Dispute Settlement Mechanisms in
Regional and Multilateral Fora:
A Discussion in the Light of the Dispute Settlement Mechanism of the EU – Egypt Association Agreement
Jan Bohanes[1]
I. The Dispute Settlement Mechanism (DSM) of Article 82 of the EU – Egypt Association Agreement
A. Introduction to the Association Agreement
1. The EU – Egypt Association Agreement[2] was negotiated and signed in June 2001 and entered into force in June 2004, replacing a 1977 Cooperation Agreement between the two Parties.
2. The Association Agreement is part of a network of bilateral agreements concluded by the EU under the auspices of the so-called Barcelona Process and the EuroMed partnership, launched in 1995. That Partnership aims, inter alia, at regional economic integration in the Mediterranean region through the liberalisation and facilitation of trade. One of the main objectives of the Barcelona Process is to establish a Euro-Mediterranean Free Trade Area by 2010. This is to be achieved by both Association Agreements between the EU and the 10 Mediterranean partners, as well as by trade agreements between the Mediterranean partners themselves.
3. The EU – Egypt Association Agreement covers the following areas:
· Political dialogue (Title I)
· Free movement of goods, including industrial products, agricultural products and fisheries (Title II)
· Right of establishment and supply of services (Title III)
· Capital movements and other economic matters, including, payments and capital movements, competition and other economic matters (Title IV)
· Economic cooperation (Title V)
· Dialogue and cooperation on social matters; illegal immigration and other consular issues; and cultural matters, audio-visual media and information (Title VI)
· Financial cooperation (Title VII)
· Institutional, general and final provisions (Title VIII)
4. Title VIII includes a provision on a dispute settlement mechanism, which shall be the focus of the following sections.
B. Description of the Dispute Settlement Mechanism
5. The Dispute Settlement Mechanism (DSM) is set out in Article 82 of the Association Agreement. The DSM covers “any disputes relating to the application or interpretation” of the Association Agreement, thus, in principle, to any matters listed in above paragraph 3.
6. The text of the DSM is fairly short. Article 82 provides:
1. Each of the Parties may refer to the Association Council any dispute relating to the application or interpretation of this Agreement.
2. The Association Council may settle the dispute by means of a decision.
3. Each Party shall be bound to take the measures involved in carrying out the decision referred to in paragraph 2.
4. In the event of it not being possible to settle the dispute in accordance with paragraph 2, either Party may notify the other of the appointment of an arbitrator; the other Party must then appoint a second arbitrator within two months. For the application of this procedure, the Community and the Member States shall be deemed to be one party to the dispute.
The Association Council shall appoint a third arbitrator.
The arbitrators’ decisions shall be taken by majority vote.
Each party to the dispute must take the steps required to implement the decision of the arbitrators.[3]
7. The DSM is identical to the dispute settlement provisions of a number of other EUROMED Associations Agreements.[4]
8. The DSM is a very rudimentary dispute settlement tool and corresponds to a “diplomatic” non-judicialized model of dispute settlement.[5] The DSM provisions create a set of vague procedural rules that fail to guarantee an automatic and rigorous judicial procedure, for the following reasons:
· The entire dispute is initially chanelled through the Association Council. The Association Council is a political body that meets only once a year at the ministerial level[6] and takes its decisions by consensus[7]. This institutional design is therefore not well-suited for the effective settlement of disputes.
· Once a dispute has been referred to the Association Council, no time limits apply for the Association Council to resolve the dispute by means of a decision under Article 82. Thus, a dispute can remain on the agenda of the Association Council potentially indefinitely.
· The litigation stage commences only when “it [is not] possible to settle the dispute” by means of an Association Council decision.[8] It is not clear whether the determination that a dispute cannot be settled amicably, should be taken by the Association Council itself or the complaining party.
· The arbitration procedure can be blocked and delayed indefinitely by the defending party. This is because the defending party can either refuse to appoint “its” arbitrator or by blocking an Association Council decision on the third arbitrator.
· No precise procedural provisions are set out. Presumably, these procedures must be determined by the arbitrators on an ad hoc basis.[9]
· Completion of the arbitration is not subject to any time limits.[10]
· There are no procedures for compliance with the ruling of the arbitral panel.
· The Association Agreement entitles a party to take “appropriate measures”, if that party is of the view that the other party has failed to fulfill an obligation.[11] These unilateral safeguard measures are designed to compensate for the lack of a binding and effective dispute settlement procedure. [12] However, clearly, resort to such unilateral measures carries a high political cost.
C. The DSM in the context of dispute settlement provisions in other EU Preferential Trade Agreements (PTAs)
9. From the above analysis, it is rather obvious that the Association Agreement DSM falls far short of the detailed procedural and organizational provisions of the Dispute Settlement Understanding (DSU) of the WTO, which are widely regarded as a successful model for binding and judicialized dispute settlement in the trade/economic arena. The weak nature of the DSM moreover contrasts with a number of more judicialized dispute settlement provisions in existing preferential trade agreements (PTAs), including those concluded more recently by the EU.
10. The following is an attempt to place the DSM in context in the global geography of PTA dispute settlement mechanisms, in particular those concluded by the EU.
11. The DSM is characteristic of the “diplomatic approach” to dispute settlement in the EU’s PTAs that was predominant until 2000. This non-judicialized dispute settlement model was first used in the 1963 Association Agreement between the then EEC and Turkey, and was subsequently also incorporated in the so-called Europe Agreements with states in Central and Eastern Europe, the Stabilization and Association Agreements with Western Balkan countries, as well as in the EUROMED Association Agreements with Mediterranean countries, including Egypt. The 1992 European Economic Area (EEA) Agreement also contains elements of a non-judicialized dispute settlement model.[13]
12. In 1999, the EU concluded the so-called trade, development and cooperation agreement with South Africa. That Agreement addressed some of the inadequacies of the previous dispute settlement mechanisms. The establishment of the three-Member arbitration panel is still subject to consensus within the “Cooperation Council”; however, for trade disputes, time limits are established, working procedures were formulated, and a reasonable period of time is required to comply.[14]
13. In 2000, the EU signed the “Global Agreement” with Mexico, widely regarded as the turning point in the EU’s approach to dispute settlement in its bilateral agreements.[15] The Global Agreement contains a judicialized dispute settlement mechanism, with a full-fledged arbitration procedure including a consultation stage[16], a panel litigation stage[17], a “reasonable period of time” for the losing party to comply[18] and retaliation in the event of non-compliance[19]. The mechanism also contains a forum selection clause, as well as separate model Rules of Procedure and a Code of Conduct for arbitrators. Time limits are shorter than under the DSU; for instance, a panel shall be constituted within 45 (rather than 60) days of the request for the establishment,[20] and the final panel report must be issued within a period of six months[21].
14. The 2001 EU – Chile PTA adopted the same adjudicative and legalized approach to dispute settlement as the EU – Mexico Global Agreement. The basic structure of the dispute settlement process is similar to that of the EU – Mexico Global Agreement. In addition, the EU – Chile mechanism provides for open hearings in case of agreement between the parties[22], amicus curiae submissions[23], for even shorter deadlines[24] as well as for temporary compensation applicable during the compliance period.[25] The forum selection clauses differ from those of the EU – Mexico Global Agreement.
15. The DSM of the EU – Egypt Association Agreement thus belongs to the old generation of the EU’s PTAs. The Association Agreement was signed in 2001, after the EU – Mexico PTA and approximately at the same time as EU – Chile Agreement, and thus could have already incorporated the EU’s new judicialized approach to dispute settlement. Thus, for a some time, the traditional diplomatic continued to exist alongside the adjudicative approach. This temporary parallelism of two very different approaches was probably due to a certain inertia in bureaucratic decision making processes. Moreover, some of the EUROMED Association Agreements containing an identical dispute settlement mechanism had been signed prior to the EU – Egypt Association Agreement, and the EU preferred to adopt a uniform approach for all agreements applying to the EUROMED region.
16. According to a Ministerial Declaration adopted in March 2006 in Marrakesh, the DSM is to be re-negotiated on the basis of the WTO DSU.[26] This objective is also set out in the Action Plan under the Association Agreement, adopted earlier this year.[27] This suggests that the shift from diplomatic dispute settlement to a more judicialized approach is a real trend that the EU not intends to now apply to its PTA partners on a systemic basis.
D. Choosing Between the Current DSM and the WTO for Enforcing Rights
17. A topic that has attracted much academic attention, and has also arisen to a degree in WTO dispute settlement, is the relationship between dispute settlement mechanisms in PTAs and the WTO dispute settlement forum. Where rights and obligations under the WTO Agreement and the PTA are similar or equivalent in substance, the complainant can maximize its chances of success by bringing the dispute in the more advantageous forum – that is, either under the dispute settlement provisions of the PTA or, alternatively, under the WTO.
18. This seems to be case also for the EU – Egypt Association Agreement. A number of the provisions of the Association Agreement are equivalent in substance to certain provisions of the WTO Agreement. For instance, Title II – Free Movement of Goods – eliminates quantitative restrictions and of any other restriction having equivalent effect.[28] This provision corresponds to Article XI of the GATT 1994.[29] Similarly, Article 20(1) of the Association Agreement contains a national treatment clause, by prohibiting “discrimination” between products of the two Parties by means of “any measure or practice of an internal fiscal nature”. This provision of course corresponds to Article III:2 and III:4 of the GATT 1994. Furthermore, Articles 22 through 24 confirm the right to impose trade remedy measures in accordance with applicable WTO law. Similarly, Article 29 “reaffirm[s]” the Parties’ respective GATS commitments.
19. Where a dispute arises pertaining to those subject matters, that dispute could be brought both under the DSM of the Association Agreement as well as under the WTO DSU. Needless to say, a WTO claim would have to be based on a WTO provision, whereas a DSM dispute would have to be based on a provision of the Association Agreement. Nevertheless, given the substantive equivalence of the provisions the complainant would, at least in some instances, effectively have the choice between two distinct fora, the DSM of the Association Agreement and the WTO.[30] It is only where the Association Agreement goes beyond current WTO law—for instance, preferential tariff treatment—that only the DSM of the Association Agreement could be used to enforce that right.
20. Assuming that both fora have jurisdiction and thus are indeed available to the complainant, which one would the EU or Egypt choose to bring its dispute? This decision is sometimes referred to as “decision shopping”, which can be defined as the attempt of a complaining party to have a claim tried in a particular court where it expects to obtain a more favorable result than it would obtain in another court that also has jurisdiction over the claim at issue.
21. The decision of the complaining party whether to initiate the dispute in the EU – Egypt DSM or in the WTO will depend on a range of factors. The following factors may play a role in this decision, but their relative significance will vary for each individual dispute:
(v) Automaticity of the Process
22. Automaticity of a dispute settlement process, in the international trade arena, is understood as short-hand for specified time periods for the various phases of a dispute, as well as the ability for the complainant to push the matter forward even without agreement of the defending party.[31]
23. The DSM of the Association Agreement does not provide a complainant with an automatic right to an arbitral panel. Rather, the dispute must first be referred to the Association Council, on whose agenda it can subsequently remain for an indefinite period of time. The Association Council can settle the dispute by consensus, or the complaining party makes a unilateral declaration that it has not been possible to settle the dispute by negotiation. Moreover, the defending party can block either the appointment of “its” arbitrator or, by blocking a decision of the Association Council, the appointment of the third arbitrator.
24. This is in contrast to the process under the WTO DSU, which gives a complaining party an automatic right to have a panel established 60 days after the request for consultations[32] and where the WTO Director-General can intervene when parties are unable agree on the appointment of panelists. [33]
25. The WTO DSU thus commands a distinct advantage over the DSM for a complainant wishing to achieve an effective resolution of a dispute. Under both mechanisms, the complainant can explore consensus-based solutions through consultations, but only the WTO DSU offers the automatic right to resort to a binding adjudicative process that cannot be blocked by the defendant.