June Elections in Peru and Mexico Raise Specter of Further Threats to Foreign Investments

In Short

The Situation: The front-runner in Peru’s Presidential run-off election, Pedro Castillo, has vowed to extract substantially more in payments from mining companies, renegotiate tax stabilization agreements, or potentially even nationalize the mining industry. Likewise, upcoming legislative elections in Mexico could enable President Andres Manuel López Obrador to take further measures intended to favor domestic entities over foreign investments, particularly in the energy sector. 

The Result: The election results could have drastic and disruptive implications for foreign investors in Peru and Mexico. 

Looking Ahead: Foreign investors facing risks of unlawful actions against their investments would be well advised to review and assess available treaty-based protections. 

A Presidential runoff election in Peru and mid-term elections in Mexico next month could presage drastic actions against foreign investors in those countries. Investors would be well-advised to review legal protections for their investments, including in particular those afforded by international treaties.


On June 6, 2021, Peru will hold the second round of its Presidential election to choose between Pedro Castillo, the nominee of the socialist Free Peru National Political Party, and Keiko Fujimori, representing the right-wing Popular Force party. At the time of publication, polls note a substantial, albeit narrowing, lead for Mr. Castillo, a former teacher who gained attention organizing a series of teacher strikes under an earlier administration. 

Most notably for foreign investors, Mr. Castillo has vowed significant increases in royalty payments and taxes owed by foreign mining companies, a desire to renegotiate tax stability agreements, and, before seeking to walk it back, a threat to nationalize the mining industry. At present, Peru is the world’s second largest producer of copper, silver, and zinc, as well as a major producer of gold, uranium, and lithium. Moreover, the nation is estimated to have $56 billion of open mining investments. Should Mr. Castillo win the election and follow through on his promise to nationalize or otherwise extract substantially more in payments from foreign mining companies, these actions will raise risks for foreign investors who, until now, have prospered from Peru’s trade-friendly economic model. Mr. Castillo’s efforts to strike what he believes is a fairer deal for the Andean community also may rile metals markets and potentially disrupt the availability of critical resources for clean energy projects.


Also on June 6, voters in Mexico’s legislative elections will cast ballots for 500 deputies to sit in Mexico’s Chamber of Deputies for the 65th Congress. Although elections for the Senate and the Presidency are not scheduled until mid-2024, another super-majority for President Andres Manuel López Obrador’s National Regeneration Movement ("Morena") party and its allies would boost President López Obrador’s efforts to enact significant legislative changes intended to favor domestic entities over foreign investments.

As we have discussed in detail previously, President López Obrador has undertaken significant efforts to dismantle Mexico’s 2013 electricity reform. First, the Congress, with the majority of Morena, modified the Mexican Electricity Industry Law, in apparent violation of the Mexican constitution, to favor power plants owned by the state-owned Federal Electricity Commission at the expense of private investments. Those amendments to the law remain on hold following domestic litigation by stakeholders. Then, President López Obrador introduced a bill, since approved by the Congress, amending the Hydrocarbons Law, again seemingly in violation of the Mexican constitution, to change the rules of the hydrocarbons market to favor state-owned Pemex and create significant regulatory uncertainty for foreign investors in that market. Several of these amendments to the Hydrocarbons Law also remain on hold following domestic litigation by investors. Each action would significantly harm foreign investments in Mexico if enforced.

Treaty-Based Protections for Foreign Investments

Foreign investors facing the risks of unlawful actions against their investments in the coming months can take several steps to protect themselves or at least limit the damage. These may include:

Assessing available protections under international investment treaties. Peru is party to 50 bilateral investment treaties, free trade agreements, and international treaties containing investment chapters. Mexico is party to nearly the same number. These treaties provide investors of states that are parties to these treaties with a broad range of legal protections when investing in foreign markets. 

While the scope of protections varies, these treaties generally include a prohibition on unlawful expropriation without prompt compensation; the right to fair and equitable treatment; the right to national and most-favored nation treatment; as well as additional broad guarantees of treatment in accordance with international law. Investors should review the substantive protections available to them under qualifying treaties and analyze any potential international law claims they may have available to them. U.S. investors may look for protection against Peru under the Free Trade Agreement between the United States of America and Peru, and with respect to Mexico, the North American Free Trade Agreement ("NAFTA") and the U.S.-Mexico-Canada Agreement ("USMCA"). 

Investors should also assess any procedural requirements or obstacles posed by these treaties, such as the time necessary to initiate an international claim and the potential incompatibility between local and international actions, among other things. A treaty’s "fork-in-the-road" provision may preclude an investor from starting or continuing certain domestic court proceedings if the investor wishes to initiate an arbitration proceeding under the relevant treaty. Notices of dispute, and cooling-off periods, can be utilized strategically, in parallel with compatible domestic court actions, and international and local counsel working collaboratively can usually achieve the best result.

Consider restructuring to secure investment treaty protection. Unprotected investors should prepare against government overreach by restructuring their investments so as to maximize protections under existing bilateral or multilateral investment agreements. For example, investors might seek to establish corporate presence in a jurisdiction that has an existing treaty with Mexico/Peru. However, the timing of the restructuring will be key. Although the mere fact of restructuring an investment to gain treaty protection is not per se disapproved of, several arbitral tribunals have held that investors cannot restructure to gain treaty protections after the dispute giving rise to a claim has become foreseeable. Consequently, restructuring has the best chance of being recognized as legitimate if it takes place before any alleged breach. 

Prepare for investment claims by safeguarding evidence. Depending on how the situation develops, investors may be wise to take practical steps to ensure they will have access to the key evidence required to prosecute any eventual claims. This includes any and all contracts with the state or state-owned-entities, permits, licenses, authorizations, computer hard drives, servers, and other electronic repositories. Should conditions deteriorate, it may also be prudent to obtain sworn statements from key witnesses, inside and outside the company, if possible. International law counsel can advise on the specific proactive measures that should be taken in the given circumstances. 

Three Key Takeaways

  1. Foreign investors should first assess available protections under international investment treaties and any procedural requirements or obstacles posed by these treaties. 
  2. Unprotected investors should consider restructuring their investments to secure and maximize protections under existing investment agreements. 
  3. Depending on how the situation unfolds, investors would be wise to prepare for potential investment claims by safeguarding evidence.


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