Chapter Six

Energy and Basic Petrochemicals

Article 601: Principles

1. The Parties confirm their full respect for their

Constitutions.

2. The Parties recognize that it is desirable to strengthen the

important role that trade in energy and basic petrochemical goods

play in the North American region and to enhance this role

through sustained and gradual liberalization.

3. The Parties recognize the importance of having viable and

internationally competitive energy and petrochemical sectors to

further their individual national interests.

Article 602: Scope and Coverage

1. This Chapter applies to measures relating to energy and

basic petrochemical goods originating in the territories of the

Parties and to measures relating to investment and services

associated with such energy and basic petrochemical goods, as set

forth in this Chapter.

2. For purposes of this Chapter, energy and basic petrochemical

goods refer to those goods classified under the Harmonized System

as:

(a) Chapter 27 (excluding: subheadings 2707.10, 2707.20,

2707.30, 2707.40, 2707.60, 2707.91, 2707.99 (except

solvent naphtha, rubber extender oils and carbon black

feedstocks), and in subheading 2710.00 (only normal

paraffin mixtures in the range of C9 to C15), and in

heading 2711 (only ethylene, propylene, butylene and

butadiene, in purities over 50 percent));

(b) subheading 2612.10;

(c) subheadings 2844.10 through 2844.50 (only with respect

to uranium compounds classified under those

subheadings);

(d) subheading 2845.10;

(e) subheading: 2901.10 (ethane, butanes, pentanes,

hexanes, and heptanes only);

3. Except as otherwise specified in Annex 602.3, energy and

petrochemical goods and activities shall be governed by the

provisions of this Agreement.

Article 603: Import and Export Restrictions

1. Subject to the further rights and obligations of this

Agreement, the Parties incorporate the provisions of the General

Agreement on Tariffs and Trade (GATT), with respect to

prohibitions or restrictions on trade in energy and basic

petrochemical goods. The Parties agree that this language does

not incorporate their respective protocols of provisional

application to the GATT.

2. The Parties understand that the provisions of the GATT

incorporated in paragraph 1 prohibit, in any circumstances in

which any other form of quantitative restriction is prohibited,

minimum or maximum export-price requirements and, except as

permitted in enforcement of countervailing and antidumping orders

and undertakings, minimum or maximum import-price requirements.

3. In circumstances where a Party imposes a restriction on

importation from or exportation to a non-Party of an energy or

basic petrochemical good, nothing in this Agreement shall be

construed to prevent the Party from:

(a) limiting or prohibiting the importation from the

territory of any Party of such energy or basic

petrochemical good of the non-Party; or

(b) requiring as a condition of export of such energy or

basic petrochemical good of the Party to the territory

of any other Party that the good be consumed within the

territory of the other Party.

4. In the event that a Party imposes a restriction on imports

of an energy or basic petrochemical good from non-Party

countries, the Parties, upon request of any Party, shall consult

with a view to avoiding undue interference with or distortion of

pricing, marketing and distribution arrangements in another

Party.

5. Parties may administer a system of import and export

licensing for energy and basic petrochemical goods provided that

such system is operated in a manner consistent with the

provisions of this Agreement, including paragraph 1 and Article

1502 (Monopolies and State Enterprises).

6. In addition, the Parties recognize the provisions of

Annex 603.6.

Article 604: Export Taxes

No Party shall maintain or introduce any tax, duty, or

charge on the export of any energy or basic petrochemical good to

the territory of any other Party, unless such tax, duty, or

charge is also maintained or introduced on such energy or basic

petrochemical good when destined for domestic consumption.

Article 605: Other Export Measures

A Party may maintain or introduce a restriction otherwise

justified under the provisions of Articles XI:2(a) and XX(g), (i)

and (j) of the GATT with respect to the export of an energy or

basic petrochemical good to the territory of another Party, only

if:

(a) the restriction does not reduce the proportion of the

total export shipments of a specific energy or basic

petrochemical good made available to such other Party

relative to the total supply of that good of the Party

maintaining the restriction as compared to the

proportion prevailing in the most recent 36-month

period for which data are available prior to the

imposition of the measure, or in such other

representative period on which the Parties involved may

agree;

(b) the Party does not impose a higher price for exports of

an energy or basic petrochemical good to such other

Party than the price charged for such energy good when

consumed domestically, by means of any measure such as

licenses, fees, taxation and minimum price

requirements. The foregoing provision does not apply

to a higher price which may result from a measure taken

pursuant to subparagraph (a) that only restricts the

volume of exports; and

(c) the restriction does not require the disruption of

normal channels of supply to such other Party or normal

proportions among specific energy or basic

petrochemical goods supplied to the other Party such

as, for example, between crude oil and refined products

and among different categories of crude oil and of

refined products.

Article 606: Energy Regulatory Measures

1. The Parties recognize that energy regulatory measures are

subject to the disciplines of:

(a) national treatment, as provided in Article 301;

(b) import and export restrictions, as provided in Article

603; or

(c) export taxes, as provided in Article 604.

2. Each Party shall seek to ensure that in the application of

any energy regulatory measure, energy regulatory bodies within

its territory avoid disruption of contractual relationships to

the maximum extent practicable, and provide for orderly and

equitable implementation appropriate to such measures.

Article 607: National Security Measures

1. No Party shall maintain or introduce a measure restricting

imports of an energy or basic petrochemical good from, or exports

of an energy or basic petrochemical good to, another Party under

Article XXI of the GATT or under Article 2102 (National

Security), except to the extent necessary to:

(a) supply a military establishment of a Party or enable

fulfillment of a critical defense contract of a Party;

(b) respond to a situation of armed conflict involving the

Party taking the measure;

(c) implement national policies or international agreements

relating to the non-proliferation of nuclear weapons or

other nuclear explosive devices; or

(d) respond to direct threats of disruption in the supply

of nuclear materials for defense purposes.

2. The Parties recognize the provisions of Annex 607.2.

Article 608: Miscellaneous Provisions

1. Canada and the United States shall act in accordance with

the terms of Annexes 902.5 and 905.2 of the Canada - United

States Free Trade Agreement.

2. The Parties agree to allow existing or future incentives for

oil and gas exploration, development and related activities in

order to maintain the reserve base for these energy resources.

3. Canada and the United States intend no inconsistency between

the provisions of this Chapter and the Agreement on an

International Energy Program (IEP). In the event of any

unavoidable inconsistency between the IEP and this Chapter, the

provisions of the IEP shall prevail to the extent of that

inconsistency as between Canada and the United States.

Article 609: Definitions

For purposes of this Chapter:

consumed means transformed so as to qualify under the rules of

origin set out in Chapter Four (Rules of Origin), or actually

consumed;

restriction means any limitation, whether made effective through

quotas, licenses, permits, minimum or maximum price requirements

or any other means;

energy regulatory measure means any measure by federal or sub-

federal entities that directly affects the transportation,

transmission or distribution, purchase or sale, of an energy or

basic petrochemical good;

first hand sale refers to the first commercial transaction

affecting the good in question;

Independent Power Producer (IPP) means a facility that is used

for the generation of electric energy exclusively for sale to an

electric utility for further resale;

investment means investment as defined in Chapter Eleven

(Investment);

total supply means shipments to domestic users and foreign users

from:

(a) domestic production;

(b) domestic inventory; and

(c) other imports, as appropriate; and

total export shipments means the total shipments from total

supply to users located in the territory of the other Party.

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ANNEX 602.3

1. The Mexican State reserves to itself the following strategic

activities and investment in such activities:

(a) exploration and exploitation of crude oil and natural

gas; refining or processing of crude oil and natural

gas; and production of artificial gas, basic

petrochemicals and their feedstocks; and pipelines; and

(b) foreign trade; transportation, storage and

distribution, up to and including first hand sales of

the following goods: crude oil; natural and artificial

gas; goods covered by this Chapter obtained from the

refining or processing of crude oil and natural gas;

and basic petrochemicals.

2. In the event of an inconsistency between Annex 602.3,

paragraphs 1, 5(a) and 6, and another provision of this

Agreement, the provisions of Annex 602.3, paragraphs 1, 5(a) and

6, shall prevail to the extent of that inconsistency.

3. Natural Gas and Petrochemical Feedstock Trade

Where end-users and suppliers of natural gas or basic

petrochemical goods consider that cross-border trade in such

goods may be in their interests, the Parties agree that such

end-users and suppliers, and state enterprises of the Parties as

may be required under their domestic law, shall have the right to

negotiate supply contracts.

The modalities of implementing such arrangements are left to

the end-users, suppliers and state enterprises of the Parties as

may be required under their domestic law and may take the form of

individual contracts between the state enterprise and each of the

other entities. Such contracts may be subject to regulatory

approval.

4. Performance Contracts

The Parties shall allow state enterprises to negotiate

performance clauses in their service contracts.

5. Electricity

(a) In Mexico the supply of electricity as a public service

is a strategic area reserved to the State. Except as

provided in subparagraph (b) below the activities

encompassed by the supply of electricity as a public

service in Mexico include the generation, transmission,

transformation, distribution and sale of electricity.

(b) The opportunities for private investment in Mexico in

electricity generating facilities include:

(i) Production for Own Use

Enterprises of the other Parties may acquire,

establish, and/or operate an electrical generating

facility to meet its own supply needs. Electricity

generated in excess of the enterprise's own supply

requirements must be sold to CFE and CFE shall

purchase such electricity under terms and

conditions agreed to by CFE and the enterprise.

(ii) Co-generation

Enterprises of the other Parties may acquire,

establish, and/or operate co-generation facilities

which generate electricity using heat, steam or

other energy sources associated with an industrial

process. Owners of the industrial facility need

not be the owners of the co-generating facility.

Electricity generated in excess of the

enterprise's own supply requirements must be sold

to CFE and CFE shall purchase such electricity

under terms and conditions agreed to by CFE and

the enterprise.

(iii) Independent Power Production

Enterprises of the other Parties may acquire,

establish, and/or operate electricity generating

facilities for independent power production (IPP)

in Mexico. Electricity generated by IPP facilities

for sale in Mexico shall be sold to CFE and CFE

shall purchase such electricity under terms and

conditions agreed to by CFE and the enterprise.

Where an IPP located in Mexico and an electric

utility of another Party consider that cross-

border trade in electricity may be in their

interest, the Parties agree that these entities

and CFE shall have the right to negotiate the

terms and conditions of power purchase and power

sale contracts. The modalities of implementing

such supply arrangements is left to the end-users,

suppliers and CFE and may take the form of

individual contracts between the state enterprise

and each of the other entities. Such contracts

shall be subject to regulatory approval.

6. Nuclear

The generation of nuclear energy; the exploration,

exploitation and processing of radioactive minerals; the nuclear

fuel cycle; the use and reprocessing of nuclear fuels and the

regulation of their applications for other purposes; the

transportation and storage of nuclear wastes; and the production

of heavy water, are reserved to the Mexican state.

7. Pursuant to Article 1101(3), private investment is not

permitted in reserved activities listed above in paragraphs 1,

5(a) and 6. Chapter Twelve (Cross Border Trade in Services)

shall only apply to activities involving the provision of

services covered in paragraphs 1, 5(a) and 6 when Mexico permits

a contract to be granted in respect of such activities and only

to the extent of that contract.

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ANNEX 603.6

United Mexican States:

1. For only those goods listed below, Mexico may restrict the

granting of import and export licenses for the sole purpose of

reserving foreign trade in these goods to itself.

2707.50 Other aromatic hydrocarbon mixtures of which 65% or

more by volume (including losses) distills at 250 C by

the ASTM D 86 method.

2707.99 Rubber extender oils, solvent naphtha and carbon black

feedstocks only.

2709 Petroleum oils and oils obtained from bituminous

minerals, crude.

2710 aviation gasoline; gasoline and motor fuel blending

stocks (except aviation gasoline) and reformates when

used as motor fuel blending stocks; kerosene; gas oil

and diesel oil; petroleum ether; fuel oil; paraffinic

oils other than for lubricating purposes; pentanes;

carbon black feedstocks; hexanes; heptanes and

naphthas.

2711 Petroleum gases and other gaseous hydrocarbons other

than: ethylene, propylene, butylene and butadiene, in

purities over 50 percent.

2712.90 only paraffin wax containing by weight more than 0.75%

of oil, in bulk (Mexico classifies these goods under HS

2712.90.02) and only when imported to be used for

further refining.

2713.11 Petroleum coke not calcined.

2713.20 Petroleum bitumen (except when used for road surfacing

purposes under HS 2713.20.01).

2713.90 Other residues of petroleum oils obtained from

bituminous materials.

2714 Bitumen and asphalt, natural; bituminous or oil shale

and tar sands, asphaltites and asphaltic rocks (except

when used for road surfacing purposes under HS

2714.90.01).

2901.10 Ethane, butanes, pentanes, hexanes, and heptanes only.

2. Notwithstanding any other provision of this Chapter, the

provisions of Article 605 shall not apply as between the other

Parties and Mexico.

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ANNEX 607.2

1. The provisions of Article 607(1) shall impose no obligations

and confer no rights on Mexico.

2. Nothwithstanding Article 607(1), the provisions of Article

2102 (National Security) shall apply as between the other Parties

and Mexico.