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Canada's NAFTA Challenge and the Reality of Chapter 19


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August 11, 2017 - Dispute resolution has been a perennial hot-button issue in Canada-US trade talks for decades. And the upcoming renegotiation of the North American Free Trade Agreement (NAFTA) is no different.

In a special C.D. Howe Institute Communique, trade expert Lawrence Herman reviews the history, usage and outcomes of the dispute mechanism in NAFTA’s Chapter 19, providing an essential piece of analysis as negotiators and the broader Canadian public grapple with the complexities of the issue in the coming days.

What this overview attempts to do is to explain some of the underlying points that are glossed over in the US when complaints are levied against the binational panel system, showing the confined use of the system by Canadian parties in terms of industry sectors and, importantly, in terms of products covered, involving a very small volume of total Canadian exports.

Herman also highlights a little-noticed factor: the differing review standards in Canada and the US and explains how this is a key reason why it can appear that Canada wins more convincingly than when US decisions are reviewed. And he effectively rebuts the argument that the panels violate the US Constitution.

This overview leads to the conclusion that Chapter 19 panel reviews involving Canadian products are a minor factor in the overall scheme of things. American opposition to the system focuses on softwood lumber, a unique and possibly sui generis situation. Moreover the panel results in that case have been mixed, which hardly supports the position that Chapter 19 panels have been biased against the United States.

The bottom line is that when it comes to the binational panel system, the US doesn't really have much to complain about.

This Communique is part of C.D. Howe’s timely focus on the NAFTA negotiations that get under way next week.

As part of that initiative, Daniel Schwanen, Vice-President of Research, has produced an issue-by-issue breakdown of the positions of the three NAFTA nations in chart form. To view this useful guide to the negotiating agendas go to: Canada's NAFTA Negotiation Agenda - An Unofficial Guide.

For more information contact: Lawrence Herman, Herman & Associates and Senior Fellow; Daniel Schwanen, Vice President, Research, C.D. Howe Institute; or email: jpantziris@cdhowe.org.

Full Communiqué: Communique_2017_0811.pdf

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