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López Obrador defends energy policy, accuses US companies of trying to ‘loot Mexico’

The Mexican president responded to accusations of his administration’s energy policies violating the USMCA with his trademark sarcasm and accusatory language.

MEXICO CITY (CN) — Facing the possibility of sanctions for violating the terms of the free trade agreement he himself agreed to, Mexico’s president resorted to accusations and mockery when defending his energy policy this week.

The United States Trade Representative announced Wednesday that it was requesting dispute settlement consultations under the United States-Mexico-Canada Agreement (USMCA), and Canada followed suit later that day. 

President Andrés Manuel López Obrador Thursday called the requests “political sanctions” during his morning press conference. 

“We’re going to defend ourselves,” said López Obrador, contending the requests came from “created interests” that aim to “loot Mexico.”

The U.S. request claims that Mexico has implemented energy policies “that favor its state-owned electrical utility … and petroleum company …, and negatively impact U.S. companies operating in Mexico and U.S.-produced energy,” and that such polices represent a breach of the terms of the USMCA.

López Obrador first addressed the issue on Wednesday morning after Reuters reported the impending announcement citing Mexican sources and a draft of the document. 

The president’s response that morning came as no surprise to those familiar with his particular brand of public relations. He played a music video of a song by Chico Che, a singer from his home state of Tabasco, with the lyric: “Oh, how scary. Look at how I’m shaking.”

“They’re going to call us to account so that we explain the energy policy of our country, which has us very concerned,” he said before asking his audiovisual team to find the music video.

Others familiar with his energy policies do not share the president’s confidence in his administration’s ability to defend them. 

“Everything about López Obrador’s energy policies appears to indeed violate the USMCA,” said Jesús Carrillo, director of sustainable economy at the nonpartisan think tank the Mexican Institute for Competitiveness.

Top on the list of the United States’ complaints is López Obrador’s attempt to reform the federal electricity law, a move which would give Mexico’s state-owned electric company first purchasing rights to all electricity produced in the country.

Carrillo said the law is a “clear violation” of the USMCA, since it favors the national company over private and foreign electricity producers.

The United States also claims Mexico has delayed, unjustifiably denied and simply not acted on applications for new permits to produce energy in the country, and also suspended or revoked existing ones. 

Also at issue are a December 2019 extension granted to the state-owned oil company Pemex to comply with maximum sulfur requirements in diesel fuel, which other companies, including U.S. companies, did not receive, and a June 2022 policy that gives state-owned companies preference in the transportation of natural gas.

“These actions on the part of regulators have been partial to the national companies, therefore they represent treatment that favors them over other companies, and this constitutes a violation of the treaty,” said Carrillo. 

Given his initial response to the requests, as well as his positions on energy and the United States over the years, López Obrador is not likely to back down any time soon.

“I don’t think we’ll see any change and I don’t think our counterparts in the U.S. and Canada will take this lightly,” said Carrillo. “So I imagine we’ll see sanctions, but we’ve still got some time before something like that happens.”

The terms of the USMCA, however, may not be as cut-and-dry as they appear.

"The U.S. government and U.S. companies may have a different interpretation on how to implement the USCMA, particularly regarding energy policies," said Martha Bárcena Coqui, who told López Obrador that during her time as Mexico's ambassador to the United States, from 2018 to 2021.

While the United States appears to be interpreting the treaty through articles outlining national treatment that attempt to "level the playing field" in various industries, Bárcena said that López Obrador pointed to Chapter 8, which recognizes Mexico's sovereignty over its hydrocarbons.

"Does that mean automatically that the U.S. is right? Not necessarily," she said. "That is why we go into conversations, and then eventually — which I hope we could avoid — to a panel, and the arbiters will decide who's interpretation of the USMCA is right."

But the conversations might not go smoothly for Mexico. As Bárcena told López Obrador when advising him on his energy policies: "Chapter 8 is not enough to shield the Mexican government from taking whatever position they want."

Neither does she believe the United States is completely right in its view of the treaty. "It is a matter of interpretation," she said.

Mexico has 30 days from the issuing of the request to enter into consultations. If the matter is not resolved within 75 days of the request, a panel could be established to issue sanctions.

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