mechanism

Editorial Cartoon by Graeme MacKay, The Hamilton Spectator – Thursday, August 17, 2017

Chapter 19 may be a NAFTA deal breaker for Canada

A lot of Canadian softwood lumber exporters will tell you Chapter 19 is an instrumental part of the North American Free Trade Agreement.

Softwood lumber is the longest and bitterest of Canada-U.S. trade disputes. Small wonder then that Prime Minister Justin Trudeau has cautioned that removing Chapter 19 from the trade pact would be a deal breaker in the upcoming renewal talks between Canada, the United States and Mexico.

Chapter 19 is a mechanism NAFTA members can use to review the fairness of anti-dumping and countervailing duties. The U.S. has a long history of slapping such duties on Canadian softwood lumber shipments, and Canada has taken advantage of Chapter 19 to reverse those actions.

A Chapter 19 panel decides each case according to the domestic laws of the country that imposed the duties. So a Chapter 19 panel does not override a country’s domestic laws, but serves as a check on how each country is applying its own rules.

“There is absolutely no doubt that it acts as a check on some of the more abusive, arbitrary and discriminatory actions of the regulators on both sides of the border,” said Milos Barutciski, co-head of the international trade and investment law practice at Bennett Jones LLP in Toronto.

Softwood lumber has long been a flash-point in Canada-U.S. trade relations, and Canada has turned to Chapter 19, both under the original Canada-U.S. Free Trade Agreement and subsequently under NAFTA, to address what it sees as the unfair imposition of duties.

The U.S. lumber industry argues that the tariffs are necessary because provincial governments unfairly subsidize Canadian producers who log on crown land. Canadian companies argue the tariffs are improper because they pay provincial governments market rates for that timber.

“Chapter 19 has been a very important piece in every softwood lumber dispute since the original FTA was signed,” Barutciski said. (Source: Financial Post)