22 April 2005

NAFTA's value coming under scrutiny

The following article is extracted from the 22 April 2005 edition of the “Toronto Star”.

There's a real question emerging of whether NAFTA's dispute settlement process is worth the paper it is printed on, and if not, whether NAFTA itself has any real value.

The reason for this, particularly among some people who campaigned for the North American Free Trade Agreement, is a growing belief that Americans view the process set out in NAFTA to resolve disputes as largely irrelevant. Canada's continuing frustration over the softwood lumber dispute is seen as the prime example.

The Canadian goal in free trade with the United States was to obtain a set of clear rules to resolve trade disputes…..

Canada failed to get what it really wanted — an exemption from U.S. anti-dumping and countervailing duty actions. The Mulroney government settled for a second-best solution. Under the agreement, when there is a dispute over a U.S. trade action against Canada, as in the softwood lumber case, a dispute panel of Canadians and Americans can be established to determine whether U.S. law has been properly applied. If the panel finds it has not, then the U.S. tribunal must correct its decision. This is set out in Chapter 19 of the FTA.

Since they launched their latest assault on the Canadian lumber industry in May 2001, the Americans have lost a series of panel reviews of their trade actions. But they have stubbornly refused to drop the penalties and return the more than $4 billion they have illegally collected from Canada.

The core American position is that they don't have to turn the money back to Canada, and if Canadians want the $4 billion back they will have to make concessions to the U.S. Even though they have lost their case, the Americans have to "win."

For many Canadians, softwood lumber has moved beyond a narrow trade dispute on a particular product to a symbol of the bad faith or untrustworthiness of the United States in resolving trade issues…. This was evident at this year's Canada-U.S. Law Institute Conference at the Case Western Reserve University law school.

Simon Potter, a trade lawyer with McCarthy Tetrault in Montreal, warned that "we see a growing attitude in Canada, … that the U.S. side has a much greater attention to technical detail rather than the spirit of the agreement and plays hardball, trying ever harder to get what it wants, despite NAFTA." He also accused U.S. trade officials of engaging in personal attacks and insults toward Canadians.

Susan Esserman, a member of the U.S. Trade Representative's Office during the Clinton administration and now a Washington trade lawyer, indicated the United States did not like the NAFTA dispute settlement mechanism and noted it has not been included in any U.S. bilateral trade agreement since. …

But from their viewpoint, the American approach may be rational. One Washington trade lawyer noted, "The United States regards Canadians as wimps and expects them to fold." Indeed, it's hard to see what Paul Tellier and Gordon Ritchie, recently appointed as mediators by Ottawa, are expected to do if it is not to find some way for the Americans to "win" this case.

…. The U.S. Department of Commerce "understands that the laws and treaties make it impossible for Canada to `win' in the real world, even if they win every time in court. It takes years to get through the courts, and by the time you do, the tariffs, duties and quotas the U.S. has imposed have completely wrecked the targeted industry in Canada. So who cares what the courts say."

Not surprisingly, then, the Martin government's foreign policy statement released this week says there are "serious issues to be addressed with the U.S. — most notably involving respect for dispute resolution procedures." … What mattered was dispute resolution since free trade was primarily a creature of Canadian fears of U.S. protectionism.

But if dispute settlement doesn't work, what's the point of the agreement?