Energy-Intensive Industries Should Benefit From Free-Trade Agreement

Percent of Shipments

Relative Energy Costs in Energy-Intensive Industries

(Energy Costs as a Percentage of the Value of Shipments)

The Free Trade Agreement Will Not Adversely Affect U.S. Energy Producers

Energy trade between the U.S. and Canada aiready is virtually unrestricted so that the Agreement will not produce an immediate surge in trading activity. Canada currently supplies less than five percent of our national requirements for oil, natural gas and electricity. This share could rise somewhat over time, but is still likely to represent only a modest share of the U.S. market.

In oil. The Free Trade Agreement gives Canada limited access to Alaskan oll. Shipments could be up to 50,000 barrels per day, or only 6 percent of the amount of oll that Canada exports to the United States, 3 percent of current Alaskan production, and less than 1 percent of U.S. oil consumption. Cheaper supplies would be available to the U.S. from Mexico and other secure markets, ultimately reducing oil import costs to U.S. consumers. Adverse impacts on the U.S. maritime industry from oil shipments to Canada would be mitigated by the U.S.-flag ship transit from Alaska to the lower 48 states, as required by the Agreement. The U.S. and Canada have agreed to allow retention of incentives for oil and gas exploration and development in order to maintain our oil and gas resource base. But, we have made sure that U.S. producers will be protected from unfair subsidies by retaining the right to impose countervailing measures should Canada unfairly subsidize its energy industry.

In natural gas. The Agreement sends an important signal to consumers that plentiful supplies of gas will be available on both sides of the border. This should encourage expanded use of gas in several markets, including electric utilities, and over time, alternative fuels for transport. The Department of Energy has undertaken an assessment of the U.S. gas resource base and market potential for natural gas. Preliminary estimates indicate that gas could displace up to 1 million barrels per day of imported oil in the U.S. over the longer-term. For instance, gas could further penetrate the electricity markets of the U.S. Northeast which now use considerable amounts of oil to generate electricity. This will provide opportunities for greater use of both U.S. and Canadian gas.

· In coal. Canada is the leading foreign market for U.S. coal. In 1987, the U.S. shipped 16 million tons, or 20 percent of its coal exports, to Canada. This represents an important portion of the coal produced in Kentucky, Pennsylvania, and West Virginia. Moreover, the Agreement provides a climate in which coal can continue to compete successfully in the Canadian market. Concern has been raised that U.S. coal may be displaced by electricity imported from Canada. Most Canadian electricity has replaced oil imports and not coal. In addition, our coal trade with Canada has brought net benefits to the U.S. coal industry- coal exports to Canada represent triple the amount of coal that potentially has been displaced by imported Canadian electricity. Over time, U.S. domestic coal production is expected to grow to meet increased requirements for domestic electricity generation.

In uranium. The Free Trade Agreement eliminates Canada's requirement that its uranium be upgraded before export to the U.S., and otherwise preserves unrestricted trade in uranium and uranium services between the two countries. The U.S. uranium industry is facing serious difficulties, leading recently to the third annual finding by the Secretary of Energy that the industry is not viable. However, its difficulties stem not from imports from Canada, but from the industry's overcapacity resulting from lower uranium demand than projected in the 1970s.

The Agreement Will Promote National Security by Reducing Reliance on Persian Gulf Oil