WHAT YOU SHOULD KNOW ABOUT THE JULY 2018 ELECTIONS IN MEXICO.

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1 WHAT YOU SHOULD KNOW ABOUT THE JULY 2018 ELECTIONS IN MEXICO. Galicia Abogados, S.C. G a l i c i a A b o g a d o s, S. C. B l v d. M a n u e l Á v i l a C a m a c h o N o C o l. L o m a s d e C h a p u l t e p e c, M é x i c o D. F Galicia Abogados, S.C. México. MMXVIII

2 WHAT YOU SHOULD KNOW ABOUT THE JULY 2018 ELECTIONS IN MEXICO. A NOTE ABOUT MEXICO GALICIA ABOGADOS, S.C. JULY 2018 From a political organization standpoint, Mexico is a federation of states (31 and Mexico City), each of which has its own executive, legislative and judiciary branches. Our form of government is a presidential republic and the Chief of the Executive (both at the federal and local levels) is appointed for a 6 year term. Reelection is only allowed for Congress members and Majors (i.e., the President and the Governors may not be reelected). Members of the Judiciary are not voted and are appointed from within the judiciary or by the other branches of Government 1. The Chief of the Federal Executive is the President of the Mexican United States and the chiefs of the local executives are the governors of each of the several states and the Chief of the Government of Mexico City (Jefe de Gobierno de la Ciudad de México). Additionally, at the municipal level, Mexico is comprised by 2,457 2 counties and the municipal government is vested upon a County Council (cabildo), each of consist of a Major (presidente municipal) and a 1 At the Federal level, for instance, judges and magistrates are appointed by the Judiciary Council whereas members of said Council are appointed by the Supreme Court (4, including its President), the Senate (2) and the Executive (1). Members of the Supreme Court are appointed by the Senate based on a list proposed by the Executive. 2 Instituto Nacional de Estadística, Geografía e Informática (National Statistics and Geography Bureau), Encuesta Intercensal 2015 (2015 Intercensal Poll). 1 number of County Council Members (regidores) fixed by local laws. The Legislative is, at the federal level, vested on the Federal Congress which is a bi-cameral body comprised by the Senate and the Chamber of Representatives. The Senate consists of 128 senators whereas the Chamber of Representatives consists of 500 representatives. At the local level, each state has its own legislature (called local congresses) and membership of the same varies depending on the population of each state. Thus, on July 1, 2018, Mexico held what the National Elections Board (Instituto Nacional Electoral or INE ) has called the largest election to date, as Mexican voters elected their president and 128 senators for the term, and the 500 representatives for the legislature (representatives are voted for a 3 year term). Likewise, all states, except for Baja California and Nayarit voted for local officers. 8 states (Chiapas, Guanajuato, Jalisco, Morelos, Puebla, Tabasco, Veracruz and Yucatán) and Mexico City voted for Governor; 26 states 3 and Mexico City renewed their Legislature; and 25 states 4 and Mexico City elected majors in all or a number of counties. Thus, 9 governors, 128 senators, 500 representatives, 972 state representatives, 1,615 majors and a number of city council 3 Aguascalientes, Baja California Sur, Campeche, Chiapas, Chihuahua, Colima, Durango, Guanajuato, Guerrero, Hidalgo, Jalisco, México, Michoacán, Morelos, Nuevo León, Oaxaca, Puebla, Querétaro, San Luis Potosí, Sinaloa, Sonora, Tabasco, Tlaxcala, Veracruz, Yucatán, Zacatecas. 4 Baja California Sur, Campeche, Chiapas, Chihuahua, Coahuila, Colima, Guanajuato, Guerrero, Jalisco, México, Michoacán, Morelos, Nuevo León, Oaxaca, Puebla, Querétaro, San Luis Potosí, Sinaloa, Sonora, Tabasco, Tamaulipas, Tlaxcala, Veracruz, Yucatán, Zacatecas.

3 members were elected, in addition to the next president of Mexico, last Sunday. THE MEXICAN ELECTORAL SYSTEM All executive positions (the presidency, governorships and majors) are elected directly (i.e., the candidate who wins the popular vote is elected). Federal and local congresses are comprised by a number of members (usually a majority) elected by a direct vote (called, majorityelected representatives), and a number of members elected through the so-called proportional representation formula. The Senate, for instance, consists of 64 senators who are elected by a majority vote in each of the states and Mexico City (each state and Mexico City elect 2 senators through this method); 32 senators who are the first runner-up in the aforementioned election; and 32 senators elected from nation-wide lists proposed by each party participating in this election, based on the total votes obtained by each on such election (seats are assigned based on the order in which candidates appear on the relevant list, starting from the top). The Chamber of Representatives, on the other hand, consists of 300 representatives elected by a majority vote in each of the 300 electoral districts in the country and 200 representatives elected from 5 lists (one for each of the 5 demarcations in which the country is divided for these purposes) proposed by each party participating in this election, based on the total votes obtained by each in the election for representatives both nation-wide and in the relevant demarcation (seats are assigned based on the order in which candidates appear on the relevant list, starting from the top). State election laws follow some variation of the aforementioned methods. CURRENT STATUS OF THE ELECTION AND NEXT STEPS Under Mexican Law, elections consist of 4 different stages: (i) preparation of the election (including registration of candidates and campaigns), (ii) election day, (iii) results of the election and declaration of validity and (iv) resolution of disputes and final declaration of validity. Currently, the competent bodies of the INE are in the process of producing the official results of each federal election (President, senators and representatives) and each local elections board is doing the same for each local election. The results of the elections at each of the 300 electoral districts are expected during Wednesday July 4. At this point, the 300 representatives elected by a direct vote will officially become elected officers (subject to challenges to the election, discussed below). During Sunday July 8, the results of the federal elections in each state and Mexico City should be released. At this point, the 128 elected senators and the 200 proportional representation members of the lower chamber will officially become elected officers (subject to challenges to the election, discussed below). Finally, the results of the presidential election in each of the 300 districts will be sent to the Federal Elections Court (Tribunal Electoral del Poder Judicial de la Federación, or TE ) which, in turn, will issue the final results of the election and declare the validity of the same once all challenges brought by political parties and candidates against this election are finally adjudicated by the TE. This final declaration must be issued by the TE no later than September 6, At this point in time, the winning candidate, Andrés Manuel López Obrador (AMLO) will become the President Elect of Mexico. 2

4 Thus, we are currently expecting final results from the competent authorities and any challenges before the TE against the results and determinations made by the same (challenges are due within 4 calendar days following the relevant determination). Should any challenge modify the results of a particular election, the TE will order INE to rectify the relevant determination (which may or may not result in a different candidate winning the election). EXPECTED POLITICAL LANDSCAPE According to the preliminary results of the election released by INE, 63.5% of the registered voters participated in the election. The clear winner of the election was Morena, the political party of AMLO, as it (together with its allies PT and PES) won the presidency (53% of votes), 54 seats in the Senate (48 by majority and 6 as runner-up) and 218 seats in the House of Representatives. It is expected that Morena reaches as much as 300 representatives and 71 senators. Morena also won 5 out of 9 governorships (CDMX, Morelos, Tabasco, Chiapas and Veracruz, and is closely contesting the election in Puebla). Finally, Morena reached the majority in the legislatures of 17 out the 26 states that had legislative elections. In CDMX, for instance, where the participation of registered voters exceeded 70%, Morena obtained 11 out of 16 counties and 31 out of 33 majority seats in the Legislature. In the neighboring State of Mexico, where participation exceeded 67%, Morena obtained 42 out of 45 majority seats in the Legislature and won as much as 54 out of 125 counties. It is thus clear that Morena is the currently the first political force in the country and that it will have the power to pass legislation at the federal level (where it controls the Executive and a majority of 3 Congress) and in several states and CDMX. As to the power to amend the Constitution, Article 135 thereof requires a qualified majority of 2/3 of each chamber of Congress and the affirmative vote of at least half the state legislatures. While Morena will control the required state legislatures, it will still not reach qualified majority in Congress. Given, however, the massive number of seats obtained by Morena, it will likely only need to get the support of one party to successfully advance constitutional amendments. Thus, the next few months will be key in assessing the potential alliances that the parties can reach in the aftermath of the election, especially taking into consideration that the traditionally dominating parties (PAN and PRI) have lost tremendous amount of political capital and influence (the latter won 0 governorships and is now the 3 rd political force in the country and even in states where it currently holds the executive). AMLO S PROPOSED AGENDA During its run for the Presidency, AMLO made the fight on corruption its flagship, although did not provide specifics on proposed enforcement or legal or institutional changes. It is thus expected that his administration aggressively act on this front. From an economic perspective, AMLO proposed to shift the focus of the economy to the internal market and specifically proposed to pursue selfsustainability in food and energy. He has also proposed to raise the minimum wage and maintain public debt to a minimum. In his first messages after winning the election, AMLO has vowed to comply with preexisting commitments, observe the rule of law and respect the civil and economic

5 rights. He has also offered to work together with the private sector and to respect the autonomy of the Central Bank. The next days will be critical as AMLO is expected to confirm the key members of his administration. At the same time, a transition team will work with the Peña administration towards a smooth transition of power on December 1 st. As these processes move forward, there will be more clarity as to what can be expected from the next administration. It is important to note that several pivotal institutions, such as the Supreme Court, the Central Bank, the Competition Commission (COFECE) and the Federal Telecommunications Institute (IFT), among others, are independent from the executive and their members serve for staggered terms. Accordingly, it is not expected that the change of administration will have an immediate impact in any of the foregoing. ABOUT GALICIA. Galicia Abogados, S.C. is a leading law firm in Mexico, with offices in Mexico City and Monterrey, having ample experience in a wide variety of industries and practices, including commercial and general corporate law, banking, securities, mergers and acquisitions, private equity, project finance, debt restructuring, antitrust, energy, oil and gas, compliance, environmental, tax, real estate, administrative litigation, arbitration and commercial litigation, among others. Our firm provides extensive legal services to major domestic and foreign entities and corporations. * * * 4