USMCA panel on Mexico energy dispute likely by February

The United States government could request a panel trial by February to settle an ongoing energy dispute with Mexico over practices that are considered violations of the US-Mexico-Canada Agreement, or USMCA.

That’s according to Vanessa Sciarra, vice president of business and international competitiveness at the American Clean Energy Association (ACP), who spoke at a conference in Mexico City last week.

On July 20, 2022, the Office of the US Trade Representative (USTR) announced a request for dispute resolution consultation under Chapter 31 of the USMCA, alleging that Mexico’s public policy and regulatory actions during the current administration of President Andrés Manuel López Obrador negatively affected American companies in the energy sector in favor of Comisión Federal de Electricidad (CFE) and Petróleos Mexicanos (Pemex).

After more than a a year of consultations and discussions between the U.S. and Mexican governments to resolve the dispute, progress has been unsatisfactory, and a panel will likely be requested in the coming months, Sciarra said.

Sciarra previously served as USTR’s Assistant General Counsel and worked on the negotiation and implementation of the North American Free Trade Agreement (NAFTA), the predecessor to the USMCA.

“A year is a long time for the consultation process to continue, and normally if you consult for a year or more and you don’t have a favorable outcome, you tend to move things forward,” she told the Energy Associations Congress. . “Sometimes threats have to be followed by action, and I think that’s something you should watch in the coming months to see how the US government responds to a consultation process that has not been productive over the course of the year.”

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According to the ÚSTR, as of 2019, energy policies implemented by the López Obrador administration violate Mexico’s commitment to the USMCA, particularly in terms of market access and favoring state-owned enterprises.

When the United States announced the consultation process last year, Trade Representative Katherine Tai said that “Mexico’s policy changes impact U.S. economic interests in many sectors and discourage investment from clean energy suppliers and companies seeking to purchase clean and reliable energy.”

“We have tried to work constructively with the Mexican government to address these concerns, but unfortunately, U.S. companies continue to face unfair treatment in Mexico,” Tai said. The United States says the 2021 amendment to Mexico’s electricity law favors CFE. -produced electricity above that of all private competitors and that the Mexican government has delayed, denied and canceled permits that limit the ability of US companies to operate in the energy sector.

“Changes in Mexico’s policy threaten to push private sector innovation out of the Mexican energy market,” ÚSTR said in a statement.

Mounting voltage

According to Sciarro, U.S. oil, gas and renewable energy companies and associations have cooperated throughout the consultation process, given that both groups feel they are “being discriminated against” by the López Obrador administration.

While the United States and Mexico have been actively involved in the consultation process over the past 15 months, “the consultation phase is probably over,” Sciarra said. As a result, frustration is growing among U.S. energy companies, some of which are losing interest in further investment in Mexico.

“Because of the situation in Mexico over the last four or five years, people have started to feel more and more discouraged about the opportunities that are out there until there is a shift in government policy,” Sciarra said. “If American companies feel that Mexico is a hostile situation in the sense that they’re not being treated fairly, you’re not going to have incredible interest among American companies to come to Mexico.”

Should the United States ask the panel to resolve the energy dispute in the coming months, it will make a public statement and send a statement known as a demarche outlining its plans to the Mexican government. The panel will then work on a decision, which typically takes a year to a year and a half, Sciarra said. Before a decision, the parties may reach an amicable settlement of the case, which would dissolve the panel.

“If you wait until the panel’s report comes out, somebody’s going to win and somebody’s going to lose, and the side that’s on the winning side can get a pretty nasty penalty, which is increased tariffs on imports from another country,” Sciarra said. “That’s not a situation anyone wants to be in.”

According to Sciarra, US officials have been gathering data and comments from the Mexican government that support their claims that the energy industry was unfair and favored CFE and Pemex during the López Obrador administration.

“I think the Mexicans are going to have a hard time defending their behavior,” she said. There are “a number of statements by members of the current government that basically say blatantly that we discriminate and we’re happy for it, and that’s publicly documented evidence.”

If the USMCA’s energy disputes are not resolved when the trade deal is renegotiated in 2026, the pact’s future could be in jeopardy, Sciarra said.

“I can guarantee you that if this is not resolved by 2026, when the agenda comes up, the American agenda will have one line at the top, which is energy policy,” she said. “Either you agree to fix this or we’re going to have a real problem moving forward with this deal.”

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