Mexican President Andres Manuel Lopez Obrador has declared that Mexico is the “inalienable” owner of its energy resources.
The leaders of Canada, Mexico and the United States are due to hold a summit next week, with a major bone of contention can be a dispute focusing on whether Mexico violated a trade pact by tightening state control over its energy market.
Where is the dispute?
Tensions over Mexico’s nationalist policies escalated into a formal dispute in July, when the governments of Washington, D.C. and Ottawa filed a lawsuit against Mexico under the joint trade deal: the United States-Mexico-Canada Agreement (USMCA).
The complaint alleged that efforts by the Mexican President Andres Manuel Lopez Obrador discriminated against American and Canadian companies, changing the market to favor Mexico’s state oil company Petroleos Mexicanos (Pemex) and its national electric utility, the Comision Federal de Electricidad (CFE).
Businesses have also complained that bureaucratic delays hampered their operations.
Talks to resolve the dispute have begun and, although progress has stalled, Canada and the United States agreed last year to extend the process beyond its initial 75-day window.
Under the USMCA, if a dispute is not resolved during negotiations, a dispute resolution panel may be called upon to adjudicate.
What is Mexico’s defense?
Lopez Obrador put on a bullish front, saying Mexico didn’t break any laws and “nothing is going to happen.”
It comes after he overhauled the electricity market in the name of national sovereignty, giving priority to CFE over private companies for connecting power plants to the grid.
Often hiding his opposition to foreign and private participation in the energy sector as part of his drive to root out corruption, he argues that past governments have skewed the market in favor of private capital.
He also says energy is a national matter and points to an article he inserted in the USMCA stipulating Mexico’s “inalienable” ownership of its oil and gas. Critics say the article doesn’t vindicate Lopez Obrador’s policy toward foreign companies.
Can Mexico settle the dispute?
Most analysts predict that Mexico would lose if a panel were appointed to resolve the dispute. This could be very costly for Mexico, raising the prospect of punitive US tariffs.
Both countries have previously stressed that they want to settle the dispute before it reaches a panel.
Talks slow down after Mexico the minister of economy resigned in October. His successor eliminated several experienced trade negotiators, leaving an inexperienced team in charge.
The new team says it has put forward proposals that could address two of the four consultation areas and also address other US concerns. But there have been few clear indications of significant progress.
The resolution seems to hinge on whether the energy nationalists within the Mexican administration, who have taken inspiration from Lopez Obrador, are willing to compromise.
What are Mexico’s trading currencies?
Lopez Obrador did energy policy a cornerstone of his presidency, which prevents him from backing down.
His administration is also aware of this. Mexico’s aid on the tackle illegal immigration Tends to carry more weight in Washington, DC due to its prominence in US domestic politics, giving the government tacit, if undeclared, influence.
Mexican industry is also so deeply integrated into the US economy that a trade dispute could be painful for both countries at a time when the region is trying to reduce its dependence on Asia and reduce the galloping inflation.
Still, the spat has shaken investor confidence in Mexico. Lopez Obrador is seeking U.S. assistance to fund solar power generation in northern Mexico and attract investment in greener manufacturing, particularly in automotive manufacturing, a key industry.
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