What is behind the energy dispute between Canada, Mexico and the United States? | International Trade News

Mexican President Andres Manuel López Obrador has said Mexico has “inalienable” ownership of its energy resources.

The leaders of Canada, Mexico and the United States are due to hold a summit next week, where the big bone of contention could be the row over whether Mexico has violated a trade agreement by tightening the country’s control over its energy market.

Where is the dispute?

Tensions over Mexican nationalist politics boiled over into a formal conflict in July, when the governments in Washington, D.C., and Ottawa filed a complaint against Mexico under the two countries’ joint trade agreement: the United States, Mexico, and Canada Agreement (USMCA).

The complaint argued that Mexican President Andrés Manuel López Obrador’s efforts discriminated against US and Canadian companies, by shifting the market in favor of Mexico’s state oil company Petroleos Mexicanos (Pemex) and the Comision Federal de Electricidad (CFE) national electric utility.

Companies have also complained that bureaucratic delays are hampering their operations.

Talks to resolve the dispute have begun, and although progress has stalled, Canada and the United States agreed last year to extend the process beyond its initial 75-day window.

Under the USMCA, if a dispute is not resolved during consultations, a dispute panel can be called to adjudicate the matter.

What is Mexico’s defense?

López Obrador has put up a bullish front, saying Mexico has not broken any laws and that “nothing is going to happen.”

This comes after he reformed the electricity market in the name of national sovereignty, and gave CFE priority over private companies in connecting power stations to the grid.

He often frames his opposition to foreign and private participation in the energy sector as part of his campaign to crack down on corruption, and argues that previous governments have skewed the market in favor of private capital.

He also says energy is a domestic matter and points to an article he had entered in the USMCA stating Mexico’s “inalienable” ownership of oil and gas. Critics say the article does not justify López Obrador’s policies toward foreign companies.

Can Mexico resolve the conflict?

Most analysts expect Mexico to lose if a commission is asked to resolve the dispute. This could be very costly for Mexico, increasing the possibility of punitive US tariffs.

Both countries have previously confirmed that they want to settle the dispute before it reaches a committee.

Talks slowed down after the resignation of Mexico’s economy minister in October. Her successor eliminated several experienced trade negotiators, leaving an inexperienced team in charge.

The new team says it has put forward proposals that could address two of the four areas of consultation and that they also address other US concerns. But there have been few clear signs of meaningful progress.

The decision seems to hinge on whether the energy nationalists within the Mexican administration, who have taken their cues from López Obrador, are willing to compromise.

What are the Mexican bargaining chips?

López Obrador has made energy policy a cornerstone of his presidency, making it difficult for him to back down.

His administration also understands that helping Mexico tackle illegal immigration tends to carry more weight in Washington, D.C. due to its prominence in U.S. domestic politics, giving the government tacit, if unauthorized, influence.

Mexican industry is also so highly integrated with the US economy that a trade conflict could be painful for both countries at a time when the region is trying to reduce its dependence on Asia and lower high inflation rates.

However, the row affected investor confidence in Mexico. López Obrador is seeking US help to fund solar energy production in northern Mexico and attract investment in greener manufacturing, particularly in the auto industry, a key industry.

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