Input Stories

U.S. businesses are putting off investing in Mexico while they examine how proposed judicial reforms would affect their operations in the country (The Wall Street Journal, subscription). 

What’s going on: Put forth this year by outgoing President Andrés Manuel López Obrador, a “judiciary overhaul would replace 1,700 federal judges and magistrates, including Supreme Court justices, through nationwide elections and would remove strict qualifications for becoming a judge.”

• “The plan—a constitutional amendment expected to pass in the coming days—has worried foreign investors who fear judges will become beholden to constituents or political considerations instead of the law.”
• Foreign investors are withholding approximately $35 billion in investment in Mexico, America’s largest trading partner, in projects ranging from technology to energy to industrial infrastructure. 

The big picture: The sweeping changes—which include the elimination of several government oversight and regulatory agencies—could jeopardize the continuation of the U.S.–Mexico–Canada Agreement, which is due for review by the three countries in 2026.

• It would also likely mean increased costly arbitration “over investment rights … as companies seek to avoid Mexican courts.”
• Furthermore, if the revisions are pushed through, “Mexico will find it difficult to attract so-called nearshoring investment to compete with China, create jobs and fight poverty,” former U.S. Ambassador to Mexico Earl Anthony Wayne told the Journal.

The response: The peso is down 15% against the U.S. dollar since Claudia Sheinbaum, a López Obrador protégé, won the presidential election.

• In Mexico, “[j]udges and court workers have gone on strike in protest of the legislation. Demonstrators blocked access to the Congress building this past week.”
• The currency is expected to “experience bumpy months ahead” due to the proposed reforms. 

The NAM’s take: “Rolling back … progress by eliminating [regulatory] bodies in their current form could result in a reversion to anti-competitive practices,” NAM Vice President of International Policy Andrea Durkin said recently on the “Imagen Empresarial ” (“Corporate Image”) podcast recently.

• “[That would] effectively squeez[e] U.S. companies out of the market” in sectors such as telecommunications and energy.