Discussions between Canada, the US and Mexico attempting to resolve a trade dispute over the latter's energy policies are to be extended beyond the initial deadline as negotiators hailed "productive" dialogue.

The disagreement relates to policies brought in by Mexican president Andres Manuel Lopez Obrador. The US and Canada claim these penalize their energy companies in favor of domestic Mexican firms, which they allege is in violation of the terms of the US-Mexico-Canada (USMCA) free trade deal.

Dispute settlement talks were demanded by the US Trade Representative back in July, which started a 75-day period of consultations. Under the terms of USMCA, if no agreement is reached at the end of this timeframe, a dispute panel can be convened to review the case.

This would have the power to impose punitive tariffs on Mexico that could severely harm exports to its key North American trade partners.

However, the Mexican economy ministry stated last week that there had been positive dialogue with representatives from the US and Canada, and both sides agreed to continue talks beyond the 75-day deadline to try to come to a "mutually satisfactory" conclusion.

Reuters reported that in recent weeks, tensions between the parties have begun to ease, with courts in Mexico suspending some of the energy law's most contentious rules and regulators in the country beginning to address backlogs for permits.

Sources told the news provider that with concerns such as the US midterm elections next month, worries over inflation and the likelihood that Mexico would lose if the case went to a dispute panel, it is not in the interests of either side to escalate the issue at the current time.

Francisco de Rosenzweig, a former top Mexican trade official, said: "In my view, the Mexican government has sought to deal with the requests from the US and Canadian governments with a view to a solution that avoids international arbitration."