The North American Agenda: What Lies Ahead for the USMCA? – Concerns over climate, Pemex, and the Trilateral Relationship

 “[It is about] more than just impacts on individual companies,”

– United States Trade Representative Katherine Tai, describing her view of the U.S. complaint against Mexico.

Systemic concerns.

In an interview, Katherine Tai made clear that Mexico’s attempt to assuage U.S. concerns over its energy policies by focusing on the specific complaints of individual companies would not be sufficient to preempt a panel. Rather, the U.S. expects Mexico to also address its broad concerns over energy policies, something its southern neighbor has thus far refused to do.

• Diving deeper: Tai is scheduled to meet Mexico’s newly minted Secretary of Economy, Raquel Buenrostro, for the first time over video call today. A newly appointed chief negotiator might have typically traveled to Washington to meet with her counterpart and other key stakeholders in the country’s most important trading partner.
• Our takeaway: Tai also stated that a panel could be pushed back “for as long as those consultations are meaningful.” Officials have tacitly agreed to address the dispute during their scheduled meeting in December. This leaves very limited time for an amicable solution to be found ahead of the North American Leaders’ Summit, which could also take place next month.

Pemex admits concern.

As part of Pemex’s third-quarter financial reporting, the company acknowledged to investors that deviating from its zero-tariff framework under the USMCA would have a significant negative impact on its already-weak financial health. The company currently holds the title of the world’s most indebted oil company, and, even in the current context of high oil prices, reported financial losses this quarter. In 2021, the company’s exports to the U.S. accounted for 33.7% of its total sales and 69.1% of annual exports.

• Diving deeper: Mexico names energy sovereignty as a primary reason for not changing its preferential policies towards Pemex. It is therefore perhaps surprising that the state-owned company publicly recognizes its vulnerability to the suspension of benefits (i.e., tariffs) that could come from losing a panel over the countries’ energy policy.
• Our takeaway: If it comes to that, the USMCA states that the affected party “should first seek to suspend benefits in the same sector.” However, if the party “considers it is not practicable or effective” to do so, it can move into other sectors. Florida’s agriculture industry would likely be among those keeping an eye out for this possibility, as their request for a Section 301 Investigation into Mexican produce imports was recently denied.

Mexico’s inaction on climate.

Last Friday, U.S. Special Envoy for Climate John Kerry met President López Obrador and other top cabinet members as part of his global push to increase climate commitments ahead of what could be a lackluster COP27. The U.S. diplomat later declared that Mexico was set to announce major climate commitments. However, Mexico – which has failed to update its climate goals since signing the Paris Agreement in 2015 – seems poised to instead emphasize matters of human rights, gender, and indigenous rights during the conference.

• Diving deeper: Kerry’s focus on global climate ambition clashes with the Mexican administration’s framing of the visit as a sign of progress on bilateral issues. This comes despite the fact that no bilateral commitments were reached during the visit.
• Our takeaway: According to the NGO Climate Action Tracker, Mexico continues to “choose policies that prioritize the use of fossil fuels and deprioritize climate change mitigation.” The climate technology advances cited by Mexican officials ahead of the COP have not materialized. For example, while officials emphasized to John Kerry advances in methane capture, research shows that Pemex has increased flaring by more than 50% under the current administration, and two major methane leaks were identified by scientists in just under a year.

Following the Conversation:

• “Mr. Kerry has always been very respectful, and he is collaborating with us, he is helping so that there are investments in the entire energy sector, and he has been respectful of the sovereign decisions that the Mexican government has recently taken, especially in relation to the electricity reform, there has been respect for those decisions that have been made in our country.” – President López Obrador in reference to John Kerry’s visit to Mexico.
• “[The U.S. and Mexico have] a common plan in various areas, not only at the North American-level, but at the economic level and also the security level, so we have a shared vision, and we have a lot of things that we are working on together.” – Chief Officer for North America at the Secretary of Foreign Affairs, Roberto Velasco, in regards to U.S.-Mexico relations.

All translations provided by FTI Consulting.

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