U.S.-Canada Free Trade Agreement: Factors Contributing to Controversy in
Appeals of Trade Remedy Cases to Binational Panels (Briefing Report,
06/16/95, GAO/GGD-95-175BR).
Pursuant to a congressional request, GAO reviewed the U.S.-Canada Free
Trade Agreement's (FTA) binational panel process to resolve trade
disputes, focusing on: (1) U.S. and Canadian expectations for the
binational panel process; (2) a statistical overview of panel activities
and decisions; (3) participants' satisfaction and dissatisfaction with
the panel process; and (4) other factors that may have contributed to
the controversy over the binational panel process.
GAO found that: (1) the U.S. and Canadian compromise on the binational
panel process occurred when U.S. and Canadian negotiators could not
agree on harmonizing their trade remedy laws in FTA; (2) the panels'
goals included protecting each country's sovereignty, creating trade
benefits, reducing political pressures, and providing a fair and
expeditious review process; (3) expectations on how the panels would
accomplish these goals differed because the countries' underlying
concerns about the use of trade remedy laws remained unresolved; (4) it
was difficult to identify any patterns in panel operations because of
the small number of completed cases; (5) some participants were
satisfied with the binational panel process because they thought the
process was faster than traditional judicial review, the panels operated
smoothly, and the panelists showed expertise and gave a thorough and
in-depth review of the cases; (6) some participants were dissatisfied
with the process due to the misinterpretation of U.S. law, improper
substitution of panelists' judgment for U.S. agencies' judgment,
excessive use of remands, emergence of a separate U.S. case law
applicable only to Canada, and the adverse impact of panelist and agency
discord or conflicts of interest on the process; and (7) the controversy
over the binational panel process was heightened due to the conflict
between panel behavior and some participants' expectations of how the
panel process should have worked.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-95-175BR
TITLE: U.S.-Canada Free Trade Agreement: Factors Contributing to
Controversy in Appeals of Trade Remedy Cases to
Binational Panels
DATE: 06/16/95
SUBJECT: International trade
International agreements
Conflict of interest
International economic relations
Restrictive trade practices
Subsidies
Import regulation
Appellate procedure
Administrative remedies
Tariffs
IDENTIFIER: North American Free Trade Agreement
United States-Canada Free Trade Area Agreement
NAFTA
Canada
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Cover
================================================================ COVER
Briefing Report to Congressional Requesters
June 1995
U.S.-CANADA FREE TRADE AGREEMENT -
FACTORS CONTRIBUTING TO
CONTROVERSY IN APPEALS OF TRADE
REMEDY CASES TO BINATIONAL PANELS
GAO/GGD-95-175BR
U.S.-Canada Free Trade Agreement
Abbreviations
=============================================================== ABBREV
AD - Antidumping
CAFC - U.S. Court of Appeals for the Federal Circuit
CVD - Countervailing duty
CIT - U.S. Court of International Trade
CITT - Canadian International Trade Tribunal
ECC - Extraordinary Challenge Committee
FTA - U.S.-Canada Free Trade Agreement
GATT - General Agreement on Tariffs and Trade
ITC - U.S. International Trade Commission
NAFTA - North American Free Trade Agreement
USTR - Office of the U.S. Trade Representative
WTO - World Trade Organization
Letter
=============================================================== LETTER
B-260189
June 16, 1995
The Honorable Bob Packwood
Chairman
The Honorable Daniel Patrick Moynihan
Ranking Minority Member
Committee on Finance
United States Senate
The U.S.-Canada Free Trade Agreement (FTA) took effect in 1989,
creating the world's largest free trade area at that time. FTA also
established various means, including binational review panels, to
settle disputes over unresolved trade issues between the two
countries. One of these issues was the proper use of national trade
remedy laws that combat unfair trade practices. Some decisions by
binational panels that reviewed U.S. government agency antidumping
(AD) and countervailing duty (CVD) determinations caused public
controversy and created trade tensions between the two countries.
As requested, we (1) summarized U.S. and Canadian expectations for
the binational panel process, (2) developed a statistical overview of
panel activity and decisions, (3) identified and analyzed the
participants' views on points of satisfaction and dissatisfaction
with the panel process, and (4) identified some other factors that
may have contributed to the controversy over the binational panel
process in general.
We provided a briefing to Committee staff on June 7, 1995. This
report summarizes the substance of that briefing.
BACKGROUND
------------------------------------------------------------ Letter :1
Under U.S. AD/CVD laws, private parties can petition the government
to determine whether a U.S. industry is materially injured or
threatened with material injury by reason of dumped or subsidized
imports. In parallel administrative processes, the Department of
Commerce determines whether dumping or subsidization exists, and the
International Trade Commission (ITC) determines whether a U.S.
industry is materially injured or threatened with material injury as
a result. Affirmative findings by both agencies can result in the
U.S. Customs Service collecting a duty on the imports. Dissatisfied
parties can appeal Commerce and ITC determinations to the U.S. Court
of International Trade (CIT), then to the Court of Appeals for the
Federal Circuit (CAFC), and finally may petition for certiorari to
the Supreme Court.\1
If the merchandise imported into the United States was from Canada,
and vice versa, chapter 19 of FTA provided an alternative to domestic
judicial review of agency determinations. Any private party could
choose the option of a review by a five-member panel composed of
trade experts from Canada and the United States rather than appeal to
a national court. These binational panels were to base their
decisions on the domestic laws of the country whose agency made the
determination under review. FTA established a 315-day guideline for
panels to issue a final decision from the date a panel was requested.
Also, panels had the option of referring the case back to the agency
on remand for further information or consideration in light of the
panel's analysis of the record. Then, the agency was to respond to
the remand, and the process was to continue, sometimes with more
remands. Further, either government could request that a
three-member Extraordinary Challenge Committee (ECC) review a panel
decision. ECCs could affirm, remand, or vacate a panel's decision on
the basis of criteria in FTA chapter 19.
The United States and Canada extended the FTA binational panel
provisions to include Mexico on January 1, 1994, and made the panel
process permanent under the North American Free Trade Agreement
(NAFTA). Although NAFTA binational panel provisions were essentially
the same as FTA's, U.S. and Canadian negotiators sought some
improvements. The changes in NAFTA included encouraging the use of
judges as panelists, lengthening the time limits for ECC proceedings,
and adding language to clarify the ECC's role.
--------------------
\1 Canadian law provides for a process very similar to the U.S.
process. For example, Revenue Canada determines the extent of any
dumping or subsidization and the Canadian International Trade
Tribunal (CITT) determines whether Canadian industry has been, is, or
will be injured. These determinations can be reviewed by the Federal
Court of Canada.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :2
The binational panel process was the result of a compromise between
U.S. and Canadian negotiators who could not agree about harmonizing
U.S. and Canadian trade remedy laws in FTA. Canada questioned the
need for trade laws in a free trade area and, therefore, sought to
limit the use of U.S. trade laws against Canadian exports. On the
other hand, the United States wanted to end Canadian subsidies and to
keep the use of U.S. trade laws intact. Under the compromise,
binational panels were given the authority to review U.S. and
Canadian agency AD/CVD final determinations. In conducting such
reviews, panels were required to apply the appropriate standards of
review and the general legal principles that a court of the importing
country would otherwise apply. (See briefing section I.)
In compromising, U.S. and Canadian negotiators had common goals for
the panel process. These goals were to protect sovereignty, create
trade benefits, reduce political tension, and provide a fair and
expeditious review process. However, their expectations of how the
panel process would accomplish each of these goals differed. For
example, on one hand, Canadian negotiators expected that the panel
process would address the complaints of Canadian producers that U.S.
political pressures disposed U.S. agency officials to side with U.S.
industry complainants. They also expected that the new forum would
make panel review speedier, less costly, and more rigorous than CIT
review of U.S. agency actions. On the other hand, U.S. negotiators
expected that quicker resolution of AD/CVD issues would minimize
unnecessary bilateral trade friction, while reliance on U.S. trade
law meant that the panel review would be comparable to CIT review.
Thus, the panel process was a compromise that left the underlying
concerns about the use of trade remedy laws unresolved. (See
briefing section II.)
We developed a statistical overview of the panel process to see if
any patterns emerged. Since the panel process began in 1989, through
September 1994, there have been 49 panel reviews of Canadian and U.S.
agency determinations. Of 23 completed cases, 15 were reviews of
U.S. agency determinations. Panels reviewed about the same
proportion of Commerce and ITC determinations. Three of the 15
completed panel decisions were reviewed by an ECC. The small number
of completed cases made it difficult to identify any patterns in the
way in which panels operated. (See briefing section III.)
Some participants with whom we spoke expressed satisfaction with the
binational panels' work. For example, they thought that (1) the
process was faster than that of traditional judicial review, (2) the
procedures administered by the U.S. and Canadian Secretaries
operated smoothly,\2 (3) the panelists demonstrated an expertise in
considering the facts of the cases, and (4) the panelists gave a
thorough and in-depth review of the cases.
However, other participants had concerns about the panel process,
especially with regard to three panel decisions that the United
States subsequently challenged under ECC procedures. These concerns
included: (1) whether panels had properly interpreted U.S. law or
had improperly substituted their judgment for the U.S. agencies';
(2) whether the panels had made excessive use of remands; (3) whether
there was a separate U.S. AD/CVD case law emerging from the panels
that would apply only to Canada; (4) whether the apparent discord
between panelists and agency officials in some cases, or (5) the
conflict of interest allegations against certain panelists, affected
the panel process; and (6) what the proper role for ECC review should
be. We analyzed the issues raised by these various participants.
The evidence was inconclusive. The information we developed could be
used both to support some participants' views and to challenge those
of others. Further, these diverse views may simply reflect the fact
that the underlying country concerns about the use of U.S. and
Canadian trade remedy laws remain unresolved. (See briefing section
IV.)
During our work, we noted that there were significant differences
between the behavioral characteristics of the binational panel
process and the U.S. judicial system that it replaces. We cannot
say in any particular case that these different characteristics
produced judgments different from those of a U.S. court.\3 However,
some panel behavior may have conflicted with some participants'
expectations of how the panel process should have worked. Thus,
these differences may have added to the controversy over certain
panel decisions. (See briefing section V.)
--------------------
\2 Under the FTA and NAFTA, each country has a national Secretariat
that administers the binational panel process and facilitates the
panels' work.
\3 The results of any particular case can only be interpreted
subjectively, and we have no basis to challenge a panel's exercise of
its authority to make the necessary normative judgments.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3
To understand participants' expectations for the binational panel
process, we reviewed U.S. and Canadian government reports,
legislative documents, and testimony, all from the late 1980s; and we
interviewed former U.S. and Canadian negotiators.
To identify participant's views about the binational panel process,
we interviewed (1) U.S. and Canadian government officials; (2)
private sector lawyers, some representing U.S. industries
petitioning for trade protection and others representing Canadian
respondents opposing them; and (3) U.S. and Canadian panelists who
reviewed cases. Since it was our intention to determine the range of
views about the panel process, we interviewed a sample of
participants who, in our judgment, represented both U.S. and
Canadian parties and who had broad experience, having taken part in
two or more panel cases. Therefore, our sample was not randomly
selected and the weight of any individual view cannot be compared to
any other. We also augmented these interviews by reviewing scholarly
literature assessing the panel process.
To provide a statistical overview of the process and to analyze
participants' views, we used data from the (1) U.S. and Canadian FTA
Secretariats,\4 (2) Canadian Department of Justice, (3) U.S. Trade
Representative (USTR), (4) ITC, and (5) Department of Commerce. We
analyzed data from the beginning of the FTA binational panel process
on January 1, 1989, to September 30, 1994, and did not include FTA
panel cases completed after that date. To gather information, we
read the opinions written by completed FTA binational panels on U.S.
agency determinations, but we did not assess the panels' legal
reasoning. We used information in documents and reports produced by
the U.S. Secretariat to analyze the characteristics of panels
reviewing U.S. agency decisions. In particular, we focused on
panelists' backgrounds, types of U.S. agency decisions appealed,
patterns of panel decisionmaking, and length of panel cases. USTR
and the Canadian Department of Justice provided information on the
occupations and educational backgrounds of the panelists on FTA
panels who reviewed U.S. agency determinations. Comparisons of
appeal rates, remand rates, and average completion times between
reviews completed by CIT and the panels included our analysis of data
provided by Commerce and CIT; we did not verify the accuracy of the
information in their data bases. ITC provided the import values of
the commodities associated with the completed panel reviews of U.S.
agency decisions, but we did not verify them. Due to data
limitations, we did not evaluate the statistical relationship between
the outcomes and the characteristics of the panel cases. All of our
work helped us identify factors that may have contributed to the
controversy over the panel process.
We did our work in Washington, D.C., and Ottawa, Canada, between
January 1994 and February 1995 in accordance with generally accepted
government auditing standards.
We requested comments on a draft of this report from (1) the U.S.
Secretary of the NAFTA Secretariat, (2) the Assistant Secretary of
Commerce for Import Administration, (3) the International Trade
Commission, (4) the Senior Counsel and Negotiator, Office of the U.S.
Trade Representative, and (5) the Minister Counsellor of the Canadian
Embassy, or any of their designees. The comments are discussed below
and incorporated in the report where appropriate.
--------------------
\4 Under NAFTA, these names were changed to the U.S. and Canadian
sections of the NAFTA Secretariat.
U.S. AGENCY AND CANADIAN
GOVERNMENT COMMENTS
------------------------------------------------------------ Letter :4
The U.S. Secretary of the NAFTA Secretariat gave us oral comments on
our draft report on May 11, 1995. He generally agreed with the
accuracy of the information and analysis in our report and had a few
comments, generally of an editorial nature, which we incorporated
where appropriate.
On May 18, 1995, various ITC staff and commissioners provided oral or
written comments on our draft report, which were coordinated through
the ITC Office of the General Counsel. Reviewers suggested various
changes to ensure that our characterization of AD/CVD law, including
injury determinations, was technically precise with regard to current
practice, and we incorporated these changes where appropriate. We
clarified our discussion in briefing section IV concerning panel
judgment in response to one reviewer's concern that our statement
"panels cited U.S. case law in their decisions" implied that panels
had thus properly applied U.S. law. Another ITC reviewer was
concerned that our presentation in briefing section IV of data on
panel remands and dissents and the nationality of the panel majority
could lead to misunderstandings or inaccurate conclusions; therefore,
we added language to help the reader interpret the data and some
notes to better explain our analysis.
We received oral comments from USTR's Office of the General Counsel
on May 19, 1995. USTR officials disagreed strongly with the Canadian
view that the affiliation of the U.S. Secretariat with Commerce
threatened the U.S. Secretary's independence and may have signaled
that the panel process was a low U.S. priority; however, they did
not disagree with the information we presented. Otherwise, USTR
officials said they had no major concerns about our analysis, but
they made various suggestions to improve the clarity of the draft
report, including statements about U.S. negotiating expectations,
U.S. ECC challenges of certain panel decisions, and the differences
between panels and CIT. We incorporated their suggestions where
appropriate.
The Office of the Chief Counsel for Import Administration provided
oral comments on May 17, 1995, including those from the Office of the
Assistant Secretary of Commerce for Import Administration. Although
they had concerns about some participants' views of Commerce's role
in the panel process, most comments related to making language in our
draft report technically consistent with AD/CVD law and practice, as
well as FTA, NAFTA and related U.S. negotiating expectations. We
made changes throughout the draft report, on the basis of their
comments.
The Minister Counsellor of the Canadian Embassy provided the
Government of Canada's comments to us in his letter of May 24, 1995.
He later stated that the Government of Canada holds the view that the
Chapter 19 binational process is a "unique and successful process of
settling trade disputes in both countries that has worked
effectively." While not disagreeing with our analysis, he suggested
clarifications to certain language in the report, including
statements made by Canadian officials and corrections to factual
statements. Some of the proposed amendments reiterated Canadian
government concerns that the actions of U.S. agencies and political
pressures had caused controversy over certain panel cases, and we
incorporated these concerns where appropriate. We made various
factual corrections to the draft and added notes to better present
data and clarify our analysis.
---------------------------------------------------------- Letter :4.1
As agreed with you, unless you announce the contents of this briefing
report earlier, we plan no further distribution of this report until
30 days from its issue date. At that time, we will send copies to
other interested congressional committees, U.S. and Canadian
government officials, and other interested parties. We will also
make copies available to others on request.
The major contributors to this briefing report are listed in appendix
IV. Please contact me at (202) 512-4812 if you have any questions
concerning this report.
Allan I. Mendelowitz,
Managing Director
International Trade, Finance, and
Competitiveness
Briefing Section I BACKGROUND
============================================================== Letter
BRIEFING OBJECTIVES
------------------------------------------------------------ Letter :5
(See figure in printed
edition.)
(See figure in printed
edition.)
GENESIS OF THE FREE TRADE
AGREEMENT (FTA) BINATIONAL
PANEL PROCESS
------------------------------------------------------------ Letter :6
(See figure in printed
edition.)
GENESIS OF THE FTA
BINATIONAL PANEL PROCESS
---------------------------------------------------------- Letter :6.1
An official from the Department of Commerce testified before the
Senate Judiciary Committee in 1988 that Canadians feared the
trade-liberalizing benefits of FTA could be undercut by what they
viewed as arbitrary administration of U.S. trade remedy laws. The
Canadians' views stemmed partly from the outcome of a U.S.
countervailing duty (CVD) case concerning Canadian softwood lumber.
Thus, a major Canadian objective in the negotiations was to devise a
new approach to replace these trade remedy laws. U.S. negotiators
were unwilling to exempt Canada from U.S. CVD law and sought to
ensure strong, enforceable discipline over Canadian subsidies.
Despite intense negotiations, it proved impossible for the two sides
to reach agreement on disciplines and new approaches to combat unfair
trade practices.
U.S. and Canadian officials told us that these issues were so
important that Canadian acceptance of the entire FTA was at risk, and
that Canadian negotiators at one time had walked out of the talks. A
novel compromise was reached, however. In chapter 19 of FTA, which
was signed on January 2, 1988, the two governments agreed to retain
existing national trade remedy laws and procedures, but they also
agreed that final agency decisions under these laws could be reviewed
by independent binational panels, rather than by national courts.
The two governments created the panel procedure as an interim
mechanism that preserved private rights to relief from unfair trade
practices,\1
but allowed quick resolution of bilateral trade remedy issues.
--------------------
\1 Meanwhile, other sections of chapter 19 created two further
obligations. First, the two countries were to create a working group
to seek to develop more effective rules and disciplines concerning
the use of government subsidies and a substitute system of rules for
dealing with unfair pricing and government subsidization. Second,
they were obligated to notify the other party of any intended changes
to antidumping (AD) or CVD laws and enter into consultations, if
requested. Then, the other party could request that a panel review
whether these changes conformed to FTA or applicable General
Agreement on Tariffs and Trade (GATT) rules. If such a panel found
the changes did not conform to FTA or GATT rules, the other party
would have the right to make comparable changes to its own laws or
terminate the agreement if no satisfactory solution were achieved
through further consultations.
CATEGORIES OF TRADE REMEDY
ACTIONS
------------------------------------------------------------ Letter :7
(See figure in printed
edition.)
CATEGORIES OF TRADE REMEDY
ACTIONS
---------------------------------------------------------- Letter :7.1
Chapter 19 of FTA covers two categories of U.S. trade remedy
actions--AD and CVD. Dumping is generally considered to be the sale
of an exported product at a price lower than that charged for the
same or a like product in the "home" market of the exporter. U.S.
AD laws seek to combat this practice, which is recognized as a form
of unfair price discrimination that can potentially harm the
importing nation's competing industries. AD duties are special
customs duties imposed to offset the price difference between the
U.S. price and the foreign market value of imported merchandise that
is materially injuring U.S. industry.
Subsidies lower a producer's costs or increase its revenues. This
may allow a producer to sell his or her products at a lower price
than that of the competition. Subsidies to firms that produce or
sell internationally traded products can distort international trade
flows. CVD laws seek to address the adverse effects that subsidized
imports can cause. CVDs are special customs duties imposed to offset
subsidies provided for the manufacture, production, or export of a
particular good. The principal U.S. statutory provisions related to
AD and CVD are contained in subtitle IV, Title 19 of the U.S. Code.
AGENCY DETERMINATIONS IN
APPLYING U.S. TRADE REMEDY
LAWS
------------------------------------------------------------ Letter :8
(See figure in printed
edition.)
AGENCY DETERMINATIONS IN
APPLYING U.S. TRADE REMEDY
LAWS
---------------------------------------------------------- Letter :8.1
Under U.S. AD/CVD law, private parties can petition Commerce on
behalf of a U.S. industry to determine whether an industry is
materially injured or threatened with material injury by reason of
dumped or subsidized imports. Commerce may also self-initiate an
AD/CVD investigation.
In an AD investigation, Commerce is to determine whether sales are at
"less than fair value" by calculating the difference between the
foreign market value of the product and the U.S. price. Depending
on the circumstances, foreign market value is derived from sales in
the exporting country, sales in a third country, or a constructed
value based on a formula set forth in the statute that uses
production costs and profit margins. In a CVD investigation,
Commerce is to determine whether a country is providing a subsidy,
either directly or indirectly. A subsidy is countervailable if it is
tied to an industry's export performance or provided to a specific
industry or group of industries.
ITC is an independent, quasi-judicial federal agency with broad
investigatory powers in matters of trade. It has six commissioners,
whom the President appoints with Senate confirmation for 9-year
terms. They vote to decide whether a U.S. industry is materially
injured or threatened with material injury by reason of criteria
specified in 19 U.S.C. 1677.
(See figure in printed
edition.)
AGENCY DETERMINATIONS IN
APPLYING U.S. TRADE REMEDY
LAWS (CONT.)
---------------------------------------------------------- Letter :8.2
If Commerce determines that dumping or a countervailable subsidy
exists, it can calculate duties (AD or CVD) on each importer,
provided that ITC finds that a U.S. industry was materially injured
or threatened with material injury. In uncomplicated cases, a final
AD determination is to be made within 280 days, or 205 days in CVD
cases, after the date on which the petition was filed, as provided
for in federal regulation.
If requested, Commerce is required to conduct an administrative
review of its outstanding AD/CVD orders on an annual basis. In
essence, this is a repetition of the AD or CVD investigation to
assess the actual amount of duties due on the previous year's
imports. Duties may be refunded or additional duties collected if
the margins changed.
APPEALS OF U.S. AGENCY TRADE
REMEDY DETERMINATIONS
------------------------------------------------------------ Letter :9
(See figure in printed
edition.)
Private parties who are dissatisfied with U.S. agency determinations
may appeal to a U.S. court. If the imported merchandise was from
Canada, under chapter 19 of FTA, the dissatisfied private parties (on
either side) have the option of replacing domestic judicial review of
AD/CVD determinations with review by a binational panel.
U.S. COURTS INVOLVED IN THE
APPEALS PROCESS
----------------------------------------------------------- Letter :10
(See figure in printed
edition.)
For example, foreign exporters or U.S. producers may appeal U.S.
agency determinations to the U.S. Court of International Trade
(CIT), then to the U.S. Court of Appeals for the Federal Circuit
(CAFC), and finally may petition for certiorari to the Supreme Court.
CANADIAN LAW PROVIDES FOR A
SIMILAR TRADE REMEDY SYSTEM
----------------------------------------------------------- Letter :11
(See figure in printed
edition.)
The principal Canadian agencies responsible for AD, CVD, and injury
determinations are the Department of National Revenue, Customs,
Excise and Taxation (Revenue Canada); and the Canadian International
Trade Tribunal.
Under the Canadian Special Import Measures Act, the Deputy Minister
of National Revenue is charged with the administrative activities
associated with investigations. The Anti-dumping and Countervailing
Division of Revenue Canada has been assigned this function. Like
Commerce, if Revenue Canada's investigation establishes that an
import is being dumped or subsidized, it calculates the margin of
dumping or amount of subsidy for each importer. Revenue Canada
levies duties on the imported goods equal to either the margin of
dumping or the amount of subsidy.
Like the United States' ITC, CITT makes injury determinations. CITT
is an independent quasi-judicial body that reports to the Canadian
Parliament through the Minister of Finance. CITT is composed of nine
full-time members who serve up to 5-year terms. Under Canadian law,
CITT conducts inquiries and makes findings on whether the importation
of goods that Revenue Canada has found to be dumped or subsidized is
causing or likely to cause "material injury" to the Canadian
production of such goods.
Parties dissatisfied with Canadian agency determinations can appeal
to the Federal Court of Canada or to an FTA binational panel, if
applicable. Canadian legislation implementing FTA expanded the
rights of all dissatisfied parties to seek judicial review of
Canadian trade remedy determinations; before FTA, Revenue Canada's
dumping and subsidy calculations were not generally appealable,
according to Canadian officials.
The two countries' trade remedy laws were similar, and this was seen
as very important to the success of the binational panel process.
However, differences in the legal traditions of the two countries
also existed. For example, in contrast to U.S. judges, Canadian
judges can only make limited use of a statute's legislative history
for interpreting ambiguous provisions, according to a Canadian legal
scholar. Also, Canadian Justice officials told us that they believed
Canadian judges deferred more to administrative authorities than
their U.S. counterparts did.
FTA BINATIONAL PANEL PROCESS:
RULES AND REQUIREMENTS
----------------------------------------------------------- Letter :12
(See figure in printed
edition.)
FTA established rules about the practices and composition of the
quasi-judicial panels. FTA provided a fixed schedule for parties to
file briefs, to give oral arguments, and for panels to issue written
decisions. To ensure panel decisions were fair and impartial, FTA
provided for creating rules of conduct. Each country also provided
the necessary resources to administer the process and designated a
secretary to act as the principal administrator of the legal process
and the panels' work.
FTA provided that the United States and Canada develop a 50-person
roster of candidates to serve as panelists, with each country
appointing 25 individuals not affiliated with either government.\2
These individuals must be citizens of the United States or Canada; be
of good character, high standing and repute; and be chosen on the
basis of their objectivity, reliability, sound judgment, and general
familiarity with international trade law. Within 30 days of a
request for a panel to review a final agency determination, each
government is to appoint two candidates to a 5-member panel, normally
from the roster. According to U.S. Trade Representative (USTR)
officials, the fifth candidate is chosen by the governments. The
nationality of each panel's majority alternates, including panels
considering related injury and AD or CVD cases. Each government has
the right to exercise four peremptory challenges to disqualify
candidates from being appointed to a particular panel. A majority of
the members and the chair (who is chosen by the panel members) of
each panel must be lawyers because of the panels' quasi-judicial
function.
Panels vote to decide what action to take on the basis of their
review. Panels can decide to affirm a final agency determination and
reject the claims of the parties making the appeal. Alternatively,
panels can decide to send a determination back to an agency, known as
a "remand," for a particular action. Unlike CIT, panels cannot
reverse an agency decision. While individual panelists can dissent
from an opinion written by the majority, a few panelists told us that
they seek consensus among all panel members in any decision.
--------------------
\2 Judges are not considered to be "affiliated" with a government and
can be appointed as panel members.
FTA BINATIONAL PANEL PROCESS:
ECC REVIEW
----------------------------------------------------------- Letter :13
(See figure in printed
edition.)
FTA BINATIONAL PANEL
PROCESS: ECC REVIEW
--------------------------------------------------------- Letter :13.1
Under FTA, dissatisfied parties cannot appeal panel decisions to
their domestic courts. However, a government can request review by
an ECC. The three-member committee is chosen from a 10-person
roster, half of which is made up of judges or former judges of a U.S.
federal court, and the other half of judges or former judges from a
court of superior jurisdiction of Canada. Each government selects
one committee member; those two select the third; and then all three
select a chairman.
The standard used for ECC review is different from that employed in
the usual judicial review by a U.S. appeals court. An ECC is to
determine whether (1) a member of the panel was guilty of gross
misconduct, bias, or a serious conflict of interest; the panel
seriously departed from a fundamental rule of procedure; or the panel
manifestly exceeded its powers, authority, or jurisdiction and (2)
whether such an action materially affected the panel's decision and
threatened the integrity of the binational panel review process. ECC
decisions to affirm, remand, or vacate a panel decision are binding
on the parties.
WHY THE PANEL PROCESS IS UNIQUE
----------------------------------------------------------- Letter :14
(See figure in printed
edition.)
FTA dispute settlement provisions are different from those found in
the General Agreement on Tariffs and Trade (GATT) and the World Trade
Organization (WTO), which provides a forum for governments to settle
disputes arising from their international obligations. In GATT/WTO,
the "law" being interpreted by the international dispute settlement
body is based upon an international agreement.\3
--------------------
\3 For example, a WTO dispute settlement body might review whether
U.S. AD/CVD law conflicts with GATT. Under FTA chapter 19, a
binational panel reviews a government agency's actions on the basis
of the panel's interpretation of that nation's laws.
WHO ARE THE U.S. AND CANADIAN
PANEL PARTICIPANTS?
----------------------------------------------------------- Letter :15
(See figure in printed
edition.)
THE STANDARD OF REVIEW USED BY
BOTH U.S. COURTS AND
BINATIONAL PANELS
----------------------------------------------------------- Letter :16
(See figure in printed
edition.)
THE STANDARD OF REVIEW USED
BY BOTH U.S. COURTS AND
BINATIONAL PANELS REVIEWING
FINAL U.S. AGENCY
DETERMINATIONS
--------------------------------------------------------- Letter :16.1
As reviewing authorities, U.S. courts are obligated to ensure that
an agency's determination is based on substantial evidence in the
record and is otherwise in accordance with law. This "substantial
evidence" standard generally requires the reviewing authority to
accord deference to an agency's factual findings, its statutory
interpretations, and the methodologies it used. Therefore, the
reviewing authority may not reweigh the evidence or displace the
agency's choice between two conflicting but reasonable views, thereby
substituting its judgment for that of the agency.
In accordance with paragraph two, article 1904 of FTA, when reviewing
a final U.S. AD or CVD determination, a binational panel must apply
the same standard of review and "general legal principles" as would
the U.S. CIT and the U.S. CAFC.
According to FTA, a decision of a panel is binding on the United
States and Canada, with respect to the particular administrative
determination reviewed by the panel. An FTA panel decision would not
serve as precedent for other U.S. or Canadian cases or judicial
review procedures when there is no panel review--for example, in
challenges to AD/CVD determinations involving imports from countries
other than Canada (or those from Canada when the parties chose to
appeal to a national court.)
JUDGMENTAL NATURE OF THE
STANDARD OF REVIEW
----------------------------------------------------------- Letter :17
(See figure in printed
edition.)
JUDGMENTAL NATURE OF THE
STANDARD OF REVIEW
--------------------------------------------------------- Letter :17.1
Determining what constitutes substantial evidence involves subjective
judgment and is the subject of ongoing debate in U.S. administrative
law. Questions regarding the application of the standard, such as
how much evidence is required to support an agency decision, involve
the discretion of the reviewing court or panel. The criteria that
have been articulated by appellate courts for the application of the
standard have not necessarily provided clear guidance for individual
cases.
Consequently, comparing the panels' treatment of the substantial
evidence standard with that of CIT is difficult because different
judges themselves have applied the standard differently. Some
participants told us that they see CIT judges apply the standard of
review in a range of ways--that is, not uniformly. In the judicial
process, the boundaries for CIT judges applying the standard of
review are established through review of these decisions by higher
courts, namely CAFC. However, under FTA, while an ECC can review a
panel decision, the standard for this subsequent review is different.
Briefing Section II EXPECTATIONS
FOR THE PANEL PROCESS
============================================================== Letter
U.S. & CANADIAN OFFICIALS:
DIFFERENT EXPECTATIONS FOR THE
PANEL PROCESS
----------------------------------------------------------- Letter :18
(See figure in printed
edition.)
U.S. and Canadian negotiators both sought to protect their
sovereignty, create trade benefits, reduce political pressure
surrounding trade remedies, and provide a fair and expeditious
review. Nevertheless, U.S. and Canadian officials had different
expectations for the process they established.
(See figure in printed
edition.)
Anticipated U.S. and Canadian trade benefits to be gained from the
panel process differed. Former negotiators said that the focus of
this new binational panel provision was on U.S. trade remedy laws.
Although Canadians had pursued AD cases against U.S. exporters under
Canadian trade remedy laws, the negotiators told us these had not
generated nearly as much controversy.
(See figure in printed
edition.)
Although U.S. and Canadian officials reached agreement on the
details of the panel process--panels would (1) give the appearance of
greater objectivity, (2) be less politicized, and (3) be quicker (and
therefore less costly) than the judicial review process--they
emphasized different aspects when describing their agreement publicly
during their legislative approval processes. However, U.S.
officials believed that panel decisions would be no different from
U.S. court decisions. The United States emphasized that panels
would employ the same standard of review and same general legal
principals as national courts and could
(See figure in printed
edition.)
not substitute their judgment for that of the agencies'. However,
Canadian officials emphasized their belief that panelists' expert
opinions would improve oversight of U.S. agency actions, and that
panels would not be as deferential as the U.S. courts were. Panels
were seen as an improvement because Canadians believed that CIT was
"passive" in its review of U.S. agency actions, and that politics,
not the law, guided agency determinations.
Briefing Section III STATISTICAL
OVERVIEW OF BINATIONAL PANEL
ACTIVITY AND DECISIONS (JANUARY
1989-SEPTEMBER 1994)
============================================================== Letter
APPEALS OF U.S. AGENCY
DETERMINATIONS ON CANADIAN
IMPORTS
----------------------------------------------------------- Letter :19
(See figure in printed
edition.)
Source: GAO analysis of data
from Commerce, ITC, and U.S.
Secretariat.
(See figure in printed
edition.)
APPEALS OF U.S. AGENCY
DETERMINATIONS ON CANADIAN
IMPORTS SINCE FTA
--------------------------------------------------------- Letter :19.1
Appeals of U.S. agency determinations concerning Canadian imports
have increased overall since FTA took effect. In practice, most, but
not all, of these appeals have gone to panels rather than to CIT.
From January 1989 to September 1994, Commerce issued 51 AD and CVD
determinations regarding Canadian products, including administrative
reviews,\4 of which 26 were appealed. Twenty-four of these 26
Commerce determinations were appealed to a panel, and 2 to CIT.
Before FTA, from 1985 through 1988, Commerce issued 41
determinations, of which 8 were appealed to CIT.
During the same period, ITC issued 18 injury determinations, of which
14 were appealed by dissatisfied parties. Seven were appealed to a
panel. Of the seven appealed to CIT, three involved preliminary ITC
determinations, which technically cannot be reviewed by a panel.
(Only final agency determinations are appealable under FTA). In the
other four cases, neither U.S. nor Canadian parties sent the cases
to a panel. Before FTA, from 1985 through 1988, ITC issued 16
determinations, of which 13 were appealed to CIT.
--------------------
\4 Commerce data on number of appealable determinations (used as
base) does not include a relatively small number of scope
determinations, unlike data for determinations that were actually
appealed.
WHAT HAS BEEN THE VOLUME OF FTA
BINATIONAL PANEL ACTIVITY?
----------------------------------------------------------- Letter :20
(See figure in printed
edition.)
Note 1: Consolidated appeals
of two agency determinations
were counted as one panel
review.
(See figure in printed
edition.)
Note 2: Five of the 49 panel
reviews of U.S. and Canadian
agency determinations were
initiated by U.S. or Canadian
parties under NAFTA, rather
than FTA.
(See figure in printed
edition.)
Source: GAO analysis of
information from U.S.
Secretariat.
(See figure in printed
edition.)
WHAT WAS THE STATUS OF THESE
BINATIONAL PANEL REVIEWS?
----------------------------------------------------------- Letter :21
(See figure in printed
edition.)
Note: Terminated refers to
those reviews concluded without
a decision on the merits.
(See figure in printed
edition.)
Source: GAO analysis of
information from U.S.
Secretariat.
(See figure in printed
edition.)
WHAT WAS THE DISTRIBUTION OF
THE TYPES OF PANEL REVIEWS?
----------------------------------------------------------- Letter :22
(See figure in printed
edition.)
Note 1: One Canadian
determination was both AD and
CVD, another was both AD and
injury. These were counted as
one case in each respective
category.
(See figure in printed
edition.)
Note 2: In a scope
determination, Commerce rules
on whether particular imports
are to be covered by an AD or
CVD order.
(See figure in printed
edition.)
Source: GAO analysis of data
from U.S. Secretariat.
(See figure in printed
edition.)
WAS THERE A TREND IN BINATIONAL
PANEL ACTIVITY OVER TIME?
----------------------------------------------------------- Letter :23
(See figure in printed
edition.)
(See figure in printed
edition.)
Note: Consolidated appeals of
two agency determinations were
counted as one panel review.
(See figure in printed
edition.)
Source: GAO analysis of
information from U.S.
Secretariat.
(See figure in printed
edition.)
WHO HAS APPEALED U.S. AGENCY
DETERMINATIONS TO BINATIONAL
PANELS?
----------------------------------------------------------- Letter :24
(See figure in printed
edition.)
Canadian parties subject to an AD or CVD order may appeal the U.S.
agency's determination to have the duties on their U.S. exports
reduced or eliminated (as may the U.S. importers with similar
interests). Similarly, the U.S. parties seeking AD or CVD
protection may appeal a negative determination to have it reversed,
or an affirmative determination to have the duties increased.
Although both Canadian and U.S. parties could appeal the same
affirmative determination, they would be seeking opposite changes.
WHO HAS APPEALED CANADIAN
AGENCY DETERMINATIONS TO
BINATIONAL PANELS?
----------------------------------------------------------- Letter :25
(See figure in printed
edition.)
FREQUENCY OF PANEL REVIEW OF
COMMERCE AND ITC DETERMINATIONS
----------------------------------------------------------- Letter :26
(See figure in printed
edition.)
Note: Three scope
determinations are not
included. Only 13 of 18 ITC
determinations were appealable
to panels.
(See figure in printed
edition.)
Source: GAO analysis of
Commerce and ITC data.
(See figure in printed
edition.)
FREQUENCY OF PANEL REVIEW OF
COMMERCE AD OR CVD
DETERMINATIONS
----------------------------------------------------------- Letter :27
(See figure in printed
edition.)
Note: Three Commerce scope
determinations and all ITC
injury determinations not
included.
(See figure in printed
edition.)
Source: GAO analysis of
Commerce data.
(See figure in printed
edition.)
FREQUENCY OF PANEL REVIEW OF
COMMERCE FINAL DETERMINATIONS
----------------------------------------------------------- Letter :28
(See figure in printed
edition.)
Note: Three Commerce scope
determinations and all ITC
injury determinations not
included.
(See figure in printed
edition.)
Source: GAO analysis of
Commerce data.
(See figure in printed
edition.)
WHAT TYPES OF DECISIONS HAVE
PANELS PRODUCED?
----------------------------------------------------------- Letter :29
(See figure in printed
edition.)
Note: See appendix I.
(See figure in printed
edition.)
Source: GAO analysis of
Commerce information.
(See figure in printed
edition.)
THREE PANEL DECISIONS ON U.S.
AGENCY DETERMINATIONS REVIEWED
BY AN ECC
----------------------------------------------------------- Letter :30
(See figure in printed
edition.)
USTR officials told us they had received requests from dissatisfied
U.S. parties to call for ECC reviews of four panel decisions. USTR
pursued challenges of three panel reviews and denied a request to
challenge a panel review of Replacement Parts for Self-Propelled
Bituminous Paving Equipment from Canada (USA-89-1904-03),\5 in which
the panel affirmed a Commerce administrative review of an AD order.
(See app. II.)
Briefing Section IV
--------------------
\5 The panel consolidated this case with USA-89-1904-05.
PARTICIPANT VIEWS
============================================================== Letter
AREAS OF SATISFACTION WITH THE
BINATIONAL PANEL PROCESS
----------------------------------------------------------- Letter :31
(See figure in printed
edition.)
(See figure in printed
edition.)
1. HAVE APPEALS TO PANELS BEEN
COMPLETED FASTER THAN THOSE TO
CIT?
----------------------------------------------------------- Letter :32
(See figure in printed
edition.)
Note: Includes CIT and
binational panel cases
completed between 1990 and
September 1994. (There were no
binational panel cases
completed before 1990.)
(See figure in printed
edition.)
Source: GAO analysis of data
from U.S. Secretariat and CIT.
(See figure in printed
edition.)
1. HAVE THE APPEALS TO
PANELS BEEN FASTER THAN
THOSE TO CIT?
--------------------------------------------------------- Letter :32.1
The panel process was designed to provide more rapid review than was
typical in U.S. or Canadian courts. FTA (article 1904, paragraph
14) established a 315-day guideline for panels to issue a final
decision from the date a panel was requested. The 315-day guideline
does not include the time when the panels are suspended, according to
the U.S. secretary.
We found that, on average, the panel process for U.S. cases has been
faster than that of CIT appeals. To quantify the total time to
resolve the case, we measured time in terms of calendar days.
Binational panels took 502 days\6 on average to complete cases that
were not reviewed by ECC. As of September 1994, only two panels had
exceeded 2 calendar years. In contrast, CIT took 734 days on average
to complete cases (from all countries) not appealed to CAFC, from
1990 through September 1994.
(See figure in printed
edition.)
Source: GAO analysis of data
from U.S. Secretariat and CIT.
(See figure in printed
edition.)
--------------------
\6 Using a simple standard of a 5-day work week, we found that panels
averaged 358 business days.
1. HAVE THE APPEALS TO
PANELS BEEN FASTER THAN
THOSE TO CIT? (CONT.)
--------------------------------------------------------- Letter :32.2
We also compared the time it took to complete binational panel and
CIT cases that were reviewed at a higher level. ECCs are to be
established within 15 days of a request from a government, and ECC
review has a 30-day guideline under FTA.\7 Those three binational
panel cases reviewed by ECC took an average of 683 calendar days from
the time the panel was first initiated to the completion of the ECC.
CIT cases (from all countries) reviewed by CAFC upon further appeal
averaged 1,210 calendar days to complete from 1990 through September
1994. We found that subsequent CAFC review added a significant
amount of time to the U.S. judicial process. Thus, the most
significant factor affecting the greater expediency of the binational
panel process appeared to be the reductions in the time spent on
subsequent review.
--------------------
\7 NAFTA changed the guideline for ECC review to 90 days.
2. PANEL PROCEDURES AND FTA
SECRETARIES
----------------------------------------------------------- Letter :33
(See figure in printed
edition.)
CANADIAN CONCERNS ABOUT THE
U.S. SECRETARIAT
----------------------------------------------------------- Letter :34
(See figure in printed
edition.)
Canadian officials expressed concern about the affiliation of the
U.S. Secretariat with Commerce. Commerce provides funding and
office space to the Secretariat. Canadian officials indicated that
because Commerce decisions are reviewed by the panels and because
Commerce controls the Secretariat's resources, an appearance of bias
existed. This situation also suggested to them that the panel
process may be a low U.S. government priority. Commerce officials
told us that a recent reorganization within Commerce had elevated the
level of the Secretariat.
3. TRAINING OF PANELISTS
REVIEWING U.S. AGENCY
DETERMINATIONS
----------------------------------------------------------- Letter :35
(See figure in printed
edition.)
Source: Information from USTR
and Canadian Department of
Justice.
(See figure in printed
edition.)
OCCUPATIONS OF PANELISTS
REVIEWING U.S. AGENCY
DETERMINATIONS
----------------------------------------------------------- Letter :36
(See figure in printed
edition.)
Note: Based on the number of
panelist positions, in all
panels initiated through
September 1994.
(See figure in printed
edition.)
Source: Information from USTR
and Canadian Department of
Justice.
(See figure in printed
edition.)
EXPERIENCE OF PANELISTS
REVIEWING U.S. AGENCY
DETERMINATIONS
----------------------------------------------------------- Letter :37
(See figure in printed
edition.)
Source: Information from USTR
and Canadian Department of
Justice.
(See figure in printed
edition.)
4. PANELS GAVE A THOROUGH AND
IN-DEPTH REVIEW
----------------------------------------------------------- Letter :38
(See figure in printed
edition.)
SIX AREAS OF PARTICIPANT
CONCERN ABOUT THE BINATIONAL
PANEL PROCESS
----------------------------------------------------------- Letter :39
(See figure in printed
edition.)
U.S. officials testified in June 1994 that they generally supported
the panel process, but were disappointed with the outcomes in a few
cases. Canadian officials told us they considered the process to
have worked effectively despite a few contentious cases. They
expressed concerns about certain aspects of the process, such as
conflict of interest and ECC issues. Some other participants told us
that their greatest concerns about the panel process resulted from
the three cases that went to ECC. Trade frictions increased between
the two countries over these
GREATEST PARTICIPANT CONCERNS
ABOUT THREE PANEL CASES THAT
WENT TO ECC
----------------------------------------------------------- Letter :40
(See figure in printed
edition.)
three cases. The fact that all three panels and ECCs involved
Canadian majorities may have added to the controversy. Furthermore,
the panel and ECC votes regarding the softwood lumber CVD case split
along national lines, with the U.S. ECC judge issuing a strong
dissent. Some participants thought that these cases were more
controversial because they involved agricultural products with many
producers in price sensitive markets. They said that other panel
decisions were relatively noncontroversial.
THREE CASES INVOLVED INDUSTRIES
WITH THE HIGHEST VALUE OF
IMPORTS
----------------------------------------------------------- Letter :41
(See figure in printed
edition.)
\ a Commodities with cases
involved in an ECC.
(See figure in printed
edition.)
Note: Values represent imports
in the year under ITC
investigation. Products listed
represent all those considered
in completed panel reviews.
(See figure in printed
edition.)
Source: ITC.
(See figure in printed
edition.)
1. VIEWS OF PANEL JUDGMENT
VARIED WIDELY
----------------------------------------------------------- Letter :42
(See figure in printed
edition.)
Some participants believed that panels sometimes have faced more
extreme arguments to defer to U.S. agency judgment than U.S. courts
would have. If extreme deference were given, this could impair any
party's ability to get an effective review of an agency determination
by a panel.
U.S. GOVERNMENT ALLEGATIONS
REGARDING PANEL JUDGMENT
----------------------------------------------------------- Letter :43
(See figure in printed
edition.)
Canadian officials said they considered that the U.S. government had
been influenced by political pressures from U.S. industry to
initiate ECC review. They pointed out that subsequent ECC decisions
did not uphold the U.S. government's challenges.
THE DIFFICULTIES IN ASSESSING
THE VALIDITY OF THESE
ALLEGATIONS
----------------------------------------------------------- Letter :44
(See figure in printed
edition.)
2. REMANDS
----------------------------------------------------------- Letter :45
(See figure in printed
edition.)
PARTICIPANT CONCERNS ABOUT
PANEL REMANDS VARIED
----------------------------------------------------------- Letter :46
(See figure in printed
edition.)
THE NUMBER OF REMANDS
----------------------------------------------------------- Letter :47
(See figure in printed
edition.)
Note: Data includes cases
filed and completed January
1989 to September 1994. CIT
data includes all countries.
(See figure in printed
edition.)
Source: GAO analysis of data
from U.S. Secretariat and CIT.
(See figure in printed
edition.)
BINATIONAL PANELS REMANDED MORE
FREQUENTLY THAN DID CIT
----------------------------------------------------------- Letter :48
(See figure in printed
edition.)
Note: Data includes cases
filed and completed January
1989 to September 1994. CIT
data includes all countries.
(See figure in printed
edition.)
Source: GAO analysis of data
from U.S. Secretariat and CIT.
(See figure in printed
edition.)
OBSERVATIONS ABOUT THE NUMBER
AND NATURE OF REMANDS
----------------------------------------------------------- Letter :49
(See figure in printed
edition.)
2. OBSERVATIONS ABOUT THE
NUMBER AND NATURE OF PANEL
REMANDS
--------------------------------------------------------- Letter :49.1
Many remands that panels issued either instructed the agency to
provide further explanation or to reconsider the agency determination
in light of the panels' decision. For example, in Fresh, Chilled and
Frozen Pork from Canada (USA-89-1904-06), a panel concluded that
Commerce had not articulated clear standards and explanations in
determining that a certain Canadian income stabilization program was
countervailable. It therefore remanded to Commerce for further
explanation and reconsideration. On the other hand, there were
instances when a panel remanded with directions that required an
agency to reach a particular conclusion or finding. For example, in
Red Raspberries from Canada (USA-89-1904-01), the panel determined
that Commerce had failed to provide an adequate explanation of why it
had rejected using certain home market sales as the basis for
determining fair value in its dumping calculations. The panel
remanded with instructions that Commerce use these home market sales
in the relevant calculations.
DID MULTIPLE REMANDS LENGTHEN
THE TIME TO SETTLE FTA
DISPUTES?
----------------------------------------------------------- Letter :50
(See figure in printed
edition.)
Source: GAO analysis of data
from U.S. Secretariat.
(See figure in printed
edition.)
DID PANEL COMPOSITION AFFECT
PANEL REMANDS?
----------------------------------------------------------- Letter :51
(See figure in printed
edition.)
Source: GAO analysis of 15
completed binational panel
reviews of U.S. agency
determinations.
(See figure in printed
edition.)
While panels with Canadian and U.S. majorities differed in how often
they sent decisions back to the agencies during the process, this
does not mean that they necessarily came to different decisions. It
merely indicates that their interactions with the agencies were
different. Canadian officials noted that, in cases involving remands
from Canadian majorities, six of the eight panels were unanimous in
voting to remand. They said this indicates that nationality was not
an issue in these remand decisions.
3. CONCERNS THAT A SEPARATE
CASE LAW MAY BE EMERGING
----------------------------------------------------------- Letter :52
(See figure in printed
edition.)
Source: GAO analysis of 15
completed binational panel
reviews of U.S. agency
determinations.
(See figure in printed
edition.)
3. CONCERNS THAT A SEPARATE
CASE LAW
MAY BE EMERGING
--------------------------------------------------------- Letter :52.1
Under FTA, panels are supposed to be guided only by U.S. statutes
and court decisions. Instead, if panels followed the decisions of
previous panels, there is a danger that they would be creating a
separate case law for reviews of determinations concerning imports
from Canada (as opposed to other countries).
One indicator of a separate case law emerging for cases going to
panels might be the number of legal citations to other panel
decisions. A large number of such citations might suggest that panel
decisions were having an influence on subsequent cases. However, the
issue of whether the binational panel process is resulting in a
separate case law outside the scope and control of the U.S. judicial
system is a complex question; it cannot be completely answered by
merely examining the number of these citations.
THE NATURE OF CITATIONS VARIED
----------------------------------------------------------- Letter :53
(See figure in printed
edition.)
3. THE NATURE OF CITATIONS
VARIED
--------------------------------------------------------- Letter :53.1
We found that panels did cite previous panels in their decisions on
particular issues in some cases.\8 However, the purpose of such
references sometimes was merely to familiarize the reader with the
history of the dispute or to illustrate the functioning of the panel
process. In other instances, a panel cited other panel cases to rely
on the reasoning in a previous decision that the present panel
considered to be "persuasive" though not legally "binding."\9 For
example, in the opinion on Commerce's softwood lumber CVD
determination, the panel adopted an interpretation of a rule under
FTA similar to that used by a previous panel, and stated
"The panel has taken a purposive approach to interpreting CFTA
Rule 7(a) as was done by the panel in New Steel Rail, except
Light Rail from Canada. . . . While this Panel is not bound
by previous binational panel decisions, it may be guided by such
decisions."
While some may be concerned that a separate body of law is emerging
for Canada since the binational panels are a new entity, one
participant told us that it is inevitable that panels will create a
separate body of law. Panels decide upon new legal and factual
issues with each case they review. However, he believed that this
was not a problem in that it did not mean that panels were "making
stuff up." Instead, like any court, panels analyze the facts and
apply the law.
--------------------
\8 Interestingly, we also found that participants (including U.S.
government agencies) sometimes cited previous panel decisions in
presenting their arguments.
\9 The U.S. Statement of Administrative Action accompanying the FTA
implementing legislation did indicate that courts may look to panel
decisions for their intrinsic persuasiveness.
4. VARIED CONCERNS THAT
DISCORD AMONG PARTICIPANTS
AFFECTED OUTCOMES
----------------------------------------------------------- Letter :54
(See figure in printed
edition.)
MOST PANEL DECISIONS HAVE BEEN
UNANIMOUS
----------------------------------------------------------- Letter :55
(See figure in printed
edition.)
Source: GAO analysis of 15
completed cases of U.S. agency
determinations.
(See figure in printed
edition.)
NATIONALITY AND NATURE OF
DISSENT
----------------------------------------------------------- Letter :56
(See figure in printed
edition.)
Source: GAO analysis of 15
completed binational panel
reviews of U.S. agency
determinations.
(See figure in printed
edition.)
5. PARTICIPANT CONCERNS OVER
CONFLICT OF INTEREST
ALLEGATIONS VARIED
----------------------------------------------------------- Letter :57
(See figure in printed
edition.)
U.S. GOVERNMENT CHALLENGE OF
SOFTWOOD LUMBER CVD PANEL
DECISION
----------------------------------------------------------- Letter :58
(See figure in printed
edition.)
WERE WITHDRAWALS OF PANELISTS
COMMON?
----------------------------------------------------------- Letter :59
(See figure in printed
edition.)
Source: GAO analysis of 15
completed binational panel
reviews of U.S. agency
determinations.
(See figure in printed
edition.)
HOW DID PANELIST WITHDRAWALS
AFFECT THE PANEL PROCESS?
----------------------------------------------------------- Letter :60
(See figure in printed
edition.)
\a Does not include time spent under ECC review.
Source: GAO analysis of 15
completed binational panel
reviews of U.S. agency
determinations.
(See figure in printed
edition.)
OBSERVATIONS ABOUT PANELISTS'
CONFLICT OF INTEREST
----------------------------------------------------------- Letter :61
(See figure in printed
edition.)
6. PARTICIPANT CONCERNS OVER
THE PROPER ROLE OF ECCS
----------------------------------------------------------- Letter :62
(See figure in printed
edition.)
ECCs ruled against the U.S. government's challenges of the pork,
live swine, and softwood lumber panel decisions, respectively. Some
parties were concerned that the ECCs had interpreted their role
narrowly and did not provide the kind of examination some
participants believed these panel decisions warranted. The fact that
all three ECCs had Canadian majorities may have added to the
controversy about their decisions to affirm the panels. On the other
hand, some parties were concerned because they believed the U.S.
government should not have requested these reviews in the first
place, since overuse of the process could transform the ECC into an
ordinary appeal mechanism. The contrast between the majority and the
dissenting opinion written for the ECC softwood lumber decision
illustrated the concerns over the ECC role. For example, in
dismissing the U.S. challenge, ECC member Judge Morgan wrote of the
ECC:
"Its jurisdiction is restricted to the correction of an
'aberrant panel decision' and any 'aberrant behavior of
panelists' that would threaten the integrity of the binational
panel system when such action is unwarranted. . . The
exceptional nature of an extraordinary challenge was accentuated
by the drafters of the FTA. . . ."
While in a dissent, Judge Wilkie stated that
"Canada considers other matters, normally thought of as the
grist for court decisions, none of an ECC's business. . .
and, Given the obvious errors on the merits in our Binational
Panel 3-2 Decision and the unfortunate violations of the Code of
Conduct, I fear that my colleagues, by this Decision, have tied
down the safety valve."
Justice Hart wrote in his majority opinion:
"It is unfortunate that the decision in this matter has not been
unanimous because there is always a chance that it will be
interpreted as a decision based on national interest when the
two Canadian members of the Committee form a majority and the
American member files a dissent. We are however all judges of
long experience and since the issue before us is one of first
impression a sincere difference of opinion should not be
unexpected."
HOW FREQUENTLY WERE PANEL AND
CIT DECISIONS REVIEWED?
----------------------------------------------------------- Letter :63
(See figure in printed
edition.)
Source: GAO analysis of
information from U.S.
Secretariat.
(See figure in printed
edition.)
(See figure in printed
edition.)
Note: CIT cases for all
countries completed January
1990 to September 1994;
therefore, some cases were
appealed earlier.
(See figure in printed
edition.)
Source: GAO analysis of CIT
data.
(See figure in printed
edition.)
OBSERVATIONS ABOUT THE ROLE OF
ECCS
----------------------------------------------------------- Letter :64
(See figure in printed
edition.)
6. OBSERVATIONS ABOUT THE
ROLE OF ECCS
--------------------------------------------------------- Letter :64.1
According to U.S. and Canadian officials, ECC review of a panel's
decision was meant to have a higher threshold than appellate review
of a CIT decision by CAFC. Nevertheless, participants, including the
two governments, disagreed over the interpretation of the ECC
standard and where that threshold should be. As a result, the United
States and Canada later took the opportunity to "clarify" the ECC
role as part of their subsequent NAFTA negotiations. The final NAFTA
text incorporated all the U.S. and Canadian FTA chapter 19
provisions and extended them to Mexico, but added some clarifying
language.\10
However, based on our review of U.S. and Canadian government
documents, we believe that the new language in NAFTA regarding ECC
did not resolve the fundamental difference between the parties on
this issue. While U.S. and Canadian officials agreed that the new
NAFTA language "made explicit what was implicit in the FTA," they
unfortunately did not agree on what was implicit in the agreement.
The U.S. officials characterized this as a significant change, while
Canadian officials characterized it as a nonsubstantive change.
Thus, it seems that U.S. officials expected future ECCs to be less
narrow in reviewing panel decisions, and Canadian officials expected
future ECCs to continue to interpret their role narrowly.
Briefing Section V
--------------------
\10 The CFTA ECC standard of review was amended by NAFTA by stating
that an ECC is to determine whether "the panel manifestly exceeded
its powers, authority or jurisdiction set out in this Article, for
example by failing to apply the appropriate standard of review. . .
." (GAO underlining indicates new text in Article 1904.13(a)(iii).)
OTHER FACTORS THAT MAY HAVE
CONTRIBUTED TO PARTICIPANT
CONCERNS
============================================================== Letter
BINATIONAL PANELS ARE DIFFERENT
FROM U.S. COURTS
----------------------------------------------------------- Letter :65
(See figure in printed
edition.)
BINATIONAL PANELS BEHAVE
DIFFERENTLY FROM U.S.
COURTS
--------------------------------------------------------- Letter :65.1
While panels perform the same function and are charged with applying
the same legal standard of review as CIT, they are different in their
composition and in their practices. Participants in the panel
process had opposite views about whether some panel decisions were in
keeping with or contrary to what CIT would have decided.
Furthermore, participants noted procedural differences between the
panel process and the judicial process. (See app. III)
These differences could add to the controversy over the process
because they are not what some U.S. participants are used to
encountering in the U.S. system. For example, several participants
noted that panels and panelists were easier targets for criticism
than courts and judges were. This is because panelists served ad
hoc, were otherwise colleagues of the other participants, may have
represented clients on similar issues before the administering
agencies, and did not have the same stature as judges. Some
suggested that permanent panelists may be needed in the future, while
others thought that the private parties should have a role in
selecting panelists. In updating FTA binational panel provisions
during NAFTA negotiations, U.S. officials sought to encourage a more
judicial character in panels by adding a "requirement that the United
States include judges and former judges on the panelist rosters to
the fullest extent
practicable. . ."
COMPLETED U.S. FTA BINATIONAL
PANEL REVIEWS THROUGH SEPTEMBER
1994
=========================================================== Appendix I
Number
ITC of
import Parties panelist Total Unanimou
Type of value initiati s with Number time to s
Case determin ($millio ng Panel Panel law of complete decision Effects of panel
identification Commodity ation ns) appeal majority chairman degrees remands (days) s decisions
------------------ ------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- ------------------
USA-89-1904-01 Red Raspberries Dumping $8.3 Canadian Canadian Canadian 4 2 461 Yes Duty lowered from
2.59 percent to
0.11 percent, and
3.67 percent to
none
USA-89-1904-02 Replacement parts Scope NA Canadian USA USA 5 0 347 Yes Agency affirmed
for self- and US
propelled
bituminous paving
equipment
USA-89-1904-03 Replacement parts Dumping NA Canadian USA USA 5 0 348 Yes Agency affirmed
for self- and US
propelled
bituminous paving
equipment
USA-89-1904-06 Fresh, chilled or Subsidy 352.5 Canadian USA USA 4 2 682 Yes Duty lowered from
frozen pork 8 cents to 3 cents
per kilo
USA-89-1904-07 New steel rail, Subsidy 7 Canadian Canadian USA 4 1 338 Yes Duty lowered from
except light rail 112.34 percent to
94.57 percent
USA-89-1904-08 New steel rail, Dumping 7 Canadian USA USA 5 0 395 No Agency affirmed
except light rail
USA-89-1904-10 New steel rail Injury 7 Canadian Canadian USA 4 0 346 No Agency affirmed
USA-89-1904-11 Fresh, chilled or Injury 352.5 Canadian Canadian Canadian 4 2 612 Yes ITC reversed
frozen pork injury
determination
USA-90-1904-01 Replacement parts Dumping NA Canadian Canadian Canadian 5 3 959 No Duty raised from
for self- and US 9.47 percent to
propelled 17.97 percent
bituminous paving
equipment
USA-91-1904-03 Live swine Subsidy 75 Canadian Canadian USA 4 2 641 No Duty lowered from
Can$0.0047/lb. to
Can$0.0004/lb.
(slaughter sows
and boars),
Can$0.0449/lb. to
Can$0.0051/lb.
(other live swine)
and Can$0.0005/
lb. (weanlings:
new category)
USA-91-1904-04 Live swine Subsidy 75 Canadian Canadian Canadian 4 2 675 Yes Duty lowered from
Can$0.0049/lb. to
Can$0.0045/lb.
(sows and boars),
and Can$0.0932/
lb. to Can$0.927/
lb. (other)
USA-92-1904-01 Certain softwood Subsidy 2873 Canadian Canadian Canadian 5 2 797 No Duty lowered from
lumber products and US 6.51 to none
USA-92-1904-03 Pure and alloy Subsidy 53 Canadian Canadian Canadian 5 1 522 Yes Agency affirmed
magnesium
USA-92-1904-04 Pure and alloy Dumping 53 Canadian USA Canadian 4 0 455 Yes Duty lowered from
magnesium 31.33 percent to
21.00 percent
USA-92-1904-06 Magnesium Injury 53 Canadian USA USA 5 1 496 Yes Commodities
redefined,
affirmed injury
----------------------------------------------------------------------------------------------------------------------------------------------------
Source: GAO analysis of information from U.S. Secretariat, USTR,
ITC.
COMPLETED ECC REVIEWS OF PANEL
DECISIONS
========================================================== Appendix II
ECC case Panel
identific decision Requested
ation reviewed by Majority Chairman Dissent ECC decision
--------- --------- --------- --------- --------- --------- --------------
ECC USA-89- U.S. Canadian US No Affirmed panel
91-1904- 1904-11 governmen
01 (Pork t
injury)
ECC USA-91- U.S. Canadian US No Affirmed panel
93-1904- 1904-03 governmen
01 (Live t
Swine
CVD)
ECC USA-92- U.S. Canadian US Yes Affirmed panel
94-1904- 1904-01 governmen
01 (Lumber t
CVD)
--------------------------------------------------------------------------------
Source: GAO analysis of information from U.S. Secretariat.
DIFFERENCES BETWEEN PANELS AND CIT
========================================================= Appendix III
Panel characteristics CIT characteristics Comments
------------------------- ------------------------- --------------------------
A novel institution CIT established by The panel process is newer
established in 1989 by Congress in 1980, and has less institutional
international agreement. replacing U.S. Customs experience.
Court.
Panelists' participation Judges are appointed for Panelists and judges have
is ad hoc, and they have life and have no other different experience
other occupations. employment. working with the law.
Panels are binational, All CIT judges are U.S. Foreign panelists may be
with either a U.S. or citizens. less familiar with the law
Canadian three person upon which they base their
majority. judgment.
Each panel considers one Each judge considers many Panels and judges have
case at a time. cases simultaneously. different workloads and
they must focus their
attentions differently.
Commerce and ITC The U.S. Department of Some participants noted
represent themselves when Justice represents differences in how
defending their Commerce in all U.S. Commerce and Department of
determinations. courts. ITC represents Justice lawyers defended
itself. Commerce determinations,
since Commerce is
operationally involved
with the cases.
Cases proceed according Cases proceed according The panel's review process
to a fixed schedule, with to a flexible schedule, is more compressed.
a 315-day guideline. without a deadline. .
Decisions are made by a Decisions are made by one Decisionmaking dynamics
group of five people individual and are are different between the
seeking consensus and are subject to subsequent two systems.
only subject to review judicial review.
under extraordinary
circumstances.
--------------------------------------------------------------------------------
Source: GAO interviews with panel participants, CIT, and U.S.
Secretariat.
MAJOR CONTRIBUTORS TO THIS
BRIEFING REPORT
========================================================== Appendix IV
GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C.
Adam R. Cowles, Project Manager
Ken Miyamoto, Evaluator
Hazel J. Bailey, Writer-Editor
Katherine M. Wheeler, Publishing Advisor
OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C.
Sheila K. Ratzenberger, Assistant General Counsel/Project Director
Richard R. Perruso, Attorney-Adviser