Weak Judicial Systems Impact Investment Flows
According to Gerardo Nieto, a fiscal law specialist, countries with weak or unreliable judicial powers often face challenges in investment flows. Although there hasn’t been a decrease in investments due to the judicial reform, Nieto is certain that unfavorable impacts will start to emerge in Mexico.
“Those who will resolve disputes between private parties and the government, will be largely inexperienced individuals, mostly loyal to ruling in favor of the government. Who would risk their assets with changing rules and no protective court against a powerful entity?”
Expert Concerns on Judicial Independence and Investor Confidence
Jorge de Presno, a labor law expert from the same firm, echoed these concerns during a roundtable discussion on Mexico’s legal landscape:
“Who would invest their capital in a country where I’m unsure of safety, where protecting my assets depends on someone who was initially proposed by a regime that should be independent from those administering justice and later secured their position through voting?”
De Presno suggested private arbitration as an alternative for investors currently in or planning to enter Mexico, applicable across all legal matters. However, he pointed out that arbitration awards would still need to be ratified by Mexican courts, leading back to the issue of judicial insecurity.
USMCA Review Approaches
During the same discussion, trade expert Sergio Barajas addressed the USMCA review scheduled for October this year, six years after its implementation.
Barajas anticipates that while the review will follow the set timeline, it’s likely to result in a renegotiation rather than an extension. Key areas for discussion include rules of origin, particularly in the automotive sector, and potential new tariffs or quotas.
The United States aims to prevent Chinese components in automotive industry parts and possibly include the tomato sector. Barajas also expects the integration of Mexican companies into the agreement’s production processes, though he estimates it would take at least five years to prepare them.
Missed Opportunities with Nearshoring
Nieto expressed disappointment that the recently announced 30% tariffs from the U.S. government on Mexico were not withdrawn. He also criticized the missed opportunity presented by nearshoring.
From his viewpoint, Mexico failed to capitalize on nearshoring by not simplifying procedures for companies to obtain IMMEX program certification. The IMMEX program allows tax-free import and VAT exemption on goods needed for industrial processes.
Setting up a business in Mexico, according to Nieto, could take over a year just to navigate the IMMEX administrative process.
Key Questions and Answers
- What are the concerns regarding the judicial reform in Mexico? Experts warn that the reform may lead to inexperienced, potentially biased judges deciding disputes between private parties and the government, undermining investor confidence.
- When is the USMCA review scheduled? The review is set for October of this year, six years after the trade agreement’s implementation.
- What are the potential outcomes of the USMCA review? The review is expected to result in a renegotiation rather than an extension, with discussions on rules of origin, new tariffs, and potential integration of Mexican companies into production processes.
- How has Mexico handled nearshoring opportunities? Critics argue that Mexico missed the opportunity to simplify procedures for companies seeking IMMEX program certification, causing delays and hindering business setup.
