With more and, especially, deeper FTAs in place, I predict an uptake in dispute settlement under FTAs.
Parties may generally prefer to file their disputes before the WTO. But in some cases they simply have no choice. The commitment can only be found in an FTA (it is so-called “WTO-plus” or “WTO-extra”). As a result, one must invoke the FTA dispute settlement procedures.
A nice example of this is the case recently filed (and won) by Costa Rica against El Salvador under CAFTA-DR, an FTA between 7 countries: the US, Dominican Republic and the five Central American Custom Union (CACU) states Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. Full disclosure: I assisted El Salvador in this dispute. (the US filed another CAFTA case against Guatemala under the labor chapter, which is still pending; CAFTA has also been invoked in several investor-state arbitrations).
The dispute (documents available in Spanish only) relates to tariffs imposed by El Salvador on certain goods from Costa Rica, in particular, goods coming from Costa Rican “free trade zones” (FTZs) whose inputs never paid the CACU common external tariff when entering Costa Rica. Costa Rica claimed that these tariffs were against the duty free tariff commitments undertaken by El Salvador under CAFTA-DR. El Salvador, in contrast, claimed that these tariffs were consistent with the rules of the Central American Customs Union (CACU) (allowing the imposition of the CACU tariff on goods exported from FTZs e.g. pursuant to a CACU prohibition on export subsidies) and that, in any event, its CAFTA-DR tariff commitments were engaged in v-à-v the US and the Dominican Republic, not its custom union partners of CACU.
After examining both the relevant CAFTA-DR provisions (including those on rules of origin and overlap between CAFTA-DR and other trade agreements) as well as the CACU provisions relied on by El Salvador, the panel concluded that the tariffs were in breach of Article 3 CAFTA-DR.
Substantively, the case shows that the issue of overlapping FTAs (here CACU v. CAFTA-DR) is a real one. I wrote something about this with Wolfgang Alschner here. The case illustrates how countries need to be extra careful when concluding “broad” or “double” FTAs which include countries with whom they already have an FTA or customs union in place (including in respect of rules of origin).
Procedurally, this CAFTA case highlights some of the real problems with FTA dispute settlement and, in comparative perspective, should remind us how (relatively) good WTO dispute settlement is.
I am writing a longer article on this so would appreciate any of your views, especially from people who have been involved in drafting or litigating cases under FTAs …
Here is my “short list” of the main FTA dispute settlement “problems” (some of which may be CAFTA specific):
1. The time limits are amazingly short, e.g. 28 days for respondent to file first submission; 7 days for third party/amicus curiae submissions; 21 days for rebuttal submissions, only one hearing and, most dramatically, 120 days (max. 180) between panel composition and issuance of initial (interim) report (here: 25 April 2014 to 31 October 2014, i.e. a little more than six months).
2. There is no secretariat organizing the proceedings or providing legal support; the “responsible office” to receive documents, organize the hearing, pay panelists etc. is the relevant ministry or agency of the responding party.
3. Panelists are normally appointed from rosters which generally include mid-career, (mainly) governmental professionals who already have a full time job, making it really difficult to complete the work within the brutal time limits and without secretariat support (in this case, the panel did appoint an assistant).
4. No Appellate Body to correct “mistakes”; not even a meeting of the parties or FTA Commission where the panel report is considered and adopted or where comments can be made (as before the WTO's DSB), giving a general feeling of lack of ownership or legal/political control over panel reports.
5. No jurisprudence or Appellate Body “precedents” that parties/panels can rely on (although that may change with more FTA cases; FTA panels can also cross-refer to AB jurisprudence, as this panel did on several occasions; intriguingly, the panel also adopted the exact same formatting as a WTO panel/AB report).
6. Cost: all costs must be paid in equal shares by the parties; WTO adjudicators and WTO secretariat staff are paid out of the WTO budget (FYI: hearings are to be held in the capital of the defending country, here, San Salvador; interestingly, third parties were allowed to join the hearing online without having to travel).
7. Publication of documents: All submissions, statements and reports (except for confidential information) must be made public. Yet, it has proven extremely difficult to find even basic CAFTA documents online, let alone the submissions of the parties. No central clearing house is available where these documents can be found. This makes a systemic review of reports by academics or researchers difficult; it also limits the sharing of expertise amongst the broader public including counsel in future cases or NGOs who are allowed to submit amicus briefs.
We have posted all documents related to this case that we could find on the web on the TradeLab platform, fully searchable.
Any other ideas would be much appreciated!