Mexican President Andres Manuel Lopez Obrador has said Mexico has “inalienable” ownership of its energy resources.
The leaders of Canada, Mexico and the United States will hold a summit next week, where a major bone of contention could be a dispute over whether Mexico violated a trade pact by tightening state control over its energy market.
Where is the dispute?
Tensions over Mexico’s nationalist policies culminated in a formal dispute in July, when the governments in Washington, D.C. and Ottawa filed a complaint against Mexico under the countries’ joint trade deal: the U.S.-Mexico-Agreement Agreement. Canada (USMCA).
The complaint alleged that Mexican President Andres Manuel Lopez Obrador’s efforts discriminated against American and Canadian companies by changing the market in favor of Mexico’s state oil company Petroleos Mexicanos (Pemex) and its national energy company Comision Federal de Electricidad (CFE).
The companies also complained that bureaucratic delays hindered their operations.
Talks have begun to resolve the dispute and although progress has stalled, Canada and the US agreed last year to extend the process beyond the original 75-day period.
Under USMCA, if the controversy is not resolved during consultations, a dispute panel may be called to rule.
What is Mexico’s defense?
Lopez Obrador has put up a bullish front saying that Mexico has not broken any laws and that “nothing is going to happen”.
It comes after he overhauled the electricity market in the name of national sovereignty, with CFE giving priority to private companies in connecting power stations to the grid.
He often defends his opposition to foreign and private participation in the energy sector as part of his drive to root out corruption, and argues that governments have historically skewed the market in favor of private capital.
He also says that energy is a domestic matter and refers to an article he posted in USMCA stipulating that Mexico has “inalienable” ownership of its oil and gas. Critics say the article fails to justify Lopez Obrador’s policy toward foreign companies.
Can Mexico resolve the dispute?
Most analysts predict that Mexico would lose if a panel were asked to resolve the dispute. That could cost Mexico dearly, raising the prospect of punitive U.S. tariffs.
Both countries have previously emphasized that they want to resolve the disagreement before it reaches a panel.
Talks were delayed after Mexico’s economy minister resigned in October. Her successor fired a number of experienced trade negotiators and left an inexperienced team at the helm.
The new team says it has made proposals that could address two of the four areas of consultation, and they are also addressing other US concerns. But there is little clear indication of meaningful progress.
A solution seems to depend on whether energy nationalists within the Mexican government, led by Lopez Obrador, are willing to compromise.
What are Mexico’s negotiating chips?
Lopez Obrador has made energy policy a cornerstone of his presidency, making it difficult for him to come back.
His administration is also aware that Mexico’s assistance in tackling illegal immigration carries more weight in Washington, D.C. Has influence.
Mexico’s industry is also so deeply integrated into the US economy that a trade dispute could be painful for both countries as the region tries to reduce its dependence on Asia and curb skyrocketing inflation.
Still, the row has damaged investor confidence in Mexico. Lopez Obrador is seeking help from the US to finance solar energy production in northern Mexico and attract investment in greener manufacturing, particularly in auto manufacturing, a key industry.