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The US and Mexican governments have temporarily halted progress on two trade disputes, much to the frustration of business leaders who value the importance of a regional trade pact. The delays are largely attributed to the upcoming presidential elections in both countries.
The recent talks between the US, Canada, and Mexico, held in Cancún, did little to resolve the ongoing disputes concerning Mexico’s nationalist energy policies and the United States’ protectionist motor industry rules. These disputes have been ongoing since 2021.
The US has failed to comply with a January panel decision under the US-Mexico-Canada trade agreement, known as the USMCA, which ruled in favor of Mexican and Canadian carmakers. However, Mexico has not lodged any complaints about the US’s failure to follow the ruling, while Washington has not pursued a dispute over Mexico’s nationalist energy policies, which support state-backed companies at the expense of North American competitors.
According to Claudia Ruiz Massieu, a Mexican opposition lawmaker who chairs the Senate committee for USMCA implementation, both the US and Mexican governments have decided to manage the tensions until after the two elections. She believes that this approach has weakened the USMCA.
Trade expert Luis de la Calle claims that the US is disregarding the panel decision on car parts, which determined that Washington was applying regional part production rules too strictly, due to pressures from unions such as the United Auto Workers. Mexico has not insisted on adherence to the ruling, as it has its own energy dispute.
The uncertainty surrounding these disputes has unsettled investors in a region that generates over $1 trillion in annual commerce through the three-year-old USMCA. This uncertainty could potentially harm the opportunity to attract more manufacturing investment in the region.
US President Joe Biden has made it a priority to gain cooperation from Mexican President Andrés Manuel López Obrador in reducing the influx of migrants from Latin America to the US. As a result, Biden’s government has been hesitant to criticize Mexico’s nationalist energy policies. Experts believe that without the migration issue, the US would be more aggressive in addressing the trade disputes.
The Office of the United States Trade Representative (USTR) and Mexico’s Economy Ministry did not provide any comments for this publication. USTR officials have previously stated that they are working with Mexico and Canada to find positive solutions that benefit all stakeholders in the automotive industry.
Despite the challenges, US officials highlight the success of the USMCA in protecting workers’ rights in Mexico. The three leaders met in January, and in recent months, both US and Canadian companies have secured permits and contracts in the energy sector.
The deadlock over energy supply and the motor sector is expected to continue until new governments are in place in 18 months. Mexico’s presidential and congressional elections are scheduled for June 2024, followed by the US elections in November. While the pact is not at risk of falling apart, any modifications to the USMCA will depend on the leaders elected in the US and Mexico.
US business groups and Mexico’s car and truck sector have expressed frustration over the lack of compliance, as it sets a bad precedent and undermines the pact’s legal certainty. It also poses a threat to the scheduled 2026 review of the USMCA.
According to Arturo Sarukhán, a former Mexican ambassador to the US, full implementation and enforcement of the USMCA are crucial for maintaining broad political support for the agreement. Failing to uphold its commitments or postponing action until after the presidential elections in Mexico and the US in 2024 will harm the agreement’s support in the long run.
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