How the energy dispute can ruin AMLO’s plans for Pemex and CFE

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The conflict resolution mechanisms contained in the USMCA have a point that the president could not like: Mexico would have to comply with what was agreed in the negotiations.

The president has minimized the request for consultations from the United States and Canada regarding Mexican energy policy, but in reality, this process could modify the plans that the president has defended to strengthen Pemex and CFE.

The Mexican government has already received the petition documents from both countries for the initiation of dispute resolution consultations. In the next 30 days, according to the guidelines, the parties will begin negotiations that will be private and could take more than a couple of months. The Mexican administration may not be in favor of the acts claimed by its counterparts, but the agreements that result from it –in the event that a resolution is reached– will be binding, that is, the Mexican State will be obliged to modify its policies, although this goes against the presidential objectives.


“Consultations are not binding unless the parties reach and agree to an agreement,” says Alfonso Cortéz-Fernández, an attorney and partner at Baker McKenzie. In the aspiration of not increasing the tone of the disputes, the Mexican administration, according to what the Ministry of Economy has said, will try to reach an agreement in this phase.

The next phase would be compliance with what was agreed or the Mexican government could face some measures that modify the dynamics of other export sectors. Trade partners will be able to implement some compensatory measures, such as sanctions and tariffs, and Mexico would have no arguments to back these measures, explain the lawyers consulted.

The sanctions or tariffs could be equivalent to the damages charged by the counterparties. The United States, for example, has said that the regulatory changes put at risk 10,000 million dollars that they have made in investments in the country.

There is also another possibility: during the negotiations the three partners agree on retaliatory measures if the Mexican government decides to continue forward with policies in favor of Pemex and CFE and does not comply with what was agreed.

“And we could see them impose sanctions in sectors that do not harm their economies, that is, in sectors that are not integrated. We will hardly see retaliation in markets such as the automotive industry or any other that involves manufacturing,” says David Enríquez, a lawyer specializing in energy law. Canada and the United States, he says, could choose to impose tariffs on agricultural businesses, which rely heavily on foreign sales. “It would be a shame if producers who have nothing to do with it end up paying for a breach,” he points out.

In recent years, the United States has chosen to impose tariffs on Mexico on products such as steel or tomatoes in retaliation for some movements.

The president, the sources say, would be in the middle of the dilemma between continuing with his plans in the energy market or damaging other economic sectors, which until now have maintained a smooth dynamic.

“If the parties do not reach an agreement, the requesting party can deny the benefits of the treaty to the other until the problem is resolved,” says Cortéz-Fernández.

Not reaching an agreement during the consultation phase could bring a similar result for the Mexican administration. The country has virtually no choice, lawyers say. The fact that one of its two trading partners requests the formation of an arbitration panel leaves very few possibilities for Mexico to go ahead with the changes made so far in the energy market. Analysts point out that due to what was agreed in the USMCA, Canada and the United States accumulate more possibilities of obtaining a ruling in their favor. And once again, the Mexican administration would be forced to comply with the determinations of the panel.

Not complying with them at this point would raise the discussions to an even more critical point: an international arbitration. A process that most companies and States usually avoid due to the high costs it represents and the long times in which they are usually resolved.

Industry sources predict very little room for maneuver for Mexican negotiators.

President López Obrador has erected his main argument to defend that the changes are not opposed to the trade agreement in chapter 8 of the agreement, a part of the text in which the “direct domain and inalienable and essential ownership” of Mexico over hydrocarbons. But that, based on the modifications made in this six-year term, is opposed to other parts of the trade agreement in which it is stated that no country will be able to implement retroactive policies or measures to favor the companies of their respective nations.

Source: expansion.mx

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