On July 20, 2022, the United States requested consultations with Mexico on the Dispute Settlement Chapter of the US-Mexico-Canada Agreement (USMCA), arguing that some of Mexico’s energy policies are inconsistent with the TEB.1 The United States affects a wide range of energy resources and technologies, including natural gas, electricity, renewable sources such as wind and solar, and diesel fuel. The U.S. says the measures at issue favor Mexican state-owned companies over U.S. companies and U.S.-produced energy, thereby violating Mexico’s commitments under the USMCA chapters on Market Access, Investment, and State-Owned Enterprises, while undermining climate goals. The Canadian government has expressed its support for the US position and has submitted a parallel request for consultations, the text of which is not yet public.
If the parties are unable to resolve the dispute through consultations within 75 days, the complaining parties (the United States and Canada) may request the creation of a dispute resolution panel to review the measures in question and authorize retaliatory actions. This alert provides an overview of the US consultation request and the next steps in the dispute resolution process.
US Request for Consultations
The US petition covers four aspects of Mexico’s energy policy that allegedly benefit “[Mexico’s] state electricity company, Comisión Federal de Electricidad (CFE) and the oil company Petróleos Mexicanos (Pemex), and negatively affect Mexico and US companies operating in Mexico. Energy produced by the US.”
1. The Electric Power Industry Law, as amended (alleged violation of USMCA Market Access and Investment chapters)
The U.S. petition challenges a March 2021 amendment to Mexico’s Electric Power Industry Law, which allegedly “gives grid operator Centro Nacional de Control de Energía (CENACE) priority over electricity produced by CFE over private competitors for the delivery of electricity to Mexico’s grid. Read also : Secretary Mayorkas Remarks on the Retirement of the Director of the United States Secret Service, James M. Murray.” Among other examples, the petition refers to Article 26 of the amended law, which states that “CENACE shall prioritize the dispatch of electricity generated by power plants owned by State institutions, entities or companies” and Article 4, Paragraph V), which “guarantees”. [s] primarily electricity contracts that only CFE can hold or enter into[.]”
The United States argues that this measure appears to be inconsistent with the provisions of the Market Access and Investment Chapters of the USMCA. Specifically, the petition alleges violations of Section 2.3 of the USMCA (because Mexico has “failed to accord national treatment to United States property“), as well as Section 14.4 of the USMCA (because Mexico has “failed to accord to U.S. investors and their investments.” Under the same circumstances, giving Mexican investors and their investments treatment other than treatment.
2. “Inaction, Delays, Denials, and Revocations of Private Companies’ Abilities to Operate in Mexico’s Energy Sector” (alleged violation of USMCA Chapters on Market Access, Investment, State-Owned Enterprises, and Publication and Administration)
The U.S. petition alleges that Mexico “impedes the ability of private companies to operate in Mexico’s energy sector,” including by “delaying, denying, or failing to grant applications for new permits or permit changes; suspending or revoking existing permits; or otherwise blocking private. See the article : The latest high-tech industry: real estate.” the ability of companies to:
The United States claims that these measures are inconsistent with the provisions of the USMCA chapters Market Access, Investment, State Enterprises, and Publication and Administration:
3. Postponement of Requirement to Supply Ultra-Low Sulfur Diesel for Pemex Only (alleged violation of USMCS Market Access and State-Owned Enterprise Chapters)
The US petition challenges a 2019 regulation issued by Mexico’s Energy Regulatory Commission (Comisión Reguladora de Energía, or CRE) that “only grants Pemexi a five-year extension to comply with the maximum sulfur content requirements under the automotive diesel fuel rule.” [.]” The US complains that the measure is inconsistent with the provisions of the USMCA’s Market Access and State Enterprises chapters, namely Article 2. This may interest you : President Biden announces recipients of the Presidential Medal of Freedom.3 (because Mexico “has not accorded national treatment to United States goods”) and Article 22.5.2 (because the CRE “does not have its exercise regulatory discretion impartially with respect to the companies it regulates, including companies that are not state-owned enterprises[.]”).
4. Actions Regarding the Use of Mexico’s Natural Gas Transportation Service (alleged violation of USMCA Market Access chapter)
The US petition challenges an “official letter” sent in June 2022 by Mexico’s Energy Secretary to CRE and Mexico’s National Center for the Control of Natural Gas (Centro Nacional de Control del Gas Natural, or CENAGAS). According to the US request, the letter announced a. energy policy and “supply assurance strategy” “would encourage or require current or future users of Mexican natural gas transmission service to obtain natural gas from CFE or Pemex and would impose restrictions on the importation of US natural gas.” For example, the US cites statements in the letter that CENAGAS “requires” users or those interested in using Mexican natural gas transportation service to demonstrate that they “receive their supply of Natural Gas from any productive company within the State.” or its subsidiaries or affiliates[.]” The letter “requests” CENAGAS to “request” “[CFE, its production companies or subsidiaries at points where capacity is reserved in the upstream transportation systems, if contracted with them. prioritize,” according to the U.S. request.
The United States claims that this measure appears to violate the provisions of the Market Access chapter of the USMCA, namely Article 2.3 (treatment less favorable than that accorded to like products of domestic origin) and Article 2.11 (given to products of domestic origin). It is a ban or restriction on the importation of a United States good destined for Mexico.)
Next steps
The US and Canadian petitions begin what can be a lengthy consultation and dispute resolution procedure under Chapter 31 of the USMCA. This process could result in the imposition of retaliatory measures by the United States and Canada if (1) the case proceeds to the panel stage; (2) the Panel finds that Mexico’s measures are inconsistent with the USMCA; (3) and the parties cannot agree on a resolution. The next steps in the dispute resolution process are:
In the United States, there is strong political support for the Biden Administration’s decision to pursue the case, both from the business community and members of Congress. These stakeholders have argued that the Mexican policies in question not only harm US companies, but also raise concerns about whether or not Mexico can meet climate goals under the Paris Agreement.7 This last issue is of particular concern to the Biden Administration and Democratic members of Congress. .
Whether this dispute is resolved through consultations or through a formal group proceeding, it could have significant implications for the North American energy sector, especially since the measures at issue affect a wide range of energy resources and technologies, from renewables to fossil fuels. Importantly, the USMCA Rules of Procedure allow a Panel to consider written submissions submitted by non-governmental entities during the dispute, in addition to hearing submissions from the governments of the disputing Parties. 8 Companies should consider the implications of this USMCA dispute and consider strategies to protect their commercial interests.
1 The request for US inquiries can be found here.
