Yes: North American energy trade boosts our economic and energy security
The job-creating, economy-boosting resurgence in U.S. natural gas and oil production shows no signs of slowing down.
The latest projections from the U.S. Energy Information Administration show domestic oil production is expected to reach a new high of 10.6 million barrels per day this year, on its way to nearly 12 million barrels per day by 2040. The United States is projected to become a net exporter of oil and natural gas combined by 2023.
The positive impact of American energy abundance is wide-ranging. As The New York Times reports: “The results go far beyond the economic, offering Washington strategic weapons once unthinkable. The United States and its allies now have a supply cushion at a time when political turmoil in Venezuela, Libya and Nigeria is threatening to interrupt flows to markets.”
Overseas disruptions once sent gasoline prices soaring, but that supply cushion provides what we call energy security. And our energy trade with Canada and Mexico further strengthens that security.
Trade partnerships supported by the North American Free Trade Agreement (NAFTA) provide for a stable source of energy to supplement our own strong production.
As the world’s leading natural gas and oil producer, we’re importing less and less. And the more of that “less and less” we can source from reliable neighbors in our own continental backyard, the greater our energy security. In fact, projections show North America could be self-sufficient in terms of liquid fuels as soon as 2020.
Just as important are the economic benefits generated by our energy exports to Canada and Mexico — among our top energy customers.
Canada is both our No. 1 source of crude oil imports and the No. 1 market for our crude exports. Mexico is our largest outlet for natural gas exports and the No. 1 export market for U.S. finished motor gasoline, accounting for 52 percent of all U.S. gasoline exports.
The United States sold more than 660 million barrels of crude oil and refined products to Canada and Mexico in 2016. Across a host of energy product categories — from jet fuel to natural gas — Mexico and Canada consistently rank as our top two export markets.
Under NAFTA’s important zero tariff and market access policies, U.S. energy resources flow to our neighbors, and profits flow back — generating jobs and growth not just in the energy production sector but in related industries like infrastructure construction and businesses throughout the supply chain.
As negotiators from all three nations work together to modernize NAFTA, maintaining provisions that ensure strong energy trade should be a priority. One of those provisions is investor-state dispute settlement (ISDS), which provides important protections against unfair practices, not just for energy trade but for a variety of U.S. industries.
Trade with Canada and Mexico supports 14 million U.S. jobs, according to the U.S. Chamber of Commerce, and investments made directly within Canada and Mexico make it easier for U.S. businesses to access resources and secure market access for U.S. products — whether energy products or manufactured goods.
ISDS ensures that those investments are protected — providing U.S. businesses operating across the border a level playing field with local competitors and guaranteeing the same property and due process protections found in the U.S. Constitution.
If ISDS is watered down or falls through the cracks, it opens the door for other nations to withdraw similar agreements safeguarding U.S. investments around the globe.
Modernizing NAFTA is a complex challenge. But the facts are pretty straightforward when it comes to energy. As negotiators work toward agreement, maintaining policies that help keep energy affordable and secure for U.S. consumers will ensure a revamped NAFTA is on the right track.
Jack N. Gerard is president and CEO of the American Petroleum Institute, the national trade association that represents all aspects of America's oil and natural gas industry. He earned bachelor's degree in political science and a law degree from The George Washington University in Washington, DC. Readers may write him at API, 1220 L Street, NW, Washington, DC 20045-4070
No: NAFTA a good deal for corporations, a bad deal for the country
Like most recent trade deals, NAFTA was negotiated quite explicitly to help businesses improve their profitability.
Essentially the George H.W. Bush administration, which negotiated most of the pact, sat down with major business groups and asked them what they would want in a trade deal with Mexico. This was the agenda they sought to pursue in negotiating the pact.
At the top of the list were rules protecting U.S. investments in Mexico. A major goal of the pact was to make it as easy as possible for major corporations like Ford or GE to set up factories in Mexico and take advantage of low-cost Mexican labor.
To make investments more secure, NAFTA included lengthy provisions protecting U.S. corporations from nationalizations or restrictions on repatriation of profits to America. It also included a special extrajudicial process that is exclusively for foreign investors: investor-state dispute settlement tribunals (ISDS).
The ISDS stand apart from the existing legal system. They allow a foreign investor to sue a country over an alleged violation of NAFTA.
The tribunal includes one member selected by the Mexican government, one by the company initiating the complaint, and one who is appointed by the other two.
The ruling of the tribunal overrides any domestic law. As a factual matter, the tribunal would not directly overturn a law, it would just impose a penalty for leaving it in place.
The rulings are not subject to appeal, nor are they bound by precedent. In principle, one tribunal can make a ruling that is directly opposite of the ruling of another tribunal.
As a bonus for corporations, the ISDS system was not just put in place in Mexico. All three countries in NAFTA are subject to suits brought by foreign investors through ISDS.
There have been several cases brought against the United States over environmental regulations, the most recent being a suit filed by a Canadian pipeline company over President Barack Obama’s decision to nix the Keystone Pipeline. ISDS provisions have been an important part of all post-NAFTA trade deals.
NAFTA was also designed to push corporate interests in other areas. Most notably, the agreement required Mexico to have stronger and longer patent and copyright protections. This was especially important in the case of prescription drugs.
As a result of patent and related protections, drugs that might sell for $10 or $20 per prescription in a free market, can instead sell for hundreds or even thousands of dollars.
The United States has made stronger patent and copyright protections central in every post-NAFTA trade pact. This is good news for the U.S. pharmaceutical, software and entertainment industries But it is bad news for the people living in the other countries that are part of the deals — they will have to pay more money for a wide range of products — and it is also bad for the American people.
We spent more than $450 billion last year on prescription drugs. If these drugs were sold in a free market without patent protection, we likely would have spent less than $80 billion.
The difference of $370 billion is almost 2.0 percent of GDP, or roughly five times as much as we spend on the Supplemental Nutrition Assistance Program (SNAP), formerly known as the food stamp program.
Trade deals like NAFTA help to lock in our current system of patent financed research for drugs. This is the cause of outrageous prices for lifesaving drugs. It also leads to widespread corruption, as it gives drug companies enormous incentive to lie about the safety and effectiveness of their drugs.
Clearly, NAFTA was not designed with the well-being of the American people in mind. It is not possible to reverse history and bring back jobs lost over the last quarter century, but we can try to fix the worst features of the pact. Getting rid of the special ISDS tribunals would be a very good place to start.
Dean Baker is the founder and senior economist at the Center for Economic Policy and Research (CEPR). He received his B.A. from Swarthmore College and his Ph.D. in Economics from the University of Michigan. Readers may write him at CEPR, 1611 Connecticut Avenue, NW Suite 400 Washington, DC 20009.