Updated May 23, 2023
Dispute Settlement in the WTO and U.S. Trade Agreements
Since the 1980s, Congress has consistently declared that a
deadlines, and making it easier to establish panels, adopt
principal trade negotiating objective of the United States is
panel reports, and authorize retaliation for noncompliance.
the establishment and use of effective, expeditious, and
The DSU commits members to take disputes to adjudication
reciprocal dispute settlement (DS) mechanisms to enforce
under its rules and procedures rather than make unilateral
commitments in U.S. trade agreements, including free trade
determinations of violations and impose penalties. As a first
agreements (FTAs) and the World Trade Organization
step, the DSU encourages settlement of disputes through
(WTO). Congress sets principal negotiating objectives for
consultations. If a dispute is unresolved within 60 days of a
dispute settlement and the enforcement of trade agreements
request for consultations, or if a party denies a request, the
within Trade Promotion Authority (TPA) legislation. In the
complaining party may request establishment of a panel. A
most recent TPA (Title I, P.L. 114-26), which expired in
panel is composed of three “well-qualified government
2021, Congress declared the U.S. objective “to seek
and/or non-governmental individuals” from third party
provisions in trade agreements providing for resolution of
members not party to the dispute. If members cannot agree
disputes between governments under those trade
on panelists, the WTO Director-General is to select them.
agreements in an effective, timely, transparent, equitable,
and reasoned manner.”
WTO DS Core Objectives
The U.S. Trade Representative
“[The DS system] serves to preserve the rights and
(USTR) leads monitoring of compliance with U.S. trade
obligations of Members under the covered agreements, and
agreements, and pursues enforcement through bilateral
to clarify the existing provisions of those agreements in
engagement, DS procedures, and other trade policy tools.
accordance with customary rules of interpretation of public
The most recent U.S. FTA, the 2020 U.S.-Mexico-Canada
international law. Recommendations and rulings of the DSB
Agreement (USMCA) made various changes to past FTA
cannot add to or diminish the rights and obligations
DS procedures and created new mechanisms. The Biden
provided in the covered agreements.” -Art. 3.2 DSU
Administration is not pursuing new comprehensive FTAs,
and instead is negotiating targeted initiatives that cover
Dispute panels hear cases and are to issue their reports to
some trade issues. It is unclear what potential obligations
the disputing parties, and then to all WTO members, within
nine months. Third parties may join the proceedings if they
may be subject to enforcement, however, which some
have a “substantial interest
Members of Congress have raised as a concern. While DS
.” Until recently, decisions could
has been a long-standing U.S. trade negotiating objective,
be appealed to the Appellate Body (AB), a standing body of
seven jurists serving four-year terms, who were unaffiliated
the WTO system has also become controversial for U.S.
policymakers, in large part due to adverse dispute panel
with any government and had expertise in international
decisions against the United States, particularly over the use
trade law. Since 2016, the United States has blocked the
process to appoint new AB panelists, which led to the body
of trade remedies. Some Members have urged the
Administration to work with WTO members toward
ceasing to function in 2019. The U.S. action was motivated
reforms “that improve the speed and predictability of
by various concerns about WTO DS, including decades-
dispute settlement” (
long concerns with perceived “judicial overreach” in panel
see e.g., H.Res. 382, 117th Congress).
decisions. It was also an attempt to prompt WTO members
Dispute Settlement at the WTO
to consider reforms. Panels can continue to hear cases, but
The WTO was established in 1995 after the Uruguay Round
those that are appealed may remain unresolved and cannot
of negotiations among members of the 1947 General
be enforced through the WTO. The European Union and
Agreement on Tariffs and Trade (GATT)—the WTO’s
some WTO members put into effect an appeal arbitration
predecessor. The WTO administers a system of agreements,
arrangement under Art. 25 DSU to hear their own cases.
covering goods trade, services trade, and rules on
See CRS Report R46852, The World Trade Organization’s
intellectual property rights, among other issues. The WTO
(WTO’s) Appellate Body: Key Disputes and Controversies.
Dispute Settlement Understanding (DSU) provides a forum
to settle disputes regarding the various WTO commitments.
Once DSU proceedings are completed, the final reports are
The establishment of the WTO’s DSU was in response to
presented for adoption by the Dispute Settlement Body

(DSB), a plenary committee of the WTO. If a violation is
U.S. and other GATT member concerns who viewed
found, the member must bring the offending measure into
GATT’s DS mechanism as ineffective because there were
conformity with WTO obligations. It may voluntarily
no fixed timetables and a disputing party could block
change its practice and the parties may negotiate a
decisions, which often led to unresolved disputes. Congress,
“reasonable timeframe” for implementation. If the
in defining U.S. aims for the Uruguay Round, wanted “to
respondent does not bring its measure into conformity, or
ensure that such mechanisms within the GATT and GATT
its action is not acceptable to the complainant, the parties
agreements provide for more effective and expeditious
may negotiate compensation. The complaining party may
resolution of disputes and enable better enforcement of
United States rights” (
also request that the DSB authorize retaliation, e.g.,
P.L. 100-418). Observers credited the
withdrawal of tariff concessions. While specific timetables
DSU for strengthening the DS system by imposing stricter
apply, delays often occur. To date, more than 600 WTO
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link to page 2 Dispute Settlement in the WTO and U.S. Trade Agreements
disputes have been filed, with the United States a direct
and effective venue for resolving disputes. Opponents
party to 281 cases (Table 1). Historically, the United States
raised concerns including that ISDS may discourage states
has been one of the most active participants in WTO DS.
from implementing health/environmental regulations.
Table 1. U.S. WTO Dispute Status, as of May 2023
According to UNCTAD, in 2022 U.S. investors accounted
for nearly one-fifth of investment claims worldwide, with

Complainant
Respondent
more than 200 cases against host states. Foreign investors
Settled, terminated, lapsed
34
21
brought 23 cases against the United States, which prevailed
In consultations
29
38
in 10, with others settled, discontinued, or pending.
In panel stage
12
10
Binational Review of Trade Remedy Actions
In appel ate stage
1
12
Unique among U.S. FTAs, NAFTA contained a binational
Report(s) adopted, no further
7
19
dispute settlement mechanism to review anti-dumping (AD)
action required
and countervailing duty (CVD) decisions of a domestic
Report(s) adopted, rec to bring
41
57
administrative body. While some U.S. stakeholders
measure(s) into conformity
supported its elimination, USMCA retains the mechanism.
Total
124
157
Issues for Congress
Source: World Trade Organization.
In oversight of the implementation and enforcement of U.S.
Dispute Settlement in FTAs
trade deals, key questions confront Congress (e.g., to what
U.S. trade agreements often provide mechanisms to resolve
extent trading partners are complying with obligations, and
disputes in both state-to-state and investor-state fora.
to what extent USTR is enforcing them). Members might
USMCA also has additional enforcement mechanisms.
seek to address the effectiveness of new DS mechanisms
under USMCA, prospects for new binding trade obligations
State-to State Dispute Settlement
under executive-led trade initiatives, and potential for WTO
Similar to WTO DS, trade agreement provisions first aim to
DS reforms. Members could also seek changes to trade
resolve disputes through consultations. Since the U.S.-Chile
negotiating objectives on DS within future TPA legislation.
FTA (2004), panels have been composed of three arbiters;
each side appoints one, and the third is appointed by mutual
USMCA. Congress may examine the new DS processes,
consent or selected from a list of individuals. The offending
ongoing disputes, and whether USMCA approaches may be
party is expected to come into compliance with panel
a template for new U.S. trade deals. Congress may also
decisions. If not, compensation, suspension of benefits, or
debate the impact of limited ISDS on safeguarding U.S.
fines are possible remedies. For disputes over obligations
investments in Mexico, whether future FTAs should include
common to both WTO and FTA rules, a party can choose
ISDS, and how to weigh protection of U.S. investment
the dispute forum, but can only bring the case to one forum.
abroad and a government’s right to regulate.
USMCA made several changes to DS under the 1994 North
New Trade Initiatives. In ongoing U.S. initiatives like the
American Free Trade Agreement (NAFTA) to update
Indo-Pacific Economic Framework for Prosperity (IPEF), it
procedures and address perceived shortcomings. Provisions
remains unclear what potential trade commitments may be
on the panel roster selection, for example, aimed to ensure
subject to enforcement. USTR indicated IPEF may include
formation of a panel even if a party refuses to participate in
something akin to the USMCA rapid-response mechanism.
the selection process, closing a loophole that discouraged
Members might consider the merits of cooperative versus
use of NAFTA DS. USMCA also established a facility-
binding commitments and IPEF’s related effectiveness.
specific “rapid-response” mechanism for labor disputes.
WTO. The lack of an appeals mechanism limits the
State-to-state DS has been infrequently utilized. Three cases
resolution of WTO disputes and effectiveness of DS
were decided under NAFTA. Under other U.S. FTAs, one
procedures to hold trade partners to account. Supporters
dispute with Guatemala over labor practices has undergone
have generally viewed the DS system as a WTO success.
full DS procedures. Under USMCA, the United States has
Others are concerned about the system’s legitimacy absent
initiated disputes with Canada, consultations with Mexico,
reforms and negotiation of new trade rules, which could
and several labor complaints. In 2023, Mexico and Canada
prevent key issues from being adjudicated. The United
prevailed in a USMCA dispute over auto rules of origin.
States has not supported reform proposals to date. Members
committed to renew reform efforts, aiming to have “a fully
Investor-State Dispute Settlement (ISDS)
and well-functioning dispute settlement system” by 2024.
Most U.S. FTAs contain a separate mechanism called
Congress might consider whether the lack of functioning
ISDS, which allows an investor to arbitrate directly with a
DS undermines the global trading system and U.S. interests.
host government to resolve disputes over alleged breaches
Some observers have also raised concerns over unilateral
of a state party’s investment obligations. Proceedings are
U.S. trade enforcement actions outside the WTO, such as
often conducted under the World Bank-affiliated
via “Section 232” authorities, and trading partner retaliatory
International Centre for Settlement of Investment Disputes
tariffs. DS panels recently decided in favor of members that
(ICSID), or comparable rules. A claim can result in
contested U.S. tariffs; other decisions remain pending.
monetary penalties, and a tribunal cannot compel a country
to change its laws over an adverse decision. In a break from
Christopher A. Casey, Analyst in International Trade and
past U.S. FTAs, USMCA ended recourse to ISDS between
Finance
the United States and Canada and limited its use with
Cathleen D. Cimino-Isaacs, Specialist in International
Mexico. The USMCA negotiations heightened debate over
Trade and Finance
ISDS. Supporters argued ISDS provides investors a neutral
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Dispute Settlement in the WTO and U.S. Trade Agreements

IF10645


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