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Oil, gas sectors see Canada, Mexico deal on tariffs as positive shift

The Trump administration's agreement to lift 25% tariffs on steel imports from Canada and Mexico is a positive step for oil and gas infrastructure projects that will also help avoid disruptions to interconnected supply chains, oil and gas industry representatives said.

But with U.S. imports from most other countries still facing tariffs imposed under Section 232 of the Trade Expansion Act, the sector is still pushing for relief, including improvements to the process for seeking exclusions from market restrictions when supplies are inadequate in the U.S.

In 2017, Canada and Mexico combined made up about 15% of U.S. line pipe imports and 20% of U.S. imports of oil country tubular goods, used for pipelines and production, respectively, based on an American Petroleum Institute assessment of public data.

The U.S. announced May 17 an agreement to lift 25% steel and 10% aluminum tariffs on Canadian and Mexican imports without imposing quotas to cap imports. In exchange, Canada and Mexico agreed to drop retaliatory tariffs, prevent imports that are unfairly subsidized or sold at dumped prices, and avoid transshipments, which means moving goods to one port of call and then moving them to a final market. The agreement kept open the possibility of renewed tariffs if the deal breaks down.

Supply chains

"It is definitely a good thing," said Katie Ehly, senior policy adviser at the Center for Liquefied Natural Gas, noting that Canada and Mexico are top exporters for steel products used in the oil and gas industry, including oil country tubular goods, line pipe, pipe fittings, valves and large-diameter welded pipe.

"The supply chains between Canada, Mexico and the U.S. are highly interconnected, and a disruption in those supply chains caused by tariffs creates uncertainty for project owners," she said in a May 20 email.

Producers had also worried that replacing tariffs with quotas, an outcome avoided here, could put a damper on production.

"By lifting these burdensome tariffs and not replacing them with quotas, the administration is enabling construction projects and the jobs that support them to move forward without fear of supply chain disruptions," Kyle Isakower, American Petroleum Institute vice president for regulatory and economic policy, said in a statement.

Imports of steel from most other countries around the world will still face the U.S. tariffs, with the exception of Australia, which has no remaining restriction, and Argentina, Brazil and South Korea, where U.S. quotas are in place.

As the Trump administration continues trade talks with the European Union and Japan, the question of whether to lift steel tariffs on those important markets is in play.

"We're hoping that the agreement with the U.S., Canada and Mexico signals that the administration will follow a template of refocusing the policymaking on the root cause of the problem, which is China and any other countries that unfairly subsidize and dump steel onto global markets," as opposed to imposing import restrictions on trading partners that are willing to work with the U.S. on those issues, said Aaron Padilla, senior adviser for international policy at American Petroleum Institute.

Push for transparency

The Interstate Natural Gas Association of America said the agreement to lift the tariffs will help new pipeline infrastructure, but the group said more relief is needed for those seeking to import pipe and steel products not made in the U.S.

"For as long as other tariffs remain in place, this should include providing greater transparency in the Commerce Department's exclusion process," an association spokesman said. "This is a critically important issue for our members and the public due to its potential impact on pipeline safety, system integrity and energy security."

The agreement also bolstered prospects for action to ratify the United States–Mexico-Canada Agreement, or USMCA, another priority for the oil and gas sector. U.S. Sen. Chuck Grassley, R-Iowa, had asserted that the USMCA would be dead in Congress without a deal to lift the tariffs, which had drawn retaliatory tariffs on U.S. agriculture. Outstanding issues include Democrats' concerns about enforcement of labor and environmental provisions in the deal.