May 1, 2017
Dispute Settlement in U.S. Trade Agreements
The United States traditionally has championed the use of
If a dispute cannot be resolved within 60 days of a request
effective and reciprocal dispute settlement (DS)
for consultations, or if a party denies a request for
mechanisms to enforce commitments in the World Trade
consultation, the complaining party may request the
Organization (WTO) and in U.S. free trade agreements
establishment of a panel. The DSU sets the procedures for
(FTAs). While effective and enforceable DS has been a
choosing panel members and establishes a panel’s terms of
longstanding U.S. trade negotiating objective, its use has
reference. A panel typically is composed of three “well-
been controversial at times over the outcome of adverse
qualified government and/or non-governmental individuals”
decisions, especially those that may require Congress to
from third party members not a party to the dispute
change U.S. law to become compliant with the decision.
recommended to the parties by the WTO Secretariat. If
members cannot agree on panelists, they are chosen by the
Dispute Settlement at the WTO
Director-General.
The WTO was established in 1995 after eight years of trade
negotiations in the Uruguay Round among members of the
Dispute panels hear cases and issue reports to disputing
General Agreement on Tariffs and Trade (GATT) – the
parties and then to all WTO Members within nine months
predecessor to the WTO during 1947-1994. The WTO
of a panel’s establishment. Third parties may join if they
administers a system of agreements on trade liberalization
have a “substantial interest” in the proceedings. Decisions
and rules in goods (including tariff and non-tariff barriers),
may be appealed to the Appellate Body, a standing body of
services, and intellectual property rights. Through its
seven persons serving four year terms, unaffiliated with any
Dispute Settlement Understanding (DSU), the WTO
government, and having recognized expertise in
provides an enforceable means to settle disputes regarding
international trade law. An appeal is limited to issues of law
obligations under these agreements.
and legal interpretation and should be completed within one
year.
Under the GATT, dispute settlement was largely viewed as
ineffective because there were no fixed timetables and
WTO DS Core Objectives
decisions could be blocked by a party, which frequently led
to no resolution of disputes. In defining U.S. aims for the
[the DS system] serves to preserve the rights and
Uruguay Round, Congress sought to achieve major reform
obligations of Members under the covered
in the GATT dispute settlement system in the following
agreements, and to clarify the existing provisions of
U.S. trade negotiating objective:
those agreements in accordance with customary rules
of interpretation of public international law.
...to ensure that such mechanisms within the GATT
Recommendations and rulings of the DSB cannot add
and GATT agreements provide for more effective
to or diminish the rights and obligations provided in
and expeditious resolution of disputes and enable
the covered agreements.” Art. 3.2 DSU
better enforcement of United States rights. -
Omnibus Trade and Competitiveness Act of 1988,
Once DSU proceedings are completed, the reports are
(P.L. 100-418)
presented for adoption by the Dispute Settlement Body
The DSU was credited with strengthening the DS system by
(DSB). If a violation is found, the member must bring the
imposing stricter deadlines and making it easier to establish
offending measure into conformity with WTO obligations.
panels, adopt panel reports (DS decisions), and to authorize
It may choose to change its practice and the parties
retaliation, if necessary. It also reversed the process for
negotiate to establish a reasonable timeframe for
adopting a panel report by providing that a report can be
implementation. If the respondent does not bring its
measure into conformity in a reasonable period of time, or
blocked only by consent of all members.
its responsive action is not acceptable to the complaining
How it Works
Member, the parties may negotiate compensation.
The DSU established the process for the settlement of
Alternatively, the complaining Member may request that
disputes for the WTO system of agreements. It commits
the DSB authorize it to suspend obligations, thereby giving
members not to make unilateral determinations of
permission for the complainant to retaliate through the
violations or impose penalties, but rather to take disputes to
withdrawal of tariff concessions or otherwise suspend WTO
adjudication under DSU rules and procedures. As a first
benefits equivalent to the effect of the offending practice.
step, the DSU encourages the settlement of disputes
Procedures set specific timetables, although delays often
through consultations and requires a party to enter into
occur. To date, 524 cases have been filed at the DSB,
consultation with a requesting party within 30 days of
excluding cases that were subsequently consolidated. As of
the end of 2015, the United States was a direct party to 232
receipt of the request.
cases (Table 1).
https://crsreports.congress.gov
Dispute Settlement in U.S. Trade Agreements
Table 1. U.S. Dispute Settlement Scorecard at WTO
Investment Agreements (IIAs), by Martin A. Weiss and
As of end of year 2015
Shayerah Ilias Akhtar).
As Complainant
As Respondent
NAFTA Chapter 19
Unique among U.S. FTAs, NAFTA contains a binational
Resolved w/out
29
23
dispute settlement mechanism (Chapter 19) to review anti-
litigation
dumping (AD) and countervailing duty (CVD) decisions of
Won on core issues
46
17
a domestic administrative body. While this provision was
sought by Canada and Mexico in NAFTA negotiations,
Lost on core issues
4
57
some in the United States have sought its elimination; it
In Appellate stage
0
0
likely will be discussed in any renegotiation of NAFTA.
According to the NAFTA Secretariat, 145 cases have been
In Panel stage
5
6
brought under Chapter 19: 23 against Canada; 23 against
In Consultations
2
1
Mexico; and 99 against the United States.
Inactive
22
20
Issues for Congress
Congress may wish to explore a number of issues with DS
Total
108
124
in trade agreements. Congress may wish to evaluate the
Source: U.S. Trade Representative.
effectiveness of the dispute settlement in upholding
reciprocal trade obligations—as opposed to taking
Dispute Settlement in FTAs
unilateral action—and its effectiveness in striking down
U.S. FTAs provide options to resolve disputes arising under
trade barriers. Second, Congress may wish to examine
an agreement in both state-to-state and investor-state fora.
issues with the current operation of the various fora and
Like WTO DS, U.S. FTAs first aim to resolve disputes
potential reforms that could improve its efficiency. These
through consultation with the other party. Since the U.S.-
include:
Chile FTA, panels have been composed of three arbiters,
each side appoints one and the third is appointed by mutual
Length of deliberations. As noted above, cases are
consent. Failing that, the third is selected from a list of
supposed to be resolved within a year of establishment
individuals who are not nationals of either side. After a
of a panel or 15 months if appealed. However, delays
panel makes its decision, the offending party is expected to
often occur at various stages, making the average time
come into compliance. If not, compensation, suspension of
in practice considerably longer. Some landmark cases
benefits, or fines have been possible remedies. If a dispute
like the Boeing/Airbus dispute have lasted over a
is common to both WTO and FTA rules, a party can choose
decade. Given the highly technical nature of some
the forum in which to bring the dispute, but cannot bring
disputes, are lengthy deliberations inevitable? What
the dispute to multiple fora. State-State dispute settlement is
could be done to shorten the process?
infrequent under U.S. FTAs and disputes are usually
Inadequate deference to domestic laws. This has been
resolved via consultation. Three cases have been decided
especially controversial in U.S. trade remedy (anti-
under NAFTA DS, with other disputes adjudicated under
dumping/countervailing duty) cases, where panels have
WTO DS. Other than in NAFTA, the United States has
ruled impermissible U.S. practices not expressly
brought only one FTA dispute—with Guatemala over labor
prohibited in WTO agreements. Some stakeholders
practices—to formal DS.
argue that WTO panels are creating new obligations.
How should this be best addressed?
Investor-State Dispute Settlement (ISDS)
Most U.S. FTAs since NAFTA contain a separate dispute
Noncompliance with decisions. In some cases,
settlement system for investment. ISDS allows an investor
members will decide not to comply, choosing to accept
to seek arbitration directly with a host government to
retaliation. While this is rare, it could weaken the system
resolve disputes over potential breaches of a party’s
over time.
investment obligations. ISDS proceedings are conducted
NAFTA renegotiation. If potential NAFTA
under the auspices of the World Bank-affiliated
renegotiation results in obligations beyond those of the
International Centre for Settlement for Investment Disputes
WTO, its dispute system may be used with greater
(ICSID), or comparable rules. Panels are typically
frequency. NAFTA could adopt some reforms adopted
composed of three arbiters—one appointed by the investor
by newer U.S. FTAs, such as greater transparency and a
claimant, one by the party, and one by agreement of the
more robust panel selection process. Newer U.S. ISDS
disputing sides. A successful claim can only result in
provisions protect against frivolous claims, affirm a
monetary penalties; a tribunal cannot compel a country to
country’s right to regulate, and clarify minimum
change its laws over an adverse decision. Of the 16 cases
standard of treatment, among other new provisions.
brought against the United States, it has prevailed in 10,
settled 3, discontinued one, and has 2 pending.
Ian F. Fergusson, Specialist in International Trade and
Policymakers and various stakeholders continue to debate
the balance between investor protections and government
Finance
authority (See CRS In Focus IF10052, U.S. International
IF10645
https://crsreports.congress.gov
Dispute Settlement in U.S. Trade Agreements
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