How and Why an ADR Provision Held Up and Survived the NAFTA 2.0 Negotiations

Published: March 2019

By: Rosine M. Plank-Brumback

During his presidential campaign, Donald Trump called the North American Free Trade Agreement (NAFTA) “a disaster” and once in office, he initiated negotiations with Canada and Mexico to change it.  Among his administration’s goals for these negotiations was to scrap the special dispute settlement mechanism for antidumping and countervailing duty matters under NAFTA Chapter 19.

Fast forward to the signing on November 30, 2018 by the three government heads of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA or colloquially NAFTA 2.0), and one finds the same ADR provisions intact with some renumbering, ensconced in Chapter 10 (Trade Remedies) of the new successor agreement.  In the end, the United States agreed to retain the mechanism in exchange for greater access for US dairy and poultry products into the Canadian market.

A country may protect its market against foreign unfair trade practices, like dumping (exporting a product at a price lower than a firm normally charges on its home market) or certain sector-specific subsidies, if it determines that the dumped or subsidized goods harm or threaten its domestic industry.  This protection may take the form of an import surcharge on the product; i.e. an anti-dumping or countervailing duty.

NAFTA Chapter 19 and now USMCA Chapter 10 allows Canada, Mexico or the U.S., whose goods are the subject of an antidumping or countervailing investigation in another NAFTA importing country, to choose to have the resulting final duty determination reviewed by an ad hoc binational panel of experts as to its consistency with that importing country’s domestic laws, based on the administrative record.  The binational panel replaces domestic judicial review in the importing country (e.g., by the U.S. Court of International Trade (USCIT)) of the final agency decision, applying that court’s standard of review and the legal principles it would follow.  The NAFTA binational panel review is unique among international trade tribunals in that it is applying domestic law rather than deciding whether a State Party’s action has violated its obligations under the relevant international agreement.

The panel’s decision is binding on the involved Parties regarding the particular matter between them before the panel and cannot be appealed to the importing country’s courts.  However, there is an extraordinary challenge procedure available on limited grounds of gross misconduct, bias or serious conflict of interest by a panelist, or of the panel breaching a fundamental rule of procedure or exceeding its authority.

To activate this special NAFTA/USMCA review, an involved Party–on its own or at the request of private party participants who would have standing for judicial review– must submit a written request for a binational panel to the other involved Party, usually through its national section of the Agreement’s Secretariat, within 30 days of the official publication of the final determination.  Each side to the dispute through its trade ministry, selects, in consultation with the other, two panelists each from a pre-established roster of 75 non-government affiliated nationals–25 from each country.  The fifth panelist is chosen by the two governments from one or the other’s national list, or if no agreement, by lot.  Roster members (and panelists) are generally international trade experts and lawyers, notwithstanding the preference indicated in the rules for judges.

There are established rules of procedures and a code of conduct for roster candidates, panelists, their assistants, and staff, aimed at ensuring the integrity and impartiality of the process.  The various stages of the panel proceedings are subject to time limits.  Decisions by the panel are by majority vote.  The panel’s powers are limited to upholding the final antidumping or countervailing duty determination or remanding it to the national agency to correct and issue a new determination “not inconsistent with the panel’s decision” within a fixed time limit.  The panel may also review the action taken on remand.

U.S. administrations have never wholeheartedly favored this ADR provision.  A majority of the panels have been established to review U.S. agency determinations.  Little empirical evidence exists to determine whether U.S. interests have been well served by the NAFTA binational panel review.  How can you score wins or losses on multiple findings in any one complex case, or judge a termination or bilateral settlement?  Neither is there evidence that U.S. interests would have been better served through sole reliance on appellate review in home courts like the USCIT or those in Canada or Mexico.  Critics of NAFTA panels often maintain that they err in applying domestic laws or domestic judicial standards of review, particularly when they find against U.S. agencies.  Others counter, however, that the problem may be with the underlying domestic laws or with the domestic judicial standard of review that may be less deferential to U.S. agencies than exists for their NAFTA counterparts.

The USMCA has yet to enter into force as it must first pass the U.S. Congress and also be ratified by Canada and Mexico.  One may question Canada’s decision to deem it essential to maintain this particular ADR provision in the NAFTA successor agreement, but binational panel review of antidumping and countervailing determinations will continue as long as NAFTA or USMCA exists.

Rosine M. Plank-Brumback is a Florida attorney, trade policy consultant, and Consulting Senior Fellow at Georgetown University’s Institute of International Economic Law.  She is on the rosters of arbitrators under several FTAs. She has held positions at the Organization of American States, the GATT Secretariat, the U.S. Mission to the European Communities, and the U.S. Foreign Agricultural Service. For additional ADR tips and resources, go to http://www.palmbeachbar.org/adr-2/.

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