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