Mexico Facing Regulatory and Justice Reorganization: New Opportunities

Greenberg Traurig - In the last six months, Mexico has approved an important set of constitutional and legal reforms that modify the legal framework and the instances for the resolution of disputes.
    
    I. A New Federal Administrative Organization: from the Regulatory Model to Regulatory Centralism.

    In 2013 Mexico constitutionally adopted the so-called Regulatory State Model by recognizing the Federal Telecommunications Institute (IFT) and the Federal Economic Competition Commission (COFECE) as autonomous constitutional bodies. This, with the intention of technically regulating certain markets or sectors of economic and sectorial relevance in an independent manner from both public and private power, in order to implement measures of technical and non-political rationality. This would help to plan and promote the economic development of the country.

    The regulatory model scheme implied that certain State bodies carried out quasi-legislative (power to regulate), quasi-jurisdictional (power to resolve controversies and sanction) and quasi-executive (power to supervise and regulate) activities at the same time, departing from the traditional model of division of powers (Legislative, Executive and Judicial Powers). These powers are also found in a modulated form, for example, in the regulatory bodies of the energy sector: the Energy Regulatory Commission (CRE) and the National Hydrocarbons Commission (CNH), which did not cease to be part of the federal public administration, but which, in the same way, exercised these powers under the principle of technical autonomy.

    As part of the implementation of this state policy, the public agencies Petróleos Mexicanos (PEMEX) and Comisión Federal de Electricidad (CFE) were also transformed into state-owned productive enterprises in order to participate -and be regulated- on equal terms with other participants in the electricity and hydrocarbons industries.

    Twelve years later, the Mexican government has decided to abandon this organizational regime, to adopt a hybrid scheme that combines administrative centralism with the regulatory state model.

    With the constitutional reform on administrative simplification of December 2024, the IFT and COFECE were dissolved. The functions of the former will be assumed by the Ministry of Infrastructure, Communications and Transportation (SICT), with the exception of those related to economic competition, while the attributions of the latter will be assumed by a new National Economic Competition Agency with legal personality and its own assets, as well as technical and operational independence. The functions of the CRE and the CNH will be assumed by the Ministry of Energy (SENER); however, it was established that their decisions will be made under technical criteria.

    In addition, the Mexican Constitution was amended to transform the legal nature of PEMEX and CFE from productive state-owned companies to public companies. These companies will continue to have priority in the sectors in which they operate, but will be able to collaborate with private companies to achieve their objectives.

    II. A New Judicial Power and its Powers of Control.

    The judicial reform approved in September 2024 transforms the Judicial Power in Mexico, by establishing mainly the election by popular vote of Ministers, Magistrates and Judges at both federal and local levels, as well as the creation of a Judicial Discipline Tribunal in charge of receiving and resolving complaints against judges for acts of corruption or, in any way, any action contrary to the law.

At the same time, there have been constitutional and legal reforms that modify the mechanism for the protection of individuals against acts of authority that are contrary to human rights, through the amparo trial. Most notably, the challenge of constitutional reforms and the granting of suspensions/final sentences with general effects have been prohibited.

    However, Mexico has also promoted the use of alternative dispute resolution mechanisms, recognizing access to these means as a human right. In this context, a new General Law on Alternative Dispute Resolution Mechanisms was issued, whose objective is to establish alternative means of justice for the peaceful and collaborative management and resolution of disputes without the forced participation of a jurisdictional authority, which seeks to reduce the congestion of matters in courts, as well as to save time and costs for the parties in dispute.

    III. Opportunities

    These changes undoubtedly create a new business environment in the country, which makes it necessary to adapt and reevaluate strategies to promote our projects, especially in regulated sectors, opening the possibility for new opportunities, some of which include:

    A. Need for Regulatory Follow-up and Cooperation. Regulatory powers in specialized sectors have not disappeared. Although the public entity exercising these powers is different, the duty of due diligence and good administration that must be observed under criteria of technical rationality remains.

    There are evaluation mechanisms in place, ex ante and ex post, in the formulation and issuance of regulations, in which individuals can -and should- participate, allowing them to implement strategies for regulatory follow-up, cooperation and review. Closeness with regulators will be of vital importance.

    It should be noted that the previous regulatory state model allowed a wider margin of discretion to autonomous constitutional bodies in decision-making. Now, by transferring these powers to a centralized public administration, there is a reinforced duty to motivate their decisions and, to that extent, a greater margin of participation and review in the exercise of their functions.

    B. Collaborative Business. Although a prevalence in the formulation of policies in favor of public companies has been constitutionally established, the need to collaborate with private companies to promote the economic and sustainable development of strategic industries for the country is recognized, whether in the areas of electricity, hydrocarbons, telecommunications or other markets, there is the possibility of alliances to achieve the promotion of transcendental projects for the country.

    C. Administrative and commercial litigation in regulated sectors will not disappear, but it will require lawyers better prepared to evaluate the risks of litigation with a business vision; better legal argumentation techniques; strategic innovation; proximity and collaboration with the new Judicial Branch.

    D. We Own Our Disputes. In Mexico, access to justice and alternative dispute resolution mechanisms is a human right and, to that same extent, the principle that establishes that the parties, as owners of their dispute, have the freedom to decide how to resolve their differences is recognized. From a strategic perspective, companies will have to evaluate whether to go to court, in a traditional litigation, or to resort to public or private institutions to initiate alternative mechanisms such as arbitration, mediation or conciliation. This will depend on the nature of the conflict, the counterparty, the business involved or its amount, among other factors, which must be carefully analyzed in order to protect their interests in the best possible way. 

    It also opens the possibility of creating and exercising new mechanisms to achieve effective solutions, such as the use of technological means for the automated or more efficient resolution of disputes; the creation of certification of facilitators, collaborative lawyers and new centers for alternative dispute resolution mechanisms to process and resolve legal disputes.

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