The North American Agenda: What Lies Ahead for the USMCA?
All translations provided by FTI Consulting.
North American relations are at a crossroads, with the recent U.S. Trade Representative 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 is launching a 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.
The Future of the USMCA
“[E]ven in the case of the most important market in the world, if having access to that market implies giving up sovereignty, we will not accept it, we are not going to hand over our independence to any foreign government.”
– Mexican President Andrés Manuel López Obrador
AMLO’s public response. Since the U.S. Trade Representative (USTR) launched a request for dispute settlement consultations with Mexico over energy sector concerns, which Canada soon followed, Mexican President Andrés Manuel López Obrador (AMLO) has made his public stance clear: energy is a matter of national sovereignty that will not be decided by foreign interests.
Diving deeper: The President’s argument is based on Chapter 8 of the trade agreement, in which the U.S. and Canada, “without prejudice to their rights and remedies available,” recognize Mexico’s sovereignty over “hydrocarbons in the subsoil of its national territory.” The chapter does not concern policies that govern the rest of the hydrocarbons value chain or the electricity sector, which the USTR listed amongst its primary concerns.
Our takeaway: Statements like the one above have renewed concern over the future of the USMCA, as doubling down on nationalist policies and rhetoric is seldom conducive to cooperation on trade and investment.
Mexico’s balancing act. The AMLO Administration has named Secretary of Economy Tatiana Clouthier and Secretary of Foreign Affairs Marcelo Ebrard as the senior cabinet members leading the country’s response to the dispute. Both have stressed their hope to amicably resolve the dispute with the U.S. in the initial phase of consultations before advancing to a panel.
Diving deeper: The margin of action for these seemingly-pragmatic selections might be limited. Sources have said that changes to the Mexico’s energy policies are off the table, and the team will instead focus on addressing company complaints on an individual basis.
Our takeaway: It is unclear how such a strategy could address the sector-wide regulatory concerns at the heart of the USTR complaint, including changes to the Electric Industry Law (LIE) which favor CFE in the electricity dispatch order. In this context, it remains to be seen if a mutually agreeable outcome can be reached.
On the other side of the border. Since the initial announcement was made by the USTR, the Biden administration has been silent. Nonetheless, the administration renewed its criticism of the López Obrador administration in the State Department’s updated 2022 Investment Climate Statement on Mexico, citing incompletion of contracts, insecurity, corruption, and energy sector concerns.
Diving deeper: The Biden Administration has no need to raise the volume to demonstrate its displeasure on an issue which is not among its immediate foreign policy concerns. The war in Ukraine, the energy crisis in Europe, and tensions with China will continue to dominate Washington’s trade and foreign policy agendas.
Our takeaway: Even so, the foreign policy apparatus in DC has coalesced around the idea that Mexico’s energy policies violate the USMCA, with Senators, Members of Congress, and the media advancing the idea that the U.S. must push back. With midterm elections fast approaching in the U.S., de-escalation without meaningful progress would seem unlikely.
Following the conversation.
“The fact that we have a difference with the U.S. regarding a topic doesn’t mean that bilateral relations will collapse, nor that we’ll not be part of the [USMCA]. It’s not like that. We don’t have any indication from the President in this direction.” – Secretary of Foreign Relations and presidential hopeful Marcelo Ebrard.
“Mexico is favoring finding a solution, we believe that there is room to settle the differences, we are going to understand well what the concerns of the United States and Canada are to really see where the core points are so that we can overcome this difference in the consultation phase.” – Undersecretary of Foreign Trade Luz María de la Mora, adding that Mexico’s defense would not exclusively center on Chapter 8 of the USMCA.
“[Th]e legislative majority will accompany the President of the Republic, for history, for policy and economic reasons, and for moral reasons.” – Senate leader of the majority Morena party Ricardo Monreal. The majority leader later announced that he would be leading interparliamentary discussions with U.S. Members of Congress on the matter.
“Energy security and energy balance in [Mexico] is [a matter of] of national security.”– Mexican Secretary of Energy Rocío Nahle.
“[AMLO’s] challenge is that he signed up to an accord that says he can’t discriminate against the private sector to the advantage of state-owned enterprises and that investors have rights.” – Earl Anthony Wayne, former U.S. ambassador to Mexico.
“It was well past time for the United States to respond, and it was right for the U.S. Trade Representative to finally act. I will continue working to ensure that Texan and American energy producers are able to fairly compete.” – U.S. Senator Ted Cruz.
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