Continental Free Trade Area: Dispute Settlement Mechanism

Continental Free Trade Area: Dispute Settlement Mechanism

Africa’s choices for the dispute settlement mechanism of the Continental Free Trade Area Authors: Victor Crochet, Frantz Jacques, Caroline Oduor, and Annet Mbabazi


Introduction

The guide provides negotiators, member states, the African Union and other stakeholders a practical tool for the negotiation and drafting process of the dispute settlement mechanism (DSM) of the Continental Free Trade Area (CFTA). The document is structured in 6 sections.  Section one provides a brief introduction of the CFTA.  Section two discusses the critical role the DSM plays in a trade agreement. Section three provides an overview of the major components of a DSM.  Section four analyzes the recurring issues and successes in African DSM.  Section five provides a deep dive into integral provisions of a DSM and provides recommendations to the negotiating parties for various key provisions. Section 6 coalesces the different sections of the report and provides a guideline for the DSM of the CFTA. Lastly, the annex provides model language for the key provisions of the DSM for the CFTA.

Download Memorandum


Importance of dispute settlement mechanism

Regional Trade Agreements (RTA) create trade forums for closer and deeper integration among member states. The economic benefits linked to RTAs will only arise if the RTAs are faithfully implemented. In order to ensure optimal implementation, it is important that the RTA includes institutions to facilitate exchange of information, help the parties monitor implementation and gives incentives to comply.[1]

As disputes will arise regarding the scope, nature and interpretation of the agreement, a DSM is necessary. This mechanism will avoid that relations between member states become poisoned by unresolved disputes which in turn leads to a reduction of the RTA’s benefits. Moreover, most of the benefit of deep integration such as the CFTA comes from non-tariff obligations which need to be backed up by clarification and enforcement to produce gains. RTAs therefore typically include some mechanism incorporating elements of both compliance enforcement and dispute settlement.[2]

 

[1] Amelia Porges, Dispute Settlement, Preferential Trade Agreement Policies for Development: A Handbook Part 2. pp. 467–497 (2011), available at https://www.wto.org/english/res_e/reser_e/ersd201203_e.pdf

[2]Amelia Porges, Dispute Settlement, Preferential Trade Agreement Policies for Development: A Handbook Part 2. pp. 467–497 (2011), available at https://www.wto.org/english/res_e/reser_e/ersd201203_e.pdf


Dispute Settlement Mechanism - Key elements

The following chart gives a clear illustration of the key elements of a DSM

DSM


Recurring issues and successes in African dispute settlement mechanisms

There are many RTAs in Africa. Although the RTAs in Africa have displayed some indicators that bode well for the CFTA, the RTAs in Africa have also displayed several characteristics that might make deep integration difficult to take root in Africa.  These recurring issues include:

  • Judicial activism & judicial independence
  • Multiple membership and overlap of jurisdiction
  • Limited human and financial capacity of member states
  • Limited infrastructure and support for dispute settlement
  • Low publicity
  • Lack of usage due to informal trade and process

Dispute settlement process analysis and recommendations

This section provides an in depth analysis of each step of a DSM and makes recommendations for the key provision of the DSM analyzing in turn:

  • Type of dispute settlement mechanism
  • Standing
  • Scope of application
  • Overlap between the CFTA and other trade regimes
  • Adoption of decision
  • Enforcement
  • Involvement of non-state actors

Conclusions

Taking into consideration all the issues discussed in the memorandum, in the context of the unique challenges faced by African RECs and the adopted objectives and guiding principles for negotiating the CFTA, the following quasi-judicial model of dispute settlement is recommended.

Our final recommendation for the CFTA DSM is a quasi-judicial mechanism with a limited pool of panelists nominated by the African Union Commission based on recommendation by member states. Panel decisions can be appealed on limited grounds to the African Union Court of Justice. Decisions of panels and of the African Union Court of Justice only become binding after approval by the member states. In overlapping matters, the CFTA DSM will prevail over other trade regimes and in order to avoid disparate case law, the CFTA DSM can hear preliminary rulings from lower regional trade courts. The remedies offered under the CFTA DSM are compliance and damages. Compliance should be induced by retaliation and monetary assessment.

A flow chart representation of the model is as shown below;