American Oil and Gas Reporter - January 2020 - 26

Special Report: U.S. Trade Accords
USMCA, Phase One With China
To Keep Markets Open,
U.S. Energy Flowing
By Del Torkelson
WASHINGTON-Despite key players with divergent interests,
a staggering number of figurative moving parts and strong
cross-currents, the second week of December saw President
Donald Trump touting two new international trade pacts. The
first appeared Dec. 10 in Mexico City with a tripartite signing
ceremony of the U.S.-Mexico-Canada Agreement (USMCA),
an occasion that prompted U.S. Trade Representative Richard
Lighthizer to say, "It's nothing short of a miracle that we all
have come together."
Only a couple days later, hopes for a de-escalation in the
U.S.-China trade war got an early Christmas present when the
Trump administration reported it had reached an accord with
Chinese negotiators on a "phase one" trade deal that had been
orally negotiated in October.
The new arrangements are good news for U.S. independent
oil and gas producers, assesses Frederick Lawrence, vice
president of economics and international affairs at the Independent
Petroleum Association of America. U.S. producers may be enduring coy capital, price uncertainty and political perils, he acknowledges, but free trade puts wind in the industry's sails.
"The industry faces a lot of challenges, but look at the strengths
and positives," Lawrence assesses. "Some say USMCA merely
rehashes things, but it also reaffirms them. Organized labor and
other groups have a vested interest in USMCA at a time when
there has been a lot of talk about pointing the economy in a more
socialist direction. It is an important demonstration of various
coalitions actually working together, instead of retreating into a
polarized discussion that pits capitalism against socialism."
The U.S., regional and world economies should benefit, he
adds. "Absolutely, it is encouraging economic news," Lawrence
affirms. "Relatively speaking, the U.S. economy is in a position
of strength compared with a lot of other areas in the world. That
said, it is always helpful to get positive vibes on the trade front."
North American Trade
The U.S. House of Representatives voted 385-41 to approve
USMCA on Dec. 19. According to media accounts, although
the U.S. Senate still must give USMCA its-almost assured-
seal of approval, the deal's road to ratification opened after
Democratic leaders in the House announced they were satisfied
with changes they negotiated to USMCA's initial structure,
most of which dealt with provisions important to U.S. labor
unions. That initial package was itself the result of extensive,
occasionally painstaking, negotiations between the three countries
(AOGR, November 2018, pg. 30).
According to the U.S. Chamber of Commerce, since USMCA's
predecessor, the North American Free Trade Agreement, took
26 THE AMERICAN OIL & GAS REPORTER

effect on Jan. 1, 1994, commerce between the three countries
has meant considerable benefits to the U.S. economy:
· Trade between the United States, Mexico and Canada
supports 12 million U.S. jobs.
· Value of that trade hit $1.4 trillion in 2018, an average of
$3.8 billion a day.
· About 120,000 small and medium-sized U.S. companies
sell goods to Canada and Mexico, which are the top two export
destinations for U.S. companies.
· U.S. agricultural exports to Canada and Mexico quadrupled
from $8.9 billion in 1993 to $39 billion in 2017.
"Energy integration between Mexico, the United States and
Canada has been a success story that has led to the creation of
many new opportunities to improve trade relations across North
America," says Texas Independent Producers & Royalty Owners
Association President Ed Longanecker. "Through responsible
trade policies, we must continue to maintain and protect the
ability to sell our natural gas, oil and other refined products tariff-free to Texas' two largest international trading partners,
Mexico and Canada."
Keeping trade flowing throughout the continent benefits
North American countries, affirms Maria Fernanda Perez
Arguello, associate director with the Atlantic Council's Adrienne
Arsht Latin America Center. As an example, she cites a Forbes
estimate that roughly 6,000 U.S. petroleum jobs depend on
access to the Mexican export market.
"Had USMCA not been signed, those jobs, as well as the
larger ripple of service jobs supported by the high disposable
income of these workers, could have been jeopardized," she
reasons.
NAFTA was imperfect, many analysts agreed, but its merits
far outnumbered the drawbacks, and the sheer number of stakeholders and intense differences both among and within the
North American countries suggested the pitfalls of any renegotiation threatened to leave the continentwide market worse off
than the status quo. Before NAFTA, Mexico imposed tariffs of
at least 30% on numerous U.S. goods and maintained extensive
paperwork requirements, media accounts note. Therefore, the
reasoning went, President Trump's pledge to withdraw the
United States from NAFTA in the absence of a new deal was
like vowing to demolish a bridge across a treacherous chasm.
Count Lawrence among those who predicted the new bridge
would go up.
In a conversation almost two years ago, he recalls, a moderator
asked him and another other energy industry expert to handicap
the odds of a new North American trade deal. At the time,
Lawrence remembers, U.S. tariffs against Mexican and Canadian
steel and aluminum dampened the outlook for a new agreement.
"The other person said it wouldn't happen, but I said it

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