REOPENING NAFTA NO CAUSE FOR CANADA TO PANIC
Canada Institute director says carbon policies could be greater threat to oilpatch
Laura Dawson delivered two important messages to delegates attending the annual investment symposium hosted by the Canadian Association of Petroleum Producers and Scotiabank here Wednesday. Only one was positive. Dawson, director of the Canada Institute in Washington, said Canada has no reason to panic about trade issues and how the United States will proceed with renegotiating the North American Free Trade Agreement.
“Canada is not in the crosshairs of the U.S. administration on issues of trade. That energy is being directed toward China and Mexico,” she said.
While renegotiation of NAFTA is high on the Trump administration’s agenda, Dawson said the draft notification that surfaced last week contained what she defined as recognizable trade rules covering areas well understood in trade agreements.
In other words, nothing to trigger any alarm bells, even though aspects of the agreement, including supply management, dispute resolution, anti-dumping provisions and countervailing duties are all likely to be reviewed.
Beyond that, Dawson said NAFTA — last revised in 1994 — is due for an update.
Given timelines attached to the renegotiation process in the U.S., Canada and Mexico — and the fact a U.S. trade representative has yet to be appointed — she doesn’t expect anything will happen on this file before spring 2018.
The issue for many now is what must be done to ensure Canada doesn’t become collateral damage.
Dawson’s advice wasn’t different from what the Trudeau government, former prime minister Brian Mulroney and others have put forward — it’s all about building relationships in Washington and meeting with state government officials tied to important aspects of Canada’s economy: energy, agribusiness, aerospace and manufacturing.
As for what a NAFTA renegotiation means for the energy sector, the short answer, from Dawson, is not much.
Under the existing agreement, energy is barely addressed.
“You are hardly touched by trade agreements. The energy chapter of NAFTA is basically half a page and it says Canada commits to ensuring consistency of supply of energy products to the United States,” she said.
“It’s basically about keeping the taps on and that’s the major element of the NAFTA energy chapter.”
Where the energy sector could be affected is through services agreements, in the context of the many sub sectors involved in the development of oilpatch assets.
These include construction, engineering, consulting, financial and legal services.
Procurement is another area that could be affected.
The energy sector deals with buyers and sellers in government and there will be rules about how tendering occurs.
And then there are the rules of origin which, for example, would cover the sourcing of steel for pipelines or the amount of diluent used to dilute bitumen.
In short, it’s everything that goes into getting production flowing, rather than what’s actually produced that could be subject to changes in NAFTA.
That was the good news, relatively speaking.
Dawson was less encouraged about the different approaches being taken by Canada and the U.S. when it comes to climate change policy and carbon pricing.
The misalignment, she said, is a disadvantage to Canada’s overall competitiveness.
“When Alberta has the highest carbon price in North America, why would I, as a foreign investor, want to set up my shop there? Strong decarbonization policies definitely made sense when we expected Hillary Clinton to be in the White House.
“They were lined up with the Obama administration and we could see we were in parallel tracks, moving in the same direction,” said Dawson.
“Now we can see the United States has stopped its clean and green policies while Canada continues to move forward ... It seems to me there needs to be some re-thinking of the trajectory of these policies and I am not sure Ottawa or Canadian think tanks get that yet.”
While Dawson did give Premier Rachel Notley kudos for her success in rebranding Alberta and the energy sector as a “clean, green energy partner” in Washington, it’s not the sort of message that will resonate with the current administration.
“The new D.C. messaging is not your clean, green market,” she said.
“The new D.C. messaging needs to be your secure and reliable and affordable energy partner that is helping to provide U.S. jobs, build American competitiveness, helping to fuel U.S. economic growth.
“That’s the new message that needs to be hammered home.”
There is no question Dawson, as a Canadian living and working in Washington, has a unique perspective of how that world functions and what messages will resonate with the Trump administration when it comes to making the case for Canadian energy.
Her insights should be heeded.
It’s basically about keeping the taps on and that’s the major element of the NAFTA energy chapter.