Regulatory and Legal Reform

Mexican President Andrés Manuel López Obrador proposed a sweeping package of amendments to Mexico’s constitution back in February. Now, with President-elect Claudia Sheinbaum set to take office in less than two months, manufacturers want to know whether and how the changes will happen.

What’s going on: “Over the last 10 years, manufacturers in the U.S. have dramatically expanded facilities and operations in Mexico, totaling over $25 billion, according to the U.S. Commerce Department,” said NAM Director of International Policy Dylan Clement at the recent Wilson Center event “Mexico’s Judicial Reforms: Perspectives from the Private Sector.”

• “When manufacturers invest, they sink large amounts of capital—literally—into the ground, which is costly to relocate once built,” he continued. “We do not pretend to know how the judicial reform will play out … [but] manufacturers are fearful of the risk associated with enacting sweeping changes to the judicial system in Mexico on such a short timeline.”
• Sheinbaum, who will be Mexico’s first female president, and her Morena party won a landslide election in June.

What’s been proposed: The constitutional amendments set forth include eliminating government oversight and regulatory agencies, including Mexico’s freedom-of-information body, INAI, and its anti-trust agency, COFECE, and requiring all Mexican judges—including Supreme Court judges—to be elected by popular vote, according to the Associated Press and Reuters.

• Several of the amendments appear to violate Mexico’s obligations under the U.S.–Mexico–Canada Agreement.

Why it’s important: Mexico is America’s largest trading partner, and “[a]t the end of the day, manufacturers want to partner with Mexico to help it prosper economically, grow its industrial capacity and enhance its self-sufficiency,” Clement said—but the broad revisions set forth by López Obrador and other worrying developments in Mexico have the potential to damage the critical relationship and undo important recent gains.

• The proposed changes to Mexico’s judicial system could erode the checks and balances within Mexico’s government, politicize judicial outcomes, undermine the rule of law and result in higher levels of corruption throughout Mexico.
• For investors, these challenges would be compounded by the USMCA’s weakened investor state dispute-settlement mechanism, which requires foreign investors to go through Mexico’s domestic court system before seeking a neutral arbitration panel via the USMCA.

In sum, the constitutional amendments carry the risk of greatly complicating the upcoming review of the USMCA, which the U.S., Canada and Mexico will conduct in 2026.

• Ultimately, any erosion of the business climate in Mexico will harm the attractiveness of Mexico as a destination for manufacturers seeking to “near-shore” their supply chains closer to the U.S.

What should be done: “For these reasons, the NAM would caution against rushing the judicial reform through in September, given that it will have an impact on Mexico’s investment climate for decades to come and many questions about it remain unanswered,” Clement concluded. “It is better to get this right than done quickly.”