The North American Agenda: Despite AMLO’s Silence, Proposed Administrative Reform Takes Center Stage

“The current Administration inherited legal processes […] in which it is asked to comply with contracts, concessions, permits, authorizations, or the assignment of property, granted illegally, as well as to pay disproportionate indemnities. These lawsuits range from those ‘with the appearance of legality’ to claims that are evidently fraudulent.”

– Preamble of the sweeping administrative reform proposal submitted to Mexico’s congress by President Andrés Manuel López Obrador (AMLO) on March 24th.

Concerns over AMLO’s proposed administrative reform go mainstream

The private sector has begun to sound the alarm over the expansive reform proposal recently sent by the president to Mexico’s Congress. The Center for Economic Studies of the Private Sector (CEESP) warned it would put projects that require government contracts or concessions at risk, by streamlining  the process by which these can be revoked. Business groups, academics and analysts have also warned that certain provisions would run counter to the country’s international obligations.

• Diving deeper: The government has remained largely silent on the proposal – a starkly different approach from the noisy rollout of previous bills. A common reading is that the reform seeks to ensure that the administration’s priorities are not impaired by private concerns. Two other proposals were introduced in parallel: a reform of the Mining Law to restrict private projects, and a push to merge technical institutions with federal ministries and other political bodies.
• Our takeaway: Record job figures confirm that nearshoring trend is taking hold in the country’s leading economic regions. While the proposed reforms may not directly affect industrial projects, seizing the full potential of this global trend will require incentivizing, and not inhibiting, investment in infrastructure and critical materials value chains.

Could a transaction really change the tide in the electricity market?

A complex transaction that was recently announced addresses two of the president’s top concerns in the energy sector. First, Spanish company Iberdrola, which he has repeatedly accused of corruption, will relinquish its strong market position in Mexico. Second, CFE will operate 13 additional assets and, by the government’s own accounting, be responsible for 55% of the country’s total power generation, just above the threshold foreseen in AMLO’s failed constitutional reform. Some believe this could lead to a less combative stance from the government against private investors, though that remains to be seen.

• Diving deeper: As he dubbed the operation “a new electric nationalization,” the president stated CFE would increase its share “up to 15% more […] to 70%” by the end of his administration. He later declared the new goal to be 65%. The overall vision, and how to get there, appears to be a work in progress.
• Our takeaway: Many aspects of the transaction remain unclear. For instance, the Ministry of Finance stated that “from January 1 [2023] all income flows from [these] plants will accumulate in favor of the State, an added incentive to close the acquisition as soon as possible.” It’s a reminder that, despite the official announcement, it is not yet known when the transaction will be completed.

Revisiting the USMCA dispute resolution timeline

The U.S. Trade Representative has yet to announce updates on the trilateral consultations over Mexican energy policies, which have gone on for nearly nine months, or the technical consultations over biotech corn trade, where the initial 30-day period specified in the USMCA has elapsed. The treaty would now allow for a panel to be convened in the first case, and for a formal dispute to be launched in the second.

• Diving deeper: As talks extend, their associated timelines will intersect with looming legislative and presidential elections on both sides of the border. Should a panel be established in either case, the process would likely take over a year, based on the timeframes delineated in the USMCA. Avoiding politicization would seem a tall task.
• Our takeaway: Pressure on the U.S. to reach a resolution continues to mount from industry and politicians alike. However, as elections draw near, doubts will inevitably arise over whether the issues can realistically be solved by the current administrations. Running out the clock may come to be seen as a legitimate policy choice.

Following the Conversation

• “The [Mexican Government] is under siege and spied on by agencies like the DEA, CIA, and the Pentagon. President López Obrador signaled that his administration does not spy on politicians or activists; only with a judge’s order can telephone interventions be done against members of organized crime.” – tweeted General Coordinator of Media at the President’s Office Jesus Cuevas in response to a New York Times investigation accusing the AMLO administration of utilizing Pegasus spyware in contradiction of official statements.
•  “China firmly supports Mexico’s efforts to safeguard its independence and oppose foreign interference, and calls on relevant countries to stop its bullying and hegemonic practice against Mexico,” – Chinese Foreign Ministry spokesman Mao Ning in response to President Lopez Obrador’s letter to the Chinese government asking for collaboration to address U.S. concerns over fentanyl trafficking.
• “The next governments will have to continue investing because oil is good business […] Oil is always profitable because it is an extractive industry: you do not pay rent to nature.” – President Andrés Manuel López Obrador speaking of how he foresees Mexican hydrocarbon policy evolving in the coming years.

All translations provided by FTI Consulting.

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