Hogan Lovells is an international law firm that has a sophisticated team with a deep knowledge of the local market. The firm works in various industries, including energy and natural resources, infrastructure and transportation. We sat down with Partner Juan Torres-Landa who spoke about the disconnect between the legislature and executive and what he expects for the Mexican mining industry.
Q: What is your overall opinion on the performance of the government so far and what are your expectations for the future?
A: López Obrador mentioned on the day of his inauguration that he wants to be a good president and I do not think anyone disagrees with that sentiment. Thus far, I have mixed feelings but increasing concerns over how the government is adopting its role. Some of this is form and some substance. I think having a daily morning news report is a big mistake because what ends up happening is that events must be created on a daily basis. This creates a set of distractions for a country that must focus on the substance of tackling corruption, improving safety and security, increasing levels of digitalization and other relevant topics. These are being overlooked due to the distractions of the everyday announcements, from fuel theft to trains being stopped, and fuel ships being stranded at the Veracruz port. Those are incidents and the president should not waste his time on incidents. He is the commander-in-chief and he must have a more macro outlook on the general direction the country needs to go in.
The fact that López Obrador is in close interaction with communities that have not typically been considered in public policy is an important step forward. We need to recognize that the country has been polarized in terms of economic development and we have essentially two Mexicos, with very significant differences in terms of infrastructure and wealth. Whatever we can do to level the playing field is important. Having said this, I think some of the decisions that have been made are self-defeating. They may even exacerbate the differences between the two different segments of Mexico.
Q: What change must be promoted in the mining industry to boost investment, competitivity and performance?
A: The mining industry could receive support from the government to foster growth. In terms of regulation, the taxation component has been a top priority for the industry since additional taxes were imposed in the last few years. As much as the industry would like to have these reduced, we are hearing from the new government that these taxes will not change. The big question for the country is whether that now puts us in a situation where we can compete with other jurisdictions. That is where we need to strike a balance. Some experts say our taxing environment has alienated some of those investments, so the government may wish to alleviate some of that burden. It would certainly help to attract more investment.
Q: What is your opinion of the ruling on the constitutionality of the ecological taxes in Zacatecas?
A: I think it is important to look at the fine print in the rulings because some things are reserved for the federation in terms of taxation and legislation. The focus of the supreme court has been in ensuring that all three levels of government have the power to enforce legislation that protects the environment. The majority of environmental regulation falls to the federation but it is also down to the state-level governments to ensure there are no gaps that allow private enterprise to damage the environment. I believe with this ruling a handful of states will consider whether additional rules for environmental protection are required. Previously, states overwhelmingly relied on funding from the federal government but now they are realizing they must start generating extra resources, whether from taxing property, payroll and now environmental burdens. But the legislature cannot run rampant in terms of revenues. If an industry is taxed excessively, the revenues actually go down. There is a careful balance.
I would strongly encourage a very strong and open communication between industry associations and chambers and the state and federal governments in all topics, from social impact and education to employment issues and infrastructure. I know those efforts exist but, until now, they have not been well-coordinated or well-documented.
Q: How will the fragmentation between the executive and the legislature affect the industry?
A: Unfortunately, that is a common thread across all industries. Morena is torn into different areas where there is no one mindset on how to deal with certain issues. We have already seen this in agriculture and infrastructure. That is why I would insist on having this proactive approach where we can bring everyone to the middle ground, providing hard data on the impact of mining and proving the benefits it can offer. It is a very delicate scenario because certain players within Morena are more radical than others and they may be more inclined to adopt certain legislation without evaluating the consequences of those actions.
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