Why NAFTA violates the Canadian Constitution.

• Author: Gesser, Avi

1. INTRODUCTION

   With the proliferation of international economic treaties over the last decade, many of the traditional hallmarks of state sovereignty continue to erode. Each new round of negotiations on transnational economic integration, such as those surrounding the Multilateral Agreement on Investment(1) and the creation of the World Trade Organization ("WTO"),(2) challenges the very constitutional structures of the negotiating parties. As the states of the European Union have learned, many of the benefits of cross-border economic integration cannot be realized without relinquishing some of the old characteristics of independent statehood. In many instances, the new economic order requires significant reinterpretation of (or outright judicial amendment to) national constitutions.(3) This same dilemma now faces the countries of North America: what conflicts exist between their international trade obligations created by treaty and their national constitutions and how will these incongruities be resolved?

   In December 1992, the governments of Canada, the United States, and Mexico signed the North American Free Trade Agreement ("NAFTA"),(4) creating a North American trading bloc. NAFTA was designed to phase out tariffs and establish a free market framework between the signatories. Its objectives include eliminating barriers to trade, promoting conditions of fair competition, increasing investment opportunities, and establishing procedures for the resolution of disputes.(5)

   Since NAFTA was signed, several articles have been written on the compatibility of certain NAFTA obligations with the national constitutions of the signatory states. Primarily, the debate has focused on whether the Articles of NAFTA which allow countries to settle certain trade disputes before Binational Panels violate the American(6) or Mexican constitutions.(7) In addition to the significant academic debate, this issue has generated two formal proceedings in the United States Federal Courts challenging the constitutional validity of NAFTA on the basis that the Chapter 19 Binational Panels process amounts to an unconstitutional relinquishment of sovereign powers.(8) Although these challenges did not succeed, the controversy has not been resolved. Despite the legal activity in the United States, thus far the issue of the consistency between NAFTA obligations and the Canadian Constitution has not generated much interest. However, two recent legal decisions may spark interest in this issue north of the 49th parallel.

   Part of the reason that NAFTA has not been challenged in Canada is that public sentiment has not reached the level of animosity regarding international trade agreements that it has in the United States. However, in May of 1997, Canada lost an appeal before the WTO Appellate Body. The case, Certain Measures Concerning Periodicals,(9) held that several measures Canada was using to protect its magazine industry from the onslaught of American competitors violated obligations under the General Agreement on Tariffs and Trade ("GAT").(10) The decision was viewed by many Canadians as an affirmation of their fears that the cost of free trade with the United States would be the eventual loss of Canadian culture. For many Canadians, that is a price not worth paying, and the response to the decision was harsh.(11) While Canada has had many bitter trade disputes with the United States (e.g. softwood lumber,(12) durum wheat,(13) pacific salmon,(14)) they have generally involved goods that do not directly affect the average Canadian. Because the decision in the Periodicals case threatened the commercial viability of many Canadian magazines, it demonstrated to the Canadian public the potential impact of international trade agreements on Canadian identity.(15) As such, it is probably only a matter of time before the storm brewing in America over NAFTA's constitutionality blows into Ottawa.

   The second decision that may bring NAFTA's constitutionality into question in Canada is less well known. In 1995, the Supreme Court of Canada decided the case of MacMillan Bloedel v. Simpson,(16) which held that the Canadian Parliament could not delegate core functions of the superior courts to inferior courts or administrative tribunals.(17) As will be discussed below, this decision raises serious doubts as to the constitutionality of the NAFTA dispute resolution process.

   In anticipation of a constitutional challenge that is likely to come before a Canadian court in the near future, this article examines NAFTA's binational dispute resolution system and its compatibility with Sections 96 to 100 of the Canadian Constitution. Part II describes the NAFTA dispute resolution mechanism, while Part III briefly outlines constitutional concerns over NAFTA in Canada, the United States, and Mexico. Part IV outlines the constitutional structure of Canada and its system of courts. Part IV also examines the constitutional limits on the ability of the Canadian Parliament to take power away from the superior courts and give it to other adjudicative bodies. Part V discusses the application of the constitutional limits on the delegation of decisionmaking power to the NAFTA binational tribunals. Part VI concludes that unless Canada addresses the implications of international free trade agreements as they relate to traditional notions of sovereignty and adjudication, it will not be able to reap the full benefits of the emerging global market.

2. THE NAFTA DISPUTE RESOLUTION PROCESS: CHAPTER 19

   1. Canada's Non-NAFTA Antidumping Procedures

      Chapter 19 of NAFTA creates a procedure for settling disputes involving antidumping and countervailing duties between NAFTA countries. In order to understand the significance of this change to Canadian law and procedure, it is important to examine the procedures used in Canada for disputes with non-NAFTA parties and compare them with the regime created by Chapter 19.

      1. Dumping and Antidumping

      Goods may be considered "dumped" when the price that exporters charge to their foreign consumers is less than the normal value of the goods or the price charged to customers in their domestic market.(18) Dumping exporters often subsidize these low export prices with high prices in the home market where the producer may have a monopoly. In this respect, dumping can be seen as the international equivalent of predatory pricing. Antidumping laws seek to prevent exporters from selling their products at unfairly low prices in other countries. In Canada, the offense of dumping contains two elements: (1) an export to Canada priced at less than its fair value that (2) results in injury or threat thereof to a Canadian industry.(19) The penalty that can be imposed in response to such practices is an "antidumping duty," a tariff placed on the good designed to restore the export price to its fair value.(20)

      2. Subsidies and Countervailing Duties

      Subsidies are financial contributions made by governments to local producers.(21) Companies that receive subsidies can sell their goods in foreign markets at prices lower than competing firms that do not receive government assistance. A countervailing duty seeks to prevent the importation of subsidized goods into Canada at prices that are unfairly low. A successful countervailing duty action requires: (1) a subsidy given by the exporter's government; and (2) a resulting injury to a Canadian industry.(22) The penalty is a "countervailing duty," a tariff intended to offset the government subsidy.(23)

      The following discussion on the procedures for antidumping duties applies equally for countervailing duties. However, for the sake of brevity and to avoid repetition, only antidumping duties will be discussed.

      3. Procedures for Imposing Antidumping Duties in Canada

      The legislation regarding antidumping is set out in the Canadian Special Import Measures Act (SIMA)(24) and the Canadian International Trade Tribunal Act (CITTA).(25) Under these Acts, in order to impose an antidumping duty, there must be a finding of dumping and serious injury.(26) The institutional responsibilities for determining these issues are separated, with "dumping" determinations being made by the Deputy Minister of National Revenue (DMNR),(27) and "serious injury" determinations being made by the Canadian International Trade Tribunal (CITT).(28) Antidumping complaints can be initiated by the industry allegedly affected by the dumped good, which is usually a local competitor.(29)

      If there is evidence of dumping, the DMNR makes a provisional determination of the dumping margin and imposes provisional antidumping duties equal to the margin of dumping on the imports.(30) The CITT then undertakes a thorough injury inquiry.(31) If the CITT makes a finding of material injury, anti-dumping duties are imposed which reflect the DMNR's final margin of dumping determination.(32) If the CITT does not find material injury, the investigation is terminated and any provisional duties paid are refunded.(33)

      While the CITT's decision is "final and conclusive," the CITT may review its own findings if it is satisfied that such a review is warranted.(34) For disputes between parties from Canada and a non-NAFTA country, there are also appeals to the Federal Court of Appeal and then to the Supreme Court of Canada on questions of law.(35)

   2. Changes to the Canadian Procedures Under NAFTA

      Under NAFTA, the substantive domestic antidumping and countervailing duty laws and procedures of the NAFTA countries are preserved,(36) but two new institutions have been created. The first entity is the Binational Panel that reviews final antidumping and countervailing duty determinations by domestic agencies.(37) The second entity is the Extraordinary Challenge Committee that reviews Binational Panel decisions.(38) The effect of these two tribunals is to replace judicial review by national courts with Binational Panel review for antidumping and countervailing duty determinations.(39) The SIMA...