May 1, 2017Updated December 6, 2019
Dispute Settlement in the WTO and U.S. Trade Agreements
The United States traditionally has championed the use of
effective and reciprocal dispute settlement (DS)
mechanisms to enforce commitments in the World Trade
Organization (WTO) and in U.S. free trade agreements
(FTAs). While effective and enforceable DS has been a
longstandinglong-standing U.S. trade negotiating objective, its use has
been controversial at times over the outcome of adverse
decisions, especially those that may require Congress to
change U.S. law to become compliant with the decision.
Dispute Settlement at the WTO
become controversial following some adverse decisions,
particularly with regard to U.S. trade remedy law.
establishment of a panel. The DSU sets the procedures for
choosing panel members and establishes a panel’s terms of
reference. A panel typically is composed of three “wellqualified government and/or non-governmental individuals”
from third party members not a party to the dispute, as
recommended to the parties by the WTO Secretariat. If
members cannot agree on panelists, they are chosen by the
WTO Director-General.
Dispute Settlement at the WTO
Dispute panels hear cases and issue reports to disputing
parties and then to all WTO members within nine months of
a panel’s establishment. Third parties may join if they have
a “substantial interest” in the proceedings. Decisions may
be appealed to the Appellate Body (AB), a standing body of
seven persons serving four-year terms, who are unaffiliated
with any government, and have expertise in international
trade law. An appeal is limited to issues of law and legal
interpretation and must be completed within 90 days.
However, this timetable is rarely adhered to.
The WTO was established in 1995 after eight years of trade
negotiations in the Uruguay Round among members of the
General Agreement on Tariffs and Trade (GATT) – the
predecessor to the WTO during 1947-1994. The WTO
administers a system of agreements on trade liberalization
and rules in goods (including tariff and non-tariff barriers),
services, and intellectual property rights. Through its
Dispute Settlement Understanding (DSU), the WTO
provides an enforceable means to settle disputes regarding
obligations under these agreements.
Under the GATT, dispute settlement was largely viewed as
ineffective because there were no fixed timetables and
decisions could be blocked by a disputing party, which
frequently led
to no resolution of disputes. In defining U.S.
aims for the
Uruguay Round, Congress sought to achieve
major reform
in the GATT dispute settlement system in the following
following U.S. trade negotiating objective:
...to ensure that such mechanisms within the GATT
and GATT agreements provide for more effective
and expeditious resolution of disputes and enable
better enforcement of United States rights. Omnibus Trade and Competitiveness Act of 1988,
(P.L. 100-418).
The DSU was credited with strengthening the DS system by
imposing stricter deadlines and making it easier to establish
panels, adopt panel reports (DS decisions), and to authorize
retaliation, if necessary for non-compliance. It also reversed the GATT
process for
adopting a panel report by providing that a
report can be
blocked only by consent of all members.
How it Works
The DSU established the process for the settlement of
disputes for the WTO system of agreements. It commits
members not to make unilateral determinations of
violations or impose penalties, but rather to take disputes to
adjudication under DSU rules and procedures. As a first
step, the DSU to take disputes to adjudication under DSU rules
and procedures rather than make unilateral determinations
of violations and impose penalties. As a first step, the DSU
encourages the settlement of disputes
through consultations
and requires a party to enter into
consultation with a
requesting party within 30 days of
receipt of the request.
If a dispute cannot be resolved within 60 days of a request
for consultations, or if a party denies a request for
consultation, the complaining party may request the
establishment of a panel. The DSU sets the procedures for
choosing panel members and establishes a panel’s terms of
reference. A panel typically is composed of three “wellqualified government and/or non-governmental individuals”
from third party members not a party to the dispute
recommended to the parties by the WTO Secretariat. If
members cannot agree on panelists, they are chosen by the
Director-General.
Dispute panels hear cases and issue reports to disputing
parties and then to all WTO Members within nine months
of a panel’s establishment. Third parties may join if they
have a “substantial interest” in the proceedings. Decisions
may be appealed to the Appellate Body, a standing body of
seven persons serving four year terms, unaffiliated with any
government, and having recognized expertise in
international trade law. An appeal is limited to issues of law
and legal interpretation and should be completed within one
year.
receipt of the request.
WTO DS Core Objectives
[theThe DS system] serves to preserve the rights and
obligations of Members under the covered
agreements, and to clarify the existing provisions of
those agreements in accordance with customary rules
of interpretation of public international law.
Recommendations and rulings of the DSB cannot add
to or diminish the rights and obligations provided in
the covered agreements.” Art. 3.2 DSU
Once DSU proceedings are completed, the reports are
presented for adoption by the Dispute Settlement Body
(DSB). If a violation is found, the member must bring the
offending measure into conformity with WTO obligations.
It may choose to change its practice and the parties may
negotiate to establish a reasonable timeframe for
implementation. If the
respondent does not bring its
measure into conformity in a
reasonable period of time, or
its responsive action is not
acceptable to the complaining
Member member, the parties may
negotiate compensation.
Alternatively, the complaining Member
member may request that
the DSB authorize it to suspend obligations, thereby giving
permission for the complainant to retaliate through the
the DSB authorize retaliation
through the withdrawal of tariff concessions or otherwise suspend WTO
other
suspension of WTO benefits equivalent to the effect of the
offending practice.
Procedures set specific timetables,
although delays often
occur. To date, 524592 cases have been
filed at the DSB,
excluding cases that were subsequently
consolidated. As of
the end of 2015 December 2019, the United States was
a direct party to 232
279 cases (Table 1).
(For more
information, see, CRS Report R45417, World Trade
Organization: Overview and Future Direction, coordinated
by Cathleen D. Cimino-Isaacs).
If a dispute cannot be resolved within 60 days of a request
for consultations, or if a party denies a request for
consultation, the complaining party may request the
https://crsreports.congress.gov
Dispute Settlement in the WTO and U.S. Trade Agreements
Table 1. U.S. Dispute Settlement ScorecardStatus at WTO
As of end of year 2015December 2019
As Complainant
As Respondent
Resolved w/out
litigation
29
23
Won on core issues
46
17
Lost on core issues
4
57
In Appellate stage
0
0
In Panel stage
5
6
In Consultations
2
1
Inactive
22
20
Total
108
124
Source: U.S. Trade Representative.
Dispute Settlement in FTAs
U.S. FTAs provide options to resolve disputes arising under
an agreement in both state-to-state and investor-state fora.
Like WTO DS, U.S. FTAs first aim to resolve disputes
through consultation with the other party. Since the U.S.Chile FTA, panels have been composed of three arbiters,
each side appoints one and the third is appointed by mutual
consent. Failing that, the third is selected from a list of
individuals who are not nationals of either side. After a
panel makes its decision, the offending party is expected to
come into compliance. If not, compensation, suspension of
benefits, or fines have been possible remedies. If a dispute
is common to both WTO and FTA rules, a party can choose
the forum in which to bring the dispute, but cannot bring
the dispute to multiple fora. State-State dispute settlement is
infrequent under U.S. FTAs and disputes are usually
resolved via consultation. Three cases have been decided
under NAFTA DS, with other disputes adjudicated under
WTO DS. Other than in NAFTA, the United States has
brought only one FTA dispute—with Guatemala over labor
practices—to formal DS.Settled, terminated,
or case lapsed
32
20
In consultations
29
37
In panel stage
14
21
In appellate stage
1
4
Report(s) adopted,
no further action
required
7
19
Report(s) adopted,
with recommendation
to bring measure(s)
into conformity
41
54
Total
124
claimant, one by the party, and one by agreement of the
disputing sides. A successful claim can only result in
monetary penalties, and a tribunal cannot compel a country
to change its laws over an adverse decision. In a break from
previous U.S. FTAs, USMCA ended recourse to ISDS
between the United States and Canada, and limited its use
with Mexico. (See CRS In Focus IF11167, USMCA:
Investment Provisions, by Christopher A. Casey and M.
Angeles Villarreal.)
Binational Review of Trade Remedy Actions
Unique among U.S. FTAs, NAFTA contains a binational
dispute settlement mechanism to review anti-dumping (AD)
and countervailing duty (CVD) decisions of a domestic
administrative body. While some groups in the United
States support its elimination, it is retained in the proposed
USMCA.
Current Issues for Congress
155
Source: World Trade Organization.
Dispute Settlement in FTAs
U.S. free trade agreements (FTAs) provide options to
resolve disputes arising under an agreement in both state-tostate and investor-state fora. Like the WTO DS, U.S. FTAs
first aim to resolve disputes through consultation with the
other party. Since the U.S.-Chile FTA (2004), panels have
been composed of three arbiters; each side appoints one and
the third is appointed by mutual consent. Failing that, the
third is selected from a list of individuals who are not
nationals of either side. After a panel makes its decision, the
offending party is expected to come into compliance. If not,
compensation, suspension of benefits, or fines are possible
remedies. If a dispute is common to both the WTO and
FTA rules, a party can choose the dispute forum, but cannot
bring the dispute to multiple fora.
State-to State Dispute Settlement
State-to-state DS is infrequent under U.S. FTAs and
disputes are usually resolved via consultation. Three cases
have been decided under North American Free Trade
Agreement (NAFTA) DS, with other disputes adjudicated
under WTO DS. Other than in NAFTA, the United States
has brought one FTA dispute—with Guatemala over labor
practices—to formal DS. Notably, the revised NAFTA –
the proposed U.S.-Mexico-Canada Agreement (USMCA)
did not change the roster selection process, which
potentially allows a party to prevent the creation of a panel
over lack of consensus regarding panel appointments.
However, additional congressional negotiations over
USMCA reportedly have led to new language that would
require a panel to be formed.
Investor-State Dispute Settlement (ISDS)
Most U.S. FTAs since NAFTA contain a separate dispute
settlement system for investment. ISDS allows an investor
to seek arbitration directly with a host government to
resolve disputes over potentialalleged breaches of a party’s
investment obligations. ISDS proceedings are conducted
under the auspices of the World Bank-affiliated
International Centre for Settlement forof Investment Disputes
(ICSID), or comparable rules. Panels are typically
composed of three arbiters—one appointed by the investor
claimant, one by the party, and one by agreement of the
disputing sides. A successful claim can only result in
monetary penalties; a tribunal cannot compel a country to
change its laws over an adverse decision. Of the 16 cases
brought against the United States, it has prevailed in 10,
settled 3, discontinued one, and has 2 pending.
Policymakers and various stakeholders continue to debate
the balance between investor protections and government
authority (See CRS In Focus IF10052, U.S. International
Investment Agreements (IIAs), by Martin A. Weiss and
Shayerah Ilias Akhtar).
NAFTA Chapter 19
Unique among U.S. FTAs, NAFTA contains a binational
dispute settlement mechanism (Chapter 19) to review antidumping (AD) and countervailing duty (CVD) decisions of
a domestic administrative body. While this provision was
sought by Canada and Mexico in NAFTA negotiations,
some in the United States have sought its elimination; it
likely will be discussed in any renegotiation of NAFTA.
According to the NAFTA Secretariat, 145 cases have been
brought under Chapter 19: 23 against Canada; 23 against
Mexico; and 99 against the United States.
Issues for Congress
Congress may wish to explore a number of issues with DS
in trade agreements. Congress may wish to evaluate the
effectiveness of the dispute settlement in upholding
reciprocal trade obligations—as opposed to taking
unilateral action—and its effectiveness in striking down
trade barriers. Second, Congress may wish to examine
issues with the current operation of the various fora and
potential reforms that could improve its efficiency. These
include:
Length of deliberations. As noted above, cases are
supposed to be resolved within a year of establishment
of a panel or 15 months if appealed. However, delays
often occur at various stages, making the average time
in practice considerably longer. Some landmark cases
like the Boeing/Airbus dispute have lasted over a
decade. Given the highly technical nature of some
disputes, are lengthy deliberations inevitable? What
could be done to shorten the process?
Inadequate deference to domestic laws. This has been
especially controversial in U.S. trade remedy (antidumping/countervailing duty) cases, where panels have
ruled impermissible U.S. practices not expressly
prohibited in WTO agreements. Some stakeholders
argue that WTO panels are creating new obligations.
How should this be best addressed?
Noncompliance with decisions. In some cases,
members will decide not to comply, choosing to accept
retaliation. While this is rare, it could weaken the system
over time.
NAFTA renegotiation. If potential NAFTA
renegotiation results in obligations beyond those of the
WTO, its dispute system may be used with greater
frequency. NAFTA could adopt some reforms adopted
by newer U.S. FTAs, such as greater transparency and a
more robust panel selection process. Newer U.S. ISDS
provisions protect against frivolous claims, affirm a
country’s right to regulate, and clarify minimum
standard of treatment, among other new provisions.
Ian F. Fergusson, Specialist in International Trade and
Finance
https://crsreports.congress.gov
IF10645
Dispute Settlement in
Congress may seek to address two upcoming issues related
to dispute settlement in FTAs: the proposed changes under
USMCA and the possible demise and potential reform of
the AB at the WTO.
USMCA. As noted above, the proposed USMCA restricts
the use of ISDS, yet it retains the binational dispute
mechanism to review administrative actions concerning
trade remedies. It initially left intact the roster panel
selection of NAFTA regarding state-to-state DS, although
that issue reportedly has been resolved. In considering the
USMCA, Congress may examine the sufficiency of the
amended DS process to enforce the new and enhanced
provisions of the agreement. With regard to ISDS, Congress
may debate whether the USMCA adheres to Trade
Promotion Authority negotiating objectives or whether
USMCA ISDS provisions strike the right balance between
the protection of U.S. investment abroad and maintaining a
government’s right to regulate.
WTO. Since 2016, the United States has vetoed the
appointment of AB panelists, as their terms expired. This
has left the AB with three jurists, the minimum number to
hear an appeal. On December 10, 2019, the terms of two
remaining jurists expire, leaving the AB unable to hear new
cases, and possibly unable to finish existing cases. Dispute
panels can continue to hear cases, but appealed cases would
remain in limbo, and panel decisions could not be enforced.
Central U.S. concerns include whether AB panelists have
interpreted agreements too expansively, whether
proceedings are completed in a timely manner, and whether
AB jurists should be able to finish cases after their terms
have expired. Some WTO members share U.S. concerns
and have made proposals to address them. However, to date
the U.S. has rejected them, maintaining that the DSB must
address the fundamental issue of why the AB acts as if it
can allegedly disregard the language of the DSU. Given the
potential demise of the WTO DS system, Congress may
consider the relative importance of U.S. complaints with the
AB with the value of having a functioning DS system for
the multilateral trading system.
Ian F. Fergusson, Specialist in International Trade and
Finance
https://crsreports.congress.gov
IF10645
Dispute Settlement in the WTO and U.S. Trade Agreements
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