Mexico is moving toward requiring warning labels on packaged foods and beverages—similar to those deployed on cigarettes—to alert consumers to high levels of sugar, fat and sodium as the country grapples with untenable public health costs.

In July, the health commission of the lower house of Congress approved a draft opinion that would amend the General Health Law to include pictograms such as stop signs or red, yellow and green traffic lights stamped onto the fronts of packaging. The proposal comes as Mexico attempts to combat the rising incidence of obesity and Type 2 diabetes.

The proposal still faces a broader discussion and vote in Congress, and then the Senate, before it becomes law. Yet lawyers advising the food industry and multinational corporations that sell processed foods and soft drinks in Mexico say it's time to accept that warning labels are inevitable. Similar regulations have already been adopted in such countries as Chile, Ecuador, and France,  and the initiative appears to have broad political support in Mexico.

"Industry should focus on finding an agreement so that the warning labels are clear, informative and easy to understand," said Ernesto Algaba, a partner at Hogan Lovells who leads his firm's life sciences practice for Mexico.

Mexico is one of the biggest consumers of soft drinks per capita in the world, while sugary and salty snacks are wildly popular. Its 120 million consumers make the country a top-five market by sales for multinationals such as Nestlé and the Coca-Cola Co.

Food labels that are required in Chile

ConMéxico, a trade group that represents the interests of Mexican food and beverage manufacturers, says its members account for 3.5% of Mexico's gross domestic product, while the Coca-Cola network alone claims to be worth 1.4% of GDP.

"The industry will surely fight to find an equilibrium point," says Julio Copo, a lawyer with Lex Mundi firm Basham, Ringe y Correa, S.C. who has clients in the Mexican food and beverage sector.

But food companies that seek court injunctions against warning labels will face an uphill battle.

Mexico wants to lower health care costs.

In 2016, Mexico declared a national emergency for the high incidence of obesity and diabetes in the country. Seven out of 10 adults and one-third of all children are overweight, while Type 2 diabetes afflicts at least 13 million and is the leading cause of death and disability in Mexico.

The country's cash-strapped government health system is struggling to provide costly dialysis and other treatments related to diabetes and obesity.

In an effort to address the health crisis, Mexico slapped a special tax on sugary beverages and high-calorie processed foods in 2013. There's now talk of raising those taxes further to discourage consumption and pad government coffers.

Javier Zúñiga, legal coordinator for the consumer rights group El Poder del Consumidor, which has fought for years to toughen nutrition labels in Mexico, says he perceives broad government support for warning labels.

The idea, he says, is to better inform consumers so they can cut back on processed foods. The new labeling could also encourage product reformulation, although health advocates are wary this could mean a flood of artificial sweeteners and chemicals.

In fact, this week Mexican President Andres Manuel López Obrador expressed clear support for more labeling, and also said the government will soon set out on a mass media campaign to inform consumers about nutrition and tell them to avoid junk food. He even compared the planned campaign to media efforts decrying illicit drug use.

A study by Mexico's National Public Health Institute showed that the existing label criteria, which was proposed by the food and beverage industry, requires math to understand the nutritional values. The average Mexican is unable to decipher the information.

But in a May ruling in response to a challenge by El Poder del Consumidor, the Mexican Supreme Court backed those labels, saying they are constitutional.

The trade group ConMéxico argues that packaged food and beverage companies have already spent 25 billion pesos ($1.3 billion) modifying nearly 370,000 labels to comply with current regulations, which took effect in 2016.

Industry groups seek to compromise.

Industry representatives also say that, before any further changes to labeling requirements are made, they need more time to discuss them with legislators and government officials. Zúñiga says those efforts are futile.

"The companies already have this experience in other countries and they know this is a change that has to come," he said. "They can't defend the indefensible."

Both Hogan Lovells' Algaba and Basham Ringe's Copo see room to negotiate away from the adoption of something as harsh as black-and-white labels in the shape of stop signs and perhaps toward traffic light symbols.

"Even though this amendment has a good purpose, we think it could be aggressive for certain products. Some products could be demonized and consumers could be confused," Algaba said.

Copo, who sometimes represents clients in the Mexican food and beverage sector, agrees with health advocates that the current food labels could be improved. He says consumer goods companies seeking to massage the final rules are pushing for a more nuanced, color-coded Nutri-Score system similar to one used in Europe.

"It's a matter of finding an intermediary point that suits the consumer, government and industry," he said.

Algaba said that, as the tide shifts against the industry, companies should focus on negotiating an appropriate time period to comply with new warning-label requirements. In his opinion, that should be at least a couple of years so companies can deplete inventories of existing labels and align packaging needs in multiple jurisdictions.

"These changes usually cannot be adopted immediately," Algaba said. "They require important resources in terms of logistics and money."

But he says once the new regulations are in place, businesses should move quickly. He warns that goods seized or impounded due to a lack of compliance can cause major reputation damage, in addition to material costs.

Mike Fitzgerald, head of the Latin America practice at Paul Hastings, says showing a willingness to comply with the proposed regulation could also positively impact financing.

"Whenever you have an underwriter, they will ask about compliance with local law," he said.

Fitzgerald recalls raising concerns, echoed by banks, about a soft drink client that was selling gigantic portions of sugary soda as the Mexican government was trying to reduce consumption.

The soda company, Peru's Aje Group, opted to reduce portion sizes. This represented a complete overhaul of its business model, as the company's signature product was a multilitre family-style brand called Big Cola.

As governments increasingly worry about the public health impact of processed foods and beverages, Fitzgerald says the writing is on the wall.

"These kinds of regulatory matters should not come as a surprise," he said.