U.S. energy trade with Mexico is booming. It’s the future of this trade that’s in question.
A provision in U.S. free trade agreements has long been the best means of safeguarding American companies from foreign expropriation, discrimination, or other nefarious regulatory actions. Now U.S. companies are in jeopardy if the Trump administration allows the safeguard (known as the investor-state dispute settlement provision) to be weakened or removed in the current talks over NAFTA.
Investment in other countries can be done safely and securely when U.S. companies are protected from unfair treatment and asset seizure. Weakening or eliminating the ISDS provision will undermine NAFTA’s protection of U.S. investors, businesses, and their workers in Mexico. Without that protection, direct investments will dry up. And years of hard work in getting Mexico to liberalize its energy sector by opening it up to foreign investment after eight decades will be lost.
Instead of the U.S. investing in Mexico, we could see Russia and China taking our place, since they also want access to Mexico’s energy market and may use the opportunity to undermine the U.S. role as world energy leader.
Mexico is now the No. 1 export market for U.S. pipeline gas, refined petroleum products including gasoline and distillate fuel oil, and rubber and plastics. U.S. daily pipeline capacity for natural gas exports to Mexico has increased to 7.3 billion cubic feet, and is expected to nearly double in the next three years. Mexico is also an important new market for U.S. liquefied natural gas.
We shouldn’t risk our energy and national security, when supporting the ISDS provision would solidify our role in Mexican energy.
ISDS affords the same protections and fairness as in the U.S. Constitution. And this includes such basic protections as due process and compensation for the seizure of property. The ISDS provision enables U.S. companies to seek remedies under adjudicating panels set up under NAFTA. But if these safeguards are weakened or dropped in ongoing NAFTA negotiations with Mexico and Canada, the concept of ISDS in thousands of other trade and investment agreements will be undermined.
This would have a chilling effect on U.S. investment abroad.
Make no mistake, ISDS’ scope isn’t unlimited and it doesn’t infringe on the sovereign rights of other nations to regulate in the public interest in a nondiscriminatory way.
NAFTA supports an integrated North American energy market that bolsters energy security, provides consumer savings, and helps U.S. companies with investments in Mexico as well as Canada that employ more than 1.2 million workers in the U.S.
The irony is that by failing to address the need for protection against unfair or discriminatory treatment toward U.S. companies, those who want to scuttle NAFTA are advocating a policy that could cripple America for many years to come. If the U.S. retreats from ISDS in NAFTA, it could damage ISDS provisions globally by establishing a precedent for other countries to renege on their ISDS commitments in other treaties and agreements.
That could put our trade, and the competitiveness of U.S. companies, at great risk.
Mark J. Perry (@Mark_J_Perry) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.
