Energy Central-News Article

(Adds statements by Mexico's Secretary of Economy)

By Jarrett Renshaw and David Lawder

Mar 27 (Reuters) - President Joe Biden's administration plans to send Mexico an ultimatum in the coming weeks, seeking to break the stalemate in an energy trade dispute, as there are more bipartisan calls for the United States to toughen its position, according to sources familiar with the discussions.

The move would represent a significant escalation in the already tense relationship between Biden and his Mexican counterpart, Andres Manuel Lopez Obrador.

Lopez Obrador's decision to backtrack on reforms aimed at opening Mexico's electricity and oil markets to outside competitors triggered the trade dispute.

The Office of the U.S. Trade Representative is expected to make what was described as a "final offer" to Mexico's negotiators to open its markets and accept greater oversight, three people familiar with the talks told Reuters.

Otherwise, Washington will request an independent dispute settlement panel under the U.S.-Mexico-Canada Agreement, or TMEC, they said.

The United States and Canada requested dispute settlement talks with Mexico in July, 250 days ago. Under TMEC rules, after 75 days without a resolution, they are free to request a dispute settlement panel, in which a third party decides the case.

At an event later Monday, Mexico's Economy Secretary Raquel Buenrostro said the United States has the right to convene a panel since Oct. 3.

If the panel rules against Mexico and Mexico fails to take corrective action, Washington and Ottawa could ultimately impose billions of dollars in retaliatory tariffs on Mexican goods.

The White House had hoped to avoid escalating trade tensions with Mexico while seeking help on immigration and drug trafficking, but months of talks have borne little fruit and the administration has run out of less belligerent options, the sources told Reuters.

Raising the stakes in the dispute carries significant risk for Biden, who is expected to launch his re-election campaign in the coming weeks and face Republican criticism over his handling of immigration and drug trafficking.

Biden needs Mexico's help in controlling the border after COVID-era restrictions were lifted on May 11.

A U.S. official acknowledged growing frustration with the lack of progress in the talks. "We want to see clear progress on this issue and address the concerns that have been raised by our negotiating teams," said the official, who did not want his name mentioned because the discussions were private.

A USTR spokesman declined to comment on the energy consultations with Mexico, but Trade Representative Katherine Tai hinted at a possible escalation during a Senate Finance Committee hearing Thursday when asked about the talks.

"We are working with Mexico on specific, concrete steps that Mexico should take to address the concerns laid out in our request for consultations. This is a very live issue," Tai stated.

"We know that all the tools in the USMCA are there for a reason," he added.

U.S. oil companies such as Chevron and Marathon Petroleum, along with solar and wind energy companies, have had trouble obtaining permits to operate in Mexico in recent years.

Buenrostro said the challenges of transitioning to renewable energy and connecting those projects to the grid were at the heart of the problem.

"It wasn't that it was indiscriminate, but that it took time to connect renewables, that's a technical issue," he said, adding that investments were being made in electricity distribution to address the difficulties.

The potential move by the Biden administration comes just weeks after the USTR escalated another trade dispute with Mexico over its plans to ban genetically modified corn for human consumption, requesting formal consultations.

The energy dispute constitutes a step forward under the T-MEC enforcement mechanism. (Reporting by Jarrett Renshaw and David Lawder; additional reporting by Tim Gardner and Dave Graham Edited in Spanish by Javier Lopez de Lerida, Marion Giraldo and Lizbeth Diaz)