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Trump’s Trade Tactics Collapse in Mexico – Mary Anastasia O’Grady/WSJ

Weakened investor rights under USMCA harm a U.S. company on the Yucatán. (Vulcan operations, Yucatan, Mexico. (Mexiconewsdaily.com)
Weakened investor rights under USMCA harm a U.S. company on the Yucatán. (Vulcan operations, Yucatan, Mexico. (Mexiconewsdaily.com)

By Mary Anastasia O’Grady

When U.S. Trade Representative Robert Lighthizer was renegotiating the North American Free Trade Agreement for the Trump administration in 2017, he argued that Nafta’s “investor-state dispute settlement” provision, allowing firms to sue a government for discrimination, was a subsidy to U.S. companies that invested capital abroad. He didn’t see why the U.S. ought to “encourage investment in Mexico.”

Mr. Lighthizer prevailed in that line of thinking and, with some exceptions, the 2020 U.S.-Mexico-Canada Agreement, which replaced Nafta, weakened protections that U.S. investors have against a “taking” by the Mexican government through indirect expropriation, forcing them also to seek protection under other treaties. Canadian investors also lost some investor protections under USMCA, but they retain them under the Trans-Pacific Partnership, which the Trump administration refused to join.

Lighthizer logic is turning out to be a gift to Mexican President Andrés Manuel López Obrador. He covets a piece of land and a port on the Yucatán Peninsula belonging to the largest American producer of construction aggregates—mainly crushed stone, sand and gravel. AMLO, as the Mexican president is known, doesn’t want to pay for the multibillion-dollar operation belonging to Alabama-based Vulcan Materials Co. Instead, for two years, he has prohibited Vulcan from using its property, which is an indirect expropriation. It’s far from clear that the USMCA doesn’t protect the company, but under Mr. Lighthizer’s rules it will be harder to challenge AMLO via USMCA arbitration.

Vulcan says its Mexican quarry operation is critical to its business. That’s why in the 1980s and 1990s the firm bought the land, where it built the only deep-water port on the Yucatán. It ran the port under a government concession.

In May 2022, when Mexico suspended the Vulcan’s permit to operate its Sac Tun limestone quarry, 10 Republican senators wrote to President Biden denouncing, among other things, Mexico’s assault on the company. They made no mention of the role played by Messrs. Lighthizer and Trump in the mess. But there is no doubt that Vulcan’s troubles are exacerbated by weaker investor rights under the USMCA. News reports now say the Mexican government is close to blocking Vulcan’s use of the property permanently by declaring the site a natural protected area.

The case raises the question whether Mexico wishes to remain a good-faith trade and investment partner of the U.S. and Canada. Mr. López Obrador and his Morena party surrogates have already violated Mexico’s commitments to continental free trade and investment in other industries, including notable discrimination in energy. The Vulcan affair is one more example of Morena’s flagrant disregard for property rights and contracts.

AMLO doesn’t seem to care. His government wants the property and is using specious environmental claims to block its use by the company. Mexico’s offer of $350 million for the land doesn’t include the value of Vulcan’s business.

Mexico’s president is an economic dinosaur, but the rise of protectionism in the U.S. hasn’t helped to counter his ideology. The expansion of free trade requires leadership willing to stand up for the sanctity of contracts, private property and economic liberty. Mr. Biden—Union Joe—has shown interest in none of the above. The administration could have convened a USMCA panel on Mexican discrimination against U.S. energy investors more than a year ago. But Mr. Biden’s priority is calming the southern border, where chaos is costing him politically. The last thing he wants to do is confront Mr. López Obrador, who turns the spigots of migrant flows on and off. Throw in protectionist Trump and it’s little wonder that AMLO thinks he can trample Vulcan’s rights.

The company’s contract issues in Mexico date to 2018. That’s when it charged that the state of Quintana Roo had violated a quarrying agreement. Because that dispute is grandfathered under Nafta, the matter is now before a Nafta arbitration panel with a decision due this year. New disputes fall under the USMCA.

It can be no coincidence that the Vulcan land Mr. López Obrador wants is convenient to an AMLO vanity project known as the “Mayan train.” But it’s a bit rich to use environmental protection as a pretext to go after the company, when the government tore up pristine Yucatán jungles to build the railroad. AMLO has also taken to repeating a pledge, in private and public, that Vulcan will never again operate in Mexico.

The company has stated that it’s in full compliance with all permits and has been recognized for its environmental stewardship, including by government offices. If there’s evidence to the contrary, regulators can demand rectification. That wouldn’t produce the outcome AMLO is looking for, which is to chase Vulcan out of Mexico without making the company whole. If he pulls it off he will have Mr. Lighthizer to thank.

Write to O’Grady@wsj.com.

_______________________________________________

Mary Anastasia O’Grady is an Opinion Columnist, writes «The Americas,» a weekly column on politics, economics and business in Latin America and Canada that appears every Monday in the Journal. Ms. O’Grady joined the paper in August 1995 and became a senior editorial page writer in December 1999. She was appointed an editorial board member in November 2005. She is also a member of the board of directors of the Indianapolis­-based Liberty Fund.  EnergiesNet.com does not necessarily share these views.

Editor’s Note: This article was originally published by The Wall Street Journal (WSJ), on April 07, 2024. All comments posted and published on EnergiesNet or Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet or Petroleumworld.

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EnergiesNet.com 04 11 2024

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