The Two Key Issues on The Table To Bring Canada Back Into NAFTA
Negotiations for a revised North American Free Trade Agreement have been ongoing for more than a year, but now it’s crunch time — especially for Canada.
What happens in the coming days will determine if NAFTA survives as a three-country trade pact or whether Canada will be left on the sidelines.
Since U.S. President Donald Trump announced the United States had a deal with Mexico that could replace NAFTA, Canadian negotiators have been putting on a brave face publicly. Foreign Affairs Minister Chrystia Freeland was optimisitc when talks took a break before the Labour Day weekend and Prime Minister Justin Trudeau has said “no NAFTA deal is better than a bad NAFTA deal.”
Trump, for his part, took to Twitter to keep up the pressure on Canada.
There are two significant issues still on the table: How to resolve inevitable trade disputes and Canada’s policies that protect its dairy industry from foreign competition.
How will disputes be resolved?
The first sticking point is the existing dispute settlement mechanism — particularly relative to anti-dumping or countervailing duties. This is known as Chapter 19 in the current NAFTA pact.
Currently, each government can review the actions of others and make a determination of whether trade action against a sector is warranted. These determinations can be appealed to the relevant court in each country.
If the dispute is not resolved, it can be appealed to the NAFTA Free Trade Commission and further to a bilateral panel to arbitrate the dispute. The panellists (two from each country and an alternating chair) are appointed by the disputants. The decisions of these panels are binding. It is this last provision that apparently is the sticking point for U.S. negotiators .
It is worth noting this aversion to dispute resolution is not specific to the Trump administration. When the original Canada-U.S. free trade agreement was negotiated 30 years ago, Brian Mulroney’s Conservative government also threatened to walk away without a deal over the issue on how to resolve disputes. In 1988, U.S. negotiators only conceded at the 11th hour.
Leave it to the courts
The United States believes domestic court systems should be able to effectively determine the legality of specific actions and, as such, these panels are an affront to national sovereignty. Canada feels Chapter 19 is an essential element to ensure the fair implementation of freer trade.
Those who believe the panels are not necessary or effective point to the fact that Canada has won several findings in the softwood lumber dispute without actually getting a positive resolution. Past U.S. administrations have also ignored panel findings and forced the Canadians to strike compromise deals or face continued countervailing duties. The U.S. lumber industry remains one of the most vocal opponents of these dispute settlement panels.