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



Updated February 1, 2021
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. Until recently,
predecessor to the WTO during 1947-1994. The WTO
decisions could be appealed to the Appellate Body (AB), a
administers a system of agreements promoting trade
standing body of seven jurists serving four-year terms, who
liberalization, including rules for trade in goods, services
were unaffiliated with any government, and had expertise in
and intellectual property rights. Through its Dispute
international trade law. Since 2016, the United States has
Settlement Understanding (DSU), the WTO provides an
vetoed the appointment of new AB panelists, as a way to
enforceable means to settle disputes regarding obligations
show displeasure over certain practices of the body. On
under these agreements.
December 10, 2019, the terms of two remaining jurists
expired, leaving the AB without a quorum to hear new
Under the GATT, dispute settlement was largely viewed as
cases. Dispute panels can continue to hear cases, but
ineffective because there were no fixed timetables and
appealed cases remain in limbo, and, if appealed, panel
decisions could be blocked by a disputing party, which
decisions cannot be enforced. In addition, some WTO
frequently led to no resolution of disputes. In defining U.S.
members have developed a work-around outside the WTO
aims for the Uruguay Round, Congress sought to achieve
to hear appeals amongst themselves.
major reform in the GATT dispute settlement system in the
following U.S. trade negotiating objective:
WTO DS Core Objectives
to ensure that such mechanisms within the GATT
[The DS system] serves to preserve the rights and
and GATT agreements provide for more effective
obligations of Members under the covered
and expeditious resolution of disputes and enable
agreements, and to clarify the existing provisions of
better enforcement of United States rights. -
those agreements in accordance with customary rules
Omnibus Trade and Competitiveness Act of 1988,
of interpretation of public international law.
(P.L. 100-418).
Recommendations and rulings of the DSB cannot add
to or diminish the rights and obligations provided in
The DSU was credited with strengthening the DS system by
the covered agreements.” Art. 3.2 DSU
imposing stricter deadlines and making it easier to establish
panels, adopt panel reports (DS decisions), and to authorize
Once DSU proceedings are completed, the reports are
retaliation for noncompliance. It also reversed the GATT
presented for adoption by the Dispute Settlement Body
process for adopting a panel report by providing that a
report can be blocked only by consent of all members.
(DSB). If a violation is found, the member must bring the
offending measure into conformity with WTO obligations.
How it Works
It may choose to change its practice and the parties may
The DSU established the process for the settlement of
negotiate a reasonable timeframe for implementation. If the
respondent does not bring its measure into conformity in a
disputes for the WTO system of agreements. It commits
reasonable period of time, or its responsive action is not
members to take disputes to adjudication under DSU rules
and procedures rather than make unilateral determinations
acceptable to the complaining member, the parties may
negotiate compensation. Alternatively, the complaining
of violations and impose penalties. As a first step, the DSU
member may request that the DSB authorize retaliation
encourages the settlement of disputes through consultations
and requires a party to enter into consultation with a
through the withdrawal of tariff concessions or other
requesting party within 30 days of receipt of the request.
suspension of WTO benefits equivalent to the effect of the
offending practice. Procedures set specific timetables,
If a dispute cannot be resolved within 60 days of a request
although delays often occur. To date, 600 cases have been
filed at the DSB, with the United States a direct party to
for consultations, or if a party denies a request for
280 cases (Table 1). (For more information, see, CRS
consultation, the complaining party may request the
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Dispute Settlement in the WTO and U.S. Trade Agreements
Report R45417, World Trade Organization: Overview and
to seek arbitration directly with a host government to
Future Direction, coordinated by Cathleen D. Cimino-
resolve disputes over alleged breaches of a party’s
Isaacs).
investment obligations. ISDS proceedings are conducted
under the auspices of the World Bank-affiliated
Table 1. U.S. Dispute Settlement Status at WTO
International Centre for Settlement of Investment Disputes
As of January 2021
(ICSID), or comparable rules. Panels are typically
composed of three arbiters—one appointed by the investor

As Complainant
As Respondent
claimant, one by the party, and one by agreement of the
disputing sides. A successful claim can only result in
Settled, terminated,
32
20
monetary penalties, and a tribunal cannot compel a country
or case lapsed
to change its laws over an adverse decision. In a break from
In consultations
29
38
previous U.S. FTAs, USMCA ended recourse to ISDS
between the United States and Canada, and limited its use
In panel stage
14
19
with Mexico. (See CRS In Focus IF11167, USMCA:
In appel ate stage
1
5
Investment Provisions, by Christopher A. Casey and M.
Angeles Villarreal.)
Report(s) adopted,
7
19
no further action
Binational Review of Trade Remedy Actions
required
Unique among U.S. FTAs, NAFTA contains a binational
dispute settlement mechanism to review anti-dumping (AD)
Report(s) adopted,
41
55
and countervailing duty (CVD) decisions of a domestic
with recommendation
administrative body. While some groups in the United
to bring measure(s)
States supported its elimination, it is retained in the
into conformity
proposed USMCA.
Total
124
156
Current Issues for Congress
Source: World Trade Organization.
Congress may seek to address the new DS mechanisms
Dispute Settlement in FTAs
under USMCA and the demise or potential reform of the
AB in its oversight of U.S. trade policy or in a possible
U.S. free trade agreements (FTAs) provide options to
future debate on Trade Promotion Authority.
resolve disputes arising under an agreement in both state-to-
state and investor-state fora. Like the WTO DS, U.S. FTAs
USMCA. In oversight on the USMCA, Congress may
first aim to resolve disputes through consultation with the
examine the new DS processes to enforce the new and
other party. Since the U.S.-Chile FTA (2004), panels have
enhanced provisions of the agreement. Congress may also
been composed of three arbiters; each side appoints one and
debate whether ISDS provisions should be incorporated
the third is appointed by mutual consent. Failing that, the
into future FTAs and whether they strike the right balance
third is selected from a list of individuals who are not
between the protection of U.S. investment abroad and
nationals of either side. After a panel makes its decision, the
maintaining a government’s right to regulate.
offending party is expected to come into compliance. If not,
WTO. As noted above, the United States has refused to
compensation, suspension of benefits, or fines are possible
agree to new AB members, putting the body in limbo.
remedies. If a dispute is common to both the WTO and
Central U.S. concerns include whether AB panelists have
FTA rules, a party can choose the dispute forum, but cannot
interpreted agreements too expansively; issuing advisory
bring the dispute to multiple fora.
opinions on issues not relevant to the case on appeal;
State-to State Dispute Settlement
timeliness of AB proceedings, treatment of AB decisions as
State-to-state DS has been infrequent under U.S. FTAs, and
precedent, and whether AB jurists should be able to finish
disputes are usually resolved via consultation. Three cases
cases after their terms have expired. Some WTO members
were decided under North American Free Trade Agreement
share U.S. concerns and have made proposals to address
(NAFTA) DS, with other disputes adjudicated under WTO
them. The Trump Administration rejected them,
DS. Other than in NAFTA, the United States has brought
maintaining that the DSB must address the fundamental
one FTA to formal DS—with Guatemala over labor
issue of why the AB acts as if it can allegedly disregard the
practices. The United States-Mexico-Canada Agreement
language of the DSU. As of yet, the Biden Administration
(USMCA) changed the roster selection process to ensure
has not announced a position on this issue. Given the
formation of a panel in DS cases, even if a party refuses to
effective demise of the WTO DS system, Congress may
participate in the selection of panelists, closing a loophole
consider the relative importance of U.S. complaints with the
that discouraged the use of DS in NAFTA. In December
AB with the value of having a functioning DS system for
2020, the United States sought consultations with Canadian
the multilateral trading system.
over certain dairy practices, which if not resolved may lead
to the USMCA’s first DS proceeding. USMCA also
Ian F. Fergusson, Specialist in International Trade and
contains a “rapid-response” independent panel to
Finance
investigate denial of labor rights at certain facilities.
Investor-State Dispute Settlement (ISDS)
IF10645
Most U.S. FTAs since NAFTA contained a separate dispute
settlement system for investment. ISDS allows an investor
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Dispute Settlement in the WTO and U.S. Trade Agreements


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https://crsreports.congress.gov | IF10645 · VERSION 6 · UPDATED