U.S. Threatens Tariffs in Mexican Dispute

Mexican President Andrés Manuel López Obrador | Image by Octavio Hoyos/Shutterstock

The Biden administration will reportedly soon deliver an ultimatum to Mexico in a bid to resolve an ongoing energy trade disagreement.

Both the United States and Canada could impose retaliatory tariffs on Mexico if the dispute goes on any longer, reported Reuters.

The conflict revolves around Mexico’s reversal of the reforms that aimed to open up its oil and power markets to foreign competitors.

The Mexican government’s control over the energy sector had been rescinded by reforms made during the presidency of Enrique Peña Nieto in 2013. This liberalization of the market led to a surge in foreign investment.

Since Andres Manuel Lopez Obrador took over as president in 2018, many of these reforms have been rolled back.

He also instituted policies that both Canada and the U.S. claim favored the state-owned oil company Pemex and the Federal Electricity Commission. Their own operations — involving companies like Chevron and Marathon Petroleum — were allegedly disparaged as a result.

Obrador defended his moves as being in the interest of Mexico’s “strategic economic areas” and in line with the United States-Mexico-Canada Agreement (USMCA) that went into force in 2020, per Reuters.

He also pointed to Chapter 8 of the USMCA, which affirms Mexico’s ownership of oil and gas and “its sovereign right to reform its constitution and its domestic legislation.”

Chapter 8 also states that the U.S. and Canada observe this “without prejudice to their rights and remedies,” which includes respecting each country’s private investments made under the agreement, per Reuters.

The “final offer” that the Office of the United States Trade Representative will extend to Mexico, as sources close to the matter told Reuters, is for the country to grant greater market access to the U.S. and Canada and agree to more oversight.

If this fails to break the stalemate that has been in place since Canada and the U.S. filed formal complaints and requests to talk last July, the U.S. will ask for an autonomous dispute resolution panel under the USMCA.

As the sources told Reuters, if the panel rules in favor of the plaintiffs and their grievances are not addressed, tariffs could follow.

The trade dispute comes at a time when relations between U.S. President Joe Biden and Obrador are already strained.

In Biden’s first visit to Mexico as president in January, Obrador rebuked the U.S. for trading so much with Asia, telling him, “This is the moment for us to determine to do away with this abandonment, this disdain, and this forgetfulness for Latin America and the Caribbean,” as The Dallas Express reported.

Alongside trade, cross-border tensions have particularly arisen surrounding issues of unlawful migration and drug trafficking, which have similarly plagued Biden’s presidency.

Obrador recently publicly spoke out against U.S. lawmakers like Sen. Lindsey Graham (R-SC) over their calls for a military response to cartel violence, as The Dallas Express reported.

Although there has been no official word that the U.S. is taking a more aggressive stance towards Mexico in this trade dispute, there are indications that Washington’s patience is wearing thin.

Speaking at a Senate Finance Committee hearing on March 23, Katherine Tai, the U.S. trade representative, said, “We are engaging with Mexico on specific and concrete steps that Mexico must take to address the concerns set out in our consultations request. This is still very much a live issue,” per Reuters.

“We know that all the tools in the USMCA are there for a reason,” she added.

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