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North American Free Trade Area dispute settlement procedures [2004] PICTRes 5 (26 February 2004)

North American Free Trade Area dispute settlement procedures

The North American Free Trade Area, comprising Canada, Mexico and the United States, was established in 1992 by the North American Free Trade Agreement (NAFTA). Like several other regional economic integration agreements, such as the European Communities, the EFTA, the Andean Community or the Mercosur, the objective of NAFTA is to remove trade barriers, create a common market, and promote economic cooperation between participating states. However, unlike most similar agreements, NAFTA falls significantly short of creating an integrated legal system, much less a structured dispute settlement system.

While the EC, EFTA, Andean Community and COMESA, to cite a few, are endowed with permanent international courts to settle disputes between member states, individuals and the organization's institutions on the implementation of the basic agreements and legislation deriving therefrom, dispute settlement under NAFTA is less institutionalized and much more fragmented, relying mostly on ad hoc arbitration.

The NAFTA Secretariat, comprised of the Canadian, U.S. and Mexican Sections, is responsible for the administration of the dispute settlement provisions of the Agreement. The mandate of the NAFTA Secretariat also includes the provision of assistance to the Commission and support for various non-dispute related committees and working groups. More specifically, the NAFTA Secretariat administers the NAFTA dispute resolution processes under Chapters 14, 19 and 20 of the NAFTA and has certain responsibilities related to Chapter 11 dispute settlement provisions. Each national Section maintains a court-like registry relating to panel, committee and tribunal proceedings. The national Sections, which are mirror-images  of each other, are located in Ottawa, Washington and Mexico City and are headed by the Canadian, United States and Mexican Secretaries.

Under the NAFTA, there are four main dispute resolution processes, named after corresponding chapters of the agreement: Chapter 11, 14, 19 and 20.

Chapter 20 (general dispute settlement procedure)

Chapter 20 applies to all disputes regarding the interpretation or application of the NAFTA, except for matters covered in Chapter 11 (Investment), Chapter 14 (Financial Services) and Chapter 19 (Antidumping and Countervailing Duty final determinations).
When general disputes concerning the NAFTA are not resolved through consultation within a specified period of time, the matter may be referred at the request of either Party first to the good offices of the Free Trade Commission, and, if agreement is not reached within a fixed period of time, to ad hoc arbitration. A panel comprises five independent experts (each party to select two and the chairperson by common agreement). The panels' procedure follows closely that of WTO panels, and the awards are binding.

Chapter 20 also provides for scientific review boards which may be selected by a panel, in consultation with the disputing Party, to provide a written report on any factual issue concerning environmental, health, safety or other scientific matters to assist panels in rendering their decisions. Moreover, a third Party that believes it has a substantial interest in a disputed matter, is entitled to join consultations or a proceeding as a complaining Party on written notice. If a third Party does not join as a complainant, upon written notice, it is entitled to attend hearings, make written and oral submissions and receive written submissions of the disputing Parties.

Chapter 19 (Anti-dumping and countervailing duties)

Chapter 19 provides for a system of bi-national panel review of decisions by a Party authority on anti-dumping and countervailing duty matters. Article 1903, provides that a Party may request that amendments to the other Party's anti-dumping or countervailing duties statutes be referred to a bi-national panel for a declaratory opinion on whether the amendment is consistent with the GATT and the NAFTA. Bi-national panels comprise five independent experts.

Panel Rules are designed to result in final panel decisions within 315 days of the date on which a request for a panel is made. Within the 315-day period, strict deadlines have been established relating to the selection of panel members, the filing of briefs and reply briefs and the setting of the date for Oral Argument.

In the event of failure to comply with decisions of a bi-national panel on statutory amendments, the complaining state is free to adopt comparable legislation or equivalent executive action to the violating amendments, or even withdraw from NAFTA.

Article 1904 also provides for a sort of appeal process ( extraordinary challenge procedure ). In certain cases, a panel's decision can be appealed to a three-member committee of judges or former judges. Moreover, article 1905, provides a mechanism for safeguarding the panel system. Under this article, a three-member special committee may be established to review allegations of one Party that the application of another Party's domestic law has interfered with the proper functioning of the panel system.

Chapter 14 (financial services)

Chapter 14 providing that Section B of Chapter 20 shall apply, with modifications, to the settlement of disputes on financial services. A roster of experts in financial services law or practice provides arbitrators to settle this particular kind of dispute.

To date, Chapter Fourteen procedures have not been resorted to.

Chapter 11 (Investment Disputes)

Chapter 11 provides for a mechanism for the settlement of investment disputes between one of the States party to NAFTA and investors nationals of one of the parties. In other words, while Chapters 20, 19 and 14 deal with inter-state disputes, those under Chapter 11 are disputes between a private party and a party to the NAFTA.

Investors who allege that a host government has breached its obligations under Chapter 11 may, at its option, have recourse to one of the following arbitral mechanisms:
" the World Bank's International Center for the Settlement of Investment Disputes (ICSID);
" ICSID's Additional Facility Rules;
" the rules of the United Nations Commission for International Trade law (UNCITRAL rules).

Alternatively, the investor may choose the remedies available in the host country's domestic courts.

PICT Data obtained from the Project on International Courts and Tribunals (PICT)

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