Mexican energy policies at the center of a trade dispute launched one year ago by the U.S. will prove costly to both countries as consultations drag on, according to a former Mexican government official who says the dispute likely is stalled because of “political calculations.”
“If after one year, you cannot agree on facts, then I don't think that more time will lead to agreement on facts,” Antonio Ortiz-Mena, partner at Dentons Global Advisors and former head of economic affairs at the Mexican Embassy in the U.S., said in a recent interview. He cited likely political considerations at play as both countries head toward major elections and as the U.S. seeks to engage Mexico on migration issues.
“But these political calculations have economic consequences for both Mexico and the U.S.,” he said. The policies at issue, he argues, hinder Mexico’s ability to provide clean energy and adversely affect companies that “would readily use clean energy” – a group that includes “many” U.S. companies, he contended – as well as those that could provide goods and services to Mexico in the clean energy sector.
“The clock is running. There are foregone investments in energy and foregone investments in manufacturing and other industries,” he said, citing “missed opportunities on the consumption and production side.”
The U.S. on July 20, 2022, requested consultations with Mexico under the U.S.-Mexico-Canada Agreement over a series of efforts pushed by Mexican President Andrés Manuel López Obrador to reverse reforms undertaken in 2013 to liberalize the country’s energy sector. Those efforts include a 2021 amendment to the country’s electricity law that prioritizes government-run electricity plants over what the Office of the U.S. Trade Representative contends are cleaner, privately run plants, among other measures.
Canada launched consultations with Mexico over similar concerns the same day. In May, Canadian Minister of International Trade, Export Promotion, Small Business and Economic Development Mary Ng expressed optimism about the talks, saying “there seems to be a way and an interest on behalf of the Mexican government working with Canadian investors and businesses” to resolve Ottawa’s concerns.
USTR Katherine Tai raised U.S. concerns about Mexico’s energy policies, among other issues at the center of ongoing disputes, during a bilateral meeting with Mexican Economy Secretary Raquel Buenrostro on the sidelines of the third USMCA Free Trade Commission meeting, held earlier this month in Mexico.
USTR has been facing pressure from industry groups and some lawmakers to escalate the dispute. On Thursday, a bicameral group of mostly Republican lawmakers led by Senate Finance Committee member Sen. John Barrasso (R-WY) and House Ways & Means Committee member Rep. Jodey Arrington (R-TX) sent a letter to Tai calling for “swift establishment of a panel.” Barrasso also serves as ranking member of the Senate Energy and Natural Resources Committee.
“Robust enforcement action is necessary – not just in the renewable energy sector, but across the entire energy sector,” the lawmakers wrote.
In a statement on the letter, Barrasso said “The United States has given Mexico more than enough time to rein in its discriminatory actions toward American energy producers,” adding that “Seventy-five days of consultations under the United States-Mexico-Canada Agreement have stretched on for nearly a year with little meaningful progress.”
Signatories included Senate Finance Committee members Sens. John Cornyn (R-TX), Tim Scott (R-SC), James Lankford (R-OK), Ron Johnson (R-WI) and Todd Young (R-IN) as well as House Ways & Means trade subcommittee Chair Adrian Smith (R-NE), among others.
According to Ortiz-Mena, Mexico’s policies could put U.S.-based companies in Mexico at a disadvantage compared to competitors not beholden to the same level of “clean energy guidelines” required by “company commitments or shareholder activism, et cetera.”
Further, he contends Mexico’s policies are hindering the country’s ability to benefit from near-shoring efforts pushed by the Biden administration, saying the “energy component” is “the one single biggest hurdle to taking full advantage of the USMCA and Mexico-U.S. proximity.”
“Mexico's a neighbor, it's a reliable trade partner and it is not being able to focus on regional production hubs as much as it should,” he added.
Ortiz-Mena said the dispute’s political dimension, as well as its economic dimension, could have significant consequences.
The energy policies at issue are “a matter that's very near and dear to the president’s heart,” he said, referring to López Obrador. “This is as political an issue as you can get, and as close to the president's personal worldview and his thoughts about legacy as you can possibly get.”
Accordingly, he said, the Mexican government likely would not have the “political will” to comply with an adverse dispute settlement panel ruling – a highly likely outcome, according to Ortiz-Mena, if the U.S. were to escalate the dispute.
And in that case, he said, the U.S. would have to decide what step it would take next – including, potentially, whether to suspend benefits for Mexico under the trade deal.
“So, I think these are political calculations with big political consequences,” he said. “But also, as I said … big economic consequences for both countries.” -- Margaret Spiegelman (mspiegelman@iwpnews.com)
