Is There a Constitutional Issue in the USMCA?

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Some argue that the United States Mexico Canada Agreement (USMCA) presents interesting questions about how to resolve trade and investment disputes.  The USMCA, which is the new incarnation of the North American Free Trade Agreement (NAFTA), presents crucial constitutional issues concerning the Appointments Clause, the jurisdiction of the federal courts, due process and jury trial rights.  For example, do the USMCA’s binational dispute settlement panels bind the United States as a matter of domestic law?  Is it permissible that the administrative agency-type panels’ decisions are generally not reviewable by an Article III court?  As important as the USMCA might be for trade and investment flow, few are arguing that the interests of American sovereignty be sacrificed.  Our speakers will address these issues.


Prof. John S. Baker, Professor Emeritus, Paul M. Hebert Law Center, Louisiana State University

Dr. R. Sohan Dasgupta, University of California, Berkeley


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Event Transcript

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's International & National Security Law Practice Group, was recorded on Wednesday, March 20, 2019, during a live teleforum conference call held exclusively for Federalist Society members.  


Wesley Hodges:  Welcome to The Federalist Society's teleforum conference call. This afternoon's subject is "Is There a Constitutional Issue in the USMCA?" My name is Wesley Hodges, and I'm the Associate Director of Practice Groups at The Federalist Society.


As always, please note that all expressions of opinion are those of the experts on today's call.


Today we are very fortunate to have with us Professor John Baker, who is Professor Emeritus at the LSU Law Center as well as a Visiting Professor at the Center for the Constitution at Georgetown Law. Also with us is Dr. Sohan Dasgupta, who is a practicing attorney in D.C., an expert on international law. After our speakers give their remarks today, we will move to an audience Q&A. Thank you very much for sharing with us. Sohan, the floor is yours.


Dr. R. Sohan Dasgupta:  Thank you, Wesley. My name is Sohan Dasgupta, and I thank you for joining us this afternoon at the teleforum. We are most grateful to The Federalist Society practice group team, to the International & National Security Law executive committee, and to Dean Reuter, Matt Heiman, Erica Munkwitz, and Wesley Hodges.


Today it's our very greatest pleasure to speak with Professor John Baker. Professor Baker has served on the USAID team implementing the CAFTA. He has taught constitutional law for many years, having regularly taught the separation of powers with Justice Antonin Scalia. This unique amalgamation lends itself to our program today because we shall discuss the United States, Mexico, Canada Agreement, USMCA's dispute settlement mechanisms.


Professor Baker has published an exemplary law review article on this very issue. It is titled "NAFTA/USMCA Dispute Settlement Mechanisms and the Constitution" in the 15th volume of the University of Miami Law School's Inter-American Law Review. It came out just this past January. Professor Baker will lead us in his remarks, and then he and I will engage in a conversation.


Prof. John S. Baker:  Thank you, Sohan, for inviting me to do this, and thank you, Wes, for organizing it. You know, as conservatives and libertarians, almost all of us favor free trade. As lawyers, however, we should understand that free trade is often discussed by economists in ways that do not pay any attention to law, with the exception, generally, of the public choice school. Otherwise, it is difficult to find much discussion anywhere in an economics text on this.


Why does that matter? Well, it affects trade in particular. Many of the things that we take for granted in the United States, primarily under the rule of law, don’t necessarily exist in much of the world. We know, for instance, that more trade doesn’t necessarily mean it's free trade. China has been quite able to increase trade but has not done so under any notion that we would recognize as being consistent with the rule of law.


So the other thing is that often -- well, the best quote that I normally use is from Milton Friedman. As you know, Milton Friedman did not recognize many mistakes that he had made, but one of them he admitted that he used to think—I think this was on a CATO interview—he used to think that all you need in a country was free trade, free markets. That would do it. But he recognized after what he observed in Eastern Europe was that without the rule of law, you're not going to get free trade. He didn't say this but I would say what you get is organized crime. And that's what happened in much of the former Soviet Union where the very astute power brokers were able to become very powerful capitalists, if you want to use that term for them. But it wasn't what we would call a free market, and they didn't engage in free trade. It was just a bunch of organized crime.


As those of us who are lawyers, most of us on the call, are concerned with other issues, and I'm primarily concerned with the constitutional issues related to trade. Multilateral trade agreements I think often pose structural challenges in terms of how does American federalism and the constitutional structure -- can it relate at all in dealing with multilateral agreements? As many of you know, John Bolton has criticized multilateral agreements for many years because he says they violate American sovereignty, and I'll be a little bit more specific on that with regard to the USMCA.


Before you ask your questions, Sohan, I just want to give just a brief overview of what I'm talking about in terms of the dispute resolution mechanism. I'm going to give the chapter numbers both in NAFTA and in the USMCA.


In NAFTA, we're talking about, first of all, an investment settlement dispute mechanism, and that was originally Chapter 11; it's now 14. Then there is the one that mostly concerns me and that was Chapter 19 in NAFTA and is now Chapter 10. And the least controversial, in some ways, was the state-to-state, and that is Chapter 20 in NAFTA and 31. Regarding 19, I should've said that this deals with antidumping and countervailing duties; regarding antidumping in terms of selling below market price, and countervailing duties – imposing costs on those who are shipping goods into the U.S. that are subsidized. So that's just very brief on that.


In terms of the ISDS, which has been modified somewhat—I'll talk about that—the state-to-state mechanism, 20 and now 31, that was not much used in the past, and it has basically remained unchanged. Before I go further, I just want to say that the U.S. trade rep, Lighthizer, he favored at least modifying all these and on Chapter 19 eliminating them. Chapter 19 was not eliminated. It's virtually unchanged in the USMCA. Chapter 11, now 14, was modified somewhat, and I'll talk a little bit about that later on. Chapter 20, now 31, state-to-state is, as I said, was not much utilized. Lighthizer wanted to keep it but make it nonbinding; that is state-to-state negotiations under this dispute mechanism. It remains binding.


So going forward and you're questions, Sohan, I'll be focusing on the new Chapter 10, formally 19, and with some comments on the ISDS.


Dr. R. Sohan Dasgupta:  Thank you very much, Professor. That's a very illuminating overview for which I am most grateful to you. And I'm sure it's very enlightening to the audience as well. I just wanted to start us off with a few fundamental issues. Professor, what do you think are the main constitutional concerns regarding the USMCA?


Prof. John S. Baker:  Well, it's changed a little bit over time in the sense that over time we've had more Supreme Court cases come out. But there's an Article I issue on appointments. There's a -- I'm sorry, and Article II issue on appointments, an Article III issue, and then there's a trial and due process issue. But I want to give a little bit more background to see how this has come about; how is it that we have a major, I think, constitutional issue regarding the new chapter 10, but realizing it's not new. It's been carried forward. And it didn't begin with NAFTA. It began with the China-U.S. Free Trade Agreement, which preceded NAFTA.


And what's most interesting to understand is that this mechanism, which is a binational settlement mechanism – that is there are members of binational panels that are appointed not by the U.S., per se, but by an entity created under the now USMCA – and that these parties through the panels are supposed to be following American rule of law but in fact don’t. That is they are not necessarily bound by it. And that raises both the Article III question but it also raises the appointments question. Who is appointing them? It's not the President. It's not according to the Appointments Clause. It's being delegated further down the line. That's a major issue.


How did this come about? There was, in fact, discussion about this in the Canada-U.S. Free Trade Agreement. But it was allowed to exist because at the time they said, "We can't completely agree on things. So this is going to be, quote, a 'temporary mechanism'". But that temporary mechanism has become permanent; that is when NAFTA came up, there was virtually no discussion before any of the congressional hearings in the House or the Senate on this constitutional issue. And now it's being carried forward again. So that's the background that we've stumbled into a situation which poses threat to our -- the trade people may not care about this, but those of us who are concerned about structure are very concerned when we dilute either the Appointments Clause or the Article III jurisdictional issues.


Dr. R. Sohan Dasgupta:  Right. And that's because they force U.S. citizens into a kind of non-U.S. adjudication for actions. I think it sort of has a supremacy over domestic law. I think that's why the concerns arise in the first place.


Prof. John S. Baker:  Wait. Let me stop you there. That's a good point because this is the exact point that John McGinnis made when he testified as a lawyer for the Department of Justice back on the Canada-U.S. Free Trade Agreement. What he said was, "Look, there's an appointment problem here." And he wasn't arguing that the President should make the appointments. What he said was, "It's fine as a matter of international law, but if you're going to make this binding, domestic law," which was the proposal and which has been the fact, "then we've got a problem." So the DOJ's solution was to have the President after a decision be able to direct federal agencies to honor the particular decision in the binational settlement. But that was not adopted. So we have a situation where DOJ brought up the constitutional issue. It was recognized. And there was no real solution to it other than to say, "Well, if this is ever found unconstitutional, then we'll do x." But it was not clearly addressed.


Dr. R. Sohan Dasgupta:  So, Professor, the members, if I understand correctly, the members of the binational panels are not appointed by the President, but they do exercise a kind of adjudicative power like a federal agency. Yet, their administrative agency-like decisions are not generally reviewable by any Article III court. Private parties to -- and I say generally for a reason -- private parties to a binational panel cannot challenge the conduct or the constitutionality of the panel process. And only one of the countries can find an extraordinary challenge "to a particular battle." Furthermore, jurisdiction over constitutional challenges is conferred only on the D.C. Circuit. I understand that what the USMCA accomplishes allows an international body to exercise jurisdiction, and that's rather unique in our constitutional system. What sort of concerns do you think arise with respect to some of these features?


Prof. John S. Baker:  Well, first of all, let me add that normally these matters would go to the Court of International Trade, which Congress created as an Article III court. And it should be noted that a lot of these issues need not have gone to an Article III court in the first place. And it wasn't in the first place. There's an evolution that occurred over the years and before Congress created the CIT as an Article III court.


Now I suppose that Congress can withdraw jurisdiction that it assumed that because it had created the jurisdiction it could withdraw it for certain parties. But then Congress forces the parties into the binational panels. We don’t force people normally into these things. On what basis is Congress forcing them? If they go into the CIT and the other party objects, the matter has to be kicked out of the CIT. And the assumption was, and it is, they are to follow American law. Well, to do that means that if you were in the CIT, then you would give deference to the agencies. And what's the agency? The Commerce Department. And you also have the International Trade Commission.


So it turns out, as Judge Wilke wrote, and as I quote him in the article, that if Congress had ever known how in fact the whole thing is operating, it never would have approved it. Because there is ultimately no control over those who are selected in the binational settlements. No control over them. As you said, they're not subject to appeal. There is a very limited possibility of extraordinary appeal but not by the parties. There is the ability to challenge the constitutionality but only in the D.C. Circuit. And that's been tried once or twice. And each time something has happened and it's never gone really to judgment.


So Congress went out of its way to make it difficult to challenge the constitutionality. It is difficult. And nobody in Congress sensed that the Canada-U.S. Free Trade Agreement has given a serious look at this. And the reason for raising this at this point is obviously Congress is going to be looking to approve or not approve the USMCA. And these are issues that I think should be brought to their attention and discussion given to them.


Dr. R. Sohan Dasgupta:  Very interesting, Professor. You mentioned just now that when the courts are deferring to the Commerce Department that particular tools are at their disposal. The obvious two tools are Chevron and Auer. And Auer, of course, is -- the case of Kisor v. Wilke is at the Supreme Court this term to reexamine Auer. Professor, would you like to elaborate on Chevron and Auer just so the audience has an idea?


Prof. John S. Baker:  Well, these are deference doctrines. Chevron and agency deference – we know that when an agency decides to interpret a congressional statute, and it gives it a particular interpretation that the courts are supposed to defer to it. Now, this leads to really -- and I'm glad you brought this up because as I explain in the article, this is really at the root of the problem. That is Canada insisted in the -- it was the Prime Minister at the time -- insisted in the Canada-U.S. Free Trade Agreement that there was going to be no deal if they had to go into American courts. And this is really interesting because, historically from the Founders, our courts have been open to people of all countries. And for many years, and still in most areas, people feel that they're going to get a better hearing in a U.S. federal court than they're going to get in many courts in different countries around the world. But it was clear that Canada was insistent because they felt that they couldn't win in the American courts. And the reason they couldn't win was because of the deference doctrines. But as I point out, it's the same for Americans. That is Americans can't win either in the sense that they're subject to the same deference doctrines. It's not that you can't win completely but it certainly tilts everything towards the decision of the federal agency. And to get out of that, they insisted on these binational panels.


Now one of the suggestions I make in the article is that even if Congress is not willing to come along and state generally that deference doctrines will not apply, at least in this context you could solve the problem, I think, by eliminating the deference doctrine with regard to countervailing duties and antidumping. By doing that, it should solve the problem that concerns Canada.


Now, the difficulty at this point, obviously, is that the agreement has been reached. It's going to Congress; Congress is going to act on it one way or another. How do you make a change in this? I don't know that that's possible. Do you want to renegotiate it? I don't think that's likely. That's where we are.


Dr. R. Sohan Dasgupta:  Professor, would you like to say anything about separation of powers' foundational issues regarding Chevron or Auer and whether the days of those precedents are numbered?


Prof. John S. Baker:  No, not with the Auer issue before the Supreme Court. I'll just leave it. And that's a different topic to go into in more length.


Dr. R. Sohan Dasgupta:  Okay.


Prof. John S. Baker:  I really want -- what I'd like to talk about has to do with the separation of powers issue and how we got into this mess. So when I was talking about what John McGinnis said back years ago, he was making the proper distinction between our negotiations with foreign countries and the impact of agreements between countries. And we know since the Medellin case clarified what are self-executing and non-self-executing treaties. And in import of this is that for the Senate to confirm a treaty, it only is affective as between the countries. It's not domestic law, normally, unless there is implementing legislation.


Now, the NAFTA and USMCA are not treaties. They are what we call trade agreements. These are an invention by the Congress, actually during the period of Roosevelt, in order to get around the supermajority requirement to ratify a treaty in the Senate. And that is at the root of a lot of the confusion. It's also at a root of the problem in terms of the structure. That is the Framers of the Constitution kept those two sides more or less clear, domestic law and foreign law, international law. But when you bring the two together, what you're doing is in the one agreement you're having implementing legislation that has to be with it, you're taking an external structure and you're internalizing it. That, to me, is the root of the problem.


Now, there's a separate constitutional issue which I do not go into but a few others have including John Yoo, and that is whether such trade agreements are themselves unconstitutional inherently in the way they have avoided the treaty provisions in the Constitution.


Dr. R. Sohan Dasgupta:  Very good, Professor. I wanted to touch upon the issue of sovereignty because I think it's important to your article and of course to your talk as we have learned. Now sovereignty obviously is the principle that the consent of the governed must be had for the parameters of government that are imposed on the people. Now, what are the broader points of sovereignty we should take away from the USMCA? And, sir, how do we balance what you called "managed trade" with the dictates of sovereignty as ensconced in our Constitution?


Prof. John S. Baker:  Okay, a couple of things. Again, I mentioned multilateral treaties at the beginning, or multilateral trade agreements.


Dr. R. Sohan Dasgupta:  You do, yeah.


Prof. John S. Baker:  Yeah. What people need to understand is that all multilateral agreements, whether they're treaties or not or whether they're world organizations, they are all forms of confederation. Okay? The U.S. under the Articles of Confederation was an international treaty among several, independent free states that had been colonies. We moved away from that for reasons stated in The Federalist, and we have a Constitution, and we now distinguish what was not distinguished before. Federations that are federal governments versus confederations, which are not governments.


The whole business of international organizations after the defeat of, or at least the failure to approve the League of Nations, reemerged after World War II. And the U.S. entered into a number of these beginning with the U.N. In these arrangements, at least initially, the U.S. always protected its sovereignty. I mean, we had the Security Council and we had the veto there. We protected it. We knew what the problem was. After World War II, there was no international trade organization approved. The WTO is, in fact, a descendant of that. But the WTO and even the European Union follow NAFTA. And if you read in this you'll see that those in the field recognize that NAFTA really begins this whole thing in earnest, in terms of trade organizations.


And in these trade organizations, as John Bolton emphasizes, there are rulemaking bodies, there are executive bodies, there are judicial bodies – we're recreating confederations. As The Federalist says, confederations have a utility, but they're also short-lived in a sense. I mean, a term. You remember when Trump said we need to renegotiate NAFTA and Canada and Mexico objected to that. Well, it's sensible that utilitarian relationships are going to change over time, and that was his point. So I think what I'm trying to do is to get people to pay attention, not just to the sovereignty issue but to the link between sovereignty and the constitutional structure to make sure that as we promote free trade that, especially in multilateral agreements, that we are very careful that we're not infringing on the constitutional structure.


Dr. R. Sohan Dasgupta:  No, it's very important. Thank you, Professor. I wanted to take your attention to the issue of non-delegation. Some people might say that much of the confusion about Congress's delegating away the function of Article III courts comes from the fact that we don’t have a clear non-delegation doctrine these days. Do you think the restoration of the non-delegation doctrine might help abate some of these concerns?


Prof. John S. Baker:  Well, it would. But, again, it's a long discussion. As you know, Justice Scalia, who was supportive of Chevron, at least until near the end when he started to rethink things, he made in Mistretta the distinction between non-delegation, which he said was not a problem in Mistretta, but creating a, quote, "junior varsity Congress".


Now, I wouldn't -- there's much more discussion today about where that line really is. There's no doubt that not only federal agencies but courts have to make certain rules. I mean, they have to have local rules. They have to have parking rules. They have to have rules that govern them in a certain sense. Distinguishing between what is really legislation as opposed to rules is where we've kind of gotten a little confused. We don’t really understand or clarify what's a rule implementing a law as opposed to what really is law. But, again, that's a much longer discussion than we have time for.


Dr. R. Sohan Dasgupta:  Yeah. Professor, I wanted to -- you mentioned the issue of constitutional structure, and obviously sometimes the dispute settlement mechanisms, whether they be contained in treaties, trade agreements, or what have you, they trump the authority of not just federal courts but also the state courts. So do you think that there might be a Tenth Amendment issue tucked in, hidden somewhere here?


Prof. John S. Baker:  I wouldn't say Tenth Amendment. I would say a federalism issue.


Dr. R. Sohan Dasgupta:  A federalism issue, yes.


Prof. John S. Baker:  Well, that comes up with Chapter 11, now 14, the investment settlement. These are common provisions, and ironically, it was the American side that in NAFTA said that we needed such a mechanism because of Mexico. That is people were concerned that Mexico would, again as they had in the past, simply nationalize foreign investments in certain areas. The irony is that over time American lawyers helping Canadian companies sued in a couple of cases, states—Mississippi was one, Massachusetts was another—claiming that certain tort cases had resulted in judgments of a size that were such that violate or constitute a taking. And this came to a surprise to judges in state courts in both areas, and they said, "Well, gee, we thought the Supreme Court had the last word on these things. How is it that this international body is somehow getting involved in this?" In any event, somebody asked John Kelly about this, and his response was, "Well, gee, we had no idea about this." Well, of course, they probably didn't read it, and that's a real problem.


But in the USMCA there has been a change. And that provision only applies now between the U.S. and Mexico as between the U.S. and Canada. Going forward, it will not apply. But the constitutional issue would be—it's not as serious as it was—but it would be what happens if there is a judgment as between the U.S. and Mexico that is between Mexico and a state within the U.S. federal system, that there's a judgment. Who pays it? Who's responsible for it? But, again, I think that that question, now that relations between Canada and the U.S. over that, has been eliminated as a practical matter, lessened the problem very much.


Dr. R. Sohan Dasgupta:  Professor, do we know whether in Canada or in the United States if, under NAFTA and now the USMCA -- excuse me, Canada and Mexico, if one of the states in the United Mexican States or a province of Canada is a party whose conduct is held liable, who pays in Canada or Mexico? Is it the province or the national government?


Prof. John S. Baker:  I don't know. I know that there's been an issue of this in Canada. I don't know that it's come up in Mexico.


Dr. R. Sohan Dasgupta:  Well, thank you, Professor. And Wesley, would you kindly open it up to the audience.


Wesley Hodges:  Seeing no immediate questions from the audience, Sohan, I turn the mic back to you to see if you have any additional questions for Professor Baker.


Dr. R. Sohan Dasgupta:  Absolutely. I could go on for days. Professor, you mentioned that with respect to -- in your article you have mentioned that with respect to the USMCA's dispute settlement mechanisms, the President's representatives accepted and presented them to Congress, then their agreement triggered the fast-track processes to go and enhance the presidency's powers. Now, the separation of powers issue still remains on the table because, as Justices Scalia and Thomas and others have said -- and Kennedy -- have said that it's really about the liberty of the individual. That's the issue, that's the crux of the matter; that's what's at stake. That is why Mrs. Bond could make out an actionable claim in Bond v. United States 1 and 2.


Now, even if the President and Congress are on the same page about a constitutional circumvention, perhaps, if the individual's liberty is being harmed by the comingling of powers or the encroachment of one branch's prerogative by another branch or by an extra constitutional act, then presumably that's both justiciable and a violation of the separation of powers. I'd be very grateful for any thoughts from you, sir.


Prof. John S. Baker:  Well, as the lack of litigation on some of these things indicates, first of all it's difficult. As I said, you can only challenge it under the statute in the D.C. Circuit. So there's that limitation that's designed to make it more difficult. Then you're going to have a question of standing. In each case who's the party, and all of that. So it's difficult, and that's why I think that Congress has to consider this.


Dr. R. Sohan Dasgupta:  Right. Absolutely. I think you mentioned in your article that the stature restricts standing beyond the Article III requirement of what has been interpreted to be concrete, particularized, actual injuries, and so on and so forth. I've got here the American Coalition for Competitive Trade v. Clinton, the D.C. Circuit opinion from '97 which interprets the NAFTA Act as saying that "an interested party that participated in a binational review panel proceeding may commence such a constitutional challenge within 30 days after the date of publication in the Federal Register of notice that binational panel review has been completed." So that's very helpful.


I wanted to ask, sir, what do you think about the implications of, say, stare decisis because there would be those who argue that NAFTA's been on the book since 1993 and '94. I think the NAFTA Act was enacted in '94, perhaps. It's been around for a long time. There are interests like reliance, stability, continuity, workability. Workability is not exactly an interest, but it's certainly a pillar of stare decisis that if even an incorrect decision is workable, then that's a presumption in favor of keeping the old decision. And I'm not sure of too many Supreme Court cases on this front, if any. But I think that some people would argue that as state practice stare decisis is in play, is relevant. What would a cogence response to that be, professor?


Prof. John S. Baker:  I don't think that stare decisis -- first of all, there's no controlling case. There's no controlling case, so for me, stare decisis is not a real issue here at all.


Wesley Hodges:  We do have one question from the audience. Let's go ahead and move to our first audience caller.


Caller 1:  Hello, and thank you. Professor, I'd like to question whether you see the type of interference with sovereignty spreading to some other pushes that we're seeing; first, with our request to be part of the International Criminal Court and other bodies which would even more intrusively co-mingle with our domestic law.


Prof. John S. Baker:  Yeah, I absolutely agree. And that's John Bolton's point, and I'm very much in agreement with him that we should never get involved in the International Court. And I have a longer discussion in the later part of the article about these broader issues.


Caller 1:  Thank you.


Prof. John S. Baker:  You're welcome.


Dr. R. Sohan Dasgupta:  You should check out the article. It's a great article.


Wesley Hodges:  Thank you very much, caller. Seeing no immediate questions from the audience, I turn the mic back to you, Sohan, and to you Professor Baker.


Prof. John S. Baker:  I just want to thank everybody for joining the call. And thank you, Sohan, and thank you, Wes.


Dr. R. Sohan Dasgupta:  Thank you, all. This has been a real pleasure. Thank you, Professor. Thank you, Wes.


Wesley Hodges:  Well, thank you both. On behalf of The Federalist Society, I'd like to thank our experts for the benefit of their very valuable time and expertise today. We welcome all listener feedback by email at [email protected]. Thank you all for joining. The call is now adjourned. 


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