Which makes the use of the dispute system in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) all the more surprising. Last year, New Zealand challenged Canada over the proper implementation and allocation of tariff rate quotas for dairy products. CPTPP members established the first-ever panel to review the case in March 2023. The public hearing for the case is taking place this week in Ottawa, with a decision expected in a matter of weeks afterward. The case is expected to be publicly released in September. This will give observers a first glimpse into how well or poorly the dispute system embedded in the CPTPP works. It could also provide an important impetus to future use of the dispute mechanism as a tool to prod members towards improved enforcement of various provisions. Frankly, none of the current CPTPP members is likely to have fully implemented all their commitments. As a simple example, the agreement requires all members to update their government procurement thresholds at least every two years. This is necessary because the limits were written as Special Drawing Rights (SDRs) which are not typically top of mind for firms looking to compete for construction contracts. The SDR conversion rates and the adjustments to procurement are supposed to be published regularly but (as far as I know) not a single government has done so. These sorts of implementation gaps appear across the agreement. Some may be relevant to businesses and others may be less so. But the basic point here is that, by relying on a dispute settlement mechanism built into an FTA to manage effective implementation, it requires such a mechanism to actually be used by participants. Otherwise, enforcement and compliance will always be weak. The use of the dispute settlement provisions for the first time in the CPTPP, then, represents a potentially significant boost to the overall implementation incentives for this agreement. For companies that may be waiting for improved delivery of various CPTPP promises, stepped up attention to implementation cannot come soon enough.

Since NAFTA 2.0 builds on the base of the original NAFTA, the new deal had some advantages over the TPP. For example, tariffs between the parties are already set at zero. This remains, although do note that there are very complicated tariff rate quotas in place in NAFTA 2.0 that were not scrapped. Indeed, the level of genuinely new market access granted to partners that have known and worked with one another for decades is vanishingly small. While much focus, as an example, has been on Canada’s new market access for dairy, the total amount given amounts to barely 0.4%. And the United States, in return, has an equally complex system of barriers in place to protect its own dairy industry from competition (as well as sugar, oranges, and others). The deeply problematic bits of the agreement can be found buried in the texts. For instance, the rules of origin (ROO) are incredibly complicated. Given that tariffs are zero, the only way to keep out goods is to craft ROOs that are impossible to follow. Clearly, for many products, this objective has been met. The level of NAFTA content required in fairly large swaths of products is extremely high. Commentators keep focusing on the insane requirements for auto production, but note that for a wide range of goods, new NAFTA content rules require 50% or more content. To make matters worse, in many products, these rules tighten after 3 years, rising to as much as 70% local (ie NAFTA) content.

Enforcement in Free Trade Agreements

Evaluating Trade Deals Like NAFTA 2.0