Dispute settlement under north American free trade agreement.

• Position: North American Dispute Settlement

Report of the joint ABA/CBA/BM working group on dispute settlement.

A Report by a Joint Working Group of the American Bar Association, the Canadian Bar Association, and the Barra Mexicana

January 27, 1992

[This Report represents the collective view of the members of the Joint Working Group (Group) on the necessary features of a dispute settlement regime for a North American Free Trade Agreement. It has been submitted to the appropriate officers of the respective bar associations for consideration and endorsement. If a draft Agreement were to be made available in future, the Report could subsequently be revised and updated.]

Introduction General Considerations The New Dimension The Old Precepts Relationship to the GATT Treaty Architecture Dispute Management Adjudication Regime Treaty Interpretation Constitution of the Tripartite Tribunal Powers of the Tripartite Tribunal Binding Arbitration and the Panel System Decisions Review of Domestic Processes Private Party Issues Domestic Proceedings Before the Tripartite Tribunal Summary of Recommendations Introduction

This report represents an attempt by the three bar associations to give some guidance from the perspective of lawyers on the dispute settlement aspect of the proposed North American Free Trade Agreement (the "Agreement"). (1) The extension of the rule of law to international trade-related disputes is important both to the Parties of the proposed Agreement and to the many private parties whose interests may be affected in the course of its application.

The development of a dispute settlement regime involves a careful balancing of many factors. These include many political and economic considerations, not all of which can be taken into account by the Joint Working Group since its members are not privy to the current negotiations. (2) To make a more precise assessment, a draft of the new Agreement embodying their impact would be required.

However, the Group is concerned to produce a report which not only will represent a considered approach by the three bar associations but also will be of assistance to the negotiators. It has sought, therefore, to take into account obvious practical limitations as well as known political and legal constraints. It is hoped, in consequence, that the recommendations in this Report, representing as they do the views of legal practitioners in the three countries, will be helpful and will merit close attention by those charged with the elaboration of the Agreement.

The recommendations are concerned with three broad components of an effective dispute settlement formula: first, the management of disputes; second, a regime for the settlement of disputes; and, third, private party involvement in the dispute resolution process. (3) Following a review of a number of general considerations which have influenced the Group in arriving at its conclusions, the various considerations beating on these subjects and related aspects are examined and are summarized. While they form a considered and composite approach to the dispute resolution component of the Agreement, the major recommendations are also capable of individual adoption.

General Considerations

The New Dimension:

The addition of a third Party to the existing Canada-United States free trade framework adds a whole new dimension to the trading relationship. The interpretation of the Agreement will be important to all three Parties even though a particular issue may involve only two states or a private party and one state administration. The management of the Agreement to ensure its smooth functioning will be of concern to all three.

Moreover, the very fact of extending the formalized trade relationship to a third party and its citizens will increase substantially the difficulties involved in framing an adequate regime of dispute resolution. One must add to this the new elements of a different legal system, a third language and different culture, as well as another framework of domestic trade legislation even though that legislation may take its inspiration from essentially the same sources. (4) Modifications to the existing Canada-United States regime of dispute resolution of more than a cosmetic nature will obviously be necessary.

Thus, there is a significant challenge to the Parties in their elaboration of an effective and fair regime of dispute resolution. But in recognizing this challenge one must not overlook the fact that all three countries, because of their heritage, share a mutual concern to work out a law-based regime that will reflect their common adherence to and belief in the rule of law. (5)

The Old Precepts:

What is also most relevant in considering the recommendations which follow are the basic principles which have been at the root of previous ABA/CBA reports on international dispute settlement and which are now endorsed by the reconstituted Joint Working Group. These relate to the three main areas taken up in the recommendations.

(1) The Group is convinced of the importance to any regime of dispute resolution mechanism of adequate means to manage the Agreement so as to encourage use of non-confrontational mechanisms to resolve issues. This implies not only increased awareness and dedication of special resources within each administration but also the development of new intergovernmental means for defining and defusing disputes, including fact finding or other processes, when negotiations fail to produce a resolution of a particular problem. (6)

(2) A consistent theme of previous reports has been the fundamental importance of having a mechanism for definitive settlement of legal disputes when all other options have failed. This is not only for the purpose of some final resolution to a particular problem, but also to backstop the negotiating process. A mechanism is required to provide the boundaries for negotiations in the same way that the existence of judicial recourse to the courts does in each domestic system. (7)

(3) Access of private parties to the regime of dispute settlement is also considered fundamental by the Group. The object is, where possible, to remove disputes from the state-to-state level, where considerations extraneous to the particular dispute may be injected into the process, and to transfer it to a more technical level. As well, particularly in a trade context, neither should states in most cases have to carry the burden of espousing citizens' claims nor citizens be forced to depend on attracting the attention and support of their state. Finally, where there is private party access, it gives to aggrieved individuals some sense that their interests are important and are not entirely subordinated to those of the Parties. (8)

The reconstituted Joint Working Group feels that these considerations are equally relevant to a broader North American Free Trade Agreement. To the extent they are now reflected in the existing Canada-United States Agreement, an effort should be made to maintain and enhance those elements. They are most important, not only to an effective system, but also to ensuring the extension of the rule of law in this area

Chapters 18 and 19 of the existing Canada-United States Agreement cannot be simply incorporated into a new North American Free Trade Agreement without modification. (9) On the assumption that they will be the foundation, or at least principal points of reference, for a new dispute settlement regime, the Group has used them as a framework for this report. The changes required in them ought to reflect the three principal considerations to which the reconstituted Joint Working Group continues to subscribe.

Relationship to the General Agreement on Tariffs and Trade (GATT):

The Group is of the view that recourse to the GATT alternative for dispute resolution should be maintained. (10) The Group is agreed that the mechanism should be triggered by the complaining party only. This follows the Canada/United States formula. (11)

Treaty Architecture:

An important aspect of the proposed Agreement in relation to dispute resolution is the architecture of the treaty. Here the major issue is the relationship between the dispute resolution provisions of the new Agreement and those of the Canada-United States Agreement. The Group proceeded on the basis that it is most unlikely that the existing agreement will be replaced in its entirety. If this be so, the obvious solution is to leave the old provisions in place to the extent that they are not inconsistent with the new Agreement.

This point also raises the issue of the extent of the application of the tripartite Agreement. In this regard, it is also conceivable that the Canada-United States Agreement may eventually be rendered without effect if the new Agreement is one that is framed so as gradually to take over the entire field of the trade relationship between the Parties. (12) In any event, the new treaty ought to have a provision to deal with this problem of applicability under and in accordance with rules it establishes.

On this approach, complete accord on all features of the new Agreement is not rendered essential for the two Parties to the existing scheme. The only problem in this latter regard will be the extent to which new and different mechanisms for dispute resolution are developed that may not apply to the existing arrangement but may, indeed, be considered more or, possibly, less desirable than those which are currently in force between Canada and the United States. If a jurisdictional provision is included as suggested, then this problem can be addressed and resolved. (13)

A more technical point is that the Canada-United States Agreement has a multiplicity of dispute resolution mechanisms scattered throughout its text. To some extent this is unavoidable. On the other hand, in a new North American Agreement, an effort should be made to bring together, to the extent it is feasible so to do, all of the dispute resolution mechanisms into a single or several...