More international trade disputes possible outcome of COVID-19, lawyer says

Law360 Canada (August 24, 2020, 9:49 AM EDT) -- Canada and the other signatories to a massive trade agreement are pledging to fight protectionism and diversify trade as a means of recovering from economic effects of COVID-19, but observers are saying the ability of such agreements to help is limited and the outcome of a tendency towards increased protectionism as a result of the pandemic could be a rise in the number of international trade disputes.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP) is a trade pact between Canada and 10 other Pacific Rim nations aimed at reducing barriers to trade such as tariffs. It is the successor to the Trans-Pacific Partnership (TPP), which was put on hold in January 2017 when the United States withdrew from it.

At their most recent meeting of the CPTPP commission, which oversees the implementation of the CPTPP and reviews the economic relationship between signatories, the 11 nations issued a joint statement to reinforce open and rules-based trade in light of the COVID-19 pandemic. The statement said that the countries “strongly believe that given the current circumstances, it is more important than ever to counter protectionism and reinforce an open, effective, fair, inclusive and rules-based trading system to restore economic growth worldwide.”

“The CPTPP members are resolved to continue to work together toward post-COVID-19 economic recovery, including through our ongoing work to establish and strengthen supply chains, and to examine ways the CPTPP could be utilized to facilitate digital trade responses to COVID-19,” the statement said. “We are committed to avoid unjustified trade restrictive measures and to implementing measures in line with the provisions of the CPTPP to facilitate the flow of essential goods and services during the pandemic … in a manner consistent with international trade rules.”

The federal government said agreements like the CPTPP will help Canadian businesses and workers recover more quickly from the COVID-19 pandemic. Mary Ng, Canada’s minister of small business, export promotion and trade, said the agreement “benefits Canadian businesses and exporters and will be key to driving our economic recovery from COVID-19 as an ambitious, high-standard blueprint for prosperity in the Asia-Pacific.”

“Canada will continue to demonstrate leadership on the world stage to push for open, rules-based trade, and to increase prosperity for all Canadians,” she said.

But Matthew Kronby of Borden Ladner Gervais LLP said the ability of agreements like the CPTPP to recover from the economic effects of the pandemic is “limited.” He said, while they do create an architecture for more liberal and predictable trade by setting rules that allow for supply chain improvements and efficiencies and the freer flow of goods and services, when you run into something like COVID-19 the reaction of many governments is to turn inward and become protectionist.

“If a country decides it wants to start doing things unilaterally, which many countries have done during this pandemic, then I don’t think a trade agreement is going to stop that,” he said. “An agreement like CPTPP doesn’t hurt as it may generate some goodwill which may help countries resist protectionist impulses, but it is not a cure-all — it doesn’t prevent protectionism, nor does it necessarily encourage more resilient supply chains.”

Kronby said U.S. President Donald Trump’s recent decision to reimpose tariffs on Canadian aluminum is “emblematic of the limitations of trade agreements.”

“If a country does not want to act in good faith and honour its trade agreements, and is determined to take protectionist action by doing things like securing supplies in a pandemic or for short-term political gain there is limited recourse, except for the trade dispute mechanisms in these agreements which if you are using a pretext like national security are usually limited and in any event take significant time to run their course,” he said. “Dispute settlement even under the best-case scenario even under these trade agreements is usually a year to 18-month process and often much longer.”

Lawrence Herman of Herman & Associates said there is no doubt there will be major effects on global trade flows as a result of the pandemic, as many countries are relying more on their domestic manufacturers to supply goods and are giving subsidies to local producers in discrimination against foreign products.

“What we haven’t experienced is the effect that this might have on trade disputes — the rules of international trade largely prevent domestic subsidies that result in products having an advantage in foreign markets,” he said. “There could be many forthcoming international trade disputes, whereby imports are discriminated against because governments have provided subsidies for domestic producers. That is one area many of us are concerned about — whether there will be a new round of trade disputes resulting from these kinds of subsidy measures.”

Herman said it isn’t certain that such disputes will arise, but “the issue is looming and we don’t know the dimensions of it.”

“But the primary objective of any government is to protect its citizens from the health effects of the pandemic, and that is what Canada has to do,” he said.

The CPTPP entered into force for Canada, Australia, Japan, Mexico, New Zealand and Singapore on Dec. 30, 2018, and for Vietnam on Jan. 14, 2019.

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