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From pages 15-17
Mexico is also a major energy supplier and customer within North
America. In 2004, it was the second-largest exporter of oil to the United
States; in previous years, it was consistently among the top four suppliers.
Mexico relies for a significant share of its revenues on the state oil
producer (Pemex). It has major oil and gas reserves, but these are
relatively untapped. Development has been hampered by constitutional
restrictions on ownership, which are driven by an understandable desire
to see this strategic asset used for the benefit ofMexicans. This restriction
on investment, coupled with the inefficient management of the state
monopoly, Pemex, has contributed to low productivity. As a result,
16 Building a North American Community
Mexico has expensive and unreliable supplies of energy for its consumers
and industries. Mexico has begun to bring in some foreign capital
through multiple service contracts, but the most serious constraints on
its future growth as an energy supplier are the restrictions that impede
development of its own energy resources and the low productivity of
Pemex. Reforms in this area are needed urgently.
Although energy security represents perhaps the most critical challenge,
it is important to recognize that trade in other natural resources,
including metals, minerals, wood, and other products, is also central
to the growth and economic security of North America. In these other
resource sectors, NAFTA has not succeeded in ensuring a free flow of
goods. Resource and agricultural products such as softwood lumber,
fish, beef, wheat, and sugar have been the flashpoints for highly visible
trade disputes. The softwood lumber case has led some Canadians to
question whether the United States will comply with NAFTA if decisions
by the dispute-settlement mechanism run counter to private
American interests.TheUnited States andMexico have failed tocomply
with free trade provisions on movement of trucks for more than a
decade, and the failure to resolve the softwood lumber case between
Canada and the United States has plagued their trade relations for
the past quarter century. Changing some trade rules and the disputesettlement
process may reduce this friction, as would a determined effort
to reduce unnecessary regulatory differences within North America.
NorthAmerica is blessed with an abundant resource base. Exploiting
these resources on a long-term, sustainable basis requires that the three
governments work together to resolve issues and ensure responsible
use of scarce resources and the free flow of both resources and capital
across all three borders. As noted, the most troubled areas of crossborder
trade over the past twenty years have been in resource trade,
largely because of the impact of regulatory differences, including different
approaches to resource pricing and income protection. Efforts to
eliminate these problems on the basis of dispute-settlementmechanisms
have not worked as well as anticipated.
WHAT WE SHOULD DO NOW
• Develop a NorthAmerican energy strategy. Recognizing their
individual policies and priorities, the three governments need to
Recommendations 17
work together to ensure energy security for people in all three
countries. Issues to be addressed include the expansion and protection
of theNorthAmerican energy infrastructure; development opportunities
and regulatory barriers; and the technological andhuman capital
constraints on accelerated development of energy resources within
North America. These objectives form part of the agenda of the
North American Energy Working Group established in 2001 by
the leaders of the three countries and emphasized in their 2005
summit meeting. This initiative, however, has so far made only
modest progress toward developing a North American strategy, and
it does not cover oil.
• Fully develop Mexican energy resources. Although the inclination
of Mexico to retain full ownership of its strategic resources is
understandable, expanded and more efficient development of these
resources is needed to accelerateMexico’s economic growth.Mexico
is quickly losing ground in its energy independence, and the only
way to satisfy growing demands within Mexico is to find ways to
unlock its energy sector. Progress can be made even under the
existing constitutional constraints. As discussed above, Canada and
the United States could make important contributions in this effort
throughthedevelopment of creativemechanisms, especially financial,
that bring needed technology and capital to Mexico. The most
important steps, however, must be taken in Mexico by Mexicans.
• Conclude a North American resource accord. In order to
ensure the fullest development of North America’s mineral, forest,
and agricultural resources, investors in one country need to be confident
that they will not be harassed by competitors in another. To
that end, the three governments need to conclude an accord that
recognizes the balance between security of supply and security of
access and includes rules about resource pricing that will reduce the
friction that has given rise to some of themost persistent and difficult
bilateral irritants.A resource accord should also address the remaining
barriers to trade in agricultural products, including barriers that arise
from the different regimes in the three countries, to guarantee prices
and incomes.
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