If Obama Rewrites NAFTA, Canada Could Hit Back Hard

As President-elect Obama fills his Cabinet and top-advisor positions, he has not yet named a U.S. Trade Representative, but, as CEI noted, he purportedly has offered the job to Rep. Xavier Becerra (D-CA). Becerra had joined the chorus to redo the North America Free Trade Agreement, even though he did vote for the trade pact in 1993.

To revisit NAFTA and try to include protectionist measures would be a huge mistake. What many NAFTA critics may not realize is that the trade agreement benefits all three countries — the U.S., Canada, and Mexico — and the U.S. has some sweet deals from NAFTA.

Take a look at just one benefit the U.S. would stand to lose if NAFTA were rewritten. It’s likely that the Canadians would try to renegotiate the extremely preferential treatment the U.S. receives in energy imports from Canada. (Canada by far is the U.S.’s largest provider of crude oil and petroleum imports. Mexico has usually been the second.)

Under NAFTA, the U.S. is guaranteed a regular supply of oil and gas from its Northern neighbor at preferential prices except in very limited circumstances.

Here’s what Article 605 of NAFTA states:

Article 605: Other Export Measures

Subject to Annex 605, a Party may adopt or maintain a restriction otherwise justified under Articles XI:2(a) or XX(g), (i) or (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 the specific energy or basic petrochemical good made available to that 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 36month period for which data are available prior to the imposition of the measure, or in such other representative period on which the Parties may agree;

b) the Party does not impose a higher price for exports of an energy or basic petrochemical good to that other Party than the price charged for such 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 that 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 that other Party or normal proportions among specific energy or basic petrochemical goods supplied to that other Party, such as, for example, between crude oil and refined products and among different categories of crude oil and of refined products.

Sounds to me that the U.S. got a pretty good deal here — and the Canadians would have a big stick to use in any renegotiation of NAFTA.