A “Mexico First” Policy

In her Wall Street Journal column Mary Anastasia O’Grady calls attention to a development which is a bit disquieting. Mexico is apparently moving to reassert state control over its energy sector, potentially reversing 40 years of policy:

A state takeover of the entire electricity market and the end of an independent regulator makes no sense in a developing country that needs competition to ensure plentiful and cheap electricity for manufacturing. But AMLO’s new law isn’t about enhancing electric power. It’s about consolidating state power—via its companies, the CFE and Petróleos Mexicanos (Pemex).

Writing in the newspaper Milenio last week, Mexican legal scholar Sergio López Ayllón warned that under the reform the CFE “acquires constitutional autonomy, an unprecedented condition with enormous legal and economic consequences.” Mr. López Ayllón didn’t stipulate what those consequences might be. But it’s clear that by giving the CFE, which has long wrestled with corruption, constitutionally mandated control over the nation’s supply and pricing of this valuable commodity, Mexico would dangerously centralize political and economic power in the state-owned company.

There’s an estimated $45 billion in private capital—foreign and domestic—in Mexico that will be affected by this new law. Notably, it will cancel all permits and long-term power-purchase agreements with the CFE—which were necessary to secure financing.

AMLO’s initiative also destroys the nascent wind and solar industry. But he’s focused on helping Pemex unload its high-sulfur fuel oil, which is difficult to convert into revenue in the market. Greater use of CFE fuel-oil-powered plants implies rising pollution and emissions when cheaper and cleaner options are readily available.

The bill violates the U.S.-Mexico-Canada Agreement—formerly Nafta—as it abrogates contracts, capriciously strips investors of value, eliminates market-based competition, discriminates against private capital, cancels access to activities not reserved as exclusive in the agreement, and eliminates independent regulators, including in hydrocarbons. It also contravenes environmental commitments. As the seizure of the terminals demonstrates, for investors there’s more where that came from.

My reaction to this was how surprised should we be that the same stimuli produce the same responses in different countries? Trump’s policies didn’t materialize out of thin air—they were a political response to events as are President Xi’s actions in China and AMLO’s in Mexico. What is becoming increasinly apparent is that President Biden, regardless of his campaign rhetoric, is being driven willy-nilly into adopting policies more like those of President Trump than either he or his supporters imagined.