WASHINGTON – The United States-Mexico-Canada Agreement (USMCA), which has been in effect since July 1, 2020, is scheduled for a key review in July 2026, with preliminary discussions anticipated to commence as early as 4Q25. This agreement, which superseded NAFTA, has significantly reshaped North American trade, particularly impacting the energy sector with a focus on electricity.

As the member countries approach this review, they face the decision of whether to extend the agreement or initiate annual reviews, amidst differing policy goals and shifting dynamics in energy and supply chains. Tensions in the electricity sector are expected to persist as the United States aims to protect investments and enhance market access, while Mexico asserts its energy sovereignty.

Electricity is a strategic sector, critical not only to energy infrastructure projects but also to energy-intensive industries such as manufacturing, automotive, steel, and cement. The tactical nature of electricity regulation, driven by Mexico’s industrial footprint, and the physical and financial energy constraints that currently limit regional supply chain efficiency, should strengthen the priority for discussions.

Political Shifts and Policy Alignments

“Electricity acts as one of the most strategic and critical aspects of a growing economy.”

Since 2020, shifts in the political landscape on both sides of the border have occurred.The alignment of President Donald Trump’s philosophy around the slogan “drill, baby drill” with President Claudia Sheinbaum’s “Plan México” remains a pending concern, particularly regarding how their ideologies blend with the current and potentially future USMCA.

Understanding the intricacies of cross-border interests, policy clashes, and related key provisions is critical to analyze potential outcomes, as electricity acts as one of the most strategic and critical aspects of a growing economy.

Key Provisions and potential Disputes

• Market Access: The agreement’s “ratchet clause” theoretically provides long-term regulatory certainty, preventing Mexico from restricting or reversing liberalization once certain sectors are opened to foreign investment. However, the United States could argue that Mexico’s former governance created significant barriers to entry and operation, despite the open market’s continued operation.

• Investment Protections: The investor-state dispute settlement mechanism must remain in place for investors in strategic sectors like energy in the event of discriminatory treatment or permit denials. This is particularly crucial for energy projects where consistent rules are essential.