NAFTA’s energy-trade benefits risked by weakened deal, House panel told

Dec. 15, 2017
While the North American Free Trade Agreement could be revised to improve energy trade among Canada, Mexico, and the US, scrapping or weakening it would jeopardize progress that already has been made, four witnesses told a US House Energy and Commerce subcommittee on Dec. 13.

While the North American Free Trade Agreement could be revised to improve energy trade among Canada, Mexico, and the US, scrapping or weakening it would jeopardize progress that already has been made, four witnesses told a US House Energy and Commerce subcommittee on Dec. 13.

“A modernized NAFTA could help solidify the recent advances and create advantages for North American industry, advancing market-based integration of the energy sector, including hydrocarbons production, transportation, and processing, as well as electricity generation, transmission, and distribution,” said Karen A. Harbert, president of the US Chamber of Commerce’s Global Energy Institute.

A new agreement should guarantee that trade in hydrocarbons will be uninhibited between the partners by quantitative measures or tariffs affecting either imports or exports, she told the committee’s Energy Subcommittee. NAFTA partners also should agree to develop safe cross-border interconnections for electricity and hydrocarbons, prohibit local content rules, and support common energy standards and regulations based on best available practices, Harbert said.

“The flip side of modernization, however, is the threat of withdrawing from NAFTA, which is apparently under consideration as a negotiating tactic,” Harbert said. “A breakdown in the agreement could also occur if the US trade representative proceeds with a series of damaging NAFTA proposals strongly opposed by the US business and agriculture community, congressional trade leaders, and the Canadian and Mexican governments.”

Testifying on behalf of the National Association of Manufacturers, Allen Burchett, global head of strategic projects at ABB Inc. in Cary, NC, said US manufacturing hit a record $2.1 trillion in 2016, nearly double its 1993 level of $1.3 trillion.

“That growth has been fueled by the more than tripling of US manufactured goods exports to $1.27 trillion in 2016 compared to $411 billion in 1993,” he said. “US manufactured goods exports to Canada and Mexico were a primary driver of this growth, also tripling during this period and representing about one third of current US exports.”

Integration encourages growth

“The economies of the US, Canada, and Mexico are linked more closely together than ever before, due, in large part, to strong trade and investment partnerships,” Burchett said. “Building on NAFTA’s legacy of economic growth and job creation, we can set the stage for further gains in these areas by modernizing the agreement in ways that eliminate remaining distortions and barriers, raise standards, strengthen neutral enforcement mechanisms, and remove both duplicative regulations and unnecessary red tape at the border,” he said.

North American energy trade is a key element for continued US refining and petrochemical growth, noted American Fuel & Petrochemical Manufacturers Pres. Chet Thompson. “As a result of increased energy production and the increasingly integrated North American energy market, the International Energy Agency now projects that North America will be energy secure by 2020,” he said.

“North American energy security reduces US reliance on unstable and volatile sources of energy, benefiting US national security. Continued cross-border energy trade will only add to the increases in productivity and innovation that has played out the last two decades,” Thompson said.

In addition to the current economic benefits of cross-border energy trade, opportunities for sustained trade benefits as well as future growth and investment between the US, Canada, and Mexico will continue, he said. “Exports to Canada of natural gas and other refined products will remain strong thanks in part to investments in energy infrastructure, primarily cross-border pipelines,” Thompson said. “Additionally, Mexican demand for US exports of gas has grown and is expected to continue trending upward through 2030.”

Governments could have role

Alan Krupnick, a senior fellow at Resources for the Future, said governments could have a substantial role as private energy and capital markets drive development of expanded North American energy and trade. “Coordinated policies can effectively foster economic growth, technological development, and environmental protection, while meeting the political needs of each country,” he said.

Several opportunities exist to enhance trilateral, bilateral, and subnational energy-sector cooperation and policy alignment with NAFTA renegotiations under way, he said.

“Despite the Trump administration’s actions and rhetoric, as well as related uncertainties about trade and hemispheric cooperation, a number of economic realities are likely to favor a free trade agenda—at least for energy commodities and related investments, which are likely to be resistant to political winds,” Krupnick said.

The fates of the Canadian, Mexican, and US energy sectors are entwined and appear likely to remain so for some time, Krupnick said. “This interdependence comes with risks, but fewer than with isolation. The three countries would best be served by continued and strengthened collaboration on oil and gas development and electricity generation, providing all three countries with secure supplies while appropriately addressing environmental concerns,” he said.

Harbert said, “The robust energy trade among the US, Canada, and Mexico that exists under NAFTA inevitably would be a casualty of withdrawal, threatening the ‘Energy Dominance’ that is the core the of the Trump administration’s energy policy. This is just one example of the high-level stakes in these negotiations.

“Given all of this, it is our strongest recommendation that if NAFTA modernization cannot be reached, the administration must retain its commitment to the current trade agreement,” she said.

Contact Nick Snow at [email protected].