President Andrés Manuel López Obrador is betting that the new trade agreement with the United States and Canada will provoke an avalanche of investments in Mexico that will help to get him out of the coronavirus crisis, but instead of celebrating the launch of the T-MEC on 1 With champagne in July, American, Canadian and European companies are filing local lawsuits to protect their investments, the Financial Times noted. Read Achieve Sener curb renewable energy in Mexico
The British newspaper said investors are also considering arbitration under the North American Free Trade Agreement (NAFTA) and other international treaties. The reason, he said, are the dramatic changes imposed by the federal government on the Mexican electricity market that, according to investors, put projects worth tens of billions of dollars at risk.
The measure puts the Energy Secretariat in place of the independent market operator in charge of deciding who can generate electricity. The government says it was an emergency measure due to the coronavirus crisis, but companies say it gives preference to CFE.
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“If you are thinking of opening a plant and investing fresh money, you probably will not do so in Mexico now,” said a former senior trade official. “These decisions will jeopardize the only part of the economy, export-related activity, which was working well. The rest of the economy is falling apart.”
The President describes Mexico as a land of opportunity and highlighted that 10.3 billion dollars of foreign investment flowed to Mexico in the first quarter, according to preliminary figures, an increase of 1.7 percent compared to the same period last year.
The newspaper said the amount actually fell 26 percent compared to the final number from January to March 2019 reported by Banco de México. Additionally, 76 percent of the total in the quarter came from companies that reinvested profits and only 22 percent were new investments, the publication noted.
Changing electricity rules overnight is the latest in a series of hostile decisions for investors by López Obrador, he said.
Earlier this year, López Obrador scrapped a partially built Constellation Brands plant after an informal consultation; last year, the government renegotiated pipeline contracts with private companies it called “exorbitant”; and as president-elect in 2018, he canceled a $ 13 billion Mexico City airport that was under construction.
“A country needs legal certainty and complies with contracts and regulations,” said Claudia Jañez, director for Latin America at DuPont and president of the Executive Council for Global Business in Mexico.
Despite the logistical opportunities that Mexico offers for supply chains to move from Asia due to trade tension between the United States and China, “they weren’t even going to come to Mexico last year without the pandemic … we find it more difficult to attract investment here, and that was before Covid, “he said.
Local courts have granted several injunctions against a first round of changes in the electricity market to limit the generation of renewable energy companies that were announced in late April, but the government responded with legal action of its own.
The companies are also considering suing Mexico under the T-MEC and other free trade agreements.
“We heard the president say ‘I have nothing against clean fuels’, but his actions say otherwise, they are saying that they need CFE to earn more and that private companies are less competitive,” said a senior executive at a private international power company.
“There is a very strong ideological vision: they want government control to use energy as a lever for development.”
Business leaders complain that the President meets with them, but he rarely takes their concerns into account. “The government’s capacity to listen is practically non-existent,” said a high-ranking businessman in Monterrey.
The newspaper noted that López Obrador has made it clear that he has no intention of reversing the changes that he says are “putting order” in the sector.
But by changing the rules overnight in the electricity sector, “he faces a strong case of indirect expropriation: he is not expropriating, but he is changing the rules so that, in essence, he no longer has a viable business,” said the former official.
International arbitration under Mexico’s free trade agreements continued to be a “last resort,” according to Daniel Sánchez, a partner at the Baker McKenzie law firm.
But he added: “There cannot be a single foreign investor who is not afraid every time he wants to do a project in Mexico because they know that there is no stability in the rules.”