Forum shopping for Settling Trade Disputes Must End
by Margret Kopala

Published in the Ottawa Citizen, October 22, 2005

After ongoing but usually unsuccessful challenges by U.S. interests against (mostly western) Canadian softwood lumber, wheat and cattle interests, Canada-U.S. trade disputes and grievances are shifting from the panels and tribunals of the NAFTA, the WTO, the ITC and the U.S. Department of Commerce to the U.S. and D.C. Circuit Courts of Appeal, and the U.S. Court of International Trade, to name three.

First it was Canadian cattlemen who sued for damages incurred by the U.S. border closure and now the Canadian government, the Wheat Board and softwood lumber interests, among others, are challenging America’s infamous Byrd Amendment.

Linkage between Canada’s oil and softwood lumber exports adds to the labyrinthine agglomeration of acronyms, courtrooms and rhetoric that are the background to next week’s two day visit to Ottawa by U.S. Secretary of State Condoleezza Rice.

It is surely timely, then, for the two countries to examine one of the court actions currently underway, namely the challenge by the U.S. Fair Trade Lumber Coalition to NAFTA’s Chapter 19. While it’s easily dismissed as a pressure tactic to access the $5 billion-plus-interest in Canadian duties available to it under the Byrd Amendment that allows such things, it’s also easy to forget that, unless the coalition withdraws, only judges can prevent this particular challenge from reaching the U.S. Supreme Court.

But with or without the constitutional challenge, Chapter 19 is emerging as a major factor in Canada-U.S. trading woes.

At NAFTA’s inception, negotiators crafted a review mechanism to determine whether panel and tribunal decisions are consistent with national laws. Living next to the American elephant, the Canadian mouse had to ensure fair procedures for settlement of trade disputes. Chapter 19 was the key that would make everything else work though even then the U.S. Justice Department warned Congress it was unconstitutional. Last month, the lumber coalition concurred and further argued that “(the American) Constitution does not permit (NAFTA) panels to be the final arbiter of whether U.S. law provides for relief from unfair subsidies and dumping for U.S. producers and workers.”

A book launched this week by a Washington think-tank also argues for a new approach on Chapter 19. In a comprehensive overview of the ten year old North American Free Trade Agreement, NAFTA Revisited: Achievements and Challenges by Gary Clyde Hufbauer and Jeffrey J. Schott of Washington’s Institute for International Economics describes how the NAFTA incorporated six dispute settlement mechanisms. Among these, Chapter 19 “worked well when NAFTA obligations were well defined but poorly when domestic politics have blocked treaty compliance.”

How could domestic politics creep into what should be an impartial process? “The Chapter 19 process depends on application of the domestic law of the party whose agency’s determination is being challenged,” explain the two senior fellows and distinguished academics in international finance and trade policy. “Each member applies its own trade remedy laws.”

The most sensible resolution is to replace Chapter 19 with established World Trade Organisation codes, they write. Unlike NAFTA, the WTO has common standards, procedures, and panel selection criteria on anti-dumping and countervailing duties.

That would be the same World Trade Organisation that recently ruled in the United States’ favour on softwood lumber even though a NAFTA extraordinary panel had already ruled in favour of Canada. But the WTO does not allow for a refund or a distribution of duties to special interests. Under WTO rules, the Byrd Amendment is illegal. Not surprisingly, neither Canada nor the U.S. Lumber Coalition likes this particular WTO decision.

Nonetheless, adopting WTO codes means forum shopping would end, Gary Hufbauer told me when I spoke with him last week. “All (Canada, Mexico and the U.S.) have to do is agree to adopt it.”

Until that happens, everyone will be working their best case scenarios under the ad infinitum permutations and combinations available through trade panels, government agencies and national courtrooms. Which jurisdiction trumps which? Will Chapter 19 survive? Will the Byrd Amendment?

U.S. President George Bush has indicated he will oppose the lumber coalition but in the absence of more constructive, impartial approaches on dispute settlement than a revision of Chapter 19 offers, a re-think might be necessary for him too. It could cost Canada $5 billion in duties but it would be a small price to pay for an end to the ongoing trade disputes under which (mostly western) Canadian cattle, lumber and wheat interests currently languish.

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