The Center Holds
September 9, 2019
Before getting to today’s topic, I can’t resist taking the opportunity to note recent evidence supporting my conclusion that negotiation of a U.S.-UK trade agreement will be more difficult than people think. The issue came up last week during Vice President Mike Pence’s visit to the United Kingdom, when Prime Minister Boris Johnson said that anything concerning their National Health Service was off the table—not a new position—and that the United Kingdom would have trouble with our chlorinated chickens. (He also referred to the Labour Party leader, Jeremy Corbyn, as a large chlorinated chicken, but that was not a trade policy statement and will not be further discussed here.) The chicken fight has been a personal favorite since my days at the National Foreign Trade Council when I had several opportunities to discuss it with then-EU Trade Commissioner Catherine Ashton. I will spare readers the gory details and the many terrible puns, but I do want to note that the fact that it is on the prime minister’s mind demonstrates that a trade negotiation with the United Kingdom is not for the faint of heart or for those unwilling to play a game of—wait for it—chicken.
Now, on to other matters. Something else happened last week that did not involve chickens but deserves a comment, if only because not many people seemed to notice it. A binational panel operating pursuant to chapter 19 of the current North American Free Trade Agreement (NAFTA) delivered an opinion on another case involving Canadian softwood lumber imported into the United States. Brief background: The softwood lumber dispute is more than 30 years old and has gone through a number of iterations between the two countries directly, in NAFTA panels, and at the World Trade Organization (WTO). Basically, the United States believes Canada is unfairly dumping and subsidizing its lumber exports to the United States and has so determined that under U.S. antidumping (AD) and countervailing duty (CVD) law. To the surprise of no one, Canada disagrees. Peace reigned from 2006 to 2015 due to an agreement between the two countries. Following its expiration, efforts to negotiate a new agreement have foundered; the United States ultimately brought new AD and CVD cases, which resulted in new duties in 2017. It is those that are now being litigated both via the aforementioned NAFTA panel and also in the WTO, which has not yet ruled. (Canada’s policy on this has always been one of litigation overkill.)
The panel’s decision was that the U.S. International Trade Commission (ITC), in determining whether or not injury had occurred as a result of the dumping and subsidization, did not meet its obligations under the law because it did not provide sufficient evidence to back up its conclusions. The panel sent the case back to the ITC for a do-over.
This is noteworthy, but not for the reasons you might think. The panel’s decision is probably not that significant. The ITC will likely come to the same conclusion the second time around but will provide a better evidentiary base for it. Neither side will change its policy, and the WTO litigation will continue. Eventually there will be more direct negotiations and another agreement that reflects the market conditions of the moment. In other words, the decision itself does not change the issue much. The fact of it, however, is important for several reasons.
First, the panel was unanimous. That means at least some of them were willing to put short term national interests aside and vote for what they thought was the right answer. Whether you agree with the result of not, it reaffirms the idea that binational panels are capable of objectivity.
Second, the panel completing its work and sending the matter back to the ITC reaffirms the concept of bilateral dispute settlement. This chapter, which relates specifically to AD/CVD cases, remains in the new United States-Mexico-Canada Agreement (USMCA), and it demonstrates that this kind of arbitration is an effective means of dispute settlement.
Third, although the Trump administration clearly does not like dispute settlement with independent arbiters on sovereignty grounds, there is not much they can do about it in this case. The matter was remanded to the ITC, which is an independent agency also known for doing its duty fairly and objectively. The commissioners may not like the decision, since it essentially tells them they messed up the first time around, but we can expect them to follow the law and respond appropriately regardless of any administration pressures. Doing so will be another affirmation of the independent panel system.
So, last week a small blow was struck for dispute settlement and independent arbitral panels. The right will not approve on sovereignty grounds—it is an independent, non-U.S. government group telling us what to do—and the left will be suspicious because they think anything with independent panels smells like investor-state dispute settlement, which they strongly oppose.
This is another example of what has characterized trade policy disputes for decades—the left and right ganging up on the center. Last week the center held, and if that is sustained going forward, it will be a good thing for the trading system and a good thing for the United States, even when decisions don’t go the way the United States wants.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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