DISPUTE RESOLUTION INVOLVING STATES
REGLEMENT DE DIFFItRENDS IMPLIQUANT IETATS
Dispute Resolution in the Canada-United States
Free Trade Agreement: One Element of a Complex Relationship
William C. Graham, Q.C.*
The number and complexity of links
between Canada and the United States have
given rise to a multiplicity of disputes. Conse-
quently, the two countries have explored most
dispute resolution techniques familiar to mod-
em states. In this article, the author analyzes
the dispute resolution mechanisms adopted in
the Free Trade Agreement, specifically Chap-
ters 18 and 19, and situates them in the broader
context of Canada-U.S. relations.
Chapter 18, the general dispute resolution
mechanism, is centred around the Commis-
sion. The Commission is a political body
which supervises the implementation of the
Agreement and its future elaboration through a
variety of techniques: consultations, binding
arbitration, and panels of experts. Ultimately
most disputes under Chapter 18 will be
resolved by the consensus of the parties acting
through the Commission. By contrast, the
Commission has no role in Chapter 19 which
deals with the highly sensitive area of anti-
dumping and countervailing duties. The author
concludes that the parties opted for a more
court-like model in this area because they felt
it was unlikely that disputes could be fairly or
effectively determined if they relied exclu-
sively on their ability to achieve consensus.
The author draws out this contrast by exam-
ining some of the cases decided under the two
Chapters thus far. He concludes that the mech-
anisms are generally working well, though a
few problems have become apparent. It is
these problems and the broader issues underly-
ing the alternative dispute resolution mecha-
nisms which the negotiators of any North
American Free Trade Agreement must con-
front.
Le nombre et la complexit6 des liens entre
le Canada et les Etats-Unis ont suscitd de nom-
breux diffdrends qui ont incit6 les deux pays h
explorer ]a plupart des techniques de rdsolu-
tion des diff~rends connues des Etats moder-
nes. Dans cet article, l’auteur analyse les
m6canismes de resolution de diffrends adop-
t~s dans l’Accord de libre-dchange dont plus
particuli~rement les chapitres 18 et 19 ; il les
situe dans le contexte global des relations entre
le Canada et les Etats-Unis.
Le m6canisme g~n6ral de resolution des dif-
fdrends du Chapitre 18 est centr6 principale-
ment sur la Commission. La Commission est
un organe politique qui supervise la mise en
oeuvre de l’Accord et son 6laboration future
par diverses techniques: consultations, arbi-
trage obligatoire et groupes d’experts. Ultime-
ment, la plupart de ces conflits seront rdsolus
par un consensus des parties obtenu par l’inter-
m~diaire de la Commission. Par contre, la
Commission ne joue aucun r6le quant aux dis-
positions du Chapitre 19 qui gouvernent les
domaines fort d6licats des droits antidumping
ou compensateurs. L’auteur conclut que les
parties ont opt6 pour un module plus judiciaire
dans ces domaines, r~alisant qu’il 6tait peu
probable qu’ils arrivent ak une rsolution juste
et efficace s’ils se fiaient exclusivement 1 leur
habilet6 a chercher un consensus.
L’auteur 6labore ce contraste 1k ]a lumi~re de
la jurisprudence concernant ces deux cha-
pitres. I1 en conclut que les mcanismes sont
g6n6ralement efficaces, malgr6 l’6mergence
de quelques probl~mes. Ce sont 1k des tels pro-
blames et aux questions plus larges des m6ca-
nismes de r6solution de diff6rends que les
n6gociateurs d’Accords de libre-6change nord-
am6ricains seront confront6s.
* Professor at the University of Toronto. In an earlier form this article was presented to a Joint
Meeting of the International Section of the New York State Bar and the Canadian Bar Association
(Ontario) in Toronto, October 1991.
McGill Law Journal 1992
Revue de droit de McGill
To be cited as: (1992) 37 McGill L.J. 544
Mode de citation: (1992) 37 R.D. McGill 544
1992]
DISPUTE RESOLUTION & THE FTA
Synopsis
Background of Disputes Between Canada and the United States
A. Canada-United States Relations and Dispute Resolution
B. The Specific Context of the FTA: Canada-United States Trade
Policies in the 1980s
Comparison of the Dispute Resolution Mechanisms in the FTA
A. Chapter 18, The General Dispute Resolution Mechanism
I.
I.
1. Analysis of Chapter 18
2. Comparison to Chapter 14 and Chapter 17
3. Application of Chapter 18
B. Chapter 19
1. Analysis of Chapter 19
2.
3.
Panel Reports under Chapter 19
Problem Areas under Chapter 19
Conclusion
I. Background of Disputes Between Canada and the United States
A. Canada-United States Relations and Dispute Resolution
Canadians and Americans often repeat that they share the largest unde-
fended border in the world. That is not to say, however, that there have not been
more or less “neighbourly” disputes between them. A degree of friction is inev-
itable given the numerous economic, political and cultural activities which spill
across that border or which, while taking place within the one state, produce
consequences in the other. Few matters remain purely domestic when one con-
siders the amount of transborder trade,’ cross-border investment,2 tourism, and
other links which bind the two countries together. To a lesser degree this situ-
ation is now extending to Mexico.
These transnational links are at many levels. At the governmental level
they are primarily of federal concern but they may extend to state and provincial
‘For the period of March 1990-February 1991 (12 mos.), Canadian imports from the United
States were $92.66 billion (Cdn) and Canadian exports to the United States were $109.89 billion
(Cdn) (Sumnary of Canadian International Trade (Ottawa: Statistics Canada Cat. No. 65-001,
February 1991)).
2At year end 1989, United States direct investment in Canada was $75.825 billion (Cdn) and
Canadian direct investment in the United States was $50.122 billion (Cdn) (Canada’s International
Investment Position (1988-90) (Ottawa: Statistics Canada Cat. No. 67-201, April 1991)).
REVUE DE DROIT DE McGILL
[Vol. 37
authorities,3 even municipalities;4 at the individual and corporate level they are
extensive.
As a result of these intergovernmental contacts, recognition of interdepend-
ence ranges from ad hoc arrangements to formal agreements. At the informal
end of the spectrum ad hoc arrangements have grown up between administra-
tive officials from both countries without any need for a formal government
arrangement. For example, fisheries officials now coordinate the activities of
conservation officers on both sides of the border through the mechanism of the
Great Lakes Fisheries Commission. This policing function was never a part of
the formal mandate of the Commission but has developed as a result of expe-
rience in cooperation over the years. It remains as an informal administrative
practice. In other cases such informal practices have evolved into specific bina-
tional regulatory regimes. An example is the multijurisdictional disclosure sys-
tem between Canada and the United States which has grown out of cooperation
between securities administrators.5 Furthermore, the National Conference of
Commissioners on Uniform State Laws of the United States and the Uniform
Law Conference of Canada have set up joint committees to examine legislation
of interest to the two bodies. This has resulted in the adoption of uniform state
and provincial laws in areas of common interest.6 At the other end of the spec-
trum, the two countries have formalized their economic interdependence and
provided for the limited free movement of goods in agreements dealing with
defence production and the manufacturing of automobiles, to name two familiar
examples.7
In addition to cooperation, the interdependence and closeness of the coun-
tries have produced a multiplicity of disputes and dispute resolution mecha-
nisms (DRM). Early disputes between the two countries related to boundary
delimitation and there remain unresolved boundaries to this day.’ Subsequent
disputes have involved more environmental or economic issues, the latter often
3For example, The Council of Great Lakes Governors is composed of representatives of the gov-
ernments of the Great Lakes States and Provinces and manages water resources for the Great Lakes
Basin.
4Great Lakes mayors and reeves from municipalities on both sides of the border meet annually
to discuss issues which fall within their jurisdictions and which have an effect on the entire Great
Lakes Basin. This group extends as far as Montreal.
5See C. Jordan, “Securities Law: Proposed Multijurisdictional Disclosure System between Can-
ada and the United States” (1990) 1 C.U.B.L.R. 141; “Cross-border shopping for securities mar-
kets?” The Financial Post (19 June 1991) 9.
6See, for example, the Report of the Joint Committee recommending the adoption of the Uni-
form Transboundary Pollution Reciprocal Access Act, adopted by the National Conference of
Commissioners on Uniform State Laws, July 1982 and the Uniform Law Conference of Canada,
August 1982. This law is now in force in Ontario, P.E.I., and Manitoba in Canada and in Montana,
New Jersey, Michigan, Wisconsin, and Colorado (and is presently being considered in Oregon) in
the United States.
7Canada-United StatesAgreement Concerning Automotive Products, 9 March 1965, 17 U.S. Stat
1372, T.I.A.S. No. 6093, (1966) Can. T.S. No. 14; on Canadian-American cooperation in defence
production, see J.J. Kirton, “The Consequences of Integration: The Case of the Defence Production
Sharing Agreement” in A. Axline et aL, eds, Continental Community?: Independence and Integra-
tion in North America (Toronto: McLelland & Stewart, 1974), 116.
8See E.B. Wang, “Adjudication of Canada-United States Disputes” (1981) 19 C.Y.I.L. 158,
1992]
DISPUTE RESOLUTION & THE FTA
as a result of the overwhelming economic presence of United States interests in
Canada. Many of the areas of economic friction were addressed by the substan-
tive provisions of the Free Trade Agreement.9
In the 1960s disputes arose over Canadian tax policies towards Time and
Reader’s Digest when these two publications protested discriminatory taxation
rules designed to foster Canadian publications in the interest of maintaining our
cultural identity. Concern for cultural identity continues in Canada and was
addressed in the FTA, article 2005 which exempts cultural industries.
The importance of American investment in Canada and attempts by Cana-
dian governments to control it have often been a source of friction. In 1974 the
federal government adopted the Foreign Investment Review Act.’ Its application
to American investment led to vigorous protests, particularly when it was
applied to mergers of two American companies, one or both of which had Cana-
dian assets.” Local sourcing requirements imposed by the agency led to a
United States complaint under the General Agreement on Tariffs and Trade, a
position upheld by a GATT panel which found that some requirements of the
agency violated article H(4) of the General Agreement. 3 The election of a Con-
servative government in 1984 produced a less nationalistic stance and one more
anxious to encourage foreign investment. Nonetheless, under the renamed
Investment Canada Act 4 important controls remain, notably in sensitive areas
such as energy and cultural industries. Controls were reduced again by the terms
of the FTA’ s but even there important reservations are made for energy and other
sensitive sectors.’ 6
Disputes over trade in Canadian energy resources and policies have been
a considerable source of friction for United States’ interests in the past. The
nationalistic provisions of the National Energy Program (NEP) were perceived
as a threat to the United States’ source of supply and the rate of return on their
investments in Canada.” The FTA addressed these concerns by developing a
9Canada-United States Free Trade Agreement, 22 December 1987, Can. T.S. 1989 No. 3, 27
I.L.M. 281 [hereinafter FTA or Agreement] (Part A, Schedule to the Canada-United States Free
Trade Implementation Act, S.C. 1988, c. 65; entered into force 1 January 1989).
‘S.C. 1973-74, c. 46.
“Dow Jones & Co. Inc. v. A.G. Can. (1980), [1981] 1 F.C. 428, 113 D.L.R. (3d) 395, aff’d
(1981), 122 D.L.R. (3d) 731 (C.A.); A.G. Can. v. Fallbridge Holdings Ltd (1979), 7 B.L.R. 275
(Fed. T.D.), aff’d (1985), 63 N.R. 17, 31 B.L.R. 57 (C.A.). For a general discussion of the United
States reaction to the Foreign Investment Review Act, see S. Unger, “The United States Response
to Canadian Foreign Investment Policies” (1982) 1 Boston U.I.L.J. 19; J.F. Dennin, “The U.S.
Commerce Dept. Study of Canadian Foreign Investment Policies” (1982) 1 Boston U.I.L.J. 37;
D.F. Vagts, “Canada’s Foreign Investment Policy: An International Perspective” (1982) 1 Boston
U.I.L.J. 27.
12General Agreement on Tariffs and Trade, 30 October 1947, Can. T.S. 1947 No. 27, 55 U.N.T.S.
187, T.I.A.S. No. 1700, 1st supp. B.I.S.D. (1953) 6 [hereinafter GATT or General Agreement].
13 Canada – Administration of the Foreign Investment Review Act (United States v. Canada)
(1984), GAT Doc. L15504, 30th supp. B.I.S.D. (1982-83) 140 [hereinafter FIRA].
‘4R.S.C. 1985, c. 1-21.8.
15Supra, note 9, c. 16.
161bid. annex 1607.3(4), art. 2005.
17See W. Graham, “Types of Regulation of Foreign Investment in Canada apart from the Foreign
Investment Review Act: An Overview” in B.M. Fisher, ed., Legal Aspects of Doing Business in
Canada (New York: Practising Law Institute, 1983) 589; Unger, supra, note 11.
McGILL LAW JOURNAL
[Vol. 37
continental energy policy which assures security of access to Canadian suppliers
and security of supply to American consumers. 8 These issues raise complex
legal problems involving sensitive materials such as uranium and a fairly
intense regulatory framework on both sides of the border. 9 Pipelines for natural
gas and transmission lines for electric power cross the border in increasing den-
sity. Interdependence thus grows and while disputes may take a different form
than in the past, the potential for future disputes within the framework of the
FTA has probably increased.
Not all disputes have been brought within the umbrella of the FTA. The
potential for disputes over such issues as acid rain,2″ water diversion projects2′
and other consequences of a shared environment is considerable.
Because of the interrelation between so many activities many disputes have
arisen in the past over the exercise of jurisdiction by one state over activities
which the other considers as falling within its exclusive, or at least within its pri-
mary jurisdictional ambit. The exercise of anti-trust and export control jurisdic-
tion by United States authorities over activities in Canada have produced sharp
exchanges. Protective legislation was adopted by Canada (modeled on the U.K.
statute) designed to block the application of American law where that exercise
of jurisdiction is perceived as “adversely affecting significant Canadian inter-
ests.”22 In the area of criminal law a treaty has been entered into to address the
issue of jurisdiction.’ Finally, as noted above, in some areas such as securities,
transboundary cooperation amongst the authorities has become substantial.24
As a consequence of the complexity and number of links between the two
countries, Canada and the United States have explored most dispute resolution
techniques familiar to modem states. Their trade disputes have often been the
subject of working party or panel resolution within the framework of GATTV
ISFTA, supra, note 9, c. 9.
19The principal regulatory body in Canada is the National Energy Board. In the United States
it is the Federal Energy Regulatory Commission. For a discussion of their respective jurisdictions
and the implications of the FTA, see S.P. Battram & R.H. Lock, “The Canada/United States Free
Trade Agreement and Trade in Energy” (1988) 9 Energy L.J. 327.
20Canada has resorted to direct lobbying of the United States Congress to deal with its concerns
over acid rain. Some degree of progress was achieved with the recent Clean Air Act Amendments
(1989), s. 1940, 101st cong., Ist sess. (1989).
21The dispute over North Dakota’s Garrison Diversion unit was addressed by the International
22Foreign Extraterritorial Measures Act, S.C. 1984, c. 49, s. 5(1). Also see
Joint Commission, which was established by the Boundary Waters Treaty, infra, note 32.
I.L.M. 1092.
.C. Graham, “The
Foreign Extraterritorial Measures Act” (1985-86) 11 Can. Bus. L.J. 410; J.G. Castel, Extraterrito.
riality in International Trade (Toronto: Butterworths, 1988).
23Canada-United States Treaty for Mutual Assistance in Criminal Matters, 18 March 1985, 24
24Supra, note 5 and accompanying text.
25For example, United States Tax Legislation (DISC) (E.E.C. v. United States) (1976), GA7T
Doc. L/4422, 23rd supp. B.I.S.D. (1975-76) 98; FIRA, supra, note 13; Canada – Measures Affect-
ing Exports of Unprocessed Herring and Salmon (United States v. Canada) (1988), GATT Doc.
L16268,35th supp. B.I.S.D. (1987-88) 98; Canada-Import Restrictions on Ice Cream and Yogurt
(United States v. Canada) (1989), GATT Doc. L/6568, 36th supp. B.I.S.D. (1988-89) 68; United
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DISPUTE RESOLUTION & THE FTA
They have resorted to ad hoc arbitration26 and to the International Court of Jus-
tice.27 Various agreements foresee the need to consult prior to taking action. 8
Most, however, contain no specific DRMs. The federal structure of the two
countries introduces an additional complicating factor –
the resolution of many
disputes involves the coordination of more than one level of government.
There exist some two hundred bilateral treaties between Canada and the
United States (and innumerable letter agreements and understandings between
officials of various levels of government), yet only a few of them contain a spe-
cific DRM.29 Both governments are members of various general agreements for
the settlement of disputes between them30 and also certain multilateral treaties
providing for the judicial settlement or arbitration of disputes relating to the
interpretation or application of those treaties.3′
Perhaps the most illustrative agreement between the parties, for the pur-
pose of illuminating attitudes towards DRMs, is the 1909 Boundary Waters
Treaty.32 That treaty established a permanent International Joint Commission to
deal with applications for the use, obstruction or diversion of boundary waters.
The Commission was also charged with making reports and recommendations
with respect to differences between the two countries involving their rights or
those of their inhabitants along the boundary that were referred to the Commis-
sion jointly by the two governments. Over the years, the Commission has con-
States – Countervailing Duties on Fresh, Chilled and Frozen Pork from Canada (Canada v.
United States) (1990), GATT Doc. DS7/R replacing L/6721 (5 September 1990).
26Gut Dam Arbitration (Canada v. United States) (1969), 8 I.L.M. 118; Trail Smelter Arbitration
(United States v. Canada) (1931-41), 3 R.I.A.A. 1905.
27Delimitation of the Maritime Boundary in the Gulf of Maine Area (Canada v. United States),
[1984] I.C.J. Rep. 246.
28Canada-United States Memorandum of Understanding as to Notification, Consultation and
Cooperation with respect to the Application of National Anti-Trust Laws, 9 March 1984, 23 I.L.M.
275; Canada-United States Treaty for Mutual Assistance in Criminal Matters, supra, note 23;
Canada-United States Treaty Relating to Cooperative Development of the Water Resources of the
Columbia River Basin, 17 January 1961, (1961) 44 Dept of State Bull. 234.
29See ABA-CBA Joint Working Group on the Settlement of International Disputes, Settlement
of Disputes under the Proposed Free Trade Area Agreement, 1 April 1987, at 8-9 [hereinafter FTA
Report].
3 0See, for instance, the Convention for the Prevention of Smuggling of Intoxicating Liquors, 23
January 1924, 43 U.S. Stat. 1761, T.I.A.S. No. 685, 12 Bevans 414, 17 L.N.T.S. 182 (The I’m
Alone (Canada v. United States) (1935), 3 R.I.A.A. 1609, 29 AJIL 326 was submitted to a Joint
Commission under this convention); Canada-U.S. Agreement Concerning Transit Pipelines, 28
January 1974, 28 U.S.T. 7449, T.I.A.S. No. 8720.
3 1Among these treaties are: Convention on International Civil Aviation, 7 December 1944, 61
U.S. Stat. 1180, T.I.A.S. No. 1591, 15 U.N.T.S. 295, 3 Bevans 944; Constitution of the Interna-
tional Labor Organization, as amended in 1946, 9 October 1946, 62 U.S. Stat. 3485, T.I.A.S. No.
1868, 15 U.N.T.S. 35, 4 Bevans 188; Convention on the Political Rights of Women, 31 May 1953,
ienna Convention on Diplomatic Relations,
27 U.S.T. 1909, T.I.A.S. No. 8289, 193 U.N.T.S. 133;
18 April 1961, 23 U.S.T. 3227, T.I.A.S. No. 7502, 500 U.N.T.S. 95; International Telecommuni-
cations, 25 October 1973, 28 U.S.T. 2495, T.I.A.S. No. 8572.
32United States-Great Britain Treaty Relating to Boundary Waters, and Questions Arising
Between the United States and Canada, 11 January 1909, 12 Bevans 319, [1923] IH Redmond
2607 [hereinafter Boundary Waters Treaty]; Waterways Treaty Act, S.C. 1911, c. 28.
REVUE DE DROIT DE McGILL
[Vol. 37
sidered more than two hundred applications and references, and its recommen-
dations, based on careful technical studies and consultations with all the inter-
ested parties, have usually been accepted by the two governments. In recent
years, the Commission has been asked by the two countries for recommenda-
tions concerning not only water levels and use but also water and air pollution.
However, no case has ever been submitted to the Commission for “decision”
under article 10 of the treaty, in other words for binding determination. Submis-
sion under that provision depends on a special agreement of both countries
requiring, as far as the United States is concerned, prior advice and consent of
the Senate.33
As a result of these and other factors, the Canadian Bar Association (CBA)
and the American Bar Association (ABA) recommended, in a report addressed
to their two governments that a permanent tribunal be established between the
two countries to deal with disputes arising between them. This tribunal would
have had compulsory jurisdiction over any question regarding the interpretation,
application or operation of a treaty in force between them and optional jurisdic-
tion over other issues such as environmental issues and the transnational appli-
cation of civil and criminal laws.’ These recommendations remain unacted
upon by either government, although the committee which drafted them was
able to have some limited influence in the discussions concerning the DRM for
the FTA.35
The reluctance of governments to hand disputes over to third party arbitra-
tors has been much remarked upon by international scholars. When vital state
interests are at stake, the political consequences of an adverse decision may just
be unacceptable. This reluctance has been true in both countries. In the United
States, even the high points of political willingness to resort to international
arbitration have been tempered by serious reserves. Professor Tom Franck, in a
speech given to the Canadian Council on International Law, contrasted the rhet-
oric of the United States which has often professed its loyalty to international
arbitration in the abstract, but which has usually backed off if it appeared that
resort to third party adjudication might produce a result which would not be in
the interest of the United States.36 Indeed, Professor Hudec has suggested that
American enthusiasm for improved GAT dispute settlement procedures has
recently cooled with the realization that the United States may lose more cases
33Supra, note 29 at 9.
34ABA-CBA Joint Working Group on the Settlement of International Disputes, Settlement of
International Disputes between Canada and the United States of America, resolutions adopted by
the ABA on 15 August 1979 and the CBA on 30 August 1979 with accompanying reports and
recommendations.
35See FTA Report, supra, note 29; ABA-CBA Joint Working Group on the Settlement of Inter-
national Disputes, Preliminary Information Report on the Elements of Canada-United States Free
Trade Agreement of October 4, 1987, 10 November 1987.
36″Messianism and Chauvinism in America’s Commitment to Peace Through Law” (1986)
C.C.I.L. Proc. 101.
19921
DISPUTE RESOLUTION & THE FTA
than it will gain in this process.37 Such recent cases as the Section 337 case
would seem to support this analysis.3″
B. The Specific Context of the FTA: Canada-United States Trade Policies
in the 1980s
The DRMs achieved in the FTA must be appreciated not only in this gen-
eral context, but also in the context of developments in United States trade law
in the 1980s. The FTA owes its genesis to a fear by Canadians that access to the
American market would be denied by virtue of ever increasing protectionist
sentiment in the United States in the early 1980s. Evidence of this protectionist
sentiment may be found in a series of legislative measures. The Trade and Tariff
Act of 1984 brought in section 301 and the 1988 Omnibus Trade and Compet-
itiveness Act expanded this to “super 301.”‘1 Specific amendments to trade leg-
islation clearly targeted certain Canadian practices. For instance, section 232 of
the Trade and Tariff Act of 1984 dealt with border broadcasting.’ Other provi-
sions, while technical in nature, had considerable practical significance in con-
tingent protectionism cases. Obtaining anti-dumping duties or countervail was
made progressively easier. Canadian industry was uneasy as important sectors,
steel for example, watched United States laws applied to imports. A specific
case, Softwood Lumber, confirmed fears of an unfair application of American
law.4′ In addition, the role of Congress increased in trade policy formation, and
Congress is traditionally more susceptible to the protectionist pressures of con-
stituents than the Administration.42 As George Will has said, when it comes to
politics, “free trade ranks just below Christianity and above jogging on the lists
of things constantly praised but only sporadically practised.”43
These factors moved the Canadian government to consider the DRM of the
Agreement to be of paramount importance. Canada’s need for binding rules and
an effective DRM was further mandated by the disparity in the size of the two
countries and the:
consequential disequilibrium in power and in relative dependence of the one on
the other. This disparity leads Canadians to fear that the United States could use
its political and economic leverage to resolve disputes under a trade agreement to
its advantage –
indeed to unilaterally revise that agreement. 4
3 7R. Hudec, “Mirror, Mirror on the Wall” (Paper presented at 1990 annual meeting of the
C.C.I.L., 19 October 1990) [unpublished].
38United States – Section 337 of the Tariff Act of 1930 (E.E.C. v. United States) (1989), GA7T
39Trade and Tariff Act of 1984, Pub. L. 98-573,24 I.L.M. 823. Omnibus Trade and Competitive-
Doc. L16439, 36th supp. B.I.S.D. (1988-89) 345 (adopted 7 November 1989).
ness Act of 1988, Pub. L. 100-418, 28 I.L.M. 15.
40 bid.
41See G.W.V. Janesen, Canada-United States Trade Relations: The Lessons of the Softwood
Lumber Countervail Case (Ottawa: Conference Board of Canada, 1984).
42See H.H. Koh, “Congressional Controls on Presidential Trade Policymaking after I.N.S. v.
Chadha” (1986) 18 N.Y.U.J. Int’l. L. & Pol. 1191.
43This comment was made by George Will during a recent television programme.
44L. Legault, “Canada-United States Trade: A Legal Framework for the Management of Inter-
dependence” (Address to the ABA National Institute on International Litigation and Arbitration in
McGILL LAW JOURNAL
[Vol. 37
Investors in Canada must be given the security of knowing that this cannot
occur.
In addition, the system of trade and economic policy formation and regu-
lation in the United States is such that, because of the division of powers
between the executive and legislative branches and the sub-division between
economic agencies and semi-autonomous regulatory commissions within and
without the Administration there is:
a uniquely complex and diffuse network of decision making. In the absence of
appropriate forms of binding dispute settlement it is unclear to whom Canada
could turn to ensure proper enforcement of an agreement.4 5
This problem is compounded by direct access by individuals to trade remedies
under United States law resulting in the inability of governments to influence
the process through traditional diplomatic channels.4 6
At the same time one could discern an evolution in American thinking in
favour of a more effective DRM in trade matters. In a report of the United States
International Trade Commission (USITC) to the Senate Finance Committee on
trade dispute settlement under the GATT, it was pointed out that one of the
weaknesses of the GATT lay in the absence of clear and binding rules and an
accompanying binding DRM which could apply to those rules.4″ It was clear
that one project on the American agenda for the Uruguay Round was the elab-
oration of more effective enforcement procedures for the GATT. The results
achieved at the mid-term meeting in Montreal, where there was agreement to
extensive revisions of the GATT dispute resolution system (notably with the
addition of an arbitration option), is some evidence of the success of that posi-
tion.48 One may speculate as to why this is so. In my opinion, it reflects the same
insecurities on the part of the United States with regard to the GATT that Canada
has with regard to the United States. The United States’ loss of its hegemonic
position has meant that it can no longer enforce power diplomacy when it comes
to Japan and the EEC; it is therefore in its interest to require clear rules with a
binding dispute mechanism to enforce them. This of course represents a radical
departure on the part of the United States from its position in other areas of
international law as may be reflected in such cases as the International Court of
Justice’s decision in the Nicaragua case.”
New York, 2 April 1987) [unpublished]. At that time Mr. Legault was Minister of Economics and
Deputy Head of Mission, Canadian Embassy, Washington.
451bid.
46Similar propositions were advanced by a speech prepared for Allan Gotlieb and delivered by
Mr. Legault. L. Legault, Address (Canada-United States Law Institute, 3 April 1987)
[unpublished].
47USITC, Review of the Effectiveness of Trade Dispute Settlement under the GAT’and the Tokyo
Round Agreements (Washington: USITC Pub. 1793, December 1985) [hereinafter USITC Review
of GATT Dispute Settlement].
48″GAT/1 Adopts New Dispute Settlement Procedures, Country Review System” (1989) 62
49See Franck, supra, note 36; Case Concerning Military and Paramilitary Activities in and
GATT Focus 1.
Against Nicaragua (Nicaragua v. United States), [1986] I.C.J. Rep. 14.
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DISPUTE RESOLUTION & THE FTA
H. Comparison of the Dispute Resolution Mechanism in the FTA
The first point that must be made about the FTA is that there is not one dis-
pute resolution mechanism, but many. The two principal mechanisms are con-
tained in Chapter 18, the general provision, and Chapter 19, governing national
anti-dumping and countervailing duty actions. To these may be added provi-
sions specific to certain sections such as arbitration in the case of certain agri-
cultural disputes,50 direct consultation between immigration authorities,” l direct
control by national architectural professional organizations” and the use of
working parties, to name a few. In other areas a binational dispute mechanism
is specifically excluded as inappropriate to the circumstances, as in the case of
Investment Canada decisions 3 or the chapter on financial services.’
Overall, the system is marked by a considerable degree of flexibility,
allowing the parties to select the mechanism which they consider most appro-
priate to the dispute. Resort to GATT rather than the FTA is permitted. Concil-
iation, mediation, arbitration, and the use of working parties are all provided for.
Some areas are given a discrete system where appropriate, others are exempted
entirely where national considerations are too sensitive or where the rules which
were drafted were not developed enough to support a system for their applica-
tion and interpretation. In many cases discrete systems are selected which cor-
respond to the nature of the substantive rules with which they are associated,
such as in the case of the architects or arbitration in the case of Chapter 11. Two
weaknesses of the GATT system, the length of time to get panel decisions and
the blocking of reports in Council or the failure to implement them, have been
addressed. 5
The remainder of the article will focus on the two basic DRMs in the
Agreement: Chapter 18 and Chapter 19. Chapter 18 is the general system which
applies to the greater part of the Agreement; Chapter 19 governs anti-dumping
and countervailing duties, both in respect of new legislation and administrative
determinations.
A. Chapter 18, The General Dispute Resolution Mechanism
1.
Analysis of Chapter 18
Central to the functioning of the general DRM is the Commission. The
Commission has two roles. It is the manager of the Agreement in the sense that
it has, pursuant to article 1802(1), the duty to supervise the proper implemen-
50FTA, supra, note 9, annex 705.4(16).
511bid. art. 1503.
52 Ibid. annex 1404.
531bid. art. 1608(1).
54See subsection II.A.2.
55The failure of the Contracting Parties to adopt GATT panel recommendations is becoming a
serious concern in the efficacy of that system. See “GATT Dispute Settlement Stymied by Non-
Implementation of Reports” (1991) 81 GATT Focus 1; “Canada Urges Adoption of Pork Panel
Report” (1991) 82 GATT Focus 3.
The specific provisions of the FTA pointed to in this paragraph are cited in the sections which
follow.
554
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tation of the Agreement, its future elaboration and to consider any matters which
affect its operation. It also has a pivotal role in the DRM. The Commission is
by nature a political body; its principal members are the cabinet level officers
in the two countries responsible for international trade.56 It operates by consen-
sus.57
In the case of the “institutional provisions” dealing with general dispute
resolution, the Commission has a significant role, both at the beginning and
toward the end of the procedure. It may act in some cases as a “traffic director”
to indicate what forum will be used to consider the issue and, in the case where
binding arbitration is not resorted to, it will determine what will be done about
a panel’s recommendation. It selects the arbitrators and may establish the pro-
cedure in some cases. A diagrammatic presentation of the Chapter 18 process
is depicted in Figure 1.
Figure 1: Chapter 18 Dispute Settlement Mechanism*
ISSUEI
I
I
CONSULTATIONS
COMMISSION
Eitherlor
PANEL AT
INSTANCE OF
EITHER PARTY
COMPULSORY
BINDING
ARBITRATION
(safeguards)
I
PANEL RECOMMENDATION
JOINTLY
TRIGGERED
BINDING
ARBITRATION
(any issue
but safeguards)
RULING
COMMISION
COMPLIANCE
COMPLIANCE
RESOLUTION
NO
RESOLUTION
IMPLEMENTATION
SUSPENSION OF
BENEFITS BY
COMPLAINING PARTY
NO RETALIATION POSSIBLE
SUSPENSION OF
BENEFITS BY
EITHER PARTY
RETALIATION POSSIBLE
Ap-‘
h.
to W =Item e p
. seprae pr
dmpW5g ando
lah an
l
sapwlccs.
Briefly, the system is as follows:
56FTA, supra, note 9, art. 1802(2); see W. Graham, “The Role of the Commission in the Canada-
United States Free Trade Agreement: A Canadian Perspective” in United States/Canada Free
Trade Agreement: The Economic and Legal Implications (Conference Materials) (Washington:
American Bar Association National Institute, January 1988) 233.
57FTA, ibid. art. 1802(5). See F Iaccobucci, Deputy Minister of Justice of Canada, Address
(Fifth Annual Trade Law Seminar in Ottawa, 15 October 1987) [unpublished].
1992]
DISPUTE RESOLUTION & THE FTA
1. If a dispute arises the parties have a duty to consult (article 1804).
2. If a dispute arises that falls both under the Agreement and the GAIT the com-
plaining party may choose either forum. The forum chosen is exclusive (article
1801(2), 1801(3)).
3. If the complaining party does not go to the GATT and consultations are not
successful, either party may call upon the Commission to meet within 10 days
and endeavour to resolve the dispute promptly. The Commission may call for
the assistance of a mediator or technical advisors if it deems it appropriate (arti-
cle 1805).
4. If this procedure produces no satisfactory result then:
a) in the case of safeguard disputes (“Emergency Action”), the Commission
shall refer the matter to compulsory binding arbitration in accordance with
the procedures established for that purpose (article 1806(1)).
b) in all other cases, the Commission may either
i) refer the matter to binding arbitration (article 1806(1)), or
ii) if not referred to arbitration, then upon the request of either party,
refer the matter to a panel of experts which is established in accordance
with the procedures agreed upon (article 1807).
5. In the case where binding arbitration is used (either in respect of safeguards
or otherwise), the arbitrators’ ruling disposes of the issue and the offending
party is obliged to comply, failing which, and in the absence of any agreement
by the parties as to appropriate compensation, the aggrieved party may suspend
corresponding benefits of the other party who is not allowed to take any retal-
iatory measures (article 1806(3)). (There is no particular role for the Commis-
sion in this process.)
6. In the case where the matter is referred to a panel of experts the Commission
may appoint the fifth panelist and fix the procedure for the panels. The panelists
are to be chosen on the basis of objectivity and, “where appropriate,” are to have
“expertise in the particular matter under consideration” (article 1807(1); this
may have particular significance in certain service sectors). Upon receiving the
panel’s recommendation the Commission “shall agree on the resolution of the
dispute, which normally shall conform with the findings of the panel” (article
1807(8)). The solution is, “whenever possible,” to consist of the elimination of
the offending measure or compensation (article 1807(8)).
7. Where the Commission does not agree on a resolution of the dispute as
above, the party which considers that its fundamental rights or anticipated ben-
efits under the Agreement have been impaired may suspend benefits of equiva-
lent effect to the other party until a resolution of the dispute (article 1807(9)).
In two other minor ways the Commission may affect procedures. It may
decide not to publish a panel’s finding (article 1807(7)). And, in the case where
a party objects to a panel’s recommendation, the Commission (along with the
McGILL LAW JOURNAL
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parties) may request the panel to reconsider its decision in the light of such
objections (article 1807(6)).
In examining the Commission’s role in this procedure one’s first point of
departure, for comparison purposes, is naturally the DRMs contained in the
GATT and its various codes. A second consideration which also strikes one
about the Commission’s role, in the case of this Agreement, concerns those
where it has been given a role and those where it has not.
To take the latter point first, the Commission has no role in respect of anti-
dumping or countervailing duty disputes (AD/CVD) where special procedures
have been elaborated (Chapter 19). It may have the limited role of a mediator
in the case of “Emergency Action” disputes, but where the parties cannot agree
on a resolution to such a dispute, the question must proceed to binding arbitra-
tion (article 1103). These two areas, where special procedures have been pro-
vided for, are those where the parties (more particularly Canada) are especially
sensitive because of recent trade frictions. In both cases, the guiding and ulti-
mately determinative role of the Commission has been either excluded entirely
or limited to that of a mediator prior to arbitration. One can only presume that
this is because the parties were not prepared to concede that these types of dis-
putes could be fairly or effectively determined if their ultimate disposition was
to depend upon the consensus decision of the parties themselves sitting as the
Commission. One might also assume that some of the more unfortunate expe-
riences gained from the GATT procedures, in particular problems which have
arisen because of the political process which occurs at the time of the Contract-
ing Parties’ approval of panel decisions,” influenced the very different proce-
dures selected for these particular disputes. They effectively illustrate the pro-
position that the less trust there is between the parties the greater the need there
is for a “tight” or more court-like model of DRM.
All other general disputes about the interpretation and application of the
Agreement are governed by the general provisions which emphasize the consen-
sus role of the Commission, both at the initiating and concluding phases of the
procedures. In this sense, it may be said that the DRM of the Agreement repli-
cates the GATT model.
In addition, article 2011 introduces the notion of nullification and impair-
ment, as giving rise to the right to resort to the DRM provided for in Chapter
18. This general concept, borrowed from article XXIII of the GATI, could give
rise to some interesting questions particularly where anticipated benefits are
conceived.59
One feature of the general DRM that one must bear in mind is that the ulti-
mate sanction provided for by the Agreement is retaliation by the injured party,
58See, supra, note 55 and accompanying text.
59J.H. Jackson, “GATT Machinery and the Tokyo Round Agreements” in W.R. Cline, ed., Trade
Policy in the 1980’s (Washington: Institute for International Economics, 1983) 159. Jackson refers
to the notion of nullification and impairment in the GATT as “exceedingly ambiguous” (ibid. at
182).
1992]
DISPUTE RESOLUTION & THE FTA
or notice of withdrawal from the Agreement. In this sense the GATT model has
prevailed over the Canadian position which clearly favoured a binding dispute
resolution mechanism which would avoid both the procedural problems of the
GATT and the retaliation or “tit for tat” nature of its sanction mechanism (which
in the end, results in the erection of additional trade barriers rather than the elim-
ination of the offending measure). This aspect of a suspension of benefits of
equivalent effect (articles 1806(3), 1807(9)) may well prove awkward in the ser-
vices area where failure by one party to observe the Agreement in respect of one
service (say tourism) may result in retaliation in an entirely unrelated area (say
architecture, chartered accountancy, etc.).
Whenever one is discussing the characteristics of any DRM in an interna-
tional agreement one must emphasise the direct relationship between the sub-
stantive rules of the Agreement and the procedures established to enforce
them.’ This Agreement certainly confirms that proposition. When we examine
the case of Emergency Action, for example, we see that it was possible to agree
to binding arbitration because the rules are fairly clear in Chapter 11 as to the
conditions under which Emergency Action may be resorted to, whether under
the bilateral or global track. Disputes might arise as to the meaning of “substan-
tial” imports which contribute “importantly” to “serious” injury, for example
(article 1102(1)). Debate over the appropriate threshold which justifies resort to
internal protective remedies often takes place in GATT. This is surely the type
of issue which can be left to a binational panel of experts for a judicial-type res-
olution. Furthermore, the ultimate consequences of an “unfavourable” (in the
political sense) judgment to either party are fairly limited. The same observa-
tions might be made about the provision for binding arbitration in the case of
government support programs for wheat and barley (annex 705.4(16)).
When we turn to the general rules which will apply to services, no one can
foresee the nature or scope of all types of future disagreements or their ultimate
consequences. In such cases, where there is a high degree of uncertainty there
is a corresponding reluctance on the part of nations to accept any binding DRM.
In the case of services then, the Commission, in its political role, remains in
control of the procedure and the acceptability of a panel decision. In the end,
either party has the power to frustrate the Commission’s ability to come to a
decision which will adversely affect its interests. In this sense the FTA retains
the basic features of the GATT DRM, although reference should also be made
to article 1807(8) which provides that the “resolution shall be non-
implementation or removal” of the objectional measure or compensation. This
seeks to address a weakness in the GA7T system where even this “normal” con-
sequence that should flow from the breach of an international obligation is not
the guaranteed result of a panel ruling.
Another aspect of the Chapter 18 DRM that is worthy of note is the fact
that the parties have exclusive access to it. There is no institutionally conceived
60
0n DRMs, clear rules and the GATT experience see USITC Review of GATT Dispute Settle-
nent, supra, note 47; R. Hudec, “GATT Dispute Settlement after the Tokyo Round: An Unfinished
Business” (1980) 13 Cornell Int’l L.J. 145; Jackson, ibid.
REVUE DE DROIT DE McGILL
[Vol. 37
role for private sector, or provincial or state participation in the process. This
may well affect the acceptability of the system as a whole, particularly where
such parties’ rights and interests may be determined by the dispute resolution
process. The American and Canadian Chambers of Commerce foresaw this
issue and made active representation concerning the need for private sector par-
ticipation in the dispute resolution process during the elaboration of the Agree-
ment.6′ It certainly contrasts with the EEC system which envisages access to the
Court of Justice by parties directly affected by Community measures and the
appearance before the Commission of parties whose rights are being determined
by it.62 This may represent a serious gap in the institutional system worked out
in this Agreement. In trade matters, perhaps more than other categories of inter-
national disputes, private parties regularly seek the aid of their government
because of violations by other governments. Access to the appropriate domestic
courts or administrative tribunals are only a part of the solution to this problem;
access to some international machinery is also important. Subsequent to the
Agreement’s Preliminary Transcript the parties seem to have recognized this
problem by providing for a right of access by interested parties in the case of
AD/CDV disputes (Chapter 19, articles 1904(5), 1904(7)) but such participation
is excluded elsewhere in the Agreement.
Because the Commission is not a tribunal and the Agreement does not pro-
vide for any similar institution there is also no possibility of reference from
domestic tribunals along the lines provided by article 177 of the Treaty of Rome.
This type of reference served as the basis for the recommendation of the CBA
and ABA to the two governments that it would be desirable to include in any
agreement an appropriate arrangement for access by private persons, preferably
to a permanent joint Canada-United States Free Trade Tribunal which would
have had jurisdiction to interpret the Agreement and decide disputes arising
thereunder.’ In addition, any person whose rights or interests under the Agree-
ment might be affected by the actions of a domestic tribunal would be able to
have an issue of the interpretation of the Agreement referred to the Trade Tri-
bunal.’ No such reference to the type of Commission constituted under this
Agreement would be appropriate and the parties did not see fit to establish any
special panel procedures for this purpose. The Agreement envisages, instead, a
much more limited procedure for the giving of standing to the parties to inter-
vene, either jointly or individually, before national tribunals when issues involv-
ing the interpretation of the Agreement are involved.’
bers of Commerce, Summary Report, Scotsdale, Arizona, 1-3 April 1987 at 5.
61See Committee on Canada-United States Relations of the Canadian and United States Cham-
62 Treaty Establishing the European Economic Community, 23 November 1957,298 U.N.T.S. 11,
art. 173 [hereinafter Treaty of Rome].
63 FTA Report, supra, note 29 at 22.
641bid. at 22.
65Supra, note 9, art. 1808. It is interesting to note the title to art. 1808, “Referrals of Matters from
Judicial or Administrative Proceedings” which would suggest that the drafters originally had the
idea of an art. 177-type reference from domestic tribunals and then drew back from it once the lim-
itations of the Commission as an appropriate forum for such references were appreciated.
1992]
DISPUTE RESOLUTION & THE FTA
2.
Comparison to Chapter 14 and Chapter 17
Financial services called for special treatment when it came to a DRM.
There is a fundamental difference between the approach of the Financial Ser-
vices chapter (Chapter 17) and the Services chapter (Chapter 14). The latter
focused on “trade in services,” the ability to provide a given service without the
necessity of providing a permanent establishment in the other state; only by pro-
viding for cross-border service would trade in such services be made more lib-
eral. Such an approach was impossible in the case of financial services. It was
recognized that in some cases one may speak of an “export” of a service. Invest-
ment advice or underwritings on the part of securities firms or the provision of
insurance by insurers or electronic funds transfers by banks are a few examples.
Thus, insurance falls within Chapter 14 rather than Chapter 17. In general, how-
ever, it was recognized that banking, trust company and other financial opera-
tions do require a long-term equity investment in the place where the service is
provided. This establishment is subject to close regulatory control, often by dif-
ferent levels of government. Changes in this regulatory framework, particularly
those involving a different attitude towards “non-residents,” could not be real-
ized quickly or easily.
There are several consequences of the specific nature of financial services
in respect of the substantive provisions. The concept of “national” treatment in
Chapter 17 (equality of competitive opportunity) differs from that in Chapter
14. As Chapter 17 stands alone the investment review restrictions do not apply,
nor do the government procurement articles. The actions of states (banking) and
provinces (securities, trusts) are not specifically dealt with. Finally, there is the
express recognition that there is much more work to be done on both sides of
the border to complete the process, that the chapter does not represent “the
mutual satisfaction of the parties concerning the treatment of their financial
institutions. ‘
These substantive considerations had a definite effect upon the dispute res-
olution system which would be appropriate for this chapter. The United States
negotiators were of the view that, given the relatively few disputes in this area,
there was no need for any such mechanism. They were also concerned about the
lack of expertise in the complex laws and practices in financial matters that
might prevail amongst persons normally called upon to sit on panels that would
rule on such issues. Appeals from decisions made by the Federal Reserve to the
Commission could scarcely be tolerated in such circumstances. Ultimately, any
system taking control over such crucial decisions out of the hands of the finan-
cial establishment might create instability and uncertainty in the financial mar-
kets.67
661bid. arts 1702(4), 1703(4).
67C. Lohmann & W. Murden, “Policies for the Treatment of Foreign Participation in Financial
Markets and their Application in the United States-Canada Free Trade Agreement” in The
Canada-U.S. Free Trade Agreement: Analysis of the Text (Conference Materials) (Ottawa: Univer-
sity of Ottawa, 22 January 1988).
McGILL LAW JOURNAL
(Vol. 37
As a result the only DRM governing this chapter is a provision for consul-
tations between the United States Department of the Treasury and the Canadian
Department of Finance (article 1704(2)). In the event that these consultations
fail, there is no back-up provision in the form of arbitration or panel recommen-
dations or even a reference to the Commission. This may be an unfortunate
lacuna in the Agreement but the reasons why the parties were unable to arrive
at a more sophisticated form of dispute resolution in these circumstances are
fairly evident if we return to those elements which must underlay any successful
resort to the arbitral process.
In the first place, it is clear that the rules in this area are fairly embryonic.
The very notion of equality of competitive opportunity was a recognition of the
complex and often very different regimes which prevail on both sides of the bor-
der (particularly the role of Glass-Steigel and state jurisdiction on banking oper-
ations in the United States). The complexities of the situation are compounded
by the authority which can be exercised by various levels of government and
very powerful administrative organs of government in this highly sensitive and
crucial sector. The confidence necessary to entrust matters to a panel of experts
to review local decisions or provide recommendations could not be found in
these circumstances. Too many unforeseeable political consequences could arise
should powerful forces –
the Federal Reserve in the United States or the Secu-
rities Commissions in the provinces, to name only two elements in the host of
state and federal regulatory agencies that have a role to play in this area –
be
unwilling to accept the result of an arbitrated difference. In the final analysis,
one is also left with a suspicion that the fact that the disputes were to pass
through the hands of “trade” officials sitting as the Commission, to some extent
determined the attitude of the finance officials negotiating this part of the Agree-
ment; in the pecking order of government, it is said, trade officials are not at the
same level as finance.
The essential conditions necessary for confidence in an arbitral system
were therefore lacking in these circumstances and the best the parties could
agree to was the traditional international solution to such a situation: the recog-
nition of a duty to consult. There could be no better illustration of the limits of
the use of an arbitral system in any international arrangement and also of the rel-
ative importance of financial services in terms of national “sovereignty” issues,
as opposed to other types of services, than the different treatment which these
two sectors received when it came to accepting some degree of international
control over the process of interpretation and application of the Agreement.
3.
Application of Chapter 18
There have been two panels appointed under Chapter 18. The first dispute
involved landing requirements for west coast salmon and herring.6″ Original
requirements had been challenged before a GATT panel and found to be incon-
sistent with article XI of the GATI’. 69 Subsequent to that decision the Canadian
Report of the Panel (1989), 2 T.C.T. 7162, 1 T.T.R. 237 [hereinafter cited to T.C.T.].
681n the Matter of Canada’s Landing Requirement for Pacific Coast Salmon and Herring: Final
69 Canada – Measures Affecting Exports of Unprocessed Herring and Salmon, supra, note 25.
19921
DISPUTE RESOLUTION & THE FTA
legislation was amended to try and bring the landing measures within the GATT
as regulations in relation to conservation as permitted by the GATT article
XX(g). These measures extended to 100% of Canadian herring and salmon
caught off the west coast.7″
The Panel insisted that the Canadian landing requirements imposed a
greater burden on foreign than domestic fishermen and purchasers of their prod-
ucts.7 ‘ It considered that the genuineness of a measure’s conservation purpose
should be determined by considering whether it would have been adopted if
Canadian nationals would have had to bear its cost.72 In so doing it examined
the objective conservation benefits of the measure from the standpoint of its
data quality and administrative advantages and compared these to trade-neutral
measures which might achieve the same end.73
Following a detailed consideration of the issues, the Panel concluded that
the conservation benefits of the landing requirement would depend on the vol-
ume of unlanded exports which would be expected to occur in the absence of
a landing requirement. In the case of the salmon and herring fisheries at issue,
the Panel was of the opinion that Canada’s landing requirement applicable to
100% of the catch could not be said to be “primarily aimed at” conservation
within the meaning of GATT article XX(g) and was therefore not exempt pur-
suant to FTA article 1201.”4 The Panel was, however, of the view that a landing
requirement could be considered to be primarily aimed at conservation if pro-
vision were made to exempt from landing such proportion of the catch which
would not affect the data collection and management needs of each fishery.75 An
exact measure of such an amount would be difficult to arrive at, but a range of
10-20% of the catch would provide appropriate guidance as to how much
should be exempt.76
The Panel decision is an interesting one from several perspectives. In the
first place, it introduces the notion of “proportionality” into the interpretation of
trade-restrictive measures, a notion very familiar to European trade lawyers.”
Secondly, it illustrates the advantages of having the Commission to review
panel decisions. The Panel’s discussion of the selective landing requirements
(10-20% of the catch) was not phrased as a recommendation, neither was it pre-
cise enough to be applicable without further discussion between the parties. In
70See T.L. McDorman, “Using the Dispute Settlement Regime of the Free Trade Agreement: The
West Coast Salmon and Herring Problem” (1990) 1 C.U.B.L.R. 177.
71Supra, note 68 at 7170-71.
721bid. at 7172.
731bid. at 7173-77.
741bid. at 7175, 7179.
751bid. at 7179.
761bid. at 7177-78, 7179.
77See, for example, D. Lasok & J.W. Bridge, Law and Institutions of the European Communities,
4th ed. (London: Butterworths, 1987) c. 4 at 172-73. Proportionality tests are also becoming famil-
iar to Canadian lawyers in litigation under the Canadian Charter of Rights and Freedoms. In the
trade law context, provisions of the Customs Act were struck down as violations of Charter rights
in R. v. Iraco Canada II Inc. and Biamonte (1989), 17 C.E.R. 245 (Ont. C.A.).
REVUE DE DROIT DE McGILL
[Vol. 37
the end, the Commission was able to reach a consensus. Canada maintains its
landing requirements but exempts 20% of the salmon and herring. This quota
is to be made available to the United States and will rise to 25% in 1991-92 after
which time it will be reviewed. Canada will be entitled to inspect and verify its
conservation regulations in respect of 100% of the catch through the use of sea
landing stations on American fishing vessels.78 British Columbia processors lose
their monopoly but in the result maintain considerable benefits.
In the end, this case may be said to demonstrate the value of the flexible
nature of the DRM system. The Panel acted as both an adjudicator and medi-
ator: the Commission was able to pick up the guidance offered and work out a
politically balanced and acceptable arrangement.79 It may also be said, however,
that since the two governments arrived at their own decision it may be queried
whether the “panel procedure hastened or slowed up the final solution.”8
Optimistic conclusions about this first case are somewhat attenuated by the
experience of the second dispute involving red lobster imports into the United
States.8′ That case challenged legislation enacted by the United States which
prohibits the sale of smaller lobsters. This legislation applies to lobsters wher-
ever caught and affects imports of legally caught Canadian lobsters into the
United States. Canadian lobster fishermen recognized that this conservation
measure was necessary to replenish American stocks which had been over-
harvested but argued that the United States had no right to apply it to Canadian
imports which had been legally harvested from the more conservatively man-
aged, and copious, Canadian stocks. In this case the two governments narrowly
circumscribed the power of the Panel to make broad recommendations by draft-
ing very restrictive terms of reference. This may have backfired on the Canadian
position because the question asked was whether the United States law was
inconsistent with article 407 of the ETA (which incorporates GATT article XI
limits on import restrictions) and, if so, whether FTA article 1201 (which incor-
porates article XX of the GATI) was applicable.
The Panel, splitting on national lines, held that article 407 was inapplicable
because this was a case of national treatment in the terms of article III of the
GATT’Y2 They were of the view that article II and article XI could not both be
applicable to the same situation. The majority therefore never turned its atten-
tion to the question of article XX and the appropriateness of the restrictions.
Neither did they rule on the measure’s compatibility with article III as this ques-
78Government of Canada, News Release No. 038, “Decision of the Canada-United States Trade
Commission on the Elements of an Agreement in respect of the Matter of West Coast Salmon and
Herring” (22 February 1990).
79McDorman, supra, note 70 at 188-89.
80A. Lowenfeld, “Binational Dispute Settlement under Chapters 18 and 19 of the Canada-United
States Free Trade Agreement, An Interim Appraisal” (Address to the Administrative Conference
of the United States, December 1990) at 72.
811n the Matter of Lobsters from Canada (1990), 3 T.C.T. 8182, 2 T.T.R. 72 [hereinafter cited
to T.C.T.].
821bid. at 8198-8210.
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DISPUTE RESOLUTION & THE FTA
tion was not asked of them,”3 but they suggested that, as the measure applied
equally to domestic and imported lobsters, it was not a case of illicit discrim-
ination prohibited by article I[.’ 4 In the result, the decision was rejected by the
Canadian government, as was an industry-discussed compromise which would
have harmonized Canadian non-St. Lawrence Gulf size limits with those
imposed by the United States in exchange for some United States concessions.
In the end, other markets will be sought for the smaller Canadian lobsters.”
Some Canadian observers have roundly criticized this Panel’s decision on
the ground that the automatic application of article Im should not have precluded
the possibility of the matter falling within article XI as well. 6 The split along
national lines is also somewhat disquieting.’ It leaves this observer wondering
whether, in cases of this nature where GATT rules apply to the dispute, we might
not be further ahead referring the matter to a GATT panel.
B. Chapter 198
1.
Analysis of Chapter 19
Chapter 19 contains a set of provisions specifically designed to deal with
problems caused by the application of local contingent protectionist measures
against the other party’s imports. From a Canadian perspective Chapter 19
responds to preoccupations that the American contingent protectionist laws are
applied subjectively rather than objectively and that if this were to continue it
would impede the free access which the FTA is supposed to provide. United
States concerns related less to access and more to providing discipline to what
they regard as pervasive and extensive subsidies in Canada.
There were several concerns. Firstly, Canadians were disturbed by the ris-
ing number of anti-dumping and countervailing duty actions commenced by
United States firms as a response to foreign competition in the past few years
(some 300 since 1980).89 Secondly, there is a perception that other countries’
national authorities, particularly those at the administrative level, “cheat” by
applying their law in the most protectionist way. This is particularly true of the
material injury test in dumping and subsidy cases,9″ but it also extends to ques-
3Ibid. at 8210.
14Ibid. at 8201.
85See B.C. Swick-Martin & E. LeGresley, “Recent International Trade Law Developments”
(1991) 5 C.U.B.L.R. 79 at 82.
86T.L. McDorman, “Dissecting the Free Trade Agreement: Lobster Panel Decision” (1991) 18
Can. Bus. L.J. 445.
87Ibid.; see also (1990) 10 Free Trade Observer 119.
88See generally on Ch. 19: “Conference Proceedings: Canada-United States Free Trade Agree-
ment: Implementation of Chapter 19” (1991) 17 Can.-U.S. L.J. 1.
89 Ontario Centre for International Business, Countervailing Duty Law: An Economic Perspec-
tive (Working Paper No. 11) by A.O. Sykes (Toronto: Ontario Centre for International Business,
1988-89) at 2; D.M. Repp, “Anti-Dumping and Countervailing Duties: Protection at a Cost” (1989)
15 J. Corp. L. 65 at 67.
90lbid.; M. Hart, “The Ongoing FTA Negotiating Agenda-Continued Rule Making” in Customs
& Trade Law Developments (Toronto: Canadian Institute, 1989) 1.
McGILL LAW JOURNAL
[Vol. 37
tions such as the definition of what constitutes a subsidy subject to countervail.9′
Overall, rules have been developed which favour United States petition-
ers. 92
This accusation should not be levelled exclusively at United States author-
ities. Canada, too, has distorted or applied GATT contingent protectionist rules
in ways which our GATT partners have found to be unacceptable. In Boneless
Beef,93 a GAIT Panel found that the application of anti-dumping and counter-
vailing duties to boneless beef from Europe violated GATT obligations. And the
recent decisions in the Corn cases may certainly be scrutinized from the point
of view of how they conform to the GATT standards.94
Thirdly, there was a concern that laws might be changed subsequent to the
Agreement in response to special interest pressures which would increase the
protectionist elements of contingent protectionist legislation. The Canadian
view certainly was that successive amendments to United States trade remedy
law prior to, and including 1988, had created a climate in which American peti-
tioners were encouraged to resort to those laws as a part of their “business strat-
egy” in buying time against foreign competition.9′
Two different systems were devised to respond to these concerns. The
answer to the first two problems was to replace the supervisory jurisdiction of
the Federal Court, both in the United States and in Canada, with binational pan-
els. These panels replace national judicial review procedures of final anti-
dumping and countervailing duty determinations.96 The panel review is to be
conducted in accordance with the general legal principles that the courts of the
importing country would apply.97 Parties to procedures before the national tribu-
nals or one of the signatories to the Agreement have the right to request the
91See, for example, Preliminary Affirmative Countervailing Duty Determination: Certain Soft-
wood Lumber Products from Canada, 51 Fed. Reg. 37453 (ITC (1986)); Final Affirmative Coun-
tervailing Duty Determination: Fresh, Chilled, and Frozen Pork from Canada, 54 Fed. Reg. 30774
(Dept. Commerce (1989)). Like many criticisms of United States practice one must be careful
about generalizations. Cases may be found which counter this trend. See, for example, the decision
of the United States Court of Appeals in IPSCO v. United States and Lone Star Steel Co., 899 F.2d.
1192 (Fed. Cir. 1990) and comments thereon by M. McConnell, (1991) 70 Can. Bar Rev. 180.
92See J. Terry, “Sovereignty, Subsidies and Countervailing Duties in the Context of the Canada-
United States Trading Relationship” (1988) 46 U.T. Fac. L. Rev. 48 at 69ff.
93Canada –
EEC (Canada v. E.E.C.) (1987), (Report of the Panel unadopted by the Parties to date).
Imposition of Countervailing Duties on Imports of Manufacturing Beef from the
94Subsidized Grain Corn in all Forms, Excluding Seed Corn, Sweet Corn and Popping Corn,
Originating in or Exported from the United States of America (1987), 14 C.E.R. I (C.I.T.), aff’d
in (sub. nom. National Corn Growers Assn. v. Canada (Import Tribunal)), [1989] 2 F.C. 517, 2
T.C.T. 4053 (C.A.), aff’d in (sub. nom. American Farm Bureau Federation v. Canadian Inport Tri-
bunal), [1990] 2 S.C.R. 1324, 3 T.C.T. 5303 [hereinafter Corn cases] (Mr. Justice MacGuigan’s
dissent in the Federal Court of Appeal strongly expressed the view that the C.I.T. panel discussion
was not GATT-consistent).
95J. Fried, “The Challenge of the FTA – Chapter 19” (1991) 17 Can.-U.S. L.J. 11 at 13; see
also R. Grey, United States Trade Policy Legislation: A Canadian View (Montreal: The Institute
for Research on Public Policy, 1982); A. Rugman & A. Verbeke, “Strategic Management & Trade
Policy” (1989) 3 J. Int’l Eco. Stud. 139.
96FTA, supra, note 9, art. 1904(1).
971bid. art. 1904(3).
1992]
DISPUTE RESOLUTION & THE FTA
565
establishment of such a panel. 9 The panels have the power to remand a national
decision back to the national authorities for a decision not inconsistent with its
conclusions.99 The decisions of the panels are binding on the parties.” This sys-
tem should ensure that national decisions are based upon legal principles rather
than political pressure.
In addition, rules have been established for the appointment of panelists,
their qualifications, the time frame within which decisions are to be made, etc. 01
Parties involved in the national proceedings have a right to participate in hear-
ings before the panels.0 2 The standard to be applied by the binational panel is
to be that which the national court would have applied in reviewing the deci-
sion. A diagrammatic representation of this procedure is depicted in Figure 2.
Figure 2: Chapter 19 Dispute Settlement On Final AD/CVD Orders
PRELIMINARY DETERMINATION
DUMPING OR SUBSIDIZATION
OF
I
NOTIFICATION BY THE
OTHER COUNTRY OF
INTENTION TO HAVE
BINATIONAL REVIEW
I
FINAL ANTI-DUMPING OR
COUNTERVAILING DUTY
ORDER
DISCONTINUED
US COURTS OF APPEAL
OR
CANADIAN FEDERAL COURT
REVIEW BY BINATIONAL PANEL
UPHOLD FINDING
REMAND FINDING TO
APPROPRIATE
INVESTIGATING
AUTHORITY
In the case of new laws, both parties reserve the right to apply their own
anti-dumping and countervailing laws and the right to change or modify such
laws.0 3 Any modifications, however, will only apply to goods from the other
9 Ibid. art. 1904(5).
991bid. art. 1904(8).
IOIbid. art. 1904(9).
’01Ibid. annex 1901.2, annex 1903.2.
102Ibid. arts 1904(5), 1904(7).
‘031bid. art. 1902.
566
REVUE DE DROIT DE McGILL
[Vol. 37
party if such application is specified in the amending statute and the other party
has been notified in writing of such amendment.'” Such amendments are to be
consistent with the GAIT, the applicable GATT codes and “the object and pur-
pose of the Agreement.”‘ 5
In the event of such an amendment, a party may request a binational panel
review of the amendment to see whether or not it corresponds to the provisions
of article 1902 and may recommend modifications to the statute. In the event
such modifications are not made, the other party is entitled to take comparable
legislative or equivalent executive action or terminate the Agreement.” A dia-
grammatic representation of this procedure is depicted in Figure 3.
Figure 3: Chapter 19 Changes to AD or CVD Laws
PROPOSED CHANGE TO
ANTI-DUMPING (AD) OR
COUNTERVAILING DUTY (CVD)
LAWS BY ONE COUNTRY
NOTIFICATION TO
THE OTHER COUNTRY THAT
CHANGES WILL APPLY
I
I
I
I
CONSULTATIONS
ENACTMENT OF CHANGES COVERING THE OTHER PARTY
BINATIONAL PANEL
I
RULING
Inconsistent with GAITs
AD or CVD Codes.
* Inconsistent with FTA’s
purpose and intent, or
* Overturns previous
binational panel decision
I
90 DAY
CONSULTATIONS
Consistent with GAT’s
AD or CVD Codes.
– Consistent with FTA’s
purpose and intent, or
* Does not overturn previous
binational panel decision
I
NO ACTION REQUIRED
REMEDIAL
LEGISLATION
OR
OTHER
AGREEMENT
COMPARABLE
LEGISLATIVE OR
EQUIVALENT
EXECUTIVE ACTION
OR
TERMINATION OF
AGREEMENT IN
60 DAYS
In addition, a secretariat is established with permanent offices to facilitate
the operation of this Chapter.
‘041bid, art. 1902(a), (b).
‘sIbid, art. 1902(d)(i), (ii).
‘6Ibid. art. 1903(b).
’07Ibid. art. 1909.
1992]
DISPUTE RESOLUTION & THE FTA
During the course of negotiating this Chapter it was recognized that the
replacement of the United States Federal Court by the binational panel might
give rise to some constitutional problems in the United States. As a result, an
Extraordinary Challenge Procedure to deal with the case of excess of jurisdic-
tion was provided for in article 1904(13) and annex 1904.13.
The system described above is a temporary one. The provisions of the
Chapter will be in effect for five years, with provision for a possible addition
of a further two years.’08
These procedures were perceived as temporary measures for several rea-
sons. In the case of anti-dumping duties it may be assumed that their application
will become less and less necessary as market integration occurs between the
two countries. As all tariff and non-tariff barriers wither away, dumping from
one jurisdiction into the other becomes less and less likely as the dumped goods
will just return into the home market of the dumper. This is the European expe-
rience where there is no longer any dumping laws in effect in intra-European
trade. This is presently not true of North America where significant non-tariff
barriers still maintain an effective border, even where tariffs have been elimi-
nated. In a recent case, for example, a Canadian purchaser purchased $100 000
worth of brand-name Heinz ketchup very cheaply in the United States, applied
French-language labels to conform to Canadian regulations, paid customs duties
and sought to sell the product in Canada at prices significantly lower than those
charged by the Canadian producers, a 100% subsidiary of the United States
company. While the ketchup was selling at lower prices than those charged in
Canada, it could not be said to be dumped as the ketchup had been bought at
prices charged by the manufacturer in the United States. Heinz Canada was able
to obtain an injunction preventing the sale of the ketchup in Canada on the
grounds of a trademark violation, as Heinz Canada owns the trademark in Can-
It
ada and was able to demonstrate that it had invested in its development.’
may be then that dumping regulations will retain their importance for some time
in spite of calls for their replacement by a continental competition regime.”0
Insofar as subsidies are concerned, it was recognized that subsidies are a
very difficult issue. There is a significant difference between the opinion of the
two parties as to what constitutes a properly countervailable subsidy. United
States authorities generally consider that Canadians resort extensively to subsi-
dies for various purposes, particularly regional development. Canadians are of
the view that Americans use other means to achieve the same ends (particularly
in militarily related research and development subsidies).
The problem of subsidies has been described by John Jackson as raising the
most troublesome aspects of international trade law.”‘ It is perhaps not surpris-
‘SIbid art. 1906.
109See “Fed. Crt. Enjoins Sale of Imported ‘Grey Market’ Ketchup” 11:1 Lawyers Weekly (3
May 1991) 7.
“0Dumping corresponds to predatory pricing in domestic law and the case has been advanced
for competition law to replace anti-dumping duties; see C. Goldman, “Competition, Anti-Dumping
and the Canada-U.S. Trade Negotiations” (1987) 12 Can.-U.S. L.J. 95.
“‘See J.H. Jackson, The World Trading System: Law and Policy of International Economic
Relations (Cambridge, MA: MIT Press, 1989).
McGILL LAW JOURNAL
[Vol. 37
ing therefore that this issue proved to be too politically contentious and techni-
cally complicated to be resolved during the negotiations. The failure to do so
certainly represents a significant failure of one of the principal Canadian objec-
tives in the negotiations. As a result a working group was set up to develop
“more effective rules and disciplines concerning the use of government subsi-
dies” and report back to the parties.” 2 To some extent this process was linked
to the parallel work in the Multilateral Trade Negotiations (MTN). The failure
of the Uruguay Round has meant that this committee is now commencing its
work. No doubt some use of the draft code provisions developed as a part of that
Round will serve as a background for the work of this committee.
2.
Panel Reports under Chapter 19
There have been a significant number of cases under this Chapter (some
eleven binational panels have reported to date and many other cases are pend-
ing). Synopses of these cases are reported both in the Canada-United States
Free Trade Reporter and the Canadian Trade Law Reports.
Generally, the system may be said to be working well.” 3 In one case, for
example, involving the export of red raspberries from Canada, the binational
Panel challenged the International Trade Administration’s (ITA) use of the con-
structive price mechanism for determining the existence of dumping and the
amount of the dumping duty. Having sent the case back to the ITA for a review
of the principles on which they had based an application of constructive values,
and having had the ITA reaffirm its finding, the Panel, on a second considera-
tion of the case, found that the use of the constructive value test of sales in Can-
ada could not be supported on the principles enunciated by the ITA itself. In fact
the Panel found that the ITA had misapplied its own test; it therefore ordered
the ITA to make an amended final results determination within 30 days using
higher market sales of two of the parties involved (of three) for price compar-
ison purposes.” 4
There have been a series of challenges to the application of American
countervailing duties to pork product exports to the United States.”5 An exam-
ination of the Panel decisions in these cases is most interesting as the Panels
have had to consider the nature of subsidies granted by provincial as well as fed-
eral authorities in Canada. In one case the Panel came to the conclusion that the
USITC’s determination of injury was unacceptable: “[t]he USITC’s record does
not disclose substantial evidence of any imminent shift from imports of hogs to
“2FTA, supra, note 9, art. 1907.
“13G. Gwynne-Timothy, A. Anderson & A. Rugman, “The ‘Replacement Parts’ Binational Dis-
pute Panel Cases: Reining in Administered Protection in America?” (1991) 5 C.U.B.L.R. 1.
“41n the Matter of Red Raspberries from Canada (Remand Opinion) (1990), 3 T.C.T. 8175, 2
T.T.R. 214.
“5ln the Matter of Fresh, Chilled or Frozen Pork from Canada (24 August 1990), 3 T.C.T. 8276;
In the Matter of Fresh, Chilled or Frozen Pork from Canada (28 September 1990), 3 T.C.T. 8308,
4 T.T.R. 64; In the Matter of Fresh, Chilled or Frozen Pork from Canada (22 January 1991), 4
T.C.T. 7014; In the Matter of Fresh, Chilled or Frozen Pork from Canada (8 March 1991), 4 T.C.T.
7026 [hereinafter Pork cases].
19921
DISPUTE RESOLUTION & THE FTA
imports of pork or of any threat therefrom of material injury to the domestic
pork industry.”” 6 The use of new evidence by the USITC in a subsequent review
was also found to have violated the principles of fair play and due process.”‘
These Panel decisions in effect confirm the conclusions of the GAYT Panel on
countervailing duties on fresh and frozen pork from Canada.”,
3.
Problem Areas under Chapter 19
While the cases under Chapter 19 leave considerable room for encourage-
ment, there remain several problem areas. The first is that of establishing
acceptable discipline in the subsidies area. Considerable disagreement remains
between the two countries based on their different traditions and perspectives on
the role which subsidies play in their respective industrial policies. This factor
is further complicated by the large role which state and provincial, and even
municipal, subsidies play in this area.”‘
The Agreement only allows another five years to work out suitable arrange-
ments and the lack of success in the Uruguay Round does not lend a great deal
of confidence to finding easy solutions. Will it be satisfactory, if no solution is
found, just to extend the operation of Chapter 19 for a further few years?
In the United States the question about the constitutionality of the Chapter
19 arrangement remains a potential hazard for the system. While the better view
appears to be that the arrangement is constitutional, this does remain an issue.120
A potential source of friction lies in the different administrative law stand-
ards by which the panels are to operate. The panels replace judicial review of
final anti-dumping and countervailing duty determinations. They are to apply
the general legal principles that the courts of the importing party would other-
wise have applied in such a review. In this regard it would appear that the
United States is somewhat “disadvantaged” vis-h-vis Canada. Federal Court
review of the USITC’s material injury findings have been somewhat broader
than those which would occur under Canadian law. The test referred to in the
American cases of whether the decision is supported by “substantial evidence”
on the record 2’ is very different from that in the Canadian cases of “any evi-
dence” on which the finding of the Canadian International Trade Tribunal
(CITT) can be based. In the recent Corn case 2
the Supreme Court of Canada
“I1n
the Matter of Fresh, Chilled and Frozen Pork from Canada, Memorandum opinion and
order regarding ITC’s determination upon remand (22 January 1991), 4 T.C.T. 7014 at 7026.
‘”lbid. at 7020-21.
“8The GATT Panel decision is cited supra, note 25. The FTA Panel decisions were the subject
of an extraordinary challenge under art. 1904(13); see infra, note 130 and accompanying text.
190n the importance of subsidies to the FTA negotiations, see J. Anderson & J. Fried, “The
Canada-U.S. Free Trade Agreement in Operation” (1991) 17 Can.-U.S. L.J. 397.
2″See, on this point, a thorough review by the Committee on International Trade, The Associ-
ation of the Bar of the City of New York, The United States/Canada Free Trade Agreement: Bina-
tional Review Procedures for Antidumping and Countervailing Duty Cases (1988) 43 Association
of the Bar of the City of New York Record 784. This is also, I understand, a serious concern to
Mexicans insofar as the jurisdiction of the Mexican Federal Court is concerned.
‘2’The standard of review appears in the Tariff Act of 1930, 19 U.S.C. as amended, s. 1516A
122Supra, note 94.
(b)(1)B.
REVUE DE DROIT DE McGILL
[Vol. 37
showed a high degree of diffidence towards the role of the CIT1 as an admin-
istrative tribunal. In the view of the majority of the Court, section 76 of the
SIMA ” was equivalent to a privative clause. Court review of the Tribunal’s
jurisdiction will therefore only be exercised in cases of most egregious error.
The court will not interfere if there is “any evidence” on which the Tribunal’s
judgment may be based. Insofar as questions of law are concerned, the court
will only interfere where the Tribunal’s decision is “patently unreasonble.” This
“curial deference” to the Tribunal’s jurisdiction has been clearly set out in the
recent decision of the Panel in the Induction Motors case.’24
It would thus appear that there is a strong possibility that over the years
American decisions will be subject to tighter scrutiny than Canadian ones. This
is likely to lead to some disagreement and friction once Americans believe that,
albeit in this narrow technical area, the “level playing field” has been tilted
against them.
To this there must be added an additional complexity. Pursuant to Chapter
19, the decisions of the Deputy Minister under the SIMA as to the existence of
dumping or subsidization are now subject to judicial review.” As this is not
subject to any privative clause, any review would presumably be subject to a
higher degree of review normally exercised by the Federal Court. We are thus
in a position where in Canada we have gone from a situation where the acts of
the Deputy Minister in making a preliminary determination of dumping or sub-
sidization have been virtually unreviewable as being administrative in nature, 2 6
to one where a fairly wide degree of judicial intervention would be recognized,
subjecting the Deputy Minister to a higher standard of accountability to the
courts than the CITT.
In addition, there remain, from the Canadian perspective, some concerns
about how well this system will work. If in fact contingent protectionism
remains as an effective non-tariff barrier on the American side and Chapter 19
does not achieve its aim of reducing the way in which countervail and anti-
dumping actions may be used to harass competitive foreign imports, then access
to the American market under the FTA is not guaranteed. Under these condi-
tions, Canadians, and probably parties from other countries, will not be willing
to realize the large investment in plant and equipment necessary to service the
whole of the North American market from Canada and will, possibly on advice
given by their legal counsel, make their investments in the United States with
a view to shipping the goods back to Canada. If this “chilling effect” of Amer-
ican trade remedy law remains in place, the Free Trade Agreement will have
proved to have been a Trojan horse which has drained investment and talent
123Special Import Measures Act, R.S.C. 1985, c. S-15 [hereinafter SIMA].
‘241n the Matter of Certain Dumped Integral Horsepower Induction Motors (11 September
1991), CDA-90-1904-01 [hereinafter Induction Motors case]; see also (1991) 24 Can. Trade
L.R. 7.
’25See SIMA, supra, note 123.
1261n Re Sabre International Ltd, [1974] 2 F.C. 704.
1992]
DISPUTE RESOLUTION & THE FTA
away from Canada rather than fostering our enrichment through the benefits of
a continental market.”
Finally, we must ask whether the institutions which have been crafted
under the Agreement are sufficiently sophisticated to respond to the needs cre-
ated by the greater degree of economic integration produced as a result of the
Agreement. The finality and effectiveness of European Court of Justice deci-
sions make an interesting, and different, model to compare in this regard.
An examination of the recent Pork cases sends out conflicting signals,
some worrisome, some encouraging, about the way the system is working. Dis-
satisfaction in the United States with the decisions of panels in the Pork cases,128
led to the use of an Extraordinary Challenge Procedure. Article 1904(13) pro-
vides that a panel decision may be set aside where there has been gross miscon-
duct by a panelist, a departure from fundamental principles of procedural justice
or a manifest error of jurisdiction and that such a situation has materially
affected the panel decision, which, in turn, threatens the integrity of the bina-
tional review process. A panel considering such a challenge must consist of sen-
ior judges from both jurisdictions, a provision inserted to meet some of the con-
stitutional concerns in the United States.
There are several concerns about the use of the procedure in this case. As
there was no suggestion of corruption or bias or a failure to observe natural jus-
tice before the tribunal, there is a real fear in Canadian quarters that the use of
the procedure in these circumstances, relying on the excess of jurisdiction test,
is an attempt by Americans to have an appeal procedure introduced into the sys-
tem. Lawyers familiar with arbitration will know all too well how attempts are
made to challenge arbitration awards before the courts on jurisdictional grounds
when the real motive is that one does not like the result. If there is regular
recourse to such a procedure it will introduce expense, complexity and delay
which will, in themselves, constitute non-tariff barriers which the agreement
sought to eliminate. This case involved two hearings before the ITC, two panels
and the Extraordinary Challenge, a time-consuming and expensive procedure. 9
It also politicizes an area which was supposed to be depoliticized.
On the positive side, the unanimous ruling of the tribunal consisting of two
Canadian and one American judge, which rejected the challenge did so in terms
that made it clear that the Extraordinary Challenge Procedure was reserved to
‘271n the recent dispute which has arisen over the ruling by U.S. customs authorities concerning
North American content to be attributed to Honda Civic’s, a spokesperson for Honda Canada is
reported to have said, “Canadians should be concerned, … If this type of harassment at the border
is not addressed, it will send a clear message to all manufacturers not to locate future investments
in Canada” (“Canada-built Hondas hit for U.S. duty” The Toronto Star (2 March 1992) 1). It is
interesting to note that any appeal to a binational panel in this case will be under Chapter 18, not
Chapter 19 and therefore will not be binding as it would be in the latter case.
’28Supra, note 115.
129See “Chapter 19 Binational Panel Activity: Panel Activity Centres on Canadian Pork” (1991)
16 Free Trade Observer 210 at 213.
McGILL LAW JOURNAL
[Vol. 37
narrowly circumscribed cases of “aberrant” panel decisions. 3 Here it could not
be said that there was “manifest error” in the application of United States law
as alleged. Nor could it be said that the impugned decision threatened the bina-
tional review process as a whole (not just in this particular case). Further, the
support of the Panel’s interpretation of “the lack of evidence of underselling as
an absence of evidence of causation of material injury based on likelihood of
negative impact on United States pork prices”1 31 may well encourage a more rig-
orous examination of the causal link in material injury cases, an issue which
deserves more attention on both sides of the border. In the end then, this
Extraordinary Challenge may serve to support one of the consequences of the
panel process: the possibility of panel review enforcing a greater degree of intel-
lectual rigour in the decisions of national administrative tribunals.
Conclusion
Whether the Agreement will work to its fullest potential to achieve its goal
of market access and thus economic integration remains to be seen. What is very
clear already, however, is the capital nature of the role which the dispute reso-
lution mechanism must play in that process. This factor must be borne in mind
when we consider both the role and the features of any DRM in a possible tri-
partite agreement between Canada, Mexico and the United States.
Some preliminary questions about any such system immediately spring to
mind, notably whether the complexities of adding another civilian jurisdiction
and a third language would not require the availability of specialists which only
a permanent tribunal could provide.’32 The present FTA system of selecting from
a pool of panelists may just not be possible in this new context. To this may be
added such other issues as improving access by individuals to the Chapter 18
process, the appropriateness of extending or the political willingness to extend
Chapter 19-type procedures to Mexico, the problems which tripartite, rather
than bipartite resolution of disputes may give rise to, etc. There may well be
legitimate concern, in fact, that American politicians, troubled by just how far
the DRM of the FTA has gone and reinforced in their fears by the results of the
Pork cases, may use the Mexican negotiations as a means to seek to recover
some of the power exercised by the binational panels under the FTA.
Canadian lawyers have become much more sophisticated recently in their
knowledge of trade law issues. Courses in this area are now a part of the main
stream curriculum of many of our law schools. With our bilingual as well as
common law and civil law legal traditions, we have many natural advantages in
this area. We have, however, a long way to go to catch up with the level of expe-
rience and sophistication of the highly specialized United States (particularly
1301n the Matter of Fresh, Chilled or Frozen Pork from Canada (14 June 1991), 4 T.C.T. 7037
(Ex. Chall. Ctee) at 7040.
’31Ibid. at 7044.
1321n the Induction Motors case, supra, note 124, for example, an English speaking panel was
required to deal with serious inconsistencies between the English and French texts of SIMA (s.
76(5)).
1992]
DISPUTE RESOLUTION & THE FTA
573
Washington) trade bar. We will have our work cut out for us if we are going to
make the Free Trade Agreement, with its possible extension to Mexico, work for
our clients and our own national interests.
