The North American Agenda: What Lies Ahead for the USMCA? – Mexico Changes Negotiators

“Tatiana told me that the position of the Secretary of Energy, Rocío Nahle, is not to compromise, which makes [reaching] an understanding difficult. ‘She doesn’t want to yield on anything,’ she said.”

– Columnist Enrique Galván Ochoa, describing his conversation with former Secretary of Economy Tatiana Clouthier. 

Communication Mishaps.

On October 14, President López Obrador stated that the U.S. had “decided not to advance towards a panel.” Almost immediately, the USTR made clear that a panel is still a possibility as long as their concerns are not resolved, and the US Ambassador to Mexico followed suit. In a separate incident, on October 18, Lopez Obrador announced a call with President Biden that “could be” to confirm a North America Leaders’ Summit in December. The White House readout of the call reaffirmed commitment to economic cooperation but did not mention the summit. Lopez Obrador later confirmed that a date has not been set.

• Diving deeper: Agreeing on process is often a prerequisite to discussing substance. Mixed signals on a presidential visit do not reflect well on existing channels of communication, casting doubt on whether substantive progress has been made in the consultations.
• Our takeaway: López Obrador tends to prefer in-person, high-level negotiations. For Biden, an all-or-nothing meeting may be too big of a risk. Expert-level discussions are needed if progress is to be made on the issues at hand.

Overhaul of Mexico’s Negotiating Team.

On October 7, Raquel Buenrostro, a close ally of the President, was named Secretary of Economy. She previously headed Mexico’s Tax Administration Service (SAT), where she earned a reputation for being tough on large private investors. In the week following the appointment, more than a dozen high-level public servants chose or were asked to resign, including those in charge of the ongoing trilateral consultations over energy. This level of turnover is typically only seen at the beginning of an administration.

• Diving deeper: The incoming negotiating team, headed by Alejandro Encinas Nájera, inherits more than the consultations over energy. Also pending is the ruling on the automotive rules of origin and multiple other ongoing dispute settlement processes. Given the rapid exit of institutional knowledge, learning curves will inevitably be steep.
• Our takeaway: The new negotiating team appears more ideologically aligned with the rest of the Mexican government. While a more unified internal strategy could in theory streamline dialogue over the U.S.’s and Canada’s areas of concern, the Secretary of Energy and state-owned companies have yet to show a willingness to compromise.

Meanwhile, Parallel Legal Processes Continue.

While the federal government again figures out how to best respond to the request for consultations, key judicial processes continue. These will bear an important impact on the implementation of the Mexican laws and regulations referenced by the U.S. and Canada. The Secretary of Energy’s order strong-arming private companies to buy natural gas from Pemex or CFE was precautionarily suspended by Mexico’s Supreme Court in September. After the Supreme Court did not reach a qualified vote to declare Mexico’s 2021 Electricity Industry Law (LIE) unconstitutional, it recently reactivated lower courts’ ability to rule on companies’ individual injunction cases. The law’s implementation remains on hold.

• Diving deeper: The legal strategy that the government chooses to pursue in these cases will speak louder than words. The same will be true of the political pressure that it exerts on lower court justices who rule in favor of private energy companies. Meanwhile, a murky and unstable legal environment continues for firms operating in Mexico.
• Our takeaway: The London Court of International Arbitration ruled against CFE in favor of foreign energy companies in two separate cases for breach of contract. The company has at least 24 ongoing international arbitration proceedings. Mounting costs in this separate sphere could incentivize the government of Mexico to adopt a more prudent approach toward international dispute resolution.

Following the Conversation:

• “Look at Turkey, India, Brazil, South Africa, Mexico, Indonesia […] These people – and there are a lot of people inside – are there, and not always following us. Look at Mexico’s President’s recent speech. Who is our Mexico delegate? Is he here? You heard what the Mexican President said about us recently.” – European Commission High Representative Josep Borrell at the EU Ambassador’s Annual Conference.
• “We also invited President Biden’s wife, who is a teacher, who has a good relationship with my wife Beatriz. And we are going to do the same with Prime Minister Trudeau, with his wife, so that in addition to dealing with all these issues, we can have a more familial interaction.” – President López Obrador concerning his invitation of fellow leaders to the North American summit.
• “At this time, we seek to engage constructively with Mexico through consultations and will continue to work towards a mutually acceptable resolution that addresses our (energy) concerns. In the event that the consultations do not address our concerns, the United States may request a panel to resolve the matter.” – Statement issued by a spokesperson for the USTR, ostensibly in response to AMLO’s claim that the U.S. had ruled out convoking a panel.

You may also be interested in this recent article by FTI team members on Corporate Compliance in Mexico’s Energy Market.

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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