The timing of a new North American Free Trade Agreement could prove critical for Mexico’s reformed energy industry, with U.S. negotiators racing to reach a deal before the deadline.
U.S. and Mexican officials agreed to a preliminary NAFTA deal on Monday — with a more complete agreement expected by Friday. Negotiators have, so far, agreed to new rules concerning North America’s auto industry, with provisions that incentivize more production in both countries. News of the revamped deal sparked a rise in the stock market, with investors showing signs of confidence over the NAFTA talks.
However, bilateral negotiations will need to continue in order to reach a compromise on other measures. One major area of concern is the fate of Mexico’s energy industry. Trump administration officials are hoping to secure U.S. oil and gas companies’ presence on Mexican territory, a once-forbidden market for private investment.
For decades, Mexico’s fossil fuel industry was completely closed off to foreign investment, leaving Pemex — the country’s state-run petroleum company — enjoying a monopoly on the market. Plagued with debt, inefficiency and outdated equipment, Mexican President Enrique Pena Nieto opened the country’s oil sector to private investment in 2013. (RELATED: Mexico’s Incoming Leftist President Could Upend US-Mexico Energy Relations)
However, Pena Nieto’s term is coming to an end, and his leftist successor is no fan of privatization.
President-elect Andres Manuel Lopez Obrador — a progressive politician who will enter office in December — has been a harsh critic of Pena Nieto’s pro-market reforms. During the Mexican presidential election, Lopez Obrador campaigned on nationalizing the country’s oil industry once again. While he has agreed to respect existing contracts, it is not entirely clear how his administration will handle foreign investments moving forward.
When it first went into effect in 1994, NAFTA did not cover energy since Mexico was under a state monopoly. Now that major American companies such as Exxon have made inroads south of the border, negotiators have inserted language that covers oil and gas development. Lopez Obrador, unsurprisingly, has been critical of including any such provisions in NAFTA that enshrines foreign investment.
The U.S. trade delegation, led by Robert Lighthizer and Jared Kushner, has been working for five weeks to secure a deal. American trade officials and their Mexican counterparts have been rushing to solidify an agreement before Lopez Obrador’s administration could potentially topple any of its progress.
The U.S. and Mexico aren’t out of the woods once they finalize a new deal. Negotiators are required to wait 90 days before they can sign a new pact. This waiting period is what is giving trade officials reason for a sense of urgency, aiming to reach a deal and officially sign it off before the incoming Mexican administration enters office.
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