- External Affairs Canada, Canada-United States Free Trade Agreement, December 10, 1987, in force January 1, 1989; implemented in Canada by the Canada-United States Free Trade Agreement Implementation Act, S.C. 1988, c. 65, and in the United States by the United States Canada Free Trade Agreement Implementation Act of 1988, P.L. 100–449.
- In the words of the secretary and treasurer of the AFL-CIO, “Free trade is like free lunch, certain to destroy the jobs of tens of thousands of citizens.”: “U.S. labor battling trade pact”, The Financial Post (Toronto), March 14, 1991, at 10. For similar sentiments by Canadian labour leaders, see “Canada's trade pact foes join fight”, The Financial Post (Toronto), March 15, 1991, at 10. The Canadian public appears somewhat divided over the benefits of such a deal. As of the end of February of this year, a national poll revealed 50 per cent, of the population opposed and 46 per cent, in favour. Opposition to such an agreement was strongest in Ontario (60 per cent, opposed), while support for an agreement was strongest in Québec (58 per cent, in favour). An earlier, albeit differently phrased poll, conducted in December, 1990 suggested somewhat stronger opposition to such a plan, with 53 per cent, opposed and only 35 per cent, in favour. “Canadians divided on free-trade deal”, Calgary Herald, February 26, 1991.
- Canadian exports to Mexico in 1989 totalled approximately $600 million, with imports of $1.7 billion. By comparison the equivalent flows between Canada and the United States amounted to $101 billion Canadian exports and $88 billion in imports, or over eighty times the Canada-Mexico trade flow. However, the trade between the United States and Mexico is significant, with $33.2 billion in Mexican exports to the United States and $30.8 billion in US exports to Mexico. External Affairs and International Trade Canada, North American Free Trade, Securing Canada's Growth Through Trade (1991), at 3 (all figures in $CAN). Nevertheless, Mexico is Canada's largest market in Latin America, and trade with Mexico is predicted to double in this decade: id., at 1. The United States is of course by far the largest trading partner of both Canada and Mexico.
- For an historical perspective on the influence of US hemispheric interventionism on Mexico's trade policies, see F.J. Macchiarola, “Mexico as a Trading Partner” (1990) 37 Acad. Pol. Sci. No. 40, 90 at 92–96.
- Constitución Política de los Estados Unidios Mexicanas, as translated in A.J. Peaslee, Constitutions of Nations, Vol. IV—The Americas, at 891 ff. Art. 27 provides inter alia for the direct ownership of natural resources by the Nation. Although the Federal Executive may grant concessions for the exploitation of these resources
- In the case of petroleum, and solid, liquid or gaseous hydrocarbons no concessions or contracts will be granted nor may those that have been granted continue, and the Nation shall carry out the exploitation of these products…
- A similar provision exists in Art. 27 with respect to electric power which is to be used for public service.
- The legislation is discussed in detail in United States International Trade Commission, Review of Trade and Investment Liberalization Measures by Mexico and Prospect for Future United States-Mexico Relations, Phase I (Pub. No. 2275) (April, 1990).
- Introduced by the Conservative government of Sir John A. Macdonald.
- The two key documents that essentially set the nationalist agenda—and which represented an important departure from past Canadian policy towards foreign investment—are the so- called “Watkins Report” of 1968 and the “Gray Report” of 1972, both referring to the respective chairmen of the two enquiries by the federal government on the matter: Task Force on the Structure of Canadian Industry, Report, Foreign Ownership and the Structure of Canadian Industry (1968); H.E. Gray (Chairman), Foreign Direct Investment in Canada (1972).
- The most important piece of legislation in this respect was the Foreign Investment Review Act, S.C. 1973–74, c. 46, as amended, which established rules governing the terms under which foreign direct investment could enter Canada, and established the Foreign Investment Review Agency to monitor and control such investment.
- For a discussion of the use of public corporations in Canada to influence the development of natural resources, see, N.D. Bankes, C.D. Hunt and J.O. Saunders, “Energy and Natural Resources: The Canadian Constitutional Framework”, in M. Krasnick (Research Coordinator), Case Studies in the Division of Powers (1986), vol. 62 of studies commissioned by the Royal Commission on the Economic Union and Development Prospects for Canada 53, at 105–111.
- On this point, see R.G. Lipsey, “Canada at the U.S.-Mexico Free Trade Dance: Wall-flower or Partner?”, C.D. Howe Institute Commentary No. 20, August 1990, and R.J. Won-nacott, “U.S. Hub-and-Spoke Bilaterals and the Multilateral Trading System”, C.D. Howe Institute Commentary, No. 23, October 1990.
- For a discussion of the significant place of early hydro power projects in Canadian politics and development, see H.V. Nelles, The Politics of Development (1974).
- With respect to the latter, the most important development was the creation, and subsequent rapid expansion, of a federal Crown corporation active in all phases of the petroleum industry, pursuant to the Petro-Canada Act, S.C. 1974–75–76, c. 61, now R.S.C. 1985, c. P-ll, as amended.
- Energy, Mines and Resources Canada, The National Energy Program (1980). The NEP was implemented through a number of pieces of federal legislation. Among its primary aims were to increase the level of Canadian ownership in the energy sector, to achieve self-sufficiency for Canada in petroleum, and to limit the impact of dramatic changes in world oil prices on Canadian consumers. The heart of the Program was subsequently removed by the Mulroney government in its first term, although many of the presuppositions upon which the Program was built were in any case rendered invalid by the collapse of world oil prices in the 1980s.
- This is described in G. Székely “Dilemmas of Export Diversification in a Developing Economy: Mexican Oil in the 1980s” (1989), 17 World Development (No. 11) 1777, at 1780–82. The description below follows that account of the Plan and its history. Interestingly, the Mexican plan shared with Canada's a fatal flaw, in predicting a continuing (annual 6 per cent.) rise in oil prices: id., 1782. Canadian planners were even more optimistic, confidently predicting a quadrupling of energy prices between 1980 and 1990: The National Energy Program, 27.
- Id., 1780.
- Id., 1781.
- The Western Accord, An Agreement between the Governments of Canada, Alberta, Saskatchewan and British Columbia on Oil and Gas Pricing and Taxation, March 1985; reproduced in Canada Energy Law Service, Alberta 30–1801.
- Agreement Among the Governments of Canada, Alberta, British Columbia and Saskatchewan on Natural Gas Markets and Prices, October 31, 1985; reproduced in Canada Energy Law Service, Alberta 30–1807.
- The liberalisation of energy markets under the Mulroney government is recounted in A. Hudec & J. Quinn, “Energy Aspects of the Canada-United States Free Trade Agreement” (1989) 2 Canadian Petrol. Tax J. 1.
- FIRA was repealed by the Investment Canada Act, S.C. 1985, c. 20, s. 46; now R.S.C. 1985 1st Supp., c. 28.
- S. 2(1).
- S. 2.
- Royal Commission on the Economic Union and Development Prospects for Canada (the Macdonald Commission), Final Report (1985), especially Vol. 1.
- For a description of the evolution of Mexico's industrial development between 1940, when the Second World War presented it with the opportunity to engage in import substitution in a concerted way, and 1982, when the nation was forced to re-think its development strategy, see R. Villarreal Arrambide, “The New Industrialization Strategy in Mexico for the Eighties”, in S. Weintraub (ed.), Industrial Strategy and Planning in Mexico and the United States (1986) 47, at 47–50.
- Estimate of the drop vary. A study by the US International Trade Commission refers to a drop in tariffs on a trade-weighted basis from approximately 25 per cent, at the end of 1985 to approximately 10 per cent, in 1989: USITC The Likely Impact on the United States of a Free Trade Agreement with Mexico, Report to the Ways and Means Committee of the United States House of Representatives and the Committee on Finance of the United States Senate on Investigation No. 332–297 Under Section 332 of the Tariff Act of 1930 (Pub. No. 2353) (February 1991), at 1–2; Chambers and Percy cite a figure of just over 6 per cent, as an average tariff level: E.J. Chambers and M.B. Percy, “The Mexican Hat in the Free Trade Ring, Western Canada and U.S.-Mexico Free Trade”, Western Perspectives (Canada West Foundation) (September 1990) 4.
- USITC figures show a drop in the number of items subject to import licences, from over 90 per cent, of tradable output in 1985 to just over 20 per cent, in 1989, while the comparable drop for items subject to reference prices was from around 20 per cent, to zero: USITC, supra, note 6.
- US-Mexican Understanding on Subsidies and Countervailing Duties, April 24, 1985.
- The terms of the Understanding are discussed at length in supra, note 6, at 4–17–4–22.
- Although this did not mean that domestic prices had to be at world levels. Indeed, Mexico continued to maintain a two-tier price system for hydrocarbons; however, the relative advantage conferred on Mexican industry has shrunk significantly. Thus, the USITC has noted that the Mexican consumer price for natural gas increased in relative terms from 60 per cent, of the US consumer price in 1987, to 78 per cent, in 1988, to 89 per cent, in 1989: id., at 4–21.
- Understanding Between the Government of the United States of America and the Government of the United Mexican States Concerning a Framework of Principles and Procedures for Consultations Regarding Trade and Investment Relations, Mexico City, November 6, 1987, (1988) 27 International Legal Materials 438.
- Understanding Between the Government of the United States of America and the Government of the United Mexican States Regarding Trade and Investment Facilitation Talks, Washington, October 13, 1989, (1990) 29 International Legal Materials 36.
- USITC, supra, note 26, at 1–2.
- Id., 1–3.
- At 5 per cent: USITC, Operation of the Trade Agreements Program, 37th Report, 1985 (Pub. No. 1871) 185.
- The USITC reported in February 1991 that “[s]eventy-three percent of Mexican economic activity is now open to 100-percent foreign ownership without prior approval by the Mexican government”. USITC, supra, note 26, at 1–7.
- Chambers and Percy, supra, note 26, at 7. Some of these measures are described in more detail in this article in the section on Investment and North American Free Trade in Energy, infra.
- G.C. Huffbauer, W.N. Harrell Smith IV, and F.G. Vukmanic, “The Trade Issue in U.S.Mexican Relations” in C. V´squez & M. García y Griego (eds), Mexican-U.S. Relations, Conflict and Convergence (1983) 235, at 243.
- Agreement on an International Energy Program, Paris, November 18, 1974, (1975) 14 International Legal Materials, T.I.A.S. No. 8278, as amended.
- Memorandum prepared by the Staff of the US Department of Energy and the Office of the US Trade Representative, “Analysis of Chapter Nine of the US-Canada Free Trade Agreement, Concerning Trade in Energy” (1988), at 7.
- See S.P. Battram and R.H. Lock, “The Canada/United States Free-Trade Agreement and Trade in Energy” (1988) 9 Energy L.J. (No. 2) 327; Hudec and Quinn, supra, note 20; J.O. Saunders, “Energy, Natural Resources and the Canada-United States Free Trade Agreement” (1990) 8 J.E.R.L. 3.
- Article 902 (1).
- Saunders, supra, note 41, at 7.
- Article 902 (2); this prohibition extends to any circumstances in which quantitative restrictions are also prohibited.
- The relevant GATT Article, XI: 1, does not mention minimum prices as such, but impugns prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures...[emphasis supplied]
- Moreover, although it is not determinative on the point, Art, XI is entitled “General Elimination of Quantitative Restrictions”.
- The Cabinet does this by refusing removal permits for the gas if the price is too low, pursuant to its virtually unfettered power under the Gas Resources Preservation Act, S.A. 1984, c. G-3.1, as amended, s.4.
- Authorised by the Petroleum Administration Act, S.C. 1974–75–76, s. 7; now Energy Administration Act, R.S.C. 1985, c. E-6.
- This was accomplished in 1981 by an amendment to the Excise Tax Act; it is now found in Excise Tax Act, R.S.C. 1985, c. E-15, Part V.
- Clearly, it was not just the American government that had this interest; it was also a particularly desirable feature of the Agreement in the eyes of the Alberta government, which was happy to see such a barrier to the imposition of any future National Energy Program.
- These exceptions relate, respectively, to critical shortages of essential products, conservation of exhaustible natural resources, export restrictions on materials for domestic processing where the domestic prices are held below world levels as part of a government stabilisation plan, and products in general or local short supply.
- Article 904 (a).
- Article 904 (b).
- Article 904 (c).
- Article 907.
- Article 905 and Annex 902.5.
- Supra, note 41, at 10–12.
- In 1988, the United States imported just under US$ 3 billion in crude oil from Canada and somewhat over US$ 2.6 billion from Mexico, out of total crude oil imports of over US$ 25.6 billion: Chambers and Percy, supra, note 26, at 7.
- Canada exported nearly CAN$ 13 billion in energy and energy goods in 1989, of which over $10.6 billion went to the United States. The breakdown of these exports is as follows: crude oil, $4.35 billion; natural gas, $2.9 billion; petroleum products, $1.63 billion; electricity, $.66 billion (less than half of some previous years); LPGs, $.53 billion; uranium, $.37 billion; and coal, $.22 billion. The same year, Canada imported from the United States over CAN$ 2 billion in energy and energy goods. Figures generated by Energy Policy Branch, Energy Sector, Energy, Mines and Resources Canada, from CANSIM Matrix 2482, in correspondence with author. Mexico exported no natural gas in 1988, although earlier in the 1980s, it did sell significant amounts of gas from northern Mexico to Border Gas (a joint venture of six pipeline companies) in Texas: Chambers and Percy, supra, note 26, at 6–7.
- And which currently accounts for over one third of Canadian exports of natural gas: “Alberta takes steps to resist pressure on natural gas prices”, The Globe and Mail (Toronto), April 20, 1991, at B-3; Northern California is particularly dependent on Canadian exports. Any possibility of an added source of natural gas is especially relevant given the pressure—described in the article above—now being exerted by California on Alberta to obtain more favourable gas prices.
- Chambers and Percy, supra, note 26, at 6–7.
- Although, of the three, only the first two are strictly based on the concept of unfair trading practices, the actions are usually perceived by Canadians as weapons directed toward the same end—i.e. protecting American industry from Canadian competition.
- Article 906.
- Omnibus Trade and Competitiveness Act of 1988, P.L. 100–418.
- Emergency actions refer to those actions directed at sudden surges in imports that, although not resulting from unfair trade practices per se, threaten or cause serious injury to the importing state; such actions are contemplated in GATT Art. XIX. Essentially, Chapter 11 of the FTA phases out bilateral emergency actions over a 10-year period, and in the transition period limits their use significantly. However, the normal GATT rights with respect to global actions not related to the Agreement survive, although in a somewhat attenuated form as between the two Parties. Emergency actions have been used against Canada's resource industries on a number of occasions, although not against the energy sector. Such actions are usually unsuccessful, owing to the large element of Presidential discretion involved in the application of the remedy; however, they arguably have some harassment value.
- Final Negative Countervailing Duty Determination, Anhydrous and Aqua Ammonia from Mexico, 48 Fed. Reg. 28,522 (1983). This and other cases and legislative initiatives in the United States relating to natural resource pricing of foreign countries are discussed in C. Yoder, “United States Countervailing Duty Law and Canadian Natural Resources” in J.O. Saunders (ed.), Trading Canada's Natural Resources (1987), 81.
- Final Affirmative Countervailing Duty Determination and Countervailing Duty Order; Carbon Black from Mexico, 48 Fed. Reg. 29, 564 (1983).
- Final Affirmative Countervailing Duty Determination and Countervailing Duty Order; Portland Hydraulic Cement and Clinker Cement from Mexico, 48 Fed. Reg. 43,063 (1983).
- Bethlehem Steel Corporation v. US, 590 F. Supp. 1237 (1984).
- Id., at 1242.
- 620 F. Supp. 722 (1985).
- Id., at 731. Nevertheless, in a subsequent 1988 administrative review of its CVD order with respect to carbon black, for the period of October 1983 to December 1985, initiated at the request of Cabot Corporation in 1986, the ITC found no preferential pricing by Pemex in its provision of feedstock to carbon black producers: Carbon Black from Mexico: Preliminary Results of Countervailing Duty Administrative Review, 53 Fed. Reg. 15,087 (1988), at 15,089.
- Preliminary Affirmative Countervailing Duty Determination; Certain Softwood Lumber Products from Canada, 51 Fed. Reg. 37,453 (1986). There was no final determination, owing to a last-minute political agreement between Canada and the United States under which Canada agreed to impose a 15 per cent, export tax in lieu of an equivalent countervailing duty that would have been imposed by the United States. The agreement was the source of considerable political debate within Canada. An excellent history and analysis of the dispute is given in M. Percy and C. Yoder, The Softwood Lumber Dispute and Canada-US Trade in Natural Resources (1987). On September 3, 1991 Canada informed the United States of its decision to scrap the tax in light of changed circumstances: “Ottawa to scrap export tax”, The Globe and Mail (Toronto), September 4, 1991, A-1.
- Final Negative Countervailing Duty Determinations; Certain Softwood Products from Canada, 48 Fed. Reg. 24, 159 (1983).
- US International Trade Commission, Potential Effects of Foreign Governments’ Policies of Pricing Natural Resources, Final Report on Investigation No. 332–202 under Section 332(b) of the Tariff Act of 1930, Pub. No. 1696 (1985).
- These are discussed in detail in Yoder, supra, note 65, and in C. Barshefsky, R. Diamond and N.R. Ellis, “Foreign Government Regulation of Natural Resources: Problems and Remedies Under United States International Trade Laws” (1985) 21 Stanford J. Int'l L. 29.
- This was done through the creation of a “special rule”: Omnibus Trade and Competitiveness act of 1988, P.L. 100–418, §1312, amending 19 U.S.C. §1677(5).
- Article 1906.
- Article 1902(2)(d). In the event of disagreement as to whether an amendment to existing legislation is indeed inconsistent with the object and purpose of the FTA, reference may be had to a binational panel for a declaratory opinion in this respect: Art. 1903(1). The provision for such a panel is found in Annex 1901.2.
- Article 1906.
- Article 2106.
- Article 1906.
- Oddly, there has been little comment on this aspect of the FTA. Even as prominent a commentator on the Agreement as Lipsey concludes that, in the event of the failure of negotiations on this point, “the Chapter 19 dispute settlement mechanism may well become permanent”. Supra, note 11, at 8. However, since these arrangements are primarily the result of Canadian demands, and since any amendment to the Agreement would have to be with the consent of Congress, it is by no means clear, or even likely, that this would be the result. The reason that the United States has much less interest in agreeing to a common set of rules so as to protect itself against Canadian abuse of “fair” trade laws is that, historically, it has not typically been the target of such actions. For example, until the corn case of 1987, the United States had never been the victim of a successful CVD action.
- Article 1904.
- Article 1904(3).
- Article 1904(13)(a).
- Article 1904(13)(b).
- “Pork battle looms over free trade”, Financial Post (Toronto), April 13–15, 1991, at 10.
- See “Major trade victory hailed in pork ruling”, The Globe and Mail (Toronto), June 15, 1991, A-1.
- M. Hart, A North American Free Trade Agreement, The Strategic Implications for Canada (1990), at 38.
- A 1990 study by the USITC could in fact find only one CVD action taken by Mexico against any nation (Malaysia): supra, note 6. However, the same study notes that the United States is far and away the primary target of Mexico's much more numerous antidumping actions—which is perhaps to be expected given the US role as Mexico's major trading partner.
- Id., at 4–15.
- Supra, note 89, at 90–91.
- Testimony of Ambassador Clayton Yeutter, US Trade Representative, to the Senate Finance Committee (April 1986), cited in Battram and Lock, supra, note 41, at 366. See also the same testimony cited at 345 in which Ambassador Yeutter identifies foreign investment as one of six broad areas of interest that the United States would pursue in the FTA negotiations.
- Article 1602.
- Article 1605.
- Indeed the statement of the legitimate grounds for expropriation, in Article 1605 of the FTA, follows very closely the Hull Rules, that is the guidelines set out by then-Secretary of State Hull in 1938 with respect to the Mexican agrarian expropriations. Mexico was one of the first and most vigorous opponents of this characterisation of the state of international law. As an example of how closely the FTA follows US policy in the area, Art. 1605 uses virtually identical wording to President Reagan's 1983 statement of the American view: see Office of the White House Press Secretary, “Statement by the President on International Investment Policy” (1983).
- Annex 1607.3 (4).
- Other categories of excluded business under the revised Investment Canada Act include financial services, transportation services and cultural businesses.
- These policies are set out in an exchange of letters between Canada's Minister of Finance and the American Secretary of the Treasury on May 12, 1988 and May 16, 1988. The letters are reproduced in Investment Canada, The Investment Canada Act, Guidelines under the Free Trade Agreement.
- See id. Although hydroelectricity is not included in these guidelines, this is of little practical significance, since the provincial Crown corporations that overwhelmingly account for Canadian hydro production are protected in other sections of the FTA: Art. 1603 (5),(6).
- For a discussion on this point, see Battram and Lock, supra, note 41, at 370.
- Discussed in supra, note 6, at 5–6—5–10.
- The trusts are, however, subject to a 20-year limit, after which they must be sold to Mexicans; the trusts are subject to the approval of the National Foreign Investment Commission, a body consisting of the heads of certain key Ministries: id., at 5–9.
- E. Murphy, “The Dilemma of Hydrocarbon Investment in Mexico's Accession to the North American Free Trade Agreement”, below, page 261.
Journal of Energy & Natural Resources Law
Volume 9, 1991 - Issue 4