Recall that at a recent CSIS event, U.S. Trade Representative Robert Lighthizer said this:
... Back when Senator Brock and I were there and there was a system, it was before 1995, before the WTO, under the GATT, and there was a system where you would bring panels and then you would have a negotiation. And, you know, trade grew and we resolved issues eventually. And, you know, it’s a system that, you know, was successful for a long period of time.
Now, under this [WTO] binding dispute-settlement process, we have to figure out a way to have – from our point of view, to have it work.
It's true that GATT dispute settlement had a weaker enforcement mechanism that we have now with the WTO. Most people would prefer the stronger system, because the system is of much less value without effective enforcement, but there are certainly arguments that there are benefits to some aspects of the GATT system.
How serious was Lighthizer in his positive sentiments about the GATT? Apparently somewhat serious, because according to Politico, USTR is thinking about changes to NAFTA Chapter 20, the core state-state dispute procedure in NAFTA, that are along the same lines:
USTR CONSIDERS NON-BINDING DISPUTE SETTLEMENT MECHANISM IN NAFTA: The United States is considering dropping a binding mechanism in NAFTA for resolving government-to-government trade disputes in favor of a softer advisory system, sources following the talks told Morning Trade.
I want to hear more about this, because it is a bit vague and confusing. "Softer" how? "Advisory" in what sense? But nevertheless, here's a quick response.
First of all, I think we need to move away from the language about "binding" and "non-binding" dispute settlement in international trade agreements. In my view, this is not a very helpful way to think about things. Instead, we should look at the issue as one of varying degrees of enforceability. WTO rules are more easily enforced than GATT rules were, although quantifying that is very difficult. Perhaps the WTO is "binding" in some sense, but that hasn't helped Canadian and U.S. cattle ranchers sell their hormone-treated beef in the EU. Ultimately, then, what matters is enforceability, and there are usually some complex and detailed rules that have to be sorted through in order to determine the level that exists in a given agreement.
So what about this proposal for new NAFTA dispute procedures? Well, the old rules were not all that enforceable, as evidenced by the U.S. blocking panel selection in the Sugar case, back in the early 2000s. No NAFTA Chapter 20 panel has been established since then. I'm working on a paper proposing a fix to that, but in the meantime, we are told that USTR might want to soften up the rules even more. If that's true, here's one concern the U.S. business community will have with this idea. Imagine that Canada imposes some restrictions on dairy imports (not hard to imagine!). In the NAFTA renegotiation, some rules might be established to rein in those restrictions. But afterwards, Canada might keep those restrictions in place, and the U.S. might file a Chapter 20 complaint to get them removed. If the Chapter 20 panel "advises" Canada to stop restricting dairy imports, Canada could respond by saying, in effect, thanks for the advice, but we've decided to bow to pressure from our domestic industry and keep the restrictions in place. That's not a very good outcome from a U.S. perspective. Business groups, Congress, and other U.S. agencies should all be wary of any kind of softening of this kind. And they are, as Politico notes: "The proposal, which would be a major shift away from a decades-old push by the U.S. to build an international system of enforceable trade rules, is already raising concern across the executive branch and on Capitol Hill."
Along the same lines, Canada and Mexico are unlikely to accept this. Why have an agreement if it can't be enforced effectively?
I don't know where this is all going. I am genuinely curious what the Lighthizer trade team has in mind here. Maybe we'll hear more soon.
