© Reuters. FILE PHOTO – Mexican President Andres Manuel Lopez Obrador’s supporters assemble before his arrival at Washington, U.S., November 18, 2021. REUTERS/Kevin Lamarque/File photo
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Isabel Woodford
MEXICO CITY (Reuters] – Leaders of Mexico, Canada, and the United States are expected to meet next week in Mexico City. A major point of contention could center on whether Mexico has violated a Trade pact by tightening its state control over its energy market.
WHERE DO THE DISPUTE GO?
Tensions over Mexico’s nationalist policies escalated into a formal dispute when Washington and Ottawa filed a complaint to Mexico under the United States–Mexico–Canada Agreement (USMCA).
The complaint claimed that Andres Manuel Lopez Obrador, the Mexican president, had discriminated against U.S.-based and Canadian businesses by trying to shift the market in favor of state oil company Petroleos Mexicanoss (Pemex), and national power utility Comision Federal de Electricidads (CFE).
These companies complained that bureaucratic delays are hindering their operations.
The first dispute resolution talks were held. Although progress has been slow, last year, the United States (USA) and Canada (Canada) agreed to extend their process beyond the initial 75 days.
If the dispute is not resolved through consultations, the USMCA allows for a dispute panel to be appointed to decide.
MEXICO’S DEFENSE: WHAT IS IT?
Lopez Obrador presents a bullish front by claiming Mexico has never broken any laws and that “nothing” is happening.
This is after he restructured the electricity market to preserve national sovereignty. He gave CFE priority over all private companies when connecting power stations to grid.
He often explains his opposition to foreign and privatized participation in the energy sector in his effort to eliminate corruption. He also argues that past governments have distorted the market to favor private capital.
He claims that energy is a domestic issue and points out an article he added to USMCA, which stipulated Mexico’s “inalienable” ownership of its oil & gas. Critics argue that the article does NOT cover his treatment towards foreign firms.
CAN MEXICO FIX THE DISPUTE
Most analysts believe Mexico would lose if a dispute panel is created. It could prove costly for Mexico and increase the risk of U.S. penalties.
Both countries have stated that they are willing to resolve the dispute before it reaches a panel.
Talks became more difficult after Mexico’s Economy Minister resigned in October. Her successor removed several trade negotiators with experience, leaving an inexperienced team.
According to the new teams, they have presented proposals that could address two of the four areas for consultations and also addressed other U.S. concerns. There has not been any sign of significant progress.
It seems that the resolution will depend on whether energy nationalists within the Mexican administration, having taken their cues and Lopez Obrador’s lead, are open to compromise.
What are MEXICO’S BARGAINING CHIPS?
Lopez Obrador has made energy policy a central part of his presidency. He is not likely to let go.
His administration is aware of the fact that Mexico’s assistance in illegal immigration reduction tends to be more prominent in Washington politics. This gives Washington tacit, if not explicitly stated, leverage.
Additionally, the Mexican economy is so closely integrated with the U.S. that a trade dispute could be very painful for both countries. This is at a time when the region is trying to decrease its dependence on Asia and lower the rising inflation.
However, investor confidence in Mexico has been hit by the spat. Lopez Obrador is asking for U.S. support to finance solar energy production in northern Mexico as well as attract investment into greener manufacturing in particular carmaking.