for Mexico's mining policy can be traced back to the Spanish legislation applicable to colonial mining in New Spain which provided that mines were part o f the royal patrimony, and contained in Article 27 of the 1917 Mexican Constitution which provides that: The nation has the eminent domain over all natural resources in the continental shelf and islands; of all minerals and substances in veins, strata, masses or beds which constitute deposits whose nature is distinct from the components of lands, such as ores from which metals and metalloids used in industry are extracted, of rock salt and salt beds formed directly by sea waters... Said Article 27 further provides that the eminent domain of the nation over its natural resources is not alienable or subject to acquisition and its exploitation and use may only be done through concession granted by the Federal Executive to Mexican nationals or Mexican corporate entities.
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The 1989-94 National Development Plan provided three goals in the field of mining: (i) the adequate availability of mining-metallurgical supplies for domestic consumption; (ii) the strengthening of the commercialization abroad of mining-metallurgical products; and (iii) the integration of industrial processes in order to transform minerals into products with more added value (Diario Oficial, 1989). Consistent with the emphasis on foreign trade, the free trade agreements then to be negotiated and the 1989-94 National Development Plan, in June 1990, the Federal Executive published the "1990-1994 National Mining Modernization Program" (Diario Oficial, 1990a) which included among the objectives and operating programs: (a) the up-dating of the regulatory frame of the mining sector; and (b) the adjustment of the tax treatment of mining. As a result of the foregoing, in 1992 a new Mining Law (Diario Oficial, 1992a) was enacted; it was complemented by changes to the taxation policy applicable to mining. This, coupled with the new Foreign Investment Law and the 1992 new Agrarian Law (Diario Oficial, 1992b) which allows for full ownership of communal and 'ejido' land by the 'ejidatarios' and of farmland by corporate entities, established a new regulatory framework whose goals were to promote mining. On 31 May 1995, the 1995-2000 National Development Plan was enacted. It only makes a passing reference to mining pointing out that mining: has a great capacity to create jobs, supply the domestic market and to generate foreign currency. Mining policy will be based on a regulatory framework which generates legal certainty among investors maintaining an expansion rhythm congruent with sustainable development. A policy to promote exports will be established. The access by small miners to treatment plants and financing will be fostered. In the case of national products from the steel industry, their access to foreign markets will be promoted, in reciprocity to the opening of the Mexican market. Likewise, fair competition by imports to the domestic market will be fostered. Notwithstanding the foregoing, the regulatory framework established in 1992 is applicable to date. However, the Industrial Policy and Foreign Trade Program recently published by the Federal Government contemplates three courses of action: (i) preparation of a national minerals inventory; (ii) updating the regulatory framework and 'collecting revenues'; and (iii) development of small and medium mining (Escudero, 1996, pp 189-191). Of the three, the most critical is the second; it contemplates amendments to the law which would enhance confidence by domestic and foreign investors, expedite administrative processes and promote a greater flow of new and larger capital investments, revising the list of minerals subject to concession with technical, economic, environmental and social criteria, in order to strengthen the
Mexico: policy and framework: A Hernandez capability of competing internationally. However, in open violation of the time honored tradition of granting concessions to the first person filing a claim, it contemplates granting concessions in auctions to the highest bidder. The mining industry in Mexico is alert to oppose this change which certainly will not promote investment in mining.
The 1992 Mining Law In June, 1992 a new Mining Law was enacted and became effective on 25 September 1992; its Regulations went in effect on 30 March 1993 and a Handbook of Services to the Public in Mining Matters was published. They are the product of dedicated joint efforts among the various private and official sectors which encompass the mining activity in Mexico. The Mining Law has 59 articles or sections while the 1975 Law had 109; the Regulations comprise 97 articles as compared with the 1976 Regulations which included 300 articles. This difficult and complex achievement, created a new set of legal provisions, congruent with our times, more accessible and easier to understand and with substantially less verbiage and requirements, which practice had demonstrated to be superfluous. Following is a brief analysis of the Mining Law. Mineral substances The law clearly defines which elements, substances and minerals are subject to its provisions (including ferrous and non-ferrous industrial and precious metals, non-metallic minerals, rare earths, mineral gems, rock salt, products derived from the decomposition of rocks whose extraction is mainly done through underground mining, mineral and certain organic materials which may be used as fertilizers, anthracite, mineral coal, lignite and peat; and such other as may be determined by Federal Executive Decree). Expressly excluded from the application of the Law are oil and solid, liquid or gas hydrocarbons, radioactive minerals (whose exploration and exploitation are reserved exclusively for the Federal Government), rock used for construction or the manufacture of construction materials, and salt from interior drainage basins. The new Law eliminates the limit to eight different substances per concession which the prior law contemplated. Under the present system any holder of a concession may explore and extract any substance covered by the law found within the area of the concession. Finally, the rules applicable to coal, sulphur, phosphorus, potassium and iron, have changed; they are no longer part of the National Reserves System and are free for exploration and exploitation by individuals or corporations through normal concessions.
Role of government agencies The Mining Development Commission which used to be responsible for providing financial support and technical assistance to small and medium miners has been dissolved and liquidated. In reality it had become a mining entrepreneur, creator and owner of mining companies, competing with private enterprise. The Law maintains the Mineral Resources Council ('MRC'), but clearly specifies that its main responsibility is to conduct the country's geological evaluation and to provide certain technical services and assistance to the miners. Although it may conduct certain exploration, it is precluded from exploring for commercial or business purposes. The exploration it may carry out is through a system of 'allotments' ('asignaciones '). Concessions and 'allotments' The Law contemplates two types of mining concessions: (i) exploration concessions for a 6 year period granted - - in the time honored tradition - - to the first person filing a claim on the respective area; and (ii) exploitation concessions which have a 50 year term renewable for another 50 year period, provided the holder of the concession does not incur in a justified cause for its cancellation and the renewal is requested within 5 years from its original expiration date. There is no limit in the area that may be covered by a concession nor in the total area under the control of a concession holder. The exploration concessionaire's fight to the exploitation concession over the area covered by the concession is clearly defined, provided the concessionaire has not incurred in a justified cause for its cancellation. Under the Law it is now possible to obtain concessions on the continental platform and seabed under a bidding process. The Law establishes clear links with environmental legislation in two ways: cleaner operations and practically no mining activity is permitted in natural protected areas. Concession holders must make a minimum investment or 'assessment work'; however, proof of 'assessment work' and investment in areas covered by concessions has been simplified. In addition, the Bureau of Mines has the authority to reduce temporarily the minimum assessment work or investment obligations if the price or demand for a specific mineral or metal is weak. The reasons or causes for cancellation or annulment of concessions are clearly defined and not left to arbitrary decisions by the government. Allotments to the MRC have a validity of 6 years, after which it must: (i) leave the area free; (ii) set it into the bidding process; or (iii) incorporate it to the Mineral Reserves System. Mineral reserves National Mineral Reserves as to substances no longer exist and all minerals may be explored and exploited, except those expressly excluded from application of
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Mexico: policy and framework: A Hernandez the Law. Mineral Reserves may only be created by special decree by the Federal Executive due to reasons of public interest or to satisfy future needs of the country; provided their creation is justified based on the mineral potential of the area as determined by semi-detailed exploration and the public interest is proven. Concessions or further exploration by the MRC are precluded in areas incorporated in a Mineral Reserve. Areas incorporated into a Mineral Reserve may be released or disincorporated by Federal Executive Decree if the reasons for their creation change. Upon disincorporation, the area may be declared free area or subject to the bidding process discussed below.
Mining contracts and bidding process Mining contracts (exploration, partnerships ('asociaci6n en participaci6n'), leases, etc) are no longer subject to the prior approval by the Bureau of Mines; they are, however, subject to recordal in the Public Mining Registry. The Law contemplates a bidding process for two different purposes: (i) for the execution of exploration contracts; and (ii) for the granting of concessions. The bidding process for the execution of exploration contracts applies to allotments to the MRC whose 6 year term is about to terminate and the area is not being declared free nor incorporated into Mineral Reserves. These contracts convey to the contracting party a preferential right to obtain a concession over the area involved. The other bidding process applies for the granting of exploration concessions in the continental platform and seabed and the granting of concessions in areas disincorporated from Mineral Reserves. The Law requires that the winners in the bidding process for the execution of exploration contracts and for the granting of concessions in areas released from reserves, must make a semi-annual payment of a 'finder's fee' or 'discovery premium' of not less than 1% nor more than 3% of the invoice value or smelter returns of the minerals obtained. Treatment plants Since 1930, the Mexican mining legislation had regulated ore dressing and treatment plant concessions for the operation of mills, smelters and refineries and treatment charges and fees were subject to the prior approval by the government. Although the Law eliminates these concessions, treatment activities are still subject to its provisions. Individuals or corporations operating treatment plants must give notice to the Bureau of Mines of their operations, comply with applicable environmental legislation and receive minerals or concentrates from third parties in amounts of up to 15% of the plant's capacity. Treatment charges and fees are no longer subject to governmental approval, they are determined under commercial conditions based on supply and demand.
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Mining companies and foreign investment Mining concessions may be granted to Mexican nationals, 'ejidos' and 'agrarian communities' and companies incorporated under the laws of Mexico. While previous mining legislation subjected mining companies to numerous rules, requirements and prior approvals regarding their By-Laws, transfer of shares, citizenship of Directors and CEOs, the Law has abolished all these requirements and merely requires that: (i) they be incorporated under the laws of Mexico; (ii) their corporate purposes include the exploration or exploitation of minerals or substances subject to the Law; and (iii) their corporate domicile be within the Mexican Republic. As to foreign investment, the 1975 Mining Law limited foreign investment to 49% in companies dedicated to the exploration and exploitation of minerals under ordinary concessions and to 34% in the case of placer gold, coal and iron. In the event of renewal of exploitation concessions, foreign investment had to decrease to 40 and 25%, respectively. The new Law refers the foreign investment participation in the equity of mining companies to the applicable provisions of foreign investment legislation. As mentioned earlier, under the 1993 Foreign Investment Law, foreign investment may hold up to 100% of the capital stock of Mexican mining companies without prior governmental approval or permit. Mining companies controlled by foreign shareholders are entitled to obtain mining concessions and surface land required for their operations. However, if a foreign investor tries to acquire, directly or indirectly, more than 49% of the capital stock of an existing company, it must first obtain the prior approval of the National Foreign Investment Commission, if the total value of the assets of the company involved exceeds an amount to be determined on a yearly basis.
Mineral reserves policy The total area of the Mexican territory is approximately 1 963 677 km 2. Although reliable data is not available, it is said that only 15% has been explored. Others contend that only 60% of the national territory has the adequate geological conditions for the existence of ore deposits and that only 20% has been fully explored. In any case, the area available for future additional exploration reaches gigantic proportions. In the past, further exploration in areas with mining potential had been discouraged either by hoarding of large idle acreage held for speculative purposes by individuals or corporations or the extensive areas considered National Mineral Reserves, whose exploration and exploitation was restricted to government agencies and only in very limited cases available to private enterprise under contracts with not too attractive terms and conditions. The first obstacle was eliminated through the fiscal system which will be discussed later. Consistent with one of the National Mining Modernization Program's objectives, since 1992, no
Mexico: policy and framework: A Hernandez
new reserves have been created and through the end of 1995, 13.5 million ha had been released from National Mineral Reserves, canceled 'allotments', cancellation of concessions and voluntary reductions by concessionaires (Informe Anual, 1994).
Fiscal policy for the mining industry The taxation system applicable to the mining industry has been used not only as a source of revenue for the Federal Government, but also as a mechanism to implement other non-fiscal aspects of mining policy. Thus, by the late 50s all majority and wholly foreign owned mining companies had to bear a very heavy tax burden, while more benign taxation was applied to mining companies owned 51% or more by Mexican nationals; thereby, taxation was used to induce the 'Mexicanization' of foreign owned mining companies. In addition to the general tax system applicable to all business entities, currently there is only one specific tax ('derechos') applicable to the mining industry in Mexico, the 'mining concession's tax' which is an amount per hectare covered by a mining concession. Consistent with the objectives of the Mining Modernization Program of discouraging hoarding of idle mining claims and encouraging the allocation of funds to exploration and mining, the mining concession's tax had been increasing since 1989; the tax rate is different for exploration concessions and for exploitation concessions. Since 1991, there is an adjustment based on the increases in the Consumer Price Index. The tax payable during the first year of an exploration concession is fairly low, considering that substantial acreage must be explored during the initial stages; thereafter it increases twice in 2 year tranches, to discourage hoarding. Likewise, in the case of exploitation concessions the rate is low for the first 2 years, then increases substantially for the third and fourth year and thereafter the applicable rate is slightly higher. Federal tax legislation also provides that a tax ('derecho') be paid for each cubic meter of 'national waters' (ie obtained from underground sources, rivers or lakes) used by any individual or corporation; this includes the water pumped from the mines, excluding brackish water. In addition, a new duty taxes every cubic meter of water discharged into Federal lands, basins, lakes or rivers. The applicable rate depends on suspended solids, oxygen contained, etc.
Environmental policy for the mining industry Mexico is no exception to the worldwide trend of deep concern for the protection of the environment. The General Law for Ecological Balance and Protection of the Environment (Diario Oficial, 1988a) is a
comprehensive piece of legislation which deals with all aspects of environmental stewardship and the conservation of natural resources. This Law has been the cornerstone of a new and complex structure of regulations, technical parameters and governmental actions. The Law includes a specific chapter on exploration and exploitation of non-renewable resources (Part 3, Chapter III, Articles 108 and 109), as well as other restrictive provisions applicable to industries which are determined to be of high risk. The Law provides the possibility of temporary or permanent shutdown of industrial operations, including the possibility of cancellation of concessions if the activities of the concession holder are deemed highly pollutant. The 1988 Regulations (Diario Oficial, 1988b) regarding environmental impact make it mandatory to file an environmental impact statement and to obtain the prior governmental approval to commence activities, among others, of exploration, extraction, and treatment of minerals and refining of metals. In June 1988 the Government published a list of products and substances deemed as hazardous or toxic waste, including many produced by the mining-metallurgical industry. Later in the year, the Federal Executive issued Regulations regarding air pollution and hazardous waste. The latter provide for governmental approval of the storage, handling, transportation, recycling and final disposal of hazardous or toxic waste. In 1990, the Government published a list of activities deemed dangerous because of the toxic materials produced, processed, handled, used, stored or disposed, which includes certain chemicals which are used in or are by-products of the mining-metallurgical industry (Diario Oficial, 1990b). During the past 2 years the environmental protection authorities have issued almost 100 technical norms regarding the quality of water discharges, gas and dust emissions, noise, etc but none specifically concerning the mining industry. However, the mining sector is engaged in joint efforts with the environmental authorities in the preparation of norms regarding emissions to the atmosphere from copper and zinc plants; for the construction and operation of tailings ponds; use of tailings for hydraulic filling of underground mines; requirements for heap leaching operations for precious metals and copper; disposal of sterile rock and topsoil, and requirements during exploration which would eliminate the need to file environmental impact statements. In addition, cooperation agreements with the environmental authorities have been executed by the Mining Industry Chamber of Mexico. In addition, NAFFA in its preamble commits the three countries to 'promote sustainable development' and to 'strengthen the development and enforcement of environmental laws and regulations'. NAFTA explicitly addresses environmental issues in Chapters 7b (sanitary and phytosanitary measures), 9 (standards related measures), 11 (investment) and 20 75
Mexico: policy and framework: A Hernandez
(dispute settlement), further strengthened in the Environmental Side Agreement. To conclude this section, the protection of the environment cannot be ignored by individuals nor by the mining-metallurgical industry and any mining project in Mexico has the social responsibility and legal obligation to consider the protection of the environment.
Foreign trade policy for the mining industry As we indicated, the negotiation of free trade agreements has been a prominent item in the Government's agenda. The mining industry is a mature market, which for scores of decades has been thoroughly familiar with the flow of international trade and its prices determined by international markets. Since nature denied some countries some minerals while benefiting them with others, complementation under free trade agreements allows fairly rapid tariff elimination. From the beginning, the position of the Mexican mining industry was that import tariffs for mineral products where Mexico has excess production, should be eliminated over a 5-10 year period and where Mexico is lacking, as well as in the case of reagents, supplies, machinery and equipment, etc used in the mining industry which are not locally produced, tariff elimination should be immediate. On 17 December 1992, the US, Canada and Mexico signed a historic trade accord which, after the close vote for its approval by the US Congress, became effective 1 January 1994. Except perhaps for the agreements establishing the European Union, NAFTA is the most comprehensive and detailed (about 2 000 pp) free trade agreement ever negotiated between regional trading partners, the first reciprocal trade pact between a developing country and industrial countries, and the international expression of Mexico's new economic policies. Although the aggregate number of articles in newspapers and periodicals and hours of media coverage, commenting NAFTA are probably in the thousands (perhaps only surpassed by Maastricht) it is worthwhile reviewing briefly some of its features affecting the mining industry. In the case of the mining sector, 204 tariff items of the Mexican import tariff were affected (most of Chapters 25 and 26, some in Chapters 27 and 28, precious metals in Chapter 71, and base or industrial metals and products made therefrom in Chapters 72-81). Of these, 15 were already exempt and 135 were subject to immediate tariff elimination (75% of the mining universe); 28 are subject to elimination over 5 years and 23 over 10 years. In the case of the US, 216 tariff items were involved, of which 106 were already exempt, 99 had immediate elimination, 6 over 5 years and 5 over 10 years. In sum, although NAFTA is a noteworthy achievement, its implications for Mexico, Canada and the US
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should not be exaggerated. The ability of NAFTA partners to gain maximum benefits from the pact with minimum adjustment costs depends on maintaining domestic economic policies that ensure growth and a favorable macroeconomic climate. The present economic situation of Mexico will certainly delay some benefits for Canadian and US exporters, although the devaluation of the peso and prevailing prices of metals have helped Mexican exports from its mining industry inducing the added exploration, modernization and expansion of existing facilities which helps Canadian and US manufacturers of mining equipment and other inputs. Preceding NAFTA, the first agreement negotiated (formally known as the Economic Complementation Agreement) was with Chile; signed in 1991, it became effective as of 1 January 1992. It provides for the total elimination of tariffs starting with a 10% ad-valorem rate. Most of the products are tariff free as of 1 January 1996 and the balance (agricultural, forestry, chemicals, petrochemicals, textiles and apparel) as of 1 January 1999. Though 1995 bilateral trade increased 470% and amounted to almost $950 million dollars (Escudero, 1996, Exhibit 3, p 195). After NAFTA, the free trade agreement with Costa Rica was executed in June 1994 and came into effect on 1 January 1995. Trade between Mexico and Costa Rica is bound to increase 300% over the first years, as a result of the immediate elimination of tariffs for 70% of Mexican products and 75% of Costa Rican products; 20% of Mexican products and 15% of Costa Rican products over 5 years and 10% over 10 years, starting with a base rate of 9% for Mexico and 20% for Costa Rica. During its first year, Mexican exports to Costa Rica increased 45.1% reaching $137.5 million dollars (Escudero, 1996, p 205). The fourth agreement negotiated was with Colombia and Venezuela; signed in June 1994 it became effective on 1 January 1995. In 1995, Mexican exports to Colombia and Venezuela combined amounted to $830 million dollars (Escudero, 1996, p 203). In effect since 1 January 1995, the free trade agreement with Bolivia eliminates immediately Mexican import tariffs on 99% of Bolivian exports and Bolivia eliminates immediately its tariffs on 97% of Mexican exports and during its first year Mexican exports reached $24.1 million dollars, an 80% increase over 1994 (Escudero, 1996, p 206).
An agenda for the future For the immediate future, to be in a situation comparable to mining companies in other countries and thus preserve Mexico's international competitiveness, the industry still needs governmental support through the following actions: - - Continued efforts to further eliminate bureaucratic red tape.
Mexico: policy and framework: A Hernandez
- - Tax incentives (eg, d e p l e t i o n a l l o w a n c e ) w h i c h p r o m o t e further allocation o f resources to e x p l o ration, essential not o n l y for the growth o f the m i n i n g activity but for its survival. - - Incentives to r e c o v e r or share investments in infrastructure (eg, p o w e r lines, roads, etc) w h i c h represent significant e x p e n d i t u r e s required to o p e n or e x p a n d m i n i n g units and w h i c h benefit the surrounding communities. - - T h e e l i m i n a t i o n o f taxes on the use o f w a t e r p u m p e d from the m i n e s and on water d i s c h a r g e d from the mines. - - The a d o p t i o n o f specific e n v i r o n m e n t a l standards for the m i n i n g industry, which achieve a fair and equitable b a l a n c e b e t w e e n the need to protect the e n v i r o n m e n t and the c o u n t r y ' s need for mining activities.
Conclusions M e x i c o has laid d o w n a n e w M i n i n g P o l i c y with welldefined g r o u n d rules for the m i n i n g industry. T h e y constitute a n e w r e g u l a t o r y frame o f reference, c o n g r u e n t with the w o r l d w i d e trends in e c o n o m i c activity and w h i c h - - with the constructive attitude o f all parties, official and private, d o m e s t i c and
foreign - - ought to lead the w a y to new opportunities; contribute significantly to p r o m o t e the increased g r o w t h o f the M e x i c a n m i n i n g - m e t a l l u r g i c a l industry, k e e p it a m o n g the leading m i n i n g nations o f the w o r l d and as a reliable s u p p l i e r o f raw materials and interm e d i a t e products for the industrialized countries. To conclude, it is e v i d e n t that the M e x i c a n doors are open to additional investments in mining, from within and f r o m abroad, alone or through strategic alliances with local investors.
References Diario Oficial (1988a) 28 Jan. Diario Oficial (1988b) 7 Jun. Diario Oficial (1989) 31 May. Diario Oficial (1990a) 7 June. Diario Oficial (1990b) 28 Mar. Diario Oficial (1992a) 26 June. Diario Oficial (1992b) 26 Feb. Diario Oficial (1993) 27 Dec. Escudero, L (1996) Marco Legal de la Minerla en M6xico, Paper presented at the 5th Meeting of Mining Opportunities in Mexico, Mexico City, 3 May, p 4 Indicadores Oportunos de los Flujos de IED durante (1995) Secretaria de Comercio y Fomento Industrial, Mexico, 21 Feb, p 4. lnforme Anual (1994) Banco de M6xico, M6xico (1995), p 141. Programa de Polftica Industrial y Comercio Exterior Secretaria de Comercio y Fomento Industrial, Exhibit 2, p 183. Salinas, C (1988) El Reto Econ6mico 161-80, Mexico.
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Pergamon
PII: S0301-4207(97)00015-9
© 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain 0301-4207/97 $17.00 + 0.00
Mexico: policy and regulatory framework for mining Abdon Hernandez Law & Relations, lndustrias Pe~oles, S A de C V, Rio de la Plata 48, 15th Floor, 06500 Mexico D F, Mexico
Mexico, a mining tradition Mexico has a long standing tradition as a mining country since the pre-Columbian days. As a matter of fact, the search for gold was a driving force behind the Spanish conquest of what are now Mexico and Peru. The conquest of Mexico cannot be fully understood without the courageous, constant endeavors of the miners, who moved along, side by side with the armed forces, priests and missionaries, locating ore deposits, creating wealth, opening roads and making significant contributions to the creation of new cities, towns and villages. Their wealth was a key element in the construction of architectural jewels such as schools, cathedrals, hospitals and other civic monuments. Today, mining continues to be an important element in Mexico's economy. In 1994 the mining sector's share of GNP grew by 2.9% in metals and 3.8% in non-metallic minerals, which represented 4.0% of the industrial sector's contribution to the GNP, and its exports increased by 28.2%, providing direct employment to 175 000 individuals (Informe Anual, 1994). Investment in mining in Mexico increased from $327 million dollars in 1991 to $628 million dollars in 1995 (Escudero, 1996), thereby allowing the country to continue playing a leading role in the worldwide mining sector. This is evidenced by the fact that in 1995, Mexico was among the top 10 of the world's producers of 19 minerals and metals: first in silver and celestite; the second largest producer of bismuth, fluorspar and sodium sulfate; the fourth in arsenic and graphite; the fifth in lead, barite and lime; the sixth in zinc, antimony and molybdenum; the seventh in salt and cadmium; the ninth in manganese, sulphur and gypsum and the tenth in cop-
per (Programa de Polffica Industrial y Comercio Exterior).
Framework for the Mexico of the nineties and the twenty-first century After 12 years of increasingly serious economic problems including severe inflation rates, President Miguel de la Madrid took the first steps towards a profound transformation of Mexico's economic structures in order to make the transit from a highly protected, closed economy to an open economy linked with the rest of the world. Joining the General Agreement on Trade and Tariffs ('GATT') was one of the most significant steps in that direction. During the electoral campaign of the winning candidate for the 1988-94 presidency, the basic principles of the economic policies were established in light of the challenges faced by the Mexico. More specifically it was emphasized that: (i) the public sector would be redefined, accelerating the privatization of non-strategic government-owned enterprises; (ii) the opening of the economy to international trade was an irreversible fact of life; (iii) the country could absorb greater inflows of foreign capital; (iv) excessive regulatory activity would be eliminated, thereby facilitating private enterprise's role in the economy; and (v) private investment would be the driving force of the Mexican economy (Salinas, 1988). As a result, Mexico has undergone profound changes in its economy through sound fiscal policies; strict budgetary control and the structural change of the economy. Accordingly, new policies were adopted in the areas of foreign trade and foreign investment, among others. As to foreign trade, the traditional approach of 'substituting imports' via protective legislation was 71
Mexico: policy and framework: A Hernandez replaced with the commercial opening of our borders, which came hand in hand with Mexico's entry to GATT, and the promotion of exports of manufactured goods through reduced import tariffs and the permitfree inflow of inputs readily obtained in the international markets. This resulted in greater productivity margins which allow our products to be competitive worldwide in price and quality. This policy has proven to be fruitful as evidenced by the fact that out of total exports, the share of exports of manufactured goods, including 'maquiladoras' (excluding oil), increased to 82.8% in 1994 (Informe Anual, 1994, p 167). In addition, Mexico undertook an aggressive program to negotiate free trade agreements with Chile; Canada and the US; Colombia and Venezuela, Costa Rica and Bolivia. As to foreign investment, a new Foreign Investment Law (Diario Oficial, 1993) in effect since December 1993 simplified the entry of foreign investment which generates new employment, contributes to the technological development of the country, promotes tourism and exports and induces decentralization to new regional poles of economic development. In the field of mining, it allows 100% foreign capital participation through subsidiaries incorporated in Mexico. In 1995, direct foreign investment in mining amounted to $19.152 million US dollars (Indicadores Oportunos de los Flujos de IED durante, 1995), although it represented only 0.34% of all direct foreign investment in Mexico during the year; since the enactment of the new Mining and Foreign Investment Laws, more than 298 new mining companies incorporated in Mexico have been recorded in the Pablic Mining Registry, of which 43% have foreign investors (Informe Anual, 1994, p 3), mainly Canadian and US companies.
National mining policy The basic premise for Mexico's mining policy can be traced back to the Spanish legislation applicable to colonial mining in New Spain which provided that mines were part o f the royal patrimony, and contained in Article 27 of the 1917 Mexican Constitution which provides that: The nation has the eminent domain over all natural resources in the continental shelf and islands; of all minerals and substances in veins, strata, masses or beds which constitute deposits whose nature is distinct from the components of lands, such as ores from which metals and metalloids used in industry are extracted, of rock salt and salt beds formed directly by sea waters... Said Article 27 further provides that the eminent domain of the nation over its natural resources is not alienable or subject to acquisition and its exploitation and use may only be done through concession granted by the Federal Executive to Mexican nationals or Mexican corporate entities.
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The 1989-94 National Development Plan provided three goals in the field of mining: (i) the adequate availability of mining-metallurgical supplies for domestic consumption; (ii) the strengthening of the commercialization abroad of mining-metallurgical products; and (iii) the integration of industrial processes in order to transform minerals into products with more added value (Diario Oficial, 1989). Consistent with the emphasis on foreign trade, the free trade agreements then to be negotiated and the 1989-94 National Development Plan, in June 1990, the Federal Executive published the "1990-1994 National Mining Modernization Program" (Diario Oficial, 1990a) which included among the objectives and operating programs: (a) the up-dating of the regulatory frame of the mining sector; and (b) the adjustment of the tax treatment of mining. As a result of the foregoing, in 1992 a new Mining Law (Diario Oficial, 1992a) was enacted; it was complemented by changes to the taxation policy applicable to mining. This, coupled with the new Foreign Investment Law and the 1992 new Agrarian Law (Diario Oficial, 1992b) which allows for full ownership of communal and 'ejido' land by the 'ejidatarios' and of farmland by corporate entities, established a new regulatory framework whose goals were to promote mining. On 31 May 1995, the 1995-2000 National Development Plan was enacted. It only makes a passing reference to mining pointing out that mining: has a great capacity to create jobs, supply the domestic market and to generate foreign currency. Mining policy will be based on a regulatory framework which generates legal certainty among investors maintaining an expansion rhythm congruent with sustainable development. A policy to promote exports will be established. The access by small miners to treatment plants and financing will be fostered. In the case of national products from the steel industry, their access to foreign markets will be promoted, in reciprocity to the opening of the Mexican market. Likewise, fair competition by imports to the domestic market will be fostered. Notwithstanding the foregoing, the regulatory framework established in 1992 is applicable to date. However, the Industrial Policy and Foreign Trade Program recently published by the Federal Government contemplates three courses of action: (i) preparation of a national minerals inventory; (ii) updating the regulatory framework and 'collecting revenues'; and (iii) development of small and medium mining (Escudero, 1996, pp 189-191). Of the three, the most critical is the second; it contemplates amendments to the law which would enhance confidence by domestic and foreign investors, expedite administrative processes and promote a greater flow of new and larger capital investments, revising the list of minerals subject to concession with technical, economic, environmental and social criteria, in order to strengthen the
Mexico: policy and framework: A Hernandez capability of competing internationally. However, in open violation of the time honored tradition of granting concessions to the first person filing a claim, it contemplates granting concessions in auctions to the highest bidder. The mining industry in Mexico is alert to oppose this change which certainly will not promote investment in mining.
The 1992 Mining Law In June, 1992 a new Mining Law was enacted and became effective on 25 September 1992; its Regulations went in effect on 30 March 1993 and a Handbook of Services to the Public in Mining Matters was published. They are the product of dedicated joint efforts among the various private and official sectors which encompass the mining activity in Mexico. The Mining Law has 59 articles or sections while the 1975 Law had 109; the Regulations comprise 97 articles as compared with the 1976 Regulations which included 300 articles. This difficult and complex achievement, created a new set of legal provisions, congruent with our times, more accessible and easier to understand and with substantially less verbiage and requirements, which practice had demonstrated to be superfluous. Following is a brief analysis of the Mining Law. Mineral substances The law clearly defines which elements, substances and minerals are subject to its provisions (including ferrous and non-ferrous industrial and precious metals, non-metallic minerals, rare earths, mineral gems, rock salt, products derived from the decomposition of rocks whose extraction is mainly done through underground mining, mineral and certain organic materials which may be used as fertilizers, anthracite, mineral coal, lignite and peat; and such other as may be determined by Federal Executive Decree). Expressly excluded from the application of the Law are oil and solid, liquid or gas hydrocarbons, radioactive minerals (whose exploration and exploitation are reserved exclusively for the Federal Government), rock used for construction or the manufacture of construction materials, and salt from interior drainage basins. The new Law eliminates the limit to eight different substances per concession which the prior law contemplated. Under the present system any holder of a concession may explore and extract any substance covered by the law found within the area of the concession. Finally, the rules applicable to coal, sulphur, phosphorus, potassium and iron, have changed; they are no longer part of the National Reserves System and are free for exploration and exploitation by individuals or corporations through normal concessions.
Role of government agencies The Mining Development Commission which used to be responsible for providing financial support and technical assistance to small and medium miners has been dissolved and liquidated. In reality it had become a mining entrepreneur, creator and owner of mining companies, competing with private enterprise. The Law maintains the Mineral Resources Council ('MRC'), but clearly specifies that its main responsibility is to conduct the country's geological evaluation and to provide certain technical services and assistance to the miners. Although it may conduct certain exploration, it is precluded from exploring for commercial or business purposes. The exploration it may carry out is through a system of 'allotments' ('asignaciones '). Concessions and 'allotments' The Law contemplates two types of mining concessions: (i) exploration concessions for a 6 year period granted - - in the time honored tradition - - to the first person filing a claim on the respective area; and (ii) exploitation concessions which have a 50 year term renewable for another 50 year period, provided the holder of the concession does not incur in a justified cause for its cancellation and the renewal is requested within 5 years from its original expiration date. There is no limit in the area that may be covered by a concession nor in the total area under the control of a concession holder. The exploration concessionaire's fight to the exploitation concession over the area covered by the concession is clearly defined, provided the concessionaire has not incurred in a justified cause for its cancellation. Under the Law it is now possible to obtain concessions on the continental platform and seabed under a bidding process. The Law establishes clear links with environmental legislation in two ways: cleaner operations and practically no mining activity is permitted in natural protected areas. Concession holders must make a minimum investment or 'assessment work'; however, proof of 'assessment work' and investment in areas covered by concessions has been simplified. In addition, the Bureau of Mines has the authority to reduce temporarily the minimum assessment work or investment obligations if the price or demand for a specific mineral or metal is weak. The reasons or causes for cancellation or annulment of concessions are clearly defined and not left to arbitrary decisions by the government. Allotments to the MRC have a validity of 6 years, after which it must: (i) leave the area free; (ii) set it into the bidding process; or (iii) incorporate it to the Mineral Reserves System. Mineral reserves National Mineral Reserves as to substances no longer exist and all minerals may be explored and exploited, except those expressly excluded from application of
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Mexico: policy and framework: A Hernandez the Law. Mineral Reserves may only be created by special decree by the Federal Executive due to reasons of public interest or to satisfy future needs of the country; provided their creation is justified based on the mineral potential of the area as determined by semi-detailed exploration and the public interest is proven. Concessions or further exploration by the MRC are precluded in areas incorporated in a Mineral Reserve. Areas incorporated into a Mineral Reserve may be released or disincorporated by Federal Executive Decree if the reasons for their creation change. Upon disincorporation, the area may be declared free area or subject to the bidding process discussed below.
Mining contracts and bidding process Mining contracts (exploration, partnerships ('asociaci6n en participaci6n'), leases, etc) are no longer subject to the prior approval by the Bureau of Mines; they are, however, subject to recordal in the Public Mining Registry. The Law contemplates a bidding process for two different purposes: (i) for the execution of exploration contracts; and (ii) for the granting of concessions. The bidding process for the execution of exploration contracts applies to allotments to the MRC whose 6 year term is about to terminate and the area is not being declared free nor incorporated into Mineral Reserves. These contracts convey to the contracting party a preferential right to obtain a concession over the area involved. The other bidding process applies for the granting of exploration concessions in the continental platform and seabed and the granting of concessions in areas disincorporated from Mineral Reserves. The Law requires that the winners in the bidding process for the execution of exploration contracts and for the granting of concessions in areas released from reserves, must make a semi-annual payment of a 'finder's fee' or 'discovery premium' of not less than 1% nor more than 3% of the invoice value or smelter returns of the minerals obtained. Treatment plants Since 1930, the Mexican mining legislation had regulated ore dressing and treatment plant concessions for the operation of mills, smelters and refineries and treatment charges and fees were subject to the prior approval by the government. Although the Law eliminates these concessions, treatment activities are still subject to its provisions. Individuals or corporations operating treatment plants must give notice to the Bureau of Mines of their operations, comply with applicable environmental legislation and receive minerals or concentrates from third parties in amounts of up to 15% of the plant's capacity. Treatment charges and fees are no longer subject to governmental approval, they are determined under commercial conditions based on supply and demand.
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Mining companies and foreign investment Mining concessions may be granted to Mexican nationals, 'ejidos' and 'agrarian communities' and companies incorporated under the laws of Mexico. While previous mining legislation subjected mining companies to numerous rules, requirements and prior approvals regarding their By-Laws, transfer of shares, citizenship of Directors and CEOs, the Law has abolished all these requirements and merely requires that: (i) they be incorporated under the laws of Mexico; (ii) their corporate purposes include the exploration or exploitation of minerals or substances subject to the Law; and (iii) their corporate domicile be within the Mexican Republic. As to foreign investment, the 1975 Mining Law limited foreign investment to 49% in companies dedicated to the exploration and exploitation of minerals under ordinary concessions and to 34% in the case of placer gold, coal and iron. In the event of renewal of exploitation concessions, foreign investment had to decrease to 40 and 25%, respectively. The new Law refers the foreign investment participation in the equity of mining companies to the applicable provisions of foreign investment legislation. As mentioned earlier, under the 1993 Foreign Investment Law, foreign investment may hold up to 100% of the capital stock of Mexican mining companies without prior governmental approval or permit. Mining companies controlled by foreign shareholders are entitled to obtain mining concessions and surface land required for their operations. However, if a foreign investor tries to acquire, directly or indirectly, more than 49% of the capital stock of an existing company, it must first obtain the prior approval of the National Foreign Investment Commission, if the total value of the assets of the company involved exceeds an amount to be determined on a yearly basis.
Mineral reserves policy The total area of the Mexican territory is approximately 1 963 677 km 2. Although reliable data is not available, it is said that only 15% has been explored. Others contend that only 60% of the national territory has the adequate geological conditions for the existence of ore deposits and that only 20% has been fully explored. In any case, the area available for future additional exploration reaches gigantic proportions. In the past, further exploration in areas with mining potential had been discouraged either by hoarding of large idle acreage held for speculative purposes by individuals or corporations or the extensive areas considered National Mineral Reserves, whose exploration and exploitation was restricted to government agencies and only in very limited cases available to private enterprise under contracts with not too attractive terms and conditions. The first obstacle was eliminated through the fiscal system which will be discussed later. Consistent with one of the National Mining Modernization Program's objectives, since 1992, no
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new reserves have been created and through the end of 1995, 13.5 million ha had been released from National Mineral Reserves, canceled 'allotments', cancellation of concessions and voluntary reductions by concessionaires (Informe Anual, 1994).
Fiscal policy for the mining industry The taxation system applicable to the mining industry has been used not only as a source of revenue for the Federal Government, but also as a mechanism to implement other non-fiscal aspects of mining policy. Thus, by the late 50s all majority and wholly foreign owned mining companies had to bear a very heavy tax burden, while more benign taxation was applied to mining companies owned 51% or more by Mexican nationals; thereby, taxation was used to induce the 'Mexicanization' of foreign owned mining companies. In addition to the general tax system applicable to all business entities, currently there is only one specific tax ('derechos') applicable to the mining industry in Mexico, the 'mining concession's tax' which is an amount per hectare covered by a mining concession. Consistent with the objectives of the Mining Modernization Program of discouraging hoarding of idle mining claims and encouraging the allocation of funds to exploration and mining, the mining concession's tax had been increasing since 1989; the tax rate is different for exploration concessions and for exploitation concessions. Since 1991, there is an adjustment based on the increases in the Consumer Price Index. The tax payable during the first year of an exploration concession is fairly low, considering that substantial acreage must be explored during the initial stages; thereafter it increases twice in 2 year tranches, to discourage hoarding. Likewise, in the case of exploitation concessions the rate is low for the first 2 years, then increases substantially for the third and fourth year and thereafter the applicable rate is slightly higher. Federal tax legislation also provides that a tax ('derecho') be paid for each cubic meter of 'national waters' (ie obtained from underground sources, rivers or lakes) used by any individual or corporation; this includes the water pumped from the mines, excluding brackish water. In addition, a new duty taxes every cubic meter of water discharged into Federal lands, basins, lakes or rivers. The applicable rate depends on suspended solids, oxygen contained, etc.
Environmental policy for the mining industry Mexico is no exception to the worldwide trend of deep concern for the protection of the environment. The General Law for Ecological Balance and Protection of the Environment (Diario Oficial, 1988a) is a
comprehensive piece of legislation which deals with all aspects of environmental stewardship and the conservation of natural resources. This Law has been the cornerstone of a new and complex structure of regulations, technical parameters and governmental actions. The Law includes a specific chapter on exploration and exploitation of non-renewable resources (Part 3, Chapter III, Articles 108 and 109), as well as other restrictive provisions applicable to industries which are determined to be of high risk. The Law provides the possibility of temporary or permanent shutdown of industrial operations, including the possibility of cancellation of concessions if the activities of the concession holder are deemed highly pollutant. The 1988 Regulations (Diario Oficial, 1988b) regarding environmental impact make it mandatory to file an environmental impact statement and to obtain the prior governmental approval to commence activities, among others, of exploration, extraction, and treatment of minerals and refining of metals. In June 1988 the Government published a list of products and substances deemed as hazardous or toxic waste, including many produced by the mining-metallurgical industry. Later in the year, the Federal Executive issued Regulations regarding air pollution and hazardous waste. The latter provide for governmental approval of the storage, handling, transportation, recycling and final disposal of hazardous or toxic waste. In 1990, the Government published a list of activities deemed dangerous because of the toxic materials produced, processed, handled, used, stored or disposed, which includes certain chemicals which are used in or are by-products of the mining-metallurgical industry (Diario Oficial, 1990b). During the past 2 years the environmental protection authorities have issued almost 100 technical norms regarding the quality of water discharges, gas and dust emissions, noise, etc but none specifically concerning the mining industry. However, the mining sector is engaged in joint efforts with the environmental authorities in the preparation of norms regarding emissions to the atmosphere from copper and zinc plants; for the construction and operation of tailings ponds; use of tailings for hydraulic filling of underground mines; requirements for heap leaching operations for precious metals and copper; disposal of sterile rock and topsoil, and requirements during exploration which would eliminate the need to file environmental impact statements. In addition, cooperation agreements with the environmental authorities have been executed by the Mining Industry Chamber of Mexico. In addition, NAFFA in its preamble commits the three countries to 'promote sustainable development' and to 'strengthen the development and enforcement of environmental laws and regulations'. NAFTA explicitly addresses environmental issues in Chapters 7b (sanitary and phytosanitary measures), 9 (standards related measures), 11 (investment) and 20 75
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(dispute settlement), further strengthened in the Environmental Side Agreement. To conclude this section, the protection of the environment cannot be ignored by individuals nor by the mining-metallurgical industry and any mining project in Mexico has the social responsibility and legal obligation to consider the protection of the environment.
Foreign trade policy for the mining industry As we indicated, the negotiation of free trade agreements has been a prominent item in the Government's agenda. The mining industry is a mature market, which for scores of decades has been thoroughly familiar with the flow of international trade and its prices determined by international markets. Since nature denied some countries some minerals while benefiting them with others, complementation under free trade agreements allows fairly rapid tariff elimination. From the beginning, the position of the Mexican mining industry was that import tariffs for mineral products where Mexico has excess production, should be eliminated over a 5-10 year period and where Mexico is lacking, as well as in the case of reagents, supplies, machinery and equipment, etc used in the mining industry which are not locally produced, tariff elimination should be immediate. On 17 December 1992, the US, Canada and Mexico signed a historic trade accord which, after the close vote for its approval by the US Congress, became effective 1 January 1994. Except perhaps for the agreements establishing the European Union, NAFTA is the most comprehensive and detailed (about 2 000 pp) free trade agreement ever negotiated between regional trading partners, the first reciprocal trade pact between a developing country and industrial countries, and the international expression of Mexico's new economic policies. Although the aggregate number of articles in newspapers and periodicals and hours of media coverage, commenting NAFTA are probably in the thousands (perhaps only surpassed by Maastricht) it is worthwhile reviewing briefly some of its features affecting the mining industry. In the case of the mining sector, 204 tariff items of the Mexican import tariff were affected (most of Chapters 25 and 26, some in Chapters 27 and 28, precious metals in Chapter 71, and base or industrial metals and products made therefrom in Chapters 72-81). Of these, 15 were already exempt and 135 were subject to immediate tariff elimination (75% of the mining universe); 28 are subject to elimination over 5 years and 23 over 10 years. In the case of the US, 216 tariff items were involved, of which 106 were already exempt, 99 had immediate elimination, 6 over 5 years and 5 over 10 years. In sum, although NAFTA is a noteworthy achievement, its implications for Mexico, Canada and the US
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should not be exaggerated. The ability of NAFTA partners to gain maximum benefits from the pact with minimum adjustment costs depends on maintaining domestic economic policies that ensure growth and a favorable macroeconomic climate. The present economic situation of Mexico will certainly delay some benefits for Canadian and US exporters, although the devaluation of the peso and prevailing prices of metals have helped Mexican exports from its mining industry inducing the added exploration, modernization and expansion of existing facilities which helps Canadian and US manufacturers of mining equipment and other inputs. Preceding NAFTA, the first agreement negotiated (formally known as the Economic Complementation Agreement) was with Chile; signed in 1991, it became effective as of 1 January 1992. It provides for the total elimination of tariffs starting with a 10% ad-valorem rate. Most of the products are tariff free as of 1 January 1996 and the balance (agricultural, forestry, chemicals, petrochemicals, textiles and apparel) as of 1 January 1999. Though 1995 bilateral trade increased 470% and amounted to almost $950 million dollars (Escudero, 1996, Exhibit 3, p 195). After NAFTA, the free trade agreement with Costa Rica was executed in June 1994 and came into effect on 1 January 1995. Trade between Mexico and Costa Rica is bound to increase 300% over the first years, as a result of the immediate elimination of tariffs for 70% of Mexican products and 75% of Costa Rican products; 20% of Mexican products and 15% of Costa Rican products over 5 years and 10% over 10 years, starting with a base rate of 9% for Mexico and 20% for Costa Rica. During its first year, Mexican exports to Costa Rica increased 45.1% reaching $137.5 million dollars (Escudero, 1996, p 205). The fourth agreement negotiated was with Colombia and Venezuela; signed in June 1994 it became effective on 1 January 1995. In 1995, Mexican exports to Colombia and Venezuela combined amounted to $830 million dollars (Escudero, 1996, p 203). In effect since 1 January 1995, the free trade agreement with Bolivia eliminates immediately Mexican import tariffs on 99% of Bolivian exports and Bolivia eliminates immediately its tariffs on 97% of Mexican exports and during its first year Mexican exports reached $24.1 million dollars, an 80% increase over 1994 (Escudero, 1996, p 206).
An agenda for the future For the immediate future, to be in a situation comparable to mining companies in other countries and thus preserve Mexico's international competitiveness, the industry still needs governmental support through the following actions: - - Continued efforts to further eliminate bureaucratic red tape.
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- - Tax incentives (eg, d e p l e t i o n a l l o w a n c e ) w h i c h p r o m o t e further allocation o f resources to e x p l o ration, essential not o n l y for the growth o f the m i n i n g activity but for its survival. - - Incentives to r e c o v e r or share investments in infrastructure (eg, p o w e r lines, roads, etc) w h i c h represent significant e x p e n d i t u r e s required to o p e n or e x p a n d m i n i n g units and w h i c h benefit the surrounding communities. - - T h e e l i m i n a t i o n o f taxes on the use o f w a t e r p u m p e d from the m i n e s and on water d i s c h a r g e d from the mines. - - The a d o p t i o n o f specific e n v i r o n m e n t a l standards for the m i n i n g industry, which achieve a fair and equitable b a l a n c e b e t w e e n the need to protect the e n v i r o n m e n t and the c o u n t r y ' s need for mining activities.
Conclusions M e x i c o has laid d o w n a n e w M i n i n g P o l i c y with welldefined g r o u n d rules for the m i n i n g industry. T h e y constitute a n e w r e g u l a t o r y frame o f reference, c o n g r u e n t with the w o r l d w i d e trends in e c o n o m i c activity and w h i c h - - with the constructive attitude o f all parties, official and private, d o m e s t i c and
foreign - - ought to lead the w a y to new opportunities; contribute significantly to p r o m o t e the increased g r o w t h o f the M e x i c a n m i n i n g - m e t a l l u r g i c a l industry, k e e p it a m o n g the leading m i n i n g nations o f the w o r l d and as a reliable s u p p l i e r o f raw materials and interm e d i a t e products for the industrialized countries. To conclude, it is e v i d e n t that the M e x i c a n doors are open to additional investments in mining, from within and f r o m abroad, alone or through strategic alliances with local investors.
References Diario Oficial (1988a) 28 Jan. Diario Oficial (1988b) 7 Jun. Diario Oficial (1989) 31 May. Diario Oficial (1990a) 7 June. Diario Oficial (1990b) 28 Mar. Diario Oficial (1992a) 26 June. Diario Oficial (1992b) 26 Feb. Diario Oficial (1993) 27 Dec. Escudero, L (1996) Marco Legal de la Minerla en M6xico, Paper presented at the 5th Meeting of Mining Opportunities in Mexico, Mexico City, 3 May, p 4 Indicadores Oportunos de los Flujos de IED durante (1995) Secretaria de Comercio y Fomento Industrial, Mexico, 21 Feb, p 4. lnforme Anual (1994) Banco de M6xico, M6xico (1995), p 141. Programa de Polftica Industrial y Comercio Exterior Secretaria de Comercio y Fomento Industrial, Exhibit 2, p 183. Salinas, C (1988) El Reto Econ6mico 161-80, Mexico.
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