Courtesy of The Financial Times, a report on how the forced closure of a US-owned site in Yucatán says about Mexico’s investment climate:

The closure of a large US-owned limestone quarry in Mexico has jolted investors and the world’s largest bilateral trade relationship, in a case seen as a thermometer for the political and legal climate under President Claudia Sheinbaum.

The limestone quarry on Mexico’s Yucatán peninsula, which dates from the 1980s, was thrust into the spotlight by former president Andrés Manuel López Obrador. He shut down operations in 2022, then during his last week in office in September declared its land a national protected area, in effect preventing it from reopening. He accused the quarry of causing an environmental “catastrophe”.

Alabama-based Vulcan Materials, which owns the site, called the September move a de facto expropriation. Republican US senators have warned of “crushing consequences” for Mexico over the case.

But Sheinbaum backs her predecessor’s decision to close the site. “It’s not expropriation, it’s simply looking after the environment,” she said last month.

Since taking office in October Sheinbaum has courted foreign firms that want to “nearshore” operations to Mexico. At the same time, the former Mexico City mayor is implementing some of her predecessor’s most radical policies, such as choosing all the nation’s judges by popular vote, and favouring state energy firms over the private sector.

That, combined with the cross-border challenges expected to result from the incoming administration of US President-elect Donald Trump, has left many investors in “wait and see” mode. The drama swirling around the Vulcan quarry could offer clues to the future of the rule of law in Mexico, as well as the investment climate for extractive sectors, said analysts.

Vulcan has asked the World Bank’s ICSID arbitration panel to determine whether López Obrador’s initial 2022 closure of the site was lawful, expanding a case filed years earlier. The company has also filed a series of legal challenges within Mexico, including against the declaration of its property a natural protected area.

“The question is whether they [Vulcan] get their day in court and a fair hearing,” said Kenneth Smith, Mexico’s former chief negotiator of USMCA, the trade agreement between the US, Mexico and Canada. “That’s the key issue here.”

The 2,400-hectare Calica quarry was developed in the 1980s just as tourism began to boom south of Cancún — now one of the biggest beach destinations in the world. It is near one of López Obrador’s signature projects: the $30bn Maya Train, a 1,500km line connecting Cancún’s beach resorts with other areas.

That put it squarely in the sights of the president, who said he spotted it from his helicopter. But after talks with the firm over converting its land for tourism and using its port for train supplies fell apart, Vulcan quickly became part of the government’s narrative of foreign companies exploiting Mexican natural resources.

The government said Vulcan had exploited areas below the water table and beyond what its permits allowed. Nevertheless, Sheinbaum said that declaring the land a natural protected area was not an expropriation because the company still owns the property.

“With a company that oversteps the limits, there’s no way, you have to go to the courts and apply the law,” a representative for environmental ministry SEMARNAT said.

Vulcan said the government’s claims are baseless and that it won plaudits from prior administrations for its sound environmental record. The government’s actions should serve as a warning shot for other investors, it added. “By robbing us of our land use and seizing the only deepwater port in the Yucatán Peninsula, Mexico has sent a clear message that the rule of law, foreign investment, and trade will not be protected by their government,” Vulcan said.

Sheinbaum made clear the site would not reopen, but local environmental campaigner José Urbina said he was sceptical about whether the government, which cut down 7mn trees in the area to build its train line, would protect the area.

“[Not] until I see the area has become?.?.?.?a reserve where they are really investing money to regenerate the jungle,” he said.

A central question in the disputes now before the World Banks’s ICSID arbitration panel is whether Mexico breached its prior trade agreement Nafta and, if so, how much compensation is owed.

Investors watched as López Obrador strong-armed a series of companies — including Iberdrola and France’s Air Liquide — that stood in the way of his political goals, such as state dominance of the energy sector. Some of the affected companies were compensated, while others resorted to legal battles that Sheinbaum has now inherited.

She will have the final say on what payouts are made, if any.

“Expropriating foreign investments is certainly not likely to warm the hearts (or open the wallets) of foreign investors,” said Andy Shoyer, a former official at the US Trade Representative’s office and a partner at the law firm Sidley Austin. “But the treaty obligation is for the state to pay fairly for what it takes.”

The case is unfolding at a time of flux in trading relations between the neighbours.

Trump, who generally enjoyed a good relationship with López Obrador during his first term, has threatened to slap tariffs on the country’s exports if it fails to help bring down illegal border crossings. Mexico and the US, along with Canada, are also due to review their trade deal USMCA in 2026, with talks already looking fraught over issues including Chinese investment and energy sector rules.

The quarry dispute is also on the US private sector’s radar. “What’s clear is that Vulcan has been subject to discrimination and lack of due process at the hands of the Mexican government,” said Neil Herrington, senior vice-president for the Americas Department at the US Chamber of Commerce, the biggest US business lobby.

The SEMARNAT representative rejected that interpretation and said this case had no impact on the commercial relationship. It is too early to say whether Sheinbaum will follow the same route as the former president, and she has shown signs of better engagement with stakeholders over investment more broadly, Shoyer said.

“But how they balance that approach with the need to keep domestic [and] populist stakeholders on side?.?.?.?that remains to be seen,” he said.