The Divide Between the U.S. and Others on Trade Dispute Settlement

In a recent piece on USMCA dispute settlement, former U.S. Ambassador to the WTO Maria Pagan talks about a "divide between the United States and many others over state-to-state dispute settlement mechanisms," as follows:

On the one hand, you have those who view state-to-state mechanism more like an international court. Panel reports must be “binding” and the mechanism needs to be clear that the losing responding party “must” comply with the findings of a panel. This approach, it is argued, provides the predictability and certainty that makes these mechanisms worthwhile.

However, the United States approaches dispute settlement very differently. The longstanding view of the United States is that, as a sovereign, you retain the right to decide what to do in the case of a loss. From the U.S. perspective, rather than focusing on whether the system is “predictable,” it is more important that the system be structured in such a way as to deliver an outcome that is credible and trustworthy. This is important because, when faced with the possibility of having to remove or modify a law, regulation, or policy to comply with a panel finding, a government must go through complex domestic legal and political dynamics. Reality dictates that parties will comply where compliance is politically achievable, not because the agreement says results are binding. The results of a credible dispute settlement process are a more powerful incentive to eventual compliance than just because a dispute settlement chapter text says that you must comply. In addition, from the U.S. perspective, a DSM should assist the parties in resolving the issue but not dictate a particular outcome.

(footnote omitted)

When people describe international law or international judicial rulings as "binding," as the international law folks I know generally do, I'm not always sure what they have in mind. There may be a variety of views here, which can make this kind of discussion difficult to sort out. Regardless, I think this may be an area where semantics is making any divide that exists seem bigger than it is. In practice, we all know that even if an international agreement or ruling is characterized as "binding," governments do not always comply. I don't see much of a divide between the U.S. government and other governments on this point.

To me, the practical issue that should be the focus of this debate is the degree of enforceability of the international agreement and the ruling. How strong are the sanctions for non-compliance? What are the expectations for what responses to rulings should look like? Reaching agreement on these issues can be a challenge, although in the Uruguay Round governments were able to do so. On whether a respondent government must comply with the findings of a panel or Appellate Body report when it loses, DSU Article 3.7 provides:

... The aim of the dispute settlement mechanism is to secure a positive solution to a dispute. A solution mutually acceptable to the parties to a dispute and consistent with the covered agreements is clearly to be preferred. In the absence of a mutually agreed solution, the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements. The provision of compensation should be resorted to only if the immediate withdrawal of the measure is impracticable and as a temporary measure pending the withdrawal of the measure which is inconsistent with a covered agreement. The last resort which this Understanding provides to the Member invoking the dispute settlement procedures is the possibility of suspending the application of concessions or other obligations under the covered agreements on a discriminatory basis vis-à-vis the other Member, subject to authorization by the DSB of such measures.

Does the DSU consider panel or Appellate Body reports to be "binding," such that "the losing responding party 'must' comply with the findings of a panel"? It doesn't use the term "binding," and based on the language in Article 3.7 and the experience with disputes under the DSU, there seems to be a good amount of flexibility involved here in terms of compliance.

Getting back to Pagan, she says "[t]he longstanding view of the United States is that, as a sovereign, you retain the right to decide what to do in the case of a loss"; that "[r]eality dictates that parties will comply where compliance is politically achievable, not because the agreement says results are binding"; and "a DSM should assist the parties in resolving the issue but not dictate a particular outcome." I think DSU Article 3.7 reflects all of this. And I would say that by their behavior, all governments agree with this, broadly speaking.

Having said all that, there clearly is a divide between the U.S. and others at the moment (there may be divides within the U.S. government too, although I have no direct knowledge of this). For example, if I understand things correctly, the U.S. objects to any appellate review in dispute settlement; it would like to see panels rely less on past case law; and it wants panels to do less "gap-filling" where legal texts are ambiguous. To me, these are areas in which compromise will be a challenge but is nonetheless possible, regardless of whether panel reports are characterized as "binding."