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US - Latin American Legal Reporter Snell & Wilmer L.L.P.
Reproduced with permission for the InterAm Database
A Publication of the Latin American Services Group July 1996
Legalizing of Casino Gambling in Mexico by Octavio Novaro Due to the recent economic crisis in Mexico, the possibility of opening foreign investment opportunities through casino gambling has been extensively reviewed by both Mexican authorities and private investors. However, the current Mexican law, the 1947 "Ley Federal de Juegos y Sorteos," prohibits the installation of casino gambling operations in Mexican territory. The Mexican tourism industry, the third national source of wealth (behind only oil production and manufacturing), has been a strong backer of legalizing casino gambling. Representatives from state governments where tourism is the main industry, such as Guerrero, Quintana Roo, and Baja California, together with representatives from privately-owned resorts, and prospective foreign investors such as Harrah's Entertainment Division Inc., argue that casino gambling would boost tourism and generate thousands of new jobs. They predict that casino gambling would help revitalize the Mexican economy by generating the type of growth and infrastructure which Mexico needs. Under the Mexican Constitution, Congress has the exclusive authority to legislate a framework which would permit gaming. The Ministry of Tourism has submitted a favorable report to Congress to legalize casino gambling, but similar approvals from the Ministry of Interior (Gobernaci¢n) Treasury (Hacienda) and the Attorney General are also required before Congress will undertake this project. Observers expect that a proposed framework will be considered in the fall, during the next legislative session. However, as long as President Ernesto Zedillo does not signal his decisive support for casino operations, the initiative to legalize those activities will not get beyond the discussion stage. In anticipation of the repeal of the prohibition against casino gambling and the issuance of regulations for such activities, Mexican authorities have begun consultations with gaming experts from the United States and other countries. Insiders predict that, if approved, casino gambling projects will be initially authorized in the Tijana/Ensenada Corridor, Acapulco, Cancun, and Ciudad Juarez FTAA - The Launching Pad for the Next American Century by Gerard Morales At the December 1994, "Summit of the Americas" in Miami, the United States, Canada, and all Latin American and Caribbean nations, excluding Cuba, agreed to negotiate the Free Trade Area of the Americas (FTAA), a Pan-American free trade zone from Alaska to Patagonia, in 10 years. Last March, the trade ministers from all western hemisphere nations, except Cuba, and about 1200 business leaders met in Cartagena, Colombia, to review and continue the negotiations for the FTAA. A tentative agreement was reached in Cartagena to build the FTAA by bringing together the sub-regional free trade blocks that are now functioning throughout the Americas, and a calendar was made for annual ministerial level conferences and periodic presidential summits to review the progress of the FTAA negotiations. The sub-regional free trade blocks are the Southern Cone Common Market (MERCOSUR), the Andean Community, the Central American Common Market (CACM), the Caribbean Community (CARICOM), and the North American Free Trade Agreement (NAFTA). Aside from NAFTA, the two largest blocks are MERCOSUR and the Andean Community. MERCOSUR consists of Brazil, Argentina, Uruguay, and Paraguay (Chile recently became an associate member). In 1994, MERCOSUR exported $62.2 billion and imported $61.9 billion. Its main trading partner is the European Union (EU). Bolivia, Ecuador, Columbia, Peru, and Venezuela constitute the Andean Community which exported $34 billion and imported $30 billion in 1994. Its main trading partner is the United States. Preliminary discussions are continuing between MERCOSUR and the Andean Community regarding an eventual fusion of the two trade agreements which would create a South American Free Trade Agreement (SAFTA). Twelve working groups are examining specific issues that form the basis for the FTAA negotiations: market access, custom procedures and rules of origin, investments, standards and technical barriers to trade, sanitary and phytosanitary measures, subsidies, dumping and countervailing duties, effective integration on the region's smaller economies, competition, government procurement, trade and services, and intellectual property and dispute resolution mechanisms. A Tripartite Commission of the Organization of American States, the Inter-American Development Bank, and the United Nations Economic Commission for Latin-America and the Caribbean are assisting those groups with analytical support, technical assistance, and relevant studies on those topics. An FTAA by the year 2005, will be a powerful arrangement consisting of 34 nations, 39.6 million square kilometers, 745 million inhabitants, and a gross domestic product of $8.64 trillion. The next ministerial meeting to review the progress of the FTAA negotiations will be in Belo Horizonte, Brazil, in 1997 Typical Issues of Concern to an American Business Involved in a Foreign Venture by Jos‚ P. Ceppi, Esq. Below are some of the most salient items of commonly encountered legal issues facing a United States company considering expanding its operations to foreign markets. 1. The Importance of Partnering with a Local Business Entity The involvement of a well-known and reputable local business partner for any U.S. business entering a foreign market is essential for the success of the venture. The foreign partner can provide critical assistance such as: (a) providing an in-place distribution system for the service or product in question and market know-how, (b) modifying the product to better appeal to local tastes and customs, (c) obtaining necessary governmental approvals for the operation, and (d) staffing the venture with employees who are competent and knowledgeable of the local market. 2. Percentage of Ownership Interest of Each Party in the Venture Frequently used device to protect minority interest holders include super- majority voting requirements for certain transactions and minority approval requirements for designated extraordinary actions, such as the sale of the business. 3. Management of the Venture The parties should clearly identify the individuals who will occupy the senior management positions for the venture and the procedures to effect their removal. U.S. investors should avoid situations where the venture is managed by a committee or similar bodies which cannot effectively run the day-to-day affairs of the venture. 4. Exclusivity The foreign partner usually will seek to obtain an exclusive territory for the particular country and, possibly, for other countries. The U.S. partner should consider whether: (a) the foreign partner has the financial and other resources to adequately cover the exclusive territory, and (b) any adverse impact on U.S. customers who go to a foreign country to do business and wish to deal directly with the U.S. partner. Also, any grant of an exclusive territory should be accompanied by a minimum sales requirement. 5. Restrictions on Transfer of Interest in Venture Given the importance of the foreign partner to the success of the venture, the U.S. partner should require protection in the venture's documents against an unacceptable transfer of the foreign partner's interest to a third party. 6. Use of Arbitration to Resolve Disputes Among the Parties All foreign ventures should include an arbitration clause to resolve disputes which may arise among the parties with respect to the venture. 7. U.S. Legal Considerations A U.S. business should ensure that the venture will not violate U.S. law. Among the principal statutes that should be examined are: a) the Foreign Corrupt Practices Act, which generally prohibits bribes to foreign officials, (b) boycott regulations, which prohibit certain actions in furtherance of economic boycotts, and (c) the Export Administration Act, which limits exportability of certain commodities. 8. Term and Renewal of Venture A foreign venture with a local partner should be for a fixed term, and its renewal should not be automatic. 9. U.S. Tax Consequences of a Foreign Venture A U.S. business should carefully consider the U.S. tax consequences of the venture and any tax treaties between the U.S. and the foreign country. 10. Protection of Intellectual Property Rights and Trade Secrets For businesses with intellectual property rights, which include patents, trademarks, and trade secrets, it is crucial that any distributorship or joint-venture agreement include carefully crafted confidentiality and licensing provisions Rescission of Labor Contracts Under Mexican Federal Labor Law by Rolando Ballesteros Article 47 of the Mexican Federal Labor Law lists the grounds for an employee's dismissal prescribes the procedure that an employer must follow to rescind an employment contract: a. The employer must give notice in writing of the date and reasons for the rescission. If a reason is not listed in the notice, the employer will not be able to use that reason as a defense or justification for the termination even if the employer has sufficient evidence. Lack of proper notice will render the dismissal improper. b. If the employee refuses to accept the notice, the employer must notify the labor court of its intention to rescind within five days of the initial notification attempt. The employer must then ask the labor court to give notice of rescission to the employee, and the employer must prove that it tried to deliver the notice to the employee. Even in cases where the employee is caught in the act of stealing goods or money and immediately fired, the dismissal is improper if the employee is not first given a notice of firing. If this procedure is not followed, the employee is then entitled to receive full severance payment or reinstatement at the employer's election. Nevertheless, the employer is not precluded from bringing criminal or appropriate actions against the employee Alternative Resolution of International Disputes by Benjam¡n D. Aguilera Part one of two articles regarding alternative methods of resolving international disputes. Part one sets forth the legal framework, and part two provides specific provisions regarding arbitration of international disputes. As U.S. companies increase or begin their investment in Mexico and other countries, they should carefully consider alternative methods for resolving disputes with their foreign partners. Not only is it good business sense, but also good legal sense to include an arbitration clause in agreements with foreign parties. Although U.S. companies may be more comfortable with the U.S. judicial system and may prefer litigation in U.S. courts to resolve disputes, this may be worthless unless the foreign party has assets in the U.S. against which any judgment can be executed. While mechanisms for the enforcement of domestic judgments abroad exist, the enforcement of such judgments, particularly in Mexico, is a protracted and expensive undertaking. Furthermore, the record of Mexican enforcement of foreign judicial awards is poor. Resolving international commercial disputes by arbitration is more attractive because the Mexican judicial system has traditionally been willing to enforce foreign arbitration awards in disputes involving private parties who have consented to arbitration. In addition, international commercial arbitration is generally more expeditious and less expensive than U.S. or Mexican litigation. The U.S. and Mexico are both signatories to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the 1975 Inter- American Convention on the International Commercial Arbitration, which require signatory countries to enforce international arbitration awards subject to very limited exceptions. Although both conventions provide that courts may refuse to enforce arbitration awards in limited circumstances, such occurrences are rare. Various provisions of the 1994 North American Free Trade Agreement (NAFTA) between the U.S., Canada, and Mexico, provide for alternative dispute resolution procedures: (i) Chapter 19 for dispute resolution of antidumping and countervailing duty cases, (ii) Chapter 20 for dispute resolution of "state-state" disputes, and (iii) Chapter 11 for dispute resolution of "investor-state" disputes. With regard to private parties, NAFTA specifically requires all signatory countries to "encourage and facilitate the use of arbitration and other means of alternative dispute resolution for the settlement of international commercial disputes between private parties in the free trade area." To this end, Mexico recently adopted an act entitled Fundamentos Legales del Arbitraje Comercial en M‚xico (Legal Foundation of Comercial Arbitration in Mexico) for recognition of arbitration awards. Arbitration of international commercial disputes can be either ad hoc (tailored to each specific dispute) or conducted under the rules and auspices of an arbitral institution. The two primary organizations recognized for establishing rules and procedures for arbitration disputes are the American Arbitration Association (AAA) and the International Chamber of Commerce (ICC). In addition, as a result of NAFTA, an entirely new industry of arbitration facilities exists, including the Asociaci¢n Mexicana de Arbitraje Comercial in Mexico, under the auspices of the AAA, the British Columbia International Arbitration Centre in Canada, the North American Trade Dispute Resolution Center in Colorado, the Centre for Conciliation and Arbitration in Texas, the Miami International Arbitration and Mediation Institute in Florida, and the NAFTARB-NAFTA Arbitration & Mediation, L.C. in Arizona. Administering disputes through an established arbitral institution as opposed to ad hoc arbitration ensures steady progress by resolving procedural deadlocks and otherwise facilitating the arbitration. In addition, it also provides a certain amount of legitimacy to the proceedings, which can enhance enforcement of the award in a foreign jurisdiction. So far, the record of Mexican judicial enforcement of foreign arbitration awards is good. Under the conventions discussed above, courts must severely limit their review of foreign arbitration awards prior to issuing an enforcement order. However, there have only been a limited number of cases in which foreign parties have sought to enforce their arbitration awards in Mexico. Therefore, some uncertainty may exist as to whether Mexican courts will continue to enforce arbitration awards from other jurisdictions, even jurisdictions within the NAFTA countries, without a new trial. It is always possible that the difficulty encountered in enforcing judicial awards by foreign courts may also occur in the enforcement of arbitration awards. Nonetheless, an arbitration provision in every agreement may save the parties involved time and money by requiring them to use means other than litigation to solve their disputes. Such resolution is usually arrived at by arbitrators or executives, who, because of their extensive experience in the business and industry of the parties involved, tend to have invaluable knowledge of the issues and their solutions Latin American Legal Services Snell & Wilmer L.L.P. is a full-service law firm with offices in Phoenix and Tucson, Arizona; Irvine, California; and Salt Lake City, Utah. The Latin American Services Group assists U.S. and international individuals and companies in exploring, establishing, and fostering investment and business opportunities in this hemisphere. The attorneys in out Latin American Services Group are bilingual, bicultural, and represent diverse practice areas. Their professional, cultural, and ethnic makeup is particularly well-suited to represent clients with investments, business activities, or other contacts in Latin America. The U.S.-Latin American Legal Reporter is a publication of Snell & Wilmer L.L.P. and is published quarterly. Copyright. All Rights Reserved. The reproduction of the articles in this publication is authorized only when said reproduction is total and without modifications, and if the original source is credited in said reproduction. The purpose of this publication is to deliver a commentary on current topics of interest to those interested in doing business in Latin America. The authors who participated in this publication, as well as Snell & Wilmer L.L.P., are not responsible in any form for decisions or actions taken based on the content of the articles herein. 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