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Access to Trade Justice: Fixing NAFTA's Flawed State-to-State Dispute Settlement Process

Published online by Cambridge University Press:  16 March 2018

SIMON LESTER ,
INU MANAK  and
ANDREJ ARPAS
SIMON LESTER*
Affiliation:
Cato Institute and WorldTradeLaw.net
INU MANAK
Affiliation:
Department of Government, Georgetown University and the Cato Institute
ANDREJ ARPAS
Affiliation:
Cato Institute
*
*Email: ib317@georgetown.edu; slester@cato.org
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Abstract

Without a properly functioning dispute process, the obligations in a trade agreement may not be worth much. As part of the NAFTA renegotiation, the NAFTA parties should try to fix certain flaws in the NAFTA Chapter 20 dispute settlement process that emerged a few years after NAFTA came into force. Chapter 20 was used regularly in its early years, but usage dropped considerably after panel selection was blocked in a case involving US restrictions on Mexican sugar. In this paper, we examine recent innovations on panel selection in the TPP, CETA, and JEEPA dispute provisions, and draw from those to develop principles that can guide revisions to the NAFTA Chapter 20 panel selection process.

Type
Review Article
Information
World Trade Review , Volume 18 , Issue 1 , January 2019 , pp. 63 - 79
Copyright
Copyright © Simon Lester et al. 2018 

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Footnotes

Thanks to David Gantz, Thomas Juergensen, Ricardo Ramirez, and two anonymous reviewers for comments. All errors remain our own.

References

1 North American Free Trade Agreement, 17 December 1992, US–Can.–Mex., 32 I.L.M. 289 (chs. 1–9); 32 I.L.M. 605 (chs. 10–22).

2 Busch, Marc L., ‘Overlapping Institutions, Forum Shopping, and Dispute Settlement in International Trade’ (2007) 61, 4 International Organization 735–761CrossRefGoogle Scholar.

3 Lopez, David, ‘Dispute Resolution under NAFTA: Lessons from the Early Experience’ (1997) 32, 2 Texas International Law Journal 163–208Google Scholar.

4 A number of scholars have noted the potential for delays or the complete blocking of panels as a particular problem, with some pointing to the US actions in stalling panel appointments: David A. Gantz, ‘The United States and NAFTA Dispute Settlement: Ambivalence, Frustration and Occasional Defiance’ (2009) Arizona Legal Studies Discussion Paper No. 06-26, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=918542 (accessed 29 September 2017); Pauwelyn, Joost, ‘Adding Sweeteners to Softwood Lumber: The WTO–NAFTA “Spaghetti Bowl” Is Cooking’ (2006) 9, 1 Journal of International Economic Law 1–10CrossRefGoogle Scholar; as well as procedural delays: Gantz, David A., ‘Government-to-Government Dispute Resolution Under NAFTA's Chapter 20: A Commentary on the Process’ (2000) 11 American Review of International Arbitration 481Google Scholar; Hufbauer, Gary C. and Schott, Jeffrey J., NAFTA Revisited: Achievements and Challenges (Institute for International Economics 2005)Google Scholar; or the lack of a complete roster of potential panelists: Picker, Sidney Jr., ‘The NAFTA Chapter 20 Dispute Resolution Process: A View from the Inside’ (1997) 23, 55 Can–US Law Journal 525–540Google Scholar.

5 ‘US proposes non-binding state-to-state dispute settlement chapter in NAFTA’, Inside US Trade (15 October 2017), https://insidetrade.com/trade/us-proposes-non-binding-state-state-dispute-settlement-chapter-nafta (accessed 7 January 2018). As is well-known in trade policy circles, the United States is also currently taking actions that could undermine WTO dispute settlement, which combined with its NAFTA proposals could leave Canada and Mexico without any effective international recourse for bringing trade disputes against the United States. The US approach presents a serious risk to the global trading system and to state-to-state dispute settlement generally. It remains to be seen how strongly the Trump administration will push on this issue, and whether it is amenable to negotiating a solution. See, Manfred Elsig, Mark Pollack, and Gregory Shaffer, ‘Trump is fighting an open war on trade. His stealth war on trade may be even more important’, The Washington Post (27 September 2017), www.washingtonpost.com/news/monkey-cage/wp/2017/09/27/trump-is-fighting-an-open-war-on-trade-his-stealth-war-on-trade-may-be-even-more-important/?utm_term=.b54250d51c47 (accessed 22 January 2018).

6 Please see our online appendices for further details. Appendix A provides a brief summary of all NAFTA Chapter 20 disputes to date, and Appendix B lists them in table format.

7 In this situation, the Party that is complained against chooses two panelists, one from each of the complaining Parties, and the complaining Parties shall select two panelists who are citizens of the responding Party. There is also a fifth panelist, selected by agreement of the Parties, who serves as chair.

8 See In re Tariffs Applied by Canada to Certain US–Origin Agricultural Products, CDA-95-2008-01, Final Report of the Panel (2 December 1996), paras. 2–3, www.nafta-sec-alena.org/Home/Dispute-Settlement (accessed 22 September 2017).

9 See In re The US Safeguard Action Taken on Broom Corn Brooms from Mexico, USA-97-2008-01, Final Report of the Panel (30 January 1998) , paras. 17–18, www.nafta-sec-alena.org/Home/Dispute-Settlement (accessed 22 September 2017).

10 See In re Cross-Border Trucking Services, USA-MEX-98-2008-01, Final Report of the Panel (6 February 2001), paras. 21, 23, www.nafta-sec-alena.org/Home/Dispute-Settlement (accessed 22 September 2017).

11 Cargill, Inc. v. United Mexican States (2009) ARB(AF)/05/Z (ICSID), paras. 85–100, www.italaw.com/cases/documents/226 (accessed 28 February 2018).

12 Letter from Herminio Blanco Mendoza, Secretary of Trade and Industrial Promotion, Mexico, to Charlene Barshefsky, United States Trade Representative (13 March 1998, facsimile of the original consultations’ request on file with authors).

13 Supra n. 9, paras. 85–100.

14 Ibid.

15 Pauwelyn, Joost, ‘Editorial Comment: Adding Sweeteners to Softwood Lumber: The WTO–NAFTA “Spaghetti Bowl” is Cooking’ (2006) 9, 1 Journal of International Economic Law 197–206CrossRefGoogle Scholar.

16 Supra n. 9, para. 87.

17 Authors’ conversation with NAFTA Secretariat, Canadian Section. Renée Lagacé, ‘NAFTA Chapter 20 roster’, email message to Andrej Arpas, 1 September 2017; Authors’ conversation with NAFTA Secretariat, Paul E. Morris, ‘NAFTA Chapter 20 Roster’, email message to Andrej Arpas, 15 September 2017.

18 Despite this, the other Parties that signed the agreement are working towards implementing the deal, after making some revisions to the text to account for the absence of the United States.

19 Para. 7 notes that: ‘The Parties may appoint a replacement at any time if a roster member is no longer willing or available to serve’.

20 Office of the United States Trade Representative, ‘TPP Chapter 28: Dispute Settlement’, Art. 28.11, para. 5, https://ustr.gov/sites/default/files/TPP-Final-Text-Dispute-Settlement.pdf. (accessed 28 February 2018).

21 CETA Article 26.1.1 states that the Chair of the CETA Joint Committee is ‘co-chaired by the Minister for International Trade of Canada and the Member of the European Commission responsible for Trade, or their respective designees’.

22 Commission, ‘EU–Japan trade agreement: texts of the agreement in principle’ (6 July 2017), http://trade.ec.europa.eu/doclib/press/index.cfm?id=1684 (accessed 22 September 2017).

23 There is some ambiguity in language here because in Article 8.5 (a) subparagraph (iii) it states that in the event that there are no agreed upon individuals in the lists, ‘the complaining Party shall … select by lot … from the up to six individuals who had been formally proposed … by one or both Parties.’ This leaves unclear whether the complaining Party must select from the other Party's sub-list if a single individual has been formally proposed there, or whether the complaining Party may just make a selection from the individuals it had formally proposed.

24 It could be imagined that a Party could propose just one person for its sub-list and select an individual that it knows the other Party may disagree with. This could, presumably, delay the formation of a panel if the complaining Party is required to select an arbitrator from the proposed sub-list of the other Party.

25 One reason in particular that this fall-back could be considered as the ultimate last resort is because it is possible that the co-chair could select an individual on the basis of its proposal, even if that individual had previously been rejected by the other Party when the list was being established.

26 It should be noted that these ‘fall-back rules’ are purposely constructed to be complex and multi-pronged, so as to give the Parties an incentive to establish a list in the first place. Therefore, while having these provisions in place is important to prevent the blocking of a panel, there is an argument that they should not be too easy to use. Thanks to Thomas Juergensen for this point.

27 A number of agreements give the parties the power to request the WTO Director-General to appoint panelists. See, e.g., EFTA–Singapore FTA, Article 60, para. 5. It is worth noting in this regard that under the 2006 Softwood Lumber Agreement, Canada and the United States bypassed both NAFTA Chapter 20 and the WTO's dispute settlement mechanism in favor of the London Court of International Arbitration. See, Softwood Lumber Agreement between the Government of the United States of America and the Government of Canada (SLA 2006) US Department of State, www.state.gov/documents/organization/107266.pdf (accessed 7 January 2018). The secretary general of the LCIA, or of the Hague Court of Arbitration, could play the role of independent appointing authority. Thank you to an anonymous reviewer for pointing out this possibility.

28 ‘NFTC head: US NAFTA approach a “de facto withdrawal”, benefits China’, Inside US Trade (26 October 2017), https://insidetrade.com/inside-us-trade/nftc-head-us-nafta-approach-de-facto-withdrawal-benefits-china (accessed 8 January 2018).

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