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NAFTA’s Chapter 19 binational review process should be strengthened, not eliminated

Unifor workers rally to call on Boeing to drop it’s complaint against Bombardier, Sept. 20

On Saturday (October 14), the Trump administration put on the negotiating table eliminating Chapter 19 in NAFTA. The Canadian Press reports, “The U.S. want to strip down Chapter 19 that allows companies to fight to overturn duties… Chapter 19 would be eliminated entirely, after a phase-out period.”

In late July, in response to previous reports that the Trump administration would seek the elimination of Chapter 19, Prime Minister Justin Trudeau commented, “A fair dispute resolution system is essential for any trade deal that Canada signs on to and we expect that that will continue to be the case in any renegotiated NAFTA, that we will continue to have a fair dispute resolution system.”

How should progressives respond to this?

Canadian Centre for Policy Alternatives researcher Scott Sinclair notes, “Chapter 19 provides the option for an exporter to ask a binational panel to review final anti-dumping and countervailing duty rulings instead of using domestic judicial review. …It is not a true, independent dispute settlement process. Its mandate is strictly to determine whether the importing country’s trade remedy laws have been applied properly.”

In terms of an historical context, Sinclair has explained, “When the Mulroney government negotiated the Canada-U.S. free trade agreement in the mid-1980s its main goal was to get Canada exempted from U.S. trade remedy laws, which had been used repeatedly against Canadian products including softwood lumber. It failed in this effort, even though chief negotiator Simon Reisman walked out of the talks in frustration. What Canada got, more or less as a face-saving gesture, was a binational review of U.S. trade remedy rulings, a feature that was carried over into NAFTA.”

That’s likely why last month former Prime Minister Brian Mulroney stated, “[Chapter 19 has served] all three parties brilliantly for many years. …I think it’s a valuable instrument in achieving objectives, legitimate objectives, for both sides.”

Sinclair highlights, “Because of U.S. obstructionism, [Chapter 19] reviews are arguably more time consuming, costly and unfair than appeals through U.S. domestic courts. Moreover, if you win in the U.S. courts you can get your money back. Under Chapter 19 the process just starts over again. Even if the review process were abolished completely, Canadian exporters will still be able to have a final determination reviewed in the U.S. courts.”

But on the matter of U.S. courts, The Globe and Mail’s business correspondent Barrie McKenna adds, “Part of the power of Chapter 19 is that panel rulings are enforceable in U.S. courts. That isn’t the case for rulings by the World Trade Organization. And it offers relatively speedy justice – a final ruling is due 315 days after a country requests a panel review. That’s significantly faster than pursuing a case in the courts or at the WTO.”

In early August, The Globe and Mail’s editorial board wrote, “Without an independent mechanism for assessing NAFTA trade disputes, the Americans would be free to act as judge, jury and executioner of their own trade complaints. NAFTA wouldn’t be a binding contract; it would an aspirational wish list, to be violated at will. An independent dispute settlement mechanism is Issue No. 1 for Canada.”

Two key examples of recent trade complaints:

This past April, U.S. Secretary of Commerce Wilbur Ross said his department “determined a need to impose countervailing duties” of 19.88 per cent (amounting to about $1 billion) on Canadian softwood lumber entering the United States. In June, the U.S. Department of Commerce said Canada is “dumping” lumber on the U.S. market at below market prices and imposed an additional duty of 6.87 per cent against most Canadian producers. In late August, the countervailing duty imposed in April was suspended pending a final determination by the Department of Commerce no later than November 14.

And in late September, the U.S. Department of Commerce slapped a 219.6 per cent countervailing duty on the export of Montreal-based Bombardier CSeries passenger jets to the U.S., which effectively triples their per airplane cost from about $19 million each to about $61 million each. The penalties won’t officially be due until Bombardier delivers the jets sometime in the spring of 2018. Meanwhile, Prime Minister Trudeau has threatened to scrap his government’s plans to purchase Boeing Super Hornet fighter jets in retaliation to the U.S. company’s trade complaint against Bombardier.

These examples might suggest that Chapter 19 is essential to defend Canadian economic interests against U.S. corporate bullying.

But with the speculation growing that Trump could terminate NAFTA, McKenna wrote earlier today (seemingly somewhat contradicting his previous commentary), “Canada would lose access to NAFTA’s dispute-settlement regime – Chapter 19 – as well as the deal’s government purchasing rules. But those losses would be mitigated by WTO rules, including access to dispute-settlement panels.”

Sinclair has concluded, “[The loss of Chapter 19] would be felt, but its benefits should not be exaggerated.” But he has also emphasized, “With U.S. industries teeing up a long list of trade remedy challenges against Canadian industries (lumber, aircraft, steel and aluminum), Canada can hardly give in to U.S. demands to eliminate or weaken NAFTA’s Chapter 19 binational review process. If anything, it needs to be strengthened.”

The Council of Canadians will continue to monitor and comment on this issue as it develops over the coming weeks.