Bilateral, Regional, Plurilateral or Multilateral Approach for Resolving Trade Disputes. What is Better? Are these Approaches Mutually Exclusive?

 – By Gabrielle Marceau –

Photo By: Steven Taylor.
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Countries are always looking for ways and means to enhance integration and improve relations with their neighbours. This has always been the case and has formed the basis of international trade. Since 1947 this reality was given due recognition by the drafters of the General Agreement on Trade and Tariff (GATT) in the form of Article XXIV of the GATT. The aforementioned GATT Article, in theory and in principle, provides that WTO Members can conclude Free Trade Agreements (FTAs) and form Customs Unions (CU) alongside furthering multilateral relations within the WTO – even on overlapping issues.  The problem arises when Members seek to use bilateral or regional agreements to modify commitments on overlapping issues undertaken by them in multilateral fora such as the WTO.  At times, preferring one approach to the other, particularly in case of the settlement of disputes given the duplication of proceedings, can be expensive and inefficient. Last year in a dispute between Peru and Guatemala about certain agricultural products wherein Guatemala challenged additional duties imposed by Peru on imports of certain agricultural products through a “Price Range System” (PRS) that Peru claimed was permitted by the Peru-Guatemala FTA, the Appellate Body (AB) clarified whether and how Members can modify their reciprocal WTO rights and obligations particularly in case of overlapping issues, such as dispute settlement.

In recent times the negotiation, conclusion and entry into force of mega-regional trade agreements which feature sophisticated dispute settlement mechanisms (DSMs) have led to various instances where overlaps and conflicts of jurisdiction in dispute settlement can occur. A large number of bilateral or regional trade agreements (RTAs) provide for the choice of a forum clause or an exclusive forum clause or “fork in the road” clause to deal with such potential overlaps or conflicts of jurisdiction.[1]

Article 23 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) provides that the WTO-DSM has exclusive jurisdiction to resolve disputes arising from inconsistencies with WTO Members’ obligations provided for in WTO covered agreements (covered agreements). Moreover, Article 3.8 of the DSU states that when bringing a claim to the WTO-DSM, the Member is not required to prove any specific economic or legal interest in that dispute, or furnish evidence of any adverse trade impacts caused by the challenged measure. Furthermore, even if the responding Member refuses to participate in the dispute process, the process will carry on without them. Thus, the nature of the WTO-DSM is quite distinctive.[2] However, a jurisdictional overlap can occur when a dispute between two disputing Members can be brought to two distinct DSMs, one being the WTO-DSM and the other under a RTA, in cases where an obligation included in an RTA is the same as or similar to that of a covered agreement.[3] For example, Article 301 of the North American Free Trade Agreement (NAFTA) explicitly refers to Article III of the GATT. In case of violation of Article 301 of NAFTA, a temporary overlap of jurisdiction would occur as the complaining party may feel obliged to submit the dispute to a WTO panel. As discussed above, the WTO-DSM’s jurisdiction is compulsory and quasi-automatic. NAFTA provides that a complaining party has the discretion to choose a dispute settlement forum and give preference to the NAFTA-DSM when the dispute involves environmental, Sanitary Phytosanitary or standards-related measures. NAFTA further provides that, if GATT/WTO procedures have already been initiated by the complaining party on a matter, the complaining party shall withdraw from these proceedings and may resort to the NAFTA-DSM. In light of the aforementioned provision, a NAFTA party initiating a parallel WTO dispute, may be found to be violating its obligation under NAFTA.  This is what appear to be a classic example of conflict of jurisdiction.[4]

At this point, the question that surfaces is whether the WTO adjudicative bodies can refuse to hear a WTO Member complaining about a measure that is inconsistent with the covered agreements in a case where the dispute is simultaneously raised at two distinct fora. The Appellate Body (AB), in Mexico – Soft Drinks dispute, had noted that unless a legal impediment precluded WTO panels (panels) from ruling on the merits of a claim, the DSU obliges panels to exercise their jurisdiction.[5] In support of the same, the AB stated that for ‘a panel to decline to exercise validly established jurisdiction would seem to “diminish” the rights of a complaining Member to “seek the redress of a violation of obligations”…’.[6] The AB provided further clarity on the issue in Peru – Agricultural Products dispute where the AB noted that ‘…the relinquishment of rights granted by the DSU cannot be lightly assumed’, and that:

“the language in the Understandings must clearly reveal that the parties intended to relinquish their rights… Thus, while we do not exclude the possibility of articulating the relinquishment of the right to initiate WTO dispute settlement proceedings in a form other than a waiver embodied in a mutually agreed solution, as in EC – Bananas III (Article 21.5 – Ecuador II / Article 21.5 – US), any such relinquishment must be made clearly…”.[7]

In the Peru – Agricultural Products dispute, the AB also concluded that panels cannot deny admissibility unless the challenging party has clearly relinquished its right to have recourse to the WTO-DSM and this relinquishment is done in the context of the DSU – i.e. in the WTO framework. In that dispute, the AB noted that ‘we do not consider that a clear stipulation of a relinquishment of Guatemala’s right to have recourse to the WTO dispute settlement system exists in this case in relation to, or within the context of, the DSU’.[8] The AB also noted that ‘the references in paragraph 4 of Article XXIV [of the GATT] to facilitating trade and closer integration are not consistent with an interpretation of Article XXIV as a broad defence for measures in FTAs that roll back on Members’ rights and obligations under the covered agreements’.[9] This aforementioned statement reinforces the principle that a WTO Member’s right to have recourse to the WTO-DSM is a fundamental one, which can possibly be modified or restrained only in the WTO forum.

The question of best approach – bilateral, regional, plurilateral or multilateral – has to be answered by the complaining Member in a dispute. The AB in the Peru – Agricultural Products dispute noted that:

‘Members enjoy discretion in deciding whether to bring a case, and are thus expected to be “largely self-regulating” in deciding whether any such action would be “fruitful”. The “largely self-regulating” nature of a Member’s decision to bring a dispute is “borne out by Article 3.3, which provides that the prompt settlement of situations in which a Member, in its own judgement, considers that a benefit accruing to it under the covered agreements is being impaired by a measure taken by another Member is essential to the effective functioning of the WTO’.[10]

Accordingly, there seems to be no absolute response as to which approach is better as far as resolving trade disputes is concerned – bilateral, regional, plurilateral or multilateral.  These approaches are certainly not mutually exclusive because if a Member alleges a WTO violation, it would be hard for a WTO panel to deny admissibility given the quasi-automatic and compulsory nature of WTO’s jurisdiction.[11]

 

Gabrielle Marceau, Ph.D., is Counselor in the Legal Affairs Division of the WTO, which she joined in September 1994. Her main function is to advise panelists in WTO disputes, the Director-General Office and the Secretariat on WTO related matters. From September 2005 to January 2010, Gabrielle Marceau was a member of the Cabinet of the WTO Director General Pascal Lamy. Dr. Marceau is also Associate Professor at the Law Faculty of the University of Geneva and Visiting Professor at the Graduate Institute of International Affairs and Development (HEID) where she teaches WTO law and WTO dispute settlement. Before joining the GATT/WTO, Gabrielle Marceau worked in private practice in Quebec, Canada, mainly in the sectors of labour law and insurance law. Professor Marceau has published extensively, namely in WTO related matters. Opinions expressed in this article are only those of the author and do not bind WTO Members or the WTO Secretariat.

 

[1]See in general C Chase, A Yanovich, J-A Crawford, P Ugaz, Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements – Innovative or Variations on a Theme?, WTO Staff Working Paper ERSD-2013-07 (2013).

[2]G Marceau, ‘Consultations and the Panel Process in the WTO Dispute Settlement System’, in R Yerxa, B Wilson (eds.), Key Issues in WTO Dispute Settlement: the First Ten Years (CUP 2005) 30. Also, see in general, W Davey, ‘Dispute Settlement in the WTO and RTAs: A Comment’, in Regional Trade Agreements and the WTO Legal System (n 1) 343.

[3] K Kwak, G Marceau, ‘Overlaps and Conflicts of Jurisdiction between the World Trade Organization and Regional Trade Agreements’, in L Bartels, F Ortino (eds), Regional Trade Agreements and the WTO Legal System (OUP 2006) 465 at p. 467. (Kwak and Marceau)

[4] Ibid.

[5] WTO, Mexico – Tax Measures on Soft Drinks and Other Beverages (Mexico – Soft Drinks), Report of the Appellate Body (24 March 2006) WT/DS308/AB/R, paras 48-54.

[6] Peru – Additional Duty on Imports of Certain Agricultural Products (Peru – Agricultural Products), Report of the Appellate Body (31 August 2015) WT/DS/457/AB/R at para 53.

[7] Ibid para 5.25

[8] Ibid para 5.28.

[9] Ibid para 5.116

[10] Ibid para. 5.18.

[11] Kwak and Marceau at p. 469

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