On March 24, 2023, President Andrés Manuel López Obrador sent to the Chamber of Deputies an initiative proposing the amendment of more than 20 federal laws ("Initiative") to strengthen the powers of the president and its cabinet on several matters. In general, this Initiative aims to strengthen the powers of the president and the Executive Branch of the Mexican Government, including amendments to facilitate the revocation of licenses1 (i.e., concessions, permits, authorizations, etc.) and granting powers to administrative entities to declare the nullification of licenses or any other administrative act issued in favor of any company or individual.
Summary of the Initiative
The Initiative's purpose is to grant the Public Administration with "legal tools to safeguard the general, social and public interest and to effectively protect human rights". The Initiative proposes to "amend the administrative acts issued against the law, and revert those acts that no longer comply with their original purposes". It also seeks "to safeguard and prevent mismanagement of public resources" and to strengthen the Federal Government by granting the Executive Branch with the tools "to execute public policies promptly and efficiently".
The Initiative is divided into three sections titled: (i) reversion of acts of corruption; (ii) prevention of acts that hurt the public interest or that may harm the treasury; and (iii) strengthening of the Federal Public Administration.
Reversion of acts of corruption
In this chapter, the Initiative proposes reforms to the damage trial (juicio de lesividad), which already exists in the Federal Law on Administrative Dispute Procedures and grants attributions to the Executive Branch to carry out annulment proceedings ex officio or through claims submitted by any third party. With these amendments, the Executive Branch seeks to have broader attributions to nullify administrative acts issued in favor of any person in the past.
Damage Trial
The Initiative proposes amending articles 1-A and 13 of the Federal Law on Administrative Dispute Procedures and 3 of the Organic Law of the Federal Administrative Court, to include a broader definition of the damage Trial including new cases in which Administrative Tribunal may process this type of trial, the express attribution by administrative entities to begin damage trials, and the statute of limitations in which the annulment trial can be filed.
a. Currently this trial may be filed against administrative acts and resolutions issued disregarding or against the law; the Initiative proposes to include new events when administrative entities may file this trial (i.e., in cases where the administrative act or resolution causes or caused harm to the Federal Public Administration or that injure public interest; in addition, the Initiative clarifies that such trial can be initiated against decisions issued in favor of an individual when the administrative entity failed to decide on an administrative process in a term given by the law "afirmativa ficta").
b. The articles that currently govern the damage trial set forth a statute of limitations of five years from the date on which the administrative act or resolution was issued to file it; in continued acts (i.e., acts that has effects that continue over time), the statute of limitations is five years from the date the effects of the act cease. Accordingly, current law also sets forth that the effects of the damage trial, if decided in favor of the administration, will retroact the situation in which things were to the past five years. The Initiative proposes to include an exception to this rule on environmental and health matters, in which the effects of the ruling may be reversed until the date on which the act was issued.
Annulment Procedure
The Initiative proposes amending articles 6 and 7 of the Federal Law on Administrative Procedure, to (i) gather attributions for administrative entities to begin the annulment procedure ex officio and to declare the nullity of the acts motu proprio; and (ii) include the obligation for authorities to state their opposition to executing the act, explaining the applicable grounds and reasons. This means that authorities will have the power to file annulment procedures in which they will rule and also be a party.
Safeguarding public finances, prevention of acts injurious to the public interest or damages to the Treasury
The Initiative proposes amendments to allegedly protect public finances and limit Mexico's exposure in trials or international arbitrations; allow the Executive Branch to revoke administrative acts for supervening acts when "such acts damage public interest", and strengthen the attributions of the Government or amend the rules applicable to the Federal Government in public procurement.
Revocation
The Initiative proposes amending article 11, section VI, of the Federal Law on Administrative Procedure to include attributions for the Executive Branch to revert administrative acts that could damage public interest or national security. The Initiative mentions that administrative acts are "modifiable" when issued irregularly but also because factual circumstances constantly change.
Exorbitant Clause
The Initiative proposes amending articles 45, section XXII and 62 of the Federal Law on Acquisitions, Procurement and Services of the Public Sector, and 46, section XVI and 80 of the Federal Law on Public Works, to include in all public contracts an "exorbitant clause".
This "exorbitant clause" will allow the Executive Branch to early terminate any public contract for public interest reasons.
Indemnities
The Initiative proposes amending articles 19, fourth paragraph, of the General Law on National Assets, 1 and 13 of the Federal Law on the State's Pecuniary Liability, 21 of the Expropriation Law and include article 11 Bis in the Federal Law on Administrative Procedure to limit the financial exposure of the State.
Changes in public procurement
The Initiative proposes to amend article 28 of the Federal Law in Acquisitions, Procurement and Services of the Public Sector, to allow the Federal Government to initiate international tenders without first initiating national tenders, when market studies support that the Government will get better economic conditions from an international tender.
Amendments to austerity laws
The Initiative proposes amending articles 24 of the Federal Law on Republican Austerity, 72 of the Federal Law on Administrative Liabilities, and several amendments to organic laws that govern the Federal Branch and autonomous entities (i.e., Federal Telecommunications Institute, Bank of Mexico, etc.) to:
a. Set limitations to the wages and salaries of civil servants. No civil servant is allowed to earn more than the president;
b. Set limitations prohibiting public servants to work – after the conclusion of their service – in private companies. The amendments include an escalated prohibition depending on the charge of the civil servant (i.e., a former president cannot work at a private company within the next 10-year period after concluding his service; while a director prohibition is limited to four years).
Strengthening of public administration
The Initiative considers that "the constitutional purposes of the Mexican State were abandoned by the supreme dogma of the free market which preferred private entities instead of the State". To "correct these distortions", the Initiative seeks to: (i) facilitate grouping and re-grouping of decentralized entities; (ii) facilitate the development of public works and the provision of public services, and (iii) expedite the acquisition of goods for the fulfillment of the objectives of the State.
Grouping of decentralized entities
The Initiative proposes amending article 48 of the Organic Law of the Federal Executive Branch to allow the president to group decentralized entities into Federal Ministries and, to group them into sectors based on their powers and competences and on public, general and social interest or for national security reasons.
Integration and reintegration
The Initiative proposes amending article 16 of the Federal Law on Decentralized Entities to allow the Ministry of Finance and Public Credit to propose to the head of the Executive Branch the transfer of personnel and of the financial and material resources of decentralized bodies (i.e., entidades paraestatales), such as Trusts or decentralized enterprises to Federal Public Administration agencies to ensure their functions are effectively carried out.
Concessions to State and local governments and governmental entities
The Initiative proposes amending articles 10 of the Railway Service Law, 8 of the General Law of Routes of Communication and creates article 59 Bis of the Federal Law on Decentralized Entities to clarify the possibility to grant concessions (asignaciones) directly and indefinitely to federal decentralized entities to provide public services and exploit public resources.
Such assignments licenses may only be modified or terminated when the reasons that gave rise to the authorization no longer exist (i.e., public, general or social interest or for national security reasons) and it prohibits the transfer of assignments to individuals.
Recovery of assets by administrative means
The Initiative proposes amending articles 107 to 115 of the General Law on National Assets:
a. To include an expedited procedure for the recovery of national assets and to secure its immediate repossession after the termination of an administrative act.
b. The procedure allows administrative entities to request the recovery of assets for any non-compliance with the license obligations or with the law, without the need to follow a previous process to decide on such non-compliance.
c. This proceeding is not limited to real estate; and administrative authorities may order the administrative recovery of the goods or to go before court.
d. It removes the possibility to suspend the procedure in administrative and judicial venues; includes the requirements that the asset recovery order must have, and the attributions for courts to order temporary occupation in certain cases.
e. It establishes a restriction to grant injunctions against the assets' recovery order since national assets are at stake, it is considered that public interest should prevail.
Trust when the Public Administration carries out Public Works
The Initiative proposes adding article 18 Bis to the Law on Public Works, to allow public entities to process and obtain permits, opinions, licenses, rights, property or property rights and expropriation of private property simultaneously at the beginning of the work (instead of before beginning the works), in these cases: (i) for notorious and evident urgency, (ii) priority for the exercise of social rights and economic development, and (iii) for the defense of sovereignty and national security.
The Initiative considers that public works built by the State were unduly subject to the same type of formalities as activities originating from the private sector. Thus, to facilitate the execution of activities aimed to protect public interest, the State cannot be subject to the same formalities as private activities since they pursue different purposes.
Anticipated Payments
The Initiative proposes amending articles 13 and 45 of the Federal Law in Acquisitions, Procurement and Services of the Public Sector, to allow public entities to deliver down payments (bigger than 50% of the contract) to speed up certain procurement contracts in exceptional circumstances (i.e., medical equipment, equipment for national security or equipment or assets related to public services) or and when the same are justified for delivery or pricing reasons.
Transitory provisions
The Transitory Provisions of the Initiative provide that: (i) the amendments and new articles will enter into force the day after the same are published in the Federal Gazette; (ii) all provisions that contradict the contents of the Initiative are abolished; (iii) the costs to implement the amendments will be absorbed by the public entities from their current authorized budget; (iv) administrative acts in process at the entry into force date will continue their process under the norms to the date in which the same began, and (v) the Congress, the Judicial Branch and the Constitutional Autonomous Bodies will have 60 business days to issue the regulatory provisions related to the Initiative.
Conclusions
This Initiative increases the uncertainty of doing business in Mexico because, if approved, it would allow the Executive Branch to act arbitrarily, revoke and modify administrative licenses at any time, only subject to the interpretation the current administration will have of vague concepts, such as "public interest", "national security" or "to protect individual's fundamental rights". It is of the utmost important to keep a close follow-up to the legislative process and in the event the Initiative is approved, assess its challenge pursuant to the possible impact on regulated industries.
1 For the purposes of this memorandum, we refer to license as a broad term to include concession titles, permits, authorizations or any other administrative license granted to an individual.
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