Mexican President Andres Manuel Lopez Obrador said Mexico has “inalienable” ownership of its energy resources.
Leaders of Canada, Mexico and the United States are due to hold a summit next week where one point of contention could be centered on whether Mexico violated a trade deal by tightening government control over its energy market .
Where’s the argument?
Tensions over Mexico’s nationalist policies escalated into a full-fledged row in July when the Washington, DC and Ottawa governments filed a complaint against Mexico under the countries’ joint trade agreement, the US-Mexico-Canada Agreement (USMCA).
The complaint argued that Mexican President Andres Manuel Lopez Obrador’s efforts discriminated against US and Canadian companies by shifting the market in favor of Mexico’s state-owned oil company Petroleos Mexicanos (Pemex) and its national utility, Comision Federal de Electricidad (CFE). .
The companies also complained that bureaucratic delays were hampering their operations.
Talks to resolve the dispute began, and though progress has stalled, Canada and the US agreed last year to extend the process beyond its initial 75-day window.
If the controversy is not resolved during the consultations, a dispute resolution panel may be convened to decide, under the USMCA.
What is Mexico’s defense?
Lopez Obrador has put up an optimistic front, saying Mexico hasn’t broken any laws and that “nothing is going to happen”.
It comes after he overhauled the electricity market in the name of national sovereignty and gave CFE priority over private companies in connecting power plants to the grid.
He often phrases his opposition to foreign and private involvement in the energy sector as part of his quest to root out corruption, arguing that previous governments have distorted the market in favor of private capital.
He also says energy is a domestic matter, citing an article he inserted into the USMCA that established Mexico’s “inalienable” ownership of oil and gas. Critics say the article does not justify Lopez Obrador’s policy toward foreign firms.
Can Mexico settle the dispute?
Most analysts predict Mexico would lose if a panel were asked to settle the dispute. That could be very costly for Mexico and the prospect of US punitive tariffs.
Both countries have previously stressed that they want to sort out the disagreements before reaching a panel.
Talks slowed after the resignation of Mexico’s economy minister in October. Her successor swept away several experienced trade negotiators, leaving an inexperienced team at the helm.
The new team says it has come up with proposals that could address two of the four areas of advice and that they also address other US concerns. But there was little clear evidence of meaningful progress.
The determination appears to depend on whether energy nationalists within the Mexican government, who have taken their cues from Lopez Obrador, are willing 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 down.
His administration is also aware that Mexico’s help in fighting illegal immigration tends to carry more weight in Washington, DC due to its prominent position in US domestic politics, giving the government tacit, if unspoken, leverage.
Mexico’s industry is also so integrated with the US economy that a trade war could be painful for both countries as the region seeks to reduce its dependence on Asia and curb rising inflation.
Nonetheless, the dispute has hurt investor confidence in Mexico. Lopez Obrador is seeking US help to fund solar power generation in northern Mexico and attract investment in greener manufacturing, particularly automobile manufacturing, a key industry.