Dispute Resolution Mechanism, NAFTA’s bone of contention

As Canadian negotiators assess their options in what appears to be the last right of renegotiation of the North American Free Trade Agreement (NAFTA), one of the most delicate issues is the dispute resolution mechanism, an independent tribunal that wants to get rid of the United States.

The mechanism in question, formally known as Chapter 19, allows companies who believe that their products are unfairly targeted by anti-dumping measures or tariffs to seek arbitration.

If a group of representatives of the two countries concerned agrees, it may demand reimbursement.

Ottawa negotiators must now decide whether they are fighting to keep this aspect of NAFTA or whether they are using it as a bargaining chip for another advantage. The system has benefited Canada in the past, but it has its flaws.

During the lumber “war” with the United States in the early 2000s, exporters filed a complaint with a panel of NAFTA and won their case.

Washington, however, refused to cooperate and Ottawa subsequently negotiated a refund that did not cover all the amounts required. When this agreement expired, the US lumber industry demanded a new investigation and the Commerce Department imposed additional tariffs, reigniting hostilities.

In 35 years, the two countries have engaged in five commercial “wars” on the issue of softwood lumber. The most recent, in 2017, was triggered by the imposition of 20% countervailing duties on Canadian products by the US authorities.

As of last month, some Canadian lumber exporters still had a US surtax of about 20%.

A little earlier, last November, Canada brought an action against these measures before a NAFTA panel under the provisions of Chapter 19.

The time of choice

While Canadian Foreign Minister Chrystia Freeland is in Washington for further negotiations , there is no doubt that US Trade Representative Robert Lighthizer wants to eliminate Chapter 19.

This will of Washington is also clearly indicated in documents of the office of Mr. Lightizer published in July of last year. The elimination of Chapter 19 is presented as a “solution” to the problems associated with the current version of NAFTA.

This file is part of a list of five stones on which trade between Mexico, the United States and Canada could still stumble, along with supply management, the rules of origin of parts of the taxation of online purchases and the “sunset clause”, ie the possible maximum duration of a new agreement, which would force the parties to renegotiate more regularly.

Canada must therefore choose: must we defend tooth and nail this imperfect tool? Should we try to convince the United States to replace it with a process that works better? Or should we rather accept defeat on this point and focus on another thorny issue?

In anticipation of negotiations, the federal government was clearly in favor of the first option.

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