Energy, corn and unions: Mexico’s pending issues four years after the USMCA

Mexico has found in the USMCA a key piece for its economic and industrial growth. The second phase of the regional agreement in North America, signed on July 1, 2020, has left undeniable benefits for the Mexican economy: record figures in exports and in attracting foreign direct investment, just to mention a few. However, the balance also poses a future challenge in terms of labor, energy and agriculture. The internal policies of the López Obrador government in energy and the veto on transgenic corn are some examples of the red flags that will test the negotiating spirit of the United States, Mexico and Canada in the coming months.

On July 1, 2024, the three signatory countries assumed that the entry into force of the USMCA – the second version of the Free Trade Agreement signed in 1994 – would mark a historic day for the integration of global production chains and a turning point to turn Mexico into a cutting-edge export center. Some of the predictions came true. In 2023, the United States imported more goods and services from Mexico than from any other country in the world, displacing China for the first time in 21 years. Mexican exports to its northern neighbor totaled $475.606 billion last year, an increase of 4.6% compared to 2022, according to official data. In the balance of these four years, experts agree that the impact of the trade agreement in favor of Mexico is undeniable, mainly in the automotive, electronics and manufacturing sectors.

“The four years of the USMCA are the latest link in a history of commercial success that began 30 years ago, when NAFTA came into force. We are facing a very successful trade agreement, of course favoring the regions or the federal entities, particularly in the northern and Bajío areas of our country, the automotive, electronic, textile and, I would say, maquiladora sectors, and particularly the companies that became direct and indirect suppliers to the United States market, that is, the final exporters and the companies that are suppliers of those exporters to the rest of the world, but particularly to the United States and of course also to Canada,” says Pedro Tello, an expert on industrial issues.

Tello acknowledges that the next review of the agreement, scheduled for 2026, will be tough for the three countries given the high-level differences between the three countries in terms of energy and agriculture and that the next Government of Claudia Sheinbaum will have to resolve. “We will have to see what decision the Sheinbaum Government makes, particularly, on the weight that Pemex and the CFE will have in the definition of energy policy. That is a very important first question. Second, what will happen with the famous transgenic corn and, third, which I also find very relevant is the disappearance of autonomous bodies that are proposed as part of the pending reforms to be analyzed by the Congress that will come into office in September, so we are facing an agenda, before the review of the USMCA, already marked by several points of friction and that will not be exempt from the incorporation of more issues depending on how the business environment is perceived in the three countries,” he concludes.

Raymundo Tenorio, professor emeritus at the TEC de Monterrey, refers to the updating of the rules of origin as one of the main milestones for Mexico, a change that favored the industrial goods that the Latin American country exports the most to the United States, mainly in the automotive, manufacturing and electronics industries. On the other hand, the Mexican government has not come out well in the face of around twenty labor complaints against companies based in the country for alleged violations of union freedom. “The unions practically from the United States pressured their government because in subsidiaries of American companies in Mexico the conditions of the negotiations between workers and employers have not been respected and this has been due to a deficiency of the country’s Labor Secretariat in not paying attention to these complaints,” he comments.

For Tenorio, there is little chance that Mexico will win against the US in the electricity dispute or in the panel to defend the veto on genetically modified corn, one of the main products imported by US fields to Latin American territory. The specialist details that the United States has strong arguments to win the energy battle against Mexico by exposing the elimination of clean energy certificates and having undermined the autonomous nature of the Energy Regulatory Commission and limiting the electricity market under the figure of self-supply, one of the most attractive schemes for private initiative to generate its own electricity and thus reduce its costs.

The USMCA went into effect four years ago and will be reviewed in 2026 under new governments in both Mexico and the US. Experts admit that despite the juicy benefits that the USMCA has brought to the three countries, the issues still to be resolved on the board could still tip the balance to the detriment of one of the three countries.

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