Energy may be first deal in NAFTA talks

An agreement to have Mexico join a NAFTA clause governing oil exports may be one of the first significant products of the renegotiation talks this weekend in Ottawa.

When NAFTA was originally signed 23 years ago, Mexico rejected parts of the energy chapter because its oil industry was entirely owned and operated by the government.

However, President Enrique Pena Nieto is looking to solidify the reforms he started in 2013, opening up the Mexican oil industry to international investment and participation.

As such, Mexico has asked to sign Article 605, which limits government interference in oil exports to any of the participating NAFTA countries.

Known as the “proportionality clause”, it was a holdover from the Canada-U.S. Free Trade Agreement and means Canada and the U.S. cannot reduce access to each other’s oil, natural gas, coal, electricity or refined petroleum products without an equivalent reduction in domestic access to the same product.

So if Canada wanted to cut oil exports to the U.S. by 20 per cent it would have to cut domestic supplies by 20 per cent as well, except in specific circumstances such as the need to protect national security.

For Mexico, joining this clause has one main benefit, said Duncan Wood, head of the Mexico Institute at the Wilson Center, a Washington, D.C. think tank. “They want to armour plate the (oil industry) reforms through an international agreement against the possibility of a left-wing victory next year,” said Wood.

If Mexico becomes part of a fully integrated North American energy market in NAFTA, it would be difficult for anyone to undo those changes said Wood.