It has been a busy week in trade between the United States and Canada.
Softwood the wood is back. Dairy is the first case under the United States-Mexico-Canada Agreement (USMCA). These disputes are attracting media attention. But there’s a third case that doesn’t make the headlines, even though the World Trade Organization (WTO) says it ended amicably this week.
The case, known by its short title WTO Canada-Wine, went to arbitration. This means that there is no verdict to read and therefore no account of what happened. Fortunately, the European Union (EU) has written a long third party submission, giving us a peek behind the curtain. It turned out that Canada-Wine was much more interesting than one might have expected.
The United States actually filed Canada-Wine twice in 2017, both times raising a single legal claim. The complaint states that British Columbia allowed provincial wines to obtain more storage space than other wines, including those elsewhere in Canada, giving those wines an edge over consumers. The United States insisted it was not legal. With strong WTO jurisprudence on its side, the United States obtained from Canada a preferred agreement, formalized in a side letter at USMCA. In just over a page, Canada vowed that British Columbia would forever right its wrongs.
This darling deal did nothing for Australia, so Canberra submitted its own dossier, which went beyond distribution in British Columbia to include taxes in Ontario, Quebec and Nova Scotia. Yet even the Australian version of Canada-Wine seemed quite straightforward.
It turns out that Canada-Wine has some interesting moving parts. We only know this because the EU wrote a 70-page third-party submission, offering play-by-play. This long article includes references to no less than 37 previous WTO cases. Why so many comments for a national treatment dispute? Two reasons.
First, the EU had a defensive responsibility. He loves the Ontario diet, for example, and spends a lot of time thinking out loud about how to help small wineries, including giving them preferential storage space. It ends with a lengthy discussion of quality controls, and even geographical indications, hinting that the EU thinks it can do what Ontario has done, but do it in a legal way. WTO.
It’s worrying. The refinement of these measures, which are probably correlated with national wines compared to foreign wines, will multiply the number of protectionist tools available to governments.
Second, the EU criticizes Canada for trying a creative argument that could harm the United States and the world economy in general. Canada considered that while the measures in dispute were not legal under the WTO, they are legal under the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP). Since Australia is also a member of the CPTPP, Canada insisted it was doing nothing wrong and could not be prosecuted. The EU spent 13 paragraphs shredding this logic.
It is a gift for the United States, which is far behind other countries in signing preferential trade agreements. The WTO cannot anchor these agreements if it is undermined by them. This point must be made by the appeal body, and soon.
Trade disputes between the United States and Canada are often deeper than most. Their political foundations are well known on both sides of the border. This is why lumber and dairy products seem to be repeated. But Canada-Wine has gone off the rails. And it will be back, perhaps under the name EU-Wine.
Marc L. Busch is Karl F. Landegger Professor of International Trade Diplomacy at the Walsh School of Foreign Service at Georgetown University, Non-Resident Senior Researcher at the Atlantic Council, and host of the podcast. TradeCrafts.