Policy Alternatives for Reform of the Free Trade Agreement of the Americas: Dispute Settlement Mechanisms

By Gastle, Charles M. | Law and Policy in International Business, Spring 1995 | Go to article overview

Policy Alternatives for Reform of the Free Trade Agreement of the Americas: Dispute Settlement Mechanisms


Gastle, Charles M., Law and Policy in International Business


INTRODUCTION

The December 1994 Miami Summit announcement of the initiative to form a Free Trade Agreement of the Americas (FTAA) by the year 2005, and the imminent accession of Chile to the North American Free Trade Agreement (NAFTA), ensure that issues related to the structure and design of hemispheric dispute settlement mechanisms will remain an important point of international trade negotiation. Notwithstanding the implementation of both the NAFTA(1) and the GATT 1994 Agreements,(2) further reforms are needed to create a more efficient and less arbitrary system of malleable trade rules and administrative practices. The goal of the NAFTA is to promote an efficient, integrated North American market. The current trade regimes are inconsistent with this goal in large part because they continue to treat domestic goods differently than the goods of the other NAFTA parties, thereby creating opportunities for abuse. A number of working groups were created by the NAFTA with respect to, inter alia, safeguard disputes, competition law, and antidumping and countervailing duty practices.(3) Negotiations are to begin in 1995, and the working groups may provide an important opportunity to discuss fundamental reform. Otherwise, the status quo might become a politically attractive alternative in light of more pressing objectives related to the FTAA.

The purpose of this Article is to discuss the kind of fundamental reform that is needed to increase the effectiveness of the NAFTA/FTAA dispute settlement mechanism. What is an effective dispute settlement mechanism? An effective and efficient mechanism is one that:

(1) investigates complaints on a timely basis and reaches principled conclusions that are binding and enforceable upon the parties; (2) prevents multiple jeopardy in the form of commencement of a series of trade disputes until the domestic industry's desired result is achieved; (3) eliminates tactical advantages to both parties so that disputes are not launched simply to obtain interim relief, which often may dictate the outcome; and (4) eliminates the possibility of retaliatory trade legislation that is designed to punish the successful party and/or overturn the dispute settlement panel determination.

The result of such a mechanism should be to eliminate domestic trade laws as barriers to trade in themselves. It appears inevitable that an effective mechanism requires a surrender of some degree of sovereignty to international tribunals. This, of course, is something both Canada and the United States have been reluctant to do and may represent an insurmountable barrier to the implementation of a truly effective dispute settlement mechanism.

The concept of an effective dispute settlement mechanism will inevitably be defined differently according to national perspective, even though all would agree that the objective of the mechanism is the creation of an efficient market. Thus, the Canadian definition of an effective dispute mechanism is that which resists a new wave of U.S. protectionism, preventing the creation of new trade barriers either through legislation or the utilization of other U.S. trade weapons. It discourages a kind of creeping protectionism through incremental trade legislation, such as the series of U.S. Omnibus Trade Acts beginning in 1974. The U.S. view of what constitutes an effective dispute mechanism is somewhat different. The United States views itself as an open market that has been unfairly taken advantage of by trading partners who engage in market-distorting practices and give their goods and services an unfair advantage. These unfair practices are seen as a contributing factor to the U.S. trade deficits since the mid-1970s. Robert Hudec has described the U.S. perception in the following terms:

Having spent considerable time in recent years reading and listening to Congressional policy debate about the fairness of various foreign trade practices, I have become aware that the Congress, too, has such a magic mirror. …

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