New North America trade deal removes export minimum guarantees

The new US Mexico Canada Agreement (USMCA) trade deal agreed on 30 September 2018 scraps a provision within the old North American Free Trade Agreement (NAFTA) that could have allowed member countries to demand a minimum import level of oil and oil products from each other.

Under the old ‘proportionality clause’ in NAFTA’s article 605, Canada, the US and Mexico could demand the right to buy oil and oil products from each other up to the average bilateral import over the previous three years. The aim was to prevent governments diverting domestic supplies to domestic consumers during an international fuel shortage. However, the clause was unpopular, especially in Canada, and had never been invoked. As a result it has been scrapped in the USMCA.

The agreement also liberalises rules that had prevented oil exporters adding diluents to crude, easing shipments. Under new rules of origin, exporters trading with the USMCA bloc can add diluent of up to 40% by volume, before an oil or oil product is deemed to fall outside the agreement’s guarantees for duty-free or low duty trades.

The USMCA will need to be ratified by all three countries before it can come into force.