If you're looking for where the line has been drawn in the sand along the 49th parallel for the coming North American free-trade agreement negotiations, it would be at Chapter 19 – NAFTA's system for using bilateral panels to adjudicate anti-dumping and countervailing cases. The Americans see the dispute-panel system as an affront to the sovereignty of their domestic laws and courts, and want to scrap it. The Canadians see it as a vital defence against unjust protectionist attacks, and look prepared to go to the wall to keep it.
You'd think for something so contentious, someone would actually be using it.
Over the nearly three decades since the two countries agreed on the dispute-settlement process, the Chapter 19 mechanism has gone from a high-profile arbiter of frequent cross-border spats to the equivalent of a vintage Rolls-Royce in Canada's free-trade showroom: A prized showpiece that is rarely taken out for a spin.
Chapter 19 deals with some of the most heated forms of trade dispute – those dealing with penalties imposed by one country on exported goods of another under accusations of dumping (selling exported goods at prices below their cost or below their domestic price) or government subsidization. Canada fought hard for its inclusion in the original Canada-U.S. free-trade agreement signed in 1988, as its best line of defence against the imposition of trade penalties by a massive and often heavy-handed trading partner. The measures were rolled into the subsequent NAFTA in 1994, which added Mexico to the fold.
But for all the hoopla around Chapter 19 – and we can expect a lot more of it as the trade negotiations heat up – Canada has taken a grievance to a Chapter 19 dispute panel just three times in the past decade. The United States hasn't taken a case against Canada to a Chapter 19 panel since 2005.
For some, this is evidence that the dispute-settlement mechanism is highly successful. For others, it is evidence that the mechanism is obsolete.
The gist of the first argument is that Chapter 19 has, over the years, developed a serious chilling effect in simmering trade disputes. The mere threat of triggering a complaint and a NAFTA panel – which, as everyone learned from the busier first decade of the dispute mechanism, can be a long and expensive process with an unpredictable outcome – has driven the parties to self-police their anti-dumping and countervailing actions to keep within NAFTA's boundaries of fair play.
The fact that Chapter 19 disputes have all but evaporated suggests that, indeed, the dispute mechanism has been very effective in discouraging anti-dumping and countervailing actions.
But Queen's University professor Robert Wolfe offers another explanation. He suggests in a recent article published by the Institute for Research on Public Policy that after 23 years under NAFTA, the supply chains among the three trading partners have become so integrated that any industry pursuing cross-border trade penalties might do itself as much harm as good – imposing costs on its own foreign affiliates and key suppliers.
"It's really hard to point the gun at one part of the value chain without it pointing right back at you," Prof. Wolfe said in an interview.
If, indeed, this economic integration is behind the lack of Chapter 19 cases over the past decade, then it implies that the dispute-settlement mechanism may be largely obsolete.
What's more, in the most contentious Canada-U.S. trade dispute – softwood lumber, which has been festering for decades and has heated up again this year – the Chapter 19 protections have proven pretty toothless, despite multiple rulings by NAFTA panels in Canada's favour.
"I don't think [Chapter 19] is worth fighting for," Prof. Wolfe said.
Nevertheless, Canada's top officials have said that they do, indeed, intend to fight for Chapter 19. Perhaps it's a negotiating ploy. But if we take Canada's position at face value, the reasons behind their position might be very similar to those that gave birth to the Chapter 19 panels three decades ago: a pressing need for a shield against rising U.S. protectionism.
When the Canada-U.S. trade pact was taking shape in the mid-1980s, the U.S. administration, under then-president Ronald Reagan, was showing a growing penchant for imposing anti-dumping and countervailing penalties in the name of "a level playing field," as Mr. Reagan put it. Canada was getting increasingly swept up in this wave, hitting exports ranging from steel and fish to sugar and electronics; there was a looming threat hanging over the Canadian lumber industry.
There are some striking parallels today. Chad Bown, senior fellow at the Peterson Institute for International Economics, noted in a recent paper that in current President Donald Trump's six months in office, his administration has launched investigations into imports of steel, aluminum and solar panels, and imposed duties on Canadian softwood lumber. If all those cases result in the United States erecting new trade barriers, Mr. Bown calculated that nearly 8 per cent of Canada's exports to the United States would be hit.
Given that context, Mr. Bown argues that the U.S. administration's "specific goal" in seeking to remove the Chapter 19 provisions is "to make it easier for the United States to access [anti-dumping and countervailing] laws to impose trade restrictions on Canadian and Mexican goods."
That's ample reason for Canada's negotiators to fight to keep that safety net in place. Even if they haven't needed it much lately.
"Without such protections, the Trump administration's NAFTA could make U.S. trade with Canada and Mexico much less free," Mr. Bown said.