ILMA Seeks NAFTA Change for Group III Base Oils

OCTOBER 10, 2017

ILMA has asked U.S. trade negotiators to seek an exemption or carve-out for Group III base oils that originate from other than North American sources in the current renegotiation of the North American Free Trade Agreement (NAFTA).

In its letter, addressed to U.S. Trade Representative Robert Lighthizer, the Association said that current NAFTA rules of origin and tariff classification do not distinguish between base oils and finished products. Because there is no tariff “shift” when ILMA members compound or blend a lubricant, they cannot confer U.S. origin on the transformed, finished product. For those products made with Group III base oils from non-NAFTA sources, a significant import duty is imposed on the lubricant when it crosses into Canada or Mexico.

ILMA was alerted to this emerging and growing competitive issue by member company Valvoline. The Association discussed the issue with other members who echoed Valvoline’s concerns.

ILMA noted in its letter to Ambassador Lighthizer that the rules of origin for Group III base stocks were not a significant problem when NAFTA was originally negotiated 23 years ago, because of the small volumes of Group III base oils used in the U.S. at that time on a percentage basis. However, the Association said that over the past decade, there has been a dramatic shift in the U.S. base oils market, due in part to more stringent mileage and emissions standards for vehicles. ILMA added that 99 percent of Group III base oils today are imported into the U.S. The Association noted that industry analysts estimate that the demand for Group III base stocks will grow and will continue to be served primarily by imports from non-NAFTA sources.

ILMA’s letter comes at a time when the Trump administration has floated a series of proposals to alter the way NAFTA works, including new requirements for U.S. content in all NAFTA vehicles qualifying for special tariff treatment.