On 4 September 2019, a NAFTA binational panel established under Chapter 19 of the NAFTA issued a decision remanding the injury determination of the U.S. International Trade Commission (ITC) in the Softwood Lumber from Canada anti-dumping and countervailing duty investigation. This is the ninth binational panel decision in the long-running Softwood Lumber dispute, with seven decisions previously being issued under the NAFTA and two decisions under the precursor to the NAFTA, the Canada-US Free Trade Agreement (CUSFTA). There was also one Extraordinary Challenge Committee proceeding under Chapter 19 of the CUSFTA, which is a special procedure that was invoked by the United States to challenge the decision of a Softwood Lumber binational panel.

The binational panel process is unique to North America. In contrast to the state-to-state dispute settlement provisions in other trade agreements that assess compliance with the international rights and obligations set out in those agreements, this process replaces the domestic judicial review procedures in Canada, Mexico and the United States with binational panels for matters relating to anti-dumping and countervailing duty determinations. Rather than assessing compliance with the international rights and obligations under the NAFTA, a binational panel assesses whether determinations are “in accordance with the anti-dumping or countervailing duty law of the importing Party” — in this instance the law of the United States.

Five panelists make up a binational panel. They are normally chosen from rosters of qualified individuals that are created by each of the NAFTA countries.  In this instance, the panelists selected were three Canadians and two Americans, with an American Chairing the panel. The panel’s decision was unanimous.

The panel assessed the “injury” determination of the ITC, the two major components of which are (i) the adverse impact on the U.S. domestic softwood industry, and (ii) the existence of a causal linkage between the dumped and subsidized imports and the adverse impact. The panel remanded back to the ITC for its reconsideration the following 12 elements of its determination, directing the ITC to:

• reconsider the record evidence in relation to the business cycle(s) distinctive to the U.S. lumber industry, and to apply its findings in its analysis of volume, price effects, impact, and causation;
• provide a reasoned determination on whether or not to reduce the weight accorded to interim 2017 data;
• clarify whether or not it is also reducing the weight accorded to third- and fourth-quarter 2017 data;
• if, upon reconsideration, the ITC decides to reduce the weight given to post-petition data, clarify what weight, if any, it is giving to post-petition data and the reasons for this determination;
• reconsider its calculation of substitution elasticity, explaining how it reached its conclusion and demonstrating how that conclusion was applied in the Commission’s analysis of volume, price effects, impact, and causation;
• demonstrate how, and to what extent, the limitations to substitutability implied in its conclusion that the goods were “at least moderately substitutable” factored into the Commission’s analysis of volume, price effects, impact, and causation;
• consider all record evidence to demonstrate how, and to what extent, the limitations to substitutability implied in its conclusion that the goods were “at least moderately substitutable” factored into its conclusion that subject imports experienced significant gains in market share directly at the expense of the domestic industry;
• reconsider its volume analysis as the ITC determines appropriate;
• consider whether to take the more recent Forest Economic Advisors (“FEA”) data into account in its domestic capacity analysis, explain its decision, and, if it decides to take the updated FEA data into account, reconsider its price effects analysis as it determines is appropriate;
• reconsider its conclusion that the prices of different species closely track each other to take into consideration that price movements of one species “affect” prices of other species, the existence of a “great difference in price movement” of one species compared to another, and that prices for different species “generally track” each other, as well as any other record evidence, and to determine what effect such reconsideration has on its price suppression analysis;
• reconsider its cost of goods sold and price trends analysis to take into account the Commission’s finding that subject imports and domestic products are at least moderately substitutable, and determine what effect such reconsideration has on its finding that subject imports prevented price increases which otherwise would have occurred to a significant degree; and
• reconsider the relevant record evidence and its conclusion that purchasers confirmed purchasing subject imports rather than domestic product solely due to their lower prices, and to determine what effect such reconsideration has on its price suppression analysis.

The panel found that the ITC’s findings of adverse impact and causation were lawful and supported by substantial evidence in light of its determinations regarding the above remanded elements. However, the panel further directed that if the ITC reaches a different finding or conclusion on a particular issue in any of the foregoing remands, then it must determine and explain what effect such reconsideration has on its adverse impact and causation analyses.

The ITC has 90 days to submit a Redetermination on Remand that addresses the above-referenced issues. The panel can then review the revised determination and either affirm it or issue a further remand on some or all of the elements of the revised determination.  There were multiple remands in the two previous binational panel proceedings on ITC injury determinations in Softwood Lumber (three remands in the 1993-1994 review; and three remands in the 2003-2004 review).  Thus, it is possible that there will be multiple remands in this proceeding. If so, this is just the first step in the process, and the final outcome has yet to be determined.

Tereposky & DeRose regularly provides advice on NAFTA matters and our lawyers are experienced in binational panel reviews in Canada, Mexico and the United States. Should you have any questions regarding binational panel reviews, we are at your disposal.