Judicial reforms strain Mexican-US ties, spook investors

MEXICO CITY

Controversial judicial reforms promoted by Mexico's outgoing president are straining diplomatic relations with the United States, its neighbor and key trading partner, while also rattling financial markets.

U.S. Ambassador to Mexico Ken Salazar has warned that the changes would "threaten" a trade relationship that "relies on investors' confidence in Mexico's legal framework."

The reforms, under which judges would be elected by popular vote, could pose "a major risk to the functioning of Mexico's democracy," he told journalists last week.

In particular, they could "make it easier for cartels and other bad actors to take advantage of politically motivated and inexperienced judges," Salazar said.

Canada, also a member of the major free trade partnership with the United States and Mexico, has for its part said investors are worried.

"My investors are concerned, they want stability, they want a judicial system that works if there are problems," Canadian Ambassador Graeme Clark said.

Salazar's remarks in particular irked Mexican President Andres Manuel Lopez Obrador, who announced on Aug. 27 a "pause" in dialogue with the U.S. diplomat, with whom he usually has close ties.

At the same time, the leftist leader clarified that he did not mean there would be a break in relations with U.S. President Joe Biden's government.

It came days after Lopez Obrador said his government had sent a diplomatic note to Washington to protest its "interventionist" statements on the matter.

The proposed reforms have the support of Mexico's incoming president, Claudia Sheinbaum, who will take office on Oct. 1.

The proposed changes "could result in a politicization of the judiciary" and "have a potentially big negative impact on Mexico's business environment," British consultancy firm Capital Economics wrote in a note to clients.

"The politicization of the justice system could raise concerns about whether disputes between businesses and the government would be resolved in an impartial manner," it added.

The disagreements could complicate a review of the continent's free trade pact, scheduled for 2026, according to experts.

Another proposed reform, seeking the dissolution of autonomous regulatory agencies, "poses a significant risk" to the agreement, political risk analysis firm EMPRA wrote in a briefing note.

The change would breach provisions in the trade deal aimed at safeguarding the autonomy of regulatory agencies to prevent state interference, it said.

The tensions come at a time when Mexico hopes to benefit from the "nearshoring" trend of companies moving manufacturing operations from Asia closer to U.S. markets.

But in reality, Mexico's energy policy, its "lack of will to combat organized crime" and uncertainty around its business climate have "drastically limited the country's nearshoring potential," EMPRA said.