U.S. to seek dispute settlement talks with Mexico over energy policy-sources

Excess natural gas is burnt, or flared, from Mexican state-owned Pemex’s Tula oil refinery, located adjacent to the Tula power plant belonging to national power company Comision Federal de Electricidad, or CFE, in Tula de Allende, north of Mexico City, Mexico June 22, 2020. REUTERS/Henry Romero/File Photo

MEXICO CITY, July 19 (Reuters) – The United States will request dispute settlement consultations with Mexico under a regional trade deal over what it considers discriminatory Mexican energy policies, according to two Mexican sources and a draft announcement reviewed by Reuters on Tuesday.

The consultations relate to measures taken by Mexico which the U.S. Trade Representative argues undermine American companies in Mexico and U.S.-produced energy in favor of Mexican state-owned power utility Comision Federal de Electricidad (CFE) and oil firm Petroleos Mexicanos (Pemex).

A spokesperson for USTR said it does not comment on stories sourced to content from a broken embargo. The announcement was shared by the sources in Mexico and was set to be made public on Wednesday.

Mexican President Andres Manuel Lopez Obrador, a left-leaning energy nationalist, has pledged to revive Pemex and CFE, which he has said his predecessors deliberately “destroyed” to leave the market in the hands of foreigners.

The United States is now arguing his efforts to strengthen the state-run firms appear to contravene Mexico’s commitments under the United States-Mexico-Canada Agreement (USMCA) trade pact.

“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,” U.S. Trade Representative Katherine Tai said in the draft statement.

The U.S. move is a blow to Mexico, and comes just a week after Lopez Obrador met his American counterpart Joe Biden in Washington, and announced that U.S. firms were planning to plow billions of dollars into the Mexican energy sector.

Tai argued that policy changes undertaken by Mexico are affecting U.S. economic interests in multiple sectors and “disincentivize investment” by clean-energy suppliers and by companies that seek to purchase clean, reliable energy.

Mexico’s Supreme Court in April upheld contentious electricity legislation passed in 2021 that mandates that CFE should take priority over privately-run power providers on dispatch, or when plants come online. read more

Lopez Obrador argues his measures will benefit consumers and make Mexico more self-sufficient. The opposition says they will raise electricity costs, undermine investor confidence and violate Mexico’s clean energy commitments. read more

USTR said it was challenging amendments to Mexican legislation that prioritize distribution of CFE-generated power over cleaner sources of energy provided by private sector suppliers, such as wind and solar.

“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,” Tai said in the draft announcement.

Mexico’s actions also include “delays, denials, and revocations” of U.S. companies’ abilities to operate in Mexico’s energy sector, including renewable energy projects, USTR said, echoing complaints from business lobbies in Mexico.

Under USMCA rules the United States and Mexico would enter into consultations within 30 days of the U.S. request, unless the parties decide otherwise, the draft announcement noted.

If they do not resolve the matter through consultations within 75 days of the U.S. request, the United States may request the establishment of a dispute panel.

Reporting by Dave Graham and Anthony Esposito; additional reporting by Steve Holland in Washington D.C.; Editing by Richard Pullin

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