Washington — US-Mexico NAFTA talks have yielded investor protections sought by energy interests, but details are still emerging, and retention of Canada in the agreement is seen as critical.
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The White House on Monday said it had reached preliminary agreement with Mexico on modernizing NAFTA, after bridging differences on contentious matters such as regional automotive content. The administration was slated to resume talks with Canada this week.
President-elect Andres Manuel Lopez Obrador said he was pleased the incoming administration's recommendations on energy matters were considered.
"We are satisfied because we safeguarded our sovereignty," Lopez Obrador said in Chiapas Monday evening. "Mexico reserves its right to reform its constitution and laws related to energy and we reaffirmed that Mexico's oil and natural resources are owned by the nation."
President Enrique Pena Nieto's team worked with that of Lopez Obrador in the weeks leading up to the announcement. Jesus Seade, Lopez Obrador's designated NAFTA negotiator, called the preliminary agreement an important signal of certainty for investors in Mexico that the new administration will work alongside the private sector.
Of importance to oil and gas interests, Trump administration officials said the US and Mexico agreed to keep investor state dispute settlement (ISDS) protections in place for companies that have contracts with the Mexican government.
The oil and gas, infrastructure, energy generation and telecommunications sectors would "get the old-fashioned ISDS," a senior administration official said Monday.
The NAFTA ISDS provisions allow a company to seek international arbitration for claims that a government action diminished the value of its cross-border investment. The issue was important to the oil and gas industry to protect US investment in Mexico's newly liberalized upstream as well as pipeline investments. US Trade Representative Robert Lighthizer has opposed investor-state protections.
"Cautious optimism may be the order of the day, with the word cautious in bold," said Josh Zive, a trade lawyer with Bracewell. Much of the detail remains to be seen on ISDS, for instance about how broadly the terms, such as oil and gas sectors, are defined, he noted. It will also be important to see how Mexican trading partners interpret those provisions, he said.
"[I]t is also going to be important to the energy industry to have Canada as part of the deal, as our energy supply chains are highly integrated among the three countries," said one natural gas industry source.
David Goldwyn, president of Goldwyn Global Strategies, said if it is correct that the agreement would result in no tariffs in energy trade in either direction and ISDS protection for US investment in Mexico, "then it is a net positive for the industry." In addition, if more automobiles and auto parts are made in the US and Mexico, that is a positive for natural gas both for power demand but also for plastic production, he said.
Christopher Wilson, deputy director of the Wilson Center's Mexico Institute, said the deal softens NAFTA's provisions for ISDS but offers "more robust protections" for energy, telecommunications and infrastructure sectors than for other sectors.
Wilson said energy issues were at the center of "last-minute" changes made Monday "to avoid having text in the agreement that validated Mexico's energy reforms -- something Lopez Obrador, as he states, accepts but doesn't agree with."
Wilson said it is possible, but not likely, for the agreement to be signed before the new Mexican administration takes office December 1.
In one advance for the energy sector, the administration shifted off a demand that NAFTA sunset in five years. Energy sector interests have argued that their need to plan investments over a longer period would be undermined by such a restriction.
The preliminary deal with Mexico would allow for a review after six years, with the expectation the pact could be extended for another 16 years, an administration official said.
American Petroleum Institute President Mike Sommers in a brief statement said, "We are encouraged that negotiators have reached a preliminary agreement to modernize our trade relationships."
ClearView Energy Partners said that notwithstanding President Trump's indication Monday that he might finalize a new deal without Canada, a "trilateral deal still seems more likely, in our view, and lawmakers on Capitol Hill may deem it essential."
Key Republicans lawmakers have emphasized the urgency of concluding a three-way deal and suggested it may not be possible to vote on a bilateral deal under fast-track trade procedures.
"The alternative route is not practical because particularly in the energy sector the efficient flow of product with both Canada and Mexico is essential to the sector," Zive said.
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-- Edited by Gail Roberts, email@example.com