An Energy Showdown With Mexico

Her job is to deliver a message to President

Andrés Manuel López Obrador

that the U.S. is serious about enforcing the U.S.-Mexico-Canada trade agreement. If Mexico refuses to comply with its treaty obligations on energy, the Biden Administration will need to seek an arbitration panel that could lead to U.S. retaliation.

Mr. López Obrador cheered the USMCA while still President-elect in 2018. He likes U.S. market access for Mexico’s manufacturers. But he’s a leftwing nationalist who uses “sovereignty” as an excuse to protect state-owned electrical utility, the Comisión Federal de Electricidad (CFE), and state-owned oil and gas company, Petróleos Mexicanos (Pemex).

Mexican sovereignty has never been at risk under the USMCA, but Mr. López Obrador is discriminating against U.S.-produced energy, investors and service providers. Canada, also on the receiving end of discrimination, has joined the U.S. complaint.

Mexico has granted some permits to select U.S. energy concerns in the hopes of quieting American objections. But in many other cases it has been slow-walking or indefinitely delaying permits for power plants, paperwork for gasoline importers and approval of storage facilities while Pemex and CFE receive favorable bureaucratic treatment.

The 1993 North American Free Trade Agreement established legal certainty in trade and investment. The USMCA, an updated version of Nafta, retains the principle of equality under the law and the sanctity of contracts to attract capital, boost regional competitiveness, spur growth and reduce poverty.

Under the USMCA, a party may ask for arbitration 75 days after the start of dispute-settlement consultations. It’s been more than 130 days. The consultation process is secret so the public doesn’t know where things stand.

Ms. Buenrostro, who took the top economic job in October, may enjoy greater influence with Mr. López Obrador than her predecessor. She also may have better communication with the energy minister and the director of the state-owned electricity company. This could improve her chances of convincing her boss of the cost Mexico could pay if it goes to arbitration.

North America is facing a possible 2023 recession, and billions of dollars in U.S. and Canadian energy investment in Mexico are in limbo. If Mr. López Obrador thinks he can honor the parts of the USMCA he likes but disregard what is inconvenient, the Biden Administration has no reason to delay arbitration and a likely ruling against Mexico.