AMLO’s Oil Stand Keeping U.S., Mexico From Nafta Agreement

(Bloomberg) -- The incoming Mexican administration’s split with the current leadership over opening up the oil and gas sector for investment is emerging as a key hurdle for a bilateral agreement over Nafta, according to two people familiar with negotiations.

President-elect Andres Manuel Lopez Obrador’s Nafta representative, Jesus Seade, has asked the Trump administration to address concerns that U.S.-proposed language in the new Nafta deal would put too many restrictions on how they can treat foreign companies looking to tap the nation’s crude, according to the people, who asked not to be named discussing private negotiations.

U.S. Trade Representative Robert Lighthizer has pushed back, and Seade has been shuttling back and forth between Washington and Mexico City to try to smooth out the issues, according to the people.

While Mexican President Enrique Pena Nieto’s government is officially in charge of the negotiation, any Nafta deal will need Lopez Obrador’s support because it needs to pass a Mexican Senate controlled by his allies. Also, it will up to his government to implement the new deal after he’s sworn in as president on Dec. 1.

Lopez Obrador in 2013 and 2014 helped lead resistance to the oil-industry opening, a highlight of Pena Nieto’s administration, calling the lawmakers who approved it traitors for giving away the nation’s resources to foreigners. Mexico last month delayed the award of new contracts under the oil-industry opening until Lopez Obrador’s team has an opportunity to review them for any signs of corruption.

Trade Talks

The peso initially erased its advance following the report and traded 0.6 percent higher at 18.9005 per dollar on Friday afternoon. It had gained as much as 1.2 percent in the morning

Seade on Thursday night rejected the idea that the energy issue has become controversial, but said that adjustments need to be made in the Nafta deal language to reflect Mexican sovereignty and rights regarding hydrocarbons in a way that isn’t confusing.

“It’s not about not touching the energy reform, but it’s touching it in the right way,” Seade told reporters in Mexico City late Thursday. “The U.S. has had this drafted up to the last comma for some time, so if you change a single comma, then it needs to be discussed. But we’re discussing it, and this is going to come out OK."

Nafta talks are poised to spill into next week, pushing up against the goal for a deal by the end of the month, as the U.S. and Mexico work out their issues before Canada is expected to rejoin the talks.

When that would be remains unclear -- Canada’s foreign minister, Chrystia Freeland, announced Friday that she’ll travel to Europe for a series of bilateral meetings Aug. 26-30, raising a question of how soon she’d be able to rejoin any talks. For the past five weeks, the talks between the U.S. and Mexico have largely focused on narrowing differences over the rules governing auto production in North America.

While President Donald Trump has floated the idea of negotiating bilateral trade accords starting with Mexico, his Nafta partners have both said they want to keep a trilateral deal.

Asked about the energy issue when he left USTR headquarters Friday afternoon following a meeting of more than three hours, Mexican Economy Minister Ildefonso Guajardo said that the current and incoming administrations are working as one. Seade visited USTR alone Tuesday afternoon and returned with Guajardo’s team Wednesday, leaving before them to catch a flight back to Mexico City.

Lighthizer’s media office didn’t return an e-mail and voicemail seeking comment.

Delayed Auctions

Guajardo said that he and Mexican Foreign Minister Luis Videgaray will stay in Washington and work over the weekend in their push to resolve bilateral issues with the U.S.

Lopez Obrador’s team "is not against investors, it is in favor of making it so that Mexico can develop its energy industry as it wishes, with private or public investment," Jesus Ramirez, a spokesman for Lopez Obrador, said.

Seade said Thursday that he thinks it should be possible for Canada to return to negotiations in Washington next week even if the U.S. and Mexico need to continue to work on their bilateral differences at the same time.

Mexico last month delayed this year’s auctions for new oil blocks until February next year, when Lopez Obrador will have the opportunity to review them for signs of corruption.

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