The leaders of Canada, the United States, and Mexico are scheduled to hold a summit next week, where a major apple of discord could be a dispute focusing on whether Mexico breached a trade pact by tightening state control of its energy market.
Where Does The Dispute Stand?
Tensions over Mexico’s nationalist policies aggravated into a formal dispute in July, when Washington and Ottawa filed a suit against Mexico under the United States-Mexico-Canada Agreement (USMCA) trade deal.
The suit argued that Mexican President Andres Manuel Lopez Obrador’s efforts to change the market to favor national power utility Comision Federal de Electricidad (CFE) and state oil company Petroleos Mexicanos (Pemex) had discriminated against U.S. and Canadian firms.
The firms also complained that bureaucratic delays are hampering their operations. Dispute resolution talks started, and although progress has been halting, Canada and the United States last year decided to prolong the process beyond an initial 75-day window.
Under USMCA, if the controversy is not settled during consultations, a dispute panel can be convened to adjudicate.
What Is Mexico’s Defense?
Lopez Obrador has put on an upbeat front, saying Mexico has breached no laws and that “nothing is going to happen.”
It comes after he restructured the electricity market in the name of national sovereignty, giving CFE preference over private companies in connecting power stations to the grid.
Often couching his opposition to foreign and private participation in the energy sector as part of his push to wipe out corruption, he claims previous governments skewed the market in favor of private capital.
He also says that energy is a domestic matter, and cites an article he had infixed into USMCA stipulating Mexico’s “inalienable” ownership of its gas and oil. Critics say the article does not contain his treatment of foreign companies.
Can Mexico Fix This Dispute?
Most analysts project Mexico would lose if a panel is asked to settle the dispute. That could be very expensive for Mexico, increasing the probability of punitive U.S. tariffs.
Both countries have previously emphasized that they want to resolve the disagreement before it gets to a panel. Talks slowed down after Mexico’s economy minister stepped down in October, and her successor terminated several skilled trade negotiators, leaving an unskilled team in charge.
The current team says it has put forward proposals that could address two of the four areas of consultations, and that they are also dealing with other U.S. concerns. But there has been little clear indication of significant progress.
Resolution appears to rest on whether energy nationalists inside the Mexican administration, who have followed the lead of Lopez Obrador, are ready to compromise.
What Are Mexico’s Bargaining Chips?
Lopez Obrador has made energy policy a cornerstone of his presidency, making it difficult for him to back out.
His administration is also mindful that Mexico’s assistance in dealing with illegal immigration tends to have more importance in Washington due to its prominence in U.S. domestic politics, offering the government tacit, if unstated, leverage.
Mexican industry is so highly integrated with the U.S. economy that a trade conflict could hurt both countries at a time the region is trying to shrink its reliance on Asia and bring down surging inflation.
Still, the spat has affected investor confidence in Mexico, and Lopez Obrador is trying to obtain U.S. help to finance solar power output in northern Mexico and bring in investment in greener manufacturing, especially in carmaking, a key industry.