The recent overhaul of Mexico’s Federal Judicial System has sparked debates about its potential impact on foreign investment in the country. This reform, initiated by President Andrés Manuel López Obrador’s administration, aims to address corruption and inefficiency within the judicial branch. However, it has also raised concerns among international investors and business communities.
Key aspects of the reform include:
- Restructuring of the Federal Judiciary Council
- Changes in the appointment process for judges
- Implementation of new anti-corruption measures
- Modifications to the judicial career system
While these changes are intended to strengthen the rule of law in Mexico—at least according to the ruling party, former President López Obrador, and current President Claudia Sheinbaum—some critics argue that they may inadvertently create uncertainty for foreign investors. The reform’s impact on contract enforcement, dispute resolution, and overall legal stability are particularly important considerations for international businesses operating in or considering entry into the Mexican market.
As the implementation of this judicial overhaul progresses, it will be crucial to monitor its effects on four main aspects:
- Foreign direct investment (FDI) flows: The amount of money entering Mexico serves as a measure of foreign investors’ trust.
- Investor confidence in the Mexican legal system: While difficult to measure, the World Justice Project provides some indication by assessing the rule of law in each country. However, its methodology might be contested due to its subjective nature.
- International trade agreements and partnerships: This element is crucial, as Mexico has a wide web of trade agreements with various blocks. Two notable examples are the USMCA, which will be subject to revision, and the Europe-Mexico Trade Agreement.
- The overall business climate in Mexico: This can be measured by various indexes, such as Moody’s.
Understanding the nuances of this reform and its potential consequences is essential for both policymakers and investors as they navigate Mexico’s evolving legal and economic landscape.
Currently, there’s no clear understanding of how the judicial system overhaul will impact Mexico’s overall economic climate. Some preventive steps include implementing commercial arbitration agreements, not only for international transactions but also for national ones, regardless of whether they have an international component.
Even with the federal judicial system overhaul, it appears that laws guaranteeing the protection of foreign investment in Mexico will remain untouched. Mexico will continue to be a party to ICSID (the International Centre for Settlement of Investment Disputes), along with numerous Bilateral Investment Treaties (BITs) signed with countries worldwide, including the European and North American blocks, as well as other highly industrialized countries like China.
This means that despite changes in Mexico’s federal judicial system, foreign investors will still be protected—not only against changes in laws but also against government actions, whether from the legislative, executive, or even judicial branches.
In a future post, we’ll review how FDI is protected against judicial decisions—a situation that has already occurred due to alleged acts of corruption and profound disregard for the rule of law.
