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Negotiations to update North American Free Trade Agreement (NAFTA) are generating lots of reactions. Two of them being senses of uncertainty and opportunity.
On the side of doubt sits Nebraska cattle rancher, Craig Uden, who fears access to a valuable export market will vanish if President Trump pulls the U.S. out of NAFTA:
Mr. Trump’s threat to withdraw from the North American Free Trade Agreement strikes some as tough talk aimed at winning concessions from Canada and Mexico. But the 56-year-old Mr. Uden, who heads the National Cattlemen’s Beef Association, has decided to freeze his own cow herd at 1,500 head.
On the opportunity side is a greater opening of Mexico’s energy markets, writes James O’Connell of S&P Global Platts:
U.S. refiners exported 883,000 barrels/day of refined products to Mexico in April, near the record-high 1.2 million b/d in December, the bulk of which was gasoline and distillates, according to the U.S. Energy Information Administration. ExxonMobil sees Mexico as an expanding market in which fuel demand is expected to grow 40 percent over the next 25 years, a period when the U.S. demand is expected to fall 17 percent.
At an event at the U.S. Chamber, Senators Pat Roberts (R-KS) and Ted Cruz (R-TX) laid out the uncertainty and opportunities a modernized NAFTA means for agriculture and energy.
Farmers need reliable access to international markets
Sen. Roberts echoed the worries farmers and ranchers in his state have told him about NAFTA negotiations.
"We are fighting a pervasive view that our economy has not benefited from NAFTA. And that is simply not right," said the chairman of the Senate Agriculture Committee.
“Over the course of the NAFTA agreement U.S. agriculture exports have increased to Canada by 265% and to Mexico by 289%" and Mexico "is the top destination for my Kansas wheat farmers."
The NAFTA affects "real jobs, real lives, and real people," Roberts implored. "Farmers and ranchers need a reliable market both domestically and abroad, not just to sell the things we make but also the commodities we grow."
They also need certainty. So a proposal by the administration to add a five-year sunset clause allowing any of the three NAFTA nations to leave the agreement would not inspire confidence or investment.
Opening the Mexican energy market
As for energy, Sen. Cruz declared the "single greatest opportunity for NAFTA renegotiation is energy," because of Mexico’s abundant, yet underdeveloped energy resources.
He noted out the energy-rich Eagle Ford Shale "doesn't end at the Rio Grande. The Eagle Ford Shale extends well into Mexico." With fracking technology, north of the Rio Grande it is being, producing jobs and prosperity. But south in Mexico, things are different. A 2014 Washington Post story noted, “while more than 5,400 wells have been sunk on the Texas side since 2008, Mexico has attempted fewer than 25.”
Mexico’s government has opened its energy sector for private and foreign investment, but Sen. Cruz told the U.S. Chamber audience he urged the Trump administration to "use this negotiation as an opportunity to open up that Mexican energy market."
Doing so would be a win-win for both countries.
"Developing those resources in Mexico will produce thousands of high-paying jobs in Mexico,” Cruz explained. “But as they develop the resources, the place they're naturally going to look for the expertise, for the know-how to develop those resources, is the United States."
Since it is already a big customer of U.S. natural gas, helping to develop Mexico’s energy resources would tie both countries closer together.
However, Cruz warned, pulling out of NAFTA would be disastrous. "Erecting those barriers, shutting off our markets, and as a result, shutting off the Mexican and Canadian markets, would do profound damage to the American economy and to Texas in particular."
The takeaway is American agriculture and energy — as well as other sectors — will be successful if the negotiations result in greater access to North American markets.