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The
Economic Freedom
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Dispute Settlement in
NAFTA and the FTA

Gilbert R. Winham
Dalhousie University
I gratefully acknowledge research assistance on this chapter from Heather Grant of McGovern, Roine, Ottawa; and Katherine Trueman, M.A. Candidate, Dalhousie University. I also thank several who criticised the first draft, namely, Jonathan T. Fried, EAITC; Steven Globerman, The Fraser Institute; Heather Grant, McGovern, Roine; Michael Hart, EAITC; and Jeffrey S. Thomas, Ladner Downs, Vancouver. I alone am responsible for the final draft. Finally, I gratefully acknowledge research support from the SSHRC.

Introduction

DISPUTE SETTLEMENT HAS BEEN a long-standing goal of Canada in international trade. As a middle power dealing with large players like the United States or the European Community (EC), Canadian governments have promoted clearly-enforced trade rules as being in Canada's national interest as well as in the interest of the broader trade system. Canada's concern over trade rules and dispute settlement quickened after the conclusion of the Tokyo Round negotiation in 1979, as the United States gradually enhanced its unfair trade remedy procedures especially dealing with anti-dumping and countervailing duties. Both the private sector and governments in Canada became alarmed that trade remedy actions against products like timber, fish and pork threatened Canada's existing trade to the United States, and this alarm quickly translated into a concern for the "security of access" to U.S. markets. Effective and binding dispute settlement was seen as the most effective means for dealing with security of access, hence dispute settlement became a political sine qua non for Canada in the negotiations for a Canada-U.S. Free Trade Agreement (FTA)
[For further discussion, see Michael Hart "A Lower Temperature: The Dispute Settlement Experience under the Canada-United States Free Trade Agreement," American Review of Canadian Studies: (Summer/Autumn, 1991) 193-205.]

Developing a more formal dispute settlement system has only recently become a major concern in international trade policy. This can be seen in the General Agreement on Tariffs and Trade (GATT), where the incidence of GATT dispute settlement panels increased sharply during the 1980s.
[Robert E. Hudec, "The Judicialization of GATT Dispute Settlement" in Michael M. Hart and Debra P. Steger, eds., In Whose Interest? Due Process and Transparency in International Trade, Ottawa: Centre for Trade Policy and Law, 1992, p. 9-44.] In regional trade agreements, the increasing importance of dispute settlement can be seen by comparing the Australia-New Zealand Closer Economic Relations Trade Agreement of 1983 with the Canada-US FTA concluded in 1987. In the earlier agreement, dispute settlement was clearly an afterthought. In the FTA, the parties established a more formal mechanism for general dispute settlement than that existing in the GATT, and they created a wholly unique dispute settlement mechanism for dealing with antidumping and countervailing duties. The latter undertaking was one of the most contentious issues in the FTA negotiation.

Arguably, dispute settlement procedures in the FTA have worked very well. Professional opinion has been supportive, as evidenced by the remarks of Professor Andreas Lowenfeld in a major evaluation of binational dispute settlement practice: "All things considered, the unique binational dispute settlement mechanisms created by the Canada-United States Free Trade Agreement have worked extraordinarily well.
[Andreas Lowenfeld, "Binational Dispute Settlement under Chapters 18 and 19 of the Canada-United States Free Trade Agreement: An Interim Appraisal," Administrative Conference of the United States, December, 1990, p. 78.]" Lowenfeld has praised the opinions of panelists as "thorough," "articulate," and "on the whole persuasive," and has been unable to detect either a bias toward protectionism or unrestrained trade, or a "Canadian" or "American" approach in panel decisions. [Ibid, p. 78. Stewart Baker has noted that ". . . panel review thus far has been much more intense and demanding than review by U.S. courts." See Stewart Abercrombie Baker "Antidumping and Countervailing Duties Law," North American Free Trade Agreement: A Segment in Law and Practice under the GATT and Other Trading Arrangements, Oceana Publications, 1992, p. 22.] At the political level, statements of government leaders about FTA dispute settlement have generally been positive, although there has been occasional criticism especially from the U.S. Congress. The fact that the United States and Canada both negotiated an essentially similar dispute settlement mechanism in the North American Free Trade Agreement (NAFTA) as the FTA demonstrates that the latter mechanism met with political approval.

Dispute settlement could be described under three headings in the FTA:
[William J. Davey, "Dispute Settlement under the Canada-U.S. Free Trade Agreement" in Marc Gold and David Leyton-Brown, Trade-offs on Free Trade: The Canada-U.S. Free Trade Agreement, Toronto: Carswell, 1988, p. 173-181.] namely, (i) a general dispute settlement mechanism under Chapter 18; (ii) various sector-specific provisions for arbitration and/or dispute resolution, especially regarding safeguard measures; and (iii), a dispute settlement mechanism for anti-dumping and countervailing-duty actions under Chapter 19. Dispute settlement procedures in the NAFTA can be aggregated under similar headings to the FTA. Except where otherwise provided, once NAFTA enters into force the FTA will be suspended because it will have been subsumed into the NAFTA. The purpose of this chapter is to compare the dispute settlement provisions of NAFTA with those of the FTA, noting principal differences and especially those areas where improvements have been made to the dispute settlement mechanism. [In NAFTA, the equivalent of FTA Chapter 18 is Chapter 20. Chapter 19 of the FTA and Chapter 19 of NAFTA have identical subject material.]

General Dispute Settlement

FTA

Chapter 18 of the FTA creates an institutional structure to manage the agreement, and to resolve disputes over different interpretations of the rights and obligations of the parties. The basic model for dispute settlement in the FTA is the GATT panel process, which evolved largely through customary usage. Like the GATT, Chapter 18 obliges the parties to provide information that affects the operation of the Agreement, and to consult on any measure at the request of the other party. In the event consultations fail, a dispute will be referred to a Canada-United States Trade Commission which is a political body analogous to the GATT Council. The principal representative to the Commission is the trade minister (or equivalent) in each party, although in practice Commission functions are discharged by task-oriented groups of government officials. The Commission is obliged to meet at least once a year to review the functioning of the Agreement.

In the event the Commission cannot resolve a dispute, the FTA provides for binding arbitration on Safeguard measures or on any other issues on which the parties agree; and it provides for the establishment of ad hoc panels specifically to deal with particular disputes. The panel process functions like that of the GATT, and it is the staple of FTA dispute settlement. Both parties maintain a roster of individuals qualified to serve as panelists, from which a panel of five members is selected to hear individual cases. Panels make a recommendation to the Commission on whether a disputed measure causes nullification or impairment of a party's rights under the Agreement, and what action should be taken to resolve the issue. The Commission is then expected to take political action on the dispute, which should normally conform to the panel's recommendation. The FTA obliges parties to resolve disputes wherever possible by removing any measure found not to be conforming to a party's obligations under the Agreement. In the event of non-compliance by a party, the injured party has a right to retaliate, or specifically to suspend benefits of equivalent effect under the Agreement until the dispute has been resolved.

Three panels have been completed under Chapter 18, and several others are in progress. One completed case produced a unanimous decision in favour of Canada's interpretation of FTA Article 304 concerning non-mortgage interest deductibility under the automotive rules of origin. The two other completed cases arose in the fishing industry.
[The two cases are: Canada's Landing Requirements for Pacific Coast Salmon and Herring, CDA-89-1807-01 (October 16, 1989); and Lobsters from Canada, USA-89-1807-01 (December 12, 1989).] The first case-Salmon and Herring-produced a unanimous although obviously conflicted report that reduced Canada's landing regulations from 100 per cent of fish caught to 80 per cent. The parties later negotiated a settlement. In the second case-Lobsters-the Panel by a 3-2 majority upheld a U.S. regulation which prevented the importation of short lobsters from Canada. The parties subsequently negotiated an agreement that was then repudiated by Canada, and the regulation remains in force.

The two fishing cases turned more on an interpretation of GATT rules rather than on any new rules assumed under the FTA, thereby emphasizing the more general point that the FTA should be viewed as an addition to, and not a replacement of the parties' contractual obligations under the GATT. Neither panel achieved a complete consensus on the issues. In Salmon and Herring, the grounds on which the panelists agreed differed along technical and legal lines, but in Lobsters the formal 3-2 split decision was widely alleged to be along national lines and it raised a question about the impartiality of the panel and even of the process itself. Despite the difficulties in achieving consensus, the panels clarified the legal issues in question, and helped to structure a political settlement.

NAFTA

Chapter 20 of the NAFTA carried on the basic institutional arrangements and dispute settlement procedures established in Chapter 18 of the FTA. The changes in NAFTA constitute essentially incremental improvements in dispute settlement procedures, a somewhat enhanced institutional relationship between the parties, and a greater commitment to reach agreement at the working level as opposed to seeking litigation under formal dispute settlement procedures.

The NAFTA establishes a Free Trade Commission comprised of cabinet-level representatives or their designates. The Commission acts on the basis of consensus, unless otherwise agreed, and it is responsible for overall political oversight and implementation of the Agreement. As in the FTA, the Commission can establish standing committees, working groups or expert groups and it can delegate responsibilities for information gathering and dispute settlement to such groups. The NAFTA specifically establishes about twenty sectoral Working Groups which are identified in Annex 2001.2, and which-under the supervision of the Commission-are intended to assume greater managerial responsibility to pursue dispute avoidance in lieu of more formal dispute settlement procedures. The objective of political oversight of sectoral Working Groups is to create a greater obligation by the parties to seek agreement on a daily basis, and in practice to avoid technical disagreements like the recent Honda customs case from becoming a full-blown political dispute.
[The Honda case involved a ruling by the U.S. Customs Service on March 2, 1992 that Canadian exports of Honda Civics during 1989/90 failed to qualify as North American products under FTA content rules, resulting in U.S. duties being applied to the products. U.S. Customs held that the Canadian manufacturer had used engines made in the United States that contained too many foreign parts to qualify as North American. However, Revenue Canada had previously approved the engines on import into Canada as meeting rule-of-origin requirements. For further information, see "Customs Rules that Canadian Honda Civics Failed to Meet Content Standards under FTA," International Trade Reporter, Vol. 9:10, March 4, 1992, 384.]

The main institutional change created by the NAFTA is to upgrade the role and importance of the Secretariat. Under the FTA, a Binational Secretariat was established-with an office in Ottawa and Washington-which essentially performed a court registrar's function in support of Chapter 18 and 19 panels. The importance of the secretariat function was formally recognized in the NAFTA. In Article 2002, provision is made for a Secretariat that will provide assistance to the Commission, as well as provide logistical support to all dispute settlement panels, working groups and other standing committees and ad hoc committees established under the NAFTA. It appears from Article 2002 that the parties anticipate the NAFTA will take on a larger institutional presence than did the FTA. An expanded secretariat function may also have been considered necessary in the event other nations should accede to the NAFTA.

Dispute settlement in the NAFTA follows the FTA model, with appropriate allowances being made for multiple parties, and with innovative alternatives being provided to the normal panel process. Dispute settlement in the NAFTA proceeds in three stages. In the first stage, any party can request consultations with any other party, while a third party that feels it has an interest at stake is entitled to participate. If the matter has not been resolved in 45 days, parties can proceed to the second stage by formally requesting a meeting of the Commission. The Commission is empowered to extend a wide range of Good Offices, Conciliation or Mediatorial services, including calling on technical advisors or on the Commission's Advisory Committee on Private Commercial Disputes. The intent of the second stage is clearly to resolve matters through government-to-government negotiation, or to employ methods of alternative dispute resolution (ADR) in order to avoid expensive and time-consuming litigation. If at the end of 30 days the matter has not been settled, the parties may proceed to the third stage, namely to request the establishment of an Arbitral Panel under Article 2008. Such a panel is the equivalent of a Chapter 18 panel under the FTA.

Chapter 20 of NAFTA adopted the main provisions of FTA Chapter 18, with the exception of panel selection as discussed below. Panels are expected to present an initial report to the Commission within 90 days after the panel is selected, and parties are given an opportunity to respond. The panel is then expected to present a final report, following which the parties ". . . shall agree on the resolution of the dispute, which normally shall conform with the determinations and recommendations of the panel. . . .
[Article 2018:1.] " As with the GATT and the FTA, implementation of a panel ruling in NAFTA normally consists of removing a measure that does not conform to the Agreement, and the sanction for non-implementation is to withdraw equivalent benefits from the offending party.

Dispute settlement procedures operate under similar time limits in NAFTA as those in the FTA. In the NAFTA, panels may, but are not required to, solicit reports from scientific review boards on issues concerning environmental, health, safety or other scientific matters. This measure was obviously designed to meet criticism from the environmental lobby, but it apparently fell short of the demands of the lobby.
[See "Draft Dispute Settlement Text Leaves NAFTA-FTA Priority Unresolved," Special Report, Inside U.S. Trade, July 31, 1992.] Another difference related to trilateral membership of NAFTA is that parties not involved in a dispute are allowed intervenor status, with rights to attend all hearings, make written and oral submissions, and to receive submissions of the disputing parties. Intervenor parties may not, however, have the right to receive and comment on the initial report of the Panel, which under Article 2016:2 is to be presented to the "disputing parties."

The procedures for selecting panelists are improved in the NAFTA. Under Chapter 18 of the FTA, parties maintain separate rosters of experts. In order to form a panel, each party selects two individuals from their own roster (with rights of peremptory challenge by the other side), and then the fifth panellist is chosen by the Commission. Under Chapter 20 of the NAFTA, parties will establish by consensus a common roster of 30 individuals experienced in law, international trade, and dispute settlement. In order to form a panel, the disputing parties will first agree on a chair for the panel or, in the event of disagreement, a disputing party chosen by lot will select as chair an individual who is not a citizen of that party.
[Despite the language of the FTA, the practice followed in Chapter 18 panels has been for the Commission to decide initially which party had the right to select the chair, and then to accept three names (including the chair) from that party at the same time as the other party submits two names.] The disputing parties are then each obliged to select two panelists who are citizens of the other disputing party. Appropriate alterations to this pattern are made where there are more than two disputants, but the principle of selection of the other party's nationals remains the same. This principle is drawn from state-of-the-art practice in mediation and dispute settlement. The NAFTA parties apparently expect the common roster and selection procedures will result in higher quality roster members and the best candidates being selected as panelists. If Chapter 18 is open to any criticism, it is that the panels may not have had sufficient expertise to rule on the issues that were put before them. This problem was compounded by the lack of institutional knowledge and support for Chapter 18 panels such as that provided to GATT panels by the GATT Secretariat. The NAFTA roster/panel selection process is an attempt to address these deficiencies. [The observation about Chapter 18 panels has been prompted by personal communication from Jeffrey S. Thomas, Ladner Downs, Vancouver.]

With regard to non-NAFTA forums for dispute settlement, Article 2005 deals with the option of the parties to take a dispute to the GATT in lieu of a NAFTA panel. As in the FTA, where a dispute arises both under GATT and NAFTA, either forum may be chosen by the complaining party for the resolution of the dispute. Once chosen, the dispute shall be resolved in that forum to the exclusion of any other. However, there is a new limitation introduced in the NAFTA. If a complaining party wants to take a dispute to a GATT panel, it must notify third parties of its intentions. If a third party wishes to have the dispute resolved under NAFTA, the disputing parties are obliged to consult and reach an agreement as to a forum. If no agreement is reached, the NAFTA mechanism will supersede. Therefore, a party's choice of forum is more limited under NAFTA than the FTA.
[In an interpretative note, the parties agreed that the obligation to use NAFTA dispute settlement is itself subject to dispute settlement, in an effort to avoid preventing a party from invoking its rights to GATT dispute settlement. However, in the case of some environmental, health or conservation issues, parties can be forced to use NAFTA in lieu of the GATT.]

A further provision for non-NAFTA forums between private parties (i.e., such as private companies) is contained in Article 2022. The NAFTA parties are obliged to encourage the use of private methods of alternative dispute resolution (ADR) and are to provide appropriate procedures to that end. The latter obligation can be discharged by being a party to the UN Convention on Arbitral Awards or the Inter-American Convention on International Commercial Arbitration.

Sector-specific Provisions for Arbitration and/or Dispute Settlement

The FTA provided for a number of opportunities for consultations outside the general dispute settlement mechanism established in Chapter 18. These included, for example, provisions in Article 1004 for a Select Panel on Automotive Products to propose public policy measures to the parties, and the provisions in Article 1704 for direct consultations on financial services between the Canadian Department of Finance and the U.S. Department of the Treasury. The FTA also provided for "binding arbitration" in Article 1806, which was to apply to all disputes regarding safeguards (i.e., Emergency Actions in Chapter 11), or to all other disputes where the parties agreed to resort to arbitration.
[Safeguards or emergency actions are a common feature of trade agreements that permit parties to impose temporary restrictions such as tariffs or quotas that would otherwise be inconsistent with the agreement. The normal condition for this action is that surges in imports are causing serious injury to domestic producers.] The provision of "binding arbitration" on safeguards was a product of the negotiating history of the FTA. During the negotiation, the United States took a highly-visible safeguard action on Canadian shakes and shingles, and the resultant political fall-out led the Canadian Government to demand that such actions be subject to binding dispute resolution.

The NAFTA removes the distinction between binding and other forms of arbitration under Chapter 20, and simply uses the term "arbitral panel" for the panels to be established under that chapter. The reason the distinction is dropped is that the obligation to comply with a panel's finding is identical whether or not it is described as "binding" arbitration; and the sanction for non-compliance is also identical in either case, namely, retaliation through withdrawal of compensating benefit. It is likely that the reference to binding arbitration in the FTA is best understood as an artifact of the politics of that negotiation. Even the use of Chapter 20 dispute settlement is withdrawn entirely by NAFTA Article 804 in the case of proposed emergency actions, but the trade-off is a fuller process of consultations during the imposition of the emergency action itself. This is consistent with the NAFTA philosophy of resolving disputes at the ground level before they become difficult.

The substantive chapters of NAFTA provide ample opportunity for consultation and dispute settlement other than that provided formally in Chapters 19 and 20. Like the FTA, the chapter on Financial Services has a distinct process for dispute resolution, and it goes further than the FTA in providing for a separate roster of experts. The Standards chapter provides for direct party-to-party consultation. Some of the incentive to place dispute settlement mechanisms in substantive chapters resulted from previous difficulties with the FTA. For example, following the experience with the customs dispute over Honda autos, the chapter on Customs Procedures was designed to permit traders to receive advance rulings on customs determinations prior to shipping goods, and to provide for review and appeal of origin determinations and advance rulings. The chapter also sets up a Working Group to monitor the overall application of customs formalities, and a Customs Subgroup to ensure the uniform interpretation of NAFTA requirements. These provisions have an important dispute avoidance dimension as well as providing a better basis for dispute settlement if necessary.

Finally, the chapter on Investment contains a lengthy sub-chapter outlining procedures for dispute settlement and arbitration between a party and an investor of another party. The NAFTA gives investors in other parties the right to convoke an arbitral tribunal in the event that a host government (including provincial governments) breaches an obligation of the investment chapter. Such obligations include national treatment, disciplines against certain performance requirements, and the right to a minimum standard of treatment. The sub-chapter is designed to cover a full range of potential investment disputes, and especially matters of expropriation and compensation that have arisen between North American partners in the past. An annex to the chapter provides that decisions of Investment Canada regarding foreign acquisitions are excluded from being subject to dispute settlement. A similar exclusion is additionally provided to Mexico on matters of acquisitions.

Dispute Settlement for Antidumping and Countervailing Duties

FTA

Chapter 19 of the FTA created a wholly unique mechanism for resolving disputes over antidumping and countervailing duties. The hallmark of this mechanism is international (or more precisely, binational) judicial review of the actions of domestic agencies. Chapter 19 is an important step toward accepting a role for international legal procedures in the application of unfair trade remedies, which have often created strained relations between trading partners. Chapter 19 is a step away from the notion that national trade policy can be applied by domestic agencies without concern for the interests of trading partners.

Chapter 19 can be summarized in three parts. First, each party agreed to retain its own antidumping and countervailing duty practices, which are fairly similar to each other's. The parties agreed that amendments to either country's antidumping or countervailing duty laws would be subject to constraints of notification and consultation, and that such amendments would be consistent with relevant provisions of the GATT and other multilateral accords, and the FTA itself. Additionally, the parties agreed-if requested by the other party-to refer proposed legislative changes to a binational panel for an advisory opinion on the consistency of the change with existing obligations under international law.

Second, the parties established binational panels to replace judicial review by domestic courts of final antidumping or countervailing duty determinations by national agencies. Each party agreed to make available binational panels to persons who would otherwise have been entitled to judicial review under domestic law. The panel's mandate is to consider the administrative record of the case appealed, and decide generally whether the final determination is supported by evidence and is in accordance with domestic law.

Third, the provisions of Chapter 19 were to be maintained for seven years. The parties agreed to continue negotiating on dumping and subsidy issues during that period, with the aim being to establish jointly-accepted rules on dumping and subsidy practices that would eliminate the resort to antidumping and countervailing duties. A Working Group was created to pursue this task, but both countries agreed instead to negotiate issues of antidumping and countervailing duties in the multilateral GATT Uruguay Round in lieu of bilateral talks. Should new Dumping or Subsidy codes be completed in the multilateral negotiation, they would be applicable in regional free trade agreements.

The panels under Chapter 19 are composed of five members chosen from a roster of trade experts, primarily lawyers, established in each country. Two panelists are selected by each country while the fifth member is chosen jointly, or by lot, where there is no agreement on the final member. In practice, the fifth member's nationality has alternated between the two countries from one panel to the next.

The standard of review to be applied by the panel is the standard applicable in the country where the antidumping or countervailing duty was initiated. In Canada, the test is whether the agency (a) failed to observe a principle of natural justice or otherwise acted beyond or refused to exercise its jurisdiction; (b) erred in law in making its decision or order, whether or not the error appears on the face of the record; or (c) based its decision or order on an erroneous finding of fact that was made in a perverse or capricious manner or without regard to the material before it. In the United States the test is whether the agency's decision is unsupported by substantial evidence on the record, or is otherwise not in accordance with law.

It is important to note that the panels are not authorized to create substantive law but must act consistently with the laws of the importing country. Consequently, determinations of dumping and subsidization can be different in each country but will still be upheld as long as the administrative agency made its determination in accordance with domestic law.

Review of a panel's decision is very limited. There is no appeal mechanism in the FTA to challenge a panel's findings on the grounds of legal or factual error. Only where there are allegations of gross misconduct, bias, serious conflict of interest or other material violation of the rules of conduct by a panellist, or there is a serious departure from a fundamental rule of procedure by the panel, or if the action by the panel is manifestly in excess of its powers, authority or jurisdiction; and any of the actions outlined above materially affected the panel's decision or threatened the integrity of the review process, can extraordinary challenge procedures be invoked.

Through November 1992, thirty Chapter 19 cases had been initiated, plus one Extraordinary Challenge.
[FTA Dispute Settlement (Chapters 18 and 19): Status Report for November 1992, Canada-U.S. FTA Binational Secretariat, Canadian Section, 13 November 1992.] Of these cases, 24 were directed against U.S. agencies (i.e., the Department of Commerce (DOC) or the International Trade Commission (ITC)), and six were directed against Canadian agencies (i.e., Revenue Canada or the Canadian International Trade Tribunal (CITT)); see Table 1. Since cases are usually brought against U.S. agencies by Canadian parties, and cases against Canadian agencies by U.S. parties, it is apparent that Canadians have been the major users of Chapter 19 procedures, and the main respondents have been U.S. agencies.

Click here to view Table 1: Status of 30 Chapter Nineteen Cases

Of the 18 completed cases, eight were terminated by the parties, five affirmed the agency's determination in question, and five remanded the determination to the agency in whole or in part; see Table 2. A remand means that the determination was returned to the agency for "action not inconsistent with the panel's decision.
[FTA, Art. 1904 (8).]"

Click here to view Table 2: Disposition of 18 Completed Chapter Nineteen Cases

In the two non-terminated Canadian cases, the actions of the agency were affirmed in one panel and remanded in the other. For the eight non-terminated U.S. cases, four were remanded and four were affirmed.
[Because cases can be remanded in whole or in part, a "remand" may be a relatively insignificant action.] Overall, the degree of consensus in panel reports has been high; of the ten non-terminated decisions on both sides, seven were by unanimous decision and three sustained a dissent on the part of one panellist. This level of consensus has increased the confidence of the FTA parties in the binational panel process.

NAFTA

The dispute settlement provisions for cases involving antidumping and countervailing duties under Chapter 19 of NAFTA are essentially the same as those under the FTA. First, NAFTA provides as did the FTA for the retention of domestic antidumping and countervailing law, although changes will be made in Mexican law as outlined below. Second, both agreements establish a process of judicial review by ad hoc binational panels of the determinations of domestic agencies. The Chapter 19 panel process in NAFTA is binational and is established between the disputing parties: selection of panelists is similar to that of the FTA,
[Annex 1901.2(1) of NAFTA adds a statement that national rosters of prospective Chapter 19 panellists shall include "sitting or retired judges to the fullest extent practicable," whereas the FTA was silent on this point.] and no intervenor status is granted to third parties as under Chapter 20 of NAFTA. Third, both agreements impose similar notice and consultation requirements on parties where they intend to amend their unfair trade remedy legislation, as well as provide a complaining party with recourse to a binational panel for a declaratory determination as to the consistency of the amendment with the objectives of the Agreement and the GATT.

There were four important changes to Chapter 19 introduced by the NAFTA. First, the NAFTA has no sunset provision limiting the continuation of the Chapter 19 binational process, and it drops the working party established in the FTA to develop different rules for subsidies and antidumping procedures. It will be recalled that the Chapter 19 mechanism was established as a temporary measure in the FTA, and the parties allowed themselves a total of seven years to revamp antidumping and countervailing duty practices in bilateral relations. Arguably, according to FTA Article 1906 the Chapter 19 mechanism itself could have been suspended after seven years, although obviously any attempt by a party to do so would likely have created a crisis for the overall Agreement.
[Article 1906 is titled "Duration" and reads as follows: "The provisions of this Chapter shall be in effect for five years pending the development of a substitute system of rules in both countries for antidumping and countervailing duties as applied to their bilateral trade. If no such system of rules is agreed and implemented at the end of five years, the provisions of this Chapter shall be extended for a further two years. Failure to agree to implement a new regime at the end of the two-year extension shall allow either Party to terminate the Agreement on six-month notice."] The NAFTA has resolved this uncertainty, and by not incorporating a sunset clause into the Agreement has ensured that the Chapter 19 mechanism is as permanent as the trade agreement itself. The NAFTA does, however, oblige parties to consult generally on more effective rules on subsidies and unfair transborder pricing, but there is no time limit or provision for terminating the binational panel process if agreement is not reached.

Second, the NAFTA adds a section (Article 1907:3) that outlines desirable qualities for the administration of antidumping and countervailing duty laws.
[For example, "publish notice of initiation of investigations;" "provide disclosure of relevant information . . . [including] . . . an explanation of the calculation or the methodology used to determine the margin of dumping or the amount of subsidy;" and so forth.] This change (as well as the two following changes) were added to NAFTA to ensure that Mexico's trade remedy system is sufficiently similar to that of Canada and the United States to make a Chapter 19 mechanism suitable; and if not, to ensure that adequate remedial provisions are incorporated into the Agreement to protect the other parties. The rationale underlying these changes is that Chapter 19 presupposes a binational panel will apply the domestic law of the party whose agency's determination is being challenged. Where a party's administrative procedures, statutes, or standard of judicial review do not match, or at least come close to, those found in the other parties' unfair trade remedy systems, interested nationals of those other parties may not receive a standard of due process equivalent to that extended by their governments to foreign exporters.

Third, the NAFTA adds a section (Annex 1904.15(d) Schedule B) that outlines a series of twenty obligatory amendments to Mexico's unfair trade remedy legislation. These amendments essentially will require Mexico to adopt an unfair trade remedy regime similar to that of Canada and the United States. The proposed amendments are mainly procedural, and are intended to address the low standards of due process that are characteristic of Mexico's unfair trade remedy legislation.
[It is probable that Mexico provides greater due process in practice than that required by Mexican law.] For example, there are requirements that Mexican legislation shall provide explicit timetables for administrative proceedings, participation by interested parties, and timely access to all non-confidential information. The Mexican law that allows for the imposition of duties only five days after receipt of a petition must be changed, and, as well Mexico's recognition of parties having standing to request judicial review must be expanded to include foreign producers and exporters who were formerly excluded from seeking judicial review of an agency's determination. Perhaps most importantly, Mexico will be required to compile a comprehensive administrative record of the proceedings of the investigating agency and a detailed statement of legal reasoning underlying the agency determination, which is the basis for judicial review by a binational panel.

Fourth, under the title of "Safeguarding the Panel Review System," the NAFTA adds a section (Article 1905) that provides remedies if a party does not comply with its obligations under Chapter 19. If the application of a party's domestic law prevents a binational panel from carrying out its functions, the NAFTA provides recourse to consultation and then to a Special Committee of three individuals selected from the same roster used for the purpose of establishing Extraordinary Challenge Committees.
[Extraordinary Challenge Committees were provided for in the FTA to permit an appeal from a binational panel decision on grounds, inter alia, of misconduct or abuse of power. The NAFTA has a similar provision.] If the Committee finds that a party has not complied with Chapter 19 the complaining party can suspend binational panel review or equivalent "appropriate" benefits with respect to that party. Article 1905 further provides that binational panel reviews between the disputing parties will be stayed, and will revert to domestic courts if necessary; and it gives the party complained against rights to retaliate in kind to a suspension of binational panel review by the complaining party. In the event the party initially complained against removes the cause for complaint, provision is made to reconvene a Special Committee to assess the situation, and then to terminate counter-measures if appropriate. To sum up, it appears that given the successful history of Chapter 19 in the FTA it is unlikely a Special Committee would arise between Canada and the United States, but it may form a useful sanction to ensure that Mexico (or any other country acceding to the NAFTA) adopts the domestic practices necessary to implement Article 19. However, it is unlikely that the extension of Chapter 19 to Mexico could survive any substantial use of Article 1905, since that article essentially signals a breakdown of the undertakings of Chapter 19 itself.

Conclusion

The NAFTA provisions for institutional arrangements and dispute settlement (Chapter 20) and review of antidumping and countervailing duty matters (Chapter 19) will supersede the equivalent chapters in the FTA. Chapter 20 is an incremental improvement and technical extension of dispute settlement provisions in the FTA, which in turn represented a similar improvement over dispute settlement methods in the GATT. Chapter 20 was not particularly controversial in the NAFTA negotiation, as evidenced by the early completion of the chapter. If this chapter has a philosophy, that philosophy is to push dispute settlement down to the level of working groups and other technical international committees, in an effort to resolve problems before they reach serious proportions. The history of Chapter 18 dispute settlement in the FTA has not been a particularly successful one, and there is a desire to head off the formal mechanism of binational panels if this can be achieved.

Chapter 19 is another matter. Chapter 19 in the FTA was a surrogate for the bilateral code on subsidies and pricing practices that the parties were unable to conclude. It was legally innovative because it empowered a binational panel (effectively an international court) to review and reverse the antidumping and countervailing duty actions of domestic agencies, whereas such powers had been normally exercised exclusively by domestic courts. Chapter 19 was extremely difficult to negotiate, but once implemented the binational panels worked well and the decisions produced were reasonably consistent with those of domestic courts prior to the FTA.

Chapter 19 was highly contentious in the NAFTA, and it was only settled late in the negotiation. In the United States there was Congressional pressure to downgrade Chapter 19, or to dismantle the mechanism altogether. Alternatively, there were attempts to expand the role of Extraordinary Challenge Committees, which would have reduced the capacity of binational panels to produce a definitive judgment. The United States and Canada were wary of extending the mechanism to the Mexican legal system, and there were efforts to insert elaborate guarantees of due process in the NAFTA, as well as a review mechanism to monitor Mexican compliance. An important issue for the Mexican Government was how far it could tolerate a foreign and essentially intrusive legal procedure in order to gain access to binational scrutiny of Canadian and U.S. antidumping and countervailing actions. For Canada, the issue on Chapter 19 boiled down to the maintenance of the status quo of the FTA.

The NAFTA maintained intact the FTA Chapter 19 mechanism, and it made that mechanism a permanent feature of North American trade relations. This will provide legitimacy to the mechanism, and will reinforce the notion that it is an interesting and important new departure in international law. For Mexico, Chapter 19 will promote a more transparent, rules-based system of unfair trade remedies than existed previously, which will benefit Canadian and American exporters. With its emphasis on due process, Chapter 19 could even become a vehicle for changes in Mexican administrative law, which would be consistent with the Mexican government's goal of using NAFTA as a tool to promote Mexican development.





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