Energy, Especially Oil and NAFTA

Don Fitz

IF WE DIDN’T already know that money was the source of all evil, we might be tempted to say that it was oil. Burning fossil fuels is the largest cause of air pollution, acid rain, and global warming. Oil spills ruin beaches, kill plant and animal life, and destroy livelihoods such as those based on fishing and tourism. Oil makes it easy to transport goods huge distances unnecessarily. This undermines the self-reliance of communities and renders them dependent on multinational corporations.

Oil means people drive instead of walking or riding bikes. Neighborhood stores and restaurants go under. They are replaced by shopping malls, the temples of a vacuous lifestyle based on the profane worship of consumable objects.

But the truly great evil of oil is its derivatives. Petrochemicals form the basis of the disposable society plastics, styrofoam, packaging. Landfills become stuffed with garbage which lasts for centuries and decomposes when it comes into contact with solvents which turn petrochemical derivatives into an infinite variety of unstudied poisons.

Then again, petrochemical derivatives can be incinerated—and we have dioxins and furans (dioxin like compounds) among the many poisons floating in the air. We have oil to thank for the highest rates of cancer which can be found at work and in the community.

Nevertheless, oil is the basis for creating some very important products (especially durable plastics). Any rational society would conserve fossil fuels for use by future generations. One of the many disgusting features of late capitalism is its rush to gouge out the remaining petroleum deposits. If a future society discovers a petroleum derivative which is essential for saving human life, they may well find that this non-renewable resource was sacrificed to having styrofoam covers on Pepsi bottles during the pre-civilization era.

This is one of two major reasons for concern with energy provisions in the North American “Free” Trade Agreement (NAFTA) signed by George Bush on September 6, 1992 and now before the U.S. Congress. Another reason for worry is how NAFTA was designed to further Washington’s domination of Mexico.

Critics most often emphasize how NAFTA would exacerbate the destruction of U.S. jobs, poisoning of Mexican communities and contamination of our food. With the spectre of “dining with DDT” looming on the horizon, it is easy to be unaware of the importance of energy in the negotiation of NAFTA.

The United States is the world’s largest energy consumer and has one-third of the world’s electrical capacity. Some experts say that Mexico has the largest oil reserves outside of Saudi Arabia; others, that its reserves are the fourth largest in the world. All types of energy combined already account for the largest percentage of U.S. trade with Canada and Mexico. NAFTA is written to allow rapid trade in energy, especially oil.

Mexico and Oil

When speaking at a St Louis Conference on Fair Trade in February, 1993,1 asked people to raise their hands if they knew the year that President Cardenas expropriated foreign oil holdings. Two out of about 100 hands went up. Next, I asked how many people knew what country Cardenas was president of. Much better this time—about half the audience raised their hands.

If such small number in an audience of progressive activists knew a date this central to Mexican history, what might be the rate of knowledge among other U.S. citizens? The absence of understanding of Mexico reflects an attitude that NAFTA Supporters are banking on to carry the agreement through Congress. It is a feeling that Latin Americans have little history or culture worthy of our study.

Mexicans, of course, are quite proud of their history. Before 1917, Mexican energy was 70% owned by foreigners. U.S. and British companies had dried up some of its most important reserves in a few years. One goal of the Mexican Revolution was to regain control of their natural resources. They wanted to put an end to foreigners draining their country and preserve natural resources for future generations. Article 27 of the 1917 Mexican Constitution assures that Mexican citizens will have-exclusive subsoil rights. It prohibits foreign participation in oil exploration, refinement, and basic petrochemical production.

In March, 1938, President Lazaro Cardenas expropriated foreign oil companies and consolidated them in the government company, Pemex. This is often described as the last major act of the Mexican Revolution.” March 18 is still celebrated annually as a “day of national dignity.” Oil has a place unlike any other commodity in the Mexican economy and sense of national autonomy. Beginning in 1938, Pemex had the responsibility to make Mexico self-sufficient in energy F Mexican law specifies that Pemex functions to provide employment, low prices, and national autonomy rather than to make a profit Profits from oil have provided capital for Mexican industrialization.

Immediately after nationalization, the expropriated foreign oil companies boycotted Mexican oil, causing a five-sixths drop in oil exports during 1938. But Germany and Japan were more than willing to buy Mexican oil. The spectre of sales to Axis powers prompted Washington into lifting the boycott in 1940. During the 1950s, U.S. investors tried to get Mexico to soften its position on subsoil rights in exchange for providing equipment to extract its maritime oil deposits. Antonio Bermudez, then Director of Pemex, responded that it” .would have been easier to change the colors of the Mexican flag than to change the country’s laws relating to petroleum?

The 1976 discovery of offshore oil reserves in the Bay of Campeche allowed Pemex to become a major world exporter. International bankers enthusiastically offered new loans to develop the oil fields. Mexican debt increased from $4.5 billion in 1971 to $80 billion in 1982. That year, the price of oil plummeted and Mexico’s finances were a disaster.

Miguel de la Madrid, President from 1982 to 1988, obtained “help” from the International Monetary Fund. Its austerity program contributed to 50% under-and unemployment, malnourishment of a majority of Mexicans, and poverty for40 million of its 85 million citizens.

By the judgment of most outside observers, Cuauhtemoc Cardenas defeated Carlos Salinas of the Partido Revolucionarlo Institucional (PRl) on July 6, 1988. But FRI counted the votes and declared its candidate victorious. The popular reformer Cardenas, son of President Lazaro Cardenas who nationalized oil in 1938, recently announced his intention to run again in 1994.

Since 1988, Salinas has had an opportunity to put into effect ideas he learned while an economics graduate student at Harvard. He has done everything in his power to reverse Mexico’s reputation of having one of the most highly state-regulated economies in this hemisphere Privatization, foreign investment, and lowered wages have characterized his Presidency. Salinas urged George Bush to expand the Canada-U.S. Free Trade Agreement to include Mexico, believing that a NAFA would be the ultimate cure-all for his country’s economic ills.

A New Religion

Worshipping the vice of gluttony, NAFA proclaims that Free Trade is the one true god and commands all lesser deities to bow before it NAFTA is designed to ensure that the regulatory structure of the three countries will not hinder development, especially of oil. Its “dispute resolution panels” will be empowered to rule on local and national laws which are vital for regulating the energy industry. Not requited to listen to expert scientific testimony, these panels of international trade bureaucrats will be able to rule that laws are “non-tariff trade barriers” and impose heavy fines if they are not removed.

An example of a bill that could fall is one in the Massachusetts state legislature (S. 336) which would apply U.S. standards to hydroelectric projects like Hydro Quebec. It would prevent importation of energy created with environmentally destructive practices. Thus the James Bay Hydro Quebec project would not be approved under the proposed guidelines. But a NAFTA dispute resolution panel could easily decide that such a bill would be a non-tariff trade barrier. Since national laws typically follow the lead of the most advanced state laws, the effect of NAFTA would be to chill enthusiasm for innovative environmental regulation. U.S. environmental legislation which could be invalidated by NAFTA include Clean Air Act Amendments, the Clean Water Act, the Environmental Protection Act, and the Resource Conservation and Recovery Act (RCRA).

The Reagan-Bush years leave a legacy of environmental destruction. Last year, Washington helped save the oil and gas industry billions of dollars annually by continuing to exclude wastes from their drilling from the Resource Conservation and Recovery Act (RCRA). Will Bill Clinton and Al Gore see the light and do a 180 degree turn? This seems highly. improbable. The year 1992 marked an all-time low for oil and gas companies, most of which had extensive layoffs, restructuring, and cutbacks in exploration and production. Unless he opts for massive economic restructuring, the most likely way for Clinton to improve employment in the sector is with a big expansion in fossil fuel extraction. This means looking south of the border.

Carol Alexander and Ken Stump document this in their excellent study on NAFTA and Energy Trade (available for $5 from Greenpeace, 1436 U. St, N.W., Washington DC 20009). They explain that “The US is the most extensively explored geological region in the world. After such extensive drilling, it is highly unlikely that large fields remain to be discovered.”

U.S. oil and gas reserves will be exhausted in less than a decade if current use rates continue. Compared to Mexico, the United States has twice the gas reserves but one-half the oil reserves. It is hardly an accident that NAFTA has no provision in its energy charter for judging the environmental impact of energy development projects. NAFTA is not in: tended to render energy production environmentally sound—it is designed to intensify the existing international division of labor. As James McKie of the University of Texas put it, “The Canadians and Mexicans had no illusions about what that [trade policy] meant A North American policy meant that they produce the energy and we consume it.

U.S. Business and Mexican Oil

Even President Salinas could not get Mexico to change its constitution to allow foreign ownership of oil. But there is another option. If Mexico wants to increase its oil revenues to pay its foreign debt, then it might decide on its own to “liberalize” many restrictions in order to obtain dollars. This is the orientation supported by US corporate advice groups such as the Institute for International Economics (HE). In a book written for the lIE (North American Free Trade: Issues & Recommendations, 1992, p. 207), Gary Hufbauer andJeffrey Shott unabashedly spell out a prudent business approach.

A strict reading of the 1917 Constitution has become a rallying point for elements of Mexican society that are broadly opposed to NAFTA talks. The United States should sidestep this ideological trap by promoting a results-oriented strategy rather than a rules-oriented approach—increased oil production in Mexico and trilateral energy trade should be the goal. This will require operational reforms within Pemex to increase efficiency and productivity and to promote greater foreign participation in exploration and development of energy resources.

Not exactly proponents of renewable energy, these authors suggest that their strategy could result in a doubling Mexico’s oil production to five million barrels a day by 2005.

George Bush’s Trade Representative Carla Hills said that the NAFTA she negotiated opened the door to U.S. control of Mexican oil resources. In her testimony to the House Ways and Means Committee on September 9,1992, she claimed that “…the agreement creates greater market access in energy and petrochemicals. NAFTA allows U.S. producers to invest and compete in virtually all petrochemicals and it enhances the access of U.S. energy firms to Mexico’s electricity, gas, energy services and equipment markets.”

Thus, NAFTA is explicitly designed to do the very things that we should be most worried about: (a) increase dependence on fossil fuels, especially oil; and (b) undermine Mexico’s control of its natural resources.

This could not be accomplished without active cooperation from a sector of Mexican society. Salinas represents those wealthy Mexicans who have been laying the groundwork for increased penetration of their society by trans-national corporations (TNCs). In June, 1992, he presented a proposal to split Pemex into four subsidiaries, each functioning as independent businesses.

Pemex officials reported that such a course would help its management focus on value-oriented objectives rather than its traditional goal of self-sufficiency. This dovetails nicely with the aim of American corporations to turn Pemex into a profit-making venture to service the national debt.

In order to preserve control over development of oil resources, Pemex has maintained a list of “primary petrochemical deals that cannot be owned by private investors and a list of “secondary petrochemicals that are limited to 40% ownership by foreigners- As recently as 1986, there were over 100 primary petrochemicals and 66 secondary ones Under Salinas, both lists have dwindled. NAFTA reduces the number of primary petrochemicals to five and abolishes the secondary category.

 From the beginning of the negotiations, many Mexicans have openly expressed concerns with what Salinas was scheming. According to Adolfo Aguilar Zinser, Professor at the National Autonomous University of Mexico:

“First and foremost is the fear that oil resources will be traded in the agreement for commercial concessions or investment commitments. Oil has a central role in Mexico’s modern struggle for independence; it is not only a symbol of sovereignty, it is widely recognized as a collective patrimony, a resource Mexicans should use responsibly for development, and should preserve for future generations. No other national asset has this prominence.” (March 6, 1991 testimony to Subcommittee on International Economic Policy, US House Foreign Affairs Committee, from Trading Freedom, edited by John Cavanaugh, John Gershman, Karen Baker & Gretchen Helmke, 1992)

By the time Bush, Salinas and Mulroney signed NAFTA on September 6, 1992, similar observations were being made by groups throughout Mexico.

Red Mexicana de Accion Frente al Libre Comercio (Mexican Action Network on Free Trade) is a coalition of over 100 organizations devoted to labor, peasant, urban, ecological, women, educational and human rights issues In November, 1992, it expressed its concerns with NAFTA’s energy provisions:

“In the area of oil and its derivatives we can dearly see that the President did not fulfill his promise of excluding this theme from the negotiations. Rather, the government has converted this strategic resource into merchandise. It will be very difficult for Mexicans to again gain control of this merchandise.”

NAFTA: A Very Clever Document

Just what does NAFTA accomplish with regards to oil and other sources of energy? It’s easier to say what it does not do. NAFTA does not require Mexico to repeal Article 27 of its Constitution and allow foreigners to own oilfields. Rather, it lays the foundation for increased TNC control over energy. Its dispute resolution panels could declare local and national laws to be non-tariff trade barriers. Companies can request governments to challenge laws that set efficiency guidelines for machines and appliances or establish standards for electricity importation (such as Hydro Quebec).

As mentioned, NAFTA further expands the number of primary and secondary petrochemicals which Mexico allows foreigners to own. This is one of many NAPTA provisions which subtly undermine Mexico and Canada’s ability to control their energy resources. Green-peace researcher Cameron Duncan scrutinized NAFTA to report on its energy sections for the “US Citizen’s Analysis of NAFTA,” released in December, 1992 (available from The Development GAP, 1400 I Street, NW, Suite 520, Washington DC 20005). He described several other ways NAFTA furthers the interests of TNCs:

1. Article 608.2 allows for continued government subsidies and incentives for oil and gas exploration. The United States already gives the fossil fuel industry over $25 billion a year in direct and indirect subsidies. (The absurdity of a “free trade agreement discussing government subsidies shows what utter doublethink NAFTA promoters are foisting on us.) It should come as no surprise that NAFTA is devoid of any provisions promoting energy efficiency or sustainable technologies.

2. Articles 603 and 604 block attempts to conserve fossil fuels. They reduce allowable export quotas and export taxes, which have been essential for slowing the depletion of natural resources. A major goal of Bush negotiators was pulling this hemisphere’s oil prices down to world market prices, which will, of course, speed their extraction and sale.

3. Articles 409 and 904 prohibit the United States and Canada from giving priority to their own country’s energy needs, even in times of shortage.

4. Some of the more complex aspects of NAFTA are covered in Annex 602.3, which require Mexico to accept “performance contracts” for oil exploration. This means that companies can demand bonuses if they hit oil rather than working for a flat fee. Very similar to “risk contracts,” which would allow companies to keep a portion of the oil discovered, this is another way for US companies to make inroads to controlling Mexican resources.

5. U.S. drilling companies would be able to work for Pemex on land as they currently do for offshore drilling.

6. Rather than going through Mexican agents, U.S. companies will be able to have contracts directly with Pemex.

New World Order?

NAFTA is not a mistake or aberration—it is one important step in remaking the world in a corporate image. In June 1990, two weeks after announcing plans for free trade talks with Mexico, George Bush introduced the Enterprise for the America’s Initiative (EM). It would enlarge NAFTA into a hemisphere-wide agreement Already 70% of Latin America’s crude oil and product exports go to the United States and make up one-third of U.S. imports.

U.S. business is dedicated to firming up the pattern of U.S. producers’ developing oil for U.S. consumers, and Latin America’s using oil as an export commodity to service their debts. Instead of conserving oil for efficient use, Latin America is being molded to adapt to the need of U.S corporations to expand profits.

Many Latin Americans are well-aware of the dangers of what the exploit-consume-pollute cycle offers them. As the Red Mexicana de Accion Frente al Libre Comercio observes, ‘In the area of services, activities that use cheap and intensive Libor have seen set aside for Mexico. Those activities that use complex technology have been given to our northern neighbors. This shows the division of labor that the FFA offers us.’ Any strategy for combatting the GATT and NAFFA means linking struggles in the United States to those of Latin America and Canada.

Alternatives to NAFTA

It makes little sense to oppose the effects of international trade agreements without challenging the market system which gives rise to them. Two key concepts to propose are source reduction and economic conversion. Source reduction is lowering pollution by reducing the amount of fossil fuels produced. (It is not “clean-up,” a futile attempt to contain poisons already released into the environment.) “Economic conversion” means restructuring industry so that we increase rather than decrease jobs during this change.

Concepts such as these are essential for expanding the alliance between labor, farm, environmental and human rights groups which have sprung up across the continent. There are several concrete alternatives which alliances can offer to show the possibility of a completely different type of international trade agreement.

1. We should change the work week to thirty hours. This would preserve employment while shifting from petrochemical and automobile production toward mass transportation and solar and wind power. If it takes less work time to produce things in a rational way, we should all work less rather than eliminating some people’s jobs.

2. The United States should eliminate nuclear power and prohibit the importation of nuclear energy from other countries.

3. Any new international trade agreement should set minimum standards for labor rights and workplace and community safety. If countries do not enact acceptable laws or do not enforce them, they should be subject to sanctions for committing ‘unfair trade practices’ of artificially lowering prices.

4. A new international trade agreement should allow countries to make laws which address the way in which energy is produced. The United States should prohibit the importation of energy which was produced wastefully or dangerously.

5. The United States should end all subsidies for fossil fuels. It should establish subsidies for solar and wind power. And it should make any technology which it develops for solar and wind power available to the rest of the world.

(This proposal is critical for building labor-environmental alliances—renewable energy systems provide two to five times as many jobs as does electricity generated from fossil fuels or nuclear sources.)

6. The United States should establish “true cost pricing” on energy. In a market economy, the price of energy reflects raw materials, exploration, labor, and profits. Energy prices do not include externalities, or non-market factors such as medical expenses from breathing air contaminated by burning fossil fuels, the military price tag for subduing Middle Eastern and other countries, or the costs of storing nuclear waste for 500,000 years. Estimates for some hidden costs of U.S. fossil fuel energy (tax credits, pollution, healthcare, lost employment) are between $100 and $300 billion annually. It is impossible to compute externality costs for factors such as species extinction, destruction of natural beauty, or racism stirred up by foreign wars.

7. In order to preserve valuable fossil fuels for future generations, the United States should establish quotas on their extraction.

8. The United States should pass a constitutional amendment guaranteeing workgroups and communities the right to halt production or importation of substances which threaten their health or safety.

It would be a wishful hallucination to think that these could happen with a good lobbying campaign. NAFTA cannot be patched up with parallel or “side agreements. These issues were ‘left out of NAFTA because they are not part of the corporate agenda. George Bush’s September, 1992 NAFTA did exactly what it was supposed to do—provide the basis for an obscene expansion of trade, especially in oil. The structure of NAFTA’s dispute resolution panels were not designed to create a just world or to conserve fossil fuels for future generations. Anyone who seriously wants to defeat NAFTA should consider the need to create entirely new political and economic systems. One small step in that direction can be throwing out Democrats and Republicans and electing Greens and others dedicated to constructing those new systems.

September-October 1993, ATC 46