Following President Trump's election, Mexico is eager to enter into negotiations with the United States due to the uncertainty around Trump's intentions regarding the North American Free Trade Agreement (NAFTA). According to a recent news article:

"Mexico [has said that] it would throw its relationship with the United States wide open in talks with the incoming Trump administration, putting security, migration and trade on the table as it seeks to avoid a major economic shock… President Enrique Pena Nieto said Mexico would take a broad approach to the challenge, seeking a settlement that would benefit both Mexico and the United States as he looks to carve out a platform that gives him room for manoeuvre in talks. "All the issues that define our bilateral relationship are on the table, including security, migration and trade," Pena Nieto said in a speech to diplomats in Mexico City, sketching out his negotiating position for the first time."(1)

During the drafting of NAFTA's energy chapter, Mexico's commitment to the agreement's energy matters was uncertain. Even before negotiations commenced, Mexico had established that NAFTA's energy and basic petrochemicals provisions could not be the same as those in the Canada-United States Free Trade Agreement. Essentially, Mexico established five matters that were non-negotiable, often called the 'five nos'.

Mexico's non-negotiable positions regarding the energy sector are:

  • no foreign investment in the exploration, exploitation and refining of oil in areas in Mexico that will remain under state control;
  • no risk-sharing contracts foreseeing the payment of foreign companies with crude oil (in kind);
  • no energy supply commitments;
  • no liberalisation of gas imports and exports (all imports and exports must take place through Pemex); and
  • no foreign retail gasoline outlets.

These issues may not present a problem at present. However, no formal intention to renegotiate or reform Chapter 6 of NAFTA has been signalled following Mexico's energy reform. As such, it remains uncertain how foreign trade investments can be protected under NAFTA's provisions, as the Mexican energy sector is not covered by the existing agreement. Only time will tell what will happen with Chapter 6.

For further information on this topic please contact Mauricio Lievana at Ibáñez Parkman y Asociados SC by telephone (+52 55 5250 5912) or email (mauricio.lievana@iparkman.com.mx). The Ibáñez Parkman y Asociados SC website can be accessed at www.i-parkman.com.

Endnotes

(1) "How Mexico Plans to Negotiate Trade With Trump", available here.

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