As "NAFTA 2.0" negotiations open, a provision that essentially locks in Canada's current levels of oil exports to the US is drawing opposition from unlikely allies across the Canadian political spectrum but winning staunch support in the "Oil Patch," as the country's petroleum industry is colloquially called. The "proportionality clause" originally appeared in the US-Canada Free Trade Agreement of 1988 and became a major issue in that year's national election that returned Prime Minister Brian Mulroney to office. It was replicated six years later in the North American Free Trade Agreement—although Mexico won an exemption. The clause can be invoked if a government in Canada reduces US access to Canadian oil, natural gas, coal, electricity or refined petroleum products without a corresponding reduction in domestic access to those resources.
The left-leaning Council of Canadians says the clause erodes sovereignty. "What happened with NAFTA is that Canadian oil and gas became North American oil and gas and we have very little control of it," said Maude Barlow, honorary chair of the Council of Canadians.
But the pro-business Conference Board of Canada also rejects the clause, calling it an outdated restriction that isn't needed in today's energy-rich world. Michael Burt, a director with the Conference Board, said the clause isn't fair because it doesn't cover Mexico, whose energy industry is being opened to private investment after decades of close state control. "Evidence would suggest that it hasn't really been a binding constraint at any point in the 25 years of NAFTA," he said.
Oil Patch leaders, in contast, see the clause as preferable to previous Canadian policies that favored domestic over export markets. "It was put in there basically as a 'good neighbor' clause," said Nick Schultz, vice-president of the Canadian Association of Petroleum Producers, who was involved in free trade negotiations in the 1980s as an Ottawa trade lawyer.
The actual positions of both governments reamin unclear. In President Donald Trump's list of objectives for the NAFTA talks released in July, there's no mention of proportionality. The one paragraph on energy policy lists only general goals, including North American energy security and strong markets. (The Canadian Press, Aug. 16)