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Deputy economy minister Luz Maria de la Mora says Mexico wants to take advantage of the consultation phase.CARLOS JASSO/Reuters

Mexico’s government will hold frank and open discussions to resolve a dispute with the United States and Canada over Mexican energy policies that they argue breach a regional trade pact, a senior trade official said.

The U.S. and Canadian demands come after years of concern among those countries’ private firms that Mexican President Andres Manuel Lopez Obrador’s drive to tighten the state’s grip on oil and electricity output treated them unfairly and was in violation of the United States-Mexico-Canada Agreement (USMCA).

The U.S.-led request for consultations with Mexico marks the most serious trade spat between Washington and Mexico City since the USMCA trade pact took effect two years ago. If unresolved, it could ultimately lead to costly U.S. tariffs.

Deputy Economy Minister Luz Maria De la Mora, who handles trade disputes for the Mexican government, said she hoped talks with U.S. officials would yield a breakthrough.

“We want to take advantage of this consultation phase … to see how we can reach a mutually satisfactory solution through an open, frank and constructive dialogue, which will allow us to overcome these differences,” she said in an interview.

Though Ms. de la Mora said Mexico would seek to argue that its energy policies are not in breach of the trade deal, her conciliatory tone contrasts with Mr. Lopez Obrador’s defiant push back against the complaints.

A combative leftist, Mr. Lopez Obrador said on Friday “we will not yield” on the matter, promising to continue a robust defence of his nationalist energy vision.

Mr. Lopez Obrador has pledged to revive state oil producer Petroleos Mexicanos (Pemex) and power utility Comision Federal de Electricidad, which he argues his predecessors deliberately “destroyed” to cede Mexico’s energy market to foreigners.

The U.S. Trade Representative says the moves to bolster the state-run firms have undermined American companies in Mexico.

Ms. de la Mora said Mexico would not use a separate dispute with Washington over the auto industry as a bargaining chip.

“We hope this issue will be resolved before the end of the year and we are very optimistic that we have a very solid case and that we will have a favourable resolution for Mexico,” said Ms. de la Mora, referring to the auto spat.

Canada said in January it would join Mexico in requesting a dispute settlement panel to iron out their differences with the U.S. over how to apply automotive sector content requirements under the treaty.

Asked whether Mr. Lopez Obrador’s energy policies were spooking investors, Ms. de la Mora pointed to recent announcements of investments in Mexico by U.S. energy company Sempra Energy and Calgary-based TC Energy Corp.

She argued that the USMCA’s dispute settlement mechanism gave investors certainty because if differences arise, like they have now, its use would help clear things up.

“The dispute resolution mechanism is a very solid mechanism, it is a mechanism that allows the investor to have greater certainty and this is very positive for the business climate,” she said.

The U.S. requested consultations under the USMCA over Mexico’s energy policies on July 20.

Under USMCA rules, the United States and Mexico would enter into consultations within 30 days of the U.S. request, unless the parties decide otherwise. If they do not resolve the matter through consultations within 75 days of the U.S. request, the United States may request the establishment of a dispute panel.

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