Monday, April 12, 2010
Mexico and Direct Foreign
Ownership of Coastal Property
By Barnard R. Thompson
Just a little more than a
year ago Mario López Valdez, a Mexican senator who represented the state of Sinaloa, proposed an amendment to Article 27,
fraction 1 of the Political Constitution of the United Mexican States, an initiative that sought to ultimately allow full-fledged
ownership by foreign nationals of land in Mexico's so-called "restricted zone." That
would include coastline properties within the 50 kilometer [31 miles] strip inland, and 100 kilometer [62 miles] inward land
from its northern and southern international borders.
Beyond those restricted areas,
Mexican law already permits foreigners to own property outright as long as certain conditions, that do not trouble many people,
The bill submitted by López,
while being a beginning was in fact too narrow in scope, and next it went to the senate's Constitutional Issues, and Legislative
Studies, committees, where thereafter it seemed to wither on the vine. And it
appeared dead when Senator López (who is popularly known by the acronym "Malova") stepped down from his seat last month, to
run for the governorship of Sinaloa.
Sidebar to the land ownership
question, Malova asked for the requisite leave of absence from the Senate in order to run for governor. However not as the candidate of his party, the Institutional Revolutionary Party (PRI)
, for he resigned from the PRI and was promptly drafted to be the National Action Party's (PAN) candidate, in a deal
obviously struck beforehand with party bosses. Yet at this writing many of the
PAN faithful in the state are rallying against the party naming "a PRI candidate," and a voto
nulo campaign (a call to mark ballots in a blank square and thus they become nulo
— null and void) has been developing ever since Malova began his pre-candidate campaign on March 27. PAN members in Sinaloa will elect their gubernatorial candidate on April 18, and the state elections will
take place on July 4.
However, getting back to
property ownership matters, a new and far more comprehensive initiative was introduced in the senate on March 9, 2010, cosponsored
this time by eight senators (six from the PAN; one PRI; and one Convergence). Three
of the Panistas are from Baja California, with the other three representing Sonora, Sinaloa, and Veracruz; the Priista is
from Nuevo León; and the Convergencia member hails from Oaxaca.
And this bill, that seeks
to end the constitutional prohibition on direct foreign ownership of property within the restricted zones, cuts straight to
the chase, saying in its preamble: "The proposal is to eliminate the restricted zone and make it possible for foreigners and
foreign companies to acquire direct control over lands and waters without more restrictions than those indicated in the legislation
that may become applicable, and in compliance with the terms of the respective contracts.
Fundamental to any change
is the need to first amend the Mexican Constitution, specifically the aforementioned Article 27, along with several other
laws and regulations. And such actions always bring about arguments regarding
sovereignty, foreign intervention and national security.
Speaking on behalf of the
eight who introduced this latest initiative, Senator Javier Castelo Parada (PAN, Sonora) said that to abolish the prohibition
on foreigners owning land in the restricted zone would "in no way harm sovereignty and national territory, [or] legal properties
it may protect, and [its] justification is no longer valid."
Article 27 of the Mexican Constitution,
which deals with ownership of lands and waters inside Mexico's borders, states in the relevant first paragraph of fraction
1: "Only Mexicans by birth or naturalization and Mexican companies have the right to acquire ownership of lands, waters, and
their appurtenances, or to obtain concessions for the exploitation of mines or waters.
The State may grant the same right to foreigners, provided they agree before the Ministry of Foreign Relations to be
considered as nationals with respect to said properties, and not to invoke for that reason the protection of their governments
in matters relating to the former; under penalty, in case of noncompliance with the contract, of losing to the Nation the
properties that they might have acquired in virtue of the same. Under no circumstances
will foreigners be able to acquire direct ownership of lands or waters within a zone of one hundred kilometers the length
of the borders and fifty kilometers on the coasts."
The latest draft initiative,
to amend Article 27 of the Mexican Constitution, changes fraction 1 (first paragraph) to read as follows: "Any person has
the right to acquire ownership of lands, waters and their appurtenances, or to obtain concessions for the exploitation of
mines or waters, in the terms of applicable secondary legislation."
The introductory portion of the
bill goes into historical details, noting that restricted zone stipulations were included in the 1917 Mexican Constitution
based on worries of new colonialization attempts by foreigners, and due to military concerns regarding strategic defense. These and other factors related to sovereignty and national security are said to be
obsolete and unnecessary today.
It also discusses the fideicomiso, Mexico's bank trust instrument that in one form or another has been in place since 1937. After real estate is put in a fideicomiso, today the trust holders
can use the property as if it were their own.
In 1971, during the first year
of the presidency of Luis Echeverría Álvarez, fideicomisos went through a major
change that authorized the Foreign Ministry to grant banks and credit institutions authority to acquire trust real estate
in the border or coastal zones for industrial and tourism use. And they were
authorized to grant permits to foreigners for the exploitation and use of those properties through the issuance of a 30-year
Since then, and for the most
part to encourage foreign investment, the fideicomiso rules and regulations have
been extended to allow beneficiaries a 50-year trust, which can be renewed by the interested party.
Furthermore, modern day fideicomisos, for homes, tourism developments, maquiladoras, industrial
parks and other uses, have proven to be not only popular but too profitable, and the trust holders have demonstrated they
are good "citizens." This to the degree to debunk negative claims and concerns
regarding sovereignty, foreign intervention and such, insofar as restricted zone properties have virtually been in the hands
of foreigners for years.
Regarding property ownership
in the restricted zone, amendments will also have to be made in other laws, codes and decrees, such as the Foreign Investment
Law of 1993 (and its Regulation) that, in part, parrots the Constitution in Articles 10 and 10A. These reforms are addressed in the draft initiative.
Also considered is the need to
eliminate the "Calvo Clause," with respect to property ownership in the current restricted zones, in those documents and contracts
where it may appear. The Calvo Clause is a provision under which foreign investors
waive their rights to be protected by their national laws and accept the jurisdiction of the courts of the host country. In the case of Mexico, when the Calvo Clause is in force foreigners agree to consider
themselves Mexican nationals with respect to their rights and obligations in Mexico, and they consent not to call upon their
home governments to intervene on their behalf.
One legal chapter that quite
probably will not be changed is Title Four, Article 119, of the General National Properties Law that governs Mexico's Federal
Maritime Land Zone. While this is not of great consequence, it is important to
know that shoreline and beach property up to 20 meters inland from the mean high tide line is federal property. And while concessions can be obtained for use of the land adjacent to property owned (or held through a
fideicomiso) by an individual or company, this 20-meter Federal Maritime Land Zone
is public domain.
Finally, as to restricted zone
trusts currently held by foreign investors, and Mexican companies with an admission of foreigners clause in their trust agreements,
a closing provisional clause in the bill notes that they will be able to acquire ownership of their properties when this decree
goes into effect, in accordance with the terms of the new and applicable legislation.
All of these issues are discussed
and contemplated in the draft legislation now before the two committees of the Mexican Senate, and the broadened sponsorship
of the bill suggests that this time the legislation might move forward. Still,
in Mexico almost everything takes longer than one was told to expect.
As for Senator Castelo, he
said that approval of this initiative to allow foreigners ownership of land in today's "restricted zone" would bring in investment
that creates much needed jobs, plus it would promote Mexico's competitiveness. These
positives plus shots in the arm for tourism, economic development, and maybe even optimistic publicity.