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Canada and the United States have been involved in a long-running dispute over U.S. efforts to protect U.S. producers of softwood lumber by imposing high duties on imports of Canadian-origin softwood lumber. This dispute was prolonged by virtue of the fact that Canada and the United States not only are parties to the North American Free Trade Agreement ("NAFTA"), but also are members of the World Trade Organization ("WTO"). NAFTA contains provisions for the resolution of a trade dispute by an arbitration panel. A WTO agreement known as the Dispute Settlement Understanding ("DSU") separately provides for the creation of panels to resolve trade disputes. Because these NAFTA provisions and the DSU are parallel dispute-settlement mechanisms, independent of each other, it is possible for a party to have separate recourse to each of these mechanisms. Seeking to compel the United States to refund duties already collected, and to refrain from collecting future duties, Canada had separate recourse to dispute settlement under each of NAFTA and the DSU. In response, the United States also had separate recourse to each of these dispute settlement mechanisms.

This essay shows that the NAFTA proceedings were essentially favorable to Canada, but that the United States was unwilling to look to NAFTA, a regional agreement, as the appropriate basis for resolving this regional dispute. The essay argues that the United States sought to rely on its hegemonic economic power to coerce Canada to yield to the interests of U.S. producers, and shows that, when the result was a diplomatic crisis, the United States offered to settle the dispute, not on the basis of legal principle, but simply by making monetary payment in the form of a refund of certain of the duties that had been collected. The essay concludes by questioning whether the U.S. approach is either defensible as a matter of international law, or likely to prove sustainable over the long term.