DIPLOMATIC ECONOMY

US-Mexico Arbitration Moves Toward Negotiated Exit

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Some high-profile exchanges between US and Mexican officials suggest a solution in the USMCA trade dispute over energy policy may be close.

According to President Andrés Manuel López Obrador (AMLO), the dispute initiated by the US and Canada to protest recent energy policy decisions might be nearing a settlement.

The president said a full arbitration process, which would be overseen by an expert panel if the US or Canada insisted on talks after an open negotiation period ends on October 3, was less likely to occur given the strides the administration had made in negotiating directly with private players.

In response to a question by BNamericas, Moody’ssenior analyst Renzo Merino told a press conference that the agency’s base case for Mexico assumed the arbitration case would end in the negotiation period instead of moving forward.

“In an alternative scenario, in which we see sanctions, there could be a short-term negative effect on Mexico’s exports to the US. And then we would have to assess whether the issue extends over time and could lead Mexico to grow below 2 per cent [next year].” The start of a full arbitration process could also impact foreign and domestic investment, Merino said.

Experts have stressed the stance of private players negatively affected by recent regulatory changes is the key point of contention that could lead the US and Canada to extend the dispute to a full arbitration case or drop it entirely.

An expert in international arbitration at law firm Hughes, Hubbard & Reed, Diego Durán de la Vega told BNamericas last month that “it would clearly be useful for the Mexican government to try to negotiate with the affected private actors … Mexico will look for alternative solutions and will try to talk to private companies, which are at the root of the problem. That is very smart on the part of Mexico.”

According to AMLO, reduced pressure from the US was reflected in a letter he received from President Joe Biden, saying his administration would be respectful of Mexico’s sovereignty. The letter led AMLO to cancel a combative speech on the trade dispute originally scheduled for September 16 during an event commemorating the Mexican war of independence, he said.

So far, the government has focused on energy sovereignty when discussing the dispute publicly, arguing Mexico has full discretion over its energy resources and its trade partners are overstepping their boundaries.

When AMLO met with US secretary of state Antony Blinken, both also talked about “joint efforts to tackle the climate crisis through investment in clean energy and emerging technologies like electric vehicles, solar technologies, and semiconductors,” according to a press release by the Department of State.

After the meeting on Tuesday, AMLO said the US had expressed the “intention … to be respectful of our energy policy, of our sovereignty, which we appreciate very much. It’s the same stance as President Biden’s, who wishes for some misunderstandings to be cleared up.”

AMLO also said he spent weeks negotiating directly with private players, hoping to keep the dispute from escalating to arbitration level and added the trade dispute would not impede both countries advancing common interests.

The dispute, which was started by the US in July with Canada joining shortly after, pertains to regulatory and legislative changes undertaken by the administration over the past four years in an attempt to bolster public energy companies CFE and Pemex.

  • With additional reporting by James Young

https://www.bnamericas.com

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