New trade pact leaves most US industry at mercy of Mexico’s courts

The flags of Canada, Mexico and the US are seen on a lectern before a joint news conference on the closing of the seventh round of NAFTA talks in Mexico City, Mexico, 5 March – Reuters

New York/Mexico City (Reuters): The new North American trade agreement ends key legal protections for many US businesses operating in Mexico, leaving their operations exposed to a risk they had avoided under the old trade deal Mexico’s court system.

For thousands of US firms, the change could add complications and uncertainty to doing business south of the border. Mexico is the third-largest US trading partner. The previous trade agreement, NAFTA, included provisions that gave US firms operating in Mexico and Canada the option to challenge government decisions at an international tribunal.

A change in Mexican or Canadian regulations, for example, that had a material impact on a US firm’s operations, could be challenged through an international panel instead of local courts.The removal of the investment protection means firms would now be at the mercy of Mexico’s courts, which are notorious for corruption, an energy industry source said. The provision has been part of numerous trade pacts to lessen risks for firms operating overseas. Its removal makes the new agreement an outlier, trade experts and industry sources in Washington said.

The administration of US President Donald Trump took a negative view on the provision. US Trade Representative (USTR) Robert Lighthizer sees it as a subsidy for US companies to invest in Mexico.

A spokeswoman for USTR declined to comment for this story, referring to Lighthizer’s previous statements, which essentially said the old provision encouraged companies to move operations overseas at the cost of American jobs.