Keep NAFTA’s Support for North American Energy

Mark Green
Posted June 22, 2017

With public hearings planned next week on the North American Free Trade Agreement (NAFTA), let’s review some of important reasons that any modernizing of NAFTA – as has been broached by the administration – must retain critical provisions supporting and growing North American energy integration, interdependence and energy security. This is fleshed out in API’s official NAFTA comments, submitted to U.S. Trade Representative Robert E. Lighthizer last week. They include:

Zero or Reduced Tariffs

A key reason for thriving energy trade across our borders with Canada and Mexico is the lack of tariffs on exchanged goods. Consider that last year:

• Canada was the No. 1 export market for U.S. crude oil and kerosene-type jet fuel and the No. 2 export market for U.S. total refined products, pipeline natural gas and motor gasoline blending components.
• Mexico was the No. 1 export market for U.S. finished motor gasoline (52 percent of all U.S. gasoline exports), gasoline blending components, distillate fuel oil and total refined products. Mexico was the No. 2 export market for U.S. kerosene-type jet fuel and petroleum coke.

The absence of tariff barriers in the North American energy market supports investment and ensures a wider variety of consumer products. From API’s comments:

Any changes that would increase tariffs above the current zero rate would dramatically impair current trade flows, increase costs for North American companies and, in turn, raise product costs for U.S. consumers. Therefore, API requests that duty-free treatment remain the rule for commodities and products currently at zero. API also requests that any tariffs still in place under the current NAFTA be either reduced or eliminated under any new trade agreement.

Market Access

Provisions in NAFTA secure a level playing field for U.S. companies to operate in Canada or Mexico in the same way as local Canadian and Mexican companies. This greatly enhances the markets U.S. firms can access and boosts U.S. jobs associated with those efforts. API supports market access to foreign investors in domestic markets, without exceptions.

Trade Liberalization

U.S. companies directly benefit and investment opportunities are created by the liberalization of energy trade between the U.S., Canada and Mexico under NAFTA – that is, the removal of restrictions or barriers to free trade, such as quotas and licensing rules.

Now consider the larger argument for trade: Free trade strengthens the U.S. economy by bringing overseas wealth into this country and by helping support domestic industries, including energy. Energy trade helps stimulate domestic natural gas and oil production, increases demand for U.S. refined products and strengthens America’s standing in the world.

Indeed, North American energy trade is fostering economic growth, generating consumer benefits and increasing our energy security. This trade activity is significant. The graphic below shows the significant energy flows between the U.S., Canada and Mexico:

NAFTA is an important part of that, contributing to the growth and stability of the North American energy market and generating key benefits. As policymakers discuss ways NAFTA might be modernized, they should ensure that the agreement continues to support these valuable contributions. Kyle Isakower, API vice president for regulatory and economic policy, in the API letter to Lighthizer:

“For API and its industry members, there is a strong desire to see the provisions of the current NAFTA remain in place. The overall functionality of the current NAFTA agreement works for the oil and natural gas industry. API and its industry members therefore wish to ensure that as NAFTA is modernized, the provisions of the current agreement remain in place in a new NAFTA.”

Earlier this month members of the U.S. Senate and House also wrote to Lighthizer to underscore the importance of the North American energy market, drawing comment from API President and CEO Jack Gerard:

 “NAFTA has played a critical role in facilitating North American energy integration, which enhances U.S. energy security, supports millions of American jobs in the oil and natural gas industry, and helps make energy more affordable. We look forward to continuing our work with Congress and the administration on policies to keep North American energy integration strong, protecting energy consumers and investors and advancing our nation’s energy leadership throughout the world.”