Daily Management Review

U.S. Intends To Issue An Ultimatum In The Mexican Energy Dispute, Threatening To Impose Tariffs


According to those involved with the conversations, the Biden administration plans to deliver Mexico a "act now or else" message in the coming weeks in an attempt to break a stalemate in an energy trade dispute, as bipartisan calls for the US to get tougher with its southern neighbor intensify.
The move would be a substantial escalation of hostilities between US President Joe Biden and his Mexican counterpart, Andres Manuel Lopez Obrador.
The trade conflict was prompted by Obrador's move to roll back changes aimed at opening Mexico's electricity and oil markets to overseas rivals.
According to three people familiar with the negotiations, the Office of the United States Trade Representative (USTR) is set to make a "last offer" to Mexico negotiators to open its markets and agree to some greater control. If not, the US will request an independent dispute resolution tribunal under the United States Mexico Canada Agreement, or USMCA.
In July, 250 days ago, the United States and Canada wanted dispute settlement negotiations with Mexico. They were able to request a dispute settlement panel, a third party that rules on the case, after 75 days without a resolution under USMCA regulations.
Mexico's Economy Minister Raquel Buenrostro stated on Monday that the US has been right to request a panel since October 3.
If the tribunal rules against Mexico and it does not take corrective action, Washington and Ottawa might put retaliatory tariffs on Mexican imports worth billions of dollars.
Although it sought assistance with immigration and drug trafficking, the White House aimed to avoid worsening economic tensions with Mexico. Months of discussions, however, have generated no progress, and the administration has run out of non-combative options, according to Reuters.
Increasing the stakes in the disagreement is risky for Biden, who is expected to run for re-election in the coming weeks and will face Republican criticism for his handling of immigration and drug trafficking. Biden will want Mexican assistance in controlling the border after COVID-era restrictions are lifted on May 11.
A senior US official expressed growing dissatisfaction with the lack of progress in the talks.
"We want to see clear progress on this issue and address the concerns that have been raised by our negotiating teams," said the official, who declined to be named because the discussions were private.
A USTR representative declined to comment on the energy conversations with Mexico, although Trade Representative Katherine Tam hinted at probable escalation when asked about the talks during a Senate Finance Committee hearing on Thursday.
"We are engaging with Mexico on specific and concrete steps that Mexico must take to address the concerns set out in our consultations request. This is still very much a live issue," Tai said.
She later added: "We know that all the tools in the USMCA are there for a reason."
In recent years, US oil firms such as Chevron and Marathon Petroleum, as well as solar and wind power businesses, have struggled to obtain permission to operate in Mexico.
According to Mexico's Buenrostro, the obstacles of shifting to renewable energy and connecting those projects to the electricity grid were at the root of the problem.
"It is not that they are being given discriminatory treatment, it is that we have difficulties of a technical nature," Buenrostro said, adding investments in power distribution were being made to address the issues.
The Biden administration's probable move comes just weeks after the US Trade Representative intensified another trade battle with Mexico over its plans to restrict genetically modified corn for human use, asking formal consultations. The energy dispute has progressed thanks to the USMCA's enforcement mechanism.
According to the Biden administration, Obrador favors state oil company Petroleos Mexicanos (Pemex) and national power utility Comision Federal de Electricidad (CFE) while discriminating against US companies.
"I think you're going to increasingly see folks looking for ... the next step of establishing a panel relatively soon," a congressional aide said, noting patience on Capitol Hill over the talks was wearing thin.
On Thursday, Ron Wyden, the Democratic senator from Oregon and leader of the Senate Finance Committee, warned Tai that Mexico was "flouting" its USMCA responsibilities by barring US renewable energy firms from entering the country.
"Eight months have passed. American clean energy producers are still waiting for access. In my view, it’s long past time to say enough is enough and escalate this into a real dispute settlement case," Wyden said.
According to government figures, US imports from Mexico were $455 billion in 2022, compared to exports of more than $324 billion, for a record US trade deficit of $130.5 billion.