PETER MCKENNA: Trudeau’s NAFTA red line

Abolition of Chapter 19 panels a deal-breaker, non-starter for Canada in negotiations

Published on April 20, 2017

One of the most contentious areas of the Canada-U.S. trade negotiations in the mid-1980s was the creation of a binding dispute-resolution mechanism.  

Given its importance, Ottawa was determined to find a way to guard against the often politically-motivated imposition of U.S. countervailing duties, safeguard measures and anti-dumping penalties.
Based on a clear set of bilateral rules and definitions of what constituted an export subsidy, Canadian officials had pushed hard for a resolution process that would nullify U.S. domestic politics (which frequently influenced the invocation of U.S. import-relief laws against Canadian goods).
But the Americans strung us along, constantly deflected and, in the end, would not concede any ground on reducing congressional involvement in enforcing U.S. trade law.
We eventually ended up with NAFTA’s permanent Chapter 19 binding appeals process (based on U.S., Canadian and Mexican trade law, which each country can amend for its own purposes) to settle trilateral trade disputes. The determination of anti-dumping and countervailing duty challenges launched by Canada would now be rendered by an independent ad hoc bi-national panel (each comprised of five academics, trade lawyers or specialists chosen by the two parties involved).
The key point here for Canada is that these neutral panels would take the place of U.S. domestic courts (which often sided with U.S. trade tribunal rulings) as the final trade arbiter.
Besides depoliticizing the process, the panels offered Canada a means to neutralize Washington’s overwhelming advantage in raw power capabilities. Put simply, decisions would be based on rules, trade law and precedent and not on any disparity in power.
Though not perfect, and we have seen examples of U.S. obstructionism that engendered time-consuming and costly appeals, it was probably the best result that Ottawa could have secured in the initial (and in any future) NAFTA negotiations.
Since the introduction of the NAFTA panels, there is some evidence to suggest that Canada has been subject to fewer anti-dumping and countervailing duty cases, minimized gratuitous challenges and benefited from several instances in which the initial duties were materially reduced.
It’s worth recalling that Canada won all its appeals, and even an extraordinary challenge by the U.S. side, against the imposition of punishing American duties on Canadian softwood lumber exports in the early 2000s. And with the U.S. set to impose stiff duties on Canadian softwood lumber once again, the Canadian government is going to need whatever protection these NAFTA panels can provide.
This helps to explain why U.S. trade representatives, members of Congress and key officials in the Trump administration want to target the Chapter 19 panels. When it comes to matters of trade, none of them likes to lose to Canada.
Accordingly, recently leaked documents include Trump’s pledge to address longstanding complaints about the efficacy of Chapter 19. In its draft letter to Congress delineating its objectives for a renegotiated NAFTA, the White House explains that the U.S. would like to see the scrapping of bi-national panels because of “experiences where panels have ignored the appropriate standard of review and applicable law, and where aberrant panel decisions have not been effectively reviewed and corrected.” This is a particularly ominous sign for a trade-dependent Canada.
The Canadian government simply cannot afford to have Chapter 19 administrative panels eliminated or substantially defanged. It would severely undermine our trade interests and leave us with no safety valve or protection from U.S. trade remedy laws. Canada would thus be extremely vulnerable to a protectionist Trump White House, industry-beholden Congress and a highly politicized U.S. International Trade Commission.
It goes without saying that Canadian trade negotiators - working closely with their Mexican counterparts - have to ensure the survival of Chapter 19. So we’ll need to have the Mexicans onboard to assist in blocking U.S. efforts to kill the appeal panels. It is essentially the only defence that both Ottawa and Mexico have against U.S. contingency protection measures - other than turning to the frustratingly slow appeal procedures of the World Trade Organization (WTO).
Abolition of the NAFTA panels, then, has to be a non-starter and clearly non-negotiable for the Trudeau government. It’s a deal-breaker for us. Without the right to appeal, we may as well pick up our trade marbles and walk away from the bargaining table. Otherwise, Ottawa would be playing into Trump’s hands and recklessly jeopardizing billions of dollars in Canadian exports to the U.S. marketplace.

- Peter McKenna is professor and chair of political science at the University of Prince Edward Island.