natural disaster preparedness

Effects of NAFTA in Mexico’s oil and energy sector





North American Free Trade Agreement (NAFTA) was signed by three North American states namely Canada, Mexico and United States to remove all the trade barriers and foster free trade since 1st January 1994. It has eliminated all the tariffs barriers imposed on the imports and exports of the goods shipped within the three partner countries, it was meant to create more job opportunities, increase the importation of goods from the United States. It intended to make the North American continent one economic block where there is a free trade among the member countries and so-far it is the largest free trade agreement in the world in terms of Gross Domestic Product (GDP). Since its implementation, with the goal to remove all the trade barriers for investments, promotion of good conditions for competition and to increase investments opportunities by luring investors between the United States, Canada and Mexico, a lot of economical impacts have been realized among the partner’s states(Bromley, Simon, et al 2004)  United States has been the major beneficiary for it had earlier networked in businesses with other major traders hence had a lot of goods to distribute in the new established markets.

Among the three member states who signed the agreement, it is only Mexico which has monopolized its energy sector making other states to take advantage of the agreement to exploit the untapped resources. Mexico has energy policies which limits its core players in the energy sector and also limiting both internal and external constraints. Though the agreement was meant to promote investment on all the sectors, it has significantly impacted the Mexican oil and energy sector negatively, as NAFTA agitates for free trade within the member states and open investments opportunities, Mexico feels offended by the policy when it comes to oil and energy sector. United States has been exerting pressure on the Mexican government to conform fully to the framework of NAFTA provision which opens all the barriers for free trade. According to Schott (2004), United State came into negotiation with NAFTA just for the Mexico to open its energy sector for exploitation by the United States, this one not withstanding has a constitutional ban on foreign investments on its natural oil and energy sector, it therefore means, it can not get into legal agreement with any foreign investors on issues related to its natural resources like crude oil, coal which are unexploited. With NAFTA in place, it allows for member states to explore such opportunities like in Mexico which the government has monopolized before the agreement was reached.  Agreeing with the policy could deny them the more revenue they get from the oil and energy export since they are the major importer of crude oil to United States.

According to the Mexican constitution on article 27, it gives only the government legal authority to exploit and distributes its natural resources. This should only be aims at promoting public good and enhancing the nation’s welfare, it does not allow for private or international investors chances to explore its resources. Since the NAFTA was enacted, a lot of pressure has been put on the Mexican government by the NAFTA member states to allow for constitutional reforms which currently gives the government powers to monopolize its natural resources including oil. Constitutional amendments will allow other member states to exploit the untapped natural resources as the NAFTA provides for. Currently the Mexican constitution restrains private investors and any foreign state from exploring the natural resources in Mexico for their own benefit. Constitutional reforms will allow for amendments of articles which bar the foreign investments and this will result to more exploitation of Mexican crude oil and other natural resources.

NAFTA agreement has had a number of effects on the Mexico’s oil and Energy sector. This has been fueled majorly by partner states who demands to gain access to tap the crude oil. Some of the effects have been discussed here. There has been pressure on the government to produce more oil to meet the demand for production. With the limited capacity of oil production by the government, meeting both internal and external demand has been difficult. Lack of the capacity to meet the demand has called for frequent call to the government to liberalize the energy sector to attract more investments.

With NAFTA put in place to remove or reduce the trade barriers and taxes on exports and imports, United States has been importing energy and crude oil products from Mexico at a reduced rate. This has led to reduced prices resulting to minimal revenue from the sales of crude oil hence more demand for more. The limited investments in energy sector with increased demand from both national and international investments has led to inefficiency in the oil and energy sector which threatens the economy because the cost of energy is very high and cases of blackouts are witnessed regularly. This has led the government to inject more money in the sector to meet more demand by improvement of infrastructure and electricity generations to keep the demand (Glick 1993:404).

The agreement guarantees the United State the right to supply the Mexico energy sector with the petrochemical and drilling equipment and search for the crude oil on behalf of the Mexican state. The Mexican interns pay performance bonuses for identifying the rich parts containing the crude oil and other natural resources. This has made the Mexican government to use more money in identifying the vast sites with natural resources and crude oil by United States despite regular attempts to regulate foreigners from taking part in the exploration. It therefore gives the two nations an opportunity to be symbiotically related. It has enhanced bilateral trade between the two countries.

There has been expanded energy production by the Mexican government from the energy sector; this has been characterized by the low cost petrochemical and drilling machines supplied by the United States. The increased domestic demand has also provided steady and reliable market for more energy consumption. Many of the member states has been in constant demand for more crude oil due to expanded block of trade which require more goods and services for the bigger markets. More pressure is generated to the government to use the revenues generated from the sales of oil to increase production through building of more refineries and expanding the sector.

Since the implementation of the NAFTAL agreement, Mexican import has been rapidly increasing over the years going beyond the rate at which it exports its products, this was associated by the fact that china and United States were it trade partnership before which made it easier for goods to move into the Mexican nation. This was also characterized by higher production of goods by other member states like Canada which also had vast minerals. The increased imports led to decrease in unemployment since there were more jobs created to cater for the majority who were unemployed .This has intern put more pressure on the energy sector and more production of oil for more production of goods. The rural to urban migration was also reversed since there was rural share in development.

According to O’Brien and Williams (2007), NAFTA allowed greater access for United States and Canada firms to electricity, gas, petrochemical, energy services to sale them to state owned refineries through open and competitive biding. It also permitted USA and Canada to open their own plant generating electricity for their self use in Mexico hence it lifted investments restrictions which were earlier imposed. It permitted for direct negotiation by the firms to supply contracts with the Mexican buyers of natural gas and basic petrochemical.

As Kaplinsky and Rafael (2005:215) would put it, the agreement made Mexico to amend laws on the redistribution of the land in readiness for its effects and to change the burden of proof in domestic criminal laws to create a way on how the offenders who did no abide by NAFTAL policy will be punished. This created a loophole because United States moved to acquire land hence leaving the native Mexicans to live in squatters and also lead to collapse of the rural economy. Land grabbing from small landowners has led to loss of lives and poverty has increased among the rural communities

There has been dwindling reports on the democratic support by the energy sector of the government of Mexico concerning the provision. Mexican government has been captured by energy and border security issues making it hard to focus on the provisions of NAFTA besides Mexican GDP growing slowly on an average of three percent annually. This has made it difficult for them to deliberate on the tax and energy reforms needed to generate new reforms and structures in the energy sectors (Massimo and Harvie 2009). This has placed the energy sector on the competitive disadvantage compared to other competitors.

In conclusion, NAFAT agreement seems to be benefiting only the United States following the unequal level of developments (Beer and Weintraub, 1994). Both Canada and Mexico are not getting the full benefit of the agreements bearing in mind the low level of their industrialization. Mexico is still not up to the United States standard of development since it has not networked much to allow it exports more goods to the foreign market and this poses a bigger challenge. Canada on the other hand has relatively more goods to export to the foreign markets and still can not effectively compete with the American market. It is clear that United State negotiated the agreement with Mexico so that it could get the opportunity to tap the unexploited vast natural resources from the Mexicans. The agreement is in favor of United States who is looking for free trade agreements to supply their produce and with the impact of NAFTA being felt negatively, other partners may resort to reverse it. Although Mexico has marginally seen the increased growth in other sectors, it is majorly by the private sector that is from other partner’s state. Its export is minimal compared to import it receives each year meaning its economy benefits other member states.













Reference list

Bromley, Simon, et al (2004) A World of whose making? Making the

International: Economic Interdependence and the political

Order. London: Pluto publishers

Beer, M. Weintraub, S (1994) The NAFTA debate: grappling with

Unconventional Trade issues.

Gallagher, K. (2007) the Enclave Economy: Foreign Investments and Sustainable

Development in Mexico’s Silicon Valley. MIT Press

Gallagher, K. Chundnovsky, D. (2010) Rethinking Foreign Investment for

Sustainable Development Lessons from Latin America .Anthem Press

Glick, L (1993) Understanding the North American Free Trade Agreement: legal

and business consequences of NAFTA

Kaplinsky, Rafael (2005) Globalization Poverty and Inequality. Cambridge:

Polity Press.

Lustig, N. (1992) North American free trade: assessing the impact.New York:

Brookings Institution Press.

O’Brien, R, Williams, M. (2007) Global Political Economy: Evolution of

Dynamics (2nd ed) Basingstoke: Palgrave Macmillan

Massimo, A.Harvie, D (2009) Globalization? No question! Foreign direct

Investment and Labor Commanded,’ review of political economy


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