WASHINGTON – United States Trade Representative Katherine Tai today announced that the United States has requested dispute settlement consultations with Mexico under the United States-Mexico-Canada Agreement (USMCA). The consultations relate to certain measures by Mexico that undermine American companies and U.S.-produced energy in favor of Mexico’s state-owned electrical utility, the Comisión Federal de Electricidad (CFE), and state-owned oil and gas company, Petróleos Mexicanos (PEMEX).
“We have repeatedly expressed serious concerns about a series of changes in Mexico’s energy policies and their consistency with Mexico’s commitments under the USMCA,” said Ambassador Katherine Tai. “These policy changes impact U.S. economic interests in multiple sectors and disincentivize investment by clean-energy suppliers and by companies that seek to purchase clean, reliable energy. We have tried to work constructively with the Mexican government to address these concerns, but, unfortunately, U.S. companies continue to face unfair treatment in Mexico. We will seek to work with the Mexican government through these consultations to resolve these concerns to advance North American competitiveness.”
Mexico’s actions include, but are not limited to, amendments to Mexico’s electricity law that would prioritize the distribution of CFE-generated power over cleaner sources of energy provided by private sector suppliers, such as wind and solar. They also include Mexico’s delays, denials, and revocations of U.S. companies’ abilities to operate in Mexico’s energy sector, including with regard to renewable energy projects.
Mexico’s policies have largely cut off U.S. and other investment in the country’s clean energy infrastructure, including significant steps to roll back reforms Mexico previously made to meet its climate goals under the Paris Agreement. Mexico’s policy changes threaten to push private sector innovation out of the Mexican energy market. To reach our shared regional economic and development goals and climate goals, current and future supply chains need clean, reliable, and affordable energy.
Specifically, the United States is challenging a 2021 amendment to Mexico’s Electric Power Industry Law that prioritizes CFE-produced electricity over electricity generated by all private competitors; Mexico’s inaction, delays, denials, and revocations of private companies’ abilities to operate in Mexico’s energy sector; a December 2019 regulation granting only PEMEX an extension to comply with the maximum sulfur content requirements under Mexico’s applicable automotive diesel fuel standard; and a June 2022 action that advantages PEMEX, CFE, and their products in the use of Mexico’s natural gas transportation network. These measures appear to be inconsistent with several of Mexico’s USMCA obligations, including under the Market Access, Investment, and State-Owned Enterprises chapters.
Background
In 2013, Mexico pursued various energy reforms, in response to which U.S. companies invested in Mexico’s energy sector. Specifically, U.S. companies have: (1) established and operated wind and solar energy farms and cogeneration and combined cycle facilities in Mexico that would contribute electricity to Mexico’s grid; (2) strengthened interconnection contracts that bring U.S. electricity to Mexico across the border through wires; and (3) imported U.S.-origin fuels to Mexico for sale at gas stations.
Since December 2018, however, Mexico has pursued an energy policy centered on reinstating the primacy of its state-owned electrical utility, CFE, and oil and gas company, PEMEX. Mexico has undertaken various measures to achieve this aim. For example, in March 2021, Mexico amended its Electric Power Industry Law so that its grid operator will prioritize for dispatch to Mexico’s grid CFE-generated electricity over electricity generated by all private competitors, irrespective of cost or environmental impact.
Mexico has also taken, or is taking, actions or inactions, which are curtailing the ability of private companies to participate effectively, if at all, in Mexico’s energy sector. These actions include, but are not limited to, delaying, denying or failing to act on applications for new permits or permit modifications; suspending or revoking existing permits; or otherwise blocking private companies’ ability to operate renewable energy facilities, such as wind and solar installations, to import and export electricity and fuel, to store or transload fuel, and to build or operate retail fuel stations.
In addition, in December 2019, Mexico’s energy regulator granted PEMEX – but not other companies, including U.S. companies – a five-year extension to comply with maximum sulfur content requirements under its fuel standard in certain parts of Mexico, which otherwise require the sale of ultra-low sulfur diesel fuel throughout the country. Without the extension, PEMEX would have to purchase ultra-low sulfur diesel imported from the United States and/or upgrade its facilities to produce ultra-low sulfur diesel in sufficient quantities.
More recently, in June 2022, Mexico’s Secretary of Energy notified the Energy Regulatory Commission (CRE) and the National Natural Gas System Operator (CENAGAS) of a change in policy that would require, among other things, that users of Mexico’s gas transportation network demonstrate that they source natural gas from PEMEX or CFE.
The United States has raised concerns with Mexico regarding its energy policies on numerous occasions, including in connection with the USMCA Free Trade Commission meetings in 2021 and 2022, the Deputies Meeting of the USMCA Free Trade Commission in 2022, and in meetings of the USMCA Committee on State-Owned Enterprises and Designated Monopolies. Ambassador Tai also consulted members of Congress and a broad range of stakeholders to hear their serious concerns with the deteriorating trajectory of Mexico’s energy policies.
Under USMCA Article 31.4.5, the parties shall enter into consultations within 30 days of the U.S. request, unless the parties decide otherwise. Under USMCA Article 31.6.1, if the parties do not resolve the matter through consultations within 75 days of the U.S. request, the United States may request the establishment of a panel.
A copy of the consultations request can be found here.
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