Mexico in International Investment Law: From NAFTA to USMCA

Since the decade of 1940–1950 and until 1970, Mexico entered in a period of stable and sustained economic development, characterized by an annual GDP growth of 7.5%, 2.5% annual inflation level, low unemployment, and stable exchange rates. As many other Latin American countries, it pursued a protectionist economic policy of import substitution and foreign investment controls, which aimed to shield domestic industries from foreign competition. The abandon of the Bretton Woods “par-value” system in 1971, and the sharp increase of oil prices during the Oil Shocks of 1973 and 1978, triggered the end of the “Mexican economic miracle” and provoked a deep recession, marked by a brusque devaluation of the peso vis-à-vis the dollar and a sudden elevation of the levels of inflation. The rise of oil costs and Mexico’s huge oil reserves represented great incomes to the public budget, that, unfortunately, brought excessive public spending and unprecedented enlargement of public deficit and external debt during the presidencies of Luis Echeverría and José López Portillo. In 1982, Mexico was facing a default of loans and told its creditors (mainly US commercial banks and other banks) that it was unable to make next payments. Mexico had to negotiate an emergency financial support from US banks and the International Monetary Fund (IMF). The “stand- by agreement” with the IMF was considered as “the first rendition of what would later be called the Washington Consensus”, as its macroeconomic conditionality embraced a reduction on governmental spending, deregulation of economic activities, privatization of public owned companies, higher taxes, policies to reduce inflation, elimination of capital controls and, generally, a more open domestic economy. Thus, 1982, fastened the ultimate abandon of Mexico’s import substitution model and marked the beginning of the neoliberal period of its politics and economy, which was coronated by the ratification of the General Agreement on Trade and Tariffs (GATT) in 1986 and the signature of the North American Free Trade Agreement (NAFTA) in 1992.