Seeking the best forum for regional trade agreement disputes

by Henry Gao
May 2018

Many proposals have been put forward to address the problematic nature of dispute settlement mechanisms found in regional trade agreements. This piece discusses two of them: using dispute settlement mechanisms under mega-regional agreements and resorting to existing arbitration and investment tribunals. The author argues that these proposals will amplify rather than solve existing problems, and concludes by suggesting that the World Trade Organization’s dispute settlement mechanism is the best forum for regional disputes.  

As multilateral trade negotiations in the WTO have slowly ground to a halt over the past decade, regional trade agreements (RTAs) have increasingly assumed the role of laboratories for new trade rules. These include not only issues on the original negotiating agenda of the WTO – such as trade in goods and services, trade-related intellectual property rights, investment, and electronic commerce – but also new issues beyond the existing WTO framework including competition, labour standards, environmental norms, and state-owned enterprises. Nowadays, it is fair to say that it is the RTAs rather than the WTO that lead the rule-making efforts on most emerging issues.

Despite their success in setting the rules for international trade, RTAs have been much less successful in solving their disputes, at least judging from the low number of resorts to litigation. Most RTAs usually include detailed rules for dispute settlement, typically modelled after the Dispute Settlement Understanding of the WTO. But most of these nicely designed dispute settlement mechanisms exist on paper only and have seen no usage. Even for the handful of RTAs which do have significant dispute settlement action, it is not unusual for their members to choose to litigate in the WTO instead.

Many theories have been offered to explain the low utilisation of RTA dispute settlement mechanisms. Some point to systemic issues related to RTAs such as the tension between weak institutions and the strong powers wielded by RTA members. Others argue that it is related to the inherent advantages of the WTO dispute settlement mechanism, especially its strong procedural safeguards and rich substantive jurisprudence.

Two proposals for the settlement of RTA disputes

Instead of pondering the precise reasons for the low utility rates of RTA dispute settlement mechanisms, it might be more useful to explore alternative avenues for the settlement of regional disputes. Two proposals stand out.

The first involves utilising the dispute settlement mechanisms of the new mega-regionals such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). According to Stephan Schill and Geraldo Vidigal, such mechanisms help to achieve “effective dispute settlement without institutional autonomy” by “enhancing state control over the procedure and interpretations made in dispute settlement, […] making adjudication ‘de-institutionalised’ and thus preventing the development of institutional preferences, […] requiring arbitrators/panellists to follow WTO dispute settlement rulings whenever these are appropriate, [and] keeping certain substantive disciplines non-enforceable.”

However, rather than solving the existing problems of RTA dispute settlement, the mega-regionals are more likely to amplify them. First, for any dispute settlement mechanism to be truly effective, the control of state parties should be reduced rather than enhanced. Otherwise, these parties, especially the more powerful ones, will use every opportunity to try to twist the procedural and substantive rules to their advantage. Second, as mentioned, one of the main problems of RTA dispute settlement mechanisms lies in their weak institutional structure. Thus, any “de-institutionalisation” effort would tend to exacerbate rather than alleviate the problems. Third, if RTA dispute settlement panels simply follow WTO rulings, then there is little point in having them in the first place. Moreover, deciding which WTO rulings are “appropriate” to follow could also become tricky, as not all parties to a regional agreement will share the same views on many WTO rulings. Fourth, “keeping certain substantive disciplines non-enforceable” does not really contribute to the objective of providing “effective dispute settlement,” as this simply avoids conflicts on these issues and fails to provide proper disciplines.

The second proposal is to use an alternative institution such as the Permanent Court of Arbitration or the International Centre for Settlement of Investment Disputes (ICSID). As noted by Amy Porges, such institutions provide “centralised dispute settlement administration” with “experienced secretariats” just like the WTO. But a detailed examination of the track record of these alternative institutions reveals that they are far from satisfactory. For example, the ICSID investment arbitration panels are often criticised for producing inconsistent or even contradictory rulings on the same issues. If even the relatively simple investment treaty regime can lead to such less-than-optimal results, how can they serve the dispute settlement needs of trade agreements, which are usually far more complex than bilateral investment treaties?

Moreover, while it is true that many RTA dispute settlement mechanisms do suffer from a lack of a centralised administration, the main problem goes well beyond simply finding a place to hold meetings and establish a secretariat to assist the panel. Rather, the biggest problem facing most RTA dispute settlement mechanisms is the lack of access to a steady pool of good panellists and a body of sound jurisprudence. The solution to both of these matters can only be found in the WTO dispute settlement system, which has built up a corps of highly respected panellists and Appellate Body members who have developed well-reasoned and highly developed judicial interpretations on almost all important issues in international trade law.

A trade court for the world

Instead of re-inventing the wheel by trying to replicate the WTO dispute settlement system through counterparts in mega-regional agreements or alternative institutions, we should set our sights back to where we started, the WTO. As I argue in my think piece, using the WTO dispute settlement system combines the best of both worlds – that is the innovative rule-making efforts in RTAs and the strong institutional framework and rich jurisprudence of the WTO. Such an arrangement will not only provide RTAs with a strong dispute settlement system, but also present the WTO with new ideas on issues and rules to be incorporated into the multilateral trading system. For all who care about the future of the world trading system, the search for the best forum for RTA disputes should end at the gate of Centre William Rappard in Geneva.

This post is derived from the paper The WTO Dispute Settlement Mechanism: A Trade Court for the World commissioned by ICTSD under the RTA Exchange, jointly convened with the Inter-American Development Bank (IDB). The paper was presented and discussed at the meeting Dispute Settlement Mechanisms in RTAs as part of the RTA Exchange dialogue series aimed at constructing better trade and investment agreements for sustainable development at the regional and multilateral levels.

Henry Gao is Associate Professor at Singapore Management University.

  Print Email

Tag: , ,