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US investment in Mexican upstream at stake in NAFTA talks: GOP lawmakers

Highlights

Scrapping or weakening NAFTA's investor protections would hamper US investment in the Mexican upstream and cross-border oil and gas pipelines, more than 100 Republican lawmakers urged the Trump administration this week.

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The oil and gas angle was part of a broader defense of NAFTA's investor-state dispute settlement, a provision that protects multinational companies that invest abroad.

US Trade Representative Ambassador Robert Lighthizer, who is representing the US in the contentious NAFTA negotiations, has attacked the provision.

The 103 Republican lawmakers, including chairmen of the Senate Finance Committee and House Ways and Means Committee, made the case in a letter to Lighthizer on Monday, and some members tussled with the trade representative during a committee hearing Wednesday.



"These protections provide certainty for US companies in all sectors, including US energy companies that drill or operate pipelines or service stations in Mexico; US railroads that operate on both sides of the US-Mexican border; agriculture entities that maintain feedlots or processing or storage facilities; and US services companies that maintain capital in Mexico to meet regulatory requirements or establish facilities," the letter said.

Top oil lobbyists have also argued the point to the Trump administration as the NAFTA talks drag on.

American Petroleum Institute executives raised the issue during a White House meeting with President Donald Trump and Vice President Mike Pence on March 15. They argued the investor protections allow US producers to contribute to the US economy, national security and reliable energy for American consumers.

RISK FROM MEXICAN ELECTION

Investor protections in the original NAFTA have been critical to the recent wave of US and Canadian companies investing in Mexico's liberalized upstream sector, according to David Goldwyn, the US State Department's special envoy and coordinator for international energy affairs from 2008 to 2011.

He said removing those protections or letting NAFTA lapse would halt that momentum in Mexico.

The protections allow a company to seek international arbitration when it thinks a government action has diminished the value of its cross-border investment.

A US wind company, for example, won $25 million in damages from the Ontario government in 2016 through a NAFTA claim against a moratorium on offshore wind farms.

Andres Manuel Lopez Obrador, a left-leaning front-runner in Mexico's July presidential election, has said he would undo the country's energy reforms, although it is in dispute the extent to which he can, given a constitutional amendment.

Goldwyn, now president of consultancy Goldwyn Global Strategies in Washington, said the NAFTA protections give companies looking to invest in Mexico's upstream an assurance that the government will not be able to terminate their contracts.

House Ways and Means Chairman Kevin Brady defended the investor protections while questioning Lighthizer during a committee hearing Wednesday, arguing the energy and agriculture sectors among others need to know their investments are safe from foreign seizure, regulatory abuses and other unfair actions.

'WHO HAS THEIR BACK?'

"This issue is basically a question 'When other countries treat American investment unfairly, who has their back?'" Brady said. "The answer should be 'America has their back.' I'm deeply concerned about reports that Mexico and Canada have begun negotiating bilateral ISDS provisions without us, because USTR said it doesn't want to participate in that."

Lighthizer responded that companies have other alternatives to investor-state dispute settlement, including state-to-state dispute settlement and adding arbitration clauses to their contracts. He said companies used those effectively before NAFTA gave them ISDS.

"In a country like Mexico, they subscribe to all the conventions and they have to enforce those," he said. "If they put an arbitration provision in their contract, these things are then resolved in a similar manner, but without the US ceding sovereignty in order to encourage people to outsource jobs.

"It's just not a good trade in my opinion. I realize, however, that it's a controversial provision and that my view is in the minority in some very intelligent caucuses."

Brady said ISDS does not threaten US sovereignty.

"Foreign investors have no more rights than American investors because in our country you have the greatest standards and protections for property rights, investment rights in the world - bar none," he said.

Brady added that Lighthizer's "client is Congress," implying the negotiator was wrong to take marching orders only from the White House.

"Speaking out for our agriculture community that wants you to have America's back when they have to invest in other countries, to win customers, energy, manufacturing, technology, services - every key industry in America has to compete against China and the rest of the world, and other countries, is saying 'We need to have their back' when they make their investments, and so you're right there is a disagreement there," Brady said.

--Meghan Gordon, meghan.gordon@spglobal.com

--Edited by Alisdair Bowles, newsdesk@spglobal.com