Mexico’s energy policy incompatible with USMCA - chief US negotiator

Mexico’s drive to prop up state-owned oil and gas giant Pemex and power utility CFE runs at odds with the goals of the USMCA free trade agreement and will face costly lawsuits as a result, according the lead US negotiator for the year-old agreement that replaced NAFTA.

Kenneth Smith (pictured), speaking at an event held by Mexican service station association AMPES, said that there is no compatible scenario where Mexico can continue to enjoy unrestricted access for all its export products to the US market, and at the same time try to carry out counter energy reforms that restrict private investment in this sector. 

“These two elements cannot coexist,” local daily Milenio reported Smith as saying. “If Mexico insists on policies that go against the 2013 energy reform, sooner or later we are going to have trade retaliation and a closure of the main export products.”  

Smith said the legislative and regulatory efforts being pushed by the administration of President Andrés Manuel López Obrador (AMLO), if successful, will be met by legal action.

Changes to Mexico’s electricity market and hydrocarbons industry laws that were approved by congress in March and April have already attracted multiple lawsuits and constitutional complaints, with full resolution on at least some points likely to be resolved by the supreme court in 2022, according to legal experts consulted by BNamericas. 

On Monday AMLO doubled down on changes to the electric sector, saying he would send a second proposal with changes to the constitution itself – a gambit energy sector expert Gonzalo Monroy, founder of consultancy GMEC, does not see happening.

“It’s quite clear that President López Obrador is very unlikely to actually make it happen and get it through congress,” Monroy told BNamericas. “However, this is only part of the whole politicking that is taking place right now in Mexico.”

“What the president wants is to push his narrative onto public opinion,” said Monroy. 

Within López Obrador’s cabinet, the foundation for current policy is primarily being driven by political or ideological concerns, where the technical or economic aspects for actually carrying out policy are played down or disregarded, according to Smith.

“There is a division in the cabinet between the energy ministry [Sener] and [environment ministry] Semarnat and [sanitation ministry] Cofepris,” he said, adding that this division is not driven by technical analysis. 

These, Smith said, “Are ideological and political positions that are not based on analysis, on say, for example, what is contained in the USMCA … Real economic criteria are not being considered, with hard data,” as cited by energy news outlet Energía a Debate.