Mexico to Make It Easier for Foreign Investors : Free trade: Proposed legislation will codify the open policies of the Salinas government and give legal assurances to outsiders.

The most glaring remnant of Mexico’s nationalistic past is expected to be removed this year with the enactment of a new foreign investment law to replace a 20-year-old statute that severely limited foreign participation in the nation’s economy.

The proposed legislation, expected to be sent to lawmakers shortly, contains few surprises: Most provisions simply bring the law into conformity with existing regulations, presidential decrees and the terms of the proposed North American Free Trade Agreement among the United States, Mexico and Canada. The legislation is expected to pass easily.

“The most important point is the change in tone,” said Rogelio Ramirez de la O, president of a Mexico City-based economic consulting firm. “The spirit of the new law is to see foreign investment as something we want, not something we want to limit.”

The major complaint voiced by economists and business consultants on both sides of the border is that the proposed legislation does not go far enough in opening the country to foreign investment.

The 1973 law was passed during the height of Mexican nationalism. Then-President Luis Echeverria was leading the Third World movement for an alternative development model that did not include multinational corporations. In the subsequent two decades, Mexico has seen a collapse in the price of oil--its principal export--and struggled with a debt crisis.

National economic policies have changed radically as a result, leading to the free-market views of President Carlos Salinas de Gortari’s administration and an active pursuit of foreign investment.

Reflecting those policies, the new law will permit foreigners to own majority interest in most businesses--forbidden under the 1973 statute--and eases restrictions on land ownership in border areas and along the coast. In practice, the more liberal policies have been in effect since new regulations were issued three years ago, without the need for congressional approval.

However, by eliminating contradictions between the law and what has become common practice during the current administration, experts say, the legislation will codify Mexico’s free-market policies and will make foreign investors feel more comfortable about building factories and opening subsidiaries in Mexico.

“The administrative changes did not have the effect of law,” said Blair Krueger, a San Diego-based international lawyer with a cross-border practice. “They were of limited value to an investor looking for a long-term return, for example, in a construction project. There was always the risk that a subsequent administration would change the rules of the game.”

Passage of the new law will be especially important to Asian investors, said Timothy Bennett, vice president of SJS Advanced Strategies, a Washington, D.C.-based international consulting firm. “The Asians have been reluctant to invest until they see legal changes,” he said. “U.S. investors respond to the market potential more than to the foreign investment regime.”

Small and medium firms will also benefit, said Van Whiting, a senior fellow at the Center for U.S.-Mexican Studies at UC San Diego. “The biggest multinational corporations have the resources to work with any law, although they prefer certainty,” he said. “But small and medium companies have to be wary.”

In addition, the proposed legislation will eliminate domestic resentment of regulations that were put into effect by presidential decree, circumventing the Congress, noted Miguel Angel Olea, a Mexico City-based business consultant.

Despite the liberalizing measures in the proposed legislation, experts said it still has significant limitations that show the influence of domestic business groups.

“These provisions mainly protect the big corporate groups, not Mexican sovereignty,” said Ramirez, who has advocated opening the country to foreign investment in all industries, even the politically sensitive oil sector.

“Mexico will need $20 billion in foreign capital a year and this law will not be effective in attracting that kind of investment,” Ramirez said.

“We will have to continue to depend on ‘hot money,’ investment that comes into the country because of high interest rates.”

Whiting agreed. “They are protecting the existing players,” he said. “While the parameters are not what investors would like--they would prefer more openness--Mexico has come a long way in its treatment of foreign investors.”

Mexico’s Foreign Investment Law The differences between the proposed legislation, put forth by President Carlos Salinas de Gortari, and the current law, passed in 1973 by then-President Luis Echeverria, reflect how Mexico’s attitude toward foreign investment has changed over 20 years. 1973 Law Purpose: To promote domestic investment and to control foreign investment. Its major features include: No foreign investment permitted without authorization of the Foreign Investment Commission. Majority foreign ownership not allowed without commission authority. Expansion or relocation of foreign subsidiaries require commission approval. All real estate purchases require Foreign Relations Ministry approval and land rights are held in trusts administered by a Mexican bank. Proposed Legislation Purpose: To set clear and precise rules for channeling foreign investment into the country. Its major features include: Foreign investment of up to 10% in cooperatives, 25% in airlines, 30% in financial conglomerates and 49% in industries such as fishing, telecommunications, newspapers and weapons allowed without commission approval. Foreign majority ownership allowed without commission approval in all industries except oil well drilling, legal services, shipping, construction, mining, dock services, schools, air navigation and those restricted to 100% Mexican or government ownership. Mexican subsidiaries of foreign companies may buy land anywhere; establishing a real estate trust along border and on coast for individual land owners becomes merely an administrative procedure.