US Envoy Says Mexico Energy Spat Merits Formal Trade Panel

Carolina Millan and Maya Averbuch
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(Bloomberg) -- Conflicting views on whether Mexico’s approach to energy violates a North America trade deal warrant creating an arbitration panel to rule on the issue, according to President Joe Biden’s Ambassador.

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Since talks between the two nations haven’t succeeded in closing the rift between them, the panel may be the way to resolve the dispute, US Ambassador to Mexico Ken Salazar said in an interview. At issue is whether Mexico is restricting private investment in the energy sector in violation of the terms of the US-Mexico-Canada Agreement of 2020.

Watch more: Salazar Interview in Spanish on YouTube | Bloomberg en Español

“It seems to me that the differences are large enough that they should be taken to a formal panel to get to a decision,” Salazar said following the inauguration of an Amazon distribution center in Mexico City, when asked about the status of talks on energy. “Sometimes the consultation phase just involves a series of meetings that seek to advance to a solution. But the differences seem enough to go to a formal panel under the framework of the USMCA.”

Dispute panels are the final in a series of steps under the USMCA that seek to resolve trade issues between the countries involved. If the panel rules the policies are inconsistent with the trade pact, it could ultimately result in tariffs for Mexico.

Read More: Mexico Is Seen Risking $30 Billion Hit in US-Canada Trade Spat

While Salazar is the top US representative on the ground in Mexico, the decision on whether to create a dispute panel for energy is likely to be made in Washington, and not by the State Department but by the White House and the US Trade Representative’s office, which is part of the executive office of the president. The Trade Representative’s office declined to comment, and Mexican government officials didn’t respond.

The peso surrendered some of its gains in Friday trading on Bloomberg’s report, climbing 0.1% to 17.09 against the dollar after earlier rising as much as 0.3%. Shares of companies tied closely to trade between the nations, including real estate firm Corp Inmobiliaria Vesta SAB and logistics company Grupo Traxion SAB, fell in Mexico City trading.

The countries have gone to dispute panels over various topics since the USMCA was established. Mexico and Canada won a trade dispute with the US over cars shipped across regional borders in January, while the US last month called for a panel on the topic of genetically modified corn.

The US in July 2022 requested a settlement consultation process that has been drawn out. Mexico’s moves to prioritize energy from its state utility over private renewables companies, as well as denials and revocations of US firms’ abilities to operate in the country’s energy sector, are among the issues the US is concerned about, government officials wrote then. The law is under review by Mexico’s Supreme Court.

Mexican President Andres Manuel Lopez Obrador has worked to return the country to energy independence by supporting state-owned oil and gas producer Petroleos Mexicanos, known as Pemex, and state power company CFE. Mexico’s energy regulator blocked several foreign companies from operating wind and solar plants as it sought to concentrate power in the hands of the utility, rejecting 213 permits related to the power sector between 2019 and 2022, according to Mexico Evalua.

Over the past months, Lopez Obrador met with individual US and Canadian companies to discuss the issue on permits.

Other key points from the interview:

  • Mexico’s return to the highest level of aviation safety from the US Federal Aviation Administration gives more “opportunities” to air transit; the Felipe Angeles international airport “has a bright future” ahead as it’s an option to decongest the crowded Mexico City Benito Juarez airport

  • Nearshoring represents more than just a “Mexico Moment” but a “North America moment” of regional integration

  • Mexico’s Interoceanic Corridor project, which seeks to connect a port in the Gulf of Mexico with a Pacific port via a rail link lined with industrial parks, will help guarantee supply chain lines across the Atlantic US, including Texas, Alabama, Louisiana and other east coast ports

  • The US and Mexico have a lot of interest in “integrating efforts” on semiconductors

--With assistance from Eric Martin.

(Updates with attempts to reach Mexican government in fifth paragraph)

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