Keep ISDS in NAFTA to Lock in North American Energy Reforms, Industry Officials Tell Lawmakers
U.S. energy industry officials cautioned House lawmakers on Dec. 13 that the U.S.’s approach to investor-state dispute settlement (ISDS) during the NAFTA negotiation threatens the ability to lock in energy reforms through the agreement. “Without having that free cross-border trade” enabled by ISDS, “we wouldn’t have the benefit of both the import and export of energy from both of our trading partners, which would be a big setback to energy security,” U.S. Chamber of Commerce Global Energy Institute CEO Karen Harbert said during a House Energy and Commerce Energy Subcommittee hearing. “We would also jeopardize North America becoming the center of gravity of the world’s energy market.”
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Members of the American Fuel and Petrochemical Manufacturers group are investing “hundreds of millions of dollars” to enter the Mexican downstream crude oil market, CEO Chet Thompson said. “If you take away ISDS protections, it’s going to jeopardize that,” he said. “We need to make sure that the Mexican market stays open. We need an agreement that locks that in.” Rep. Bill Flores, R-Texas, shared skepticism with Harbert about changing the nature of ISDS in NAFTA, given that similar mechanisms are included in all other free trade agreements. Updated U.S. NAFTA negotiating objectives released last month added several new points on investment compared with the original objectives, potentially signaling a Trump administration vision for ISDS to remain in NAFTA, though questions remain as to the structure of the mechanism if the agreement is modernized (see 1711220055).
“It is my understanding” that the White House, the Office of the U.S. Trade Representative and Mexico support “locking in” recent Mexican market-opening reforms in the oil industry, which includes an authorization of offshore drilling, Flores said. “Unfortunately, there are proposals in the NAFTA renegotiation that would undercut, if not eviscerate, important investment protections in NAFTA, typically via the well-recognized ISDS mechanism.” Harbert said that if NAFTA modernization isn’t possible, the pact should be left as is, adding that the Chamber is hopeful it can “educate” the administration that significant changes to ISDS could thwart any potential energy gains through negotiation. The White House and USTR didn’t comment.
North American oil market integration is working well for the U.S. right now largely because most U.S. refineries are built to process heavier Mexican and Canadian crude while U.S. exporters get a tariff benefit on exports of lighter crude found under shale deposits, Thompson said. “We’re configured, right now, the most efficient that we can” be.
But not everyone during the hearing extoled the agreement in its current form. Rep. Morgan Griffith, R-Va., lamented that NAFTA “devastated” his district in southwestern Virginia, as “tens of thousands” of jobs left after it was signed, including in the textiles and coal industries. He cited the Mexican coal industry as an example of the unfairness he said NAFTA has wrought, saying drug cartels control large portions of it, and noted “horrible” working conditions. “But we’re supposed to be considered equals, and the same problem happens with all industries,” Griffith said. “So what do we do in areas that have been devastated like my district, where the jobs never came back, the help from the federal government was never there to rebuild the economy, and I’m dealing with communities that have parts of their downtown that used to flourish that now … are just empty?”