The Biden government advances in an escalation of the dispute with Mexico over energy

The US President’s Government Joe Biden has asked US energy companies to prepare affidavits documenting how the protectionist policies of Mexico made their investments more difficult as Washington prepares to escalate a trade dispute with its neighbor, according to three people familiar with the discussions.

The request for affidavits from major US oil and renewable energy companies represents the latest and clearest sign that the Office of the United States Trade Representative (USTR) plans to seek an independent settlement panel. of disputes within the framework of the United States-Mexico-Canada trade pact, or T-MEC.

Moves by Mexican President Andrés Manuel López Obrador to reverse reforms aimed at opening Mexico’s oil and energy markets to foreign competitors ultimately sparked the trade dispute. US energy and electricity companies such as Chevron and Marathon Petroleum, which were seeking to expand in Mexico, have complained that they have been denied permits and simple applications in decisions that favored state oil company Petróleos Mexicanos (Pemex) and the national company Electricity Federal Electricity Commission (CFE).

The United States is likely to turn to a dispute settlement panel before the end of the year if talks on the issue remain stalled, and the affidavits represent evidence that would be included in the panel’s request, the sources said. If the panel rules against Mexico and Mexico fails to take corrective action, Washington could ultimately impose billions of dollars in retaliatory tariffs on Mexican goods.

The sources asked not to be named because they are not authorized to speak publicly on the matter.

The measures add to a visible deterioration in trade relations between Washington and Mexico City, despite the fact that their economic integration is deepening. In August, the USTR requested the intervention of a USMCA dispute resolution panel in a disagreement over Mexico’s restrictions on imports of genetically modified corn. Mexico currently buys about $5 billion worth of GM corn from the US a year, mainly to feed livestock.

As in the case of energy policies, Washington argues that banning GM corn for human and animal consumption violates Mexico’s obligations under the trade pact. Obrador is seen as a major obstacle to resolving both disputes, as he views energy and corn as important to Mexico’s national identity.

A USTR spokesman declined to comment.

Mexico’s economy ministry, in response to a Reuters request for comment, said it had no information on the matter. The White House has wanted to avoid an escalation of the energy trade tension with Mexico because it needs help on immigration and drug trafficking, but talks that began last year have made little progress.

Raising the stakes in the dispute carries significant risk for Biden, who will face Republican criticism for his handling of border flows and drug trafficking, in his 2024 re-election bid.

Mexico overtook Canada and China to become the largest trading partner for goods of the United States in the first half of 2023, reaching a total trade of US$396.6 billion in the period, due to the increase in Mexican automobile production and because other US companies shift their supply lines from China to a location closer to home.

In 2022, Mexico had a US$130.5 billion trade surplus in goods with the United States and is on track to more than double the balance of US$69 billion from 2017, when former President Donald Trump launched a NAFTA renegotiation after threatening to pull out. the pact, claiming it was taking American manufacturing jobs.

dispute settlement

By seeking a dispute settlement panel, USTR would be essentially foregoing negotiations, turning instead to a form of litigation created in the 2020 renewal of the former North American Free Trade Agreement (NAFTA). Under USMCA dispute settlement rules, a five-person panel must be convened within 30 days, chosen from a list of pre-approved experts, with a jointly-elected chair and two U.S.-selected Mexican panelists and two U.S. panelists. elected by the Mexican side. The panel will examine testimony and writings and its initial report must be submitted 150 days after it is called.

Last year, one of these panels ruled in favor of Washington in a dispute over Canadian milk quotas, and against the United States in the auto rules of origin, siding with Mexico and Canada.

Source: Reuters