USMCA Review: Energy and Regulatory Challenges in Mexico

The public consultation process conducted by the Mexican government in preparation for the upcoming review of the United States-Mexico-Canada Agreement (USMCA) provides a rare and valuable dataset: a structured, nationwide account of how the treaty is experienced across sectors, regions, and economic actors. While formally non-binding, the consultation report offers something more significant, an empirical foundation for understanding the legal and regulatory tensions that are already shaping the next phase of North American trade integration.

At first glance, the consultations confirm that the USMCA is not undergoing a crisis. The review mechanism under Article 34.7 was designed precisely for this purpose, to evaluate the agreement based on accumulated experience rather than as a response to systemic failure. However, a closer reading of the report reveals that stability at the institutional level coexists with growing friction at the regulatory level.

One of the most important findings of the consultation process is that the benefits and burdens of the USMCA are not evenly distributed. Outcomes vary significantly depending on sectoral conditions, regional infrastructure and institutional capacity. This asymmetry is not merely economic, since it also has legal implications. Trade agreements operate on formally uniform obligations, but when their effects diverge in practice, they create conditions for disputes to arise, particularly when private actors perceive barriers to market access or unequal treatment.

The consultation report also shows that the voices shaping the perception of the USMCA are predominantly from the productive sector. Companies represent the largest share of respondents, followed by academia and business organizations. This is particularly relevant because it suggests that concerns identified in the report, including those related to energy, reflect operational realities rather than abstract policy debates. In other words, what emerges from the consultations is not only a policy narrative, but a signal of where legal claims are likely to originate.

Among the cross-cutting issues identified, such as rules of origin, trade facilitation, and unilateral measures, energy stands out as one of the most recurrent and sensitive topics. This is not surprising. In the context of North American integration, energy has evolved from a domestic regulatory domain into a central component of trade competitiveness and investment protection.

From a legal perspective, energy lies at the intersection of multiple USMCA disciplines. While Chapter 8 recognizes Mexico’s sovereignty over its hydrocarbons, this recognition does not operate in isolation. Other provisions remain fully applicable, including those related to national treatment and market access under Chapter 2 (National Treatment and Market Access for Goods), as well as disciplines on state-owned enterprises under Chapter 22, which require competitive neutrality and prohibit discriminatory conduct that affects trade or investment.

In addition, although the investor-state dispute settlement (ISDS) mechanism was significantly narrowed under Chapter 14, protections for covered investments, particularly in certain sectors and under legacy provisions, continue to play a role in shaping investor expectations. Even in the absence of broad ISDS access, state-to-state dispute settlement remains available and has already been activated in relation to Mexico’s energy policies.

The consultations initiated by the United States and Canada in 2022, concerning measures affecting the participation of private and foreign companies in Mexico’s electricity and hydrocarbons sectors serve to illustrate how these legal tensions materialize. At the core of these disputes is the question of whether regulatory changes that favor state-owned enterprises or alter market conditions are compatible with USMCA obligations on non-discrimination, fair competition, and investment protection.

What the consultation report adds to this picture is a domestic dimension that is often overlooked. The concerns raised by foreign governments in formal dispute processes are echoed internally by economic actors operating within Mexico. For businesses, issues such as regulatory uncertainty, unequal access to infrastructure, and the reliability of energy supply are not merely policy concerns because they directly affect their ability to participate in regional value chains and to comply with increasingly stringent environmental and operational standards.

This convergence between internal and external pressures is particularly significant. It suggests that the legal disputes arising under the USMCA are not purely geopolitical or ideological, but are grounded in structural challenges within Mexico’s regulatory environment. The consultations reveal that these challenges are widely perceived across sectors, even if their intensity varies by region and industry.

From a doctrinal standpoint, this situation raises a key question: how should Mexico exercise its regulatory autonomy within the framework of the USMCA? As a sovereign state, Mexico retains the authority to define its regulatory approach, including in strategic sectors such as energy, and is not required to align its domestic policies with the preferences of its trade partners. However, by entering into the USMCA, Mexico has undertaken binding international obligations that shape how that authority is exercised. Accordingly, regulatory measures must be designed and implemented in a manner consistent with the treaty’s disciplines, including national treatment, non-discrimination and competitive neutrality. In this sense, sovereignty is not limited by the treaty, but expressed through the good faith compliance with the commitments it contains.

In practical terms, this means that regulatory measures, even when grounded in constitutional mandates, may be subject to scrutiny if they produce effects that are inconsistent with treaty obligations. The distinction between legitimate regulation and de facto discrimination becomes central, and it is precisely in this interpretative space where future disputes are likely to unfold.

The consultation report, therefore, should not be read merely as a compilation of stakeholder opinions. It is, in effect, an early map of potential legal friction. By identifying energy as a recurring concern across sectors, the report anticipates the central role that this issue will play not only in the USMCA review process, but also in its application and interpretation.

Looking forward, it is unlikely that the most significant developments in the USMCA will come from formal renegotiation. Instead, they will emerge through interpretation, dispute settlement, and regulatory practice. Energy policy, in particular, will serve as a testing ground for how the agreement balances national policy objectives with the demands of regional integration.

For Mexico, the challenge is not to choose between sovereignty and compliance, but to articulate a regulatory framework that can withstand legal scrutiny while supporting economic competitiveness. This requires legal precision as well as institutional coordination and a clear understanding of how domestic policies are perceived by trade partners and market participants.

Ultimately, the consultation process confirms that the USMCA remains one of Mexico’s most valuable strategic instruments. At the same time, it makes visible the tensions that must be managed to ensure its long-term sustainability. Energy stands at the center of this equation, not only as a sector, but as a legal and economic frontier where the future of North American integration can be defined.