This is from an exchange between Senator Carper and U.S. Trade Representative Lighthizer at a Senate Finance Committee hearing today (starts at 2:03:07):
Senator Carper: “My second question revolves around USMCA dispute settlement. The state-to-state dispute settlement system in the new NAFTA continues to allow for panel blocking – as I understand it, the main reason a dispute settlement panel hasn’t been established, since maybe the early 2000s. The Trans-Pacific Partnership made changes, I believe, to fix panel blocking, but these improvements were not included in the new NAFTA. From the Statement of Administrative Action the administration sent to Congress, it appears that the White House plans to use Section 301 tariffs to unilaterally enforce USMCA provisions when a dispute occurs. I would just ask if you could explain to us briefly why using Section 301, which will very likely invite retaliation from Canada and Mexico is preferable to a binding dispute system that does not allow panel blocking?”
Amb. Lighthizer: “Well, thank you Senator. First of all, I would point out the obvious, and that is that panel blocking is permitted under the current NAFTA as well as under USMCA. So anyone objectively looking at distinguishing between the two and deciding to vote against the second because of -- there’s an improvement in the first -- couldn’t find that. So, what we did is we kept the current provision. Now, why did we keep… Let me say first of all you’re right that there hasn’t been any in a while, in this context. The reason for that is that people have tended to go to the WTO to enforce those rights and there’s been a number of WTO cases. So second, why did we not make that change? Our view is that we can enforce our laws in the rare circumstance where there was a blockage by using our unilateral law and the 301. 301 says you should go the international organization or the agreement for enforcement if there is a violation of a trade agreement, or the WTO in this case. If the other side blocks, the position you would take is that thus you’ve exhausted your remedies and therefore you could legally use 301. So that’s, like, the nature of it.
And why did we do that? Number one, we think it will be very rarely used. But in a situation where, for example, someone challenged the trade laws of the United States and made some argument about that, about the viability of the trade laws, you want to be in a position where you can preserve your rights. But this is something I am perfectly happy to work with members on and see where members draw their line. It was clearly a U.S. ask, it wasn’t an ask from the other side. The other side since they had signed up for TPP, presumably they would be happy to go along with it.”
This is the longest statement I've heard from Lighthizer on the issue of NAFTA/USMCA panel blocking. It provides some interesting details that help clarify USTR's position:
- Lighthizer acknowledges that panel blocking is permitted under USMCA. (Previously he said this: "The text of Chapter 31 of the United States – Mexico – Canada Agreement (USMCA) is not meant to allow panel blocking.")
- Lighthizer wants to maintain panel blocking in case U.S. "trade laws" are challenged. What kind of trade laws does he have in mind? Trade remedies? There aren't many USMCA rules that would apply here. (Is he thinking about NAFTA Chapter 19/USMCA Chapter 10 here? No panels have been blocked in that context as far as I know). Section 232 actions? These are obvious violations, but the security exception would apply. I hope someone follows up with him about what particular challenges he is worried about.
- Maintaining the ability to block panels was a "U.S. ask." (We know that already -- see p. 3 here, where Mexico's lead negotiator explains that Mexico made proposals to fix the NAFTA flaws.)
- Lighthizer is willing to talk to Congress about adjusting this.
My suggestion for members of Congress who want to make sure USMCA is enforceable -- for trade, labor, or other obligations -- is to go to Lighthizer and demand that the USMCA dispute settlement provisions be fixed, so that panel blocking is no longer allowed. Inu and I made suggestions in this regard in response to a different Congressional hearing that took place recently: https://object.cato.org/sites/cato.org/files/pubs/pdf/lester-manak-public-letter-june-4-2019.pdf.
ADDED: This issue came up again at a House Ways and Means Committee hearing the next day (starts at 2:46:30):
Rep. Boyle: “So that’s a perfect segue into a conversation on enforcement, because when I was first elected to the state legislature over a decade ago, I thought I had an agreement with someone and a wise, 30-year veteran let me know there's a difference between a promise and an agreement, and that difference is the extent to which it can be enforced. So specifically on enforcement, could you explain why the administration seems to still be skeptical about having a binding dispute settlement mechanism?”
Amb. Lighthizer: “So I would say first of all I want to just say what I said many times, just very briefly: I want to work this out, I want to do it quickly, I think I can do it in an afternoon with the group that the speaker has identified. So, we believe the thing has to be enforceable for sure, so what you’re talking about is panel blocking. All right, so the question is: do you want to have the right in a rare circumstance where someone challenges something of particular importance to you, not on a regular basis, but it’s particularly important to you, do you want to have the right to block that panel if you have another way to still enforce your own rights. That’s where we were trying to find that balance. So the question is: what’s the risk that, for example, you’re going to have a problem with a challenge to the trade laws. We have a challenge of the trade laws under the WTO. The trade laws are fundamental to all these workers that we’re all talking about getting laws against unfair trade and the question is do you… that’s the balance that I’m trying to strike here, but I want to work it out with the members. I want members to be happy. If members say, “no, I don’t care about that balance,” then I’ll consider that."
With regard to "panel blocking," the term means just what it sounds like it does: The party complained against can block a panel from being appointed, and therefore any enforcement action is stopped. Lighthizer keeps making reference to "the trade laws," probably meaning AD/CVD or similar laws, which are sensitive issues for the administration. For Mexico, labor might be a sensitive issue; for Canada, agriculture might be sensitive. For members of Congress looking for the proper balance here, the question is whether they want to make certain that these sensitive areas are enforceable against Canada and Mexico. I don't know for sure whether Canada or Mexico would block a panel. But the United States blocked a NAFTA panel in the past, and with Lighthizer indicating that it might do so again for "the trade laws," it wouldn't be too shocking if Canada and Mexico did so as well. The bottom line is that if members of Congress want certainty that USMCA obligations can be enforced against Canada and Mexico, they should push for changes to the USMCA so that panel blocking does not take place.