Oil companies clash with Trump over NAFTA changes

May 13, 2018
In The News

WASHINGTON — The oil and gas industry’s love affair with President Donald Trump is in trouble.

After more than a year of fawning praise for everything from tax cuts to the opening up of offshore drilling, oil and gas lobbyists are in open combat with the White House over the administration’s push to recast the North American Free Trade Agreement and commerce at-large from the globalist, free-trade model that has long benefited oil companies in Houston and around the globe.

“There’s a growing sense of frustration that the administration is not being more reasonable,” said Josh Zive, an attorney with the Washington law firm Bracewell, whose clients include oil and gas companies. “It’s old school populist talking points, and in doing so [Trump] lost the business community and virtually everybody else with them.”

While the White House has signaled it plans to keep the United States in NAFTA, U.S. Trade Representative Robert Lighthizer is looking to remove from NAFTA a protection that allow companies that have lost business or assets at the hands of a foreign government to challenge those decisions with independent arbitrators. The Trump administration argues that provision usurps U.S. authority and acts as free insurance against political change abroad, encouraging multinational companies to move manufacturing plants outside the United States.

At a time when U.S. companies are investing heavily in Mexican oil and gas fields and building pipelines there, executives fear without those protections they could see their contracts rewritten or even their assets seized as populist, anti-American wave sweeps Mexico , led by Andrés Manuel López Obrador, the frontrunner to win Mexico’s presidential election in July.

The potential for governments to seize the assets of foreign oil companies operating in their fields is a constant threat, as happened in Venezuela in the mid-2000s. In that case, oil companies including Exxon Mobil and ConocoPhillips sued the government through an international arbitration court run by the World Bank, but that court has no means to enforce its decisions leaving companies a long and trying road to recover their losses. ConocoPhillips, after recently winning a $2 billion arbitration award, has moved to take control of Caribbean assets of Venezuela’s national oil company.

Last week, the American Petroleum Institute, the U.S. Chamber of Commerce and the National Association of Manufacturers wrote a joint letter to Trump and his Cabinet, arguing that doing away with what is known as the Investor-State Dispute Settlement would “threaten our economy and endanger the prospects for NAFTA 2.0 to be approved in Congress.” Republicans, including Texas Gov. Greg Abbott, Rep. Kevin Brady, R-Woodlands, chairman of the House Ways and Means Committee, and Sen. John Cornyn, R-Texas, the Senate majority whip, have lined up in protest.

“It seems like Lighthizer doesn’t understand the vote count here in Congress,” said Rep. Will Hurd, R-San Antonio, whose district includes the vast oil and gas fields of West Texas. “He’s doing things that are not increasing the number of votes but decreasing them.”

But time is running out. The administration hopes to have a new NAFTA signed before the Mexican election in July to avoid negotiating with Obrador. And so far Trump appears unconvinced by the industry’s arguments, rebuffing oil executives, including Exxon CEO Darren Woods and Anadarko Petroleum CEO Al Walker at a White House meeting in March.

From the administration’s point of view, they are fixing a system that has done little to protect American workers against the outsourcing that has run rampant in recent decades. Even as experts attribute the vast majority of job losses in U.S manufacturing to advances in technology and automation, Trump is making the case to American workers that its through bad trade deals they’ve been left behind.

NAFTA’s arbitration provision “is probably the biggest item that everybody agrees is a problem, whether it’s the Tea Party or the unions,” said Bob Cash, director of the Texas Fair Trade Coalition, a nonprofit representing labor interests. “A company can challenge environmental laws and worker protections passed by a nation and upheld by their supreme courts. It essentially gives multinational corporations veto rights over democratically decided laws.”

As NAFTA negotiations move toward their climax, the stakes are high for the U.S. oil and gas industry, which in February exported 126 billion cubic feet of natural gas to Mexico — more than three times what they moved a decade ago. And refineries along the Gulf Coast are designed to handle Mexico’s heavy crude oil, which make up 7 percent of U.S. oil imports.

That relationship was expected to only grow in the years ahead, following Mexican President Enrique Peña Nieto’s move to open up the nation’s oil and gas field to foreign investment after a decades-long monopoly by Mexico’s national oil company, Petroleos Mexicanos, or Pemex. Politicians talked about North America becoming the world’s new Middle East, with shale and oil sands reserves underlying Mexico, Canada and the United States ready to be tapped by new drilling technology.

But between Trump’s protectionism and Obrador’s criticism that Mexico is giving away too much to the United States, foreign policy specialists are increasingly concerned that relations between the two countries could break down. If Trump does remove the dispute mechanism from NAFTA, some experts fear U.S. companies would be put at a disadvantage in trying to win work in Mexico, forced to raise their bids to cover political risk.

That is something the Chinese-state owned companies they are competing against would not have to worry about, because they enjoy far greater protection by their government

“If our companies become hesitant, the Chinese aren’t going to be so hesitant,” said Earl Anthony Wayne, the former U.S. ambassador to Mexico and Argentina, now a fellow at the Wilson Center, a Washington think tank. “It’s the Americans and other who have to count all their dollars and have to make a profit and the Chinese who are just trying to get access to the resources and don’t have to make the same calculations.” With Trump seemingly dead set on remaking NAFTA in his world view, lobbyists are working to increase opposition in Congress.

Whether they have the votes to send a NAFTA without the arbitration provision, known by its acronym ISDS, back to the White House remains to be seen, but in March, more than 100 Republican House members and senators signed a letter to the White House stating their concerns.

“It’s our responsibility here in the House to influence them to make the right decision,” said Hurd, the West Texas congressman, “and let them know they might not have the votes if things like ISDS are not included.”