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Syncrude Canada Ltd.'s oil sands processing facility stands in Fort McMurray, Alberta, pictured Tuesday, June 29, 2010. Canada's oil sands, a mixture of sand, clay, water and a heavy oil called bitumen, contain the world's second largest proven concentration of crude oil reserves at about 170 billion barrels. In a report released Oct. 4, 2012, Syncrude was proven not responsible for the deaths of 1,600 ducks after they landed in toxic ponds due to harsh weather conditions.Jimmy Jeong/The Associated Press

The EU believes its controversial proposal to label oil-sands crude as dirty would withstand a test at the World Trade Organization after Canada threatened to file a complaint over the measure.

The disagreement over the EU designation – which would effectively impose an import tax on Canadian bitumen – overshadowed talk Thursday by Brussels and Ottawa of a final push to sign a trade pact before the summer.

The Harper government is now fighting for international acceptance of emissions-heavy oil-sands petroleum on two fronts.

Prime Minister Stephen Harper announced Thursday he will go to New York next week as part of his push to win a green light from the U.S. for the Keystone XL pipeline project that would transport bitumen to Gulf Coast refineries but has been heavily opposed by environmental activists.

He'll participate in a question-and-answer session at an event organized by the Council on Foreign Relations. Mr. Harper said he looks forward to discussing Keystone, among other issues, as a U.S. debate rages over whether to give the energy-intensive oil-sands development a thumbs-down.

Meanwhile, Thursday, the European Union rebuffed a Canadian cabinet minister's efforts this week to defend the oil sands by raising the prospect of a trade fight with Brussels.

Canada's Natural Resources Minister, Joe Oliver, said Wednesday Ottawa would consider launching a complaint with the world's trade referee if the EU proceeds with a fuel-quality directive that singles out crude from Canada's oil sands as the most harmful to the planet's climate.

Matthias Brinkmann, European Union ambassador to Canada, told reporters in Ottawa Thursday that he believes the World Trade Organization would find no fault with the fuel-quality directive if it were ever tested there.

"We are confident our measure will be non-discriminatory and science-based and will stand the test in the WTO," Mr. Brinkmann said.

He said Mr. Oliver is getting ahead of himself because the fuel directive is still in draft form.

"Mr. Oliver, he threatens to appeal at the WTO against something which doesn't exist yet," the EU ambassador said.

He rejected the notion it would harm EU-Canada trade talks because, he said, the directive has yet to come into effect.

Asked whether he considered it pushy for Mr. Oliver to travel to Europe and make a threat before the directive is settled – behaviour that might rile Canada if roles were reversed – the EU ambassador simply replied: "You said it."

Mr. Oliver, who was in London speaking to a business audience Thursday, sent out mixed messages as he tried to address fallout from his remarks.

At first, the Natural Resources Minister appeared to back away from the prospect of taking Europe to the WTO. But hours later he telephoned to clarify his remarks and insist a World Trade Organization challenge is still on the table.

"I'm not threatening anything," Mr. Oliver told reporters after his speech in London, saying that Ottawa is still hoping to change minds in Brussels. Canada, he said, is "hoping for a positive result and so we're not anticipating having to go to any other step."

Asked specifically whether Canada would go to the WTO over the fuel directive issue, Mr. Oliver replied: "I just want to tell people that this is an important issue. We of course are not looking to take any action at all," he said.

Later in the day Mr. Oliver clarified his remarks saying that while he is not looking for a fight, he will consider a WTO action if changes to the directive are not made. "That stands," he said in a phone interview. "We're going to defend our interests."

As the Harper government lobbies against what it considers discriminatory treatment of the oil sands, a noted Canadian scientist will be campaigning for Brussels to enact the fuel-quality directive condemned by Ottawa.

Simon Fraser University economist Mark Jaccard will travel to Europe with former NASA scientist James Hansen to jointly urge governments to pass the measure.

They will visit Brussels, Berlin, Paris and London, and will address parliamentary committees of the British parliament and the EU parliament.

Dr. Hansen has been a particularly aggressive critic of the oil sands, saying the massive reserves – like other high-carbon sources of energy – need to remain in the ground to avoid catastrophic climate change.

Dr. Jaccard said the directive may not be perfect, but it represents a serious step aimed at reining in carbon emissions.

He said the Harper government is "hypocritical" in claiming to want to keep global temperatures from increasing by more than 2 degrees while pursuing expansion of one of the most carbon-intensive sources of fuel in the world.

Dr. Jaccard rejected Ottawa's complaint that environmentalists have unfairly singled out the oil sands as a high-carbon source of emissions, saying he is working in the United States and China to encourage those countries to reduce their dependence on coal-fired power, and opposes Venezuela's expansion of its Orinoco vast crude deposits, which are similar to the oil sands in their emissions impact.

He said Ottawa shouldn't cite inaction by others as an excuse for its own foot-dragging.

"That's like the cod fisher off the coast of Newfoundland 20 years ago saying don't stop me from over-fishing, stop those other people first … And then you wipe out the cod stock."

Ottawa fears the directive would hurt Canada's ability to open new markets for its oil and depress prices for North American crude.

Trade experts say the basis for Canada to challenge the fuel directive would be that WTO members are prohibited from discriminating against "like goods" from other countries. Ottawa would likely argue that the EU is breaking trade rules by taking steps to discourage imports of oil-sands crude while not taking the same action against petroleum from conventional wells.

The directive would effectively slap an import tax on oil-sands crude because refiners who use it would face extra costs. EU refiners are required to cut carbon content in fuels by 6 per cent or pay a penalty.

The WTO adjudicates disputes between its members, which include the EU states and Canada.

If Canada were to win a fight at the WTO – and the European Union refused to relent – the trade referee could grant Ottawa the authority to retaliate by slapping punitive tariffs on European imports.

Follow Steven Chase on Twitter: @stevenchaseOpens in a new window
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