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Oil Well

Oil Industry Concerns Over NAFTA Negotiations

Free Trade Deal At Risk
posted onSeptember 6, 2017
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Oil and Trump

NAFTA negotiations are ongoing between the United States, Canada and Mexico. A central focus of the election campaign of Donald Trump was to renegotiate the trade deal in order to attract jobs back to the US.

A major cheerleader of Trump during his campaign was the oil industry. Promising deregulation to free the industry from the shackles of government oversight. Believing that it would create jobs and decrease America’s dependence on imported oil, Trump rolled back regulations introduced under the last administration.

Continental Resources CEO, Harold Hamm, advised Trump during his campaign for the White House. At the Republican National Convention last year, he told the assembled that stripping regulation could double the level of oil production in the US.

Trump also scored big with energy companies with his decision to pull out of the Paris Agreement. The international deal sought to reduce greenhouse gas emission worldwide. This had the potential to seriously hurt the business operations of oil producing companies. Fossil fuel production and consumption play a significant role in global emissions.

NAFTA

Now oil companies are worried about what Trump might do with NAFTA. Last year US energy exports to Mexico and Canada were worth $34 billion. Industry leaders are now desperate to protect the trade deal with their neighbouring countries. Companies, which have generally tended to sit out trade negotiations, have actively involved themselves in NAFTA talks. They have attained positions on committees, and have flooded Washington with lobbyists.

Since negotiations began last month, Trump has threatened to pull the United States from the agreement at least three times. This has frightened the oil industry, who fear that there could be a serious impact on their development activities.

Industry Effect

NAFTA facilitates the duty-free trade of gasoline and other energy products. 60% of US gas exports last year were to Mexico. Free trade between the three countries has facilitated energy cooperation. When NAFTA was signed, the United States was importing almost 50% of its daily oil needs.

It is not just exports that the industry is concerned about. US oil companies have invested in development fields in their neighbouring nations. In 2016, US companies were awarded five out of eight licences granted for deep-water oil and gas blocks.

Energy Leaders

Industry leaders have been outspoken in their support for NAFTA. “The natural gas and oil industry across North America is united in our support for NAFTA and the significant consumer, economic and security benefits it generates,” said API President and CEO Jack Gerard. CAPP President and CEO Tim McMillan said “Since NAFTA’s inception in 1994 our three nations’ economies have become interconnected and integrated. The logic in supporting a free trade zone is more compelling today than ever before which is reflected in our joint position to strengthen our deep trade relationship for all three countries.”

ISDS

An essential aspect of NAFTA for the energy lobby has been Investor-State Dispute Settlement (ISDS). This component of the trade agreement has allowed the oil industry to legal challenge governments on decisions which may impact their business. It also allows companies to be more assured of their investments as they have the ability to tackle regulatory changes. It is often a controversial measure and has received criticism from NGOs and conservationists in the past. The oil industry has become alarmed that Trump has not yet given a declaration on this aspect, and it may still be open to being scrapped.

Protectionism v's Laissez-Faire

Ultimately, the nationalist politics of Donald Trump have come into conflict with his multinational industry backers. A conflict has emerged between creating a protectionist economy and the laissez-faire wishes of big business. While Trump promised to return jobs to the United States, many of the industries he has relied on for support have investments abroad. NAFTA negotiations will determine how the President will reconcile this argument among his supporters.