The new trade agreement between the U.S. and Mexico ends important legal protects for U.S. businesses that operate in Mexico, leaving many operations there exposed to more risk that were avoided under the former trader deal, namely the court system.
For thousands of firms from the U.S., this change could create more complications and much uncertainty in doing business in Mexico, which is the third largest trading partner with the U.S.
NAFTA, the previous agreement, included provisions giving firms from the U.S. operating in Canada and Mexico an option of challenging decisions by governments in an international tribunal.
A change in Canadian or Mexico regulations that had material impact on a company’s operations from the U.S. could be challenged in front of an international panel rather than in the local Canadian or Mexican court systems.
Removing that investment protection means companies would then be at the mercy of the courts in Canadian and Mexico, and the Mexican courts have a reputation of being corrupt, said one source.
The provision is part of many trade pacts to lower the risks for companies operating outside the U.S. The provision’s removal makes this new pact far different from others said trade experts.
The White House administration looks at the provision negatively, but Robert Lighthizer the U.S. Trade Representative sees that provision as a subsidy for companies in the U.S. to invest in Mexico.
The USTR spokesperson did not comment when asked, referring to the previous statement made by Lighthizer, which said essentially that the old provision had encouraged businesses to move operations to other countries at the cost of jobs in the U.S.
Trump said NAFTA was responsible for the loss of thousands of jobs in the U.S. to Mexico where the cost of labor is much less expensive. Trump threatened to end the pact until Canada and Mexico agreed to terms that were more favorable to the U.S. and a revised deal was signed in September.
The new pact, known officially as the United States-Mexico-Canada Agreement or USMCA will phase much of the older investor-state dispute settlement protections out over the next few years.
Initially Lighthizer wanted all the protections removed but then agreed to keep some after pressure from industry groups in the U.S. and Mexico, said sources from Mexico.