Recent Trade & Tariff Perspectives

September 21, 2022  |  Carlos Banda  Manager, Account Management

aerial view of container ship being guided out to sea 
What’s the Latest on the Southern Border—An Update on Trade and Transportation Facilitation

Recent developments for our neighboring country to the south warrant a closer review. From the dispute settlements the United States and Canada have initiated with Mexico, to the introduction of a new program intended to streamline import and export transactions along the U.S. and Mexico border—read on to understand the effects these changes can have on your supply chain and identify the steps you should consider now to mitigate risk and maximize cost-savings opportunities.

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Dispute settlement initiated under the United States–Mexico–Canada Agreement

The United States and Canada have initiated dispute settlement consultations with Mexico under the United States–Mexico–Canada Agreement (USMCA). The parties have begun what could be a lengthy process of consultations and formal panel proceedings under chapter 31 (Dispute Settlement) of the trade agreement.

If Mexico is found to be in violation of the terms of USMCA, and the parties are unable to come to a resolution, the United States and Canada would be allowed to suspend the application of benefits to Mexico, which could result in the imposition of retaliatory tariffs.

The consultations relate to measures taken by the Mexican government that affect the interests of the U.S. and Canadian energy sector in favor of the Mexican state-owned utility, Comisión Federal de Electricidad (CFE), and oil and gas company, PEMEX.

Mexican Congress’ Energy Reform: A closer look

In 2013, the Mexican Congress passed an Energy Reform, allowing foreign investment into the energy sector, which had been heavily regulated for decades. In 2018, the political landscape in Mexico changed with the election of a new president.

During the transition of the new government, representatives from existing and incoming administrations jointly participated in the final rounds of USMCA negotiations. The new government requested that specific wording be included into Chapter 8 (Recognition of Mexican Ownership of Hydrocarbons), indicating that Mexico retains the right to reform its legal regime and maintains ownership of its hydrocarbons. This wording is now at the center of the dispute.

Since the new administration took office, Mexico has pursued changes in its energy policy. In 2021, Mexico amended the Electric Power Industry Law in order to prioritize CFE-generated electricity over that of private competitors. Mexico also blocked companies from operating renewable energies and restricted the import of electricity and fuel as permitted in 2013 legislation. Most recently in 2022, the government required that national gas operator, Centro Nacional del Control del Gas (CENEGAS), demonstrate that natural gas was sourced specifically from PEMEX.

Potential implications for U.S. and Canadian companies based on dispute

The dispute may have important implications in the North American energy sector. The USMCA’s rules of procedure allow a panel to consider written views submitted by non-government entities during the dispute.

It will be interesting to see if Canadian and American companies participate, given their economic interests in the matter. If no agreement is reached and the United States and Canada impose retaliatory tariffs, these can be imposed on any product exported from Mexico. This could have an impact on many U.S. and Canadian supply chains and total landed cost.

For now, the parties have until October 3, 2022, to resolve this matter through consultations. This week, U.S. Secretary of State John Blinken met with Mexican President Andrés Manuel López Obrador and this topic was most likely on the agenda, given the comments made the following day by the Mexican president during his daily news conference.

Streamlining border transportation crossings on the Southern Border

Mexican authorities rolled out the Aviso de Cruce (AVC) program on August 1, 2022. The program is intended to replace the Documento de Operacion para Despacho Aduanero (DODA) and Proyecto de Integración Tecnológica Aduanera (PITA) options. The program’s objective is to streamline import and export transactions along the U.S. and Mexico border by linking cargo manifests to a transport vehicle using RFID tags.

However, the rollout of the program has not gone smoothly. The two agencies involved—Servicio de Administración Tributaria (SAT) and Agencia Nacional de Aduanas (ANAM)—were initially not sharing complete information via their systems. This caused major problems along the border because transactions were not being matched in the SAT system, the system responsible for revenue collection. Until both agencies are able to coordinate further for a streamlined implementation, the implementation of this program has been placed on hold until further notice.

Stay informed on developments

C.H. Robinson continues to closely monitor all the latest developments. Subscribe to our Client Advisories and Trade and Tariff Insights to be notified when changes take place. Connect with one of our trade policy experts to learn more.

Our information is compiled from a number of sources that to the best of our knowledge are accurate and correct. It is always the intent of our company to present accurate information. C.H. Robinson accepts no liability or responsibility for the information published herein.

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