A Kansas City Southern exec says the energy sector needs to be included in the trade deal because the U.S. could eliminate almost half its deficit with Mexico by exporting refined products.
While the United States, Canada and Mexico each have a version of how the NAFTA renegotiations are going, the trade industry in general has been hopeful agreement will be reached soon on the 24-year-old trilateral trade deal.
Brian Hancock, executive vice president and chief marketing officer at Kansas City Southern, a Class I railway with extensive operations in Mexico, touted the importance of NAFTA during the Rail Supply Chain Summit in Chicago on Wednesday, but also gave some tips on how the deal could be improved.
Hancock pointed out that the energy sector needs to be included in NAFTA because there are currently tariffs on oils, refined products, liquid petroleum gases and even some electricity.
Mexico’s economy is dependent on energy, but it’s very unlikely it will build a refinery within the next 10 years, he said, adding that the United States could eliminate almost half its deficit with Mexico through exporting refined products to that country.
Trump continuously has come down hard on decreasing trade deficits with countries in general and repeatedly has stressed that renegotiating NAFTA must be done so in a way that would lower trade deficits.
The U.S. goods and services deficit with Mexico totaled $69.3 billion in 2017, up every year since 2013, according to the U.S. Department of Commerce’s Bureau of Economic Analysis.
Hancock also noted there are no services included in NAFTA, pointing out that transportation and food services all are getting taxed as they go across the border.
He also said one thing that is critical is protection of investment.
“If you see GM go down and build a billion-dollar plant in Mexico, under NAFTA, that is a protected asset,” he explained. “And the company has protections outside of the normal court system in Mexico where they can go to make sure that asset is protected. It’s a very important part of the North American Free Trade Agreement and one that our administration and the United States has said ‘it’s not that big of a deal.’”
This is because if a company had a big plant in the U.S. and decided to abandon it, for example, the U.S. could actually confiscate it if the clause that protects investments was removed, he explained. Protection of investments allows companies to make global sourcing decisions and global investment decisions without the risk of having that asset being taken back into the government if it is privatized.
Going forward, it appears a renegotiated NAFTA will not be happening anytime soon. Renegotiation talks began back in August, but just Thursday, U.S. Trade Representative Robert Lighthizer said, “The NAFTA countries are nowhere near close to a deal.
“As I said last week, there are gaping differences on intellectual property, agricultural market access, de minimis levels, energy, labor, rules of origin, geographical indications and much more,” he said. “We of course will continue to engage in negotiations, and I look forward to working with my counterparts to secure the best possible deal for American farmers, ranchers, workers and businesses.”
How could NAFTA be improved?
