Mexico threatens legal action on US electric vehicle subsidy

Dec 2, 2021, 1:14 PM | Updated: 1:16 pm

MEXICO CITY (AP) — The Mexican government threatened legal action Thursday over provisions of U.S. President Joe Biden’s Build Back Better Act that would give subsidies of up to $12,500 for purchases of union-made, American-made electric vehicles.

Tatiana Clouthier, Mexico’s secretary of the economy, said the bill currently before the U.S. Senate would violate non-discrimination clauses of the U.S.-Mexico-Canada free trade pact.

Clouthier said the measure would discriminate against potential exports of Mexican-built electrical vehicles and favor domestic producers, something she said is forbidden under the USMCA pact.

“We would apply trade reprisals,” Clouthier said, apparently referring to possible tariffs. “This bill is not consistent with the U.S. obligations under the TMC and the rules of World Trade Organization.”

Mexico’s auto industry, made up of plants run by most of the U.S., European and Asian automakers, has been battered by the worldwide chip shortage and the coronavirus pandemic.

Clouthier said the Senate bill could cost Mexico jobs and “could generate additional pressures for migration.”

The bill is expected to come up for a vote in the Senate in mid-December. According to a White House statement, “the framework’s electric vehicle tax credit will lower the cost of an electric vehicle that is made in America with American materials and union labor by $12,500 for a middle-class family.”

It was the latest trade flashpoint between the two countries. The United States is concerned Mexico is trying to favor its own state-owned electrical power plants.

In November, U.S. ambassador to Mexico Ken Salazar said the United States has “serious concerns” about the Mexican government’s attempts to limit competition in the electrical power sector.

Mexican President Andrés Manuel López Obrador proposed constitutional changes earlier this year to restrict the market share of private power generators and favor Mexico’s state-owned utility company.

In a letter to Salazar in October, about 20 Texas congressmen and senators said López Obrador’s proposal would “discriminate against American energy producers.”

The bill that López Obrador submitted in October would cancel contracts under which 34 private plants sell power into the national grid. The plan would also declare “illegal” an additional 239 private plants that sell energy directly to corporate clients in Mexico. Almost all of those plants are run with renewable energy sources or natural gas.

The measure also would cancel many long-term energy supply contracts and clean-energy preferential buying programs, often affecting foreign companies.

It puts private natural gas plants almost last in line — ahead of only government coal-fired plants — for rights to sell electricity into the grid, despite the fact they produce power about 24% more cheaply. Government-run plants that burn dirty fuel oil would have preference over private wind and solar plants.

The plan guarantees the government electrical utility a market share of “at least” 54%, even though the U.S.-Mexico-Canada free trade pact prohibits favoring local or government businesses.

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Mexico threatens legal action on US electric vehicle subsidy