A Comparative Guide to the Chile-United States Free Trade Agreement and the
Chapter Twenty-two on dispute settlement of the Chile-U.S. FTA and Chapter Twenty on dispute settlement of DR-CAFTA are virtually the same in terms of basic structure. DR-CAFTA contains two additional section headings (A: Dispute Settlement and B: Domestic Proceedings and Private Commercial Dispute Settlement) and an additional Article on third party participation.
Both Chapters are also virtually the same in terms of substantive content, including the sequencing of the various dispute settlement stages and provision for default procedures to apply when the Parties cannot agree within specified deadlines. Most of the differences between the two Chapters are of form, taking into account that the Chile-U.S. FTA is an Agreement between two Parties, while DR-CAFTA is an Agreement among more than two Parties. In DR-CAFTA, there is provision for third party participation in the consultations between two Parties to the dispute and in panel proceedings, as well as for multiple complainants regarding the same measure. Additionally there are differences in the access by panels to outside expertise, the provision for sectoral/cross-sectoral retaliation under DR-CAFTA, and also under that Agreement, the establishment of an advisory committee on alternative dispute resolution in private commercial disputes.
Cooperation: both Chapters provide that the Parties shall cooperate to arrive at a mutually satisfactory resolution of disputes under the Agreement concerned (Chile-U.S. FTA Art. 22.1 and DR-CAFTA Art. 20.1).
Scope: the scope of the respective Chapters applies to settling or avoiding disputes regarding the interpretation or application of the respective Agreement, to claims of failure to carry out obligations under the Agreement as well as to certain non-violation nullification or impairment claims (Chile-U.S. FTA Art. 22.2 and DR-CAFTA Art. 20.2). The latter claims refer to benefits under the goods, technical barriers to trade, government procurement, services and intellectual property Chapters in the respective Agreement. However, a Party may not have recourse to dispute settlement in connection with benefits expected to accrue under the Chapters on cross-border trade in services and intellectual property Chapters, with respect to a measure covered under the Chapter on general exceptions of the respective Agreement.
Choice of Forum: a complaining Party may select the forum (the free trade Agreement concerned, another free trade Agreement to which the Parties are party, or the WTO, as appropriate) in which to settle a dispute, but once this Party requests a panel under one Agreement, the forum selected shall be used to the exclusion of the others (Chile-U.S. FTA Art. 22.3 and DR-CAFTA Art. 20.3).
Consultations and Conciliation by the Commission: Article 22.4 of the Chile-U.S. FTA and Article 20.4 of DR-CAFTA provide for consultations between the Parties regarding any actual or proposed measure or any other matter that might affect the operation of the Agreement. If these consultations fail to resolve the dispute within specified time periods (shorter in cases regarding perishable products), a Party may request that the Commission be convened to help conciliate or resolve the dispute. Unlike the Chile-U.S. FTA, DR-CAFTA defines “perishable goods” in footnote 1 to paragraph 4 of Article 20.4 as meaning perishable agricultural and fish goods classified in Chapters 1 through 24 of the Harmonized System.
Being a two-party Agreement, the Chile-U.S. FTA does not have provision for third party participation in consultations. Under paragraph 3 of Article 20.4 of DR-CAFTA, a Party that considers it has a substantial trade interest may participate upon written notice, explaining its interest in the matter, to the other Parties within seven days of delivery of the initial request for consultations. This Party thus automatically becomes one of the consulting Parties, and may request a meeting of the Commission if the matter is not resolved within specified time periods. Paragraph 5 of Article 20.5 provides that, unless it decides otherwise, the Commission shall consolidate two or more proceedings before it regarding the same measure and may do so regarding other matters as appropriate. Footnotes 3 and 4 to Article 20.5 specify that for the purposes of good offices, conciliation and mediation by the Commission, as well as consolidation of proceedings, the Commission shall be composed of the designated representatives of the consulting Parties. These provisions are absent from the Chile-U.S. FTA because the Commission under this FTA will necessarily be composed of representatives of the consulting Parties and not include non-consulting Parties.
Request for Arbitral Panel: both Chapters provide that if the dispute is still not resolved within specified time periods (shorter in cases regarding perishable products), the complaining Party may request an arbitral panel to examine and make findings on the matter (Chile-U.S. FTA Art. 22.6 and DR-CAFTA Art. 20.6). The panel is automatically established upon this request unless the disputing Parties otherwise agree. Standard terms of reference apply unless the disputing Parties otherwise agree within 20 days of the request.
Article 20.6 of DR-CAFTA also provides that any consulting Party that requested a Commission meeting may request in writing the establishment of an arbitral panel to consider the matter. In addition to indicating the measure or other matter concerned, this request shall include an identification of the legal basis for the complaint. Moreover, any consulting Party that it is eligible to request a panel and considers it has a substantial interest in the matter may join the panel as a complaining Party upon written notice within seven days of the request by another Party for the establishment of a panel. If a Party does not join as a complainant, it normally shall refrain from pursuing dispute settlement under the respective Agreement or WTO Agreement or another free trade to which that Party and the Party complained against are party, on substantially equivalent grounds regarding the same matter in the absence of a significant change in economic or commercial circumstances. Upon written notice, a Party that is not a disputing Party shall be entitled to attend all panel hearings, make written and oral submissions to the panel and receive written submissions of the disputing Parties. Third Party submissions shall be reflected in the panel’s final report.
Article 20.2 (b) of DR-CAFTA specifies that the scope of the dispute settlement Chapter applies to “an actual or proposed” measure that is or would be inconsistent with obligations of the Agreement or causes or would cause (non-violation) nullification or impairment. However, both the Chile-U.S. FTA (Art. 22.6.3) and DR-CAFTA (Art. 20.6.6) specify that an arbitral panel may not be established to review a proposed measure.
Roster and Panel Selection: under both Agreements, a three-member panel is to be normally selected by the disputing Parties from a roster established by the Parties by mutual Agreement, consisting of individuals with requisite expertise and objectivity, who shall comply with a code of conduct established by the respective Commission (Chile-U.S. FTA Arts. 22.7 - 22.9 and DR-CAFTA Art.20.7 -20.9). The number of individuals on the respective roster under the two Agreements differs: 20 under the Chile-U.S. FTA, of which six shall be non-Party nationals versus 70 individuals under DR-CAFTA, of which 14 shall not be nationals of the Parties, with provision for a replacement where a roster member is no longer available to serve. Both Chapters provide that roster members may be reappointed and that once established shall remain in effect for a minimum of three years and remain in effect thereafter until the Parties constitute a new roster. Paragraph 1 of Article 20.7 of DR-CAFTA specifies additionally that the Parties may appoint a replacement where a roster member is no longer available to serve.
The disputing Parties are to agree on the panel chair, but if they cannot agree within 15 days of the request for a panel, the chair is chosen by lot among roster members who are not nationals of the disputing Parties. Within 15 days of the selection of the chair, the complaining Party, or Parties in the case of DR-CAFTA, selects one panelist and the party complained against selects one panelist. In case either side fails to select within 15 days, a panelist of the nationality of such Party(ies) is selected from the roster by lot within three days. A disputing Party may exercise a peremptory challenge against any non-roster individual proposed.
Rules of Procedure: both Chapters provide for rules of procedure to be established by the Agreement’s entry into force, ensuring a right to at least one hearing before the panel, an opportunity for each disputing Party to provide initial and rebuttal submissions, and the protection of confidential information (Chile-U.S. FTA Art. 22.10 and DR-CAFTA Art. 20.10). Subject to the latter protection, the rules shall ensure that one hearing before the panel shall be open to the public, and that the written submissions and responses by the disputing Parties and written versions of their oral statements respectively are public. The rules shall also ensure consideration by the panel of requests from non-governmental entities in the disputing Parties’ territories to submit written views on the dispute.
Both Chapters provide for similar standard terms of reference for a panel to apply, unless the disputing Parties otherwise agree within 20 days of the delivery of the request for panel establishment. If a complaining Party wishes to argue that a matter constitutes non-violation nullification or impairment, the terms of reference shall so indicate. If a disputing Party wishes the panel to make findings as to the degree of adverse effects on a Party of the measure or matter found to be non-conforming with the respective Agreement or causing non-violation nullification or impairment, the terms of reference shall also so indicate.
Third Party Participation: DR-CAFTA being an Agreement with more than two Parties, Article 20.11 provides for third party participation on delivery of a written notice to the disputing Parties. A third Party shall be entitled to attend all hearings, make submissions and receive submissions of the disputing Parties, in accordance with the model rules of procedure. The submissions shall be reflected in the panel’s final report.
Experts: the panel’s access to experts differs under the two Chapters. Under paragraph 1 of Article 22.11 of the Chile-U.S. FTA, a panel may seek information and technical advice on its own initiative unless the Parties disapprove, whereas under Article 20.12 of DR-CAFTA, the panel may only do so if the disputing Parties so agree, and subject broadly to such terms and conditions as they may agree. Paragraph 1 of the Chile-U.S. FTA further specifies that information and technical advice may encompass environmental, labor, health, safety, or other technical matters raised by a Party in a proceeding. Paragraph 2 provides that before seeking information or technical advice, a panel shall establish procedures in consultation with the Parties and provide them with advance notice and opportunity to provide comments, such comments to be taken into account if the panel takes into account the information and technical advice in preparing its report. No corresponding provisions exist under DR-CAFTA, however as noted above, the panel may seek information and advice subject to Agreement by the disputing Parties and under such terms and conditions as they may agree.
Initial Report: both Chapters provide for the panel to present an initial report containing findings of fact, its determination on conformity or non-violation nullification or impairment, and its recommendations, to the disputing Parties for their written comments within specified time periods (Chile-U.S. FTA Art. 22.12 and DR-CAFTA Art. 20.13). The panel may reconsider its report and undertake further examination as appropriate, in the light of these comments.
Paragraph 4 of Article 20.13 of DR-CAFTA requires the Panel to inform the disputing Parties why it cannot provide its report within 120 days, and provides that in no case can the period exceed 180 days. This provision is absent from the Chile-U.S. FTA Chapter.
Final Report: both Chapters provide for the panel to present a final report to the disputing Parties within 30 days of presentation of the initial report, unless the disputing Parties otherwise agree (Chile-U.S. FTA Art.22.13 and DR-CAFTA Art.20.14). The Parties shall release the final report to the public within 15 days of receipt, subject to the protection of confidential information. No panel may disclose which panelists are associated with any majority or minority opinions.
Implementation of Final Report: both Chapters provide that on receiving the final report, the disputing Parties shall agree on resolving the dispute, including a mutually satisfactory action plan, normally in conformity with the panel’s recommendations (Chile-U.S. FTA Art.22.14 and DR-CAFTA Art.20.15). If the panel finds that a disputing Party has not abided by its obligations or its measure is causing (non-violation) nullification or impairment, the resolution whenever possible is to eliminate the non-conformity or nullification or impairment. Compensation, the payment of monetary assessment, and the suspension of benefits, discussed below, are intended as temporary measures pending elimination of any non-conformity or nullification or impairment found by the panel. Footnote 6 to paragraph 3 of Article 20.15 of DR-CAFTA specifies that the disputing Parties may undertake cooperation activities as part of an action plan.
Non-Implementation – Compensation: both Chapters provide that if the disputing Parties are unable to reach Agreement on a resolution within 45 days of receiving the final report, they shall negotiate mutually acceptable compensation (Chile-U.S. FTA Art.22.15.1 and DR-CAFTA Art.20.16.1).
Non-Implementation - Suspension of Benefits or Monetary Assessment: both Chapters provide that if the disputing Parties are unable to agree on compensation within 30 days, or if a complaining Party considers that the Party complained against has not observed their compensation Agreement or action plan, the complainant may give written notice that it intends to suspend benefits of equivalent effect to the other Party (Chile-U.S. FTA Art.22.15.2 and DR-CAFTA Art.20.16.2).
Paragraph 5 of Article 20.16 of DR-CAFTA provides that the complaining Party should first seek to suspend benefits in the same sector(s) affected by the measure the panel found to be inconsistent or causing non-violation nullification or impairment, but if the complaining Party considers that it is not practicable to suspend these benefits, it may suspend benefits in other sectors. No such specific provision for sectoral or cross-sectoral retaliation is found in the Chile-U.S. FTA.
Under the Chile-U.S. FTA and DR-CAFTA, the complaining Party may proceed to suspend benefits as proposed within 30 days of its notice, unless the Party complained against:
to the complaining Party (or to a fund directed by the Commission if it so decides, for trade facilitation initiatives) in U.S. dollars or in an equivalent amount of the currency of Chile (Chile-U.S. FTA Art.22.15.6) or the Party complained against (DR-CAFTA Art.20.16.7) in equal quarterly installments
Footnote 7 to paragraph 7 of Article 20.16 of DR-CAFTA specifies that for purposes of deciding that an assessment shall be paid into a fund established by, and expended at the direction of, the Commission for appropriate initiatives to facilitate trade between the disputing Parties, the Commission shall consist of the cabinet-level representatives of the disputing Parties, or their designees.
Non-Implementation in Labor or Environmental Disputes: both Chapters provide for a monetary assessment in the case of a Party’s non-conformity with its obligations to enforce its labor laws (Chile-U.S. FTA Art.18.2.1(a) or DR-CAFTA Art.16.2.1(a)) or its environmental laws (Chile-U.S. FTA Art.19.2.1(a) or DR-CAFTA Art.17.2.1(a)) in the respective Agreements. Monetary assessment in these cases operates somewhat differently than the monetary assessment scheme outlined above for the enforcement of commercial obligations. In labor or environmental disputes, if the disputing Parties are unable to reach Agreement on a resolution within 45 days of receiving the final report, or if the Party complained against fails to observe the terms of such a resolution, a complainant may request the panel to be reconvened to impose an annual monetary assessment. The panel shall determine the amount of the monetary assessment within 90 days, taking into account certain enumerated factors relating to the bilateral trade effects of, pervasiveness and duration of, and reasons for, the Party’s failure to effectively enforce the relevant law, the level of enforcement that could reasonably be expected, efforts made to begin remedying the non-enforcement, and any other relevant factors. Paragraph 2(c) of Article 20.17 of DR-CAFTA specifies additionally the failure by the Party complained against to observe the terms of an action plan as a factor to be taken into account by the panel determining the amount of monetary assessment in labor or environmental disputes.
The amount of the assessment shall not exceed 15 million U.S. dollars annually, adjusted for inflation. Upon determination by the panel of the monetary assessment, a complaining Party may provide written notice to the Party complained against, demanding payment. Assessments shall be paid into a fund directed by the Commission for labor or environmental initiatives. If the Party complained against fails to pay the monetary assessment, the complainant may take other appropriate steps to collect the assessment or secure compliance, including suspending tariff benefits under the respective free trade Agreement.
Thus the payment of a monetary assessment for not conforming to general trade obligations under the respective free trade Agreements, is at the election of the Party complained against, when facing a proposed suspension of benefits by the complainant. Whereas in the case of non-implementation or non-compliance in disputes relating to the enforcement of labor and environmental laws, the payment of a monetary assessment by the Party complained against may be sought by a complaining Party. The amount of the assessment may be fixed by the disputing Parties themselves in trade disputes, or by the reconvened panel. In labor or environmental disputes, the reconvened panel determines the amount, based on specific criteria provided in the Agreement. The amount of the assessment in labor or environmental cases is capped in absolute dollar terms annually under the Agreement, unlike in trade cases where it is 50% of the level of equivalent effect to the nullification or impairment for any year. The assessment in trade cases may be paid to the complainant directly or into a fund directed by the Commission, whereas for labor or environmental cases, it is provided that the assessment is to be paid into a fund directed by the Commission.
Both Chapters provide for the Party complained against to refer to a compliance panel whether that party has eliminated the non-conformity or nullification or impairment originally found, and if the panel so determines, the suspension or payment of assessment must cease. There is also provision for reviewing the suspension or monetary assessment provisions five years after the respective free trade Agreement enters into force or within six months after suspension or imposition of monetary assessments, whichever earlier.
Referral of Matters from Domestic Judicial or Administrative Proceedings: both Chapters provide for a Party to refer any issue of interpretation or application of the respective Agreement that arises in any domestic judicial or administrative proceeding of a Party, to the Commission for response (Chile-U.S. FTA Art.22.19 and DR-CAFTA Art.20.20).
Private Rights: both Chapters bar private rights of action under the domestic law of a Party to pursue another Party for a measure deemed inconsistent with the respective Agreement (Chile-U.S. FTA Art.22.20 and DR-CAFTA Art.20.21).
Private Alternative Dispute Resolution: both Chapters encourage alternative dispute resolution for the settlement of international commercial disputes between private Parties in the respective free trade area, including ensuring the observance of Agreements to arbitrate and the recognition and enforcement of arbitral awards (Chile-U.S. FTA Art.22.21 and DR-CAFTA Art.20.22). Unlike the Chile-U.S. FTA, DR-CAFTA provides in its Article 20.22 that the Commission may establish an Advisory Committee on Private Commercial Disputes comprised of experts in resolving such private, international disputes, to provide recommendations on arbitration and other alternative dispute resolution procedures and to promote technical cooperation projects between the Parties.