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We all know in our hearts, and most of us in our minds, that oil coming down from Canada to the U.S. is NAFTA-originating Trade lawyer Teresa Polino

Despite the need down south for Canadian oil, the U.S. Customs and Border Protection (CPB) has carried out an increasing number of audits on shipments, demanding proof of origin for the crude moving between the North American Free Trade Agreement’s partners, and applying those aggravating duties to Canada’s largest export category.

The size of the levies began to grow in 2006 after EnCana Corp. (before it split into natural gas-focused Encana Corp. and oilsands-focused Cenovus Energy Inc.) imported batches of a lightweight hydrocarbon called condensate from Peru, Bolivia and Pakistan to mix as a diluent with its oilsands bitumen, which has the consistency of peanut butter, so it could flow through a pipeline.

Photo by Julia Kilpatrick/www.Pembina.org

EnCana imported 28 cargoes of condensate from Peru, another two cargoes from Bolivia and one from Pakistan through the port of Kitimat, B.C., according to a 2010 customs ruling, before transporting the products to Redwater, Alta., where they were stored in tanks alongside diluents sourced within North America.

After a lengthy investigation, U.S. customs determined the foreign diluent did not contaminate the NAFTA-originating status of the other diluent in the tanks. The ruling also determined that EnCana’s oil blended with foreign diluent would be subject to duties determined by a specific formula and, in the future, EnCana would be required to provide documentation and an inventory management system of its diluent blends that could be subject to verification by the CPB.