NAFTA Binational Panel System: Second Constitutional Suit Dismissed

NAFTA Binational Panel System: Second Constitutional Suit Dismissed

98-102 A
February 10, 1998
CRS Report for Congress
Received through the CRS Web
NAFTA Binational Panel System: Second
Constitutional Suit Dismissed
(name redacted)
Legislative Attorney
American Law Division
Summary
Chapter 19 of the NAFTA allows parties to antidumping and countervailing duty
proceedings to seek binational panel review of final agency determinations in lieu of
judicial review in the country in which the determination was made. Some have argued
that the process violates the Appointments Clause of the U.S. Constitution and possesses
other constitutional defects. Federal law allows suits challenging the constitutionality
of Chapter 19 panels, but these may only be brought by parties to a panel proceeding.
The U.S. Court of Appeals for the District of Columbia Circuit recently dismissed a
Chapter 19 constitutional challenge, holding that the plaintiff had failed to meet Article
III standing requirements (American Coalition for Competitive Trade v. Clinton, 129
F.3d 761 (decided Nov. 14, 1997)). Separately, the plaintiff had conceded its failure to
meet the statutory exhaustion requirement for filing such a suit, a requirement the court
found to be constitutional as well as typical of agency adjudication schemes.
Background
Chapter 19 of the North American Free Trade Agreement (NAFTA) provides for the
establishment of 5-member ad hoc binational panels to review final antidumping (AD)
and countervailing duty (CVD) determinations made in NAFTA countries,1 carrying
forward a mechanism pioneered in the U.S.-Canada Free Trade Agreement (CFTA). The
CFTA provided that the panel system would be in effect for up to 7 years pending the
development of new rules to deal with subsidies and unfair pricing practices in the two
countries.2 The bilateral rules never materialized and in time the Chapter 19 process was
1 North American Free Trade Agreement (NAFTA), entered into force January 1, 1994, Art.
1904, Annexes l901.2, 1904.13, 1904.15, 1911.
2 See generally House Judiciary Committee Report on H.R. 5090, United States-Canada
Free-Trade Agreement Implementation Act of 1988, H.R. Rep. No. 100-816, Part 4, 100th Cong.,
2d Sess. 4 (1988) [hereinafter cited as House Report]; Holmer & Bello, "Midterm Report on
(continued...)
Congressional Research Service ˜ The Library of Congress

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extended to Mexico and made permanent in the NAFTA.3 Chapter 19 provides for
possible suspension of the panel process between two NAFTA Parties, however, in the
event a Party has acted inconsistently with its Chapter 19 obligations (see Art. 1905).
In any AD or CVD case involving two NAFTA Parties in which a final
determination has been rendered, either Party (known in the NAFTA as an "involved
Party") may request that a binational panel be established to review whether the
determination was made in accordance with the AD or CVD law of the importing
country.4 Once a request is made, a binational panel will be established and the final
agency determination may no longer be judicially reviewed in the importing country.
Panelists, who are citizens of Canada, Mexico or the United States, are chosen by the
Party countries (two by each disputing Party, with the fifth chosen by agreement of the
two Parties, or if this fails, by the Party chosen by lot). The panel applies the standards
of review of the importing country and the general legal principles that a domestic court
would otherwise apply in reviewing the agency determination at issue. Decisions are by
majority vote and based on the votes of all panel members; the panel may either uphold
a final determination or remand it for action "not inconsistent with" its decision. Panel
decisions are binding on the Parties involved with respect to the particular matter before
the panel and may not be appealed to domestic courts. A panel may make one or more
remands if it finds that the agency has not acted consistently with the panel's decision.
Panel decisions may be appealed to a three-member Extraordinary Challenge
Committee (ECC), if an involved Party alleges that a panel member was ethically unfit,
the panel "seriously departed from a fundamental rule of procedure," or the panel
"manifestly exceeded its powers, authority or jurisdiction ... for example by failing to
apply the appropriate standard of review," and any of these actions has "materially
affected the panel's decision and threatens the integrity of the binational panel review
process" (NAFTA, Art. 1904:13). ECC decisions are also binding on the Parties.
The United States implements its Chapter 19 obligations by requiring the
International Trade Commission (ITC) and the Department of Commerce (DOC), in the
event of a remand by a binational panel or ECC, to "take action not inconsistent with the
decision of the panel or committee" (19 U.S.C. § 1516a(g)(7)(A)). Except as discussed
2(...continued)
Binational Dispute Settlement Under the United States-Canada Free Trade Agreement," 25 Int'l
Law. 489, 490, 493-95 (1991).
3 By October 1993, 48 binational panels had been established, including two Extraordinary
Challenge Committees, 30 of these to review U.S. agency determinations. These resulted in 36
panel decisions, 23 involving U.S. determinations. As of October 1997, there were 33 NAFTA
binational panel reviews. Fifteen of these involved the United States; 8, Mexico; and 10, Canada.
Of the 15 panel reports issued, 7 involved the U.S.; 2, Mexico; and 6, Canada. Statistical data
provided by the U.S. Section of the CFTA Binational Secretariat and the U.S. Section of the
NAFTA Binational Secretariat. See generally Lopez, "Dispute Resolution Under NAFTA:
Lessons from the Early Experience," 32 Tex. Int'l L. J. 163, 173-184 (1997).
4 While the NAFTA allows an involved country to initiate a request either on its own behalf,
or on behalf of a person who would otherwise be entitled to domestic judicial review, U.S. law
precludes the U.S. Government from self-initiating a binational panel request in the absence of
a request from a private party. 19 U.S.C. § 1516a(g)(8)(C).

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below, federal law precludes judicial review of a final determination that is subject to a
panel request and of ITC or DOC actions taken in response to a panel or ECC decision.5
Constitutional Questions Regarding Chapter 19 Panels
When first proposed under the CFTA, the panel system was viewed by some as
problematic under the Appointments Clause, Article III, and the Due Process Clause of
the U.S. Constitution.6 The Appointments Clause, Art. II, sec. 2, cl. 2, requires that
officers be appointed by the President with the advice and consent of the Senate, but
allows Congress to vest the appointment of "inferior officers" in the President, the courts,
or heads of departments. It was argued that panelists should be considered federal officers
within the Buckley v. Valeo definition, that is, individuals "exercising significant authority
pursuant to the laws of the United States" (424 U.S. 1, 126 (1976)), and as such must be
appointed pursuant to the Clause.7 The Clause would arguably be violated because
neither U.S. panelists (argued to be principal officers) nor Canadian panelists would be
appointed by the President. With respect to Article III, which vests "the judicial power
of the United States ... in one Supreme Court and in such inferior courts as the Congress
may from time to time establish," it was argued that since matters that would come before
the panel were then heard before the Court of International Trade, an Article III court,
Congress could not direct that they be heard before a lesser tribunal. Moreover,
separation of powers principles arguably prevented Congress from eliminating all judicial
review for the cases involved. Even if judicial review could be limited, however, it was
contended that due process mandated that a party have a meaningful hearing at minimum
and the right to assert at least a facial constitutional challenge to the panel system.
Most constitutional scholars who had examined the proposed CFTA panel system
agreed, however, that the process appeared to be constitutionally sound. It was argued,
inter alia, that panelists would be applying federal law as incorporated in an international
agreement and thus would not be officers exercising authority pursuant to the "law of the
United States"; that the binational panel system possessed features similar to those of
5 19 U.S.C. § 1516a(g)(2)(final agency determinations); 19 U.S.C. § 1516a(g)(7)(A)
(agency actions in compliance with panel decisions).
6 See House Report, supra note 2, at 8-16, and Statement of Customs and International
Trade Bar Association at 19-21, as reprinted in United States-Canada Free Trade Agreement:
Hearing Before the Subcomm. on Courts, Civil Liberties, and the Administration of Justice of the
House Comm. on the Judiciary, 100th Cong., 2d Sess. 573, 591-93 (1988)[hereinafter cited as
House Hearings]. Additional discussions may be found in, inter alia, Metropoulos,
"Constitutional Dimensions of the North American Free Trade Agreement," 27 Cornell Int'l L.
J. 141 (1994) (Article III violated); Morrison, "Appointments Clause Problems in the Dispute
Resolution Provisions of the United States-Canada Free Trade Agreement," 49 Wash. & Lee L.
Rev. 1299 (1992); Chen, "Appointments with Disaster: The Unconstitutionality of Binational
Arbitral Panel Review under the United States-Canada Free Trade Agreement," 49 Wash. & Lee
L. Rev. 1455 (1992); Comment, "Chapter 19 of the Canada-United States Free Trade Agreement:
An Unconstitutional Preclusion of Article III Review," 5 Conn. Int'l L. J. 317 (1989).
7 The Supreme Court recently clarified that the exercise of significant authority pursuant
to federal law is not a factor that determines whether an individual is a principal or inferior
officer for Appointments Clause purposes, but instead "marks ... the line between officer and
non-officer." Edmond v. United States, 117 S.Ct. 1573, 1580 (1997).

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other international arrangements entered into by the United States (e.g., arbitral and
claims agreements), which have not raised constitutional concerns; and that, as seemingly
recognized in such cases as Northern Pipeline Constr. Co. v. Marathon Pipe Line Co.,
458 U.S. 50 (1982), and Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568
(1985), Congress has permissibly limited federal court jurisdiction in the past and may use
this power to place review of a statutory right or benefit (a category that would include
the availability of AD and CVD duties) in a non-Article III forum. It was also argued that
as the CFTA implementing legislation could be viewed as an expression of combined
executive and legislative foreign affairs powers, it would thus be granted considerable
judicial deference.8
Despite this general consensus, differences of opinion as to whether the Due Process
Clause allowed eliminating all judicial review led Congress to provide for challenges to
AD and CVD determinations on the ground that the panel system or the underlying AD
and CVD statute or proceeding is unconstitutional.9 As for challenges involving the panel
system, § 516A(g)(4)(A) of the Tariff Act of 1930 provides for expedited review, with
exclusive original jurisdiction granted to the U.S. Court of Appeals for the District of
Columbia Circuit; an exhaustion requirement at § 516a(g)(4)(C) provides that only "an
interested party" who participated in a binational panel proceeding may file such a suit.10
Any final appeals court judgment may be reviewed by appeal directly to the U.S. Supreme
Court within 10 days of the lower court order.
Constitutional Challenges to the Chapter 19 Process
A suit challenging the constitutionality of the panel under the CFTA was brought in
the U.S. District Court for the District of Columbia in 1992 and dismissed in May 1993
for lack of subject-matter jurisdiction. Plaintiffs, who had not participated in the
binational panel process, chose to bring their suit in the district court in order to challenge
the constitutionality of the exhaustion requirement. The court held, however, that the
exclusive forum for the challenge was the U.S. Court of Appeals for the District of
Columbia, as provided in the Tariff Act.11 A constitutional suit was filed the following
8 Constitutional issues are discussed in House Report, supra note 2, at 2-18, and
Congressional Research Service, "Possible Constitutional Objections to the Canada-United States
Free Trade Agreement" (memorandum by (name redacted), American Law Division, December
16, 1987). This memorandum and the written comments of other constitutional scholars
concluding that the process is constitutional are reprinted in House Hearings, supra note 6.
Other analyses favoring constitutionality may be found in, inter alia, Boyer, "Article III, the
Foreign Relations Power, and the Binational System of NAFTA," 13 Int'l Tax & Bus. Law. 101
(1996); Bruff, "Can Buckley Clear Customs?" 49 Wash. & Lee L. Rev. 1309 (1992); Davey, "The
Appointments Clause and International Dispute Settlement Mechanisms: A False Conflict," 49
Wash. & Lee L. Rev. 1315 (1992); Christenson & Gambrel, "Constitutionality of Binational
Panel Review in the Canada-U.S. Free Trade Agreement, 23 Int'l Law. 401 (1989); Note, "The
Constitutionality of Chapter Nineteen of the United States-Canada Free Trade Agreement: Article
III and the Minimum Scope of Judicial Review," 89 Colum. L. Rev. 897 (1989).
9 19 U.S.C. § 1516a(g)(4). See House Report, supra note 2, at 11-13.
10 19 U.S.C. § 1516a(g)(4)(A),(C).
11 National Council for Industrial Defense Inc. v. United States, 827 F.Supp. 794 (D.D.C.
(continued...)

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year by the Coalition for Fair Lumber Imports, a party in a binational panel proceeding,
after a binational panel twice remanded DOC action and an extraordinary challenge
committee later upheld the panel's decisions. The underlying agency ruling was an
affirmative subsidy determination in a CVD proceeding involving Canadian timber. The
suit was withdrawn after the U.S. and Canada entered into negotiations on the issue and
before the court had issued an opinion on the merits.12
The constitutionality of the system was most recently challenged in American
Coalition for Competitive Trade (ACCT) v. Clinton, filed in the U.S. Court of Appeals
for the District of Columbia Circuit in January 1997.13 Plaintiff, a non-profit association
of organizations and corporations, also challenged the constitutionality of the statutory
exhaustion provision. ACCT conceded that it had not fulfilled the requirement, but
maintained that it had standing to bring the suit under Article III of the U.S. Constitution.
The Court of Appeals dismissed the suit November 14, 1997, holding that the plaintiff did
not meet constitutional standing requirements and had failed to meet statutory
jurisdictional requirements, whose constitutionality it also upheld.14
In the court's view, the plaintiff had failed to meet a required element of Article III
standing set forth by the Supreme Court in Defenders of Wildlife v. Lujan, namely,
establishing a causal connection between the injury and the complained-of conduct.15 The
plaintiff also fell short of the standing test for organizations, which allows an entity to sue
on behalf of its members only if the latter are eligible to do so in their own right.16 The
court noted that ACCT had not participated in a panel proceeding, nor had it identified
specific instances in which either a panel proceeding or the system itself had injured an
ACCT member. The court found that plaintiff's generalized statement that ACCT
members had suffered NAFTA-related job losses was inadequate for these purposes.

The court also rejected plaintiff's strategy of asserting Article III standing to
challenge the constitutionality of the panels and the exhaustion requirement itself:

Article III sets the maximum boundaries of permissible standing, but does
not preclude Congress from creating additional statutory exhaustion
requirements. To be sure, a statute that totally precluded judicial review for
constitutional claims would certainly raise serious due process concerns. ...
Along the same lines, there may well be limits to how severely Congress can
restrict the route to judicial review of constitutional challenges when it keeps
11(...continued)
1993). Section 516A(g)(4)(A) was amended in the NAFTA Implementation Act to codify the
district court's holding. See H.R. Doc. No. 159, v. 1, 103d Cong., 1st Sess. 655 (1993).
12 Coalition for Fair Lumber Imports v. United States, No. 94-1627 (D.C.Cir. filed Sept. 14,
1994, withdrawn by voluntary motion to dismiss January 5, 1995); "U.S. to Repay Canadian
Lumber Levies; Bilateral Consultations to Begin," 11 Int'l Trade Rep. 1981 (BNA 1994).
13 See generally "Coalition Files Constitutional Challenge to NAFTA, FTA Binational Panel
System," 14 Int'l Trade Rep. 126 (BNA 1997).
14 American Coalition for Competitive Trade v. Clinton, 128 F.3d 761 (D.C.Cir. 1997).
15 Id. at 764, citing Defenders of Wildlife v. Lujan, 504 U.S. 555, 560-61 (1992).
16 128 F.3d at 764, citing, inter alia, Pennel v. City of San Jose, 485 U.S. 1, 7 (1988).

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that route partially open. This, however, is not such a case. Section
1516a(g)(4)(C) merely establishes reasonable requirements that ensure that
plaintiffs have a concrete stake in the proceedings and have exhausted their
administrative remedies before they may challenge the constitutionality of the
binational panel review system.
Indeed, section 1516a(g)(4)(C)'s exhaustion requirement is so typical that
striking it down as unconstitutional could render a substantial portion of the
United States Code open to constitutional attack. Many agency adjudication
schemes require petitioners to exhaust their administrative remedies before
bringing their constitutional claims to Article III courts.17
Conclusion
The court of appeals noted that the plaintiff may still locate a party who has
constitutional standing and thus pursue its constitutional concerns in the future.18 Even
were a case to be successful, however, a court decision may have only limited effect for
the particular plaintiff involved. Were a court to hold the process to be unconstitutional,
the President may use statutory authority to accept the binational panel or ECC decision
at issue.19 Assuming that this fallback provision were not also struck down, the DOC or
the ITC (as the case may be) would be required to implement the decision, and, further,
neither the President's nor the agency's action could be judicially reviewed.20
17 128 F.3d at 765-66 (citations omitted). The court also found that plaintiffs had failed
to present evidence supporting their allegation that Congress had enacted the review provisions
because of severe doubts over the constitutionality of the panel process. "To the contrary," the
court said, "the statutory scheme itself, which vests original jurisdiction ... in this appellate court,
illustrates Congress' desire to expedite judicial review of the binational panel scheme, while
limiting the petitioner class to people who have exhausted their administrative remedies and
clearly have constitutional standing." Id. at 766.
18 Id. at 765. There has been no Supreme Court appeal filed in this case. In the 105th Cong.,
1st Sess., amendments submitted in connection with S. 1269, the proposed Reciprocal Trade
Agreements Act of 1997, would have prohibited the U.S. or the President from entering into
treaties or international agreements that, under one formulation, "would have the purpose or
effect of transferring the jurisdiction or authority of a Federal court to decide cases under United
States law" and would have made fast-track approval procedures inapplicable to agreements and
bills having this purpose or effect. Amends. No. 1603 and 1605, 143 Cong. Rec. S12028-29
(daily ed. Nov. 7, 1997)(submitted by Sen. Craig) and Amend. No. 1545, 143 Cong. Rec. S11601
(daily ed. Nov. 3, 1997)(submitted by Sen. Grassley).
19 19 U.S.C. § 1516a(g)(7)(B). See House Report, supra note 2, at 17-18. In implementing
the CFTA, the President "accept[ed], as a whole," all panel and ECC decisions in the event the
process were held to be unconstitutional and the President's authority to accept panel decisions
thereby took effect. E.O. 12662, § 3, 54 Fed. Reg. 785 (1989). This action appears not to have
been rescinded.
20 19 U.S.C. § 1516a(g)(7)(B). A discussion of possible obstacles to constitutional
challenges to the panel system may be found in House Report, supra note 2, at 17, n. 113, and
Deyling, "Free Trade Agreements and the Federal Courts: Emerging Issues," 27 St. Mary's L.J.
353, 379-381 (1996), available in WESTLAW, JLR File.

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