One morning in July 2018, one of Mexico’s chief negotiators of the North American Trade Agreement (TMEC) in the US capital received a message from then-President-elect Andrés Manuel López Obrador. “You must remove any reference to the energy sector,” they told him. Years later, the seemingly impossible order became at the root of the disputes Mexico faces today with its key trading partners.
Testimonies, both public and anonymous, from those with direct knowledge of the final negotiation phase of the trade deal between Mexico, the United States and Canada show that there is a gap between what López Obrador asked for and what was done. During his four years in power, Mexico’s president has enacted laws that give state-owned energy companies a monopoly, revoked operating licenses for private companies and reversed his predecessor’s commercial opening. The US and Canada assert that this violates TMEC, and to prove it they have launched formal consultations that are jeopardizing billions of dollars in revenue.
Before winning the July 2018 elections, López Obrador appointed Jesús Seade, a renowned academic and economist specializing in international trade, as his future representative in the negotiations that took place between the three North American countries. In fact, after winning the election, Seade joined the team made up of Enrique Peña Nieto government officials.
His mandate was to make the energy sector an exception. At the time, such an arrangement could be confusing, as López Obrador assured both during the campaign and in post-election statements that he would not reverse the 2013 reform that opened the sector to private company participation. Despite the inconsistency, Seade delivered a letter to Robert Lighthizer, the US chief negotiator, formally demanding the energy sector be removed from the treaty. Lighthizer didn’t respond kindly, sources recall, saying he was offended to receive such treatment even though his country is his biggest buyer. Shortly thereafter, the sources said, Seade realized that if Mexico was to remain in the bloc, the energy sector would have to remain as it was already planned. Seade, the current Mexican ambassador to China, did not respond to an email and an interview request from EL PAÍS for this publication.
After a negotiation break of several weeks, Seade returned to the table with an alternative text intended to replace Chapter 8 of the treaty, which dealt with issues of regulatory cooperation on energy issues between the three countries. Instead, Seade produced a half-page text that reiterated what the Mexican constitution already says: that underground hydrocarbons are Mexico’s property. As this is reflected throughout the agreement, the proposal met with no resistance. Following this resolution, the agreement advanced at their respective congresses was approved and signed by the three leaders, including López Obrador.
The previous government’s energy reform, contrary to what López Obrador claims, did not turn over the resources to foreign private companies, but allowed the state to issue licenses or permits for exploration, exploitation and/or production against tax rates and income. . Under the TMEC, US and Canadian companies would enjoy certain guarantees agreed under the trade agreement.
But Chapter Eight wasn’t the only one with references to the energy sector, and its complete elimination didn’t materially change the rights that U.S. and Canadian companies enjoy in Mexico for agreeing to play by the rules of the TMEC. For example, the treaty contains chapters on investments and state-owned enterprises, which refer to the energy sectors in the three countries.
MPs from Morena, the president’s party, and his cabinet “overlook that they have a number of important responsibilities to deal fairly with competition not only from the United States but also from private Mexican companies that compete with them State-owned companies … and this is where the problem begins,” Ildefonso Guajardo, who led the negotiations as Mexico’s economy minister, said on a television program last Sunday.
In a video published by Guajardo on social media on August 27, 2018, Seade assured that López Obrador would not back down on energy legislation. He “does not intend to change the constitution, he respects the legal framework as we have it,” he told reporters in Washington. “What was done was to figure out how we could use a different technique in designing the texts to achieve a new text in the treaty that reflects full respect for the Constitution and the existing legal framework.
And then Seade pointed out, “It was never an exercise in negotiating content, not at all. There were no content negotiations. There have been no substantive discussions with my friends here, let alone the United States. It was a design of shapes so legally the padlock was perfectly hard”.
A revision of the text was not what López Obrador Seade had asked for, two sources with direct knowledge agree. The motion was to remove the energy sector from the TMEC, which did not happen. However, the President has said on several occasions and at a press conference that what is written in Chapter 8 protects him.
There are three ways Mexico will have to pay damages if the TMEC Dispute Settlement Body decides against it. First, the United States government will estimate the damages incurred during the period that the López Obrador legislation violated the agreement; the second allows US private companies to assess the economic damage Mexico would have to pay for; and third, the customs route, since the US could impose quotas on products imported from Mexico, which would be paid for by private companies.
“My impression is that the experts at the Ministry of Economy know that the probability of losing these consultations is very high,” Guajardo said, “but at the same time they have to turn to the cabinet in charge of energy policy to defend themselves or demonstrate internally.” that there is no way to argue against these allegations”.
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