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U.S. Companies Get Tariff Break From Mexico

U.S. Companies Get Tariff Break From Mexico

A Mexican government decision to eliminate a tariff on natural gas imports July 1 was heralded as good news for U.S. pipelines and Mexican consumers. Currently 4%, the tariff on U.S. gas imports, was to be eliminated in 2003 following annual reductions of 1%. The tariff went into effect at 10% with the signing of the North American Free Trade Agreement (NAFTA). The tariff's elimination is intended to boost gas availability to Mexico's northern region as the country turns more and more to gas-fired power generation.

KN Energy was one of many U.S. companies that lobbied long and hard for the tariff's elimination. "I think it's a welcome step in the right direction for the free movement of energy across the borders, and it's going to be advantageous to Mexican customers and U.S. energy providers. And it's certainly going to enhance competition along the U.S.-Mexico border," said Bill Garner, KN Energy International executive vice president.

KN right now is evaluating acceleration of a 105-mile pipeline project targeting Monterrey, Mexico. "It's going to accelerate the project." KN also has an LDC in Hermosillo. Industrial customers there will benefit from the tariff's elimination.

"It affords us additional market opportunities in the state of Chihuahua. We're one of the major exporters of gas to Mexico now through an interconnect in El Paso, TX, and this will open up additional marketing opportunities, primarily industrial customers."

Last June, the Interstate Natural Gas Association of America (INGAA) in the face of Mexican opposition abandoned efforts to eliminate the tariff. INGAA decided to temporarily shelve the issue after natural gas was pulled from a list of agreed tariff reductions in May 1998 following a NAFTA ministerial meeting with Canada and Mexico. The action was taken when the United States could not agree to the terms under which Mexico said it would remove the gas tariff.

"We've been actively discussing this with Mexican and U.S. Department of Commerce representatives for years," Garner said.

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