Brazil and Mexico Cooperation and Facilitation Investment Agreement: An Analysis of the Structure of the Agreement

MAYRA TORRALBA¹

SUMMARY: I. Introduction. II. The landscape of investment protection treaties. III. The situation of the parties of the agreement: Mexico. IV. The situation of the Parties: Brazil. V. Structure of the agreement. VI. Conclusion.

Abstract. Even though Bilateral Investment Treaties (BITs) have been the main source to promote and regulate international investment law, the practice has shown that BITs are not responding optimally to the economic necessities of some States. As an alternative, Cooperation and Facilitation Investment Agreements (CFIAs) intend to foster dynamism in investment relations between countries by transforming the investment policy in order to attain sustainable development, inclusive economic growth, as well as reducing risks and preventing disputes. We can now see reflected in practice these advantages, standing out the CFIA concluded between Mexico and Brazil, which main characteristics are: the promotion of dialogue between investors and governments through organisms such as Ombudsman or Focal points; the use of agendas, which help to identify specific issues related to foreign investment and their solutions; and the creation of dispute prevention mechanisms. This new investment regime tends to create longer and more dynamic relations between States and investors, and it comprises more aspects that could be affected by Investment Law such as social, labor, environmental and corporate matters. This article exposes a critical analysis of the background, the socio-economic context of the Parties to the treaty, as well as the legal framework of the CFIA concluded between Mexico and Brazil.²

Keywords: Cooperation and Facilitation Investment Agreement (CFIA), Foreign Direct Investment (FDI), Focal Points, Ombudsman, Mexico, and Brazil

           Resumen. Si bien los Tratados Bilaterales de Inversión (TBI) han sido la principal fuente para promover y regular el derecho internacional sobre inversiones, la práctica ha demostrado que los TBI no responden de manera óptima a las necesidades económicas de algunos Estados. Como alternativa, los Acuerdos de Cooperación y Facilitación de Inversiones (ACFI) pretenden fomentar el dinamismo en las relaciones de inversión entre países mediante la transformación de las políticas de inversión con la finalidad de procurar un desarrollo sostenible, un crecimiento económico inclusivo, así como la reducción de riesgos y la prevención de disputas. Actualmente podemos ver reflejadas en la práctica dichas ventajas, destacando el ACFI celebrado entre México y Brasil, cuyas principales características son: la promoción del diálogo entre inversores y gobiernos a través de organismos como Ombudsman o puntos focales; el uso de agendas, que ayudan a identificar problemas específicos respecto la inversión extranjera y sus soluciones; y la creación de mecanismos de prevención de disputas. Este nuevo régimen de inversión tiende a crear relaciones más largas y más dinámicas entre los Estados y los inversores, y comprende más aspectos que podrían verse afectados por el derecho de inversiones, como los asuntos sociales, laborales, ambientales y corporativos. El presente artículo expone un análisis crítico de los antecedentes, el contexto socio-económico de los Estados parte del tratado, así como el marco jurídico del ACFI celebrado entre México y Brasil.

            Palabras clave: Acuerdo de Cooperación y Facilitación de las Inversiones (ACFI), Inversión Extranjera Directa (IED), Puntos Focales, Ombudsman, México y Brasil

I ] Introduction

In the absence of a comprehensive multilateral agreement on investment, cross-border investment flows are currently governed by bilateral investment treaties along with investment chapters in FTAs.

Bilateral Investment treaties (BITs) are the primary source of international investment law to protect and promote cross-border investment flows. The first BIT was signed between Germany and Pakistan in 1959. Today, there are more than 3,000 BITs. Nevertheless, during the last 10 years, many countries have been revisiting their legislation applicable to the foreign investment and BITs agreements have been modified in order to bring uniformity and coherence in treaty interpretations, this tendency and the changing pattern of global investment flows are the main reasons motivating that the landscape of BITs is quickly evolving.

Brazil, typically considered as receptor of foreign investments, abandoned 14 BITs signed in the 1990s after some of them were rejected by its Congress; in 2008, Ecuador abandoned two non-ratified BITs (with Honduras and Nicaragua); about 130 BITs have been replaced in Germany, China, Egypt, Romania and Morocco and most recently, in January 2017, the United States publicly stated its intention not to become a party to the TPP.

Main criticisms regarding BITs deal with: lack of legal consistency of decisions, high financial cost of arbitration procedures and compensations, restriction to the regulatory discretion of States and high political costs; the reform in act replaces outdated BIT’s by substituting them with new ones; for instance, The Canada–EU CETA 2016 replaces eight prior BITs between Canada and EU member States (Article 30.8.). New treaties can be concluded by the same treaty partners or by a larger group of countries. For replacement to be effective, countries need to be mindful of termination provisions in the earlier agreement, including how to ensure effective transition from the old to the new treaty regime and how to deal with any survival clause. It requires participation of a treaty partner or partners with similar views, it can be cost-and-time intensive and requires effective transition between the old and the new treaties.

Current replacement examples include the CFIAs (The Cooperation and Facilitation Investment Agreements), an innovative alternative that seeks to overcome limitations by fostering a more dynamic and long-term relation between the parties. Constant cooperation among governmental agencies and deference to domestic legislation can be considered the leading notions behind this model agreement, which offers an alternative to the current international investment regime. By ratifying a CFIA, the Parties express the understanding that the benefit to the home country must come not only from capital exports, but also from the overall impact that investment from the home country will have on the host country, such as employment of local labor. CFIA Agreements also encourages the adoption of social, environmental and corporate responsibility standards and creates an obligation on the investors and the investments to attempt (i.e. an obligation of means/best efforts) to observe principles of corporate social responsibility.

II ] The landscape of investment protection treaties

After analyzing investment flows from 20 OECD countries to 31 developing countries during 1980-2000, a United Nations Conference on Trade and Development (UNCTAD) survey found that treaties act more as complements than as substitutes for good institutional quality and local property rights; it pointed out that the rights given to foreign investors may exceed those enjoyed by domestic investors and expose policy-makers to potentially large-scale liabilities that curtail the feasibility of different reform options. Over a 20-year period of analysis, the report found little evidence that BITs stimulated investment; numerous countries that have ratified BIT agreements are having difficulties attracting FDI, particularly in sub-Saharan Africa. On the other hand, Japan, the second largest source of Foreign Direct Investment in the world, has signed only four BITs; the US does not hold a BIT with China, despite China is the largest developing country destination for US Foreign Direct Investment; Brazil, a receiver of substantial Foreign Direct Investment, and does not hold any ratified BIT agreements. So, the question is: are BITs the best alternative?

Alternatives to this situation and its framing rules have been rare in the last 40 years; but, according to the United Nations Conference on Trade and Development (UNCTAD), throughout the 90’s, the number of signed BITs decreased significantly while the Cooperation and Facilitation Investment Agreements (CFIAs) increased.

Cooperation and Facilitation Investment Agreements (CFIAs) can be considered a pragmatic response to the system, leaded by Brazil and based on his domestic needs and geo-economic position.

The CFIA agreement between Brazil and Mexico was signed in May, 2015 in two official languages: Spanish and Portuguese, a free translation into English has been elaborated by the author since during the elaboration of the present essay no English official version was available.

The CFIA model was designed taking into consideration economic specificities of a developing country such as Brazil: a historical recipient of foreign investment, a latecomer exporter of capital, and the current combination of both, favoring the triangulation of foreign investments abroad. In this context, the ACFIs have definitely brought new elements to the international investment scene. In the case of Brazil and Mexico CFIA, the agreement comprises rules for investment and investor protection and diplomatic and cooperative mechanisms for implementing, overseeing and enforcing the parties’ obligations.

The parties of the Brazil and Mexico CFIA committed to exchange relevant information on business opportunities and procedures and conditions for investment, particularly by means of the Joint Committee and the Focal Points. The Joint Committee obtained the mandate to develop thematic agendas of cooperation and facilitation in areas relevant to promote and increase bilateral investments and to coordinate their implementation through specific commitments.

In order to mitigate the risk, the agreement also includes corporate social responsibility clauses, encouraging foreign investors to respect human rights and environmental laws in the host state.

III ] The situation of the parties of the agreement: Mexico

More than 20 years ago, Mexico embarked on a major modernization of its international economic relations. The new trend officially began in 1986, when Mexico acceded to the General Agreement on Tariffs and Trade (GATT), very soon Mexico’s strategy showed also an interest in the promotion and protection of investments. In 1994, the country signed the North American Free Trade Agreement (NAFTA) together with Canada and the United States, which contains a section (Chapter 11) specifically devoted to investment.³

Mexico concluded its BIT with Spain, in 1995. In the following years, it entered into 28 BITs. Alongside BITs, Mexico has signed several Free Trade Agreements (FTAs), mostly with its Latin American partners. These agreements are much broader in scope and more extensive than BITs and may also include a chapter devoted to investment.

Dispute settlement provisions signed by Mexico are very detailed and largely inspired by the analogous section of the NAFTA Agreement; the scope of the sections concerning the settlement of disputes between investors and contracting States clearly identifies the protection of the foreign investor giving to him the choice to submit the claim under the ICSID Convention, the ICSID Additional Facility Rules and the UNCITRAL Rules.

Mexico has already an investment policy based on BITs that provide for arbitral tribunals to rule over investments made in its territory and include ICSID as dispute settlement mechanism; Mexico has already experienced investor-state arbitration under ICSID/AFR and UNCITRAL.

On the road for the becoming a hub of foreign investment; Mexico has to deal not only with its BITs (29 agreements) but also with the awards emerged from the North American Free Trade Agreement (NAFTA). NAFTA governs U.S. and Canadian investment in Mexico, foreign investors are protected under NAFTA by broad standards on expropriation, non-discrimination and fair and equitable treatment but according to recent decisions a need is required for a limit to the expansive interpretations of NAFTA tribunals since the past decisions of some NAFTA tribunals have interpreted these standards in an overly expansive, pro-investor direction (in its review of the Metalclad award against Mexico, the British Columbia Supreme Court observed with respect to the tribunal’s definition of ‘indirect expropriation’:

[…] The Tribunal gave an extremely broad definition of expropriation for the purposes of Article 1110. In addition to the more conventional notion of expropriation involving a taking of property, the Tribunal held that expropriation under the NAFTA includes covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property […].⁴

This calls for clarification that the treaty does not require payment of public compensation to investors where they are affected negatively by laws or regulations passed in good faith for a public purpose. It is likely that governments in each NAFTA state have been influenced in their regulatory decisions by the risk of a NAFTA claim.

Various studies have highlighted the danger that NAFTA frustrate government efforts to protect health and the environment, preserve natural resources, counteract climate change, promote economic development, regulate utilities and deliver government services, make zoning decisions, reform health care, or regulate the financial sector.

It is difficult to establish definitively that any particular measure was abandoned as a result of a NAFTA claim. However, it appears that various government measures have been withdrawn in the face of threatened claims. Documented cases include, for example, withdrawn proposals in one NAFTA country to require plain packaging of cigarettes, to establish public auto insurance, and to privatize a water filtration plant.

In addition to NAFTA, Mexico's FTAs with investment clauses include Bolivia, Chile, Costa Rica, Colombia, El Salvador, Guatemala, Honduras, Japan and Nicaragua.

Mexico has also enacted formal BIT agreements with 29 countries: 16 European Union countries (Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Slovakia, Spain, Sweden, and the United Kingdom) as well as Argentina, Australia, Belarus, China, Cuba, Iceland, India, Panama, Slovakia, South Korea, Switzerland, Trinidad and Tobago, and Uruguay.

IV ] The situation of the parties: Brazil

Brazil has attracted a huge amount of foreign direct investment, especially after the 1991, time when the privatization process started and is also the largest exporting capital of the Latin America region (in 2006 outward investment flows were higher than inward investment flows) but Brazil has not signed the ICSID Convention and has not ratified BITs;

In the 1990s, Brazil signed BITs with 14 countries but strong political opposition by Congress impeded the country from ratifying any of the proposed agreements. Brazil then became known as one of the few top economies without BITs. Brazil is also one of the countries that decided not to ratify the ICSID Convention. According to the delegation negotiating the agreement with Mexico; Brazil does not object to ICSID as a forum to resolve investment disputes, but it objects the system of investor-state arbitration in general, whether ICSID or non-ICSID, when dealing with investment disputes.

Its main objection remains the investor-state arbitration option since Brazil is quite successful in solving problems encountered by foreign investors through diplomatic means.

It also be noted that Brazil finds a serious impediment to investor-state arbitration in its Constitution in the first place and the related Calvo Doctrine that it embraces. This doctrine provides for national courts of the host state to rule over investments made in its territory and is also a Doctrine applied in Mexico.

During the last ten years, The Ministry of Industry, Development and Commerce (MDIC) looked for alternative formats for the regulation of investments at the international level. Such efforts first considered external relations with MERCOSUR and other South American countries and later became a broader policy concerning Africa, Asia and Latin America. In 2012 the Brazilian Chamber of Foreign Trade (CAMEX) granted a formal mandate to a Technical Group for Strategic Studies on Foreign Trade (GTEX) to work on the drafting of a new investment agreement sensitive to Brazilian needs; GTEX initiated consultations with the private sector in Brazil (in that moment, Brazilian firms had invested US$355 billion abroad) and recommended the creation of a new type of investment agreement.

The Brazilian Ministry of Development, Industry and Commerce (MDIC) led the preparation of the model, collaborating with the Ministry of Foreign Relations, the Ministry of Labor and Employment, the National Confederation of Industries, the Federation of Industries of the State of São Paulo and the Central Bank of Brazil. The new investment treaty model was supposed to be a dynamic instrument that leaves space for the gradual construction of specific commitments between the Parties to be detailed in annexes or additional protocols to the agreement; the rules regulating litigation are the most important part of the investment agreement since those affect not only the business environment and the effort to attract investments but also the State´s regulatory capacity to pursue public interest needs through legitimate policies in the fields of health, environment, security.

In the past, one of the major criticisms to Brazil’s investment policy is its failure to grant protection to its own companies abroad: Petrobras, a leading Brazilian company, was subject to expropriation measures by the government of Bolivia. Another Brazilian company, Odebrecht, had to initiate proceedings under a third country BIT and bring actions through a Dutch subsidiary; it looks like time has come for Brazil to take a step forward and consider changing its actual investment policy, in order to better respond to the needs of its investors as well.

According to the Brazilian delegation headed the negotiations, the goals of the new model of Cooperation and Facilitation Investment Agreement (CFIA) were: overcoming legal difficulties and failures of traditional BITs, attending the needs of investors in a concrete and pragmatic manner and give attention to the development strategy of host countries.

The CFIAs would ensure disclosure of business opportunities, exchange of information about regulations and an adequate mechanism for the prevention and, eventually, settlement of disputes […] said the Brazilian delegation at the negotiations of CFIA with Mexico.

After three years implementing the new strategy, in 2015 Brazil signed CFIAs with Mozambique, Angola, Malawi, Mexico, Colombia and Chile and there are ongoing negotiations with South Africa, Algeria, Malawi, Morocco, Peru, India and Jordan.

V ] Structure of the agreement

On the analysis of the clauses is clear that CFIAs are strongly different from the traditional BIT regime; CFIAs focus primarily on cooperation and investment facilitation and, by excluding investor-state arbitration, the CFIAs promote amicable ways to settle investment disputes. On this part of the document, special reference will be made to the Spanish version of the CFIA text since there is no official translation into English.

1. Preamble.- Unlike the treaties with Angola and Mozambique, the treaty with Mexico explicitly acknowledges the need to promote and protect investments due to their essential role in the promotion of sustainable development, economic growth, poverty reduction, job creation, expansion of productive capacity and human development.⁵

This part of the agreement fully complies with the Brazilian draft bringing to the negotiations and no further modifications were required by Mexican delegation.

2. Scope of the agreement and definitions.- The definition of investment plays an essential role, since the CFIAs covers only Foreign Direct Investment, which is the kind of investment seen as able to play a more decisive role in the development of the states.

Artículo 3. […] 1.2. Inversión significa cualquier tipo de bien o derecho perteneciente o bajo control directo o indirecto de un inversionista de una Parte establecido o adquirido de conformidad con las leyes y reglamentos de la otra Parte en el territorio de esa otra Parte, vinculado con la producción de bienes o prestación de servicios en el Estado anfitrión por el inversionista de la otra Parte con el fin de establecer relaciones económicas de larga duración, tales como:

a) una sociedad, empresa, participaciones sociales (equity) u otros tipos de participaciones en una sociedad o empresa;

b) bienes raíces u otra propiedad, tangibles o intangibles, adquiridos o utilizados con el propósito de obtener un beneficio económico o para otros fines empresariales;

c) instrumentos de deuda de una empresa; […]

d) un préstamo a una empresa; […]

e) los derechos de propiedad intelectual tal como se define o se hace referencia en el Acuerdo sobre los Aspectos de los Derechos de Propiedad Intelectual de la Organización Mundial del Comercio relacionados con el Comercio (ADPIC);

f) el valor económico de la concesión, licencia o autorización otorgada por el Estado anfitrión al inversionista de la otra parte […].⁶

The definition of foreign investment remains subject to domestic law, the agreement establishes that each Party shall admit the investments of investors of the other Party, in accordance with its applicable laws and regulations. It expressly applies to all investments, whether made before or after their entry into force but is not possible to invoke the agreements to question disputes finally solved before its entry into force.

The definition of investor includes both natural and legal persons who are nationals of one state (including permanent residents, in the case of Brazil) who make an investment in the other state. Legal persons must be structured in accordance with home state law and have the center of their economic activities in home state territory. Legal persons established in a third state can also qualify if a natural or legal person of the host state controls them.

Portfolio investments are explicitly excluded from the scope of the CFIAs, since they encompass essentially short-term and speculative investment:

Para mayor certeza el término inversión no incluye: i) títulos de deuda emitidos por un Gobierno o préstamo a un Gobierno; ii) las inversiones de cartera; y iii) reclamaciones pecuniarias derivadas exclusivamente de contratos comerciales para la venta de bienes o servicios por parte de una empresa nacional o en el territorio de una Parte a una empresa en territorio de otra Parte, o el otorgamiento de crédito en relación con una transacción comercial, o cualesquiera otras reclamaciones pecuniarias que no implican a los tipos de interés dispuestos en los incisos anteriores.⁷

Foreign investors and investments shall strive to carry out the highest level possible of contributions to the sustainable development of the host State and the local community, but it is not clearly defined if National Treatment clause and MFN provisions are extended to the pre-establishment phase:

Artículo 5. No discriminación. Sin perjuicio de las excepciones establecidas por su legislación en la fecha en que el presente acuerdo entre en vigor, una Parte otorgará a los inversionistas de la otra Parte y sus inversiones, un trato no menos favorable que el que otorgue a sus propios inversionistas y sus inversiones. Lo dispuesto en este Artículo no impide la adopción y aplicación de nuevos requisitos o restricciones legales a los inversionistas y sus inversiones siempre y cuando no sean discriminatorios. Se considerará que un trato es menos favorable si modifica las condiciones de competencia a favor de sus propios inversionistas y sus inversiones en comparación con los inversionistas de la otra Parte y sus inversiones.⁸

3. Regulatory measures and risk mitigation.- The national treatment and most-favored-nation (MFN) treatment clauses establish that foreign investors must be treated no less favorably than domestic investors or investors from third parties. A few existing exceptions are preserved, such as the prohibition of investments in border regions. The model does not limit new public policy measures, if they are not discriminatory.

There also are articles on transparency:

Artículo 8. Transparencia. […] 2. Cada parte garantizará que sus leyes, regulaciones, procedimientos y resoluciones administrativas de aplicación general relativos a cualquier asunto cubierto por el presente Acuerdo, en particular con respecto de la calificación, la concesión de licencias y la certificación, sean publicados inmediatamente y puestos a disposición, en la medida de lo posible, en formato electrónico, de manera tal que se permita que las personas interesadas y la otra parte tengan conocimiento de los mismos.⁹

There are also dispositions on the freedom of investment-related transfers, which states the following:

Artículo 9. Transferencias. Las Partes permitirán la libre transferencia de los fondos relacionados con la inversión, sin demora, en una moneda de libre uso o al tipo de cambio vigente en el mercado a la fecha de la transferencia.

On the other hand, there is also an article about expropriation, which determines that direct expropriations are not allowed, unless they are made: i) in the public interest; ii) in a non-discriminatory way; iii) in accordance with due process of law; and iv) on payment of effective compensation.

The expropriation article does not cover indirect expropriation:

Artículo 6. Expropiación. 1. Sin perjuicio de sus leyes y reglamentos:

1.1. Las Partes no podrán nacionalizar ni expropiar las inversiones cubiertas por el presente Acuerdo, salvo que sea: a) por utilidad o interés públicos; b) de forma no discriminatoria; c) mediante el pago de una compensación, de conformidad con los párrafos 1.2. a 1.4.; y d) de conformidad con el debido proceso legal.

1.2. La indemnización deberá: a) ser pagada en su totalidad sin demoras indebidas; b) ser equivalente al valor justo de mercado de la inversión expropiada inmediatamente antes de la expropiación efectiva, en adelante fecha de valoración; c) no reflejar un cambio negativo en el valor de mercado debido al conocimiento de la intención de expropiar, antes de la fecha de valoración, y d) ser libremente transferible, de conformidad con el Artículo sobre Transferencias.¹⁰

4. Institutional governance.- Under the CFIAs, each partner state must create a centralized mechanism (Ombudsman or Focal Point) to receive investors’ queries and demands. The Ombudsman shall analyze the demands and questions posed and, by coordinating itself with the governmental entities related to the issue through expedited proceedings, shall provide the investor with an answer or solution. The objective is that foreign investors have at their disposal effective means to overcome hardships and challenges faced to make and maintain the investment and to foster a good business environment.

Artículo 15. Puntos focales u Ombudsman.

1. Cada Parte designará un Punto Focal Nacional u Ombudsman, que tendrá como principal responsabilidad el apoyo a los inversionistas de la otra Parte en su territorio.

2. En Brasil, el Ombudsman será la Cámara de Comercio Exterior – CAMEX.

3. En los Estados Unidos Mexicanos, el Punto Focal Nacional será la Comisión Nacional de Inversiones Extranjeras.

4. El punto focal nacional u Ombudsman, entre otras responsabilidades, deberá: a. Esforzarse para atender las directrices del Comité Conjunto e interactuar con el Punto Focal Nacional de la otra Parte, de conformidad con el presente acuerdo; b. Interactuar con las autoridades gubernamentales pertinentes para evaluar y recomendar, cuando sea aplicable, las sugerencias o las reclamaciones recibidas por parte del Gobierno y los inversionistas de la otra Parte, proporcionando información al Gobierno o inversionistas interesados a cerca de los compromisos derivados de tales sugerencias y quejas; c. Mitigar los conflictos y facilitar su resolución en coordinación con las autoridades gubernamentales pertinentes y en colaboración con las entidades privadas pertinentes; d. Proporcionar a las partes información oportuna y útil sobre temas de la regulación de la inversión en general o en proyectos específicos, y e. Informar al Comité Conjunto sus actividades y acciones, cuando sea aplicable.¹¹

The Focal Point was established in Brazil by Decree n. 8.863/2016 and is named Ombudsman for Direct Investments (OID). It was included in the structure of the Foreign Commerce Chamber, the inter-ministerial body in charge of the trade and investment policy in Brazil.

In Mexico, the Focal Point is a not-permanent commission composed by 10 representatives of Governmental Secretaries and Headed by the Ministry of Trade.

The CFIAs also innovate through the constitution of a Joint Committee for state-to-state cooperation and dispute prevention. The Joint Committee composed of government representatives of both parties is responsible for monitoring the implementation of the Agreement, sharing investment opportunities, coordinating cooperation agendas and, especially, preventing disputes.

The Joint Committee operates at the state-to-state level. Main functions of the Joint Committee are: a) monitoring the implementation of the CFIAs; b) discuss and share opportunities for reciprocal investment; c) coordinate the implementation of thematic agendas; d) seek the participation of the private sector and civil society on relevant issues related to the work of the committee;

5. Agenda for Further Investment Cooperation and Facilitation.- The CIFA creates a Joint Committee of government representatives of both parties, which is responsible for monitoring the implementation of the CIFA, discussing and sharing investment opportunities, and coordinating the implementation of the cooperation and facilitation agendas.

The Joint Committee may invite the private sector and civil society to participate when appropriate. The parties may also create ad hoc working groups, in which, with the Joint Committee’s permission, the private sector may participate. Another function is seeking consensus and amicably resolving investment questions or conflicts.

The cooperation aspect of the Joint Committee’s attributions is exercised especially through the development of the Agenda for Further Cooperation and Facilitation, which can include themes such as business visa facilitation, exchange of legislation information and logistics. These topics move forward depending on the common interest of the partner states. Therefore, the agenda is intended to be a living document, which can be adapted to each case, including topics of mutual interest. Investment facilitation provisions during the negotiations were mostly concerned with market access. Measures such as visa policy and the regularity of flights were considered basic needs for the effective promotion of investment flows.

6. The Dispute settlement mechanism.- According to many authors, the current BITs regime has failed to address the balance of rights and responsibilities of foreign investors as it offers numerous legal rights for investors without requiring corresponding responsibilities for them; legitimate questions are being raised on the cost and procedure of arbitration, expansive interpretations by arbitral tribunals and the inconsistency of awards.

The CIFAs propose a new approach by mandating the Focal Points and the Joint Committee to prevent, manage and solve disputes between the states. In particular, prior to the initiation of an arbitral proceeding, any dispute is subject to assessment, by means of consultations and negotiations, and to a preliminary examination by the Joint Committee.

Artículo 14. Comité Conjunto para la administración del Acuerdo. […] 4. El Comité Conjunto tendrá las siguientes funciones y responsabilidades: a) Supervisar la aplicación y ejecución del presente acuerdo; b) Discutir y compartir oportunidades para la expansión de la inversión mutua; c) Coordinar la aplicación de la cooperación mutuamente acordada y programas de facilitación; d) Consultar al sector privado y a la sociedad civil, cuando resulte pertinente, sobre cuestiones específicas relacionadas con los trabajos del Comité Conjunto; e) Resolver las cuestiones o controversias relativas a inversiones de las Partes de manera amistosa; f) Implementar, cuando resulte aplicable, las reglas de solución de controversias arbitrales entre Estados.¹²

Foreign investment-related claims under the ACFIs are addressed in two different manners: On first place, a dispute prevention mechanism that can be accessed by both investors and States:

Artículo 18. Prevención de controversias. […] 2. Antes de iniciar un procedimiento de arbitraje, de conformidad con el artículo 19 del presente Acuerdo, toda controversia entre las Partes se evaluará a través de consultas y negociaciones entre las Partes y será previamente examinada por el Comité Conjunto […].¹³

While the second manner is a dispute settlement phase, comprising a State-to-State arbitration. The system of Investor-to-State Dispute Settlement has become subject to increased public scrutiny in recent years. Investment policy makers, negotiators, stakeholders and inter-governmental organizations in many countries are engaged in a reflection process about possible reforms of the system. The idea of creating a new system for the resolution of investment disputes has emerged during the negotiations of CFIA in order to improve the current system and address its perceived limitations in terms of legitimacy, transparency, predictability and legal correctness.

The procedure for a state to submit a claim to the Joint Committee on behalf of an investor is established as follows:

a) To initiate the proceeding, the home state of the investor presents a written request to the Joint Committee, specifying the name of the investor and the challenges or difficulties faced, the home state may summon a meeting of the Joint Committee within 30 days.

b) The Joint Committee has 60 days, extendable by mutual agreement and upon justification for another 60 days, to present information pertinent to the case; this is also the time limit for the Joint Committee to issue its summary report.

c) Representatives of the investor, of government entities and NGOs involved may participate in the meetings.

d) Except for the summary report, all documents and meetings of the proceedings are confidential.

The CFIA clarifies that the objective of the arbitration is to bring any non-conforming measures into conformity with the treaty. Only upon specific agreement of the Parties, may the tribunal assess damages and grant compensation. If granted, the state must transfer it to the holder of the rights to the investment after deducting arbitration costs.

As usual in state-state arbitration mechanisms, the CFIA ensures that the appointing authority may not be a national of either of the disputing states.

Arbitral tribunals are given the power to determine their own procedure and to issue a majority decision that is binding on both parties. They must issue their decision within six months of the nomination of the president of the tribunal, unless the parties agree otherwise.

The dispute prevention component works through a mechanism in which representatives of the investors and governments involved can share their views on the issue raised by the investors and look for a solution on a common ground. If the parties fail to find a common ground, the states involved can initiate international arbitration as a last resort.

The CFIA does not provide for investor–state arbitration. The main purpose of the state–state arbitration is to determine whether the host state violated any of the disciplines of the agreement and, if so, recommend that the state adjust or eliminate its nonconforming measure.

To initiate the proceeding, the home state of the investor presents a written request to the Joint Committee, specifying the name of the investor and the challenges or difficulties faced; the CFIA clarifies that the home state may call for a meeting of the Joint Committee within 30 days.

Another important issue raised during the negotiations was the importance to ensure the credibility of the multilateral investment dispute settlement mechanism, by establishing adjudicators with unquestionable independence, neutrality and impartiality when hearing and solving investment disputes; to this end, article 19 provides that the arbiters must have the necessary experience or expertise in Public International Law, international investment rules or international trade; be independent of and not be affiliated, directly or indirectly, with any of the Parties or with the other arbitrators or potential witnesses nor take instructions from the Parties; and comply with the Rules of conduct for the understanding on rules and procedures governing the settlement of disputes of the World Trade Organization.

Artículo 19. Solución de controversias entre las Parte. […] 7. Los Árbitros deberán: a) Ser personas de alto nivel moral y tener la experiencia o experticia necesarias en Derecho Internacional Público y tener experticia reconocida en el área relacionada con la controversia; b) Ser independientes y no estar vinculados con alguna de las Partes, ni con los otros árbitros o potenciales testigos, directa o indirectamente, ni recibir instrucciones de las Partes, y c) Cumplir con las Normas de conducta para la aplicación del entendimiento relativo a las normas y procedimientos por los que se rige la solución de diferencias de la Organización Mundial del Comercio en lo que sea aplicable a la controversia, o con cualquier otra norma de conducta establecida por el Comité Conjunto.¹⁴

About the prescription period for the presentation of a request during the negotiations, the Brazilian delegation suggested: a) a period of five years from the date on which the investor acquired or should have acquired knowledge of the facts leading to the dispute to present the dispute; b) the written establishment that the agreement may not be invoked to solve an investment dispute after that date.

Since no agreement was reached about the period of five years, the disposition is not part of the final binding version of the text.

VI ] Conclusion

The Brazil and Mexico Investment agreement is a part of the countries’ broader move to reshape their investment policy in accordance with objectives of sustainable development and inclusive economic growth, the agreement strongly relies on the activities of the Joint Committees of the bilateral partners and Focal Points in developing and implementing thematic agendas, reducing risks and preventing disputes.

The main pillars of the agreement are:

1. Enhance institutional governance through the establishment of Focal Points, Ombudsman and Joint Committees.- Focal Points are intended to promote dialogue between investors and the host country, and to promote and investment-friendly environment in the host country. Joint Committees have been designed to include representatives of both Parties to the CFIA for the purpose of sharing opportunities for the expansion of mutual investment, monitoring the implementation of the agreement, preventing disputes and solving possible agreements in an amicable manner.

Such Committees will also have the opportunity to establish working groups to discuss specific issues and have the discretion to invite private sector representative to participate in such groups.

2. The use of thematic agendas for investment cooperation and facilitation.- Thematic agendas are used to encourage and promote an investment-friendly environment. They can cover a vast array of specific issues of interest to the Parties and the investors regarding investment cooperation and facilitation, including business visas, corporate social responsibility, technical and environmental regulation, cooperation on currency remittance, and any other area deemed pertinent by the Parties.

New thematic agendas can be proposed and added by agreement to the CFIA, allowing for a more dynamic agreement capable of being gradually expanded through continuous negotiations between the Parties.

3. The establishment of mechanisms for risk mitigation and dispute prevention.- About innovations, the most important one in relation to other investment agreement models are: a) The introduction of clauses on corporate social responsibility based on the OECD Guidelines for Multinational Enterprises, this is mainly in line with Brazil’s wish that investments must be socially responsible and contribute to sustainable development; and b) The absence of ISDS and the return to a means of diplomatic protection for enforcement of substantive obligations. By ensuring that Investor-State Arbitration is an exceptional remedy, the agreement increases the legal certainty needed by the investors and reduce the incidence of lack of legal consistency of decisions, high financial cost of arbitration procedures and compensations, and restriction to the regulatory discretion of States, identify as weak points of BIT regime.

In order to be effective, successful reform requires long time and strong internal structures for preparing and carrying out actions, with solid processes and implementation capacities from all the parties involved; in this case, even if only two years have been passed since the entry into force of the agreement; is already possible to see the positive repercussion of the model created by Brazil among relevant Mexican economic agents and partners.

Mexico is at the moment completely concentrated in the hard re-negotiation of NAFTA and the new approach of the Mexican government towards the establishment of the same important pillars into the new NAFTA (less fragmented and more balanced regime, stable and predictable regulations, sustainable development objectives to become binding) shows that the model implemented through the CFIA seems to be heading in the right way.

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Fecha de recepción: 30 de enero de 2018

Fecha de aprobación: 25 de mayo de 2018