In the 1980s, the groundwork was laid for a trade agreement between Canada and the United States. The goal was to give North America a competitive edge on a global scale. In 1991, during George W. Bush's presidency, Canada requested a trilateral agreement that brought Mexico into the mix. Since then, the North American Free Trade Agreement (NAFTA) has been the agreement the three nations operate under.
According to Article 102 of NAFTA , its six primary goals have been to:
eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties;
promote conditions of fair competition in the free trade area;
increase substantially investment opportunities in the territories of the Parties;- Advertisement -
provide adequate and effective protection and enforcement of intellectual property rights in each Party's territory;
create effective procedures for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes; and
establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement.
And so far, it's done just that. However, during Trump's first 100 days in office, he claimed that the United States would withdraw from the NAFTA if Mexico and Canada did not agree to renegotiate. While the agreement has been successful so far, it's also outdated; issues like internet commerce were not included. Thus, Mexico and Canada have agreed to renegotiate.Why Renegotiate the NAFTA?
There are three primary things the Trump administration is attempting to accomplish by renegotiating NAFTA:
Fix the trade deficit.According to Binyamin Appelbaum for The New York Times, "Americans buy more goods and services from Mexico than Mexicans buy from the United States. Last year, the difference was $55.6 billion. The Trump administration regards this number as an indictment of the current trade deal -- evidence that Mexico is taking advantage of the United States."
The United States plans on accomplishing this by changing unfair subsidies. Plus, changes would likely mean that the tariff-free system currently in place would change.
As Villanova University has pointed out, "NAFTA has come under scrutiny and criticism in part because it limits the ability of member nations to utilize tools like tariffs to address trade deficits or other global competitiveness challenges."
Better protection of digital trade and intellectual properties. This essentially means that digital and intellectual property will be granted the same standard of protection as physical goods. This would manifest itself everywhere from how trademarks are handled to the privacy regarding government involvement with those digital and intellectual goods.
End the dispute resolution panel. The United States believes that the panels that determine whether or not a NAFTA country has appropriately handled overseas investments are diminishing the sovereignty of domestic courts.
An example cited by Kimberly Amadeo in her piece for The Balance points out, "The U.S. Commerce Department has accused western Canadian provinces of subsidizing their lumber exports. That allows them to dump low-cost lumber into the American market. It unfairly underprices U.S. companies. The resolution panel has ruled in favor of Canada. The Commerce Department has threatened to impose a 20 percent tariff on Canadian lumber imports."
Canada and Mexico, thus far, have refused to accept this portion of the renegotiations.
The Oil Industry and the Trump Administration
Despite the fact that prior administration policy has been favorable to the oil industry, it is not in favor of the NAFTA renegotiations. The industry has enjoyed the fact that the administration has made for lax environmental regulations and has granted access to areas historically kept from drilling.
Additionally, The Washington Post reportsthat as soon as Trump was elected, "The American Petroleum Institute, the largest U.S. oil and gas lobbying group, laid out its wish list for the new administration. API said it wanted Trump to reconsider the stop on the Keystone XL and Dakota Access pipelines. Check. It said it wanted federal regulations to be reviewed 'holistically.' Check."The Oil Industry's Pushback
Despite the fact that the administration and the industry have maintained a good relationship thus far, the oil industry is banning together, across all three borders, to push back against the administration's proposed changes.
It's important to note that the oil industry we know today is not the same one that existed when the agreement came into existence.
As Kevin Book, managing director of ClearView Energy Partners LLCnoted, "Oil and gas has grown from an incidental discussion point to an enormous target of opportunity. Because energy is such a big deal in North America -- a lot's changed, not just in the U.S. but with Canada's oil sands as well as Mexico's reforms -- energy could become an important hostage to the negotiations."
For an industry that has accomplished much under NAFTA, the threat of major changes brings with it great risk to that success. Two of the major components driving the pushback include:
Jobs at risk. Under NAFTA, those in one of the 63 allotted -for professions are eligible for a professional visa. These visas are good for three years, and they can renewed an unlimited amount of times. Given the fact that the administration is largely anti-immigration, and that these visas are often seen as a part of the immigration dynamic, the administration is unlikely to value these jobs highly.
Tens of thousands of Americans, Canadians, and Mexicans live and work in a neighboring North American country by utilizing these visas. If they could no longer be utilized, the ramifications would be endless.
Thousands would lose their jobs, but additionally, the professional shift would be so large scale that it would disrupt many industries, even those outside the oil industry, as companies race to fill positions.
For example, given the huge demand for registered nurses, Arizona State University points out, "The supply of registered nurses is not expected to match the demand, resulting in an estimated shortage of 260,000 nurses by 2025." This is a shortage coming even with the supply of nurses from Canada and Mexico, to say nothing of what a post-NAFTA situation will look like.
Not only that, but MarketWatchsays that trade with Mexico is responsible for 5 million U.S. jobs that are connected to the goods and commodities the country imports. The oil industry wants the Trump administration to do everything in its power to bolster the economy, and obviously, losing NAFTA doesn't seem to be the way to do that.
Arbitration system at risk.This is one of the most significant issues connected to the NAFTA renegotiations. There is a lot of fear that the administration will not maintain the current system for resolving international trade disputes. Investor-state dispute settlement, or ISDS, ensures that those who have foreign investments can sue the foreign country if they feel changes imposed by the foreign government have cost them a portion of their investment.
Thus, if the government wherein an investment exists implements new regulations that an investor believes hampers their ability to reap all possible rewards, they can sue said government for the stated loss of investment.
ISDS is what makes American companies confidently pursue foreign investments, and without it, those investments will not be secure. This is especially of concern to oil companies given the fact that Mexico has been selling off oil and gas fields to American companies, and for them to confidently to drill there, ISDS is necessary protection.
Without ISDS, all non-American investment prospects will be, for an investor, no longer an option. According to the U.S. Energy Information Administration between 2009 and 2016 American natural gas exports have doubled, and virtually all of it went to Mexico, tariff-free.
A statement issued by the American Petroleum Institute, the Asociación Mexicana de Empresas de Hidrocarburos, and the Canadian Association of Petroleum Producers in response to renegotiations asserts, "Any changes that disrupt energy trade across our North American borders, reduces investment protection, or reverts to high tariffs and trade barriers that preceded NAFTA could put at risk the tens of millions of jobs that depend on North American trade and interdependent energy markets."
Certainly the jobs connected directly to the oil industry via NAFTA are a top concern for the corporations pushing back against the planned renegotiations. And overall, it's the reality that virtually any change to the agreement will be very costly to the companies that make up the industry.