The North American Agenda: What Lies Ahead for the USMCA? – Consultations Begin, Concerns Remain

Consultations Begin, Concerns Remain

“In the consultations we sit down and say: What is hurting you, what is the issue that you want to resolve? And we look for a solution before entering a contentious mechanism, which in itself also doesn’t imply panic, nor creating catastrophic scenarios.”

– Mexico’s Secretary of Economy Tatiana Clouthier

Consultations Begin, Yet Regulatory Trends Remain the Same

Tuesday marked the initiation of the USMCA consultations between North American partners over Mexican energy policies. Yet ahead of the first meeting, Mexico’s Energy Regulatory Commission (CRE) continued to introduce regulatory obstacles that disadvantage private energy players, such as new requirements that would further hinder the opening of new gas stations and a project to cap natural gas prices.

Diving deeper: Policy and regulatory outcomes are far from certain. Clouthier did allude that Mexico is willing to adjust its energy policies to some extent, though she emphasized that this is not within her direct area of responsibility. Meanwhile, the Mexican regulatory improvement commission Conamer stated that CRE did not properly analyze the impact that recent measures could have on energy markets.

Our takeaway: A whole-of-government approach to the consultations has yet to emerge, which supports what many experts have previously asserted: it will be hard for an agreement to be reached that avoids the establishment of a panel. Structural market challenges led to the USMCA consultations, and Mexico has yet to fully address them.

Taking the Pulse of Public Opinion

In a new poll by Reforma, Mexicans were asked about important topics surrounding the USMCA dispute consultations. Topline numbers include that 62% believe the dispute will be resolved, and 73% want the country to remain within the agreement, even if the dispute leads to trade sanctions being levied by the U.S. and Canada.

Diving deeper: The USMCA’s importance to Mexico’s economy is well understood domestically: 61% of poll respondents think that Mexico would be the most affected country if the treaty were to be nullified. Even as 56% do not think the U.S. was justified in invoking consultations, 70% believe think that Mexico should make the changes necessary to stay in the USMCA.

Our takeaway: This poll reflects the dueling dynamics between political sentiment and economic realities in Mexico. Savvy political players will think not only of short-term gains but of mid- and long-term consequences. After all, an overwhelming majority recognize that the USMCA should continue to be at the core of the country’s economic development path.

On the Other Side of the Border

After more than a year of negotiations, the U.S. Congress passed into law some of President Biden’s proposed climate policies in the form of the Inflation Reduction Act (IRA). This sends a clear signal to Mexico on the direction in which the U.S. economy is evolving, which starkly contrasts with President López Obrador’s vision. While the bill passed along party lines, U.S. Democrats will, at a minimum, hold power over the Executive branch until the end of the López Obrador administration.

Diving deeper: Despite such tensions, the Inflation Reduction Act also advances regional integration relative to its Build Back Better predecessor by including tax credits for North American-built electric vehicles (EVs), as opposed to centering solely on U.S-built cars. This change will preempt another potential USMCA dispute on vehicles, just as the three countries conclude legal arguments on the Auto Core Rules of Origin panel.

Our takeaway: Although experts have rightly pointed to the current shaky footing of North American relations, the various implications of the IRA passage demonstrate that the three countries’ economic fortunes continue to be closely tied. Ultimately, the region shares an economic interest in maintaining a strong trilateral relationship centered on the USMCA, though domestic politics continue to complicate this reality.

Following the Conversation

“We have to convince the leaders of Canada and the United States … [to] change the policy of predominance that has been imposed, the policy of hegemony, of wanting to intervene in the internal affairs of other nations.” – President Andrés Manuel López Obrador during a meeting of the Community of Latin American and Caribbean States (CELAC).

“Security matters are fundamental, more than other topics that are unsettling and are difficult, including the USCMA and the consultation, because these things are going to be resolved, but if we don’t have results in security, everything will continue shaking.” – U.S. Ambassador to Mexico Ken Salazar regarding the new State Department Mexico Travel Advisory.

“The scenario is that in dialogues we will arrive at an agreement and not a panel, and if we arrive at a panel, Mexico will not consider leaving the treaty. Get that out of your mind, please, Mexico will not do it.” – Mexican Secretary of Foreign Affairs Marcelo Ebrard before members of Mexico’s industrial sector.

All translations provided by FTI Consulting.

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