U.S. and Canada say Mexico’s nationalist energy policies undermine private companies that have invested heavily there

Juan Montes and Yuka Hayashi, WSJ

MEXICO CITY/WASHINGTON
EnergiesNet.com 11 03 2022

A shake-up of Mexican trade officials has clouded prospects for a quick resolution of a dispute with the U.S. and Canada over what are seen as Mexico’s nationalist energy policies.

The changes at the Economy Ministry are part of an effort by Mexican President Andrés Manuel López Obrador to put people who support his stance in charge of negotiations, according to people familiar with the situation.

U.S. Trade Representative Katherine Tai is scheduled to hold a virtual meeting with Mexico’s new top trade official, Economy Minister Raquel Buenrostro, on Thursday. But there is a tacit agreement to extend dispute resolution talks until December, when the leaders of the U.S., Mexico and Canada are expected to meet in Mexico to review the implementation of the North American trade deal known as the U.S.-Mexico-Canada Agreement, the people familiar said.

The U.S. Trade Representative’s office in July requested dispute-settlement consultations with Mexico under the USMCA, alleging that Mexico’s energy policies undermine U.S. companies in favor of Mexico’s state-run electric utility CFE and oil company Petróleos Mexicanos.

Canada also joined the consultations, which represent a challenge to one of Mr. López Obrador’s top policy priorities: greater state intervention and control over Mexico’s oil and electricity markets.

When the 75-day period for initial consultations ended in early October, the U.S. continued with negotiations rather than requesting a panel that could pave the way for retaliatory measures such as tariffs on Mexican exports if the panel ruled in favor of the U.S. and Canada.

But on Oct. 6 Mexican Economy Minister Tatiana Clouthier, who was in charge of trade policy, unexpectedly resigned. She was succeeded by Ms. Buenrostro, the former head of the tax agency and a close ally of Mr. López Obrador.

Soon after taking office, Ms. Buenrostro fired several senior trade officials, including Deputy Trade Minister Luz María de la Mora, a seasoned technocrat who participated in negotiations for the North American Free Trade Agreement in the 1990s. Ms. De la Mora was replaced by Alejandro Encinas Nájera, a young Labor Ministry official who had overseen labor dispute negotiations under the USMCA.

Before the Mexican officials’ departures clouded the future of the negotiations, U.S. officials were optimistic about the prospects for a successful resolution, U.S. officials and trade experts said.

The loss of expertise resulting from the departure of officials like Ms. De la Mora signaled a hardening of Mexico’s nationalist stance in the complex dispute-settlement process, which is being watched as a litmus test for Mexican policies involving foreign investment, these people said.

“My biggest concern is that investors are going to be spooked by the deteriorating business climate in Mexico,” said Michael Camuñez, a former U.S. Commerce Department official and head of business advisory firm Monarch Global Strategies, referring to Mexico’s dismissal of top trade officials.

A spokesman for the USTR said U.S. officials look forward to discussing the trade dispute with their new counterparts “in the near future.”

“In the event consultations don’t address our concerns, the United States can request a panel to resolve the matter,” the spokesman said.

A possible compromise, a top Mexican business leader said, could involve modifying executive-branch regulations to address concerns of foreign companies that run service stations or renewable-energy facilities, or that trade fuel and electricity, in exchange for which the U.S. and Canada would drop their objections to Mexico’s 2021 electricity law, Mr. López Obrador’s flagship law for the sector.

The stakes are high for Mexico, which exported $400 billion in goods to the U.S. in 2021—about 80% of its total exports and equivalent to nearly a third of the country’s gross domestic product.

Ms. Clouthier’s resignation came as Mexican Energy Minister Rocío Nahle and CFE director Manuel Bartlett expressed opposition to making concessions in the trade talks, arguing that energy policy isn’t part of the USMCA, the people close to the talks said.

Ms. Clouthier said in a written response to questions that she had been discussing her resignation with Mr. López Obrador since July and denied that her departure was related to disagreements with other cabinet members over the energy dispute. Ms. Nahle and Mr. Bartlett didn’t respond to calls seeking comment.

Mr. López Obrador opposed his predecessor’s opening of the energy sector to private and foreign investment. Since the consultations began he has stepped up his nationalist rhetoric on energy.

“Our sovereign energy policy…isn’t subject to negotiation, it’s a matter of principles,” he said last month.

Mr. López Obrador has also said that he hopes to avoid a costly trade dispute. “We’re looking for an agreement, an understanding, and to avoid confrontation,” he said.

—Paul Vieira in Ottawa and José de Córdoba in Mexico City contributed to this article.

Write to Juan Montes at juan.montes@wsj.com and Yuka Hayashi at Yuka.Hayashi@wsj.com

wsj.com 11 02 2022