Is Chapter 19 still worth fighting for?
WASHINGTON — It was Canada’s ultimate prize in the original free-trade deal with the U.S.: a third-party arbitration system to judge whether punitive duties were being applied unfairly. On the final night of negotiations, after a tense phone call involving Brian Mulroney, Canada got what it wanted.
It had been a high priority back then because Canadian industries were being clobbered with duties over allegations of unfair subsidies and product-dumping. They had been hit with about 34 dumping complaints by American competitors in the decade preceding free trade.
Yet that shiny trophy now sits mostly untouched on the shelf, gathering dust. Statistics scraped off U.S. federal websites show a gradual decline from 34 U.S. antidumping investigations in the 1980s, down to about 25 in the 1990s, 16 in the 2000s, and only a couple this decade.
Canada is now being asked to give it away.
The Americans want an overhaul of the arbitration system — this includes the panels created to scrutinize dumping duties under Chapter 19 and, separately, the Chapter 11 system for companies suing governments.
Washington critics have long detested Chapter 19 for its rulings on softwood lumber, its perceived violation of national sovereignty, and its alleged unconstitutionality. Some have suggested it could be challenged in court.
The Canadian government now faces tough questions, as it enters negotiations for a new NAFTA. Is Chapter 19 still valuable? Is it worth fighting for? Is there room for compromise, with changes that would preserve the system?
A lawyer who has argued before Chapter 19 panels says it’s time to start considering saying goodbye.
Clifford Sosnow, a partner at the Fasken Martineau law firm, says the system has done good things, such as building trust between the countries and lowering the temperature on trade. That doesn’t mean Canada should cling to it at all costs. He simply says Canada should consider trading in its big chit. “It depends,” Sosnow said. “(A country) needs to prioritize: what are the most important things to have? . . . If the United States said, ‘We will exempt you from Buy America. And we will make it easier for your business people to come into the United States and live here for any number of years. And we will give you access to procurement at the state and municipal level. And we will have a process that’s different from Chapter 19’ — that’s a very attractive ask.”
An adviser to the Canadian government in the original free-trade negotiations would also consider trading it away. Jon Johnson lists several reasons why. Here’s what’s changed since that late-night Mulroney phone call, he says:
— Back then, there were no international agreements defining illegal subsidies and dumping. The countries have since passed domestic laws based on definitions at the World Trade Organization, founded in 1995.
— The countries are more interdependent. Nowadays, when a U.S. industry launches a trade action against the country next door, Johnson says, it’s not just hurting the competition, it’s increasingly likely to be suing its own subsidiary.
“You don’t want to start traderemedy action (against yourself),” Johnson said. “I (believe) greater integration . . . has dampened the enthusiasm for starting antidumping and countervailing duty actions.”
— Chapter 19 may be in trouble, anyway. The U.S. lumber lobby once sued the NAFTA panel system as unconstitutional, unsuccessfully. Johnson says there’s a 100 per cent chance it will try again if the current dispute drags on.
He’s not sure it would survive the next court fight. For starters, in the Trump era, he says, U.S. government lawyers might not fight as hard to defend Chapter 19 as they did in the 2005 suit.