One day after President Trump said the United States and Mexico had reached a tentative trade agreement that may replace the North American Free Trade Agreement (NAFTA), analysts said the energy industry was still scrambling for details.
Bracewell LLP senior principal Josh Zive said it was unfortunate that the Trump administration provided few details over how the so-called United States-Mexico Trade Agreement would address the investor-state dispute settlement (ISDS) provision of NAFTA. ISDS protects U.S. investors, including oil and gas companies, from unfair treatment or asset seizures by host nations.
Canadian Foreign Minister Chrystia Freeland arrived in Washington, DC, for additional trade talks on Tuesday. While Freeland has said Canada would only sign the agreement if it was good for her country, Trump has warned that he could proceed with an agreement with Mexico alone.
"There is a concern about losing the progress that has been made in the liberalization of the Mexican energy sector," Zive told NGI on Tuesday. "The hope was that we could extend ISDS protections to those investments in the energy sector to lock in the liberalization, and that at a minimum we not lose any of our existing ISDS rights for non-energy specific parts."
Zive said there appeared to be an ISDS agreement, but the only details were provided in calls Monday from the office of U.S. Trade Representative (USTR) Robert Lighthizer.
"That's good," Zive said. "The problem is knowing exactly what that means. How broad is it? How strong are those protections? What's the rollback in the other areas, and what does Mexico think they agreed to? As is often the case, in this administration and other administrations, when you walk out of the negotiations, until something is committed in detail to writing, both sides can think they agreed to very different things.
"The energy sector desperately needs more details."
In a note, analysts with ClearView Energy Partners LLC said Tuesday "specifics remain unknown pending further negotiations and release of a final text," but media reports indicated the tentative agreement preserved "at least to some degree" the ISDS provision.
"Notwithstanding President Trump's indication that he might finalize a new deal without Canada, a trilateral deal still seems more likely, in our view, and lawmakers on Capitol Hill may deem it essential," ClearView analysts said. "Signing on Nov. 29 sets up Congressional approval in 1Q2019 or 2Q2019."
For months, Trump administration officials, as well as the president himself, have hinted at the direction of the NAFTA talks. In an interview on CNBC last May, Treasury Secretary Steven Mnuchin revealed that Lighthizer had "good" discussions with finance ministers from Canada and Mexico. But at the time, Sen. John Barrasso (R-WY), a member of the committee on Energy and Natural Resources, told CNBC that he would "rather not" see a revised NAFTA come to Congress for its approval.
National Economic Council Director Larry Kudlow in June hinted in an interview on Fox News that Trump would rather conclude separate bilateral trade deals with Canada and Mexico, rather than renegotiate NAFTA. And in July, Trump said on Fox Business Network that he would wait to sign any renegotiated NAFTA until after the midterm elections in November.
Supporters of the oil and gas industry voiced guarded optimism. "We are encouraged that negotiators have reached a preliminary agreement to modernize our trade relationships,” said American Petroleum Institute (API) CEO Mike Sommers. "America's natural gas and oil industry depends on trade to continue to grow U.S. jobs and our economy, and deliver for consumers." API has also argued on multiple occasions this year that ending NAFTA would harm the industry.
Shortly after Trump's first State of the Union address, in which he barely mentioned energy issues, API's Mark Green urged the administration in a blog post to recognize how the U.S. oil and gas industry has benefited from NAFTA, specifically, by opening markets for U.S. crude, natural gas and finished products.
Ahead of the seventh round of NAFTA talks, Green and then-CEO Jack Gerard urged the White House to retain ISDS. Green cited an API report from 2017 that asserted NAFTA supported 10.3 million U.S. natural gas and oil industry jobs, while also providing benefits to consumers, energy security and open markets. On separate occasions in March and May, Green opined that the ISDS provision should be retained in any renegotiated NAFTA. But the latter blog post was a bombshell: Green said Lighthizer didn't understand how ISDS worked.
According to Green, Lighthizer believed the oil and gas industry was looking for "guarantees" that their investments, especially in Mexico, would be safe and protected by the U.S. government.
Others have warned for months of the consequences the United States could face if the Trump administration followed through on its threat to withdraw from NAFTA. When the Chamber of Commerce's Karen Harbert, CEO of the Global Energy Institute, testified before the House Subcommittee on Energy last December, lawmakers were busy cobbling together what would become the Trump administration's biggest legislative accomplishment to date: passage of a $1.5 trillion comprehensive tax reform bill.
Harbert testified that while the Chamber supported tax and regulatory reform, "pulling out of NAFTA would undo most of the good these policies are expected to accomplish. "It would mean restoring the steep tariffs and other barriers that shut U.S. exports out of Canada and Mexico prior to NAFTA and would lead directly to lost export sales and lost American jobs." She said researchers with ImpactECON LLC made a "credible estimate" when it said more than 1.2 million mostly unskilled American workers could lose their jobs if NAFTA were reversed.