Dispute Settlement under Trade Agreements: A Key to Making Them Work

By Rosine Plank-Brumback
Published July / August 2017

International trade agreements have been derided on political campaign trails as being bad for the US economy, and particularly unfair to American manufacturing workers.  Regardless of whether these attacks are fully justified, they ignore recent and ongoing efforts to expand and improve the substantive commitments and rules governing goods and services trade under the multilateral World Trade Organization (WTO), like on trade facilitation, as well as under regional and bilateral free trade agreements (FTAs) since North American Free Trade Agreement (NAFTA), like on intellectual property, labor and environmental protection.  A key element in realizing the benefits that governments expect to obtain in negotiating mutual reductions in trade barriers with their trading partners, is a robust dispute settlement system, which assures compliance and may also deter disputes in the first place through the threat of sanctioned retaliation for violations.

Most international trade arrangements provide for a system of dispute resolution through ad hoc panels or arbitral tribunals.  The most institutionalized and frequently used system for resolving trade disputes—given inter alia the size of its membership of 164 countries–is that of the WTO, which has a standing Appellate Body to review errors of law in the reports by first instance panels.

Negotiating a dispute settlement chapter under an international trade agreement, even though largely procedural, is as critical and complex as negotiating the substantive rules under other chapters like agriculture, customs, subsidies, government procurement, services, etc.  In drafting dispute settlement provisions, trade negotiators must consider; e.g., scope of application, choice of forum, bilateral consultations, good offices, recourse to and establishment of a panel, interim findings, appellate review, panel report adoption, compliance monitoring, and remedies/sanctions (suspension of benefits or monetary assessment).  There should be deadlines imposed for each step and also default procedures to assure that the process moves forward.  Negotiators must determine which substantive commitments, rules or related instruments under the agreement will be subject or not to its dispute resolution system; e.g., NAFTA excludes the competition policy chapter, and the US-Central America-Dominican Republic FTA (CAFTA-DR) excludes trade capacity building provisions.  Some US FTAs provide specific procedures; e.g., for the review of anti-dumping and countervailing duty determinations or for claims by a private investor of one State party to the FTA against another State party for violating investment rules.

In drafting procedures for the panel stage of government to government dispute settlement under an FTA, negotiators must determine panel composition, terms of reference, standard of review, conduct of proceedings, and the follow-up to rulings; e.g., the qualifications for being a panelist/arbitrator (generally international law or trade expertise), including specialized knowledge of particular subject areas; the number of panelists that should rule on a case (generally 3); whether panelists should be governmental or non-governmental persons; whether they should be nationals or non-nationals of the disputing parties or third parties; whether the roster of eligible panelists proposed by State Parties and from which panelists may be drawn, is indicative or obligatory; how panelists will be selected; the role of experts; what ethical rules should apply to panelists and other participants; and how impasses in panel selection, terms of reference, the adoption and implementation of panel reports, or other aspects will be resolved.  Establishing the rules of the game ahead of time is essential as once disputes inevitably arise, the parties may be less able to resolve any procedural or sequencing differences expeditiously.

An additional consideration is the transparency of the process.  The parties to the dispute and third parties are recognized as having the right to be heard by the panel/tribunal.  The trend is for panel deliberations to be increasingly open to the public through the release of non-confidential summaries of party submissions, through public observation of hearings (e.g., via webcam in a separate room), and by allowing amicus curiae briefs to be submitted.

Dispute settlement under an international trade agreement is necessarily linked to institutional arrangements.  Who provides legal advice to the panel and assists in writing its report?  Who completes the panel if the parties cannot agree?  If it is a permanent secretariat, then it is not merely administrative but technical like the WTO.  If panelists rely on their own assistants and panel selection is decided by lot, this is the NAFTA model of national sections, with more party and less institutional control.

Confidence in the quality and neutrality of the legal arbiters is at the heart of any effective dispute settlement system and whether it is perceived as rendering competent rulings.  A system that arrives at the right answer in a fair way is key to assuring that the States parties to an agreement are complying with their obligations and obtaining the benefit of their initial bargain.


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