Bias and the NAFTA Dispute Panels: Controversies and Counter-Evidence

Abstract

The genius of the people will ill brook the inquisitive and peremptory spirit of excise laws. --Alexander Hamilton, Federalist 12 Introduction One of the primary avenues of attack on the North American Free Trade Agreement (NAFTA) dispute panels, and NAFTA itself, has been on its alleged partiality. While Canada, Mexico, and the United States are all members of NAFTA, the NAFTA dispute resolution process has been the subject of attack primarily in the U.S. Accusations have come mainly from losing litigants and their lawyers, and those in the U.S. Congress whose constituencies have been adversely affected by dispute panel decisions. The argument that the dispute panels can been considered partial has an understandable basis--foreigners help judge the cases. This fact gives those who do not agree with the outcomes some grounds for their complaints. They argue that the panels of judges that sit to hear the various complaints follow national interests and, thus, when the U.S. delegation on any particular panel is outnumbered, the case argued by the U.S. is likely to lose. This line of reasoning has enough credibility with legislators in Washington that the General Accounting Office of the U.S. Congress authorized a study of the dispute panels, which will be discussed in detail below. However, the purpose of this paper is to show that, in fact, there is no bias within the NAFTA dispute panel process and, therefore, there is no basis for the argument. Moreover, this controversy has implications for Canada's relations with its southern neighbor. Evidence points to increases in trade tension during economic downturns. Is the current lull in trade disputes simply a pause in a natural pattern of trade conflict between these two countries? Similarly, is this behavior a harbinger of actions to come in the future in other agreements that both countries are party to, such as the World Trade Organization? The substantive question that this article addresses concerns the viability of panels such as the NAFTA panels. This particular arrangement has been adopted by other international trade agreements--the WTO, for example--and a finding that the model upon which all are based is fundamentally flawed would have a far-reaching effect. If three countries as close and amicable as the U.S., Mexico, and Canada cannot find an impartial body with which to arbitrate their disputes, then what hope is there for the myriad of nations that make up the WTO? What this paper will attempt to show is that there is no bias in the arbitration carried out by the NAFTA dispute settlement regime and, in direct reply to the U.S. congressional critics of the dispute panels, there is no bias in the pattern of judgments. How Do the Dispute Panels Work? The NAFTA dispute panels are a direct extension of the dispute resolution mechanism that was set up under the Canada-U.S. Free Trade Agreement (FTA). Its purpose was twofold: first, to provide a forum under which the laws of the U.S. and Canada could be followed without having to resort immediately to the respective court systems and, second, to speed up the entire process of adjudication in international trade disputes. During the negotiation of FTA, Canadian representatives insisted on a dispute settlement mechanism of this type. They feared the use of U.S. trade laws for political, rather than liberalizing, motives. In fact, some writers have suggested that the main intent of the FTA agreement for Canadian negotiators was not only to liberalize trade between the two countries, but to provide a bulwark against domestically instigated U.S. trade barriers.(1) Domain and Range of Cases The cases, and therefore the panels, that will be analyzed within this article are the full range of cases reviewed under FTA and NAFTA. They number eighty-one as of September 1998. However, these constitute only the cases that were carried as far as the binational panels. …