Chapter 5 (2ed) 2

Dispute Settlement Under CFTA and NAFTA

The Inevitability of Disputes Given the history of trade relations between Canada, the U.S. and Mexico, it is absolutely inevitable that there will continue to be disputes over trade. To conduct business in almost any industry where firms on both sides of the border compete it is necessary to understand the dispute resolution mechanics. NAFTA dispute settlement provisions are broadly similar to those incorporated in CFTA, so some precedents have been established.

Categories of Dispute Resolution Chapter 20: General Provisions available only to Governments (based on Chapter18 of CFTA) Chapter 19: Anti-dumping (AD) and Countervailing Duty (CVD) Disputes (based on Chapter 19 of CFTA) Chapter 11: Investor-State Disputes Disputes relating to financial services (Chapter 17 of NAFTA) can be treated, essentially, in accord with Chapter 11 or 19

General Dispute Resolutions Chapter 20 of NAFTA - available to governments only - deals with interpretations or applications of NAFTA itself - applies to disputes where allegations of breach of NAFTA are at issue - applies to allegations of nullification or impairment ( parties are not receiving benefits they could reasonably expect under NAFTA), can be taken to WTO or NAFTA but not both.

NAFTA Process – Consultation (mandatory) – Free Trade Commission – composed of equal number of cabinet ministers from each country attempts to resolve dispute – (also supervises implementation of NAFTA, oversees its development, supervises committees and working groups) – If disputes not resolved, referred to compulsory arbitration or – Binational Panels – 5 members selected from roster of independent experts – Panel reports within 90 days with findings and recommendations (Initial Report) – Parties can comment on Report – Panel issues Final Report to parties and Commission – If party does not comply, compensation must be provided or other party can suspend benefits of equivalent effect

West Coast Salmon and Herring Chapter 18 of CFTA Dispute Salmon and Herring caught off Canada had to be landed to be counted for conservation purposes (Canadian legislation) US argued trade restriction Panel agreed, finding that the requirement imposed an additional commercial burden and suggested a restructuring of the legislation, so as not to apply to 100% of the catch Final agreement – 100% of catch counted, but 25% of this can be done at sea and the fish then landed directly in US. Panel both interpreted the regulations and facilitated in a resolution

U.S. Regulations on Lobster Chapter 18 of CFTA Dispute Lobster minimum size in US regardless of origin or destination was at issue Panel’s instructions were to strictly interpret the agreement, and not to make any suggestions on how to resolve the issue Panel found that national treatment was being observed. Panel’s instructions indicated that the governments were unwilling to give up control over the final outcome. Having a panel make recommendations that would be binding in a form close to that put forth was unwelcome.

Treatment of Non-mortgage Interest Chapter 18 of CFTA dispute Interest, as part of calculation for rules of origin, treated differently in US and Canada Panel found all interest on debt incurred to finance capital or real property to be eligible Panel also recommended parties implement new regulations and procedures to be consistent with the panel’s findings

Durum Wheat Case Chapter 18 of CFTA dispute Panel to determine if dumping occurring and include recommendations for resolution Panel found no dumping, recommended creation of an information-sharing structure and suggested permanent panels to develop expertise and consistency Not a popular result in the US

AD and CVD Dispute Settlement Provisions Chapter 19 of NAFTA – persons or gov’ts Canada wanted a set of common rules on subsidies dumping – no agreement reached Each party can apply their own AD/CV laws However, instead of appeals being heard in appeal courts, binding arbitration AD/CVD applications can be challenged at a bi-national panel consists of 2 specialists from each party and 5th panelist as mutually agreed or drawn by lot Extraordinary Challenge Committee – judges from each party hear appeals to a panel decision (supposed to be rare but US tends to use as a surrogate appeal process) Note: this is the most contentious area in NAFTA

Pork Cases Final result – System works, sort of. US demonstrated reluctant concurrence with panel findings after various remands and extraordinary challenges.

Softwood Lumber US is playing for keeps – and playing… and playing…

Investor Dispute Resolutions Chapter 11 of NAFTA – new ground Investors may claim, in their own right, without going through their national governments, for damages suffered by reason of a party’s breach of the NAFTA investor provisions. NAFTA investors can directly sue member countries for damages suffered by breach of NAFTA investor provisions, i.e. national treatment, freedom to transfer profits and freedom from unfair expropriation May seek monetary damages and/or injunctions ICSID, ICSID Additional Facility or UNCITRAL rules