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Milestone or a millstone? North American Free Trade Agreement, NAFTA, shakes off final tariffs in 2008; Canada, unwilling to play the energy card in trade disputes, frets it ‘can’t get no respect’ Gary Park For Petroleum News
The North American Free Trade Agreement reaches a milestone in 2008.
That’s when the pact will be fully implemented with the phasing out of final tariffs which were kept in place to allow an orderly adjustment to free trade for Mexico.
It comes 15 years after the deal was signed by the Three Amigos — the United States, Canada and Mexico.
But don’t expect any popping of champagne corks.
The event will likely pass without notice other than setting off a fresh clamor to renegotiate NAFTA — by globalization opponents in the U.S. where free trade is blamed for the loss of jobs and the gutting of Middle America and in Mexico and Canada, which have seen trade disputes drag on for years and panel rulings get summarily rebuffed by Washington.
One Canadian observer, fed up with a series of “final, final, final” rulings on softwood lumber, once said Washington interprets free trade as meaning the U.S. is “free” to do whatever it wants with dispute resolutions.
He said the U.S. effectively sends a blunt message to its junior partners: “Send your negotiating monkeys into the pit with our 800 pound gorillas and let’s see what happens.”
Canadian suspicion historic That affirms a deep-seated, historic Canadian suspicion of any moves to establish a closer economic relationship with the U.S.
That mood even pre-dates the creation of Canada as a confederation in 1867.
In 1855, a Reciprocity Treaty created limited free trade between the colonies of British North America (made up of regions that are now the eastern provinces of Canada) and the U.S. In 1866, the U.S. Congress voted to scrap the deal.
The Liberal party, the dominant governing party in Canada for decades, campaigned for free trade in 1911 and lost the election to the Conservatives, who built their case around anti-Americanism.
Other than nibbling away at selective tariffs, nothing significant happened until 1986 when Canadian and U.S. negotiators went to work for 18 months to craft a bilateral Free Trade Agreement, which was expanded in 1993 to incorporate Mexico.
Energy the sticking point But the sticking point in both sets of negotiations invariably came down to energy, with Canada and Mexico fighting hard to ensure they were recognized as more than just decorative bookends to the vast U.S. economy.
The end result under NAFTA was a continuation of Mexico’s constitutional ban on foreign investment in its oil industry — a barrier that poses an endless headache for Mexico, whose dwindling crude production and exports could spark a financial crisis unless state-owned Pemex is allowed to form alliances for deepwater exploration, rather than funding new investment largely by debt when it needs to invest an estimated $20 billion a year to ensure Mexico’s energy self-sufficiency.
Meanwhile, Canadian backers of NAFTA insist the three-way trade functions well 99 percent of the time.
No industry has reaped more handsome rewards from free trade than the oil and gas sector, whose access to U.S. markets has been expedited by the removal of Canadian restrictions on exports and whose returns have grown exponentially.
Canada now accounts for 90 percent of U.S. imports of gas, shipping about 10 billion cubic feet per day, or two-thirds of its production, while Canada jostles with Saudi Arabia for the top spot as a supplier of oil and refined products.
Without free trade it is unlikely that the Alberta oil sands would have attracted more than passing interest from U.S. companies and investors.
Canadians feel U.S. doesn’t acknowledge energy relationship
What irritates many in Canada is a feeling that U.S. legislators seldom acknowledge this special relationship, taking the flow of nonrenewable resources to Lower 48 markets for granted.
Periodically, President George W. Bush, Vice President Dick Cheney and Energy Secretary Samuel Bodman, when pressed at news conferences, will make fleeting concessions to the role Canada plays in meeting U.S. energy security needs.
Whenever Canadian (and Mexican) feelings that the U.S. is flouting the terms of NAFTA reach the boiling point, the standard retaliatory threats are often linked to energy — not that politicians in either country have ever put the issue to the test.
Former Liberal prime ministers, Jean Chretien and Paul Martin, mused at times about linking energy with softwood lumber, before coming to their senses.
Even if such a strategy forced the U.S. to capitulate in the lumber spat — in itself a fanciful notion — the always brittle state of Canadian unity cold suffer irreparable damage.
Withholding energy exports would be guaranteed to fire up the mood of separation that lies close to the surface in Alberta and British Columbia. Two years ago, the futility of playing the energy card was laid bare.
Asian energy link explored Martin declared that Canada was dropping the “safe language of diplomacy,” accusing Washington of mocking free trade rules and announcing that Canada would shift its focus to new energy markets in Asia, notably China and India.
He sent a cabinet minister to Beijing to explore alternative energy markets, following on the heels of tentative deals by three of China’s state-owned oil companies to participate in oil sands development.
Any idea that China was about to become a major investor in the oil sands, perhaps ruffling some U.S. feathers in the process, has long since faded.
There has been little progress on the two upstream ventures (with one stalled until the operator Synenco Energy decides whether to sell its assets or take on a partner), and PetroChina’s plans to become the anchor shipper on Enbridge’s proposed Gateway pipeline have folded, with the Chinese blaming the failure on the Canadian government and oil sands producers.
An executive of PetroChina’s parent company, China National Petroleum Corp., in a rare public attack, suggested Canada was reluctant to facilitate access to Canada’s oil supplies.
Whatever the truth, Washington is probably content that it does not have to compete with Asia for Canadian production.
For now, NAFTA seems destined to remain intact, but a radical shift in Canada’s political leanings, or a U.S. economic upheaval that was associated with free trade could always lead to the unthinkable — an overhaul or an unraveling of NAFTA.
In the meantime, regardless of the occasional squawks, it’s fair to see no change in an old Canadian expression: “The Americans are our best friends, like it or not.”
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