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CBA International Law Section – Meeting with Justice Canada and Global Affairs Canada

On June 2, 2020, a team from Justice Canada and Global Affairs Canada updated the CBA International Law Section on Canadian trade law matters over the past year.

Free Trade Agreement Negotiations

Canada-United States-Mexico Agreement

Two recent updates to the Canada-United States-Mexico Agreement (CUSMA) are the amending protocol and the entry into force of CUSMA.

On December 10, 2019, Canada, the United States (US), and Mexico signed an amending protocol to CUSMA, modifying certain provisions previously agreed to in November 2018. The amendments relate to dispute settlement, labour, intellectual property, and product-specific rules of origin. In terms of dispute settlement, for example, one of the amendments removed the post-consultation requirements at the Free Trade Commission, the central institution of CUSMA that consists of ministerial-level representatives from the three member countries, before a panel can be requested.

On April 2, 2020, Canada notified the United States and Mexico that it had completed its domestic ratification for CUSMA with the amending protocol. CUSMA came into force on July 1, 2020.

Canada-Mercosur Free Trade Agreement

Canada has been exploring a possible free trade agreement with the Mercosur countries (Brazil, Argentina, Uruguay, and Paraguay). While all four members are at the negotiation table, they have different sensitivities. For example, Brazil will not be part of an investor-state dispute settlement (ISDS) process, Paraguay is willing to undertake investment protections and ISDS mechanisms, whereas Argentina and Uruguay already have ISDS mechanisms in place with the Foreign Investment Promotion and Protection Agreement (FIPAs) and are seeking to modernize these arrangements.

Canada’s negotiations with the UK

Canada already has a well-developed framework and is advanced in its negotiation with the UK for a free trade agreement. Negotiations are ongoing.

Trade Remedies – Current Cases

The U.S. Department of Commerce (US DOC) and United States International Trade Commission (USITC) proceedings:

• Utility Scale Wind Towers from Canada – The US DOC found de minimis countervailing duty (CVD) rate and antidumping duty (AD) rate of 5.04% against one Canadian company. The injury hearing was on June 25, 2020 with voting on July 30, 2020; and
• Fabricated Structural Steel from Canada, China, and Mexico – The USITC made a negative injury determination in March 2020 and NAFTA Chapter 19 challenges have now been launched on both the US DOC and USITC findings.

WTO proceedings:

• Canada-Commercial Aircraft (DS522) – Canada is defending against subsidy allegations from Brazil. The proceedings are currently suspended until November 2020 as per Brazil’s request.
• Canada-Measures Governing the Sale of Wine (DS537) – Canada is defending against measures that the federal Government and provinces of British Columbia, Ontario, Quebec and Nova Scotia adopted concerning the sale of wine. The hearings and submissions are complete, and a report is expected in the coming months.
• US-Supercalendered Paper (DS505) – The WTO Appellate Body (AB) report was adopted on March 5, 2020. Canada had requested consultation with the US in 2016 regarding CVD duties imposed on Supercalendered Paper from Canada. The consultations also involved challenges to the application of adverse facts available to “discovered” information during a CVD investigation. The WTO panel and AB largely agreed with Canada and duties were returned.

Softwood Lumber Dispute between Canada and the U.S.:

The US DOC initiated an investigation in 2016, which determined that Canada was providing unfair subsidies to its producers at a combined rate of 20%. The 1st administrative review just finished, and the 2nd administrative review was initiated on March 10, 2020. Results are expected in January 2021.
Canada also challenged the USITC’s injury determination before a NAFTA panel. The Panel released its decision on May 22, 2020, affirming the decision of the USITC.

At the WTO, a Panel regarding the United States - Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada dispute is in the middle of the appeal process. We will have to wait until the AB reconvenes.

Update on WTO Cases

The U.S. has blocked the process of selecting replacement members of WTO AB after raising concerns about procedural and substantive fairness. As of December 10, 2019, the AB has ceased to function due to the retirement of two or three remaining members. As such, the AB has lost quorum and can no longer hear disputes.

The WTO panels are still operating. Although Members can appeal a panel’s decision, pending the appointment of a minimum of three Appellate Body members, required for an appeal to be heard, there are concerns that this can delay implementation. To prevent this and preserve the integrity of the dispute settlement system, Canada and other countries, including the EU, have decided to replicate the AB process through an arbitration mechanism (i.e. Multi-party Interim Agreement). Where there is a dispute, parties will agree in advance to use arbitration to appeal any aspect of a panel decision. There will be a public roster of 10 arbitrators, selected from a pool of 13. Canada announced its nominee in August 2020. 

Investor State Dispute Settlement (ISDS) Cases and Reform Initiatives

Active ISDS Cases

Canada is currently involved in 10 ISDS cases with a continuous focus on extractive and alternative energy industries. Many cases relate to provincial measures or joint federal-provincial measures. Two active NAFTA Chapter 11 Investment cases were discussed by our panelists: Westmoreland Mining Holdings LLC v. Government of Canada and Lone Pine Resources Inc. v. Government of Canada. More information on the status of these cases can be found on the Global Affairs Canada’s website.

ISDS under CUSMA 

There is no ISDS under CUSMA. However, Annex 14-C of CUSMA allows legacy investment claims to be submitted to arbitration for three years after July 1, 2020, following the termination of NAFTA between Canada and the U.S. While the termination of ISDS cases under NAFTA Chapter 11 applies between Canada and Mexico as well, there is recourse to ISDS under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

ISDS Reform Initiatives

Canada has participated in working groups of the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL) to continuously monitor the current system and discuss potential ISDS reforms.

Ewa Gosal, Project Officer at Association of French Speaking Jurists of Ontario (AJEFO) and Communications Officer of the CBA International Law Section; Susana May Yon Lee, International Trade Associate at Cassidy Levy Kent (Canada) LLP and Member-at-Large of the CBA International Law Section.