Dispute Settlement Under the Next Generation of Free Trade Agreements

• Citation: Vol. 46 No. 3
• Publication year: 2018
• topic: Labor Law

DISPUTE SETTLEMENT UNDER THE NEXT GENERATION OF FREE TRADE AGREEMENTS

Kathleen Claussen^*

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Table of Contents

I. Introduction...............................................................................612

II. The Present Generation of U.S. Trade Agreements...........613

III. Convergence In Normative Development.............................615

IV. Divergence In Dispute Settlement.........................................620

V. A Way Forward: Some Tentative Recommendations.........631

VI. Conclusion..................................................................................634

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I. INTRODUCTION

The present generation of free trade agreements (FTAs) suffers from a lack of innovation. Political and other limitations have created barriers to change. This path dependence, which finds its foundation in repetitive language in U.S. agreements and the proliferation of those agreements,¹ has two primary effects. First, it is prompting normative convergence in international trade law as other states adopt principles repeatedly advanced by the United States. Many of the FTAs negotiated in the last twenty years by states around the globe track the U.S. model, at least in certain chapters.

Ultimately, and perhaps counterintuitively, the opposite may be true, however. Going forward, convergence in norms may have a negative impact on the development of international trade law in the next generation because it is likely to lead to a disjointed and incoherent regime.

This Article demonstrates how and why the next generation of FTAs can and should adopt greater innovations that will benefit the world's economies. Focusing on the second, detrimental effect of the present path dependence, I maintain that it is highly probable that the disparate use of boilerplate language in FTAs will create fragmentation among interpretations as the United States and other states engage in dispute settlement under those various agreements. For one, boilerplate language could call into question the parties' meeting of the minds on the language. More important, because the agreements do not provide guidance on how or whether to consider interpretations of their sibling agreements, it is unclear what weight each dispute settlement panel would give to the interpretations of other panels. Because no single court or tribunal decides disputes under FTAs, including FTAs of a single country, the risk of divergent interpretations of shared terms and references drawn from those divergent interpretations is high—or is it? This Article examines how various elements of dispute design may dictate outcomes in the trade law regime.

Analyzing the process and structures through which states make instruments of international law—here, agreements governing trade and regulatory areas ancillary to trade² —is a foundational element of the study of international law. In a system characterized by a lack of a legislative body, the "how" of international law-making is of singular importance. I argue that, here, the "how" has extensive troubling ramifications. In trade, the

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influence of the U.S. congressional-executive trade law-making apparatus reaches as far as the contours of the entire international trade law regime. Given the alarming consequences previewed above, it may be time to rethink this system.

This Article begins by looking at the present generation of FTAs, beginning with the United States, and at the puzzling consistency across those agreements. It then turns to FTAs around the world. I describe the legal instruments that govern bilateral and plurilateral trade arrangements. I show that large portions of their text are repeated across diverse trading partners and different political leadership in the United States. The next Section looks to the future and predicts unsettling challenges in interpretation of these agreements. The Article then calls for urgent and crucial change. I propose some possible revisions to the trade law-making process that take proper account of the international trade regime and maximize the benefits of both consistency and innovation.

II. THE PRESENT GENERATION OF U.S. TRADE AGREEMENTS

The roots of the present generation of U.S. FTAs stretch back to the days of the North American Free Trade Agreement (NAFTA) 1.0.³ Substantively, these agreements have many features in common, irrespective of their diverse foreign representation. Procedurally, nearly all of these agreements were negotiated first between the branches of the U.S. government through the joint congressional-executive process known as fast track or trade promotion authority (TPA). At the global level, the present generation of international trade law instruments is characterized by the proliferation of bilateral and regional agreements of like character, enlarged scope, and common language.⁴

Outside of the growth in the number of topics covered by these agreements, one observes considerable consistency in the text of several of

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the chapters that are repeated from agreement to agreement. Despite some new elements to recent agreements, there are large sections where the language remains the same as the last trade agreement negotiated by the United States and each of the agreements negotiated before that one. In other words, for some chapters, the first template has been the only template.

In prior and forthcoming work, I attribute this consistency to the congressional-executive relationship unique to the United States.⁵ The additional intermediate scrutiny of larger agreements passed under TPA, as it has evolved, has led to stagnation. Today, TPA exacerbates rather than ameliorates the politicization of trade agreements. The prospect for improvements and creative additions to agreements still to come is significantly tempered by this path dependence.

In fact, compared with most features of the international legal system, the plurilateral trade law system is in the early stages of its evolution. The proliferation of agreements, particularly bilateral and regional agreements is not unique to the United States. The European Union recently concluded trade agreement negotiations with Canada, Singapore, and Vietnam to add to its twenty-seven agreements in force and is negotiating approximately ten additional bilateral or multilateral agreements.⁶ In the Asia-Pacific region, the number of regional and bilateral FTAs has grown exponentially since the conclusion of the Association of Southeast Asian Nations (ASEAN) Free Trade Area of 1992. At that time, the region counted five such agreements in force.⁷ Today, the number totals 140 with another seventy-nine under negotiation or awaiting entry into force.⁸ The People's Republic of China is negotiating half a dozen bilateral FTAs at present to top off the sixteen already in effect.⁹ India likewise is engaged in at least ten trade agreement negotiations.¹⁰ The World Trade Organization (WTO) reports 303 agreements of this sort in force among its members as of March 29, 2018.¹¹

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These statistics suggest that regional and bilateral FTAs are thriving.¹² Regional and bilateral agreements have eclipsed the WTO in importance.¹³ The following Section examines agreements concluded by other states to determine whether non-U.S. agreements also exhibit a significant degree of consistency or, alternatively, customization. I then turn to the effect of U.S. path dependence on international trade law more generally.

III. Convergence in Normative Development

A review of trade agreements from select European and Asian states suggests that those states' agreements do not appear to suffer from path dependence in the same way U.S. trade law-making suffers. In today's domain of hundreds of agreements, it is challenging to trace the source of each provision; that exercise is beyond the scope of this Article.¹⁴ Commentators have referred to the present generation as a "spaghetti bowl"—a mass of regional or bilateral agreements concluded without consideration for each other or their implications for investment, potentially increasing both costs and regulation, and distorting conditions of competition for traders.¹⁵ The concern is not only economic, but also legal: the "spaghetti bowl" can garble the coherence of the trade law system.¹⁶

Contrary to this perception, this work indicates convergence within the current "spaghetti bowl" rather than distortions in legal norms. Importantly, in some cases, European and Asian trade agreements have adopted language and chapter ideas from U.S. agreements. For example, the same labor obligations in the Trans-Pacific Partnership (TPP) form part of the recently concluded Canada-EU Comprehensive Economic Trade Agreement (CETA).¹⁷ There are a number of possibilities as to how these obligations both appeared in these respective texts. Without an inside view into the negotiating room, one could argue that perhaps the TPP adopted Canada's suggested language and Canada simply re-used it in its CETA negotiations or

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the same was true in the opposite order. Consistency across obligations should be more efficient for Canada as a result. Research by political scientists Todd Allee and Andrew Lugg indicates otherwise. They conclude from their text-as-data analysis that the United States had a disproportionate influence to the other negotiating parties in the TPP, suggesting that this language came from the United States and then was re-used in other agreements.¹⁸ The TPP/CETA language also appears in earlier U.S. agreements. Lending support to international political economy theories, Allee and Lugg's study shows that the United States is setting the standards in these agreements and extending its reach even to those agreements to which it is not a party.¹⁹

It is not surprising that U.S.-initiated language appears in what I will call "third party agreements" concluded by states that already have FTAs with the United States. What is more surprising, however, is the...