US includes ultra-low sulfur diesel case in USMCA panel

The United States included the deferral of the obligation to supply ultra-low sulfur diesel only to Pemex in the initiation of a dispute settlement panel proceeding against Mexico under the Mexico-U.S.-Canada Agreement (USMCA).

In December 2019, Mexico’s Energy Regulatory Commission (CRE) issued a regulation granting only Pemex a five-year extension to comply with the maximum sulfur content requirements under its applicable automotive diesel standard, which as of December 2018 required the sale of ultra-low sulfur diesel throughout Mexico.

According to the United States Trade Representation (USTR) this measure is reflected in legal instruments including the following, operating separately or in conjunction with each other:

• Energy Regulatory Commission, Resolution of the Energy Regulatory Commission granting Pemex Transformación Industrial an extension to the deadline for compliance with the specification of sulfur content in automotive diesel, provided in Mexican official standard NOM-016-CRE-2016, quality specifications for petroleum products, Resolution No. RES/1817/2019 (December 18, 2019).
• Agreement whereby the Energy Regulatory Commission issues Mexican Official Standard NOM-016-CRE-2016, Quality specifications for petroleum products (August 29, 2016).
• Agreement of the Energy Regulatory Commission amending Mexican Official Standard NOM-016-CRE-2016, Quality specifications for petroleum products, based on Article 51 of the Federal Law on Metrology and Standardization (June 26, 2017).

Sulfur diesel

From the USTR’s angle, Mexico’s measure appears to be inconsistent with several provisions of the USMCA. First, the measure appears to be inconsistent with Article 2.3 of the USMCA because Mexico has not granted national treatment to U.S. goods under Article III of the GATT 1994.

Second, the measure appears to be inconsistent with Article 22.5.2 of the USMCA because, by granting the state-owned company Pemex such an extension, the CRE has not exercised its regulatory discretion in an even-handed manner with respect to the companies it regulates, including non-state-owned companies.