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Canada sees possible USMCA panel despite headway

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11 May 2023, Canada: Canada has not ruled out panel arbitration over Mexico’s energy policy — subject to consultations under the US-Mexico-Canada free trade agreement (USMCA) — but talks continue to be productive.

Economy minister and lead negotiator Raquel Buenrostro told reporters this week that Canada “did not see the possibility of going to a panel” and was “very happy with talks.”

But while talks continue to be useful, no deadlines have been set and the three countries are trying to move together at the same speed, a source with direct knowledge of the talks told Argus. Canada has not ruled out a panel resolution, the source said.

The US and Canadian complaints, filed in July, center on Mexico’s attempts to dial back the 2014 energy reform over the last three years with laws to curtail private-sector renewable energy development and prioritize CFE power dispatch. The US complaint also addresses an attempt to nationalize natural gas supply under gas transport contracts.

Negotiations have dragged on since an initial consultation period was extended by mutual agreement on 4 October but US companies and trade representatives have urged for an acceleration in the resolution.

If the countries fail to reach an agreement during the consultation phase, the complaint will be heard by a panel of experts drawn from a pre-agreed list that will have around six months to come to a resolution.

Mexico is unlikely to win its case, lawyers have said, as the USMCA clearly establishes a level playing field for all market participants. Damages in the form of retaliatory tariffs could extend to $40bn, while a decision against Mexico would also open the door to investor-state action and further chill already weakened foreign direct investment.

The drawn-out consultations continue to weigh on investment in Mexico’s energy sector, putting the commercial relationship among the three countries at risk, Fitch Ratings said previously.

While foreign direct investment into Mexico saw a 12pc bump last year to $35bn, investment into the energy sector has continued to decline since 2019, down from $1.62bn to $584mn in 2021, according to the latest data from the finance ministry.

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