The Outsourcing of American Law

Who needs federal judges when you have Canadians?

The North American Free Trade Agreement has long been faulted by its American critics for sending blue-collar jobs across the border. In recent years, those complaints have grown to encompass losses in white-collar sectors, such as financial services and information technology, as well. Now it’s time to add a new complaint to the list: NAFTA may have unconstitutionally outsourced our judicial system.

Such is the claim a federal appeals court in Washington, D.C., will consider this fall. At stake is America’s commitment to free trade, its ability to sign meaningful international agreements, and our understanding of what federal courts are meant to do.

The NAFTA challenge is being brought by the U.S. Coalition for Fair Lumber Imports, an association of American lumber producers. Over the past 25 years, the coalition has attempted to prove that Canada is providing billions of dollars in annual subsidies to its lumber industry by underpricing government-owned timber. Under U.S. and international trade law, governments are permitted to “level the playing field” by imposing duties on subsidized imports if they cause, or even only threaten to cause, material injury to a domestic industry. In 2001, the United States made just that determination about Canadian lumber. It was the third such determination in the last 20 years.

In the early 1990s, when NAFTA was first negotiated, Canada and Mexico had serious concerns about the apparent arbitrariness of such findings by the United States. The result was Chapter 19, which authorizes panels composed of five trade experts selected by the bickering NAFTA countries to resolve these disputes. The experts are chosen from a roster agreed upon by all three nations; each party to a dispute selects two panel members and the fifth is chosen together or by lot. These panels are designed to replace domestic courts, like the U.S. Court of International Trade, and are required to apply the domestic law of the country whose duty is being challenged. Panel decisions can occasionally be appealed to an Extraordinary Challenge Committee composed of three sitting or retired judges. Only six times have parties sought ECC reversal of a panel, each time unsuccessfully.

In 2002, Canada invoked Chapter 19 to review the latest American lumber duties. The panel ruled for Canada in 2003, and the United States appealed to an ECC. On Aug. 10, 2005, that committee unanimously affirmed the lower panel’s finding that the U.S. duties violated U.S. law. Which brings us back to that appellate court in Washington, D.C.

Having lost in NAFTA’s highest dispute resolution tribunal, the Coalition is now arguing that Chapter 19 violates the Constitution. The coalition makes two arguments. The first is that it is unconstitutional to vest so-called “trade experts”—some of them Canadian!—with the power to interpret U.S. law and compel U.S. agencies to follow that interpretation. Under the Constitution, it contends, such power can be vested only in a federal judge or in an executive agent appointed and supervised by the president.

Their second argument is that Chapter 19 violates due process because binational panels are inherently biased. Because all panelists are chosen by the parties whose case they will hear, there is a real possibility that these panelists will decide issues based on national allegiance rather than the merits. Making matters worse, the NAFTA system proscribes very little procedure to constrain this bias. Could a Chapter 19 panel settle a dispute simply by flipping a coin? Why not? The constitutional protections of due process need not apply and ECC decisions can not be reviewed by the Supreme Court.

The Justice Department, which is charged with defending Chapter 19 on behalf of Congress and the president, has a number of responses to the coalition’s claims. There are several instances throughout history of binding international arbitration between nation-states. Between 1794 and 1940 there were at least 249 instances in which the rights of individuals were adjudicated by binational or multinational tribunals, many involving the United States. Most notably, the Jay Treaty, negotiated by Chief Justice John Jay himself, established two binational claims commissions to resolve disputes between U.S. and British subjects arising out the American Revolution. The five-member commissions were staffed in nearly the exact same manner as those constituted under Chapter 19. Neither Jay, nor any of the other Founders, had any constitutional problem with this arrangement.

The Justice Department also argues that the coalition is due no particular process in the matter at hand, because it has no “right” to petition for duties in the first place. Moreover, even if the coalition were entitled to some sort of hearing, there is no reason to believe they didn’t receive it. Not only did the initial 2003 five-member binational panel consist of three U.S. members and only two Canadians, it also issued unanimous opinions. And while the 2005 ECC was composed of two Canadians and one American, it was also unanimous in its finding against the U.S. duties.

The coalition’s challenge has prompted a remarkable international legal showdown. Since the creation of NAFTA, Canada and Mexico have been subject to far fewer U.S. duties than have other countries (proportionate to trade volume), and their support for NAFTA is intimately tied up with the success of Chapter 19. Both countries have filed briefs supporting the Justice Department, and Canada has enlisted former U.S. Solicitor General Seth Waxman to argue its case. The U.S. Coalition for Fair Lumber Imports has its own high-powered allies: A bipartisan group of senators, including Olympia Snowe, Lindsey Graham, and Max Baucus, has filed an amicus brief on the coalition’s behalf, and former U.S. Attorney General Dick Thornburgh recently called the Chapter 19 regime unconstitutional and “highly unadvisable.”

At the center of the storm is a U.S. government left in the precarious position of defending the constitutionality of the very NAFTA system that has consistently ruled against its own imposition of duties on Canadian lumber.

The NAFTA dispute is about more than money and politics, however. It is about how America’s legal system interacts with the world. The opportunities and challenges of globalization beg for cooperation between nations, and the most promising way to address at least some of these issues is through legal regimes like Chapter 19. But the question of how these regimes should be designed—how they can best accomplish their goals while remaining true to the values embodied in our Constitution—is far from settled.

At least according to modern Supreme Court doctrine, federal laws—like the trade laws at issue here—need not be interpreted by federal courts or federal judges. They can also be interpreted by federal agencies, state courts, and even some state agencies, as well. The Supreme Court has proved pragmatic in addressing the question of where federal claims can be heard, employing a balancing test that weighs concerns about fairness and separation of powers against the efficiency of the alternative regime. Since the test was formulated in 1986, the court has failed to strike down a single scheme authorized by Congress.

But there are problems with blindly applying current doctrine to the international arena. Beyond mere differences between federal and state, courts and agencies, all of these forums share two characteristics: They are bound to provide parties with due process, and they remain subject to final review by the Supreme Court. Even if nothing in the Constitution prohibits Congress from relaxing these requirements, we tread on dangerous ground when they do. So before NAFTA’s dispute resolution system is validated, three questions must be answered:

First, why do we need an international tribunal to interpret a U.S.trade law? Chapter 19 is based on the claim that U.S. agencies are biased against foreigners. Empirical evidence suggests this is at least possible, if not likely. But the NAFTA system also assumes that U.S. courts are systemically incapable of controlling this bias and an international body is not. These are important empirical questions, and ones never thoroughly evaluated by those challenging or defending the use of binational panels. They need to be. If the United States is unable to ensure that foreign parties receive a fair handshake in our own courts—and if binational panels do so better—then the spirit of due process may fall in favor of allowing the alternative arrangements, rather than prohibiting them. The constitutionality of Chapter 19 panels need not be blind to the realities they address.

Second, what is the minimum process due to a party in an international tribunal, and how do we ensure it is provided? The coalition correctly claims that many constitutional protections disappear the minute an international forum is employed. While there is little reason to believe that international tribunals are incapable of protecting rights as well as American courts, in a world of power politics considerations of fairness may often be overlooked.

Third, should the use of international tribunals be limited to only certain areas of law? Trade seems like a natural candidate for international adjudication, but how about the environment? Criminal law? Family law? Is it even possible to draw lines across these categories? And if anything goes—if the Constitution might really permit adjudicating any aspect of federal law in an international tribunal—who needs federal judges in the first place?

It’s unlikely the D.C. Circuit will be asking these questions, and there are a number of narrow ways the court could avoid the toughest constitutional issues in play. But the questions raised by NAFTA are not unique, and they will not go away. Globalization creates tremendous opportunities—and demands creative answers to tough questions. Deciding which of these solutions best squares with our Constitution looks to be the first.