Big oil and gas companies are winners in Trump’s new trade deal
Only a few months into office, President Trump had delivered on a number of promises to the oil and natural gas industry, such as reviving the Dakota Access and Keystone XL pipelines while trying to rewrite a number of environmental regulations.
The entire time, Big Oil cheered the administration on.
But more privately, many of those same multinational energy companies were worried about Trump keeping another one of his campaign promises: to rip up the North American Free Trade Agreement, the trilateral trade pact that underpins the work of major oil firms across the continent.
“There was genuine concern,” said Joshua Zive, an energy lobbyist at the law and lobbying firm Bracewell.
Now, with a new agreement hammered out among the United States, Mexico and Canada, the sector is breathing a sigh of relief.
Count the oil and gas industry among the winners of the new NAFTA — or, as Trump is rebranding it, the United States-Mexico-Canada Agreement, or USMCA. The oil business persuaded the White House to keep a number of features of the old NAFTA deal in the new agreement, including provisions that help protect U.S. oil companies’ investments abroad and allow for tax-free transport of raw and refined products across borders.
“We’re mostly happy that it’s been preserved, that many of the provisions in the original NAFTA that had supported the integrated North American energy markets are still in place,” said Aaron Padilla, senior advisor for international policy at the American Petroleum Institute, the nation’s biggest oil and gas lobbying group.
Among their biggest concerns was the preservation of a system of resolving international trade disputes called investor-state dispute settlement, or ISDS.
Under that dispute settlement system, multinationals can sue the governments of nations in which they work when those states issue new regulations. The system has attracted critics on the left for derailing anti-pollution efforts and on the right for eroding U.S. sovereignty.
Trump’s trade negotiators looked at the legal system with skepticism, too. The final deal does limit ISDS, but with a few key exceptions. Oil and gas is one of only five economic sectors, including telecommunications and transportation, to keep ISDS in the crucial Mexican market.
The oil lobby regards that carve-out as a key victory given the investment that multinationals have made there since Mexico opened its oil and gas fields to foreign drilling starting in 2013. Foreign oil companies were booted from Mexico 75 years before then. Now BP, Chevron, ExxonMobil, Shell and Total have all won leases there that could have been jeopardized had Trump torn up NAFTA.
Keeping that arbitration system intact in Mexico was a “higher priority” than doing so in Canada, Padilla said.
Environmental critics, never big fans of the original NAFTA for including ISDS, were quick to criticize the new agreement as more of the same and to note that the deal “makes no mention of climate change,” according to Charlie Cray, a political and business strategist for Greenpeace USA.
While Cray said the deal “includes improvements” to ISDS, he added: “Any provisions that give big polluters a way to hold governments over a barrel are unacceptable.”
In another victory, USMCA, like NAFTA before it, would prohibit tariffs on raw and refined oil and gas products, such as gasoline sold by U.S. refiners in Mexico. The deal would also reduce tariffs on a special thinner that helps heavy Canadian crude from Alberta and Saskatchewan flow more easily through pipelines to refineries in the United States.
For the last two years, as a potential NAFTA renegotiation loomed, the American Petroleum Institute and other oil-sector trade groups pressed their case with the White House, the U.S. trade representative and Congress to keep key parts of the pact.
By September of last year, the oil lobby became more publicly vocal about its concerns with ending NAFTA. If the negotiations are not “handled appropriately,” API then-President and Chief Executive Jack Gerard told reporters at the time, “I think all of us, including those of us in the oil and gas industry, are going to have to look long and hard at the situation.”
GOP leaders in Congress took up those concerns as well. Senate Finance Committee Chairman Orrin Hatch (R-Utah) and House Ways and Means Committee Chairman Kevin Brady (R-Texas) made clear to the White House that eroding investor protections abroad may lose the new agreement the support of some congressional Republicans.
The new trade pact is not a done deal yet. The Senate still needs to approve the renegotiated pact before it takes effect.
At least for now, the oil industry just appreciates that tense trilateral talks are over.
“The energy industry in North America was desperate for stability,” Zive said. “It can’t be stated how important it is to move out of the contentious stage of negotiations.”
Grandoni writes for the Washington Post.