Fossil Fuel Companies Prepare to Square Off with Trump Over NAFTA

For U.S. oil and gas companies, the contentious North America Free Trade Agreement (NAFTA) negotiations couldn't come at a worse time.

Mexico's privatization of its energy sector is moving along speedily. Opportunities for private foreign investment, for the first time in more than a half-decade, are swelling. In July 2017, Mexico launched a liberalized natural gas market, following the example of European and South American countries that have historically relied on cautious federal control of oil and gas investment and production. For Mexico, which announced its plan to open its oil fields to foreign  investors in 2013, the switch represents unparalleled "accelerated growth for a country with massive oil and gas resources, excellent infrastructure, a transparent investment framework," says Steve Hanson, CEO for International Frontier Resources Corp., one of the companies that is currently eyeing investment in Mexico. "In short, it is the largest energy opportunity in the world today -- and the door has just been opened.”

There's just one potential impediment to those successful U.S. investments. President Trump.

That's right. The president who is known for his firebrand support of fossil fuel development, who has fought to keep Keystone XL and other controversial oil pipelines in business may soon be the U.S. oil and gas industry's most worrisome challenge. And no, it's not because it means investment in Mexico, which Trump has derided with threats of a "border wall" and inflammatory accusations. It's because of the Trump administration's stance on a protective clause that gives developers and investing companies legal leverage in times of trouble.

For U.S. oil and gas development companies looking at sinking millions -- or billions -- of dollars into a foreign country's resource development, the investor-state dispute settlement system is vital. The legal web of treaties and requirements has been part of NAFTA and other international agreements for years. It has helped to protect development and mining companies from being held accountable for new environmental laws and unexpected regulations that get in the way of their business; it's been used to get past social justice and environmental issues in Indonesia, and its court rulings have also helped companies that stand to lose billions when a country decides to nationalize private investments.

It's no surprise that the American Petroleum Institute wants Trump to maintain access to the ISDS and its international court system. Mexico's oil and gas development is entering a never-before level of privatization, and with the next election in Mexico, it could just as easily be reversed. That's not a likely scenario, since President Pena-Nieto knows that the country's natural resources are for now, its biggest bargaining chip when it comes to wooing international capital.

In President Trump's view, NAFTA is the country's "worse trade deal ever," and in part, because it facilitates the flow of oil and gas without tariffs. But its ISDS clause also protects companies that head over the border to mine opportunities in countries that benefit from those lucrative fossil fuel exports, giving US corporations more leeway in where they invest their money and foreign governments more ability and finances to compete with the US.

So once again, the Trump administration is likely to find itself in pickle: Does it keep a landmark clause that has protected U.S. industries from unforeseen trouble in foreign investments, or does the administration risk ticking off key industry supporters by scrapping it from NAFTA? And by doing so, how will it answer to charges that it took steps that ultimately aided the agenda of environmental organizations that for years, have called for an end to ISDS and protections for fossil fuel developers?

Ironically, the country that Trump has accused of taking unfair advantage of its neighbor to the north may come out the biggest winner in this tooth-and-nail battle, knowing that U.S. companies aren't the only willing investors in its lucrative landscape. Argentina, Canada already have their hats in the ring.

Flickr image: Presidencia de la Republica Mexicana/Tula Hidalgo