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AMLO’s energy policy forms treaty with the US and Canada

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Mexico has the first formal complaint under the T-MEC and it was due to the energy policy of President Andrés Manuel López Obrador, who seeks to restore state control in the sector.

The start of the process by the United States takes place just a week after businessmen from that country complained about it during the visit of the Mexican president, and after a year and a half in which US officials expressed their concerns and assured that they violate commitments assumed by Mexico when signing the trade agreement. The resource announced by the US trade representation, in charge of Katherine Tai, indicates that Washington requested dispute resolution consultations for Mexican measures that undermine private and energy produced in the United States.

“These (energy) policy changes affect US economic interests in multiple sectors and discourage investment from clean energy providers and companies seeking to purchase clean and reliable energy,” Tai said in a statement. He argued that the government of Joe Biden has tried to work constructively with the Mexican government to address these “concerns”, but unfortunately US companies continue to face unfair treatment in Mexico.

The United States hoped to be able to work with the López Obrador administration through the consultations to resolve those issues in order to advance North American competitiveness. The Ministry of Economy, in charge of coordinating Mexico’s defense, responded that it is willing to reach a solution that satisfies both parties during this stage, adding that the consultations are the non-contentious stage of the general dispute settlement mechanism that provides for the trade agreement in force since 2020.

Canada, the other partner of the T-MEC, also reported yesterday that it will promote its own consultations on Mexico’s energy policies, which it described as inconsistent with the treaty.

What if they don’t get fixed?

Mexico has 30 days to initiate consultations and if within 75 days they do not reach an agreement, the United States could request the creation of a panel to rule on the dispute.

Analysts consulted by 24 HORAS pointed out that if the final resolution is not followed, there would be tariff sanctions for the country, harming foreign trade, which has been one of the pillars of the Mexican economy.

Oscar Ocampo, a specialist in energy issues at IMCO, stated that in the worst case there could be commercial retaliation in the form of tariffs against the value of the damage caused by the López Obrador government.

The Biden administration estimates the damage to the US private sector at 10 billion dollars, especially in renewable energy, according to a letter that the trade representative sent to the Government of Mexico in March.

Ocampo said that the position of the Mexican State in the negotiations would also be weakened “when it has to go to review the T-MEC cash cut six years” after its renewal.

Ramsés Pech, analyst and adviser to the energy industry, pointed out that a possible breach by Mexico of the resolution could affect commercial ties with the United States and Canada, affecting exports, which in turn would cause damage to the agricultural and manufacturing sectors.

The specialist noted that the Mexican government cannot blame the supporters club for having submitted to the rules of the T-MEC, since the trilateral agreement was concluded, reviewed and signed by President López Obrador himself, so it is also up to him to comply with it.

“This is not a political-ideological agreement, it is a commercial agreement in which there are terms and conditions and where it was signed by this administration and it had the opportunity to read the fine print,” he said.

Santiago Arroyo, director of Ursus Energy, explained that, in the last instance in which the intervention of an arbitrator is required to issue a resolution, responsibilities will be pointed out to Mexico to compensate the affected nations, or else, it will exhort the Mexican Government to modify or eliminate the rules on energy that are violating the treaty.

“The most viable option is to accept the accusations, to reach an amicable composition that is what the T-MEC itself establishes, that is, reparation agreements. They would not necessarily imply an economic compensation, but to reverse the Law of the Electricity Industry, or in any case, send this resolution to the Supreme Court of Justice and that they finish resolving the controversies that exist on the Law of the Electricity Industry”, detailed.

And in the event that there are no conditions on the part of the current administration for the fulfillment of said decisions, the United States –and at the time, Canada– would respond with tariff charges “where it hurts Mexico”: exports.

“Mexico is a manufacturing country for these countries. What is going to happen is that all manufacturing and the famous green taxes are going to be imposed and they are going to cause all companies that produce any type of article, service or good here in national territory and export it there to be taxed with these taxes and sooner or later the companies are going to raise their investments and take them to other places where these aggressive conditions do not exist”, he pointed out.

In addition to the above, the implications of a contempt, would also reach imports of oil products from those countries to Mexico.

“What these countries are going to do, they are going to levy a tariff on all exports that go from Canada and the United States to Mexico, that is, gasoline, LP gas, natural gas, everything is going to have a tax, They are going to be charged a tax that in Mexico, Mexicans will have to pay and this also includes the fuel that leaves Deer Park,” said Arroyo.

Another of the possible commercial reprisals could also hit remittances, given that they enter our country with a zero tax rate. In this context, the United States government, through the Treasury Department, can tax the remittances of nationals to Mexico.

“What is going to generate that the countrymen who are there, are no longer going to send remittances, which is what the president boasts so much about,” he said.

Although the process could lead to the imposition of punitive tariffs on Mexico, officials from the US trade office who requested anonymity affirmed that the objective is to find a solution and not to retaliate, according to an AFP report.

The Struggle to Restore State Control

López Obrador is waging a battle to restore state control over power generation. This initiative has generated a strong rejection among the governments and companies of the United States, Canada and Spain, three of the countries with the largest investments in the sector, along with Italy and Japan.

Foreign and private participation is limited to the power generation phase, while the transmission and distribution processes are a state monopoly. The Government failed in its attempt to amend the Constitution to restore state control of the entire production chain, but it did achieve some changes in regulatory laws that strengthen its role in generation.

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