Farzin Bakhtiar Security, Trade and the Economy

Canada’s Economic Security: North American Free Trade Agreement (NAFTA) and Chapter 19

When the North American Free Trade Agreement was first negotiated in 1994, Chapter 19, a dispute settlement mechanism specializing in anti-dumping and countervailing (ADCVD) cases, was heavily contested by Canada. However, the tables have turned almost two decades later, as Canada has fought to preserve the mechanism in recent trade talks. With the renegotiations complete, Chapter 19 has proven to be one of the most challenging properties of the NAFTA renegotiations. Canada’s push for accountability and fairness, along with asserting sovereignty, were linked to deeper beliefs of economic security due to the Trump Administration’s aggressive nationalist economic policies. In light of the fact that Mexico had cut a deal with the US, deciding that they did not need Chapter 19 in the new United States-Mexico-Canada Agreement (USMCA), contentions over chapter 19 concerning economic security were centered around the two North American powerhouses.

The reason why Canada has consistently fought to keep Chapter 19 in the new USMCA is essentially due to the very nature of the chapter, which provides a supranational platform for its trading partners, allowing ADCVD cases to be disputed in front of a panel. Although this external legal system was not used regularly in the last decade, Canada and the US did both benefit from its infrequent use. As of October 2017, there have been 64 completed cases, including that of Canada’s Softwood Lumber. For Canada, Chapter 19 has been seen as a platform that is used to hold trading partners accountable. The role of fairness and accountability is one of the arguments Canadian officials use to preserve their economic security. Prime Minister Trudeau publicly stated that “we have a president who doesn’t always follow the rules as they’re laid out”. Not only does this imply that the Canadian government is aware of Trump’s hostile goals, but it also suggests that the Trump administration is willing to erode international consensus to achieve their goals, as they continue to avoid concessions regarding Canada’s Softwood Lumber cases.

A key feature of Chapter 19 is that it places decisions in the hands of non-nationals, meaning that US domestic courts would not have the final say in what happens. The panel consists of experts from both parties involved, in which America’s hegemonic tendencies could possibly be challenged. This was further reiterated in 1994 when Canada deemed that they did not want Chapter 19 if it was going to be a biased panel “aligned with US trade remedy laws”. Linked to this idea is the desire for an external court used to hold partners accountable for duties over settling for US courtrooms where Canada may not be able to bypass US judicial review at all. Therefore, having something in place over nothing is favored, without which American rulings are slow, expensive, biased and ultimately unreliable.

In an attempt to establish a sense of Canadian authority, Trudeau stated that Canada will not sign the new USMCA without Chapter 19 in place. The crucial function of international trade laws protecting Canadian interests is suggested to be a pivotal section, without which Canada would have back away from further renegotiations. Due to the developments of nationalistic and unpredictable actions of America in recent years, it could easily be predicted that the removal of Chapter 19 could give the US the ability to impose unjustified ADCVD on various Canadian goods, which would lead to immense economic and employment losses in Canada.

The points of tension for the Trump administration revolve around the broader implementation of the America First foreign policy, from which they claimed themselves to be the ‘losers’ of Chapter 19. The fact that the US wants  “the ability to impose measures based on third country dumping”, aligns with the Trump’s objective of putting the American economy first, and obtaining maximum profits through implementing duties and taxes. Whether American policies are heading towards isolationism is not completely clear to date; however, the reality that rising protectionism may result in the American withdrawal from NAFTA renegotiations is very much a possibility.

The Trump administration has also continuously stated that the need to eliminate Chapter 19 is crucial for American sovereignty as it infringes on the US constitution. This was firmly asserted by U.S Trade Representative Robert Lighthizer, who was a key figure during renegotiation talks. According to the American Constitution, federal courts must only function under US domestic laws, not international laws. However, this violates Article III, sec. 1.61 of the US constitution, yet all attempts to challenge the panel under the constitutional reasoning have failed. No state can interpret American domestic law more sufficiently than the US, putting America at a significant advantage over others if Chapter 19 had been eliminated. Although this argument does hold credibility, it raises the question ‘Why has it not been stressed as a legitimate concern by the US before?’. Furthermore, entering trade treaties, or any treaty requires compromising national sovereignty and infringement on domestic politics to some extent, which has not stopped the US from entering trade agreements in the past.

Despite these challenges regarding Chapter 19, it was included in the new USMCA, which was signed at the end of 2018, demonstrating the triumph of Canadians in ensuring their economic security. Although the reasons are not officially stated by either country yet, it is important to consider why Chapter 19 was kept. Being seen as a big win for Canada, there must be some sort of benefit for the Americans too. Perhaps since the US received concessions in other aspects of the agreement, such as access to the once protected Canadian dairy industry, Chapter 19 was overlooked in the end. Or, perhaps Canada’s adamant stance was realized, and the US understood that having some agreement was preferred than none. There has also been speculation that because Congress passed Chapter 19 in 1994, only Congress could sign off on its elimination. Taking this view into consideration, it can be assumed that in reality, the Trump administration was not holding the upper hand during the renegotiation process.

Featured Picture: President Trump Participates in the USMCA Signing Ceremony in Buenos Aires, Argentina (November 30 2018), by Ron Prysucha via Flickr. Licensed under Public Domain/United States Government Works

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and do not necessarily represent the views of the NATO Association of Canada.