According to the National Renewable Energy Laboratory, the rejected constitutional amendment initiative would have entailed that Mexico’s SOE having a much greater participation in the electricity market. Per estimations, the Mexico’s SOE participation could have soared up to a 74% participation in the electricity sector, while the participation of the private sector would have fallen from 60% to 26%, affecting the competitiveness and value chains of the region.

Mexico did not include the Electricity Industry Law in its USMCA list or annex of «non-conforming measures» on cross-border investment and services. However, Article 32.11 USMCA allowed Mexico to «reserve» measures that were compatible with reservations made in other trade agreements, as in CPTPP. Like recent energy policies, the constitutional amendment initiative was widely questioned as incompatible with Mexico’s international commitments. This is because Mexico’s reservations in CPTPP are mere reflection of the 2014 energy amendment, which created a «level playing field» for private companies vis-a-vis SOEs (e.g. CFE) and promoted the use of clean energy.

Finally, the recent amendment of the Mining Law and restrictions on the «exploitation» of lithium is also highly questionable in light of the USMCA and other trade agreements. Obviously, the exploitation of lithium by an SOE is not foreseen as a «non-conforming measure» in the USMCA or a reservation established in another FTA.

At VTZ we observe that the U.S. government is closely following legal and judicial developments in energy matters. The USTR’s Trade Barriers Report 2022 included an «energy» section of Mexico, mentioning that the Mexican Supreme Court would review the constitutionality of the recent amendments of the Electricity Industry Law (LIE); in this regard, we inform that the Supreme Court did not declare as unconstitutional the amendments to the LIE in its April 7, 2022, hearing.

While it is true that no changes to the constitution were approved and that institutional checks and balances can still correct energy policies, it is also true that Mexico is taking a controversial path. Now with restrictions on the exploitation of lithium, an essential mineral for advanced batteries and a key input to value chains considered «strategic» for the United States, Mexico continues to provoke its main trading partner. 

In that sense, it may be a matter of time before the USTR activates the dispute settlement mechanism, and with that Mexico may face the eventual risk that the USA may “suspends benefits” to Mexican goods.