Agreeing on how to disagree is one of the biggest NAFTA debates
OTTAWA—It’s ironic that one of the biggest disputes in redrafting a new North American free trade pact is how to resolve disputes.Then again, perhaps not. Trump says the deal is a “disaster,” “unfair,” “catastrophic” and “the worst deal ever.” Canada says it’s been an “extraordinary success.”Trump says American workers and industries have been the biggest losers in NAFTA and his hit list of “trade objectives” includes eliminating a key dispute resolution mechanism altogether.Canada says Americans have been well-served by the deal overall, and Ottawa wants not only to keep the dispute resolution provisions but to beef them up, perhaps even add chapters on labour and environmental safeguards to the main deal, making them enforceable.Foreign Affairs Minister Chrystia Freeland told reporters Wednesday, “We believe that just as good fences make good neighbours, a good dispute settlement mechanism makes good trading partners.”Yet from Wednesday’s outset of formal talks, Trump’s lead trade minister Robert Lighthizer again insisted: “The dispute settlement provisions should be designed to respect our national sovereignty and our democratic processes.”In fact, there are three dispute settlement provisions now in NAFTA:
- Chapter 11 (investor-state) allows corporations to sue national governments over unfair treatment or legislative practices. The remedy is a monetary payout. Canada wants to keep this provision to protect the ability of governments, including provinces and municipalities, to regulate in the public interest, say, to protect rules to protect public health or the environment. Ottawa looks to the Canada-European Union free trade deal as a model. That deal (when it comes into force next month) would submit disputes to a permanent tribunal instead of ad hoc panels. The U.S. didn’t mention the investor-state provisions on its target list.
- Chapter 19 (state-to-state) allows for a bi-national panel (rather than a domestic court) to review anti-dumping and countervailing duties to determine if they were applied consistently with the laws of the country applying them. The remedy is an adjustment to duties charged, even a refund. The U.S. wants to kill it outright and use U.S. courts instead, having lost ground in challenges to Canada’s softwood lumber and agricultural quota-management systems under this provision. Canada wants to keep it.
- Chapter 20, the general dispute settlement mechanism which allows one NAFTA country to challenge another NAFTA country before a panel for failure to comply with NAFTA commitments. Remedy is the right to retaliate by removing NAFTA preferential treatment if a breach of commitments is found and not corrected. A rarely used NAFTA section.
Getting a handle on who is the winner or loser under these provisions, however, is decidedly a mug’s game.
CHAPTER 11 (Investor-State)The nationalist Council of Canadians claims Canada has faced 38 Chapter 11 challenges, two thirds-of them over environmental protections, making Canada “the most sued country in the developed world,” saying at the moment Canada is facing $2.6 billion in cases.In fact, Global Affairs Canada lists 39 challenges, some of which were withdrawn or may not have gone to formal arbitration. Canadian government officials told the Star the number doesn’t paint a whole picture, saying of 25 cases that proceeded, Canada lost five rulings, with about $205 million in penalties levied. That number, said an official, amounted to about 2 per cent of total damages claimed. And most of that came when a panel awarded $130 million in damages in one case: AbitibiBowater’s $500 million claim against the Newfoundland government which expropriated its water and timber rights and hydroelectric assets in the province after the company closed its last mill in that province and laid off 800 workers.The Council of Canadians – and the NDP – wants to see Chapter 11 eliminated, not tweaked, and mounted a letter-writing campaign that saw 10,630 Canadians write to support its removal.Maude Barlow, of the nationalist advocacy group, says “You cannot protect climate and labour rights, and still give corporations this powerful right to undermine public legislation,” said Barlow in a written statement Wednesday.
CHAPTER 19 (State-State)Canadian officials say the numbers show Canada has had some success, winning 15 out of 19 challenges against American anti-dumping or countervailing duty orders, while four of those cases were decided in favour of the U.S.The U.S. might say that this shows the system is biased against the U.S., while Canada might argue that it shows there are problems with the U.S. trade remedy system, said a Canadian official, speaking on background.The U.S. has challenged Canada 13 times, and won six of those.Another Canadian official said: “Chapter 19 dispute settlement is very important to us. It doesn’t mean there can’t be a conversation about changes to it, but we do believe that, Canada does believe that, the next agreement must have a strong Chapter 19.”Mexico is, at the outset, an ally of Canada’s in the fight to keep Chapter 19. “This is very important to us, to have a strong, transparent and efficient dispute settlement mechanism,” Mexican Ambassador Dionisio Pérez Jácome told the Star.Canada says the Mexicans have won in whole or in part 13 of 20 challenges it filed against U.S. anti-dumping or countervailing duty orders. But the U.S. has also been successful, winning — in whole or in part — 10 of 12 cases against Mexico.
CHAPTER 20Canada has been involved in six Chapter 20 cases, all with the U.S. and all of which occurred before 2002. Only one of those cases went to a panel: the 1996 Agricultural Tariffs case the U.S. brought against Canada, which Canada won. The other cases were either settled or suspended.So what if negotiators can’t agree on how to disagree?Patrick Leblond, of the Centre for International Governance Innovation and a professor at the University of Ottawa’s school of public and international affairs, says all three countries have benefitted overall from NAFTA and predicted the Americans will not walk out of talks if it fails to kill Chapter 19, the targeted multilateral dispute resolution process.“I think it’s a strategy. I think we’re way more attached to Chapter 19 than they are,” he said. “I’d find it completely mindboggling that over an issue like that they would walk out” and kill NAFTA altogether.At the same time, Leblond said, “they want to have some wins.”“Ultimately, I think if they can demonstrate they’ve improved things for American workers and the American economy that might be sufficient” for a deal to be reached, he added.
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