Nearshore Americas
Mexico Outsourcing

The Plan to Ban Outsourcing in Mexico Could Cost Millions of Jobs: Analysts Warn

International organizations have warned Mexico that its proposed outsourcing reforms could cost the country millions of jobs and violate the free trade agreement it signed with the United States and Canada (USMCA).

The warning comes as the country’s socialist administration led by President López Obrador (AMLO) tables the legislative bill in the Congress, kick-starting a heated debate among elected representatives.

If enforced, the new regulations will ban businesses from hiring manpower services from third party organizations.

“Outsourcing is a crucial instrument for entrepreneurs. It guarantees quality employment and security for workers,” said Larry Rubin, President of the American Society of Mexico, warning that the new law “will make it difficult for U.S. companies to operate” in the country.

“A reform of the law like it is proposed will endanger U.S. companies plus put millions of SMEs and workers at risk.”

Under a recently amended tax law, businesses must seek permission from the government before outsourcing labor. Failure to notify the government may lead to hefty fines.

Under the new tax law, which came into force earlier in January this year, businesses that outsource workers are not eligible for tax deductions.

However, the government needs to pass the Outsourcing Reform bill to prohibit the service completely.

“American businesses in Mexico face a challenging future ahead if the amendment proposal to reform the current outsourcing scheme in the country is passed,” says Hiroshi Takahashi, Editorial Director of El Sol de México and an expert in Mexico-US economic relations.

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Among the companies affected by the law, according to Takahashi, are Amazon, American Express, Coca-Cola, Costco, DHL, Pepsico, Exxon, FedEx, Ford, General Electric, General Motors, Philips, Chrysler, Honeywell, and Intel.

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.