Dispute Settlement in the WTO and U.S. Trade Agreements

Dispute Settlement in the WTO and U.S. Trade Agreements

Updated July 17, 2024
Dispute Settlement in the WTO and U.S. Trade Agreements
Since the 1980s, Congress has declared that a principal
system by imposing stricter deadlines, and making it easier
trade negotiating objective of the United States is the
to establish panels, adopt panel reports, and authorize
establishment and use of dispute settlement (DS)
retaliation for noncompliance.
mechanisms to enforce commitments in U.S. trade
The DSU commits members to take disputes to adjudication
agreements. Since 1975, Congress has set principal
under its rules and procedures rather than make unilateral
negotiating objectives for dispute settlement and the
determinations of violations and impose penalties. As a first
enforcement of trade agreements within Trade Promotion
step, the DSU encourages settlement of disputes through
Authority (TPA) legislation. In the most recent TPA (Title
consultations. If a dispute is unresolved within 60 days of a
I, P.L. 114-26, expired in 2021), Congress directed the U.S.
request for consultations, or if a party denies a request, the
Trade Representative (USTR) “to seek provisions in trade
complaining party may request the establishment of a panel.
agreements providing for resolution of disputes between
A panel is composed of three “well-qualified government
governments under those trade agreements in an effective,
timely, transparent, equitable, and reasoned manner.”
and/or non-governmental individuals” from members not
party to the dispute.
USTR monitors compliance with U.S. trade agreements,
and pursues enforcement through bilateral engagement, DS
WTO DS Core Objectives
procedures, and other trade policy tools.
“[The DS system] serves to preserve the rights and
obligations of Members under the covered agreements, and
The most recent U.S. free trade agreement (FTA), the 2020
to clarify the existing provisions of those agreements in
U.S.-Mexico-Canada Agreement (USMCA), made various
accordance with customary rules of interpretation of public
changes to past FTA DS procedures and created new
international law. Recommendations and rulings of the DSB
mechanisms. The Biden Administration is not pursuing new
cannot add to or diminish the rights and obligations
comprehensive FTAs, and instead is negotiating targeted
provided in the covered agreements.” -Art. 3.2 DSU
initiatives that cover some trade issues. It is unclear what
potential obligations may be subject to enforcement,
Dispute panels hear cases and are to issue their reports to
however, which some Members of Congress have raised as
the disputing parties, and then to all WTO members, within
a concern. While DS has been a longstanding U.S. trade
nine months from the establishment of the panel. Third
negotiating objective, the DS system of the World Trade
parties may join the proceedings if they have a “substantial
Organization (WTO) has also become controversial for
interest.” Until 2019, decisions could be appealed to the
U.S. policymakers, in large part due to adverse dispute
Appellate Body (AB), a standing body of seven jurists
panel decisions against the United States, particularly over
serving four-year terms, who had expertise in international
the use of trade remedies. Some Members have urged the
trade law. Since 2016, the United States has blocked the
Administration to work with WTO members toward
process to appoint new AB panelists, which led to the body
reforms “that improve the speed and predictability of
ceasing to function in 2019. The U.S. action was motivated
dispute settlement” (see e.g., H.Res. 382, 117th Congress).
by various concerns about WTO DS, including over
perceived “judicial overreach” in panel decisions. U.S.
Dispute Settlement at the WTO
action was also an attempt to prompt WTO members to
The WTO was established in 1995 after the Uruguay Round
consider reforms. Panels can continue to hear cases, but
of negotiations among members of the 1947 General
those that are appealed may remain unresolved and
Agreement on Tariffs and Trade (GATT). The WTO
retaliation cannot be authorized. The European Union and
administers a system of agreements, covering goods and
some other WTO members established an appeal arbitration
services trade, intellectual property rights, subsidies, and
arrangement under Art. 25 DSU to hear their own cases.
other issues. The WTO Dispute Settlement Understanding
See CRS Report R46852, The WTO’s Appellate Body: Key
(DSU) provides a forum to settle disputes regarding the
Disputes and Controversies.
various WTO agreements.
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
concerns expressed by the United States and other GATT
(DSB), a plenary committee of the WTO. If a violation is
member concerns that the GATT DS was ineffective largely
found, the member must bring the offending measure into
because there were no fixed timetables and a disputing
conformity with WTO obligations. It may voluntarily
party could block decisions, which often led to unresolved
change its practice and the parties may negotiate a
disputes. Congress, in defining U.S. aims for the Uruguay
“reasonable timeframe” for implementation. If the
Round, wanted “to ensure that such mechanisms within the
respondent does not bring its measure into conformity, or
GATT and GATT agreements provide for more effective
its action is not acceptable to the complainant, the parties
and expeditious resolution of disputes and enable better
may negotiate compensation. The complainant may also
enforcement of United States rights” (P.L. 100-418).
request that the DSB authorize retaliation, e.g., withdrawal
Observers credited the DSU for strengthening the DS
of tariff concessions. While specific timetables apply,
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link to page 2 Dispute Settlement in the WTO and U.S. Trade Agreements
delays often occur. To date, more than 600 WTO disputes
environmental regulations and conceded a comparative
have been filed, with the United States a direct party to 283
advantage of the United States to countries with less
cases (Table 1). Historically, the United States has been
reliable judicial systems. Per UNCTAD, as of 2023 U.S.
one of the most active participants in WTO DS.
investors comprised one-fifth of claims worldwide, with
Table 1. U.S. WTO Dispute Status, as of June 2024
more than 230 cases against host states. Foreign investors
brought 24 cases against the United States, which prevailed

Complainant
Respondent
in 10; others are pending, settled, or discontinued.
Settled, terminated, or lapsed
45
34
In consultations
29
36
Binational Review of Trade Remedy Actions
Unique among U.S. FTAs, NAFTA and USMCA contain a
In panel stage
8
12
binational DS mechanism to review anti-dumping and
In appel ate stage
2
11
countervailing duty decisions of a domestic administrative
Report(s) adopted, no further
6
13
body. To date, DS panels have issued 27 decisions
action required
involving the U.S. trade remedy actions.
Report(s) adopted, rec to bring
34
53
measure(s) into conformity
Issues for Congress
Total
124
159
In oversight of the enforcement of U.S. trade deals, key
Source: World Trade Organization.
questions confront Congress, for example, to what extent
Dispute Settlement in FTAs
trading partners are complying with obligations, and to
what extent USTR is enforcing them. Members might seek
U.S. trade agreements often provide mechanisms to resolve
to address the effectiveness of new DS mechanisms under
disputes in both state-to-state and investor-state fora.
USMCA, prospects for new binding trade obligations under
USMCA also has additional enforcement mechanisms.
executive-led trade initiatives, and potential for WTO DS
State-to State Dispute Settlement
reforms. Members could seek changes to U.S. negotiating
Similar to WTO DS, trade agreement provisions first aim to
objectives on DS within future TPA or other legislation.
resolve disputes through consultations. Since the U.S.-Chile
USMCA. Congress may examine new DS processes,
FTA (2004), panels have been composed of three arbiters;
dispute outcomes, and whether USMCA may be a template
each side appoints one, and the third is appointed by mutual
for new U.S. trade deals. Congress may also debate the
consent or selected from a list of individuals. If a party does
impact of limited ISDS on safeguarding U.S. investments in
not come into compliance with an adverse panel decision,
Mexico and whether future FTAs should include ISDS.
compensation, suspension of concessions, or fines are
possible remedies. For disputes over obligations common to
New Trade Initiatives. In ongoing U.S. trade initiatives
both WTO and FTA rules, a party can choose the dispute
like the Indo-Pacific Economic Framework for Prosperity
forum, but can only bring the case to one forum.
(IPEF), it remains unclear to what extent potential trade
commitments may be subject to enforcement. The IPEF
USMCA made several changes to DS under the 1994 North
Supply Chain Agreement establishes a new facility-specific
American Free Trade Agreement (NAFTA) to update
reporting mechanism on “labor rights inconsistencies” in
procedures and address perceived shortcomings. Provisions
IPEF partner supply chains. Members might consider the
on the panel roster selection, for example, aimed to ensure
merits of cooperative versus binding commitments, and the
formation of a panel even if a party refuses to participate in
effectiveness of IPEF and other prospective agreements.
the selection process, closing a loophole that discouraged
use of NAFTA DS. USMCA also established a facility-
WTO. The lack of an appeals mechanism has limited the
specific “rapid-response” mechanism for labor disputes.
resolution of WTO disputes and effectiveness of WTO DS.
Supporters have generally viewed the DS system as a WTO
State-to-state DS has been infrequently utilized. Three cases
success. Others are concerned about the legitimacy of the
were decided under NAFTA. Several disputes have been
system if WTO members do not agree to DS reforms and
initiated and resolved under USMCA, including under the
negotiation of new trade rules, which could prevent key
labor mechanism. Under other U.S. FTAs, one dispute with
issues from being adjudicated. The United States has not
Guatemala over labor practices has undergone full DS.
supported DS reform proposals to date. WTO 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 ISDS, a separate mechanism that
Congress might consider whether the lack of functioning
allows an individual investor to bring a complaint against 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
investment obligations. Proceedings are often conducted
U.S. trade enforcement actions outside the WTO, such as
under the World Bank-affiliated International Centre for
via “Section 232” authorities, and trading partner retaliatory
Settlement of Investment Disputes (ICSID), or comparable
tariffs. Most recently, in 2022 DS panels decided in favor of
rules. A successful claim results in monetary penalties, but
some WTO members that contested U.S. tariffs.
a tribunal cannot compel a country to change its laws.
USMCA removed ISDS between the United States and
Christopher A. Casey, Analyst in International Trade and
Canada and limited its use with Mexico. The USMCA
Finance
negotiations heightened debate over ISDS. Some supporters
Cathleen D. Cimino-Isaacs, Specialist in International
argued ISDS provided investors a neutral and effective
Trade and Finance
venue for resolving disputes. Opponents raised concerns
that ISDS discouraged states from implementing health and
IF10645
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Dispute Settlement in the WTO and U.S. Trade Agreements

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