This ob­scure NAFTA chap­ter could be Canada’s deal-breaker again

The Hamilton Spectator - - BUSINESS - CHRIS FOURNIER

On Oct. 1, 1987, days be­fore the U.S. and Canada signed their big­gest-ever trade deal, then-prime min­is­ter Brian Mul­roney shocked the Amer­i­cans by walk­ing away from the ne­go­ti­at­ing ta­ble.

It was a high-stakes gam­ble de­signed to en­sure the Free Trade Agree­ment con­tained a dis­pute-set­tle­ment mech­a­nism — what Mul­roney called his es­sen­tial con­di­tion — that would give Canada a way to re­solve trade con­flicts out­side U.S. courts. The David-and-Go­liath move worked, and two days later the coun­tries reached an agree­ment.

Thirty years later, Prime Min­is­ter Justin Trudeau is ar­riv­ing at the same cross­roads as his pre­de­ces­sor. The U.S. con­firmed last week that among its top ob­jec­tives in up­com­ing ne­go­ti­a­tions on the North Amer­i­can Free Trade Agree­ment — which su­per­seded the free trade agree­ment in 1994 — is the elim­i­na­tion of the Chap­ter 19 dis­pute-res­o­lu­tion mech­a­nism that Mul­roney went to such lengths to pre­serve. Will it be the deal breaker it was in 1987? “Things like get­ting rid of Chap­ter 19 dis­pute­set­tle­ment pan­els, that’s not a small bean. That’s a big­gie,” Derek Bur­ney, Mul­roney’s chief of staff dur­ing the free trade agree­ment talks and a key player in NAFTA ne­go­ti­a­tions, said in a tele­phone in­ter­view last week. “We wouldn’t have the trade agree­ment if we didn’t get that dis­pute set­tle­ment.” Bur­ney also ze­roed in on why the Canadian side was will­ing to risk so much to get the mech­a­nism into the free trade agree­ment: “We don’t trust their trade-rem­edy tri­bunals. We never have.”

The first round of NAFTA rene­go­ti­a­tions be­gin on Aug. 16, with rep­re­sen­ta­tives from the U.S., Canada and Mex­ico gath­er­ing in Wash­ing­ton. Pres­i­dent Don­ald Trump has threat­ened to with­draw from NAFTA if Mex­ico and Canada don’t agree to more favourable terms for the U.S.

NAFTA’s Chap­ter 19 dis­pute-res­o­lu­tion mech­a­nism al­lows re­view by in­de­pen­dent, bi­na­tional pan­els — in­stead of ju­di­cial re­view by do­mes­tic courts — in anti-dump­ing and coun­ter­vail­ing duty cases. Since NAFTA came into force, Canada has been in­volved in about 73 pan­els over items such as cat­tle, hot-rolled steel, colour-pic­ture tubes, green­house toma­toes and su­per­cal­en­dered pa­per, ac­cord­ing to the web­site of the NAFTA Sec­re­tar­iat, which is re­spon­si­ble for manag­ing Chap­ter 19 pro­ceed­ings.

But given that in the last decade Canada has only ini­ti­ated three cases un­der the pro­vi­sion, Robert Wolfe, pro­fes­sor emer­i­tus at Queen Uni­ver­sity’s School of Pol­icy Stud­ies in Kingston, ques­tions whether Chap­ter 19 is es­sen­tial. Wolfe sug­gests Canada may want to con­sider bluff­ing, and when push comes to shove, give in on Chap­ter 19 in ex­change for some­thing bet­ter, gain­ing con­ces­sions on Trump’s Buy Amer­i­can rules, for ex­am­ple, which re­strict the abil­ity of Canadian com­pa­nies to bid on govern­ment con­tracts.

“If you had to choose be­tween a real re­straint on Buy Amer­i­can and keep­ing Chap­ter 19, I’d yell and pound the ta­ble and give up Chap­ter 19,” Wolfe said. “A lot more Canadian jobs might ben­e­fit from stop­ping dis­crim­i­na­tory govern­ment pro­cure­ment in the U.S.”

Chad Bown, se­nior fel­low at the Wash­ing­ton­based Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics, said in a July 19 re­port the Trump ad­min­is­tra­tion’s goal un­der NAFTA ne­go­ti­a­tions is to make it eas­ier to re­strict im­ports from Canada and Mex­ico. That’s “wor­ri­some” be­cause it could elim­i­nate any new trade lib­er­al­iza­tion gains or re­verse pre­vi­ous in­roads, and likely lead to a sit­u­a­tion where Canada and Mex­ico re­spond in kind against U.S. ex­ports.

By 2016 only 1.3 per cent of im­ports from NAFTA part­ners were cov­ered by U.S. anti-dump­ing and coun­ter­vail­ing du­ties ver­sus 9.2 per cent of Chi­nese im­ports and 2.7 per cent of im­ports from the rest of the world, Bown wrote. He pre­dicts Trump’s bar­ri­ers could more than quin­tu­ple the level of Canadian im­ports cov­ered by trade reme­dies to 6.6 per cent. With­out safe­guards such as Chap­ter 19, the Trump ad­min­is­tra­tion’s NAFTA “could make U.S. trade with Canada and Mex­ico much less free.”

Mul­roney fought so hard to pre­serve the dis­pute set­tle­ment be­cause with­out it, he rea­soned, Canada would face years of lit­i­ga­tion in the U.S. court sys­tem when­ever a dis­agree­ment arose. That’s why he took the ex­tra­or­di­nary step in 1987 of call­ing his chief ne­go­tia­tor in Wash­ing­ton to tell him to pack his bags and come home.

“I in­structed Si­mon Reis­man to re­turn, and used it as a man­ner of get­ting the at­ten­tion of the Amer­i­can govern­ment big time,” Mul­roney said in a 2011 in­ter­view.

“That hap­pened, and I think it led to the res­o­lu­tion of the im­passe and the Free Trade Agree­ment.”


Prime Min­is­ter Justin Trudeau faces a fight to keep NAFTA’s Chap­ter 19 dis­pute-res­o­lu­tion mech­a­nism.


Brian Mul­roney fought hard to pre­serve the dis­pute set­tle­ment mech­a­nism.

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