Mexico Walks a Tightrope After USMCA Consultation Period

On July 20, 2022, the US government requested to open consultations with Mexico under the USMCA Dispute Settlement Chapter. US officials argued that several Mexican energy policies violate the agreement by favoring PEMEX and CFE over private companies, thereby affecting US companies operating in Mexico as well as those producing energy to the north of the border. Not long after, Canada agreed that the policies of the López Obrador government are incompatible with the obligations of the USMCA and requested its own consultation period.

The deadline period of 75 days of consultations established by the USMCA expired this Monday. Since the disagreement was not yet resolved, the trade deal stipulates that a dispute panel can be requested to review claims and potentially authorize retaliatory action. However, recent developments suggest that the consultation period will be extended. 

In the past few weeks, tensions have eased as Mexican courts suspended some controversial rules, and according to industry sources and officials, Mexican regulators have begun to address backlogs on permits. Additionally, on Monday afternoon, Mexico's Economy Ministry tweeted that it shares "the will of our partners to continue to move forward through dialogue and without prejudice to the rights provided by the USMCA. We wish to continue joint efforts to explore a mutually satisfactory solution."

In this regard, an anonymous source told Reuters that due to various factors, including midterm US elections in November, concerns about inflation and the likelihood that Mexico would lose arbitration, neither side wants to escalate the trade dispute at the moment. Nevertheless, US officials have warned Mexico that if substantial progress is not achieved, the pressure on Mexico will increase again.

If the final resolution is ruled in favor of the US or Canada, Mexico would have to pay tariffs for its exports to those countries, which would be a major blow to the Mexican economy.

When the accusations by the US and Canada first started in July, President López Obrador repeated his view that Mexico’s energy policy did not violate the USMCA. In addition, he appealed to nationalism by highlighting that Mexico’s oil belongs to the Mexican people. “We can have trade relations, but on the energy issue, we are not willing to negotiate the domination of the nation and its oil. It is clear, Mexican oil is for Mexicans,” he said. The Mexican President has not made any further statements on the matter in recent weeks other than expressing confidence in the negotiation process.