By Paul Vieira in Ottawa, William Mauldin in Washington and Anthony Harrup in Mexico City
Talks to remake the North American Free Trade Agreement are
starting off today with an early dispute -- over how to settle
disputes.
Under Nafta, the U.S., Mexico and Canada have resolved tariff
conflicts by submitting them to expert panels that can sustain or
overturn tariffs. The system has helped guide the trilateral
relationship for 23 years.
Now the U.S. wants to do away with those dispute-resolution
panels, while Canada is digging in on its insistence that they are
a crucial tool for Canadian firms to use to fight tariffs imposed
by its powerful southern neighbor. Mexican senators have also
called for retaining the mechanism.
Though the system for resolving tariff disputes is only one of
many issues that U.S. officials are expected to put on the table in
the talks that begin Wednesday in Washington, it is a particularly
divisive one. For President Donald Trump, the panels' power to
overturn tariffs strikes at the heart of his "America First" trade
policy and his campaign's spirited defense of measures to protect
U.S. industries against what he sees as unfair trade practices.
"This first session could be quite confrontational," said Fred
Bergsten, founder of the Peterson Institute of International
Economics in Washington and a member of the U.S. advisory panel for
trade negotiations. He expects the U.S. to put the issue on the
negotiating table early in the process.
Without Chapter 19 -- the portion of Nafta that creates the
panels -- disputes over tariffs would end up in national courts or
before the World Trade Organization, a body the administration also
views with skepticism.
The divide is worrying to business groups that want to ensure
the talks stay on course. Major changes to Nafta have to be
approved by all three countries' leadership, plus their
legislators. Business lobbyists and former trade officials say
gridlock could lead to renewed threats from member countries to
pull out of the deal or feed political opposition during election
seasons.
The opening bids suggest a compromise won't be easy.
"Canada absolutely stands very firm in the importance of having
such a mechanism," Foreign Minister Chrystia Freeland said this
week as she unveiled the country's objectives ahead of the Nafta
talks.
Similarly, Mexico's Economy Minister Ildefonso Guajardo said the
current system provides a deterrent against the improper use of
duties. Dismantling it could end up hurting exporters in all three
countries, he told The Wall Street Journal in a recent
interview.
A U.S. trade official told reporters Tuesday that Washington
plans to "be quite ambitious in this first round."
One question is whether the early rhetoric will give way to
compromise once the give and take of the negotiations begin. Trade
negotiations are all about compromise, and Chapter 19 could end up
being a bargaining chip in a broader set of concessions each side
seeks.
"Everything that's released publicly is a negotiating position,"
said Celeste Drake, a senior expert at the AFL-CIO, the biggest
U.S. labor federation. "There is always a middle ground if
negotiators are willing to work."
U.S. labor groups tend to oppose Chapter 19, saying tariffs
levied on the grounds of alleged dumping or subsidies can be
challenged in the court system or through the WTO. Ms. Drake said
the Trump administration should press hard to resolve differences
with the other governments to achieve the best deal for
workers.
Stephen Powell, a former senior counsel at the Commerce
Department who has written extensively on the dispute-resolution
process, said given the historical importance Canada places on
Chapter 19, it would likely demand a "very large concession" for
abandoning the system. "Canada can certainly insist on something
very big, so can Mexico," Mr. Powell said.
But for Mr. Trump and U.S. trade representative Robert
Lighthizer, Chapter 19 symbolizes an erosion of sovereignty, since
the panels have primarily been used to overturn tariffs imposed by
the U.S. Commerce Department on Canadian and Mexican products. The
issue is of particular note to Mr. Lighthizer, who spent about
three decades as a Washington trade lawyer arguing for the types of
tariffs that can be overturned under Chapter 19.
Mr. Lighthizer's office in July left flexibility in most of its
official objectives for Nafta talks, but it said clearly in the
trade remedy section that it wanted to "eliminate the Chapter 19
dispute settlement mechanism."
The third-party dispute system dates back to 1987, when
President Ronald Reagan granted Canada's demands for an independent
resolution mechanism to salvage the U.S.-Canada free-trade pact,
Nafta's predecessor. The issue threatened to become a deal breaker
30 years ago, and it took the intervention of Canadian Prime
Minister Brian Mulroney and U.S. Treasury Secretary James Baker to
get resolved.
Colin Robertson, a Canadian negotiator at those 1987 talks, said
Canada's business community pushed for independent panels after
years of amassing large legal bills unsuccessfully fighting U.S.
trade sanctions in the American courts.
Since coming into force, nearly 150 Chapter 19 cases have been
adjudicated, two-thirds of which were brought by either Canada or
Mexico against the Commerce Department.
The rate at which countries are filing Chapter 19 cases has
recently slowed, with panels having dealt with just over a dozen
cases since 2010. Trade watchers say the falloff in cases stems in
part from the greater U.S. focus on trade cases involving China,
and illustrates how Nafta has ushered in greater integration across
the North American economy, with firms owning assets in each of the
three countries. "There's no us versus them any more," said Peter
Glossop, trade lawyer with Toronto firm Osler Hoskin &
Harcourt.
Canada hasn't always had clear-cut wins in Chapter 19 cases, but
some -- most notably dealing with the decadeslong spat over lumber
-- have gone its way. Ottawa's most recent win was in April, when
an independent panel directed the U.S. Commerce Department to roll
back the bulk of a proposed 20% tariff on a type of glossy magazine
paper made by a mill in the Atlantic coast province of Nova Scotia.
The U.S. claimed the mill unfairly benefited from power rates set
by the province's regulator, but the panel found that the U.S.
offered little evidence to support its case.
"We certainly knew that with Chapter 19, all of the facts would
be addressed by an independent panel...in a more fair manner," said
Marc Dubé, a senior manager at Port Hawkesbury Paper, the mill that
faced the 20% duty.
Write to Paul Vieira at paul.vieira@wsj.com, William Mauldin at
william.mauldin@wsj.com and Anthony Harrup at
anthony.harrup@wsj.com
(END) Dow Jones Newswires
August 16, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.