The North American Agenda: What Lies Ahead for the USMCA? – Considerations Shift as Consultations Continue
North American relations are at a crossroads, with the recent U.S. Trade Representative’s decision to launch dispute settlement consultations over Mexican energy policies representing an important signpost of the times. In this moment of change, FTI Consulting’s binational team of policy, international relations, and industry experts has launched this biweekly newsletter with the analysis needed to navigate doing business on both sides of the border. Click here to see our past analysis on the topic.
Considerations Shift as Consultations Continue
“Sometimes we give meaning to things or magnify them with a lens where we don’t put things into the perspective that they should be put and say, let’s wait and see what happens.”
– Mexico’s Secretary of Economy Tatiana Clouthier
Mexico’s Supreme Court rules on a USTR concern.
Mexico’s Supreme Court suspended the implementation of the Ministry of Energy’s (SENER) June order obligating private companies to buy natural gas from Pemex or CFE, or else risk losing access to the National System of Integrated Transport and Storage for Natural Gas (SISTRANGAS). The ruling resulted from a case brought forth by Mexico’s competition watchdog COFECE over concerns that the decree would have raised natural gas and, subsequently, electricity prices as a result of reduced competition over distribution. The government has the opportunity appeal the decision.
Diving deeper: This SENER decree was mentioned explicitly in the USTR request for USMCA consultations. As such, the ruling could potentially open a path to resolving one of the contentious energy topics affecting trade and foreign investment in Mexico. Unaffected by this decision are the other three: the amended Electric Power Industry Law, barriers to private energy companies’ abilities to operate, and a Pemex-only waiver on maximum sulfur content in diesel fuel.
Our takeaway: How the three governments react to this decision could be an indicator of the existing political will to reach an agreement, even as progress in one issue will by no means automatically translate to others. Energy Secretary Rocío Nahle has since responded to the ruling again claiming that the decree sought to ensure stability in the pipeline system; neither her nor President López Obrador have indicated if an appeal will be filed.
Clouthier signals a preferred extended consultation timeline.
As the USMCA consultations continue with little public insight into their proceedings, Secretary of Economy Tatiana Clouthier stated that they could extend for more than the standard 75 days. This would require the agreement of all parties.
Diving deeper: Clouthier, who is leading the USMCA consultations on Mexico’s behalf, continues to try to assuage public concern over the dispute and provide a counterweight to the nationalist rhetoric of other top officials. Next week President López Obrador is set to define the government’s official stance on the process during his Independence Day speech, which is likely to stress energy sovereignty.
Our takeaway: If consultations were to reach the North American Leaders’ Summit announced for the end of the year, it would allow for direct discussions at the highest level. Yet, every delay brings the disagreement closer to the presidential elections that will take place both in Mexico and the United States in 2024.
The USTR celebrates labor day.
USTR Katherine Tai has been quick to make use of the new Rapid Response Labor Mechanism (RRLM) included in the USMCA, touting its four successful implementations in recent months in her Labor Day statement. Some analysts have reported that this push is having an impact on the ground in Mexico.
Diving deeper: Tai played a pivotal role in ensuring the mechanism was included in the USMCA during her previous post as Chief Trade Counsel for the House Ways and Means Committee. Indeed, during her confirmation hearings she pledged to pursue a “worker-centered” trade agenda.
Our takeaway: An increasing percentage of the U.S. public views trade as a threat to the country’s economy as opposed to an opportunity. This seems to have had an impact on both sides of the political spectrum, with President Biden pledging to invest at home before entering into any new trade agreements. In addition to the USTR’s agenda, the Commerce Department is also working to bolster supply chains within the United States. How this shift impacts the future of the USMCA is worth monitoring, more so if disagreements between the partners continue.
Following the conversation:
“I am going to search for a way, but we will not allow the politics of privatization to return, because they inflicted much harm on Mexico both in oil, the electricity industry, [and] water – all of the natural resources should not be privatized” – President Andrés Manuel López Obrador during a brief interview after meeting with CFE workers in Nayarit.
“[T]he resolution process for the controversies established by the U.S. and Canada against Mexico under the USMCA introduce a new factor of uncertainty and risk that could affect investment decisions in the country.” – Governor of the Banco de México (Banxico) Victoria Rodríguez Ceja during her presentation of quarterly economic results.
“It is not easy for the government or for the private sector, but it is part of the policy that must be implemented in Mexico.” – Secretary of Energy Rocío Nahle in justification of Mexico’s energy policies.
|
If you would like to get The North American Agenda in your inbox on a biweekly basis, please subscribe here. |
All translations provided by FTI Consulting.
The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.
©2022 FTI Consulting, Inc. All rights reserved. www.fticonsulting.com
