Navigating Energy Litigation in Mexico Under the USMCA
In this Expert Focus podcast, partner Carlos de Maria y Campos and senior associate Santiago Oñate from Galicia Abogados, discuss the significant impacts of the United States-Mexico-Canada Agreement (USMCA) on Mexico’s energy sector. Their conversation sheds light on recent government policies, ensuing litigation, and the broader implications for investment in Mexico.
Attempted State Control of the Energy Sector in Mexico
Carlos begins by describing the Mexican government’s recent inclination toward state control over the energy sector, diverging from constitutional principles that endorse free competition and prohibit state monopolies. This shift has been implemented through regulatory measures and legislative changes, which predominantly aim to curtail the participation of private, especially renewable energy companies, thereby reinforcing the state-owned utility’s monopolistic market position. These changes have severely restricted private energy producers from connecting to the national grid, affecting both investors and consumers who require clean energy credentials for their products.
Legal challenges against these measures were inevitable. Carlos illustrates how the government’s amendment to the Power Industry Law, advocating for state-run power plants to be prioritised over cheaper, cleaner alternatives, blatantly contravenes free competition principles. This prompted significant backlash from the market, leading to a series of legal disputes aimed at defending constitutional integrity and ensuring fair competition.
“The Mexican legal system was seriously tested by these proceedings, because the executive tried to influence the decision. But the courts reacted both professionally and bravely, rejecting almost 100% of these measures.”
The judiciary’s response to these disputes underscores a robust checks and balances system in Mexico, where courts have acted independently and decisively. Carlos highlights that the courts have almost unanimously declared the contentious measures unconstitutional, preserving the legal framework and reassuring international investors about the reliability of Mexico’s legal system against governmental overreach.
NAFTA v the USMCA
Transitioning to international relations, Carlos mentions how these government actions have potentially breached investment protection agreements under the USMCA, prompting a formal consultation process by the United States and Canada. This aspect segues into Santiago’s discussion on the differences between investment protections under NAFTA and the USMCA. Santiago points out that the USMCA introduces a more nuanced investment protection framework, which, unlike NAFTA, does not include Canada. This shift has significant implications for how Canadian investors seek redress and protection under international treaties.
“These government actions, which were declared unconstitutional, also resulted in breaches to the USMCA trade agreement, triggering a consultation process by the United States and Canada.”
Santiago also touches on the historical context of investment disputes under NAFTA, revealing no consistent pattern in the types of cases brought against Mexico. Looking forward, he suggests that while there has been a noticeable restraint in the initiation of investment arbitrations due to effective judicial protections, recent policies could still incite specific disputes, particularly concerning energy reforms.
In conclusion, the podcast provides a comprehensive analysis of how the USMCA influences energy litigation in Mexico, highlighting the ongoing tension between national policies and international commitments. Both Carlos and Santiago underscore the importance of a resilient legal system and the evolving landscape of international investment in Mexico.
Galicia Abogados
