In recent days, news has come that President Donald Trump remains committed to striking the best possible deal for the U.S. in current renegotiations of the North American Free Trade Agreement (NAFTA), even if that means missing internal deadlines set by Congress. This is good news, as it is critical that U.S. Trade Representative Robert Lighthizer protects the future of this important agreement.
By modernizing NAFTA in a way that safeguards American business interests and reflects changes in the trade landscape over the past 24 years, the administration can make good on its promise to put America first.
As CEO of one of the nation’s largest oilfield services company, I am acutely aware of how NAFTA has been a win for the U.S. economy, particularly when it comes to our energy sector. I also know how important NAFTA is to achieving the president’s vision of American “energy dominance” as a strategic, economic and foreign policy goal of our nation.
The energy sector needs a modernized and strengthened NAFTA, and here’s why. The energy landscape in North America has been fundamentally transformed since NAFTA was signed in 1994, especially when it comes to energy commodities. Today, the United States is the world’s largest energy producer, taking advantage of a remarkable shale gas revolution and new advances in oil exploration and recovery.
A nation that was heavily dependent on foreign energy sources two decades ago is now set to become a net energy exporter by 2022. Our North American partners, Canada and Mexico, are large energy producers themselves, but also significant marketplaces for American energy resources. Mexico now accounts for more than 60% of U.S. natural gas exports, while Canada takes 61% of our oil exports.
Without NAFTA, much of the energy growth in the U.S. – including the shale revolution – would not have been possible. But a key provision of NAFTA, the Investor-State Dispute Settlement (ISDS) mechanism, has also been critical to providing a winning framework for growing America’s energy sector.
At its core, ISDS protects American businesses from harmful decisions made by foreign governments, providing a legal recourse where other options fail. This mechanism has proved indispensable on a number of occasions, including a case in which a change in India’s government affected a major power project investment by General Electric (along with Bechtel Enterprises). In that case, General Electric won a settlement of $160 million in 2003 after neutral judges ruled that an abrupt change in energy policy unfairly hurt these investors. In another case, ISDS was instrumental in helping U.S.-based Occidental Petroleum Corp. recover $1 billion in damages after the government of Ecuador wronged the company. In that case, ISDS judges found that Ecuador’s tax policies were unfairly prejudiced against foreign investors. After nine years, Occidental won a victory because of ISDS’s arbitration requirement.
Despite its strong track record, the U.S. negotiation team has yet to firmly commit to the inclusion of the ISDS mechanism in a new NAFTA. With Mexico’s leading presidential candidate, Andrés Manuel López Obrador, floating the idea of closing Mexican energy markets to private companies, U.S. energy investors could soon need the valuable protection of the ISDS provision in that nation. Simply put, any “good” deal or “America first” renegotiation of NAFTA must include ISDS.
The U.S. economy is finally starting to find its legs after years of debilitating recession that hurt workers and stifled investment. Now, with comprehensive tax reform in hand and the American economy on the path to a 3% or higher increase, the time has come to pave the way for a bright economic future. This future will be fueled to no small degree by the health of our burgeoning energy sector.
However, to get there, we must shore up ties with our two closest trading partners, Canada and Mexico, with a new version of NAFTA that recognizes the changing energy landscape, includes vital protections like ISDS, and forges even stronger pathways for trade and investment across the continent. By doing this, the president can make good on his commitment to put America first and signal a victory for American businesses and workers.