Mexico Strikes Back on News of American Oil Producers’ Lawsuit

With headlines trumpeting an “energy war,” the Mexican government Thursday retaliated against charges by some U.S. oil companies that Mexico “dumped” low-cost crude onto the American market.

Mexico halted the scheduled lifting of a 4% tariff on imported natural gas, dashing hopes of California and other U.S. gas producers for newly profitable markets south of the border.

The tit-for-tat was triggered by an anti-dumping complaint by several small U.S. oil producers that, if successful, would drive up gasoline prices for American motorists. Already, it is chilling U.S.-Mexico trade relations.

The case accuses Mexico, Venezuela, Saudi Arabia and Iraq of selling oil in the U.S. below fair market prices and seeks damages, including a tariff on the four countries’ oil imports equal to a crippling $6.18 a barrel.

Saudi Arabia, Mexico and Venezuela were the top three suppliers of oil entering the U.S. in the first quarter, accounting for about half the total.

The complaint was filed Tuesday by Save Domestic Oil, an Oklahoma-based group made up of small producers who were hurt by a steep decline in oil prices last year. The group called on the Commerce Department to investigate alleged oil dumping by the four countries in 1998 and early 1999.

Mexico Energy Secretary Luis Tellez described the dumping case as “frankly ridiculous” and said it “has absolutely no foundation or economic logic.”

Tellez told reporters Wednesday that Mexico would fight the case through mechanisms of the North American Free Trade Agreement and the World Trade Organization. He said he was in contact with the other accused countries in preparing a defense.

As a first step, he said, Mexico is leaving in place a 4% tariff on natural gas imports from the United States.

Mexico had planned to lift the tariff voluntarily Thursday, four years ahead of the timetable established in the 1994 NAFTA accord. Lifting the tariff would encourage faster integration of the natural gas network between the two countries and has been welcomed by U.S. gas producers. Tellez said the tariff will remain in place until Mexico gets a favorable ruling in the oil dumping case.

Several major U.S. energy companies, including Sempra Energy International of San Diego, are lining up huge natural gas investments in northern Mexico. Though they are already providing natural gas to Baja California and other parts of Mexico, the removal of the tariff was expected to accelerate development.

The targets of the novel oil-dumping lawsuit are not the only parties to question it, because oil is a commodity traded freely on world markets and its price is generally set by markets. Prices of oil from all countries generally move in unison according to world supply and demand.

Yet the majority of U.S. dumping complaints, usually involving such products as steel and textiles, are upheld. It normally takes months for dumping cases to work their way through the Commerce Department and International Trade Commission, which will investigate the claims.

If the government found that dumping by its major foreign suppliers has occurred and it imposed tariffs, the Clinton administration would be in the position of driving up gasoline prices, fueling inflation and angering consumers.

Always sensitive to perceived slights from north of the border, Mexicans reacted angrily to the dumping allegation--not least because plunging global oil prices last year imposed severe hardships on Mexico, forcing repeated budget cuts.

Reforma, the major Mexico City newspaper, declared: “Mexico and U.S. Open Energy War.” And the daily Cronica applauded Tellez in an editorial for showing that “Mexico will not give in to blackmail from economic and political pressure groups in the United States.”

Mexico still depends heavily on oil revenue from the government-owned oil monopoly, Petroleos Mexicanos, or Pemex, which generates about 30% of government income. Therefore, the government monitors closely the prices Pemex charges to make sure it is generating maximum revenue, Tellez said.

Pemex Executive Director Adrian Lajous noted Thursday that the average price of Mexican crude, which fell steeply last year with other oil prices, actually rose from $9.37 in the first quarter of this year to $13.71 in the second quarter. Mexico ships more than 70% of its oil exports to the U.S. market. Last year, those exports totaled 1.3 million barrels a day.