• Mexico’s new political configuration gives current president Andrés Manuel López Obrador, president-elect Claudia Sheinbaum, and their party (Morena) ample margin to advance legislation (including constitutional reforms) starting in September when the new Congress is in place.
• Sheinbaum will take office in October, leaving López Obrador a one-month window to use Morena’s new margin in Congress to implement policies he was previously unable to enact, including important constitutional reforms, such as a full overhaul of the Judiciary.
• So far, Sheinbaum has voiced broad support for her predecessor’s policies. Markets (the dollar-peso exchange rate and interest rates) have thus far reacted negatively, reflecting a perception of increased political and regulatory risk, as well as a potential deterioration of the overall business environment.
• Companies with business interests in Mexico, including those seeking to nearshore operations in response to U.S. trade measures, should closely monitor political developments in the country, and assess if their investments are adequately protected by an effective investment treaty.

The recent election resulted in an unambiguous win for president López Obrador and his Morena party. As his designated successor, Scheinbaum received 60 percent of the vote, allowing her to become Mexico’s first woman head of state. In addition, Morena also secured seven of the nine contested governorships, a qualified (two thirds) majority in the Chamber of Deputies (365/500 seats), and is just two seats shy of holding a majority in the Senate (83/128 seats). Morena also will hold a majority in 27 of the 32 state legislatures.

The 2024 election was in essence a referendum on the government program initiated six years ago by López Obrador. President-elect Sheinbaum ran on a continuity platform and is expected to pursue the same broad policy initiatives as her predecessor, though she likely will be able to advance those policies with greater success given the new political configuration. This process could begin as early as September while López Obrador still holds office for one month and the new Congress is in place. López Obrador and Sheinbaum have publicly announced their intent to pass legislation, including what is described below, during this September window. 

• Merging or eliminating independent regulatory agencies. The proposed reform would close or merge into central government departments the following agencies: (i) the National Institute of Transparency, Access to Information and Protection of Personal Data (INAI); (ii) the Federal Economic Competition Commission (Cofece); (iii) the Federal Telecommunications Institute (IFT); (iv) the Energy Regulatory Commission (CRE); and (v) the National Hydrocarbons Commission (CNH). These changes may have implications for Mexico’s obligations under international trade agreements, notably the United States-Mexico-Canada Trade Agreement (USMCA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Under these agreements, Mexico has committed to ensuring that regulatory bodies overseeing specific sectors, including the telecommunications sector, maintain a certain amount of independence. Regulatory bodies are also required to exercise their functions in an impartial manner, including with respect to the regulation of state-owned enterprises. Additionally, having independent regulatory agencies embedded into central government departments could limit fluid access by businesses, make permitting harder and slower, and eventually complicate potential litigations.
• Prioritizing strategic state industries. This reform is intended to strengthen certain state-owned utilities such as the Federal Electricity Commission (CFE) — including its internet services — and Petróleos Mexicanos (Pemex), by recognizing their market preponderance, providing more antitrust leniency, and allowing them preferential treatment by the government, as compared to private entities. While previous attempts to achieve similar results during the López Obrador administration were declared unconstitutional by the Supreme Court, the proposed reform in this case would modify the Constitution itself. As with other aspects of the reform, however, these changes could similarly give rise to potential violations of Mexico’s international trade and investment commitments. Under both the USMCA and CPTPP, Mexico has undertaken specific commitments that generally obligate its state-owned enterprises, including CFE and Pemex, to make commercial sales and purchases based on a commercial basis and act in a non-discriminatory manner. Mexico has also committed to ensuring these entities be subject to impartial regulation that does not disadvantage private entities, not engage in anti-competitive practices, and (subject to certain exceptions) not receive non-commercial assistance.
• Genetically modified corn, water concessions, open-pit mining and fracking. The reform would declare Mexico a country free of genetically modified maize crops (both for planting and human consumption), severely restrict water concessions in population centers and low water availability areas, and prohibit open-pit mining and the use of hydraulic fracturing (fracking) technologies for the extraction of hydrocarbons. Mexico’s treatment of GMO corn has been a high-profile bilateral trade irritant with the United States for several years, following Mexico’s issuance of decrees in 2020 and 2023 phasing out imports of GMO corn. In June 2023, the United States filed a dispute against Mexico under the USMCA on the issue, and following a public hearing in June 2024, the panel hearing the dispute is expected to issue a ruling on the issue later this year.
• Wages. This reform would establish that the annual adjustment of minimum wages cannot be less than inflation. It would also set the wages of teachers, police officers, national guard and armed forces members, doctors and nurses at least at the national average computed by Mexico’s Social Security Administration (IMSS). Although the reform centers on the minimum wage for public sector employees, the measure could easily translate into wage increase pressures for the whole economy. During the present administration, the minimum wage has increased more than 180 percent (from 88.40 to 248.90 MX pesos per day). The reform is regarded a key tenet of the worker-centered labor policy championed by López Obrador, which president-elect Sheinbaum is expected to continue.
• Judiciary overhaul. Under this initiative, all District Judges, Circuit Magistrates and Supreme Court Ministers must be elected by popular vote beginning in 2025. The Supreme Court would be reduced to nine members (currently 11) and their tenure would be shortened to 12 years (currently 15). States would also have to set new rules for the popular election of local judges. In addition, the Federal Judiciary Council (CJF) — in charge of the internal administration of the Judiciary — would be replaced by the Judicial Disciplinary Court and the Judicial Administration Body. Importantly, this initiative would also eliminate the general effects of judicial injunctions in the case of constitutional challenges and amparo trials. Critics have argued that the proposed judiciary reform would alter the constitutional balance of power between branches of government in favor of the executive, and could make it harder for companies to challenge governmental measures.

A two-thirds (qualified) majority in both the Chamber of Deputies and the Senate, as well as an absolute majority (half plus one) of the state legislatures, is needed to approve the constitutional reforms. This means that the enactment of any reforms could take some time. Moreover, in most cases, these reforms will require changes in secondary legislation, which will provide the incoming administration with an opportunity to modulate the impact and the timing of implementation.  As such, while it is still early to determine the actual number and scope of the constitutional reforms that may be put forward in September or later, several of them will have important implications for Mexico’s overall business environment and could be challenged by Mexico’s trade and investment partners.

These developments pose substantial risks for foreign and domestic companies that operate in Mexico as well as those that expect to expand their operations into the country. Companies with business interests in Mexico should therefore monitor closely political developments in the country, strengthen their government affairs strategy, and assess the potential impact of these reforms on their businesses. Investors should also assess if their investments are adequately protected by an effective investment treaty. Under such treaties, qualified investors may be entitled to certain protections guaranteed by the Mexican government. For instance, Mexico has committed under its investment treaties to, among other things, treat investors from the relevant countries in a fair and equitable manner, not to discriminate against such investors on the basis of nationality, and not to expropriate their investments except under certain conditions and upon payment of adequate compensation.

These treaties also provide investors the ability to bring claims directly against the Mexican government for violations of such protections through international arbitration, such that investors are not reliant only on pursuing recourse through Mexican courts. Taking into consideration the potential scope of the constitutional reforms and their impact on judicial proceedings in Mexico, this alternative form of dispute settlement may prove invaluable to foreign investors facing adverse government actions. Investors should therefore assess whether their investments are adequately protected under an investment treaty with strong protections and dispute settlement provisions. For instance, investment protections in the USMCA have a limited scope compared to other investment treaties, and companies should consider alternative investment treaties in light of upcoming governmental measures. To be effective, an assessment of whether an investment is entitled to adequate investment treaty protections — and when necessary a restructuring of investments to ensure such protection — must be done immediately and well before adverse governmental measures are adopted.