The Supreme Court buries the reform of López Obrador's Electrical Industry Law

Minister Alberto Pérez Dayán during an opening session of the work of the Supreme Court of Justice of the Nation. Moisés Pablo Nava (CUARTOSCURO)

The reform to the Electrical Industry Law (LIE), an initiative of President Andrés Manuel López Obrador designed to exclude private investors in the sector, was declared unconstitutional this Wednesday by the Supreme Court of Justice of the Nation (CSJN).

Two ministers voted against and two in favor of an amparo that argued that the law had effects on the environment, violating the Constitution.

Since one of the ministers who voted in favor of the amparo was the presiding minister, his casting vote broke the tie.

The reform limited the participation of the private sector to guarantee a dominant position in the market for the State company, the Federal Electricity Commission (CFE), and was approved by Congress in March 2021. Its approval was the trigger that led to the governments of the United States and Canada to initiate proceedings against Mexico within the framework of the free trade agreement, TMEC, which remain open.

On the other hand, the affected companies presented various protections.

This temporarily suspended the effects of the law until it was definitively ruled, so it was never applied.

With Wednesday's vote, chaired by Minister Alberto Pérez Dayán, the LIE is buried and trade tensions with the United States are softened, says Oscar Ocampo, analyst and researcher at the Mexican Institute for Competitiveness (IMCO).

“The most important implications of this ruling will occur in the TMEC because what was dropped today was a law that was never implemented,” explains the analyst.

In its case against Mexico, the United States points out that the country violates the USMCA in four ways: by not granting operating permits to private companies;

by concentrating fuel imports in state companies;

by allowing the state company Petróleos Mexicanos (Pemex) to use more polluting fuels than those private companies can use;

and by offering an advantage to state companies through the LIE.

During the consultation process that is still in force in the dispute, some permits and licenses have been released, explains Ocampo, “among the biggest points that were demanding of us the most difficult to address the reform of the LIE, because politically it was unfeasible for López “Obrador will send legislation to Congress that would reverse those changes.”

“The only way out was the Court and now, having overthrown the LIE, there is only the accusation of the permits, something that the Government could resolve tactically,” says Ocampo, “so Mexico has greater chips to negotiate with the Americans.

“This is a very important step to begin to resolve consultations in the energy sector.”

Ocampo believes that the ruling reduces the chances of the dispute reaching a dispute panel.

The energy sector is not the only one in which the US accuses Mexico of violating the trade agreement.

Based on a partial ban on the import of genetically modified corn, which the United States sells to Mexico, the White House began a consultation process within the framework of the USMCA.

In this case, President Joe Biden lost patience and escalated to request the intervention of a panel.

If it rules against Mexico, the country may be subject to tariffs or arbitrations with the affected companies.

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