Contradictory US signals may push NAFTA talks into 2019, speakers say

Contradictory signals from the Trump administration could help push North American Free Trade Agreement renegotiations now under way into 2019 and possibly beyond, speakers said during a Sept. 7 discussion at the Atlantic Council.

Contradictory signals from the Trump administration could help push North American Free Trade Agreement renegotiations now under way into 2019 and possibly beyond, speakers said during a Sept. 7 discussion at the Atlantic Council. US President Donald Trump’s periodic threat to withdraw from NAFTA has raised questions about whether US negotiators actually have authority in their talks with Canada and Mexico’s governments, they generally agreed.

For oil and gas, NAFTA has increased US natural gas exports to Mexico at a time when domestic markets are not growing, while “the cheapest oil we get” comes from Canada, noted David L. Goldwyn, who chairs the AC’s energy advisory group. The more the US exports and imports oil and gas through pipelines, the more resilient it will be following a hurricane or other weather emergency because the transportation does not involve waterborne cargoes, he said.

In an analysis he wrote that the AC released the same day, Goldwyn said a modernized NAFTA could improve North American energy market integration and the region’s ability to compete globally by:

• Resisting tariffs, content rules, and investor protections. US steel manufacturers do not make the gauge of pipe required for pipelines and cannot retool quickly or easily, he said. “LNG and petrochemical plants require specialized steel. Import restrictions could raise prices without providing competitive supply,” Goldwyn said.

• Encourage more labor mobility across national borders. “Mexico’s energy reforms, with the prospect of greater oil and gas development in the Mexican Gulf, provide a tremendous opportunity for the US service sector and for US universities,” said Goldwyn. As Mexico enjoys a renaissance of oil and gas investment, US geoscientists, engineers, and marine transportation companies will be called on to perform much of the work, he suggested.

• Establishing common electricity trade standards with a collaborative, instead of competitive, approach that is free of tariffs. This could lead to clean energy projects in areas like carbon capture and storage, battery technology, and smart grids, Goldwyn said.

• Increasing regional integration alongside a deliberate strategy to create more energy resilience. “At the broadest level, North American self-sufficiency in oil and gas recycles economic rents into the trade relationship and reduces dependence on sea-borne heavy oil imports from Venezuela and the Middle East,” the analysis said.

NAFTA can be improved if a more efficient oil and gas transportation system results, said a second panelist, Jeffrey J. Schott, a senior fellow at the Peterson Institute for International Economics. Trump’s insistence, in his executive order authorizing a cross-border permit for the proposed Keystone Xl crude oil pipeline, that only US-made steel be used in all new interstate pipelines has created a significant obstacle, he noted.

“What you want is to expand exports and imports so that you and your trading partners’ best resources are being used,” said Schott. “It’s more efficient economically, and it attracts more investors.”

Some Canadian provinces have enacted carbon taxes, while Mexico has one that is relatively small, he said. This is different from 7 years ago, when Congress was debating a bill developed by then-US Reps. Henry A. Waxman (D-Calif.) and Edward J. Markey (D-Mass.) that would have established one in the US, and opponents argued that it would put the country at an economic disadvantage because imported oil and gas would not have been subject to the same requirement, Schott said.

“Now, the shoe is on the other foot, and the current administration doesn’t seem to see it,” he added.

“Investors are clamoring for certainty. The US president is creating uncertainty. It’s an odd dynamic,” observed a third panelist, Shawn Donnan, world trade editor at the Financial Times. Mexico already has started talking to other governments in case NAFTA cannot be renegotiated satisfactorily, he added. The two other speakers agreed.

Contact Nick Snow at nicks@pennwell.com.

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