Updated December 6, 2019
Dispute Settlement in the WTO and U.S. Trade Agreements
The United States traditionally has championed the use of
establishment of a panel. The DSU sets the procedures for
effective and reciprocal dispute settlement (DS)
choosing panel members and establishes a panel’s terms of
mechanisms to enforce commitments in the World Trade
reference. A panel typically is composed of three “well-
Organization (WTO) and in U.S. free trade agreements
qualified government and/or non-governmental individuals”
(FTAs). While effective and enforceable DS has been a
from third party members not a party to the dispute, as
long-standing U.S. trade negotiating objective, its use has
recommended to the parties by the WTO Secretariat. If
become controversial following some adverse decisions,
members cannot agree on panelists, they are chosen by the
particularly with regard to U.S. trade remedy law.
WTO Director-General.
Dispute Settlement at the WTO
Dispute panels hear cases and issue reports to disputing
The WTO was established in 1995 after eight years of trade
parties and then to all WTO members within nine months of
negotiations in the Uruguay Round among members of the
a panel’s establishment. Third parties may join if they have
General Agreement on Tariffs and Trade (GATT) – the
a “substantial interest” in the proceedings. Decisions may
predecessor to the WTO during 1947-1994. The WTO
be appealed to the Appellate Body (AB), a standing body of
administers a system of agreements on trade liberalization
seven persons serving four-year terms, who are unaffiliated
and rules in goods (including tariff and non-tariff barriers),
with any government, and have expertise in international
services, and intellectual property rights. Through its
trade law. An appeal is limited to issues of law and legal
Dispute Settlement Understanding (DSU), the WTO
interpretation and must be completed within 90 days.
provides an enforceable means to settle disputes regarding
However, this timetable is rarely adhered to.
obligations under these agreements.
WTO DS Core Objectives
Under the GATT, dispute settlement was largely viewed as
ineffective because there were no fixed timetables and
[The DS system] serves to preserve the rights and
decisions could be blocked by a disputing party, which
obligations of Members under the covered
frequently led to no resolution of disputes. In defining U.S.
agreements, and to clarify the existing provisions of
aims for the Uruguay Round, Congress sought to achieve
those agreements in accordance with customary rules
major reform in the GATT dispute settlement system in the
of interpretation of public international law.
following U.S. trade negotiating objective:
Recommendations and rulings of the DSB cannot add
to or diminish the rights and obligations provided in
...to ensure that such mechanisms within the GATT
the covered agreements.” Art. 3.2 DSU
and GATT agreements provide for more effective
and expeditious resolution of disputes and enable
Once DSU proceedings are completed, the reports are
better enforcement of United States rights. -
presented for adoption by the Dispute Settlement Body
Omnibus Trade and Competitiveness Act of 1988,
(DSB). If a violation is found, the member must bring the
(P.L. 100-418).
offending measure into conformity with WTO obligations.
It may choose to change its practice and the parties may
The DSU was credited with strengthening the DS system by
negotiate a reasonable timeframe for implementation. If the
imposing stricter deadlines and making it easier to establish
panels, adopt panel reports (DS decisions), and to authorize
respondent does not bring its measure into conformity in a
reasonable period of time, or its responsive action is not
retaliation for non-compliance. It also reversed the GATT
acceptable to the complaining member, the parties may
process for adopting a panel report by providing that a
report can be blocked only by consent of all members.
negotiate compensation. Alternatively, the complaining
member may request that the DSB authorize retaliation
How it Works
through the withdrawal of tariff concessions or other
The DSU established the process for the settlement of
suspension of WTO benefits equivalent to the effect of the
offending practice. Procedures set specific timetables,
disputes for the WTO system of agreements. It commits
although delays often occur. To date, 592 cases have been
members to take disputes to adjudication under DSU rules
and procedures rather than make unilateral determinations
filed at the DSB, excluding cases that were subsequently
consolidated. As of December 2019, the United States was
of violations and impose penalties. As a first step, the DSU
a direct party to 279 cases (Table 1). (For more
encourages the settlement of disputes through consultations
and requires a party to enter into consultation with a
information, see, CRS Report R45417, World Trade
requesting party within 30 days of receipt of the request.
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
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Dispute Settlement in the WTO and U.S. Trade Agreements
Table 1. U.S. Dispute Settlement Status at WTO
claimant, one by the party, and one by agreement of the
As of December 2019
disputing sides. A successful claim can only result in
monetary penalties, and a tribunal cannot compel a country

As Complainant
As Respondent
to change its laws over an adverse decision. In a break from
previous U.S. FTAs, USMCA ended recourse to ISDS
Settled, terminated,
32
20
between the United States and Canada, and limited its use
or case lapsed
with Mexico. (See CRS In Focus IF11167, USMCA:
In consultations
29
37
Investment Provisions, by Christopher A. Casey and M.
Angeles Villarreal.)
In panel stage
14
21
Binational Review of Trade Remedy Actions
In appel ate stage
1
4
Unique among U.S. FTAs, NAFTA contains a binational
Report(s) adopted,
7
19
dispute settlement mechanism to review anti-dumping (AD)
no further action
and countervailing duty (CVD) decisions of a domestic
required
administrative body. While some groups in the United
States support its elimination, it is retained in the proposed
Report(s) adopted,
41
54
USMCA.
with recommendation
to bring measure(s)
Current Issues for Congress
into conformity
Congress may seek to address two upcoming issues related
to dispute settlement in FTAs: the proposed changes under
Total
124
155
USMCA and the possible demise and potential reform of
Source: World Trade Organization.
the AB at the WTO.
Dispute Settlement in FTAs
USMCA. As noted above, the proposed USMCA restricts
U.S. free trade agreements (FTAs) provide options to
the use of ISDS, yet it retains the binational dispute
resolve disputes arising under an agreement in both state-to-
mechanism to review administrative actions concerning
state and investor-state fora. Like the WTO DS, U.S. FTAs
trade remedies. It initially left intact the roster panel
first aim to resolve disputes through consultation with the
selection of NAFTA regarding state-to-state DS, although
other party. Since the U.S.-Chile FTA (2004), panels have
that issue reportedly has been resolved. In considering the
been composed of three arbiters; each side appoints one and
USMCA, Congress may examine the sufficiency of the
the third is appointed by mutual consent. Failing that, the
amended DS process to enforce the new and enhanced
third is selected from a list of individuals who are not
provisions of the agreement. With regard to ISDS, Congress
nationals of either side. After a panel makes its decision, the
may debate whether the USMCA adheres to Trade
offending party is expected to come into compliance. If not,
Promotion Authority negotiating objectives or whether
compensation, suspension of benefits, or fines are possible
USMCA ISDS provisions strike the right balance between
remedies. If a dispute is common to both the WTO and
the protection of U.S. investment abroad and maintaining a
FTA rules, a party can choose the dispute forum, but cannot
government’s right to regulate.
bring the dispute to multiple fora.
WTO. Since 2016, the United States has vetoed the
State-to State Dispute Settlement
appointment of AB panelists, as their terms expired. This
State-to-state DS is infrequent under U.S. FTAs and
has left the AB with three jurists, the minimum number to
disputes are usually resolved via consultation. Three cases
hear an appeal. On December 10, 2019, the terms of two
have been decided under North American Free Trade
remaining jurists expire, leaving the AB unable to hear new
Agreement (NAFTA) DS, with other disputes adjudicated
cases, and possibly unable to finish existing cases. Dispute
under WTO DS. Other than in NAFTA, the United States
panels can continue to hear cases, but appealed cases would
has brought one FTA dispute—with Guatemala over labor
remain in limbo, and panel decisions could not be enforced.
practices—to formal DS. Notably, the revised NAFTA –
Central U.S. concerns include whether AB panelists have
the proposed U.S.-Mexico-Canada Agreement (USMCA)
interpreted agreements too expansively, whether
did not change the roster selection process, which
proceedings are completed in a timely manner, and whether
potentially allows a party to prevent the creation of a panel
AB jurists should be able to finish cases after their terms
over lack of consensus regarding panel appointments.
have expired. Some WTO members share U.S. concerns
However, additional congressional negotiations over
and have made proposals to address them. However, to date
USMCA reportedly have led to new language that would
the U.S. has rejected them, maintaining that the DSB must
require a panel to be formed.
address the fundamental issue of why the AB acts as if it
can allegedly disregard the language of the DSU. Given the
Investor-State Dispute Settlement (ISDS)
potential demise of the WTO DS system, Congress may
Most U.S. FTAs since NAFTA contain a separate dispute
consider the relative importance of U.S. complaints with the
settlement system for investment. ISDS allows an investor
AB with the value of having a functioning DS system for
to seek arbitration directly with a host government to
the multilateral trading system.
resolve disputes over alleged breaches of a party’s
investment obligations. ISDS proceedings are conducted
under the auspices of the World Bank-affiliated
Ian F. Fergusson, Specialist in International Trade and
International Centre for Settlement of Investment Disputes
Finance
(ICSID), or comparable rules. Panels are typically
IF10645
composed of three arbiters—one appointed by the investor
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Dispute Settlement in the WTO and U.S. Trade Agreements


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