Why Canada Does Not Need a Dispute Mechanism in NAFTA

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One of the most contentious issues between Canada and the United States on North American Free Trade Agreement (NAFTA) is chapters 11, 19 and 20 the dispute mechanisms.  Chapter 19 is the one most are fired up about:

…binational panel of five arbiters, agreed upon by both parties, who will determine whether or not the duties have merit based on U.S. domestic laws.

Source: macleans.ca/opinion/why-naftas-chapter-19-is-worth-fighting-for/ 

CANADIAN ARGUMENT FOR THE NAFTA DISPUTE MECHANISM:

Canada has politely stated that the United States is a massive economy with leadership that have inflated ego’s which are tied directly to high powered, big money, special interests.  The combination means that without a dispute mechanism, US politicians will frequently bring unfair claims of NAFTA breaches that Canada will not be able to defend against.  Canadian media and politicians (and even some American observers) have gone so far as to call this demand a ‘poison pill‘ using the logic that they know there is no-way Canada will accept a contract without a dispute process.

US ARGUMENT AGAINST THE NAFTA DISPUTE MECHANISM:

The US government does not want to be legally bound by non-elected and non-accountable body:

Granting foreign companies reciprocal rights to challenge U.S. laws and regulations outside the U.S. legal system also imposes costs on outside parties, including U.S. companies that only have recourse to the domestic legal system; U.S. citizens whose laws and regulation may be challenged extra-judicially; and taxpayers who may be on the hook to compensate foreign companies that win judgments in these cases

Source:  forbes.com/sites/danikenson/2017/10/24/to-save-nafta-kill-its-controversial-dispute-settlement-provisions/#71a324d3168d 

WHY CANADA DOES NOT NEED DISPUTE RESOLUTION MECHANISMS INSIDE NAFTA

The Canadian perception (and from what I can tell the American perception too) is that without the dispute resolution clauses formally outlined inside NAFTA, that the American’s will get their way on every argument.  However, that fact is that if there the dispute mechanisms get removed from NAFTA, it is not a “Wild West” “Biggest Gun Wins” world.  In a trade agreement world, the courts and various nonjudicial bodies become the settlement mechanism, as over the last 50 years, the American legal system has been quite rational in deciding if there was wrong doing and what the penalties should be if there was wrong doing.

Take for example the most recent high profile case of Boeing vs Bombardier, in which Boeing managed to the US Commerce Department to place a staggering 300% anti-dumping tariff added to the price of all Bombardier C-Series jets, despite the fact that Boeing does not even have a product competing against the C-Series.  A few months later, the US International Trade Commission’s struck down that tariff

“Today’s decision is a victory for innovation, competition, and the rule of law,” Bombardier said in a statement. “It is also a victory for U.S. airlines and the U.S. traveling public.”

Source: washingtonpost.com/news/business/wp/2018/01/26/u-s-trade-panel-strikes-down-300-percent-tariffs-on-canadian-jets-dealing-a-blow-to-boeing/?utm_term=.322bab3cb4b9

In the seemingly never ending software lumber dispute between the US and Canada.  The US has brought in tariffs 5 times and 5 times, US courts have stricken them down:

However, the U.S. Department of Commerce, which investigates allegations of subsidies, found that Canadian lumber was not unfairly subsidized and no tariffs were implemented.

Source theglobeandmail.com/news/british-columbia/tension-over-timber-a-primer-on-canada-us-softwood-lumber-trade/article34942091/

summary-map-wto-vs-us-disputes

Canada has brought 19 cases to the World Trade Organization (WTO) and won the majority of them. In fact on January 10th 2018, Canada brought far reaching complaint against the US to the WTO that it is very likely to win:

Canada says the US improperly calculates rates and restricts parties from presenting evidence to defend themselves, with a cut-off for supplying information that comes too early in the process.

It also accuses the US International Trade Commission of being biased since disputes over which the body’s six commissioners are evenly divided automatically result in a finding for the US…

Source: bbc.com/news/business-42639459 

SHOULD CANADA AGREE TO THE US DEMAND TO ELIMINATE THE NAFTA DISPUTE PANELS?

This is where we move from fact to opinion.  It is the authors opinion that while history shows Canada has been relatively well treated in US courts and non-political institutions, that it needs all the help it can get and I would not be keep to scrap those dispute clauses.  In particular the NAFTA Chapter 19 dispute resolution panels, which are composed of ‘mutually agreed to members’, have proven to operate much faster and cheaper than other court / arbitration systems.

Thus far NAFTA resolution panels seemed to make rational determinations.  In fact the WTO and TPP have both adopted these types of panels because of their efficiency and fairness.

Love him or hate him, Brian Mulroney is the father of NAFTA and in January 2018 he said:

“We had quite a fight in 1987 to get it for Canada,” Mulroney said. “And it was incorporated into the NAFTA and subsequently into the World Trade Organization. And now into the (Trans-Pacific Partnership). It’s got to be pretty valuable for all those people to want to have it.”

“It gives us an opportunity to keep the Americans true to their own trade laws, just as they keep us adhering to our trade laws — that’s the beauty of it.”

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