Geoffrey Hale
Political Science 3170
University of Lethbridge
October 26, 2010
Outline
 Dispute Resolution
 Political significance to the politics of trade
 Comparing WTO and NAFTA Dispute Resolution Processes
 Implications for Canadian trade policies
 The Politics of the Softwood Lumber Dispute

Outlier, Tactical Lesson or Reflection on the Limits of Dispute
Resolution?
Dispute Resolution and the Politics of Trade
 Dispute resolution is central to the preservation and
development of a rules-based, rather than power-driven system
of international trade.
 Realism (large powers) - “Threats of retaliation must generate
expected costs (greater) than the short term gain from violating an
agreement” (H&K)
 Realism (small powers) – Capacity to enforce agreements with on
larger powers central t0 maintain gains of rules-based trading
systems.
 All p0wers (game theory) – The maintenance of trust and shared
commitment to international trading system directly related to
capacity for arms-length resolution of interest-based disputes.
 WTO DR system also imposes disciplines on retaliation to limit
potential breakdown of international trading system from
disproportional responses to interest-based disputes.
Law, Politics and Dispute Resolution
 Many WTO requirements ambiguous or vague at best.
 Development of case law through permanent tribunal can
reduce uncertainties over time.
 NAFTA dispute resolution different from WTO in that it
reviews application of national laws to ensure their
consistency with national treaty commitments.
Comparing NAFTA, WTO
Dispute Resolution Processes
CUFTA  NAFTA
WTO
 Multiple dispute resolution
 Consolidated dispute
processes for investment
(chapter 11), financial services
(14), general trade (19), and
the NAFTA Commission (20)
 Ad hoc panel composed of
members from countries that
are parties to the dispute
(majority alternates between
countries)
resolution system
 Permanent court – members
drawn from many WTO
members, but panelists may
not sit on disputes to which
their own country is a party.
Comparing NAFTA, WTO
Dispute Resolution Processes II
CUFTA  NAFTA
WTO
 Begins with consultations
 Begins with consultations over
over alleged breach of treaty
 Plaintiffs may request
formation of panel
alleged breach of treaty
 Plaintiffs may request formation
of panel
 Plaintiffs may be governments
member governments
 DSB determines composition,
terms of reference of panel,
subject to appeal by parties to
dispute.
 Other countries (“third parties”)
may associate themselves with the
complaint to secure benefits of
relevant rulings / settlements.
or businesses with direct interest
in case
 Panelists appointed by national
governments
 Plaintiffs may only be WTO
Comparing NAFTA, WTO
Dispute Resolution Processes III
CUFTA  NAFTA
WTO
 Panel Deliberations
 Average 12-15 months (vs.
intended 10.5 months)
 Potential for “Extraordinary
Challenge Panel” in cases of
challenges to jurisdiction of
Chapter 19 panels (“not appeal”)
 Recourse  remand decision to
original national body for review
and correction
 Panel Deliberations
 Average 13.5 months (1995-06)
 Potential for Appeal to Appellate
Body
 Average 3 months (1995-06)
 Reasonable time for
implementation
 Bilateral – 9.5 months
 Arbitrator – 12 months
 Retaliation
 Permitted for injured parties , but
with scope of retaliation subject to
authorization by DSP, to
recognized level of economic
damages from original violation.
Other relevant issues
 Significant proportion of cases in both WTO and NAFTA dispute
systems settled out of court
 144 panel decisions of 351 cases in 1995-2006.
 “Win / loss” statistics of limited value
 Relative importance of cases (economic / legal) varies widely
 Many cases involve multiple issues involving both substantive and
procedural questions with varied outcomes.
 Most claims involve Anti-Dumping, Countervailing Duty claims 
growing volume of SPS-related claims
 Many cases resolved on technicalities
 Process slow, highly legalistic
 Substantial systemic benefits – but limited value to individual firms
given elapsed time to settlement, need for “critical mass” in
challenging actions of major trading powers.
Who uses Dispute Resolution?
Number
Complainant
Respondant
(avg./year)
95-06 07-09
95-06 07-09
50%
38%
26%
23%
50%
38%
7.6%
9.7%
33%
51%
 G-2 (US, EU)
 Industrial
(incl. Canada) 2.25* / 2
 Developing
(incl. China)
•
•
0.3% 9.7%
Canada third party in 71 cases – 4.5 / year since 1995
China third party in 71 cases – 4.5 / year since 1995.
4.5%
12%
45%
23%
1.6%
28%
1.1% 25.8%
Declining number of
Canada-US Trade Remedy disputes
Reviews of US
determinations
FTA 1989-93
 Antidumping
 Subsidies/countervail
 Injury
 Extraordinary challenge
 procedures
NAFTA 1994-2006
 Antidumping
 Subsidies/countervail
 Injury
 Extraordinary challenge
 procedures
[Source: Dymond and Hart, 2007: 48]
Reviews of Canadian
determinations
8
6
5
4
—
7
—
3
20
13
4
10
—
9
—
2
Softwood Lumber –
Aberration or “Canary in the Coal Mine?”
 Several disputes since early 1980s
 Softwood Lumber I (1983) – US Department of Commerce rejects
challenge to Canadian provincial forest management policies
 Softwood II (1986) – Canada agrees to SLA I – 15% export tax on all
softwood lumber exports in response to US DOC finding of injury
(1986-91)
 Softwood III (1991-96) – Further disputes under NAFTA; concluded
by SLA II – export tax agreement on Cdn. Exports (1996-2001)
 Softwood IV (2001-06) – Multi-tiered dispute at NAFTA, WTO, US
Court of International Trade – concluded by agreement on two-tier
export tax combined with export quota for low tax provinces (QC,
ON, MB, SK).
Common features of disputes
 Challenge by U.S. Industry (Coalition for Fair Lumber
Imports) strongly supported by lumber state senators
(Pacific NW + Southeast US)
 Effort to identify Canadian forest management practices
(esp. stumpage fees) as effective subsidy causing harm to
U.S. industry  reflective of different forest management,
property ownership and taxation policies in each country.
 Competing interests in both countries
 Different forest management practices, industry structures in BC,
Ont./QC, Maritimes
 Dissenting voices: US consumer groups (esp. Homebuilders), Canadian
environmental groups and B.C. First Nations.
Softwood Lumber IV
 Aggravating features
 Initiated by B.C. Government’s insistence on cancellation of SLA III
(2001), challenging U.S. Policies under NAFTA
 U.S. “Byrd Amendment” (1999)  providing share of AD / CVD
duties levied to plaintiffs – “ambulance chasers’ bill of rights” (ruled
in violation of WTO, 2003, NAFTA, 2005)
 US DOC rejection of initial Chapter 19 NAFTA rulings
 Mixed results from Canadian appeal to WTO, muddying legal
waters
 CFLI constitutional challenge to NAFTA dispute resolution
processes under Chapter 19 (opposed by Bush administration)
 Growing politicization of NAFTA in both countries made political
climb-down risky  pressures for negotiated settlement
SLA III: “the Good, the Bad and the Ugly”
 Negotiation of 7 year “market
stabilization” deal – driven by
falling U.S. Housing, lumber
prices
 $ 4 billion of $ 5 billion in US
duties collected returned to
Canadian producers
 Binding arbitration of disputes by
LCIA
 Renders constitutional challenge
“moot”
 Two-tier, phased export tax
 No barriers to Cdn. Imports when
prices over $US 365/mcf
 Escalating tax


15% (BC, Alta) with no volume
constraints
5% (ON, QC, MB, SK) with quota.
 $ 1 billion in US duties retained
 $ 500 mm to community funds
(e.g. rebuilding New Orleans)
 $ 500 “signing bonus” to industry
 Followed by collapse of U.S.
housing prices in 2006-09
Weekly average prices: USD / mcf.
2005 393.12 2006
325.73
2007283.12
2008
256.25
221.92
Oct.2010 252
Summary
 Growing integration of Canadian, U.S. economies has
reduced vulnerability of Canadian firms to U.S. trade
remedy sanctions  only 2 cases since 2004, 1 “successful”.
 Dispute resolution system remains vulnerable to political
end runs in Washington by special interest lobbies with
political connections.
 Disputes based on major differences in regulatory systems
best contested through WTO  enabling coalitions of
aggrieved countries to increase critical mass of economic
risk to major trading powers.
 10 of 14 recent cases (2007-10) against major trading powers in
cooperation with one or more major powers.