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Organized byNorth American Forum on Integration (NAFI)Escuela de Graduados en Administracin Pblica y Poltica Pblica del Tecnolgico de Monterrey (EGAP)Mexican Council on Foreign Relations (COMEXI)

Abstracts

THE IMPACT OF FEDERALISM ON THE ENERGY SECTOR

Friday April 2, 2004Room Continental - 4:00 to 5:15 p.m.

In what way do U.S. and Mexican states and Canadian provinces influence the form and rate of NorthAmerican energy integration? Does federalism make for easier cross-border integration on a regionallevel? What place do states and provinces have in the continental energy debate? Does well-functioning federalism constitute a contributing factor to energy security?

CHAIR

Eduardo ANDRADE ITURRIBARRIAPresident, Mexican Association of Electric Energy

Engineering Major from the University of Mexico with specialization on Project Management; also has studies incorporate finance from Tecnolgico de Monterrey and Capital Investment Projects from the Organization of

American States. Member of the Board of several not-for-profit and educational organizations. Currently he isPresident and Chairman of the Mexican Association of Electric Energy and President and Chairman of the MexicanChapter of the World Energy Council; he works for Techint, an energy oriented industrial group based in Italy and inMexico since 1954. He is a regular speaker on energy issues in seminars and conferences both in Mexico andabroad.

SPEAKERSEarl FRYProfessor of Political Science, Brigham Young University

Earl H. Fry is Professor of Political Science and Endowed Professor of Canadian Studies at Brigham Young University.He is the author of many articles and books dealing with North American economic relations. He previously servedas Special Assistant in the Office of the U.S. Trade Representative, and has been the Bissell-Fulbright Professor at the

University of Toronto and the Thomas O. Enders Fellow at McGill University. He is the former President of theAssociation for Canadian Studies in the United States.

ABSTRACT

Introduction of the paper entitled "The Impact of Federalism on the Evolution of the NorthAmerican Energy Sector

The North American Free Trade Agreement (NAFTA), which went into effect in 1994 and will be fullyimplemented by 2008, exemplifies the growing interdependence between Canada, Mexico, and theUnited States. Figure I illustrates various dimensions of North American interdependence. For example,

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Canada and Mexico rank as the two leading trading partners of the United States. U.S. exports toCanada actually surpass its exports to the entire European Union (EU), even though Canada has fewerthan 32 million people and the EU has 380 million inhabitants. U.S. exports to Mexico are almost twiceas large as its combined exports to Central America, the Caribbean, and South America. Since theimplementation of NAFTA, U.S. trade with Canada and Mexico has grown much more rapidly than withthe rest of the world, climbing from 31.5 percent of all U.S. exports in 1993 to more than 37 percent in2002. U.S. direct investment north and south of its border has also climbed rapidly, with U.S.-ownedcompanies in Canada producing the equivalent of 10.3 percent of Canadas gross domestic product(GDP) and providing 1.15 million jobs within Canada. Since NAFTAs inception, U.S. direct investment inMexico has been growing at an even more rapid rate than with Canada, with U.S.-controlled enterprisesholding 115 billion dollars in assets in Mexico and employing 1.05 million Mexican workers. As forCanada, its direct investment in the United States stood at 92 billion dollars at the end of 2002 and itscompanies have recently made sizeable investments in the U.S. energy sector.

NAFTA is a partnership of the worlds largest, eighth largest, and ninth largest economies, accordingto the World Banks gross national income (GNI) rankings in 2002. However, the North Americaneconomic relationship is asymmetrical, with Canada and Mexico being much more dependent on access tothe huge U.S. marketplace than vice-versa. The U.S. population base is almost three times larger thanMexicos and almost ten times larger than Canadas. The GNI differential is even greater, with U.S. GNI14 times larger than Canadas and 17 times larger than Mexicos. Over 80 percent of all Canadian andMexican exports are destined for only one foreign market, the United States, and these exports account

for over one-third and one-fifth respectively of each countrys annual production of goods and services.This paper will concentrate on a rather unusual dimension of the very extensive and elaborate North

American economic relationship, the impact of federalism on continental energy cooperation andsecurity. Joseph Dukert asserts that trilateral cooperation among the three sovereign nations of NorthAmerica is arguably more advanced in the field of energy than in any other aspect of everyday life. Thereare only 25 nations out of almost 200 in the world today which maintain federal systems of government,and three of them are members of NAFTA. The three sovereign nations referred to by Dukert aregoverned by three national governments, 92 major subnational governments in the form of states andprovinces, and over 100,000 additional county, municipal, township, village, and special-district forms oflocal government. The paper will explore how modern-day federalism is currently affecting NorthAmericas energy relations and what effect it might have on this relationship over the next two decades.

Joseph M. DUKERTIndependant Energy Analyst

Joseph M. Dukert, an independent consultant since 1965, has focused since 1990 on North American energy. Hehas been involved in the preparation of numerous U.S. energy policy documents; and he was a senior advisor to theCommission for Environmental Cooperation (CEC) of North America for its report on the environmental effects ofNorth American electricity trade. On behalf of the U.S. Energy Association, he developed the policyrecommendations on North American energy that USEA submitted in response to the Cheney Report under thecurrent Bush administration. Recently, he was named a senior fellow of the U.S. Association for Energy Economics.

ABSTRACT

Coping with the Federalist Reality in North American Energy Trade

National energy policy in Canada, the United States, and even Mexico is influenced to varying degrees bydiverse regional interests and attitudes. This federalist characteristic influences how policies articulatedby the central authority are actually implemented. That may determine how energy resources andinfrastructure are developed . . . and thus how continental trade takes place. A commonality of cross-border interests facilitates international cooperation, but local recalcitrance can block it. Methodicalanalysis of subnational priorities is advisable, perhaps increasing chances of any projects success.

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