US-Mexico USMCA Negotiations Start with Strain

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The strained relationship between the United States and Mexico came to a head this week as the 75-day-long consultation process, as requested by the United States to address Mexico’s purported violations of the free trade United States-Mexico-Canada Agreement (USMCA), began between the two countries on Tuesday, Aug. 23 – and has reportedly already started on the wrong foot.

The majority of the United States’ gripes with Mexico come from Mexican President Andrés Manuel López Obrador’s (AMLO) energy initiatives, which both U.S. government officials and former USMCA negotiators say unduly prioritizes Mexico’s state-owned energy companies over foreign and clean investment in direct violation of the multinational treaty.

As a result of the pushback against his policies, López Obrador announced his intentions to potentially withdraw Mexico from the USMCA ahead of August’s consultation process, a move that’s been widely critiqued by sector experts.

Now, as the 75-day consultation process in which both countries will share their positions begins, specialists have little faith that a positive result will be reached.

“We hope that there can be progress in the consultations and it is not necessary to go to a panel, but it seems difficult to solve it in this phase of dialogue,” former chief USMCA negotiator Kenneth Smith Ramos told daily Mexican newspaper El Financiero.

Smith Ramos went on to mention that while Mexico’s energy secretary has spoken encouragingly about the potential results of the consultation, any resolution would likely require changes to Mexico’s energy policy – a course of action AMLO has expressed vehement disagreement with, considering his previous message to Congress pass his energy initiatives “without changing a comma.”

“There is a willingness to work and to negotiate with the United States and Canada. We hope that this willingness to dialogue becomes a willingness to modify key elements of the electricity industry law, the hydrocarbons law and the foreign trade rules that have been closing action spaces for private companies,” said Smith Ramos.

Other sector experts, like RRH Consultores’ Samantha Atayde, said that the outcome of the negotiations depends on the willingness of both parties to compromise.

“Everything depends on the will of the parties,” said Atayde. “The consultations are a ‘pre-contentious’ stage that seeks for the parties to reach a mutually satisfactory solution. If there is a will from Mexico to channel solutions to the problems that the United States has identified, work can be done and progress can be made in this stage.”

Meanwhile, Santamarina y Steta Attorney Juan Carlos Machorro relayed concerns about the prospective economic impacts that Mexico could face if the consultation does not go well – especially considering the economy’s presently vulnerable state amid recovery from the covid-19 pandemic and ongoing geopolitical events.

Machorro likewise said that the United States is likely to win on the interpretation of the USMCA if the situation can’t be resolved in the consultation process, putting the ball in Mexico’s court to put the relationship between the neighboring countries and trade partners back on track.

“If the technical and legal aspects are taken into account in the dialogues of the consultations, we have the losing position,” said Machorro. “It will be very difficult for us to verify in the consultations and panel stages that there are no violations by Mexico.”

If Mexico and the United States fail to reach an agreement, the United Stateswill likely place tariffs on Mexico and withdraw foreign investment in the country in the months to follow, alongside other economic impacts.

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