As Bilateral Trade Between Mexico and US Hits Record High, Diplomatic Relations Sink to Lowest Point in Decades

All eyes are now on Mexico’s proposed electricity reform, which threatens the interests of some of the world’s biggest energy companies, many of them in the U.S.

Mexico’s President Andrés Manuel López Obrador (AMLO for short) said Wednesday that he will send a diplomatic note of protest to the United States if it withdraws the visas of 25 federal lawmakers who recently set up a pro-Russian group in Mexico’s Congress. A number of Democratic politicians, including Robert Memendez, the chair of the United States Senate Committee on Foreign Relations, sent a letter on Tuesday to the U.S. Secretary of State Antony Blinken calling for the Biden Administration to prevent the Mexican congresspeople from entering, traveling or investing in the U.S.

“I do not think it is fair and I do not think it is rational to want to suspend the visas of those who met to express their points of view regarding the Russian invasion of Ukraine,” López Obrador said during his morning press conference at the National Palace.

Burning Up Goodwill

That Democrats are now calling on the Biden Administration to sanction a handful of lawmakers in its neighboring country for daring to set up a pro-Russian group is illustrative of just how clumsy and heavy handed US foreign policy has become. In its attempt to bully countries into supporting the economic war against Russia, the U.S. is not only showing total disregard for the sovereignty of so-called allied countries, it is (as NC reader PlutoniumKun recently put it) burning up a lot of goodwill and credit in the process, even in potentially sympathetic countries.

Mexico is the U.S.’ second largest trade partner, after Canada. And trade between the countries has never been more robust. In 2021, bilateral trade between Mexico and the U.S. was worth $661 billion, the highest amount on record. That was second only to Canada, whose bilateral trade with the U.S. weighed in at $664 billion.

But diplomatic relations between the two countries are at a multi-decade low. As I reported in the article, “US-Mexico Relations Hit New Low Over Russia-Ukraine Conflict,” Washington’s already strained relations with Mexico deteriorated further at the end of March after AMLO refused to endorse sanctions against Russia. Like most governments in Latin America, Mexico has condemned Russia’s invasion of Ukraine but refuses to join the pile on to sanction the country. Matters were hardly helped when the U.S. Ambassador to Mexico Ken Salazar instructed Mexican lawmakers that Mexico could never have close diplomatic ties with Russia.

Another major bone of contention between the two countries is the AMLO government’s proposed energy reform bill, which will be voted on in the coming days. As it currently stands, the bill threatens to drastically dial back the privatization and liberalization of Mexico’s energy market, giving a much larger role in the market for the state-owned companies Petroleos de Mexico and the Federal Electricity Commission (CFE).

If passed, the reform would amend Articles 25, 27, and 28 of the Constitution as a means of consolidating the role of the public Federal Energy Commission (CFE). As a result, the CFE would become an autonomous legal entity, no longer hamstrung by the subsidiaries and commissions created in recent decades. The CFE would also control the production of at least 54% of the nation’s energy supply. The proposed reform also stipulates that lithium and other minerals considered strategic for the nation’s energy transition should be controlled by the state, which would possess sole exploration and mining rights.

The Wrong Sort of Message

While the reform appears to enjoy the support of most Mexican citizens, it is fiercely opposed by powerful domestic and foreign business interests, including some of the world’s biggest energy companies, many of them in the U.S. and Spain. Large domestic businesses and foreign multinationals with operations in Mexico that benefit from heavily subsidized renewable electricity will also be affected. They include maquilas (assembly plants), bottlers such as Coca Cola FEMSA and large retail firms such as FEMSA-owned convenience store chain Oxxo. According to government figures, an unsubsidised household or small business pays on average 5.2 pesos per kilowatt hour while OXXO pays 1.8 pesos and Walmart 1.7 pesos.

This means that large companies have a huge cost advantage over their small business competitors. The electricity reform, as it currently stands, will do away with that, much to the horror of the companies affected as well as the U.S. government. It’s not just about the threat the reform poses to business interests in Mexico; it could also send a message to other governments in Latin America that reversing privatization is now a distinct possibility. As I reported in February, resource nationalism is on the rise in Latin America even among countries traditionally aligned with the Washington Consensus.

It is the sort of message Washington would be keen to stamp out…

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