U.S - Mexico Trade Fight
On July 20th, the United States and Canada launched a trade fight with Mexico accusing its new energy policy of violating the US-Mexico-Canada Agreement (USMCA). Free Trade agreements are treaties that help coordinate trade and lower trade restrictions to boost international business between the countries involved.
The USMCA is a free trade agreement between the US, Mexico, and Canada enforced in July 2020, replacing the previous North American Free Trade Agreement implemented over a decade ago. NAFTA came into effect in January 1994 and was a three-country agreement negotiated by the governments of Canada, Mexico, and the United States. Most tariffs on goods exchanged between the three nations were eliminated due to NAFTA, which placed particular emphasis on liberalizing trade in agriculture, textiles, and the production of automobiles. The accord also aimed to enforce labor and environmental safeguards through side agreements, protect intellectual property, and provide dispute resolution procedures. NAFTA was replaced by then President Donald Trump with the intent to increase jobs and GDP in the US.
Although Mexico initially passed the agreement in 2018, recent accusations by both the US and Canadian Governments claim that Mexican President Andrés Manuel López Obrador’s new energy policy violates the terms of the USMCA.
The accusations from both governments suggest that Obrador’s plan to restructure and deregulate the energy industry and stop open tenders (a form of public bidding) hurt their country’s respective businesses and that Mexico is not fulfilling their contractual obligation. Mexico’s National Energy Control Center (Centro Nacional de Control de Energía or CENACE) claims renewables like wind and solar are unreliable which cause outages in Mexico. To solve this, they want to give priority to Mexico’s oil producer Petroleos Mexicanos, or PEMEX (the Mexican state-owned petroleum company), which they claim will stay reliable. This affects US and Canadian businesses because they have invested billions in renewable energy in Mexico, and these investments can quickly become worthless if Obrador’s policy is carried out.
Obrador disagreed with the U.S and Canadian governments’ views in a press conference on Thursday, July 21st; he denied wrongdoing, saying that his policies did not violate a regional trade agreement. “Nothing will happen.” In response, the US is seekingcorrective measures to prevent discriminatory practices against US businesses costing them upwards of 10 billion dollars.
Under the USMCA, the US and Mexico have 30 days to schedule consultations initially. If there is no agreement reached within 75 days, the dispute goes into a formal, impartial panel of experts for arbitration.
Suppose the panel finds Mexico in violation of the USMCA. In that case, they may allow the US and Canada to impose punitive tariffs on Mexican imports, to help offset the losses from the gas industry which introduces trade barriers for Mexico.
This incident is the latest in the recent slew of deteriorating US-Mexico relations, accompanied by Obrador’s refusal to attend the Summit of the Americas in June and comments about more affordable gasoline prices in Mexico during the current global Oil Crisis.