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USMCA, Mexican Energy Reform Still Big Question Marks


Photo: Investors Trading Academy

By ANTONIO GARZA    

On Thursday, April 4, U.S. President Donald Trump appeared to back away from his threat to close the U.S.-Mexico border. The change of tone was a relief for many, especially for the North American business and border communities that would be paralyzed from the halted cross-border trade and movement.

Trump noted that his administration would give Mexico a “one year warning” to address drugs crossing into the United States, and would first apply tariffs before stopping all transit. The demand is an impossible ask for Mexico’s new president, Andrés Manuel López Obrador (AMLO), but it is not the only big issue brewing across the region.

We are now four months into the López Obrador presidency, marked by policy changes across a range of sectors and a considerable amount of uncertainty. The new team inherited a host of challenges, including record-breaking homicide rates, persistent poverty and inequality levels, and widespread corruption.

In response, they have pursued a range of new (or revived) approaches, including the creation of the National Guard, a Tren Maya in the Yucatán Peninsula and an Ayotzinapa Truth Commission. While some initiatives have been well received, others have sewn confusion or rejection among various sectors of Mexican society. Yet, despite the controversies, López Obrador continues to command an impressive approval rating as he pursues changes throughout an enormous span of issues.

While not always at the top of the news cycle, arguably one of the most important agenda items is the new United States-Mexico-Canada Agreement (USMCA). Since it was signed on Nov. 30, 2018, the agreement has steadily moved through the three North American countries’ respective legislatures, following the necessary administrative processes to become the new NAFTA. However, ratifying the agreements looks to be anything but smooth sailing.

The new Democratic majority in the U.S. House of Representatives has eyed changes to the agreement’s laborenvironmental and pharmaceutical provisions. Earlier this week, House Majority Leader Nancy Pelosi noted that USMCA talks will need to be reopened and that Mexico will need to pass and implement its new labor laws before Democrats would feel comfortable moving forward with the USCMA’s passage. Given Canada’s October elections and the 2020 race in the United States, the window for approving the agreement is slim. A 2021 vote on the USMCA is becoming a real possibility, and so is the chance of a Trump withdrawal for tactical or negotiating purposes.

Meanwhile, some of the new Mexican administration’s biggest shifts have been in the country’s energy sector. In general, López Obrador’s team has repeatedly sent mixed messages on their overall direction and aims. This was particularly clear in the case of the Dos Bocas refinery project, which is one of the new team’s biggest energy initiatives. After some conflicting messages, López Obrador himself confirmed that the project will continue and invited four firms to participate directly, instead of opening up an international bidding round.

This move away from open bidding rounds has been repeated in the energy and electricity tenders, where the administration has suspended or canceled every upcoming round. Oil and gas tenders are suspended for at least three years, and Pemex farm-outs are also suspended.

On the electricity front, clean energy tenders and transmission line tenders were also cancelled. ‪On Jan. 30, credit agencies downgraded Pemex credit rating, with Fitch moving it down from BBB+ to BBB- (the last investment-grade rating) amid growing concerns for high debt levels, declining production and what they considered an insufficient plan to meet cashflow challenges.

Lastly, Central American migration and the U.S.-Mexico border has become the big news story in the United States. Part of the U.S. media attention comes from the higher than usual migrant apprehension numbers in February, which reached their steepest levels in a decade.

In response, the Trump administration has railed against Mexico for not doing enough and cut off aid to Guatemala, Honduras and El Salvador. While it no longer looks like Trump will shut down the U.S.-Mexico border, the chaos has already caused longer than usual wait times, with traffic backing up for hours in Mexican border cities.

López Obrador and his administration have taken a surprisingly accommodating approach. Despite some high-profile migrant apprehensions in southern Mexico, where officials stopped multiple buses filled with migrants going north, the new team’s general tone has been to wave off the controversy and focus on domestic politics.

Over the coming months, the uncertainty over the new policies is likely to linger.

Antonio Garza is a U.S. lawyer who served is as his country’s ambassador to Mexico between 2002 and 2009. In recognition of his work, in 2009, the Mexican government bestowed on him the Águila Azteca, the highest award granted to foreigners. Prior to his appointment as ambassador, Garza served as Texas’ secretary of State from January 1995 to November 1997 and was also chairman of the Texas Railroad Commission. He is currently a lawyer at White & Case, specializing in cross-border issues.

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Categories: Mexican politics, Mexico, Mexico-U.S. relations, Opinion, PoliticsTags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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