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