Canada: Softwood Lumber Falls Onto NAFTA Investor-State Disputes

Last Updated: July 28 2006
This article was originally published in Blakes Bulletin on International Trade, July 2006

Article by Cliff Sosnow, ©2006 Blake, Cassels & Graydon LLP

A recent ruling related to the softwood lumber dispute shows that while NAFTA, including the investor-state rules in Chapter 11, has an inherently political dimension, it is first and foremost a legal document – one whose terms will be interpreted according to the precisely-worded formulations negotiated by the Parties.

The Softwood Lumber Dispute as Catalyst to Jurisdictional Ruling

Perhaps fittingly, given how it has exposed important structural weaknesses in the countervailing and dumping duty dispute settlement provisions set out in Chapter 19 of NAFTA, the softwood lumber dispute now focuses its spotlight to expose the limits of investor-state dispute settlement and the relationship of Chapter 11 to other NAFTA disciplines, in particular, the countervailing and antidumping provisions of NAFTA.

The dispute involves Canfor Corporation and Terminal Forest Products Ltd. against the United States of America in a consolidated Chapter 11 arbitration. The heart of the dispute is the reach of Article 1901(3), a provision which reads as follows:

"Except for Article 2203 (Entry into Force), no provision of any other Chapter of this Agreement shall be construed as imposing obligations on a Party with respect to the Party’s antidumping law or countervailing duty law."

Canadian petitioners argued that in rendering decisions respecting the softwood lumber dispute, a dispute that is focused on whether Canada unfairly subsidizes Canadian lumber and whether Canadian lumber companies are "dumping" product into the U.S., officials at the Department of Commerce and the United States International Trade Commission have misapplied their governing laws, abused their discretion and, more broadly, have made decisions that were motivated by political bias. They alleged that in so doing, such misconduct violates the National Treatment, Most-Favoured Nations, Minimum Standard of Treatment and Expropriation provisions set out in NAFTA Chapter 11.

Countervailing and Antidumping Law is not Properly Subject to Chapter 11 Review

The United States Government argued that Chapter 11 investment tribunals lack jurisdiction in such matters because NAFTA Article 1901(3) excludes, by its terms, the use of Chapter 11 investor-state dispute settlement for disputes respecting countervailing or antidumping duties. According to this view, if there is a dispute regarding countervailing or antidumping duties, even if it is in relation to the behaviour of officials and not the substance of the law giving rise to the dispute, then still, the correct avenue of redress and remedy is Chapter 19, not Chapter 11.

Canadian petitioners countered that the challenge is not respecting U.S. countervailing and antidumping duties per se, but rather the conduct of various U.S. officials and agencies in making and applying determinations falling under their respective jurisdictions. Petitioners said that its claims focus on conduct in breach of NAFTA Chapter 11 obligations, not on allegations of reviewable error respecting determinations under U.S. countervailing duty or antidumping law.

In a "Decision on Preliminary Question", issued on June 6th, an arbitral panel responded to petitioners’ complaint in the negative, at least in part. In particular, the panel agreed with the U.S. that Article 1901(3) precludes Chapter 11 investor-state arbitration to apply to the countervailing or antidumping law of a State Party to NAFTA. Significant to petitioners’ case was the clear rejection by the tribunal that claims alleging misconduct by government officials in relation to determinations and applications of U.S. countervailing and anti-dumping law are not justiciable under NAFTA Chapter 11.

But the Byrd amendment does raise justiciable issues under chapter 11

An additional dimension of petitioners’ case was that the Byrd Amendment, U.S. legislation that specifies that countervailing or antidumping duties imposed on imports can be collected and redistributed to those U.S. companies that complain of being affected by unfairly subsidized or dumped imports, is a proper subject of Chapter 11 jurisdiction. Petitioners allege this is so because its terms result in the differential treatment of U.S. and Canadian companies in violation of the national treatment provisions set out in Chapter 11 Article 1102.

In what might be called judicial "sleight of hand" or more properly a faithful reading of text, the panel ruled that it could examine alleged breaches of the Amendment under the provisions of Chapter 11. This, even though the subject matter of the Amendment is by its nature in relation to the countervailing duty and antidumping law that the panel said is not a fit subject of Chapter 11 review.

It came to this conclusion by noting that the U.S. Government failed to notify the Parties to NAFTA that would be affected by that Amendment that it was amending its countervailing or antidumping duty law, as required by NAFTA Chapter 19 Article 1902(2). By not so notifying the other NAFTA Parties, the U.S. Government could not now claim that the Byrd Amendment is U.S. countervailing or antidumping duty law subject to the sheltering provisions of Article 1901(3).

Settlement Negotiations May Result in a Still-Born Decision

Canada and the U.S. are lumbering towards the negotiation of a settlement to the softwood lumber dispute. One of the terms of the settlement, if successfully concluded, will terminate all related litigation. It remains to be seen whether this Chapter 11 claim respecting the Byrd Amendment, not being in relation to countervailing or antidumping duty law or exclusively applicable to the softwood lumber dispute, will also be terminated.

Perhaps more importantly at the institutional level, this panel decision makes clear that while treaties like NAFTA and, in particular, the investment provisions of Chapter 11, have an inherently political dimension that is troublesome to some, NAFTA – including Chapter 11 – is first and foremost a legal document; one whose terms will be interpreted according to the precisely-worded formulations negotiated by the Parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
24 Nov 2017, Seminar, Toronto, Canada

Blakes is proud to host our New to In-House Series, designed to bring together junior and mid-level in-house counsel for a candid exchange of insights to highlight and address some of the challenges and opportunities facing in-house lawyers in their roles today.

30 Nov 2017, Seminar, Toronto, Canada

This seminar will feature a panel of senior counsel who will discuss a range of current ethical issues that in-house counsel may face. Attendees will be provided with scenarios and encouraged to participate in the discussion.

30 Nov 2017, Seminar, Toronto, Canada

The economic climate of the past three years has seen a marked increase in the number of construction projects that have been terminated, suspended or threatened to be terminated. Please join us as we discuss some of the key issues that can arise from such terminations or potential terminations and practical tips for protecting existing rights and remedies under the project contract.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.