The Scope and Limits of a Public–Private Hybrid: Dispute Settlement under NAFTA Chapter 19

Abstract Globalisation is often depicted as having led to an increase in private authority at the expense of that of the state. It is important to correctly specify the scope that private authority has achieved and the capacity of states to push back and limit that authority. This article grounds these theoretical issues in a discussion of the hybrid, public–private dispute settlement mechanism set up in the original Canada–US Free Trade Agreement (CUSTFA), and later extended into Chapter 19 of the North American Free Trade Agreement (NAFTA). It finds that privatising the enforcement process did make a difference. Trade experts on panels saw things differently to judges and in ways that were more sympathetic to exporters. This favoured Canadian and Mexican interests. However, the arrangement lacked deep roots. It was a late-stage compromise in trade negotiations. This rendered it vulnerable to a US counterattack once panels began to rule in favour of Canadian and Mexican challenges to US trade determinations. The transfer of quasi-judicial authority to a public–private hybrid proved contingent, partly on the hegemonic state's ongoing level of comfort with the arrangement, as well as on a lack of business consensus within the United States. Keywords: Public-PrivateAuthorityTrade DisputesNAFTA Chapter 19 Acknowledgements Research for this article was funded by the Social Sciences and Humanities Research Council of Canada (Standard Research Grant 410-2006-1184). I would like to thank Ted Cohn, Wyn Grant, and Heather Whiteside for comments on earlier drafts of the article, and am also grateful for the detailed and helpful comments provided by the anonymous referees for the journal. Notes For a number of reasons the situation may have been different in Mexico (see Fairbrother 2008 Fairbrother, M. 2008. "The Divergent Roles of Political and State Elites in NAFTA Countries". In Hegemonic Transitions, the State and Crisis in Neoliberal Capitalism, Edited by: Atasoy, Y. 147–65. Florence, KY: Routledge. [Google Scholar], pp. 153–155; however, see Gates 2009 Gates, L. C. 2009. Theorizing Business Power in the Semiperiphery: Mexico 1070-2000. Theory and Society, 38: 57–95. [Crossref], [Web of Science ®] , [Google Scholar] for an interpretation putting greater emphasis on the role of business). Charles Gastle (1995 Gastle, C. M. 1995. Policy Alternatives for the Reform of the Free Trade Agreement of the Americas: Dispute Settlement Mechanisms. Law and Policy in International Business, 26: 735–823. [Google Scholar], pp. 747–8) provides a brief literature review and summary of the arguments advanced by supporters of AD and CVD legislation. The first is defence against predation (in the sense that dumping products may be part of a commercial strategy designed to drive out local suppliers and substitute monopoly supply from abroad). Second, the measures may be necessary because high domestic prices in the exporting countries may be the result either of monopolies or of high tariffs, and those prices effectively subsidise those being charged in export markets. Third, low prices may prove temporary but, nevertheless, result in lower prices and in unnecessary and inefficient adjustment in the importing country without corresponding long-term benefits for importers or consumers. It is also argued that new industries, and the companies in them, require a degree of protection to establish themselves. In its absence they may be driven out by firms elsewhere that do enjoy these supports. This is the classic infant industry rationale for protection. An argument attributed to J. Michael Finger in Mastel (1998 Mastel, G. 1998. Anti-Dumping Laws and the U.S. Economy, Armonk, NY: M.E. Sharpe. [Google Scholar], p. 5). Cases decided by bi-national and international panels have often found bias on the part of the US Department of Commerce. For example, in the Softwood case there were some remarkable changes of decision on subsidy allegations by the US Commerce Department. As Macrory (2002 Macrory, P. 2002. NAFTA Chapter 19: A Successful Experiment in International Trade Dispute Resolution, (C.D. Howe Institute Commentary, No. 168, September) [Google Scholar], p. 10) dryly comments, 'The department's change of heart was rumoured to have been politically motivated'. Similarly, a WTO panel ruled, in one of the many iterations of the Softwood case, that an ITC injury finding was not one 'that could have been reached by an objective and unbiased investigating authority' (cited in Herman 2005 Herman, L. L. 2005. Making NAFTA Better: Comments on the Evolution of Chapter 19, Ottawa: Centre for Trade Policy and Law. [Google Scholar], p. 11). See the text of the Canada–US Free Trade Agreement Chapter 19 (http://wehner.tamu.edu/mgmt.www/NAFTA/fta/19.htm) and of NAFTA Chapter 19 (http://www.worldtradelaw.net/nafta/index.htm). The US judicial body previously charged with review of these decisions. The complaints about panellists range from general accusations that they have been overzealous and, in effect, incompetent in taking advantage of their 'judge for a day' status, and being susceptible to pressure to vote for the party that appoints them, since doing so might increase the likelihood of being appointed again in the future (Magnus 2006 Magnus, J. R. 'Lumber and the Chapter 19 Mess'. paper presented to the American University Washington College of Law Conference: Lesson from NAFTA Part 1: the Softwood Lumber Dispute. February27, Washington DC. [Google Scholar]); to more specific allegations of personal conflict of interest as with Canadian panellists in one of the Softwood cases whose law firms had represented Canadian lumber interests and who failed to fully disclose this information, or the Mexican panellist in a steel case who was accused of having conflict of interest and of having failed to secure confidential information (Riccardi 2002 Riccardi, J. D. 2002. The Failure of Chapter 19 in Design and Practice: An Opportunity for Reform. Ohio Northern University Law Review, XXVIII(3): 727–746. [Google Scholar], pp. 735–7). Colares (2008 Colares, J. F. 2008. An Empirical Examination of Product and Litigant-Specific Theories for the Divergence between NAFTA Chapter 19 and US Judicial Review. Journal of World Trade, 42(4): 695–722. [Web of Science ®] , [Google Scholar], pp. 696, 711) notes that greater deference is shown by panels to Canadian agency determination, only 39 per cent of which were subject to remand, but offers no explanation. For an account of the final stages of the Canada-US negotiations in which the Chapter 19 provisions took shape see Hart (1994, chapter 15). Under Annex 19.04 of the agreement panel decisions may be referred to an extraordinary challenge committee comprised of three members drawn from a 15-person roster comprised of judges or former judges. to such an extent that this was having a 'chilling effect' on the willingness of trade experts to serve (Herman 2005 Herman, L. L. 2005. Making NAFTA Better: Comments on the Evolution of Chapter 19, Ottawa: Centre for Trade Policy and Law. [Google Scholar], pp. 8–9, n. 9). Softwood Lumber ECC Decision, Dissenting Opinion of U.S. Circuit Judge (Ret.) Malcolm Wilkey ('Wilkey Dissent') at 38, 40–41 (cited in Baker and Hostetler 2004, p. 22). Most of these issues are demonstrated in two very long-running disputes – softwood lumber between the US and Canada, 1982–2006; and cement, between Mexico and the US, 1989–2006. In both cases separate agreements ended litigation for the time being. In both cases the exporting industries experienced the full range of delaying and non-compliance techniques, regular US appeals to the Extraordinary Challenge Council, attacks on the integrity of panellists, refusal to return tariff revenues and payment of them, under the Byrd amendment, to competitors, and legislative changes by Congress. Only one request has been filed to date in 2010 (14 August 2010), http://www.nafta-sec-alena.org/en/StatusReportResults.aspx.