Biden win would bring heat to Mexico’s energy sector

A Joe Biden US presidency would lower border tensions and raise pressure on Mexico to respect US business interests as the two neighbours implement a trade deal designed to claw back jobs from China, officials and industry sources say.

On November 3, Biden aims to unseat President Donald Trump, who has stirred up tensions with Mexico over trade and border security ever since he referred to Mexican migrants as rapists and drug runners at the outset of his 2015/2016 presidential bid.

Still, since taking office in late 2018, Mexican President Andrés Manuel López Obrador has forged an uneasy alliance with Trump, acceding to his demands to keep out illegal immigrants in return for a relatively free hand in Mexico to interfere with foreign businesses, many of whom are planning litigation.

If victorious, Biden would face political and corporate pressure to curb López Obrador’s efforts to sideline private firms in Mexico’s energy sector, and to ensure its government honours commitments to strengthen labour laws to make outsourcing American jobs tougher, a priority for US trade unions.

“I think Biden will be able to tell Mexico to make sure we abide by the rule of law if you have any contracts with energy or whatever,” said Henry Cuellar, a Democratic congressman who chairs the US-Mexico Interparliamentary Group.

Cuellar, a staunch ally of Mexico in its efforts to stop Trump tearing up the 1994 North American Free Trade Agreement (Nafta), said Biden would be firm in adhering to joint accords, but much more actively engaged with the Mexican government.

The former US vice-president’s desire to salve diplomatic bruises of the past four years has many politicians in both countries looking forward to a relationship free of the blame games and brinkmanship Trump often deployed to get his way.

Business leaders expect Biden to govern in a more rules-based way than Trump, whose clashes with US courts mirror some of López Obrador’s own battles with checks on his power.

Advocating a more “humane” approach to migration, Biden says he aims to combat the poverty and violence behind it, just as he did in 2014 as Barack Obama’s vice-president when he spearheaded a major infrastructure plan to lift Central American economies. This would dovetail with López Obrador’s attitude in his own election campaign, before Trump threatened to hammer Mexico with trade tariffs if it did not stop the migrants.

Mexico’s government also knows Biden would not want to face a sudden influx of migrants crossing Mexico via Guatemala, said a Mexican official, speaking on condition of anonymity.

“[Mexico] won’t be withdrawing its national guard from the southern border the day Biden takes office,” said the official, expressing hope that the Democrat wins the election.

The Biden campaign did not respond to requests for comment.

Investor certainty

The pathway to co-operation on the economy is more fraught.

Billions of dollars worth of energy sector projects, particularly in renewables, have been held up by López Obrador, who argues that past governments rigged the power market to favour private companies at the public’s expense.

This arbitrary use of power was unacceptable for a Mexican government that had just renewed its trade vows with Washington under the US-Mexico-Canada Agreement (USMCA), the deal replacing Nafta a senior US industry source said.

“Companies are watching the [Mexican] energy sector as the proverbial canary in the coal mine on the general investment climate,” said the source, speaking on condition of anonymity to avoid publicly taking sides in the US election.

Investors contend the Mexican government’s steps are discriminatory under protections enshrined in USMCA and Nafta, under which claims can still be filed until 2023.

“[Businesses] will be advocating very strongly with the Biden administration that the obligations of the USMCA be the starting point with which to engage Mexico,” the source added, noting that Trump had done little to hold Mexico to account.

The Mexican president has said repeatedly he will defend the primacy of the state in its disputes with energy investors, and it is unclear how flexible he may be.

Mexican officials believe Biden is unlikely to use migration as a bargaining chip over trade access as Trump did.

However, potentially costly arbitration disputes loom.

Some energy investors have already begun litigation and many others plan to sue Mexico once the US election is over, according to five officials, lawyers and industry sources familiar with deliberations.

López Obrador has signaled willingness to negotiate with investors, much as he did in a dispute over gas pipelines last year. The Mexican official said that, provided he could claim a political victory, some kind of compromise should emerge.

The energy disputes have hurt investment, helping tip Mexico into recession even before the coronavirus pandemic deepened the downturn. López Obrador hopes the USMCA will help dig Mexico out of the economic rut, and lure industrial capacity back from China to strengthen regional supply chains.

For that to happen, companies must be able to rely on Mexico to respect investments, so pressure from Biden would be welcome, said Emilio Cadena, a former head of Mexican manufacturing export industry group Index. “It won’t be easy, and they’re going to demand a lot from us,” he said. “I’m all in favour of it. Because it will move us all towards greater legal certainty and more competitiveness.” 

Reuters