[Recorded by Electronic Apparatus]
Wednesday, September 25, 1996
.1541 
[English]
The Chairman: Colleagues, I see a quorum, and since we are fortunate enough to have witnesses with us today, I think we can proceed. Some of our other colleagues may join us a bit later.
Without further ado, let me introduce our two witnesses and remind you of the circumstances that extended the invitation to them. At our last meeting we had expressed a wish to have an indication from experts of the critical path that a trade dispute follows from its early days to its conclusion, as part of our general education on trade disputes.
We have the good fortune to have with us today, from the Department of Foreign Affairs and International Trade, Ms Valerie Hughes, who is general counsel for the trade law division,
[Translation]
and also from the Department of Foreign Affairs and International Trade, Mr. Daniel Daley, who is associate general counsel for the trade law division.
We will hear their presentations, and then, we will ask them some questions, as we usually do. Finally, we will hold an in camera session to discuss our future business.
[English]
When this presentation and the questioning period are over, I would ask you to stay around for our in camera session. We'll take that opportunity to button down our work program.
Ms Hughes, would you like to take the floor?
Ms Valerie Hughes (General Counsel, Trade Law Division, Department of Foreign Affairs and International Trade): Thank you, Mr. Chairman.
First I want to say that I'm very pleased to be here with you today to go through the dispute settlement provisions under the NAFTA and the WTO. We have been invited to present to you the government-to-government dispute settlement procedures that are available under both the North American Free Trade Agreement and the World Trade Organization agreements.
In the material that has been provided to the committee you will see a chart on NAFTA and WTO dispute settlement provisions, which sets out the steps that one follows in the dispute settlement procedures under both agreements. Of course, these are the end of the process; when one has a dispute one normally tries to resolve it long before this stage. If it is not resolved, then we enter into the dispute settlement provisions of the agreement.
You see before you on the chart that we have chapter 20, which is the chapter of the North American Free Trade Agreement setting out the dispute settlement procedures for the government-to-government disputes, which is to say disputes concerning the interpretation or the application of the North American Free Trade Agreement.
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On the far right of the chart you have the dispute settlement provisions under the World Trade Organization, and we have set out the dispute settlement understanding provisions that guide you through the process in the World Trade Organization.
If you agree, Mr. Chairman, I will start going through the procedures here and describe how one goes through the processes dealing with both agreements at the same time, comparing them as we go through.
The Chairman: Carry on.
Ms Hughes: What we have at the start of the dispute settlement provisions chart is the action of consultations. You will note that under the North American Free Trade Agreement the first procedure is for a party to request consultations. This is provided for under article 2006 of the NAFTA, and a party may request consultations with any other party regarding any actual or proposed measure or any other matter that it considers might affect the operation of the NAFTA.
So you will see that, once requested, the consultations must take place within 30 days of the written request, and the consultations are confidential.
On the right-hand side of the chart it is noted that the dispute settlement understanding of the WTO also provides for a consultation phase. The party shall enter into consultations within a period of 30 days of the request. As in the NAFTA, the consultations are confidential. So there are fairly equal provisions here. Within 30 days from the request the parties would sit down and try to arrive at a mutually satisfactory resolution of the dispute.
If in fact that does not happen at the consultations phase - and, incidentally, there may be more than one round of consultations - under the NAFTA a party can request that the free trade commission meet to discuss the dispute and endeavour to resolve it. The free trade commission, as you may know, is composed of the trade ministers of the three NAFTA parties. Article 2007 of the NAFTA set outs the procedures there. By contrast, the WTO dispute settlement understanding does not provide for such a meeting. There is no similar commission under the WTO.
Next on the chart the action is mediation, conciliation. Under the NAFTA, article 2007 notes that the commission may have recourse to good offices, conciliation, mediation, or such other dispute resolution procedures. The idea is once again to encourage a settlement of the process before we get to the actual panel stage. You can see that on the far right of the chart a similar provision is provided in the dispute settlement understanding, which is article 5, and a party at any time may request good offices, conciliation, and mediation. So, for example, a party could ask the director general of the WTO to help it resolve a problem that it has with another member of the World Trade Organization - as I mentioned, in an effort to resolve disputes before they get right to the panel process.
If that doesn't work, the next stage provided for in the procedure is the panel stage. Under the North American Free Trade Agreement, if the matter has not been resolved within 30 days after the commission meeting, a consulting party may request the establishment of a panel. That's article 2008.
Naturally one has 30 days to wait. One may wait longer if one wishes, but 30 days will pass before one can ask for the establishment of a panel.
Similarly, under the WTO dispute settlement understanding, if consultations fail to settle a dispute a party may request the establishment of a panel. In this case, however, there is a sixty-day period between the consultations and the request for the establishment of a panel.
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When one requests a panel to be established under NAFTA, it says in article 2008 that the commission ``shall'' establish an arbitral panel. It's a mandatory requirement of the commission. Under the WTO dispute settlement understanding the member will go to this dispute settlement body and ask it to establish a panel, and it shall be established no later than the second meeting of the dispute settlement body after the request is put on the agenda.
At the first meeting of the dispute settlement body it may be that a party, a member of the WTO, will not agree to establishing the panel at that stage. Perhaps further consultations or conciliation or some other attempt at settlement would be possible at that stage. Therefore at the first meeting of the dispute settlement body it may be that the panel will not be established as requested. However, moving from the procedure that was followed under the General Agreement on Tariffs and Trade, under the old system, before the WTO, at the second meeting of the dispute settlement body the panel shall be established. There cannot be the blocking of the establishment of a panel as there used to be under the old system.
Once the panel is established, the parties seek to develop the terms of reference for the panel. Under both the NAFTA and the WTO dispute settlement understanding there are standard terms of reference the parties can use, or they can modify them as they require. One has twenty days to establish the terms of reference, although it's always possible to extend that period by agreement.
I move to the second page of the chart. We're now at the panel process. You'll see the procedure is a bit different under NAFTA. Under NAFTA there are the written submissions of the parties, one oral hearing, generally, and then supplementary written submissions following the hearing. Under NAFTA you'll normally have five panellists. The WTO dispute settlement understanding provides for written submissions of the parties, an oral hearing, second written submissions, a second oral hearing.
Under NAFTA it is possible for the panel to have another hearing if it wishes. Indeed, under the dispute settlement understanding there can be more meetings with the parties if the panel requires. But these are the general provisions of one hearing under NAFTA. That is what article 2012 requires, and under the dispute settlement understanding, article 12, there are two meetings with the parties.
Under the WTO system there would be only three panellists. It's possible to have five, but generally the practice is three. The contrast is with NAFTA, where there are five.
Under the next action we have written ``panel report''. Under NAFTA, following the written submissions and the oral hearing, the panel can present what is called the ``initial report'' to the disputing parties. That's provided for under article 2016. The initial report will set out the facts, the conclusions, and the recommendations of the panel. The WTO dispute settlement understanding also provides for issuing a report to the parties, but at that stage it contains the facts and the arguments, not the conclusions of the panel.
I move to the next phase, under ``comments on the initial panel report''. Under NAFTA the disputing party may submit written comments to the panel on the initial report. It has fourteen days to comment. Maybe the facts are incorrect or maybe there was some matter the panel didn't get correct in its initial report, so a party has an opportunity to comment on the initial report and seek changes to it. This is provided for in article 2016 of the NAFTA.
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Similarly, under the WTO dispute settlement understanding, disputing parties may send comments to the panel on the draft descriptive section of the report - that is to say on the facts and the arguments as summarized in the report - and then the panel under the WTO will issue its interim report, which will include the findings and the conclusions. So it is one step behind the NAFTA in that sense.
Further time passes. Five weeks are allowed for parties to indicate objections, and if there are no objections the final report is then issued to the parties.
You'll note next the appeal box. Under the NAFTA there is no appeal procedure. Once the panel makes its final report available, that is the end of the process and the parties - the governments - have agreed that they will accept the findings of the panel as final and binding.
Under the WTO there is an appellate body to hear appeals. This is a new feature in that it was not available under the GATT system. There is an appellate body composed of seven standing members, although only three will hear an appeal. The appellate body can review legal findings and conclusions of the panel. It is not a review of factual matters. The proceeding takes about 90 days from the time when the appeal was launched.
That brings me to the end of the chart that we prepared for you setting out the procedures. I think the time period required for a NAFTA chapter 20 panel depends, because the chairman will set a timetable for the hearing and certain parts of the process but it could take probably less than a year's time. It could take more because the parties may agree to extend the time for certain matters.
Under the WTO dispute settlement understanding the idea is to move the process through in about six to nine months' time, but again the parties can agree to extend the time or ask for more time and the panel has discretion in changing some of the time lines required by the rules.
I have also provided to you copies of chapter 20 of the NAFTA and the dispute settlement understanding so that you will have all of the provisions that you can study if you wish.
The Chairman: Thank you very much.
Mr. Daley, would you like to add something to this presentation?
Mr. Daniel Daley (Associate General Counsel, Trade Law Division, Department of Foreign Affairs and International Trade): At this time, Mr. Chairman, no, thank you, but I'll be pleased to respond to any questions the members might have.
[Translation]
The Chairman: We will proceed as usual. Mr. Sauvageau, please.
Mr. Sauvageau (Terrebonne): First of all, I want to thank Mr. Daley and Ms Hughes for their nice chart. It will surely be very useful to us. We will probably use it all the way through our study, since it is simple and easily understandable.
While looking at the chart, a couple of questions came to my mind. In the first block, "Consultations", it is said that from the time when consultations are first requested by one or both parties, it may take up to one year until a settlement is reached. What happens then of the goods traded by the two parties? Is everything frozen? Does everything stop at least momentarily? Or do the parties carry on their trade, telling themselves that their request for consultations is being taken into consideration? In fact, what happens then?
[English]
Ms Hughes: There are no provisions that stipulate what happens with the business interests. There are some exceptions to the general rule so that you can, in the case of urgencies, change the time lines. The dispute settlement understanding sets out some other provisions and some exceptions to the general rule so that in the case of urgency one can apply to restrict the time periods throughout the process.
[Translation]
Mr. Sauvageau: Now, I would like to take a concrete example from your chart to clarify that matter and help us understand. However, I wonder if we are allowed to use that specific example. If not, please let me know.
.1600
I would like to take the example of the steel industry, which at times is experiencing some little problems in their trading with the Americans. In that case, if there were a request for consultations or a complaint pertaining to chapter 20 of NAFTA, what would happen about the time lines? Could you give me a typical example concerning the steel industry or any other sector?
[English]
Ms Hughes: I just to want to clarify the question, because as you probably know, there are two dispute settlement chapters under the NAFTA, chapters 19 and 20. Chapter 20, which I have set out in this chart and which I just described, has to do with government-to-government disputes. The chapter 19 procedure, which I did not discuss, has to do with anti-dumping and countervailing duties. It is not a government-to-government process, and it is a different procedure from what I have just presented.
[Translation]
Mr. Sauvageau: If we want to make a valuable study on the whole issue of trade disputes, should we look into both chapters 19 and 20 or only into chapter 20?
[English]
Ms Hughes: My understanding is that you are examining government-to-government dispute settlement. If you are examining only that, then it is only chapter 20.
The Chairman: We have a wider mandate, so we can also look at the provisions of the anti-dumping and countervailing system.
Ms Hughes: Then it is chapter 19 that sets out the rules of procedure for that type of dispute. It is not what I presented to you, but I certainly can provide it if it is of interest.
The chapter 19 dispute settlement procedure is quite different in that it is a replacement, in a sense, of the domestic review of findings of injury in the case of dumping or countervailing duties. With chapter 19, the panels that are established are dealing with disputes between two countries under the NAFTA, whereas with chapter 20 you can have all three.
In the binational panel system under chapter 19, what you have is panellists applying the domestic laws of the country where the procedure was challenged. So if it is a Revenue Canada finding, for example, it would be Canadian law that the panel is to apply, and then of course for an American challenge it would be American law.
The procedure is quite different; it has to do with private parties going before panels. At the moment I'm not in a position to go through them with you, but certainly I can provide it.
I think your question to me was whether we should be reviewing it. If your mandate is to deal with commercial disputes, chapter 19 is in fact relevant. I apologize to you because my information was that you wanted to go through chapter 20 with me.
[Translation]
Mr. Sauvageau: You are perfectly right, but I suppose that at a future meeting, we'll want to have more details, from you or from someone else, about chapter 19, in order to be better informed. Thank you. I will come back at the second round.
[English]
The Chairman: Merci.
Mr. Penson.
Mr. Penson (Peace River): Thank you, Mr. Chairman.
My question has to do with the selection of the panel and the chair of the panel, so it's 2(b) and 2(c) of article 2011. I'm just wondering if you can help walk us through that a little bit.
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It says the parties have 15 days to select the chair of the panel, and if they can't do that, I understand they just draw lots to see which party will select the chair. Is that correct?
Ms Hughes: That's right, if they can't agree within 15 days.
Mr. Penson: Are there any time extensions there? For example, in the supply management dispute in the United States, wasn't a longer period of time taken to select the chair?
Ms Hughes: That's correct.
Do you want to answer that?
Mr. Daley: Certainly.
I've been involved in that panel. Of course, all of these rules apply in the absence of an agreement to the contrary by the disputing parties. In the supply management panel, through the process of examining the information that was provided by the prospective chair and members of the panel to determine whether there were any actual or potential conflicts of interest, it became necessary to take a bit longer, in fact considerably longer, than the time provided for in the NAFTA to settle on the chair.
In fact Canada won the draw, won the right to choose the chair. We opted for a Belgian lawyer. He of course made full disclosure of all of the lawyer-client relationships that his firm - and that is his global firm - had, and it turned out that their office in, I believe it was Chicago, acted for a U.S. firm that had interests that we thought would be opposed to Canada's interests. So in fact we declined in the end to support the candidate whom we initially proposed, so we had to go back to look for someone else.
Mr. Penson: In that case, does the party that wins the draw, even though they're not satisfied with that chair, get to choose another chair, or does it go back to a draw again?
Mr. Daley: We would have gone back to a draw again. In the end, we settled on a candidate who had initially been proposed by the United States, because, having examined his background and his affiliations, we determined that there were no matters of concern to Canada.
Mr. Penson: The reason I'm asking this question is it seems to me that if the two governments go there with fairly fixed positions and they are going to have their two panellists each, the chair of the committee becomes sort of the judge to a large extent, or the one who could end up making the decision, so it's pretty important who that person would be, isn't it?
Mr. Daley: Yes, but don't forget that in the -
Mr. Penson: Because there's no appeal, is there?
Mr. Daley: No, there is no appeal, but in the composition of the roster from whom panellists are chosen to begin with, there's a right to challenge the placement of a candidate on the roster, in the event that there's a perception of potential conflict, or if the person has a history of certain announced views that would be viewed as inimical to our interests.
In this particular case, because the roster had not been agreed on, we were appointing from off-roster. The United States appointed the Canadian candidates and Canada appointed the U.S. members of the panel. Clearly we examined their background and ensured that, from our point of view, they would be inclined to be fair-minded.
So as far as we can determine, in this first NAFTA chapter 20 panel, there has been no such risk of voting, let's say, by the panel members along national lines.
Mr. Penson: So there are protections built into this.
Mr. Daley: There certainly are.
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Mr. Penson: Regarding the make-up of the panellists themselves, paragraph (c) says:
- one of whom is a citizen of a complaining Party, and the other of whom is a citizen of another
complaining Party.
- What does that mean?
Mr. Penson: Yes.
Ms Hughes: That's the procedure when you have three parties. Under section 1 it would be when you have just the two, Canada and the United States.
The Chairman: Mr. MacDonald.
Mr. MacDonald (Dartmouth): It's always good to get walked through this stuff, because you read it on paper and it can be quite confusing and quite unfathomable.
I have a couple of questions to help with time lines and processes, because both of these dispute settling mechanisms work well only when both parties to the dispute wish them to work well. I think that's fair to say.
The time lines are primarily agreed to by consensus. They are set in many instances, but the extensions are by consensus. So it's a very consensual type of process. It's not structured to be terribly confrontational structure-wise. Am I correct there?
Ms Hughes: Yes. Usually if parties agree we can move the time lines as required, but in the event that one party wishes to move forward and the other does not, there are ways to force a party to move forward. So I think there are both approaches. If parties need more time, wish more time, the process will allow that, but in the event that someone is found to be dragging their feet, there are provisions that help you move the process along.
Mr. MacDonald: I want to ask you specifically - and I'll start with the NAFTA process under chapter 20.... You indicate here that the disputing party may submit written comments to the panel on the initial report within 14 days of presentation. What happens then?
If I'm a disputing party and I submit comments to the panel on the initial report, what happens at that point? Say Mr. Penson and I are at odds. We are the two countries. The initial report is filed. I have some difficulty with it. I file comments. What happens after that point? Does Mr. Penson then get an opportunity to comment on the comments? How does this work?
Ms Hughes: The provisions go just that far. They provide for providing comments within 14 days. But there are also model rules of procedure, which I have provided to you. In those model rules of procedure it says that the panel can determine how to deal with a procedure that is not specifically spelled out in chapter 20.
If the panel wished to give the other party a chance to comment on the comments, the panel is entitled to do so under the model rules of procedure.
Mr. MacDonald: My second question then goes over to the WTO process. You indicate that after five weeks and in the absence of an objection the final report is issued to the parties in the dispute.
Will you please tell us what happens in the event of an objection? What is the process that is followed at that point?
Ms Hughes: Perhaps it's useful to explain that prior to the WTO dispute settlement understanding there was the GATT panel process. Under that process, if there was a finding against one party - for example, in a panel - then that one party could block the adoption of the report, because adoption of panel reports had to be by consensus.
That was the system before. The system now is the opposite, in the sense that you would have to have consensus not to adopt. So it has reversed the procedure and made it much more likely.
It is possible that once a panel report has been issued a party will wish to resolve the matter without the dispute settlement body going to the final procedure of adopting a report. This five-week time period allows for consultations between parties to seek to come to a resolution before you have a panel report that is adopted by the dispute settlement body. So if there's an objection, the dispute settlement body can allow for these negotiations or settlements or discussions, but in the end one cannot, on one's own, block the adoption of a panel report the way one used to be able to do under the GATT system.
Mr. MacDonald: Let me get this right. If an objection is filed at some point during that five-week period, the process allows for the objection to be tried to be worked out through dialogue and discussion and negotiation, and if not it is filed and adopted.
.1615
Ms Hughes: Subject to the right to appeal under the WTO.
Mr. MacDonald: Yes.
Ms Hughes: But if someone issues a notice to the dispute settlement body that they intend to appeal, then the dispute settlement body does not adopt the report. They wait until the appellate body issues its report.
Mr. MacDonald: I have you. Okay.
Mr. Daley: I think we want to distinguish between a suspension of the time line to allow for settlement and a further meeting between the panel and the disputing parties on some issue that has been raised in comments on the initial report. The parties can always seek a suspension of the proceedings in order to settle. There have already been precedents within the WTO system for such settlements without publication of the report. But there is provision in the dispute settlement understanding of the WTO for the panel to have a further meeting with the parties to pose questions or hear submissions on some matter that has been raised in the comments on the initial report. So that's another factor that could cause a departure from the five-week deadline.
In a sense that was captured by the shorthand phrase we use, ``in the absence of an objection''. In other words, unless some matter is raised by a disputing party and the panel feels it needs to hear further on it, it will issue its final report after five weeks.
Mr. MacDonald: Help me with this. When you get to the point of the interim report, if objections are filed, can there be a suspension or an extension of the five-week period while that gets sorted out?
Mr. Daley: No, it's not automatic. If the panels -
Mr. MacDonald: It's by consent, then, if the panel agrees.
Mr. Daley: If the panel agrees that it needs to hear further from the parties, then the period will be extended.
Mr. MacDonald: Okay. So if somebody files an objection, it's not the same as an appeal. They are two different things.
Mr. Daley: Correct.
Mr. MacDonald: Okay. If an objection is filed, five weeks pass, there is no notice of appeal of the interim report, the report is filed, and then it's adopted. Am I right?
Mr. Daley: That is correct.
Mr. MacDonald: So the period you have for filing the appeal is when - just during those five weeks? You mentioned that otherwise the report would not be adopted until after the appeal is heard.
Ms Hughes: Let me just check the provision for you on when you have to indicate you wish to appeal.
Mr. MacDonald: While you're looking for that...my question is along these lines. We get through the process. The interim report is made available to the disputing parties. There may or may not be an objection. At the end of five weeks, if there isn't an objection, what happens to the report? It gets reported to the organization and then it's adopted. What is the time line there? You mentioned that if somebody indicates during that period they intend to appeal, the adoption of the final report is deferred pending the appeal. Am I right there?
Ms Hughes: Yes. Under article 16 of the dispute settlement understanding it says within sixty days after the date of circulation of a panel report to the members the report shall be adopted at the DSB meeting unless a party formally notifies the decision to appeal or the dispute settlement body decides by consensus not to adopt their report.
Mr. MacDonald: I just want to get the time lines right. There's a five-week period after the interim report is issued, then there's a further sixty-day period after that in which an appeal can be undertaken. So there's a sixty-day waiting period between the time the interim report is finalized and the adoption by the body.
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Mr. Daley: That's correct.
The Chairman: Mr. Assadourian.
Mr. Assadourian (Don Valley North): I have a quick question of clarification. If you decide to take action, you have to choose that or WTO in advance. Is that right? On what basis do you decide which way to go?
Ms Hughes: You're correct. You have to go one way or the other. Once you institute proceedings under the NAFTA, for example, you could not then go to the WTO if you lose or if you are in the middle of the proceedings. You must choose one or the other.
Mr. Assadourian: You can't do it in parallel.
Ms Hughes: That's correct. If the issue in dispute is covered by both agreements, which is not necessarily the case - although there are a lot of similarities between the WTO and the NAFTA, there are some provisions that are different - you have to make your choice.
I think there are a number of matters you would be thinking about. The procedure is...the North American battles are sometimes better fought with North Americans on the panels. In the WTO you would not necessarily have a North American on your panel. In the NAFTA, it's quite possible to have a non-North American on your panel, but you would also have Americans or Canadians or Mexicans. The composition of the panel may be a consideration.
There are some provisions in the NAFTA dealing with environmental disputes where a responding party, that is to say, a party complained against, can require that one go under the NAFTA. There are certain provisions that require a party to do one or the other.
The question as to where you go is a difficult one. In every case you'd have to look at what benefits you would derive. Under the NAFTA, of course, there are only three parties. Under the WTO there are 123 members and you may wish to be joined by several other members under the WTO in your dispute. That's a consideration as well. It depends. If you want to restrict it to the three North American parties, you would want to go under NAFTA.
Mr. Daley: These choices of forum provisions in NAFTA, chapter 20, are found in article 2005. There it's pointed out that a dispute arising under both the WTO and the NAFTA may be pursued in either forum. But there are specific rules that govern the selection of the forum in that article.
Mr. Assadourian: Thank you.
The Chairman: If I may be allowed a quick question, what happens in the situation in which the final report has been issued and no action is taken by the party that should take action, which then leads to retaliation that may be appropriate or inappropriate? At that stage, do we set the clock back so that we have another dispute that is regarded as a completely different dispute with the mechanisms starting all over again and with consultations and so forth on the appropriateness of the retaliation?
Ms Hughes: I call your attention first to article 2018, which says that normally the resolution would be the ``non-implementation or the removal'' of the measure that doesn't conform with the agreement or that is causing a nullification or impairment of a benefit.
If in fact that is not the result, there is a provision in article 2019 dealing with suspension of benefits. There it is set out that within 30 days of receiving the final report the parties should come to some sort of mutually satisfactory resolution. If not, a complaining party ``may suspend the application to the Party complained against of benefits of equivalent effect''. That is what is required.
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Normally the benefit would be suspended under the same sector, but in fact there could be a benefit suspension under another sector if it's not practical to do it under the same sector.
You are correct. A panel may review whether or not the effect was excessive, because article 2019 is calling for a suspension of benefits of equivalent effect. So there is a possibility to review whether or not the benefits are excessive. The procedure is set out in article 2019. There are other additional rules in the model rules of procedure on how this would proceed.
The Chairman: Are these rules basically the same as those for the first panel or is it a different set of rules?
Mr. Daley: It's on a much narrower issue. I point out section 3 of article 2019 to the chairman:
- 3. On the written request of any disputing Party delivered to the other Parties and its Section of
the Secretariat, the Commission shall establish a panel to determine whether the level of
benefits suspended by a Party pursuant to paragraph 1 is manifestly excessive.
Ms Hughes: I might add that it's article 59 of the model rules of procedure and it sets out the time lines. It also says that it's not necessary to convene a hearing for such a case. So it may be a different procedure, but it's quite possible that they would follow all the stages that are found in the original complaint.
The Chairman: Thank you.
Monsieur Sauvageau.
[Translation]
Mr. Sauvageau: Madam, concerning the one-year time-frame provided in NAFTA, you mentionned earlier that in case of urgency, the process can be shorthened. Could you tell us, in specific and concrete terms, in which circumstances can a government have recourse to such emergency measures?
[English]
Mr. Daley: Sir, the so-called ``supply management dispute'' was a good example. In that case, under article 2006 and the special provision there for perishable goods, found in section 4, the United States requested that consultations be held within fifteen days because the goods in question were agricultural goods. That's one example.
In fact, I believe that is the principal example of an expedited process in view of the special nature of the goods. Not that there were U.S. shipments of milk going bad at the border, but the provision was agreed on in view of the need to resolve some disputes with respect to perishable goods more promptly. That's the principal provision.
Ms Hughes: Under the dispute settlement understanding of the World Trade Organization, it is article 12, section 8, that also refers to perishable goods and the ability to shorten the process. It says that ``the panel shall aim to issue its report to the parties...within three months'' in such a case.
There is also a provision for dealing with developing countries when they're bringing actions against developed countries. The procedure can be changed to take the special needs of a developing country into account.
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The Chairman: Mr. Penson.
Mr. Penson: I have two questions. I guess one is more of a comment. It has to do with compliance. Our chairman has already raised the matter.
It seems to me when we're studying trade disputes and the effects of them, one of the most unfair parts of all of this is the fact that if the party that's found to be in neglect, if you like, does not want to comply, the other party has the right to retaliate, and it doesn't have to be in that particular sector. It just seems to me so unfair that some other sector could get hit because the government of a certain country wouldn't necessarily comply.
I want to deal with that first, but I'll put the other one out so you have a chance to think about it as well. It is, why would any country, Canada, take the NAFTA route on countervail, under chapter 19, when the United States has moved to change their domestic law in a way that would give us a very difficult time to win a countervail case with NAFTA? Is not the route to go the WTO, because doesn't it say in chapter 19 that you only have to apply your domestic law and therefore the United States has changed it somewhat since the last round on softwood, for example, and isn't it a better choice to go to the WTO in a case like that?
Ms Hughes: On your first question, dealing with non-implementation, article 2019 states that when the complaining party considers that it's not practicable or effective to suspend benefits in the same sector, it may suspend benefits in another sector. It's the government that would have to make the decision on whether it was practicable or effective. If it's not, it's in that situation that it may suspend benefits. Obviously one would like to have an effect in the suspension, and if there is no effect, then one cannot impose any sort of penalty on the non-complying party.
Mr. Penson: Say Canada loses a case and we decide not to comply. Who decides what sector is going to be affected by a forced compliance?
Ms Hughes: The complaining party.
Mr. Penson: The other country. They decide whether they want to hit the same sector. If they decide not to do that, they can go into some other sector that's totally unrelated.
Ms Hughes: If they meet certain conditions.
Mr. Penson: Which are?
Ms Hughes: If it's not practicable or effective.
Mr. Penson: Well, who decides that?
Ms Hughes: The complaining party decides that. But I think you should recall that there is a procedure for going to panel if it's found that the measures are excessive. So if one did not agree that it would be effective to suspend in the same sector, one could go to panel on it.
Mr. Penson: Does ``excessive'' not mean it's an over-compensation? Is there a different meaning of ``excessive'' in that?
Ms Hughes: It has not been determined. There has been no case to determine what the meaning is. In my estimation it would be open to argue that if you went to another sector before it was appropriate...under the provisions of article 2019 you could argue that the measures are excessive. It's something that hasn't been interpreted.
Mr. Penson: Interesting.
Mr. Daley: Mr. Penson, in many cases there are practical commercial reasons why it's not possible to retaliate, to suspend benefits, within the same sector. For example, in the WTO, if Japan took some measure - let's say it contravened its obligations under the WTO in a way that affected Canada's forest product exports to Japan - it would not be possible for Canada to suspend benefits within the same sector, because Japan doesn't export forest products to Canada. We might be forced to suspend some benefits with respect to automotive exports. So that's always a factor, especially in a forum with diverse membership, such as the WTO.
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In the NAFTA that's perhaps less true, but the provisions of the agreement are hortatory in this regard. Really, it's up to the complaining party to decide where it's appropriate to suspend benefits. The really hard rule is that the suspension may not be manifestly excessive, out of proportion to the damage caused by the contravention of obligations on the other side.
Mr. Penson: That's what I would take ``excessive'' to mean. It's interesting to hearMs Hughes. You're suggesting that ``excessive'' may be construed to mean that just by choosing another sector when they didn't have to, that may be construed as excessive.
Mr. Daley: To my knowledge, that hasn't been interpreted. Certainly an argument could be made. If there was a practical possibility of suspending within the same sector and the complaining party didn't avail itself of that possibility, then certainly that could be brought before a panel.
Mr. Penson: The other part of that question was the countervail under chapter 19.
Ms Hughes: You're asking, wouldn't Canada go under the WTO more than under chapter 19? As you recall, it's not the Government of Canada that would bring a case under chapter 19. That's not the government-to-government dispute settlement procedure. That is where a private party would be going to a binational panel.
Mr. Penson: Yes, I understand that.
I'll change my question: why would industry go under chapter 19 rather than ask the Government of Canada to go under the WTO, after the change in the legislation in the United States, which makes it harder to win under chapter 19 with countervails?
Wouldn't the preferred route be for industry to say, well, since the United States changed their domestic legislation, there's limited opportunity to win, so we should choose to go to the WTO through the Canadian government?
Mr. Daley: I believe that the issue in deciding whether to follow chapter 19 or chapter 20 would be whether the exporting company or group of companies affected by the final determination under the trade remedy laws in, for example, the United States considered that the U.S. law had been improperly applied, in which case it would be a chapter 19 issue, or whether these exporting interests considered that the U.S. law, whether or not it was correctly applied, contravened the obligations of the United States under the NAFTA.
If there was a nullification or impairment of benefits, if for some other reason it was considered that the U.S. action contravened the NAFTA, contravened Canada's rights under the NAFTA, then that would be a chapter 20 issue. If the issue was whether U.S. law was properly applied, then it would be a chapter 19 issue.
Mr. Penson: I'd like to explore this further if you get another chance in a further round.
The Chairman: We're running behind schedule. However, these are interesting questions. I know Mr. MacDonald wants to raise another question. Perhaps after Mr. MacDonald has taken the floor we'll see whether we have any time left.
Mr. MacDonald: I always like to have specific cases to highlight how different processes work. We have a specific case that I would like you to comment on by way of process. It deals with the challenge under the WTO by the United States of our cultural exemption. Clearly we have won the cultural exemption and it's enshrined in the NAFTA.
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The U.S. has decided to take certain actions. They've gone to the WTO because they believe it's more likely that they can win their case under those rules. Please explain to me how this is going to work, if indeed under the WTO rules it's viewed that Canada is doing something it shouldn't be doing. Clearly it has an impact on the exemption that we fought hard for and won and enshrined in the NAFTA. How does that work? What happens in a case like that, when one party goes to the WTO?
Under their rules we may be found to be non-compliant with the rules of the WTO, but in my view, under the terms of the NAFTA, we are quite clearly permitted to do things such as split-run magazines and the legislation that we introduced to enshrine that. Do we then say as a country that we don't have to accept that ruling because in the other agreement we have with the United States we clearly have the exemption? If we do that, can the U.S. still avail itself of the other measures for non-compliance under WTO?
Mr. Daley: This question is half legal and half policy.
Mr. MacDonald: Well, deal with the legal part of it and we'll try to figure out the policy implication.
Mr. Daley: Certainly there are links between the NAFTA and the WTO agreement, and certain provisions have been specifically incorporated from the GATT and successor agreements into the Canada-U.S. Free Trade Agreement and the NAFTA. However, basically they create two separate, independent sets of rights and obligations. What the United States has challenged in the WTO is a specific set of Canadian measures that Canada maintains for cultural policy reasons.
It is true that we don't have the same exception in the WTO that we have in the NAFTA. In fact, for that reason, among others, it's possible that these measures could be found to contravene the rights of the United States as a WTO member, whereas in fact the United States might not have the same substantive rights in the NAFTA. The fact that we enjoy an exception in the NAFTA does not protect us from the exercise by the United States of its rights in the WTO.
Mr. MacDonald: Yes, but follow that line. I understand what you've said and I agree with you. Because we have the exemption in the NAFTA, that does not take away the rights of the United States under the WTO to proceed with a complaint through the dispute settling mechanism. But does that mean that the cultural exemption we have won under the NAFTA is superseded by the WTO?
I know the arguments we make as a government, but effectively if we lose at the WTO on the challenge on split-run magazines, which are certain provisions under Bill C-103, do we not have any other remedy, or do we have one back under NAFTA? Can we make the NAFTA claim at WTO? If we do, clearly the panel can't rule on other agreements, only on interpretation application of their own agreement.
Mr. Daley: The NAFTA exemption is an exemption from the disciplines of the NAFTA. We can't avail ourselves of it with respect to our obligations under the WTO agreement.
The Chairman: Mr. Graham.
Mr. Graham (Rosedale): Maybe I could introduce a technical point for clarification forMr. Daley.
Just to add to the confusion, my understanding is that under the General Agreement on Trade in Services, Canada has specifically reserved, under both our MFN obligations and our specific commitments under that document, all cultural matters, such as television and other rights. So there is no likelihood of any attack on a cultural matter under the General Agreement on Trade in Services, or at least I'm informed that the government moved in a way to ensure that.
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I have looked at those reservations and believe they cover that. So any legitimate claim the United States would have in this area would have to fall under the GATT and would have to relate to goods rather than services. Split runs might relate, but there would have to be an importation of a magazine.
I would suspect there is a strong argument that this would fall under the General Agreement on Trade in Services rather than the GATT itself, although this is a matter for infinite legal speculation, and I hesitate to bore my colleagues with it.
But it is a very important distinction for this committee to bear in mind that the rules under the General Agreement on Trade in Services, which is the most likely agreement to affect trade in cultural matters, do offer us a potential for greater protection, because the nature of the rights granted under it are much less broad than those under the GATT.
That's a big mouthful, but would you agree or not agree with me?
Ms Hughes: My advice to my colleague here is simply that it would not be appropriate for us to comment on this. I'm not suggesting Mr. Graham has not correctly stated the facts, but at this point it is time for us to apologize to the committee, because we should not, and our clients would not wish us to, comment on these policy issues.
We've come to discuss the dispute settlement procedure from a technical perspective and have been instructed by our clients to stick to those kinds of questions. So if the committee wishes to put them to other policy people at Foreign Affairs....
Mr. MacDonald: Who's the client?
Ms Hughes: My client is the Department of Foreign Affairs and International Trade. I would be happy to relay your question to them, Mr. MacDonald.
Mr. MacDonald: I'm the parliamentary secretary. I can relay the question myself. Thanks.
The Chairman: You'll be saved by the clock, because we're running out of time.
Mr. Graham: But since we're concerned with amendments to our own domestic legislation, the SIMA, in effect the way and the working of the WTO and the dispute resolution mechanisms of both the NAFTA and the WTO would be of tangential relevance to the work of the committee anyway, in any respect. We cannot affect either of those two items by amending anything in the Special Import Measures Act, as I understand, although I suppose if we had a problem, we might try to cure it in the Special Import Measures Act. But we can't do anything that would affect, say, NAFTA.
Well, I suppose we could affect the NAFTA chapter 19 dispute resolution, because again, domestic law would prevail in that, so it would be like dealing with the Americans. We could do the tit-for-tat thing: the ``you do it, so we'll do it to you'' type of thing.
The Chairman: We're running about 15 minutes behind time. Mr. Penson has asked to return with one question. If it is very short, I'll allow it. As you know, we must go into an in camera session right after this.
Mr. Penson: Actually, after thinking about it, I believe it was dealt with under countervail well enough, Mr. Chairman.
The Chairman: This being so, thank you very much for your presentation.
You have seen our interest in chapter 19. It would be very helpful if we could have, in due course, the kind of paper on chapter 19 that you gave us on chapter 20 so that we can see clearly the difference in the way these two chapters do operate.
Thank you very much.
We'll suspend for two minutes and then move into an in camera session.
[Proceedings continue in camera]