Garcia Sanchez on North American Energy Conflict

A North American energy trade war may be on the horizon, according to Texas A&M Associate Professor Guillermo Garcia Sanchez, an expert on international investment and energy law. Under President Lopez Obrador (AMLO) Mexico has begun to reverse its prior policy of opening its energy markets, and foreign investors are alleging unfair and discriminatory treatment. The Canadian and U.S. governments began consultation procedures with AMLO’s administration but, after seventy-five days, failed to settle the dispute. The exhaustion of the consultation period triggers the first step in the dispute resolution mechanism of the new United States-Mexico-Canada Agreement (USMCA), which could lead to the establishment of arbitral panels and the suspension of trade benefits to Mexico.

Canada and the United States’ objections mark the first time foreign powers have challenged Mexico’s energy policies since 1938, when Mexico expropriated foreign oil and gas companies. They also may mark the beginning of a regional trade conflict—in the midst of the Russian-Ukraine conflict, unsettled energy markets, and global inflation that has reached its highest levels since the 1970s. Professor Garcia Sanchez’s article, In the Name of Energy Sovereignty, is one of the first to unpack the USMCA’s energy-related provisions and its dispute resolution mechanisms, as well as its place in the global debate around energy transition and security. The article will be published in a forthcoming issue of the Boston College Law Review and the abstract is below.

Throughout history, the phrase “In the name of the King” justified actions that trumped the rights of citizens in order to safeguard the interests of the Crown. Today, in the name of energy sovereignty, States deploy the government apparatus to access oil and gas in other parts of the world, build pipelines on private lands, subsidize renewable energy, and nationalize their oil and power industries. States justify each of these actions by noting that they create a sense of energy independence, ensure security, or achieve other social and economic goals. Energy, however, cannot be trapped in one “realm.” Its nature is to move across human-created jurisdictions and settle, at least in the cases of oil and gas, in specific geological formations where extraction is not always economically feasible. Additionally, energy evolves with technology advancements and its production must adapt to new challenges, like that posed by the global climate crisis. Thus, an efficient and reliable energy sector that “secures” the State requires engagement with other foreign powers to regulate the trade and investment of energy and its sources. States, however, have created a web of often inconsistent treaties, reflecting competing and frequently contradictory energy policy goals. When disputes inevitably arise, arbitrators or committees must balance the parties competing energy goals.

This Article introduces the concept of energy sovereignty as a novel analytical framework to explain the fragmentation and inconsistencies in international energy governance. By introducing archetypical energy sovereignties, this Article provides a framework for interpreters of trade and investment agreements to balance the competing energy goals that are attached to the agreements. In doing so, this Article demonstrates how ignoring the complexities in the way States exercise their energy sovereignties can undermine integrated regional efforts to deal effectively with energy challenges like reducing carbon emissions or building a cost-effective and resilient energy matrix. This Article uses the United States-Mexico-Canada Agreement (USMCA), the latest North American international trade and investment agreement, to show how the archetypical energy sovereignties conflict with each other and how its dispute resolution mechanisms may balance them.