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Canada gives Trump administration warning on pipeline exclusion

Many U.S. pipelines, such as this Dakota Access construction project in North Dakota, use steel pipe made in Canada.

JOSH MORGAN/REUTERS

Canada is warning the Trump administration that a Buy American requirement for new oil and gas pipelines would break international trade law and hurt business on both sides of the border.

In a letter to the American Department of Commerce, Canada's embassy in Washington suggests Ottawa could retaliate if the U.S. follows through on the plan.

"Limiting the commercial decisions of companies engaging in private transactions would set a negative precedent, increase the regulatory burden and be contrary to fundamental World Trade Organization and North American Free Trade Agreement obligations," reads the seven-page missive, adding later: "Canada will continue to protect its interest to preserve these fundamental obligations in the face of any prima facie violations."

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For subscribers: Canada's strong lumber case could falter in a 'Buy American, Hire American' world

In January, U.S. President Donald Trump ordered Commerce to come up with a plan to ensure pipelines will be constructed with American materials. Canada's submission was one of 82 filed with the department, which is seeking input on the plan, due to be released in July.

Canada's letter is part of a broader strategy for fighting the wave of U.S. trade protectionism, which is expected to also factor in NAFTA renegotiations later this year. Ottawa's central message in that push, which involves lobbying across the U.S. government, is that disrupting free trade would break international supply chains with disastrous consequences for the U.S. economy. The submission points out that the Canadian and U.S. steel industries are heavily integrated, and that Canada imported $9.7-billion of U.S. steel in 2016.

Mr. Trump's order to Commerce is broad, directing that the U.S. must use American material in pipelines "to the maximum extent possible and to the extent permitted by law" – suggesting the administration is open to rejecting measures that don't comply with trade law. The White House has already specified that the Keystone XL pipeline would be exempt from any Buy American proviso, raising the possibility of further compromise.

In the event the U.S. follows through on a Buy American provision, Ottawa could take Washington to a trade panel that could impose a remedy such as allowing Canada to place equal restrictions on U.S. steel. Companies whose business was affected by such rules, meanwhile, could sue the U.S. government for compensation.

Much of the U.S. oil and gas industry is backing Canada's stand, as are the governments of the European Union and Australia.

One joint letter from five American business groups says many specialized pipeline components – including specific types of steel used in construction – are not made in the U.S. in sufficient quantities to meet demand.

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Rather than cause manufacturing jobs to relocate to the U.S., an American content requirement might put the brakes on new pipelines, said John Stoody, vice-president of the Association of Oil Pipelines, which signed the submission, along with the American Gas Association, the American Petroleum Institute, the Association of Oil Pipe Lines, the GPA Midstream Association and the Interstate Natural Gas Association of America.

"The unintended consequence could be fewer projects being proposed or built, and fewer infrastructure jobs. We could face delays and project cancellations under a Buy America requirement," Mr. Stoody said in an interview. "Bids would come in as much as 40 or 50 per cent higher, or there would be a long wait time for orders to be filled."

Saskatchewan Premier Brad Wall and Alberta Economic Development Minister Deron Bilous also wrote letters to Commerce. Steel company Evraz has several pipe-making plants in both provinces, including a Regina factory that is the biggest North American facility for large-sized pipelines, as well as facilities in four states.

"Having open trade ensures competition, lower costs and creates jobs in both our economies," Mr. Wall wrote, arguing that local content requirements would "jeopardize millions of U.S. and Canadian jobs that depend on trade."

The EU, for its part, said local content requirements in the U.S. would "set a very bad example" and could prompt other countries to impose discriminatory rules of their own. Australia, meanwhile, pointed out that Washington's free-trade deal with Canberra requires it to treat Australian goods "no less favourably" than U.S. products.

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