Learning from NAFTA: countries negotiating the FTAA look for better trade dispute mechanisms. (Government Issues).

The European Union trade association model is something that is finding a footing in America. NAFTA was the first step towards freer trade on this side of the Atlantic. The next step is meant to be the creation of a Free Trade Area of the Americas (FTAA) in January 2005. The negotiations intended to bring about this association are going well, though a number of issues are still unresolved. The problems encountered in trade disputes under NAFTA are being used as reference points to avoid pitfalls. Proposals are being made to remedy these problems, but it has yet to create harmony among the participants.

The deputy director of media relations for the Trade section of the Department of Foreign Affairs and International Trade, Andre Lemay, is sure that there is at least a good year of negotiations left before the 34 countries involved agree on an FTAA agreement, and one of the main debates is certain to be trade dispute settlement. "'We have 2003 and 2004 to discuss how various dispute settlement mechanisms under FTAA. could work," he notes. Many points are still under preliminary discussion.

According to the Minister of Foreign Affairs and International Trade, Pierre Pettigrew, it's clear that Chapter ii of NAFTA is not going to copied "as is" into the new FTAA agreement. He will not endorse "the inclusion, in the future FTAA treaty, of the litigious provisions of the current NAFTA treaty with respect to the protection of investments."

Chapter 11 of NAFTA tackles investor-to-state relations--when investors feel that their rights have been violated, they can challenge the law of a sovereign country. The state defends its country's enterprise before a NAFTA tribunal.

January 2003 was the 10th anniversary of NAFTA. Since 1998, Canada, the U.S. and Mexico have been trying to clarify certain NAFTA provisions to ensure Chapter 11 is used as the drafters of the agreement intended.

"We often see lawyers try to use the wording to make NAFTA say something other than what is written in the Agreement," says Lemay, citing the recent example of United Parcel Service (UPS), which sued the Canadian government to test its monopoly of the mail system in Canada, forcing Canada to defend itself in Washington. The tribunal decided in favour of Canada. This is just one example of how greater clarity needs to be brought to the agreement.

After a recent meeting of the Free Trade Commission of NAFTA, representatives of the member states published a joint statement describing the results obtained and mentioning their delight at its "resounding success." According to the Commission's statement, the Agreement has generated economic growth and helped raise the standard of living of residents of the three countries concerned. NAFTA has laid the foundations for growth and given free trade a boost. Since 1994, the value of trilateral trade, which has more than doubled, is now greater than $622 billion. Merchandise worth more than $1.7 billion crosses our borders every day. Investments in the three countries have also increased substantially. January 1, 2003 was the date on which nearly all duties collected by the three countries were eliminated.

The commission reasserted its support for greater deregulation of regional and multilateral trade and confirmed that there was cooperation among the leaders of the member countries.

The FTAA draft

The draft chapter on dispute settlement in the FTAA agreement will define interstate dispute settlement mechanisms. The current version of the chapter contains numerous proposals but most of it is just a rough sketch, given the divergent opinions of the participating countries.

The current version contains more than 45 sections, dealing most with dispute settlement issues. However, it doesn't contain provisions on the necessary tribunals that would oversee and administer the process.

The chapter will probably be similar to dispute settlement provisions in other international agreements, like thise of the WTO and NAFTA. The main body of the chapter is currently available on the FTAA website: http://www.alcaftaa.org/ftaadraft02/eng/drafts.asp.

The possibility of adding a provision to the FTAA agreement giving private enterprises the right to sue a state if they feel they have been harmed worries countries like Canada. The government has expressed its concern on several occasions about the recognition of this right in the controversial Chapter 11 of the NAFTA treaty. The dispute settlement chapter in the FTAA agreement covers only disputes between states and doesn't address those between investors and a state.

Pettigrew's concern appears to be that the Canadian government will be much more greatly affected than other nations. "Canada already offers adequate protection through its civil courts but it is a remedy that is unfortunately not reflected in most of the countries that have to sign the agreement," Lemay points out. If a small company, a mining company for example, wants to register as an investor in countries that don't offer the same type of compensation that Canada can offer, Canada will be at a disadvantage. Investors want to be protected in some way: what needs to be defined is the nature and scope of such protection.

Canada's position

An effective dispute settlement system is crucial for the success of the FTAA agreement. Canada's position is that the procedures in the Dispute Setdement Understanding (DSU) of the WTO and Chapter 20 of NAFTA are good models for the FTAA agreement. At the same time, dispute settlement experiences under the DSU and NAFTA have improved the two models, and Canada will try to integrate these improvements in the FTAA agreement.

The Canadian government thinks that dispute settlement should begin with consultations between the FTAA participants concerned. If it's not possible to reach a mutually satisfactory resolution through that, the parties to the dispute could agree to turn to good offices - conciliation or mediation. If they don't take this path or if, having chosen it, they don't succeed in settling their dispute, the complainant could seek a panel procedure, based on exchanges of written papers and hearings. This procedure would result in a decision made on the merits of the dispute by a neutral panel.

It's the Canadian government's official view that the implementation of decisions by panels and appellate bodies would be essential to create an effective dispute settlement mechanism. Since most participants in the FTAA negotiations are also members of the WTO and parties to various regional and bilateral free trade agreements, Canada attaches much importance to clear rules on the election of a forum for trade disputes that could be settled under more than one agreement. It also promotes transparency in the dispute settlement process, in accordance with its WTO position. For example, Canada is in favor of the publication of papers and open hearings.

In general, the government supports Recommendation 29, which states that Canada should, in principle, negotiate a dispute settlement procedure in the FTAA agreement that is based on the WTO model. In fact, this position is included in the guidelines given to all parties to the FTAA negotiations. Nevertheless, it will be important for Canada to consider certain lessons learned from the operation of the V/TO DSU and to follow up progress achieved in its review.

Canada's position will continue to evolve to reflect its experience as part of the WTO and NAFTA, as well as the progress of negotiations on institutional provisions and the basic rights and obligations of the FTAA agreement. To date, Canada hasn't submitted any proposal to the Negotiating Group on Dispute Settlement.

Transparency in dispute settlement is a critical issue for all involved. One of the proposed principles in this chapter is that the parties pay special attention to the particular concerns and interests of developing countries. These could include offering advice and legal assistance to developing countries or extending the period allowed for compliance with the dispute settlement mechanisms.

Most trade in North America occurs according to clear and well defined NAFTA and WTO rules. All the same, given the vast area involved, disputes are inevitable. When they arise, the states concerned must, under NAFTA, try to settle them through committees and task forces or other consultative mechanisms. If it's impossible to find a mutually acceptable solution, the Agreement provides recourse to a fast and efficient panel referral procedure.

Although the member countries of NAFTA say they are satisfied with the agreement, it's now several years old, and time has shown that its rules need some housecleaning while the FTAA negotiations are continuing and starting to take shape. The NAFTA experience thus serves as an example for the negotiations of the FTAA agreement that should emerge, in 2005, as a similar but improved form of the tripartite agreement.

Although trade dispute settlement is a substantial issue, it in itself is, of course, more complex than what we describe here. And there are many other issues as well. Some countries, like Mexico, want the agreement to include a social dimension in addition to its trade aspects, and this initiative must also be discussed in coming months. The new president of Brazil, Luiz Inacio Lula da Silva, asserts that he intends to continue the FTAA negotiations. However, this indispensable signatory of an eventual agreement has made it clear that his government will negotiate with "force and firmness," which may cause additional problems. The Argentine economy is still in crisis, and the highly volatile political situation in Venezuela could also change the situation at any time. Thus, though there are clear guides for the creation of the FTAA, and fine (though flawed) examples from the WTO and NAFTA that signatories can build from, there is still a way to go before such a trade arrangement can come properly into force.

For more information on ETAA disputes, visit http://www.alca-ftaa.org/ftaadraft02/eng/draft_e.asp.

Julie Demers ([e-mail]) is associate French editor of CMA Management magazine.