Mexico tweaks reform on scrapping regulatory bodies to avoid USMCA issues

Mexico's lower house of Congress proposed adjustments on Thursday to the details of a contentious reform that abolishes several regulatory bodies, aiming to ensure compliance with the USMCA trade agreement.

The ruling majority, led by the MORENA party, on Wednesday approved the general text of the constitutional amendment to abolish seven autonomous watchdogs including the transparency institute, antitrust body and the telecoms regulator.

The scrapping of the telecoms regulator IFT in particular has stirred concerns among investors and analysts, who had warned it appeared to breach the USMCA agreement and could result in disputes with the United States and Canada.

Legislators from the ruling MORENA party proposed, during Thursday's detailed discussion of individual articles of the bill, merging the IFT with the antitrust watchdog Cofece, creating an autonomous body under the Economy Ministry, while preserving its technical and operational independence.

"The idea is that there should be a competition body that corresponds to the agreement (USMCA), that is similar to that of the United States and that, above all, guarantees good competition," Vidal Llerenas, deputy economy minister for industry and trade, told reporters on Thursday.

The change to the reform, Llerenas added, makes a potential complaint from one of Mexico's commercial partners unlikely. "We do not think it will be a controversial issue," he said.

Analysts reacted positively to the adjustment, but remained cautious about the implementation of the reform.

"The fact that MORENA is taking a more cautious approach with two of the most important regulators, antitrust and telecoms, is a positive sign," said Rodolfo Ramos, of the Brazilian bank Bradesco BBI.

However, the constitutional reforms have sparked concern of potential credit ratings downgrades for Mexico, which currently enjoys investment-grade ratings from Fitch, Moody's and S&P.

Ratings agency Moody's recently downgraded Mexico's outlook to negative from stable, citing institutional and policy weakening that threatens the economy and government accounts after a contentious judicial overhaul.