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Background: On February 5, 2024, President López Obrador (AMLO) proposed a constitutional reform prohibiting open-pit mining concessions and fracking. Such a reform proposal addresses concerns about environmental damage and aims to protect ecosystems while preventing water shortages in nearby communities. It would significantly limit water exploitation in areas facing water scarcity if approved. AMLO has criticized the mining contracts with private companies signed by his predecessors and stated that his administration had not granted any new concessions. The reform proposal is expected to be debated by the newly formed Congress. However, there is no specific date for its discussion.

Mining Sector Assessment: The reform represents a significant shift in the country’s environmental regulation and resource extraction approach. Mexico holds abundant mineral reserves, constituting 15.8% of global silver reserves (8.3% zinc, 7.1% lead, 3.5% copper). Many of these minerals are extracted through open-pit mining; 97 of the country’s approximately 250 active mines use this method. The main reason for the proposed reform is to prevent environmental harm. These bans would limit the capacity to transform the country’s natural resources into development opportunities and could affect the transition to clean energy.

Reform Proposals: Main Intended Changes

• Ban open-pit mining: Ban open-pit mining activities relating to the exploration, exploitation, benefit, or use of minerals and metals. The Executive can grant concessions in exceptional cases at its discretion.
• Water as a right: Prioritize personal and domestic water use, prohibit concessions in water-scarce areas, and recognize water as a fundamental right, not a commodity. This approach sets a usage hierarchy for water in the following order: domestic use, then agriculture, and lastly, other industrial sectors.
• Ban fracking: Prohibit contracts or any administrative measure that allows the extraction of liquid and gaseous hydrocarbons through fracking. Individuals who perform such activities will be sanctioned. The ban has faced strong opposition, as it accounts for 60% of mining production and could result in the loss of thousands of jobs in the sector. The proposal argues that excessive water use in fracking generates large amounts of wastewater, often without adequate treatment for reuse.

Will the reform proposal solve water scarcity and mining pollution? No. The reform does aim to alleviate environmental damage and reduce water consumption for industrial purposes. However, with the proper regulatory framework, open-pit mining can adhere to environmental standards and protections. Instead of placing a ban, promoting responsible open-pit mining could help increase the production of essential and critical minerals. This ban could jeopardize Mexico’s mining sovereignty, potentially making national industries dependent on imports. Additionally, the reform proposal could economically affect regions of the country that rely heavily on mining. Mexico must urgently create and implement a strategy that tackles infrastructure, regulatory inconsistencies, the current water concession system, and geographical and population distribution challenges to solve water scarcity issues. However, prohibiting fracking and open-pit mining and limiting water concessions in water-scarce areas will not solve Mexico’s water scarcity issue entirely.

Consequences for Mexico and the US-MX bilateral relationship:

• Economic and labor impact: The Mexican Mining Chamber (Camimex) estimates that the reform could shrink Mexico’s GDP by 1% and jeopardize 200,000 jobs. The reform could potentially violate the US-Mexico-Canada Agreement (USMCA) Minimum Standard of Treatment clause, which protects investors from actions that harm their operations.
• Bilateral trade: Under the USMCA, Mexico’s commitment to market openness may impact US and Canadian firms, risking financial losses and arbitration claims. Canadian companies are the most prominent investors in the sector, making up 70% of foreign mining firms in Mexico.
• Production and investment: The ban on open-pit mining, which also applies to aggregates like gravel and sand, can severely impact construction. Additionally, failing to grant new mining concessions will pause mining exploration. As 60% of Mexico’s mining value depends on open-pit mining, the reform creates economic and legal uncertainty in the sector, as the Executive Branch will grant concessions at its discretion.
• USMCA violations: The proposed reform may violate Mexico’s commitment to market openness under the Agreement, potentially leading to arbitration claims. The USMCA’s Chapter 14 on Investment includes provisions prohibiting preferential treatment of public enterprises over private investors from other countries.