U.S. President Donald Trump released a long list of his administration’s objectives in renegotiating the North American Free Trade Agreement (NAFTA) on Monday and among the United States’ goals is the elimination of Chapter 19; the trade dispute panel that has favoured Canada in the past.
The dispute resolution panel allows for Mexico and Canada to appeal decisions made by the U.S. to slap duties on their products.
Chapter 19 allows for a binational review of what has been dubbed as an “unfair” trade case involving extra taxes on products, known as anti-dumping and countervailing duties, imposed by the either the U.S. Department of Commerce and the International Trade Commission (ITC) or the Canada Border Service Agency and Canadian International Trade Tribunal.
In simple terms, the process allows for an appeal to be heard by a third party made up of trade experts from both disputing countries, instead of leaving it to U.S. or Canadian courts presiding over a trade dispute involving native products and vice versa.
NAFTA’s Chapter 19 dispute panel has heavily favoured Canada in past rulings, including the ongoing softwood lumber dispute.
Riyaz Dattu, a lawyer with Osler International Trade and Investment, has been involved in several Chapter 19 review cases. He suggests Canada’s success rate is part of the reason Trump is reviewing the issue.
“The dispute on Chapter 19 comes down to this right now: Canada has felt that it has prevailed in Chapter 19 cases and the system works well,” Dattu told Global News. “The U.S. feels on the other hand that they have not prevailed because the panelists have tended to be too intrusive into the record and have ignored the standard of review applicable in the U.S. What they mean by standard of review is when you’re challenging a government body’s decision, you have to give deference to that decision.
“So the U.S. view is that this panelists have misapplied or misconstrued the standard of review,” Dattu said. Dattu went to suggest that Canada would be willing to drop the Chapter 19 portion of the NAFTA agreement if anti-dumping and countervailing duty laws were dropped between the three countries.
“The pivotal industry at this point in time that relies on Chapter 19, because it’s a perennial case that keeps cropping up every few years, is softwood lumber,” Dattu said. “The U.S. on the other hand says that NAFTA is the only agreement where we agreed to this financial panel process, it’s an aberration, it’s been misused, abused and that U.S. courts are the proper venue to review decisions of the Department of Commerce and the U.S. ITC and therefore they want Chapter 19 to go away.”
Canada has been involved in five softwood disputes in over 30 years that have gone through a dispute resolution panel. And after Trump’s announcement in April to slap countervailing duties of about 20 per cent of softwood, the Canadian government vowed to fight again.
“The Government of Canada disagrees strongly with the U.S. Department of Commerce’s decision to impose an unfair and punitive duty. The accusations are baseless and unfounded,” Natural Resources Minister Jim Carr said in an April statement. “The Government of Canada will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation. In ruling after ruling since 1983, international tribunals have disproved the unfounded subsidy and injury allegations from the U.S. industry.
“We have prevailed in the past and we will do so again,” the minister said.
The U.S. lumber industry has pushed for the elimination of Chapter 19, calling the system “unconstitutional” and “unworkable.”
“The Chapter 19 system … for decades has seriously undermined the enforcement of U.S. law against unfair trade practices by Canada and Mexico, to the detriment of U.S. industries and workers,” U.S. Lumber Coalition spokesperson, Zoltan van Heyningen said in a statement Tuesday.
Also on Tuesday, Canadian Ambassador to the U.S. David MacNaughton said it is critical NAFTA has a dispute mechanism in place.
“But there needs to be some kind of a dispute resolution mechanism as part of the agreement,” MacNaughton said.
Canada had fought for the Chapter 19 clause in NAFTA in original negotiations in the 1980s and it became a make-or-break issue. NAFTA was ultimately ratified in 1993.
–with files from The Canadian Press