As the Mexican government’s commitment to energy independence smashes into US financial interests, President López Obrador threatens to put sovereignty above the USMCA trade deal.
The US is not only fighting (and to all intents and purposes losing) a proxy war against Russia in Ukraine while escalating tensions with its biggest geostrategic rival, China; it is also locked in a high-stakes game of economic brinkmanship with its second largest trading partner, Mexico, which could, in an extreme case scenario, end up shattering the US-Mexico-Canada (USMCA) Trade Agreement just four years after its inauguration.
The latest escalation occurred on July 20 when the US Trade Representative Katherine Tai revealed that the US has requested dispute settlement consultations with Mexico under USMCA over alleged violations of the trade agreement in the energy sphere. The news came just days after Mexican President Andres Manuel Lopez Obrador, or AMLO for short, had met with President Joe Biden to discuss shared policy interests. In her statement Ambassador Tai accused Mexico’s government of:
- Granting competitive advantage to the Mexican state-owned companies to the detriment of private companies.
- Obstructing the operation of private companies, particularly in the renewable energy sector; in the import, export and storage of fuels and electricity, as well as in the construction and operation of fuel stations.
- Granting Mexico’s state-owned oil company Petroleos de Mexico (Aka Pemex) a deadline extension to comply with sulphur content limits in automotive diesel.
- Favoring Pemex, the Federal Electricity Commission (CFE) and their products in the use of Mexico’s natural gas transportation system, again to the detriment of private companies.
Sovereignty Versus Trade
Canada quickly followed suit and requested its own consultations on the matter. Last Thursday, AMLO responded by upping the ante. In his daily morning press conference he argued that the US’s decision to request consultations under the USMCA trade deal is not only unfounded but infringes on Mexico’s sovereignty. Using his strongest language yet in the dispute, AMLO declared that if it came down to a choice between national sovereignty and the USMCA Agreement, he would choose the former.
“Even if [the US] is the most important market in the world, if having access to that market means giving up sovereignty, we do not accept it. We will not surrender our independence to any foreign government,” AMLO said, adding that such a rupture will not occur, since it is in the interest of neither country. But as Jacobin contributor Kurt Hackbarth noted in a tweet, the implicit threat is there.
This is not the first time that a dispute settlement consultation has been brought against a USMCA member. In fact, there have already been four since the trade agreement was signed in 2018, three of which have been brought by the US. The last one was brought last year by Canada and Mexico against the US over interpretation of content rules for automobiles. If the consultation against Mexico’s energy policies doesn’t lead to a resolution in 75 days, the US can request the formation of an arbitration panel to settle the dispute.
Trying to resolve the differences between Mexico and its two northern trading partners is not going to be easy. Crucially, the changes AMLO is seeking to make in Mexico’s energy policy mix are not administrative or technical in nature but structural. What AMLO ultimately wants to ensure is that control over Mexico’s energy resources lies in the hands of the Mexican nation. And that flies in the face of what Washington wants, which is ultimately an energy-rich neighbor to the south that is open to unrestricted foreign investment.
Another reason why AMLO is unlikely to back down in this battle is that energy independence is the capstone of his so-called “fourth transformation” program. What’s more, it enjoys even stronger public support today than on his election four years ago. This is partly due to the recent masterclass the European Union has given the world on the dangers of depending excessively on foreign states to meet your own energy needs, especially if you then decide to declare economic war against the state you most depend on.
Crucially, AMLO’s government is not even talking about nationalizing Mexico’s energy market — unlike, say, French President Emmanuel Macron, who is in the early stages of fully nationalizing France’s heavily indebted electricity giant EDF. By contrast, what AMLO seeks is to fortify Mexico’s public energy providers, Pemex and the Federal Electricity Commission (FCE), as a means of bolstering Mexico’s energy independence, while leaving plenty of room for private enterprise.
To that end, he has reversed some the 2014 liberalization reforms of his predecessor Enrique Peña Nieto. Those reforms were supposedly meant to usher in lower energy prices for domestic consumers as well as thrust Mexico into a more prominent position in the global hydrocarbons market. Instead, the opposite happened: domestic prices of gas, diesel and natural gas soared as public subsidies were withdrawn while Pemex got weaker and weaker as private companies, most of them foreign-owned, moved in on its turf.
Hilary Clinton’s Role
The irony is that much of the damage AMLO is now trying to undo, which the Biden Administration is trying its damnedest to prevent, was largely the result of behind-the-scenes pressure from Hilary Clinton’s State Department…
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