International Tribunal Spotlight
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NAFTA Dispute Settlement Procedures
By:Taylor G. Stout, Reporter, International Judicial Monitor
The North American Free Trade Agreement (NAFTA) established the North American Free Trade Area in 1992, an economic region comprised of Canada, Mexico, and the United States. The NAFTA aims to remove obstacles to trade and thereby promote economic prosperity in the member states. There are many trade agreements and economic communities similar to the NAFTA, and most have well-defined, structured dispute settlement mechanisms. These economic communities, including the European Community and the Andean Community, have permanent international tribunals to adjudicate disputes arising from disagreements about trade practices. In contrast, however, the NAFTA’s dispute settlement system is somewhat fragmented, primarily relying on ad hoc arbitration.
The NAFTA Secretariat directs the Agreement’s dispute settlement procedures. The Secretariat is composed of three Sections: the Canadian Section, the Mexican Section, and the U.S. Section. The sections are headquartered in Ottawa, Washington, DC, and Mexico City, respectively. Each of these sections maintains a registry responsible for helping administer the dispute settlement proceedings.
When a dispute arises under the NAFTA, the Agreement first directs the parties to try to resolve the dispute through the NAFTA’s committees, working groups, and other consultations. In the event the parties fail to reach an amicable agreement, the NAFTA provides four dispute settlement procedures. Each procedure is named after the chapter of the NAFTA in which it is found.
Chapter 20 Procedure
The Chapter 20 dispute settlement procedure is the NAFTA’s general dispute settlement procedure. This procedure covers all disputes that are not provided for under Chapter 11 (Investment), Chapter 14 (Financial Services), or Chapter 19 (Anti-dumping and Countervailing Duties). General disputes implicating the NAFTA may be resolved through consultation without triggering the Chapter 20 procedure. But the Chapter 20 procedure becomes operative if a party to the dispute refers the dispute to the Free Trade Commission after a specified time period for consultation has elapsed. The parties then receive another fixed time period in which they may settle. Finally, if the parties fail to reach an agreement, Chapter 20 prescribes ad hoc arbitration.
Arbitration under Chapter 20 is binding on the parties, and the procedure mirrors that of the World Trade Organization arbitration panels. The NAFTA Chapter 20 arbitration panels are made up of five members. Each member of the panel is an independent expert, and each party selects two members of the panel. The fifth member of the panel is the panel chairman, on whom the parties must agree. After the parties select the panel, they present their arguments before the panelists, who then issue the binding decision.
In addition to this general procedure, Chapter 20 permits the arbitration panel to select scientific review boards. These boards, chosen in consultation with the parties, may prepare reports on any factual issue concerning scientific matters in order to assist the panel in resolving the dispute. These scientific matters include environmental, health, and safety issues. Furthermore, Chapter 20 entitles third parties possessing a substantial interest in the dispute to join negotiations and the arbitration proceedings as a complainant. And even if such a third party does not choose to join the proceedings, it may attend hearings, present written and oral evidence, and receive the written submissions of the parties to the dispute.
Chapter 19 Procedure
Chapter 19 concerns matters related to anti-dumping and countervailing duties policies. This provision of the NAFTA prescribes a bi-national panel to review disputes about such policies. Complaining parties may request review of amendments to an opposing party’s anti-dumping or countervailing duties statutes. The bi-national panel determines whether the allegedly offensive amendments violate either the General Agreement on Tariffs and Trade (GATT) or the NAFTA. Like the general dispute panels provided by Chapter 20, Chapter 19 bi-national review panels are composed of five independent experts.
The rules of procedure under Chapter 19 set strict deadlines. The panel must make a final decision on the merits of the dispute within 315 days of the filing of the complaint. Deadlines for the selection of the panel, the filing of briefs and reply briefs, and the scheduling of oral arguments all exist within the 315-day time period. After the panel renders a verdict, if the violating party fails to abide by the decision, the complaining party may take government action equivalent to the violating amendments, and the complaining party may even withdraw from the NAFTA.
Finally, Chapter 19 provides an appeal in some cases to a three-member review committee, which may investigate allegations that a party’s domestic law interferes with the panel review system, that a panel member had a serious conflict of interest, or that the panel departed from the established rules of procedure.
Chapter 14 Procedure
Chapter 14 addresses disputes over the provision of financial services. It follows the same procedure as the Chapter 20 dispute resolution process, and in addition provides for arbitrators to be chosen from a roster of financial services experts. The Chapter 14 dispute settlement procedure has never been used.
Chapter 11 Procedure
The Chapter 11 dispute settlement procedure concerns investment disputes between states that are party to the NAFTA and private investors of one of the state parties to the NAFTA. The NAFTA treats this type of dispute as unique because the dispute settlement procedures delineated by Chapters 20, 19, and 14 all concern disputes between states parties to the NAFTA, and which do not directly involve private investors. Under Chapter 11, private investors may challenge a government that has violated its obligations under the NAFTA. Private investors alleging a breach under Chapter 11 may choose from four options in seeking a remedy. First, investors may request arbitration under the auspices of the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID). A complaining investor alternatively may request arbitration under the ICSID’s Additional Facility Rules. In addition, a complaining investor can demand arbitration under the rules of the United Nations Commission for International Trade Law (UNCITRAL). Finally, an investor may pursue remedies available in the host country’s domestic court system.
Today, most trade between North American states takes place under the rules of the NAFTA and the WTO. Disputes are inevitable in such a large and important trade community, and the NAFTA dispute settlement procedures seek to provide fair, effective, and efficient resolutions to conflicts in order to promote trade and prosperity.
Sources:
http://www.pict-pcti.org/courts/NAFTA.html
http://www.law.duke.edu/lib/researchguides/nafta.html#dispute
http://www.nafta-sec-alena.org/en/view.aspx?x=226
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