Crude Oil Exports: Adopting the TPP’s Revised Rule of Origin for
Diluent [title]
Under NAFTA, crude oil shipments containing non-originating
diluent11A diluent is a thinning agent used to facilitate the
transportation of crude oil. cannot be exported duty-free due to the
existing rules of origin. That makes them subject to tariffs that can be
as high as 10.5¢ per barrel. To comply with this rule and ensure their
crude oil exports enter the U.S. duty-free, Canadian crude oil producers
need to produce a NAFTA certificate of origin that confirms that all the
product’s constituents are from North America.
Aside from the associated compliance costs, this rule of origin is not
much of a problem, because the North American market is well supplied
with North American diluent.22Based on unpublished analysis and
calculations made for this report by Carlos Murillo, The Conference
Board of Canada’s energy sector expert. However, to remove
unnecessary burdens, NAFTA 2.0 should adopt the rules of origin for
crude oil exports that were negotiated in the TPP. These updated rules
ignore the origin of the diluent found in crude oil exports, so long as
the diluent accounts for no more than 40 per cent of the volume of the
good.33See Government of Canada, “Chapter 27—Heading Note 3:
Diluent Rule,” Consolidated TPP Text–Annex
3-D–Product–Specific Rules of Origin .
Investor-State Dispute Settlement: Restoring Consistency and
Predictability in Tribunal Decisions
[L2]
Investor-state dispute settlement (ISDS) mechanisms are common in free
trade agreements. They allow foreign investors to sue domestic
governments and ask for financial compensation in cases where
governments allegedly breach certain obligations under the free trade
agreement. However, they have been highly criticized in recent years for
being too favorable to private interests. To restore the public’s trust
in these mechanisms, NAFTA’s Chapter 11 should be reviewed to clarify
the applicable standards so that decisions from these tribunals are
consistent and predictable and to ensure that unreasonable claims by
foreign investors are dismissed.
Under NAFTA, investors and corporations have used the dispute settlement
provisions found in Chapter 11 to challenge government measures and
regulations considered incompatible with each country’s obligations.
Since 1994, Canada, Mexico, and the U.S. have all been brought to
investor-state tribunals. Only the U.S. has never lost a case.11UNCTAD,
Investment Dispute Settlement Navigator . Nonetheless, the
Trump Administration has indicated that ISDS will be one of the top
priorities for the upcoming NAFTA. Newly appointed U.S. Secretary of
Commerce Wilbur Ross described investment tribunals as “unaccountable”
and giving “too much power to Mexico and Canada.”22Fife,
”Canada Given Advance Notice of Trump’s NAFTA Demands.”
Although it is unlikely the U.S. will seek the elimination of ISDS, each
country has an interest in undertaking significant reforms to address
its main issues. These include inconsistent jurisprudence, as well as
foreign corporations’ abusive use of ISDS tribunals, which can undermine
governments’ ability to adopt legitimate public policies.33For
an overview of the global discussion on investment treaties,
government policy space, and the “regulatory chill,” see Gaukrodger,
The Balance Between Investor Protection and the Right to
Regulate . Other international organizations have also looked at these
issues from a development point of view. See, for instance, Chapter IV
in UNCTAD, Trade and Development Report, 2014 . To address
these issues and restore the public’s trust in ISDS mechanisms, Canada
should pursue the following in the upcoming renegotiation of NAFTA:
-
Clarify the scope and meaning of key investment principles and
concepts.
-
Review the constitution of ISDS tribunals, based on CETA.