FocusCanada warns Clinton, Obama on NAFTA

05 March 2008 19:40  [Source: ICIS news]

By Stefan Baumgarten

 

TORONTO (ICIS news)--Calls by Hillary Clinton and Barack Obama to reopen NAFTA could quickly backfire on the US’ almost exclusive access to Canadian oil and energy exports, Canadian politicians and commentators have warned.

 

The US Democratic presidential hopefuls said last week while campaigning in Ohio that they would, if elected, change or even scrap the free-trade deal should their demands for labour, environmental and other protections not be met.

 

Canadian leaders were quick to note that Canada is the largest exporter of energy to the US, thus providing it with big leverage should NAFTA be reopened.

 

According to the US Energy Department’s Energy Information Administration, Canada supplies about 11% of US oil and oil product needs and 16% of the natural gas supplies, making it the largest foreign source of US energy imports.

 

"If any American government ever chose to make the mistake of opening [NAFTA], we would have some things we would want to talk about as well," Prime Minster Stephen Harper told Parliament in response to remarks from Clinton and Obama.

 

Trade minister David Emerson said NAFTA was the foundation for integrating the North American energy markets.

 

"If you reopen [NAFTA] for one or two issues, you cannot avoid reopening it across a range of issues," he said.

 

NAFTA’s chapter 6 on energy and basic petrochemicals ensures that Canadian and US consumers have equal free-market access to oil and other energy products made in either country.

 

With the exception of strictly defined security and emergency scenarios, Canada’s government cannot impose measures that would cause US import levels of those products to fall.

 

In particular, NAFTA would not allow for a repeat of former Prime Minister Pierre Trudeau’s National Energy Program (NEP) which was implemented in 1980 in response to the 1970s oil crises.

 

Trudau’s Liberals set up the NEP with the objective of supplying oil and energy to the country’s industrial base in Ontario and Quebec and to ensure self-sufficiency in oil.

 

The programme drastically reduced foreign ownership of Canada’s oil and gas industry and drove out investment, particularly US investment, before it was abolished by Trudeau's successor, Brian Mulroney, whose Conservative government negotiated Canada’s entry into NAFTA.

 

The benefits of close economic integration with the US that NAFTA provides are broadly acknowledged in Canada. 

 

Still, the deal remains controversial here, especially its energy provisions.

 

Leaders from industry, unions and academia have often called for an integrated Canadian energy policy that would prioritise supplies to the country's producers of chemicals, plastics and other materials - who are squeezed by high energy and feedstock costs.

 

“Canada’s federal government needs to develop a strategy on oil and gas and its uses in a strategic way for Canada, or this business [chemicals] will be slipping away, and we will be importing product that could have been made here,” union leader Bob Huget told ICIS news with reference to the latest series of chemical plant closures last month.

 

Huget, who is vice-president of the Communications, Energy and Paperworkers Union of Canada (CEP), which represents chemical workers, urged a stop to unrestricted oil and gas exports from Alberta to the US and called for “made-in-Canada energy prices” to help chemical, plastics and other industries.

 

He echoed calls from academics at the University of Alberta, who said Canada should consider exiting NAFTA and prioritise its own energy security.

 

Canada exported 67% of the oil it produced to the US, and NAFTA effectively prohibited Canada’s government from reducing export, even in times of crisis, the University’s Parkland Institute said in a report last month.

 

Mexico had negotiated an exemption from those energy provisions, and Canada should insist on a similar exemption or, “failing that, give the required six months notice to leave NAFTA,” the report said.

 

Another key objection to NAFTA is that it has left Canada’s relatively small 33m people-strong economy at the mercy of the US, according to its critics.

 

The US market absorbs some 80% of Canada’s exports, making it critical to the success of Canadian manufacturers.

 

In chemicals, about two thirds of production is exported, and the US accounts for 80% of those exports.

 

Not surprisingly, the US housing and automotive slowdowns have hit Canadian manufacturers hard, leading to major plant shutdowns and layoffs at a time when manufacturers already see their competitiveness eroded by the soaring Canadian dollar.

 

Canadian manufacturing lost 113,000 jobs over the past 12 months to January alone, with most of the losses in Ontario and Quebec, according to Statistics Canada, the federal statistics agency.

 

Another unresolved Canadian problem coming with the close integration are continuing border delays after the 2001 terrorist attacks.

 

Since then, US security concerns have edged out economic priorities. Canadian shipments into the US have been subjected to expensive inspections and long wait-times, at a huge cost to Canadian producers, in particular Ontario’s car and parts sector, which is closely integrated with the US industry.

 

Also, with NAFTA, the country has essentially lost the power to set an independent monetary policy, analysts said in commenting on Canada’s repeated interest rate reductions this year, with the latest 50-point cut implemented on Tuesday.

 

The Bank of Canada was forced to follow the US Federal Reserve’s cuts in response to US needs, while underlying Canadian fundamentals would have indicated smaller cuts, analysts said.

 

On the other hand, even if the US abrogated NAFTA, the impact on Canada may not be all that harsh in the end, trade experts said.

 

For one, since coming into effect in 1994, NAFTA has pushed forward US-Canada integration to such an extent that it would almost be impossible to reverse course now.

 

In addition, the World Trade Organization (WTO) has, since 1995, put in place many rules, tariff cuts and arbitration mechanisms similar to NAFTA’s provisions, said Gordon Ritchie, one of Canada's original NAFTA negotiators, now chairman of public affairs for consultants Hill & Knowlton.

 

Those WTO rules would apply in the place of NAFTA, should it be scrapped.

 

Commentators also noted that Clinton and Obama made their remarks amid the heated contest for Ohio, a state that has suffered from manufacturing job losses some blame on competition from Canada, implying that this was mostly campaign rhetoric. 

 

An Obama adviser allegedly told the US ambassador to Canada to disregard his candidate's remarks as “not serious,” Canada’s CTV television network reported.

By: Stefan Baumgarten
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