Consultations Request by the United States of
America under the United States-Mexico-Canada
Agreement (USMCA) in 2022

Publicado el 17 de octubre de 2022

Stephan Harald Tribukait Vasconcelos
Licenciatura por la Escuela Libre de Derecho,
maestría en Derecho Mercantil Internacional por la Universidad
de Essex, miembro de la American Bar Association
st@tvsc.mx

I. Abstract

On July 20, 2022 the United States announced the request of dispute settlement consultations with Mexico under the United States-Mexico-Canada Agreement (Treaty). ¹ The Treaty provides that parties must endeavor to agree on its interpretation and application. Should a matter affect the operation or application of the Treaty, parties must make every attempt to solve it through cooperation and consultations.

The requested consultations refer to measures (Relevant Measures) adopted by Mexico that favor its state-owned electrical utility (CFE) and petroleum company (PEMEX) negatively impacting U.S. companies operating in Mexico and U.S.-produced energy. The Relevant Measures allegedly breach commitments of Mexico under the Treaty. ²

This article argues that the commitments of Mexico set forth in the consultations are inapplicable at least to the first of the Relevant Measures, that is, the Electric Power Industry Law (Law), as amended in 2021, because the purposes of such commitments differ from the object and effects of the Law.

II. Avoidance of Protectionism in the Application of Internal Measures

The Relevant Measures are divided in four sections. Section I refers to the Law. The apparent inconsistency of the Relevant Measures with Article 2.3 of the Treaty is alleged in all sections. Article 2.3 deals with the principle of national treatment and incorporates Article III of the General Agreement on Tariffs and Trade 1994 (GATT). ³

This principle is simply phrased as giving others the same treatment as one’s own nationals. ⁴ A more elaborated notion may be found in the World Trade Organization (WTO) jurisprudence. Its Appellate Body in Japan – Alcoholic Beverages II viewed national treatment under Article III of the GATT as the obligation of WTO members “… to provide equality of competitive conditions for imported products in relation to domestic products.” ⁵

National treatment under the GATT encompasses internal taxation and regulation, but all Relevant Measures focus on regulation. The first Relevant Measure, the Law, arguably prioritizes electricity produced by CFE in dispatching electricity into Mexico’s grid.

In an effort to match the preceding two paragraphs, electricity produced by CFE could fall under the category of “domestic products” to claim a breach of Mexico’s obligation to provide equality of competitive conditions for U.S.-produced energy by means of the Law. Indeed, the consultations request state that Mexico “…failed to accord national treatment to U.S. goods…” according to Article III of the GATT and does list a number of provisions of the Law. ⁶

III. Object and Effects of the Law

The intention behind Article III of the GATT “…to treat the imported products in the same way as the like domestic products once they had been cleared through customs” ⁷, as explained by the WTO jurisprudence, is straightforward.

But the disparity between imported and domestic products is far from being the object or effects of the first Relevant Measure. The Law is actually aimed at prioritizing electricity produced by CFE over any competitors, either foreign or domestic, pursuant to the reasoning document of the Law’s amendment as of 2021. ⁸ This document calls on deepening the changes already made by the federal administration to strengthen CFE. It is loaded with rhetoric alluding to the interest of the Mexican nation, a low tariffs commitment with its people, and national security.

The effects of this rhetoric are reflected in the electricity dispatch order introduced by the amendments to the Law. The priority of electricity dispatch thus starts with energy produced by hydropower plants. The plants of CFE come next. Combined cycle by private companies, without distinction of nationality, are in fourth place at the end.

Further, the consultation request stresses that the grid operator (CENACE) is entitled to determine the allocation and dispatch of electricity “… based on broad, undefined criteria …” under specific articles of the Law. ⁹ The request fails, however, to acknowledge that none of such criteria is the nationality of the corresponding power plant, but dispatch security and the grid’s reliability, quality and continuity.

IV. Conclusions

Rather than the alleged discrimination between U.S. and domestic goods, the subject matter of the consultations on the Law, as amended, should be the relationship between the undertakings that sell goods or services of the same kind at the same time, that is, competition among all power plants and especially the State intervention through CFE and CENACE.

A regimen of “free” competition has been set forth in the Law since the outset. But, the “free” qualifier gives the hint of a misunderstanding or partial view of competition. In fact, the Law emphasizes competition criteria within different business units of CFE instead of the relationship between this state-owned electrical utility, CENACE, and private power plants, either foreign or domestic. ¹⁰

Despite the shortcomings of the Law, Mexico’s Competition Agency (COFECE) implied that the constitutional framework granted any power station free access to the grid to compete in equal conditions. In its opinion on the bill to amend the Law, COFECE asserted that such proposal would cancel competition in the electricity generation and supply by means of unduly favoring CFE to the detriment of other power plants. These arguments focused on the harmful effects on competition and CENACE’s legal obligation to determine the allocation and dispatch of power plants based on their economic efficiency.¹¹

In view of the adverse effects of a monopoly on competition, State intervention tends to be specifically regulated. In the case of the Treaty, a whole chapter governs state-owned enterprises and designated monopolies. A separate analysis of such chapter among others, vis-à-vis, the Law may clarify its inconsistencies with the Treaty.

NOTAS:
1 The consultations request was made under articles 31.2 and 31.4 of the Treaty.
2 The full text of the consultations may be found in the web site ustr.gov (https://ustr.gov/sites/default/files/US%20Cons%20Req%20Mexico%20energy_072022.pdf).
3 I.e., it makes Article III of the GATT 1994 part of the Treaty, including its interpretative notes, mutatis mutandis. The rounds of trade negotiations of GATT are identified by the corresponding place and year. The Uruguay Round was dated as of 1994 covering almost the entire range of trade issues at that time.
4 See the web site wto.org (https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm).
5 WTO ANALYTICAL INDEX GATT 1994 – Article III (Jurisprudence), p. 6.
6 See the consultations request, p. 2.
7 WTO ANALYTICAL INDEX GATT 1994 – Article III (Jurisprudence), p. 6.
8 See Exposición de motivos at http://archivos.diputados.gob.mx/portalHCD/archivo/INICIATIVA_PREFERENTE_01FEB21.pdf, p. VIII.
9 See the consultations request, p. 1.
10 See article 4 and section II of the fourth transitory article of the Law.
11 See the opinion of COFECE on the bill to amend the Law at https://www.cofece.mx/CFCResoluciones/docs/Opiniones/V173/9/5363212.pdf, p. 3.

Formación electrónica: Yuri López Bustillos, BJV
Incorporación a la plataforma OJS, Revistas del IIJ: Ignacio Trujillo Guerrero