NAFTA’S dispute resolution mechanism

3. NAFTA’S dispute resolution mechanism

The most convenient method to establish a dispute resolution mechanism under CEPA is to study the experience from other FTAs. NAFTA as one of the best FTAs in the World, whose success can arguably be

attributed to the success of its dispute resolution. 53 Its experience may be one of the best guides for establishing a sound dispute resolution mechanism under CEPA.

3.1 The institutions and procedure under NAFTA Before introducing the general dispute settlement mechanism set forth in NAFTA’s Chapter 20, it is important to mention the NAFTA institutions involved in the process. The agreement set up two main entities: the

Free Trade Commission and Secretariat. 55 FTC consists of cabinet-level officials of the NAFTA parties. To supply administrative support to the FTC, the agreement set up the Secretariat. The Secretariat “has a National

Section office in each country” 56 . It also supply administrative support to the dispute resolution panels and committees provided for by the Agreement. 57

The dispute resolution process under Chapter 20 is a three-stage one which involving: consultations, a meeting of the FTC, and non-binding arbitration. 58 To start consultations, the complaining party shall formally

request it with the offending party. 59 Except the complaining party and the offending party, no other entities will join into the consultations. The consultations shall not last longer than thirty days. 60 If the consulting parties fail

to arrive at a mutually satisfactory resolution to the dispute within thirty days, any of the parties may request a meeting of FTC. FTC shall convene within ten days of the request and “shall endeavor to resolve the dispute

promptly” 61 . To resolve the dispute, the Commission may use technical advisers or experts and make recommendations as appropriate. 62 If the dispute cannot be resolved in the FTC meeting, any disputant may request that an arbitral panel be formed. 63 The panels consist of five panelists who are drawn from a performed roster of thirty individuals. 64 The panel may seek advic e from experts or request a formal written report from a

scientific review board. Further, Chapter 20 guarantees the disputants the right to at least one hearing before the

54 Id. See id. art 2001 and art 2002. 55 See id.

56 David Lopez, Dispute resolution under NAFTA: Lessons from the early experience, 32 T EX . I NT ’ L L.J. 163, 166-168 (Spring 1997) (internal citations to NAFTA omitted).

58 See id. See id. 59 See NAFTA, supra note 1, art 2006. 60 See id. 61 See id. art. 2007.

63 See id. See id. art 2008. 64 See id. art 2008 and 2009.

A study of NAFTA: Establishing a better dispute resolution mechanism under CEPA

panel and the right to make written submissions. 65 Within ninety days after the last panelist is selected, an initial report containing the panel’s findings of fact,

legal determinations, and recommendations shall be presented to the disputing parties by the panel. 66 Any disputant may submit written comments to the panel on its initial report. “ By no later than thirty days after

presentation of the initial report, the panel shall deliver its final report to the disputing parties for transmission to the Free Trade Commission.” 67 The final report shall be published 15 days after it is transmitted to the

Commission. 69 The disputing parties are required to agree on a resolution depends on the final report. If within thirty days after receiving the panel’s final report the disputants have not reached a satisfactory resolution, the

complaining party may suspend NAFTA benefits to the offending party until such time as an agreed resolution is reached. 70

Chapter 20 contains the Agreement’s general dispute resolution device. Other than that, NAFTA applies different procedures to solve the disputes depending on the features of different disputes. For example, Chapter 19 adopts the binational panel review of final decisions of domestic administrative agencies concerning antidumping and countervailing duty matters. Chapter 11 establishes a mechanism for the settlement of investment disputes, and so on. (This article will only focus on the general dispute settlement mechanism - Chapter 20).

3.2 The characteristics of the dispute resolution mechanism under NAFTA

3.2.1 Peaceful—How does NAFTA deal with the relationship among three countries? As a regional trade agreement, NAFTA’s basic purpose is to improve the economy and cooperation between

countries. Chapter 20 uses diplomatic methods before the arbitral panel. 71 It is worth noting that the diplomatic methods—Consultation and Free Trade Commission meeting – are mandatory. The NAFTA mechanism tries to

avoid the third step being used, by solving the dispute under one of the first two procedures. The technique used to solve the dispute peacefully can be found in the provisions of the Commission: “The Commission is authorized to employ a variety of alternative methods of dispute resolution in an effort to bring a negotiated settlement. It may act as a mediator and seek advice from technical advisors and experts; or it may convene working groups. The commission may have recourse to good offices, consultation, mediation or other dispute resolution procedures and

make recommendations to the consulting NAFTA parties.” 72 Another example is the implementation of the panel’s final report. The final report cannot force any party to

perform the decision of the arbitral panel. 73 If, within thirty days after receiving the panel’s final report, the disputants have not reached a “mutually satisfactory resolution”, the complaining party may suspend benefits such

that it would be roughly equivalent to the harm incurred as a result of the offending party’s misconduct, and in the same trade sector or sectors as those affected by the offending measure. 74

3.2.2 Fair—How does NAFTA protect the benefits of developing countries?

See id. art 2008. 66 See id. art. 2016.

67 David supra note 55, at 169.

69 See supra note 1, art. 2017. See NAFTA id. art 2018. 70 See NAFTA id. art 2019. 71 See Wang, supra note 36 at 25. (In this article the author divided dispute resolution into a political method and a judicial method.

The judicial method only includes arbitration and litigation).

73 NAFTA, supra note 1, art. 2007. See Id. art. 2019. 74 See Lopeze, supra note 49, at 167-168.

A study of NAFTA: Establishing a better dispute resolution mechanism under CEPA

Fairness plays an important role in dispute resolution. In some of the RTAs, the contracting parties are comprised of either developing countries or developed countries. NAFTA may be a good example of how to prevent unfairness from political power, and protect the interest of developing countries.

NAFTA is comprised of two developed countries, the United States of America and Canada, and one developing country, Mexico. How does NAFTA ensure fairness in the process of dispute resolution? How does it avoid the influence of unbalanced power among three countries? Let us see how NAFTA forms a fair panel to solve a dispute in an arbitration proceeding. Under Article 2007, the Arbitral Panels consist of five members ordinarily chosen from the roster. The roster is established by each NAFTA party. Each NAFTA party chooses ten people who have expertise in law, international trade, or other matters covered by the Agreement. After selecting a Chair, each NAFTA party involved in the dispute selects two panelists from the rosters of the other disputing

NAFTA parties, rather than its own. 75 Why select panelists from the other party’s roster? Is it fairer than selecting the members from its own roster? Not really. The difference arises from the different attitude when choosing the

panel they want. In the traditional method, people choose the person from whom they believe they will obtain more benefits, and in this new technique, people try to choose a person who really understands the law, and who can deal with the problem as fairly as he can. If all three NAFTA parties are involved in a dispute, the NAFTA party which is the subject of the complaint selects one panel member from each other NAFTA party’s roster.

Using Working Groups in the Commission is also an example of fairness. The participation of more professional people or groups can be more persuasive and prevent the disputes being resolved by resorting to the influence of power.

3.2.3 Prompt—How does NAFTA resolve disputes efficiently? To ensure that the dispute can be solved efficiently and prevent the parties’ intentional slowdown of dispute resolution, NAFTA sets up time limitations for almost every proceeding. All of the three steps are limited. Consultation should be finished within thirty days. 76 Free Trade Commission mediation proceedings should no

longer than forty days; 78 ten days is used to convene the Commission and thirty days to resolve the dispute. In the arbitration proceeding, selection of a chair should be completed within fifteen days after the request for an

arbitral panel. Panel selection should be completed within fifteen days after selection of the Chair. 79 The initial report should be filed within ninety days after panel selection is completed. 80 After the initial report, comments on the initial report should be filed within fourteen days. A final report should be presented within thirty days. 81

And, within thirty days after receiving the panel’s final report, the disputants should act on the panel’s conclusive decision. 82 Therefore, the dispute should be solved within about 310 days.

3.2.4 Pragmatism—How does NAFTA use resources outside the NAFTA? NAFTA uses all kinds of resources to assist in resolving the dispute, such as using domestic courts and international organizations. This technique is considered pragmatic by some Chinese scholars. They state that existing mechanisms are more professional and have more experience.

See NAFTA, supra note 1, art. 2011.

77 See NAFTA, supra note 1, art 2006. See id. art 2007. 78 See id. art 2008. 79 See Overview of the dispute settlement provisions of the North American Free Trade Agreement (NAFTA). Retrieved Apr. 16,

2008, from http://www.nafta-sec-alena.org/DefaultSite/index_e.aspx?DetailID=8.

81 See id. See id. 82 See id.

A study of NAFTA: Establishing a better dispute resolution mechanism under CEPA

Chapter 11 addresses the Settlement of Disputes between a Party and an Investor of another Party. Chapter 11 may, at its option, have recourse to one of the following arbitral mechanisms: (1) the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID); (2) ICSID’s Additional Facility Rules; and (3) the rules of the United Nations Commission for International Trade Law (UNCITRAL Rules). Alternatively, the investor may choose the remedies available in the host country’s domestic courts. An

important feature of the Chapter 11 arbitral provisions is the enforceability in domestic courts of final awards by arbitration tribunals. 83

Another instance is under Chapter 19. Dispute under Article 1904 should be dealt with under the domestic courts first. “No prior consultations or Free Trade Commission review are necessary because Chapter 19 cases, in essence, are appeals of prior rulings by a government agency that dumping has occurred and has injured a

domestic industry.” 84 The outcome of a domestic court’s findings can be reviewed by independent binational panels. A panel is established when a request for Panel Review is filed with the NAFTA Secretariat by an industry

asking for a review of an investigating authority’s decision involving imports from a NAFTA country. “In Canada, it is the Canada Border Services Agency (CBSA), which makes dumping and subsidy determinations, while the Canadian International Trade Tribunal (CITT) conducts injury inquiries as to whether or not the dumping or subsidy has caused injury or retardation (material retardation of the establishment of a domestic industry) or is threatening to cause injury to the domestic industry. In the United States of America, it is the Department of Commerce, International Trade Administration, which makes dumping and subsidy determinations, while the United States International Trade Commission conducts injury inquiries. In Mexico, it is the Secretaría de Economía, Unidad de Prá cticas Comerciales Internacionales that makes both the dumping

/subsidy and injury determinations.” 85

3.2.5 GATT vs. NAFTA The three NAFTA countries are also members of WTO. Many NAFTA provisions provide for the same or similar obligations as are required under GATT. Therefore, at times, complainant governments can contend that both NAFTA and GATT obligations have been violated. In such cases, they must choose whether to pursue action under GATT or NAFTA. Under CEPA, this problem also exists, but can a complainant party choose the forum

itself? NAFTA allows a complainant party to choose either NAFTA or GATT to resolve a dispute, but not both. 86 The choice of forum is at the discretion of the NAFTA parties. 87 The WTO does not prohibit the countries from

using their own dispute settlement mechanisms if both of the forums can be used. If the dispute is related to a third party, NAFTA article 2005 states that before a party initiates a dispute resolution proceeding under GATT against another party on grounds that are substantially equivalent to those available to that party under this Agreement, that party shall notify any third party of its intention. 88 If a third

party wishes to have recourse to dispute resolution procedures under NAFTA regarding the matter, it shall inform promptly the notifying party and those parties shall consult with a view to agreement on a single forum. If those

83 Id. 84 Lopez, supra note 49, at 174. 85 Supra note 60, id.

87 See NAFTA, supra note 1, art. 2005. Id. 88 See NAFTA, supra note 1, 2005.

A study of NAFTA: Establishing a better dispute resolution mechanism under CEPA

parties cannot agree, the dispute normally shall be settled under NAFTA. 89