Reform Could Cause a “Trade War” Between the US and Mexico

Should the approval of President López Obrador´s Electric Reform pass through congress, experts  foresee  a “trade war” between Mexico and the US, given the few available judicial instruments to overturn it.

In the form of harsh tariffs and other trade barriers and restrictions, mainly in key industries like agriculture, could come the “sort of trade war” between the two countries. Bernardo Cortés from the Of Counsel legal office commented that if legislators approve the amendments to articles 25, 26, and 28 of the Constitution in order to strengthen the Federal Electricity Commission (CFE), as proposed in the controversial reform, there will not be room for protections, known as amparos, for any company or organization, given that “we are dealing with changes to the Constitution and such legal resource does not apply,” he said.

“The only local legal resource,” he continued, “will be a challenge to the legislative process that gets carried out, but even the Supreme Court of Justice (SCJ) has established which are the standards to which it is applied.” The Electric Reform cannot be reversed, he explained, but the Mexican government will have to compensate private companies, given their right to access to protection and promotion of investments, or, in its place, those chapters dealing with minimum treatment or indirect expropriation established in the USMCA free-trade agreement or the TPP-11.

Kenneth Smith Ramos, ex chief USMCA negotiator, commented that “if it’s approved, an ‘act of government that directly damages investments’ can be declared, therefore, trade partners can go to the dispute resolution mechanism of Chapter 31 and initiate a panel, which will decide how much Mexico must pay for compensation and ‘collect’ with tariffs in any export sector in Mexico.”

Ramos warned there could be a trade war and that the US may retaliate against Mexico´s main exports, including, but not limited to, steel, aerospace products, domestic appliances, amongst others. “The list of would-be affected successful exports is long,” he added. In the process of not backing down on tariffs until regulations established in 2013 are returned could potentially initiate this “sort of trade war” in the long term.

Furthermore, Smith Ramos said that contrary to the federal government’s discourse, Mexico is subjugated to compromises acquired in USMCA, even if Chapter 8 states the country is sovereign to modify its Constitution and that subsoil resources are the property of the nation.