USMCA: A Legal Interpretation of the Panel-Formation Provisions and the Question of Panel Blocking
January 30, 2020
USMCA: A Legal Interpretation of the Panel-Formation
Provisions and the Question of Panel Blocking
Congress has shown an interest in the effectiveness of the
interpreted as follows: “chosen” is defined as “selected”;
dispute settlement mechanism in the United States-Mexico-
“by” as “according to”; and “lot” as “the use of lots as a
Canada Agreement (USMCA), which will replace the North
means of deciding something.” Together, these definitions
American Free Trade Agreement (NAFTA). Some
suggest that “chosen by lot” means selected according to
Members have questioned its effectiveness, and, as part of
the use of lots to decide something. In other words, the
the Bipartisan Congressional Trade Priorities and
chosen-by-lot process seemingly involves a process that
Accountability Act of 2015 (TPA), Congress has identified
guarantees random selection of the disputing Party that may
effective dispute settlement as a negotiating objective that
then select the panel chair.
the U.S. Trade Representative must pursue when
negotiating trade agreements. This In Focus examines one
Next, the disputing Parties may each select two panelists,
aspect of the State-State dispute settlement mechanism in
typically from a roster of eligible panelists created by the
USMCA Chapter 31: the ability of a USMCA Party to
Parties. A Party may select a panelist not on the roster, but
prevent the formation of a panel during dispute settlement
that individual is subject to a peremptory challenge, by
proceedings, often termed panel blocking.
which the other disputing Party may reject the proposed
panelist without justification. If a Party fails to select
NAFTA Dispute Settlement
panelists, then the panelists “shall be selected by lot from
NAFTA Chapter 20, which deals with institutional
among the roster members.” As with the chosen-by-lot
arrangements and dispute settlement procedures, created a
provision for selection of the panel chair, NAFTA provides
dispute settlement mechanism through which a NAFTA
little detail about how to interpret the selected-by-lot
Party may bring a claim against another NAFTA Party for
provision. Applying the treaty interpretation principle
allegedly breaching its treaty obligations. Panels may hear
above, however, “selected by lot” may carry a substantially
these claims and determine whether a Party’s domestic
similar meaning to “chosen by lot.”
measures or conduct violate NAFTA.
These rules leave several opportunities for panel blocking.
Since NAFTA entered into force in 1994, three Chapter 20
Two issues arise from the lack of a roster of potential
panels have been convened, but none since 2000. Several
panelists. (The absence of a roster may result from any
reasons exist for this low number. First, the Parties resolve
Party’s intentional refusal to designate individuals to the
many disputes informally without invoking NAFTA’s
roster, as required by NAFTA, or from the Parties’ inability
dispute settlement mechanism or through NAFTA’s
to agree on who to name to the roster.) First, without a
consultations mechanism, which permits the Parties to
roster, a disputing Party may exercise its peremptory
discuss confidentially, and attempt to resolve, the matter.
challenge against any proposed panelist, thereby blocking
Second, NAFTA countries have shown a preference for the
the formation of a panel. Second, there is no indication in
World Trade Organization’s (WTO’s) dispute settlement
Chapter 20’s text as to how to select panelists under the
mechanism over NAFTA’s. Third, and most relevant to this
selected-by-lot rule when a Party fails to select panelists, as
In Focus, NAFTA Chapter 20 creates several avenues
that rule presupposes the existence of a roster. These issues
through which a Party may potentially block the
prevented formation of a panel in a dispute between the
establishment of a panel, thereby preventing resolution of
United States and Mexico over U.S. restrictions on sugar
the dispute.
imports in 2001. The United States noted the absence of a
roster, and argued that the disputing Parties therefore could
Under NAFTA Chapter 20, the disputing Parties may select
not apply any other rules on appointing panelists. Since this
a panel chair by consensus. If they do not agree on a chair,
dispute, no NAFTA Chapter 20 panels have been convened.
then “the disputing Party chosen by lot shall select” the
chair. The precise meaning of “chosen by lot” is unclear, as
The chosen-by-lot and selected-by-lot processes for the
the text provides no additional procedural details. Under
chair and panelists, respectively, are susceptible to panel
general principles of treaty interpretation (as stated in the
blocking for another reason: NAFTA fails to identify who
Vienna Convention on the Law of Treaties), a treaty is
performs these procedures. Without such a provision, a
generally interpreted “in good faith in accordance with the
disputing Party may potentially use this omission to prevent
ordinary meaning to be given to the terms of the treaty in
the formation of a panel by arguing that no Party or entity
their context and in the light of its object and purpose.”
created by NAFTA (e.g., the Secretariat) possesses the
Applying this principle, the phrase “chosen by lot” may be
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USMCA: A Legal Interpretation of the Panel-Formation Provisions and the Question of Panel Blocking
authority to conduct the chosen-by-lot or selected-by-lot
blocking, although it does not clarify which parts of the text
processes.
may lead to such an issue:
USMCA Dispute Settlement
The United States shall enforce its rights under the
USMCA’s primary State-to-State dispute settlement
USMCA through consultations and the dispute
provisions are in Chapter 31. The Chapter 31 rules for
settlement mechanism provided for in Chapter 31
selecting panelists draw heavily on NAFTA with some
when possible. However, a decision by Canada or
modifications. Relevant here are the rules that may allow or
Mexico to prevent or unreasonably delay formation
prevent panel blocking.
of a dispute settlement panel would not prevent the
Executive Branch from enforcing U.S. rights.
First, USMCA states that a Party’s failure to designate
In sum, USMCA appears to address panel blocking as to a
individuals to the roster of proposed panelists will not
prevent the establishment of a panel. However, it is unclear
Party’s failure to designate individuals to the roster,
how this provision will prevent such an outcome, as the
although whether the Agreement successfully prevents
panel blocking in this context depends on the adoption of
Agreement states only that a USMCA Free Trade
effective Rules of Procedure. Although the Agreement
Commission (FTC) must draft Rules of Procedure to
specifies some issues the Rules must address (e.g., a Party’s
address how to compose a panel in such circumstances. The
FTC would consist of government representatives, at the
right to a hearing and to file submissions), it does not
level of ministers, from each USMCA Party, and may assist
discuss criteria or suggest processes that may help to ensure
with implementation issues, propose amendments, and
the effectiveness of provisions about constituting panels in
the absence of a roster.
carry out other functions as the Parties permit. At present,
the FTC’s Rules of Procedure do not exist, thus making it
Moreover, USMCA appears to leave open the prospect of
premature to assess USMCA’s success at resolving the
panel blocking with regard to the chosen-by-lot and
issue of panel blocking when a Party fails to designate
selected-by-lot processes applicable to picking the chair and
individuals to the roster.
panelists.
Second, USMCA replicates much of NAFTA’s text
Considerations for Congress
regarding selection of the panel chair and panelists when
If another USMCA Party blocks formation of a panel, as
the disputing Parties disagree on proposed panelists or fail
suggested in the SAA, the United States may seek other
to participate in the process. With regard to selection of the
avenues for addressing the matter. For example, if a
chair, the Agreement states that, if the disputing Parties fail
to agree on a chair, “
USMCA matter also implicates WTO obligations, then the
the disputing Party chosen by lot shall
select” the chair.
United States may seek to use the WTO’s dispute
USMCA also adds a second rule: “the
settlement mechanism, by requesting either arbitration or a
complaining Party shall select an individual from the
panel. A potential issue with requesting a WTO panel is the
roster” if a responding Party fails to participate in the
inability to finalize a determination, given the functional
chosen-by-lot process. As to the selection of panelists,
breakdown of the WTO’s Appellate Body. Alternatively,
USMCA states that if a disputing Party fails to select
the United States might be able to use domestic laws to
panelists, its panelists “shall be selected by lot from among
address the issue, such as Section 302 of the NAFTA
the roster members.” Furthermore, the Agreement adds that
Implementation Act. This section, retained in the USMCA
if the Party that fails to select panelists is the responding
Implementation Act (Section 502 of P.L. 116-113), permits
Party, then the complaining Party may select all of the
the United States to impose safeguards on imports from
panelists.
Canada or Mexico.
Like NAFTA, USMCA does not specify who shall conduct
Given these other dispute-resolution tools, as well as the
the chosen-by-lot and selected-by-lot processes, which may
potential for panel blocking under USMCA, Congress may
leave open this avenue for panel blocking. One may argue
consider several matters. First, it may consider whether
that USMCA’s delegation to the FTC to draft Rules of
USMCA’s Chapter 31 panel system satisfies the TPA
Procedure to address issues involving the absence of a
negotiating objectives. Second, it may consider whether to
roster may also delegate authority to the FTC to address
incorporate Chapter 31’s text on panel selection into future
who conducts the chosen-by-lot and selected-by-lot
free trade agreements. Third, it may consider whether to
processes, as USMCA links these processes to the roster.
address rules for panel selection in the negotiating
However, because USMCA expressly delegates only the
objectives of any future TPA legislation. Finally, it may
issue of how to compose panels in the absence of a roster to
consider whether U.S. laws provide for effective responses
the FTC, a Party might argue that the FTC lacks authority
to trade-related issues and an appropriate role for Congress
to determine who performs these processes when a roster
under its U.S Constitution, Article I power “[t]o regulate
exists, and thereby block formation of a panel.
Commerce with foreign Nations.”
In addition, the Statement of Administrative Action (SAA)
accompanying the implementing legislation for USMCA
Nina M. Hart, Legislative Attorney
(H.R. 5430) appears to acknowledge the potential for panel
IF11418
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USMCA: A Legal Interpretation of the Panel-Formation Provisions and the Question of Panel Blocking
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