Mexico: US Oil Firms Denounce Discrimination, Call for Diplomatic Intervention

On 15 June it was revealed that the American Petroleum Institute (API), the main association of US oil and natural gas firms, has sent a letter to US government officials complaining that its members are being treated unfairly by the Mexican government; and asking them to intervene.
Mexico API US oil USMCA

Analysis:

The letter has surfaced amid the growing controversy over the various regulatory changes to Mexico’s energy market recently introduced by the government led by President Andrés Manuel López Obrador. The changes are said to be part of the López Obrador government’s energy policy objective to ensure national energy security by strengthening the state-owned oil and electricity firms – Pemex and the CFE. But private energy firms complain that these restrict private participation in the sector, in violation of competition law. The API argues that the Mexican government’s recent actions also violate the tenets of the US-Mexico-Canada Agreement (USMCA) on regional trade. This may well result in the López Obrador administration coming under pressure from the US government to adjust the regulations or face a bilateral spat.

  • Signed by API CEO Michael Sommers and addressed to US Secretary of State Michael Pompeo, US Secretary of Commerce Wilbur Ross, US Energy Secretary Dan Brouillette, and US Trade Representative Robert Lightizer, the letter is dated 11 June but was only made public yesterday. It complains that API members in Mexico, particularly petrol station operators that entered the market following the 2013-2014 energy reform, are facing unfair treatment by Mexican government agencies including the energy ministry (Sener), the energy regulatory commission (CRE), and the consumer protection agency (Profeco).
  • According to the letter, the CRE has unjustifiably delayed the approval of operation permits filed by US firms. Sener has delayed, rejected, and restricted petrol fuel import permits; and rejected applications for permits to build new fuel storage capacity that would allow operators to meet new fuel storage requirements that come into effect on 1 July. Meanwhile Profeco has ordered the arbitrary shutdown of petrol stations operated by US firms for minor infractions.
  • The letter argues that the application of these regulations is inconsistent with past practice and not strictly applied to Pemex. It also complains that the CRE has removed asymmetric regulation applicable to Pemex (the dominant player in the petrol fuel market), allowing it to “unfairly and opaquely undercut the pricing of foreign competitors, giving the company a significant advantage in downstream pricing”.
  • Sommers states that all these actions “discriminate against US investors” in violation of commitments made by Mexico in both the now expired North American Free Trade Agreement (Nafta) and the USMCA, which is due to come into full effect on 1 July. Among these are commitments to protect foreign investments and the non-discriminatory treatment of foreign firms by state-owned enterprises and designated monopolies such as Pemex. Sommers calls on the US officials to “to use diplomatic channels” to resolve the issue.
Looking Ahead:

The Mexican and US governments have yet to comment on the letter. But with officials from both countries due to discuss the full reopening of the shared border following its closure to stop the spread of the coronavirus (Covid-19) on 22 June, the issue is bound to be broached.

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