The European Union is dismissing the chances its controversial proposal to designate oil-sands crude could be ruled out of order at the World Trade Organization after Canada threatened to file a complaint over the measure.
The clash over an EU measure that some say would effectively impose an import tax on Canadian bitumen threatens to overshadow aggressive efforts by Brussels and Ottawa to sign a trade pact before the summer break.
MORE RELATED TO THIS STORY
Matthias Brinkmann, European Union Ambassador to Canada, told reporters in Ottawa Thursday that the WTO, the world’s trade referee, would find no fault with the fuel quality directive “We are confident our measure will be non-discriminatory and science based and will stand the test in the WTO,” Mr. Brinkmann said Thursday.
On Wednesday, Canada’s natural resources minister, Joe Oliver, said Ottawa would consider launching a complaint with the WTO 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.
Mr. Brinkmann framed Mr. Oliver’s tough talk as jumping the gun.
“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 proposal is in draft form.
“It won’t upset the trade talks for the simple reason that these fuel quality directive implementation rules don’t exist yet.”
Separately, Canadian International Trade Minister Ed Fast, who has been working for an EU deal for years, insisted the threat of penalties on Canadian oil sands crude won’t affect talks on a trade agreement because he said both sides need the accord.
“The EU fuel quality directive issue is on a completely different track than our negotiations for a trade agreement. This trade agreement is important for both the EU and Canada. We’ve just come through a very difficult time for the global economy.”
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.
Mr. Fast, while drawing a thick dividing line between EU trade talks and the fuel quality directive, nevertheless backed Mr. Oliver.
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.
“Fuel is fuel. It’s same product with the same properties and same end uses. Under the WTO agreement, like products cannot be treated differently,” said international trade lawyer Lawrence Herman of Cassels Brock & Blackwell LLP.
“The basic rule in trade law is that if something at the end of the day is the same product, but is made with a different process, you aren’t allowed to treat it differently,” Mr. Herman said.
“We may not like certain products that are made with low-wage labour in developing countries. But we can’t tax those products differently because we don’t like the labour laws in Bangladesh if a shirt from Bangladesh is the same as a shirt from India,” Mr. Herman said.