Canadian Prime Minister Justin Trudeau said Tuesday it is "absolutely essential" that a revised North American Free-Trade Agreement contain a dispute-resolution panel, setting the stage for a showdown between Ottawa and the Trump administration ahead of trilateral talks next month.
Trade analysts and U.S.-Canada watchers had warned the Nafta provision known as Chapter 19 -- which makes it easier for Canada and Mexico to contest trade sanctions from the U.S. Department of Commerce -- is crucial to Canada. Without it, attempts to challenge Commerce Department sanctions would have to be argued before U.S. courts, which Canadians see as less friendly to their interests.
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But the Trump administration wants the system scrapped, as outlined in its objectives for the Nafta talks released last week.
The dispute-settlement system was a point of contention between Canada and the U.S. in the 1980s when they eventually clinched a U.S.-Canada free-trade deal, or Nafta's predecessor. Mr. Trudeau said Tuesday keeping the system intact is a top priority.
"A fair dispute-resolution system is absolutely essential for Canada," Mr. Trudeau said at a joint press conference with the new premier of British Columbia, John Horgan. "We expect that will continue to be the case in any renegotiated Nafta -- that we will continue to have a fair dispute-resolution system."
Trade watchers say Mr. Trudeau's comments are the most pointed yet on the issue.
"This is the hill Canada is prepared to die on," said Eric Miller, a former Canadian official and now head of Rideau Potomac, a Washington-based trade consultancy. "This is a strong signal that Canada takes Chapter 19 very seriously and is willing to work very hard to keep it."
Under Nafta, Chapter 19 provides a mechanism for exporters and importers subject to anti-dumping or countervailing duties by authorities in the U.S., Canada or Mexico to seek review from a binational panel. The panels are made up of trade experts from the two countries involved in the dispute, and have a mandate to determine whether trade sanctions have legal justification.
In a recent interview with The Wall Street Journal, Mexico's Economy Minister Ildefonso Guajardo warned scrapping Chapter 19 could prove to be an obstacle during trilateral talks, and affect U.S., Canadian and Mexican exporters alike. "We need to take care to preserve something that has been positive," he added.
In addition to the repeal of the so-called Chapter 19 clause, the U.S. Trade Representative said the U.S. will be looking in the Nafta talks to preserve "Buy America" provisions and find ways to reduce the U.S. trade deficit with its Nafta partners. Overall, though, the U.S. objectives in the Nafta talks largely step back from some of President Donald Trump's most fiery campaign rhetoric on trade with Mexico and Canada.
Daniel Ujczo, a Columbus, Ohio-based trade lawyer at Dickinson Wright, said the Trump administration heard from some influential constituencies -- most notably the U.S. lumber industry -- about the need to scrap the dispute-settlement scheme. Mr. Ujczo said the U.S. Trade Representative has recommended the establishment of a new system to resolve trade disputes among Nafta trade partners.
"The parties should take that opportunity," he said in a recent note to clients.
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(END) Dow Jones Newswires
July 25, 2017 14:46 ET (18:46 GMT)