Dispute Settlement Mechanisms Under the Free Trade Agreement

The purpose of this paper is to review the dispute settlement mechanisms that are contained in the Canada-United States Free Trade Agreement. The two countries reached agreement on the main features of the Free Trade Agreement on October 3, 1987. Thereafter, the elements of the Agreement were converted into the legal text of the Free Trade Agreement and signed by Prime Minister Mulroney and President Reagan on January 2, 1988. Legislation implementing the Free Trade Agreement has been introduced in the Parliament of Canada and in the United States Congress. In Canada the ordinary rules for legislative enactments will apply. In the United States the "fast track" procedure will govern the passing of the legislation. Thereafter, it is expected that the Free Trade Agreement will enter into force on January 1, 1989. The Free Trade Agreement is innovative in many areas. It goes far beyond eliminating tariffs between the U.S. and Canada; it deals, for instance, with investment (Chapter 16), services (Chapter 14), and energy (Chapter 9). In view of the considerable consequences that flow from the Agreement for both countries, it is not surprising that the dispute settlement mechanism also breaks new ground. The dispute settlement provisions of the Free Trade Agreement are contained in Chapters 18 and 19. Chapter 19 is a special chapter which deals only with dispute settlement in countervail and antidumping actions. It provides for binding rulings by ad hoc binational panels. Chapter 18 is the general chapter which establishes a Canada-United States Commission to monitor the implementation of the Free Trade Agreement. This Chapter also provides for dispute avoidance and dispute settlement mechanisms. The dispute settlement mechanism described in Chapter 18 provides for a ruling by an ad hoc binational panel that will not be strictly binding in international law unless both parties agree otherwise.