The North American Free Trade Agreement (NAFTA) is a trade agreement between Canada, the United States and Mexico signed in 1992 that gradually eliminated tariffs and trade barriers between the three countries
The terms of the agreement are on the table in hopes of modernizing the deal for the current time.
The NAFTA negotiations commenced upon the election of US President Donald Trump. Reopening NAFTA was part of his election campaign in order to put “America First”.
Canadian Prime Minister, Justin Trudeau, stated he is looking forward to the modernization of NAFTA although he doesn’t now agree with president Trump’s reasoning to reopen the deal.
So, what does the NAFTA negotiations means for Alberta Oil and Gas Industry?
The current 23-year old trade deal has driven North American oil and gas renaissance and paved the way for $34 billion worth of energy exports to Canada and Mexico last year.
It is likely that the deal will expand to cover new technology and intellectual property, showing modernization of the 23-year old trade deal.
Alberta has a huge stake in NAFTA. Alberta has become an important part of U.S. energy imports due to energy trade liberalization under NAFTA. Alberta is the US’ largest supplier of natural gas at the moment, averaging nearly $90 billion a year over the past five years.
The US is also Alberta’s largest trading partner for food and agriculture products. Alberta also does billions of dollars in trades in plastics, machinery and organic chemicals.
If the US withdraws from NAFTA, trading to the US will not stop, but it will get more expensive. Changes to NAFTA can reduce investment protection or revert to high tariffs and trade barriers that preceded NAFTA. This could put at risk the tens of millions of jobs in Western Canada because Alberta has the largest number of jobs tied to exports to the US.
Reverting to the old Canada-US Free Trade Agreement would mean that trade between the countries would be governed by higher World Trade Organization tariff schedules. This would also give opportunity for President Trump to impose tariffs that may inflict damage in certain sectors.
For Alberta, a World Trade Organization tariff schedule would see tariffs applied on petroleum liquids crossing the border. Heavy oil from the Athabasca oil sands would face a higher fee than light oil.
Ultimately, the NAFTA negotiations could be a deal breaker for Canada. The current NAFTA agreement creates efficiency and clarity. But without NAFTA, there wouldn’t be any dispute mechanisms in place, and Canada would have to go through the US courts with every trade dispute.