MIAMI UNIVERSITY The Graduate School
CERTIFICATE FOR APPROVING THE DISSERTATION
We hereby approve the Dissertation
Of
Jessica M. N. Service
Candidate for the Degree:
Doctor of Philosophy
Director John M. Rothgeb, Jr.
Reader Walter Arnold
Reader Sheila Croucher
Graduate School Representative James M. Rubenstein Abstract SEEING THE FOREST FOR THE TREES: AN EXAMINATION OF THE CANADIAN/UNITED STATES SOFTWOOD LUMBER DISPUTE AND THE IMPACT OF DISPUTE RESOLUTION PROCEDURES.
By Jessica Service
The purpose of this research is to explore an ongoing trade dispute between the United States and Canada to determine how this trade conflict has been affected by the creation of the dispute settlement systems that are apart of the Canadian – American free trade agreement (FTA), the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO) and the General Agreements on Tariffs and Trade (GATT). Of particular interest is the degree to which the smaller party (Canada) in an asymmetrical trade relationship benefits from international dispute settlement procedures. Based on primary source analysis, this research concludes that although the arbitration systems contained within the dispute settlement systems examined contain a degree of impartiality that allows for a fair determination of free trade rule violation to explain the softwood lumber disputes’ longevity, one needs to focus on what occurs once a member is found to be in violation. Thus, although dispute settlement procedures have attempted to make free trade fair trade the reality is that retaliatory measures, in some cases, fail in deterring unfair trade practices. Thus, it is this end stage of the dispute resolution process that needs to be reexamined if the softwood lumber dispute is to be resolved. SEEING THE FOREST FOR THE TREES: AN EXAMINATION OF THE CANADIAN/UNITED STATES SOFTWOOD LUMBER DISPUTE AND THE IMPACT OF DISPUTE RESOLUTION PROCEDURES.
A DISSERTATION
Submitted to the Faculty of
Miami University in partial
Fulfillment of the requirements
for the degree of
Doctor of Philosophy
Department of Political Science
By
Jessica Service
Miami University
Oxford, OH
2005
Dissertation Director: John M. Rothgeb, Jr. © Jessica Service
2005 CONTENTS
Abstract...... iii
CHAPTER I ...... 1
Studying International Trade Institutions ...... 2
Literature Review ...... 4
Case Study Analysis ...... 4
Structural Analysis of the Dispute Resolution Processes...... 11
Research Question ...... 16
Methodology ...... 17
Expected Results...... 21
Conclusion...... 21
Chapter II Examining the Dispute Resolution Systems of the GATT, WTO, FTA and NAFTA...... 22
Introduction ...... 23
General Agreement on Tariffs and Trade (GATT)...... 24
Brief History...... 24
GATT Dispute Settlement Procedures ...... 25
The GATT Panel System ...... 28
Weaknesses of the GATT Dispute Settlement System ...... 30
World Trade Organization (WTO)...... 33
iii Brief History...... 33
Moving From the GATT to the WTO ...... 33
WTO Dispute Settlement Procedures...... 34
WTO Dispute Settlement Understanding (DSU)...... 35
Internal Workings of WTO Dispute Settlement Panel System...... 38
WTO Appeals Process...... 39
WTO Rule Adoption and Implementation...... 40
Canada-US Free Trade Agreement (FTA)...... 42
Brief History...... 42
Canadian Motivations for Free Trade with the United States...... 42
American Motivations for Agreeing to the Dispute Settlement of the FTA ...... 46
FTA Dispute Settlement Structures and Procedures ...... 49
FTA Chapter 18...... 49
FTA Chapter 19...... 50
North American Free Trade Agreement (NAFTA)...... 53
Brief History...... 53
NAFTA Dispute Settlement Procedures...... 53
NAFTA Chapter 19 ...... 54
NAFTA Chapter 20 ...... 55
Conclusion ...... 58
iv CHAPTER III History of the Softwood Lumber Dispute...... 60
History of Free Trade and Softwood Lumber...... 61
The Dispute in Brief ...... 62
Overview of Terms ...... 63
Differences between the United States and Canadian Lumber Systems...... 65
The American Argument ...... 70
The Canadian Argument...... 72
History of the Softwood Lumber Dispute...... 75
Lumber I...... 75
Lumber II...... 76
Lumber III ...... 77
The Softwood Lumber Agreement (SLA) ...... 82
Where the Dispute Stands Now: Lumber IV...... 84
Following the Fight...... 84
Negotiation Approach ...... 85
Litigation Approach ...... 85
NAFTA Involvement...... 85
WTO Involvement...... 88
Conclusion ...... 91
CHAPTER IV Interview Findings and Results ...... 93
v Background Information ...... 93
Canada’s Asymmetrical Trading Position ...... 94
The Organization of the Canadian Government and Softwood Lumber Industry ...... 95
Canadian Government...... 95
Private Industry in Canada ...... 97
Interviewee Selection...... 98
Free Trade Lumber Council...... 99
United Steel Workers of Canada...... 101
British Columbia Lumber Trade Council...... 102
Former Canadian Government Officials ...... 104
Summary of the Questions Asked...... 104
Overview of Interview Responses ...... 105
Impact/Influence of the Softwood Lumber Dispute...... 105
Performance of the Dispute Resolution Procedures...... 107
Satisfaction with the Dispute Settlement Systems ...... 113
Benefits of having Dispute Settlement Procedures...... 115
Suggested Modifications ...... 117
Conclusion ...... 119
CHAPTER V Conclusion...... 121
vi Introduction ...... 121
Life is not fair but Free Trade can be ...... 124
Reforming the Dispute resolution Systems ...... 125
Identifying Power Relationships ...... 126
Power in Numbers ...... 128
Adding a Third Party to the Fight ...... 130
Beefing up the Canadian Softwood Lumber Dispute...... 130
Domestic Determinations...... 130
First Determination: One on One vs. Third Party Sanctions...... 130
Second Determination: Softwood Sanctions able to help other Canadian Industries ...... 131
Third Determination: Who is invited to Sanction?...... 131
Convincing the US to Accept Third Party Sanctions...... 132
Conclusion ...... 133
Appendix A...... 148
Table 1. WTO Disputes...... 148
Table 2. WTO Dispute Resolution Procedures ...... 148
Appendix B ...... 150
Table 1: Pattern and Division of Land Ownership in Canada and the US...... 150
Table 3: US Paper and Wood Products Imports and Exports ...... 152
vii Graph 1: Interpretation of Canadian Stumpage Fee System ...... 153
Graph 2: Forest Ownership in the Eastern United States...... 154
Graph 3: Forest Ownership in the Western United States...... 155
Graph 4: US Softwood Stalk Growth and Removals ...... 156
Graph 5: US Timber Removal by Owner Group (Private v. Public) ...... 156
Tree Map 1: Canada’s Forests...... 158
Tree Map 2: Forest Regions of Canada...... 159
Tree Map 3: Forest Regions in the US ...... 160
Appendix C Interview Transcripts...... 161
viii I dedicate this work to my mother and father. Not only did they know I was capable of this achievement, they made me believe I was.
ix CHAPTER I
The purpose of this research is to explore an ongoing trade dispute between the United States and Canada to determine how this trade conflict has been affected by the creation of the dispute settlement systems established by the Canadian – American Free Trade Agreement (FTA), the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO) and the General Agreements on Tariffs and Trade (GATT). Of particular interest is the degree to which the smaller party (Canada) in an asymmetrical trade relationship benefits from international dispute settlement procedures. The approach employed involves examining a long-standing trade dispute in an attempt to determine how this particular case has been affected by the creation of new institutional arrangements and agreements that were designed to help resolve disputes between trading partners. The specific conflict examined is the softwood lumber dispute. This dispute has plagued the United States (US) and Canadian trade relations on a continuing basis since 1983 (Herman, 2001). The Introduction explains the significance of the research within the context of existing scholarship on international trade dispute resolution. I explore international trading institutions, the reasons for examining US- Canadian relations in general, and the softwood lumber dispute in particular. The Introduction concludes with examination of the data gathering techniques employed for this research, and the plan for organizing the remaining chapters is presented.
1 Studying International Trade Institutions One of the main reasons for the formation of international agreements and institutions is to put in place formal procedures that can facilitate dispute resolution. In practice, these agreements and the institutions they construct function as a mechanism for resolving conflicts over the rules of the international trade regime. Economic diversification, increased dependency, government intervention in the economy and the readiness of domestic interest groups to defend their clientele are all elements that make trade negotiation a much more difficult task in the era of globalization than it was in the past. The existence of an international organization or an international agreement that follows the theories and tenants of free trade does not mean that there will not be conflict concerning trade, only that there is an attempt to create a better basis for resolving the conflicts that invariably arise. The creation of the WTO and accords such as the FTA, NAFTA and the GATT include dispute resolution processes precisely because it is widely recognized that the existence of rules and procedures does not end disputes tied to the theories and practice of free trade (Brown, 2002). Therefore, it is no surprise that regional trade disputes such as those between Canada and the United States occur even though these countries have signed international agreements founded on the principles of free trade. Especially significant is both countries’ membership in the GATT and the WTO, two institutions that have governed the international trading regime since 1947 (WTO, 2004). These international institutions combined with regional trade agreements have provided a means of governance in the international trade arena primarily by acting to resolve major conflicts of interest between the two countries before these conflicts damage or interrupt the wider trading relationship and the international trading system. 1 However, some conflicts have yet to be resolved. Thus, examining a specific case like the ongoing softwood lumber dispute enables us to see how dispute resolution mechanisms contained within the subsequent agreements and organizations perform when confronted with a longstanding dispute. As will be illustrated in the following literature review, one of the major deficiencies in the current literature on trade dispute resolution is the lack of studies that examine unresolved,
2 long-standing disputes. In addition, there have been no efforts to examine the smaller party to a trading conflict in order to gauge the degree to which the dispute resolution process has been used to redress the inherent disadvantages that the smaller party faces. More troubling, there has been no research drawing on interviews of the parties directly involved in the dispute to gain first-hand insights into the use of international dispute settlement mechanisms. Thus, the current literature provides little guidance as to how these types of long standing disputes can be resolved.
1 This is illustrated by the reality that the number of disputes brought to the WTO has increased over time. See: Appendix table 1.
3 Literature Review The development of a formal dispute settlement system has only recently become a major issue in international trade policy. The dramatic increase in settlement panels during the 1980s testifies to the issue’s growing importance (Hudec, 1992). An examination of the literature on trade dispute resolution shows that the writing follows one of two paths. The first uses single case study analysis to demonstrate how the dispute resolution process functions in the international arena of trade. These types of case study focus on particular disputes between specific countries. The second style is a descriptive examination of the workings and structures of the dispute resolution processes. In these studies, the main concern is how the regulating bodies/organizations function. The countries and issues at conflict are not the main focus; instead, it is the rules and procedures that are of key concern. Within these two broad categories, the literature can then further be subdivided into analysis dealing with regional or supranational dispute resolution mechanisms. Case Study Analysis When examining the literature that has followed the path of case study analysis, one can clearly see that the dispute settlement process is not confined to one specific industry or country. In his article on the US - Canadian trade dispute involving the magazine industry, Sands (2001) illustrates that issues of cultural difference can spark a trade dispute that ultimately leads to negotiations and policies built from compromises made on both sides of the issue. This case in particular involved a dispute between the United States and Canada over measures taken by the Canadian Government to protect the Canadian magazine industry as a medium of Canadian ideas and interests, and a tool for the promotion of Canadian culture.2 The resolution reached in this dispute, as suggested by Sands, is one that can be applied to disputes over other corporate and cultural trading issues that may arise in the future. Thus, it is suggested by this case study
2 The Canadian Government, to protect its magazine industry, boosted magazine advertisement revenues and distribution capacity. To do this, income tax deductions were granted for advertisements that targeted the Canadian market, and a method was developed that allowed these magazines lower postal rates. In 1965, imported “split run” editions of foreign magazines, which were special editions that contain advertisements primarily directed at the Canadian market, were identified by Canada as undermining these policies and consequently banned. In 1995 a publication of Sports Illustrated Canada (a split run of US Sports Illustrated) was identified by the Canadian Government as an evasion of the ban on imported split runs. The Canadian Government then imposed a new tax on the advertisements of all domestically published split-run magazines. The US objected and took the dispute to the WTO, which ruled in favor of the US (Sands, 2001).
4 analysis that the basis on which a specific dispute is resolved creates a precedent that then can be applied to similar issues in the future. The ability for regional trade agreements such as NAFTA to resolve conflicts in the international trade arena has also been applied to the tuna-dolphin trade dispute that took place between the US and Mexico.3 Hurwitz’s 1995 study of this dispute concludes that regional dispute settlement procedures are more efficient in their ability to deal with trade disputes than their international counterparts such as the GATT. The reason for this is that regional trade agreements (and specifically their side agreements) allow for the creation of strategic alliances that prevent asymmetry in the negotiations. It is suggested by Hurwitz that the case of the tuna-dolphin trade dispute illustrates how traditional dispute resolution procedures found in agreements such as the GATT are unacceptable for solving complex international disputes, because they do not enable all parties involved to unite under the guise of environmental protection.4 The author then suggests that the proper avenue for solving this particular dispute should be NAFTA, and that regional trade agreements such as NAFTA provide a path towards an acceptable solution to this type of trade dispute. The first step towards resolution is the development of a trilateral Commission on Environmental Cooperation (CEC) that incorporates all three members of NAFTA. This type of commission is seen as a way to develop a cooperative policy concerning the advancement of environmental issues that plague this trading region. However, it is noted by Hurwitz that the development of the Supplemental Agreement to NAFTA in this policy arena “creates substantial obstacles to bringing the tuna-dolphin issue to the dispute-resolution panel” (Hurwitz, 1995, p. 504). Nevertheless, this lack of panel adjudication is acceptable due to the idea that if the various groups are brought together under the “cloak” of environmental cooperation that has been mutually agreed-upon, then the ability of the CEC would be enhanced. The parties
3 The U.S. Marine Mammal Protection Act (MMPA) banned the U.S. from selling domestic or imported canned tuna caught by purse seine fishing because this method kills large numbers of dolphins (Hurwitz, 1995). 4 In this case, which was brought by Mexico, a GATT panel ruled against Section 101(a)(2) of the MMPA. The GATT panel interpreted language in Article III that prohibits discrimination between products on the basis of where they are produced to also prohibit discrimination on the basis of how they are produced. In this section of the GATT, “like products” produced domestically and abroad must be given equal treatment, but the panel ruled that the phrase “like products” pertains to products’ physical characteristics and that how they are produced, harvested or processed is not relevant. (See: GATT Article III:4)
5 involved would then have a better chance to generate a more satisfactory resolution concerning this dispute than a dispute resolution panel that lacks the ability to correct for the asymmetry of power that exists in this hub and spoke trading relationship.5 In conclusion, Hurwitz suggests that the NAFTA Supplemental Agreements create a framework for negotiating a solution that all parties will be content with. These Supplemental Agreements create this desirable framework for conflict resolution by bringing all the international actors involved in the dispute together and by developing a mutually agreed-upon commitment to environmental cooperation, thus reframing the dispute to deal with environmental issues instead of issues of fair trade. Gray and Annand’s1999 examination of the US- Canada grain relations suggests that the regional trading agreements such as the FTA and NAFTA have benefited trade relations in the grain industry.6 However, unlike Hurwitz, Gray and Annand also attribute the development of free trade in this area to the creation of the WTO.7 The first attempt to create an open market in this area was in January 1989, when the FTA made the first push for integration of the US and Canadian grain market (Gray and Annand, 1999). It was during this integration process that the first international legal institution was created for the resolution of trade disputes between Canada and the US. This new legal trade framework, which was embodied in the Chapter 18 Binational Panel system, was soon tested by disputes that quickly arose in this agricultural sector. Due to the liberalization of the market,
5 It is suggested by Hurwitz that even though the GATT ruling was in favor of Mexico, the asymmetry of Mexico’s relationship with the US will restrict the smaller country’s ability to impose the retaliatory measures due to the fear of US counter measures. Mexico is not in a position to antagonize the US when the costs of doing so could have repercussions for the rest of the Mexican economy (Hurwitz, 1995, pp. 527- 524). 6 Before these trade agreements were signed, there were significant barriers to US-Canada free trade in the grain industry. Canada held to protectionist policies concerning its domestic market for wheat, barley, and oats. This was done through licenses administered by the Canadian Wheat Board (CWB) (Gray and Annand, 1999). 7 The GATT was the precursor to the WTO. The GATT had a mechanism for dispute resolution that many thought was inefficient and ineffective. The reason for the GATT’s inability to resolve disputes was thought to be its lack of fixed timetables. The Uruguay Round agreement implemented stricter guidelines for the period of time a case should take to be adjudicated. This round stressed that timely settlement was essential if the WTO was to function effectively. Thus, under the WTO, a case can now run its full course to a first ruling in approximately one year (add on three months if there is an appeal). The agreed time limits are flexible and take into consideration case sensitivity. Also, rulings are automatically adopted unless there is a consensus by all WTO members to reject a ruling (World Trade, 2004).
6 Canadian grain imports to the US became a major “irritant” to the US, and the legal disputes were soon to follow.8 Although the US International Trade Commission (ITC) concluded that the “conditions of competition” in this industry were unfair, the US and Canada came to negotiate a side resolution that was termed the “wheat peace” agreement for the 1994-95 crop season.9 This twelve-month agreement was the first and last of its kind in this trade sector due to the two governments signing the newly created WTO/GATT Agreement on April 15, 1994. Gray and Annand suggest that the ability of the US to obtain remedies for the Canadian wheat imports became more remote with the existing NAFTA and the WTO. The success of these agreements, as suggested by the authors, is seen in the larger volumes of Canada-US grain trade and the diminished trade disputes in this area. Gray and Annand also suggest that the future trade disputes in this area will involve sanitary and biological issues, and these disputes will be few as the harmonization of standards between the two countries continues. These three case studies concerning the dispute settlement procedures within the regional trade agreements of North America place NAFTA in a positive light. This conclusion seems to be the general trend. Many have been supportive of these regional arbitration procedures, as illustrated by the remarks of Andreas Lowenfeld: “All things considered, the unique binational dispute settlement mechanisms created by the Canada-United States Free Trade Agreement have worked extraordinarily well” (Lowenfeld, 1990, p. 78).10 This is, however, not the conclusion made by Kerr and Hobbs (2002) with their examination of the international, non-regional North American-European Union (EU) dispute that occurred over beef produced using growth hormones. In this case study, the authors attempt to evaluate the efficacy of the WTO.11 At the end of this analysis, the credibility of the WTO’s dispute resolution mechanism is called into
8 Since the indoctrination of the FTA, there have been four significant legal challenges attempting to restrict Canadian wheat imports into the US (Gray and Annand, 1999). 9 This agreement limited the amount of wheat Canada was allowed to export to the US. If Canada shipped more then the designated amount, the excess shipments were then subject to the existing NAFTA tariff rates (Gray and Annand, 1999). 10 The idea that these panels are prone to follow a specific approach to trade, are mercantilist or liberal, is also refuted by Lowenfeld (Lowenfeld, 1990 p. 78). 11 The evaluation of the WTO and its dispute settlement procedures is important to the softwood lumber dispute due to this dispute being brought to the WTO several times in search of a solution.
7 question.12 In this study, the history and evolution of the hormone dispute suggest that the WTO, instead of helping the two parties resolve their issues, in fact complicated the problem. The authors argue that the reason for the WTO’s inability to simplify this dispute is the WTO’s attempt to apply to a consumer preference issue, an agreement that was developed to protect domestic producers.13 The conclusion to this case study suggests that the WTO erred in assuming that producers of the genetically modified food were the only source of protectionism when dealing with this dispute. Consumers should have been a consideration. For this analysis, it is the WTO’s displacement of consumers that is of key concern. Within the WTO’s dispute settlement systems, consumers have been disenfranchised and thus a full understanding of the issues surrounding this trade dispute is not fully acknowledged. The authors identify the WTO as an organization that deals directly with political compromise; as a result, nations who comply with the WTO are protected from unacceptable levels of protectionist actions from domestic producers. However, consumers are not part of this equation of protection. The domestic interests of the consumer are ignored by the WTO. This then threatens the WTO’s viability (Kerr and Hobbs, 2002). However, with case studies there are many ways in which one can use the case to illustrate a point of interest. This is clearly seen when one looks at yet another case study of the beef hormone trade dispute. In Instit’s (2001) study of the EU-US trade dispute dealing with beef produced using growth hormones, the author suggests that this issue was one that was extremely political, and that in the end the WTO succeeded in resolving the dispute by bring the two parties to compromise. In this assessment of the dispute, the contents of the political compromise are examined. This compromise consisted of the development of the new “food regime”.14 In the end, it is concluded that both parties in this dispute used this new “food regime” to promote their own political interests, and the WTO had little to no effect in changing these preferences. However, as noted by Veggeland, the creation and adoption of the “food regime” has not been a complete
12For a brief explanation of these procedures see: Appendix Table 2. 13 The agreement that was misinterpreted, according to Kerr and Hobbs, was the Agreement on Application of Sanitary and Phyto- Sanitary Measures (SPS) (Kerr and Hobbs 2002). 14 This new “food regime” was developed and introduced in 1995 when the WTO agreement came into effect (Veggeland, 2001).
8 failure. This new area of WTO regulation has helped facilitate the debate that surrounded and still surrounds the interpretation of principles and norms that are associated with issues concerning food safety. It is also the opinion of Veggeland that the WTO, through the “food regime”, has helped reduce tensions in this policy arena by creating concrete rules and procedures that can be followed concerning this area of trade. The final assertion of the author is that the WTO functions in quelling these types of disputes because, in the end, the parties involved in these disputes regard the WTO and the “food regime” as a legitimate basis of authority and therefore accepts the determined procedures for dispute settlement (Veggeland, 2001). In yet another trade dispute cast study, Sands (1994) explores how the US and the EU have been at odds. The commodity in question in this single case study is bananas. This trade dispute began when the EU imposed an elaborate banana quota system favoring growers in their former Caribbean colonies over those in Central America, where US-owned companies like Chiquita Brands are located. As illustrated by Sands, this trade conflict pitted the US against the 12 member states of the EU and their four former colonies in Latin America. The US sued on behalf of its American owned companies in Central America, claiming that the EU policy violated the WTO non-discrimination clause and resulted in over $500 million in lost banana sales. While waiting for the WTO to rule, the US imposed tariffs on luxury goods from Europe. In the end, the WTO ruled in favor of the US (Sands, 1994).15 It is argued in this account of the dispute that although the US can claim a small victory from the WTO ruling, there are few winners in a trade dispute. The big losers are the European and American consumers. The Germans, for example, are big consumers of bananas. German consumers lost when banana imports were diverted from low-cost Central American producers to less efficient producers in the former European colonies. The American consumers lost when punitive tariffs were imposed on Scottish cashmere and French handbags. In conclusion, it is asserted by Sands that bananas are not of great importance to the US economy, but the true issue is the idea that if the US agricultural interests were not to stand firm on the banana issue, this
15 The ruling authorized US trade sanctions in the amount of $190 million, far below the original amount of damage claimed by the US (Sands, 1994).
9 would then send the message that the WTO rules can be ignored when a member is attempting to protect its agricultural markets (Ibid.). In another case involving the WTO and it dispute resolution procedures, Castleman (2002) illustrates that throughout the process of dispute resolution and after a case is concluded, very little of what happens is open to public inquiry. Castleman suggests that to criticize the WTO for its lack of transparency from outside the process is perhaps not the best way to find out what dangers this closed system hides. Thus, in order to properly assess the dangers of nondisclosure concerning the WTO and its dispute resolution procedures, Castleman attempts to critically examine what was withheld from public disclosure and what dangers that presents. In this article Castleman takes an inside look at the inner workings of the WTO dispute resolution process. The inside story is developed by the author’s informant who is an inside scientific adviser to one of the parties in a WTO case. The dispute that is examined is between Canada and France subsequent to France imposing a ban on asbestos.16 Castleman’s analysis concludes that the public health justification of banning asbestos was accepted in the end by the economists at the WTO. This occurred, as argued by Castleman, despite the WTO’s bias in favoring resolutions that promote free trade. In this scenario, it was Canada who was making the free trade argument. In numerous stages of the process, despite the WTO’s utter lack of expertise in science, medicine, engineering, and public health, and despite important erroneous statements made to the WTO under the cover of confidentiality, the organization ruled in favor of France. It is then the opinion of Castleman that despite its result, this case illustrates that the argument that WTO poses a threat to national sovereignty is one that has merit. WTO rulings, and the organization itself, could never exist if transparency occurred. Castleman suggests to the reader that the world would reject this dangerous free trade fundamentalism if the limitations and dangers of the process were open for all to see. Thus, in conclusion this is yet another case where the WTO and the dispute resolution procedures have failed the test of scrutiny.
16 It was on May, 28, 1998 that Canada initiated WTO dispute proceedings against France. That was when the battle of experts began. On the one hand are Canada, Zimbabwe and Russia, producers for whom asbestos is a strategic industry. On the other stands France, backed by the EU, which adopted a directive banning the trade in and use of asbestos in July 1999. Now, only three member states, Spain, Greece and Portugal, have still to implement it. France also has the support of the US, which considers all types of asbestos carcinogenic (Castleman, 2002).
10 When examining the cases that have been presented, it is clear to see that the case studies conducted at the regional level of analysis portray trade dispute resolution in a positive light. Whether the case involved tuna or magazines, support for the regional trade dispute settlement procedures seem to be the dominant trend. However, as illustrated by the case studies that were non-regional in nature and involved the international/non-regional arbitration procedures, positive portal of these procedures tends to dissolve. This duality is of key importance when examining the softwood lumber case, because the softwood case involves both regional and international/non-regional settlement procedures. The analysis conducted by this research should then been seen as an opportunity to shed some light on the discrepancy that has been noted in the literature presented. Structural Analysis of the Dispute Resolution Processes As suggested earlier, when dealing with trade dispute resolution there is also much literature that is concerned with the formal structures that are used for resolution purposes. This type of structural analysis is seen with examinations concerning the dispute panels of NAFTA. In one such article Stevenson (2000) examines the dispute panels that have been developed in the NAFTA negotiations. The author examines the contention that these panels have nationalist bias in the dispute settlement process. The dispute panels are an extension of the dispute resolution mechanism that was originally implemented under the first Canadian – US FTA.17 To see if these extensions to the dispute resolution process were free from the nationalistic tendencies that they have been accused of, Stevenson used data form 81 dispute panel cases to test this hypothesis of bias. In this examination of the fairness of the NAFTA, decisions of the bi-national panels were coded into five categories; unanimous; split with no nationalistic trend; dissent along national lines; single dissent against majority nationality; and dissent by members of the majority nationality. In the end, Stevenson concludes that the panels in fact were impartial and that the suggestion of bias was generated by political representatives who were disgruntled by the panel’s decisions. Cameron and Gray (2001) attempt to identify the principles of international law that are present in the WTO dispute resolution mechanism. Their approach is to review the creation and implementation of the 1994 Dispute Settlement Understanding (DSU), an agreement that
17 For a comprehensive understanding of these dispute panels (Folsom, 1998).
11 established the WTO as the final arbiter for trade disputes that occur between member states. Cameron and Gray’s examination of this agreement clearly shows that the member states, in the process of joining WTO, have agreed to abide by the decisions of the WTO’s dispute settlement process. This process is embodied in the Dispute Settlement Body (DSB) of the WTO and resolves conflicts that involve the transfer of goods, services, intellectual property, procurement, investment and agriculture (Cameron and Gray, 2001). Also mentioned in the article is the WTO’s Appellate Body (AB), which was created to manage appeals to the DSB decisions. As with most articles that attempt to generate a better understanding of dispute settlement, Cameron and Gray describe the characteristics, organization, and process by which the disputes are brought and the adjudication methods that are employed. In the end, they conclude that the WTO and the dispute resolution processes are an important development in international law and international trade law. Because dispute settlement in the WTO is such a sensitive subject that usually generates lively debate, there are numerous examinations of the WTO’s dispute settlement procedures. In his study of the WTO’s DSB, Pauwelyn (2002) notes that the use of experts has become increasingly important due to the legalization and technocratic nature of the disputes in question. The WTO, when dealing with cases that are in need of expert testimony, allows the panel members hearing the case to appoint experts. It is this power of appointment that has caused a surge of tension among the disputing member states as well as the judicial decision makers and experts. It is suggested by Pauwelyn that these tensions are a result of the adversarial nature of the disputes presented. As in any situation that has the ability to produce a winner and a looser, experts may not be chosen for their expertise and impartiality but instead for the side of the dispute they support. This then leads to the inherent problems of member states wanting confidentiality and transparency to be able to examine the dispute details. There are many of these policy paradoxes presented in the article. This gives the reader a sense that the WTO is unable to draw clear lines of proper institutional conduct. In conclusion, Pauwelyn suggests reforms that call for uniformity and streamlining of the different types of evidence admitted to the panels, the Appellate Body, and the appointment and usage of experts. This article highlights the weakness of the WTO and its DSB in an attempt to improve the processes that are present within this organization.
12 According to the article presented by Brown (2002), these flawed GATT/WTO institutional structures and the guiding principle of reciprocity, has yet had the ability to create a theory based on economics that can explain why the threat of retaliation under these dispute settlement bodies has not prevented countries from violating the agreements that have been made by member states. In this examination of the structures of the GATT/WTO, Brown is interested in answering the question of why countries violate the agreed upon rules even though they have been granted provisions that will allow them to legally adjust their trade policy over an agreed upon amount of time.18 It is the conclusion of the author that these violations of the GATT/WTO rules are made when trade policy adjustments are necessary between negotiating rounds. Thus, Brown’s article reaffirms the reality that diversification, government intervention in the economy, and the readiness of interest groups to defend their cliental, are all elements that make trade negotiations a much more difficult task in the era of globalization then it use to be in the past. These reasons, as stated earlier, are a direct result of the new level of integration that is being sought. As further harmonization is attempted, more areas of compromise arise and thus more actors are involved/invested in the decisions that generate trade law. In an article presented by Wilkinson (2002), the WTO is again evaluated in terms of successes and failures. This report card style of analysis begins in 1994, when the WTO first emerged from the prolonged Uruguay Round of trade negotiations. Wilkinson reports that this new international trade organization was expected to generate a 25 percent growth in world trade, and included in this growth was an estimated increase in world income of more than $500 billion (US) by 2005. This author suggests that these figures were optimistic in their forecasting. The reality of trade disputes has decreased these earlier projections.19 Wilkinson also suggests that the disputes that the WTO has had to adjudicate are not the only contributing factor to the WTO not living up to expectations. In this evaluation there is also an impact analysis of the environmental conditions in which the WTO has found itself in the past few years. It is asserted that the protests that disrupted the 1999 Seattle meeting, and those that
18 These provisions are known as the safeguard provisions which are identified as an emergency action that is utilized in instances of a product being imported “in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers” (GATT Article XIX). 19 Many of the disputes examined in is article are the ones that were presented in the case study section. For a list of WTO cases see (World Trade, 2004).
13 have followed, should be taken into account and seen as impediments to the WTO’s functioning. Wilkinson also notes that there have been many concerns related to the dispute settlement process and recent developments within the WTO, including efforts to rebuild its public image, that have also contributed to the now smaller predictions of world trade growth. Wilkinson further illustrates his point by noting that the preparations for the Millennium Round were focused on avoiding the lack of preparedness that characterized the Seattle meeting. In the end, Wilkinson looks at what he perceives as the current obstacles facing WTO, including development issues, labor standards, the global economic slowdown, and the economic fallout from the terrorist attacks of 11 September 2001 that is expected to worsen the plight of many developing nations. He concludes that the optimism that was perhaps seen at the inception of the WTO has now faded and, although accomplishing some of its mandated goals, this international organization is facing more challenges than was predicted. De Birvre (2002) examines the strengths and weakness of the World Trade Organization (WTO) dispute settlement system in resolving transatlantic trade disputes. In this WTO examination, the author identifies two major shortcomings of the current institutional conflict resolution design. The first problem is that disputes between the EU and the US on broad issues such as public health, environment, and developmental policy cannot be resolved in the litigation system. The second problem identified by Birvre is that the existing procedural method of retaliation for noncompliance is not successful. A country’s ability to impose sanctions on a country that the WTO has ruled as conducting unfair trade practices is seen by Birvre as only adding to grievances. Thus, the end result is more disputes being added to the list of disputes that adversely affect trade. Birvre suggests that bilateral ad hoc committees composed of experts and members of parliament could advise the WTO General Council on areas of dispute, and that mandatory compensation could replace retaliation. When looking at the cases that have been presented it is clear that the case studies, conducted by utilizing descriptive examinations of the workings and structures of the dispute resolution process, portray trade dispute resolution as a process that can be improved upon. Whether the analysis focused on biases in panel decisions or issues of expertise and nondisclosure, the general consensus is that the trade dispute settlement procedures can be improved. However, as illustrated by the studies presented, all scholars seem to believe that policy adjustments and institutional reform are the keys to improvement, and none has suggested
14 abolishing these intuitions. This idea of procedural and policy reform is of key importance when examining the softwood lumber case. Due to the softwood case existing before and after the regional and international/non-regional settlement procedures, the analysis conducted ought to shed some light on the institutional and policy reforms that need to be conducted in order for dispute settlement to occur in this area.
15 Research Question As illustrated by the literature presented, even though there has been some investigation of the structures and cases that have come before the different types of dispute panels, whether regional or supranational, most studies have involved limited issues with circumscribed timelines and political scope. Using the extended duration of the softwood lumber dispute, this research endeavors to fill the gaps in the present literature by culling through the history and present circumstances of this dispute to relate it to the larger question of the viability of future trade dispute management and, more importantly, to the question of whether or not smaller actors are able to benefit from the operation of the dispute settlement systems. Following the trend of the literature discussed above, this research will present an outline of the softwood lumber dispute’s history. This dispute’s history is unique from the cases presented because it precedes the FTA, NAFTA and the GATT/WTO. Additionally, the structural developments of the regional and supranational dispute arbitration mechanisms created during this dispute -- which included the FTA, NAFTA and the GATT/WTO -- will also be examined. It will be the goal of this inquiry to investigate whether these arbitration mechanisms have helped or hindered the resolution of this dispute and whether this dispute has helped or hindered the development of these arbitration mechanisms. However, this research will then go one step further and combine the case study and the structural analysis by conducting interviews with those who have been directly involved in this dispute in an attempt to develop the larger question of the viability of future trade dispute management in this area. Interviewing governmental and corporate officials, which has not been done before, will be a major contribution of this particular study. It will be these interviews that add to the study of the softwood lumber dispute in general and the assessment of the dispute resolution mechanisms in particular.
16 Methodology There are many research approaches one could adopt in examining the softwood lumber dispute. A diachronic single case study methodology will be used to satisfy the three tenets of qualitative research methodology which include: describing, understanding, and explaining (Yin, 1989). The history of case study research is marked by periods of intense use and periods of disuse (Hameland and Fortin, 1993). This type of diachronic case study, which is an examination of a particular event that has occurred throughout a significant period of time, has been selected due to its ability to confirm or challenge existing work (Yin, 1994). This historical case study analysis will involve critical assessment of both change and continuity over a period of time that is representative of the dispute’s timeframe of approximately 30 years. It requires an understanding of the past in a larger context that goes beyond simply seeing the dispute from the perspective of the present. Thus, the long-lasting softwood lumber dispute will be used as the single case in an attempt to examine the effectiveness of the dispute resolution procedures that have been discussed. When conducting a case study, the importance of multiple sources of information to assure the reliability of the study is well established (Stake, 1995; Yin, 1994). Consequently, four primary research methods will be employed: 1) a historical analysis of the softwood lumber trade dispute, 2) an examination of the original documents emanating from the establishment of the dispute resolution mechanisms in the free trade agreements between Canada and the US 3) a review of the original documents emanating from the GATT/WTO’s design of dispute resolution mechanisms , and 4) interviews with individuals who were involved in this dispute and in the development of free trade policy in Canada. Interviews with former Canadian government officials and the softwood lumber industry representatives in the private sector were conducted in the end of February 2005. The justification for only interviewing Canadians involved in this process is based on the asymmetrical relationship that these two countries demonstrate. The formation of the international agreements and institutions in question were developed to implement formal procedures that facilitate dispute resolution. These institutions are to have the affect of leveling the international playing field so that, no matter what a country’s size, political clout, or economic power, all countries are held to the same standard for managing and regulating trade.
17 Due to the asymmetrical relationship between Canada and the US, the interviews will be reflective of the smaller country involved in this dispute. The purpose of these interviews is to acquire additional insights regarding the utilization of FTA, NAFTA and the WTO by a smaller country that may shed light on the ability of these agreements and institutions to correct for asymmetry and resolve conflicts over the rules of the international trade regime. The Canadian Federal Government’s policy arm involved with internal trade was contacted. The Department of International Trade Canada (ITCan), which is a branch of the Canadian Department of Foreign Affairs and International Trade, supports the development of trade by offering services to exporters and working with government in the development of trade policy. ITCan has had direct impact on the creation of such agreements as the FTA and NAFTA and was the representative for Canada when dealing with the GATT/WTO. The Canadian government officials currently employed in this branch of the Canadian government were approached. These government employees were helpful but did allow their responses, department, or workers to be on the record as being involved in this study. Due to the sensitive nature of the questions these interviews were not permitted to be recorded, transcribed, or placed on the record. The reason for this limited access is that the Canadian government is currently engaged in negotiations with the US concerning the softwood lumber case. Thus, access to current government officials and the governmental department involved with the softwood lumber dispute was limited to protect the process of negotiations that they are now involved in. However, this does not mean that the position of the Canadian government is not reflected in the interviews presented. As directed by a follow up phone call with the Department of Foreign Affairs and International Trade the position of the Canadian government is presented in documentation already in the public domain. It is through these documents that the position of the government will be reflected and compared to the responses obtained through the interview process. To further compensate for the lack of obtaining the Canadians governments position through the interview process, retired and former governmental officials have also been interviewed. These included former Canadian government officials from Canadian Delegation to the GATT Multilateral Trade Negotiations (Tokyo Round), in Geneva, Assistant Deputy Minister responsible for trade relations with the United States, Latin America, Europe (except France) and Asia for the Ministry of International Affairs, and former Deputy Minister level senior adviser to the Prime Minister. These former government officials were available for
18 comment and are able to further highlight attitudes of the Canadian government concerning the dispute resolution mechanisms and the softwood lumber dispute. The British Columbia Lumber Trade Council (BCLTC) also agreed to be interviewed. The BCLTC is the voice for many BC lumber companies. This organization represents the BC companies that are involved in the softwood lumber trade dispute. This Vancouver-based council is the voice for 100 companies in the lumber industry, which in total accounts for 95 per cent of the total BC lumber production and about 50 per cent of Canadian lumber exports to the United States. The Council and its member companies are avid supporters of free trade and the resolution of the softwood lumber dispute. Interviews with the Council bring the view of the private sector to bear on the research (British Columbia, 2005). Representatives from the Wood and Allied Workers of Canada (IWA Canada) were also interviewed. IWA Canada, which has now merged with the United Steel Workers of America (USWA), is the largest private sector union in British Columbia (BC), representing approximately 50,000 men and women (United Steel Workers, 2005).20 These union members are located not only in British Columbia but are spread throughout a total of seven Canadian provinces. This union has been operative for over 60 years. (Industrial, Wood, 2005) Furthermore, IWA Canada has been involved in this dispute since its inception. Many workers have been directly affected by this conflict over the years. The Executive Vice President and general manager of the Free Trade Lumber Council (FTLC) was also interviewed. This organization is classified as a pan-Canadian organization which has a mission to help maintain free access to world markets. According to public documents, the FTLC is particularly interested in access “to the U.S. market, for Canadian softwood lumber” (Free Trade Lumber, 2005). This private advocacy group represents Canadian forest products companies and forest industry associations. The importance of this group is illustrated by its membership, accounting for more than 40 percent of Canadian softwood lumber exports to the US (Ibid.). The interviews were flexibly structured to conform to the methodology of qualitative interviews. In this type of open-ended interview, the questions asked encourage the informants
20 The national president of the 55,000-member Industrial Wood and Allied Workers of Canada (IWA), made the decision to end his union’s search for a domestic merger partner. This decision led to the IWA uniting with the United Steelworkers (United Steelworkers, 2005).
19 to provide their opinions on events or facts (McCracken, 1988). The use of tape recorders during the interviews is left to the discretion of the parties involved. The specific questions asked were developed from the following categories: 1) Impact/Influence of the softwood lumber dispute A) Influence of softwood lumber on the negotiations of the FTA, NAFTA and the GATT/WTO. B) Influence of the softwood lumber dispute on Canadian bargaining to develop the dispute settlement procedures seen in the FTA, NAFTA GATT/WTO. 2) Questions concerning the performance of the dispute resolution procedures A) Fairness of the dispute settlement systems and the appeals process. B) Efficiency in the amount of time the dispute settlement procedures take. C) Satisfaction with the dispute settlement systems that are now in place. D) Benefits of having the dispute settlement systems now in place. E) Compliance issues concerning both Canada and the US 3) Preferences towards dispute settlement procedures A) Preferences towards the FTA or NAFTA. B) Preferences towards the GATT or the WTO. C) Preferences towards NAFTA or the WTO (or both) 4) Suggested modifications A) Modifications to NAFTA dispute settlement procedures that are desirable. B) Modifications to the WTO dispute settlement procedures that are desirable. C) Modifications to the dispute settlement procedures/process in general. 5) Comprehension of the dispute settlement procedures A) Comprehension of the dispute settlement system by the business sector. B) Comprehension of the dispute settlement system by the workers/labor in this industry. C) Governmental assistance in developing a business understanding of the dispute settlement systems. D) Governmental assistance in developing a worker/labor understanding of the dispute settlement systems.
20 Expected Results The results of this research are expected to reflect the inability of the FTA, NAFTA and the GATT/WTO to resolve the softwood lumber dispute. My hypothesis is that these institutions and agreements have failed due to their inability to deliver a viable solution to conflicts over the rules governing the softwood lumber industry. The hypothesized reasons for the inability of these institutions and organizations to deliver results include: the asymmetrical relationship between Canada and the US; the softwood lumber industry’s characteristics as an industry bound by borders; and domestic interests overriding international policy and directives. I propose that failure to resolve this longstanding dispute illustrates a limitation to free trade and thus, a limitation to globalization. Conclusion Examining the Canadian - US softwood lumber dispute from this diachronic case study perspective focuses the research on measuring the free flow of trade achieved by the free trade area along three dimensions: (1) motivation for regional free trade agreements like the FTA and NAFTA and development of entities such as the GATT and WTO, (2) limitations of such agreements and organizations, and (3) possible resolutions for trade disputes that continue after such agreements are signed. The ability of NAFTA and the WTO to achieve a free trade zone within the context of the softwood lumber industry will be assessed by examining the stages in the development of the FTA, NAFTA and the GATT/WTO in combination with an examination of the history of the softwood lumber dispute.
21 Chapter II Examining the Dispute Resolution Systems of the GATT, WTO, FTA and NAFTA Overview “You want gas, you want oil and you don’t want wood? It’s too bad, but if you have free trade, you have free trade.”21 Canadian Prime Minister J. Chrétien
This chapter focuses on the dispute resolution systems of the first Canadian-United States Free Trade Agreement (FTA), the North American Free Trade Agreement (NAFTA), the General Agreement of Tariffs and Trade (GATT), and the World Trade Organization (WTO). These binational and international organizations and agreements have developed regulations and guidelines that facilitate the resolution of trade disputes between Canada and the United States. Of particular interest to this study are the dispute settlement mechanisms that have been employed in attempting to resolve the ongoing United States-Canadian softwood lumber trade dispute. The chapter begins with a brief introduction that highlights the realities of globalization and the international organizations and agreements that have been established to resolve the thirty-year softwood lumber dispute. The chapter then proceeds with an overview of the history that surrounds the GATT. It will be illustrated that under this international agreement, many advancements in the development of globalization and free trade have been possible, yet due to institutional weaknesses associated with resolving trade disputes, the GATT was replaced. After highlighting the role of the GATT dispute settlement procedures, a detailed discussion of the WTO and the Uruguay round of trade talks will be examined. After this discussion the focus then shifts back to the 1980s and the development of the first Canadian-United States Free Trade Agreement (FTA). After addressing the issues that almost derailed the signing of this first free trade pact between Canada and the US, the section then examines the specific dispute settlement provisions contained within the (FTA) that apply to the Canadian-US softwood lumber dispute.
21 Canadian Prime Minister Chrétien paraphrasing his talk with US President George W. Bush as quoted in (Canadian Broadcast, 2004).
22 The chapter continues by suggesting that NAFTA, although now including a third country (Mexico), adopted much of its dispute settlement legislation from the FTA. After examining the NAFTA dispute settlement systems that are contained in Chapters 19 and 20 of that agreement the chapter ends by concluding that, although free trade is the goal of the dispute settlement processes examined, these systems have only resulted in managed trade when dealing with Canadian softwood in the US market. Thus, although dispute settlement procedures have attempted to take the politics out of the trade conflict over Canadian softwood, this trade dispute is still driven by political compromise and not the market forces of free trade. This chronological discussion of dispute settlement will serve as a foundation for the material in chapter 3, which looks at the softwood lumber dispute and the various attempts to resolve this longstanding conflict. Introduction As the world has grown smaller, due to the realities of globalization, 140 countries have either become parties to the General Agreement on Tariffs and Trade (GATT) or have had the opportunity to be inducted into the World Trade Organization (WTO).22 Regional and binational trade agreements, such as the Canada-United States Free Trade Agreement (FTA) and the North American Free Trade Agreement (NAFTA), have also been the trend of the twentieth century. Under these binational and international agreements and organizations, the changes that are made to promote free trade naturally lead to conflict. Domestic industries protest when hurt by foreign competition. As a result, dispute settlement procedures have become a feature found in most trade agreements. Article XXIII of the GATT, which was established in 1947; the Dispute Settlement Understanding (DSU) of the WTO; and Chapters 18 and 19 of the FTA, which were later adopted into NAFTA, all allow member counties to voice their grievances concerning other
22 The WTO's predecessor, the GATT, was established after the Second World War. It was during this time that the “Breton Woods” institutions now known as the World Bank and the International Monetary Fund (IMF) were also in the development stages. The original 23 GATT countries were among over 50 which agreed to a draft Charter for an International Trade Organization (ITO). This ITO was a new specialized agency of the United Nations. The Charter was intended to provide not only world trade disciplines but also rules relating to employment, commodity agreements, restrictive business practices, international investment and services (World Trade, 2005).
23 members’ trade actions. It is within these agreements that members of these pacts can litigate against other members who may be violating the agreed-upon rules of free trade.23 Dispute settlement provisions, which are outlined in each of the aforementioned trade agreements and organizations, provide legal mechanisms to mediate the disputes that erupt over each government’s actions. These disputes arise due to corporations, domestic interest groups and citizens making claims that the other free trade members have caused them injury by not complying with the tenets of free trade. The judicial structure that has been developed to deal with these disputes has been built so that counties injured by rule violations are then able to invoke retaliatory measures so that conflict is limited. In a dispute where the economic and political stakes are high, which is true in most if not all trade disputes, international trade policy is an area where it is necessary to have adequate conflict resolution so that monetary and political damage is minimized for all involved. However, the development of such organizations and agreements that facilitate adjudicatory oversight of free trade measures does not mean that trade disputes have diminished. In fact, trade disputes in which countries have wavered on the agreed rules of trade frequently occur.24 Among the conflicts that have caused tensions and characterized what had become known as “trade war” is the dispute over the Canadian exports of softwood lumber to the US. This trade dispute has proven difficult to remedy.25 Thus, examining the mechanisms that have been established in an attempt to quell this dispute is paramount if a viable solution is to be established in the future. General Agreement on Tariffs and Trade (GATT) Brief History The General Agreement on Tariffs and Trade (GATT) has existed from 1948 to the present day (WTO, 2004). The GATT was established “to remove or diminish barriers which
23 Free trade is an economic concept referring to the selling of products between countries without tariffs or other trade barriers. Free trade is the absence of artificial (government-imposed) barriers to trade among individuals and firms in different nations (Wikipedia, 2004). 24 This is illustrated by the data showing that since the WTO’s 1995 inception to the year 2001, there was a total of 240 complaints of countries violating the rules established by this organization (World Trade, 2004). 25 Canada’s softwood lumber exports have been subject to bilateral complaints since Confederation in 1867. The current dispute is the fourth round in the latest battle of this epic “war.” (The other three rounds stretch back two decades to a countervailing duty petition brought by US producers in 1982. At that time, the complaint was handled in a quasi-judicial process through the US Commerce Department, which found in Canada’s favor.) See: (Herman , 2001) for a historical account of current options.
24 impede the flow of international trade and to encourage by all available means the expansion of commerce” (GATT, 1961, p. 1).26 This international agreement provided the global community rules for engagement concerning issues of world trade with the goal of abolishing quotas and reducing tariffs among the contracting parties.27 Although in time the GATT was superseded by the World Trade Organization (WTO), before its successor took over, 125 nations had signed agreements drawn up by the GATT. The regulations developed by the GATT governed 90 percent of world trade (Irwin, 1995, p. 4). These defined rules that attempted to govern world trade policy sponsored eight rounds of trade negotiations, which led to reciprocal reductions in tariffs and non-tariff barriers. The rules oblige parties “to concentrate national protective measures in the form of tariffs, to apply them on a nondiscriminatory basis, and to honor any tariff bindings made in a GATT/WTO negotiation” (Bagwell and Staiger, 2002, p. 11). Through the many complex rounds of talks, the GATT has had the effect of reducing the average tariff on manufactured goods from 40% to about 5% in industrialized countries (CDFAIT, 2004). The Uruguay Round (the 8th round) of trade talks concluded with the signing of the Final Act on April 15, 1994, in Marrakesh, and produced the World Trade Organization (WTO) and its annexes (GATT, 1993). GATT Dispute Settlement Procedures There exists no official classification of a “GATT dispute” or a “GATT dispute settlement procedure.” The General Agreement on Tariffs and Trade is not a binding contract. Countries that participate in the agreement are not members, but are referred to as contracting parties. The contracting parties may leave the agreement without penalty at any time. The agreement contains approximately thirty provisions that require contracting members to hold bilateral or multilateral consultations on restrictive trade measures in specific instances.28 The GATT also contains numerous provisions that allow other multilateral procedures to be used for the settlement of disputes.29 Thus, the GATT dispute settlement system established a very broad framework for setting disputes. However, although it is broad, the GATT dispute settlement
26 see also (Irwin, 1995). 27 A member of the GATT is referred to as a “contracting party.” 28 See GATT Art.VI:7, XII:4, XVI:1,XIX:2, XXII, XXIII:1, XXVIII. 29 See GATT Art. XII:4, XIX:3, XXIII:2, XXIV:7, XXIV:10, XXV:5, XXVIII:4.
25 system, developed over the forty-seven years of the GATT’s existence, has been instrumental in formulating the ways in which disputes are settled today. The General Agreement, or contract, which the original twenty-three member countries signed in 1947 was established to protect the value of the tariff concessions these governments had established. These concessions were developed and agreed upon during an established period of consultation among contracting parties. Consultations would also occur when a matter of disagreement would arise on an issue tied to a contracting party’s trade practices. This idea of using consultation to deal with potential conflict was contained in GATT Article XXII and made the process of consultation mandatory.30 In an attempt to deal with disputes that would arise between members within the GATT there was a section that dealt with the “nullification or impairment” of benefits.31 It was within this section of the GATT where the actions of one contracting party would be assessed to see if violations to the General Agreement on Tariffs and Trade were being made that disadvantaged other contracting parties.32 In addition to the nullification and impairment provisions, as stated previously, there were several other provisions that required consultations for multilateral review of trade matters.33 Thus, even though the rules and procedures concerned with dispute resolution
30 GATT Art. XXII:1 requires member countries to “accord sympathetic consideration to, and [to] afford adequate opportunity for consultation regarding, such representations as may be made by another contracting party with respect to any matter affecting the operation of this Agreement.” GATT Art. XXII:2 requires member countries to hold consultations with any member country or parties on “any matter for which it has not been possible to find a satisfactory solution through consultation under paragraph 1.” Thus Article XXII requires that mandatory bilateral consultations by request occur, and if these consultations fail to solve the matter satisfactorily, Article XXII also allows for but does not require, multilateral consultations. 31 Nullification and impairment of benefits means that once a country is found in violation of the GATT agreement, the contracting parties that are being hurt by the violating party may then implement trade actions such as sanctions or tariffs on the country that has been charged with violating the GATT agreement. This action of retaliation nullifies or impairs the contracting party’s protection provided by the GATT once that party is found in violation of the agreement. 32 GATT Art. XXIII establishes a bilateral and multilateral course for dealing with disputes. But more formally and concretely under GATT Art. XXIII:1, a member country must allege that a “benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of” any of three specified situations. These are: (a) the infringement by another contracting party of an obligation under the General Agreement (so-called violation case), or (b) the application by another of a measure, whether or not it conflicts with the Agreement (so-called non-violation case), or (c) any other situation. The member making this allegation may make written representations or proposals to the other “with a view to the satisfactory adjustment of the matter.” The other member who is approached is obligated to “give sympathetic consideration to the representations or proposals made to it.” 33 GATT Art.VI:7, XII:4, XVI:1,XIX:2, XXII, XXIII:1, XXVIII: , XIX:3, XXIII:2, XXIV:7, XXIV:10, XXV:5, XXVIII:4.
26 are dispersed through several articles of the agreement, the member countries could and did attempt to use the GATT system to resolve disputes. However, as illustrated by the extended duration of the softwood lumber dispute, if contracting parties could not settle a dispute in a reasonable time frame, the contracting parties would then be subject to an investigation conducted by other GATT members who were seen as neutral on the dispute in question.34 Bilateral consultations on alleged violations are the necessary prerequisite for referral of the matter to the collective decision-making body.35 If a referral does occur, an investigation of the dispute then follows, which then may lead to collective recommendations or a legal ruling handed down by the GATT’s collective decision- making body.36 If the collective decision-making body determines that there has been a violation of the GATT guidelines, the suspension of benefits to the contracting party in question is a viable retaliatory measure that can be taken. The only countries granted this power of retaliation are the contracting member countries that have been injured by the trade action in question. If suspension of GATT privileges does occur, the contracting party that has been declared in violation of GATT protocol then has the option to withdraw from the agreement and terminate their membership from the GATT.37 However, it is important to note that these regulations and procedures never outline the specific manner in which the member countries must conduct the investigation of alleged trade violations or arrive at their recommendations. This vagueness of procedural protocol was one of the major reasons for the adoption of the guidelines presented in the Uruguay round of GATT trade talks and the adoption of the WTO. The preferred method of retaliation when a violation is determined is reprisal against the violating contracting party. This type of retaliatory action then leads to the suspension of other
34 See GATT Art. XXIII:1c and Art. XXIII: para 2. which states that the contracting members “shall promptly investigate any matter so referred to them and shall make appropriate recommendations to the contracting parties which they consider to be concerned, or give a ruling on the matter, as appropriate.” 35 See GATT Art. XXIII:2 36 See GATT Art. XXIII:2 further provides, inter alia, that “[i]f the contracting parties consider that the circumstances are serious enough to justify such action, they may authorize a contracting party or parties of such concessions or other obligations under this Agreement as they may determine to be appropriate in the circumstances.” 37 See GATT Art.XXII:2
27 GATT member tariff concessions, or other benefits that the GATT guidelines allow. However, the requirement that retaliation be approved multilaterally places significant constraints on use of reprisal.38 The GATT Panel System When the GATT was first established, disputes were addressed primarily through diplomatic procedures. These procedures were conducted first through semi-annual meetings of the contracting parties. This procedure was then replaced by disputes being arbitrated through an “intercessional committee” of the contracting parties, and later still through the use of working parties made up of representatives of national governments. However, this final stage of addressing disputes through the working parties representative of the contracting parties’ governments made these working parties vulnerable to outside government interference (Jackson, 1998). To resolve these issues of bias and to attempt to develop an impartial system of dispute resolution, beginning in the mid-1950s it was decided that the working groups hearing the disputes would be replaced by panels of experts.39 Although these panels still consisted of government officials, these panel experts would not serve as national representatives but in their own capacities (Ibid.). The panels were composed of three to five GATT delegates, selected according to their individual competence and merits. The panels were established ad hoc for each case and they were first appointed by contracting parties to investigate the alleged trade violation case in question. The two contracting parties to the complaints were then heard by the panel.40 In the event the dispute was not settled during the deliberations, the panel deliberated in camera and ruled in the form of a draft report. The parties involved had the opportunity to submit comments on this report. Having considered these comments, the panel could modify its report or simply take note of them. Although the GATT provided for a simple majority system, in practice all
decisions were taken by consensus (Mukerji, 2000).
38 Ibid. 39 Before the creation of the panels it was necessary to gather all contracting parties in order to investigate and settle disputes. This requirement combined with the need for impartiality created practical difficulties. Accordingly, it was decided at the Seventh session in 1953 that the settlement of disputes should be entrusted to panels of experts. GATT Art. XXII 40 Any party having a substantial interest in the case and willing to be heard was also involved in the deliberation. GATT Art. XXII.
28 However, until the conclusion of the Uruguay Round and the creation of the WTO, the GATT system continued to allow GATT contracting parties, including the losing party in a dispute, to block the adoption of a dispute settlement panel report. The ability of any contracting party to block the final adoption of a panel report meant that, at the end of the day, litigation had to give way to negotiation if a dispute was to be resolved. It also meant that each party had not only the sovereign right, but also the practical ability, to refuse to accept any new obligation imposed upon it by virtue of a panel decision. Several of the GATT panel reports came up repeatedly before the GATT bodies concerned, but their adoption was continuously blocked and a resolution never reached. This is illustrated by a Swedish complaint against the US over antidumping duties on stainless steel pipes. The Swiss made a request for a GATT panel and the issue was raised before the GATT anti-dumping code committee (known as GATT AD) in 1988. The GATT panel ruling for this case was issued in August 1990. However, due to member countries’ power to block the adoption of the panel ruling, this issue of contention came up before the GATT AD committee eight times, and all eight times the US blocked adoption of the GATT panel findings.41 To further illustrate the GATT breakdown due to the requirement of consensus to permit the adoption of panel rulings, one can look to the US complaints against the European Community. The US complaints over EEC subsidies for wheat flour and pasta products exports went before the GATT subsidies code committee . The US first raised the issue in December 1981 and received a favorable panel ruling in 1983. With no solution to the dispute, the second dispute was brought to the GATT in April 1982 and the panel ruled, for the second time, on 19 May 1983. But the adoption of these panel rulings was blocked by the European Community until April 1986.42 There are numerous cases that illustrate this ability to block the GATT panel rulings . As will be illustrated in the following section, this ability to render the panel rulings ineffective where there is lack of consensus by all contracting parties is seen ad one of the major weaknesses of the system.
41 United States Dumping Duties on Imports of Stainless Steel Plate form Sweden. Report of the Panel, (ADP/117, and Corr.1*). 42 European Economic Community- Subsidies on Exports of Pasta Products, Report of the Panel, (SCM/43)
29 Weaknesses of the GATT Dispute Settlement System Many analysts note that the development and codification of the GATT dispute settlement panel procedures are vague and poorly implemented. Part of the problem is that the special procedures that include such regulations as time limits when dealing with disputes that may arise, are dispersed throughout several Articles, Understandings and Declarations, making it difficult to determine how dispute settlement is meant to function as a coherent whole (Hudec, 1975 and Hudec, 1993).43 These provisions, which are the foundation for the dispute settlement system of the current WTO, include the requirement for collective recommendations and rulings, as well as concerted action when all members reach a consensus to invoke retaliation. What this then means is that once the contracting parties have deliberated and decided on the proper actions that are to be taken by the parties involved in the dispute -- whether the consensual commendation is that the rule or legislation in question be repealed or upheld -- this process is one where all parties to the GATT are to be involved and voices heard. In one of the many attempts to develop a more comprehensive and efficient protocol for dispute settlement, the GATT members established what was to be named the “Panel on Complaints.” The founding of this panel in 1952 was an attempt to deal with several problems which had been raised under the GATT and its early dispute settlement system. The panel was comprised of representatives from countries not directly affected by the trade policies that were to be examined. Each member country concerned was invited to present its case to the panel and was afforded an opportunity to discuss the various issues of contention that would arise. The Panel on Complaints then considered the information and arguments on hand before it prepared its findings and recommendations that, after discussion with all the parties concerned, were
43The principal decisions and agreements laying down procedural rules governing GATT panels include: Procedures Under Article XXIII [hereinafter 1966 Procedures] (adopted on Apr. 5, 1966), BISD 14S/18 (1966) Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance [hereinafter 1979 Understanding] (adopted on Nov. 28, 1979), BISD 26S/210 (1980) (including an agreed description of the customary practice of GATT panels at 215); Dispute Settlement Procedures in Ministerial Declaration [hereinafter 1982 Ministerial Declaration] (adopted on Nov. 29, 1982), BISD 29S/13 (1983); Dispute Settlement Procedures [hereinafter 1984 Procedures] (adopted on Nov. 30, 1984), BISD 31S/9 (1985); and Improvements to the GATT Dispute Settlement Rules and Procedures in the Midterm Agreement [hereinafter 1989 Midterm Agreement] (decision of Apr. 12, 1989) BISD 36S/61 (1990). For a comprehensive history and analysis of the GATT legal system see generally Robert E. Hudec, The GATT Legal System and World Trade Diplomacy [hereinafter The GATT Legal System] (1975); and Robert E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System [hereinafter Enforcing Int’l Trade Law] (1993).
30 submitted in final form to all the member countries (Hudec, 1993).44 Some herald this method of handling complaints as GATT’s finest achievement, and this is the panel format that, although it has evolved, has been utilized by the FTA, NAFTA and the WTO. The GATT, as illustrated by its numerous provisions containing requirements for dispute resolution, lacked a comprehensive institutional structure due to the agreement itself being regarded as an interim trade agreement to be provisionally applied. These provisional arrangements were negotiated bi-annually. Each negotiation session lasted for several weeks and resulted in a provisional accord named after the city in which the meetings were held. During these meetings, members of the GATT resolved complaints or issues by consensus.45 It was this requirement of consensus that, in the beginning, made the GATT so appealing. However, in the end this requirement of consensus resulted in inefficiency when dealing with the trade disputes. The obligation of consensus meant that if the contracting party accused of unfair trade practices did not concur with the recommendations produced by the GATT panel, then the judgment would not be imposed. In the end, this meant that the party accused of unfair trade practices could and did draw out the process by not agreeing to vote in line with the other members. This requirement of consensus thus resulted in the development of the WTO where a consensus is required in order to reject a panel ruling. In 1955, the primary function of the dispute panel was stated as being “to prepare an objective analysis for consideration by the contracting parties, in which the special interests of individual governments are subordinated to the basic objective of applying the Agreement impartially and for the benefit of the contracting parties in general” (Gatt, 1955, in Hudec, 1993).46 However, the requirement of consensus remained a staple of the system. Thus,
44GATT Secretariat, International Trade 1952, at 96 (1953), cited in (Hudec, 1993). 45 Under the GATT practice of consensus, a proposal is adopted unless one or more parties formally object(s) to its acceptance. Silence does not constitute formal objection. 46 Considerations Concerning Extended Use of Panels, GATT Doc. L/392/Rev.1 para. 5 (Oct. 6, 1955) (note by the Executive Secretary), reprinted in Hudec, The GATT Legal System, op. cit., supra, footnote 30., pg. 11. The note stresses the importance of objectivity in the composition and working methods of the panel, as opposed to an ordinary working party. Members of the panel are selected by “personal qualifications and special knowledge of the General Agreement and of the matters to be dealt with by the Panel.” Moreover, “[t]he contracting parties immediately concerned with a complaint are not represented on the Panel. They appear before the Panel in a capacity that is similar to that of the plaintiff and the defendant before a court of law. After having heard the parties and any other contracting party which might have an interest in the case, the members of the Panel meet in closed session and arrive at their own conclusions. The report is then drafted under their individual responsibility and does not prejudice the attitude of the parties to the dispute. Nor does it prejudice the later
31 members’ ability to block panel findings and recommendations remained a substantial problem limiting the effectiveness of the GATT dispute settlement system. Although the GATT’s internal process attempted to take the politics out of the dispute settlement system, the GATT was still limited due to the political reality that consensus still could not be reached in certain cases, such as in the softwood lumber dispute. In the end, the major issue of contention for the GATT was the power of member countries to potentially block adoption of panel reports. This ability to block reports enabled member countries to evade implementation of panel recommendations, and therefore prevented GATT from resolving disputes such as the 30 year softwood lumber dispute between Canada and the United States.
position that may be taken by the governments during the subsequent consideration of the report by the contracting parties.” Id. at paras. 5 & 6.
32 World Trade Organization (WTO) Brief History As outlined in the proceeding section, a procedure for settling international trade disputes existed under the GATT. However, the WTO was created in part because many believed that the GATT’s mechanisms for dispute resolution were inefficient and ineffective. The rationale for the GATT’s inability to resolve disputes is associated with its institutional weakness. As illustrated above, these weak points included a lack of fixed timetables for procedures tied to dispute resolution, voluntarily acceptance by members instead of compulsory compliance of both the jurisdiction of the arbitral panel and its ruling, and the reality that the defending party had the power to block the process from moving forward because of GATT’s inability to mandate change (Esseman and Howse, 2003). The origin of the WTO was conceptualized during the Uruguay Round of GATT negotiations. This round of trade talks was interested in establishing a more structured procedure that would result in a clearly defined arrangement in the area of dispute settlement (WTO, 2004). The Uruguay Round introduced a new area of trade that became known as globalization and demanded a system that had greater discipline concerning the length of time a case should take to be settled. Flexibility in deadlines would be dependent on the particulars of the cases presented and depend on the various stages of the procedure. In the end, the newly developed WTO would establish a trade dispute settlement procedure that was structured, time efficient and effective, and not limited by the requirements of consensus. Following the end of the Uruguay Round of global trade negotiations, the WTO was created. On January 1, 1995, the WTO became the organization that would now attempt to deal with disputes concerning international trade (WTO, 2004). Moving From the GATT to the WTO Within the Uruguay Round agreements, it became impossible for a member country to block or ignore the adoption of a rule made under the WTO guidelines. This differs greatly from the previous GATT procedure that required rulings to be adopted by consensus. The ability of a single member country to block the ruling with a single objection is no longer possible. Under the WTO, rulings generated under the guise of the organization are automatically adopted by member countries except if there is a consensus reached by the WTO members that rejects the
33 ruling in question (Ibid.). Thus, within the WTO, any member country that wishes to block a ruling has to plead its case to all other WTO members, including the challenger in the case, not to accept the final panel decision. This new system turned the old GATT procedures on their head since in the GATT, rulings were only accepted if all contracting parties (including affected parties) agreed. When examining the mechanisms used by the WTO concerning dispute settlement procedures, much of the process resembles that of the FTA, NAFTA and the GATT. As with most dispute settlements, those involved know the difficulties in resolving a trade dispute, and this process-- although much improved -- is still one that takes considerable time and money. These conflicts are politically charged, and there are many stakeholders on each side of the debate who have to be taken into consideration. WTO Dispute Settlement Procedures Members of the WTO enter the organization with the understanding that they have joined a binding affiliation. Countries become members with the understanding that if they believe other member countries have or attempt to violate the agreed upon trade regulations they, as members of the WTO, then have the ability to use the multilateral system within the WTO to settle the dispute. The power to settle international disputes with binding authority distinguishes the World Trade Organization from the GATT and most other international institutions. Member countries are not able to block the process at any point under the newly developed legislation of the WTO. Consensus for adoption of panel rulings is now a moot point under the new WTO regulations.47 This newly found power is contained within what is known as the Understanding on Rules and Procedures Governing the Settlement of Disputes. This “Understanding” gives the WTO unprecedented power to resolve trade-related conflicts between nations and assign penalties and compensation to the parties involved.48 The only way to legally ignore a WTO
47 See WTO Art. 21, 22 and 25 of the Uruguay Round Agreement of the Agreement on the Understanding on Rules and Procedures Governing the Settlement of Disputes.[hereinafter this document will be referred to as the WTO DSU] 48 The Understanding on Rules and Procedures Governing the Settlement of Disputes is also labeled the Dispute Settlement Understanding (DSU). This document contains the main WTO agreement on settling disputes. As with many WTO agreements, the DSU was one of the outcomes of the Uruguay Round negotiations. See: http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm
34 panel decision is if all members agree that the panel decision was one that they as a whole are not going to accept. WTO Dispute Settlement Understanding (DSU) The most important changes from the GATT to the WTO concerning dispute settlement procedures is the establishment of the Dispute Settlement Understanding (DSU) (Karns and Mingst, 2004). This mechanism for regulating trade has two distinct bodies. The first is the Dispute Settlement Body (DSB), which is comprised of representatives from the WTO members. The second important change is the development of the Appellate Body (AB), which deals with appeals filed against the final rulings handed down by the WTO (Ibid.).49 When a dispute such as the softwood lumber dispute arises, the trade policy, measure, or action in question is presented to the DSB to begin the process of determining whether the trade practice in question is inconsistent with WTO guidelines. The DSB’s first step is an attempt to find a solution to the conflict through diplomatic means. Similar to the GATT, this is known as the consultation stage.50 This request for consultations triggers a 30-day period during which the parties involved must make contact in an attempt to engage in the consultation process. However, if the parties involved in the dispute believe that consultation is futile, the negotiations can be terminated after 10 days.51 Once engaged in this consultation period, the WTO members can discuss the issue of contention for up to two months (60 days).52 The belief is that this type of meeting allows member countries to have an opportunity to work towards a solution that both agree upon before entering into the third party arbitration systems available within the WTO. These one-on-one consultations between WTO member countries involved in the dispute can even occur when the case has progressed to advanced stages of the dispute resolution process within the WTO guidelines. Thus, consultation and mediation are always possible.53
49 Also refer to WTO Art. 2 para 1. of the DSU for the legal text referring to the establishment of the DSB. Also refer to WTO Art. 17 para. 1 of the DSU for the legal text referring to establishment of the AB. 50 The specific rules governing consultations are found in WTO Art. 4 of the DSU para. 4 and requires that the request for consultation be in writing and the complaining member must give the reasons for requesting consultations. A complaining country member must identify the measure that is being challenged and give a brief outline of the legal basis for its complaint. 51 WTO Art. 4 para 3 of the DSU. 52 WTO Art. 4 para 5 and 6 of the DSU. 53 WTO Art. 4 para 11 of the DSU.
35 Once the avenues of consultation and mediation have been exhausted, the responsibility of settling disputes rests with the Dispute Settlement Body (DSB). The DSB consists of all WTO members. It is this sole administrative body with the authority to establish the panel of experts that will make the final judgment concerning the dispute in question. Once the consultations fail, the complaining member country then requests that a panel be appointed by the DSB.54 A panel of three experts is formed. Each panel member is selected by one of the member countries involved in the dispute.55 The appointed panel will be named within a 45 day time period. Once the panel members are appointed by the DSB, the panel is then given a six- month timeframe to render a determination concerning the trade practice in question.56 It is important to note that although the DSB appoints and delegates the investigative responsibilities to the appointed panel it is also within the DSB jurisdiction to accept or reject the panels’ findings or the results of an appeals process that may occur if the case is reheard due to panel misconduct (WTO, 1997). However, due to the requirement of consensus, the panel’s final testimony is hardly ever overturned. In essence, the DSB of the WTO “monitors the implementation of the rulings and recommendations, and has the power to authorize retaliation when a country does not comply with a ruling”(WTO, 2004). The role of these appointed adjudicatory panels is to help facilitate the Dispute Settlement Body in making final rulings or recommendations.57 However, the appointed panel’s ability to render a decision is limited by the WTO guidelines stating that a panel’s findings have to be based on the agreements cited in the dispute. The key term in this statement is “cited”. This means that the appointed panel can not refer to outside documents to render a verdict, but
54 WTO Art. 4 para 7 of the DSU. 55 A panel is established by the Dispute Settlement Body (DSB) after a complaining member country makes a request at a meeting of the DSB. WTO Art. 6 of the DSU provides the details of the establishment of the panel and about the selection of panel members (Art. 8), and Art. 7 outlines the requirements for the Terms of Reference of the panel. The request for the establishment of a panel is a key document because it is this document that frames the context in which the dispute will be argued. The request must identify the specific measure that is being challenged as well as the legal basis for the complaint. 56 The country whose laws are to be reviewed by the panel has the ability to block the creation of a panel. This tactic may only be utilized once. If the Dispute Settlement Body meets for a second time on the same issue, the appointment of a panel can no longer be blocked. The only prevision that can prevent the creation of a panel at this stage is if a consensus is reached by all WTO member countries that appointing the panel is not the proper action to be taken. (World Trade, 2005). 57 WTO Art. 11 of the DSU.
36 must only rely on the specific trade agreement and actions in question.58 This requirement makes the panel areas of inquiry very narrow in focus. This narrow scope of investigation illustrates that the goal of the WTO dispute resolution system is to address one specific trade policy that has been identified as causing disagreement. The development of broad, all-encompassing trade regulations is not the goal or motivation for panel decisions. The panels main objective, although its decision will develop a body of precedent for future cases, is to determine which country involved in the dispute is acting against the interests of developing free trade. When the time period for panel deliberation has been reached, or the panel has reached its decision before the six-month time period, the panel’s final report will be issued to the parties of the dispute in question. As stated earlier, if the case is one that requires urgency due to issues of expiration, the deadline for rendering a panel decision is then cut in half to a three month period.59 As with most legal processes, member countries are able to appeal the decision presented by the panel. Once the ruling of the appointed panel is handed down, the seven members of the Appellate Body then decide the outcome of the appeals presented.60 Once the ruling by the Appellate Body is made the judgment then only becomes binding with a consensus vote by the DSB.61 The WTO outlines, in considerable detail, the procedures and the timetable that is to be followed concerning this dispute resolution process. Each case, once the first ruling has been issued to the DSB, should, under normal conditions, take no more than about one year. If the case is appealed to the Appellate Body, this then extends the time from approximately 12 months to 15 months. The time frames that are available to members during a dispute settlement
58 WTO Art. 13 para 2 of the DSU. 59 WTO Art. 12 of the DSU. 60 The Panel has the responsibility to draw conclusions on the basis of the facts presented by the parties involved and to make conclusions on the basis of the legal obligations that apply to the case in question. The main source for these rules is the WTO agreements; however, general principles of international law are also used. See WTO Art. 17 para 1 of the DSU. Also according to Art. 19 of the WTO DSU, the panel (or the Appellate Body) must recommend that a member found to have a measure inconsistent with its WTO obligations bring that measure into conformity with its obligations. This Article also provides that the panel (or the Appellate Body) may suggest ways in which the recommendations may be implemented by the member. 61WTO Art. 20 of the DSU.
37 procedure are flexible and if the dispute in question is considered urgent, as with a case concerning perishable goods, the dispute process can be accelerated (Handbook of WTO/GATT Dispute Settlement, 1991). Internal Workings of WTO Dispute Settlement Panel System Within the WTO documentation there is much detail regarding the internal workings of the DSB appointed panels. As with most legal procedures, before the deliberation can begin, each side of the dispute must submit its case in writing to the panel hearing the case.62 Once the proper papers have been filed, all member countries involved in the dispute are then called to make their case at the panel’s first hearing. Those that may present a case include the complaining county, the country whose actions are being called into question, and any other member country that can illustrate that they have a vested interest in the outcome of the dispute in question.63 Once all sides of the case have been presented to the panel, rebuttals are heard. The rebuttals are submitted on paper and heard at the panel’s second meeting.64 Because many trade disputes involve technical issues that require expertise, the WTO dispute settlement system has established guidelines that allow for the panel hearing the case to consult with experts or to appoint an expert review board to conduct an advisory report.65 Once all rebuttals are heard, and if necessary the advisory board has issued its report, the initial panel that was hand selected by the DSB then issues its outline of the debate. This report is issued to the member countries that have established standing within the dispute, and a two-week time frame is given to each to respond.66 The next phase of the panel deliberation produces an interim report. It is within this document that the findings and conclusions of the panel are contained. This report is also given to the parties involved, and the two sides have one week to ask for a review of the panel’s findings and conclusions. If a review is requested, the time allotted for this procedure must not
62 WTO Art. 6 para 2 of the DSU. 63 WTO Art. 10 of the DSU. 64 WTO Art. 12 para 6 of the DSU. 65 WT0 Art. 13 para 1 and 2 of the DSU. 66 However, it is important to note that this first draft produced by the panel is a narrative of the dispute and not a report that contains the panel’s findings and conclusions. See WTO Art. 12 of the DSU.
38 exceed two weeks. It is during this two-week time period that the panel may hold additional meetings with the parties involved.67 After the two-week time frame has passed, a final report is issued by the panel. Yet another two-week period gives the parties involved access to the report before it is issued to all members of the WTO, the final report is then circulated to all members of the WTO. 68 When examining the decisions handed down by the panel, there is only one of two options. The first is that the trade measure in question does not conflict with the WTO agreement and therefore no change of policy is needed. However, if the panel hands down a decision that finds that a disputed trade measure is in violation of the WTO agreement, the panel then recommends that the measure be made to conform to WTO rules.69 After the decision has been rendered, the report of the panel then becomes a panel ruling. However, this ruling is not official until the DSB has placed its seal of approval on final panel decision. Once the DSB has approved the decision, this final determination stands for sixty days. If by the end of this period the member countries have not reached a consensus to reject the DSB ruling, it is considered binding. However, as with any legal process, both sides of the case are able to appeal the final DSB ruling.70 WTO Appeals Process When dealing with the appeals process within the WTO, it is clear that there are similarities to any court of law. The appeals presented must be based on points of law. A legal misinterpretation is the basis for an overturning of the DSB final ruling. If a legal mistake were to occur, a new panel would be appointed to hear the same dispute.71 When an appeal is made by a WTO member who has standing within the dispute, each appeal is heard by three members of a permanent, seven-member Appellate Body. This Appellate Body is established by the WTO’s Dispute Settlement Body and largely reflects the
67 WTO Art. 12 para 8 and Art. 15 of the DSU. 68 WTO Art. 16 of the DSU. 69 Although the WTO is an adjudicatory body, once the panel has rendered its decision the panel has the ability to suggest that measures that are not in complicate with the WTO guidelines be made to conform. See WTO Art. 16 of the DSU. 70 WTO Art. 21 para 3 and 4 of the DSU. 71 WTO Art.17 para 6 of the DSU.
39 WTO’s membership. Members of the appointed Appellate Body have a set term limit of four years and have to have a background in the field of law and international trade.72 The options granted to the Appellate Body to rule on an appeal are threefold. This group of seven can uphold the decision, modify it, or reverse the panel’s legal findings and suppositions. The set time frame for the appeals process is no longer than 60 days. However, if complications should occur, the process can be extended to a timeframe of 90 days.73 The Dispute Settlement Body has to accept or reject the appeals report within 30 days, with the decision of rejection only possible by consensus.74 WTO Rule Adoption and Implementation The last major stage of the dispute settlement process is adoption by the Dispute Settlement Body (DSB). The DSU requires that the panel report and, if applicable, the report of the Appellate Body be submitted to the entire WTO General Council. The DSU final adoption of a panel decision will become law. The only way to block this process is a consensus reached in the DSB not to adopt the final panel decision.75 This requirement for a negative consensus to block adoption is a significant change from the previous system in effect under the GATT where a losing party could block the adoption of an unfavorable decision. Under the WTO, a losing party can no longer block a decision that goes against its trade interests. In practice this means that decisions are virtually automatically adopted, since a negative consensus to block adaptation requires the agreement of the complaining country member. As illustrated by the softwood lumber dispute, it is possible that a WTO member will either refuse to remove an inconsistent measure or replace it with another inconsistent measure. In this situation, the DSU allows a WTO Member to “suspend the concessions” with respect to a member that refuses to comply with the rulings of the DSB. Put another way, a winning WTO
72 WTO Art. 17 para 1,2 and 3 of the DSU. 73 WTO Art.17 para 4 and 5 of the DSU. 74 WTO Art.17 para 17 of the DSU. 75 WTO Article 16 of the DSU provides the specific procedures that apply to panel reports. WTO Art. 17 and 14 of the DSU provides the specific procedures that apply to the reports of the Appellate Body.
40 member can impose sanctions against the losing member country. However, only the DSB can authorize the suspension of concessions.76 Having discussed the GATT and the WTO systems for resolving disputes, attention now turns to the dispute resolution procedures found in the FTA and NAFTA. As will be illustrated, these systems are similar to the GATT/WTO in that they are an attempt to establish legal mechanisms to mediate and resolve the trade disputes that erupt between the member countries. At the same time, there are also differences, such as Chapter 19 having more power due to its panel determinations not only allowing for retaliation in the ways illustrated by the GATT and WTO, but by also having the ability to repeal the domestic legislation of the country seen as not complying to the tenets of free trade. It should be no surprise that there are similarities between the dispute settlement procedures seen in the GATT/WTO and the FTA/NAFTA since the latter systems were developed a quarter of a century after the former and drew upon prior experiences of the GATT. Differences could also be expected because the agreements developed from a bilateral environment, which then later was developed into a trilateral agreement, which was initiated by a non-threatening and nondescript neighbor to the North.
76 This suspension of concessions clause is contained in WTO Art. 22 of the DSU.
41 Canada-US Free Trade Agreement (FTA) Brief History There is no doubt that Canada and the US are connected by trade. The trading relationship between these two neighbors is very important to both countries, each of which is the other’s largest trading partner.77 The total amount of US-Canadian trade was more than $310 billion C in 1993 and the number has continually been rising to where over $1 billion C in trade is crossing the 49th parallel on a daily basis (Statistics Canada, 2004). Although there is no disputing the importance of the Canadian-American trade relationship, the two neighbors did not broach the idea of developing a free trade pact until 1984 (Rothgeb, 2000). It was during this time that both countries were mired in a recession, and American industries began seeking protection from imports in an attempt to limit competition within the US market. In an effort to limit increased regulation on Canadian imports to the US, the Canadians approached the United States to discuss a more open trading relationship (Ibid.). Canadian Motivations for Free Trade with the United States This move by the United States towards import protection was one of the main reasons for the Canadians to enter into a free trade agreement with the US. The Canadians wanted to secure Canadian access to the massive American market by eliminating the application of US antidumping (AD) and countervailing duty (CVD) laws to Canadian goods (Rothgeb, 2001; Destler, 1995; Krueger, 1995; Lipsey & Smith, 1985). It is important to note that the US countervailing duties (CVD) are based on a US evaluation of a foreign government subsidy. A US CVD is an attempt to eliminate the damaging effects of this foreign government action. Subsidization is a term that refers to a government action such as a loan, grant, tax concession, etc that generates non market benefits to those given the subsidy. The US trade law also includes investigations of what is termed anti-dumping (AD). Dumping refers to a product that is being imported to the US and sold in the US market at
77 One must not forget that even though both countries are dependent on each other, the North American economic relationship is asymmetrical with Canada and Mexico being much more dependent on access to the huge US marketplace than vice-versa. The US population is almost three times larger than Mexico’s and almost ten times larger than Canada’s. Over 80 percent of all Canadian and Mexican exports are destined for only one foreign market, the United States, and these exports account for over one-third and one-fifth respectively of each country’s annual production of goods and services. For more information on the trading relationship between Canada and the US see (Heart, 2002).
42 a cost lower then the price of production. This can be determined by illustrating that the US market price of the product in question is sold at a lower price than in the exporting country or when destined for a third country, or less then its cost of production. Under the US trade laws there is also the classification of “unfair trade” which is contained in section 301 of the US trade legislation. In all cases, imports are subject to remedies if it is found that the foods in question are tainted by unfairness or injury calling for either exclusion orders or offsetting penalties (Ibid.). However, when the Canadians introduced their plan of reducing tariffs along the shared border, the US was less than enthusiastic. The Canadians, understanding that progress in this area would stall if they continued to push for the elimination of US CVD and AD legislation, decided to change course and move toward their alternative idea of developing an authoritative arbitration system, such as that contained in the GATT, to aid in opening the American border to Canadian goods (Canada, 1987). Due to the asymmetry that existed and still exists within the US-Canadian trade relationship, the Canadian position perceived, and still perceives, that its trading alliance with the US is one that is biased in favor of the United States. During the trade talks of the 1980s, the Canadians believed this bias was demonstrated by Canadian exporters -- such as softwood lumber, steel and coal -- being “harassed” by the US AD and CVD laws (Clarkson, 2002). Brian Mulroney declared to The New York Times on April 20, 1987, that any agreement must exempt Canada from all US trade-remedy laws. Canadian chief negotiator Simon Riesman declared in March of that year that “any agreement which did not restrict the use of US dumping and countervail statutes . . . would not be worth the powder it would take to blow it to hell” (Krauss, 1987, 2). The Canadian contention was that, according to the tenets of free trade, the US Department of Commerce (DOC), when making determinations resulting in the regulation of exports heading to the US market, seemed to be unfairly applying these regulations to Canadian industries (Macrory, 2002). Thus the Canadians, in an attempt to limit what they classified as a
43 bias that favored the complaining US domestic industries, proposed the idea that the two neighbors enter into what is now termed as the Canadian US Free Trade Agreement (FTA).78 Although the tenants of free trade are now seen as one of the major policy agendas in the US, the idea of eliminating or altering the US AD and CVD laws was not a policy that would be accepted or passed by the US Congress during this time. The US resistance for altering these domestic laws stemmed from domestic concerns. These laws were established to protect US domestic industry from unfair trade, and altering these safeguards would leave many US industries vulnerable to international competition and make Congress unable to be of assistance. Thus, the free trade talks between the US and Canadian negotiators came to a standstill, and these issues of unfair trade regulations almost had the effect of derailing the adoption of the FTA. The reason for the standoff was the US’s inability to eliminate the CVD and AD legislation and the Canadians making this elimination a key negotiating point. Frustrations escalated and came to a head when the Canadians walked out of the negotiations two weeks before the deadline for the completion of the talks (Macrory, 2002). However, as the present situation suggests, a compromise was reached that was titled Chapter 19 within the FTA. This section of the agreement established a binational panel mechanism for disputes concerning AD and CVD applications. This addition of the binational panel appeased Canadian concerns of inadequate oversight of US CVD and AD application. Under this section of the agreement, all domestic determinations of CVD and AD applications would now, when challenged, be reviewed by a review board that was not just comprised of Americans. These review panels would be formed from a roster of 50 individuals in which 25 were Canadian citizens and 25 were US citizens. These eligible panel members were mostly lawyers and were to be chosen based on “objectivity, reliability, sound judgment, and general familiarity with international trade law.”79 If the panel determines that the AD or CVD laws of
78 See: Bruce Doren and Brian Tomlin. The Free Trade Story: Faith and Fear. Toronto: Stoddart Publishing, 1991; Michael Hart, Bill Dymond and Colin Robertson. Decision at Midnight: Inside the Canadian US Free Trade Negotiations. Vancouver: University of British Columbia Press 1994; Canada-United States Free Trade Agreement, Jan. 2, 1988, reprinted at 27 I.L.M. 281 (1988) [hereinafter refered to as the FTA or Agreement]. The Agreement was implemented by the United States-Canada Free-Trade Agreement Implementation Act of 1988, 19 U.S.C.A. 2112, note (West Supp. 1993). Subsequent references to articles of FTA merely cite the article. The proposed North America Free Trade Agreement is referred to as NAFTA. [hereinafter NAFTA legal references will be noted with NAFTA followed by the document reference i.e. NAFTA Art. 2001] 79 FTA Annex 1901.2
44 the FTA member countries are being applied in an unfair manner according to the FTA -- which follows the free trade regulations presented in the GATT, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade (the Antidumping Code), and the Agreement on the Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (the Subsidies Code) -- recommendations will then be made by the panel members as to how the trade practices could be amended so as to conform to the provisions established by the FTA.80 Chapter 19 also satisfied the Americans by leaving their AD and CVD laws intact. This section of the agreement allowed both the Canadians and the Americans to continue to apply their respective antidumping and countervailing duty laws to goods imported from the other country. However, the provision also stipulated that the AD and CVD laws would continue to be utilized as long as they were “consistent with relevant statutes, legislative history, regulations, administrative practice, and judicial precedents.”81 In addition to allowing the domestic CVD and AD laws to continue without international interference, both FTA countries were also granted, under the Chapter 19 provisions, the right to “change or modify” AD and CVD laws. Combined with the fact that the US was able to change existing AD and CVD legislation but was able to exempt Canada from the change, granted Canada preferential treatment. The limitations placed on legislative changes in this area was assurance that proper notification and consultation occurred between Canada and the US when changes were going to occur and that new reforms were in compliance with the end goal of achieving free and fair trade between the two member countries.82 During the FTA negotiation period, Chapter 19 and its binational AD and CVD review panel was thought to be a temporary solution. It was believed that within a seven year period Canada and the US would develop a set of agreed upon rules that would eliminate the US AD and CVD legislation that was being applied to Canada (Macrory, 2002). However, as illustrated
80 FTA Annex 1903.2 para. 3. 81 FTA Art. 1902, para. 1. 82 FTA Art. 1902 para. 2.
45 by the current situation with softwood lumber, the US AD and CVD laws have continued to be applied to Canadian exports entering the US.83 When the final signature had been obtained, and the agreed FTA between the two neighbors had been finalized, the Canadians fully believed that the issues surrounding the US CVD and AD determinations would be circumvented by this newly developed dispute resolution procedure contained within the FTA’s Chapter 19. The Canadian position assumed that this section of the agreement would result in a more extensive review of the US DOC’s decisions. The review of US DOC implementation of CVD and AD legislation under the FTA would now be conducted by panels consisting of trade experts familiar with the American trade legislation. These experts would replace the judges serving on the US reviewing courts. This new external review process was to affect the US DOC by making the US agency comply with international trade law when reaching their conclusions (Macrory, 2002). American Motivations for Agreeing to the Dispute Settlement of the FTA When examining the American motivations for entering into this type of agreement with Canada one can see that justification for the US accepting the development of the binational panel review system was twofold. The Americans believed that this new system would result in faster resolutions of US AD and CVD cases. Efficiency was thought to be increased by Chapter 19 due to the requirement that panel members be experts in area.84 This newly required expertise, combine with a structured, institutionalized procedure that both the US and Canada agreed to, was see by the US as a way to expatiate the dispute resolution process. This ability to resolve cases in a more efficient manner was seen as helping future US trade negotiations with their neighbor to the North. Canada as a contiguous nation closely tied to the US economy through intra-industry trade and investment patterns was a future trading relationship that was seen as beneficial to the US (Macrory, 2002).85
83 A detailed discussion of the US CVD, AD legislation and its ties to Canadian softwood lumber will be conducted in the following chapter. 84 Before the development of Chapter 19 the Judges presiding over hearings dealing with the alleged improper application of US AD and CVD legislation were not required to have expertise in American trade law. 85 It is also important to note that the abundance of natural resources in Canada was also a motivation for the US to enter into the FTA. A big part of the export industries in Canada involve selling raw materials: lumber, agricultural products, minerals, energy, and so on. According to Statistics Canada, nearly 30% of all exports are agriculture and fishing, energy, or forestry products (Statistics Canada, 2003).
46 The second justification for American entry into the proposed FTA came from the American belief that Chapter 19 was an asset to the domestic system already in place. The development of the FTA’s Chapter 19 was accepted by the US because this section of the agreement did not infringe on US domestic law. The system that was established by the two countries required the panels to apply the domestic laws of the country where the decision was being challenged (Macrory, 2002). Thus, if there was an American application of the AD or CVD legislation that the Canadians believed was unfair, the panels would use the domestic laws of the US to see if there was a violation of trade law. The Americans had no reason to believe that the newly established panel system employed by the FTA would not produce the same results as their domestic courts (Ibid.). This belief by the Americans that these Chapter 19 provisions would continue to resolve CVD and AD disputes in a manner that was similar to the domestic process that were in place pre-FTA was also supported by the panel review system containing a stipulation that there was, in extreme situations, a committee that ensured that the FTA dispute panel did not stray from the agreed upon areas of inquiry. Thus, the FTA panel was not permitted to explore a broad spectrum of US trade legislation but was limited to specific instances of alleged unfair trade violations. This restriction made it less likely that signing the FTA would lead to an infringement on the US’s ability to establish its own laws concerning the area of international trade.86 The committee, which was given the title of the Extraordinary Challenge Committee (ECC), also helped the FTA be accepted by the Americans. This committee played the role of holding the Chapter 19 panels accountable for their decisions by allowing members to appeal Chapter 19 panel decisions. Thus, if an FTA member had grounds to believe that the final determination was unfair and biased, they had the ability to petition the judgment made by the Chapter 19 binational panel review system.87 In the final assessment, the FTA Chapter 19 in combination with the ECC, made signing the final FTA document a non-issue for the Americans (Macrory, 2002).
86 FTA Art. 1905.
47
87 FTA Annex 1904.13
48 FTA Dispute Settlement Structures and Procedures FTA Chapter 18 Although not as heated as the development of Chapter 19, the main article that deals with the institutional structure that manages the FTA’s dispute resolution system is contained in Chapter 18 of the agreement. It is within this section of the document that the guidelines for resolving disputes over different interpretations of the rights and obligations of both Canada and the US are outlined. The basic model for dispute settlement concerned with rule interpretation is a panel process which has been refined over time. Chapter 18 of the FTA made it mandatory for Canada and the US to provide each other with any information that affected the operation of the FTA.88 Thus, if Canada or the US were to alter any domestic trade legislation that is under the scope of the FTA, the member country making the change is obliged to inform the other of the change.89 If it is decided that the change in domestic law is one that concerns the other member of the FTA, Chapter 18 then requires both the US and Canada to have a consultation regarding this change.90 This consultation would then be initiated at the request of one of the two member countries.91 If under Chapter 18 a consultation failed to resolve an issue, this consultation would then be reclassified as a dispute.92 The dispute would then be referred to the Canada-United States Trade Commission. The principal representatives to the Commission are the trade ministers of Canada and the US. However, as with most political institutions, in practice the Commission functions are delegated to experts from each country. 93 These experts are chosen before any dispute is brought to the FTA and are hand selected by their respective trade ministers.
88 FTA Art. 1803 para. 1 89 FTA Art. 1803 para. 1, 2, 3, 4 90 FTA Art. 1804 para. 1, 2, 3. 91 It should be noted that FTA provides some other dispute resolution mechanisms notably for agricultural emergency measures. These measures are contained in Chapter 7 of the agreement. However, due to this paper examining the softwood lumber dispute the focus of this paper will be on the general dispute resolution provisions of Chapters 18 and 19 of the Agreement. 92 FTA Art. 1805. para 1, 2. 93FTA Art. 1805, para. 1. The Commission is established in Article 1802 of the Agreement, and consists of representatives of both parties; the principal representatives are the cabinet-level United States Trade Representative and the Canadian Minister for Trade. Art. 1802, para. 2.
49 If it occurred that the Canadian-US Trade Commission was unable to resolve a dispute, the FTA would then have the dispute enter into binding arbitration.94 This is yet another stage involving yet another panel system and was a staple of the FTA dispute settlement procedure.95 The mechanics of the process are that both Canada and the US maintain a roster of individuals who qualify to serve as panelists. From this roster the two countries agree on a panel of five members to hear individual cases. The FTA dispute settlement panel then makes a recommendation to the Commission on whether a dispute measure caused nullification or impairment of either FTA member’s rights and also makes recommendations for what action should be taken to resolve the dispute.96 After the recommendations are disclosed, the Canadian-US Trade Commission is granted the authority to take political action to resolve the dispute. The Commission, in making the final decision, must follow the recommendations made by the arbitration panel. If either Canada or the US were to ignore the Commissions final ruling, the injured FTA member would then be granted the right to retaliate by suspending benefits of equivalent effect under the Agreement until the dispute had been resolved.97 FTA Chapter 19 As stated earlier, Chapter 19 of the FTA has the unique feature of judicial review of national antidumping (AD) and countervailing duty (CVD) determinations by both Canada and the US. This review is conducted by a binational panel.98 The five members who will sit on the panel are drawn from the binational rosters of US and Canadian trade experts.99 Objectivity is ensured by allowing each country four preemptory challenges to the other country’s nominees. The FTA requires these binational panels to apply the importing member’s AD or CVD laws,
94 FTA Art. 1806. 95 Some specific provisions of FTA preempt Chapter 18. For example, recessions by Canada on foreign investment following review under the Investment Canada Act are exempt from Chapter 18 review. See Art. 1608, para. 1. Under Chapter 15 (Temporary Entry for Business Purposes), Chapter 18’s application is limited. See Art. 1504.2. Financial Services are governed exclusively by Chapter 17, and Chapter 19 provides special procedures. 96 See FTA Art. 1905 and 1904. 97 Ibid. 98 See FTA Art. 1902, para. 1 and Art. 1904, para. 1. 99 See FTA, Annex 1901.2. Two persons are chosen from each country’s roster, with the fifth member chosen in an analogous manner to Chapter 18 rosters. Id. at para. 3.
50 and to utilize the same standard of judicial review as the domestic court that would otherwise have heard the appeal.100 The FTA also developed deadlines for each step of the panel review process. It was decided that a decision by the Chapter 19 panel must be made within 315 days of the initial request for panel review. 101 In the end, the panel’s final decision can uphold the AD or CVD determination, or may remand these actions to the relevant administrative agency if the legislation in question is seen as inconsistent with the FTA guidelines and the goal of generating a free trade area.102 Due to the Chapter 19 panel decisions being legally binding, the only “appeal” that is available through the FTA is an extraordinary challenge. This type of challenge is brought to the Extraordinary Challenge Committee (ECC) which is comprised of three sitting or former judges. When making an appeal, the country must assure that the appeal is justifiable and not a political tactic used to prolong the litigation process. Canada or the US may not simply assert that the panel made a mere error in coming to its decision, but must establish a case of misconduct, bias, serious conflict of interest, or a violation of a fundamental rule concerning procedure.103 Without this constraint, FTA members would then be free to stall dispute resolution in order to continue protectionist actions.104 Once the ECC has rendered its decision, the dispute is seen as having run its course. It is at this point when a solution should be reached either through the granting of retaliation, compensation, or non-action depending on the determination of whether or not a violation of
100 FTA Art. 1904, para. 2. Law is broadly defined as including “the relevant statutes, legislative history, regulations, administrative practice and judicial precedents.” And when looking to see which domestic courts to follow as the determined standard refer to Art. 1904, para. 3. The Canadian standard is based on the Federal Court Act, R.S.C., ch. F-7, § 28(1) (1985) (Can.). The US standard is based on the Tariff Act of 1930, ch. 497, 516(A), 46 Stat. 590, 735 (1930) (current version at 19 U.S.C. 1609 (1989)). See art. 1911. 101 FTA Art. 1904, para. 14. 102 FTA Art. 1904, para. 8. Compare this with the broader mandate of Chapter 18 panels, which can imagine wide-ranging remedies. Again, this reflects the different roles of the two panels: Chapter 18 panels make nonbinding recommendations, see art. 1807, para. 5, while Chapter 19 panels make final judicial determinations, see art. 1904, para. 9, and thus have constrained jurisdiction, see art. 1901, para. 1. 103 See Annex 1904. 13, para. 1. Note: The members that hear the appeals are selected from a ten-person roster comprising five U.S. and five Canadian judges, with one judge selected from each country and the third chosen using a method analogous to that employed for the panels. Also see Art.1904.para 8 and 9 for more information on the binding legalities granted to the Chapter 19 panel. 104 These stall tactics were common place under the GATT dispute resolution system. This deficiency of the GATT will be presented in the section devoted to this international regime.
51 trade law has occurred. However, as will be illustrated by the ongoing softwood lumber dispute, the FTA has not always been able to resolve the trade conflicts that arise. Although not always helpful in resolving trade conflicts that flare up between Canada and the US, one can not deny that in the end, the FTA and its dispute settlement procedures were a fundamental change in the way Canada and the US dealt with trade grievances. Although, the FTA was replaced by the North American Free Trade Agreement (NAFTA), this original free trade agreement between Canada and the US laid the foundation for the dispute resolution procedures that are still used today.
52 North American Free Trade Agreement (NAFTA) Brief History In 1994 the North American Free Trade Agreement (NAFTA) came into effect. With this agreement, Mexico became a new partner in the preexisting FTA, which only included Canada and the US. In the beginning it was Mexico that approached the United States to negotiate a bilateral US Mexico free trade agreement. The Canadian government was placed in a difficult position. Prime Minister Brian Mulroney and his majority government were at an all-time low in the public opinion polls. The last thing Mulroney needed was a new, divisive trade issue. Questions concerning the impact of the Canadian-US trade agreement on Canadian interests and Canadian sovereignty were still on the minds of many Canadians.105 Yet, the Canadian government could not afford to stand aside and let the Mexicans negotiate a bilateral deal with the United States. A Mexican challenge to Canadian exports to the US would be greater without Canadian participation in NAFTA. A bilateral agreement between the US and Mexico could result in the erosion of the advantages Canada had gained in its own bilateral agreement with the US.106 Consequently, although Canadian public opinion appeared to oppose the idea, Canada entered into negotiations to create the trilateral North American Free Trade Agreement (NAFTA). NAFTA Dispute Settlement Procedures NAFTA, which now was a three way partnership between Canada, Mexico and the US, came with a variety of dispute settlement mechanisms. NAFTA established three major formal dispute settlement mechanisms that appealed to the three member countries. These dispute resolution mechanisms included NAFTA’s Chapter 19 on antidumping and countervailing duties, NAFTA’s Chapter 20 on general disputes, and NAFTA’s Chapter 11 on investment (Trakman, 1997). Since this study focuses on the softwood lumber dispute, the resolution procedures contained in Chapter’s 19 and 20 are examined.
105 The arguments favoring Canada’s entry into NAFTA are summarized in (Crispo, 1988) and a summary of the opposition arguments can be found in (Bowker, 1998). Also see (Bothwell, 1992). 106 It has been suggested that the US, if successful in negotiating free trade with a number of Latin American countries, would have become the only country with free trade access to all the countries in the hemisphere while the rest of the countries in this area would only have free access to the US. This situation would have left these countries in a venerable position due to being spokes in a wheel dominated by the US (Wonnacott, 1990).
53 Over the 18-month negotiation period of NAFTA, Canada and the US applied the lessons learned in the three years of FTA implementation to make improvements to this new trilateral free trade agreement. In the end, the NAFTA agreement continued the policy regime established under the FTA, but allowed for improvements. Under the newly developed NAFTA, the rules become more precise, coverage more extensive, and procedures more transparent (Hart, 2002). The motivation for entering into an agreement such as NAFTA is to liberalize trade in an attempt to limit the politicalization of trade conflicts. This was attempted by the FTA and now became the goal of NAFTA. NAFTA Chapter 19 When looking at NAFTA and its dispute resolution mechanisms, one can identify two principal dispute resolution mechanisms that apply to the softwood lumber dispute. The first is titled Chapter 19. This was the cornerstone of the FTA, and although seen as a temporary section of that document, the Chapter 19 provisions became a permanent institutional arrangement under NAFTA. Almost identical to the FTA Chapter 19, this section was ultimately adopted in the subsequent NAFTA agreement as well, but not before the US rejected calls by Canada for the NAFTA countries to exempt each other from their AD and CVD actions. Contained within Chapter 19 of NAFTA are the regulations and guidelines established to deal with appeals to ADs and CVDs. Simply stated, Chapter 19 allows Canada, Mexico and the US to appeal actions brought by one member against imports of another NAFTA member. Before Chapter 19, the appeals made towards AD and CVD’s were brought to the domestic court of the NAFTA country filing the complaint (Davey et al., 1995). This then meant that before this trilateral panel system was established, the domestic courts of the member country that made the decision that a CVD or AD was a valid action would hear the case as to why these measures were a violation of fair trade. As with the FTA , this domestic handling of international issues came under great criticism. Chapter 19 of NAFTA maintained the panel system established by the FTA. This system would review and evaluate the AD and CVD actions of the member countries to see if they were complying with the overall goal of developing free trade area. This section of the
54 agreement allows all NAFTA member counties to bring their complaints to an institution that, in theory, is neutral on the matter (Appleton, 1994).107 NAFTA Chapter 20 The second main NAFTA dispute resolution mechanism that is of key importance to the softwood lumber dispute is contained within Chapter 20 of the agreement. This section of the free trade agreement developed a method for dealing with disputes that occur between member countries arising out of the agreement itself.108 Chapter 20 contains a detailed blueprint of the procedures and institutions that have been developed for the resolution, avoidance and settlement of all disputes that may arise between the NAFTA members over the interpretation and application of NAFTA guidelines. Contained in this section is the procedural red tape that mandates the actions taken by the disputing NAFTA members.109 Within this section of the agreement, the NAFTA Free Trade Commission is established.110 This Commission is given the task to supervise the implementation of the Agreement, oversee its further elaboration, and to resolve disputes that may arise. The Free Trade Commission meets at least once a year, and all decisions made by this administrative body have to be made by consensus. Adding to the administrative structure, Chapter 20 of NAFTA establishes a Secretariat. This is a governing body that performs a main function that applies directly to the softwood lumber dispute. This includes supporting the Free Trade Commission and all panels established by the Commission by acting as registrar for Chapter 19 and 20 panels that are dealing with dispute settlement issues.111 An outline of dispute settlement procedures are also contained within Chapter 20 of NAFTA. Within this section of the agreement is a requirement for all Parties involved in a dispute to “make every attempt” to reach an agreed upon solution to any dispute that may arise between member countries.112 Once the Parties have entered into a dispute settlement procedure that is outlined in Chapter 20 the procedures comprise three stages. The first stage is
107 Also see NAFTA Art. 1903, 1904, and 1905. 108NAFTA Chapter 20: Intuitional Agreements and Dispute Settlement Procedures (NAFTA Chapter 20:, 2005). 109See NAFTA Chapter 20. 110See NAFTA Art. 2001 111 See NAFTA Art. 2002 112 See NAFTA Art. 2003
55 consultation. In any dispute situation a NAFTA member country may request consultations with the member government concerned.113 If consultation cannot produce a solution to the dispute, the second stage of the dispute settlement procedures is initiated. It is this stage of the process where the country claiming wrongdoing may request a meeting of the NAFTA Free Trade Commission.114 The Commission is then placed in the difficult position of trying to find an amicable solution to the dispute within the allotted time frame. The Commission has many tools at its disposal including mediation, conciliation, or any other means of alternate dispute resolution (ADR) that might facilitate an end to the dispute in question.115 An example of an ADR with respect to the softwood lumber dispute is the Softwood Lumber Agreement (SLA). This was a five-year side agreement that was established by Canada and the US. The establishment of this ADR and its provisions will be discussed in the following chapter. However, as is the case with the softwood lumber dispute, if the member countries cannot agree to a solution through the Commission, the dispute settlement process then enters the stage that initiates the dispute settlement panel proceedings.116 Once the initiation of panel proceedings begins, an initial report must be presented to the disputing parties by the panel within 90 days of the selection of the last panelist, unless the parties involved agree on another timetable.117 The NAFTA members that have standing within this dispute may comment on the initial report within 14 days of its release. Contained within Chapter 20 of NAFTA the disputing members are obliged to attempt to resolve the dispute in a manner that conforms to the
113 See NAFTA Art. 2006. Also contained with in this section of Art. 2006 is an emphasis on the importance of a full exchange of views at the consultation stage. See Art.2006 para. 5. 114 See NAFTA Art. 2007 115 Ibid. 116The panel proceedings that are described in this section of NAFTA are very similar to the panels that are used in the GATT dispute settlement system. See NAFTA Art. 2008. Also of key importance, for the selection of panelists, NAFTA calls for a consensus roster of persons acceptable to all member countries. Panelists must have expertise or experience in law, international trade and other matters covered by NAFTA or the resolution of disputes arising under international trade agreements, and will be chosen strictly on the basis of objectivity, reliability and sound judgment. See NAFTA Art. 2009. 117 This report will contain only facts. The report will articulate a determination of whether the trade measure that is causing the dispute is or would be inconsistent with a NAFTA member’s obligation under the Agreement. Any recommendations that the panel might offer to resolve the dispute are also contained in this report. See NAFTA Art. 2016.
56 determinations and recommendations of the panel.118 If the parties involved in the dispute are unable to come to an agreed solution, or -- as has been the case with the softwood lumber dispute -- the offending measure is not removed, the defending NAFTA member must offer appropriate compensation. If compensation is not delivered, then Chapter 20 provides that the aggrieved NAFTA member may suspend equivalent benefits towards the country found in violation of the agreement until a settlement is reached.119 However, once retaliation is seen as an option, due to lack of compensation, Chapter 20 contains provisions for the monitoring of such action. Under NAFTA the member countries are to ensure that one member country’s retaliation in response to another country’s failure to comply with a panel report is not excessive.120 This section of Chapter 20 provides a guarantee against unilateral measures not authorized by the NAFTA itself. Although more structured and binding then the FTA, NAFTA still has not been able to resolve the softwood lumber dispute. Trade has flourished along both North American borders due to the trilateral agreement, yet the flow of lumber has not been an area where neither counter retaliation nor compensation has been a viable option that leads to resolution.
118 See NAFTA Art. 2018. 119 See NAFTA Art. 2019. 120 See NAFTA Article 2019.
57 Conclusion While similar in some ways, the dispute resolution systems seen in the FTA, NAFTA, GATT and WTO have some procedural differences. The dispute resolution process in both the GATT and WTO are not open to nongovernmental entities or other outsiders. The FTA and NAFTA both allow private corporations to file suits of unfair trade, and these companies then pay the legal fees connected to a Chapter 18 or 19 dispute resolution processes. 121 Since the process of the FTA and NAFTA are shorter than the GATT but longer then the WTO, these costs can be steep and burdensome. Furthermore, as illustrated throughout this chapter, within all of these agreements it is clear that laws and regulations judged to be out of compliance with the FTA, NAFTA, GATT or WTO must be eliminated or changed. If the law or regulation remains, the “winning” country can place trade sanctions on products from the country whose law is ruled against. However, it is NAFTA that is seen as having more traction on the issue of compliance concerning the removing of unfair trade legislation and rules. The reason NAFTA is seen as more powerful is that the WTO’s Panel and Appellate Body reports are not in and of themselves legally binding.122 This then means that it is within the prerogative of the country charged with unfair trade practices to keep the trade measure and face the consequences of retaliatory sanctions. However, the FTA and NAFTA panel reports are binding. Under the guise of the losing party’s domestic courts and proper administrative bodies, the law/regulation in violation must be altered to reflect the terms of the agreement.123 That being said, there is no question that advancements have been made concerning the dispute resolution systems of the GATT, WTO, FTA and NAFTA. The FTA, criticized for its lack of institutional ability to mediate and resolve disputes, evolved into the more efficient and effective NAFTA. The GATT, the founding agreement establishing the panel dispute settlement systems that are a staple in all dispute settlement systems, generated the structured, well defined, time efficient dispute resolution process now utilized by the WTO. The judicial structures that
121 NAFTA Art 1904 para 2, 7, and NAFTA Art. 1911. 122WTO DSU, Art.16 para 4, Art. 17 para 4. 123 NAFTA Art. 1136 para 1,2,5 and 6. Also see NAFTA Art. 1908 para 4.
58 have been outlined throughout this chapter have all aided in the adjudicatory oversight of free trade and the diminishing of free trade barriers. However, although free trade is the end goal of these dispute settlement procedures, these systems have only resulted in managed trade when dealing with the Canadian-US softwood lumber dispute. Nonetheless, it is not my contention that Article XXII of the GATT, the first 19 Articles of the WTO Dispute Settlement Understanding, Chapters 18 and 19 of the FTA, or Chapters 19 and 20 of NAFTA have failed to provide a legal structure that allows for the appropriate litigation of alleged free trade violations. I support the argument that the dispute settlement systems presented contain a degree of impartiality that allows for a fair determination of rule violation. To explain the softwood lumber disputes’ longevity, one needs to focus on what occurs once a member is found to be in violation. A successful dispute settlement is not only dependent on a fair arbitration process but is also dependent on a member country’s ability to invoke retaliatory measures granted by the dispute resolution procedures. Thus, although dispute settlement procedures have attempted to make free trade fair trade, the reality is that retaliatory measures, in some cases, fail in deterring unfair trade practices. Thus, it is this end stage of the dispute resolution process that needs to be reexamined if free trade is to become fair trade. When looking at the softwood lumber dispute, the following chapters will illustrate that it is this final stage of the dispute settlement process where dispute resolution falls short. Canada’s position as the smaller power within the asymmetrical relationship of NAFTA, combined with the degree of integration that has occurred due to developing a free trade region within North America, places Canada in an asymmetrical relationship that renders the one-on-one sanction retaliation against the US an option that is impractical. This type of retaliation harms the Canadian economy in the end, making Canada cut off its nose to spite its face. In conclusion, if a country is limited in its ability to suspend equivalent benefits towards the country found in violation of free trade, then, as will be illustrated by the softwood lumber dispute, the war rages on.
59 CHAPTER III History of the Softwood Lumber Dispute Overview “We’ll get timber fixed.”
Trade Representative Clayton Yeutter, 1986. 124
Because the softwood lumber trade dispute between Canada and the United States (US) has continued for such a long period of time, any study of this dispute must first examine its history. In this chapter, I focus on the history that surrounds the softwood dispute. The chapter begins with a brief overview of US Canadian trade relations concerning softwood lumber in general, and then leads into a broad outline of the dispute itself. The chapter then proceeds with an overview of the terms that are associated with the softwood lumber industry and the dispute that surrounds this commodity. The chapter continues by providing a detailed explanation of the differences between the Canadian and US softwood lumber management systems. It is then suggested that the differences in woodlot management represent the heart of the conflict. The focus then shifts to the effect these differences have had on the free trade of Canadian softwood lumber. It will be illustrated that, due to these differences, both sides of the dispute believe that the other is acting in an unfair and biased manner. Subsequently, a detailed discussion of how these two neighbors/allies have fought throughout the history of this dispute is presented. The tactics each country has used to try to sway the dispute in its favor are examined. After this chronological account, the discussion examines where the dispute stands at present. The chapter ends by concluding that, although free trade is the goal, there can only be managed trade in this area where access for Canadian softwood in the US market is driven by political compromise and not market forces.
124 In 1986 Trade Representative Clayton Yeutter attached a personal note at the bottom of a letter to an American senator seeking support for free trade negotiations with Canada (Whiteley, 2003).
60 History of Free Trade and Softwood Lumber The United States and Canada are fortunate to benefit from one of the most open trading relationships in the world. This union is based on free market principals, which includes trade without tariffs, quotas or other restrictive regulations. However, one commodity Canada and the US have not been able to trade freely is softwood lumber. The reason behind the log jam is directly connected to the softwood lumber industry’s status as a key staple of economic prosperity in both countries. 125 The softwood lumber industry is one of Canada’s top five exports; thus, jobs and income in this industry, which are largely concentrated in British Columbia, are of key concern to the Canadian government. Similarly in the US, the softwood lumber industry has had a direct economic impact on states in the South and Northwest, and in these areas this industry is the sole resource of local revenue and jobs. Canadian softwood lumber exports began to concern the US lumber industry during the recession of the 1980’s (Gorte, 1986). During this time the export of Canadian softwood lumber increased and captured a 30 percent share of the US market. This increase was a direct result of the housing boom that occurred in the US during the 1970’s. From 1975 to 1978, the Canadians increased their market share of softwood lumber form 18.6 percent to 28.1 percent (Ibid.). During this time, Canadian softwood lumber was welcome across the border. However, the recession during the Reagan administration prompted a different reaction. When dealing with softwood lumber and the forestry industry in general, one can estimate the industry’s growth or decline by the housing index. Thus, the controversy over softwood lumber came to a head in 1979 when Canada and the US where both hit with high inflation rates combine with high interest rates that ended the 1970s housing boom and brought it to a standstill (Doran and Naftali, 1987).126 However, even with the US demand for softwood
125 US-Canada trade conflicts concerning the lumber industry can be traced all the way back to 1820. It was during the Napoleonic Wars that the Canadian lumber industry was given momentum due to Britain’s supplies of Baltic pine and spruce being brought to a halt. Canada, as a member of the Commonwealth, was an obvious replacement for the supply of timber to Britain. Britain also looked to both Canada and the US during World War I and II for its supply of softwood lumber. Following the softwood lumber time line, during the 1970’s a conference between Canada and the US took place where the US asked for assurances that Canada would be able to sufficiently provide the US with timber and other forest products (Canadian Institute, 2003). 126 Housing during 1978 to 1982 went from 2.0 million units to 1.3 million units in the time frame of two years (Doren & Naftali, 1987).
61 declining the Canadians maintained their share of the American market (Gorte, 1986).127 In the end, it was the recession that highlighted the differences in the Canadian and US softwood lumber practices and thus prompted the Americans to close the border to Canadian softwood lumber.128 The Dispute in Brief As illustrated in the previous section, all is not well in the region of North American free trade. A clashing of interests has occurred along the 49th parallel that involves 2x4 studs, politicians, lobbyists, special interests and private sector profits. Beginning in the 1980s, Canada and the US have been engaged in four documented softwood lumber trade disputes. These conflicts have been given the titles of Lumber I, Lumber II, Lumber III and the fourth being The Softwood Lumber Agreement (SLA). All of these trade negotiations were attempts to avoid a fifth dispute. However, as of March 2001 the fight continues and has been given the title Lumber IV (British Columbia, 2004). The commodity that started this feud between Canada and the US is classified as “softwood” lumber, which is also known as structural, construction grade lumber. This type of wood is commonly used for production of wood commodities. Softwood trees include spruce, pine, fir, larch, cypress, redwood and yew. Softwood lumber is easy to saw and is usually put to work in structural building components. It is also found in other products such as furniture and millwork, which includes moldings, doors, and windows ("Softwood Lumber," 2004). As with all disputes this feud has two sides. Over the past 20 years, the US has protested that Canada, when dealing with its softwood lumber industry, does not use a modern market- based system. The provincial and federal governments of Canada control Canada’s current wood lot system. Thus, the US position asserts that due to Canadian governmental intervention, normal market conditions do not determine the price of Canadian lumber. Therefore, the US claims that the Canadian lumber producers have an unfair advantage over their US counterparts. US lumber producers argue that they can compete with Canadian companies, but not if the
127 There are three reasons the Canadians were able to maintain their share of the US market. First, the Canadian dollar fell and gave the Canadian’s an exchange rate un US dollars that dropped from 0.86 to 0.80 giving Canadian exports an advantage. Second, Canadian sawmills were more automated then in the US, and third, the Canadian system of forest management lessened the impact of the recession (Gorte, p. 6, 1986). 128 Ibid.
62 Canadian government keeps intervening. This Canadian government involvement, through public ownership of a majority of the Canadian woodlots, is seen by American producers to constitute a prima facie case for subsidy. The Canadian government does not believe that they are interfering with the normal functioning of the market for this commodity. The Canadian position states that this industry is being kept out of the US market, not because of governmental interference, but instead by the strong lobby of the private US softwood lumber woodlot owners. The Canadian provinces accused of tampering with the free market refuse to change their softwood lumber procedures, and the US continues to place tariffs on the imported softwood from these areas. This leaves the trade war unresolved and moving into its fifth round of negotiations. Overview of Terms As with most industrial sectors, softwood lumber has developed a vocabulary that is technical in nature. Before the discussion of the intricacies surrounding this industry can be explained, one must first become familiar with the terminology. When referring to land ownership in the softwood lumber context one is referring to the ownership classification of the woodlots. In this context, a woodlot can be privately owned or publicly owned. Public ownership refers to government ownership, and in Canada this type of land is referred to as Crown land. The reason for the title of Crown land reverts back to Canada’s history as a member of the Commonwealth, where all government ownership was, and for all intents and purposes is still, the property of the monarchy (Canadian Institute, 2003). Due to government/crown ownership of woodlots, the manner in which these lands are harvested is organized by what is termed as a tenure system. These systems are legal agreements made between the Crown land holder, the respective government who has ownership of the woodlot, and a private lumber company. This tenure system allows a private company to “rent” the publicly owned land (Ibid.). Stumpage rates are then the term that refers to the rate at which the company is able to “rent” the land. In essence this is the price the government charges for its standing timber to be cut (Ibid.). Standing timber refers to those trees that have yet to be harvested. Once the timber is cut it is then measured in a unit of volume known as a board foot (bf). This is the unit of analysis that is used when dealing with large volumes of harvest wood. The dimensions of a bf are 144 cubic inches, or one square foot of one-inch thick board (Central Wisconsin, 2005).
63 When dealing with the softwood lumber dispute the unit of measurement, bf, is used to determine the amount of lumber allowed to enter the US from Canada. Once the bf limit has been breached, the US is then able to place a countervailing duty on the excess. A countervailing duty is a fee that is imposed on an imported product in an attempt to protect domestic producers from injury caused by the imports that have been subsidized by the exporting country (Rothgeb, 2001). A subsidy is a non-market based tool that allows a government to provide an advantage to a specific industry. Subsidies can be classified as direct and indirect government grants on the production or exportation of goods. They can take many forms, including direct cash payments, credits against taxes, and loans with artificially low interest rates. However, for a subsidy to be considered a benefit to a foreign industry, the US International Trade Commission (ITA) has to conduct a general availability test to determine the specificity of the subsidy in question (USTA, 1979).129 What this means is that if the ITA finds that a subsidy is directed at a specific industrial group, therefore determining its specificity and general availability, the subsidy then has to fall into one of four categories before the US is able to proceed with the legal action of imposing a countervailing duty. These four categories include:
1. The provision of capital, loans, or guarantees on terms inconsistent with commercial considerations; 2. The provision of goods or services at preferential rates; 3. The grant of funds or forgiveness of debt to cover operating losses sustained by a specific industry; or 4. The assumption of any costs or expenses of manufacture, production, or distribution. (Ibid.)
Within the softwood lumber dispute there has also been the accusation of the Canadians dumping softwood lumber into the American market. For a country to be accused of dumping, generally this means that the country in question is selling goods in the US market at prices
129 US Trade Agreements Act of 1979, Public Law 93-39, July 26, 1979, 771[S](B) (i)-(iv).
64 lower than the prices at which comparable goods are sold in the domestic market of the exporter. The sale of these goods in the US market then causes injury to the competing US industry.130 Differences between the United States and Canadian Lumber Systems The differences between the varied lumber procedures of Canada and the US are a direct cause of the conflict concerning softwood lumber. The officially stated explanation of this dispute is suggested to stem from seven areas. These sources of conflict are listed below in approximate order of priority. 1. Differences in forest land ownership and tenure systems. 2. Differences in the level of stumpage rates and how they are established. 3. Differences in regulatory requirements. 4. Differences in the scope and nature of the forest management responsibilities undertaken by companies operating on publicly owned forest land in Canada compared to companies purchasing timber from private wood-lots in the US. 5. US market demand for softwood lumber. 6. Recent changes in US trade law that provides for US companies to share in the financial benefits resulting from a lumber import investigation. 7. The physical/mechanical qualities of Canadian softwood lumber when used in construction. (CIF, 2003)131
Although these seven areas are not mutually exclusive, it is clear that the first three causes of this dispute encompass the foundation of the unfair trade accusations that the US has levied against the Canadian forest industry. American producers maintain that the multifaceted configuration by which Canadian provinces handle and price their softwood timber in effect
130 US Department of Commerce International Trade Administration Rev. 1/91 131 These seven areas of conflict were taken from the (Canadian Institute, 2003).
65 generates a subsidy to Canadian softwood producers.132 The US further alleges that this subsidy harms American softwood lumber producers because it leads to a higher volume of Canadian softwood lumber exports to the United States, which in turn lowers US prices and squeezes out
American producers. Thus, the US’s contention is that the Canadian system does not reflect the free-market style lumber system that the US follows, which, in turn, is unfair to US softwood lumber producers. The American lumber sales system, under the current system run by the US Forest Service, is outlined below; 1. US Forestry Service prepares a timber sale by: identifying the sale site; planning the roads and cutting prescriptions (i.e., which trees will be cut and which will be left); appraising the timber (to establish minimum acceptable bids); preparing the supporting environmental documentation; and advertising the sale in a local newspaper; 2. US Forestry Service awards the contract to the qualified bidder who offers the highest bid (usually at an oral auction), determined as the total value for the estimated volume at the bid rate for each species; and 3. US Forestry Service administers the contract by: checking road construction to assure that standards have been met; checking harvest area to assure that stumps are low enough, that all merchantable material is removed, and that only marked trees have been cut and removed; and spot-checking the scaling (measurement) of the wood removed in scaled sales, to assure that the purchaser is paying all that is due. 133
The Canadian softwood lumber system is essentially run under provincial jurisdiction, which means that each provincial government has the ability to run the publicly owned woodlots
132 As noted earlier, a subsidy is seen as a payment provided by a government which is directed towards exporters. This payment is an attempt to give an advantage to the exporter in foreign markets by reducing the cost of the exported good in foreign markets (Rothgeb, 2001).
66 in the manner it deems to be beneficial to its constituents. In Canada, the majority of timber lots are mostly public land or what is known as “Crown land”. The Canadian governments, federal and provincial, hold up to 95 percent of the harvestable timber (CCFM, 1997).134 In the United States, it is estimated that 73 percent of the wood lots that are used for production are privately owned.135 These differences in ownership are a direct result of differences between the two countries’ tenure systems.136 In the US, due to the high quantity of timber that is harvested on privately-owned land, the private owner is not subject to tenure systems of harvest. Because the Canadians have such a large amount of public land that supplies softwood lumber, the Canadians have devised multiple tenure systems that allow for the private logging of these public areas. These Canadian tenure systems fall into three categories; 1. Long Term Agreements: a private company (US or Canadian) is granted a license to manage a predetermined, well-defined area of Crown land for a period of 15 to 20 years. No longer then 20 years is permitted, and the company must follow the regulations to uphold polices associated with the Canadian long-term sustainable forest resource management strategy. These agreements are usually subject to review every 5 years. These reviews are to ensure that the company is in compliance with the regulations that permit the company to maintain its operations. 2. Long and Medium Term Volume Allocations: a private company (US or Canadian) is granted a license to remove a set volume of wood annually from a predetermined, well defined area of Crown land that is under the management of the provincial
133 CRS Report: 95-1077 ENR 134 The Canadian Council of Forest Ministers, Compendium of Canadian Forestry Statistics 11 (1997). Available at: http//nfdp.ccfm.org/framesinv_e.htm. Also see: Tree Map 1: Canada’s Forests, in appendix for an illustration of the amount of forestry under the guise of Crown land. 135 See appendix: Table 1: Pattern and Division of Land Ownership in Canada and the US, Table 2: US Ownership of Forest Land, Graph 2: Forest Ownership in the Eastern United States, and Graph 3: Forest Ownership in the Western United States. 136 As stated previously, a tenure system is the agreement made that allows a company to “rent” the publicly owned forested land for lumber production.
67 jurisdiction. In this agreement, the province is responsible for implementing the regulations to uphold polices associated with the Canadian long-term sustainable forest resource management strategy. 3. Short Term Agreements: a private company (US or Canadian) is granted a volume-based permit. These permits are for periods of 1 to 10 years. These types of permits are only used for Crown land that is under long-term sustainable forest management plans. These permits are usually not renewable and are only available to those organizations that do not have ownership of a mill facility (Canadian Institute, 2003).
As the officially-stated second source of conflict in this industry, these differences in ownership lead to perhaps the most important variations in forest management. Unlike the United States, Canada charges lumber companies a fee to harvest the wood on public land.137 These fees are called “stumpage fees” and are set by the respective government that owns the land (Canadian Department, 1999). Thus, Ontario sets different fees than the province of British Columbia and so forth. How a stumpage fee operates is a direct result of governmental ownership of the majority of harvestable land in Canada. This fee is the cost of allowing land titled as Crown land to be “rented” to a private lumber distributor. The prices agreed upon for private use of this government land is what is termed a “stumpage rate” (Ibid.). Even though these stumpage fees and rates are set by the respective Canadian governments, the Canadians argue that these fees are “at a level that reflects the realities of the marketplace and forest management responsibilities of the company” (CIF/IFC, 2002, p.3). However, the US disagrees and maintains that these renter/stumpage fees are set too low compared to the market price determined by the auction system employed by the Americans. In the US, most wood from publicly owned forested land is sold by auction on the open market. Wood from privately owned forested land is sold on the open market through a variety of buyer/seller agreements. Thus, the
137 It is important to remember that US private land contributes to 80-85 percent of the US supply of industrial wood. Thus, the US does not have to deal with harvestable public wood lots in the same capacity as the Canadians.
68 Americans conclude that the stumpage fees, which are a direct result of the tenure systems in place in Canada, have created a subsidy for Canadian softwood lumber (Coalition for Fair, 2005). These stumpage fees have always been the focal point of this long running trade dispute. The Americans argue that these stumpage fees equal a subsidy due to allowing harvesting in Canada to occur at a lower then market value. US lumber producers want the Canadian provincial governments to follow the American system and auction off timber contracts at market prices. However, decades of trade negotiations and temporary agreements have not been able to change the lumber practices of certain Canadian provinces.138 What these trade actions and temporary solutions have done is prevent free trade in softwood lumber from taking place. Thus, the Americans take the position that the Canadian government unfairly subsidizes Canada’s softwood forest industry, and the Canadians vehemently deny the accusations.
138 Since the majority of lumber harvested in the Canadian Maritimes originates from private woodlots, these provinces are not subject to the trade dispute. However, these provinces, Prince Edwards Island (PEI), Nova Scotia (NS), New Brunswick (NB), and New Found Land (NFL), are the four smallest Canadian provinces and thus, private ownership was a viable option. See: Tree maps 1 and 2 for a geographical representation of the area of crown land that is represented in the other larger Canadian provinces.
69 The American Argument The Americans blame low prices of board foot on unfairly priced Canadian imports.139 The softwood that Canada exports to the US consists of fir, pine and other cone-bearing trees which are used to produce building materials such as 2x4’s. The US lumber industry wants the Canadian stumpage system to change. The US asks that the stumpage fees reflect market pricing thus putting a stop to what the US believes to be a subsidy.140 The trade actions that have been taken by the US have had some results. There are some provinces, Nova Scotia, New Brunswick, New Found Land and Prince Edward Island, which have made some fundamental changes to their softwood lumber practices.141 However, the main producers of Canadian softwood lumber -- British Columbia, Québec, and Ontario -- refuse to make the system-wide reforms that the Americans suggest. Indeed, the province that accounts for nearly 60 percent of total lumber exports to the US, British Columbia, also has the highest degree of public ownership of harvestable forest in the world and, arguably, is the most interventionist (Wilson et al., 1998).142 Thus, the United States feels that it must continue to practice protectionism through the launching of a CVD action against the Canadian lumber exporters. The US will continue the policy practice of blocking Canadian softwood at the border until changes to the Canadian system take place. The frustration felt by Americans is illustrated by a US securities analyst stating: In short, the Canadian forest industry is run in the same way as the controlled economies of the former eastern bloc. Bureaucrats and politicians allocate the resource and determine its value. It took 50 years for the East Bloc economy to collapse because of misallocation and mispricing of resources and we have no doubt the Canadian timber tenure system will collapse for the same reasons. (Kerr, 1998, p. 11)
139 As previously mentioned, a board foot (bf) is a unit of volume for wood equal to 144 cubic inches, or one square foot of one- inch-thick board (Central Wisconsin, 2005). 140 See: Graph 1: US Department of Commerce “Canadian Stumpage is Heavily Subsidized: Commerce Preliminary Decision.” 141 As stated earlier it has been the choice of these provinces to see private ownership as a viable option. 142 see Graphs titled: “British Columbia is responsible for over half of the Canadian softwood lumber to the US” and “Softwood lumber exports to the US. Constitute a substantial portion of total B.C. origin exports.”
70 To understand the US argument, there are two unfair trade practices that the Canadians need to address. First, Canadian governments, provincial and federal, have to stop setting stumpage rates that are suggested to average 50 to 75 percent below market price. Secondly, the Canadians have to eliminate the dumping of softwood lumber into the US at prices below the cost of production (Brissett, 2002). If the Canadians cooperate, and follow the US recommendations, the US has stated that it will open the border to Canadian softwood lumber. The main challenge for the US industry is to convince Canadian producers that, if they were to do away with the stumpage based system, that the US industry would not disrupt bilateral trade in lumber at a future date. In other words, due to the long history of the dispute, Canada may need some assurance that once the changes are made that the border will remain open. The provinces and Canadian industry are discussing among themselves what a guarantee of market access could entail. When examining the current stages of this dispute, US efforts to restrict Canadian lumber imports are likely to continue in the future. The Canadians’ ability to develop an agreement among provinces and producers that would satisfy the American argument is limited by the Canadian federal system of government.143 Provinces vigorously guard their autonomy over forestry policy and the wood products industry, making it difficult for the Canadians to agree on a common method of production.
143 The present condition of Canadian federalism is not that envisioned by the Canadian founding Fathers. Their intention was to provide a strong central authority where the provinces would be subordinate to the national interest; however, this has not been realized. The contemporary situation is one in which “the balance of power between federal and provincial governments, which the Fathers believed should incline decisively toward the Dominion, has now fallen sharply towards the provinces” (Creighton, 1972, p. 65).
71 The Canadian Argument The Government of Canada believes that US trade actions against Canadian softwood lumber are inconsistent with US law and international trade obligations. The argument brought by the US, regarding the advantage given by the stumpage system, is one that the Canadians believe is flawed. The Canadians argue that the manner in which the Americans compared the two lumber systems was, and still is, an impulsive, illogical exercise. Canada denies that the stumpage system being followed by the provinces in question, British Columbia, Québec, Ontario, and Alberta, classify as government subsidies. The fundamental frustration is we are dependent on US markets, yet we are sitting here year after year being attacked by phony arguments. And we seem to have no recourse,. ...We have a right to access and fair trade. I would fight to my death the notion that there is any kind of stumpage subsidy. It is not a subsidy. (Emerson in Brown, 2001)
There is no disputing that the Canadian and American systems of harvest are different. Unfortunately, this is the only fact that both countries can agree on, as illustrated by the statement made by Duncan K. Davies, the chief executive of a Canadian softwood lumber company named Interfor; We have a system in Canada that is different from the United States. That doesn’t mean that it is wrong. It is just different. The Canadian government is not about to privatize the land base to match the US system. Every time this issue has come before any tribunal, the decision has been that the Canadian system is not subsidized (Davies in Brown, 2001).
One argument that the Canadians are yelling from the tree tops has to do with differences in the scope and nature of the forest management responsibilities. It is suggested by the Canadians that Canadian softwood producers endure more costs due to Canadian government regulations.144 Emerson, a Canadian softwood lumber producer, states that a Canadian company
144 As noted earlier this is the fourth officially stated explanation of this dispute (Canadian Institute, 2003).
72 must, because of the Canadian government’s regulations, landscape and replant the land where they have cut, which makes up for low stumpage fees. “Where you disrupt the forest, you have to landscape where the road was and restock, all of which costs a lot of money” (Brown 2001 p. 1). Also included in the Canadian rebuttal of the US argument are the differences that exist between the quality and quantity of timber present in the two countries. Because the Canadians have a smaller population in a much larger land area, it is then not surprising that Canada has substantially more softwood lumber available for harvest. This combines with the colder Canadian climate to create much different softwood than the American equivalent. These two geographical differences combined are then added to the differences in terrain and accessibility. In Canada, much of the harvestable Crown land is located in areas that are largely inaccessible. The reason for this inaccessibility is a lack of roads. The Northern Canadian terrain sustains few people due to climate and isolation. These issues summarize many of the difficulties in comparing the softwood lumber industry across national boundaries. These matters of geography are seen and stated as the official explanations of this dispute and a major source of the conflict (Brown, 2001). The Canadians have also noted that the US is not without government intervention in this industry. The US offers incentive packages for the timber industry to locate manufacturing operations in specific states, to upgrade and expand existing facilities, and to generate jobs in the American economy. States have developed, with government monies, what has been termed “technical assistance teams.” These teams are designed to help lumber companies with the numerous environmental regulations they must meet.145 The Canadians also argue that in the US, tax credits against income and sales taxes are also popular subsidies for the softwood lumber industry. These types of tax exemptions granted to the US softwood lumber producers artificially lowers the actual cost of production by elevating costs generated by the purchasing of equipment, supplies and other necessities needed for the harvest of softwood timber. Thus, the Canadians argue that there are many examples of
145 This type of environmental aid is illustrated by Montana’s Department of Natural Resources (DNR). The DNR of Montana has developed a “Forest Stewardship” program. This program administers an insect and disease management program and offers forestland owners government resources to help facilitate compliance with water quality rules. The Montana Division of Forestry (MDF) also has programs designed to encourage the lumber companies to reforest after they harvest the standing timber in Montana. This state also provides technical assistance, interpreting laws and regulatory procedure to ease the permitting process (American Consumers, 2004).
73 state and local subsidies in the US softwood lumber industry. They range from states issuing development bonds to build facilities that are then leased back to the respective lumber companies, building roads and infrastructure at taxpayer expense for new or existing facilities, abatement incentives, and training and economic development programs.146 The reasoning behind this internal subsidization of the softwood lumber industry by the US is the simple reality that these funds help the states compete with the heavier softwood producing states. This form of horizontal equalization among states shows that the structure and functions of American federalism also plays into the softwood lumber dispute. Canada asserts that it is unfair to impose restrictions based on domestic political pressure from small softwood producing states and, thus, the trade war is one that has no merit (Canadian Institute, 2003).
146 North Carolina is an example of a state that has and continues to provide tax credits for industries, including timber, which creates new jobs. North Carolina, by using the William S. Lee Quality Jobs and Business Expansion Act, has the ability to offer investment and training tax credits with a range from $500 to $12,000 per job created. According to the ACAH, “Wisconsin Tissue recently announced it would build a new paper recycling plant in Halifax County. That county qualifies for the highest level of incentives, and the plant will bring more than 150 new jobs into North Carolina. The state provided more than $35 million in tax incentives to Wisconsin Tissue, with $31 million coming from tax credits based on the value of the new equipment.” (Ibid.).
74 History of the Softwood Lumber Dispute Lumber I The United States and Canada took their respective corners in 1981, the bell rang and the US came out swinging a countervailing duty petition.147 Canadian imports of softwood lumber have been a source of aggravation to US lumber producers since at least 1962. However, as noted earlier, the feud has intensified in the past 20 years and in 1981, as a result of a US recession and decline in US lumber demand, lobbyists supported by special interests approached the US Congress to authorize the US Commerce Department to investigate whether the Canadian lumber licensing system constituted a subsidy that would warrant imposing a countervailing duty (CVD)148 on Canadian lumber.149 In 1983, the US Department of Commerce (DOC) concluded that there was no evidence that Canadian producers were being subsidized. Thus, in this first round of this 20 year dispute, the US DOC found that the Canadian stumpage system did not amount to countervailing subsidies; the reasoning behind this first ruling was based on American trade law. For the US lumber producers to be granted a CVD the “subsidies have to be directed at a specific industry or group of industries. Subsidies that are generally available are not countervaiable” (British Columbia, 2002). This first ruling by the DOC also went so far as to say that the two systems used by each country were so dissimilar that comparing them is like comparing apples and oranges. “Comparing Canadian stumpage fees would be arbitrary and capricious in view of the wide differences between species composition, size, quality, and density of timber; terrain and accessibility of the standing timber throughout the United States and Canada” (USDOC in Lindsey et al., 2001, p. 2).150
147 The U.S.-based Coalition for Fair Lumber Imports first filed a petition in 1982. It claimed that the Canadian government's timber programs offered lumber to the Canadian softwood industry at a price 27 percent lower than the U.S. rate. Due to this government intervention by the Canadians, the stumpage system was classified as a subsidy and investigated to determine if it was a subsidy that was countervailable. 148 As previously stated, a Countervaling Duty (CVD) is defined as a fee imposed on an imported product. This fee is designed to protect a countries domestic producers from injury caused by imports that have been subsidized by government (Rothgeb, 2001). 149 The Canadian lumber system includes the tenure systems, regulatory requirements, and the differences in the level of stumpage rates and how the stumpage rates are established. 150 Also see: US Department of Commerce (DOC) International Trade Administration (ITA),“Final negative countervailing duty determination certain softwood lumber products from Canada.” Federal Register, vol.48, no.105,31 May 1983.
75 Lumber II With the first round over, the Canadians continued their lumber practices. The Canadian share of the US lumber market had increased from 28.5 percent in 1983 to 31.6 percent in 1985 (Percy and Yoder, 1987). However, these increases were about to be blocked, and the trade war was just beginning. Though a scoring blow for the Canadians, the USDOC ruling known as Lumber I, did not deter the Americans from starting the second round in 1986. This second round, known as Lumber II, started in a similar manner as the first round. The Americans came out swinging their weapon of choice, the CVD petition. This time the CVD worked: The US DOC, reversing its previous statement, said that the Canadian stumpage system was countervailable (USDOC, 1986). This change in ruling was seen by the Canadians as a direct result of domestic pressure from US softwood lumber interests; the US government imposed a 15 percent CVD in response to the International Trade Commission’s (ITC) judgment that Canadian producers were indeed being subsidized. The reasoning for the 15 percent CVD was due to the US findings suggesting that the Canadian stumpage systems that were being used during this time conferred an average subsidy of 15 percent and that these stumpage fees were subsidies directed at the softwood lumber industry specifically.151 The Canadians, trying to minimize the damage that would be felt by the impending CVD, were swift to act. Canada had brought the matter before the Committee on Subsidies and Countervailing Measures with the General Agreement on Tariffs and Trade (GATT).152 However, in 1986, before the final stages of the CVD were implemented, the Canadians and the Americans agreed to a Memorandum of Understanding (MOU) and Canada withdrew its complaint with the GATT panel.153 The advantage Canada would obtain by entering into a MOU was that the agreement would generate an export tax paid by the Canadian lumber producers to the Canadian government instead of the US Treasury. With a CVD, the money generated by the closed border would have lined the pockets of the US government.
151 Because the Canadian softwood lumber industry was now classified by the USDOC in this round as a “single industry” the US Commerce Department could legally reverse its precedent decision. 152 General Agreement on Tariffs and Trade (GATT), Basic Instruments and Selected Documents, 34 Supplement (Geneva, 1987), 194-7. 153 A Memorandum of Understanding (MOU) can be classified as a Voluntary Export Restraint (VER).
76 In this deal of mutual understanding, Canada would place a 15 percent export tax on all softwood lumber that was headed south. This self-imposed 15 percent export tax on Canadian lumber was seen as a way to counteract the US findings that suggested that the Canadian system gave a financial contribution that benefited the Canadian softwood lumber industry (MOU, 1986). This benefit was seen by the Americans as an average subsidy of 15 percent. Thus, under this MOU there would not be any advantage given to the Canadian lumber companies (Wear and Lee, 1993). Lumber III Under the MOU, Canada was allowed to lower the 15 percent tax if “measures were implemented that would replace some or all of the export tax” (BC Stats, 2003, p. 3). Canada believed that the four provinces covered by the MOU, which were the major lumber exporters, had made adequate modifications to their lumber practices that raised their stumpage rates to the agreed 15 percent in 1991. To make this determination, the Canadians compared its government forestry costs and revenues of the major Canadian provinces to the American Timber Sales Program Information Reporting System (TSPIRS). At the end of the analysis, the Canadians concluded that the provinces had produced revenue that exceeded the costs of production. Consequently, Canada decided that these provinces should not be regulated by the MOU rules due to their alterations to their subsequent lumber systems.154 On September 3, 1991, Canada terminated the MOU. However, the Americans disagreed with Canada’s determination. The Canadian termination of the MOU would allow the provinces to return to their original programs. Therefore, the US DOC initiated the softwood case and placed an interim-bonding measure on all exports entering the United States after the 4th of October 1991.155 The US DOC also added a second investigation concerning British Columbia log export restrictions. British Columbia was now also being accused of only allowing logs to be exported if the needs of the British Columbia domestic industries had been meet. Because British Columbia’s domestic supply was adequate, log prices remained low, and therefore, the US DOC
154 Canada, News Release No. 232. 155 Ibid.
77 ruled that British Columbia lumber was still being subsidized. Thus, by terminating the MOU Canada began round three of the softwood lumber dispute.156 Because this termination sparked yet another investigation by the US DOC, the US now had to prove again that the provincial stumpage programs and BC’s log-export restrictions generated a subsidy that damaged the competitiveness of the US softwood lumber industry. If the actions of the Canadians were found to be damaging, the US would be justified in placing a countervailing duty on the Canadian lumber coming across the border in an attempt to offset the discrepancies between the US and Canadian softwood lumber markets. The ruling handed out in May 1992 stated that the Canadian system was still unfair to American produces: “The Commerce Department found a subsidy of 6.5 percent. This figure was based on a 2.91 percent weighted average subsidy plus an additional subsidy of 3.6 percent as a result of British Columbia export restrictions on logs” (USDOC, 1989, 36).157 This final assessment made by the US DOC was one that the Canadians termed “unjustified” and the product of American domestic political pressure. The DOC stated that the competitive-bid, non- preferential prices being set for provincial timber and prices for private timber were appropriate because both were being determined by the market. The issues of the past seemed not to be the problem. However, even though the competitive-bid price for the Canadian timber was being set according to the highest bid the industry would pay for timber, the industry was seen as counterveilible due to the private companies in Canada not harvesting timber according to demand and supply of the market. In Canada, the respective governments set the prices based on rotation lengths determined by biological criteria and not economic standards. The DOC noted that these private harvests on Canadian government land were often larger than the demand present in the market. This then forced the government to reduce the price of the timber due to over supply. According
156 Ibid. 157 The DOC used section 355.44(f) of the Countervailing Duties; Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 23366 May 31, 1989 (Proposed Regulation), to develop a system to determine if the governments of BC, AB, QC, and ON provided subsidies. In accordance with this statute, Commerce decided that comparing the provincial programs administratively-set prices for timber with either (1) competitive- bid non-preferential prices for provincial timber or (2) sale prices for private timber within the same jurisdiction would determine a subsidy. However, this type of calculation was not a long-standing practice. Therefore, in accordance with procedure Commerce had to "(1) offer a reasonable and rational explanation" for using this criteria, and (2) demonstrate that the new practice was not inconsistent with the applicable statute."
78 to the DOC this then meant that a subsidy existed because the sale prices from the private land and the competitive-bid prices were higher than the price set by the Canadian government.158 In addition to this final decision, the DOC then examined the British Columbia log export restriction program to prove that the British Columbia government provided preferential treatment, which in turn is a subsidy, to a specific industry. This action was a surprise to the Canadians due to the DOC’s established practice that export restrictions during this time generally did not mean that a countervailing subsidy existed. However, the US DOC made the suggestion that the British Columbia restrictions on exports did not only affect the export market, but these restrictions also took a toll on the lumber sold in the British Columbia market. Thus, the export restriction, according to the DOC, could be classified as a type of domestic subsidy.159
The DOC maintained that the British Columbia domestic subsidy was countervailing because the domestic subsidy provision of US trade law stated that a subsidy that was similar to a “grant or bounty” was countervailing.160 The US DOC supported this argument by stating that according to US legislative history, the US Congress intended to incorporate the same administrative and judicial practices construing the term “bounty or grant” under section 303 into the definition of a subsidy. The DOC articulated this argument with a statement made at the 96th session of Congress in 1979. According to the DOC the term subsidy: [h]as the same meaning which administrative practice and the courts have ascribed to the term `bounty or grant' under section 303 of the Tariff Act of 1930, unless that practice of interpretation is inconsistent with the bill.161
158 Report of the Panel adopted by the Committee on Subsidies and Countervailing Measures on 27 October 1993 (SCM/162) 159 This ruling by the DOC created problems of legality. Nowhere in the US domestic subsidy provision 771(5)(A) was an explicitly stated that this type of preferential treatment provided by a foreign government could result in a countervailing duty determination. Thus, the US DOC continued by presenting section 303 of the Act, 19 U.S.C. 1303, which stated that: “Whenever any...country shall pay or bestow, directly or indirectly, any bounty or grant upon the manufacture of production or export of any article or merchandise produced in such a country, then upon the importation of such article or merchandise into the United States, there shall be levied and paid, in all such cases, in addition to any duties otherwise imposed, a duty equal to the net amount of such bounty or grant...” 160 See: Section 303 of Act, 19 U.S.C. 1303. 161 See: 96th session of Congress in 1979
79 In the end, the DOC concluded that the US Congress did not intend to limit the term or the remedies provided under the provision of “domestic subsidies.” To support their position, the DOC also noted that the GATT and the GATT subsidy code did not outline the limitation of making such a connection. Since no international trade laws prohibit such a connection, the US thought itself justified in imposing a countervailing duty. To appeal the DOC’s decision, the Canadians took their complaint to the international arena and looked to the US- Canadian Free Trade Agreement (FTA). After an extremely contentious process under the FTA binational dispute settlement procedure on May 6th 1993, the panel unanimously declared that the US DOC needed to re-examine the case of Canadian softwood lumber.162 The US DOC complied with the ruling and announced on September 17th 1993 that they were in agreement with the US DOC’s previous ruling and that the Canadian subsidy rate had increased to 11.54 percent from 6.51 percent.163 However, when this final decision was again examined by the FTA, the panel could not come to a unanimous decision. The two American panelists dissented. Thus, a third panel was convened to determine the fate of the dispute. On July 26th 1993, the third FTA panel decided that the ITC had not produced enough evidence to suggest that Canadian softwood lumber was conservable.164 The ITC was then directed to review its decision and, similarly to the actions of the US DOC, the US ITC determined that the FTA panel was incorrect in its assessment and that the Canadian softwood lumber industry was causing injury to the American industry.165 In essence, this remand decision by the US ITC was a stand off between international law and domestic autonomy. Because the US ITC had reaffirmed its previous judgment, the FTA panel then had to review the remand decision made by the US ITC. In January 1993, the FTA
162 Canadian- US Free Trade Agreement (FTA), Article 1904 Binational Panel Review USA-92-1904-01, Certain Softwood Lumber Products from Canada, Decision of the panel, 6 May 1993. 163 US DOC, ITA, Certain Softwood Lumber Products from Canada Redetermination Pursuant to Binational Panel Remand, 17 September 1993. 164 FTA, Binational Panel Review USA-92-1904-02, Softwood Lumber from Canada, Decision of the panel reviewing the final determination of the US International Trade Commission, 26 July 1993. 165 US TIC, Softwood Lumber from Canada, First remand, Pub. No. 2689, October 1993.
80 panel determined that again the US ITC had no justification for claming material injury.166 Yet, the US ITC, under obligation to review its decision for a third time, maintained its conclusion of material injury caused by Canadian lumber imports.167 The FTA panel was then forced to again review this third remand decision of the US ITC, and again the FTA determined that the decision made by the US ITC was unjustified.168 As can clearly be seen by the battle between the FTA panel decisions and the US ITC there seemed to be no way to resolve the tensions that existed between the two legal bodies. The US, in an attempt to quell the feud, enacted the extraordinary challenge procedure offered in the FTA.169 The request was denied by the Extraordinary Challenge Committee (ECC) by a vote of 2 to 1, allowing the panel decision of the FTA to stand.170 Due to the ECC’s determination, the CVD was dropped and the US refunded US$800 million in duties to the affected Canadian lumber companies affected (Groombridge and Loungani, 2000). This time the Canadians felt they had finally won and that the issues sounding lumber had finally been resolved. However, the Canadians were wrong. The Americans were going to fight the ruling. This past FTA process cost the Canadian industry dearly in legal fees, so, when further threats of duties arose in 1995 and 1996 the Canadians decided to develop some sort of agreement with the Americans. Thus, Canadians, fearful of the cost of the legal battle and worried about the effects this trade dispute would have on the Canadian economy, decided, in 1996, to sign the Canada- US Softwood Lumber Agreement (SLA), which employed yet another quota mechanism (Herman, 2001, p. 2).
166 CUSFTA, USA-92-1904-02, Softwood Lumber from Canada, Decision of the panel on review of the remand determination of the US international Trade Commission, 28 January 1994. 167 USITC, Softwood Lumber from Canada, Second remand, Pub. No.2753,March 1994. 168 CUFTA, US-92-1904-02, Softwood Lumber from Canada, Decision of the panel on review of the US International Trade Commission’s second remand determination, 6 July 1994. 169 This procedure was latter adapted into NAFTA. 170 The two Canadians on the panel voted for the rejection of the US’s request while the US panel member disagreed thus causing the committee’s legitimacy to be questioned.
81 The Softwood Lumber Agreement (SLA) This fourth and most recent agreement was finally reached in May 1996 by both the Canadians and the US.171 The SLA was a five year contracted compromise that, again, limited the amount of lumber the Canadians could send to the US market: “The two governments concluded a five-year lumber agreement that capped Canadian duty-free exports at approximately 15 billion broad feet annually” (Herman, 2001, p. 2). This agreement was only to last until March 31, 2001 and constrained annual lumber exports to the US from the main four softwood lumber producing provinces of British Columbia, Alberta, Ontario, and Québec. In 1998, these provinces accounted for 87.4 percent of all softwood lumber exported by Canada to the US.172 However, if one of these provinces was to exceed the 15 billion bf, a US$ 50 dollar tax would be added to the next 650 million bf and that tax would increase to US$ 100 dollar tax if this limit was reached. This US$ 100 dollar tax would be added to every bf in excess of the extra 650 million. With the history that surrounded lumber III, and the FTA’s inability to resolve the issue, a dispute settlement system within the SLA was developed. The system included a consultation period that lasted for 35 days. If an issue arouse that involved the quota or tax provisions outlined in the SLA, these matters were to be settled by an auditor. All other issues were to resolved by an arbitration panel, and if it was determined by this panel that Canada had breached the SLA then the US had the legal right to take unilateral action under Section 301 of the US trade legislation.173 However, as stated in the previous chapter, the existence of an international agreement that attempts to make trade a less difficult task does not imply that there will not be conflict concerning the interpretation and implementation of such an agreement. The SLA was the subject of disputes due to issues concerning the scope of coverage of this quota mechanism. Particularly, there was much dispute as to whether pre-drilled, notched studs, and rougher-
171 Softwood Lumber Agreement between the Government of Canada and the Government of the United States of America (Canada, Treaty series 1996/16). 172 According to Article 2.2 in the SLA, Canada was bound to collect US$50 per thousand board feet (mbf) for lumber exports exceeding 14.7 billion board feet (bbf) and a fee of US $100 for amounts that exceeded 15.35 bbf, with fees to be adjusted annually for inflation (Canadian Forest, 2000). 173 Inside US Trade, 22 December 1995, 1, 16-7;2 February 1996,1,19-20;23 February 1996,3-4:12 April 1996,11-3;14 June 1997,7- 8.
82 headed boards were included; high-priced, manufactured products were excluded, however. The reason for the confusion was the decision by the US Customs Service to reclassify studs with pre-drilled holes as “carpentry and joinery.”174 By changing the classification of these products under the Harmonized Tariff System, the US Customs Service had removed the SLA quota system on these softwood lumber products. Due to political pressure felt by the US Customs Service. this reclassification was revoked. Canada was outraged. To make matters worse, in February of 1999 the US Customs Service decided to reclassify other Canadian products that were previously not covered by the SLA into the restricted category of softwood lumber. In the end, the SLA arbitration procedure announced that the US Customs Service would be in violation of the SLA if there was a change in the classification of drilled studs and notched lumber and that these commodities should not be subject to the quotas of the SLA.175 The SLA also created distortions in the Canadian domestic softwood lumber market as provinces not covered by the SLA increased exports to the US from 1.04 billion bf in 1995 to 2.75 billion bf in 1999, while US imports from other countries rose from 0.40 billion bf to 0.94 billion bf over the same period.176 As can be assumed with a quota mechanism that only covers certain areas of a country, the allocation of the total annual (and quarterly) quota was left up to Canada, and thus it was the subject of conflicts at the provincial, regional and individual business levels. With the creation of the SLA, the Americans also accused the Canadians of dumping softwood lumber into the American market. If the accusations were found to be true, it would mean that the Canadians were offering softwood lumber “for sale in the United States at prices that are below normal value in an attempt to take markets away from American Business” (Rothgeb, 2001, p. 252). At the end of its investigation, the USDOC found that the Canadians were guilty of dumping. On October 31, the DOC “made a preliminary determination that Canadian softwood lumber is being both dumped and subsidized, and applied a 13 percent
174 This reclassification placed these softwood products in the category 4418 of the Harmonized Tariff System and took them out of the softwood lumber category 4407. 175 Inside US Trade 23 January 1998,1,21-3;11 June 1999, 1-3;13 October 2000,8. 176 Ibid. Canadian Forest Service 2000
83 antidumping duty on top of an earlier countervailing duty for alleged subsidies to Canadian softwood lumber imports” (Ibid.). Again, the Canadians felt they were being unjustly accused. This time it was seen as a double assault. The Canadians thought that the reasoning for this ruling was again the result of domestic political influence and not a question of fairness. “The US Coalition for Fair Lumber Imports, an alliance of large and small independent sawmills has been pushing Congress to impose duties on Canadian lumber” (Sanders, 2002). The Canadians, even though angered, adhered to the SLA and waited for its expiration date. Where the Dispute Stands Now: Lumber IV Due to the SLA expiring in 2001 there has been, yet another investigation regarding the Canadian lumber practices. In April of 2001 the US Coalition for Fair Lumber Imports filed countervailing duty (CVD) and anti dumping (AD) petitions to seek protection from Canadian imports of softwood lumber.177 On March 22, 2002, the US DOC came to a decision regarding the future of softwood lumber. They publicly announced that producers and exporters of certain softwood lumber from Canada have benefited from countervailable subsidies. The US investigation focused on charges that Canadian producers sold lumber to the US at prices that were below their fair market value. From May 22, 2002 to Dec 20, 2004 most of the Canadian softwood lumber exported to the US was subject to a combined countervailing and anti-dumping duty of 27 percent. This combined tariff was collected by US Customs and has accumulated to over 4 million dollars Canadian. Although, as of December 20, 2004, the US has reduced the duty to 21 percent Canada and the US are still at war over the alleged dumping of Canadian softwood lumber and the fight continues.178 Following the Fight As has been shown in the past history of the dispute, it is the US tariffs that are the catalyst for the involvement of the dispute resolution mechanism of NAFTA and the WTO. Canada, in an attempt to defend the Canadian softwood lumber industry from the tariff schedule imposed by the US, has decided in this round of the dispute to develop a two-track approach to deal with the softwood lumber dispute. This dual defense involves litigation and negotiation.
177 http://www.for.gov.bc.ca/HET/Softwood/BGLegal.htm 178 http://www.for.gov.bc.ca/HET/Softwood/
84 As the following sections will illustrate, the tactic of negotiation is the continuing effort of generating a solution to the softwood lumber dispute through diplomatic means. When examining the Canadian options of litigation both NAFTA and the WTO are being utilized. It is with this two tier approach that the Canadians are hopeful in developing a resolution that will allow the free export of Canadian softwood across the 49th parallel. Negotiation Approach Starting in the fall of 2001, the US and Canadian governments held discussions to determine whether possible policy changes could lead to a durable resolution of the softwood lumber trade dispute. These talks broke down on March 21, 2002 and the two sides walked away form the negotiating table.179 The reason for the communication break down was due to the two nations not being able to reach common ground when deciding the rate of the proposed transitional export tax and determining Canadian provincial forestry management policy changes. These two issues have been at the heart of the dispute since the early 1980’s and illustrates that the past 20 years has not moved the two sides any closer to a solution.180 In May 2004 the Canadian International Trade Minister, Jim Peterson, called a meeting of the federal-provincial-territorial ministers to confer over the ongoing dispute with the US. The Canadian ministers agreed to re-engage with the United States to find a durable policy-based solution to the softwood lumber dispute. This policy based solution will again attempt to develop Canadian provincial forestry management policy reforms that will eliminate the accusations that Canada is subsidizing its softwood lumber industry. Thus, negotiations continue between Canada and the United States.181 Litigation Approach NAFTA Involvement If past behavior is an indication of future behavior then it should be no surprise that the Canadians are fighting the US allegations that Canada is subsidizing its softwood lumber industry by employing the dispute settlement mechanism of NAFTA and the WTO. When looking at NAFTA’s involvement one has to go back to April 2002. It was at this time that a
179 http://www.for.gov.bc.ca/HET/Softwood/Negotiated.htm 180 Ibid. 181 Ibid.
85 NAFTA panel was established, at the request of the Canadians, to challenge the US subsidy determination that resulted in the application of the US CVD on Canadian softwood lumber. The NAFTA panel issued its final report concerning the US subsidy determination in August 2003. The decision found the actions of the US DOC in establishing the CVD to protect against a perceived Canadian subsidy were not compatible with the free trade regulations established by NAFTA. Thus, the NAFTA panel remanded the CVD legislation back to the US Department of Commerce so that the inconsistencies could be resolved.182 However, as in the past, when the DOC issued its remand determination in January 2004 the NAFTA panel review of the US's remand determination was determined to still be inconsistent with NAFTA. This second NAFTA panel report was issued June 7, 2004, and the DOC was once again placed in the position of correcting the inconsistencies of the US CVD determination of subsidy in the Canadian softwood lumber industry.183 On July 30, 2004 the DOC issued their second remand determination however on December 1, 2004 the NAFTA panel, for a third time, determined that the USDOC must again revise their calculations that determine a CVD.184 The panel even went so far as to state in their decision that; In its Second Remand Determination, the Commission (referring to the USDOC) has refused to follow the instructions in the First Panel Remand Decision. The Commission relies on the same record evidence that this Panel not once, but twice before, held
insufficient as a matter of law to support the Commission’s affirmative threat finding. By the Commission’s so doing, this Panel can reasonably conclude that there is no other record evidence to support the Commission's affirmative threat determination. The Commission has made it abundantly clear to this Panel that it is simply unwilling to accept this Panel's review authority under Chapter 19 of the NAFTA and has consistently ignored the authority of this Panel in an effort to preserve its finding of threat of material
182 http://www.for.gov.bc.ca/HET/Softwood/BGLegal.htm 183 Ibid. 184 Ibid.
86 injury. This conduct obviates the impartiality of the agency decision-making process, and severely undermines the entire Chapter 19 panel review process.185
In the end, the Canadian challenge to the US CVD determination has not altered the DOC’s determination of subsidies concerning Canada’s softwood lumber industry. Thus, opening the US border to an increase of Canadian softwood lumber exempt from CVD tariffs does not seem to be policy that the US is willing to accept. This inability of the NAFTA Chapter 19 panel to alter the US’s trade policies that limit Canadian softwood lumber from entering the US is also illustrated in the Canadian challenge to the US determination of Canadian softwood lumber being a “threat of injury” to the US softwood lumber producers. The NAFTA panel established to challenge the US threat of injury determination began hearing arguments on May 22, 2002. The first panel report was issued in September of the following year and remanded the threat of injury back to the US domestic bureaucratic agency responsible for making this determination, the US International Trade Commission (ITC).186 The ITC, in December 2003, issued its response to the panel’s findings and in review of the ITC response the NAFTA panel determined on May 10, 2004 that the ITC determination of threat of injury was still unsupported and a violation of US trade law. On June 10, 2004 the ITC released their remand determination concluding that the evidence on the administrative record does support a threat finding.187 On August 31, 2004 the NAFTA Panel released their third report again finding that the record does not support a threat of injury finding and ordered the ITC to issue a new determination consistent with their finding within 10 days. On September 10, 2004, the ITC issued a determination, consistent with the NAFTA Panel's decision of August 31, 2004, that the US softwood lumber industry is not threatened with material injury. However, the commission said it was only complying with the NAFTA ruling because it “respects and is bound by the NAFTA dispute settlement process.” On November 24, 2004 the US filed for a review of the
185 Article 1904 Binational Panel Review Pursuant to the North American Free Trade Agreement. “In the matter of certain softwood lumber products form Canada: final affirmative threat of injury determination.” Secretariat File No. USA-CDA-2002-1904-07/Second Remand Decision of the Panel. 186 http://www.for.gov.bc.ca/HET/Softwood/NAFTA.htm 187 For a copy of the ITC June 10 report see: http://www.for.gov.bc.ca/HET/Softwood/ITC%20June%2010%20Remand.PDF
87 NAFTA Panel Injury decision by an Extraordinary Challenge Committee (ECC). The ECC ruling is to be issued in the coming months.188 The third NAFTA challenge that was established by Canada involves the dumping determination that has allowed for the US to impose AD tariffs on Canadian softwood lumber coming across the border. This NAFTA panel was established in April 2002. The first panel report came out in July of the following year and again remanded the determination of Canadian dumping of softwood lumber back to the USDOC due to the inconsistencies of the dumping determination with US trade law. The DOC issued its response in October, 2003.189 WTO Involvement As illustrated by the NAFTA litigation procedures, it seems that over the past twenty years the story of softwood lumber is the same tale that has been told throughout the history of this dispute. To further facilitate the resolution of the ongoing dispute Canada has undertaken a number of World Trade Organization challenges in order to defend the interests of softwood lumber exporters. Two of these challenges have been completed. The first case that involved the WTO dealt with the export restraints Canada placed on softwood lumber entering the US. This type of Canadian trade action limits the amount of softwood lumber a Canadian producer is allowed to export to the US. This self-imposed restriction placed on Canadian softwood lumber exports was seen by the USDOC as a subsidy for Canadian producers. Thus, the USDOC placed a CVD on the softwood lumber coming from Canada due to the US determining that the Canadian export restriction was generating an unfair advantage for the Canadian softwood lumber industry. On May 19, 2000 Canada requested consultations with the US concerning the US CVDs that had been placed on Canadian softwood lumber due to the establishment of the export restrictions. Due to the consultations failing to produce a result that was acceptable to both parties a WTO panel was established on September 11, 2000 to examine the case.190 The panel’s final report was circulated to the WTO members on June 29, 2001 and the final report was adopted by the WTO Dispute Settlement Body on August 23, 2001. In this final report the WTO ruled that the export restraints that have been imposed by Canada is not a
188 Ibid. 189 Ibid. 190 http://www.dfait-maeci.gc.ca/eicb/softwood/wto_challenges-en.asp#2
88 financial contribution and thus are not a justification for the US to impose CVDs on Canadian lumber. Although a victory for the Canadians the CVDs remain on the Canadian softwood lumber headed for the US market.191 The second WTO panel to hear an issue concerning the softwood lumber dispute was established December 5, 2001 due to the WTO consultation period failing to produce an acceptable solution to the US determination that the Canadian softwood lumber industry was subsidized. The US claimed that the subsidization of the Canadian softwood lumber industry was a result of the stumpage system employed by the respective Canadian governments. The final WTO panel report was circulated to all the WTO members on September 27, 2002 and the final report was adopted by WTO Dispute Settlement Body on November 1, 2002.192 In this final report the WTO panel examined the criteria needed for a subsidy to justify the protective action of instating a CVD by establishing two prong measure. For a CVD to be justifiable a subsidy must first establish a “financial contribution” that then confers a “benefit”. Following this two pronged definition of a subsidy the WTO panel concluded that the Canadian stumpage programs are a financial contribution but that the USDOC incorrectly assessed whether stumpage confers a benefit. The US calculations that were employed to determine a benefit were seen as flawed due to the USDOC using US market standards rather than prevailing market conditions in Canada. As a result of the flawed DOC calculation method the WTO panel determined that there was no basis for the US to conclude that the Canadian stumpage system is a countervailable subsidy.193 Although this WTO decision is another victory for the Canadians the current status of the dispute is that the US CVD’s are still in place. The Canadian’s are awaiting three more WTO panel decisions currently challenging the US final determinations of subsidy, dumping and threat of injury. Although the past two decisions handed down by the WTO have not resulted in the free trade of softwood lumber the Canadians are still hopeful that the victories of the past panels, including the NAFTA panel decisions, combine with the panel decisions made in the future will
191 The report of the Panel on United States - Measures Treating Exports Restraints as Subsidies is available at: http://www.wto.org/english/tratop_e/dispu_e/194r_a_e.pdf 192 http://www.dfait-maeci.gc.ca/eicb/softwood/wto_challenges-en.asp#2 193 A PDF copy of this WTO panel decision can be accessed at; http://www.dfait-maeci.gc.ca/tna-nac/documents/217_234r_a_e.pdf
89 have some impact in developing a solution to this epic trade war.
90 Conclusion Although the softwood lumber trade war has not been resolved, the issue of lower priced softwood lumber imports from Canada is unlikely to disappear as long as Canada’s economic institutions, the high degree of public ownership of forestlands and restrictions on log exports remain unchanged. As illustrated by the history presented, the Canadian governments and softwood lumber producers have fought the countervailing duty cases continually since 1982. The Canadians have often won the battles but lost the wars. When Canadian producers are successful, whether within the US dispute resolution system using bi-national dispute resolution mechanisms under the FTA, NAFTA, or in appealing to global entities such as the WTO, American legislators have had the ability to change and reinterpret the law to generate a definition of subsidy and the test for injury that does not favor the Canadian softwood lumber industry. The response by Canadians generally has been to fold under the threat of economic hardship and to agree to measures that limit access by Canadian softwood lumber producers to the US market. For both sides of the forty-ninth parallel, the economic stakes in this dispute are high. Canadian softwood lumber exports to the US are in the multi-billion dollar range, and the industry remains the economic base of a number of regions across Canada and the US. At a cursory level, it appears that the American allegations are factual. In some instances, the stumpage fees for certain softwood species in Canada might be only 10 per cent of those in a nearby American state. The American argument that suggests they purchase timber from the US Forest Service or from privately owned lands using a competitive bidding system, unlike their counterparts in Canada, is also true at a cursory level. And the claim that low timber prices in Canada reflect the use of administered prices set by provincial governments as a subsidy to softwood lumber producers is also true. However, there is also merit in the Canadian argument that the value of standing timber, or at least how much money firms are willing to pay for it, is the result of a number of forces. The value of wood products that the timber could yield subtracted from labor, capital, marketing, and transportation costs associated with getting that timber processed and to market support the Canadian claims that there is no subsidy. There are significant differences between the forest resources in the two countries. Generally, Canada has a lower quality of timber and is more distant from markets. Both factors
91 certainly lead to lower Canadian timber prices. But the most significant difference, and the one that US producers claim is at the root of the subsidy allegation, is that in Canada much of the forest base is Crown owned. At the end of the day, much of the difference in the price of softwood lumber between the two countries can be explained by differences in quality, processing, harvesting and forest management costs. But in the softwood lumber dispute, data and facts tend to be irrelevant. The US is the single most important purchaser of Canadian softwood lumber, and there are no other markets Canadian producers could turn to as a substitute. American producers are well organized and have the strong support of a number of influential senators and congressmen. For the softwood lumber industry, free trade remains a goal rather than a reality. Currently, we have managed trade where access by Canadian producers to the American market is driven by political settlements rather than market forces.
92 CHAPTER IV Interview Findings and Results Overview “[N]ot withstanding the rhetoric of this, this is not a trade war. In a war both side are shooting, right now there is only one side shooting, the US side and personally I don’t believe that Canada can afford to have a real trade war with the US…”
Executive Vice President and General Manager of the Free Trade Lumber Council
The purpose of this chapter is to examine the Canadian attitudes towards the dispute resolution systems established by the GATT, WTO, FTA, and NAFTA in an attempt to discover what the Canadian perception of these systems is in relation to the ongoing softwood lumber dispute. The chapter will focus on the results and findings of the interviews that were conducted with the Canadian private sector and governmental officials. These interviews were conducted by the author over the telephone through the months of February and March during the year of 2005. These interviews were recorded on tape with the consent of the participants and transcribed at a later date. The interviews were flexibly structured to conform to the methodology of qualitative interviews. In this type of open-ended interview, the questions asked encouraged the interviewee to provide their opinions on events or facts. The types of questions that were asked were developed from specific categories that pertain to the dispute resolution systems of the FTA, NAFTA, GATT, and WTO. They include; impact/influences of the softwood lumber dispute on the development of the dispute resolution systems, the performance of the dispute resolution procedures, preferences towards dispute settlement procedures, and suggested modifications to the dispute resolution mechanisms contained in the FTA, NAFTA, GATT and the WTO. Background Information When examining the literature that has been produced concerning trade dispute resolution there is a clear lack of first hand accounts concerning the performance, fairness, and efficiency of the dispute resolution mechanisms contained in the first FTA between Canada and the US,
93 NAFTA, the GATT, and the WTO. The interviews conducted in this study sought to explore first hand how the smaller partner in an asymmetrical trade relationship perceives the dispute resolution systems. These interviews place the smaller country’s actors, the Canadians, in the spotlight thus allowing these participants in the softwood lumber dispute to voice clearly whether they are able to benefit from the operation of the past and current dispute settlement systems that have attempted to resolve the ongoing softwood lumber dispute. Participants with a history of dealing with the dispute mechanisms contained in these international organizations and agreements are able to speak to the impact that these arbitration systems have had on resolving the issues highlighted by the softwood lumber trade dispute between Canada and the US. Canada’s Asymmetrical Trading Position The stated purpose of this research is to see how the smaller partner in an asymmetrical trading relationship perceives the dispute resolution mechanisms. Thus, before the Canadian perspective is examined one needs to examine the current trading position the Canadians find themselves in. To begin, Canada holds the ranking as the fifth largest world trader after the European Union, the US, Japan and China.194 Despite the general economic slowdown, a depreciated US dollar, and the economic impact of several domestic emergencies such as a SARS outbreak, a major power blackout, and a mad cow outbreak, Canada, in 2003, experienced its 12th consecutive year of economic expansion. Although this past years expansion was down from the 2002 expansion of 3.4 percent the 1.7 percent growth in the Canadian economy during 2003 reaffirms that Canada remains a prosperous and open middle-sized economy.195 There is no doubt that the US holds a dominant position in Canada’s trade and economic stability. In 2003, the US accounted roughly for 77 percent of total two-way Canadian- US trade. This high volume of trade is further highlighted when examining Canadian imports and exports tied to the US market. In the year 2003 it was determined that 80 percent of total Canadian exports were destined for the US market and 68 percent of Canada’s imports came from the US.196 This high volume of bilateral trade resulted in the US-Canadian trade totaling an estimated $394 billion dollars in goods and services in 2003. That translates into nearly $1.1 billion in goods crossing the Canadian US border every day. This total combine with cross-
194 Source: Eurostat 2003. 195 V Annual Report on Canada’s State of Trade, March 2004.
94 border investments and tourism make the trade revenue generated to be a little more than $42 billion a year.197 The trading relationship is further illustrated when examining each country’s Foreign Direct Investment (FDI). Half of Canada’s foreign investment dollars flow to the United States and some 60 percent of the foreign investment dollars in Canada come from the United States.198 In the end it is clear to see that the trading relationship between Canada and the US is important to both nations. However, it is also clear that even though Canada is the US’s largest trading partner, it is the US who is the senior partner in the relationship. Although this type of integrated trade generates dependency Canadian trade has become more and more focused on the US during the last decade. This narrow trade focus is mainly a result of the passage of the Canada– US Free Trade Agreement in 1989 and the NAFTA in 1994. Thus, Canada, due to the asymmetrical trading relationship (and other factors that lead to Canada being the smaller power in this relationship, such as population, economy, military, etc…), leave Canada in a position that permits the US to dominate the free trade agenda. The interview data that will be reported in this chapter will offer an opportunity to assess this conclusion. The Organization of the Canadian Government and Softwood Lumber Industry In order to develop an understanding of the Canadian responses to the questions concerning the dispute resolution systems of the GATT, WTO, FTA and NAFTA in relation to the softwood lumber dispute, one must first understand the Canadian governmental agency that handles trade related problems. Once this governmental structure is understood then one can understand the relationship that has been developed between the Canadian government and the industry organizations that are responsible for working with the government on the issues surrounding the softwood lumber dispute. Canadian Government To begin at a very basic level the Canadian government is based on its constitutional heritage from Britain which established a constitutional monarchy. This type of system includes
196 Ibid. 197 Speech by Ambassador Roger F. Noriega, US Assistant Secretary of State for Western Hemisphere Affairs Canadian-American Business Council, Washington, DC, April 14th 2003. Available at: http://www.usembassycanada.gov/content/can_usa/noriega_canambusinesscouncil_041404.pdf 198 Ibid.
95 a formal executive, the crown and the Governor General, and also a political executive known as the Prime Minister. The Canadian government has a bicameral legislature divided by the lower house, the House of Commons, and the upper house, the Senate. The head of the Canadian government is the leader of the political party that wins the most seats in the House of Commons. Following the conventional process of the traditional parliamentary style of government, the Prime Minister and the ministers selected to head the various cabinet-level agencies and departments within the Canadian government have to hold seats in the House of Commons or in the appointed Senate. Although the Prime Minister, now Liberal Paul Martin, is very vocal and involved with the softwood lumber dispute, when looking within the Canadian federal government only one governmental department plays a dominate role in trade policy connected to the softwood lumber dispute. This department is the Canadian Department of Foreign Affairs and International Trade.
This department of the government has undergone many reforms and has been created by consolidating the old elaborate system of Cabinet committees which made Canadian foreign policy a much more interdepartmental issue. The consolidation of this interdepartmental maze first created the Canadian Department of External Affairs and International Trade. This department was in charge of trade, aid and immigration, as well as the traditional foreign policy functions. The minister in charge of this new governmental department was joined by two ministers of state, one for international trade and another for external relations.199 However, during the recession of the late 1980s, “the department’s new structure was again under review as the Conservative government of Prime Minister Brian Mulroney began to wrestle with Canada’s deficit.”200 As with all government departments during this time, the department of External Affairs and International Trade faced demands that it reduce its budget. The senior managers reacted by identifying and defending “core functions.” This resulted in the department eliminating the areas of immigration and foreign aid.201 This left the department to focus solely on the issues of diplomacy and trade. Under the Liberal government of Prime Minister Jean Chrétien, the
199 http://www.dfait-maeci.gc.ca/department/history/history-11-en.asp 200 Ibid.
96 department received a name change to reflect these two core functions. The new name, which is still employed, was the Canadian Department of Foreign Affairs and International Trade. The internal structure of the governmental organization has remained the same although the name has changed. The minister in charge of this department has two branch ministers under his authority. The two sub-level ministers include the minister of state for the International Trade branch of the department and the minister of state in charge of Foreign Affairs branch of the organization. Within these two divisions of the Canadian Department of Foreign Affairs and International Trade the issues of the softwood lumber and the dispute resolution systems are discussed and handled. Although both Foreign Affairs and the International Trade section both hold jurisdiction in this area the main department involved with the softwood lumber dispute is the International Trade branch of this department. All reports and government action within these two branches of the Department of Foreign Affairs and International Trade is reported to the Minister of Foreign Affairs and International Trade, and then reported to the Prime Minister. The Prime Minister then oversees the action of the department and makes sure that the mandate of this governmental department reflects his party’s position. There is no other federal government agency that has the jurisdiction to deal with the softwood lumber dispute from this international trade perspective. Private Industry in Canada When examining the private sector in Canada one can clearly see that it is organized in the same manner as the US. The private corporations and private organizations that are affected by the softwood lumber dispute practice the interest group style of lobbying. This political technique is used in an attempt to facilitate private access to governmental institutions. Fortunately for the lobby groups concerned with the softwood lumber dispute, the issue of free trade in this area is already a high priority on the Canadian political agenda. This high importance is due to the softwood lumber industry being such a staple industry for the Canadian economy. This industries economic significance is due to the shear magnitude of revenue lost by the continuation of this trade dispute. The softwood lumber lobby is working with the Canadian
201 Ibid.
97 government to help promote an end to the dispute so that the issue will no longer be on the Canadian agenda due to the dispute finally coming to an end. The two main lobby groups that are representing the private corporations are the Free Trade Lumber Council and the British Columbia Lumber Trade Council. Due to both of these groups accepting the invitation to be participants in this research, the backgrounds of these two groups will be fully highlighted in the following section of this chapter. Interviewee Selection The private corporate sector organizations which participated in this study included the Free Trade Lumber Council (FTLC) and the British Columbia Lumber Trade Council. The labor union that participated in the interview process included the United Steal Workers of Canada. The Canadian government officials from the Department of Foreign Affairs and International Trade were approached. These governmental officials were helpful but did allow their responses, department, or workers to be on the record as being involved in this survey research. Due to the sensitive nature of the survey questions the Department of Foreign Affairs and International Trade did not consent to having their comments and responses recorded, transcribed, or placed on the record. The reason for this limited access is due to the Canadian government being currently engaged in negotiations with the US concerning the softwood lumber case. Thus, access to current government officials and the governmental department involved with the softwood lumber dispute was limited to protect the process of negotiations that they are now involved in. Understandably, the Canadian government’s official comment concerning the survey was “no comment at this time” due to the realities of the litigation that is currently taking place. However, this does not mean that the position of the Canadian government is not reflected in the interviews presented. As directed by a follow up phone call with the Department of Foreign Affairs and International Trade the position of the Canadian government is presented in documentation already in the public domain. It is through these documents that the position of the government will be reflected and compared to the responses obtained through the interview process. To further compensate for the lack of obtaining the Canadians governments position through the interview process, retired and former governmental officials have also been interviewed. These included former Canadian government officials from Canadian Delegation to
98 the GATT Multilateral Trade Negotiations (Tokyo Round), in Geneva, Assistant Deputy Minister responsible for trade relations with the United States, Latin America, Europe (except France) and Asia for the Ministry of International Affairs, and former Deputy Minister level senior adviser to the Prime Minister were available for comment and are able to further highlight attitudes of the Canadian government concerning the dispute resolution mechanisms and the softwood lumber dispute. Free Trade Lumber Council The Free Trade Lumber Council (FTLC) is a non-governmental organization (NGO) whose members include forest companies and industry associations within British Columbia, Alberta, Quebec, and Ontario. Some of these members include; Boucher Brother Lumber Ltd., Hansen Forest Products, Kruger Inc., the Ontario Lumber Manufactures Association (OLMA), Excel Forest Products, and Mill and Timber Products Ltd. just to name a few.202 The memberships of the Free Trade Lumber Council accounts for over 40 per cent of the Canadian lumber exports to the US.203 However, this organizations involvement with the softwood lumber dispute goes further than just having clientele that are affected by this dispute. This Canadian NGO’s mission statement is to assist in maintaining free access to world markets concerning lumber products. The FTLC association to the softwood lumber trade dispute is further highlighted by the verity that this organization was created in 1998 in preparation for the termination of the Softwood Lumber Agreement (SLA). The SLA was a side agreement which established a quota mechanism on Canadian softwood lumber headed to the US. This agreement was signed in 1996 and was established during the Lumber III negotiations. The reality that this organization was developed in preparation to the SLA expiration in 2001 combine with its mission state to maintaining free trade markets for the lumber industry places this organization at the hart of the current softwood lumber dispute.204 The FTLC, although formed prior to the 2001 expiration date of the SLA, was established to prepare Canadian stakeholders for the end of the SLA. Its goal was, and still is, to help facilitate the development of free trade for lumber products between Canada and the United States. The
202 For a complete list of the 39 registered members of the FTLC see; http://www.ftlc.org/index.cfm?Section=11&Detail=6 203 http://www.ftlc.org
99 approach the FTLC has employed to attempt to help facilitate the opening of the US border to Canadian softwood is twofold. First, this private advocacy group is continuing “…its efforts to build consensus within Canada to obtain a common position among all lumber producing companies, forest products industry associations and governments.”205 The current position among theses stakeholders is that there will be no negotiations outside of the dispute settlement procedures of NAFTA and the WTO and that those hurt by the softwood lumber dispute will, in the end, be vindicated through the process contained in the WTO and NAFTA. The second approach used by the FTLC to facilitate the resolution of the softwood lumber dispute is stated as; “[t]he FTLC encourages and supports provincial governments in their forest policy review processes, including stumpage setting methods and raw-log export restrictions.”206 This statement again places the FTLC at the heart of the softwood lumber dispute. The US has protested that Canada, when dealing with its softwood lumber industry, does not use a modern market-based system and that this is illustrated in the manner in which the Canadian stumpage fees are set. These stumpage fees, which the FTLC helps review and implement, are set by the provincial or federal government for the harvest of the pubic forests by private companies. The provincial and federal governments of Canada control Canada’s current wood lot system through this stumpage fee system. Thus, the US position asserts that due to Canadian governmental intervention normal market conditions do not determine the price of Canadian lumber. Therefore, the US claims that the Canadian lumber producers have an unfair advantage over their US counterparts due to Canadian governmental interference. This direct involvement with this controversial stumpage fee system, combined with its mission to open the border to the export of Canadian softwood lumber, makes the FLTC an organization that is sure to shed some light on the trade dispute that effects its clientele. The FLTC was kind enough to grant an interview with the Executive Vice President and General Manager of the FLTC. Not only does this grant access to a top official of a very influential advocacy group which represents a large number of stakeholders involved in the softwood lumber dispute, but the FLTC Executive Vice President, has also been involved in this dispute through the governmental positions that he has held. This expertise has placed this
204 Philip Sanders, “British Columbia’s Forest Industry Needs a New Softwood.” Canadian Broadcasting Corporation. 2002. 205 http://www.ftlc.org/index.cfm?Section=11&Detail=7
100 Executive Vice President in the position of being a witness on February 18th 2005 before the Canadian House of Commons Subcommittee on International Trade as heard by the Standing Committee on Foreign Affairs and International Trade.207 His testimony before the Canadian government was in direct relation to the Canada-US trade relations concerning softwood lumber. Thus, this top official at the FTLC is a valuable resource for this research and will not only highlight the position of the private sector but also provide some insight as to the Canadian government’s position when dealing with developing a game plan to resolve this continuing dispute. United Steel Workers of Canada Although at first glance this labor union’s connections to the softwood lumber dispute are not apparent, the connection becomes clear when it is noted that the United Steel Workers of Canada have merged with the Wood and Allied Workers of Canada (IWA). It is this combination that makes this union and its members directly involved in the softwood lumber dispute. The IWA, before the merger, was a British Columbia-centered union representing only logging and forestry workers. This union, to increase its political capital by capturing more clientele, voted to merge with the United Steelworkers of America/Canada. This merger, which was finalized in September 2004, created Canada’s largest private sector union.208 The combined union, which will use the Steelworkers name, now represents approximately 245,000 workers. The Steelworkers’ Canadian director said the new union will be a key player in federal and provincial politics. This influence is extremely important due to the Softwood lumber dispute affecting one of Canada’s largest industries. When examining where the labor sector will be impacted most, one needs to look towards British Columbia in particular, where over 100,000 people are employed in the softwood lumber industry alone. These labor numbers are attributable to softwood lumber’s position as the province’s leading export. Thousands of jobs in British Columbia are directly tied to this industry and are disappearing due to the softwood lumber trade dispute. By late fall of 2002, over 6,000 IWA members were out of work in the forest sector. The greatest impact has been on the British
206 Ibid. 207 House of Commons 1st session. 38 parliament. Meeting No. 13 Thursday, February 22nd, 2005. 208 http://www.cbc.ca/story/canada/national/2004/08/30/union_merger040830.html
101 Columbia Coast and in the Southern Interior of British Columbia. To a lesser extent, the northern part of Ontario has also been affected.209 The IWA (Canada), which is now represented under the United Steel Workers insignia has issued a seven-point action plan in an attempt to fight the US imposed tariffs. The plan is as follows; 1. Raise the profile of the issue with American consumers, 2. Raise the profile of the issue with the Prime Minister, 3. Boycott American products and American companies that do not support the Canadian forest industry, 4. Tax all resource products currently being exported to the United States, 5. Provide extended Employment Insurance and assistance to laid off workers affected by the duties, 6. Seek support from the Canadian workforce to protest the countervailing duties and, 7. Locate and develop alternative markets for Canadian forest products.210
Although the effectiveness of this plan can be debated, the reality remains that the workers in this industry are being greatly affected by the softwood lumber dispute. This suffering experienced at the union level is not about to fade in the coming rounds of negotiations that are sure to take months and perhaps even years. With that being said it is clear to see why this union and its members have been selected to provide input into the processes that are directly affecting them and the softwood lumber dispute. British Columbia Lumber Trade Council The British Columbia Lumber Trade Council (BCLTC) represents British Columbian private sector companies who are involved in the softwood lumber industry. The position taken by this council is one of support and advocate for the free trade of Canadian softwood lumber with the United States.211
209 http://www.iwa.ca/SoftwoodLumber/impact.htm 210 http://www.iwa.ca/SoftwoodLumber/actionplan.htm#one 211 http://www.bclumbertrade.com/
102 The British Columbia Lumber Trade Council (BCLTC), in cooperation with the provincial government of British Columbia, the national government of Canada and other trade associations such as the Free Trade Lumber Council (FTLC), is directly involved in facilitating a resolution to the ongoing softwood lumber dispute. However, unlike the FTLC counterpart the BCLTC has developed a two-track process in an attempt to open the US border to Canadian softwood lumber. First and foremost the private lobby group is enthusiastically combating, as is the FTLC, US lawsuits that have been brought against Canadian softwood producers through the dispute resolution process contained in NAFTA. These cases included the antidumping and countervailing duties cases that are at the root of the softwood lumber dispute.212 However, while the legal battle rages on, the BCLTC is hoping that Canada will come out the victor and the NAFTA and WTO procedures conclude with the opening of the border to Canadian softwood lumber. However, the BCLTC has also been trying to engage in one on one negotiations with the US with the end goal of finding a durable, long-term solution to this decades-old dispute. Although not the plan of attack advocated or promoted by the FTLC, the BCLTC attempt to engage the US in this type of dialogue to settle the dispute by seeking a side agreement such as the previous SLA is due to the BCLTC contention that it is vitally important to the Canadian softwood lumber industry to find a long-term solution that will return stability to the North American lumber market.213 In the end the BCLTC is looking to settle the dispute through the dispute resolution mechanism however the organization is not ruling out the possibility of developing another side agreement in an attempt to promote the further opening of the US market to Canadian softwood lumber. These two methods of action concerning the development of a resolution to the softwood lumber dispute clearly illustrates that this private lobby group, in attention to the clientele of the BCLTC, makes them a prime candidate for interview selection. This private sector lobby group will be an assist due to the interview highlighting the private industries position and the industries position on this issue throughout this long and costly dispute.
212 Ibid. 213 Ibid.
103 Former Canadian Government Officials Due to the limitations placed on the Canadian governmental officials retired government officials have been sought out to participate in the survey. The internal government positions of the former governmental officials include; a member of the Canadian Delegation to the GATT Multilateral Trade Negotiations (Tokyo Round), in Geneva; Industrial development officer in the Quebec Office for External Trade, within the Ministry of Industry and Trade, in Montreal; Successively economic officer, director and director general in the trade policy division of the Ministry of External Trade, Quebec Government; confirmed in the latter position in the new Ministry of International Affairs when External Trade and International Relations where merged in 1988. Assistant deputy minister responsible for commercial policy, policies and priorities and management, Ministry of International Affairs; Assistant Deputy Minister, responsible for fisheries and commercial aquaculture, Ministry of Agriculture, Fisheries and Food; and for six months, responsible for economic affairs; Assistant Deputy Minister, responsible for trade relations with the United States of America, Latin America, Europe (except France) and Asia for the Ministry of International Affairs. To further compensate for the absence of the direct voice of the Canadian government one can also look to the past for answers. There have been many generations that have dealt with the issues surrounding Canadian free trade and the issues that surround Canada as a free trading nation and thus, a retired Deputy Minister level senior adviser to the Prime Minister; founding Director of Research, Liberal Party of Canada; for over five years, at the outset of the Trudeau administration, executive assistant and then senior advisor to the Hon. Robert Andras in five federal portfolios; member of the Policy Advisory Group to the Right. Hon. Pierre Trudeau (with the Hon. Lloyd Axworthy, Hon. Michael Pitfield, Tom d’Aquino and Bill Lee) also volunteered to participate in the interview process. Summary of the Questions Asked To summarize the survey briefly, it should be noted that the questions were designed to examine four main issues and problems confronted by the Canadian government and Canadian industry pertaining to the dispute resolution systems of the GATT, WTO, FTA and NAFTA in relation to the softwood lumber dispute. The issues and problems included those relating to: (1)Impact/Influence of the softwood lumber dispute on the development of the GATT, WTO,FTA and NAFTA in general and the dispute resolution systems in particular, (2) Performance of the dispute resolution procedures, (3) Preferences towards dispute settlement procedures, and (4) Suggested modifications.
104 For the interviewees expressing concerns about Canadian national interests being compromised by the interview questions, the interview procedure was adjusted. For those respondents that were unable to be put on record the transcription of these interviews was never conducted to respect their wishes to keep themselves and their employer’s identity anonymous. The decision to participate but remain unidentified and off the record was made after the interviewees had examined the questionnaire. To maintain confidentiality, the names of the individuals who where interviewed will not be disclosed. The interviewees will be identified according to their stated preferences agreed to before the interview was conducted. Thus, the respondents will be identified by the title they hold within the organization they serve or by the organizations name only. If the respondent is a former governmental official they will be identified by the title of the last position they held that was connected to the issue of Canadian free trade. Among those who were interviewed and placed on the record, the following responses are reported using the following typology: (1) The Free Trade Lumber Council (FTLC)- Executive Vice President (2) British Columbia Lumber Trade Council (BCLTC) - At the request of this respondent the responses are to be identified at that of the BCLTC. (3) United Steel Workers of Canada (USW) - Top level researcher (4) Assistant Deputy Minister, responsible for trade relations. (5) Former Deputy Minister and general advisor to the Prime Minister The results of the interviews are presented according to issue. Hence, the impact/ influence questions are discussed first then followed by the responses concerning performance, then preferences and ending with recommendations. All quotes from the Canadian department of International trade have been taken from documents already in the public domain. Following the reporting of the survey results, the implications for future US and Canadian trade in this industry are considered. Overview of Interview Responses Impact/Influence of the Softwood Lumber Dispute The first six questions asked to the interview participants pertained to the influence of the softwood lumber dispute on the negotiations and development of dispute settlement procedures of the FTA, NAFTA and the GATT/WTO. The responses obtained from the labor union, that being the United Steel Workers of Canada (which now includes the Wood and Allied Workers of
105 Canada [IWA]), and the private sector, whose voice is heard through the British Columbia Lumber Trade Council (BCLTC), was that of uncertainty. The labor union stated that “[w]e are going back before my time… they probably didn’t make it any easier but they didn’t have much effect.” The BCLTC omitted the question due to uncertainty. Each group’s reaction to the impact/influence question confirms that the softwood lumber dispute was an issue during the negotiations of these trade agreements but the direct influence the dispute had on the negotiations and the development of the dispute resolution mechanisms was unknown. That being said, when examining the response given by the Vice President of the Free Trade Lumber Council, which is a private advocacy group that represents Canadian forest companies and associations, one can clearly see that this Executive VP and General Manager has also been directly involved in these trade negotiations. In his response the FTLC top official notes that the neo-protectionism that occurred in the US during the late 70’s and early 80’s towards softwood lumber “was first and foremost in the minds of those who were trying to do something about this and to basically work out a new frame work for Canada US trade relations in the 80’s.” This testimonial is further supported by the former Deputy Minister and General Advisor to the Prime Minister (PM) statements concerning the development of the FTA and NAFTA. This former government official stated that; I think they were a significant factor in propelling the then Government on the advice of a number of Sr. officials and our Embassy of in the US that we had to seek some form of formal agreement and softwood lumber was one of the issues at the time, and of course remains an issue, so I would say that it was a factor along with a host of other trade issues that led to Mulroney, and I worked with his people, that lead to the reversal of the position that he had taken previously in the 84 election against Turner and supported this attempt to negotiate free trade…. … think it was a factor but of a lesser importance when we moved to the NAFTA due to a number of different factors driving the NAFTA negotiations but again with my understanding it remains a major industry in this country and with others and it was important in advancing our partnership with the US. The former Assistant Deputy Minister, responsible for trade relations also added that; [b]efore we had the free trade agreement with the US most…about 80 per cent of our exports were going into the US duty free because of the GATT negotiations, based on
106 the previous four years so, already we had a very good measure of access, good access, to the US. Of course, if you take any single product and if you slap it with a countervailing duty then all that is thrown out the window. So it was very important to Canada to have a mechanism which would be…serve to adjudicate these disputes and Chapter 19 was the main reason Canada was negotiating the free trade agreement. Getting rid of the remaining tariffs was of course was the goal but it was a secondary goal…reason is to get freer trade. As you probably know the negotiations broke down because the US was not will to do something on dispute settlement. Thus, one can clearly see when assessing the influence of the softwood lumber dispute on the development of dispute resolution, although not the only influence, the situation of limited access to the US market when dealing with this building commodity was on the minds of the Canadians when entering into and developing these free trade pacts and the mechanisms of dispute resolution. Performance of the Dispute Resolution Procedures In this second stage of the interview the survey participants were asked a total of nine questions. These questions were to determine the Canadian perspective on the perceived fairness and efficiency of the dispute settlement systems and the appeals processes that are contained in the FTA, NAFTA and the GATT/WTO. The purpose of these questions was to determine if the Canadians, being the smaller power in their trade relationship with the US, believe that the arbitration mechanisms, and the legislation that governs these systems, is fair. If it is the case that the internal systems are seen as just and fair by the Canadians then the question of why this dispute has continued for such a long period of time will still need to be addressed. When the participants were directly asked about the American’s antidumping (AD) and countervailing duty (CVD) laws following the proper process of notification and consultation that is required under the FTA and NAFTA the pattern of responses seemed to continue the same pattern that was seen in the first section of the survey. Although there was some noted frustration of the US altering AD and CVD legislation to initiate further rounds of litigation due to the US loosing on a FTA or NAFTA panel ruling, the FTLC’s Vice President, a former Canadian government official now representing the private sector, was the only interviewee to indicate that the US had not been following the proper procedures of notification and consultation.
107 The specific example used to illustrate such negligence on the part of the US was the adoption and implementation of the Byrd Amendment. The Byrd Amendment that is mentioned by the FTLC Vice President is a piece of legislation that was “…surreptitiously inserted into the agriculture appropriations bill in 2000 by Sen. Robert Byrd after it failed to win support from the congressional committees that have expertise and oversight on trade issues.”214 This controversial amendment guides the allocation of antidumping and countervailing duties accumulated by the US Customs into unique accounts for payment to companies that supported the original petitions in these cases. Before the amendment became law, such duties were commingled with other government revenues in the general treasury. By compensating the petitioners and factions which support the petition, the Byrd Amendment bestows an added monetary incentive to file antidumping and countervailing duty cases with the US Department of Commerce. Compensation is denied to those companies that do not support the petitions, thus, making the Byrd Amendment a piece of legislation that encourages non-petitioners to adjust their positions purely to retain eligibility for compensation.215 To further illustrate the frustration the Canadians displayed towards the Byrd Amendment the representative from the BCLT was quoted as stating; …the Byrd Amendment….the theory that you are going to be paying duties so that the industry…that the US industry can file a charge, duties are imposed, and that then those companies that were the signatures on the complaint can then benefit financially from it is just seen as absolutely ludicrous. Then you have the WTO who has decreed it illegal and the US says they are going to repeal it…and they are not repealing it….the duties are going to be hard enough to get back now not only due to the Byrd Amendment but add the large amount…. I mean this is 4.1 billion Canadian dollars. That is a lot of money and that is part of the problem that has arisen in this Lumber IV, because the duties have become such a large amount that… of course the US does not want to give it back. (The money that is mentioned is the referring to the tariffs the US collected that will have to be returned if the tariffs are deemed a violation of free trade) From a
214 Dan Ikenson, “This Byrd Won’t Fly.” The CATO Institute, September 13th 2004. Available at: http://www.cato.org/research/articles/ikenson-040913.html 215 Ibid.
108 Canadian company perspective, all these people who have played this money, they don’t want to not get the money back. So that has entrenched peoples positions even more.
When examining the Canadian governments reaction to the Byrd Amendment is it clear that the attitudes expressed by the respondents is also reflected in the public statements made by the current Minister of International trade Jim Peterson; The WTO has ruled that the Byrd Amendment does not conform with international trading obligations… It is our view that it effectively provides a distorting double advantage to US industry and, if left in place, could lead to billions of dollars in Canadian-paid duties being handed over to US companies. I call upon the US to preserve the integrity of the global trading system by moving expeditiously to repeal the Byrd Amendment.216
However, although there is much discontent when the Canadians spoke of the Byrd Amendment, is was clear that the methods contained within the agreement that require notification and consultation were not seen as a negative but the real issue seemed to be US compliance with these regulations when dealing with the specific case of the Byrd Amendment. When asked if the binational panel system of judicial review, which replaced the old method of judicial review of the US AD and CVD laws, have helped in developing a solution for the softwood lumber case the survey participants were all in agreement that the softwood lumber case was the one area where the new process of judicial review contained within the FTA, NAFTA and the WTO were not helping in the development of a solution for this area of contention. As stated by the FTLC respondent, “Well I would have to say that it has worked for everything but softwood lumber…” The former Deputy Minister and General Advisor to the Prime Minister stated “…these institutions are an advancement of the US Canadian trade relationship.” The United Steel Workers responded with a clear cut “no”, and the BCLTC was quoted as stating that “…good in theory, but it still takes forever to get through this process.
216 January 15, 2004 (1:45pm EST) Canadian Department of International Trade “Byrd Amendment: Canada Pursues Authority to Retaliate.” Press Release: No.6
109 You get what you think is a, quote unquote, final decision and that is still appealed or it goes on and on and on.” The former Assistant Deputy Minister, responsible for trade relations also stated that; [T]he basic reason Canada negotiated the free trade agreement was, as I just said, to get away from diplomacy and the political way of settling these disputes into a rule based system. But every thing has sort of worked as if Canada forgot this. So if you look at the history of the Softwood lumber dispute over the last 22 years you will see that we have basically used the legal system twice and we have made two deals. So making a deal outside the frame of the NAFTA you are setting aside what you negotiated in the first place. Canada has done that. It doesn’t look like we will be doing it again. Who knows I think it is still an open question. This position is supported by International Trade Minister Pierre Pettigrew stating on January 8, 2003 that “Canada has always favoured a long-term negotiated resolution to the Canada-US softwood lumber dispute, but only on a fair and reasonable basis. We will continue to pursue a negotiated solution along with our legal challenges.”217 These responses are a clear indication that the softwood lumber dispute, although it is the oldest trade dispute and a dispute that has been arbitrated through the panel systems numerous times, is not a dispute that the current systems are able to resolve. Further breakdown of the dispute resolution processes was seen when referring to the softwood lumber dispute when the respondents were asked about the ability of Canada to implement the countermeasures such as retaliatory sanctions as a viable deterrent and option for retaliation when dealing with the softwood lumber dispute. As illustrated by the BCLTC statement, “…because Canada’s position of exporting more than…we are so dependent on the US as an exporting market that we don’t want to be damaging the overall relationship…” The reality that Canada is more dependent on the US then vice versa is not a surprising response. However what is interesting and reflected in the responses is the clear understanding of the power relationship that is seen in the Canadian responses towards using this tool of retaliation when dealing with the softwood lumber dispute. This is clearly illustrated in the response made by the former Deputy Minister and General Advisor to the PM;
217 January 8, 2003 (4:40 pm EST) Canadian Department of International Trade, “WTO Panel Established in Canada- US Softwood Lumber Dispute.” Press Release No. 2
110 I can say with some authority that they are very reluctant to go that route as a country because we have full recognition of our relative impotence. That’s been my sense of it all along. We are constantly striving to find ways, other than the clubs that are available, find ways of resolving issues through negotiation dialogue, and it reflects a realistic assessment that I believe every leader of Canada has held of Canada’s relative power. And you know we certainly have some power…we are not Botswana, but we are a country which is relativity a minor actor. I think there are at a technical level people who are using every letter of the law and the rules to advance Canada’s case but you know the political level is much different because you can only push the United States so far without getting hurt because there are so many fronts on which they can exercise their clout and this in the end can seriously damage Canada’s interests, trade interests and other interests. And that is what you find out when you are at the highest levels of our government; nobody will talk about it publicly but one of my colleges who was part of the Privy Council under Trudeau and then became very prominent internationally and he spent time on the Tri-lateral Commission, he told me and I know that he has told others… he said I never realized the impotence… he never used the word impotence, he had his hands and he said I thought our (Canada’s) power was like this and with his arms spread wide his placed his hands very far apart, and then he said that he came to realize has his role of clerk on this Tri-lateral Commission and then his further international work, and he placed his fingers very close together and then said that Canada’s power is more like this. And that was profound for him to acknowledge that judgment and I would say that this is not an uncommon feeling for people who are at the center.
This understanding of the Canadian trading position when dealing with the US is further illustrated by the Vice President of the FTLC’s response, Retaliation is a last resort and I doubt very much that we will retaliate on the softwood lumber file or any other file. The last time Canada used retaliation was the mid-eighties on cedar shakes and shingles. It was a small item this was I believe 1985, it was not a large volume but that was the last time we used retaliation towards the US and probably one of the only times. It’s not a tool that works for us unfortunately.
111 When examining the Canadian governments current position on the ability to invoke retaliatory measures the statements made by the former Minister of Trade support the conclusions made by the interview respondents. Mr. Petergrew was quoted as stating “[c]learly, retaliation is not Canada’s preferred option…” This quote was made when the Minister responded to the question of Canada invoking retaliatory measures against the US due to the US not living up to its international trade obligations and repealing the Byrd Amendment.218 With the responses overwhelmingly highlighting the reality that sanctions are not a viable or preferred tool for the Canadians when dealing with the softwood lumber dispute, or any other dispute, when the respondents were directly asked if the dispute settlement dispute settlement procedures contained in NAFTA and the GATT/WTO has helped in making Canada’s trade relationship with the US less asymmetrical there was different levels of frustration illustrated by the responses. The United Steel Workers illustrated that although the softwood lumber dispute has not been resolved that “[Y]ou have to think back to what we had before we had NAFTA. You know there was already a whole history of terrible disputes between Canada and the US over softwood lumber before NAFTA. And NAFTA I think is more recourse and somewhat more leverage then we had before.” This respondent’s answer is driven by the reality that before NAFTA all that was available to the Canadians was the GATT and as illustrated by chapter 2 this agreement had major weakness in resolving disputes due to weak the dispute panel decisions being able to be blocked easily. This statement and sentiment of NAFTA giving the Canadians more power in the trade relationship with the US than compared to what was present before NAFTA was also illustrated by the comments made by the BCLTC which stated, “[a]s far as NAFTA is concerned I would say that in theory it has given us a bit more traction…”. The idea that these systems have been an asset although a limited one was also illustrated in the former Deputy Minister and General Advisor to the Prime Minister answer; “…Now we have something to rely on and before we didn’t, we have a quasi-judicial, if that is the correct term, we have a quasi-judicial system now entrenched in a treaty. We did not have that before…before it was just subject to informal unstructured negotiations so there is something
218 November 23, 2004 (9:45 am EST) Canadian Department of International Trade, “Byrd Amendment: Government of Canada seeks comments on possible trade retaliation against United States.” Press Release No. 134.
112 there of considerable value.” However, when examining the response of the Free Trade Lumber Council the view of these free trade agreements leveling the playing field is much less encouraging. Well the asymmetry between Canada and the US is a basic fact. I mean there is nothing we can do about it. The US will always be the bigger partner and we will always be more dependent on the US market then they are on our supply. We are so close that most policy makers, decision makers in the US, don’t really know that Canada is their major suppliers of key comities such as, not only lumber but oil and gas and so on and so forth. You know, so these asymmetries will not lessoned by dispute settlement by the WTO or NAFTA simply these are attempts. I will come back to the WTO business in a moment but these are attempts to civilize the relationship and not have the might is right approach always win out. Of course because that is so Canada always loses, there is no doubt about this. As soon as we sit down at a negotiating table to deal with this and go to problems such as softwood lumber or any other product the game is lost and it wrong to speak about negotiations because it is basically a grounding down process. It takes awhile before Canada finally yields to US terms.
Although the power relationship between Canada and the US has not been altered by these agreements the respondents still have not voiced concerns of institutional biased only a realization of the limited power position they find themselves in. This pattern of response then leads one to support the idea that the systems developed and contained in Article XXII of the GATT, the first 19 Articles of the WTO Dispute Settlement Understanding, Chapters 18 and 19 of the FTA, or Chapters 19 and 20 of NAFTA have provided a legal structure that allows for the appropriate litigation of alleged free trade violations. The responses obtained support the argument that the dispute settlement systems presented contain a degree of impartiality that allows for a fair determination of rule violation. This will be further illustrated in the following section. Satisfaction with the Dispute Settlement Systems The main complaint that was voiced by the participants, in relation to the institutions of dispute resolution that are contained within the FTA, NAFTA, and the GATT/WTO, was that of time. In every instance, except for the former Deputy Minister and General Advisor to the Prime
113 Minister who was unsure if time was seen as a “big factor”, each voiced frustration about the extended length of time these disputes took. The United Steel Workers of Canada make the statement, when referring to the time that it takes for NAFTA and the WTO to arbitrate a case that; …I think we would always say we wish that it were faster…. You know that if the delay is really a problem in terms of the uncertainty that it created in the industry the effects that it has on the reconfiguring and redeploying capital and labor in the industry the effects it has in terms of or impact that it has on investment so on and so forth. You know so all of those things multiply and the money that the Canadian companies are obliged to put up. All of these multiply the longer it goes on.
The frustration of time is further illustrated by the BCLTC stating that; …my frustration is how long this process truly does take. It goes on and on… you know I remember when we got our first legal calendar laid out saying that this could easily take us into 2007 and thinking oh my god …and here we are 2005 and still picking away at that legal calendar.
The market changes so quickly and it changes from year to year that when we are dealing with these things and you are looking at market conditions that are back in 2001 and its different from now and you also look at the fact that we have recently gone through all these mergers within the industry, it is hard to have all those things taken into consideration. Because the process takes so long it does not stay current with where we are today.
However, although every respondent except for one agreed that the process is one that takes too much time, when asked if the Canadian perception, concerning the softwood lumber cases that have been arbitrated through the GATT/WTO judicial process, was one that saw the process being completed in a timely there was some variation. The Vice President of the Free Trade Lumber Council’s response illustrated that the WTO and NAFTA should not be classified in the same manner. This is clearly seen in his statement; “I think that the WTO now is quite scrupulous in adhering to the timeframe which is in stark contract to situations of NAFTA.”
114 Thus, although NAFTA and the WTO did not always produce the same response, one can conclude that the major complaint that has been issued concerning the functioning of the dispute resolutions systems is that they are not seen as unfair but slow. Benefits of having Dispute Settlement Procedures When the Canadians were asked to identify some of the benefits of having the dispute settlement systems that are now in place uniformity returned to the responses. Although the dispute mechanisms that are being examined have failed in producing an end to the softwood lumber dispute, the reality remains that all parties who were questioned believe there has been some benefit to having these systems. Although the Canadian government and the respondents all agree that there is benefit to having the dispute resolution systems of the GATT, WTO, FTA and NAFTA the frustration with non-compliance, logistical maneuvering, and issues of asymmetry still are seen in each survey response. The former Deputy Minister and General Advisor to the Prime Minister stated that “I think that there is more frustration with the lack of commitment of the US to respond to the decisions, the outputs of the decisions.” The BCTLC states, when referring to the benefits of NAFTA and the WTO that “…we look at it as the more we can have rulings saying that yes you where right it just reaffirms that there is no subsidy and that we are not in the wrong.” This comment is also supported by the statements made by the current International Trade Minister Peterson on April 29, 2004 in reference to the second NAFTA ruling on Canadian softwood lumber; “This supports what Canada has been saying all along: Canadian softwood lumber exports do not threaten to injure US producers. Once again, the Panel has ruled in our favor. This is a significant victory for Canada.”219 The idea that the dispute resolution systems are a benefit but still ineffective is also seen in the response of the United Steel Workers of Canada; I mean as I said before it’s better then what we had before, which was basically guns blazing. Guns blazing with no end in sight. At least this creates a process, the largest problem there is still no guarantee that the end of the day that the Americans will comply. And so even when and as they have in this round, pretty well lost every thing in NAFTA there is nothing to really say, or to compel them to comply and nothing and there is no
219 April 29, 2004 (2:00 pm EDT) Canadian Department of International Trade, “Softwood Lumber: Minister Peterson welcomes second NAFTA ruling on threat of injury.” Press Release No. 64.
115 apparent end to the legal avenues that are available to them. So that they loose on chapter 19 so they (the Americans) turn around and say lets get rid of chapter 19. They loose on the Byrd Amendment they turn around and say we are going to keep the money anyway. They loose on the means of calculating whether or not there is a subsidy so they simply do it a different way and we go through the whole process again and again. That said we should always remember that before this is exactly where we were except there was not even a process.
However, the response of the Free Trade Lumber Council puts the situation into a slightly deferent perspective. Although, in a similar pattern to his fellow interview participants this Vice President is quoted stating “[w]hat is remarkable is that different panels operating under a different set of rules basically come to the same conclusion. That is that Canada is not subsidizing, is not hurting US producers and I think that in itself is a major result.” It is illustrated in his response to the questions concerning the benefits of having the dispute settlement systems of the FTA, NAFTA and WTO, that when dealing specifically with the softwood lumber case, having a system that is not working is a benefit to Canada. This benefit is the reality that not just one, two or three panels have reaffirmed the Canadian position but all panels contained in the agreements/organizations have done so thus strengthening the Canadian case. Nevertheless, because of the inability of these arbitration systems to resolve the issue of contention that is now manifested itself as Lumber IV the systems themselves are now in jeopardy. The former Assistant Deputy Minister, responsible for trade relations also added that; You know again, the softwood lumber case, because it’s the biggest dispute in the world, and because it so regenerators if you will, it is the wrong lens to use to look at the dispute settlement system. Yet, it is the right lens because if it does not work for lumber it won’t work for anything else. So that is also quite clear in the way the US authorities are treating it. If it does not work this time around for softwood lumber then you will basically see a weathering away of Chapter 19 and so it is like a test case. I think it has basically worked when we have used it but its working less and less. Its taking longer it’s extremely expensive and basically its not working as it was intended as far as Canada is concerned. Of course Canada was the country amongst the two that needed this, the US
116 does not need chapter 19, we do. A number of people who are close to this are worried that if the US does not apply these rulings then it is probably the end of Chapter 19.
The fear of loosing a dispute resolution system that has failed to resolve the issues presented by the softwood lumber dispute may seem illogical. However, as illustrated in the responses, the Canadians, although knowing that the asymmetry and ability to force reforms of US trade law are limited, believe that Chapter 19 of NAFTA is a forum where the smaller of the two has the ability to at least have their grievances heard. The loss of this forum would place Canada’s negotiating ability in an even greater disadvantage. In what seems to be characterized as a David and Goliath epic, the Canadians, although not armed with the power of a slingshot, believe that Chapter 19 and the other process contained in the dispute resolution systems presented at least lets them throw rocks. Suggested Modifications When examining the responses given concerning modifications to the dispute resolution systems that are now in place it is clear that all four interviewees saw the issue of compliance as one of the biggest challenges. Although not of the opinion of the former Deputy Minister time was also seen as area for reform by the other three respondents. The BCLTC response included both of these issues and stated that; It’s amazing the length of time that it takes to get through this and I think that this is the biggest one that still has not been answered that if we get the ultimate ruling from the NAFTA panels when we get the ruling from the EEC then, if they reaffirm the initial decision that said that you have not proven a material threat of injury, you have no basis for your case, if that ruling comes down in Canada’s favor, if the US will actually honor that decision because there are people on record saying we will not honor that decision. So enforcement is a major key.
This sentiment of discontent with compliance was also illustrated in the statements made by the FTLC as illustrated by the following comments; Well I think before we think of modifying this stuff I think it’s… it would be… the first time would be to get the US to apply the system as it was supposed to be applied. If
117 the system was applied expeditiously those people would not be complaining about the current system.
The United Steel Workers of Canada were also on the same page stating that “[w]ell… some way or another there has to be an end.” The modifications suggested by the former Deputy Minister and General Advisor to the PM suggested that and end to the dispute should be “Canada should be working very vigilantly on developing relationships with top US officials in the current US administration all the way up to the current president…bend the ear of the president and his Sr. officials.” Thus, although all the responses illustrate a very clear frustration with the current situation and the history that surrounds the softwood lumber dispute the reality of the matter is that all see the future as one that is not soon to have a resolution that will end the logjam at the Canadian-US border. The Canadians seem to have the disposition that the systems are not the ones in need of real reform but it is the Americans that need to apply the system. With that being said it seems as if these reactions have placed the Canadian softwood lumber dispute in the context of asymmetrical power.
118 Conclusion It is clear that all parties involved in the softwood lumber dispute are very aware of the reality that surrounds this situation. All the respondents recognized the Canadian position as one of dependence on the US. The tone of the respondents when dealing with this reality was not one of anger or hostility but general acknowledgment. However, the tone changes when the issues of US AD and CVD measures are introduced. Although not angered by the position of dependency, the Canadian’s are angered by the tactics the US is utilizing when dealing with the softwood lumber dispute. As illustrated in the responses, those involved in the dispute charge that the continuation of this epic trade dispute is due to the inability of the dispute resolution mechanisms to be properly adhered to and the unwillingness of the US to apply the rules. Thus, it seems that the Canadians have faith in the systems themselves but not the in the ability of these systems to break the pattern of non-compliance that seems to be the cause of the softwood lumber debate continuing from year to year to year. In conclusion, these interviews support the evocation that Article XXII of the GATT, the first 19 Articles of the WTO Dispute Settlement Understanding, Chapters 18 and 19 of the FTA, or Chapters 19 and 20 of NAFTA have been able to provide a legal structure that allows for the appropriate litigation of alleged free trade violations. It was not seen by the statements made that the systems themselves are biased. In fact, the responses illustrate the Canadians did not voice any grievances that were concerned with the dispute settlement systems being bias. Furthermore, although all were frustrated with the time that these dispute resolution systems take in making determination, there was no indication that the length of time that these disputes take hampers a fair determination of rule violation concerning free trade. These results then lead one back to the conclusion that to find a solution to the softwood lumber dispute one must look past the dispute resolution systems and see what, if any reforms can be made to the process once a member is found to be in violation. There is no disputing the reality that a successful dispute settlement is not only dependent on a fair arbitration process but is also dependent on a member countries ability to invoke retaliatory measures granted by the dispute resolution procedures. The history and background presented in this, and past chapters, has illustrated that successful arbitration processes have been developed yet retaliation and compliance still remain problematic. However, as with any case
119 study that is presented over time, once one issue of contention is reformed and enhanced this does not mean that the work is done. The constant throughout this examination, and as clearly illustrated in the interviews, is the inability of Canada to pressure the US into complying with the withdrawal of AD and CVD legislation concerning softwood lumber. Thus, this places the dispute resolution procedures in yet another era of reform. The dispute settlement procedures have continually granted Canada retaliatory measures that can not be used. The inability of Canada to impose sanctions on its largest trading partner is a result of this smaller country following the tenets of free trade. Simply put, when Canada follows the theories of free trade it leads this Northern nation directly down the path of further integration. This path is accepted and seen as an opportunity for economic growth. Once further integration occurs the ability for Canada to impose tariffs on the market that they are integrating with decreases. Thus, the ability for the Canadians to impose one on one sanction becomes obsolete. The reason for this is due to this policy not being consistent with the reality that is created by free trade which is simply that free trade creates and promotes integration which leads to dependency. Thus, as stated in Chapter 2, it is this end stage of the dispute resolution process that needs to be reexamined if fair trade is to become free trade. Retaliatory measures need to become theoretically compatible with the reality that is created by this policy. The following chapter will outline several suggestions/recommendations that may in the end lead to an end of the softwood lumber dispute.
120 CHAPTER V Conclusion Overview “No nation was ever ruined by trade.” Benjamin Franklin220
This chapter is the final chapter of the dissertation and thus, will be a combination of review and analysis. The chapter begins with a brief introduction that restates the purpose of the research presented; the importance of exploring trade dispute resolution and the asymmetrical power relationship of Canada and the US in the context of the softwood lumber dispute. The chapter then examines the power relationship that characterizes and explains the current situation of the softwood lumber dispute and the failure of the dispute resolution systems to facilitate a resolution. The chapter continues by identifying needed dispute resolution reforms that have been highlighted by the softwood lumber dispute. The chapter then concludes with a descriptive explanation of the proposed third party sanction reforms and the realization that the softwood lumber dispute must be examined in this broader context of dispute resolution in order for free trade between the US and Canada to continue along the path of further integration. Introduction The purpose of this research was to explore an ongoing trade dispute between the United States and Canada in an attempt to determine how this trade conflict has been affected by the creation of the dispute settlement systems that are part of the Canadian – American Free Trade Agreement (FTA), the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO), and the General Agreements on Tariffs and Trade (GATT). The approach that was utilized in this study involved examining the dispute settlement systems themselves, outlining the long-standing softwood lumber trade dispute, and interviewing parties in Canada who are directly involved in the issues surrounding the softwood lumber dispute. These methods were employed to generate a better understanding of the impact the dispute resolution systems of the GATT, WTO, FTA and NAFTA has had on the softwood
220 Benjamin Franklin, 1706-1790, as quoted in Essays: Thoughts on Commercial Subjects.
121 lumber dispute. It was shown that the benefits generated by these systems have been minimal when looking at these dispute resolution mechanisms through the lens of the softwood lumber dispute. However, as noted earlier in chapter four, these minimal benefits are still perceived by the Canadians as progress towards a resolution. It was clearly illustrated by the Canadian interview responses and the official stated position of the Canadian government that, although the systems in place are not resolving the dispute in question, the rulings handed down by the dispute resolution systems are considered by the Canadians to be beneficial. The Canadians see the current systems as stepping stones towards free trade that leave them with hope of fair trade in the future. However, for now the dispute resolution systems have only provided the Canadians with an impartial arbitration system that has ruled on the side of the Canadians but in the end is unable to correct the asymmetrical power relationship that is seen in the Canadian US trade relationship and illustrated by the softwood lumber dispute. Another important reason for this line of inquiry concerning the softwood lumber dispute was to discover the advancements that have been made concerning the dispute resolution systems of the GATT, WTO, FTA and NAFTA. The softwood lumber trade dispute was ideal in examining the evolution of these supranational institutions due to this dispute involving each international agreement. The softwood lumber case, due to its long history, proved to be extremely effective in illustrating how these particular dispute settlement mechanisms have evolved over time. The evolution of the FTA to NAFTA and the GATT towards the WTO clearly illustrates that the internal adjudicatory systems of dispute resolution are not to be blamed for the log jam at the 49th parallel. As stated numerous times in the chapters presented, the existence of an international organization or an international agreement that follows the theories and tenants of free trade does not mean that there will not be conflict concerning trade, only that there is an attempt to create a better basis for resolving conflicts that invariably arise. The history of the international dispute resolution mechanisms presented in chapter two of this research highlights the reality that the international dispute resolution systems of the WTO and NAFTA are an attempt to create a better basis for resolving conflicts. These two supranational free trade institutions, which were born out of the GATT and Can-US FTA, have achieved a level of impartiality in their methods of dispute adjudication that has brought legitimacy to the rulings handed down concerning violations of free trade. The
122 formal procedures established by these agreements and organizations have the ability to facilitate dispute resolution in an unbiased manner. However, what has not been accomplished by the evolution of trade dispute resolution is the ability of these systems is to allow the world of international trade to be run by the rule of law and not by those who have power. Thus, the only area that has not evolved over the evolution of the dispute resolution systems is the final stage of the dispute resolution process and it is clear by the history of the softwood lumber dispute that it is this final stage of the dispute settlement process where dispute resolution falls short. As the research indicates, the softwood lumber dispute has highlighted many important realities that limit the possibility for resolution concerning the softwood lumber dispute. Canada’s position as the smaller power within the asymmetrical relationship of NAFTA, combine with the degree of integration that has occurred due to developing a free trade region within North America, places Canada in an asymmetrical relationship that renders the one on one sanction retaliation granted by the dispute resolution process as an option that is impractical when applied to the US. This type of retaliation harms the Canadian economy in the end making Canada cut off its nose to spite its face. Thus, what the softwood lumber case study has illustrated the simple reality that dispute resolution has entered a new era of reform. The softwood lumber dispute has clearly shown that if a country is limited in its ability to suspend equivalent benefits towards the country found in violation of free trade then the clashing of interests will continue and the dispute will rage on. In the end, as clearly illustrated by this research, the focus of reform concerning dispute resolution should not be on the internal process of the dispute resolution systems. These internal processes show a clear commitment to developing a legal system where biased is minimized and efficiency in rendering a decision on unfair trade is maximized. However, as shown by the history of the softwood lumber dispute and the responses obtained from the interviews, when dealing with a situation that involves variables such as; sovereignty, self-preservation, self- interest, and inequality there are many levels of bias that still need to be minimized if free trade is to become fair trade. Thus, this research illustrates a clear need for the spotlight to move from the internal legal systems of dispute resolution to the final stage of dispute resolution where bias continues to retard the establishment of free trade. Examining a specific case like the softwood lumber dispute has clearly highlighted this call for reform.
123 Life is not fair but Free Trade can be The international political regime of free trade is based on the idea of comparative advantage which clearly is not based on the idea that life is fair (Irwin, 1996). However, although comparative advantage is unfair due to being based on the amenities a country has at its disposal the reality remains that the systems in place that facilitate free trade have to be fair and applied equally to everyone involved to determine true comparative advantage. If this fairness is not achieved then true comparative advantage is not achieved and the goal of free trade remains a goal with all the benefits of free trade being unattained. In conclusion of this study it is my contention that the dispute resolution process contained in the GATT, the WTO Dispute Settlement Understanding, Chapters 18 and 19 of the FTA, and Chapters 19 and 20 of NAFTA have been able to provide a fair and unbiased legal structure that allows for the appropriate litigation of alleged free trade violations when applied to the history of the softwood lumber dispute. It was not seen by the statements made by the interviewees or the examination of the original legal texts of the agreements that the systems themselves are unfair. If one did not know the circumstances of the softwood lumber dispute between Canada and the US one might believe that the free trade is close to becoming fair trade. However, although we are closer than we have ever been, there are still major issues that needs to be addressed for fair free trade to be achieved. To examine where biases still are a dominate factor in dispute resolution one need to examine what happens once a country is found by the panel system to be in violation of the principles of free trade. Focusing on the dispute resolution process in this manner is supported by the Canadians not voicing any grievances that were concerned with the dispute settlement systems themselves being biased. The issue of unfairness appeared in the Canadian responses when addressing US compliance with the procedures of the dispute resolution systems. When dealing with compliance issues the question truly is that of power. Do the Canadians have the power to make the US comply with the GATT, WTO, FTA and NAFTA rulings; furthermore if compliance is not honored by the US does Canada have the power to retaliate? The softwood lumber situation and the interviews conducted would support the answer of “no” to both of these questions. Thus, although the tenets of free trade have stated that Canada, due to its countries amities in the softwood lumber industry, has comparative advantage over the US the US still
124 refuses to let the free trade of Canadian softwood occur in the US market thus obstructing free trade and fair trade remains a pipe dream for Canada in this situation. The power relationship highlighted by the softwood lumber dispute is accentuated by the constant struggle illustrated throughout the history of the Canadian US trade relationship. Throughout the historical examination presented in chapters two and three, and as clearly illustrated in the interviews, the continued inability for Canada to pressure the more powerful US into complying with the withdrawal of AD and CVD legislation concerning softwood lumber has always been at the heart of the conflict. The dispute settlement procedures have continually granted Canada retaliatory measures to give the Canadians political leverage when dealing with the US on this issue. However, the political leverage of one on one sanctions is not utilized by the Canadians because the retaliatory measures can not be used due to the economic hardship these measures would cause other Canadian industries. The inability of Canada to impose sanctions on its largest trading partner is a result of this smaller country following the tenets of free trade. Simply put, when Canada follows the theories of free trade it leads this Northern nation directly down the path of further integration with the US. This path is accepted and seen as an opportunity for economic growth. Once further integration occurs the ability for Canada to impose tariffs on the market that they are integrating with decreases. Thus, the ability for the Canadians to impose one on one sanction becomes outdated. The reason for this is due to this one on one retaliatory sanction policy of the GATT, WTO, FTA and NAFTA not being consistent with the reality that is created by free trade. This reality is simply that free trade creates and promotes integration which leads to dependency which limits power in a one on one relationship. Thus, it is this end stage of the dispute resolution process that needs to be reexamined if free trade is to become fair trade. Retaliatory measures need to become theoretically compatible with the reality that is created by free trade policy. Reforming the Dispute resolution Systems Before one can look for a solution to any problem on has to follow the basic tenets of problem solving and identify the variables contributing to the problem. As illustrated by the information presented in the preceding chapters the reality of asymmetrical power in the Canadian-US trading relationship has presented itself as the constant variable that continues to be unresolved when dealing with trade dispute resolution. Thus, the term power has to be
125 defined and explained in the context of international relations then applied to the Canadian US trading relationship. Once this is accomplished the term power has to be put in context to the softwood lumber dispute and in context to developing a solution that will allow sanctions to be a viable option for Canada as a retaliatory trade measure. Identifying Power Relationships Power is a fundamental concept when examining international relations and trade dispute resolution however its usage has been subject to “definitional confusion” (Rothgeb, 1993). Power is sometimes used to describe a country’s resources or its capabilities. This type of power is measured by variables such as economic clout, military strength and manpower available. Although it is difficult to make an accurate and realistic assessment of the relative importance of each asset when examining the Canadian US trade relationship the reality that Canada is the less powerful of the two is clear to see due to the Canadian numbers being much smaller in each of the aforementioned categories. This weaker power position of Canada in relation to the US is illustrated in a famous quote made by Pierre Trudeau. This former Canadian Prime Minister in a speech to the Washington Press Club in 1969 said that “[l]iving next to you (the USA) is in some ways like a mouse sleeping with an elephant. No matter how friendly and even-tempered the beast, one is affected by every twitch and grunt.” Although this statement, made by one of the most celebrated political leaders in Canadian history, emphasizes the asymmetrical power that exists between Canada and the US the ability of the US to have its way due to the imbalance of power is still not so easy to evaluate.221 However, when looking through the lens of the softwood lumber dispute the ability to identify who weids the power in the Canadian US trading relationship becomes quite simple. The softwood lumber dispute has shown, under Lumber II, Lumber III, The Softwood Lumber Agreement (SLA), and Lumber IV that although the panel determinations of the GATT, WTO, FTA and NAFTA have resulted in the determination that US sanctions on Canadian softwood lumber is a direct violation of free trade the US has continued to impose tariffs in this area. This result would suggest quite strongly that in the case of softwood lumber the ability of the US to have its way due to the imbalance of power is well documented. Thus, the inability for the
221 Rothgeb. 1993 p. 44 Note: Morgenthau and Thompson also make this point about how difficult it is to assess the power calculations of a nation 221[2] (1985, pp. 223-235).
126 dispute resolution systems to offer a solution that would eliminate this bias of power can be seen as the main reason why dispute resolution has failed to resolve the softwood lumber dispute. A second conceptualization of power identifies a countries power as the ability to achieve an end goal (Rothgeb, 1993). When applying this definition to the softwood lumber dispute one first has to identify each countries’ goal or desired outcome concerning the free trade of this commodity. Canada’s goal is to eliminate the CVD and AD laws imposed by the US on Canadian softwood lumber. The goal of the US is to impose AD and CVDs on Canadian softwood lumber to protect the US domestic producers of softwood lumber. As clearly seen in the history presented in chapter three the US, since the beginning of Lumber II, has achieved its goal of imposing duties on the Canadian lumber and has limited the injury Canadian softwood lumber has on its domestic softwood lumber producers. However, when examining this US achievement in terms of power the ability for the US to achieve this goal becomes even more impressive. The US has achieved its goal although the dispute settlement panels of the GATT, WTO, FTA and NAFTA have all stated that the US’s goal is in direct violation with the establishment of free trade in this industry. The ability for the US to achieve its goal of protection in spite of international rulings against this goal further supports the contention that the US is the more powerful of the two when dealing with the softwood lumber dispute and the dispute resolution mechanisms have not corrected for this asymmetry. Lastly, the definition of power can be identified as a means to control others or control the environment in which one is found (Rothgeb, 1999. p. 32). This definition seems the most widely accepted definition of power.222 This definition simply places power in the most basic terms. It asks the question, who has the ability to obtain what they desire? Whoever is seen as the victor is seen as the one with the power. This idea that power dictates the winner is what the dispute resolution systems of the GATT, WTO, FTA and NAFTA are trying to eliminate so that it is not power but the rule of law that should dictate free trade. However, as presented in this study this is the failing of the dispute resolution systems examined in this study. The US, although loosing the international arbitrational decisions, is still able to control the softwood lumber dispute. The border is still not free of tariffs concerning Canadian softwood lumber and so the US, although against the decisions of the international free trade dispute resolution
222 Morgenthau and Thompson speak of power as man’s control over the minds and actions of other men (1985, p. 32).
127 mechanisms, is powerful enough to achieve its end goal of managed trade in this area and thus can be seen as the victor. As illustrated by defining the term power in the context of international relations and using the softwood lumber cases to illustrate the power relationship between the US and Canada it is clear to see that the US is the country that is the dominate in this relationship. Although this conclusion is not surprising what this then means for Canada is that unless reforms are made to the dispute resolution retaliatory measures Canada will continue to fall short of achieving free trade in the area of softwood lumber due to the power relationship supporting the goals and agenda of the US. Power in Numbers When reading chapter two of this research it was clear to see that the GATT and WTO are associations that have had much success due to the shear number of members they have enlisted. The development of free trade would be much less impressive if the GATT and WTO only consisted of two members. Numbers can also be seen as explaining the fanfare surrounding the European Union (EU). The EU’s accomplishments can be seen as more impressive than its North American counterpart simply due to the EU involving a now impressive 25 counties while NAFTA continues to only have three. As free trade inducts more members to the WTO and to the EU the reality remains that the power relationship of NAFTA remains to be one that has stayed constant. This unvarying power relationship has been identified as that of a “hub and spoke” (Eden & Molot, 1992). The term “hub and spoke” is the simple idea that the power relationship in NAFTA reflects that of a wheel where the US, being the most powerful nation in the agreement, is the hub and Canada and Mexico, the two less powerful countries, are the spokes of the wheel. In the end the hub position, due to its unmatched power, controls the spokes due to the asymmetrical power relationship that exists. This figurative explanation of the power relationship within NAFTA is important due to integration being a major key to developing free trade regions such as NAFTA. Dependence is a natural progression of integration due to the tenets of free trade producing comparative advantage which is based on the idea that you produce those products which you can profit from and buy what you need but do not profit in producing (Ohlin, 1933). When applying these theories to NAFTA, this trading region soon becomes an example of how integration in a hub
128 spoke relationship can have the result of integration leading to dependency that limits sovereignty. However, it is not my contention that this limitation of sovereignty is a result of free trade and all that comes with it. Sovereignty is power and as illustrated throughout this research power is based on the ability of a country to reach a goal, control their environment, and to act on ones best interests. Free trade has the ability to facilitate this type of power however that can only be the case if free trade is fair trade. To reach that goal of fair trade becoming fee trade a country must have the power to retaliate when a free trade partner is found to be in violation of free trade. However, due to the inability of the dispute settlement systems of the GATT, WTO, FTA and NAFTA to resolve trade conflicts such as the softwood lumber dispute, Canada is clearly in a disadvantaged position when dealing with trade disputes with the US and thus, is regulated to remaining a spoke without power. Within the asymmetrical relationships of NAFTA, combined with the degree of integration that has occurred between Canada and the US due to developing a free trade region within North America, Canada’s ability to go toe to toe and come out the victor in a one on one battle with the US is unlikely to say the least. Thus, Canada is in an asymmetrical relationship with the US that renders the one on one sanction retaliation granted by the GATT, WTO and NAFTA an option that is impractical. Thus, the impracticality of one on one sanctions renders sanctions and the dispute resolution process as ineffective political tools for the Canadians when dealing with trade disputes concerning the US. For a clear example of this limitation caused by ineffective retaliatory options all one has to do is look at the softwood lumber dispute. However there can be a happy ending for free trade. A country does not have to be limited in its ability to suspend equivalent benefits towards the country found in violation of free trade if reforms to the dispute resolution systems are made. All that needs to occur is the development of third party sanctions. If Canada is granted retaliatory sanctions against the US, as has occurred in the softwood lumber dispute, and these sanctions go unused no political change is to come from sanctions that are not being applied. However if Canada, although unable to use the sanctions for themselves, was permitted to delegate their sanction ability granted by the dispute resolution systems of the GATT, WTO, and NAFTA to a third party such as the EU, these sanctions now become a viable political tool and one that is sure to make the US sit-up and take notice.
129 Adding a Third Party to the Fight What third party sanction reform generates is a reestablishment of power that has otherwise has been compromised by free trade integration. With the one on one sanction policy that is currently being used by the dispute resolution systems of the GATT, WTO and NAFTA, integration, although a result of free trade, is seen as a limitation to state sovereignty. However, when the addition of a third party is introduced as an option for retaliatory measures to be taken the recourse of sanctions can now be seen as a tool that levels the playing field and promotes free trade by allowing free trade integration to not limit the ability to retaliate if the tenets of free trade are violated. Asymmetry becomes a moot point, free trade becomes less threatening, integration is seen as an economic benefit, and self-interest of one is not more powerful than the self-interest of another thus free trade becomes one step closer to the realities of fair trade. Beefing up the Canadian Softwood Lumber Dispute When examining the third party sanctions the procedures that would allow such an action to occur would include multiple levels of government as well as multiple industries that are tied to the free trade market. For the inclusion of a third party to help facilitate an end to the softwood lumber dispute by imposing Canadian sanctions authorized by the GATT, WTO, and NAFTA the first step of the process would be the adoption of third party sanctions by the members of the GATT, WTO, and NAFTA. However when proposing a legislative change to the procedures that have been established since 1948 there has to be a clear understanding as to how these reforms would work in practice. To begin to illustrate how this third party sanction option may be employed I will use the softwood lumber dispute and Canada as the example. Domestic Determinations First Determination: One on One vs. Third Party Sanctions When starting down the path of third party sanction retaliation, first and foremost, the Canadian government would have to decide whether they are going to apply one on one sanctions or third party sanctions when dealing with the retaliatory measures granted to it by the dispute resolution systems concerning the softwood lumber dispute. Due to the history presented it would be fair to say that the best predictor of future behavior is past behavior and for the reasons already presented the Canadians would benefit more from enacting the third party sanction option.
130 Second Determination: Softwood Sanctions able to help other Canadian Industries The second decision that would need to be made is which domestic industry is to benefit from the Canadian softwood lumber sanctions. Do to the US being a major competitor with Canadian goods sold outside of NAFTA the softwood lumber sanctions can help another industry that is being hurt by American competition. This advantage to another domestic industry is similar when dealing with one on one sanctions. However, unlike one on one sanctions, trilateral sanctions now allows Canada to recruit a country that is willing to impose the sanctions on Canada’s behalf. The Canadian beef industry is a prime candidate for becoming the Canadian domestic industry that is to benefit from trilateral sanctions. This industry has been plagued by the past mad cow scare. Although the allotted time for stopping the free flow of Canadian beef into the US has come and gone this major Canadian industry has continued to been banned from entering the US market. This US action has put heavy monetary strain on the industry and left it to look for other markets. This US market restriction, combine with the reality that the US beef industry has a strong lobby in the US Congress, and the fact that the US is a major competitor to Canadian beef in outside NAFTA markets, gives the political power of third party sanctions, employed on behalf of the softwood lumber industry, some major political leverage for the Canadians. Third Determination: Who is invited to Sanction? The third and final determination made by the Canadians when dealing with third party sanctions would be to decide which country to invite to impose retaliatory sanctions on behalf of Canadian softwood industry. If continuing with the example of the Canadian beef industry the EU then becomes a likely and powerful choice for the Canadian’s. The reasons for Canada to grant the EU the softwood lumber sanctions that are going to be used to protect/advance the Canadian beef industry are three fold. First the EU would gladly impose sanctions on the US beef industry. The EU has taken a strong position against allowing US beef into the EU market. The reason for the EU imposing tariffs on this US industry is due to the EU believing that the US beef injected with hormones to advance the natural growth of the cattle is unsafe. The WTO ruled these sanctions to be a violation of free trade and thus, has allowed the US to retaliate by collecting retaliatory sanctions (Kerr, 2002). If the Canadian softwood lumber retaliatory sanctions were given to the EU to apply to the US beef industry then the retaliatory ability of the
131 US is nullified. This nullification of US retaliatory sanctions are sure to make the US reevaluate its policy concerning Canadian softwood lumber. The second reason for involving the EU is due to this trade union being one that is powerful enough to impose a large sanction on the US without much fear of reprisal. The EU’s dependency on the US market is not limiting to the ability of the EU to place sanctions on the US due to the power relationship being one that is on a somewhat equal playing field. The third and final reason for EU involvement is that the Canadian government could then negotiate with the EU about opening the EU border to Canadian beef in exchange for these third party softwood lumber sanctions thus, creating a alternative market for the Canadian beef producers. Convincing the US to Accept Third Party Sanctions There is always a challenge to convincing all parties that a policy initiative is one that benefits all and limits no one. However, due to the world being filled with a plethora of asymmetrical trading relationships, third party sanction reform can even benefit the country whose unmatched power spawned the development of the idea. To illustrate how this policy can benefit the US the US steel industry will serve and the example. The Bush administration has attempted to protect the US steel industry by placing tariffs on imported steel. These tariffs were declared by the WTO as inconsistent with free trade and the US repealed the sanctions. Due to Germany being one of the major producers of steel that is entering the US the third party sanctions that may again protect this industry could be born out the a asymmetrical power relationship Germany has with one of the smaller EU nations such as Poland, Czech Republic, Malta etc... Once the US has approached one of these smaller nations in an attempt to be invited to use the sanctions that have been granted against Germany then the US would be within its right to place sanctions on steel coming from Germany and thus achieve its goal of protecting the US steel industry from outside competition.
132 Conclusion It is clear by the study presented that one on one sanctions are not effective in finding a resolution to the softwood lumber dispute. This final stage of the dispute resolution process has been the only area of dispute resolution that has not been reformed over the long standing history of the softwood lumber dispute. Thus, the softwood lumber case has been a very important key in identifying a major deficiency in the dispute resolution systems that are present today. The deficiency of these systems is clearly seen in the incompatibility of one on one sanction retaliation with the realities presented by free trade. Free trade is a theory that leads to interdependence. This interdependence is desirable due to it creating efficiency within the economies of those who are willing to integrate. However, domestic politics still plays a major roll in international politics and those who will be hurt by the free trade policies will fight to be protected from this outside competition. In countries that have a smaller power base, as illustrated in the Canadian case, these domestic interests who will be hurt by this process are left with little political influence. However, in those countries that have retained their power throughout the process of free trade integration, as illustrated by the US; have domestic interests that can halt the further advancement of free trade integration. Once the process of free trade integration has been limited by these domestic interests the ability for the smaller nation, Canada in the case of softwood lumber, to impose the retaliatory sanctions on their free trade partner is limited due to the free trade integration that has already occurred. This inability to impose a retaliatory action for the violation of the mutually agree upon free trade policies established between the two nations leaves the larger power unpunished for the breach of contract. The domestic politics of the smaller country then produces a justified hesitation toward further free trade integration and the benefits of free trade are limited by the issues of asymmetrical power. Third party retaliatory sanction reform has the potential to aid in the further development of free trade integration. Adding a third party to the one on one retaliatory sanctions will have the effect of empowering the smaller trading partner. This empowerment will be seen in the reinstatement of sanctions as a viable political tool in the promotion of free trade. Integration can continue due to the smaller country not being compromised by an unequal power relationship. Fears of integration limiting state sovereignty become moot due to the smaller
133 country now being able to punish the more powerful trading partner without hurting their domestic industries who have tied their profits to the ability to maintain free trade with the country in violation. Thus, in conclusion, softwood lumber highlights the larger picture. The resolution of the softwood lumber dispute will not likely occur unless this larger picture is put into focus. The two countries have to be able to see the forest for the trees and understand that this is not just an issue that is particular to the softwood lumber dispute but an issue about how to overcome the stagnation of free trade integration that the softwood lumber dispute has highlighted. If the softwood lumber dispute is not reframed in the minds of the negotiators the war will rage on and the goal of further free trade integration will remain a goal.
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147 Appendix A Table 1. WTO Disputes
Year Number of Cases 1995 1-22 * The cases listed are grouped according 1996 23-64 to the years they were first brought to the 1997 65-110 WTO. 1998 111-154 1999 155-185 This chart was adapted from the information 2000 186-215 provided from; 2001 216-242 http://www.wto.org/english/tratop_e/dispu_e/dispu 2002 243-276 _status_e.htm 2003 277-304 Table 2. WTO Dispute Resolution 2004 305- Procedures
60 days Consultations, mediation, etc
45 days Panel set up and panelists appointed
6 months Final panel report to parties
3 weeks Final panel report to WTO members
60 days Dispute Settlement Body adopts report (if no appeal)
Total = 1 year (without appeal)
60-90 days Appeals report
30 days Dispute Settlement Body adopts appeals report
Total = 1y 3m (with appeal)
* Totals are also approximate.
148 This chart was adapted from the information provided from; http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm
149 Appendix B
Table 1: Pattern and Division of Land Ownership in Canada and the US
Table 1 source: The Canadian Institute of Forestry/Institut forestier du Canada “Voice of Forest Practitioners,” Information Paper: The Canadian–United States Softwood Lumber Dispute. This CIF/IFC Information paper was prepared by CIF/IFC members through the CIF/IFC Standing Committee on Policy Development p. 1-2. See PDF version of the file at: http://www.cif- ifc.org/pdfs/policypos/softwoode.pdf
150 Table 2: US Ownership of Forest
Table 2 source: US Department of Agriculture and Forest Services: US Forest Facts and Historical Trends. Available at: http://fia.fs.fed.us/library/ForestFacts.pdf
151 Table 3: US Paper and Wood Products Imports and Exports
Table 3 available at: http://www.afandpa.org/Content/NavigationMenu/Forestry/Forestry_Facts_and_Figures/int_trad e.pdf
152 Graph 1: Interpretation of Canadian Stumpage Fee System
Graph 1 source: US Department of Commerce (see above)
153 Graph 2: Forest Ownership in the Eastern United States
Graph 2 source: US Department of Agriculture and Forest Services: US Forest Facts and Historical Trends. Available at: http://fia.fs.fed.us/library/ForestFacts.pdf
154 Graph 3: Forest Ownership in the Western United States
Graph 3 source: US Department of Agriculture and Forest Services: US Forest Facts and Historical Trends. Available at: http://fia.fs.fed.us/library/ForestFacts.pdf
155 Graph 4: US Softwood Stalk Growth and Removals
Graph 4 source: US Department of Agriculture and Forest Services: US Forest Facts and Historical Trends. Available at: http://fia.fs.fed.us/library/ForestFacts.pdf
156 Graph 5: US Timber Removal by Owner Group (Private v. Public)
Graph 5 source: US Department of Agriculture and Forest Services: US Forest Facts and Historical Trends. Available at: http://fia.fs.fed.us/library/ForestFacts.pdf
157 Tree Map 1: Canada’s Forests
Tree Map 1 source: Natural Resources of Canada/Canadian Forestry Services 1998
158 Tree Map 2: Forest Regions of Canada
Tree Map 2 source: Natural Resources of Canada/Canadian Forestry Services 1998
159 Tree Map 3: Forest Regions in the US
Tree Map 3 source: US Department of Agriculture and Forest Services: US Forest Facts and Historical Trends. Available at: http://fia.fs.fed.us/library/ForestFacts.pdf
160 Appendix C
Interview Transcripts
Interview Questions This interview was conducted by Jessica Service over the telephone on February 17th 2005. The interview was taped with the consent of the FTLC and the interviewee and transcribed at a later date.
Procedural Questions 1. Name: ____NA to maintain confidentiality______2. Place of Employment: ______Free Trade Lumber Council______3. Title: ___ Executive Vice President and General Manager______4. Brief Description of connection to the softwood lumber dispute: __This organization is classified as a pan-Canadian organization which has a mission to help maintain free access to world markets. As stated by the FTLC they are particularly interested in the access “to the U.S. market, for Canadian softwood lumber.”223 This private advocacy group represents Canadian forest products companies and forest industry associations. The importance of this group is illustrated by its membership accounting for more than 40% of Canadian softwood lumber exports to the U.S.224
1) Impact/Influence of the softwood lumber dispute C) Influence of softwood lumber on the negotiations of the FTA, NAFTA and the GATT/WTO. a. How did the softwood lumber dispute influence the negotiations of the FTA? Well I believe, and I recall, that at the time what we used to call the neo-protectionism in the US in the late 70’s and early 80’s was a prime reason for the notion of the free trade agreement and of course first and foremost along with these neo-
223 http://www.ftlc.org/index.cfm?Section=11&Detail=6 224 Ibid.
161 protectionist moves on the part of the US was the softwood lumber which started in 1982. So I believe that that is substantiated by many writers and has been put down on paper that indeed, the softwood lumber dispute was first and foremost in the minds of those who were trying to do something about this and to basically work out a new frame work for Canada US trade relations in the 80’s. b. How did the softwood lumber dispute influence the negotiations of NAFTA? Well before we get to NAFTA let me add a complement to what I just said, and this is why the dispute chapter which became Chapter 19 was so important. Because before we had the free trade agreement with the US most…about 80 per cent of our exports going into the US were duty free because of the GATT negotiations, based on the previous four years so, already we had a very good measure of access, good access, to the US. Of course, if you take any single product and if you slap it with a countervailing duty then all that is thrown out the window. So it was very important to Canada to have a mechanism which would be…serve to adjudicate these disputes and Chapter 19 was the main reason Canada was negotiating the free trade agreement. Getting rid of the remaining tariffs was of course was the goal but it was a secondary goal and if you look at the letter by Prime Minister Mulroney on September of 1985, the opening of the negotiations, letter to President Reagan you will see very clearly that the first reason he mentions is that it is to get more secure access the second reason is to get freer trade. As you probably know the negotiations broke down because the US was not will to do something on dispute settlement. c. How did the softwood lumber dispute influence the negotiations of the GATT/WTO? You see when we negotiated the first free trade agreement it was still the old GATT. I was quite fond of the GATT because I was able to participate in the Tokyo round as a member of the Canadian negotiating team. And the theory and Canada… there was really no way to get the US as a major superpower to accept restraint in there own legislation. The only way to do that was in the multilateral forum which was the GATT. But, you know it was not a very good system, it basically was a system that relied much more on negotiations then adjudication and it did work to a degree but you know when there was a real
162 problem then basically nothing much could be done about it because you could always simply say “no” to apply the results of panel work for instance. But, between the NAFTA and the WTO and between the FTA and NAFTA the WTO was born and I think its arguable that in many instance the WTO system is an improvement over the first FTA dispute settlement system. The whole thing was stood on its head. Right now it would, for now for a report not to be adopted it would take an agreement with all the countries around the table to do so those reports are almost automatically adopted. There is an appeals system that was not under the GATT and the work, the quality of the work has improved tremendously. Unfortunately there is a big out and that is, you know, the result of a decision the WTO…the county at issue, as the US in the softwood lumber, can say alright we have lost but I am keeping the measure on and I am simply going to pay the price that is the big gap. In Chapter 19 it is a decision that removes the measure and I think that is why US decision makers don’t like it. D) Influence of the softwood lumber dispute on Canadian bargaining to develop the dispute settlement procedures that are seen in the FTA, NAFTA GATT/WTO. a. How did the softwood lumber dispute influence Canadian bargaining when developing dispute settlement procedures that are seen in the FTA? Refer to above section b. How did the softwood lumber dispute influence Canadian bargaining when developing dispute settlement procedures that are seen in NAFTA? Refer to above section c. How did the softwood lumber dispute influence Canadian bargaining when developing dispute settlement procedures that are seen in GATT/WTO? Refer to above section 2) Questions concerning the performance of the dispute resolution procedures F) Fairness of the dispute settlement systems and the appeals process. i. Do the Canadians believe that changes to American AD and CVD laws follow the proper process of notification and consultation that is required under the FTA and NAFTA? That is an interesting question and throws us right into the Byrd Amendment. They were not followed for the Byrd Amendment for obvious
163 reasons. First of all, of course this was done at the end of the 2000 Congress with a bit a chaos and none of the subcommittees of Congress was really involved. It was thrown in on a piece of legislation and notification was not done and that was the first condition as you know in 19.02 (reference to Chapter 19 of NAFTA paragraph 2.) Second is Canada…neither Canada nor Mexico were named in the legislation so I think that they have a good case now that the Byrd Amendment does not apply to Canada. Third, any changes to US trade legislation has to be consistent with the WTO and of course we know that this is not so because the WTO actually ruled against the US on the Byrd Amendment. Nether of the three conditions have been meet. Our contention on this issue, and will be when we go to court, is that the Byrd Amendment does not apply to Canada. ii. Does Canada believe that the binational panel of judicial review that replace the old method of judicial review of AD and CVD laws have helped in developing a solution for softwood lumber case? Well I would have to say that it has worked for everything but softwood lumber but, I have a caveat to that. You see, the basic reason Canada negotiated the free trade agreement was, as I just said, to get away from diplomacy and the political way of settling these disputes into a rule based system. But every thing has sort of worked as if Canada forgot this. So if you look at the history of the Softwood lumber dispute over the last 22 years you will see that we have basically used the legal system twice and we have made two deals. So making a deal outside the frame of the NAFTA you are setting aside what you negotiated in the first place. Canada has done that. It doesn’t look like we will be doing it again. Who knows I think it is still an open question. But the mechanism itself has worked fairly well. I will be sending you some research that we did last year that shows that over the last ten years or so there has been continuous assault on Chapter 19 by the US authorities. They have got just about everything but denounce the agreement. It has worked well but it’s taking much longer than was anticipated for the agreement. I just think that most of these disputes were to be settled in 315 days. Now in this dispute with softwood lumber we are in the 36th month and clearly its much more expense than it was anticipated it would be when looking at the legal expense side. So I think that it
164 has only worked too well the first five years and in the last ten years clearly, the US has been doing everything to demolish it so…and unfortunately Canada has not really reacted with any sort of action to …they are just beginning to wake up to it. iii. Do the Canadians believe that Chapter 19 of NAFTA, which carried on the basic institutional arrangements and dispute settlement procedures established in Chapter 19 of the FTA, has helped the Canadian softwood lumber dispute? Refer to section B question 2 and section c question 1 iv. Does Canada believe that when the softwood lumber cases have been arbitrated through the NAFTA judicial process that the process was completed in a timely manner? Refer to section B question 2 and section C question 1 v. Does the Canadian position believe that arbitration through the dispute settlement procedures has helped/hindered the resolution of the softwood lumber dispute? Refer to section C question 1 vi. Does Canada believe that the WTO Dispute Settlement Board’s authorization to take countermeasures is a viable option for retaliation when dealing with the softwood lumber dispute? Well I don’t know about Canada except for the fact that of course, we saw Trade Minister Peterson go to the WTO with that very point. You have to look at not only what the federal government is saying but what it is doing. They are clearly very reluctant to use this. I think they should be to because you know, not withstanding the rhetoric of this, this is not a trade war. In a war both side are shooting, right now there is only one side shooting, the US side and personally I don’t believe that Canada can afford to have a real trade war with the US, or with anybody else, but of course the US is by along shot our major trading partner, we just cant afford that. Retaliation will inevitably hurt Canada more than it will hurt the US. We are much more dependent on your (referring to the US) market then you are on ours (referring to the Canadian market). vii. Are retaliatory measures granted by the WTO and NAFTA a viable tool for Canada in deterring unfair trade practices concerning the softwood lumber dispute? Retaliation is a last resort and I doubt very much that we will retaliate
165 on the softwood lumber file or any other file. The last time Canada used retaliation was the mid-eighties on cider shakes and shingles. It was a small item this was I believe 1985, it was not a large volume but that was the last time we used retaliation towards the US and probably one of the only times. Its not a tool that works for us unfortunately. viii. The Americans have filed appeals of the Chapter 19 panel findings with the EEC in the past. Do the Canadians believe that the appeals process is one that is fair? I think that the system is basically fair. If not who does this system favor? But it has been misused by the US. I mean the US has been the only user of the system so far. They have lost every one of the six appeals that they have logged and of course the ECC was not devised as an appeal system. It was basically devised to deal with instances, as the name says, where there would be an undisclosed conflict of interest on the part of the Chapter 19 panelists, or gross negligence of applying the standard of review and of course unfortunately the US is now basically started to use it as an appeals. Of course there were modifications that we went from the FTA to NAFTA which basically yielded to the US view of things of the ECC as an appeals process instead of an extraordinary process that would not be used as an appeals process. Anyway they have done so and we are confident that in this instance we will be vindicated but of course what it does is lengthen the process and in the last instance in the 1994 EEC there was strong descent from the US panelist, Judge Wilkey, which was really devastating in its legal implications and he blasted everybody and this basically hurt the Chapter 19 processes in a major way and brought fuel to, especially the Congress who have always seen that this should not have been done, this compromise which was of course Chapter 19 should not have been done. ix. Do the Canadians believe that the dispute settlement procedures contained in NAFTA and the GATT/WTO has helped in making Canada’s trade relationship with the US less asymmetrical? How is this illustrated in the softwood lumber dispute? Well the asymmetry between Canada and the US is a basic fact. I mean there is nothing we can do about it. The US will always be the bigger partner and we will always be more dependent on the US market then they are on our supply.
166 We are so close that most policy makers, decision makers in the US, don’t really know that Canada is there major suppliers of key comities such as, not only lumber but oil and gas and so on and so forth. You know so these asymmetries will not lessoned by dispute settlement by the WTO or NAFTA simply these are attempts. I will come back to the WTO business in a moment but these are attempts to civilize the relationship and not have the might is right approach always win out. Of course because that is so Canada always looses there is no doubt about this. As soon as we sit down at a negotiating table to deal with this and go to problems such as softwood lumber or any other product the game is lost and it wrong to speak about negotiations because it is basically a grounding down process. It takes awhile before Canada finally yields to US terms. G) Satisfaction with the dispute settlement systems that are now in place. i. Does Canada believe that when the softwood lumber cases have been arbitrated through the NAFTA judicial process that the process was completed in a timely manner? Refer to below and section C question 1 ii. Does Canada believe that when the softwood lumber cases have been arbitrated through the GATT/WTO judicial process that the process was completed in a timely manner? Yeah, I think that the WTO now is quite scrupulous in adhering to the timeframe which is in stark contract to situations of NAFTA. And the piece that will be sending you is an examination of Chapter 19 and how it has worked over the years. It shows for instance that Chapter 19 is replacing two us courts, the court of National Trade and the Federal Appeals of the Federal Circuit. One of the problems we have and other countries had when this was negotiated was, first of all it took a long time to get decisions, second, the CIT decisions are not really presidents and then it was literally true of the times, you never knew what a Judge would rule and they could and they did reverse themselves. So it was seen at the time as an enormous improvement and not only by Canadians but by other countries. I remember I was in Québec at the time and every year some people from mostly developed countries were coming on the ages of the GATT and as you know just to learn how this was going and everybody was sort of admiring the work that had been done with the FTA and the improvement and so on and so
167 forth. But clearly, especially in the last ten years it has gone down hill considerably. And so right now, and this was really a surprise to me but, right now the CIT is taking less time and is less costly then chapter 19. iii. Arbitration when dealing with Lumber III was costly and time consuming. Some have suggested that due to the NAFTA procedures taking so long and costing so much that the SLA was developed to avoid the process when dealing with the Americans on this issue. How true are these statements? Well not true actually. I was directly involved with the negotiation of the SLA and directly involved with the third lumber dispute and the third lumber dispute was the first dispute in which Canada had the FTA rules before with Lumber I and Lumber II we did not have that. Lumber I we won right with the DOC, II we decided to negotiate right away, and Lumber III was the first instance we had the rules. We decided to go to the end of it and of course we won. Then because the US was basically dragging its feet over reimbursing the money, which was nearly a Billion dollars ,Canada agreed to so called consultations which of course turned into negotiations. The SLA was basically, as I said before was not a real negotiations, it was a grinding down process and we were told that the new rules, because of course then the NAFTA was coming into force, the new rules had been changed, the US rules had been changed, which was true, and so it was thought that there was no way we could win with the new rules. This had quite and impact in Canada, there was no way to dispute that because there were no precedents. This time around of course we could see, we knew in Lumber IV that the precedents were basically disproving what we were told in 1994, 95, that the new rules are not as biased towards the US as everybody thought. So, and I guess that the string of decisions that have been rendered by NAFTA panels, WTO panels and soon the EEC prove this to be right that the rules are basically fair. H) Benefits of having the dispute settlement systems that are now in place. i. What have been some of the benefits of having the dispute settlement system of the FTA and NAFTA contained in Chapter 19 when dealing specifically with the softwood lumber case? You know again, the softwood lumber case, because it’s the biggest dispute in the world, and because it so regenerators if you will, is the
168 wrong lens to at the dispute settlement system. Yet, it is the right lens because if it does not work for lumber it wont work for anything else. So that is also quite clear in the way the US authorities are treating it. If it does not work this time around for softwood lumber then you will basically see a weathering away of Chapter 19 and so it is like a test case. I think it has basically worked when we have used it but its working less and less. Its taking longer its extremely expensive and basically its not working as it was intended as far as Canada is concerned. Of course Canada was the country amongst the two that needed this, the US does not need chapter 19 we do. A number of people who are close to this are worried that if the US does not apply these rulings then it is probably the end of Chapter 19. ii. What have been some of the benefits of having the dispute settlement system of the GATT/WTO when dealing specifically with the softwood lumber case? Well what has been interesting is that for a number of technical reasons as you know in this instance with Lumber IV Canada, because only governments can go to the WTO, has decided to use both forums, the WTO and NAFTA, to challenge the US decisions. Even though the standard of review is different in NAFTA of course for the Subsidies and Countervailing Duties Amendment and the AD code that are used as the standard and in NAFTA its US legislation. What is remarkable is that different panels operating under a different set of rules basically come to the same conclusion. That is that Canada is not subsidizing, is not hurting US producers and I think that in its self is a major result. It does not stop the US Collation in believing its own rhetoric and saying that we have to reform our system because we are subsidizing, you know these findings don’t seem to deter there view of the world and in fact I think its producing a perverse result and that is that they are now convinced that these systems are wrong. They believe that they have to be reformed or repented. In other words the US Collation and all there supporters in Congress and a number of people in the administration basally we believe if the make these decisions at the DOC or the International Trade Commission then because there is a problem and if these panels don’t find the same problems then, or basically tell the US that they were wrong in making
169 these decisions then it is these panels and these international regulations and procedures that are wrong. I) Compliance issues concerning both Canada and the US i. Do the Canadians believe that the United States procedures are sufficiently transparent so that all parties to AD and CVD cases understand what is going on? Well, you know you have to admire the US rule of law and the fact that there are safeguards all through the US legal system when it comes to foreign defendants these rules can be bent or ignored and we have seen this repeatedly with the softwood lumber case. Just to give you an example, as you know, if the DOC is investigating imports such as softwood lumber, so on and so forth, following the complaint of alleged subsidization for dumping, there are strict rules for communications. That is if the Collation (referring to the US interest group Collation for Fair Lumber Imports)is talking to the department giving them information or requesting things of them, these have to be put on the record. The minutes of this meeting or any written communication, so on and so forth, has to be put on the record so that other parties, such as Canadian parties, can have access to them and basically see what the other side is alleging. And so that is a general rule for all kinds of situations in the US and some other countries but the US has basically very good system of doing this…well we found that between the final determination of the subsidization, which came out on a Friday, and the moment when the actual decision was printed which was a Tuesday, so there were was a four gap there which should not happen, when the decision is made public it should be published at the same time, oh well during those four days true access to information legislation we found that there were sixteen thousand pages that was produced in those four days. That there were dozens of letters by the Collation that were never put on the record. So then…we have had to fight this in the courts to get access to these documents. Computers were destroyed; I mean it was a real mess. This came out at part of Chapter 11proceding that some Canadian companies are bringing against the US government in relation to the softwood lumber case. But that is the kind of thing that has us thinking that
170 perhaps due process is being ignored here or severely subverted again the Canadian softwood lumber exporters. ii. Do the United States authorities provide adequate explanations for procedures and details of the cases brought against Canadian softwood producers so that the Canadians feel they understand the case against them and what is expected of them during the investigation? Refer to below. iii. Do the Canadians feel they are given adequate opportunity for input when the US conducts AD and CVD investigations? Oh yeah, well that is an enormous process. Just to give you an example during the first lumber investigation, going back 20 years, the Canadian answer to the questionnaire weighed a Tone and a half and we had to hire a truck to bring it in. now it is mostly done electronically but its hundreds of thousands of pages, its extremely time consuming, so on and so forth. Absolutely, we have more than ample opportunities to answer and to respond to these allegations. That’s not the problem; the problem is the process at which the decision is arrived at is not what it should be. iv. Do the Canadians feel that American companies use the filing of AD and CVD cases to harass their Canadian competitors? Absolutely, the market reacts to these things as you know. It is always the case that the simple filing of a case, not to mention the eventual ruling, that will come years later has a market effect. Its been detrimental to exporters, Canadian exporters. So there is the fundamental asymmetry to, you are basically…people know that the market is reacting in this way because they believe that at some point maybe…maybe constrained…may be effected, and you know its just a precaution to push down the price or push up the price. So you know there is a price to be paid for the simple operation of these complaints and as we have seen it does not matter if you win in the end because we have seen the same complaints coming back. 3) Preferences towards dispute settlement procedures A) Preferences towards NAFTA or the WTO (or both) 1. Do the Canadians have a preference towards dispute settlement procedures contained in NAFTA or do the Canadians prefer the dispute settlement procedures contained in the WTO when dealing specifically with the softwood lumber case?
171 Why/why not? Well I think it depends on the issue. Clearly I think there should be a preference for NAFTA, because as I have already mentioned, in NAFTA you can actually get the measure removed which is not always true with the WTO due to the out that I have already mentioned. But…and there is also another reason why I think we should prefer NAFTA and that is in NAFTA those private parties such as companies or provinces are spending…we can defend ourselves. With the WTO it is only the national government that bring a complaint. 4) Suggested modifications A) Modifications to NAFTA dispute settlement procedures that are desirable. 1. What modifications to the NAFTA dispute settlement procedures would Canada recommend to aid in resolving the softwood lumber dispute? Well I think before we think of modifying this stuff I think its…it would be…the first time would be to get the US to apply the system as it was supposed to be applied. If the system was applied expeditiously those people would not be complaining about the current system. Now the current system is not perfect that is obvious, what Canada was wanting when the free trade agreement was negotiated in the first place was basically to get rid of the AD and CVD as it has been done in other free trade areas. But this was not possible and mostly because of the Congress. They would not let go of these regulations for Canada or for anybody else. You know that in the last four years dozens of free trade agreements have been negotiated and none of them contain Chapter 19 or an equivalent. Canada and Mexico are the only two countries which have that with the US. So clearly a policy decision has been taken that they don’t like this and the are not going to make the same mistake with other countries. So the notion that we could improve, quote unquote, the NAFTA system is unrealistic. I wish for that but it is not for sale, or to be bought at any price. B) Modifications to the WTO dispute settlement procedures that are desirable. 1. What modifications to the WTO dispute settlement procedures would Canada recommend to aid in resolving the softwood lumber dispute? That is a tough question. I don’t know that there are any specific modifications related to the softwood lumber situation that would serve as a prescription for improving the WTO system. The WTO system is working as intended but unfortunately because it is international law in the
172 end it does depend on the political will of the country at issue to implement those rulings. The US has admitted to not implement WTO rulings as, you know they have done so in writing. But then again when the dispute is every important…or the dispute is with major entities such as the European Union its very hard for the US to do that so I think that the current judgment about the current WTO system is that it is a major improvement over the GATT system but it is still fragile because it rests so much on countries applying the us and first and foremost the US applying those rules so I think that it is to early to improve that system. Again I think that we have to make it work as it was intended to work and then at that time we will have way to improve it. C) Modifications to the dispute settlement procedures/process in general. 1. What modifications to the dispute settlement procedure/process would Canada recommend to aid in resolving the softwood lumber dispute? Refer to above. 2. Do the Canadians believe that looking towards a side agreement such as the SLA is the proper way to proceed? Well if you asked me that question today I would have to say no. The majority of people involved in this dispute and I think the majority of the population that has been following this from afar would say, no we should not settle this through a side negotiation. On the other hand the official position of the Canadian government and the industry is that while we are pursuing all legal avenues through NAFTA and the WTO we are open to a negotiated solution. And as you know there have been attempts to do that over the last two years but they have not succeeded so as late as yesterday there was a meeting of officials in Toronto to look at that very notion. And then the reason why the negotiating approach is not finding a lot of favor is that we have seen so often how the US collation wants to settle this. Not by negotiations but just to set conditions that we have to agree to and it is basically unreasonable so we might as well take our chances with the legal approach. And the US collation is basically calling all the shots, the US government has not taken a position of its own and so these are government to government negotiations….but basically it’s the government of Canada negotiating with the coalition with the USTR or the DOC as the case may be. There is no political will in the US to say that this has gone on long enough, this is a major irritant between the
173 two countries and we want to resolve and so you are going to have to put some water in your wine. They are not willing to do this and one reason is because the US Congress is the ultimate entity of trade policy not the administration. This is quite a contrast to most countries where the executive is the final arbitrator but not so with the US and so unless you have somebody in the White House who says we are going to do something about this and willing to extent political capital to do so it wont happen. And Canada, I don’t want to give you the impression that all the bad guys are on the US side of the border, Canada we have been remiss in many ways. We have not been firm enough in our purpose, and strong enough to say to the US you are wrong, instead of doing things to improve the relationship and to settle these disputes in a fair manner, you are applying your sole power to the benefits to your special interest groups. I am not optimistic that this will change.
Interview Questions This interview was conducted by Jessica Service over the telephone on February 18th 2005. The interview was taped with the consent of the interviewee and transcribed at a later date. Procedural Questions 1. Name: ___NA due to confidentiality______2. Place of Employment: ______United Steel Workers of Canada______3. Title: ______Researcher______4. Brief Description of connection to the softwood lumber dispute: __ The Wood and Allied Workers of Canada (IWA Canada) will also be interviewed. IWA Canada, which has now merged with the United Steel Workers of America (USWA), is the largest private sector union in British Columbia (BC), representing approximately 50,000 men and women.225 These union members are not only located in BC but are spread throughout a total of seven Canadian provinces. This union has been operative for over 60 years.226 Furthermore, IWA Canada has
225 Dave Haggard, national president of the 55,000-member Industrial, Wood and Allied Workers of Canada (IWA), said the 67-year- old union’s search for a merger partner led to one union that stood out among the rest – the United Steelworkers. See: http://www.uswa.ca/program/content/1168.php 226 http://www3.telus.net/IWA/1_405/About%20us.html
174 been involved in this dispute since its inception. Many workers have been directly affected by this conflict over the years. __ 1) Impact/Influence of the softwood lumber dispute E) Influence of softwood lumber on the negotiations of the FTA, NAFTA and the GATT/WTO. a. How did the softwood lumber dispute influence the negotiations of the FTA? We are going back before my time but my sense of it that because softwood was treated as a side issue or as differently as the main negotiations they probably didn’t make it any easier but they didn’t have much effect. There was at the same time that the free trade agreement was being negotiated there was another softwood event being played out on another stage. b. How did the softwood lumber dispute influence the negotiations of NAFTA? Similarly again they have always been somewhat different then the main negotiations unfortunately and so you know I suppose we would have preferred that NAFTA influence the FTA or the softwood dispute more then it has. c. How did the softwood lumber dispute influence the negotiations of the GATT/WTO? That I don’t know. I don’t really have any knowledge of that at all. F) Influence of the softwood lumber dispute on Canadian bargaining to develop the dispute settlement procedures that are seen in the FTA, NAFTA GATT/WTO. a. How did the softwood lumber dispute influence Canadian bargaining when developing dispute settlement procedures that are seen in the FTA? I suppose it made the, I would hope that it would have made the Canadian negotiators somewhat more weary and somewhat more aware of potential pitfalls of a free trade agreement but would have also made them aware that the free trade agreement was not going to cover everything. b. How did the softwood lumber dispute influence Canadian bargaining when developing dispute settlement procedures that are seen in NAFTA? That I don’t know. c. How did the softwood lumber dispute influence Canadian bargaining when developing dispute settlement procedures that are seen in GATT/WTO? Again, I really have no knowledge of the WTO other than the recent litigation or
175 challenges through the WTO that have been done since the last dispute whatever we are softwood 4 or whatever. 2) Questions concerning the performance of the dispute resolution procedures J) Fairness of the dispute settlement systems and the appeals process. i. Do the Canadians believe that changes to American AD and CVD laws follow the proper process of notification and consultation that is required under the FTA and NAFTA? Yeah, I think that’s probably yes that that is probably the case. ii. Does Canada believe that the binational panel of judicial review that replace the old method of judicial review of AD and CVD laws have helped in developing a solution for softwood lumber case? No iii. Do the Canadians believe that Chapter 19 of NAFTA, which carried on the basic institutional arrangements and dispute settlement procedures established in Chapter 19 of the FTA, has helped the Canadian softwood lumber dispute? Well it’s helped us win judgments at NAFTA, you know we have crossed all the rivers but we still haven’t gotten to talk to the boss. iv. Does Canada believe that when the softwood lumber cases have been arbitrated through the NAFTA judicial process that the process was completed in a timely manner? I think so, I mean I haven’t been directly involved in the negotiations so you know that a question that you would better put to people who have but, I think that there’s no real complaint about the…well I suppose it could always be speeded up in that we would prefer that it be speeded up, but you know there is sort of realistic impediments to doing that I am sure so that I don’t think that is the biggest problem. v. Does the Canadian position believe that arbitration through the dispute settlement procedures has helped/hindered the resolution of the softwood lumber dispute? Again, they give us options but they don’t solve the problems. We are still fighting. vi. Does Canada believe that the WTO Dispute Settlement Board’s authorization to take countermeasures is a viable option for retaliation when dealing with the softwood lumber dispute? I think so
176 vii. Are retaliatory measures granted by the WTO and NAFTA a viable tool for Canada in deterring unfair trade practices concerning the softwood lumber dispute? They are viable but they probably are not optimal. I would think that or suggest that there are better ways to do that. viii. The Americans have filed appeals of the Chapter 19 panel findings with the EEC in the past. Do the Canadians believe that the appeals process is one that is fair? I think so If not who does this system favor? We certainly are alarmed with respect to the American now stated objective of getting rid of it. ix. Do the Canadians believe that the dispute settlement procedures contained in NAFTA and the GATT/WTO has helped in making Canada’s trade relationship with the US less asymmetrical? I think so, I mean yeah. How is this illustrated in the softwood lumber dispute? You have to think back to what we had before we had NAFTA. You know there was already a whole history of terrible disputes between Canada and the US over softwood lumber before NAFTA. And NAFTA I think is more recourse and somewhat more leverage then we had before. K) Satisfaction with the dispute settlement systems that are now in place. i. Does Canada believe that when the softwood lumber cases have been arbitrated through the NAFTA judicial process that the process was completed in a timely manner? I think so I mean again I think we would always say we wish that it were faster. ii. Does Canada believe that when the softwood lumber cases have been arbitrated through the GATT/WTO judicial process that the process was completed in a timely manner? Same answer. iii. Arbitration when dealing with Lumber III was costly and time consuming. Some have suggested that due to the NAFTA procedures taking so long and costing so much that the SLA was developed to avoid the process when dealing with the Americans on this issue. How true are these statements? (Side comment: we just had an announcement that Weyerhaeuser is selling is costal operations in BC) Probably partly true. It’s true in the sense that the litigation period gave both sides more opportunity and probably more reason to try and cut a deal. I think it’s probably not true that the deal was designed to bypass the process.
177 iv. Is the dispute settlement procedure that is contained in Chapter 19 of NAFTA and the FTA efficient concerning the amount of time the dispute settlement procedure takes? Again, suppose it is however we would be happier if it were shorter. You know that if the delay is really a problem in terms of the uncertainty that it created in the industry the effects that it has on the reconfiguring and redeploying capital and labor in the industry the effects it has in terms of or impact that it has on investment so on and so forth. You know so all of those things multiply and the money that the Canadian companies are obliged to put up. All of these multiply the longer it goes on. L) Benefits of having the dispute settlement systems that are now in place. i. What have been some of the benefits of having the dispute settlement system of the FTA and NAFTA contained in Chapter 19 when dealing specifically with the softwood lumber case? I mean as I said before its better then what we had before which was basically guns blazing. Guns blazing with no end in sight. At least this creates a process, the largest problem there is still no guarantee that the end of the day that the Americans will comply. And so even when and as they have in this round, pretty well lost every thing in NAFTA there is nothing to really say, or to compel them to comply and nothing and there is no apparent end to the legal avenues that are available to them. So that they loose on chapter 19 so they (the Americans) turn around and say lets get rid of chapter 19. They loose on the Byrd Amendment they turn around and say we are going to keep the money anyway. They loose on the means of calculating whether or not there is a subsidy so they simply do it a different way and we go through the whole process again and again. That said we should always remember that before this is exactly where we were except there was not even a process. ii. What have been some of the benefits of having the dispute settlement system of the GATT/WTO when dealing specifically with the softwood lumber case? Yeah, same benefits but the WTO of course has less teeth right, even less teeth then NAFTA. You know its, NAFTA is quote unquote binding. Well god knows what that means in the context of the reality of the relationship. Where as the WTO
178 isn’t. Other then the retaliatory sanctions there is nothing we can do with the WTO. M) Compliance issues concerning both Canada and the US i. Do the Americans give adequate prior public notice of AD investigations as required under NAFTA Chapter 19 and Article 12 of the WTO Antidumping Agreement? I think so. ii. Do the Canadians believe that the United States procedures are sufficiently transparent so that all parties to AD and CVD cases understand what is going on? No probably not. For instance when you look at the various calculations I think they give the appearance of being pulled out of a hat most of the time. Fortunately NAFTA recognizes and said, no, these various calculations are pretty shady. If you are asking about process I think no they are not terribly transparent nor terribly justifiable in terms of reason of law or logic. iii. Do the United States authorities provide adequate explanations for procedures and details of the cases brought against Canadian softwood producers so that the Canadians feel they understand the case against them and what is expected of them during the investigation? No. iv. Do the Canadians feel they are given adequate opportunity for input when the US conducts AD and CVD investigations? That I am not sure of. Having not been involved in the actual process I am not sure about that. v. Do the Canadians feel that American companies use the filing of AD and CVD cases to harass their Canadian competitors? Yes. 3) Preferences towards dispute settlement procedures A) Preferences towards NAFTA or the WTO (or both) 1. Do the Canadians have a preference towards dispute settlement procedures contained in NAFTA or do the Canadians prefer the dispute settlement procedures contained in the WTO when dealing specifically with the softwood lumber case? NAFTA Why/why not? Because it has more teeth. 4) Suggested modifications A) Modifications to NAFTA dispute settlement procedures that are desirable.
179 1. What modifications to the NAFTA dispute settlement procedures would Canada recommend to aid in resolving the softwood lumber dispute? Well…some way or another their has to be an end. But what NAFTA lacks is something binding that says finally at last, you know even if it were some winner take all binding arbitration that both sides agreed to that said that finally this is over. That’s what we want most, which is an end to it. Something that would say regardless of the outcome, well not totally regardless of the outcome cause we do want to sell them some wood, but something that said this is over and that here is the regime for lets say the next twenty years and no more harassment no more complaints, no more process, it is now over and both sides are going to live with this and I think that is what we probably want more than anything. B) Modifications to the WTO dispute settlement procedures that are desirable. 1. What modifications to the WTO dispute settlement procedures would Canada recommend to aid in resolving the softwood lumber dispute? Same as NFTA although I don’t suppose that’s possible with the WTO because it that much father removed. C) Modifications to the dispute settlement procedures/process in general. 1. Do the Canadians believe that looking towards a side agreement such as the SLA is the proper way to proceed? If you can’t get the kind of judicial finality that I just described, yeah. We would be willing, like it doesn’t matter if it’s something that is negotiated or whether it’s something that is judicially decreed. As long as it gave us some basis to work with for some reasonable period of time. That is what the union would like most. 5) Comprehension of the dispute settlement procedures A) Comprehension of the dispute settlement system by the business sector. 1. Does the Canadian softwood lumber industry feel they have an adequate understanding of NAFTA and WTO dispute resolution systems? Oh I suppose yeah. B) Comprehension of the dispute settlement system by the workers/labor in this industry. 1. Does the Canadian softwood lumber industry’s workers/labor unions feel they have an adequate understanding of the NAFTA and WTO dispute resolution systems? I suspect that varies according to who you are and where you are in the union. I suspect that its pretty, I mean I think that we here in what used to be IWA
180 national office and is now the Steel Workers National Office have a good sense of all that. But I suspect that if you work on the line in a saw mill in Huston BC that would be pretty occult. C) Governmental assistance in developing a business understanding of the dispute settlement systems. 1. How much assistance does the Canadian government provide to Canadian softwood lumber companies in understanding NAFTA, WTO and US AD and CVD rules? That I honestly don’t know. I mean we have had fairly good access to the bureaucrats in terms of access to and information from people involved in the process that has been quite good. But in terms of what the companies get in terms of the process I don’t really know. 2. Does the Canadian government assist Canadian softwood lumber corporations in their search for legal assistance in the US when the corporations face American AD and CVD cases? You know I don’t know that but I would suspect they would have. 3. Does the Canadian government defray any of the costs Canadian softwood lumber corporations confront when dealing with the US AD and CVD cases? Not sure. N) Governmental assistance in developing a worker/labor understanding of the dispute settlement systems. i. How much assistance does the Canadian government provide to Canadian softwood lumber labor groups/organizations in understanding NAFTA, WTO and US AD and CVD rules? You know same answer; we have had really good access. If we wanted information it’s been available through the folks mainly involved in the negotiations. ii. Does the Canadian government assist Canadian softwood lumber labor groups/organizations in their search for legal assistance in the US when the corporations face American AD cases? Not that I am aware no. iii. Does the Canadian government defray any of the costs Canadian softwood labor groups/organizations confront when dealing with the US AD cases? Yes I think they have picked up some of our costs.
181 Do you have any additional comments concerning the current softwood lumber dispute? If there is anything you can do to make it end!
Interview Questions This interview was conducted by Jessica Service over the telephone on February 18th 2005. The interview was taped with the consent of the BC Lumber Trade Council and transcribed at a later date. Procedural Questions 1. Name: __British Columbia Lumber Trade Council_(BCLTC)______2. Place of Employment: _____At the request of the Interviewee the statements made are to be seen as statements made by the BCLTC __ 4. Brief Description of connection to the softwood lumber dispute: ___ The BCLTC is the voice for many BC lumber companies. This organization represents the BC companies that are involved in the softwood lumber trade dispute. This Vancouver-based council is the voice for 100 companies in the lumber industry, which in total accounting for 95 per cent of the total BC lumber production and about 50 per cent of Canadian lumber exports to the United States. The Council and its member companies are avid supporters of free trade and the resolution of the softwood lumber dispute. Interviews with the Council will bring the view of the private sector.227_ 1) Impact/Influence of the softwood lumber dispute G) Influence of softwood lumber on the negotiations of the FTA, NAFTA and the GATT/WTO. a. How did the softwood lumber dispute influence the negotiations of the FTA? I am sure the negotiators were aware of the situation and it had influence as to why the FTA was being negotiated but how I am not really sure. b. How did the softwood lumber dispute influence the negotiations of NAFTA? I would say the same as it did in the first FTA but again, I am not really sure.
227 http://www.bclumbertrade.com/resources_1.htm
182 c. How did the softwood lumber dispute influence the negotiations of the GATT/WTO? Again, I am not really sure. 2) Questions concerning the performance of the dispute resolution procedures O) Fairness of the dispute settlement systems and the appeals process. i. Do the Canadians believe that changes to American AD and CVD laws follow the proper process of notification and consultation that is required under the FTA and NAFTA? I would say that were the frustration really comes in is that because there is a long history and has gone through the cases repeatedly, that Canada gets a victory on one thing, say a CVD or something, and the then the US decides that, ok well if they are going to win under that then fine we will let that go but we are just going to change the laws you know going forward so that victory is not going to remain consistent. ii. Does Canada believe that the binational panel of judicial review that replace the old method of judicial review of AD and CVD laws have helped in developing a solution for softwood lumber case? I really don’t know enough about how the old method was. But there is still the frustration that having the binational panels, I think people would say yes is good in theory, but it still takes forever to get through this process. You get what you think what is a quote unquote a final decision and that is still appealed or it goes on and on and on. iii. Do the Canadians believe that Chapter 19 of NAFTA, which carried on the basic institutional arrangements and dispute settlement procedures established in Chapter 19 of the FTA, has helped the Canadian softwood lumber dispute? It gives us more options when dealing with the US so yes I would say that it has helped. iv. Does Canada believe that when the softwood lumber cases have been arbitrated through the NAFTA judicial process that the process was completed in a timely manner? I wouldn’t think so. v. Does the Canadian position believe that arbitration through the dispute settlement procedures has helped/hindered the resolution of the softwood lumber dispute? Well part of the issue is that softwood was never included in NAFTA and it was left out of NAFTA purposely because it was such a controversial item and I think
183 that even if we didn’t have NAFTA that there would still be issues and there would still be this dispute and you know NAFTA has given us another avenue to try and arbitrate through, but it is still not providing any resolution. What I think is that with or without NAFTA there would still be no resolution because it’s the US and at the end of the day the US producers just want to control the Canadian product coming in the US and they want to control price. vi. Does Canada believe that the WTO Dispute Settlement Board’s authorization to take countermeasures is a viable option for retaliation when dealing with the softwood lumber dispute? Well that is the path that we are going down right now. So yes is it a good option to have…sure but I don’t think that anyone would say that retaliatory measures are anyone’s first choice. Particularly because Canada’s position of exporting more than…we are so dependent on the US as an exporting market that we don’t to be damaging the overall relationship. At the same time there is such frustration with what is happening on the softwood lumber front that, ok, well if we are going to have the option of looking at retaliatory duties then we should be doing that. The other thing that comes into it is that the federal government at the beginning of this week made its formal request to the WTO for retaliatory measures. Its going to be at least a year before we will be in a position to institute retaliatory measures should that actually be granted by the WTO. vii. Are retaliatory measures granted by the WTO and NAFTA a viable tool for Canada in deterring unfair trade practices concerning the softwood lumber dispute? Well I don’t think it’s been deterring it because we are still sitting here in the middle of it. viii. The Americans have filed appeals of the Chapter 19 panel findings with the EEC in the past. Do the Canadians believe that the appeals process is one that is fair? Yeah, we don’t say that it’s unfair. If not who does this system favor? The challenge is just the length of time it takes to go through everything. ix. Do the Canadians believe that the dispute settlement procedures contained in NAFTA and the GATT/WTO has helped in making Canada’s trade relationship with the US less asymmetrical? I would say with the WTO it has not leveled
184 anything out. How is this illustrated in the softwood lumber dispute? The WTO has no legal ramifications. They are nice decisions in theory but other than granting retaliatory duties the US is not legally bound. That is the frustrating part with the WTO. As far as NAFTA is concerned I would say that in theory it has given us a bit more traction but,…well as we were signing NAFTA there was so much controversy in Canada about signing NAFTA but the US was going right along. What is interesting is that now it’s the US who is saying things like do we need to be reconstructing NAFTA, its falling apart around us, and its not giving us the benefits that we want. So I think that the NAFTA agreement has not worked out exactly the way the US thought it might have but we are just never going to be on an equal playing field with the US. There is just too much of a size difference. P) Satisfaction with the dispute settlement systems that are now in place. i. Does Canada believe that when the softwood lumber cases have been arbitrated through the NAFTA judicial process that the process was completed in a timely manner? I guess as legal cases go, they are not know for being conducted in a timely manner, its just my frustration is how long this process truly does take. It goes on and on…you know I remember when we got our first legal calendar laid out saying that this could easily take us into 2007 and thinking oh my god …and here we are 2005 and still picking away at that legal calendar. ii. Does Canada believe that when the softwood lumber cases have been arbitrated through the GATT/WTO judicial process that the process was completed in a timely manner? The same thing… on and on it goes. iii. Arbitration when dealing with Lumber III was costly and time consuming. Some have suggested that due to the NAFTA procedures taking so long and costing so much that the SLA was developed to avoid the process when dealing with the Americans on this issue. How true are these statements? I didn’t work directly on Lumber III…so I can speak from a historical point of view. I mean the real….from a lumber company perspective the reason they needed to sign the SLA was because the whole dispute was costing them so much money. I mean the legal cost of winding your way through the WTO and NAFTA but they are also paying the
185 duty cost. So I mean it was a combination of both that put the financial pressure on the companies that made them want to go down the path of signing the SLA. iv. Is the dispute settlement procedure that is contained in Chapter 19 of NAFTA and the FTA efficient concerning the amount of time the dispute settlement procedure takes? The market changes so quickly and it changes from year to year that when we are dealing with these things and you are looking at market conditions that are back in 2001 and its different from now and you also look at the fact that we have recently gone through all these mergers within the industry, it is hard to have all those things taken into consideration. Because the process takes so long it does not stay current with where we are today. Q) Benefits of having the dispute settlement systems that are now in place. i. What have been some of the benefits of having the dispute settlement system of the FTA and NAFTA contained in Chapter 19 when dealing specifically with the softwood lumber case? Well it just gives us another option. ii. What have been some of the benefits of having the dispute settlement system of the GATT/WTO when dealing specifically with the softwood lumber case? Just having that option. We look at it as the more we can have rulings saying that yes you were right it just reaffirms that there is no subsidy and that we are not in the wrong. R) Compliance issues concerning both Canada and the US i. Do the Americans give adequate prior public notice of AD investigations as required under NAFTA Chapter 19 and Article 12 of the WTO Antidumping Agreement? I would say so. It has not been an issue that has come up with companies complaining. ii. Do the Canadians believe that the United States procedures are sufficiently transparent so that all parties to AD and CVD cases understand what is going on? I would say that they understand but when it comes to transparency that there is a belief that the US Coalition for Fair Lumber Imports has a lot of in the DOC and that is really….well if you took the Coalition out of the factor then the DOC would not be so vigilant in going down these paths.
186 iii. Do the United States authorities provide adequate explanations for procedures and details of the cases brought against Canadian softwood producers so that the Canadians feel they understand the case against them and what is expected of them during the investigation? Yeah, I mean I haven’t heard complaints. The challenge come into the method of duty calculation and what is considered to be fair and that is where the real challenges come in. So the US says we are going to do cross border comparisons so then there is the whole fight as to why cross border comparisons are not fair. So then it is ruled that the DOC can not use cross border comparisons and so they come up with another method to….its all applying with the calculation methods to try and get the duty calculation that you are looking for. So that is where the real frustration comes in. iv. Do the Canadians feel they are given adequate opportunity for input when the US conducts AD and CVD investigations? Yeah, I mean its not that we have had mass out cry that that is not the case. v. Do the Canadians feel that American companies use the filing of AD and CVD cases to harass their Canadian competitors? Absolutely, 100 percent. 3) Preferences towards dispute settlement procedures A) Preferences towards NAFTA or the WTO (or both) 1. Do the Canadians have a preference towards dispute settlement procedures contained in NAFTA or do the Canadians prefer the dispute settlement procedures contained in the WTO when dealing specifically with the softwood lumber case? I would say they prefer NAFTA over the WTO . Why/why not? Because the US is legally bound by NAFTA. 4) Suggested modifications A) Modifications to NAFTA dispute settlement procedures that are desirable. 1. What modifications to the NAFTA dispute settlement procedures would Canada recommend to aid in resolving the softwood lumber dispute? Its amazing the length of time that it takes to get through this and I think that this is the biggest one that still has not been answered that if we get the ultimate ruling from the NAFTA panels when we get the ruling from the EEC then, if they reaffirm the initial decision that said that you have not proven a material threat of injury, you have no basis for your case, if
187 that ruling comes down in Canada’s favor, if the US will actually honor that decision because there are people on record saying we will not honor that decision. So enforcement is a major key. B) Modifications to the WTO dispute settlement procedures that are desirable. 1. What modifications to the WTO dispute settlement procedures would Canada recommend to aid in resolving the softwood lumber dispute? Well it would really be that the WTO decisions are all well and good in theory but they just don’t have the same traction. C) Modifications to the dispute settlement procedures/process in general. 1. What modifications to the dispute settlement procedure/process would Canada recommend to aid in resolving the softwood lumber dispute? Same answer that I stated earlier. 2. Do the Canadians believe that looking towards a side agreement such as the SLA is the proper way to proceed? People feel that the advantage of looking towards an agreement is that they believe that this lumber dispute is never going to go away. No one 100 percent believes that if we get the ECC ruling that says that the US has n grounds the Canadian producers full believe the US to turn around and figure out how else can we go about this case and launch it all over again. So I think an agreement is looked upon a way to actually have trade peace for a three or five year period and you know everyone says we will look up policy reforms and follow all those other things that should in theory make the US happy but then again, as I said, it all comes down to market share and controlling price. 5) Comprehension of the dispute settlement procedures A) Comprehension of the dispute settlement system by the business sector. 1. Does the Canadian softwood lumber industry feel they have an adequate understanding of NAFTA and WTO dispute resolution systems? With our legal experts I would say so. B) Comprehension of the dispute settlement system by the workers/labor in this industry. 1. Does the Canadian softwood lumber industry’s workers/labor unions feel they have an adequate understanding of the NAFTA and WTO dispute resolution systems? Oh I would say there are very few who really have a handle on what’s
188 really going on. I mean I deal with it on a day to day basis and I have a hard time keeping it all straight. But even the people who are working in the industry, you know the workers in the mill or loggers have a general understanding. I mean they know the US is bad and the US is hurting us but they don’t understand the technical aspects of it. That is why when we get the preliminary decisions that says that duty rates should come down to such and such a rate to explain that that is really just a preliminary decision we need the final decision and no this is really not going to impact anything now its frustrating. C) Governmental assistance in developing a business understanding of the dispute settlement systems. 4. How much assistance does the Canadian government provide to Canadian softwood lumber companies in understanding NAFTA, WTO and US AD and CVD rules? There is defiantly a lot of dialogue that goes on between the Canadian Government Council and the legal council of the companies. 5. Does the Canadian government assist Canadian softwood lumber corporations in their search for legal assistance when the corporations face American AD and CVD cases? There is some financial assistance. The companies would definitely argue that that there should be far more. I mean these companies are paying a lot of money in legal fees. There argument is that we are kind of fighting this for Canada overall and Canada’s overarching trade relationship with the US that there should be from a financial standpoint there should be more support from the Federal government. 6. Does the Canadian government defray any of the costs Canadian softwood lumber corporations confront when dealing with the US AD and CVD cases? Some funding through the Federal government but it does not go directly to the companies it just kind of goes to the associations. Again so it does not look like a subsidy from the government. S) Governmental assistance in developing a worker/labor understanding of the dispute settlement systems. i. How much assistance does the Canadian government provide to Canadian softwood lumber labor groups/organizations in understanding NAFTA, WTO and US AD and
189 CVD rules? I don’t believe that there is a lot. There is not any type of formal program or anything like that I am aware of. Do you have any additional comments concerning the current softwood lumber dispute? I guess just that no one believes that this dispute is really ever going to go away any time. I mean we are in Limber IV and already there is talk about what is going to be the cause of the next round. The other challenge is that a lot of people believe that this is a short sighted view of the US because the global market has changed so much, and that the overseas producers, look a Russia who is ramping up production, that Canada and US should be working together to become that strong North American lumber market and instead of spending so much time and money bickering back and forth , letting these other global forces build there market that that is causing….harming the North American market and we are going to see that impact over the long term. Also….the Byrd Amendment….the theory that you are going to be paying duties so that the industry…that the US industry can file a charge, duties are imposed, and that then those companies that were the signatures on the complaint can then benefit finically from it is just seen as absolutely ludicrous. Then you have the WTO who has decreed it illegal and the US says they are going to repeal it…and they are not repealing it….the duties are going to be hard enough to get back now not only due to the Byrd Amendment but add the large amount….i mean this is 4.1 billion Canadian dollars. That is a lot of money and that is part of the problem that has arisen in this Lumber IV, because the duties have become such a large amount that of course the US does not want to give it back. From a Canadian company perspective, all these people who have played this money, they don’t want to not get the money back. So that has entrenched peoples positions even more.
190 Interview Questions This interview was conducted by Jessica Service over the telephone on March 17th 2005. The interview was taped with the consent of the interviewee and transcribed at a later date. Procedural Questions 1. Name: ______NA to allow for confidentiality______2. Place of Employment: ____Retired______3. Title: _____Deputy Minister general advisor to the Prime Minister______4. Brief Description of connection to the softwood lumber dispute: _I have worked directly with two Prime-ministers and my exposure to the whole trade issue was very extensive. On the question of the softwood lumber less directly but more with the political aspects of Canada’s trade policy. I have certainly advised Sr. levels of the privy counsel and certainly Prime Ministers and Ministers over the years over trade issues. My last official position in government was Deputy Minister general advisor to John Turner when he was Prime Minister and acting principle sectary when John was away or incapacitated…that was my last formal role in government but we have been working with Deputies and Assistant Deputy Ministers in round tables and in other relationships and I was recently invited to Yellow Knife to promote the Prime Ministers Northern Strategy and while I participated in the design I chose to send one of my colleges due to there being other conflicts at the time. It went well and produced, of course unpublished but an internal report that dealt with a whole host of issues and of course one of those issues being trade. It was a study using simulation technology to look at the future of the North and the what the future challenges were and some of the potential scenarios in the next 20 years could be and this was for Sr. Deputies and private sector CEO’s and the Forestry sector and of course trade is always a factor in those scenarios. In 85 when Turner was leader of the Opposition I made one of may trips to Washington on of the key focuses of that official visit was trade issues and I met with the US Ambassador of Trade at the time and I also met with the Vice President and Sr. White House Staff then with the UN and we had other interests in NY but that was my last official role in a formal sense. But we have been involved in it one way or another as actor and eventually split with Turner in a very serious way over the FTA and my college Harvey and I both resigned because we were absolutely appalled by Turner because he was a free trader all his life and it was shear political opportunism that got himself in taking the fight of his life in 84, 85, 86. In 88 election Simon Reasemen was Turners beloved Deputy when he was Finance
191 Minister was totally blown away by it all and Of course Mulroney had asked him to lead the FTA negotiations and I was very friendly to Simon and the boys in that effort and so I quietly resigned with Harvey and we supported Mulroney vigorously which I would have otherwise been appalled doing on a number of other issues.
1) Impact/Influence of the softwood lumber dispute H) Influence of softwood lumber on the negotiations of the FTA, NAFTA and the GATT/WTO. a. How did the softwood lumber dispute influence the negotiations of the FTA? I think they were a significant factor in propelling the then Government on the advice of a number of Sr. officials and our Embassy of in the US that we had to seek some form of formal agreement and softwood lumber was one of the issues at the time, and of course remains an issue, so I would say that it was a factor along with a host of other trade issues that led to Mulroney, and I worked with his people, that lead to the reversal of the position that he had taken previously in the 84 election against Turner and supported this attempt to negotiate free trade. b. How did the softwood lumber dispute influence the negotiations of NAFTA? Again I think it was a factor but of a lesser importance when we moved to the NAFTA due to a number of different factors driving the NAFTA negotiations but again with my understanding it remains a major industry in this country and with others and it was important in advancing our partnership with the US. c. How did the softwood lumber dispute influence the negotiations of the GATT/WTO? That I am not sure of. I) Influence of the softwood lumber dispute on Canadian bargaining to develop the dispute settlement procedures that are seen in the FTA, NAFTA GATT/WTO. a. How did the softwood lumber dispute influence Canadian bargaining when developing dispute settlement procedures that are seen in the FTA? I am not really sure on the influence of the softwood lumber had on the engineering of the specific provisions in the FTA. b. How did the softwood lumber dispute influence Canadian bargaining when developing dispute settlement procedures that are seen in NAFTA? Same answer.
192 c. How did the softwood lumber dispute influence Canadian bargaining when developing dispute settlement procedures that are seen in GATT/WTO? The direct effect of the softwood lumber…again that I am not sure of. 2) Questions concerning the performance of the dispute resolution procedures T) Fairness of the dispute settlement systems and the appeals process. i. Do the Canadians believe that changes to American AD and CVD laws follow the proper process of notification and consultation that is required under the FTA and NAFTA? Well I think that most Canadians would not have a clue as to what is going on and I think that that level of ignorance is appalling, But I suspect the general opinion of insiders is that yes they do follow the proper procedures. ii. Does Canada believe that the binational panel of judicial review that replace the old method of judicial review of AD and CVD laws have helped in developing a solution for softwood lumber case? I think that there is that perception in the Canadian Government. iii. Do the Canadians believe that Chapter 19 of NAFTA, which carried on the basic institutional arrangements and dispute settlement procedures established in Chapter 19 of the FTA, has helped the Canadian softwood lumber dispute? It is thought that this…these institutions are an advancement of the US Canadian trade relationship. iv. Does Canada believe that when the softwood lumber cases have been arbitrated through the NAFTA judicial process that the process was completed in a timely manner? I have a sense that the answer would be yes. v. Does the Canadian position believe that arbitration through the dispute settlement procedures has helped/hindered the resolution of the softwood lumber dispute? I would suspect that it has helped and the perception is that it has helped. vi. Does Canada believe that the WTO Dispute Settlement Board’s authorization to take countermeasures is a viable option for retaliation when dealing with the softwood lumber dispute? You know possibly…I mean you can see from the actions of the Canadian Government….you know you never preclude negotiation in spite of taking steps to looking into taking counter measures..
193 vii. Are retaliatory measures granted by the WTO and NAFTA a viable tool for Canada in deterring unfair trade practices concerning the softwood lumber dispute? I can say with some authority that they are very reluctant to go that route as a country because we have full recognition of our relative impotence. That’s been my sense of it all along. We are constantly striving to find ways, other than the clubs that are available, find ways of resolving issues through negotiation dialogue, and it reflects a realistic assessment that I believe every leader of Canada has held of Canada’s relative power. And you know we certainly have some power…we are not Botswana, but we are a country which is relativity a minor actor. I think there are at a technical level people who are using every letter of the law and the rules to advance Canada’s case but you know the political level is much different because you can only push the United States so far without getting hurt because there are so many fronts on which they can exercise their clout and this in the end can seriously damage Canada’s interests, trade interests and other interests. And that is what you find out when you are at the highest levels of our government; nobody will talk about it publicly but one of my colleges who was part of the Privy Council under Trudeau and then became very prominent internationally and he spent time on the Tri-lateral Commission, he told me and I know that he has told others…he said I never realized the impotence…he never used the word impotence, he had his hands and he said I thought our (Canada’s) power was like this and with his arms spread wide his placed his hands very far apart, and then he said that he came to realize has his role of clerk on this Tri-lateral Commission and then his further international work, and he placed his fingers very close tougher and then said that Canada’s power is more like this. And with was profound for him to acknowledge that judgment and I would say that this is not an uncommon feeling for people who are at the center. viii. The Americans have filed appeals of the Chapter 19 panel findings with the EEC in the past. Do the Canadians believe that the appeals process is one that is fair? Well the public record will answer that….what does it say. I would say that there is some feeling that it is unfair but your own study will be far more definitive. If
194 not who does this system favor? I know that this is an answer but I thought you might get me on some that I do not feel authoritative in answering. ix. Do the Canadians believe that the dispute settlement procedures contained in NAFTA and the GATT/WTO has helped in making Canada’s trade relationship with the US less asymmetrical? Yes due to it being a procedure that we can now use to gain leverage if rulings are in our favor. Now we have something to rely on and before we didn’t, we have a quasi-judicial, if that is the correct term, we have a quasi-judicial system now entrenched in a treaty. We did not have that before except for the Canadian US Auto Pact, before it was just subject to informal unstructured negotiations so there is something there of considerable value. How is this illustrated in the softwood lumber dispute? I can’t give you verse and chapter so I would have to I decline to answer. U) Satisfaction with the dispute settlement systems that are now in place. i. Does Canada believe that when the softwood lumber cases have been arbitrated through the NAFTA judicial process that the process was completed in a timely manner? I think that there is more frustration with the lack of commitment of the US to respond to the decisions, the outputs of the decisions. ii. Does Canada believe that when the softwood lumber cases have been arbitrated through the GATT/WTO judicial process that the process was completed in a timely manner? I would suggest the same answer as with the NAFTA. iii. Arbitration when dealing with Lumber III was costly and time consuming. Some have suggested that due to the NAFTA procedures taking so long and costing so much that the SLA was developed to avoid the process when dealing with the Americans on this issue. How true are these statements? I am not sure about that. iv. Is the dispute settlement procedure that is contained in Chapter 19 of NAFTA and the FTA efficient concerning the amount of time the dispute settlement procedure takes? I don’t think that that is a big factor. V) Benefits of having the dispute settlement systems that are now in place. i. What have been some of the benefits of having the dispute settlement system of the FTA and NAFTA contained in Chapter 19 when dealing specifically with the softwood lumber case? Generally I would again say that e have something that
195 we never had before outside of the Canada US Auto Pact which came about before the dispute resolution systems. In a general sense we have a mutually bi- partied then tri-partied agreement between free nations as how to deal with a dispute. That is of value however, one may see its limitations in the time that is consumed in undertaking the process. ii. What have been some of the benefits of having the dispute settlement system of the GATT/WTO when dealing specifically with the softwood lumber case? Following the line of thinking stated before with NAFTA I think the trade regime is a constant evolutionary process, as you know, and how its evolved over the years and over the decades. Its an imperfect process, hmmm…the agreements are imperfect but it is the only process we have and the nations involved are striving to improve that agreement. W) Compliance issues concerning both Canada and the US i. Do the Canadians believe that the United States procedures are sufficiently transparent so that all parties to AD and CVD cases understand what is going on? My sense now and from being in the government that my sense is that the feeling within the Government has been and continues to be that no they are not sufficiently transparent and the US is constantly playing first to the interests and then they have exceptionally skillful and aggressive negotiators of the Government they represent. ii. Do the United States authorities provide adequate explanations for procedures and details of the cases brought against Canadian softwood producers so that the Canadians feel they understand the case against them and what is expected of them during the investigation? My sense of it from my experience is that over the past six months or past year is that there is pretty open exchange informally. However at the formal level it is far more constrained. You know when you go out to lunch or get a cocktail or even sit with the White House Sr. Staff as I have done in my past you do get the real story but when it come to sitting down in a formal negotiation its not so open. That has been my experience. iii. Do the Canadians feel they are given adequate opportunity for input when the US conducts AD and CVD investigations? I would think that that is the case.
196 iv. Do the Canadians feel that American companies use the filing of AD and CVD cases to harass their Canadian competitors? Oh absolutely. 3) Preferences towards dispute settlement procedures A) Preferences towards NAFTA or the WTO (or both) 1. Do the Canadians have a preference towards dispute settlement procedures contained in NAFTA or do the Canadians prefer the dispute settlement procedures contained in the WTO when dealing specifically with the softwood lumber case? Why/why not? Well you know its an issue of tactics and in some instances you go one way and then in other instances you go another and for this you go both ways. So its largely a question of tactics and what best fits the situation. 4) Suggested modifications A) Modifications to NAFTA dispute settlement procedures that are desirable. 1. What modifications to the NAFTA dispute settlement procedures would Canada recommend to aid in resolving the softwood lumber dispute? I couldn’t really say. But I would say informally that Canada should be working very vigilantly on developing relationships with top US officials in the current US administration all the way up to the current president. This is what right now is gong on the ranch in Texas and Marten is going to try and bend the ear of the president and his Sr. officials. B) Modifications to the WTO dispute settlement procedures that are desirable. 1. What modifications to the WTO dispute settlement procedures would Canada recommend to aid in resolving the softwood lumber dispute? That I can’t speak on. C) Modifications to the dispute settlement procedures/process in general. 1. What modifications to the dispute settlement procedure/process would Canada recommend to aid in resolving the softwood lumber dispute? That I don’t know. 2. Do the Canadians believe that looking towards a side agreement such as the SLA is the proper way to proceed? I would say that side agreement is always an option. 5) Comprehension of the dispute settlement procedures A) Comprehension of the dispute settlement system by the business sector. 1. Does the Canadian softwood lumber industry feel they have an adequate understanding of NAFTA and WTO dispute resolution systems? I think that they think they have a full understanding but they have hired people with the skills so…
197 B) Comprehension of the dispute settlement system by the workers/labor in this industry. 1. Does the Canadian softwood lumber industry’s workers/labor unions feel they have an adequate understanding of the NAFTA and WTO dispute resolution systems? I would think so in general but on the technical aspect I would say they have less. C) Governmental assistance in developing a business understanding of the dispute settlement systems. 7. How much assistance does the Canadian government provide to Canadian softwood lumber companies in understanding NAFTA, WTO and US AD and CVD rules? 8. Does the Canadian government assist Canadian softwood lumber corporations in their search for legal assistance in the US when the corporations face American AD and CVD cases? 9. Does the Canadian government defray any of the costs Canadian softwood lumber corporations confront when dealing with the US AD and CVD cases? X) Governmental assistance in developing a worker/labor understanding of the dispute settlement systems. i. How much assistance does the Canadian government provide to Canadian softwood lumber labor groups/organizations in understanding NAFTA, WTO and US AD and CVD rules? ii. Does the Canadian government assist Canadian softwood lumber labor groups/organizations in their search for legal assistance in the US when the corporations face American AD cases? iii. Does the Canadian government defray any of the costs Canadian softwood labor groups/organizations confront when dealing with the US AD cases?
Do you have any additional comments concerning the current softwood lumber dispute? I would just mention that the softwood lumber dispute is one very key part of a much larger puzzle. More properly put it is really about the larger picture ….the relationship between two nations in particular and a resolution is not likely
198 to occur on the issues on the table regarding softwood without understanding that this issue is a microcosm of the larger issue at hand. It’s going to be resolved within a broader framework. This is not just an issue that is particular to softwood there are many issues in the basket and that is how the softwood lumber issue should be put into context. It is not the particular issue of British Columbia or softwood lumber it is about furthering the relationship with the US.
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