US is ready to escalate Mexico energy dispute

Washington is urging Mexico to take immediate steps to address concerns expressed by US energy investors and is ready to escalate the dispute, the top US trade negotiator has told US lawmakers.

The US Trade Representative's office (USTR) has asked Mexico to take "specific and concrete steps" to address the concerns set out in a July 2022 trade complaint, the agency's chief, Katherine Tai, said in briefings on Thursday and today before the Senate and House Representatives' committees handling trade. Pressed by lawmakers to lay out the next steps, Tai said that her agency was prepared to use every measure available under the US-Mexico-Canada free trade agreement (USMCA) — a reference to retaliatory tariffs that could be levied against imports from Mexico if the US' concerns are not satisfied.

The US and Canada last July filed a formal complaint under the USMCA against Mexico's energy policies, accusing Lopez Obrador's government of giving preferential treatment to state-owned enterprises and of taking actions that have hurt foreign investors. The complaint centers on Mexico's attempts to dial back the 2014 energy reform with laws to curtail private-sector renewable energy development, prioritize power dispatch from state utility CFE and nationalize natural gas supply under gas transport contracts.

The USMCA sets out a timeline of 30 days for consultations and another 75 days to form a dispute settlement panel to address specific concerns. But those deadlines have gone without any specific action taken by the US.

"American clean energy producers, [including] companies in the Pacific northwest, are still waiting for access," Senate Finance Committee chairman Ron Wyden (D-Oregon) told Tai. "In my view, it is long past time to say enough and make this a real dispute settlement case," said Wyden, whose committee oversees trade.

US and Canadian trade negotiators wrapped up formal consultations in September 2022 and held additional talks in December 2022-February 2023 to address specific issues raised by US and Canadian investors, Tai said. The US is making the case to Mexico that it should resolve the dispute because "it is in Mexico's own self-interest, in terms of the strength of its energy market and the integration of that market in North America," Tai said.

Senator Bill Cassidy (R-Louisiana) urged Tai to take advantage of punitive measures laid out by the USMCA. The Mexican government "seems to have a kind of nationalistic viewpoint in which they're willing to sacrifice efficiency and tolerate corruption in order to have the pride of owning their own business," Cassidy said.

US oil, power and manufacturing industry groups earlier this month asked the USTR to escalate the dispute.

Mexico has downplayed the accusations made by its main trading partners, in part because they stem from efforts by President Andres Manuel Lopez Obrador's government to roll back his predecessor's historic reopening of Mexico's energy sector to foreign investment.

Obrador's government has taken steps to partially address some of the concerns expressed by US investors. Energy regulator CRE resumed reviewing new permits for the energy sector earlier this month after a Covid-19-related shutdown of the process in 2020, but said it will take until September to address permits pending from 2019.

Lopez Obrador has also touted the Sonora Plan, announced during the Cop 27 climate talks in Egypt last November, which calls for the construction of a series of new wind and solar parks in Sonora and Oaxaca with US financial backing.

By Haik Gugarats