By sabotaging NAFTA, Trump is threatening the Texas natural gas industry

by Rafael Fernández de Castro and John B. McNeece

As the North American Free Trade Agreement renegotiations entered the sixth round, Gov. Greg Abbott, an immigration hardliner, directed a letter to U.S. Trade Representative Robert Lighthizer emphasizing that 1 million Texas jobs depend on free trade with Mexico and Canada.

Abbott, not exactly the politician you would expect to lobby on behalf of U.S.-Mexico relations, reminded Lighthizer, who spearheads the talks, that Texas’ southern neighbor accounted for 38 percent of his state’s exports in 2015. The governor is aware NAFTA has created the conditions for Texas to become the top U.S. supplier of natural gas to Mexico.

Now, as the seventh round of trilateral talks kicked off Sunday in Mexico City, NAFTA remains one tweet away from chaos and ultimate extinction. Sabotaging the 24-year old trade deal would score easy points for President Donald Trump with his political base. It would also divert attention from Robert Mueller’s Russia probe.

Mexico has plenty to lose if Trump withdraws from the agreement for these or other reasons. Perhaps even more valuable than the billions of dollars in NAFTA-facilitated trade is the political certainty that the deal breathes into the U.S.-Mexico bilateral relationship. This touches issues ranging from cross-border trucking and trade disputes to automobile production and natural gas. The latter perfectly illustrates potential hurdles Mexico would face in an uncertain post-NAFTA world.

Construction crews work inside and around shelters placed along the seams of a 42-inch wide pipeline in December 2017 near the port in Brownsville. (2017 File Photo/The Brownsville Herald)
Construction crews work inside and around shelters placed along the seams of a 42-inch wide pipeline in December 2017 near the port in Brownsville.

Mexico has become increasingly dependent on Uncle Sam to get its fix of natural gas, which the Mexican Ministry of Energy estimates accounts for 70 percent of its natural gas imports. While Mexico continues to rely heavily on fossil fuels, it has gradually shifted its fuel use from oil to natural gas, particularly for the generation of electricity.

The U.S. Energy Information Agency reported that natural gas accounted for the generation of 54 percent of electricity in Mexico in 2015, compared to 34 percent in 2005. As part of the energy reform, Mexico aims to increase its use of natural gas in order to reduce greenhouse gas emissions and the price of electricity, a key selling point for the Mexican public. These goals and Mexico’s energy security would be set back several years if Trump shreds NAFTA or the so-called “updating” hinders this sector.

U.S law requires a permit to export natural gas to other countries, and it has been easy for Mexico to get that permission in the NAFTA era. Permit applications for free trade agreement partners such as Mexico are deemed to be in the “public interest” and are to be granted “without modification or delay.” But if NAFTA is terminated, Mexico will no longer be an FTA country, and the export authorization process will become much more onerous, time-consuming and uncertain.

Furthermore, without NAFTA, the permit application to export natural gas to Mexico could take years and open the process to political factors. The U.S. Department of Energy would have to make a finding that such exports are in the “public interest.” The process of evaluating the public interest involves potential third-party intervention, economic studies to evaluate the impact of the proposed exports on the domestic natural gas market, and an environmental impact analysis.

When one company, Golden Pass Products LLC, submitted two export applications for export of liquefied natural gas, one for export to FTA countries and one for export to non-FTA countries, the differing responses were stark. The permit for export to countries with a free trade agreement was issued 40 days following submission of the application, and the document of approval was only 11 pages long, with minimal analysis. The permit for export to non-FTA countries was issued 4 1/2 years after submission of the application, and the approval document was 178 pages long, including a detailed look at all aspects of the potential impact of the proposed exportation on the public interest.

A natural disaster like Hurricane Harvey or a sudden gas shortage in the US that causes a hike in gas prices could prompt Trump to activate his America First policy and stop exports to Mexico “in the public interest,” so that all U.S.-produced natural gas is made available only to American users. This would be a huge setback for Mexico, which cannot tolerate uncertainty in its fuel supply. U.S. natural gas imports are essential for the energy reform’s success and Mexico’s national security.

The U.S., on the other hand, gains tremendously from Mexico’s growing dependence on American natural gas. According to EIA data, Mexico represents 51 percent of U.S. gas exports. Texas has been the big winner in Mexico’s thirst for a cleaner-burning fuel and has created new cross-border pipelines to send its gas directly to northern Mexico. If Mexico is forced to diversify its natural gas imports, the U.S. and especially Texas will lose out big time.

Since 52 percent of Texas voters cast their ballots in favor of Trump in the 2016 Presidential election, the termination of NAFTA would be a peculiar way for the president to say thank you to that electorate.

 

Rafael Fernández de Castro is director of the Center for U.S.-Mexican Studies at the University of California, San Diego, and a professor at the university’s School of Global Policy & Strategy. Email: raf011@ucsd.edu

John McNeece is an attorney and senior fellow at the Center for U.S.-Mexican Studies.

 

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