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On 1 July 2022, the Canada–United States–Mexico Agreement (CUSMA) had been in force for two years. CUSMA superseded the North American Free Trade Agreement (NAFTA), in force since 1994.

CUSMA contains three dispute-settlement mechanisms, which are contained in the following chapters:

• Chapter 10 – binational review of anti-dumping duties and countervailing duties;
• Chapter 14 – investor–state dispute settlement; and
• Chapter 31 – state-to-state dispute settlement.

This HillNote focuses on Chapter 31, the chapter under which most disputes about the interpretation or application of CUSMA’s obligations are likely to fall. It begins with a brief overview of the options available to a complaining party and a responding party to resolve their differences: consultations, mediation and/or a dispute-settlement panel.

The HillNote then outlines disputes that have occurred under Chapter 31 before discussing certain differences between this chapter’s mechanism and Chapter 20 of NAFTA, which contained that agreement’s state-to-state dispute-settlement mechanism.

Consultations

The complaining party may request consultations with the responding party if the former considers the latter to have acted in a way that either

• is inconsistent with a CUSMA obligation; or
• “nullifie[s] or impair[s]” a trade benefit under CUSMA.

Such consultations must occur within 15 days if the dispute involves perishable goods or within 30 days otherwise.

Mediation

At any time, the disputing parties may initiate mediation to try to resolve their differences, including while a dispute-settlement panel is examining the dispute.

Dispute-Settlement Panel

If consultations do not lead to a mutually agreeable resolution to the dispute, the complaining party or the responding party can request that a dispute-settlement panel be established. The third CUSMA party can also become a complaining party near the beginning of the panel process.

A panel generally has five members, although the disputing parties can agree to a three-member panel. The parties select the panel’s chair and other members from among the qualified individuals listed on a roster containing up to 10 names proposed by each CUSMA party.

Certain timelines exist, including in relation to the hearing schedule, the panel’s initial and final reports, submissions by the disputing parties, and – potentially – the parties’ final attempt to resolve their differences.

For instance, within five days of the date on which the last panelist is appointed, the panel must issue a timetable for its proceedings. Within 150 days of that date, the panel must provide its initial report to the disputing parties.

The disputing parties then have 15 days or another jointly agreed period to submit written comments to the panel about the initial report. The panel generally has 30 days following the date of the initial report to provide its final report.

The panel’s initial and final reports outline the findings of facts and determinations, as well as the related rationale. These reports can include recommendations for resolving the dispute. The final report can also contain panelists’ opinions on matters where unanimous agreement did not exist.

If the panel’s final report finds that the responding party failed to meet its CUSMA obligations, the disputing parties have 45 days from the date of that report to reach an agreement to resolve their dispute. If they are unable to do so within that period, the complaining party can suspend certain trade benefits that it provides to the responding party under CUSMA.

Disputes to Date

To date, 11 disputes have been initiated under CUSMA, and three of these disputes have involved Chapter 31; the subjects of the disputes initiated under Chapter 31 are shown in Figure 1.

Figure 1 – Subjects of Disputes under Chapter 31 of the Canada–United States–Mexico Agreement, as of 7 July 2022

Source: Figure prepared by the Library of Parliament using data obtained from The Secretariat: Canada– Mexico–United States, “Chapter 31,” CUSMA Dispute.

As indicated in Table 1, Canada either is involved or has been involved as a complaining party or a responding party in each of the three disputes.

Table 1 – Summary of Disputes Under Chapter 31 of the Canada–United States–Mexico Agreement, as of 7 July 2022

Source: Prepared by the Library of Parliament using data obtained from The Secretariat: Canada–Mexico–United States, “Chapter 31,” CUSMA Dispute.

Certain Differences

When compared to NAFTA’s state-to-state dispute-settlement mechanism under Chapter 20, Chapter 31 of CUSMA contains provisions that could facilitate appointment to both the roster of panelists and the panels themselves, as well as the participation of non-governmental entities in proceedings. It also requires the electronic submission of all dispute-related documents.

In some disputes under Chapter 20 of NAFTA, the disputing parties blocked the appointment of panelists by not participating in a meeting of the NAFTA commission tasked with approving a panel’s membership or by objecting to updates to the roster of panelists. According to University of Arizona Professor Emeritus David A. Gantz, due to the difficulty of establishing panels under Chapter 20, Canada and Mexico relied exclusively on the World Trade Organization’s (WTO’s) dispute-settlement mechanism to resolve their differences.

Unlike Chapter 20 of NAFTA, Chapter 31 of CUSMA provides for the appointment of qualified individuals to the roster and to the panels in cases where the three CUSMA parties cannot reach consensus about particular individuals.

Moreover, while Chapter 20 of NAFTA did not allow non-governmental entities to participate in the dispute-settlement proceedings, Chapter 31 of CUSMA permits the panel to consider requests from such entities to submit written views, provided the entities are located in a disputing party’s territory. For instance, in July 2021, the panel examining the dairy dispute between Canada and the United States approved such a request from a Canadian non-governmental entity.

Finally, unlike Chapter 20 of NAFTA, Chapter 31 of CUSMA requires the parties to submit all dispute-related documents electronically.

Conclusion

From 1 January 1994 to 30 June 2020, NAFTA governed trade among Canada, the United States and Mexico. During that period, three dispute-settlement panels were established under Chapter 20, all within NAFTA’s first six years.

In the two years that CUSMA has existed, three dispute-settlement panels have been established under Chapter 31. The number of state-to-state disputes that will be initiated during CUSMA’s first six years remains to be seen.

In addition to having an unknown impact on the number of disputes under Chapter 31 of CUSMA, it is possible that the differences between Chapter 31 and Chapter 20 of NAFTA could lead disputing parties to rely relatively less on the WTO’s dispute-settlement mechanism to resolve state-to-state disputes between and among Canada, the United States and Mexico.

Additional Resources

Government of Canada. “State-to-state dispute settlement chapter summary.” Canada–United States–Mexico Agreement.

Hart, Nina M. USMCA: A Legal Interpretation of the Panel-Formation Provisions and the Question of Panel Blocking. U.S. Congressional Research Service, 30 January 2020.

Lester, Simon, Inu Manak, and Andrej Arpas. “Access to Trade Justice: Fixing NAFTA’s Flawed State-to-State Dispute Settlement Process.” World Trade Review. Volume 18, No. 1, 2019.

Pellerin, William, and Philip Kariam. McMillan LLP’s CUSMA Dispute Settlement Scoreboard. McMillan Publications, 11 March 2022.

VanDuzer, J. Anthony. “State-to-State Dispute Settlement Under the USMCA: Better than NAFTA?,” Festchrift in Honour of Professor Stephen T. Zamora, 9 April 2020.

By Bashar Abu Taleb, Andrés León and Simon Richards, Library of Parliament

Categories: Business, industry and trade, Economics and finance

Tags: CUSMA, Dispute Settlement, NAFTA, Trade