Reconsidering USMCA’s Impact on the Oil and Gas Sector

USMCA could prove to have a larger influence than first expected on Mexico’s oil and gas sector. The agreement is expected to become an important tool used by the private sector to defend its interests from legal and regulatory changes that have defined this administration. This subject was touched upon during the virtual conference, “Analysis of USMCA and Its Impact on the Energy Sector,” organized and hosted by the Mexican Association of Service Station Providers (AMPES). The conversation was led by Kenneth Smith Ramos (invited by the US Grains Council), who was part of the team that negotiated NAFTA and also worked as head of Technical Negotiations for Mexico during the USMCA negotiations.

Ramos began his presentation by reporting on the economic necessities that prompted USMCA. He then zeroed in on energy, considered the No. 1 driver of the Mexico-US commercial relationship and characterized by increasing demand for green energy and the stabilization and eventual decline in demand for traditional fuels. This led to a conversation about Mexico's oil and gas industry, specifically through the lens of the downstream subsector. According to Ramos, USMCA established parameters through which governments can change the legal framework that regulates the liberalization of specific industries. While the agreement does not call for further liberation of Mexico’s oil and gas sector or prescribe any change to its current legal and regulatory framework, it does prevent the Mexican government from reducing private participation beyond what was established before USMCA. In other words, all industries included in the treaty do not have to become more open to investment but they cannot close up or become suddenly nationalized. Fuel retail, storage and distribution are categorized in USMCA as activities that are not controlled by the state.

Ramos cited Chapter 8 of the treaty, which makes it clear that while constitutional changes are permitted as part of all countries’ sovereign rights, any constitutional change that makes an industry less open will be considered a violation to the treaty. This means that all parties affected will have access to the treaty’s conflict resolution tools and parameters. Another important part of the treaty dictates that no industry can be less open to investment from USMCA-member countries when compared to other agreements, for example, the CPTPP. This will come as good news to the many operators in the industry who have expressed concerns over the proposed changes to the Energy Reform, which, as MBN reported, President López Obrador intends to push forward.