Mediation furthers the principles of transparency and cooperation to solve disputes in the NAFTA free trade area.

• Author: Diaz, Luis Miguel
• Position: North American Free Trade Agreement

INTRODUCTION

The authors intend to introduce mediation as a legal tool to prevent and solve international business disputes between private parties in the free trade area created in the North American Free Trade Agreement (NAFTA). (1) We will demonstrate that the use of the principles of transparency and cooperation to solve international disputes in the NAFTA area are key objectives, and that mediation furthers those principles concerning private disputes. (2)

THE TRANSPARENCY PRINCIPLE AND CONSULTATIONS

The transparency principle guided the negotiators in their deliberations throughout NAFTA negotiations and permeates all aspects related or derived from NAFTA. (3) The purpose of the transparency principle is that all measures advocated by all Parties must be crystal clear and should not cover objectives contrary to free trade. (4)

Therefore, it was agreed that any law, regulation, procedure, requirement or practice, (5) related or derived from NAFTA, should be duly motivated, be congruent with free trade, and to the possible extent, announced and explained to the other Parties in advance. (6)

The transparency principle was also considered as a principle for the prevention of disputes in the form of an obligation for the governments to consult each other regarding measures and conflict prevention and conflict solution. Consultations are obligatory under diverse circumstances. (7)

The obligation to consult (the act of consulting, considering, having regard, conferring, deliberation) may bring two very important benefits. The first is that it prevents disputes through an early identification and solution of conflicting views. (8) The second is that it opens direct communication channels between the Parties for the solution of an existing dispute. (9)

The word consultation as used in NAFTA means direct talks between the governments or the governments and a private party to agree on a course of action to reach a goal or to find a solution to a problem. (10)

THE COOPERATION PRINCIPLE AND CONSULTATIONS

The principle of cooperation between the NAFTA Parties (Canada, Mexico and the U.S.) is embodied as the cornerstone of dispute settlement. It is also an expression of the principle of transparency regarding conflict solution. The cooperation principle is presented in NAFTA as a legal obligation:

The Parties shall at all times endeavor to agree on the interpretation and application of this Agreement, and shall make every attempt through cooperation and consultations to arrive at a mutually satisfactory resolution of any matter that might affect its operation. (11) However, if a matter is not solved through cooperation or consultations, a Party to NAFTA may make a request for the intervention of the Commission to solve the matter. (12) The Commission may use good offices, conciliation and mediation. (13) If the Commission has not solved the matter within a certain time period, a Party may then request in writing an arbitral panel. (14)

Thus, prior to requesting an arbitral panel, Parties are obligated to engage in consultations and, in the absence of an agreement the Parties then proceed to request assistance from the Commission. If the Parties do not reach an agreement using these two processes, an arbitral panel decides the dispute between the Parties.

Chapter Twenty establishes the recourse to dispute settlement procedures using an arbitral panel. (15) This Chapter applies to disputes between Parties that address the interpretation or application of NAFTA, specifically those disputes in which one Party considers an actual or proposed measure of another Party is or will be inconsistent with the obligations of NAFTA or where an action by one Party causes nullification or impairment of an existing NAFTA obligation. (16) Chapter Twenty does not apply to matters covered by Chapter Nineteen that refer to Dispute Settlement in Antidumping and Countervailing Duty Matters. (17)

CONFLICT SOLUTION MECHANISMS FOR PUBLIC-PRIVATE DISPUTES

NAFTA introduced for the first time in a free trade agreement the novel concept of regulating the solution of disputes that may exist between the Parties (governments) and private persons. NAFTA does so in matters concerning investment, Chapter Eleven. This Chapter applies to measures adopted or maintained by a Party relating to investors of another Party, to investments of investors of another Party in the territory of the Party and to certain aspects of all investments in the territory of the Party. (18)

In this context, a NAFTA claim is a legal complaint submitted by a NAFTA Investor who alleges a loss by reason of a breach of NAFTA. The claim is heard by an international panel, normally composed of three arbitrators (19) appointed by the Investor and the NAFTA Party being sued. Panels are formed under the Investor's choice of commercial arbitration rules laid out by either the World Bank (through its International Centre for the Settlement of Investment Disputes--the ICSID) or by the United Nations Commission on International Trade Law (under the UNCITRAL Rules). (20)

After hearing arguments from the Investor and the three NAFTA Parties (i.e. the government being sued for breach of the NAFTA plus the other two governments--if they choose to intervene), the Panel issues an award, a written decision. (21)

In disputes between a government authority and a private person concerning investment, NAFTA, consistent with the principle of transparency and the principle of cooperation, also obliges consultation and negotiations between the disputing parties before establishing an arbitral panel. (22)

CONFLICT SOLUTION MECHANISMS FOR PRIVATE DISPUTES

NAFTA does not directly regulate the possible legal processes to solve business disputes between private persons that might arise in the free trade area established in Article 101. (23) However NAFTA contains four key provisions that impact on private disputes. (24)

First and from a procedural perspective, NAFTA excludes the granting of rights for private persons to sue under a Party in a national court wherein the legal cause of action originates in NAFTA. (25)

Second, Chapter Seven creates an Advisory Committee on Private Commercial Disputes regarding Agricultural Goods (26). This Committee known as the 707 Committee has decided that the best approach to deal with quick and effective dispute resolution for perishable goods and small businesses in the agricultural field was to create an independent entity that would be financed privately. (27) The Fruit and Vegetable Dispute Resolution Corporation (DRC) was formed and as of February 2000, over 500 members had joined with an expected 1500 members by the end of 2001. (28) Under this system, member firms from Canada, Mexico and the US agree to adhere to a common set of trade standards (practices), mediation and arbitration procedures and enforcement provisions with respect to NAFTA trade regarding specified perishable agricultural products. (29)

Third, Article 2022 of NAFTA provides:

Each Party shall, to the maximum extent possible, encourage and facilitate the use of arbitration and other means of alternative dispute resolution for the settlement of international commercial disputes between private parties in the free trade area. (emphasis added) (30) Fourth, Chapter Twenty, Institutional Arrangements and Dispute resolution procedures, Section C. Domestic Proceedings and Private Commercial Dispute Settlement, establishes an Advisory Committee on Private Commercial Disputes (2022 Committee). (31)

The 2022 Committee has prepared three documents: Alternative Dispute Resolution In International Contracts; (32) Enforcing Agreements to Arbitrate and Arbitral Awards in the NAFTA Countries; (33) and What is Mediation. (34) In 1999, the 2022 Committee organized a Conference on Alternative Dispute Resolution for Judges and Businesses in Mexico City. (35)

MEDIATION RESPONDS TO THE PRINCIPLES OF TRANSPARENCY AND COOPERATION

Based on the recognition in NAFTA for the use of alternative dispute resolution (ADR) for private commercial dispute settlement, this manuscript suggests that using mediation to resolve international business disputes between private parties, complies with the principle of transparency and the principle of cooperation as set out in NAFTA. Why?

Mediation is a dispute resolution mechanism, which is gaining popularity and acceptance within the international commercial world (36) since it is a process, which allows disputing parties to focus on solving a problem rather than engaging in a complicated legal process. Mediation is a recognized ADR procedure and therefore is included within the terms of reference of the NAFTA 2022 Committee. (37)

WHAT IS MEDIATION?

There is no universal definition of mediation in the international field. (38) Simply stated, mediation is a facilitated negotiation. It is an informal process where an impartial facilitator(s) assists disputing parties to use direct communication to solve a conflict. (39) Skilled mediators are able to direct disputing parties to focus on problem solving and interest based negotiation thereby creating a "space for conflict solution." (40) Unlike litigation and arbitration, in a mediation, a third party never orders a solution to the conflict, rather the disputing parties agree to a negotiated settlement. Legal strategies related to tactics and maneuvers addressing such areas as jurisdiction, evidence and enforcement are not relevant in a mediation proceeding.

Disputing parties are allowed to resolve their problems using a business framework related more to business strategies and communication than to a legal framework intertwined with mandatory rules and procedures. One key aspect of mediation is that the process is confidential. (41) Allegedly, all communication including the exchange of documents that occurs during the mediation is protected from disclosure in subsequent proceeding. (42) The confidentiality protection is just...