US warns Mexico of violations to USMCA in energy

Mexico's recent energy policies favoring state-owned companies could violate the US-Mexico-Canada free trade agreement (USMCA), the US secretaries of state, energy and commerce told Mexico in the waning days of their administration under President Donald Trump.

"We have been concerned by reports of a July 22 memo, followed by a September 22 meeting with regulators who were allegedly instructed to block permits for private-sector energy projects and to exercise their regulatory authority to favor state-owned energy companies," the officials said in a letter to their counterparts dated 11 January. "If true, this would be deeply troubling and raise concerns regarding Mexico's commitments under the USMCA."

US president-elect Joe Biden takes office on 20 January, and some industry groups believe the new leader could help ease international trade disputes.

The letter is the third in a series of high-level complaints from US officials or industries about the issue, after a bipartisan letter from US lawmakers to the White House in October and a letter from the American Petroleum Institute in June.

"Mexico's government is implementing an adequate energy balance within Mexico's territory," energy minister Rocio Nahle said today in response to the letter. "The relation with the US within the USMCA in energy issues is one of respect to the constitutional norms of each country. That is how it was specified in the treaty."

Mexican president Andres Manuel Lopez Obrador, a long-term critic of the 2014 energy reform that dismantled state-owned CFE and Pemex's monopolies, has shut down new avenues for private sector investment in the upstream sector, launched a series of regulatory amendments that seek to strengthen Pemex and CFE's market position and forced renegotiations of previously signed contracts.

In September, Lopez Obrador asked regulators to promote the interests of CFE and Pemex where possible, despite the existing legal framework that calls for an even playing field for all participants.

In October Lopez Obrador defended his decision to ask for support of regulators for the state-owned companies, and said that "in energy policy, we have not subscribed any agreements with the US or Canada."

But the US secretaries also warned that Mexico's actions could hurt not only several private-sector energy projects but also "hundreds of millions of dollars of US government public energy investments in Mexico."

These resources are invested in Mexico through the US International Development Finance Corporation, the Export-Import Bank of the United States, and the North American Development Bank.

The secretaries reiterated their respect for Mexico's sovereign right to decide its energy policy in the letter, but emphasized hat the country must live up to the commitments of the USMCA. Doing so would help meet Mexico's energy policy goals of accessible energy prices and energy self-sufficiency, the letter said.

By Sergio Meana