Practical ideas for aiding regional trade dispute settlement now

11 September 2018
  • Effective dispute settlement raises the value of trade agreements and the return on governments’ investment in trade agreement negotiations.
  • Three practical ideas could help governments negotiate and administer dispute settlement more effectively: better information on options, information on how ad hoc procedures work in practice, and model rules providing alternatives to accommodate variation in the choices that governments make.

 

Today, more than ever, governments want to expand trade by negotiating regional trade agreements (RTAs). With 459 RTAs notified to the WTO, 287 in force, and more announced each month, governments, stakeholders, and the trading system have a large sunk investment in these agreements. Dispute settlement and enforcement mechanisms are essential to protecting the value of this investment. This article presents three practical suggestions to help RTAs have more effective dispute settlement.

Regional trade agreements need functioning dispute settlement mechanisms – to ensure compliance that delivers economic benefits as advertised; to resolve conflicts that could otherwise lead to the RTA falling apart; and most of all, to deliver certainty that attracts investment creating jobs and economic growth. Even if RTA parties don’t formally invoke them, strong dispute settlement procedures provide valuable enforcement options and enhance RTA credibility.

The core RTA benefit to be enforced is preferential market access for goods or services from partners. At least 13 RTA disputes have concerned preferential access or other RTA-only rules, including the most recent RTA dispute, Canada’s July 2018 consultation request against a US global safeguard measure applied to solar panels from Canada. These disputes will continue. RTAs of the last decade backloaded their most politically difficult, and most valuable, tariff cuts or other preferential market access concessions. Soon, these deadlines will fall due, and some RTA parties will fail to deliver on their promises. Their partners will need to be able to enforce these deals.

RTA partners have often chosen to take trade disputes to the World Trade Organization (WTO) – which is the only viable forum for disputes on trade remedies and other issues not dealt with in RTAs. But for issues covered by RTAs, the parties need to have the option of using regional dispute settlement.

If the WTO Appellate Body becomes non-operational in 2019, governments may also want to use RTA procedures to enforce common obligations such as national treatment. History provides an example: when General Agreement on Tariffs and Trade (GATT) dispute settlement was blocked, Canada and the US built their 1987 RTA with binding dispute procedures, and they brought disputes there that could have gone to the GATT.

Three elements for dispute settlement

For formal dispute settlement, the parties need three core elements: institutions, an arbiter, and procedures. They need dispute settlement institutions to manage the docket, hearings, and expenses. They need a neutral panel or other arbiter to interpret and apply substantive law governing their rights and obligations. They need predictable proceduresthat facilitate settlement. The WTO has standing mechanisms for all three of these. RTA parties must create equivalent processes on their own.

Institutions

Most RTA parties have chosen not to have a standing secretariat and must organise the resources to administer each RTA dispute as it arises. Perhaps as a reaction, the dispute settlement chapter of the EU-Japan Economic Partnership Agreement gives its parties the option to “agree to jointly entrust an external body with providing support for certain administrative tasks for the dispute settlement procedure under this Chapter.”

Should the WTO provide centralised dispute administration services for all RTAs, perhaps on a fee-for-service basis? Not necessarily. Aside from the current challenges facing the Appellate Body, the WTO is in a state of chronic dispute overload. Panels work hard, but WTO disputes now take much longer than the 18-month Dispute Settlement Understanding (DSU) timetable and (as recently estimated) can cost millions of dollars.

RTA parties could also take a look at other international institutions that administer international economic law disputes – the Permanent Court of Arbitration (PCA), the International Centre for Settlement of Investment Disputes (ICSID), or even other specialist arbitral institutions in particular cases. The PCA and ICSID secretariats have deep experience in administering dispute processes, including the United Nations Commission on International Trade Law (UNCITRAL) rules referred to in many RTAs. The PCA and ICSID also have standing arrangements for facilities and staff to hold hearings in Europe, Asia, Africa, and Latin America.

Substantive law

In the WTO, panels and the Appellate Body interpret and apply WTO law to the claims and facts brought before them. Should they also interpret and apply RTA law? Again, not necessarily.

Experience tells us that most RTA disputes concern non-compliance with RTA-only obligations. WTO panels have no comparative advantage at interpreting non-WTO RTA-only obligations on issues like labour rights, anti-corruption, or human rights; some WTO members that believe such provisions do not belong in trade agreements may object to having them interpreted and applied in a WTO process. Even if the dispute is about RTA tariff treatment, non-RTA governments have a fundamental conflict of interest regarding such preferences, and the RTA parties may not want them involved.

RTA negotiations let the parties make law that purposely diverges from WTO law. RTA parties may not want their texts homologated to the WTO approach. Diversity of this sort – competition with rather than subordination to WTO norms – may lead to fragmentation of the law, but it may be what governments want.

Procedures

Dispute Settlement Understanding procedures are predictable, well known, easily explained to stakeholders, perceived as fair, and widely accepted. They were designed to avoid unilateral blockage. RTA procedures vary; some provide for the full range of possible events, others are less carefully drafted, and some allow blockage.

Should parties to RTAs automatically follow DSU procedures? Again, not necessarily. Dispute settlement negotiators for some RTAs have invented some significant innovations that are worthy of study and perhaps adoption. Non-WTO features of RTAs, such as lack of standing institutions, also call for non-WTO solutions.

What can we do?

Negotiating better rules is a task for governments, but three types of assistance might be useful: better knowledge on the range of options, a practical handbook on how to administer RTA disputes, and a model set of dispute settlement rules.

Option set

The new RTA Exchange Agreement Text  Search Tool  provides access to close to 450 RTA texts. A user-friendly set of dispute settlement clauses based on this tool, and regularly updated, could provide a wider option set to facilitate creative thinking by RTA negotiators.

Handbook on administering RTA disputes

Another useful project could put together a practical annotated checklist of the issues that a government needs to know before it administers a trade dispute – such as budget, organisation, and management of paper, people, and resources. The project team would consult widely with governments that have handled, dealt with, or worked on ad hoc disputes; the WTO Secretariat; former panellists; and the PCA and ICSID secretariats.

Model rules

A process could be convened to draft model RTA dispute settlement rules for governments to draw on as they wish. These rules would provide a set of options for the full range of issues in a dispute, from initiation and forum choice, through panellist selection and management, panel hearings, deliberations, reports, and implementation. The point of having such rules is to plug avoidable gaps, rather than to overthink dispute settlement procedures or to unduly add to dispute settlement costs and time.

The objective would be to provide common but differentiated rules: common because they would deal with the issues that every disputant has in common, but differentiated in the sense that they would not be one-size-fits-all or DSU-fits-all, or otherwise assume that every RTA will approach a given problem in the same way. Where governments have diverging views, the rules could set out two or more possible approaches. For instance, should panel processes require unanimity, or should they permit dissenting opinions? Should separate opinions be anonymous or signed? The model text would provide drafting options for both bilateral and plurilateral RTAs. It would emphasise clarity in drafting: the same term needs to have a consistent meaning throughout the text.

Governments negotiating an RTA could draw on these model rules as they draft, or incorporate parts of them by reference – as they negotiate on rules or later fill gaps by agreement. The provisions should be neutral, balanced, and oriented towards efficient use of the parties’ time and resources. They could include a commentary if that would be helpful.

The drafting process could take place in a non-governmental setting, with participation from government officials, arbitrators, panellists, litigators, and academics with practical experience in the full range of disputes. It should be inclusive: participants and people consulted should represent a diverse range of geographies and legal traditions.

Concluding thoughts

Governments’ appetite for RTA negotiations continues strong. 2018 has seen conclusion of larger and smaller agreements involving Europe, Latin America, Asia, and Africa. Effective RTA dispute settlement is essential for these agreements to deliver the investment, supply chain linkages, and jobs that governments want.

 

This piece is derived from the paper Designing Common but Differentiated Rules for Regional Trade Disputes authored by Amy Porges and commissioned by ICTSD under the RTA Exchange, jointly convened with the Inter-American Development Bank (IDB).

Amy Porges is Principal at Porges Trade Law PLLC.