NAFTA And Natural Gas

by Fox Rothschild LLP
Contact

Natural Gas Exports To Mexico will loom large in NAFTA negotiations

The North American Free Trade Agreement (“NAFTA”) entered into force some 23 years ago and in simple terms, the Treaty created a free trade zone between Canada, the United States and Mexico. At the time, NAFTA was viewed as a pathway to integrate Mexico into the highly developed economies of the U.S. and Canada. By doing so, however, it guaranteed there would be winners and losers as Mexico’s less-developed economy would attract U.S. industries to set-up shop there in order to take advantage of much lower labor costs. Indeed, small farmers and auto workers in the U.S. were two groups most impacted by labor cost disparity from south of the border.

President Trump’s mantra of “America First” does not bode well for NAFTA as he has called it “the worst trade deal ever.” Upon taking office, President Trump vowed to withdraw from NAFTA. However, due to intense lobbying from the business sector, the President reversed his plan to withdraw from NAFTA and on July 17th, the Trump administration gave Congress official notice that it planned instead to renegotiate NAFTA with the U.S. Trade Representative Office’s publication of a Summary of Objectives for the NAFTA Renegotiation. The tri-nation negotiations are slated to begin shortly with the U.S. negotiations being led by Robert Lighthizer, the U.S. Trade Representative. Lighthizer is a former senior trade official in the Reagan Administration who advocates greater trade protectionism. He is joined in this view by other senior Trump officials such as Secretary of Commerce Wilbur Ross and White House Chief Strategist Steve Bannon. Ross has spoken out publicly against the hollowing out of the U.S. manufacturing sector from NAFTA and Bannon would like to see NAFTA supply chains repatriated to the U.S.

The president’s decision, however, to renegotiate NAFTA instead of its withdrawal sends a strong signal that NAFTA will survive in good measure. The tri-nation supply chains which have been developed over some two decades simply prove too costly and disruptive to overturn. Natural gas exports to Mexico are a prime example.

Mexico imports nearly all of its natural gas from the U.S. and exports to Mexico are expected to double by 2019, with Texas fields being the primary source. At least 17 pipelines currently carry four billion cubic feet of natural gas a day from Texas to Mexico, with four additional cross-border pipelines in the works. Mexico’s demand for U.S.-sourced natural gas has been a boon to domestic producers as it has greatly offset the oversupply of natural gas production. Without this outlet to Mexico, natural gas producers in the U.S. will face a severe downturn with wells shut, job losses and investment curtailed.

The U.S.-Mexico natural gas symbiotic relationship is just one example of the tri-nation supply chain intricacies and complexities forged under NAFTA. There are countless others, such as deep supply chains in agriculture, construction materials and autos to name a few.

The extent to which NAFTA will be modified remains to be seen. However, from a legal standpoint, there are two sections of NAFTA which will certainly be squarely in the crosshairs of the U.S. Trade Representative. These provisions relate to the remedies available should a NAFTA nation’s exports injure the domestic market of another NAFTA member.

Specifically, under Section 302 of the NAFTA Implementation Act, the U.S. International Trade Commission determines whether increased imports from Canada or Mexico are a substantial cause of serious injury or threat of serious injury to a U.S. industry. If the ITC makes an affirmative determination, it makes a remedy recommendation to the President, who makes the final remedy decision. Section 302 investigations are similar procedurally to investigations under Section 201 of the Trade Act of 1974.

This is referred to under NAFTA as the “Safeguard Section” as it provides the U.S. the ability to seek redress via the ITC for damaging levels of NAFTA imports. The Trump administration however views the ITC as an impediment to taking action against NAFTA import abuses since the ITC has a high threshold of proving “actual injury.” Hence, the U.S. proposes to terminate the ITC’s jurisdiction in these cases, and instead transfer them to the Commerce Department which is a lot more biased toward U.S. interests.

Similarly, the US Trade Office will seek to eliminate NAFTA’s Chapter 19 dispute settlement mechanism. This Section establishes a mechanism to provide an alternative to judicial review by domestic courts of final determination in antidumping and countervailing duty cases, with review by independent bi-national panels of trade experts. A Panel is established when a Request for Panel Review is filed with the NAFTA Secretariat by an industry asking for a review of a domestic investigating authority’s decision involving imports from a NAFTA country.

These two changes will allow the Trump administration to unilaterally take direct action against NAFTA imports where it finds them to be injurious to U.S. commerce. This is completely in line with the protectionist leanings of the Trump administration.

Canada and Mexico will no doubt object to any proposal to eliminate these Sections as they prefer the non-interference protections afforded and want to have a buffer against U.S. unilateral decision-making. The stage is set therefore for some very intense and difficult negotiations. At the end of the day, however, natural gas will continue to flow from Texas to Mexico and if necessary, it will be made an exclusion from any final decision upon NAFTA’s fate. These exports are too vital for both countries as U.S. producers need the Mexican market and Mexico needs the gas.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Fox Rothschild LLP | Attorney Advertising

Written by:

Fox Rothschild LLP
Contact
more
less

Fox Rothschild LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.