Rush on NAFTA troubles oil firms
Protection at risk as Trump hurries to ink agreement
WASHINGTON — The Trump administration is racing to close a deal with Mexico on the North American Free Trade Agreement before the leftist president-elect, Andrés Manuel López Obrador, takes office this year, a drive that appears increasingly likely to eliminate an investment protection provision dear to U.S. oil companies and many other corporations.
The administration has just over three weeks to get a new deal before Congress if lawmakers are going to complete their required 90-day review period before Mexican President Enrique Peña Nieto leaves office Dec. 1. Peña Nieto has his own incentives to get an agreement in place soon as he seeks to cement a legacy before turning
over the government to López Obrador, according to officials following the negotiations closely.
“They’re both trying to find a way to get this done,” Rep. Henry Cuellar, D-Laredo, said of Trump and Peña Nieto.
At the center of talks are NAFTA’s existing investment protection rules — known as investor-state dispute settlement. Championed by oil companies and corporate America at-large, ISDS allows companies to challenge foreign government policies through an independent arbiter and win compensation for losses caused by those policies.
This year, for example, ConocoPhillips won a $2 billion arbitration award from the Venezuelan government, which nationalized the Houston oil company’s holdings in the country just over a decade ago. In 2015 Exxon Mobil and Murphy Oil won a $17.3 million judgment against Canada for a requirement they invest in local research and training in exchange for oil rights off Newfoundland.
President Donald Trump has pushed to eliminate the arbitration provision, arguing that it impinges on U.S. sovereignty. Observers, including Cuellar, say it’s a concession Peña Nieto could make to win agreement on other issues.
“If Peña Nieto is willing to move on this, (the Trump administration) will be a little bit flexible to get this thing done,” said Cuellar, who is fighting to keep the arbitration provision in NAFTA.
Limited time
Labor activists, who have criticized the provision for decades as encouraging companies to move factories abroad, are already declaring victory on the issue. Lori Wallach, the director of global trade watch at the activist group Public Citizen, said last week the arbitration provision was “out of NAFTA, as a practical matter.”
After close to a year of negotiations, the United States, Canada and Mexico are down to a relatively short list of negotiating points, including the Trump administration’s insistence that the agreement come up for review in five years under a so-called sunset clause. Mexico and Canada strongly oppose such a clause as likely to create too uncertain an environment for investors.
Trump also is fighting to tighten the rules by which motor vehicles are exempted from U.S. tariffs, limiting the exemption to vehicles with 50 percent of more of their components manufactured within the United States. Mexico has recently offered a counterproposal that is short of Trump’s demand but would increase the U.S. share of car manufacturing, said Antonio Garza, a former U.S. ambassador to Mexico and now an attorney in Mexico City with the law firm White & Case.
“If they can get (car manufacturing) across the goal line, then the sunset clause and ISDS should follow in short order,” he said. “If it goes beyond Dec. 1, there could be a loss of momentum that sets in, largely because of the loss of urgency.”
NAFTA without the arbitration provision would face significant hurdles in Washington. The American Petroleum Institute, the oil industry’s chief lobbying arm, said doing away with arbitration or instituting a sunset clause would “undermine U.S. energy security, investment protections and our global energy leadership.”
Support from Dems?
This year, more than 100 Republican House members and senators, including Rep. Kevin Brady of The Woodlands, the chairman of the House Ways and Means Committee, and Texas Sen. John Cornyn, the No. 2 Republican in the Senate, sent a letter to the White House stating their concerns about doing away with the arbitration provision.
“At the end of the day, this has to go to Congress, and Republicans have made themselves crystal clear they think its important to maintain ISDS,” said John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce.
Whether enough Republicans are willing to defy the administration remains to be seen. The labor unions’ opposition to the arbitration provision may provide the administration with the votes of Democrats, who have become increasingly wary of supporting trade deals perceived as detrimental to U.S. workers, such as the Trans-Pacific Partnership trade agreement.
Trump withdrew the United States from that agreement, which would have lowered trade barriers across 12 Pacific Rim nations, including low-cost competitors such as Vietnam and Malaysia.
U.S. Trade Representative Robert Lighthizer “knows he may lose some Republican votes, but he might gain some Democratic votes,” said Bob Cash, director of the Texas Fair Trade Coalition, a nonprofit representing labor interests. “I wouldn’t want to predict anything.”