The Strategist

USMCA increases risks of US companies in Mexican courts

10/22/2018 - 15:24

For thousands of US companies, the changes associated with the conclusion of a new agreement on the North American free trade zone, replacing NAFTA, can lead to complications and uncertainties when doing business in Mexico, and this country is the third largest US trading partner.

Ken Bosma via flickr
Ken Bosma via flickr
The previous trade agreement, NAFTA, included provisions that allowed American firms operating in Mexico and Canada to challenge government decisions at an international tribunal.

For example, a change in the Mexican or Canadian rules, which had a significant impact on activities of an American company, could be challenged through an international group instead of local courts.

However, now the question of protecting international investment will be given to local jurisdictions, including for the consideration of Mexican courts, and they, as noted by Reuters, are notorious for high levels of corruption.

The former position was part of numerous trade pacts to reduce risks for companies operating abroad. And, as trade experts and industry experts in Washington believe, elimination of this order in the new agreement is a gross violation.

The Trump administration negatively reacted to this assessment. US Trade Representative Robert Lighthizer regards the old situation as a subsidy for US companies intending to invest in Mexico.

Rejecting NAFTA, Donald Trump said that it was the conditions of the old agreement that led companies to massively move production abroad at the cost of American jobs. And it was precisely this that the US president argued for the need to renegotiate the agreement on more favorable terms for Washington.