Editor: Why did Chadbourne & Parke select Mexico City as the site for its first office in Latin America?
Miller: We have a long-standing Latin America practice that has been broad-based and multi-disciplinary but we have not had a presence on the ground in Latin America. From our perspective the two strongest economies and most significant areas for an office site were Mexico and Brazil. Mexico offered us the opportunity to bring in not only an established and highly regarded law office but also practitioners in New York who will work as an integrated part of that group. So it is a very comfortable fit and allows us to increase our capabilities generally to service the region.
Editor: Please tell us about your backgrounds in terms of your practice areas as well as those of others who will people the office in Mexico City and those who will serve the office from New York, Houston and Los Angeles.
Otto: Right now there are 18 lawyers in the Mexico City office - three partners, the remainder being counsels and associates. We have two main practice areas, corporate and litigation and commercial litigation. In our corporate practice we do corporate finance, M&A and private equity. We also have strong infrastructure capabilities and energy expertise. In the litigation area, commercial arbitration is a very active practice insofar as we act as panelists as well as counsel to those engaged in arbitration. The office also has a very active international trade and antitrust practice. All of the lawyers in our office are fully bilingual, most of them have an LLM degree from a U.S. university and many of them are admitted to practice in the U.S.
Miller: The attraction for us was that the Mexican practice group came to us together with two key practitioners in New York: Marc Rossell, an international capital markets lawyer with experience in finance and restructuring, and Oliver Armas, an international arbitration lawyer. They joined the New York-based core Latin America group, which already had approximately 20 lawyers focused on the region on a regular basis. We have project finance capabilities in New York, D.C., L.A. and Houston, with all of those offices having natural client ties to Mexico. Also in our D.C. office we have a strong multilateral agency project finance group whose lawyers focus on the region. Increasingly, we have been developing a strong practice in Canada and find there are natural synergies between our Canadian client base and our client base in Latin America.
Editor: What additional synergies do you see with your Mexican office?
Miller: We have a growing private equity practice that is strongly focused on emerging markets. We see a lot of opportunities in Mexico. We also have a strong infrastructure development practice, and Mexico is one of the target markets in terms of infrastructure development programs. Of course, Mexico has a big oil sector and energy-based sector that offers opportunities.
Editor: Is the oil industry completely controlled by Pemex, or are there other oil companies there?
Otto: The oil industry is a State monopoly in Mexico. However, last week the Mexican president presented to Congress a bill to allow participation of private companies in deep water exploration and maintenance and operation of pipelines and refineries. The bill, if passed, will generate tremendous opportunities in the industry, where Chadbourne has deep experience.
Editor: Do you expect your practice to involve mainly one-way cross-border transactions where you will represent U.S. clients wishing to do transactions in Mexico and other parts of Latin America?
Miller: There are trade lines that run not just between the U.S. and Mexico, but also with Canada, where we have developed a very dynamic practice. We have clients and offices in London, Russia, Ukraine, Dubai and other jurisdictions that have activities in Mexico. We also have a growing U.S-Hispanic practice. We expect that a number of our stronger Mexican clients and potential clients will use the U.S.-Hispanic market as an opening to a broader base in the U.S. generally.
Otto: We have seen in the past and expect to see increasingly that a number of Mexican companies are tapping the international markets in different ways, especially the international capital markets. Mexican issuers are going to offshore markets. I have represented them not only in Mexico but in the U.S. and other jurisdictions. Also, our goal is to represent Mexican companies that are doing general businesses abroad. By now there are already several Mexican entities that are considered global businesses doing business outside of Mexico. We are targeting those companies to be able to represent them in the U.S. and all of the other countries where Chadbourne has offices.
Editor: Do you expect to practice Mexican or U.S. law?
Otto: In the Mexico office we mainly practice Mexican law. Except for one lawyer all of the lawyers are Mexican lawyers admitted to practice mainly in Mexico. We will refer all of the U.S. work that we can generate from the Mexico office to our U.S. offices. Our one U.S. counsel is doing infrastructure work in our office.
Editor: Do you do any of your deals under U.S. law rather than under Mexican law?
Otto: Yes, some of our deals are governed by U.S. law and in those cases we will be getting the assistance of our U.S. lawyers to help our clients in those matters.
Miller: We are seeing a strong trend in the M&A area where companies from non-U.S. jurisdictions are choosing to have contracts governed by New York law. So a Mexican company acquiring, for example, a Colombian company may determine that the choice of law will be New York law. We would expect that trend will hold for some time, and we will be able to benefit from having U.S. law involvement in addition to purely Mexican law.
Editor: Are the judges in Mexico equipped to understand U.S. law?
Otto: Mexican judges can apply U.S. law if it is provided for in the agreement that Mexican courts will be the forum for trying a case and that U.S. law will be applicable. Conceptually that could happen but generally is not the case. We normally tend to refer cases to arbitration panels instead of the courts.
Miller: I might add that one of the leading international arbitration lawyers in Latin America and the region generally is in Chadbourne's Mexico City office, Luiz Enrique Graham. A benefit of having him join us there is that he supports our broader initiative to continue to develop our growing international arbitration practice. We typically have international arbitration provisions in our cross-border contracts, and the addition of international arbitration capabilities is very important to us from a broader practice perspective, looking at our global practice.
Editor: Why has the investment climate in Mexico and several other Latin American countries become favorable in recent years when it was thought only a few years ago that Mexico might default on its debts?
Miller: From a macro-economic point of view Mexico has benefited from its oil production and high oil prices. Non-oil exports have increased significantly. The economy has been supported by high levels of remittances by Mexicans who are living abroad. These conditions have made Mexico a robust economic environment. There is more political stability, and a lot of programs and development initiatives create attractive opportunities from a development point of view.
Otto: Another important aspect is the many changes that have been enacted from a legal and regulatory point of view. In the late 1980's the Mexican government started a very important process of opening its frontiers to foreign investments in general. It joined GATT and started a very aggressive negotiation process implementing NAFTA. Over and beyond NAFTA we have trade agreements with twelve other countries. We suddenly changed from being a closed-in country wary of foreign investment to being a fully open country. A number of amendments to our laws and the implementation of a new investment-related law have been instituted to welcome foreign investments. Both the environment and the approach of Mexican authorities have changed in terms of foreign investment.
Editor: How do you account for the increased liquidity in Mexico? What does this portend for the future in terms of the growth of its capital market?
Otto: There are a couple of elements: one is the fiscal control that the government has exercised over the past 14 years, providing stability to the Mexican economy. For the 25 years up until 1994 our country was constantly in and out of economic crisis. Since the crisis in 1994 the government has been monitoring inflation and exercising strict budgetary controls and fiscal discipline. The other important element is related to the change in the Mexican pension fund system which was privatized. Currently, there is a lot of demand from pension funds for securities in which they may invest. Currently pension funds manage around 80 billion dollars in assets. We are a very young country with a young workforce that is coming into the capital market and helping the economy grow year by year.
Editor: Where do you see risk areas in setting up an office in Mexico City?
Miller: Mexico's economy is strong but it is still quite dependent on the U.S. economy in many areas, so there is a derivative U.S. risk. Mexico is an emerging market so there is some political risk. It is also a challenge to properly integrate our platforms and use them for the growth opportunity. However, we view that more as an opportunity than a challenge, and certainly something within our control.
Editor: How has globalization, particularly the advent of NAFTA, affected the pace of change in Mexico?
Otto: I would say that it is a combination of NAFTA and the government's making a substantial change in its approach regarding international trade and foreign investment. Mexico has a obtained an investment grade rating rate, an important factor to consider in understanding the level of the government's ability to protect macroeconomic stability. The Mexican government has taken very important steps in that direction by joining NAFTA, the WTO, and signing a number of treaties that have allowed Mexico to be more competitive in world markets. We are a major recipient of foreign investment around the world. So all of these changes have enabled Mexico to come out as a strong and stable player on the international stage.
Editor: How well developed is the rule of law in this region?
Miller: Our sense is that there have been significant advances in Mexico in terms of rule of law development. It is a factor that manifests itself in the economic success of the country. The regulatory regime and the securities markets are developing well. However, in international transactions, most people are more comfortable with an international arbitration provision than appealing to the courts.
Otto: We have been working really hard on that. I do believe the necessary steps are now being taken to implement the legal reforms that are necessary. Congress is currently working on a judiciary reform and all of these reforms will enable the necessary changes to create a much stronger rule of law.
Editor: Where do you expect the office to be in five years?
Otto: We believe that this office is going to be big enough to handle any transaction we may have and still be small enough to provide the quality services our clients have become accustomed to. So we want to make sure that we grow to match our clients' needs but we want to be very careful with our quality control so the clients receive the type of quality they are used to.
Miller: I agree with Boris. Quality is more important than quantity. We already have the capability to serve sophisticated client needs. I would expect natural organic growth would lead us to a size of 40 to 50 lawyers or so within the next few years.