Vive Le Canada

love that NAFTA
Date: Sunday, June 20 2004

Trade war a one-sided struggle against U.S. perfidy

Date: June 16, 2004

Location: Vancouver Sun

By Don Whiteley

Key to Canada's decision to sign a free trade agreement with the U.S. in 1988 was Chapter 19 -- a binding dispute-settlement process designed to give Canada an avenue of appeal following decisions made by the highly-politicized U.S. trade tribunals.

So important was this provision that lead Canadian negotiator Simon Reisman had instructions to break off talks if the U.S. would not agree to an appropriate binding dispute-settlement system. The Americans, who wanted to complete a trade agreement with Canada for global political reasons, reluctantly agreed.

Since then, FTA and subsequently NAFTA dispute-settlement panels have overturned U.S. duties on everything from softwood lumber to pork to magnesium. The one common theme to virtually every panel decision is that the investigating authorities -- the U.S. Commerce Department for subsidy or anti-dumping claims and the International Trade Commission assessing injury or threat of injury -- have never been able to back up their decisions with "substantial evidence."

But the Canadian victories have generated a backlash. Sixteen years later (and now part of NAFTA), that dispute-settlement process is in danger of complete collapse as a result of an unrelenting and multi-faceted assault on its power and authority by the U.S., as well as the Canadian federal government's unwillingness to vigorously defend it.

In a 75-page paper being presented in Washington D.C. today at the annual meeting of the Canadian American Business Council, the Washington law firm of Baker & Hostetler LLP paints a grim picture of the attack. It should be required reading for every candidate for office in the current federal election.

"The United States [has] responded [to the Canadian victories] with a two-pronged attack on the Chapter 19 process, calculated to either bend it to U.S. advantage or destroy it," the law firm says. Baker & Hostetler LLP, which specializes in trade law, has acted for Canadian companies, associations and governments in a wide range of U.S. trade actions.

Commissioned by the Free Trade Lumber Council, Ontario's two forest industry associations, and Tembec Inc., the report outlines in startling detail a series of strategic moves by U.S. government agencies, ranging from subtle changes in U.S. law to restrict the effect of dispute settlement panels, to delaying tactics, to character assassination of panel members who rule against U.S. decisions.

Examples quoted by the paper in support of its argument are legion:

- The U.S. Commerce Department has succeeded in relaxing the standards of evidence required to find a company guilty of dumping, or benefiting from a subsidy. At one time, four tests were required for a guilty finding, now only one is required.

- NAFTA requires the dispute-settlement process to be completed within 315 days. Canadian cases in the U.S. average 696 days because of a variety of delaying tactics employed by U.S. agencies, and the industry groups that bring complaints before them.

- The U.S. hasn't paid for its share of the costs of the dispute-settlement system in both Canada and Mexico since 2002. Compounding that, the U.S. starves its own NAFTA secretariat for funds and resources. Canada's secretariat has eight employees and a $3 million US budget, while the U.S. secretariat -- with 10 times the caseload -- has three employees and a $1 million US budget.

- The U.S. insists that panel rulings do not set precedents. As a result, Commerce Department practices or methodologies ruled illegal in one case are re-introduced again and again in other cases, or even in subsequent cases on the same products.

- Extraordinary Challenges (ECCs) of NAFTA panel decisions were designed to deal with conflict of interest accusations, or other allegations of impropriety on the part of panel members. The U.S. has succeeded in making ECCs just another avenue of appeal. Neither Canada nor Mexico has yet to launch an ECC.

- NAFTA panel members are required to show "due deference" to the factual findings of Commerce or the ITC. The U.S. interprets that to mean if a U.S. agency says black is white, then it's white.

- As originally constituted, the NAFTA panels were to be made up of impartial trade experts chosen from rosters drawn up by both countries. The U.S. now appoints judges, often with no trade experience. But while the list of U.S. transgressions is long, so too is the list of failed opportunities on the part of Canada to fight back against the changes. Even worse, there are instances where Canada has acted against its own interests, virtually affirming U.S. moves to help neuter the Chapter 19 process:

-- When the U.S. modified its own laws to clip the wings of NAFTA panels and turn the extraordinary challenge process into just another level of appeal, the Chretien government actually used the same language to modify Canada's laws, trashing any opportunity to protest.

-- When the U.S. revised its anti-dumping laws specifically to make it easier to prove a case against softwood lumber, Canada had the right under NAFTA to challenge the revisions. It didn't.

-- When the U.S. introduced the now-infamous Byrd Amendment (which allows collected duties to be distributed to U.S. companies,) Canada could have sought a NAFTA review and decision. It chose to join the European Union's WTO challenge instead. A NAFTA ruling would have been legally binding. The U.S. has so far ignored the WTO ruling that the measure is illegal.

-- In a case against Quebec pork products, a NAFTA panel ruled that Quebec's Farm Income Stabilization Insurance (FISI) was not a countervailable subsidy. The Commerce Department, while taking FISI out of the calculation, indicated it would reintroduce it. When Quebec tried to fight that ruling, Ottawa actually joined with the U.S. Commerce Department to oppose the Quebec position.

-- Canada has allowed its own roster of potential NAFTA panelists to fall below a level considered sufficient to avoid process delays.

The Washington law firm that generated this report has a fairly blunt warning for Ottawa if it doesn't act quickly and begin a vigorous defence of its rights under NAFTA's Chapter 19:

"Canadians must not only contend with a reduced likelihood of success in future binational panel reviews. They also must expect binational panel reviews to be as slow and as expensive as appeals to the U.S. courts, and no fairer, with U.S. panelists who are no longer necessarily expert in trade law, who are protected from appeal, and who are carefully selected to defend U.S. government agency prerogatives. It is now arguable that Canadian private interests ensnared by anti-dumping and subsidies disputes with the United States would be better off in U.S. courts than before binational panels."

Canada's most important battle at NAFTA continues to be over softwood lumber, with more than $2 billion in illegally collected deposits sitting in the U.S. Treasury Department awaiting a resolution.

By NAFTA's supposedly-binding time restrictions, this war should have been over a year ago. The fact that it isn't says as much about Canada's willingness to look the other way at U.S. transgressions as it does about U.S. perfidy.

I wonder why it isn't a campaign issue?

[because Harper & Martin probably don't agree with the regular people on this. & they wouldn't want to do anything that might make the USA mad. - NSay]

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