The North American Agenda: What Lies Ahead for the USMCA? – Consultations Extended Amid Uncertainty
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.
“We respect her decision. We insisted that she stay, but she is a woman of convictions and has taken this decision of leaving the Secretariat of the Economy.”
– Mexican President Andrés Manuel López Obrador (AMLO) announcing the resignation of former Secretary Tatiana Clouthier
A Muddled Outlook as Consultations are Extended.
Mexico’s Secretary of the Economy Tatiana Clouthier, a relative moderate within the President’s cabinet who had led the USMCA consultations on energy, resigned today stating that her “opportunity to contribute to the [president’s] team has run out.” Her replacement was not immediately named. A few days earlier the U.S. had explicitly agreed to continue talks over Mexico’s energy policies after the minimum 75-day consultation period under the USMCA expired. It is understood that Canada had done so as well.
Diving deeper: After announcing the consultation extension, a U.S. spokesperson referenced “positive momentum” and seemed willing to address the dispute through talks instead of immediately reverting to a contentious panel. This had been a stated goal of Mexico’s negotiating team under Clouthier. Whether the new secretary will stay the course, or reshuffle Mexico’s strategy, remains to be seen.
Our takeaway: Underpinning the extension, of course, is the fact that no agreement has been reached on the dispute’s core issues. There are no clear milestones in the U.S.- Mexico calendar, except for an upcoming North American Leaders’ Summit that Secretary Marcelo Ebrard alluded to recently, to be held in December.
Is the CRE Opening the Permit Tap?
The Energy Regulatory Commission (CRE) issued 230 new permit authorizations in its September meeting, making a dent in its sizeable backlog. These included 150 permits for new retail gas stations, while only 114 were issued in all of 2021. Analysts have interpreted the move as a nod to U.S. and Canadian concerns, as the CRE’s failure to act was a specific area of concern in the USTR request for consultations. The CRE’s progress on electricity-related permits, another key issue in the USMCA consultations, is less notable.
Diving deeper: This move does not necessarily signify a change in the CRE’s willingness to address corporations’ individual issues. It’s worth noting that 790 applications remain pending.
Our takeaway: Beyond case-by-case considerations, there are no signs of systemic changes to Mexico’s energy policies. These would include, for instance, an overhaul of the controversial Electricity Industry Law (LIE), still in legal limbo, which was also singled out in the USTR complaint. For those considering future investments in Mexico, the country’s track record upholding the rule of law remains mixed.
Concerns stretch beyond North America.
Following a meeting with President López Obrador in September, German President Frank-Walter Steinmeier admitted that the two countries had differences to overcome in terms of their energy policies. Similarly, Japanese Foreign Minister Yoshimasa Hayashi emphasized to his counterpart, Marcelo Ebrard, the importance of legal stability for Japanese investors in Mexico’s energy sector. The Italian ambassador to Mexico also chimed in, diplomatically calling for a more technical debate on energy policies.
Diving deeper: U.S. and Canadian concerns over Mexico’s energy policies resonate far beyond North America. Mexico has an open economy and one of the broadest networks of trade and investment treaties. The USMCA process is being closely followed in numerous world capitals.
Our takeaway: The environmental implications of energy policies will be a key issue at the 2022 United Nations Climate Change Conference, COP27, to be held November 6-18 in Egypt. Mexico has already come under fire for flouting its stated climate commitments. Last year, the country was awarded an infamous “fossil of the day” by civil society organizations, as one of the parties “doing the most to achieve the least.”
Following the conversation:
- “[W]ithout prejudice to rights established under the USMCA, we wish to continue joint efforts to explore a mutually agreeable solution.” – Statement issued by Mexico’s Ministry of the Economy prior to former Secretary Clouthier’s resignation.
- “Now that they sent us the list of questions about the treaty consultation on the energy issue, about 60 pages long; the questions, as if they had been asked by those from Iberdrola or those who import gasoline, or other characters here. We are going to answer them all, out of respect, but we are not going to allow them to violate our sovereignty.” – President López Obrador regarding the USMCA consultations.
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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.
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