Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 12 - Evidence, March 25, 2003
OTTAWA, Tuesday, March 25, 2003
The Standing Senate Committee on Foreign Affairs met this day at 5:06 p.m. to examine and report on the Canada- United States of America trade relationship and on the Canada-Mexico trade relationship.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: All honourable senators have a copy of the new budget. We have already approved a larger budget. This is reduced because we are unable to go to Mexico City. Could I have a motion to have the budget approved?
Senator Austin: I so move.
The Chairman: All in favour of the budget?
Hon. Senators: Agreed.
The Chairman: Carried.
Honourable senators, we have, from the Department of Foreign Affairs and International Trade, Ms. Suzanne Vinet, the Director General of Trade Policy, Services, Investment and Intellectual Property Bureau; Mr. Claude Carrière, the Director General from the General Trade Policy Bureau; and Mr. Matthew Kronby, Counsel, Deputy Director, Trade Law.
Mr. Carrière, please proceed.
Mr. Claude Carrière, Director General, Trade Policy I, General Trade Policy Bureau, Department of Foreign Affairs and International Trade: I will make a brief opening statement. I understand that honourable senators are interested in the WTO dispute settlement, in particular. I may stray and talk about the NAFTA as well. Ms. Vinet is also our deputy chief negotiator in the WTO negotiations. Mr. Kronby is deputy negotiator for the dispute settlement understanding negotiations that are going on right now at the WTO. They can also situate this issue in both the general and specific context in which honourable senators are interested.
The Chairman: The committee has heard that the dispute settlement procedures have had a tendency to move from the NAFTA agreements to the WTO. Our concerns are in that context, which I am sure you understand very well.
Mr. Carrière: I will not provide much background to honourable senators on the WTO. I am sure you have studied that. Suffice it to say that the current system was designed to correct the flaws in the earlier system, the GATT, prior to the Uruguay Round.
Essentially, that procedure was designed to help negotiations, but was insufficiently predictable and certain in terms of the overall process. GATT members could block panel reports from being adopted and panels from being started. The WTO was designed to combat those flaws.
The overall system was designed to become more automatic, binding and juridical, especially with the introduction of the appellate body. A system has been produced that corrects the deficiencies but is also more complex and longer than the previous process, even though it does yield an essentially binding system and leads to greater effectiveness in resolving most disputes. Some disputes are more difficult than others to resolve.
The NAFTA was negotiated essentially during the Uruguay Round of negotiations and was also an attempt, in terms of the state-to-state dispute mechanism, to address some of the deficiencies of the GATT system, which came before the decisions of the Uruguay Round.
The NAFTA chapter 20 dispute-settlement mechanism is an improvement over the previous GATT system, but it is not as sophisticated as the current WTO system. It does not have an appellate body. It is less automatic than the WTO, even though it is a better procedure than the previous GATT and previous CUSFTA procedures on the state-to-state.
NAFTA has other dispute settlement mechanisms. The unique one is chapter 18 for trade remedy or anti-dumping and countervailing measures. Final determination has been used to a large degree and continues to be used today.
NAFTA chapter 20, or state-to-state, has not been used as much. This goes to the remarks of the chairman about the tendency to migrate cases to the WTO, which is true to a certain extent. It is not true for situations involving NAFTA-only rights and obligations. It is true for issues where there have been common obligations, such as a violation of national treatment or a border violation inconsistent with article 11 of WTO or article 310 of the NAFTA.
In practice, governments have chosen to use the United States and Canada. The few cases that we have had tended to follow under the WTO system rather than the NAFTA chapter 20 system. On the other hand, where you have specific NAFTA obligations as has occurred between the United States and Mexico on trucking, for example, the NAFTA system is used.
Obviously, there is the investor state mechanism, chapter 11, which is not found in the WTO and which is also the subject of separate discussions in NAFTA to improve and clarify some of the processes there.
Returning to the WTO, there is something in the order of 275 requests for dispute settlement panels since entering into force of the agreement. Of those, 69 have resulted in adopted panels reports and applicable appellate body reports. Those numbers are based on early February data, so they may be dated somewhat.
Canada was involved as a complainant or defendant in 16 of those 69 cases, 6 of which were disputes between Canada and the United States. Of the 16 currently active panels, Canada is involved as a complainant in two, both of which are disputes between Canada and the United States.
Canada is also in active consultation on a third, which may lead to a third panel. Neither Canada nor Mexico have yet referred a bilateral dispute between them to the WTO. Canada has also participated as a third party in 17 of the 69 cases with adopted reports and is currently involved as a third party in an additional four active cases.
We have kept our lawyers busy. They do not complain about being bored, although they do complain about being overused sometimes.
The system has been useful to us. Whether we win or lose, we look to clear findings and expressions of the law. In some cases we may not be happy with the outcome, but we have had our chance to make our case. Many times we have made our case, and if we are found wanting, then we have a policy of implementing those results such as we did in the case of the dairy dispute, the most recent panel that found against us.
In other cases, we have also used the WTO as part of an overall negotiating strategy to come to a mutually satisfying solution. The aircraft dispute with Brazil is an example of Canada using the system to defend and advance our position and to seek a negotiated settlement rather than using the ultimate instrument in the dispute settlement process, which is retaliation. We have both stated as governments that we wish to find a negotiated outcome that is mutually satisfactory rather than resort to retaliatory measures.
Other features of the NAFTA may emerge from questioning or your further study. Honourable senators may wish to examine at some point the choice of forum. That choice is generally left to the country that requests the panel. Where there are common obligations, the requester chooses in which forum to dispute.
There are provisions in areas regarding the environment and sanitation where the subject of the complaint may choose where the dispute will take place. At the time it was negotiated, the NAFTA was more advanced in its methods — if I may put it that way — in environmental and sanitary matters. It was the intention at that time that the choice would be NAFTA.
Ten years later, I am not sure that would be the case necessarily. There has been a significant evolution in the WTO and WTO jurisprudence in both the environmental and sanitary areas. That may be one area which honourable senators may be interested in exploring further.
Senator Austin: We are particularly interested in your evaluation of the various dispute settlement mechanisms and whether you believe there are practical remedies or changes we could propose. Is the one big idea really on our list? The idea of the report of the House of Commons committee, that there be a major shift in the U.S. attitude toward trade sovereignty, does not seem to be a practical suggestion.
We have the U.S. anti-dumping and countervailing duty mechanisms. They are the source of our greatest struggle in so many areas. First, is there any way in which the use by the United States of these mechanisms can be constrained within the rules of the WTO, as they exist today? When I say ``constrained,'' I mean, can the terms of reference be defined better and controlled better, with more certainty in how they are applied? If you take the softwood lumber dispute, and other disputes as well, what we look at is a process in which the Department of Commerce needs little, if any, evidence in either case to undertake its own remedies. We are not dealing with the concept of a trade issue. We are dealing with trade advocacy; negotiation to achieve the NAFTA and then negotiation to apply the NAFTA is essentially what I see. Could we have your comments?
Mr. Carrière: The WTO negotiations provide a forum to advance our ideas to improve and clarify — to use your word, ``constrain'' — the abusive use of trade remedy. We, and Canadian industries, are also users of trade remedies and, in particular, anti-dumping. However, through the agreements in the WTO, both anti-dumping and countervailing duties can nevertheless be improved to reduce abuse, to ensure that there is a stricter requirement to launch a case and that there is greater rigour in the application of the measures. The area where we have most leverage is where we can ally ourselves with others who are like-minded, to put pressure on the United States and other countries, to ensure that these instruments are used in a way that removes the protectionist elements.
Senator Austin: Is there a committee process on this topic in the current Doha Round?
Mr. Carrière: Yes, there are provisions for anti-dumping and countervailing duties, as well as regional trade agreements. We are in the process of identifying, in the rules, negotiating group issues that could be the subject for negotiation. We have put forward a paper, after extensive domestic consultation, identifying areas that should be discussed in the WTO with a view to improving the procedures. We are currently developing, also, initial views on other issues that could be addressed, such as subsidies. At this point, we have made a proposal identifying areas for improvement and I believe this paper is on our Web site. I direct the attention of the clerk of the committee to that paper for the information and consideration of honourable senators.
Senator Austin: Are we engaged with the United States in a bilateral discussion of the points that are contained in the department's paper, or is it simply in the multilateral context?
Mr. Carrière: It is in the context of the WTO negotiations in Geneva.
Senator Austin: Not in bilateral discussions, however; is that correct?
Mr. Carrière: We have tried this a number of times with the United States. For a measure such as trade remedy or other measures of general application, even if the U.S. has not stated it by action, it prefers to deal with these measures in Geneva rather than to develop multiple processes.
Senator Austin: I have one more question that relates to the frustration that Canadians feel whenever any process, WTO or NAFTA, might entitle us to sanctions, whether it be with respect to Brazil, or particularly, with respect to the United States. Are we considering and discussing — I have not looked at your Web site — financial compensation rather than sanctions?
Mr. Carrière: We understand the frustration that you refer to when dealing with retaliatory measures. Frequently, that will involve the interests of firms, sectors or companies that are not part of the dispute. Retaliation is a blunt instrument that, to date, has not proven to be as effective as we would have thought.
Senator Austin: It can often be described as ``shooting ourselves in the foot.'' Would you agree?
Mr. Carrière: Some people have said that. We have not come up with a practical alternative at this point and, therefore, have not made any proposals. We would welcome practical suggestions from honourable senators or others who are interested in this case. Finding an alternative is not an easy job.
Senator Di Nino: The committee has taken most of its time, and rightly so, in looking at the frustration that Canada, and the industries that trade with the U.S. principally, have had in trying to deal with what appears to be a significant amount of disputes.
For the record, would you agree? We also have heard from time to time that, by and large, the CUSFTA and NAFTA have been a pretty good success between the two countries originally, and now the three. Would you comment?
Mr. Carrière: If you look at the amount of two-way trade between Canada and the United States, and if you look at the increase in that trade from either the NAFTA or the Canada-U.S. Free Trade Agreement and you compare that to the value of the trade disputes that have taken place, by far the largest amount of trade takes place without any problems. We tend to focus on problems, so they are more immediate. However, the large majority of trade that takes place on a daily basis is without dispute and without problems.
The NAFTA and the WTO, which govern Canada-U.S. trade relations, have achieved the success that we were looking for when they were negotiated. That does not mean there are no problems. Softwood lumber has already been mentioned. Wheat is another area that is affected, which has not been mentioned. Generally, agriculture has been the subject of some irritants and disputes. Again, if we look at agriculture, our trade with the United States has gone from a large deficit ten years ago to a sizable surplus today, if we look at raw and processed products. Our job is to focus on problems; however, a large portion of trade is problem-free.
Senator Di Nino: Would you also comment on the evidence we have heard that, even where we have had disputes, Canada has won more than they have lost? The results have been much more in our favour than they have for the U.S., particularly under chapter 19. Is that your understanding as well?
Mr. Carrière: I do not know the exact score.
Senator Di Nino: I am not suggesting score, but speaking in general terms.
Mr. Carrière: I think we have done well. Even when we might not have won outright, clarity of the rules for the future is also of benefit to the broader trading community to avoid disputes in other areas.
We have done well, but we should avoid focusing only on the straight win-loss element.
Senator Di Nino: I agree. The purpose of our inquiry is to make recommendations that will lead to a better relationship. Two or three points have been made during our hearings. First, from time to time, there are disputes where we do not necessarily have a pan-Canadian position, in which there are regional or sectoral differences.
Second, we have also heard that harmonizing standards would be a useful way to improve trade, not only with the U.S., but also with Mexico.
Third, a permanent NAFTA court has been suggested or a permanent secretariat along the lines of the International Joint Commission, which has been quite successful.
Would you comment on those three things, please?
Mr. Carrière: On the first subject, we should rejoice in the richness of diversity in Canada. Regions may have particular views. Our job is to find creative solutions, to ensure that no one is disadvantaged and to advance a unified Canadian position that deals with the realities of the economic structures and resource endowments of the country. Sometimes it is not easy.
The last question is essentially a political issue. It goes to the heart of the views of some on sovereignty, the question of common institutions or a common external tariff and the like. We have not seen evidence of much interest, in any of the three countries, to move in that direction. It might be some time before the three countries are ready for that kind of discussion.
Taking a look at institutions that work in particular sectors or areas might be applied or used as a basis to look at other institutions in a wider area. It would be useful for the government to take them into account, in looking at the future of the relationship. The relationship is not just a trade or economic one. It involves a wide range of interests in a number of areas, whether socio-political or broad economic integration.
Analyzing institutions that go beyond narrow trade and economic issues would be useful for us, as government officials.
Your second question dealt with standards. Harmonization of standards may be one way and you might have been using that expression as a summary. One area we might examine to reduce unnecessary costs for Canadian businesses, both exporters and importers, is standards and product regulations in place in Canada, the United States and Mexico to see whether ways can be found to reduce differences. In some cases, we might harmonize. We might also look at mutual recognition of laboratory accreditation, approvals or certification to reduce the cost of regulation, while continuing to meet and enhance objectives that are being pursued, whether it is the safety of the product or the like. This is one area where we think we can reduce costs and also achieve the regulatory objective.
Senator Di Nino: Do you know if any of those discussions are ongoing? Is this issue being looked at between the three countries, particularly between the United States and Canada?
Mr. Carrière: The NAFTA, when it was negotiated, provided for almost 30 committees and working groups of officials, to ensure that it remained a relevant instrument over time. Considerable work goes on, in a wide range of areas, to ensure we take into account the realities of trilateral integration and increased trade, investment and flow. A wide range of groups of officials from various government departments meet regularly, whether by conference call or a physical meeting, to address some of these issues in agriculture or industrial areas.
The Chairman: We heard at some point we had lost at one of the WTO panels. I believe it was to do with Brazil. We were not complying. It came up in the context of how one gets the Americans to comply with decisions. Would you like to put that subject to rest? Did we lose a decision regarding Brazil and those airplanes and are we not complying?
Mr. Carrière: Yes and no; how is that for a definite answer? One must look at the most recent panel. At that panel, in the aircraft dispute with Brazil, we lost a case. Brazil has just been awarded a retaliation bill of approximately $247 million U.S. However, one must look at the overall context. Two years ago, Brazil lost a similar panel, which involved giving Canada a U.S. $1.4 billion retaliation bill. Both governments indicated, and Brazil has recently said the same thing, that retaliation is not the preferred means of finding a solution to this dispute. It is more appropriate to negotiate a mutually satisfactory solution. We have been attempting to do so for some time. We have a better chance, now that Brazil has won a finding against us, to come to a mutually satisfactory solution that addresses the government's role in financing aircraft exports that takes into account both series of panels, those dealing with Canadian measures and those dealing with Brazilian measures.
The Chairman: Have we agreed mutually that it would be better to negotiate a settlement? They lost a case; they won a case. We are not really in the position of not complying with a decision; we are in the position of trying to mutually sort ourselves out of it. Is it correct that Brazil agrees to this situation, where we work out the problem?
Mr. Carrière: Yes, that is correct in a sense. If you look at time backwards and forwards, the panel findings against Brazil and Canada deal with the past and previous contracts that have been awarded. The retaliation awards deal with that. They do not correct the past. They simply provide one avenue of dealing with it. It is better to focus on the future and seek to come to an agreement that will deal with future competition and an agreement on the government role in financing.
The Chairman: Thank you. I believe that puts that subject to rest.
Senator Setlakwe: The subject is huge. Mr. Carrière has just discussed the WTO impact on trade relations between Canada and Brazil. To what extent will WTO decisions in the future have an impact on remedial action taken by the Americans vis-à-vis Canadians with regard to countervailing duties or anti-dumping? Will the Americans be restrained from going as far as they have in the past or will they go farther in the future?
Mr. Carrière: At the end of the day, the government will decide how to implement an adverse panel finding or appellate body finding against their measures.
We and other countries have said that we are better off with countries abiding by the rules. More trade takes place in a secure, predictable environment than otherwise. It is all in our interest. In specific cases, it depends on the equation in the country. At this point, our position is that the panel process will demonstrate that we are right in the softwood case in the WTO. We will expect the United States to implement those decisions. However, this is still in the future. We had been, at the same time, seeking to find a solution that is a long-term response. I believe my boss was here last week to discuss this issue with honourable senators.
We believe and expect that, in a panel with the United States, as they would expect of us, at the end of the day these will be implemented. That is the basis under which we operate in the WTO and in our other agreements.
Senator Setlakwe: We are having difficulty, to cite only one example, getting permanent members on panels. In our travels across Canada, we have heard about softwood lumber, cattle, canola, wheat, barley, bison and everything else. These countervailing or anti-dumping efforts against us by the Americans seem to be increasing all the time.
To what extent will that affect our trade relationships with the Americans if the WTO in the final round in January 2005 comes out with more stringent rules with regard to countervailing or anti-dumping duties between international bodies and countries?
Mr. Carrière: Our objective in the trade rules negotiations would be to negotiate rules that would constrain the abusive use of anti-dumping and countervailing measures against us by the United States and other countries. That is one of our principal objectives in the WTO negotiation. Our top objective is to reform the rules in agriculture and to eliminate export subsidies and significantly reduce U.S. domestic support. Those are clearly our principal objectives.
We also want to have a better handle on trade remedies and, in particular, what we consider to be excessive and abusive use of the rules. We also will seek improved market access in third countries: Europe and Japan, but also in the emerging and developing countries; India, Brazil, China and others.
Those are our principal objectives in the WTO. We certainly hope and expect that the result will improve our situation vis-à-vis the United States as well as third countries.
Senator Setlakwe: I have one final question, from way out in left field. You have, at the moment, a situation where relations between the United States and part of the European Community is fractured and the relations between Canada and the United States are possibly cooler than they were. Do you think that this situation might create an atmosphere where all parties may want to discuss a North Atlantic Free Trade Agreement, including the Europeans and perhaps countries that are not yet in the European Union but are about to join, such as Poland and others?
Mr. Carrière: That is a large question.
Senator Setlakwe: I told you it came from left field.
Mr. Carrière: First, the WTO has essentially been an apolitical institution and has not been affected by some of these issues that you mentioned. On the other hand, the issues that the WTO are dealing with are complicated enough already. Just by the complexity of the issues, there may be a greater challenge than earlier thought.
In terms of the North Atlantic, the NAFTA is a Free Trade Agreement where the three constituent countries do not have a common external policy in the same way as the European Union does, the next 15 or 25 years. We do meet and exchange views and have specific policies, but they are not coordinated and they are not identical. That is a difficulty. There has also been little interest in the European Union for negotiating anything close to a free trade agreement with either the United States or Canada for quite some time.
Senator Setlakwe: They are talking to the Americans; they are not talking to us.
Mr. Carrière: They are talking to us. We will be working with them to implement the agreement reached at the last summit, last December, to define the content of a trade and investment enhancement agreement, to negotiate that next year and to report on that at the next summit in December. This will be done in parallel with the WTO negotiations.
The United States has a different process that addresses the unique features of the United States. They have, as you know, negotiated a free trade agreement with Mexico for the past few years.
A North American or North Atlantic agreement does not really seem to be in the cards.
The Chairman: I would like to ask a question about the Bird amendment. The conversation with Senator Setlakwe seemed to reach a point where one might ask that question: What do we do if, because of the congressional system, the national government loses? As I understand it, they lose it in Geneva, at the WTO. It is a subsidy, I gather. The national Government of the United States, I have heard, would like to deal with it but they cannot because the Senate does not want to deal with it. Where does that leave trade negotiations with the U.S. if that sort of thing is repeated?
Mr. Carrière: That is a hypothetical question, senator.
The Chairman: It is not hypothetical in regard to the Bird amendment.
Mr. Carrière: The United States administration has indicated that it wants to address the Bird amendment in the budget and has made those proposals. At the same time, in the WTO we are working with the other co-complainants to define the reasonable period of time to which the United States is entitled, to implement the agreement. At this point, the administration has signalled its intention to implement the agreement. However, the United States and the co- complainants have not yet been able to agree on how long they should have, to do that.
The Chairman: Can they implement it without the agreement of the Congress?
Mr. Carrière: I do not think so. That will require some kind of arrangement with Congress. The administration has proposed dealing with the legislation. There may be other ways. We will look at it. I would be surprised if there was much of a way to deal with it.
The Chairman: It does not sound great.
Mr. Carrière: They are entitled, within a reasonable period of time, to bring their measures into conformity with the regulations. If we cannot negotiate it, an arbitrator will be named soon by the director general of the WTO. We are in negotiations with the United States this week and the co-complainants to name the arbitrator and to initialize the arbitration process to determine the reasonable period of time.
The Chairman: The hole big enough to drive a truck through in this approach is that it all depends on the goodwill of Senator Bird and his colleagues. We hear that they are not that interested in changing the Bird amendment. If they are not, does that tie the hands of the U.S. government? It seems to me their hands are tied and that is not a good situation. Is there an answer?
Mr. Carrière: The answer is that you are making an interesting comment, Mr. Chairman. At this point, we are working on defining the reasonable period of time. We do have a system that is based on good faith efforts of governments in this process.
Senator Andreychuk: In briefings I received on the WTO about a year ago, the WTO mechanism itself and the administration will try to stay as neutral as it can, both in the development of the rules and then once the process is in place. At that time we were told that, to make the WTO effective, there would have to be committees and layers of committees that are political; for example, ministers meeting, perhaps deputy ministers, perhaps prime ministers. Furthermore, the WTO would be dependent on this independency, but underpinned by the development of all the political mechanisms that make a system work. With regard to the Bird amendment, that will not be solved by the WTO; that will be solved by governments.
Have those committees started? We were told that they would be started and that there were some and they were to be expanded. That would be the difference from the WTO that, perhaps, Canada and the U.S could broaden the base of political consensus and dialogue.
On the pessimistic side, we were told that we should not presume that the WTO, unless there is some dramatic change, will be that successful on the fronts of agriculture and culture and all the issues that are difficult in the NAFTA and the CUSFTA. When you bring them into the WTO, you are just broadening the discussions, the difficulties and the perplexities. It is a long-term solution, not a short-term solution.
Ms. Suzanne Vinet, Director General, Trade Policy II, Services, Investment and Intellectual Property Bureau, Department of Foreign Affairs and International Trade: Unfortunately, I am not privy to the comment from last year. The issue you raise is important as we start a new round of negotiations. In the post-Seattle phase it was clear that bureaucrats and officials could only take the process so far. The WTO is an organization that is driven by members and the will of governments to advance the agenda.
There was a commitment on the part of ministers to meet on a more regular basis. It is already part of the process of the WTO that ministers meet every two years but, with a view to advancing the work of the WTO, we may need more political engagement on the part of governments, and ministers specifically. Since last fall, there have been at least two ministerials which are comprised of a smaller number than the entire membership of ministers. They discuss some of the hot issues to try to understand better where other countries are coming from and they try to address creatively some of the issues and concerns of the other members.
In parallel to that, there has also been an interest on the part of parliamentarians, especially in Europe and in North America, to understand better and to contribute to the process. There have been some activities and some advancement by parliamentarians. One such gathering occurred about two weeks ago in Europe where parliamentarians had an opportunity to discuss some of the issues to better understand positions and interests of other countries and to take part in promoting the agenda to move some of the issues forward.
There has certainly been a consistent engagement at the political level in terms of moving things forward. The next gathering of the full membership at the political level will be in September at the Cancun ministerial. Ministers will have an opportunity at this meeting to review progress in the negotiations and hopefully to provide new direction to negotiators on the way forward. The Cancun ministerial is a mid-term review in that it is the half-way point of the negotiations. There will be another series of meetings, probably in Egypt, in June and potentially, there will be other meetings underway before the larger meeting in Cancun.
In respect of the point made about the complexity of the issues, agriculture is one of the difficult areas in the negotiations. However, the WTO is the right forum to examine these issues. It is the only place where small or medium- sized countries have the same voice as large countries and the opportunity to tackle tough issues, especially in agriculture and the level of subsidies, for example. No other place exists right now for smaller countries to take on the U.S. or the Europeans in respect of the issue of subsidies provided to their farmers.
The WTO is certainly the right forum for these kinds of negotiations. That is why ministerial involvement on these issues has become an important part of the process in negotiations.
Senator Grafstein: I wish to focus on one aspect of this issue about a comparison between the WTO process and chapter 19. Last week, we heard testimony from the department that no stone was unturned in terms of the softwood lumber dispute. I raised one issue about a private claim. Is it clear that, with respect to the NAFTA dispute mechanism versus the WTO process, anti-dumping and countervailing duty really do not help us? However, we do have an ability to deal with that through the implementation of article 6 of GATT 1984, in the Uruguay Round, which allows us to have a remedy that we do not have under NAFTA. That relates to U.S. domestic law. If that is the case, why did we waste the time with NAFTA when this was a private claim based on the anti-dumping and countervailing duty remedies? We knew at the outset that NAFTA could not deal with that. Why did we not proceed smartly to WTO?
Mr. Carrière: I beg to differ that we wasted our time. Chapter 19 allows for a completely different procedure than the state-to-state dispute settlement, which is in the WTO process. Chapter 19 is unique in that it provides Canadians the capacity to judge whether the United States Government has implemented its own law properly. The standard of review of an anti-dumping or countervail final determination is United States law. Chapter 19 is a replacement of the Court of International Trade in the United States and it is not appealable.
Also, parties to investigation, whether it is governments in the countervail investigation or the private sector, have a right to seek review of a final determination in both countervail or anti-dumping, just as they would have a right to seek review under the Court of International Trade.
Chapter 19 addresses a different standard of review than the WTO. The WTO standard of review is the WTO — the international agreements. This is available only to governments. In that way, we can seek whether a measure is inconsistent with their obligations under the WTO.
Senator Grafstein: Mr. Carrière, that has been our position from day one. My point is that, from day one, we took the position state-to-state, not private-to-private that we had a severe disagreement with the private claims that were made because they were inconsistent with the WTO. My only question to you is: Why, having in mind the amount of money and time, did we not move smartly, knowing that the hurdle with respect to conformity to the standard of domestic law would be difficult? Why did we not move smartly to WTO and get to it right away? Why did we wait?
Mr. Carrière: We cannot initiate a dispute in the WTO until a measure has been taken. To mount a challenge in the WTO, a measure has to be taken. An investigation is not a measure, in that sense. That is why we had to wait for the measure to be imposed. One cannot challenge something that is simply a process. We challenged the preliminary determination at the time as part of a negotiated solution. However, the preliminary determination disappeared when the final determination was made.
Senator Grafstein: Again, chairman, I am somewhat confused. Perhaps my understanding is wrong. I am referring to the brief of the C.D. Howe Institute, which supports my position. It states, on page 16 in the last sentence of the first paragraph:
Thus, the only way one NAFTA member can challenge the international validity of another member's anti- dumping or countervail law is through the WTO dispute resolution mechanism.
Again, if that were the clearest shot and the best shot, why would we not have accelerated that process? I say that because, and you will recall, our evidence is that somewhere around $900 million has been spent on legal costs.
The Chairman: It is about $1 billion.
Senator Grafstein: I stand corrected. My point is that if we had had the assessment from day one, why would we not have fast tracked that when we knew perfectly well, based on previous experience with softwood lumber, that the Americans would push this along and then ultimately say, at the end of the day, ``Let us have a settlement.'' That was their position last time out. I know this from previous testimony of an excellent witness from the department, the name of whom I have momentarily forgotten.
If you want to make another comment, I have another brief question to ask.
Mr. Carrière: The excellent witness was Doug Waddel.
Senator Grafstein: I apologize on the record to Mr. Waddel because I should have remembered that name. He was an excellent Witness.
Mr. Carrière: He is the expert in the softwood case, so I stand to be contradicted by him.
Before the softwood investigations started, Canada did challenge the United States where we felt that U.S. law was inconsistent with U.S. obligations prior to the case. We were able to deal with the export restrictions issue in that way. In the present case, export restrictions were not an issue as they were in previous cases ten years ago.
Where we could, we did challenge the United States and anticipate, to improve our position in the anticipated investigation. However, the difference between the WTO and the NAFTA is that a proposed law or regulation, until it is enforced, is not challengeable in the WTO. However, it is challengeable in the NAFTA where you can make a case that an obligation has been violated.
In the case of anti-dumping and countervailing duties, it was not possible to negotiate a standard along the lines of the GATT. The alternative was chapter 19.
Our objective at the time was different. We were able to negotiate a chapter 19 process that deals with the separate standard, that is, U.S. law.
We actually have two processes that are available to challenge a U.S. measure. The first is in the NAFTA under chapter 19, and we have had some measure of success in previous cases including softwood lumber. We also have available a challenge under the WTO to look at the international consistency of either U.S. law, as we have done in one case, or a regulation under that law, such as in the case of softwood, where we have two panel requests and a third one coming, on injury.
We have a total of six cases proceeding — three under chapter19 and three under the WTO.
Senator Grafstein: May 31, 2003 is an important deadline with regard to the dispute resolution mechanism under the WTO. Will there be any remedial changes to the WTO dispute settlement mechanism before this round? Are you optimistic or pessimistic?
Mr. Carrière: I am always optimistic. I would not be able to survive in this job if I were not.
You did say this round, as opposed to May 31. I am not optimistic that we will come to an agreement. I stand to be corrected by my colleague. However, the probability is, I would say, zero that the DSU review will be completed by May 31.
There is a general view that we could make some improvements to the DSU. If you wish, my colleague could go into the details. However, this round is different than the May 31 deadline.
Senator Grafstein: I will conclude with this comment: Last week we had the privilege of listening to a former high commissioner to England, a colleague of ours, the Honourable Roy McLaren.
The Chairman: He also spoke before the committee.
Senator Grafstein: In his speech last week he effectively said that the Doha Round was a waste of time.
Senator Day: I have two questions. The first is more specific and is for Ms. Vinet. The second is more esoteric. I will give that to Mr. Carrière.
The first is in relation to intellectual property. Your responsibilities include intellectual property policy matters. The trade related aspects of intellectual property that were in the Uruguay Round are being implemented fairly well. I would like you to comment on that.
Between Canada and the United States, the main irritant in the past seems to have been rectified. It is the pharmaceutical issue regarding generics. Could you comment generally on intellectual property issues, and specifically, whether we are starting to feel any pressure or irritation from the United States as a result of our Supreme Court of Canada Harvard mouse decision? What do you see happening in that regard?
Ms. Vinet: In relation to Harvard mouse, we have received a decision. We are trying to determine the next steps. Consultations are underway. No decision has been made on how we will deal with that.
Senator Day: Is that from our end? Are we getting some pressure from the U.S.? Has that become a trade irritant yet?
Ms. Vinet: Not at all. That has not come up in any of the bilateral communications that we have had with them. It has not been an issue.
I would have to concur with you that the implementation of the commitments under the TRIPS Agreement are well underway. This is not part of the development agenda at this time. As these issues come up, we deal with them. Specifically in regard to the Harvard mouse, there has been no pressure in terms of what next steps Canada may take.
Senator Day: We were told that the United States, in any of its bilateral agreements or multilateral agreements, has never given up its right to enforce its domestic trade remedies. Has Canada done so in any bilateral agreements, specifically Canada-Chile?
Mr. Carrière: That is a very practical question. Canada and Chile agreed to eliminate the use of anti-dumping.
Senator Day: We did. However, the Americans never have. Is that your understanding?
Mr. Carrière: Correct.
Senator Day: If they never have and they show no inclination to doing so on bilateral agreements, why would we think that they are likely to be flexible in multilateral negotiations on those issues? Should we spend more time trying to do some micro-management on these things such as making the dispute settlement mechanism more effective? Should we try to get them to agree, if this is resolved, on the frequency with which they apply their local or national laws? Should we think in terms of the micro-management of what we have rather than the home run that we would not get?
Mr. Carrière: We are not proposing to eliminate anti-dumping or countervailing duty measures at this time, certainly not in the WTO. We are major users of those instruments.
We are proposing to address specifically particular issues dealing with the mechanics and methodologies of anti- dumping and countervailing duties, starting from the beginning where we would want a higher threshold for the representation of the industry in seeking the initiation of a case. We would like a threshold much higher than the current 25 per cent.
We want to improve the operation of the system. We want to ensure that only the proper cases get to the case stage, because an investigation is expensive for both governments and industries involved. We also think that the domestic industry needs to have access to defend itself against injurious dumps or subsidized imports. We want the mechanism that supports that not to be subject to abuse or undue harassment potential.
Senator Day: Do you agree that, as between Canada and the U.S., it is a non-starter to talk in NAFTA — Canada, U.S., and Mexico — about the U.S. giving up their national non-trade remedies?
Mr. Carrière: We are not asking them to do so at this point. We have in the past and have not been successful.
Senator Bolduc: Following up on Senator Day's intervention, there is a huge difference between negotiating with the Americans and negotiating on an international basis. The pressures, even for the Americans, are different. That is why it is possible perhaps to improve the situation somewhat.
The Chairman: I wish to thank our witnesses. There have been several subjects that you have helped us with. Our people here are taking notes, and we are starting to work on a report. As you know, we are reviewing this entire business after 15 years, and some of us were on the original committee 15 years ago.
The committee adjourned.