139 



Unfortunately, the NAFTA does not promote the goals of efficiency and renew- 

 ables, but rather emphasizes business-as-usual. 



I. INCENTIVES EXEMPTED 



Quite simply the NAFTA and its side agreements do nothing to promote the effi- 

 cient use of energy in any of the member countries. 



One of our main objections to the nature of current trade agreements is that in 

 their quest to root out so-called "nontariff ' barriers, they infringe on areas that have 

 long been the province of local, State, and National Governments. We have seen this 

 process most dramatically in the General Agreement on Tariffs and Trade (GATT). 

 There the European Community has announced that it plans to eliminate a wide 

 range of U.S. practices, from minority set-asides to subsidized western water for 

 farmers as unfair trade practices. The EC has initiated formal GATT actions against 

 two U.S. energy conservation laws — Corporate Average Fuel Economy (CAFE) 

 standards and the Gas Guzzler tax — as unfair trade practices. 



We bring up the GATT because the provisions of the NAFTA largely follow those 

 of the GATT. Like GATT, the NAFTA seeks to weed out subsidies and exemptions 

 granted to particular industries, since these allegedly skew the functioning of the 

 free markets. 



While in principle we believe that many of these decisions are social matters that 

 should be resolved through democratic means, rather than through trade agree- 

 ments, we would have at least expected that the agreement would have obligated 

 all aspects of the energy sector to the same rules. Unfortunately that is not the case. 

 In article 608.2 a broad exemption is granted to the oil and gas industry: "The par- 

 ties agree to allow existing or future incentives for oil and gas exploration, develop- 

 ment and related activities in order to maintain the reserve base for these energy 

 sources." 



The U.S. oil and gas industry already receives a wide range of "incentives" at tax- 

 payer and environmental expense. Many of these exemptions are documented in 

 Crude Awakening," a recent Friends of the Earth report on waste and inefficiency 

 in the oil and gas industry. We append a chart from that report which points out 

 how RCRA, Clean Water Act, Superfund, and other laws all contain broad exemp- 

 tions for the oil and gas industry. This report also documents the incredible energy 

 waste of the U.S. oil and gas industry, estimating that from wellhead to gas tank, 

 the oil industry currently loses about 236 million barrels of oil per year — roughly 

 the equivalent of 1,000 Exxon Valdez spills. NAFTA, by exempting incentives will 

 simply allow this waste to continue unabated in the United States. 



Perversely, the effect of the exemption for oil and gas incentives may pave the 

 way for future challenges to incentives for either efficiency or renewable energy that 

 governments at various level may be offering now or in the future. We can imagine 

 that if an incentive for a renewable energy source began to be so effective as to eat 

 into oil and gas profits, a NAFTA case could be launched in which the incentive was 

 challenged as an unfair trade practice. 



II. IMPROVING THE SITUATION IN MEXICO? 



It is no secret that PEMEX, the Mexican Government's oil and gas monopoly, is 

 an inefficient and highly polluting energy producer. Our staffs recent sight visit to 

 the State of Tabasco certainly confirmed this situation. 



Our colleagues in the energy industry will no doubt argue that U.S. investment 

 in Mexico's energy sector, to the extent that it is allowed under NAFTA, would ben- 

 efit the environment. To a limited extent, we agree with this analysis — the potential 

 is there for investments to improve the efficiency of the Mexican fossil fuels sector. 



That said, we are not convinced that the NAFTA does anything to actually make 

 that efficiency come about. The poor environmental record of PEMEX argues that 

 the Mexican Government will do little to regulate the oil and gas industry. NAFTA, 

 in essence, relies on the goodwill of the foreign investors to bring about efficiency 

 improvements and pollution reductions. As mentioned above, the U.S. oil and gas 

 industry, already feeding off numerous exemptions, has an extremely spotty record 

 here. Furthermore, reports we receive from our affiliates around the world indicate 

 that, once abroad, many of the U.S. oil companies comfortably satisfy themselves 

 with meeting the lowest environmental standards they can get away with in the 

 host country. 



As a subcommittee, you must ask yourselves if you believe that the oil industry's 

 promises of heightened efficiency and cleanup in Mexico actually square with their 

 successful efforts to exempt themselves from domestic U.S. environmental laws, or 

 from the disciplines of the international free trade agreement. We believe that in 



