US to Send Ultimatum to Mexico Over USMCA Energy Dispute

The US Trade Representative’s Office is expected to make a final offer to Mexico’s negotiators to open the energy markets. If the proposal gets rejected by the Mexican counterpart, US authorities will proceed to request an independent dispute settlement panel under USCMA.

President López Obrador’s decision to reverse reforms aimed at opening Mexico’s electricity and oil markets to external competitors triggered the trade dispute. The situation ticked up when in July 2022, the US and Canada demanded dispute settlement talks with Mexico. After 75 days without a resolution, the demanding parts are free to request a dispute settlement panel. 

The decision was put on hold as the White House wanted to avoid escalating trade tensions with Mexico to try reaching cooperation agreements with López Obrador’s government on immigration and drug trafficking. President Biden is expected to launch a re-election bid in coming weeks and will face Republican criticism over his handling of these issues. 

On March 23, 2023, Katherine Tai, US Trade Representative, hinted at possible escalation during a Senate Finance Committee hearing. “We are engaging with Mexico on specific and concrete steps that the country must take to address the concerns set out in our consultations request … We know that all the tools in USMCA are there for a reason," Tai stated. 

Ron Wyden, Democrat Senator from Oregon and Chair of the Senate Finance Committee, told Tai during the hearing that Mexico was ignoring its USMCA obligations by shutting out US renewable energy firms. "Eight months have passed. American clean energy producers are still waiting for access. In my view, it is long past time to say enough is enough and escalate this into a real dispute settlement case," Wyden said. 

This move comes just weeks after the US requested formal consultations on another trade dispute with Mexico over its plans to ban genetically modified corn for human consumption. 

In case the USMCA panel rules against Mexico and the country fails to take corrective action, Washington and Ottawa could ultimately impose billions of dollars in retaliatory tariffs on Mexican goods. In 2022, US imports from Mexico totaled US$455 billion against exports of over US$324 billion, for a record US trade deficit of US$130.5 billion.