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As the Keystone XL pipeline saga lurches toward a final showdown – a U.S. presidential veto or Congressional approval – it's worth recalling what the original Canada-U.S. free-trade deal says about energy.

The essential bargain at the heart of the agreement is that oil should flow freely, except in times of scarcity and national emergency.

Very soon, probably early next year, we'll find out if freedom has its limits.

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The FTA's energy chapter, later grafted on to the North American free-trade agreement, was among the most contentious parts of the whole deal. It was reached after intense bargaining and considerable nationalist angst, particularly in Canada.

Many Canadians worried the agreement would see trade in energy pivot north-south forever, with Alberta crude sold cheaply to Americans, leaving the rest of the country at the mercy of unpredictable global price gyrations.

Liberal leader John Turner fought (and lost) the 1988 federal election, warning that free trade in energy and other resources would "sell out the birthright of this nation" and turn Canada into a colony of the United States.

Canada instead took a leap of faith. Among other benefits, the country would be able to sell unlimited amounts of oil, to Americans or anyone else.

Derek Burney remembers well the essential energy bargain. As then-prime minister Brian Mulroney's chief of staff, the long-time Canadian diplomat worked on the deal as the final trade-offs were made in 1987.

"The basic deal in the original FTA was that the U.S. wanted unfettered access to supply from Canada on a non-discriminatory basis, and Canada agreed," recalled Mr. Burney, a director of TransCanada Pipelines Ltd., which is seeking to build the Keystone XL pipeline.

But it wasn't a one-way street. Both countries harboured suspicions that the other side might try to meddle in the market, particularly when it came to oil.

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The Americans didn't want a repeat of Pierre Trudeau's national energy program and other policies that might discriminate against U.S. interests in times of scarcity. So they negotiated strict limits on Ottawa's ability to interfere in the market and limit exports, making another NEP impossible.

Canadians, in turn, worried the U.S. might block crude imports on national security grounds to protect domestic energy production and refining capacity – as it had done in the 1950s and 1960s. Ottawa secured strict limits on when national security could be used as a pretext to block energy trade. The list of exemptions includes armed conflicts, filling defence contracts and responding to nuclear threats.

"The whole point of open trade on the border for energy was, 'you can't restrict our imports and we can't discriminate against your exports,'" added Mr. Burney, now an adviser at law firm Norton Rose. "That's the equation. You can't put a tax at the border, you can't have a separate price for domestic consumers – all that stuff that would be contrary to an open border."

There is no war in the homeland. And, clearly, scarcity isn't a problem.

North America is producing oil and gas in abundance – from Canada's oil sands and from vast shale deposits. The U.S. is on a course to energy independence, but it isn't there yet, and experts say it will continue to need foreign oil for some time yet, from Canada or somewhere else.

The rationale is wearing thin for U.S. President Barack Obama to continue blocking Keystone, which is designed to transport Canadian and U.S. crude to refineries on the Gulf Coast. He can't easily make the case that it's about climate change. The U.S. State department has already determined that the project would not significantly increase greenhouse gas emissions.

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A Nebraska court is expected to issue a verdict shortly on the route of the pipeline through that state, removing one of the last pretexts for further delays.

More recently, Mr. Obama tossed a new objection into the debate, suggesting that Canada is merely using the U.S. as a conduit to pump its oil "through our land" to foreign markets, with scant benefits for Americans. It's a claim that is misleading, if not flat out wrong.

If Mr. Obama rejects Keystone, Ottawa should dust off NAFTA, file a formal trade challenge and demand the free trade in energy that the deal was supposed to deliver.

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